Earnings reports continue to dribble in as the quarter winds down. Much of the attention this week will be on homebuilders KB Home (NYSE: KBH) and Lennar Corp. (NYSE: LEN) as investors look for any sign that the housing sector has bottomed (home sales numbers are also due out this week; see below). Analysts surveyed by Thomson Financial anticipate that both companies will report that they narrowed their losses in the most recent quarter.
KB Home's expected $1.25 per share loss, on revenue of $725.5 million, compares to the previous quarter loss of $3.30 and to a year-ago loss of $6.19. However, KB Home's losses in the past few quarters have been deeper than expected. The Los Angeles-based homebuilder's long-range earnings growth forecast is 10.5%, less than the S&P 500. Analysts continue to recommend holding KB Home, and have for at least 120 days. Shares, however, reached a new 52-week high of $31.69 on Friday, and they are up 10.5% year to date.
Lennar is expected to post a loss of 52 cents per share, on revenue of $1.1 billion. That compares to the previous quarter's per-share loss of 76 cents and to a year-ago loss of $3.25. While Lennar also has tended in the past few quarters to miss expectations, the Miami-based company managed a positive surprise in the first quarter of 2008. Lennar's long-range earnings growth forecast is 10.3%, about the same as KB Home's. Analysts also recommend holding Lennar. Friday, shares of Lennar also reached a 52-week high, $27.75, but they are down 6.4% year to date.
Oppenheimer upgraded shares of Cree (NASDAQ: CREE) to Outperform from Perform as they believe LEDs are beginning to gain traction in general lighting applications.
Jefferies upgraded Constellation Energy (NYSE: CEG) to Hold from Underperform following the acquisition by MidAmerican Energy. The company's target was increased to $25 from $20.
RBC upgraded the Banking sector to Overweight from Underweight following the governments "massive assault" on the financial crisis. RBC believes government actions that include the potential creation of a Resolution Trust Corporation, the creation of federal insurance for money market fund investors and the ban on short selling will result in higher bank stock prices through year end; Wilmington Trust (NYSE: WL), KeyCorp (NYSE: KEY) and Pacific Capital Bancorp (NASDAQ: PCBC) were upgraded to Sector Perform from Underperform.
Oracle (NASDAQ: ORCL) was raised to Buy from Neutral at Piper.
UBS upgraded Murphy Oil (NYSE: MUR) to Neutral from Sell.
Gap (NYSE: GPS) was upgraded to buy from Neutral at Goldman Sachs.
Analyst downgrades:
Deutsche Bank downgraded shares of Thomson Reuters (NASDAQ: TRIN) to Sell from Buy as they believe uncertainty in the financial sector will hinder growth.
Piper cut MIPS Technologies (NASDAQ: MIPS) to Neutral from Buy as they believe estimates are at risk following the departure of ChipIdea's co-founder. The company's target was lowered to $3.70 from $8.
Jefferies downgraded GSI Commerce (NASDAQ: GSIC) to Hold from Buy on valuation as they view the risk/reward less compelling following the recent rally.
Host Hotels (NYSE: HST) was downgraded at Baird to Neutral from Outperform.
Jefferies initiated Abercrombie & Fitch (NYSE: ANF) with an Underperform rating and $38 target and thinks the company's sales and margins are at risk with negative comp trends getting worse.
Cantor believes Lawson Software (NASDAQ: LWSN) has a powerful franchise while the stock trades at a 33% discount to peers. Shares were assumed with a Buy rating and $8 target.
Stanford started Mentor (NYSE: MNT) with a Buy rating and $32 target and thinks the company is poised to benefit from growing global demand for products and services that make people look younger and more attractive.
Scripps Networks (NYSE: SNI) was initiated at UBS with a Neutral rating and $43 target.
BMO Capital initiated Costco (NASDAQ: COST) and BJ's Wholesale (NYSE: BJ) with Market Perform ratings and a $72 target and $42 target, respectively.
Isle of Capri (NASDAQ: ISLE) was initiated at Goldman with a Sell rating and $6 target.
It has been exceptionally challenging this year for many companies to grow their earnings, as a number of factors continue to wreak havoc on normally profitable business models.
Higher energy costs have been squeezing almost every company's margins, none more significantly than the airline and auto industries. Raw materials costs continue to climb as large, developing nations like India and China compete for a limited supply of natural resources.
To make matters worse, the credit markets have locked up, making it very difficult for companies to secure the funding and capital so desperately needed to drive growth.
Help On The Way
But when the going gets tough, these companies know they can call upon a trusted ally to provide shelter from the storm. And that help comes in the form of consultants.
With substantial amounts of financial and reputational stress circulating through the economy, consultants are increasingly being called upon to provide a steady hand. These companies have seen a direct up tick in their business volumes as distressed companies search for methods to cut costs and save face.
Arthur Andersen (1913 to 2002) spent decades as a leading accounting and consulting firm. Founded in 1913, it was once a member of the "Big 8" accounting firms, which later became the "Big 5." Andersen was the accountant for MCI and Worldcom. Even though it's been dead for six years, it left one offspring -- it spun off its Andersen Consulting unit in 1989. The renamed Accenture (NYSE: ACN) went public at $14.50 in July 2001 -- the share price is up 176% since then.
Andersen's downfall was its role as Enron's auditor. It used its credibility to bless Enron's special purpose entities and a whole host of illegal accounting. In 2002, the firm voluntarily surrendered its licenses to practice as CPAs after being found guilty of criminal charges, resulting in the loss of 85,000 jobs.
The lesson is to resist the lure of big money to pull you away from your values. Enron's pile of cash was irresistible to Andersen's leaders. And their lack of moral fiber cost a storied and proud firm its existence.
It has been a rocky year for Wall Street, but even amid the uncertain market conditions there are some companies that are playing with a lot of cash. In addition, they know how to wisely use their funds, which makes them strong enough to beat any challenge.
One important factor that determines the stability of a company is its corporate cash flow. CNNMoney is looking at stocks with both healthy cash flow and a surplus of cash, which helps them avoid tough situations where they may need to raise their capital (check out its slideshow of these five picks). Another element that CNNMoney takes into account when picking companies is their ability to reinvest cash in ways that assure them a nice profitability.
Let's look at some of the companies that CNNMoney likes:
While at the recent Digital Hollywood conference, I heard much talk about online video. And the main question was: How can you make money from it?
Well, Accenture (NYSE: ACN) is trying to find some ways. In fact, this week, the company agreed to purchase Origin Digital (the amount was not disclosed).
The privately-held firm calls itself a "global video applications service provider." That is, the company helps with the key elements of managing, syndicating and reporting digital content – across various platforms, such mobile, VOD, IPTV, broadband, and so on.
Accenture already has a Digital Media Service division. But, with Origin Digital, there will definitely be much more heft as well as opportunities for cross-selling.
All in all, this seems like a good fit for Accenture. After all, Corporate America realizes that online video has many benefits in terms of obtaining customers, education, and branding. Yet, it's a process that does require some deep domain expertise.
David Fried is a leading authority on corporate buybacks, focused exclusively on companies that are involved in repurchasing their own shares.
One of the latest 'buys' in his aptly-named The Buyback Letter, is consulting and outsourcing firm Accenture (NYSE: ACN). Here's the advisor's review.
"Accenture is a global management consulting, technology services and outsourcing company, collaborating with clients to help them become high-performance businesses and governments.
"They use industry knowledge, expertise and technological capabilities to help worldwide clients enter new markets, increase revenues in existing markets, improve operational performance and deliver their products and services more effectively and efficiently.
The identification of new business trends and the subsequent implementation of strategies based on those trends is vital to corporate growth. When firms need help along those lines, they often turn to a Hamilton, Bermuda consultant that currently works with two-thirds of the Fortune Global 500.
Accenture (NYSE: ACN) is the world's largest management and technology consulting firm. It offers clients enterprise integration, human resources, strategic planning and supply chain management services, across 18 industry groups. The company operates from more than 100 offices in 49 countries. It has established business alliances with a variety of sector leaders, including Hewlett-Packard (NYSE: HPQ), Oracle (NASDAQ: ORCL) and Reuters Group (NASDAQ: RTRSY).
Last week, the firm reported fiscal Q1 EPS of 60 cents and revenues of $5.67 billion. The Street had been expecting 56 cents and $5.46 billion. Management also guided Q2 revenues to $5.50-$5.70 billion ($5.31B consensus) and FY08 EPS to $2.36-2.41 ($2.26 consensus).
MOST NOTEWORTHY: Staples, Office Depot, GlobalSCAPE and CytRx were today's noteworthy initiations:
Jefferies initiated shares of Staples Inc (NASDAQ: SPLS) with a Hold rating and $22-$24 target. The firm finds the current valuation fair given the increased risk of excess store growth in the industry, increased promotional activity and deceleration of employment growth.
Jefferies expects shares of Office Depot Inc (NYSE: ODP) to trade sideways given the company's accelerating store growth, greater promotional activity and execution issues. The firm resumed coverage with a Hold rating and $22-$24 target.
Soleil started shares of GlobalSCAPE Inc (AMEX: GSB) with a Buy rating and $12 target, as they believe the company has the opportunity to grow revenues around 35%-40% annually and is an attractive acquisition candidate for suitors who address the corporate networking infrastructure marketplace.
Cytrx Corporation (NASDAQ: CYTR) was initiated with a Buy rating and $6 target at Oppenheimer, as they are optimistic regarding the market potential of arimoclomol in amyotrophic lateral sclerosis and sees several catalysts approaching over the next 12-18 months.
U.S. stock futures were lower this morning ahead of several economic reports today indicating a weaker start for stocks. Comments by former Federal Reserve Alan Greenspan saying that the odds on the first U.S. recession in six years have increased due to the housing slump and its effect on consumer spending, didn't serve to improve investor sentiment either. Greenspan said the chances of a recession are now "less than 50-50." Investors will also stay tuned to speeches from Atlanta Federal Reserve President Dennis Lockhard and St. Louis Federal Reserve President William Poole are planned.
Yesterday, U.S. stocks closed higher despite weak data on the housing market. The Dow Industrial Average added 34.8 points points or 0.25%, and the S&P 500 and the Nasdaq Composite each closed 0.39% higher.
A barrage of economic news is scheduled for today: - At 8:30 a.m. personal income and spending for the month of August is due. Income is seen growing 0.4% compared to 0.5% in July, while spending is expected to rise the same as last month, 0.4%. - Just after the market opens, Septemeber Chicago purchasing managers' index is due and is expected to tick down. - At 10:00, the consumer sentiment index from the University of Michigan for September will be reported as well as August construction spending.
While weak reports lately have been seen as a sign the Fed will further cut rates, at some point the question will be asked if the Fed acted too late and the economy might still be headed toward a recession. A decline in consumer buying power could cause bearish sentiments to flare up again. This will be in focus as we are headed into earnings season next month and some see profit growing at the slowest rate in more than five years for some U.S. companies this quarter. The current forecast for earnings of Standard & Poor's 500 Index members may rise an average of 3.2% from a year earlier, breaking a 20- quarter streak of gains exceeding 10%.
Overseas, Asian markets finished mixed and European markets are mostly lower.
Alcatel-Lucent (NYSE: ALU) Chief Executive Patricia Russo has been given a month to devise an emergency restructuring plan for the board following the third profit warning earlier this month. ALU shares are up 4.6% in premarket.
Accenture Ltd (NYSE: ACN) reported lower quarterly earnings on higher taxes, but its shares rose as revenue beat analysts' estimates. Net income fell to $316.8 million, or 50 cents per share, from 497.2 million, or 56 cents per share, a year earlier. Revenue before reimbursements grew 29% to $5.11 billion from $3.97 billion.
With the market being propelled upward due to private equity and corporate acquisitions, investors should not stay on the sidelines. Rather, they should target private equity's next frontier -- IT services. Of the companies in this sector, Unisys Corp. (NYSE: UIS), Perot Systems Corp. (NYSE: PER) and Ingram Micro, Inc. (NYSE: IM) may be worth examining.
A few months ago, I suggested several sectors and companies that private equity could target next. On Friday, TheStreet.com reiterated one of those sectors -- IT services. Here's how much seven such companies have gone up or down since my March 29th post along with their market capitalizations ranked by their Price/Earnings to Earnings Growth (PEG) ratios:
The identification of new business trends and the subsequent implementation of strategies based on those trends is vital to corporate growth. When firms need help along those lines, they often turn to a Hamilton, Bermuda consultant that currently works with two-thirds of the Fortune Global 500.
Accenture Ltd. (NYSE:ACN) is the world's largest management and technology consulting firm. It offers clients enterprise integration, human resources, strategic planning and supply chain management services, across eighteen industry groups. The company operates from more than one hundred offices in forty-nine countries.
Last week, Accenture reported fiscal Q2 EPS of 47 cents and revenues of $4.75 billion. The Street had been expecting 42 cents and $4.68 billion. Management also guided Q3 revenues to $4.9-5.1 billion ($4.87B consensus) and FY07 EPS to $1.88-1.93 ($1.87 consensus). Six brokerages subsequently declared the stock a "buy".
MOST NOTEWORTHY: Citigroup (C), Altria Group, Inc (MO), and TreeHouse Foods Inc (THS) were today's notable upgrades:
Bank of America upgraded Citigroup Inc (NYSE: C) to Buy from Neutral with a $58 target to reflect the low valuation and the company's opportunities to increase earnings growth over the next year.
Altria Group (NYSE: MO) was added to Goldman Sachs' Conviction Buy List. The firm believes shares, excluding Kraft (KFT), could reach $76 over the next 12 months. Goldman also thinks Altria may announce a spinoff of its Philip Morris International unit this summer.
On tonight's MAD MONEY on CNBC, Jim Cramer talked about two savage American IT consulting companies and two Indian outsourcing companies. Cramer is saying this is a match against the two groups to see who is better. They are all fighting for a larger piece of the pie.
Accenture Ltd. (NYSE:ACN) and Electronic Data Systems (NYSE:EDS) are the American plays here. Wipro Ltd. (NYSE:WIT) and Infosys Technologies (INFY) are the Indian plays.
Cramer thinks that the overall prospects for the Indian teams are better and that they have more business to win since they only have 2% global market share. But he thinks that Accenture and Infosys are the two winners here, and that you should buy both of them. Infosys is the better growth company, but since it's is just starting to look profitable it is better if you have to have the earnings. Cramer thinks both companies are best-of-breed and can be winners for shareholders.
Earnings reports continue to dribble in as the quarter winds down. Much of the attention this week will be on homebuilders KB Home (NYSE: KBH) and Lennar Corp. (NYSE: LEN) as investors look for any sign that the housing sector has bottomed (home sales numbers are also due out this week; see below). Analysts surveyed by Thomson Financial anticipate that both companies will report that they narrowed their losses in the most recent quarter..gif){kind=logo}
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U.S. stock futures were lower this morning ahead of several economic reports today indicating a weaker start for stocks. Comments by former Federal Reserve Alan Greenspan saying that the 
Should you sell into today's rally? Yes, if you think there are more surprises to come (I do)
The week in preview: Mulling over techs, financials
'Crash-and-burn economy?' 'Bailout beer bust?' What should we call America's economic disaster?
