So the earnings crunch continues, and here's a look at some companies scheduled to report results this week that are anticipated to be big winners and losers in terms of earnings growth.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
Apache Corp. (NYSE: APA): $4.10 EPS (+53.9%) on revenue of $3.8 billion (+54.6%)
EOG Resources Inc. (NYSE: EOG): $2.34 EPS (+50.0%) on revenue of $1.7 billion (+62.2%)
Avon Products Inc. (NYSE: AVP): $0.47 EPS (+44.7%) on revenue of $2.6 billion (+11.5%)
After hitting a one-year high of $60.00 in December, the stock has hit a new one-year low today. This morning, AET opened at $36.98. So far today the stock has hit a low of $36.01 and a high of $37.99. As of 11:55, AET is trading at $37.29, down 2.50 (-6.3%). The chart for AET looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider an August 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 a 4.2% return in six weeks as long as AET is below $45 at August expiration. AET would have to rise by more than 20% before we would start to lose money.
Given the uncertain U.S. economic landscape, and accompanying choppy / consolidating market conditions, adding a few defensive plays is a prudent tack. Among insurers, Aetna Inc. (NYSE: AET) is worth an evaluation.
Aetna's wide product offerings and comprehensive coverage is an operational strength, as is its geographic footprint. These factors, along with cost controls, should enable Aetna to maintain solid earnings growth in FY 2008-FY 2009.
Further, analysts like AET's projected F2008 800,000-900,000 organic net membership growth in its health care segment, superior underwriting discipline, and cost controls. Another positive: on the big client side, the Bank of America Corporation (NYSE: BAC) selected Aetna as its primary benefits provider for its employees, beginning in 2009.
Yesterday was a difficult trading session for the managed healthcare group, with industry giant WellPoint Inc. (NYSE: WLP) cutting its 2008 profit forecast, blaming higher claims expense and the weak market conditions. Today is another tough day, with health care companies taking another hit on pressure from Humana Inc. (NYSE: HUM), which warned about lower-than-expected first quarter and full year earnings results.
Blaming increased prescription expenses, the second largest seller of Medicare drugs cut its first-quarter earnings outlook to a range of 44 to 46 cents a share against its previous prior guidance of 80 to 85 cents a share. Analysts, on average, expected the health insurer show higher first-quarter earnings of 78 cents, according to Thomson Financial.
The company also projected full-year earnings between $4.00 and $4.25 per share, down from a previous forecast of $5.35 to $5.55. Humana's estimates were below analysts' expectations for full-year earnings of $5.47per share.
H&R Block Inc. (NYSE: HRB) Chief Executive Mark Ernst today resigned as his efforts to unloaded the company's money-losing subprime mortgage business Option One Mortgage Corp. to Cereberus Capital Management LP nears collapse, according to Bloomberg News.
Former SEC Chairman and hedge fund manager Richard Breeden, who had long complained about losses at Option One and lead a proxy battle against the company, was named chairman and Alan. M. Bennett, a former CFO of Aetna Inc. (NYSE: AET), interim chief executive. H&R Block is conducting a search for a new CEO. Bennett has told the company he doesn't wish to be considered as a candidate, the company said in a press release.
Cerebeus agreed to pay H&R Block $800 million for Option One in April, well under the $1.3 billion the company had hoped to get. Cereberus may scuttle the deal entirely now given the continued uncertainty of the credit markets. It's unclear what's going to happen to Option One which Ernst had said H&R Block may close if it couldn't find a buyer, Bloomberg said.
Shares of Kansas City-based H&R Block, which have slumped more than 17% this year, rose in pre-market trading. It will be interesting to see if Breeden will be able to help turn around H&R Block now that he's become an insider.
MOST NOTEWORTHY: Clayton, PharmaNet Development, Royal Bank of Scotland, Progressive Gaming and WSFS Financial were today's noteworthy downgrades:
JMP Securities downgraded shares of Clayton Holdings Inc(NASDAQ: CLAY) to Market Perform from Outperform citing lack of visibility in the non-agency MBS market. William Blair also downgraded shares to Market Perform from Outperform after the company's in-line quarter, to reflect lowered estimates and uncertainty regarding a recovery time.
Jefferies downgraded shares of PharmaNet Development Group Inc (NASDAQ: PDGI) to Hold from Buy as they believe departures of board and management executives have introduced new risk.
ThinkEquity downgraded shares of Progressive Gaming International Corporation(NASDAQ: PGIC) to Accumulate from Buy following Friday's announcement that it lost its post-trial motions and will proceed to appeals court in the Webb lawsuit. PGIC will have to post a $20M bond, which is more than the firm expected.
B. Riley downgraded shares of WSFS Financial Corporation (NASDAQ: WSFS) to Neutral from Buy after they lowered their estimates to reflect the company's higher projected on-interest expense.
Given the current choppy, consolidating market conditions, adding a few defensive plays is a prudent tack. Among insurers, Aetna Inc. (NYSE: AET) is worth a review.
Aetna's wide product offerings and comprehensive coverage is an operational strength, as is its geographic footprint. These factors, along with cost controls, should enable Aetna to maintain solid earnings growth in 2007-2009. The Reuters F2007/F2008 EPS estimates for AET are $3.43/$3.89.
What should one not expect from Aetna? Ill-conceived, poorly-researched endeavors. Aetna is a deliberate, move-forward-cautiously operation with a corporate culture that reflects many of the values of the land of steady habits, its home state of Connecticut. Aetna's shares rose $2.08 to $54.98 in Thursday afternoon trading.
Aetna Inc. (NYSE: AET) shares are trading higher today after the company reported a 4% increase in quarterly profit this morning on earnings per share of $0.95, above analysts' expectations of $0.92 per share. Furthermore, the company upped its full-year outlook to $3.48 per share from the $3.40-$3.42 range. If you think that the company 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 AET.
Aetna stock has been following an upward trend all year, reaching a new 52-week high with today's gains. AET opened this morning at $54.30. So far today the stock has hit a low of $54.30 and a high of $55.38. As of 10:30, AET is trading at $54.94, up $2.04 (3.9%). The chart for AET looks bullish and steady, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $47.50 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 3 months as long as AET is above $47.50 at January expiration. Aetna would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
The office of the Massachusetts secretary of state is investigating whether Bear Stearns (NYSE: BSC) improperly traded mortgage-backed securities for its own account with two hedge funds that failed this past summer, without notifying in advance the funds independent directors, reported the Wall Street Journal.
The Schork Report's Stephen Schork sees an oil correction coming and predicted oil in the $65-$68 range, according to the Wall Street Journal's "Heard on the Street" column.
OTHER PAPERS:
Insurer Aetna (NYSE: AET) has instituted a tighter reimbursement policy for Amgen's (NASDAQ: AMGN) anemia drugs, creating a setback for Amgen, reported the Los Angeles Times.
A consortium led by Icelandic investor Baugur is interested in making an offer for Saks (NYSE: SKS), reported the New York Post, but Saks will not consider a sale until the credit market improves.
MOST NOTEWORTHY: Gander Mountain, Lev Pharmaceuticals, Intermune, Aetna and Medco Health were today's noteworthy initiations:
Nollenberger initiated shares of Gander Mountain Company (NASDAQ: GMTN) with a Sell rating and $5.00 target, and believes the company's goal of reaching profitability in 2007 could prove overly optimistic.
Lev Pharmaceuticals (OTC: LEVP) was initiated with a Sector Outperformer rating and $3 target at CIBC, as the firm believes Cinryze will likely be approved in 1Q08 and they expect the company to have significant pricing leverage.
JP Morgan resumed coverage of Intermune Inc (NASDAQ: ITMN) with an Overweight rating and expects shares to be driven by the company's pipeline in IPF and HCV.
Aetna Incorporated (NYSE: AET) was initiated with an Outperform rating at Wachovia. The firm feels Aetna is positioned for better growth and higher quality earnings than its peers.
William Blair started shares of Medco Health Solutions Inc (NYSE: MHS) with an Outperform rating, as they believe an aging population, rising health care costs, and an acceleration in new product introductions should increase demand for PBM services over the next five years.
MOST NOTEWORTHY: Amazon.com (AMZN), YRC Worldwide (YRCW), SanDisk (SNDK), Activision (ATVI), Royal Dutch Shell (RDS.A) and KB Home (KBH) were today's noteworthy downgrades:
BWS Financial cut Amazon.com (NASDAQ: AMZN) shares to Sell from Hold on valuation.
YRC Worldwide (NASDAQ: YRCW) was assumed with an Underweight rating, down from Neutral, as JP Morgan is cautious on the industry's L-T-L pricing.
UBS downgraded SanDisk (NASDAQ: SNDK) to Neutral from Buy on valuation.
Gabelli downgraded shares of Activision (NASDAQ: ATVI) to Hold from Buy to reflect their expectation of increasing competition for some of the company's key titles.
Royal Dutch Shell (NYSE: RDS.A) was downgraded to Underweight from Neutral at HSBC on valuation.
Matrix believes the prolonged weakness in the housing market is eliminating economic profits and cut KB Home (NYSE: KBH) to Strong Sell from Sell...
OTHER DOWNGRADES:
Citigroup and ABN Amro cut Rio Tinto Group (NYSE: RTP) to Hold from Buy.
Merrill Lynch downgraded J.M. Smucker (NYSE: SJM) to Sell from Neutral.
First Albany downgraded shares of Travelzoo (NASDAQ: TZOO) to Neutral from Buy.
Coventry Health Care's (NYSE: CVH) earnings report from late April won't make anybody ill. Operaring revenues were up 15.4% to $2.24 billion. Net earnings were $127.5 million and diluted EPS were $.80, excluding a $.04 per share debt refinancing charge. Coventry is growing both organically and by acquisition. It purchased Concentra worker's compensation business unit in order to gain a national market, and has announced plans to acquire selected assets of Mutual of Omaha's health insurance business in the near future. In order to finance these acquisitions, Coventry Health Care retired $170.5 million in debt at 8.125 % to refinance $400 million of debt at 5.95%. The company also bought back 4 million of its own shares for $221 million.
According to CEO Dale Wolf, the company is doing exactly what it promised shareholders it would do: acquire strategic assets, buy back its own stock, refinance debt to more favorable terms, and launch new products and/or policies. One policy that Coventry has been pursuing is to raise premium yields on its members. Current Coventry members yield $271.03 in premiums per month, an increase of 5.6%. But expenses increased 4.8% to $212.43 during that same period, thereby negating most of the increase in premiums.
Coventry forecasts 2Q 2007 revenues of $2.3-$2.4 billion, yielding diluted EPS of $.94-$.96. FY 2007 total revenues are forecast at $8.1-$8.4 billion, yielding diluted EPS of $3.92-$3.98 icluding $.04 per share debt refinancing charges. The stiock opened the year at $49.81, and closed recently at $59.63, a respectable 20% run-up in share price. But health care costs have become a hot topic in Democratic presidential debates recently, and insurance companies have been held responsible for runaway costs and substandard treatment complaints. At half the size of health insurance giant Aetna (NYSE: AET), Coventry is a slightly better deal in terms of its p/e multiple, but there are more attractive investments out there than either one of these.
Here are some highlights from this past week's 
Yesterday was a difficult trading session for the 
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GM and Ford ready weak pitches for taxpayer bucks
Cramer on BloggingStocks: A troika of opportunity and trouble 
Before the bell: Wall Street headed higher; automakers, retailers in focus
