Moody's (NYSE: MCO), a provider of credit ratings, closed at $21.61 Wednesday. MCO is scheduled to announce Q3 EPS on October 29. Warren Buffett's Berkshire owned a 19% stake in MCO as of December 31, 2007. MCO November call option implied volatility is at 117, puts are at 131; above its 26-week average of 58 according to Track Data, suggesting larger price movement.
USG (NYSE: USG), a building materials company, closed at $19.68 Wednesday. USG is scheduled to report Q3 EPS on October 28. Warren Buffett's Berkshire Hathaway owns 17% of USG. USG November call option implied volatility is at 71, puts are at 81; above its 26-week average of 44 according to Track Data suggesting larger price movement.
American Express (NYSE: AXP) closed at $25.02 Wednesday. Warren Buffett's Berkshire Hathaway owns a 13% stake in AXP. AXP November option implied volatility of 80 is above its 26-week average of 51 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Jefferies upgraded shares of Akamai (NASDAQ: AKAM) to Buy from Hold on valuation, as they see a long-term buying opportunity following the recent correction. The firm maintains a $29 target.
Moody's (NYSE: MCO) was upgraded to Overweight from Underweight at Lehman.
Boyd Gaming (NYSE: BYD) was upgraded to Neutral from Underperform at Merrill Lynch.
Analyst downgrades:
Jefferies downgraded shares of Nortel Networks (NYSE: NT) to Hold from Buy on concerns about the company's ability to hit expectations and drive margin expansion in the face of an eroding CDMA revenue stream. The firm lowered their target to $7.25 from $11.
B. Riley cut Charlotte Russe (NASDAQ: CHIC) to Neutral from Buy on concerns about how well the company can perform with the interim management team, especially in light of the current retail environment. The firm lowered their target to $14 from $17. Roth Capital downgraded shares to Sell from Hold to reflect the management uncertainty and lowered their target to $9 from $14.
Goldman cut Warner Music (NYSE: WMG) to Sell from Neutral and Deere (NYSE: DE) to Neutral from Buy.
Analyst initiations:
Banc of America expects top-line growth at Amgen (NASDAQ: AMGN) to be driven by Denosumab and for investors to look to the stock for biotech exposure following the potential acquisition of Genentech (NYSE: DNA). The firm started shares with a Buy rating and $70 target.
Sirius Satellite (NASDAQ: SIRI) was initiated at JP Morgan with a Neutral rating.
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%)
S&P and Moody's (NYSE:MCO) do not have the best reputation these days. They missed most of the calls on the danger of subprime paper. Some of that has been blamed on computer problems. And, the dog ate my papers.
Now, S&P says it may downgrade its ratings on nine airlines and review one more. According toThe New York Times, "In total, 10 airlines, including all the major carriers, are now under the CreditWatch negative designation." The companies include AMR (NYSE: AMR), Delta (NYSE: DAL) and United (NASDAQ: UAUA).
S&P says some of the airlines may even face Chapter 11.
It would be fair to ask where the ratings agency has been. Jet fuel prices are close to doubling in a year. Every airline faces huge losses throughout the rest of 2009. Some carriers have lost nearly 80% of their market value in a year. AMR now trades just above $6, down from almost $30. Its market cap is only 7% of annual revenue. In other words, the company trades close to its liquidation value.
S&P has image problems for a reason. It either gets its calls wrong, or it gives them out way too late.
Reuters reports that Warren Buffett, whose Berkshire Hathaway (NYSE: BRK.A) controls 19.6% of Moody's Corp. (NYSE: MCO), is saying that he thinks Moody's will be around a long time. Even though Berkshire Hathaway's $188 billion market capitalization is more than 20 times that of Moody's -- Buffett's $1.8 billion loss -- the 50% drop in the value of his 19.6% Moody's stake from its February 9, 2007 peak -- has to sting.
Moody's was already under fire over the U.S. mortgage market crisis when it took a fresh blow on Wednesday -- launching an investigation into a report that it had wrongly assigned triple-A ratings to about $4 billion of complex European debt products -- Constant Proportion Debt Obligations (CPDOs), funds that used borrowed money to bet on credit-default swaps -- and had then not downgraded them. Buffett's comment: "I don't think one day will permanently change the franchise value of Moody's."
As I posted, the ratings agencies competed for lucrative fees from investment banks that created and sold these asset-backed securities. Moody's took in $3 billion for such structured finance ratings between 2002 through 2006. The agencies that offered the best ratings won the business.
The notes out of the Fed gave no indication of rate cuts. Too much worry about inflation.
After a report showing that supplies have dropped, oil traded north of $132.00 per barrel today. Maybe T. Boone Pickens' call for $150 oil was intended to be by the end of the month rather than the end of the year. The minutes from the last FOMC meeting may say it all: increased inflation expectations, increased unemployment expectations, lowered GDP expectations. But no recession, at least not officially while the Fed describes the environment of stagflation. Below are the unofficial closing US index levels:
AMR Corp. (NYSE: AMR) saw shares fall a sharp 25% after the company announced at its annual shareholder meeting that it was going to slash 11% or 12% from its flight capacity. To make bad matters worse, Soleil issued an untimely downgrade of the sector today.
Moody's (NYSE:MCO) made a mess of rating subprime debt and other risky instruments. It also said that some bonds help by municipal bond insurers was safe and that these companies should have "Aaa" ratings. Most of that turned out to be wrong and it helped cost investors, banks, and brokerage firms tens of millions of dollars.
Everyone from Moody's customers to Congress wants to know how the ratings could have been so wrong.
Now, the rating company has come up with a novel excuse for another series of mistakes. According to the FT , "Moody's awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models." Several Moody's executives may have known about the mistake some time ago.
Comments from Moody's downplayed the problem. The company said that it adjusted its models from time to time.
The news may get the ratings agency into some real trouble, and it should. If the company was aware of the problem, why wasn't the information passed along to customers who rely on the ratings to make purchases?
Moody's ought to be dragged before regulators and be forced to give an entire accounting of the problem. Perhaps it should pay back customers who made bad decisions because of the errors. Of course, Moody's does not have that kind of cash.
Douglas A. McIntyre is an editor at 247wallst.com.
Barnes & Noble Inc (NYSE: BKS) is considering a bid for rival bookseller Borders Group Inc (NYSE: BGP), the Wall Street Journal reported, a move which would allow Barnes & Noble to improve profits and reduce costs. Antitrust issues could prevent a deal.
The Wall Street Journal also reported that Carl Icahn's effort to remove Yahoo! Inc's (NASDAQ: YHOO) board has picked up new supporters, including T. Boone Pickens, who acquired a 0.75% stake. Some Yahoo shareholders believe it is still too early to predict whether Icahn will be able to carry July 3's shareholder vote.
A Financial Times investigation discovered that Moody's Corporation (NYSE: MCO) incorrectly awarded top ratings to billions of dollars to debt products due to an error in its computer models. Moody's said it is in the process of "conducting a thorough review" of the rating of the constant proportion debt obligations, which should have been up to four notches lower.
OTHER PAPERS:
According to the people briefed on the matter, the New York Times reported that the buyout of Penn National Gaming Inc (NASDAQ: PENN) by Fortress Investment Group (FIG) and Centerbridge Parters may involve revised terms. The sources said the negotiations may "delay or even imperil" the deal.
Merrill Lynch upgraded Sirius (NASDAQ: SIRI) to "neutral" from "sell" according toBriefing.com. The news service also reports that Citigroup downgraded EDS (NYSE: EDS) from "outperform" from "market perform".
Goldman Sachs downgraded ITV to "sell" from "neutral," according toMarketWatch.
Someone had to pay for the fact that Moody's (NYSE: MCO) is being blamed for not doing a better job predicting the mortgage securities crisis. The reasoning is that the credit ratings agency was too close with some of the companies that issued the paper and did not look hard enough at how the system might come apart in a subprime lending meltdown.
As usual, it is not the CEO who is leaving. Moody's is dumping its president, a sign that the company is contrite, sees the error of its ways, and wants to do better. According toThe Wall Street Journal Brian Clarkson's departure "effective by July, marks the highest-profile casualty to date in the controversy over the complicity of credit-rating firms in the subprime meltdown."
Of course, Mr. Clarkson did not act alone. Moody's has scores of analysts who looked at the data on the subprime market. Clarkson was at the top of the pyramid. Of course, the company's CEO was even more so.
The great tradition in American management is that blame should always fall to one person, or a small group of people, when something significant goes off-track at a company. The thinking is usually muddled. Responsibility almost always extends over a wider number of persons.
But, having Clarkson leave is good window dressing.
Douglas A. McIntyre is an editor at 247wallst.com.
Given that the big credit rating agencies -- Moody's (NYSE: MCO) and McGraw-Hill's (NYSE: MHP) Standard & Poors -- completely failed in their assessment of risk when it came to mortgage-backed securities, it's no surprise that the SEC is being asked to take a look.
Senator Charles Schumer (D-NY) has met with SEC Chairman Chris Cox to discuss conflicts of interest and disclosure problems. The Wall Street Journalquotes (subscription required) the senator as saying that "There has to be a lot more done about conflicts of interest at the agencies."
Among the worst of the rating agency abusers has been MBIA (NYSE: MBI) which, back in March, had the gall to ask Fitch to drop its coverage of the firm because they didn't like Fitch's opinion. To its credit, Fitch stayed strong and later downgraded the company's credit rating.
But wait, there's more: In a devastating piece on Friday, The Wall Street Journalreported (subscription required) on Moody's efforts to cozy up to issuers in exchange for more business, possibly at the expense of the integrity of their ratings.
This is essentially a replay of the issues involving conflicted analysts like Henry Blodget who, at the height of the internet stock bubble, sacrificed his research to the investment banking arm of his firm. It will take a tough regulator to clean up this mess, and I seriously doubt that Chris Cox is the man for job.
The Wall Street Journal reports that Singapore's DBS Group Holdings, the biggest bank in Southeast Asia, will no longer do business with Lehman Brothers Holdings Inc. (NYSE: LEH). The Journal notes: "DBS has sent an internal e-mail saying it would not deal with Lehman Brothers from now on. It said DBS shouldn't enter into new dealings with Lehman or Bear Stearns." Quoth Lehman: "Our liquidity position is and continues to be strong."
I have posted about whether Lehman could meet a Bear-like fate here and here. ING thinks that the Fed won't participate in a Lehman bailout since it's not too big to fail. The Journal reports: "We think the Fed was moved to provide lender of last resort facilities because it judged Bear's large prime brokerage business made it "too big to fail" in the wholesale payments, clearing and settlement system. On the face of it, Lehman is not too big to fail."
Wall Street, like poker, is a game of bluffs and bets. Successful bluffing depends on keeping a straight face. Unfortunately for Lehman customers and investors, DBS is calling Lehman's bluff. It's a race to the exits as the market watches who will follow DBS out the door. And with Reuters reporting that Moody's (NYSE: MCO) has cut Lehman's ratings outlook to 'stable', the pressure is on even more.
Citigroup upgraded Moody's (NYSE: MCO) to "buy" saying "the company's earnings outlook is favorable," according to MarketWatch.
Bear Stearns upgraded Coca-Cola (NYSE: KO) to "outperform" from "peer perform," according toBriefing.com. The news service also reports that Merriman downgraded Level 3 (NASDAQ: LVLT) to "neutral" from "buy."
Moody's (NYSE: MCO) is thinking of releasing a new ratings system that does not use letters, but has numeric ratings and "warning labels" for securities that may be difficult to analyze.
According toThe Wall Street Journal, "one of the most significant changes being considered by the parent of Moody's Investors Service: a new, 21-point numerical scale to rate structured securities." The new system would also help investors look at CDOs and other risky investments differently from corporate bonds.
The whole exercise is bogus. Moody's could have employed a similar system long ago. Why are numbered ratings any different from those that use letters? Why didn't the firm have a systems that indicated the risks in complex securities such as CDOs and other structured investments?
The Moody's move is simply an attempt to try to hide and rectify the substantial flaws in the system that exists now. And, it is a feeble attempt to boot.
Douglas A. McIntyre is an editor at 247wallst.com.
Moody's Corp. (NYSE: MCO) Chief Executive Raymond McDaniel Jr. made a stunning admission at the World Economic Forum in Davos about the subprime mortgage crisis: "In hindsight, it is pretty clear that there was a failure in some key assumptions that were supporting our analytics and our models."
In other words, people lied to us because the 'information quality" the ratings agency got was lacking in "completeness and veracity," as Floyd Norris notes in the New York Times.
Moody's (NYSE: MCO), a provider of credit ratings, closed at $21.61 Wednesday. MCO is scheduled to announce Q3 EPS on October 29. Warren Buffett's Berkshire owned a 19% stake in MCO as of December 31, 2007. MCO November call option implied volatility is at 117, puts are at 131; above its 26-week average of 58 according to Track Data, suggesting larger price movement. .gif){kind=logo}
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Given that the big credit rating agencies -- 
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Cramer on BloggingStocks: A troika of opportunity and trouble 
Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
