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business newsHigh Hopes for Lowe's Look Unrealistic
By
Justin Sharon
Aug 16, 2010 3:50 pm
The home improvement company's shares are showing strength today, but the share price rally won't likely be sustained.
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The Big Apple’s ego took a further blow with last month’s announcement from Six Flags Entertainment (SIX) that its headquarters are moving to north Texas from New York. This puts it physically not far from Dallas-based Blockbuster, but unlike that beleaguered outfit, Six Flags has shown there can indeed be life after Chapter 11. Today the theme-park operator is experiencing the Joy of Six, its shares surging almost 5% after swinging to a second-quarter profit of $743.5 million upon emerging from the creditors this spring. Attendance at its 29 theme parks rose to 8.2 million, up 7% from the year-ago period. The company has benefited from more Americans foregoing costly European R&R (Michele and Sasha’s Spanish sojourn notwithstanding) to "staycation"close to home. Six Flags’ customers spend an average of $36.86, considerably cheaper than the comparable figure from Disney (DIS) and offering enormous appeal in what has thus far been a tepid Recovery Summer. To access Steve Smith's thoughts on Six Flags, please click here.
Dell (DELL) is down after the number-three personal computer company said it plans to purchase data storage firm 3PAR for $1.5 billion out of its overall cash hoard of approximately $11 billion. The $18-per-share offer represents a hefty 87% increase over Friday’s close for 3PAR. While stock in an acquirer often fall following such an announcement, today’s decline seems to reflect a view that Dell is arguably overpaying for the asset and offering a “premium” price in the words of Wedbush analyst Kaushik Roy. Shareholder and regulatory approval is anticipated by year end and it's expected to be accretive to earnings by 2012. Dell is desperate to broaden its revenue base beyond mature PC markets, and long term, this deal may make strategic sense in helping it expand into growth areas such as cloud computing. That said, it's anything but a quick fix and the firm continues to lose market share to the likes of Acer and Hewlett-Packard (HPQ). A decade ago its bare-bones direct-to-consumer business model was made to measure, but that was before Apple (AAPL) turned a tactile, in-store, seeing and touching experience into something approaching a cult. Since then the "Dell dude" has ignominiously disappeared from view and his erstwhile employer has hit similarly hard times.
While billionaire dropouts Bill Gates and Steve Jobs -- and indeed Michael Dell, who started his empire in a dorm room -- have done just fine without finishing further education, for the rest of us, "stay in school" is sound advice. Stock-picking in the sector is another story however, and our headline downgrade Corinthian Colleges (COCO) is tumbling over 20% as we speak. (Its stock symbol shouldn’t be be confused with Cocoa Beach, the topless club where one Carrianne Howard is now employed after discovering her $70,000 for-profit education degree bought a bottomless pit of debt.) The group’s steep decline is due to a proposed tightening in eligibility for federal loans from the Department of Education. Should such schools have fewer than 35% of its graduates repaying their principal (i.e. the original amount borrowed, not the higher institution’s headmaster), they may be forced to forfeit future funding. Corinthian is especially susceptible to potential regulatory headwinds due to its paltry repayment rate of 22%, a factor behind Deutche Bank’s ratings and estimate reduction this morning. Clearly COCO currently looks toxic and investors would do well to avoid it. But with more people choosing to ride out a rough economy in academia, some peers could see long-term benefits. Indeed competitor Apollo Group (APOL) is up over 6% this afternoon to pace all S&P 500 advancers. Click here for a more hopeful take on the industry from Steve Smith.Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.
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