Wall Street Breakfast: Must-Know News
- A big deal. Dow Chemical (DOW) is buying specialty materials firm Rohm and Haas (ROH) for $78/share in cash ($18.8B) - a 74% premium. "Rohm and Haas will bring to Dow its recognized world-class core strengths in Coatings and Electronic Materials, and a strong market-facing culture. This acquisition is the definitive step in our company’s strategy to shape The Dow of Tomorrow." Dow's complementary businesses in areas such as coatings, biocides, and personal care products will boost ROH's annual revenue to $13B from $8.9B in 2007. CEO Andrew Liveris says he expects Dow's Moody's credit rating to remain unchanged at investment grade following the buyout. Financers include BRK.A, C, MER and MS.
- Building bridges of Steel. Wachovia (WB) hired Treasury Undersecretary Robert Steel as its new CEO. It hopes Steel, who was crucial in formulating the administration's response to the mortgage crisis, will help WB solve its many challenges. The 56-year-old Steel says he hopes to make up for his lack of retail-banking experience by "listening and learning" to an experienced executive staff. Steel's hiring will likely quiet speculation that the bank is an acquisition target. WB shares have fallen 70%+ over the past year. Shares are up 1.5%.
- More beating up on banks. Morgan Stanley slashed EPS forecasts for large U.S. banks and downgraded their shares, saying it's still "too early in the credit cycle to make a valuation call." It notes there remains a large gap between implied bank losses on residential mortgages and loan values. Companies downgraded: BAC, BBT, C, FITB, PNC, STI, USB, WB and WFC.
- Mulling GSE breakdowns. Sources say the Bush administration has discussed its reaction if government-sponsored mortgage lenders Freddie Mac (FRE) and Fannie Mae (FNM) were to fail. While such talks are part of normal contingency planning, they have taken on a more urgent tone recently given the pair's financial hardships and the steep drop in their share prices. Ex-Fed president William Poole told Bloomberg the two were insolvent under fair-value accounting rules, and that chances a bailout would be needed are growing. Most analysts agree the two are too big and their roots to deep to be allowed to fail. FRE fell 23.8% Wednesday, while FNM dropped 13.1%. YTD FRE has lost almost 70% of its value, and FNM more than 60%.
- Wal-Mart: Strong comps, better outlook. Wal-Mart's (WMT) same-store sales rose 5.8% - a full 2% better than Street expectations. It also boosted its Q2 EPS guidance to $0.82-0.84 from a previous $0.78-0.81. But, it said, "with the last large mailing of economic stimulus checks due this Friday, it is difficult to forecast the benefit from the economic stimulus through the remainder of the year." Costco's (COST) same-store sales were 9% higher than a year ago, vs. 8.2% consensus estimates.
- Hoenig pushes rate hikes. KC Fed president Hoenig says the Fed should hike interest rates as soon as possible to bring them back into line with neutral: "2% is accommodative; 2.5% is accommodative. So there is room to move back toward neutral without becoming tight."
- Medicare cuts blocked. After a surprise visit by Ted Kennedy, the Senate reversed course and advanced a bill that blocks Medicare cuts to doctors by 69-30 - enough to override a presidential veto.
- Financial websites attracted 64M visitors in May, up 35%. Yahoo Finance (YHOO), with 58% growth to 18.5M unique visitors, took top spot, followed by AOL (TWX) and MSN (MSFT).
- Northwest cutbacks. Northwest Airlines (NWA), which is being acquired by Delta (DAL), said it is cutting 2,500 jobs, and will join AMR and UAUA in charging $15 for the first checked bag. Carriers are slashing 20K jobs and parking 400 jets after fuel surged 87%.
- The Bank of England held interest rates at 5%, as expected. Inflation of 3.3% and anemic growth make it hard for the bank to move in either direction.
- Crude inventories fell by 5.9M barrels (vs. -2.1M consensus). Gasoline +0.9M (vs. 0.05M consensus). Distillate +1.8M (vs. +2.1M consensus). Utilization 89.2%, unchanged. Crude: +0.2% to $136.40.
- Mortgage Applications for the week jumped by 7.5% from a week ago, but are still 14.1% lower than the same week last year.
- Hiring activity fell to 3.1% from 3.4% in May, reflecting ongoing labor market strain. Job openings were unchanged at 2.6%, as were employment terminations at 3.2%.
After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.
Earnings: Wednesday After Close
- Ruby Tuesday (RT): FQ4 EPS of $0.27 beats by $0.07. Revenue of $341M (-4.3%) in line. Sees 2009 EPS of $0.50-0.70, better than $0.51 consensus. [PR]
- Shaw Group (SGR): Q3 EPS of $0.70 beats by $0.07. Revenue of $1.82B (+13.6%) was in line. Despite the beat, its full-year EPS outlook of $2.30 is in line. [PR]
Today's Markets
- Asia on Thursday: Nikkei +0.12% to 13,067. Hang Seng +0.07% to 21,822. Shanghai -1.54% to 2,875. BSE -0.27% to 13,926.
- European markets are down sharply at midday: London -1.15%. Paris -1.36%. Frankfurt -0.4%.
- Futures are moving up at 8:20. Dow +0.56%. S&P +0.58%. Nasdaq +0.42%. Crude -0.1% to $135.90. Gold +0.13% to $929.60.
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