American Express (NYSE: AXP) saw a big sell-off in its shares during the after-hours session on Monday following the release of its second-quarter earnings numbers. The shares already closed down over 11%.
It isn't difficult to comprehend this one. According to Earnings.com, Wall Street was hoping for the credit company to make 83 cents per share. American Express only delivered 57 cents per share from continuing operations. Not only did the company disappoint the Street by a very wide margin, but it disappointed itself, since that 57 cents per share represents a 35% drop compared to the bottom-line results achieved a year ago.
Yep, the financial crisis is still with us. American Express needed to significantly add to its credit reserves. Management stated that the economy is having a negative effect on its cardmembers, and that previous guidance can no longer be relied on. Translation: don't buy this stock! At least, that's my opinion.
I simply can't see allocating investment funds to American Express at this point. If investors wanted to get some exposure to plastic, all they would need to do is consider Visa (NYSE: V) or MasterCard (NYSE: MA). Both of these businesses are based primarily on transactions, not on credit risk. Whenever a card is used, these businesses get a little cut. And that adds up, my friends. Granted, both of these companies sold off on Monday and have been weak lately, and they have litigation risk, but I'd at least look at them for the long-term. Over time they should do well.
American Express, however, is way off my list of potential investment ideas. Not even going near this one. Name a timeframe (e.g. year-to-date, one-year, five-year, etc.), and you'll find that the stock is down. The economy is going to have to turn sharply before I even remotely consider it.
Disclosure: I don't own any company mentioned; positions can change at any time.
Stocks futures are lower Tuesday morning, indicating U.S. stock markets will start on a down note following weak outlooks and disappointing financial results from several companies including Apple and American Express. With oil steady and no economic data out today, Wall Street will focus on earnings.
Apple Inc. (NASDAQ: AAPL) reported after the close Monday a record quarter that beat analyst estimates, posting a 31% surge in earnings. Mac and iPod sales satisfied investors, while iPhone sales were somewhat on the lighter side. What concerned investors most was the very weak guidance Apple gave, which was weak even by Apple's standards of lowballing. Other issues included margin squeeze and Jobs health. Apple shares were 10% lower in Frankfurt and premarket trading. American Express (NYSE: AXP), said late Monday its second-quarter results fell 38% due to the weakening economy. The company, which missed projections, caters to the more affluent who have good credit, and yet even this company felt the pains from the slowing economy. AmEx earned 56 cents per share compared to estimates of 83 cents per share. The company's stock tumbled AXP shares are down over 12% in premarket trading.
Also reporting Monday after the close were Merck & Co., Inc. (NYSE: MRK), Texas Instruments (NYSE: TXN) and SanDisk (NASDAQ: SNDK). MRK shares are down over 6.6% in premarket trading as the company said it would stop give guidance of results. TXN shares are also declining over 10.5% in premarket trading after it gave a disappointing forecast. SNDK shares are plunging over 16% in premarket trading after it swung to a Q2 loss, missing analyst estimates.
This morning we'll have another wave of earnings, and already started were DuPont and Wachovia.
Stock futures were higher this morning after Bank of America joined recent financials and topped Wall Street estimates. Also pushing futures higher is a deal in the pharma sector with Roche bidding nearly $44 billion for the rest of Genentech. However, both Merck and Schering-Plough said they'll postpone reporting their financial results after the close; Apple will also be reporting results then. Finally, oil prices came off a six-week low and are trading back above $130 a barrel due to escalating Middle East tensions. Higher oil prices could dampen the mood on the Street.
Bank of America Corp. (NYSE: BAC), the biggest U.S. consumer bank and home lender, said profit fell 41% to $3.41 billion, or 72 cents a share, much better than analysts estimates of 21 cents according to Bloomberg. The bank curtailed loan losses, adding $2.2 billion to loan loss reserves. The bank has completed the purchase of Countrywide Financial Corp. on July 1. With these results, BAC joins other big banks that have recently reported better-than-expected results. BAC shares are up 8.6% in premarket trading.
Roche Holding on Monday said it was offering $43.7 billion to take over the remaining 44.1% shares of Genentech Inc. (NYSE: DNA) for $89 per share, 8.8% above DNA's closing price Friday. DNA shares are up nearly 18% in premarket trading to $96.50.
Yahoo! Inc. (NASDAQ: YHOO) said Monday morning it settled its fight for control of the board with billionaire investor Carl Icahn. The board will expand to 11 members to include Icahn and the remaining two seats will be filled by the board upon the recommendation of its nominating and governance committee. In addition, Icahn, who owns about 5% on Yahoo common shares, agreed to withdraw his nominees for consideration at the annual meeting and to support the board's nominees. YHOO shares are declining 2% in premarket trading.
When last week one analyst after another suggested a bankruptcy at one of the automakers is inevitable, many readers commented that bankruptcies at financials were very likely as well. One holiday weekend later and it seems Wall Street is more inclined to agree with this analysis than ever.
The day started off nicely with stocks staging a quiet rally as crude prices declined more than $5 a barrel and the dollar strengthened. But by midday, the bears, it seems, have had enough of entertaining the bulls and returned in drove to sell more of their financials holdings, taking the rest of the stock markets with them. By 1:15 p.m., the Dow was off a 100 points, or 0.9%, the S&P 500 was down 1.28% and the Nasdaq composite declined 0.85%.
Financial regulators also announced not too long before the selloff began an information-sharing agreement between the Federal Reserve and the Securities and Exchange Commission "aimed at better detecting potential risks to the U.S. financial system." Perhaps the agreement reminded investors of the fragile condition financials are still in and eroded confidence in their ability to bounce back without any more nasty surprises. Recent mentions of liquidity concerns at banks and brokerages, and their need to raise more capital and sell assets, has been weighing markets and financials down.
MOST NOTEWORTHY: Concur Tech, Groupe Danone and General Motors were today's noteworthy downgrades:
Piper downgraded shares of Concur Tech (NASDAQ: CNQR) to Neutral from Buy after transferring analyst coverage, as they believe potential upside to estimates is priced into shares while competitive concerns from American Express (NYSE: AXP) are not.
Morgan Stanley downgraded shares of Groupe Danone (OTC: GDNNY) to Equal Weight from Overweight to reflect reduced visibility in the company's core business.
Merrill downgraded General Motors (NYSE: GM) to Underperform from Buy citing the company's deteriorating US auto sales, resulting in a higher cash burn, which could result in a larger than expected capital raise. The firm believes GM capital raise could be in the range of $15 billion and notes that bankruptcy is "not impossible."
OTHER DOWNGRADES:
Progenics Pharma (NASDAQ: PGNX) was lowered to Underperform from Market Perform at Friedman Billings.
UAL Corp. (NASDAQ: UAUA) was cut to Neutral from Buy at Goldman.
MOST NOTEWORTHY: Lam Research, Deutsche Telekom and France Telecom were today's noteworthy upgrades:
Credit Suisse upgraded Lam Research (NASDAQ:LRCX) to Outperform from Neutral citing margin expansion and valuation. Lam was named the firm's top pick in SCE names for 2H08.
JP Morgan upgraded shares of Deutsche Telekom (NYSE:DT) to Overweight from Neutral as they expect a stronger second half of the year for the industry.
France Telecom (NYSE:FTE) was upgraded to Buy from Neutral at Merrill and to Buy from Hold at Societe Generale after the company walked away without bidding for Sweden's TeliaSonera.
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.minyanville.com.
Lot's going on today as I juggle the end of June. With time constraints on both sides of this screen in mind, I humbly offer the following thoughts:
I covered the incremental "fade" exposure in Google (NASDAQ: GOOG) (put out near the opening) and I'm now in watch mode.
It's tough to tell how much of the big beta action is quarter-end proppage and how much is legitimate demand. As I covered my American Express (NYSE: AXP) earlier--and continue to have exposure in Wachovia (NYSE: WB)--I'm leaving it on for the time being (and yes, subject to change).
And yeah, I'm trading around that ugly duckling--nibbling under $15 and trading the swings. There's no putting lipstick on that pig--using it as my vehicle of choice has thus far been wrong. It ain't over till our interns sing, however, so I'm fighting the good fight.
That sorta brings up the question du jour: Are we gonna see quarterly inflows... or quarterly outflows?
The upside seems begrudging. Of course, after the decline we've seen, you'd be grudging too if you were Hoofy.
Somebody call Armond Goldman! l I'm starting the South Beach Diet on Monday, lest anyone wonders what is happening to my sense of humor.
The scariest thing on my screen? The VXO is down 6% today. I repeat, the VXO is down 6% today. Ruh roh...
Mastercard (NYSE: MA) shares are trading higher today after the company announced it will pay competitor American Express (NYSE: AXP) up to $1.8 billion to settle an antitrust lawsuit. 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 MA.
After hitting a one-year low of $120.00 in August, the stock hit a one-year high of $320.30 in May. MA opened this morning at $291.10. So far today the stock has hit a low of $290.10 and a high of $295.16. As of 12:40, MA is trading at $294.10, up $13.17 (4.9%). The chart for MA looks bullish but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $195 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 6.4% return in four months as long as MA is above $195 at October expiration. Mastercard would have to fall by more than 33% before we would start to lose money. Learn more about this type of trade here.
MasterCard (NYSE: MA) is recently trading at $290 in pre-open trading, above its close of $280.37.
American Express (NYSE: AXP) reached a $1.8 billion settlement with MA over the card issuer's lawsuit with the payment processor over allegations MA and some other banks prohibited financial firms from issuing credit cards through AXP.
MA July option implied volatility of 42 is near its 26-week average according to Track Data, indicating non-directional price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
I love the long-term prospects of Visa (NYSE: V) and MasterCard (NYSE: MA), but I do have to concede that a pesky lawsuit by Discover (NYSE: DFS) is the one big fly in this story's soup. According to the following article, Discover wants both credit-card companies to pay $6 billion for perceived violations of antitrust regulations. Unfortunately, these damages could be tripled if Visa and MasterCard lose. One of the big problems here is that American Express (NYSE: AXP) already won a settlement of $2.1 billion from Visa late last year and the company established an escrow fund worth $3 billion for litigation payments.
I'll admit, this lawsuit does give me and my credit-card investment thesis a little case of the shivers. After all, tripling $6 billion to $18 billion means that a huge amount of money is in play here, and a successful outcome for Discover would hamper the stocks of the two big card entities. When you read through the litigation risks in Visa's SEC filings (out of MasterCard and Visa, the latter is my favorite since it is still relatively fresh off its IPO and MasterCard has already had a big run), they are pretty scary. And the fact that the $6 billion figure just came to light this week has probably soured the perception of some investors and analysts. Nevertheless, all the previous litigation talk didn't stop Visa's stock from taking off after its IPO earlier this year.
This week's Barron's [subscription required] reverses itself -- after panning Berkshire Hathaway Inc (NYSE: BRK.A) in December 2007 it has now reversed course -- with a hedge from a short seller. Since panning Berkshire in December -- when it traded for $143,000 a share, the stock has lost 14% so Barron's was right then. Is it right to bet on a rise in Berkshire now? I really don't know because I don't find either the bear or the bull case persuasive.
Why did Barron's pan Berkshire back in December? As I posted, Barron's bear case on Berkshire was simply that it was overvalued on the basis of its book value and earnings growth. Berkshire's ratio of market value to book value was then at 1.8 times its September 30 book value, of $77,800 a share. That was above its average of 1.6 in the past five years.
It was also valued at 23 times estimated 2007 operating profits of $6,300 a share. 2008's profits were then expected to be similar to 2007's. If Berkshire were then valued at 1.7 times book value, a premium to its five-year average, Barron's estimated that stock would trade at $132,000.
Some investors are starting to believe that the worst of the credit crunch is behind us, and European banks including UBS (NYSE: UBS) and Royal Bank of Scotland (NYSE: RBS) are leading a bullish move in the markets.
The dollar stabilized and oil weakened, giving a boost to many blue chip stocks. Home Depot (NYSE: HD) rose nearly 4% in trading on Thursday, and American Express (NYSE: AXP) was up nearly 7%.
Not all news is positive, however. U.S. futures are flat as the markets await the Labor Department's official employment report, due today. According to Bloomberg's calculation, unemployment in the U.S. continues to rise as employers shed more than 75,000 jobs in April. The unemployment rate is now probably at 5.2%, a three-year high. And real unemployment is probably worse that that, since the Labor Department's calculation method, which Bloomberg uses, significantly undercounts unemployment and underemployment.
And the Microsoft-Yahoo! saga continues. The AP reports that Microsoft (NASDAQ: MSFT) may go hostile in its bid to buy Yahoo! (NASDAQ: YHOO) today. Should be entertaining, so say tuned.
After opening trading at $55.00 on March 19, the stock has hit a new high today. V opened this morning at $76.00. So far today the stock has hit a low of $73.91 and a high of $76.08. As of 12:25, V is trading at $74.67, up $2.37 (3.2%). The chart for V looks bullish and steady.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $60 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 6.4% return in just two months as long as V is above $60 at June expiration. Visa would have to fall by more than 19% before we would start to lose money. Learn more about this type of trade here.
V hasn't been below $60 since just after its IPO and has shown support around $70 recently. This trade could be risky if the company's earnings (due out on Monday) disappoint, but even if that happens, this position could be protected by the support the stock might find between $60 and $65, where it made intermediate bottoms over the past two months.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in V or AXP.
American Express (NYSE: AXP) saw a big sell-off in its shares during the after-hours session on Monday following the release of its second-quarter earnings numbers. The shares already closed down over 11%. 
Stocks futures are lower Tuesday morning, indicating U.S. stock markets will start on a down note following weak outlooks and disappointing financial results from several companies including Apple and American Express. With oil steady and no economic data out today, Wall Street will focus on earnings.
Stock futures were higher this morning after Bank of America joined recent financials and topped Wall Street estimates. Also pushing futures higher is a deal in the pharma sector with Roche bidding nearly $44 billion for the rest of Genentech. However, both Merck and Schering-Plough said they'll postpone reporting their financial results after the close; Apple will also be reporting results then. Finally, oil prices came off a six-week low and are trading back above $130 a barrel due to escalating Middle East tensions. Higher oil prices could dampen the mood on the Street.
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Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit 
MasterCard
I love the long-term prospects of 
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