MOST NOTEWORTHY: The Refining Sector, International Game Tech and Gilead Sciences were today's noteworthy downgrades:
Bernstein downgraded the Refining Sector to Market Weight from Overweight based on the weakening earnings outlook for the group. The firm downgraded Sunoco (NYSE: SUN) and Tesoro (NYSE: TSO) to Market Perform from Outperform.
Citigroup downgraded shares of International Game Tech (NYSE: IGT) to Hold from Buy following the company's lower than expected guidance and removed the stock from their Top Picks Live List. The firm lowered their target to $25 from $45. Shares were also downgraded at Oppenheimer to Perform from Outperform following the company's lower-than-expected results.
Jefferies cut Gilead Sciences (NASDAQ: GILD) to Hold from Buy following the company's Q2 results as they see limited upside catalysts and a matured core HIV drug franchise. The firm maintains a $56 target. BMO Capital downgraded GILD to Market Perform from Outperform based on valuation, flattening HIV sales, Letairis growth below expectations, and increased R&D costs.
OTHER DOWNGRADES:
Best Buy (NYSE: BBY) was downgraded at RBC Capital to Outperform from Top Pick.
Goldman removed Coca-Cola (NYSE: KO) from the Conviction Buy List.
Progressive (NYSE: PGR) was lowered to Neutral from Outperform at Credit Suisse.
MOST NOTEWORTHY: Progressive, Netflix and Public Service Enterprise Group were today's noteworthy upgrades:
Wachovia upgraded Progressive (NYSE: PGR) to Market Perform from Underperform based on modest signs of improvement in underwriting trends.
Lehman upgraded Netflix (NASDAQ: NFLX) to Overweight from Equal Weight based on strong core trends and a potential announcement of digital service partners into its May 28 investor day.
Credit Suisse upgraded Public Service Enterprise Group (NYSE: PEG) to Outperform from Neutral based on earnings growth through utility investment, valuation, upside from U.S. CO2 policy.
OTHER UPGRADES:
Precision Drilling (NYSE: PDS) was raised to Outperform from Sector Perform at RBC Capital.
Hertz Global (NYSE: HTZ) was upgraded at Soleil to Buy from Hold.
Calyon upgraded Foundation Coal (NYSE: FCL) and Arch Coal (ACI) to Add from Neutral.
AP reports that Liberty Mutual, the nation's largest provider of workers' compensation insurance and its sixth largest property-casualty insurer, is buying Safeco (NYSE: SAF) for $6.1 billion, a 51% premium over Tuesday's close.
Having spent years working for Liberty Mutual in the 1990s -- part of it for Gary Gregg, who heads the Agency Markets unit that will manage Safeco -- I know that this deal may well be the largest in its history. Safeco sells $5.9 billion in insurance policies a year, while Liberty booked annual premiums of $20.2 billion. Safeco has posted poor earnings and its stock has tumbled recently. Bloomberg News reports that Safeco's auto unit posted a loss at the end of 2007 because of rising medical claims and repair costs, leading to a 33% decline in fourth-quarter profit and a 19% decline in its stock in 2008 before this morning's announcement.
It looks like there will be more consolidation in the personal lines property casualty industry. Seventy one percent of analysts tracking insurers of homes, cars and businesses expect a "significant increase" in mergers in 2008, according to an Accenture (NYSE: ACN) report based on 108 stock analysts in December and January. Candidates for acquisition could include Progressive Corp. (NYSE: PGR), Mercury General (NYSE: MCY), The Hanover Insurance Group (NYSE: THG), and The Commerce Group (NYSE: CGI).
Progressive Corp. (NYSE: PGR) shares are trading higher after the company announced this morning its first quarter profit dropped 34% to $239.4 million, hurt by lower premiums. However, PGR posted earnings of 35 cents per share, exceeding analysts' estimates for a quarterly profit 29 cents per share. 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 PGR.
After hitting a one-year high of $25.16 in June, the stock hit a one-year low of $15.00 in March. PGR opened this morning at $16.70. So far today the stock has hit a low of $16.70 and a high of $17.39. As of 12:25, PGR is trading at $17.25, up $0.65 (3.9%). The chart for PGR looks bearish and steady while S&P gives PGR a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $15 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 16.3% return in just four months as long as PGR is above $15 at August expiration. Progressive would have to fall by more than 27% before we would start to lose money. Learn more about this type of trade here.
Retailers Lowe's (NYSE:LOW) and Nordstrom (NYSE:JWN) to report Q4 earnings. Lowe's will hold its conference call at 9:00am, Nordstrom will hold its conference call at 4:30pm.
Tuesday, February 26
Office Depot (NYSE:ODP) to report Q4 earnings; conference call at 9:00am.
FCC to hold Open Commission Meeting at 9:30am.
Macy's to report Q4 earnings; conference call at 11:00am.
Wednesday, February 27
FDA to hold Anti-Infective Drugs Advisory Committee Meeting at 8:00am.
BP plc (NYSE:BP) to hold business update at 9:00am.
Toll Brothers (NYSE:TOL) to report Q1 earnings; conference call at 2:00pm.
Vale (NYSE:RIO) to report Q4 earnings; conference call at 10:00am.
PDUFA Date for Jazz Pharma (NASDAQ:JAZZ) and Solvay Pharma's (SVYSY) Luvox CR for treatment of Obsessive Compulsive Disorder and Seaosnal Affective Disorder.
I'm placing this blog post squarely at the feet of George Soros. The first reason I'm doing that is because I can. The second reason I'm doing it is because Mr. Soros will never read it. The third reason is because I have the ability to understand insurance actuary tables and I can read the writing on the wall.
Is anyone out there willing to take a guess at exactly why George Soros, Progressive Insurance (NYSE: PGR), and most of the rest of the auto insurance industry is so highly motivated to promote the green movement? Do you think it's because they want more trees available for the little birdies to sing in? Is it because someone said we're running a couple quarts low on oil? Could it be that they fear "green house gases" will soon choke us all? Nope, it's about none of those things. It all comes down to percentages, money, and control.
Insurance giant Progressive Corp. (NYSE: PGR) was a pioneer in the use of the internet, which allowed customers to virtually line up to compare automobile insurance rates from several providers. If Progressive saved you money, you were able to get a policy right then and there. If other providers were cheaper for the same coverage, Progressive would tell that to you also.
The company's brand is pretty strong in auto insurance due to the emphasis it places on "empowering the consumer" above all else. Who needs expensive auto insurance, right? Like many companies, though, it must constantly work to differentiate itself. In its latest twist on selling insurance, the company is now offering auto insurance coverage for your beloved pet while he or she is riding in the car with you.
The total amount spent on pets in the U.S. is staggering -- $40 billion and climbing. That amount would make any bean counter salivate, and Progressive's bean counters are no different. With 150 million pets in this country, why not seize a piece of that action with coverage for that special pet? Where others saw insanity, Progressive saw a huge market opportunity.
According to the Wall Street Journal's "Heard on the Street" column, Progressive Corporation (NYSE: PGR) is struggling due to competitors' pricing, safer cars, and a struggling economy, to name a few factors.
The Financial Times reported that General Electric Company (NYSE: GE) will decide whether to sell its 80% stake in NBC Universal after the Beijing Olympics in August 2008, according to sources.
Tenaris (NYSE: TS), the maker of steel pipes for oil and gas exploration, has ruled out any possible sale of itself to ArcelorMittal (NYSE: MT) , the world's biggest steel producer, reported the Financial Times.
OTHER PAPERS:
The New York Post reported that UBS AG (NYSE: UBS) has fired David Martin, its head of interest-rate trading, and James Stehli, the head of its collateralized debt obligation unit, due to the fallout from the mortgage meltdown.
BP PLC (NYSE: BP) CEO Tony Hayward will today unveil plans to reduce bureaucracy and duplication of management at the oil giant, reported the Telegraph.
Business Objects (NASDAQ: BOBJ) was downgraded to Neutral from Outperform at Baird following its acquisition by SAP AG (NYSE: SAP).
Wachovia downgraded Allstate Corporation (NYSE: ALL) to Market Perform from Outperform and P&C Insurance (NYSE: PGR) citing deteriorating fundamentals in personal lines.
OTHER DOWNGRADES:
UBS downgraded BEA Systems (NASDAQ: BEAS) to Neutral from Buy.
JP Morgan downgraded Merrill Lynch (NYSE: MER) to Neutral from Outperform.
Sealy Corporation (NYSE: ZZ) was downgraded to Neutral from Buy at Banc of America.
In his second quarter letter to The Progressive Corporation (NYSE: PGR) shareholders, CEO Glenn Renwick admits the quarter was weak, the numbers are not where the company wants them, but there are signs of progress slowly emerging. Might as well get the bad news all out on the table so shareholders know what they are dealing with. One has to admire the CEO's honesty.
Progressive Corp. of Ohio is an insurance company that writes policies for personal and commercial drivers, as well as policies for motorcycles and personal watercraft for recreational use. Consumers might recognize Progressive from its commercials in which it provides a potential customer not only with its own rates but also the rates of competitors and admits that sometimes Progressive is not the cheapest but does provide superior claims service. Turns out, lots of customers really do want the cheapest coverage possible.
Thus, Progressive's net income declined 29% in the second quarter because the company wrote fewer policies and had to discount premium prices on policies it did write. CEO Renwick believes most of the discounting has already been done and he looks for premiums to rise although Progressive remains very sensitive to price comparisons with its competitors.
MOST NOTEWORTHY: Continental Airlines, Inc (CAL), Molson Coors Brewing Co (TAP), Watsco, Inc (WSO), K-V Pharmaceutical Co (KV.A), Progressive Corp (PGR) and Color Kinetics (CLRK) were today's noteworthy downgrades:
Goldman downgraded shares of Continental Airlines, Inc (NYSE: CAL) to Neutral from Buy on valuation, higher oil prices and a weak domestic market.
Goldman also downgraded Molson Coors Brewing Co (NYSE: TAP) to Neutral from Buy based on the increase in analyst estimates, valuation and the potential for margin pressure in the summer.
BB&T cut Watsco, Inc (NYSE: WSO) to Hold from Buy based on valuation and catalysts that are already reflected in the share price.
Roth Capital downgraded shares of K-V Pharmaceutical Co (NYSE: KV.A) to Hold from Buy, telling clients they have learned that Par Pharmaceuticals Cos (PRX) has launched generics of 50, 100 and 200mg Toprol-XL. The firm expects a material impact to KV's 100 and 200mg strength generics.
Stifel expects investor enthusiasm regarding Progressive's Corp (NYSE: PGR) recapitalization plan to fade as underwriting fundamentals deteriorate and cut shares to Sell from Hold.
Color Kinetics (NASDAQ: CLRK) was downgraded to Hold from Sell at Needham on valuation...
America is a "sue-happy" country. Where else can you sue the dry cleaners for $54 million because they lost your Hickey Freeman pants. You think I am joking; but this is a case of life being stranger than fiction. A Washington DC judge (who in my opinion should know better) is suing a dry cleaners that lost his pair of pants.
For a moment last week my trust in the American legal system began to fail as Paris Hilton, heiress of Hilton Hotels (NYSE: HLT) fortune, spent a heart-wrenching three days in jail before being released by the sheriff for "medical reasons." Then suddenly my faith was restored as the judge sent her back to jail.
Well it didn't last long. It seems this week a pair of lost pants is worth crying over -- and $54 million. I guess America is land of the free and home of too many lawyers. Maybe this is why I respect Vice President Cheney: I mean, we all talk about the problem with lawyers, but at least he shot one.
On Sunday, Warren Buffett said he wanted to buy a huge business -- in the $5 billion to $20 billion range. With $46 billion in cash and $90 billion of cash and fixed-income securities on its balance sheet, Berkshire Hathaway, Inc. (NYSE: BRK.A) can certainly afford to buy a huge business.
So... What should he buy? I say, Progressive Corp. (NYSE: PGR) for the following three reasons:
Progressive is a leader in personal lines property/casualty: With 7.6% of the industry's $161 billion in net premiums written, PGR is one of the largest sellers of auto and homeowners' insurance in the country. With GEICO already part of BRK.A, this is an industry which Buffett knows and loves for its huge float -- the cash from insurance premiums that he can invest until a portion gets paid out as claims. If GEICO and PGR combined, they'd have about 14% of the market.
Innovative Chairman may want to sell: Progressive has been an innovator that has pioneered ideas such as allowing customers to compare insurance prices online and using computers to settle claims faster. Its visionary Chairman, Peter Lewis, is 73 and Forbes estimates his net worth at $1.4 billion. With the stock down 12% in the last year, Lewis may be disaffected with his chosen successor and could view a sale to Buffett as a smart move.
Price in range: Progressive's market capitalization is currently at $17.2 billion. If Buffett offered a 20% premium over the current price, he could pick up PGR for $20.6 billion -- just a bit above the range that Buffett had announced Sunday.
Even if Buffett doesn't buy PGR, I think it could be a strong holding. It just reported results that beat analysts' estimates by a penny and it was upgraded from a hold to a buy on stronger sequential and annual sales.
What other candidates would you nominate to soak up Buffett's $20 billion?
With many market commentators becoming increasing bullish as the market continues its move higher, trading expert Richard Rhodes cautions, "The tectonic plates beneath the market are shaking."
Th editor of The Rhodes Report explains, "Each day, we watch the current rally powering higher; and, each day we find our indicators becoming more and more overbought. While we are concerned about the overbought conditions, we are most concerned by the 'mini-mania' that has gripped stocks and the fact that this sharp rally is as narrow a rally as we have seen in many years."
He notes that the percentage of stocks above their 10-day and 200-day moving averages are now less than what they were at the February peak. He explains, "When the broader market rallies – then we want all the generals and troops moving together on a united front – and clearly this isn't the case.
And while noting that this is "worrisome," he also recognizes that it is foolhardy to attempt and call a short term top. He says, "We continue to believe that from a fundamental perspective that the probability of a bear market is higher than many anticipate at this time – however, the technicals don't yet support this." He quips, "It will end when it ends and not a day sooner."
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MOST NOTEWORTHY: The Refining Sector, International Game Tech and Gilead Sciences were today's noteworthy downgrades:.gif){kind=logo}
I'm placing this blog post squarely at the feet of George Soros. The first reason I'm doing that is because I can. The second reason I'm doing it is because Mr. Soros will never read it. The third reason is because I have the ability to understand insurance actuary tables and I can read the writing on the wall.
Insurance giant 
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