MOST NOTEWORTHY: Abercrombie & Fitch, China Unicom and Toronto Dominion were today's noteworthy downgrades:
Friedman Billings downgraded Abercrombie & Fitch (NYSE: ANF) to Market Perform from Outperform citing soft comps which could impact EPS expectations in 2H08 and SG&A investing.
China Unicom (NYSE: CHU) was downgraded to Neutral from Outperform at Credit Suisse and to Equal Weight from Overweight at Morgan Stanley as the company's phone asset sales garnered a lower-than-expected price.
RBC Capital downgraded Toronto Dominion (NYSE: TD) to Sector Perform from Outperform citing expense initiatives in domestic retail banking which are hurting operating leverage, loan losses in U.S. banking, and muted capital markets revenues.
OTHER DOWNGRADES:
William Blair cut Littelfuse (NASDAQ: LFUS) to Market Perform from Outperform.
Linear Tech (NASDAQ: LLTC) was downgraded at UBS to Neutral from Buy.
Abiomed (NASDAQ: ABMD) was lowered to Neutral from Positive at Susquehanna.
Morgan Stanley downgraded China Unicom (NYSE:CHU) from "outperform" to "neutral", according toBriefing.com. The news service also reports that UBS downgraded CSX (NYSE:CSX) from "buy" to "neutral"
Abercrombie (NYSE:ANF) cut to Market Perform at FBR, according to 24/7 Wall St. The financial website also reports that Blue Nile (NASDAQ:NILE) Started as Underweight at Thomas Weisel.
Abercrombie & Fitch (NYSE: ANF) shares have been slipping some of late. Recent insider selling is also flashing a warning for this stock. Over the past three months, insiders have sold $59.0 miilion worth of ANF stock. Insider selling has slowed its pace over the past few months, but it is still happening. A filing released on Saturday indicated that a director at the company sold 7800 shares of ANF, valued at over $500,000. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ANF.
After hitting a one-year high of $85.77 in October, the stock hit a one-year low of $66.05 in January. This morning, ANF opened at $72.72. So far today the stock has hit a low of $70.50 and a high of $72.72. As of 12:25, ANF is trading at $70.70, down $1.90 (-2.6%). The chart for ANF looks bullish but deteriorating, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $85 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. This particular trade will make a 6.4% return in three months as long as ANF is below $80 at August expiration. ANF would have to rise by more than 21% before we would start to lose money.
ANF hasn't been above $85 by more than a few cents at all in the past year and has shown resistance around $78 recently. This trade could be risky if the company's earnings (due out in on 8/15) are a positive surprise, but even if that happens, this position could be protected by resistance ANF might find at its 200 day moving average, which is currently around $77.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in ANF.
I know, I know, with the economy sputtering, why would you ever want to be invested in an apparel company that produces expensive jeans? Let alone have it recommended by a typically short-selling trader like me! But before I tell you the name of this stock that despite the obvious economic problems -- strong oil, weak housing and the dollar, mounting foreclosure, etc -- is sitting right near all-time highs, looking to break out, let's do a quick rundown of its competitors in the apparel retail space.
U.S. stock futures were higher this morning, looking to extend their rally, even though investors will likely not like the upcoming housing data, which probably isn't going to signal a bottom for the housing recession.
U.S. stocks had a nice rally Thursday as oil prices fell, several deals were announced, mainly CBS buying CNet, and Icahn moving forward with his proxy fight for Yahoo's board. The Dow industrials rose 94 points, or 0.73%, the S&P 500 added 14 points, or 1.06%, and the Nasdaq Composite rose 37 points, or 1.48%. Thursday marked the fourth day of gains for the Nasdaq.
This morning, investors will be waiting for the housing data to roll in. Housing starts and building permits figures for April will be reported at 8:30 a.m. EDT. Both are expected to show further declines. Also at 10:00 a.m. EDT, May University of Michigan's consumer confidence gauge for May is due. Economists expect it to decline marginally.
Meanwhile, Goldman Sachs helped lift oil prices this morning after it raised its forecast for oil to $141 a barrel. The forecast was raised 32% from $107 a barrel and is for the second half of 2008. Oil prices were back above $125 a barrel.
The earnings season continues to roll on, and next week's results offer a peek at the state of fashion retailing, as a variety of companies -- from the discount to the upscale, from the hip to the pedestrian -- are scheduled to report earnings.
Analysts surveyed by Thomson Financial expect earnings growth, compared to the same period in the previous year, from Urban Outfitters (NASDAQ: URBN) to be 22.7% to 22 cents per share, from Wal-Mart Stores (NYSE: WMT) to be 9.3% to 75 cents per share, and from TJX Companies (NYSE: TJX) to be 7.5% to 40 cents per share.
Analysts expect earnings declines from the previous year from JC Penney (NYSE: JCP) by 52.9% to 49 cents per share, from Kohl's (NYSE: KSS) by 34.4% to 42 cents per share, and from Nordstrom (NYSE: JWN) by 18.3% to 49 cents per share.
In the case of Abercrombie & Fitch (NYSE: ANF), analysts expect earnings to remain flat, year over year, at 65 cents per share.
And then there's Macy's (NYSE: M), which is expected to swing to a loss of 2 cents per share, compared to a profit of 16 cents a year ago.
The sample size may be too small to define any significant trends, but the numbers do suggest that analysts expect profit declines to be deeper than profit growth, and that consumers may be more likely, given the current state of the economy, to buy clothes at Wal-Mart or TJ Maxx than at Nordstrom or Abercrombie.
The coming results will reveal if those expectations are correct.
Day one of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Management Advisory Committees meeting: Purdue Pharma's NDA for Oxycontin.
Anadarko Petroleum (NYSE:APC) to report Q1 earnings; conference call Tuesday at 10:00am.
Tuesday, May 6
Day two of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Mgmt Advisory Committees meeting: Cephalon's (NASDAQ:CEPH) sNDA for Fentora.
Molson Coors (NYSE:TAP) to report Q1 earnings; conference call at 12:00pm.
After hitting a one-year high of $85.77 in October, the stock hit a one-year low of $66.05 in January. ANF opened this morning at $75.02. So far today the stock has hit a low of $73.96 and a high of $76.32. As of 12:10, ANF is trading at $74.75, up 24 cents(0.3%). The chart for ANF looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $65 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 three weeks as long as ANF is above $65 at May expiration. Abercrombie would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
ANF hasn't been below $66 at all in the past year and has shown support around $70 recently. This trade could be risky if the company's earnings (due out on 5/16) disappoint, but even if that happens, this position could be protected by the support the stock might find around $70, where it has bottomed out four times in the past six months.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ANF.
MOST NOTEWORTHY: Abercrombie & Fitch, ENGlobal Corp and Wausau Paper were today's noteworthy initiations:
Morgan Keegan initiated Abercrombie & Fitch (NYSE:ANF) with a Market Perform citing lack of comp momentum and the outlook for consumer spending.
Jesup & Lamont expects ENGlobal's (NASDAQ:ENG) earnings momentum to remain in place due to sustained demand for energy products. Shares were initiated with a Buy rating and $13.25 target.
Soleil expects Wausau Paper (NASDAQ:WPP) shares to be driven by its value-added market focus, product innovation and improved mix. Shares were assumed with a Buy rating.
OTHER INITIATIONS:
Citigroup assumed coverage of XM Satellite Radio (NASDAQ:XMSR) with a Hold rating from Buy, and a $12.25 target from $17. The firm also assumed Sirius Satellite (NASDAQ:SIRI) with a Buy rating and $8 target from $4.25.
Morgan Stanley initiated MarkWest Energy (NYSE:MWE) with an Overweight rating.
Soleil initiated Potash (NYSE:POT) with a Hold rating.
Abercrombie & Fitch Co. (NYSE: ANF) shares opened lower this morning after the retailer posted a 10% drop in March same-store sales. Analysts had been expecting a drop of 4.5%. However, the stock is trading higher now as positive results from other retail outlets like Aeropostale (NYSE: ARO) have encouraged the markets. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ANF.
After hitting a one-year high of $85.77 in October, the stock hit a one-year low of $66.05 in January. ANF opened this morning at $72.65. So far today the stock has hit a low of $72.36 and a high of $75.89. As of 12:50, ANF is trading at $74.81, up 0.79 (1.1%). The chart for ANF looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $65 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 9.9% return in just five weeks as long as ANF is above $65 at May expiration. Abercrombie would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
PDUFA date for Bristol-Myers Squibb Co. (NYSE: BMY)'s supplemental Biologics License Application for Orencia for the treatment of Juvenile Rheumatoid Arthritis.
Alcoa Inc. (NYSE: AA) to report Q1 earnings; conference call at 5pm.
Tuesday, April 8
Chattem Inc. (NASDAQ: CHTT) to report Q1 earnings; conference call at 9:00am.
FOMC to release minutes of the March 18th meeting at 2:00pm.
The Columbus Children's Hospital in Ohio is under fire after accepting a $10 million donation from Abercrombie & Fitch (NYSE: ANF) -- and agreeing to christen a new building The Abercrombie & Fitch Emergency Department and Trauma Center.
Not surprisingly, the Campaign for a Commercial-Free Childhood is up in arms. In a press release, the group urged the hospital to "rescind the naming rights because of Abercrombie's long history of using highly sexualized images to market its brand to teens and preteens and selling clothing that objectifies and demeans young people."
They certainly have a point. Given how sexually charged Abercrombie's advertising is, an Abercrombie children's hospital certainly is an interesting juxtaposition.
But the truth is that Abercrombie doesn't really harm children. This isn't like a hospital building the Philip Morris Cancer Ward. And if this is a deal with the devil, it's a deal that will provide $10 million for helping children.
It would be a lot worse if the hospital turned down money to help children as a matter of principal. Abercrombie isn't that evil.
Abercrombie & Fitch Co. (NYSE: ANF) recently opened Gilly Hicks, a provider of women's undergarments like no other.
"The shop, which contains upper-end lingerie, loungewear and intimate accessories, is modeled after a British manor, with columns at its doorways, dark wood paneling and close to a dozen rooms, such as a `bra library' featuring more than 40 styles," according to theWall Street Journal (subscription required). The company plans to open as many as 15 other Gilly Hicks outlets this year, the paper said.
Abercrombie & Fitch continues to walk the fine line between sexy and soft core porn with Gilly Hicks. The promotional video for the chain on its Web features half-naked and at times totally naked models of both sexes cavorting on a beach in what appears to be Australia. Gilly Hicks, according to the company's marketing department, emigrated from England to Australia in 1932 and opened an underwear store in her family's British colonial-style manor house in Sydney.
This 40-year-old married guy from New Jersey isn't sure if the message of the commercial is that our underwear is so comfortable that you will run around in it in front of total strangers in the beach. Apparently, the models didn't get the message that prolonged exposure to the sun can damage your skin.
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MOST NOTEWORTHY: Abercrombie & Fitch, China Unicom and Toronto Dominion were today's noteworthy downgrades:
I know, I know, with the economy sputtering, why would you ever want to be invested in an apparel company that produces expensive jeans? Let alone have it recommended by a typically 
U.S. stock futures were higher this morning, looking to extend their rally, even though investors will likely not like the upcoming housing data, which probably isn't going to signal a bottom for the housing recession. 
The earnings season continues to roll on, and next week's results offer a peek at the state of fashion retailing, as a variety of companies -- from the discount to the upscale, from the hip to the pedestrian -- are scheduled to report earnings.
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The Columbus Children's Hospital in Ohio is under fire 
Earnings preview for Ford
Apple shares rise on report Steve Jobs is free of cancer
Toyota whups GM in the first half of 2008
