Stock futures were lower early Friday as investors seemed concerned about oil prices ahead of a weekend summit in Jeddah, Saudi Arabia. Meanwhile, financials kept the headlines this morning with Washington Mutual and airlines announcing jobs and cost cuts the main story there. It appears that the last day of this week might see some losses before heading into next week and the Federal Reserve meeting.
On Thrusday, stocks managed to finish the session higher after wobbly trading as oil prices dropped and Citigroup announced further writedowns. The Dow industrials ended 34 points, or 0.28%, higher, the S&P 500 added 5 points, or 0.38%, and the Nasdaq composite climbed 32 points, or 1.33%.
As there are no economic reports due today, investors will eye oil prices after crude-oil futures declined $5 a barrel Thursday following news that China is raising retail fuel prices starting Friday. As countries reduce subsidies for gas, many believe it could slow demand. This morning, oil prices traded a little higher at mid $132 per barrel.
MOST NOTEWORTHY: Siemens, Con-Way, Old Dominion Freight and Yahoo! were today's noteworthy upgrades:
Goldman added Siemens (NYSE: SI) to their Conviction Buy List on valuation, as they believe investors are overlooking potential catalysts for the stock, such as the company's buyback and margin expansion opportunities. Shares remain Buy rated.
Baird upgraded LTLs Con-Way (NYSE: CNW) and Old Dominion Freight (NASDAQ: ODFL) to Outperform from Neutral based on valuations, less fuel exposure, and better business models than TLs.
Soleil upgraded Yahoo! (NASDAQ: YHOO) to Hold from Sell on valuation, as the stock is near their $22 target.
With soaring fuel prices and declines in discretionary spending leading to bankruptcies and mergers among the airlines these days, one might forget that such things have often occurred in that industry since its early days. Take Eastern Air Lines, one of the first and longest-running of the so-called trunk carriers in the United States.
Eastern began as a mail carrier for the U.S. Postal Service in the mid-1920s but through acquisition and expansion came to dominate much of the domestic travel industry along the profitable East Coast corridor by the 1950s. Back then the company was widely known for its famous president, former World War I Ace, Eddie Rickenbacker.
The airline thrived into the 1970s, when it was one of the "big four" major U.S. airlines. In its time, Eastern pioneered the use of a worldwide computer reservation system and the all-jet mainline fleet. However, the carrier struggled after the Air Transportation Deregulation Act of 1978. Former astronaut turned CEO Frank Borman finally relented to corporate raider and union buster Frank Lorenzo's buyout offer in 1985. Valuable assets such as new aircraft, the East Coast shuttle service, lucrative fuel operations, and the worldwide travel agent computer system were sold off or shifted to Lorenzo's other carrier, Continental Airlines (NYSE: CAL). Deteriorating labor relations forced Eastern into bankruptcy in 1989, at the time the largest airline bankruptcy in U.S. history. The carrier ceased operations the day after the start of Operation Desert Storm in 1991.
Continental (NYSE: CAL) announced it plans to reduce its work force by 3,000 jobs and its Q4 domestic departures would be 16% lower than a year earlier.
CAL closed at $14.50 Wednesday. WTI Crude oil is recently up 0.20% to $122.54 according to Bloomberg.
CAL July option implied volatility of 97 is above its 26-week average of 80 according to Track Data, suggesting larger risks.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Starting with an aggregate of recent airlines news:
Continental Airlines (NYSE: CAL) said it would cut 3,000 of its 45,000 jobs, about 6.5%, and cut capacity 11% in the fourth quarter. The company will eliminate 67 planes and the company's chief executive and president say they will not take a salary for the rest of this year and will decline bonuses.
Delta Airlines (NYSE: DAL) May traffic rose 4.2% from the year-earlier month to 10.51 billion revenue passenger miles. Delta's May capacity increased 1.5% to 12.67 billion available seat miles. Load factor, or the percentage of seats filled with passengers, in May rose to 82.9% from 80.9%.
US Airways Group Inc. (NYSE: LCC) said its May mainline traffic rose 0.6% to 5.39 billion revenue passenger miles from last year. May mainline capacity was flat at about 6.54 billion available seat miles. Mainline load factor in May rose to 82.3% from 81.9% a year ago. It also said Wednesday it is cutting up to 1,100 more jobs, about 3% of its workforce.
With the Apple (NASDAQ: AAPL) conference just around the corner, analysts expect several features from the new iPhone that will likely be announced during the conference. The first is of course the 3G capability, which would boost iPhone sales in Europe and quell complaints about the speed of download through the AT&T (NYSE: T) network. The second is the corporate email capability. A third feature will likely be iTunes downloads through cellular networks and the applications store. Also, some expect Apple to try a different business model including subsidies and multiple carriers.
FedEx Corp. (NYSE: FDX) said it plans to change the FedEx Kinko's name to FedEx Office and take a related charge of nearly $900 million. The company said the name change will better reflect the services that it provides at its retail centers. Perhaps FedEx is right, but Kinko's is a well established brand and I find it hard to believe someone doesn't know what Kinko's is all about. FedEx also said it would raise its quarterly cash dividend by one penny, to 11 cents a share payable July 1 to shareholders of record as of June 13.
General Motors Corp. (NYSE: GM) is expected to announce plant closures in North America on Tuesday morning, according to The Wall Street Journal. The closures may include a truck plant in Oshawa, Ont., Canada. The Canadian Auto Workers will hold a press conference later this morning.
The Charleston Gazette reported that Chesapeake Energy Corporation (NYSE: CHK) has decided not to build its Eastern Division headquarters in Charleston, West Virginia in the wake of a West Virginia Supreme Court ruling on May 22.
WEB SITES:
AppleInsider reported that Apple Inc (NASDAQ: AAPL) is expected to announce a back-to-school deal soon that will encourage students to buy new Macs by offering some of the largest incentives in the history of the company.
Stock futures were higher early Friday morning as oil futures continued to drop and Dell reported surprising strong earnings. (Read the full transcript of the conference call that followed the earnings announcement.)
Some upcoming economic readings about personal income might affect the Street's mood yet, but as long as oil prices remain at around $125 a barrel or go even lower, investors may feel more positive on the day.
If last week stocks witnessed one sharp-drop session after another, this week stocks have been more consistent on their way up and on Thursday U.S. stocks rose for the third session in a row due to a big drop in crude-oil futures. The Dow industrials rose 52 points, or 0.41%, the S&P 500 added 7 points, or 0.53%, and the Nasdaq Composite rose 21 points, or 0.87%.
On the economic calendar today several releases:
At 8:30 a.m. EDT April Personal Income and spending is due. While not perfect, personal income is a decent indicator of future consumer demand. Once personal income starts to stagnate, meaning inflation has caught up with income growth, this is another indication of a recession. A price index is included in the income report. The personal-consumption expenditures is often considered to be the Federal Reserve's preferred inflation gauge.
A little after the open, May Chicago PMI, a regional manufacturing survey, is due out.
Finally, at 10:00 a.m., a revised reading on consumer sentiment from the University of Michigan for May will also be released.
Early today, JP Morgan downgraded some airlines and commented that there would be a possible Chapter 11 among the industry's largest companies. "There will be blood," wrote analyst Jamie Baker in the research report, forecasting a 2008 operating loss for the industry of $7.2 billion," reportsMarketWatch.
Several airlines were hit by the news, but United (NASDAQ: UAUA) sold off late on rumors and ended the day down 10% at $12.42. Continental (NYSE: CAL) also got squeezed by investors and was down almost 6% to $16.90.
The industry may be in a better position than investors think. This has nothing to do with rising fuel costs, which will keep operating costs very high or a recession, which could decrease traffic. It has everything to do with whether big banks want to write-off hundreds of million of dollars in losses in loans. They don't, especially not with poor balance sheets of their own. That should make it more likely the airline debt terms will be extended until the industry moves back in the direction of positive operating income.
Banks don't want to own airlines. Aviation is a bad business.
Douglas A. McIntyre is an editor at 247wallst.com.
CBS Corp. (NYSE: CBS) announced Thursday it has signed a deal to buy CNet Networks Inc. (NASDAQ: CNET) for $11.50 a share in cash. CNet operates not only the CNET site, but also ZDNet, GameSpot.com, TV.com, mp3.com and others. The deal values CNet at about $1.8 billion and push CBS to among the 10 most popular Internet companies in the United States. CBS shares are down 2.9% in premarket trading while CNET shares are of course up over 42% to $11.31.
IAC/InterActiveCorp (NASDAQ: IACI)'s Ask.com has bought Lexico Publishing Group LLC, the parent of Dictionary.com, Thesaurus.com and Reference.com among other sites. Earlier this year, Lexico already agreed to be sold to Answers Corp (NASDAQ: ANSW), but the latter couldn't secure the necessary funds. Now, Lexico sold itself to Ask.com, for an undisclosed amount, although the number people are throwing around is $100 million. Could this acquisition help IACI gain -- even a little -- on market leader Google?
United Airlines (NASDAQ: UAUA) and Continental Airlines Inc. (NYSE: CAL), dropping ideas of a merger, are now talking about forming an alliance to still gain some benefits of working together. United appears relentless in its attempts to help its bottom line through a merger or an alliance. While talking to Continental about an alliance, it is still negotiating with US Airways Group (NYSE: LCC).
Oppenheimer downgraded shares of Chelsea Therapeutics (NASDAQ:CHTP) to Perform from Outperform after their survey suggested physicians believe currently available generic treatments are adequate in neurogenic orthostatic hypotension, which could impact the company's lead drug Droxidopa.
Clearwire (NASDAQ:CLWR) was cut to Sell from Hold at Citigroup on valuation, as they estimate fair value at $13.
OTHER DOWNGRADES:
Goldman downgraded Kellogg (NYSE:K) to Neutral from Buy and Hershey Foods (NYSE:HSY) to Sell from Neutral.
Higher oil prices and the surging aviation fuel costs they imply may reduce the benefits of an airliner merger, such as the potential deal between United Airlines and U.S. Airways, but they don't eliminate a merger's long-term positives, an analyst argued Tuesday.
Further, C. Leonard Bauer, independent stock analyst, told BloggingStocks Tuesday the potential United-US Airways union would benefit the sector in that it would be the second merger this year among major airlines in the United States, also known as the legacy carriers.
Shares of UAL Corp. (NYSE: UAUA), parent of United Airlines, are down 88 cents to $14.10, while US Airways (NYSE: LCC) are down 55 cents to $7.79 in Tuesday trading.
Sector right-sizing
"The deal would take another legacy carrier off the table, after the Delta-Northwest merger, and that can only help the sector from an earnings standpoint," Bauer said. "The United States airline sector leads the league in airline route redundancy and duplicate hubs. This second deal would further tighten the sector."
Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) reported a 64% drop in quarterly profit late Friday. At the company's annual meeting this past weekend, the legendary investor said that while a Berkshire unit has bought portfolios of subprime mortgages (and has frozen resets that were due to send interest rates on those loans higher) he warned investors that housing-market weakness isn't over yet and predicted more losses for banks. At the same time, Buffett said Sunday he will consider investing in the insurance business of U.K. banking giant Royal Bank of Scotland (NYSE: RBS) and is close to buying a medium-sized company in the country.
Hovnanian Enterprises Inc. (NYSE: HOV) estimated on Monday it would take $225 million to $275 million of land-related charges for the that fiscal second-quarter and said that home deliveries dropped 21% to 2,494 homes in the period. The company also turned cash-flow positive faster than it expected and tripled its full-year estimate of cash flow.
After being rejected by Continental Airlines Inc. (NYSE: CAL) last month, United Airlines parent UAL Corp. (NYSE: UAUA) is intensifying merger talks with US Airways Group Inc. (NYSE: LCC), according to The Wall Street Journal. A deal is said could emerge in as soon as 10 days. In light of rising fuel costs, the more than $1.5 billion in potential cost savings and revenue enhancements the companies see from joining forces is no doubt appealing more and more.
Stock futures were lower early Friday as investors seemed concerned about oil prices ahead of a weekend summit in Jeddah, Saudi Arabia. Meanwhile, financials kept the headlines this morning with Washington Mutual and airlines announcing jobs and cost cuts the main story there. It appears that the last day of this week might see some losses before heading into next week and the Federal Reserve meeting.
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