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Buzz Bits: Dow, Nasdaq Recover for Big Gains

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Earnings Report - MV News

  • Hewlett-Packard (HPQ) reports 1Q EPS of $0.65 vs. $0.62 cons on revs of $25.1 bln vs. $24.30 bln cons.
  • Crocs (CROX) reports 4Q EPS of $0.51 vs. $0.43 cons on revs of $112.9 mln vs. $96.47 mln cons.
  • Medtronic (MDT) reports 3Q EPS of $0.61 vs. $0.58 cons on revs of $3.05 bln vs. $3.07 bln cons.



Bell Buzz - Todd Harrison - 3:53 PM

Snoop Tony Dwyer, Jeff Saut
and Television's Jeff Macke® back-to-back-to-back on CNBC? Man, that sorta sounds like a Minyans in the Mountains redeux!

  • Soup to nuts from nuts to guts, today's action must be considered "basing" on the heels of the recent acne. We're certainly due for a WWE style smack down (see Pep's point & figure below) but hands over eyes, the tenor remains Pavarotti.

  • I often opine that loosening our grip on the handlebars will make for a much smoother ride. I remind myself of that mantra on days like this as I allow prices to work to my advantage.

  • And the one's that get away? Let them go. Opportunities are made up much easier than losses.

  • The great debate in derivative land is whether volatility levels are "artificially weak." Regardless, I still wanna be long gamma (volatility) and believe that "stock replacements" and "married puts" warrant a long, hard gaze.

  • Fare ye well into the bell and have a fantastic Tuesday night. It is, after all, the last February 20, 2007 that we'll ever have the good fortune of living. Make it count!


R.P.



Wal-Mart: Reiterating my "Yawn" rating... - Jeff Macke - 1:45 PM

Since everyone seems to like Wal-Mart's (WMT) quarter, based on the 3% stock move, and since I remain sort of the Go-To guy for Wal-Mart bashing, despite being more bored by the company than mad at it at this point, I'll go ahead and provide some flies for the happy-ointment:

  • Same Store Sales results for the year just ended were the worst in the 27 years WMT has been tracking such things, concluding with inflation-lagging results in both December and January. This isn't a case where the performance seems to have bottomed.
  • While the Street is applauding the certitude of WMT getting "back to what it knows," this puts Wal-Mart back on the path of trying to improve EPS by cutting costs... more or less the same strategy that's caused the stock to idle for 7-odd years.
  • "Local merchandising" (Read: "stop sending snow shovels to stores in Dade County") is retail 101; not a growth strategy.


I have no real interest in Wal-Mart, long or short. The stock has been dead money for ages and could, conceivably, move higher than people think on the perception that it's getting its act together. I still like the Retail Hldrs Trust (RTH) because I don't think WMT is going to hurt the retail ETF. That said, if I'm playing individual retailers I think there are a lot of better places to put your money, including Wal-Mart nemesis Target (TGT).



Don't look now but here comes negative seasonality for bonds... - Bennet Sedacca - 8:57 AM

Thanks to my friends at Ned Davis Research for the following data on seasonality of Government Bond prices by month:

Month Mean Median
Feb. -0.24% -0.00%
March -0.64% -0.16%
April -0.28% -0.28%
May -0.29% -0.37%
June +0.73% +0.79%

I continue to look for a sloppy market, now that the oversold rally is most likely over and a better second half of the year. So long as 10's don't take out the important 5.25%-5.30% area.

An easy Fed and lower rates should be expected late in 2007...

Position in Government Bonds



Of "guessing" and "educated guessing"... - Fil Zucchi - 8:26 AM

I "guess" in many ways the business of Wall Street boils down to that. When rumors swarmed about merger talks between XM Satellite Radio (XMSR) and Sirius (SIRI), neither openly denied the chatter; at the same time the Commissioner of the FCC went so far as to gratuitously comment on those "rumors." Put the two together and that's as close as you are going to get to a press release confirming that the two companies were courting each other. And betting on those coincidences may be the definition of an "educated guess."

Now that the engagement is publicly announced the question is how to navigate to the wedding day. FCC's Martin has already chimed in that the regulatory hurdles of having a single satellite radio company are pretty high. Fair enough. But I repeat myself, does anyone doubt that Karmazin already has a pretty good idea on how to get around that?

Being long a fair chunk of both companies, and expecting that both stocks will be up nicely tomorrow morning, my keppe is busy with the following:

  • At what prices will the stock discount an actual closing of the deal and a successful integration of the two companies?

  • How much do I let ride on the risk that the government screws this one up? As a corollary, what happens if the government does screw it up?


The answer to the first question will have to wait until Karmazin tells us where and how much fat the two companies will be able to cut. Back of the envelope, considering that the two companies spent a combined $1.8 bln in SG&A alone over the last 12 months, the cost cutting possibilities are pretty large, and those are all dollars flowing down to the bottom line. $500M of FCF in 2008 seems doable which would equal a P/FCF of 16x at pre-merger prices. If combined revenues increase 20% per year, and given the profit leverage in the models, 20x FCF would seem pretty reasonable in this day and age.

Given what I know right now, I'd be inclined to sell at least 50% of what I own at XMSR above $19 and SIRI above $5.50 and let the rest ride. Should the Feds mess things up, both companies would likely face some dicey times and the stocks would probably sink back at least to the recent lows and stay there for quite a while. But don't count on Karmazin letting that happen.

Positions in XMSR, SIRI

No positions in stocks mentioned.

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