While other earnings may have disappointed last week, the news was good for oil giant ConocoPhilips (NYSE: COP). In what some took as a good sign for big oil, the Houston-based company reported that third quarter net income surged 41% year over year to $3.39 per share, and that revenue also surged 52% to $70 billion. We'll see whether the good news extends to other petroleum giants scheduled to report quarterly results this week.
Analysts surveyed by Thomson Financial are looking for BP (NYSE: BP) profits to have grown 43.2% in the most recent quarter to $2.34 per share on revenue of $109.7 billion, and Chevron Corp. (NYSE: CVX) to post earnings up 39.4% to $3.25 per share on revenue of $86.8 billion. Marathon Oil Corp. (NYSE: MRO), ExxonMobil Corp. (NYSE: XOM), and Royal Dutch Shell (NYSE: RDS.A) likewise are expected to report higher net income of $2.33 per share (sales of $23.4 billion), $2.40 per share (sales of $131.4 billion), and $2.65 per share, respectively. Even Valero Energy Corp. (NYSE: VLO) is expected to post earnings slightly higher to $1.46 per share (sales of $36.4 billion), despite the effects of Hurricane Ike. Among these companies, only BP and Valero beat earnings expectations in the previous quarter. Not surprisingly, analysts on average recommend buying all except Valero, and shares of all of these companies have recently hit 52-week lows.
Costco (NASDAQ: COST), the shopping club that competes with BJ's (NYSE: BJ) and Wal-Mart (NYSE: WMT), reported earnings for the fourth quarter on Wednesday. Sales did well, rising 13% to $22.6 billion. On an adjusted basis, excluding a litigation charge, the bottom line came in at $0.92 per share, and according to this source, that is one penny below expectations. Excluding the effect of gasoline inflation, comparable sales increased 6%.
For the most part, I think Costco held up well during the quarter. Yes, the warehouse club didn't wow the Wall Street analysts this time around. But comps were pretty decent for the quarter, and the top-line performance was acceptable, all things considered. Membership-fee revenue went up by 22%, which was cool.
This doesn't mean that Costco won't have a tough time going forward. As the economy worsens (and it will), Costco is going to face intense competition for the attention of the consumer's cash and credit cards. Keep in mind, though, that Costco has some good brand equity when it comes to discount shopping. The company's image is of a place where people can buy in bulk and get great deals. In a bad market environment, consumers may flock to Costco to save money. So the company might do okay (on a very relative basis) during the crisis.
MOST NOTEWORTHY: McClatchy News, Ansys and Fortune Brands were today's noteworthy downgrades:
Deutsche Bank downgraded shares of McClatchy (NYSE:MNI) to Sell from Hold after transferring analyst coverage as they believe leverage issues will continue to pressure the stock.
Jefferies downgraded shares of Ansys (NASDAQ:ANSS) to Hold from Buy on valuation and their belief that a slow U.S. manufacturing economy may be impacting sales cycles at the margin.
Fortune Brands (NYSE:FO) was lowered to Market Perform from OUtperform at Wachovia following its lowered 2008 outlook.
MOST NOTEWORTHY: Kohlberg Capital, ClickSoftware and Liberty Property Trust were today's noteworthy initiations:
JMP Securities started shares of Kohlberg Capital (NASDAQ: KCAP) with an Outperform rating and $14 target. The firm believes Kohlberg Capital's alliance with Kohlberg and Company allows Kohlberg Capital to take advantage of considerable expertise. JMP Securities believes Kohlberg Capital has an attractive risk/reward ratio.
Roth Capital initiated ClickSoftware (NASDAQ: CKSW) with a Hold rating and $3.60 target and expects EPS pressure from the depreciating dollar near-term.
Liberty Property Trust (NYSE: LRY) was initiated with a Hold rating at Stifel, citing lack of internal earnings divers and fair valuation.
OTHER INITIATIONS:
Oppenheimer initiated VisionChina Media (NASDAQ: VISN) with a Perform rating and $25 target.
Merrill assumed MGM Mirage (NYSE: MGM) with a Neutral rating.
MOST NOTEWORTHY: K Swiss, BJ's Restaurants and Ford were today's noteworthy downgrades:
Merrill expects the turnaround at K Swiss (NASDAQ: KSWS) to be difficult given weakening retail sales. Shares were downgraded to Sell from Neutral.
Jefferies cut shares of BJ's Restaurants (NASDAQ: BJRI) to Hold from Buy due to the company's high relative exposure to the subprime mortgage markets.
Ford (NYSE: F) was downgraded to Underperform from Peer Perform at Bear Stearns. The firm recommends taking some profits following the recent rally in shares. Shares were also cut to Neutral from Overweight at JP Morgan, citing valuation, and to Sell from Neutral at Merrill Lynch.
MOST NOTEWORTHY: Cott Corp, Hartford Financial, Allstate and Valero Energy were today's noteworthy upgrades:
Lehman upgraded Cott Corp (NYSE: COT) to Equal Weight from Underweight citing recent management changes, a focus on CSD business, and new product discipline.
Bernstein believes the entire non-life insurance group is oversold and that it is time to buy; the firm upgraded Hartford Financial (NYSE: HIG) and Allstate (NYSE: ALL) to Outperform from Market Perform.
Valero Energy (NYSE: VLO) was raised to Buy from Hold at Deutsche Bank on valuation with the stock trading at a -30% discount to NAV while the asset market for U.S. refineries is strong.
OTHER UPGRADES:
Goldman added Cisco (NASDAQ: CSCO) to its Conviction Buy List.
MOST NOTEWORTHY: Genentech, ESS Technology and SemGroup Energy were today's noteworthy upgrades:
Rodman & Renshaw upgraded Genentech (NYSE: DNA) to Outperform from Market Perform citing the FDA's approval of Avastin in mBC.
Jefferies raised ESS Technology (NASDAQ: ESST) to Hold from Underperform to reflect the offer from Imperium Partners.
Citigroup upgraded shares of SemGroup Energy (NASDAQ: SGLP) to Buy from Hold on valuation, as they believe the significant accretion expected from the partnership's recent asphalt terminal acquisition is not priced into the stock.
OTHER UPGRADES:
Yum! Brands (NYSE: YUM) was raised to Buy from Neutral at UBS.
RBC Capital upgraded Juniper (NASDAQ: JNPR) to Outperform from Sector Perform.
Goldman raised its rating on BJ Services (NYSE: BJS) to Neutral from Sell.
DeutscheBank downgraded General Motors (NYSE: GM) to "hold" from "buy" according toBriefing.com. The news service also reported that Oppenheimer downgraded Motorola (NYSE: MOT) to "perform" from "out perform".
Last year, on Thursday, September 26 and on October 4, on PBS's Nightly Business Report, I alerted readers to the impending acquisition of Lone Star -- which finally occurred this past week, and at a 37% premium.
I wrote about Lone Star Technologies Inc. (NYSE: LSS) in a post entitled, "Not Just a Pipe Dream" in which I explained the background: Chevron Corp. (NYSE: CVX) announced in early September that it had discovered oil deep in the Gulf of Mexico. The discovery was DEEP: 7,000 feet underwater and another 20,000 plus feet under the sea floor. Pulling oil up that far involves thousands upon thousands of feet of pipe -- at a cost of more than $500,000 a day just for the boat, labor and equipment. Lone Star was the obvious candidate to provide the tubing for such difficulty drilling.
I also wrote that "Wall Street is buzzing about Lone Star because now as the sole independent player in the steel tubular market, it presents a perfect candidate for an acquisition. If an international steel company wants a big presence in the U.S., Lone Star will sit alone on the shelf... I just don't see oil exploration dropping any time soon." It looks like I was right on the money on this one.
Who's Next? The next level will be the acquisition of the oil service companies that are undervalued and more advanced at deep water and hard-to-reach exploration, as well as some of the smaller steel makers like Reliance Steel and Aluminum (NYSE: RS) and the specialty -- next generation materials companies such as Hexcel Corp. (NYSE: HXL). Type of stock: Lone Star has now been acquired by U.S. Steel (NYSE: X) and is no longer on my "buy" list -- but it was a good buy for those who did buy on my earlier recommendation. Price target: Lone Star should remain in the mid-$60's until the acquisition closes unless another bidder comes in and puts the company into play.
Volatility Index S&P 500 Options-VIX up .05 to 12.30
BJ Services Co. (NYSE:BJS) calls active at low implied volatility on M&A chatter. BJS, a provider of pumping and oilfield services for the petroleum industry, is recently up $0.51 to $27.24 on unconfirmed chatter Halliburton Co. (NYSE:HAL) is interested in BJS. BJS has a market cap of $7.9 billion with long term debt of $499 million. BJS reported annual 2006 sales of $4.3 billion. BJS call option volume of 15,700 contracts compares to put volume of 1,923 contracts. BJS April option implied volatility of 32 is below its 26-week average of 35 according to Track Data, suggesting decreasing price risk.
Unisys Corp. (NYSE:UIS) implied volatility indicates Flat risk; UIS mentioned as target of Dell Inc. (NASDAQ:DELL). UIS, a technology services and solutions company, is recently up $0.16 to $8.59. Dow Jones reported on 3/21 that Michael "Dell said in China that one of his company's top priorities is to boost its services business and that there will likely be acquisitions in that area." Dow Jones listed BE, SAPE & UIS as potential targets. DELL has a market cap of $52 billion. UIS has a market cap of $2.9 billion with long term debt of $1 billion and annual 2006 sales of $5.7 billion. UIS overall option implied volatility of 38 is near its 26-week average according to Track Data, suggesting non-directional price risk.
Option volume leaders today are: Apple Inc. (NASDAQ:AAPL), Motorola Inc. (NYSE:MOT) and Palm Inc. (NASDAQ:PALM).
Note: The Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.
Recent months have been tough ones for the oil-services sector, and they've been particularly bad for BJ Services Company (NYSE: BJS), which offers pressure pumping and other oilfield services. December was particularly rough, sending the stock price down by nearly 20% and undoing all the rebuilding the stock had done in October and November after a tough September.
I think that the market is completely wrong about this company, assuming the worst because of some mild weather and concerns about demand for energy, and it's only a matter of time before the stock price jumps. Plus, oil is dropping for other reasons having to do with big bets gone bad by some fast money.
Even in the midst of this declining stock price, BJS's numbers have been terrific. Its operating margin is nearly 27%. Net income for 2006 was up about 80% over 2005, and the quarter ending September 30 didn't show any slacking off, with revenue up 10% over the previous quarter and net income up 7.5%. The company doesn't have a huge amount of debt, and its P/E ratio is around 10, which is quite low given we're in a bull market.
To be sure, there may be some short-term decline in demand for services offered by BJS, but it offers an essential service to an industry that is here to stay, and the company is an excellent long-term bet that you can now buy at a significant discount.
Type of stock: A highly profitable oil-services company that has had a very rough month, and has an artificially low stock price.
Price target: At just above $26, BJS is at the very low end of its 52-week range. I'd grab it now. A weak first quarter may see the price drop, maybe even below $25, but this stock should be back above $30 by the end of the year.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
While other earnings may have disappointed last week, the news was good for oil giant ConocoPhilips (NYSE: COP). In what some took as a good sign for big oil, the Houston-based company reported that third quarter net income surged 41% year over year to $3.39 per share, and that revenue also surged 52% to $70 billion. We'll see whether the good news extends to other petroleum giants scheduled to report quarterly results this week. 
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Last year, on Thursday, September 26 and on October 4, on PBS's Nightly Business Report, I alerted readers to the impending acquisition of Lone Star -- which finally occurred this past week, and at a 37% premium. 
Recent months have been tough ones for the oil-services sector, and they've been particularly bad for BJ Services Company (NYSE: BJS), which offers pressure pumping and other oilfield services. December was particularly rough, sending the stock price down by nearly 20% and undoing all the rebuilding the stock had done in October and November after a tough September.
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