stock update 12-2

2008-12-02 08:22:15ET ******
JPMorgan Chase

According to reports, JPMorgan Chase (JPM 26.12) is the latest financial firm to send workers to the unemployment line. Just last evening news began hitting the wires that JPMorgan Chase will lay off 9,200 Washington Mutual employees.

The announcement should come as little surprise since the company, like its peers, is working to cut costs and reduce overlap amid a tumultuous economic and financial environment.

JPMorgan first acquired Washington Mutual’s banking operations in a government-brokered deal during the third quarter. As is common to many banking mergers, JPMorgan’s interest in WaMu is primarily in its operations, not necessarily its entire employee base. So, to reduce overlap and conserve on costs, more than 20% of Washington Mutual’s workforce will be cut, based on recent data.

2008-12-02 08:30:54ET ******
Ford

Major U.S. automakers, Ford Motor (F 2.55), General Motors (GM 4.59), and privately-held Chrysler, known as the Big Three, are expected to submit recovery plans to Congress sometime today, according to The Wall Street Journal.

The plan is expected to emphasize cost-cutting, downsizing, and development of more fuel-efficient cars, according to the report. Such a plan is intended to help bolster support for a federal bailout since skepticism remains regarding the health and sustainability of U.S. automakers.

U.S. automakers have been contending with massive losses, which have recently given rise to the specter of bankruptcy. Such a dire outcome has become increasingly likely as the Big Three contend with stiff competition, an ailing economy, and a bloated cost structure.

To help counter such headwinds, the report indicates Ford is accelerating development of hybrid and electric vehicles, while General Motors is expected to focus on lightening its debt load and possibly on consolidating its brands. Chrysler, according to the report, is expected to emphasize its need for cash and perhaps indicate interest in joining an alliance with one or more foreign automakers.

2008-12-02 08:42:38ET ******
Sears Holdings Corp.

Sears Holdings Corp. (SHLD 31.84) posted a third quarter loss of $0.90 per share, excluding nonrecurring items.

That was far worse than expected. The consensus estimate called for a loss of $0.49 per share.

The poor performance started with the company’s top line, which fell more than 8% from last year to $10.66 billion. That was also short of the consensus revenue forecast, which pegged the company’s top line at $10.93 billion.

Underscoring the weak revenue results were declining comparable store sales. When compared with last year, domestic comparables at Sears stores were down nearly 11%, while Kmart’s comparable store sales declined 7%. Total domestic comparable store sales declined 9%. Revenue from Sears stores typically represents around two-thirds of SHLD’s total revenue.

The company announced it will close an additional eight underperforming stores, in addition to 14 other store closings. As a result, the company expects to record a pretax charge of up to $21 million during the fourth quarter.

However, the company noted that the store closings are expected to be additive to earnings, since the store closures eliminate negative cash flows incurred from their operations. Further, the move will generate cash from inventory liquidation, the company indicated. While special sales will liquidate inventory and help ring the register, such moves can also repress profitability since inventory is often marked down.

Separately, Sears has approved an additional $500 million for share repurchases. That comes in addition to the $72 million worth of shares currently available under the company’s existing repurchase plan, which is what remains after the company spent $558 million buying back stock during the past 39 weeks.

2008-12-02 09:08:11ET ******
Staples

Office products company Staples (SPLS 15.12) posted seemingly solid third quarter results. Results were helped by the acquisition of Corporate Express, which supported robust revenue growth and better-than-expected earnings per share.

Revenue was up nearly 35% year-over-year to $6.95 billion, of which roughly $2.0 billion came from Corporate Express. However, without the $2 billion from Corporate Express, revenue would have actually turned roughly 4% lower. Nonetheless, the overall results were generally in step with the $7.03 billion consensus revenue forecast.

Staples generated adjusted net income of $300 million, up slightly from the prior year’s $298 million. That broke down to adjusted earnings of $0.42 per diluted share for both the most recent quarter and the same period one year ago.

Though unchanged from the prior year, earnings were still better than the $0.41 per share that was was widely expected.

Despite what seem to be rather solid results, Staples still faces considerable challenges in the near term, primarily due to the company’s exposure to cyclical trends. Currently, Staples is contending with softer spending from consumers and businesses alike. Though such trends challenge prospects in the near term, they also make for easy comparisons when the business cycle begins expanding and business and consumer spending rejuvenates.

2008-12-02 09:36:31ET ******
General Electric

General Electric (GE 15.50) stated earlier this morning that it expects fourth quarter earnings to range from $0.50 to $0.52 per share, which is actually at the low end of its prior guidance. GE previously stated it expected to earn between $0.50 and $0.56 per share.

The lowered outlook remains in-line with expectations, however. The consensus earnings per share estimate is currently pegged at $0.51 per share.

GE reaffirmed plans to maintain its current annual dividend of $1.24 per share through 2009. At GE’s current share price, the annual dividend translates to a dividend yield of 8.0%, which is roughly 525 basis points more than the 10-year Treasury Note. Still, investors would likely have preferred to know that the current dividend will always be safe, and any revisions would only be to the upside. GE has consistently boosted its dividend in the past and has been on a streak of annual increases following a stock split in 2000.

Concerns continue to stem from financial headwinds, given the company’s exposure to lending and capital markets. Turmoil in those markets has driven heavy write-downs in the company’s capital unit. GE noted today it is evaluating restructuring and other charges to accelerate losses, and expects to incur after-tax charges that range from $1.0 billion to $1.4 billion. The company also stated it is targeting to reduce leverage to 6-to-1, lower its outstanding commercial paper balance to $50 billion, and reduce overall funding needs.

GE noted it has established a framework for its capital division to earn approximately $5 billion in 2009. From there, the company believes the business is positioned to sustain solid, 10% earnings growth in the future.

During its conference call, General Electric stated it will be making between $3 billion and $5 billion in cost cuts and will be making headcount reductions, though no specifics will be announced today.

2008-11-28 16:00:00ET ******
Weekly Wrap

The Thanksgiving holiday made for a short week of trading, yet the major indices still made huge moves that no doubt left investors something added to be thankful for when the closing bell rang Friday.

Government action was a key catalyst for this week’s rally, as a rescue of Citigroup ©, the unveiling of President-elect Obama’s economic team, and an $800 billion plan of attack for getting credit flowing smoothly again for consumers drove a continuation of buying efforts that perked up in the prior week after the S&P 500 hit a new low for this bear market and touched levels seen in 1997.

The gains were extreme in many cases. The market itself soared 12%; however, it ended the week at a level that was 21% higher than the low seen only five sessions ago.

The financial sector played a huge part in the big gains.

Buyers returned to the beaten-down area after the government said it would provide a guarantee for the bulk of $306 billion of troubled assets identified at Citigroup. In turn, the government also said it would take an additional $20 billion of TARP funds and inject it into Citigroup by purchasing the bank’s preferred stock.

While there were other provisions for the relief the government provided to Citigroup, the main thrust for the market was (a) that Citigroup wasn’t going to be allowed to fail (b) that Citigroup wouldn’t have to sell core assets at distressed prices to raise capital © that common shareholders were spared in the rescue plan and (d) that it was reasonable to expect other financial companies would get similar guarantees if need be.

On the heels of the Citigroup rescue, the Federal Reserve, in conjunction with the Treasury Department, announced Tuesday that it is creating a new $200 billion facility focused on getting liquidity flowing in key asset-backed securities markets that help facilitate auto loans, student loans, credit card loans and small business loans.

In addition, another $600 billion will be allocated for the purchase of direct obligations of government-sponsored enterprises and mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae in an effort to help drive down mortgage rates and improve conditions in the housing market, which lies at the heart of the financial crisis.

Word of the latter initiative did help drive down mortgage rates and improved the general tone of the market, as there was a measure of relief in the thought that the government is finally concentrating its attack in the right place.

Even so, there remained an underlying sense of skepticism with respect to the stock market rally given that more bad economic news was heard and knowing that past rally attempts following government rescue plans have all failed.

Furthermore, there was reason to question the sustainability of the rally considering the 10-year note yield reached its lowest level on record (2.91%) in the midst of it and that Libor rates went up across a number of time horizons, including the widely-watched overnight and 3-month rates.

If there were strong conviction behind the idea that the latest initiatives were going to be successful in getting banks to lend willingly again, it seems that Libor rates should have come down.

The wrinkle here in assessing the situation is that banks typically aim to bolster their cash holdings to meet increased year-end funding needs, so it is too presumptuous at this juncture to think the bump in Libor rates meant there wasn’t confidence in the government’s efforts to inject liquidity into the financial system. That could be the case, yet there won’t be a better understanding of the matter until after the new year.

For this week anyway, participants largely set aside such concerns and took advantage of deeply marked-down equity prices. To wit, Citigroup surged 111% this week while General Motors (GM) jumped 71%. Pulte Homes (PHM) and Goldman Sachs (GS), up 50% and 48%, respectively, were examples of other big gainers.

From an economic standpoint, there wasn’t much good news. Q3 GDP was revised down to -0.5% from -0.3%, durable orders slumped 6.2%, existing home sales fell 3.1%, new home sales dropped 5.3%, personal spending declined 1.0%, and weekly initial claims, while improved from the prior week, continued to register a reading above 500,000.

The consumer confidence report, remarkably, showed an increase from the prior month as falling gas prices helped sentiment, yet the confidence reading remained at historically depressed levels.

That the market managed to look past any worrisome news, including a well-orchestrated terrorist attack in Mumbai, India, suggested it had gotten to a point where prior selling efforts had been exhausted.

The selling this month has been significant, too. Despite the big gains in this final week of trading, the market still declined 7.5% in November.

The coming week is sure to bring more Christmas music… and a test of the newfound bullish bias.

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