U.S. stock futures were somewhat higher Monday morning as investors put October -- one of the worst months ever -- behind them and braced for the impact of the presidential election. A slew of economic data will be released this week, including September construction spending and the October release of the ISM index due today after the market opens. Global stocks were generally higher even as oil slipped again.
PepsiCo Inc. (NYSE: PEP) said Monday it will invest $1 billion in China over the next four years. The beverage company wants to expand local manufacturing capability, research and development and sales force.
General Motors Corp. (NYSE: GM) -- the company has been in the process of trying to find a way to merge with Chrysler. While we didn't hear much about the merger so far from the United Auto Workers union, it seems it intends to play a key part in it and has has retained an adviser to help with workers' concerns should the merger occur, the WSJ reported.
Boeing Co. (NYSE: BA) saw its 27,000 machinists resuming work Sunday after a 57-day strike that shut down production. Because of logistics, it will take several weeks before Boeing is running normally. The company missed at least 70 deliveries as a result of the strike. Seems it may miss more until production is properly under way. Boeing was downgraded to Conviction Sell from Neutral by Goldman Sachs, saying investors should sell into the strength from the resolution of the machinists union strike.
Famous cruise line entity Carnival Corp. (NYSE: CCL), which competes with Royal Caribbean (NYSE: RCL) and The Walt Disney Company's (NYSE: DIS) vacation voyages, reported earnings for the third quarter on Thursday. The company held up well during the summer months. Revenues increased 11% to $4.8 billion. Earnings per diluted share did decrease slightly from a year ago, dropping two pennies to $1.65. But management reported that the number was better than expected because of lower costs and the positive effect of an insurance recovery. As far as Wall Street estimates were concerned, the bottom line beat by a wide margin. This item says that Carnival bested estimates by $0.07.
Another cool thing is that Carnival narrowed its fiscal-year guidance in a most positive way. Before, the company expected that it would book earnings somewhere between $2.70 and $2.80 per share. Well, now management thinks it'll do between $2.79 and $2.81. That shows confidence in the business, and it looks like the market is pretty happy with the results. Taking a look at the stock at the time of this writing, I see that is up almost 3%, and that volume is decent so far.
I personally would not buy Carnival at this time, however, even though there are some sound elements to this story. It does sport a very good dividend yield of 4%, but it's not close to the 52-week low, and one could argue that the upgraded guidance is confirmation that the stock could be a buy. Still, the market is volatile, the economy is questionable, and energy prices remain a concern. Plus, the earnings release did note some weakness in occupancy levels for advance bookings. I'd be fearful of looking at Carnival before a pullback brings the stock in a little. Long term, though, I do think the company will prosper, since I think it is a great brand in the leisure business.
Disclosure: I own Disney; positions can change at any time.
"If you think filling up an SUV is painful, try footing the bill for a massive 1,000-foot ocean liner -- or in the case of Carnival Corp. (NYSE: CCL), an entire fleet of 84 floating cities," notes value investor Nathan Slaughter.
In his Half-Priced Stocks he explains, "Despite unprecedented fuel costs, the company continues to power forward." Here's his bullish review.
"Last quarter, Carnival shelled out $530 per metric ton for fuel, up sharply from $330 per ton a year ago. And after pumping about 800,000 metric tons, the company rang up a total fuel bill of $425 million.
"For the year, management is expecting fuel costs to come in about $750 million higher than in 2007, which will trim earnings by about $0.92 per share. Fortunately, the company is in a position to absorb those higher costs.
"Over the past three months, two million passengers have boarded a Carnival ship, for an occupancy rate of 104.8% (indicating some berths held more than two guests). And those visitors paid $2.6 billion for their tickets and plunked down another $743 million in the lounges, casinos and gift shops after they arrived on board.
RCL is expected to report Q2 EPS in late July. RCL call option volume of 2,789 contracts compared to put volume of 8,808 contracts. RCL July option implied volatility was at 67, August at 74; above its 26-week average of 47 according to Track Data, suggesting larger price movement.
CCL call option volume of 7,827 contracts compared to put volume of 33,198 contracts. CCL July option implied volatility was at 50, August at 58; above its 26-week average of 39 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Carnival Corp. (NYSE: CCL), a provider of cruise vacations and competitor of Royal Caribbean (NYSE: RCL), issued its Q2 earnings numbers on Thursday. Revenues rose more than 16% to $3.4 billion. Net earnings were 49 cents a share. That wasn't too impressive, considering that it was a penny better than the previous year's quarter. However, according to Briefing.com, Carnival killed the earnings expectations of analysts by 8 cents. Net sales were also higher than what Wall Street's expectations.
This performance sent the stock up more than 5%. I think investors need to be a little careful here because Carnival's management has become cautious about the next quarter because of energy costs. The company expects earning of $1.56 to $1.58 per share in Q3. Last year's Q3 saw bottom-line income of $1.67 per share. So, growth will not be found in next quarter's report.
Yet, again, the market didn't seem to mind, as it was high off the expectations-beating data. Is Carnival, therefore, a buy? Well, I don't think it's overly expensive considering the P/E ratio and the yield attached to the stock. But the direction of oil prices has me concerned. Not only will that increase costs for Carnival, but it will compete with the discretionary dollars of potential vacationers. I see the valuation case, but the current state of the market makes me reluctant to pull the trigger on this stock. Some would argue that all this is baked into the shares since they did so well yesterday, but I'm not convinced.
Disclosure: I don't own any company mentioned here; positions can change at any time.
Coventry Health (NYSE: CVH) shares were down nearly 17% in after-hours trading Wednesday after the managed-care provider lowered estimates for second-quarter and full-year earnings due to disappointing April and May results. Wachovia downgraded CVH to Market Perform from Outperform. Other healthcare stocks felt the pressure and were down in after-hours or premarket trading: UnitedHealth (NYSE: UNH) -7%, Aetna (NYSE: AET) -9.9%, WellPoint (NYSE: WLP) -6%, Humana (NYSE: HUM) -5% and Cigna (NYSE: CI) -5%.
Carnival (NYSE: CCL) is due to report second-quarter financial results. Circuit City Stores Inc. (NYSE: CC) is due to release first-quarter financial results.
Hewlett-Packard (NYSE: HPQ) is reorganizing its printer unit in the face of declining growth of the business, The Wall Street Journal reported. Basically, as consumers print less, H-P is trying to adapt and is reducing five business unitsto three.
Carnival (NYSE: CCL) is scheduled to report Q2 EPS on June 19. CCL closed at $36.22 Monday, near 54-month low. CCL June 35 straddle is priced at $2.35. CCL July option implied volatility of 41 is above its 26-week average of 36 according to Track Data, suggesting larger price movement.
Circuit City (NYSE: CC) is scheduled to report Q1 EPS on June 19. CC closed at $4.31 Monday. CC June 5 straddle is priced at 90c cents. CC over all option implied volatility of 78 is near its 26-week average according to Track Data, suggesting non-directional price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Workers at U.S. auto parts maker American Axle & Manufacturing Holdings (NYSE: AXL) are set to return to work next week after approving a new four-year contract that contains steep pay cuts and other concessions. The three-months strike crippled crippled production at a General Motors (NYSE: GM) plant.
Six Flags Inc. (NYSE: SIX) said it will cut ticket prices by $10 at its St. Louis park as customers are cash strapped these days due to the tightening economic conditions and rising prices for everyday commodities. Meanwhile, Fitch Ratings downgraded some of Six Flags Inc.'s ratings and put them on Ratings Watch Negative due to a proposed notes exchange.
UAL Corp. (NYSE: UAUA) unit United Airlines and US Airlines Group (NYSE: LCC) are postponing the launch of new China routes because of high fuel costs after gaining approval for this coveted route only a few months ago.
After hitting a one-year high of $52.10 in October, the stock hit a one-year low of $36.10 in March. This morning, CCL opened at $39.29. So far today the stock has hit a low of $38.95 and a high of $39.81. As of 12:55, CCL is trading at $39.12, down $1.19 (-3.0%). The chart for CCL looks deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in two months as long as CCL is below $45 at June expiration. Carnival would have to rise by more than 15% before we would start to lose money. Learn more about this type of trade here.
PDUFA date for Solvay S.A. (ADR) (OTC: SVYSY)'s standard supplemental New Drug Application, or sNDA, for AndroGel PD for the treatment of adolescent male Constitutional Delay in Growth and Puberty (CDGP); for which they are requesting pediatric exclusivity.
Alpharma, Inc. (NYSE: ALO) to give 2008 financial outlook update at 8:30am.
Eaton Corporation (ETN) to report Q1 earnings; conference call at 10:00am.
Tuesday, April 15
PDUFA date for GlaxoSmithKline plc (ADR) (NYSE: GSK) and Pozen Inc. (NASDAQ: POZN)'s Trexinet, which has priority for 1st-line therapy for acute migraines.
PDUFA date for Sciele Pharma Inc. (NASDAQ: SCRX) and Novo Nordisk A/S (ADR) (NYSE: NVO)'s PrandiMet for non-insulin dependent Diabetes Mellitus/Type 2 Diabetes treatment.
Johnson & Johnson (NYSE: JNJ) to report Q1 earnings; conference call at 8:30am.
Intel Corporation (NASDAQ: INTC) to report Q1 earnings; conference call at 5:30pm.
Wednesday, April 16
San Francisco Fed Bank President Yellen to speak on the Economic Outlook in San Francisco at 11:45am.
International Business Machines Corp. (NYSE: IBM) to report Q1 earnings; conference call at 4:30pm.
eBay Inc. (NASDAQ: EBAY) to report Q1 earnings; conference call at 5:00pm.
After hitting a one-year high of $52.10 in October, the stock hit a one-year low of $36.10 last month. CCL opened this morning at $41.06. So far today the stock has hit a low of $41.06 and a high of $43.00. As of 11:50, CCL is trading at $42.70, up $2.22 (5.5%). The chart for CCL looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $35 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 7 weeks as long as CCL is above $35 at May expiration. Carnival would have to fall by more than 17% before we would start to lose money. Learn more about this type of trade here.
The choppy/consolidating (or perhaps worse) market conditions sometimes give the impression that growth plays do not exist, but that is not the case, and one growth company worth reviewing is Carnival Corp.
Analysts expect adequate revenue gains for CCL in 2008, primarily on increased capacity. Larger booking increases are expected in Europe, as opposed to North America, which may begin to show the effects of the U.S. economic slowdown. As of first quarter 2008, Carnival had 85 ships with a passenger capacity of 158,000.
Meanwhile, cruise prices should rise modestly, and a likely fuel surcharge will ease the impact of higher fuel costs. Further, analysts also like CCL's rising demand for Caribbean cruises, along with the company's leading market share in leisure cruises. The Reuters FY 2008/FY 2009 EPS consensus estimates for CCL are $3.09 to $3.40.
Tribune Co. (NYSE: TRB) is bracing for the "Sam Zell era" as he is set to take the ailing newspaper and TV company private with the expected closing of his $8.2 billion buyout as soon as Thursday.
According to Think Secret, Apple Inc. (NASDAQ: AAPL) and Think Secret have settled their lawsuit in a confidential, "amicable" settlement. While no sources were revealed, Think Secret will no longer be published. Bloggers lament ThinkSecret: TUAW and Engadget -- if this is true, I wonder if Apple made the right move.
Research In Motion (NASDAQ: RIMM) is expected to post earnings of 62 cents a share in the third quarter. Cruise operator Carnival Corp. (NYSE: CCL) is also scheduled to report earnings today.
U.S. stock futures were somewhat higher Monday morning as investors put October -- one of the worst months ever -- behind them and braced for the impact of the presidential election. A slew of economic data will be released this week, including September construction spending and the October release of the ISM index due today after the market opens. Global stocks were generally higher even as oil slipped again.
Carnival 
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