Executive compensation gone wild is a major pet peeve of mine. And if seven-figure pay packages plus restricted stock and options and country club memberships aren't bad enough, some executives are now sticking their companies with the losses on homes they bought.
Here's how it works: A company wants to hire a new CEO but she'll have to relocate to take the job. So the company agrees to make up any loss on the sale of the house. In this real estate market, that's becoming more of an issue. Qwest (NYSE: Q) lost $1.8 million on Edward Mueller's old house.
Part of me doesn't think this is such a big deal. If that's what it takes to recruit the executive, and the board is aware of the potential liability, it isn't really any different from a higher salary. Recent SEC rules that require companies to provide a summary compensation table showing the total value of the top officers' pay packages including all perks make this less of an issue.
Of course, some pay critics are using this as an opportunity to jump on the greed of executives and the supine nature of corporate directors. But the focus should remain on corporate governance and the fact that executive pay is too often completely unrelated to performance. Issues like relocation benefits make for good stories, but they're really not the issue.
This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
"I'm like Ma Bell, I got the ill communication." -- Beastie Boys
When considering these two particular companies, it is important to note their roots as offspring of the famous "Ma Bell" network. The Bell System, which has produced the most complex ongoing series of mergers and break-ups in the history of the United States, is the origin of the companies that are now AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), as well as competitor Qwest Communications International (NYSE: Q). A lot has changed since those early times -- remember, after all, that the second "T" in AT&T stood for Telegraph. Now phones are the latest devices to be made supercomputers. AT&T has its exclusive deal with the Apple Inc. (NASDAQ: AAPL) iPhone, while Verizon slings the Research in Motion Ltd. (NASDAQ: RIMM) BlackBerry.
Since wireless is the way of the future, the wireless divisions of these companies is the most hotly contested, and the focus of this "Battle of the Brands." It is important to note that despite Verizon Wireless bearing solely Verizon's name, it is not owned by just them, it is a 55%-45% joint venture between Verizon and Vodafone Group (NYSE: VOD). It is also important to note that AT&T Mobility is the service formerly known as Cingular, which was acquired by AT&T in 2006 when it bought BellSouth for $86B.
Semiconductor equipment maker Applied Materials said that its fiscal first-quarter profit declined as revenue fell due to the challenging global market for its products. Sales fell 8% to $2.09 billion from $2.28 billion in the same period of 2006. The company earned $262.4 million, or 19 cents per share, down 35% from $403.5 million, or 29 cents per share.
Excluding restructuring costs and other items, adjusted earnings were $345 million, or 25 cents per share. Analysts polled by Thomson Financial had expected a profit of 20 cents per share on sales of $2.01 billion.
Shares of Applied Materials rose Tuesday and Wednesday $3.10, or about 17%, to close at $19.91. Shares have been climbing from the 52-week low of $16.13 in mid January.
Qwest Communications International Inc. (NYSE: Q) shares are rising this morning following yesterday's announcement that the company will begin paying quarterly dividends again in February. The company had halted its dividend program in 2001. Q will pay a quarterly dividend of 8 cents per share on February 28 to shareholders of record on February 1. Analysts called the move a sign that Q is being repositioned for better long-term growth. 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 KO.
After hitting a one-year high of $10.45 in May, the stock hit a one-year low of $6.23 in November. Q opened this morning at $7.33. So far today the stock has hit a low of $7.08 and a high of $7.35. As of 11:00, Q is trading at 7.18, up 0.22 (3.2%). The chart for Q looks bearish but improving slightly, while S&P gives Q a neutral 3 Stars (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an April bull-call debit spread at the $7.50 level. A bull-call debit 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 35% return in four months if Q is above $7.50 at April expiration. Qwest would have to fall by more than 11% before we would start to lose money.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in Q.
Cell phones and VoIP are killing the regular old home phone business. Reviewing a new study from a Citigroup analyst, Barron's said, "The telcos continue to lose residential phone subscribers to both cable VoIP and wireless subscriptions at a steady 7%-8% a year."
The number of consumers who use only a wireless phone at home is expected to hit 27% in 2010. And the penetration of cable VoIP is expected to be 25% by then.
It might seem bad news for AT&T (NYSE: T) and Verizon (NYSE: VZ), but both do have large wireless businesses that should help offset attrition among home phone users. They are also selling new fiber-to-the-home broadband, which will also supplement revenue.
Where can you find the "Wall Street of the West?" In Colorado, of course -- specifically, Denver's 17th Street financial district.
Colorado's economy has come a long way from its foundation on trapping and mining. Denver's location, equidistant between Los Angeles and Chicago, between Seattle and New Orleans, has helped the Centennial State become the economic center of Rocky Mountain states -- even Denver's time zone and elevation help it keep in touch with the rest of the world. It's no wonder there's a large federal government presence in the state (U.S. Air Force Academy, NORAD, NOAA, Denver Mint, U.S. Geological Survey).
MOST NOTEWORTHY: GPC Biotech, Akamai, Qwest, Shutterfly and LDK Solar were today's noteworthy downgrades:
GPC Biotech (NASDAQ: GPCB) was downgraded to Sell from Neutral at Goldman, to Sell from Hold at Deutsche Bank and to Underweight from Overweight at Lehman after the company's phase III trial of satraplatin to treat prostate cancer did not meet its primary endpoint.
Deutsche Bank downgraded shares of Akamai Technologies (NASDAQ: AKAM) to Hold from Buy on valuation following the recent rally as they believe concerns around slowing growth, margins and capital efficiency will limit upside.
Qwest Communications (NYSE: Q) was downgraded to Sector Performer from Outperformer at CIBC and to Neutral from Overweight at JP Morgan following the company's disappointing Q3 results.
Jefferies downgraded shares of Shutterfly (NASDAQ: SFLY) following the better-than-expected Q3 results due to valuation.
Piper downgraded shares of LDK Solar (NYSE: LDK) to Market Perform from Outperform, as they expect higher blended poly cost for the company due to tightening scrap poly supply and increased competition.
OTHER DOWNGRADES:
Maxwell Technologies (NASDAQ: MXWL) was downgraded to Underperform from Market Perform at JMP Securities.
UBS downgraded Estee Lauder (NYSE: EL) to Sell from Neutral.
Merrill downgraded CommScope (NYSE: CTV) to Neutral from Buy.
Under Armour (NYSE: UA) was downgraded to Underperform from Market Perform at Raymond James.
RBC Capital downgraded Beckman Coulter (NYSE: BEC) to Sector Perform from Outperform.
MOST NOTEWORTHY: BEA Systems, Nokia, Medco Health, Quest Diagnostics and PetSmart were today's noteworthy downgrades:
Citigroup downgraded shares of BEA Systems (NASDAQ: BEAS) to Hold from Buy on valuation following the $17/share offer by Oracle (NASDAQ: ORCL) as they think a public bidding war for the company is unlikely.
ABN Amro downgraded shares of Nokia Corporation (NYSE: NOK) to Hold from Buy on valuation and believes above consensus Q3 results are already priced into shares.
Wachovia downgraded Medco Health Solutions (NYSE: MHS) to Market Perform from Outperform on valuation.
The firm also downgraded Quest Diagnostics (NYSE: DGX) to Market Perform from Outperform, as they believe the prospects from stabilizing volumes and cost savings are reflected in valuation and Street estimates.
Credit Suisse downgraded shares of PetSmart (NASDAQ: PETM) to Neutral from Outperform citing aggressive pricing at Petco, accelerating growth initiatives, limited visibility around expense management, and lack of consistent results.
OTHER DOWNGRADES:
Methanex Corporation (NASDAQ: MEOH) was downgraded to Sector Underperformer from Sector Performer at CIBC.
While investors are focusing on the ensuing battle between AT&T (NYSE: T) and the big cable companies over providing voice, video and data to the home, many might need to be reminded that the telco giants have a massive enterprise business that is ripe to benefit from improved pricing.
Remember there are few companies that can provide high-level enterprise service on a nationwide basis -- AT&T and Verizon Communications (NYSE: VZ) are pretty much it. You would be hard pressed to name another. Qwest Communications (NYSE: Q) has not said much about what it wants to do with its fiber network and although Level 3 Communications (NASDAQ: LVLT) is picking up its business, it will not be enough to threaten the positions of the two behemoths.
AT&T and Verizon's stock performance, while doing well recently, has been held back by investors wondering where the revenue growth is. Now it appears that growth might be ready to return. Jim Crowe, Level 3's CEO, said a few months back that one issue the industry no longer has is pricing, a big change from a few years ago.
Verizon and AT&T have been written about more positively over the past few days, as Bear Stearns and Citigroup are both recommending the stocks. Sometimes the best stocks are in the most obvious places. AT&T and Verizon are two large companies that are worth looking at again.
MOST NOTEWORTHY: Websence (WBSN), RF Micro Devices (RFMD), Fiserv (FISV), Qwest (Q), and OSI Pharma (OSIP) were today's noteworthy upgrades:
JP Morgan upgraded shares of Websence (NASDAQ: WBSN) to Overweight from Underweight ahead of the renewal period starting in the December quarter and expects this momentum to drive shares higher.
RF Micro Devices (NASDAQ: RFMD) was raised to Buy from Hold at Citigroup, who said the Sirenza Microdevices (SMDI) deal gives the company its first real prospect for gross margin expansion in years.
Matrix USA upgraded Fiserv (NASDAQ: FISV) to Buy from Sell, and expects the company to benefit from the Checkfree (CKFR) acquisition.
Lehman upgraded shares of Qwest (NYSE: Q) to Overweight from Equal Weight, citing the hiring of industry veteran Ed Mueller as CEO. The firm believes the new CEO removes an overhang and could lead to a change in strategic direction and significantly increase capital spending.
JP Morgan upgraded OSI Pharma (NASDAQ: OSIP) to Overweight from Underweight based on valuation and upcoming catalysts for Tarceva that should be seen in the next year...
OTHER UPGRADES:
UBS upgraded Allstate (NYSE: ALL) to Neutral from Sell.
Friedman Billings believes Symantec's (NASDAQ: SYMC) fundamentals are about to show significant improvement over the next year and upgraded shares to Outperform from Market Perform.
JP Morgan raised OfficeMax (NYSE: OMX) shares to Overweight from Neutral on valuation.
Qwest (NYSE: Q) was upgraded to Sector Outperformer from Sector Performer, expecting revenue growth to be driven by the improving enterprise business. JP Morgan added Qwest to its Focus List.
Metlife (NYSE: MET) was upgraded to Buy from Neutral at Merrill, based on valuation...
OTHER UPGRADES:
ValueClick (NASDAQ: VCLK) was upgraded to Sector Perform from Underperform at Pacific Crest.
Penn West (NYSE: PWE) was upgraded to Sector Perform from Underperform at RBC Capital.
Friedman Billings upgraded Cubic (AMEX: CUB) to Market Perform from Underperform.
Morgan Stanley upgraded shares of Jones Apparel (NYSE: JNY) to Equal Weight from Underweight.
Broadcom (NASDAQ: BRCM) was raised to Sector Outperformer from Sector Performer at CIBC.
Notebaert says he will stay until the board finds a replacement, but it does not appear that he will be very active in that process. Reuters rightly credits the CEO "with leading the U.S. phone company toward recovery from losses and massive debt." The previous CEO, Joe Nacchio, left in disgrace and has spent most of his time since his departure fighting federal charges.
Qwest has several problems, but these have not kept the stock from moving up 150% over the last five years. The company does not have a big revenue and cash flow engine in the cellular space the way AT&T (NYSE: T) and Verizon (NYSE: VZ) do. It is also in no position to build out a huge fiber-to-the-home deployment to compete with cable companies for TV subscriptions.
Qwest has, in essence, fought its competition with one hand tied behind its back, and it has done a good job. Perhaps the board will want to sell the company while it is still ahead. Perhaps the CEO objected.
Royal Dutch Shell was upgraded to Buy from Neutral at Merrill Lynch to reflect the company's strong refining backdrop and potential for positive surprise in the gas and power and downstream segments.
Broadcom was upgraded to Market Outperform from Market Perform at JMP Securities following positive channel checks and the recent court win over Qualcomm Incorporated (NASDAQ: QCOM).
UBS upgraded shares of National Semiconductor to Buy from Neutral on the Q4 upside, ongoing share buyback and guidance which calls for further margin improvement.
OTHER UPGRADES:
Banc of America upgraded shares of Qwest Communications International Inc (NYSE: Q) to Buy from Neutral to reflect greater visibility into cash flow generation potential through 2008.
Banc of America also upgraded Cincinnati Bell Inc (NYSE: CBB) to Neutral from Sell, as they believe the stock is not a sell in a market focused on cash flow.
Genentech Inc (NYSE: DNA) was upgraded at Deutsche Bank to Buy from Hold based on compelling valuation and fundamental outlook.
Bear Stearns upgraded shares of Nordstrom Inc (NYSE: JWN) to Outperform from Peer Perform citing the recent share pullback and top-line growth.
This post is part of our 
Semiconductor equipment maker Applied Materials said that its 
Where can you find the "Wall Street of the West?" In Colorado, of course -- specifically, Denver's 17th Street financial district. 
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