25 October, 2011 The Intelligent Investor
U.S.
The Economic Monitor Series. Free Edition.
INSIDE THE REPORT MARKETS AT A GLANCE
Stock recommendations and price targets from top U.S. stocks rose on Monday, as a flurry of merger activity and
brokerage firms strong earnings from Caterpillar boosted investor sentiment and
kept the three-week rally intact. The Dow Jones industrial
average advanced 104.83 points, or 0.89 percent, to 11,913.62.
Analysis and views on Swiss Banks and Netflix Earnings
U.S. Treasuries prices edged lower on Monday as a stock market
Economic Indicator rally drew investors away from safe-haven U.S. government debt
and traders trimmed prices before three Treasury note auctions
this week. Benchmark 10-year Treasury notes fell 4/32 in price,
Weekly ICSC Chain stores ww their yields rising to 2.24 percent.
CaseShiller 20 mm nsa (August) The euro extended gains against the U.S. dollar on Monday,
hitting fresh six-week peaks, as risk appetite improved with
Consumer Confidence (October) rallying stocks and commodities. The euro rose to a peak of
$1.39570 on electronic trading platform EBS.
Monthly Home Prices mm (August)
Gold gained 1 percent on Monday, rising with commodities and
Richmond Fed Services Index (October) equities on hopes that European Union leaders were making
progress to tackle the region's debt crisis and signs of resiliency
over China's domestic demand. Spot gold was up 0.9 percent at
Economic Events $1,655.49 an ounce.
The House Ways and Means Committee holds a hearing U.S. crude oil futures rose for a second day on Monday, lifted by
rising hopes that European leaders would come up soon with a
on the U.S.-China economic relationship.
workable solution to the euro zone debt crisis and encouraging
manufacturing data from China.ICE Brent crude for December
U.S. Assistant Secretary for East Asian and Pacific Affairs
delivery was up $2.02 or 1.84 percent, to $110.58 a barrel.
Kurt Campbell to visit Indonesia.
Corporate Events STOCK INDICES
INDEX LAST CHNG % CHNG
AK Steel Holding, Amazon.com, C R Bard, Broadcom,
DJIA* 11913.62 104.83 0.89
Peabody Energy, Boston Properties, C H Robinson
Worldwide, Cummins, Coach, E I Du Pont De Nemours Nasdaq* 2699.44 61.98 2.35
& Co, Quest Diagnostics, DeVry, Ecolab, Express Scripts, S&P 500* 1254.19 15.94 1.29
FMC Technologies, Illinois Tool Works, Life
Technologies, Lexmark International, McKesson, 3M Co, DJ Total Stock Market* 13121.37 212.45 1.65
Molex Inc, Nabors Industries, National Oilwell Varco, Global Dow 1880.83 1.04 0.06
Office Depot, PACCAR, Ryder System, Reynolds * CLOSING VALUES
American, Regions Financial Robert Half International,
Range Resources, RadioShack, Sherwin-Williams, Sigma
Aldrich, Simon Property Group, Questar Corp, Tellabs CURRENCIES
Inc, T Rowe Price Group, Total System Services, United INDEX LAST PRIOR
Parcel Service, Waters, Western Union United States
Euro (EUR/USD) 1.3900 1.3929
Steel, Xerox Q3 results
U.K. Pound (GBP/USD) 1.5983 1.5996
Top Stories Japanese Yen (USD/JPY) 76.07 76.10
Oracle’s cloud takeover: RightNow Technologies for $1.5 All prices are at 2:12 AM EST
billion
FUTURES
Latest Icahn target: WebMD, takes 8 percent stake
LAST CHANGE
AT&T breaks records, moves one million iPhone 4S
Crude Oil, (Dec) 91.52 0.25
Apple MacBook Pro refresh: Should you upgrade? Natural Gas, (Nov) 3.915 -0.005
Gold, (Oct) 1656.7 4.4
Yahoo stock up 3 percent as Microsoft, Google contemplate
stake Copper, (Oct) 3.49 0.04
All prices are at 2:01 AM EST
The Intelligent Investor - U.S.
STOCK RECOMMENDATIONS BY BROKERAGE HOUSES
BROKERAGE/COMPANY ACTIONS RATING
HSBC
3SBIO Cuts price target to $19.6 from $21.2 --
Raymond James
Abbott Laboratories Cuts price target to $58 from $59 --
Basic Energy Services Cuts target price from $45.00 to $30.00 --
Central Valley Community Cuts target price from $8.00 to $7.00 --
EastGroup Properties Cuts price target to $46 from $49 --
First Niagara Financial Cuts from strong buy to market perform Strong Buy
KBW
Access National Corp Raises price target to $10 from $9 --
Newbridge Bancorp Cuts price target to $5 from $5.50 --
Taubman Centers Raises price target to $58 from $52 --
Taylor Capital Group Raises price target to $6.50 from $6 --
UBS
Agilent Technologies Starts with buy and price target $43 Buy
Ticonderoga Securities
Air Products Cuts price target to $100 from $110 --
Barclays
AMD Cuts price target to $5 from $8 --
Arthur J Gallagher & Co Raises price target to $35 from $31 Overweight
Basic Energy Services Cuts price target to $27 from $43 --
Aixtron SE Cuts price target to $11 from $16 --
Jefferies
Albemarle Corp Cuts price target to $65 from $75 --
Roth Capital
AMAG Pharmaceuticals Cuts price target to $18 from $25 --
Benchmark
Amazon.com Raises price target to $280 from $256 --
FBR
Amtrust Financial Services Raises price target to $32 from $26 --
Honeywell International Raises price target to $59 from $57 --
Brigham Exploration Cuts price target to $36.50 from $38 Market perform
Deutsche Bank
Saks Raises to hold and sets price target at $9 Hold
National Bank
Royal Gold Cuts price target to $80 from $85 Outperform
Evercore Partners
Nordic American Tanker Cuts price target to $13 from $19 Hold
Disclaimer: The views and investment tips expressed by investment experts are their own, an d not that of IBTimes or its management. We advise users to check with certified experts before
taking any investment decisions.
The Intelligent Investor - U.S.
ECONOMIC INDICATOR WATCH ON 25 OCTOBER, 2011
EST Indicator Period Forecast Prior
1715 ICSC Chain Stores ww Weekly - 0.1%
ICSC Chain Stores yy Weekly - 3.6%
1825 Redbook mm Weekly - -0.6%
Redbook yy Weekly - 4.6%
1830 CaseShiller 20 mm nsa August 0.4% 0.9%
CaseShiller 20 mm SA August 0.1% -
CaseShiller 20 yy August -3.5% -4.1%
1930 Consumer Confidence October 46.0 45.4
Monthly Home Prices mm August - 0.8%
Monthly Home Prices yy August - -3.3%
Monthly Home Prices index August - 184.7
Richmond Fed Composite Index October - -6.0
Richmond Fed Services Index October - -4.0
Richmond Fed Mfg Shipments October - -2.0
THE TRADING DAY AHEAD - COMPANY EARNINGS
COMPANY NAME Results EPS Estimate ($) EPS (year ago) ($)
AK Steel Holding Q3 -0.01 -0.54
Amazon.com Q3 0.24 0.51
C R Bard Q3 1.6 1.43
Broadcom Q3 0.76 0.74
Peabody Energy Q3 0.85 0.99
Boston Properties Q3 0.38 0.42
C H Robinson Worldwide Q3 0.70 0.62
Cummins Q3 2.25 1.33
Coach Q3 0.70 0.63
E I Du Pont De Nemours & Co Q3 0.56 0.40
Quest Diagnostics Q3 1.11 1.05
DeVry Q3 0.96 1.03
Ecolab Q3 0.75 0.66
Express Scripts Q3 0.77 0.65
FMC Technologies Q3 0.46 0.33
Illinois Tool Works Q3 0.98 0.83
Life Technologies Q3 0.88 0.87
Lexmark International Q3 1.02 1.09
McKesson Q3 1.40 1.03
3M Co Q3 1.61 1.53
Molex Q3 0.42 0.46
Nabors Industries Q3 0.40 0.29
The Intelligent Investor - U.S.
National Oilwell Varco Q3 1.16 0.97
Office Depot Q3 0.01 0.03
PACCAR Q3 0.70 0.33
Ryder System Q3 1.02 0.76
Reynolds American Q3 0.73 0.68
Regions Financial Q3 0.04 -0.17
Robert Half International Q3 0.28 0.14
Range Resources Q3 0.23 0.12
RadioShack Q3 0.36 0.37
Sherwin-Williams Q3 1.69 1.60
Sigma Aldrich Q3 0.92 0.83
Simon Property Group Q3 0.68 0.79
Questar Corp Q3 0.17 0.16
Tellabs Q3 -0.02 0.14
T Rowe Price Group Q3 0.73 0.64
Total System Services Q3 0.29 0.25
United Parcel Service Q3 1.05 0.93
Waters Q3 1.13 0.98
Western Union Q3 0.40 0.37
United States Steel Q3 0.52 -1.20
Xerox Q3 0.25 0.22
Company Events
Amazon.com is scheduled to release its third quarter results on Tuesday, 25 October, 2011. Wall Street expects the company to report a profit of 24
cents a share, down from 51 cents for the same period a year earlier. The event of Amazon’s past quarter was one that will not show explicitly in its
latest results: the launch of the Kindle Fire, a 7-inch colour tablet computer that represents its head-on challenge to Apple’s iPad. The device
unveiled in September by Jeff Bezos, Amazon’s founder and chief executive will not go on sale until November 15, but the capital invested in devel-
oping is likely to have reduced Amazon’s profits in the three months to the end of September. Analysts forecast the net income at $115 million,
down drastically from the $231 million the online retailer reported in the same period last year. But the market is used to this. Amazon is open about
its decision to sacrifice profits today to make investments that it says will keep its revenue growing in the future, whether that comes from the Kindle
Fire, its cloud computing division, or humdrum sales of diapers and detergent. Most though not all investors trust Amazon’s word primarily because
its sales growth is spectacular. Analysts forecast that revenues in the past quarter climbed 44 per cent from a year ago to $10.9bn, following a 51 per
cent jump in the previous quarter to $9.9bn. Amazon’s sky-high valuation, however, continues to make some people wary of the stock.
The Intelligent Investor - U.S.
ANALYSIS AND VIEWS
Swiss Banks said to be ready to pay billions to U.S., disclose names
Swiss banks will likely settle an extensive U.S. probe of offshore tax evasion by paying billions of dollar and handing over names of thousands of
Americans who have secret accounts, according to people familiar with the situation, Bloomberg News reported Monday.
U.S. and Swiss officials are concluding negotiations on a civil settlement amid U.S. criminal probes of 11 financial institutions suspected of helping
American clients hide money from the Internal Revenue Service.
In July, the United States began a criminal investigation into how Swiss financial institutions allegedly helped U.S. citizens abo
Under Swiss law, banks can only disclose client data in accordance with procedures provides for in so-called double-taxation agreements,
marketwatch.com reported Monday. That type of an agreement was reached with the U.S. last year and has been ratified by the Swiss, but not the
U.S.
What's more, the U.S. Justice Department may also bring criminal charges or civil enforcement actions against any of the 11 financial institutions,
Bloomberg News reported Monday. The institutions could avoid prosecution by separately paying fines, admitting wrongdoing, and disclosing data,
people familiar with the matter said.
Public Policy Analysis: Offshore accounts have been an area of interest for many years, with the flow of money increasing with the deregulation of
U.S. and U.K. financial markets starting the in the early 1980s. That deregulation has increased capital mobility and sped the funding of initial-stage
equity investments and companies, but it has also made it easier for those who wish to try to evade U.S. taxes to attempt to do so.
ANALYSIS AND VIEWS
Netflix earnings: 800,000 subscribers leave, will more follow?
Netflix released its third quarter earnings Monday, reporting a loss of 800,000 subscribers as a result of its price
hike in July and its botched attempt at splitting and rebranding its DVD-by-mail service into Qwikster in
September.
Making matters worse, CEO Reed Hastings predicted poor performance in the current quarter, anticipating a
continued drop in the number of subscribers. As a result, Netflix shares fell more than 21 percent after hours to
$93.30 after closing Monday at $118.84, up $1.80.
"While we dramatically improved our $7.99 unlimited streaming service by embracing new platforms, simplifying our user interface, and more than
doubling domestic spending on streaming content over 2010, we greatly upset many domestic Netflix members with our significant DVD-related
pricing changes, and to a lesser degree, with the proposed-and-now-cancelled rebranding of our DVD service," the company said.
Netflix recorded about 23.8 million unique subscribers in the third quarter, down 800,000 from last quarter's 24.6 million. However, Netflix reported
$822 million in global revenue, up from second quarter revenue of $789 million, and even saw an increase in international subscriptions from
970,000 to 1.5 million. Net income was $62.4 million, or $1.16 a share, slightly ahead of estimates.
Netflix reported $366 million in cash. Last quarter the company spent nearly $40 million to buy back 182,000 shares. However, Netflix expects a bleak
fourth quarter, predicting no more than 21.5 million subscriptions, which could mean as many as two million more departing subscribers.
The last several months have been disturbing for Netflix, to say the least. It all started with the company's decision to suddenly increase the price of
its DVD mailing service by 60 percent, from $9.99 to $15.98, causing many customers to complain or leave.
Backpedaling, CEO Hastings apologized to customers via e-mail on Sept. 19, but rather than modify the price hike, he decided to split off the
company's DVD-by-mail service into a new company called Qwikster, a name that will live in infamy. In Monday's earnings release, Hastings was also
apologetic. "In [Qwikster], we've hurt our hard-earned reputation, and stalled our domestic growth," he wrote. "But our long-term streaming
opportunity is as compelling as ever and we are moving forward as quickly as we can to repair our reputation and return to growth."
Hastings' decisions over the last quarter were handled poorly; however, he did the right thing by shuttering Qwikster before he launched it, and his
company's earnings reflect this. Netflix was not hit as hard as many predicted; despite the loss in subscribers, revenue and profit continue to rise,
both here and abroad.
On Monday, the company announced it would take its first foray outside the Americas by extending service to the U.K. and Ireland. Netflix also
recently signed a deal with Dreamworks Animation to bring its films and TV specials to the company's online streaming service, which is reportedly
worth $30 million per picture over an unspecified number of years. As Netflix attempts to lick its wounds and rebuild trust among its subscriber base,
it will face increased competition from rivals like Redbox, Amazon Prime, and even Blockbuster, which are gradually signing more partners and
distributors. While the company continues to add hundreds of titles each week, its blockbuster-sized agreement to stream Starz content will end in
March, thus cutting off Netflix from a bevy of Disney films like "Toy Story 3" and "Tangled."
Netflix's only hope is to gain more leverage through its international subscriber base. If the company can reestablish itself as the clear leader in video
streaming here and abroad, it may be able to resign content distributors like Starz, or even new producers like HBO. Netflix may have a clear lead
over competitors in the video rental industry, but if it continues to hemmorage subscribers through more PR gaffes, the company may eventually go
the way of Blockbuster.
The Intelligent Investor - U.S.
TOP STORIES
Oracle’s cloud takeover: RightNow Technologies for $1.5 billion
Oracle, the world's biggest database company, said it will spend $1.5 billion to acquire RightNow Technologies to extends its cloud-based customer
service offerings. The move looks intended to compete against Salesforce.com and other rivals. The acquisition of Bozeman, Mont.-based
RightNow is expected to close early in 2012. Redwood Shores, Calif.-based Oracle reported cash and investments exceeding $41 billion in its first
quarter ended Aug. 31. CEO Larry Ellison said the company will use it to compete aggressively. Last week, Oracle acquired privately held Endeca, of
Cambridge, Mass., developer of business intelligence analytics, for a sum estimated by Nomura analyst Rick Sherlund between $750 million and
$900 million. RightNow shares Friday closed at $35.96, giving the company a market capitalization of $1.2 billion and enterprise value of $1.1 billion,
an indication that Oracle is paying a hefty premium. Much of that would accrue to founder and CEO Greg Gianforte, who controls about 25 percent
of the equity. Shares of RightNow surged nearly 20 percent when trading opened Monday, to $42.88, slightly below the $43 Oracle offered to pay.
RightNow's Customer Service Cloud helps organizations deliver exceptional customer experiences across call centers, the web and social networks.
Latest Icahn target: WebMD, takes 8 percent stake
Shares of WebMD surged nearly 9 percent after activist investor Carl Icahn reported acquiring an 8 percent stake in the New York-based medical
website. Shares rose to $35.20, up $2.81, boosting the company's market capitalization to $2.07 billion. In a required filing with the U.S. Securities
and Exchange Commission, Icahn wrote he bought into WebMD because the company is "undervalued from a long-term perspective." As well, the
New York investor, now 76, said he "may seek to have conversations with management" which could suggest he wants to shake up the company.
Earlier this month, Icahn said he has no interest in investing in BlackBerry developer Research in Motion and called off his pursuit of Clorox. He is still
an investor in design software developer Mentor Graphics. WebMD shares had lost more than 30 percent of their value since Dec. 31 despite being
one of the most popular health-related Web sites. It reported as many as 81 million monthly page views.
AT&T breaks records, moves one million iPhone 4S
AT&T, which was the first carrier to support the iPhone when it launched in 2007, has activated one million iPhone 4S smartphones, making it the
most successful Apple iPhone launch in the company's history. "It's no surprise that customers are clamoring for the iPhone 4S and they want it to
run on a network that lets them download twice as fast as competitors'," said Ralph de la Vega, president and CEO of AT&T Mobility & Consumer
Markets. The iPhone 4S is also available on Verizon Wireless, Sprint and C Spire networks, but AT&T is the only U.S. carrier to support the phone's
"4G-type" speeds. C Spire has yet to take pre-orders and Verizon has not released its figures yet, but Sprint reported its "best ever day of sales" when
it started selling the iPhone 4 and 4S on Oct. 14. The company will also reap some revenues from Android, which has seen sales double since last
year. AT&T says Android and non-iPhone devices have doubled year-over-year, making up about half of the 4.8 million devices sold by the
company. Meanwhile, AT&T is still in the process of acquiring T-Mobile USA, but the U.S. Department of Justice is seeking to bar the $39 billion
deal. Trial is scheduled to begin on Feb. 13.
Apple MacBook Pro refresh: Should you upgrade?
Apple quietly upgraded its line-up of MacBook Pro laptops Monday, fashioning them with powerful new processors and graphics chips, even
though the prices for each computer will remain the same. The pricing may reflect that Apple is the world's biggest chip buyer and semiconductor
pricing has eased lately. The 13-inch MacBook Pro received the biggest improvements. The original model's 320 GB capacity has been replaced with
a 500 GB hard drive, and the old model's Intel i5 2.3 GHz dual-core processor now operates at 2.4 GHz. For an extra $300, a souped-up 13-inch
MacBook Pro features 750 GB of storage and a quad-core i7 processor running at 2.8 GHz. The 15-inch MacBook Pro upgraded its i7 quad-core
processor from 2 GHz to 2.2 GHz, but did not expand the hard drive options. Graphics, however, got a boost from AMD's Radeon HD 6750 card and
512 MB of RAM. The high-end model, for an additional $400, runs on a 2.4 GHz i7 processor with an AMD Radeon HD 6770 card with 1 GB of RAM.
Prices for the 13-inch MacBook Pro begin at $1,199, the 15-inch model starts at $1,799 and the 17-inch model starts at $2,499. The stock MacBook
Pros are available in Apple Stores now, but all models can be completely customized and ordered through the online Apple Store.
Yahoo stock up 3 percent as Microsoft, Google contemplate stake
Yahoo's stock rose around 3 percent on Monday, following reports that Microsoft and Google are contemplating financing roles for the private
equity firms eyeing a buyout of the troubled tech firm. Microsoft and Google are well-positioned for such deals, with large amounts of cash more, in
fact, than many banks that would traditionally finance such a deal, as the Wall Street Journal noted. Microsoft, which runs the search engine Bing,
and Google would also have interest in having a say in Yahoo's direction. Microsoft's Bing already has a search engine partnership, in which Bing
searches and Yahoo sells the ads, an arrangement that could be jeopardized if Yahoo was sold to another entity. Yahoo has been in turmoil in
recent months, with former CEO Carol Bartz ousted, and later resigning from the board of directors. Tim Morse is interim CEO. Yahoo reported
third quarter earnings of 21 centers per share, beating analysts' expectations of 17 cents per share. Net revenue was $1.07 billion, consistent with
forecasts, but the sale of display ads was flat in the third quarter, after growth in previous quarters. Shares of Yahoo were trading around $16.71 as
the market ended the day.
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