Follow-up on Monitored Stocks
Manitowoc off Focus List
Manitowoc ($7; MTW) shares retreated after the company issued disappointing guidance for 2009. The maker of cranes and food-service equipment says it expects per-share earnings of $1.35 to $1.60 — well below the consensus estimate of $2.78. While we are not surprised that Manitowoc lowered expectations, the extent of the shortfall was worse than anticipated. The company blamed weakening crane demand, especially in Europe. Manitowoc plans to reduce debt by $1 billion in 2009, and success on that goal could go a long way in bolstering sentiment toward the stock. Even using the low-end estimate of $1.35 per share, Manitowoc trades at less than six times expected earnings. While a quick rebound to $13 or $14 no longer seems likely, the stock seems oversold at current prices. Manitowoc, capable of a bounce to $10 or $11 if it can demonstrate success on its debt-reduction plan, is being maintained as a Buy and Long-Term Buy. The stock must be considered risky and is not appropriate for a focused portfolio, so Manitowoc is being dropped from the Focus List.
Citigroup ($5; C) and Morgan Stanley ($19; MS) have agreed to merge their brokerage businesses. Morgan will pay $2.7 billion for 51% control of the joint venture to be called Morgan Stanley Smith Barney, which will be America’s largest brokerage firm. In coming months, Citigroup plans to narrow its focus to two key businesses — retail banking and wholesale banking for corporations. Citigroup and Morgan are rated Neutral . . . Gregory J. Fleming, former head of Merrill Lynch’s investment-banking unit, is the latest high-ranking executive to bail since the broker was absorbed by Bank of America ($11; BAC). Moody’s noted Merrill defections as one reason for lowering Bank of America’s credit rating in January. Bank of America is rated Neutral . . . American International Group ($2; AIG) agreed to sell its Canadian life insurance business to the Bank of Montreal for about $305 million and is taking bids for its aircraft-leasing segment, which could bring in more than $8 billion. AIG is rated Neutral.
Indian consultant Satyam may have artificially inflated the value of its earnings and assets, but its client book — including General Electric ($15; GE), Nestle and about 550 other firms — is the real thing. Satyam’s fall represents a prime opportunity for competitors with operations in India — such as Cognizant Technology Solutions ($21; CTSH), Accenture ($34; ACN), and IBM ($85; IBM) — to scoop up defectors. Accenture and IBM are Focus List Buys and Long-Term Buys. Cognizant is a Buy and a Long-Term Buy . . . Growth in the number of new patients taking Biogen Idec’s ($50; BIIB) Tysabri slowed in the December quarter, hurt by fears regarding the drug’s safety. Biogen says more than 90% of neurologists consider Tysabri the most effective therapy for multiple sclerosis, despite its risks. Biogen is a Focus List Buy and a Long-Term Buy . . . DirecTV ($21; DTV) announced a $2 billion stock-repurchase program in January. The company has bought back about $8.2 billion in shares since early 2006, reducing the share count by more than 20%. DirecTV is a Focus List Buy and a Long-Term Buy . . . Yahoo ($12; YHOO) hired Carol Bartz, chairman of design-software developer Autodesk ($18; ADSK), as its new CEO. Yahoo is rated Neutral.
$800 billion stimulus just the start
President-elect Barack Obama is working on an $800 billion plan to cut taxes and boost spending in an effort to stimulate the economy. But according to Federal Reserve Chairman Ben Bernanke, while Obama’s efforts should help, more will be required. Bernanke hopes to augment the White House’s consumer-focused efforts with more funds for banks and other financial institutions. The Obama Administration hopes to tap into the remaining $350 billion of bailout funds, though Congress has yet to release the money.
While a comprehensive economic-stimulus plan could boost stocks, a lack of details about Obama’s plans — coupled with consistently bad news regarding labor markets and corporate profits — have limited investors’ excitement. The S&P 500 Index has fallen nearly 10% from its Jan. 6 high, though it remains 12% above November lows.
Job market laboring
The U.S. economy lost 1.5 million jobs in the December quarter and 2.6 million for the year, the most since 1945. More job losses are likely in 2009, with the Conference Board projecting a decline of about 2 million.
In the first six business days of 2009, at least 13 of America’s largest companies combined to announce more than 26,000 layoffs. Below are details about two of the bigger cuts.
Boeing ($42; BA) plans to slash 4,500 jobs in its commercial-aircraft division, shrinking the unit’s work force nearly 7% this year. The company intends to maintain production levels despite the cuts as it works down a $275 billion backlog. Neutral-rated Boeing depends heavily on that backlog, as new contracts fell 53% in 2008.
In response to low oil prices and weak demand, Schlumberger ($43; SLB) plans to eliminate about 5% of its 19,000 North American workers. Schlumberger is a Long-Term Buy.
Profits not pretty
A grim picture has emerged as investors enter the earnings season. Among S&P 500 Index companies, negative earnings preannouncements for the December quarter outnumber positive news by a ratio of more than 4-to-1, twice the ratio seen at the same time last year.
Consensus estimates project a December-quarter earnings decline of 15%, with seven of the 10 market sectors posting lower profits. A focus on individual companies does not improve the picture. Time Warner ($10; TWX) will take a $25 billion charge, writing down the value of its cable, publishing, and Internet businesses. Luxury handbag maker Coach ($17; COH), electronics retailer Best Buy ($27; BBY), and agricultural-products firm Bunge ($48; BG) are also among the many companies that lowered profit guidance.
Investors are taking good news where they can get it. Medical-equipment concern Stryker ($40; SYK) jumped after saying it expects 2008 earnings in line with the consensus. Time Warner, Coach, Best Buy, Bunge, and Stryker are rated Neutral.
A number of historically robust companies readied investors for less-than-stellar earnings, including the two recommendations below:
Airgas ($40; ARG) lowered December-quarter profit guidance. The company now expects per-share earnings of $0.74 to $0.76, $0.08 below a previous target range though still up at least 10% from year-earlier levels. Shares have climbed since the announcement, possibly because Wall Street expected worse news. Airgas is a Focus List Buy.
Wal-Mart Stores ($52; WMT) trimmed per-share-profit forecasts for the January quarter. However, the retail giant expects flat to higher same-store sales in January, not too shabby in the current environment. Wal-Mart is a Long-Term Buy.