Merrill downgraded Campbell Soup (NYSE: CPB) to Neutral from Buy and expects marketing and promotional spending to limit earnings growth in 2009 and 2010. The firm lowered their target to $35 from $42.
Mechel Steel (NYSE: MTL) was cut to Underweight from Equal Weight at Morgan Stanley to reflect declining coal demand.
Friedman Billings downgraded shares of Legg Mason (NYSE: LM) to Underperform from Market Perform on liquidity concerns given the Legg Mason's leveraged balance sheet and falling EBITDA. The firm lowered their target to $7 from $11.
Philip Morris (NYSE: PM) was upgraded to Outperform from Neutral at Credit Suisse.
Friedman Billings upgraded shares of Principal Financial (NYSE: PFG) to Market Perform from Underperform as they believe the company's capital buffer could keep outrunning credit losses.
Friedman Billings also upgraded Office Max (NYSE: OMX) to Outperform from Market Perform. The firm believes the risk of recourse to Office Max from the Timber Notes formerly backed by Lehman is low and that any litigation by noteholders will have a low level of success.
Citigroup upgraded CF Industries (NYSE: CF) to Buy from Hold on valuation following the recent weakness but lowered their target to $113 from $128.
Analog Devices (NYSE: ADI) was upgraded to Buy from Neutral at Merrill Lynch.
JP Morgan lowered its 2009 North American light vehicle production estimate by 13% to 11.2M and Europe by 10% to 19M. The firm upgraded Borg-Warner (NYSE: BWA) to Overweight from Neutral citing balance sheet and revenue growth.
Jefferies upgraded shares of Kroger (NYSE: KR) to Buy from Hold and raised its target to $32 from $28 as they expect the company's value image to benefit in the current environment.
Leerink upgraded AMAG Pharma (NASDAQ: AMAG) to Outperform from Market Perform on valuation as they believe current data is sufficient for some form of first cycle approval of Ferumoxytol.
Watsco (NYSE: WSO) was raised to Perform from Underperform at Oppenheimer.
UBS upgraded Invitrogen (NASDAQ: IVGN) to Buy from Neutral.
Analyst downgrades:
Jefferies downgraded shares of Whole Foods (NASDAQ: WFMI) to Underperform from Buy and lowered its target to $9.50 from $23 on the worsening macro environment, which they believe is "overwhelming" the company's ability to drive even flat comps in Q4 and FY09.
Deutsche Bank cut Texas Instruments (NYSE: TXN) to Hold from Buy and lowered its target to $19 from $28 following the company's worse-than-expected outlook, as they expect shares to be range bound.
Banc of America downgraded the Dry Bulk Shipping sector to Equal Weight from Overweight to reflect the "depressed" charter rate environment, tighter credit markets and the weakening macroeconomic outlook. The firm downgraded Britannia Bulk (NYSE: DWT), Navios Maritime (NYSE: NM) and TBS International (NASDAQ: TBSI) to Neutral from Buy.
Eaton (NYSE: ETN) was lowered to Underperform from Neutral at Merrill Lynch.
AXA (NYSE: AXA) was downgraded at JP Morgan to Neutral from Overweight.
Aracrus (NYSE: ARA) was downgraded to Underweight from Equal Weight at Morgan Stanley.
Supervalu (NYSE: SVU), whose competitors include Kroger (NYSE: KR), Safeway (NYSE: SWY), and Wal-Mart (NYSE: WMT), reported results for its fiscal second quarter. Net sales unfortunately didn't budge much at all. They came in essentially flat at $10.2 billion. Earnings per share on an adjusted basis were $0.61. According to this article, the expectations were for $0.69 per share. So, as can be seen, Supervalu lost the analyst-expectations game by a wide margin. Last year's adjusted earnings were $0.64 per share. Not only are those numbers disappointing, but comps saw a decrease of over 1%. And the gross margin suffered as well.
So, we have an earnings miss, flat revenue growth, and a decline in the bottom line. What does all that add up to in terms of market reaction? The stock sees a bid. At the time I began writing this piece, it was up 2.5%. As I found with Kroger, the market may be looking at supermarket businesses as defensive plays. Of course, at the time I covered Kroger, that company's numbers were a lot better than Supervalu's.
However, last time I checked the stock before sending this piece in, it was becoming more volatile along with the market, moving from green to red in quick succession. Given the weak data, I can't say that I'd be considering Supervalu right now. It is true that people will continue to shop at supermarkets even during economic downturns, but I'd rather look at something the supermarket sells as opposed to the supermarket itself to get defensive. I'd rather align my portfolio with the stronger brand equity of perhaps a Kraft (NYSE: KFT) or a Procter & Gamble (NYSE: PG) than a Supervalu.
Disclosure: I don't own any company mentioned; positions can change at any time.
U.S. stock futures edged lower Wednesday morning after the government announced late Tuesday it would help save AIG. Investors may be relieved with the action on AIG and even the Federal Reserve decision not to move Tuesday, leaving room for a future rate cut, there are still big concerns about the state of financial markets. Investors today will also get data from on building permits and housing starts for the month of August. Oil rebounded today ahead of inventory report to over $93 a barrel.
The Federal Reserve said late Tuesday that it would to lend $85 billionAmerican International Group (NYSE: AIG), taking a 79.9% stake in the company. AIG shares are still sinking 30% in pre-market trading.
Meanwhile, as the government refused to help Lehman Brothers (NYSE:LEH) and the company filed for Chapter 11 Monday, Barclays PLC (NYSE: BCS) said it would buy Lehman's banking and capital markets business for $250 million. Barclays walked away from the deal a few days ago, perhaps waiting for a better price, in what many say BAC should have done with Merrill. BCS shares are up over 5% in pre-market trading, LEH's down over 25%.
Morgan Stanley (NYSE: MS) reported its quarterly earnings early to calm investors, posting better-than expected results. It seems the last two major independent investment houses, Morgan and Goldman Sachs (NYSE: GS), which also reported earning Tuesday, both posted third-quarter profits despite continued chaos in the financial markets.
J.P. Morgan Chase (NYSE: JPM) is reportedly in advanced talks to make a bid for Washington Mutual (NYSE: WM).
I'll be honest. I'm not necessarily into the supermarket sector, so I've never strongly considered a company like Kroger (NYSE: KR) for my portfolio. Plus, we live in a Wal-Mart (NYSE: WMT) world, and with that retail giant trying its best to take aim at food shoppers with its own brand, I just was never into owning a Kroger. I do have to say, though, that I am wondering if Kroger might end up being a defensive stock in the current market environment. Although it has been down the last month or so, the stock has done well over longer timeframes, according to the AOL Finance snapshot taken at the time of this writing. It's been up over 5% year-to-date, and over 16% during the six-month period. And it is up over 6% today, as of 1:30 pm, on the company's Q2 numbers.
Net sales revenues increased almost 12%. The bottom line saw net income of $0.42 per diluted share. That was a solid 10% increase, and according to Earnings.com, Kroger beat estimates by one penny. Same-store sales increased a decent 4.7% excluding the effect of fuel sales. It's pretty important to exclude fuel sales, especially with the price of oil declining rapidly. With fuel, comps were up nearly 10%. Operational cash flow was flat at $2.1 billion, but it more than covered capital expenditures, dividend obligations, and share repurchases.
Kroger seems to be a healthy company at the moment. And, again, the stock seems to be working, too. Could this business be a defensive play? It sure looks like it. I wouldn't chase it today, however. I'd wait for a pullback and consider pulling the trigger after further due diligence.
Disclosure: I don't own any company mentioned; positions can change at any time.
Last week's preview raised the question of whether consumers were turning to comfort foods in these uncertain times, specifically in terms of second quarter earnings of Campbell Soup (NYSE: CPB) and Krispy Kreme (NYSE: KKD). Campbell's strong earnings growth topped expectations, while Krispy Kreme narrowed its loss, though it fell short of estimates.
This coming week should bring reports from more food-related companies, from cereal maker General Mills and food packager CongAgra to grocery chain Kroger, to the parent companies of restaurants Cracker Barrel, Olive Garden, Red Lobster, Carl's Jr., and Hardees. Also look for reports from tech-related companies such as Oracle, Adobe, and Palm, as well as from financials Morgan Stanley and Goldman Sachs, and from economic bellwether FedEx.
Here's what analysts surveyed by Thomson Financial are expecting from some of the companies reporting earnings this week, as compared to their results from the same period of last year:
Safeway (NYSE: SWY) closed at $26.34 Friday. SWY October option implied volatility of 39 is above its 26-week average of 35 according to Track Data, suggesting larger price movement.
SuperValu (NYSE: SVU) closed at $23.19 Friday. SVU October option implied volatility of 47 is above its 26-week average of 40, suggesting larger price movement.
Kroger (NYSE: KR) closed at $27.62 Friday. KR October option implied volatility of 32 is near its 26-week average, suggesting non-directional price risk.
Wal-Mart (NYSE: WMT) closed at $59.07 Friday. WMT is scheduled to report August sales on September 4. WMT September option implied volatility of 27 is near its 26-week average, suggesting non-directional price movement.
Target (NYSE: TGT) closed at $53.02 Friday. TGT is scheduled to report August sales on September 4. TGT October option implied volatility of 36 is below its 26-week average of 41, suggesting decreasing price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Wal-Mart (NYSE: WMT) has a new division and it expects the world from it. The company will launch its new small Marketside grocery stores this Fall. Job postings uncovered by the FT indicate that the world's largest retailer expects sales from the chain to eventually hit $10 billion with 1,000 stores in operation.
Wal-Mart insists that the new stores are simply a pilot project, but it is not likely that Wal-Mart would think small. For any new chain to help the company's revenue, sales would have to be very significant.
The new business may face rough going. Big chains like Kroger (NYSE:KR) and Safeway (NYSE:SWY) are likely to fight Wal-Mart every step of the way.
Wal-Mart was the first company into the big box discount retail business. The company was not only remarkably well-run under Sam Walton. It also had the advantage of being the "first mover" In the grocery business; being late to market is a handicap.
Douglas A. McIntyre is an editor at 247wallst.com.
Kroger (NYSE: KR) is one of the nation's largest retail grocery chains. It operates nearly 2,500 supermarkets and multi-department stores in 31 states, under such local banners as Kroger, Ralphs, Fred Meyer, Fry's, Dillons, QFC and City Market. The firm also operates about 778 convenience stores, 392 fine jewelry stores, 723 supermarket fuel centers and 41 food processing plants. Despite diversification moves, Kroger food stores still account for about 85 percent of sales. Wal-Mart (NYSE: WMT) and Safeway (NYSE: SWY) are major competitors.
The firm pleased investors last week, when it reported fiscal Q1 EPS of 58 cents and revenues of $23.11 billion. Analysts had been expecting 55 cents and $22.32 billion. The EPS figure was a company record. Management also offered in-line guidance for FY09 earnings and said that about $643.6 million remained under the $1 billion stock repurchase program announced in January.
If you are a Kroger (NYSE: KR) shopper and you think that you may have picked up some beef from the grocer recently, you may want to take a closer look at it, as reports of E. coli have prompted a recall from the grocery chain.
The recall involves beef products that were purchased between May 21 and June 8 in Michigan, and parts of the Ohio market. Kroger was forced to take this action following reports that there had been E. coli illnesses linked to beef sold in Kroger stores in the two locations.
So far, it looks as though there have been 19 reported cases in Michigan, and another 15 cases reported in the state of Ohio that can be linked back to the Kroger beef. The meat in question has been traced back to a Kroger store in Gahanna, a town in central Ohio. It does not look as though any stores in Michigan have definitely been linked to the tainted meat, but since there are reported cases of the disease in the area, you should definitely return any beef that you purchased from Kroger during the time frame in question.
On Tuesday, both Kroger Co. (NYSE: KR), the nation's largest traditional grocer, and casual dining chain operator Darden Restaurants Inc. (NYSE: DRI) reported better-than-expected profit increases.
Cincinnati-based Kroger Co. said first-quarter profits rose 15% from the year-ago quarter to $386 million, or 58 cents per share, due in part to discounts on food, gas, and drugs that drew in budget-strapped consumers. For the quarter ended May 24, revenue climbed 12% to $23.11 billion.
Analysts polled by Thomson Financial had expected a earnings of 55 cents a share on revenue of $22.32 billion.
Kroger also reported that same-store sales rose 5.8%, excluding fuel, and 9.2% including fuel sales.
The company offered fiscal-year earnings guidance of $1.85 to $1.90 per share, compared to the analysts' forecast of $1.90 per share.
Kroger shares rose $1.82 Tuesday to $27.82, then fell in after-hours trading. The shares have risen 10.2% in the past three months.
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Analyst upgrades: 
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U.S. stock futures edged lower Wednesday morning after the government announced late Tuesday it would help save AIG. Investors may be relieved with the action on AIG and even the Federal Reserve decision 
I'll be honest. I'm not necessarily into the supermarket sector, so I've never strongly considered a company like 
Last week's preview
Safeway 
If you are a 
Cincinnati-based Kroger Co. said 
Waiting for the other shoe to drop: The looming credit crisis
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