Retailer Target Corp. (NYSE: TGT) joined the earnings parade this morning when it reported its first quarter numbers. Despite a 7.5% drop in net income, the company was still able to come in above Wall Street estimates.
Going into today's earnings report, analysts had been looking for earnings for the quarter of 71 cents per share, and the company actually was able to post earnings of 74 cents a share, on net income of $602 million. During the same period last year, the company was able to show net income of $651 million.
Revenues came in slightly under analyst estimates, with a reported $14.8 billion, compared to Wall Street's expectations for $14.92 billion. Same store sales were down by 0.7% in the quarter, but revenue was actually higher by 5.4% as the company's new stores were able to overshadow the decrease in revenue that the company witnessed in its stores open more than a year.
Day one of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Management Advisory Committees meeting: Purdue Pharma's NDA for Oxycontin.
Anadarko Petroleum (NYSE:APC) to report Q1 earnings; conference call Tuesday at 10:00am.
Tuesday, May 6
Day two of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Mgmt Advisory Committees meeting: Cephalon's (NASDAQ:CEPH) sNDA for Fentora.
Molson Coors (NYSE:TAP) to report Q1 earnings; conference call at 12:00pm.
MOST NOTEWORTHY: ComScore, Duke Realty, Nordstrom and Sun Healthcare were among today's noteworthy upgrades:
ComScore (NASDAQ: SCOR) was upgraded to Outperform from Perform at Oppenheimer to reflect the strong Q1 report and strong customer additions.
Duke Realty (NYSE: DRE) was upgraded to Outperform from Market Perform at Wachovia upgraded based on valuation.
Nordstrom (NYSE: JWN) was upgraded to Outperform from Neutral at Credit Suisse.
Sun Healthcare (NASDAQ: SUNH) was upgraded to Outperform from Market Perform at Friedman Billings based on valuation and notes the Medicare rate cuts will be as drastic as feared.
OTHER UPGRADES:
MedAssets (NASDAQ: MDAS) was upgraded to Buy from Neutral at Piper, which thinks the company's acquisition of Accuro will strengthen its revenue cycle management offering, and the firm believes the tight credit markets make the company's MedAssets a compelling product in the short-term. In addition, Piper notes that the company has recently had success with large hospital systems.
Jones Apparel (NYSE: JNY) was upgraded to Buy from Neutral at Merrill citing sales expectations for the l.e.i. brand at Wal-Mart (NYSE: WMT) and margin improvements from leaner inventories.
Affiliated Computer (NYSE: ACS) was upgraded to Buy from Hold at Jefferies based on valuation and expectations for better bookings.
Food inflation is getting out of control. Prices for everything from cereal to pastries have jumped. Pizza shop owners are getting squeezed by soaring costs for milk, flour and cheese. Rice prices alone have soared 68 percent since the start of the year, according to Reuters. Think of that the next time you order takeout from your favorite Chinese restaurant. No wonder demand for Food Stamps is at a record.
"Value stocks are those whose prices are relatively low compared to their fundamental value, as measured by factors such as earnings and net worth," notes Mark Hulbert.
"Value stocks can be considered all-season stocks, as history shows that they can perform well in both up and down markets." Here, the editor of The Hulbert Financial Digest also offers a list of value stocks that recommended by the most advisors who have also beaten the broad market over the last decade on a risk-adjusted basis.
"Value stocks are to be distinguished from so-called growth stocks, which have relatively high price-to-earnings and price-to-book ratios.
"Consider first how value stocks perform during bear markets. Believe it or not, they on average actually tend to make money. It's not only that they lose less money than the overall market, they actually gain.
"Take the 2000-2002 bear market, for example, during which the overall stock market declined by 48.6% (as measured by the dividend-adjusted version of the Dow Jones Wilshire 5000 index (97199001:Dow Jones Wilshire 5000 Composite Index
"In contrast, according to data compiled by University of Chicago finance professor Eugene Fama and Dartmouth University finance professor Kenneth French, the average value stock over this time gained over 80%.
"Wal-Mart (NYSE: WMT) delivers amid the recent retail meltdown," says Richard Moroney, editior of Dow Theory Forecast, a blue chip service that has been published for over 50 years.
The advisor adds, "The company stands to benefit as cost-conscious shoppers shift away from convenience in favor of value." Here is his review of the stock, which earns his "long-term buy" rating.
"As evidence of strain on the U.S. consumer mounts, Wal-Mart Stores continues to post solid results.The nation's biggest retailer delivered U.S. same-store-sales growth of 2.4% excluding gasoline sales in December, while rival Target (NYSE: TGT) saw same-store sales fall 5% and other discounters and department stores also delivered bad news.
"With decent operating momentum and solid long-term growth prospects, Wal-Mart shares seem reasonably valued at 14 times the consensus profit estimate for the year ending January 2009. Meanwhile, the company is getting bigger and better.
This past week, I discussed Wal-Mart (NYSE: WMT) Stores, Inc.'s entry into the non-protected digital music file download business. With the retailer selling non-protected songs from its website for a maximum of $0.94, will this action dent into Apple (NASDAQ: AAPL)'s iTunes market share? Who knows at this point.
Wal-Mart has been in the news quite a bit this past week in regards to a European competitor entering a market Wal-Mart is already in (just not in a big way) -- California. Tesco (LSE: TSCO) said it will be opening smaller-concept stores soon that feature the opposite of the big-box retail feeling of the standard 100,000-square-foot Wal-Mart Supercenter. Tesco's stores will average about 10,000 square feet. What will Wal-Mart do in response?
Dell (NASDAQ: DELL) cannot get some of its hottest new products to market. According toThe Wall Street Journal (subscription required), the company is trying to diversify away from selling PCs to businesses and pick up a larger sales footprint in the consumer market. New models with spiffy paint jobs and pricing set for students on their way to school have been central to the plans.
The trouble is that delays in parts and bad paint jobs are murdering the program. The Journal writes that "Dell has attempted to quell the mounting frustration over delays by addressing the issue in its company blog." How that will help mollify frustrated customers is a unclear. It may just make them more angry.
The move must be a bit humiliating for Dell. The company had customer service problem three years ago when it began to outsource the function to call centers in India. Dell had to bring in a customer czar to try to solve the problems. The company is selling its new PC in retail outlets including Wal-Mart (NYSE:WMT) which is a departure from its old "direct to customer" sales channel.
Whole wheat flour, water, corn syrup, metal shards? Consumer products giant Sara Lee (NYSE: SLE) has announced a voluntary recall for whole wheat bread sold in the deep South that may contain metal pieces.
The suspect loaves were made at its bakery in Meridian, Miss., where Sara Lee workers this week discovered that a wheat flour sifter was damaged. Sara Lee issued the precautionary recall, concerned that metal from the sifter may have gotten into the loaves.
Sara Lee said the bread was sold throughout Mississippi and Alabama, and parts of Arkansas, Missouri, Georgia, Tennessee, Louisiana and the Florida panhandle.
In addition to its Sara Lee brands, affected brands included Earthgrains, Flavorite, Golden Bake, Grissom's, Shurfresh, and Wal-Mart (NYSE: WMT)'s Great Value brand, as well as store brands at regional groceries Foodland, Schnucks, IGA, Piggly-Wiggly and Publix (OTC: PUSH).
Shares of Sara Lee traded narrowly between $16.04 and $16.22 today, sitting 3 cents under at $16.15 shortly after 3 p.m.
July short interest in Best Buy (NYSE: BBY) rose almost 30 million shares to 46.3 million. Based on the trend in the company's share price, it was probably a good gamble. The company's shares are down almost 5% this year.
The sentiment against Best Buy has galvanized around whether the company can survive challenges from Costco (NASDAQ: COST) and Wal-Mart (NYSE: WMT) Wal-Mart attributed much of its June sales improvement to consumer electronics sales and its reselling agreement with Dell (NASDAQ: DELL).
With PC sales rebounding in Q2 based on figures from IDC and Gartner, the question is who will benefit. Clearly it helps the PC manufacturers, but the outlets that sell them should prosper as well.
With big box retailers trying to recover their luster as attractive destinations for consumers, marketing tech gear at a discount is a way to market high-ticket items that have much larger average prices than clothes and food. There is every reason for Wal-Mart to push consumer electronics sales and use its buying power to drive up margins on the category.
Best Buy, with far fewer customers and less leverage, is getting squeezed.
The IRS is looking at derivatives trades of Citigroup Inc (NYSE: C) and Lehman Brothers Holdings (NYSE: LEH) to see if trades made on behalf of hedge funds and other clients, including those offshore, were to avoid paying taxes on U.S. stock dividends, reported the Wall Street Journal (subscription required).
The New York Times reported that Ford Motor Company (NYSE: F) is expected to receive opening bids today for its Jaguar and Land Rover units. A variety of companies, including private equity firms and possibly other automakers, are expected to bid for the two divisions, said people with direct knowledge of the situation.
Retail shoe store chain Foot Locker Inc (NYSE: FL) is reportedly considering putting itself up for sale again, after disappointing sales by its U.S. shoe stores and its failed attempt to acquire rival Genesco Inc (NYSE: GCO), reported the New York Post.
The Telegraph reported that Wal-Mart Stores Inc (NYSE: WMT) is examining a deal to invest in Beijing Hualian, one of China's biggest retail groups.
Target Corp. (NYSE: TGT) is sitting pretty these days. While U.S. retail activity sank in June, Target joined Wal-Mart Stores, inc. (NYSE:WMT) in trumpeting same-store sales growth and again proving that it is competing for retail customers just fine. Not only is Target doing well, but it has caught the attention of activist investor William Ackman. Ackman's firm, Pershing Square Capital Management, has acquired 9.6% of Target Corp. common shares.
Last week's Target share price runup was due in part to the rumored Ackman deal as well as Target turning in excellent June metrics in a sea of disappointments from most of the retail industry in the U.S. Ackman's $1.98 billion purchase of over 81 million Target shares cements a pretty large position as his firm details out what improvements need to be made to increase Target's share price. Ackman obviously believes it is undervalued. How's Target in your portfolio? Retail is tricky, but a vote of confidence here by Ackman and Pershing looks pretty solid to me.
Although Target makes a pretty penny from its in-house credit card operations, there is a contingent of analysts who think Ackman will want Target to jettison that business completely. This makes some sense, as Target's exposure to receivables and undesirable credit lines would be eliminated. Target, for its part, wants to hold on to that part of the business. I'm surprised it just doesn't outsource it to some large bank and just brand the card with its logo. In other words, it must be making money for the company. If so, why would Ackman want to get rid of it? There will be more to come with this story as it develops.
Carl Icahn has predicted that the private equity market has peaked at the Wall Street Journal's Deal and Deal Makers Conference, reported the Wall Street Journal.
Imperial Tobacco Group plc (NYSE: ITY) and CVC Capital Partners, a private equity firm, are both looking at Altadis, the leading maker of cigarettes in Spain and France, with a final price of over $17B expected, reported the Wall Street Journal.
OTHER PAPERS:
Ford Motor Company (NYSE: F) is set to launch a new national incentive program today featuring no-interest financing for 36 months on all 2007 Ford, Lincoln and Mercury vehicles, signalling pressure for the company to sell vehicles, reported the Detroit Free Press.
Bear Stearns Companies Inc (NYSE: BSC) has appointed Tom Marano, a leading executive and highly regarded mortgage-bond trader, to oversee the bailout of its hedge fund collapse, reported the New York Post.
Cross-selling opportunities from vertical application acquisitions should drive Oracle Corporation's (NASDAQ: ORCL) stock higher.
Specifically, in last night's earnings conference call, management discussed how its business relationship with Wal-Mart Stores Inc (NYSE: WMT) has expanded. Prior to making an acquisition in the retail applications space, Oracle, believe it or not, did no business with the retailing giant. Today, however, the software company is cross-selling its broad product offerings to Wal-Mart. Management suggested the same is true for other verticals such as communications and healthcare, where Oracle has recently completed acquisitions.
Also impressive was Oracle's margin expansion, as operating leverage kicks in from over 30 acquisitions that are being integrated. Ellison expects acquisitions to continue, with five having been announced the past quarter, he sees no reason to slowdown.
Guidance was also strong with new software license revenue expected to be up 20 to 30% year-over-year. Total revenue is forecast to grow 19 to 21% on a GAAP basis.
The Oracle cash flow and acquisition machine is surging forward and it appears its stock will do the same. Somehow Oracle has put together a very unique ability to successfully integrate a massive number of acquisition unlike any other company has done before.
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