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VIDEOWall Street Imagines a World Without Borders
By
Justin Sharon
Sep 01, 2010 4:20 pm
Borders Group, unable to stay hip in its evolving market, tumbled 6.8% in comparable same-store sales.
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It must only be a matter of time before an analyst upgrades Burger King Holdings (BKC) to Overweight, for Wall Street wouldn’t be telling a Whopper to describe these as salad days for their shares. America’s second-biggest fast-food chain is currently up over 14% on news it's in advanced negotiations to sell itself to investment firm 3G Capital. Janney Montgomery Scott researcher Mark Kalinowski wrote in a note that the company “may actually be better off as a privately held entity at this point in its history.” That checkered history includes a prior instance of it being taken private eight years ago, and although Robert Baird analyst David Tarantino doesn't regard a similar scenario as being a “foregone conclusion,” it would make some strategic sense. Private equity has been busy flexing its financial muscle of late, and the King could certainly use a white knight after issuing downbeat guidance only last week. Commodity cost pressures continue to eat into profits and its stock has recently underperformed arch rival McDonald’s (MCD) by a wide margin. (For related content, see Why Are Burger King, McDonald’s Chasing a Failed Breakfast Strategy?) Burger King recently committed to raising its franchise mix by approximately 6%, to 95%, which was seen as a red flag by many in the market. It's now endured five successive quarters of global same-store sales declines, so something drastic does need to be done. Shareholders are certainly sitting pretty this afternoon and if corporate restructurings are often painful for employees, at least Burger King customers, accustomed as they are to unwittingly ingesting Vicodin and its ilk with their fries, shouldn’t notice much difference.
The latest biography of Jack Daniel goes by the name of Blood and Whiskey, and sure enough shares in parent Brown Forman Inc (BF-B) are bleeding some serious red ink on an otherwise stellar day in equities. The maker of Southern Comfort and Finlandia, among many other brands, is driving investors to drink after reporting first-quarter profit fell 8% to $0.76 per share, down from $0.81 a year ago and considerably below consensus analyst estimates of $0.83. US sales of its relatively pricey products were weak in a still iffy economy and international sales weren't entirely able to make up the shortfall. Though the Kentucky company reaffirmed its full-year EPS forecast range of $2.98 to $3.38 per share, comments from Vice President Don Berg on a conference call with analysts that “much uncertainty remains” does little to inspire confidence. Increased competition as consumers trade down to less expensive products also represents a real challenge. For additional content on the alcohol industry, see Senator Inadvertently Increases Teen Awareness of New Malt Liquors.
See also, The Men Behind the Liquor Labels
I can’t not comment on today’s big news from Frisco, which is having such a positive impact on an iconic California company founded in the '70s. (No, not that one). Charles Schwab Corp. (SCHW), headquartered in the City by the Bay, is up sharply in a strong financial sector after Raymond James raised its rating on the discount broker to Outperform from Market Perform. Shares fell 3.03% to start the week and breached another 52-week low yesterday as retail investors, long conditioned to buy the dips, are instead still running for the hills fully two years after Lehman was lost. Such a plunge leaves “relatively little downside risk,” according to analyst Patrick O’Shaughnessy, who, with a name like that, should certainly be pleased to see so much green on the stock screen today. In keeping with recent M&A mania, on Monday, Schwab paid $150 million for Windward Investment Management to bolster its offerings in the booming area of exchange-traded funds. (For more on ETFs and individual investors, click here). By all accounts this is a smart purchase but it’s hard to see how today’s gains can be sustained. The company reported net new brokerage accounts continued to fall last month, down 8% to an almost four-year low. With Mom and Pop still staying away from stocks and low interest rates everywhere you look, it's not yet time to Talk to Chuck.
No positions in stocks mentioned.
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