Brazil Gold Rescinds ACP Acquisition
BELLEVUE, WA--(Marketwire - September 30, 2010) - Brazil Gold Corp ("Brazil Gold" or the "Company") (
Reversal Flushes Market After Good Economic News – Voice of the People
acks' Voice of the People Highlights user inthemoneystocks: "Reversal Flushes Market After Good Economic News" from the People & Picks community.For more Voice of the People, visit http://at.zacks.com/?id=5851
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Reversal Flushes Market After Good Economic News
A major reversal flushed the markets to the negative side today after a massive gap and go early in the day. Solid economic news at 8:30am ET on Jobless Claims and the third revision on GDP and even better news at 9:45am ET on Chicago PMI were the key catalysts to the surge early. However, that was wiped away quickly. The markets are now sharply off their highs.
There were many signals today that a reversal could take place. First, the markets were hitting a pivot top going back to the highs of 2007, connected to the highs from 2010. This line can be seen on the weekly chart below. Truly an amazing trend line of resistance.
Second, major stocks that have lead the market higher were hovering flat to lower even when the Dow Jones Industrial Average was up 100 points on the day. The weakness was noted in Caterpillar Inc. (CAT), Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), Baidu.com, Inc. (ADR) (BIDU) and Google Inc. (GOOG).
These stocks have been the strongest in the last month and were signaling a problem with the initial gap higher and surge. Sure enough, their weakness was a leading indicator for the reversal in the markets.
This reversal may be key, though must be taken carefully until the markets close. At that time, hardcore analysis will be done in the Research Center to see if this sell off is more than just a one day event.
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Treasury to Sell Citi’s TRUPS – Analyst Blog
As part of its effort to unwind its holdings in Citigroup Inc. (C), the U.S. Treasury has announced its plan to commence selling $2.2 billion in trust preferred securities (TRUPS) it received from Citi in relation to the Asset Guarantee Program (AGP). The Treasury has made it clear that it will sell the TRUPS at a price which is not less than its par value plus any accumulated and unpaid distributions.The Treasury had received these TRUPS in January 2009 as part of its effort to rescue Citi from the clutches of the recession. The TRUPS were part of the Treasury’s agreement to share Citi’s potential losses on $301 billion of Citi’s assets. This loss sharing agreement, which was intended as a sort of insurance, also included the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. Citi handed over these securities as a premium for sharing any potential loss in the next 5 to 10 years.
As the Treasury neither had to nor has any further obligations to pay under the arrangement, the proceeds that it would receive following the sale will represent a net gain for the taxpayer fund.
BofA Merrill Lynch of Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), UBS Investment Bank of UBS AG (UBS) and Wells Fargo Securities of Wells Fargo & Co. (WFC) will act as joint lead managers for the offering. Citigroup Global Markets Inc. will act as global coordinator but not as an underwriter or sales agent.
Citi, one of the companies severely hurt during the credit crisis, had received $45 billion in bailout funds in 2008 through the Troubled Asset Relief Program (TARP). Later, around $25 billion of that was converted into common stock. Citi repaid the remaining $20 billion and terminated the loss-sharing agreement in December 2009. The Treasury has sold 2.6 billion of the 7.7 billion common shares it owned in Citi by July 2010.
However, the offering excludes the $800 million in TRUPS which have been retained by the FDIC but has to be turned over to the Treasury. It also excludes Citi’s warrants issued as part of participation in AGP and other Treasury programs.
We expect some sort of volatility in Citi stock price in the near-term following the TRUPS sale. However, the government overhang on the stock seems to reduce; this coupled with the company’s restructuring initiatives is encouraging. Its core business, Citicorp, remains attractive, while its international business also has a good growth momentum. An economic rebound would help it to witness a further improvement in credit quality.
Nevertheless, the recent legislative measures coupled with the shrinking of its Citi Holding business through assets sale would pose some sort of revenue challenge in the days ahead.
Citi is currently rated as Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months. The stock is also rated Neutral in the long term.
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VeriFone Bids to Buyout Hypercom – Analyst Blog
Electronic payments processing company, VeriFone Systems, Inc. (PAY) recently launched a bid to acquire all of the outstanding shares of rival Hypercom Corporation (HYC) for $5.25 per share in cash.
Headquartered in Scottsdale, Arizona, Hypercom Corporation designs and sells electronic payment and transaction solutions, and value-added services at the point of transaction primarily in the Americas, northern EMEA (Europe, Middle East, Africa), southern EMEA and the Asia-Pacific.
Earlier, last week, VeriFone proposed to acquire all of the outstanding shares of Hypercom Corporation at a 0.21x exchange ratio. This offer represented a premium of 52% over the closing price of $3.84 of Hypercom shares on September 23 and 69% over the average share price for the last thirty trading days. But Hypercom has rejected the offer.
VeriFone expects to fund the purchase with cash on hand. VeriFone exited the fiscal third quarter with cash and equivalents of $400.5 million.
Management expects that the acquisition will expand the company's footprint in Continental Europe, where its market penetration has been lower, compared to the rest of the world. The company feels that it is strongly placed in North America and has the required strength to finance the services driven transformation in Europe.
Management also stated that to address potential regulatory concerns and to accelerate the time to close, VeriFone will be willing to divest Hypercom's small US business.
VeriFone expects the acquisition to throw up significant operating synergies that will emanate from eliminating product overlap, administrative costs and sales expenses in many markets. The combination of the two businesses will lead to better product development along with significant supply efficiencies for the combined business.
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Commtouch Gains Valuable Assets – Analyst Blog
Back on July 27, 2010, Commtouch (CTCH) announced that it had signed a definitive Asset Purchase Agreement to acquire the assets, products, licenses and operations of the Command antivirus division of Authentium, Inc., a Florida-based company.
Authentium was a privately held company based in Palm Beach Gardens, Florida. In 2002, Authentium acquired Command Software, a security firm that was founded in 1984 and focused on anti-malware technology. Authentium also had another division, known as SafeCentral, which was not acquired by Commtouch.
Commtouch’s strategy is to increase its leadership in the Internet Security sphere. Antivirus provides a significant growth opportunity that is highly synergetic with the company’s business. Command Antivirus is a natural fit for Commtouch, employing a business model compatible with Commtouch’s -- OEM to security vendors and direct to Service Providers.
The Command Antivirus offering provides detection using a highly scalable, multi-layered approach. This market-leading antivirus is a natural addition to Commtouch’s offering of broad email and Web security suites that provide customers with operational simplicity, reduced TCO and technical consolidation.
Command’s OEM customer base included companies such as Google, McAfee and Microsoft, among many others. Command also had over 1,000 customers of its CSAM (Command Anti-Malware) product. All of Command’s customers are now customers of Commtouch.
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Jack in the Box to Shut 40 Stores – Analyst Blog
Jack in the Box Inc. (JACK) announced recently that it is planning to shut 40 company-owned underperforming restaurants before the end of its current fiscal year 2010 on October 3, 2010.The fast-food chain plans to close the restaurants situated across 7 states, mostly in the Southeast and Texas, places hard-hit by the economic downturn. The bleak economic scenario resulted in weak labor and tight credit markets, which slashed discretionary spending.
Jack in the Box, based in San Diego, stated that it expects about $8.5 million to $9.5 million as impairment charges related to the closings and approximately $21 million to $25 million in lease-related costs for the fourth quarter of 2010.
Management believes that the closing of restaurants will benefit the company’s future profit and improve the cash flow position, as the restaurants were running into losses. Continuous decline in traffic, stemming from rising unemployment and lower consumer spending, was the primary reason behind these losses.
Jack in the Box’s third quarter earnings of 50 cents were also below the Zacks Consensus Estimate of 53 cents, resulting from sluggish sales and higher overhead costs. During the quarter, the company’s restaurants sales dropped 17.8% year over year mainly due to the company’s strategy to sell company-owned restaurants to franchisees. In the same quarter, the company sold 50 restaurants to franchisees.
The company expects to increase its percentage of franchise ownership at current 54% to the 70% to 80% range, by the end of fiscal year 2013. Moreover, Jack in the Box plans to achieve its future unit growth through franchising, which requires little capital investment and generates income in terms of fee.
The company also reduced its fiscal year 2010 guidance from the range of $1.85 to $2.05 to the $1.65 to $1.75 range, given that same-store sales for Jack in the Box restaurants are expected to decrease approximately 9% year over year.
The company’s primary competitors are Biglari Holdings Inc. (BH), AFC Enterprises Inc. (AFCE) and Krispy Kreme Doughnut Inc. (KKD).
Jack in the Box currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.
Jack in the Box operates and franchises more than 2,200 Jack in the Box quick-service restaurants across 18 states in the U.S. The company, through a wholly owned subsidiary, also operates and franchises Qdoba Mexican Grill fast-casual dining chain, with more than 500 restaurants in 43 states and the District of Columbia.
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Valiant Health Care, Inc. Announces Execution of Term Sheet to Acquire Atlantic Medical Supply, Inc.
CORAL SPRINGS, FL--(Marketwire - September 30, 2010) - Valiant Health Care, Inc. (
Earnings Scorecard: Discover Financial – Analyst Blog
Discover Financial Services (DFS) reported its third quarter earnings for fiscal year 2010 on 20th September, beating the Zacks Consensus Estimate substantially by 12 cents per share, led by strong net interest income growth and lower loan loss provisions, though partially offset by higher-than-expected interest expenses.Nonetheless, the investors’ reactions to the better-than-expected results were quite optimistic on Wall Street. This gets reflected in the upward price movement witnessed since the earnings release. The confidence could be justified not only by the fundamental improvement in the credit and profitability metrics but also by the recent agreement to acquire Student Loan Corp. (SLC).
Below we will cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the short-term and long-term outlook for the stock.
Earnings Report Review
It’s always encouraging to outperform estimates, particularly when the difference is substantial enough to inject optimism into future. A quick look at the top line reveals extensive growth across segments, including direct banking and payment service volumes, whose pre-tax operating income surged by 81% and 36% year over year, respectively.
While Discover credit card volumes grew by 5% year over year on higher consumer spending and merchant acceptance, loan loss provisions, net charge-offs and delinquency rates improved modestly, reflecting an overall better credit trends. However, this significant growth was partially offset by higher-than-expected expenses that grew 9% year over year, during the reported quarter.
(Our full coverage on the earnings is available here: "Discover Beats Zacks Estimate")
Earnings Estimate Revisions - Overview
Estimates have witnessed modest movement for Discover since the earnings release. This means that analysts have more or less been receptive to this information and expect continued improvement going forward. In fact, this gives quite a valid reason to own a stock that benefits from positive results and provides a scope for rise in the future. The earnings estimate details are deeply delved into below.
Agreement of Estimate Revisions
Given the exceptionally strong fundamentals, analysts are excited not only about the way Discover has weathered the storm of financial downturn, but also about the forthcoming SLC acquisition. Analysts, therefore, agree with the optimistic future outlook for Discover’s earnings. As a result, we see below that out of 15 analysts in the last 30 days, 12 have increased their estimates for 2010, while only one of has lowered, which is overall encouraging. Moreover, looking into 2011, 13 analysts have raised their estimates while just one downward correction has been witnessed. This gives room for ample buoyancy over the intermediate term.
Magnitude of Estimate Revisions
Overall the last 30 days, earnings estimates have shown extraordinary improvement, upping from 76 cents to 93 cents, since the earnings release. However, estimates moved modestly upwards to $174 from $1.60 per share for 2011. This overall looks promising, particularly, when so many other stocks are experiencing a downfall, analysts continue to value Discover’s earnings at a considerable premium.
Discover on Positive Side
Discover has implemented several capital bolstering initiatives, including equity and debt offering, which have supported the company to achieve a strong capital base. Moreover, with the repayment of its $1.2 billion government bailout loan in April 2010, Discover can divert its focus on consumers and businesses, hence achieving financial success. Increased merchant acceptance, improved credit quality and continued growth in direct banking is expected to augment the top- and bottom-line growth going head.
Moreover, the scheduled SLC acquisition has fetched appreciation from the market for the management’s decision to enhance its already strong student loan portfolio, thereby also adding to the competitive strength. While the deal is scheduled to be culminated by the end of 2010, upon certain debt-asset agreements, it is expected to shore up the bottom line from the first year of purchase, carrying an earnings increment of at least $0.09 per share in 2011 itself.
However, risks related to the imposition of the CARD Act regulation, now that it is being implemented in full force, and rating downgrades continue to hurt the operating leverage of Discover. Overall though, fundamentally the company is poised to grow significantly with its well-diversified business model and a more favorable operating environment. Moreover, the company’s extensive network, sound capital position and cost containment initiatives will help accentuate growth once the markets rebound to its historical highs.
Going forward, we expect healthy growth opportunities with limited downside to the stock, which also justifies the recent upgrade in our recommendation to Outperform from Neutral. Hence, we are maintaining a Zacks #2 Rank, which translates to a short-term Buy recommendation. Our long-term recommendation for the stock is upgraded to Outperform.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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Triumph Upped to Outperform – Analyst Blog
We upgrade our recommendation on Triumph Group Inc. (TGI) from Neutral to Outperform based on the recent Vought acquisition, which was highly accretive to first quarter fiscal 2011 earnings of $1.33 per share. Reported EPS surpassed the Zacks Consensus Estimate of $1.08.
Management expects the acquisition to add approximately $1.10 to the earnings estimate in fiscal 2011 and synergies are expected to be approximately $15.0 million within a year. Hence, Triumph has raised its guidance to approximately $6.00 per share, an approximately 17.0% increase from fiscal 2010. Besides, the Zacks Estimate is even higher at $6.14.
During the first quarter, Triumph completed the acquisition of Vought Aircraft Industries Inc. from private equity firm The Carlyle Group for $1.44 billion. Triumph paid $525 million in cash and offered 7.5 million shares to Carlyle for a 31% stake in Triumph.
Triumph issued senior notes to fund the acquisition. The acquired business operates as Triumph Aerostructures-Vought Commercial Division and Triumph Aerostructures-Vought Integrated Programs Division.
Moreover, the company’s focus on growing its core businesses along with its strict cost control strategy will help it to profit in the long run. Triumph’s organic growth also remained strong with the addition of products and services, the expansion of operating capacity and marketing of a complete portfolio of capabilities. The company follows a strict cost control program and achieved an operating margin of 12.4% in the first quarter of fiscal 2010, which may help it pull through the difficult period.
The stock retains its short-term Neutral rating, equivalent to a Zacks #3 Rank.
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Good News for Covance – Analyst Blog
Through an agreement signed with Sanofi-Aventis (SNY), Covance (CVD) has become its R&D partner for the next 10 years. Covance will provide drug-development services to Sanofi for payments of $1.2-$2.2 billion over the 10-year period. Additionally, Sanofi will sell two facilities to Covance located in France and the UK for $25 million. The deal is expected to close before the year-end.
Covance will also acquire chemistry, manufacturing and control services which will include pre-formulation, drug formulation, preclinical and early-stage clinical API (Active Pharmaceutical Ingredient) manufacturing and radio labeled chemistry. Subsequent to the agreement with Covance, Sanofi will have access to Covance’s services in the areas of discovery support, toxicology, chemistry, clinical phase I – IV among others, payment for which will increase over the next 10 years.
Covance derives its revenues from two segments, Early Development and Late-Stage Development, which generated sales of $208.2 million (annualized growth of 4.2%) and $267 million (0.3%), respectively during the second quarter of fiscal 2010. While the Early Development segment deals with preclinical toxicology, analytical chemistry, clinical pharmacology services, research products and discovery services, Late-Stage Development caters to central laboratory, phase II-III clinical development and commercialization services.
The Late-Stage Development segment suffered during the latest reported quarter due to the delay in three large phase III studies, as announced by Covance earlier. Of these, one trial commenced during the reported quarter, one was reduced in size and launched in July while the third is expected to begin enrollment next year. Lower clinical development profitability due to this delay brought operating margin to 21.2%, down 270 bps sequentially and 340 bps year over year.
We believe the deal with Sanofi will enable Covance to recoup some of the losses due to delay in some clinical trials mentioned above.
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