Category: Articles

Today’s Upgrades / Downgrades

Post author By ToddSullivan
Post date July 27, 2007

Here are today’s early calls

UPGRADES

Building Materials BLG DA Davidson Neutral » Buy
Natl Instruments NATI Sanders Morris Harris Neutral » Buy
Precision Drilling PDS BMO Capital Markets Underperform » Market Perform
Universal Truckload Services UACL Morgan Keegan Mkt Perform » Outperform
Rackable Systems RACK Caris & Company Below Average » Average
AU Optronics AUO HSBC Securities Neutral » Overweight
FMC Corp FMC Longbow Neutral » Buy
Foundry Ntwks FDRY CE Unterberg Towbin Market Perform » Buy
Dime Community DCOM FTN Midwest Sell » Neutral
AutoZone AZO Kevin Dann Sell » Hold
Foundry Ntwks FDRY Sanders Morris Harris Hold » Buy
Columbia Sportswear COLM Caris & Company Below Average » Average
Oplink Comms OPLK Needham & Co Hold » Buy
Cymer CYMI Needham & Co Hold » Buy
Flow FLOW McAdams,Wright,Ragen Hold » Buy
Aeropostale ARO Citigroup Sell » Hold
McAfee MFE WR Hambrecht Hold » Buy
Grant Prideco GRP Calyon Securities Neutral » Buy
Universal Truckload Services UACL Stifel Nicolaus Hold » Buy
National City NCC Stifel Nicolaus Sell » Hold
Bankunited Fin BKUNA Stifel Nicolaus Hold » Buy
Embarq EQ RBC Capital Mkts Sector Perform » Outperform
Snap-On SNA Matrix Research Hold » Buy
Convergys CVG BMO Capital Markets Underperform » Market Perform
Genesis Microchip GNSS Roth Capital Sell » Hold
Cash America CSH Roth Capital Hold » Buy
Microtune TUNE Roth Capital
Nordstrom JWN Citigroup Hold » Buy
SPX Corp SPW Citigroup Hold » Buy
Gap Inc GPS Citigroup Hold » Buy
Brunswick BC Rochdale Securities Sell » Hold
Old Dominion ODFL Credit Suisse Neutral » Outperform $34
Alaska Air ALK JP Morgan Neutral » Overweight
Penn Natl Gaming PENN Jefferies & Co Hold » Buy
Rightnow Tech RNOW Jefferies & Co Hold » Buy

DOWNGRADES

RadiSys RSYS Merriman Curhan Ford Buy » Neutral
3M MMM Hilliard Lyons Buy » Long-term Buy
QLogic QLGC Caris & Company Above Average » Average
Sierra Wireless SWIR Piper Jaffray Outperform » Market Perform
CTC Media CTCM UBS Neutral » Reduce
Volcom VLCM Piper Jaffray Outperform » Market Perform
Taiwan Semi TSM HSBC Securities Overweight » Neutral
Isilon Systems ISLN AG Edwards Buy » Hold
Cutera CUTR Lazard Capital Buy » Hold
Riverbed Technology RVBD Janco Partners Buy » Mkt Perform
Diomed DIO Roth Capital Buy » Hold
Marvell MRVL Matrix Research Hold » Strong Sell
Darden Restaurants DRI Matrix Research Buy » Hold
AutoNation AN Bear Stearns Outperform » Peer Perform

Tags AN, davidson

Articles

"Fast Money" Picks for Friday

Post author By ToddSullivan
Post date July 27, 2007

Here are today’s picks.

Jeff Macke recommended buying Costco (COST),Open $59.09

Pete Najarian likes Myriad Genetics (MYGN). Open $39.43

Guy Adami preferred Dell (DELL) because their PC shipments are up 12% year over year.Open $28.49

Eric Bolling said Goldman Sachs (GS) is a buy, Open $194.77

THURDAY’S RESULTS

Eric Bolling recommended owning MEMC Electronic Materials (WFR) Open $57.76 Close $61.06 Gain $2.30

Guy Adami liked Harley-Davidson (HOG). Open $58.66 Close $57.30 Loss $1.33

Pete Najarian preferred Bristol Myers (BMY) Open $31.59 Close $29.85 Loss $1.74

No stock pick from Jeff Macke.

Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation week))

Adami= 8-7 Gain $25.67
Bolling= 8-7 Loss $1.88
John Najarian= 13-3 Gain $15.54
Macke= 15-8 Gain $6.01
Pete Najarian=4-3 Gain $18.41
Seymore= 1-1 Gain $.01
Finerman= 1-2 Gain $.68

Tags davidson

Articles

Today’s 52 Week Lows

Same drill, homebuilders, financials and mortgage companies get whacked. Even though it is not on the list, assume yours may be near it.

WWE World Wrestling Entmt Inc
WMG Warner Music Group Corp
WLK Westlake Chem Corp
WFMI Whole Foods Market Inc
UTSI Utstarcom Inc
USG USG Corporation
SPF Standard Pacific Corp
SPC Spectrum Brands Inc
PNY Piedmont Natural Gas
PNRA Panera Bread Co
PEET Peets Coffee & Tea Inc
PAG Penske Automotive Grp Inc
ODP Office Depot, Inc
MYL Mylan Laboratories Inc
MOT Motorola, Inc
LZB La-Z-Boy Incorporated
KKD Krispy Kreme Doughnut
JNY Jones Apparel Group, Inc
HSY Hershey Foods Corporation
DTG Dollar Thrifty Automotive
C Citigroup, Inc
BX Blackstone Group L P
BSX Boston Scientific Cor
BSR Bear Stearns Cos Inc

Articles

A Nice Read On Walmart and Apparel

Post author By ToddSullivan
Post date July 26, 2007
1 Comment on A Nice Read On Walmart and Apparel

Here is a great post that talks about WalMart’s (WMT) clothing issues. You can read it here

Articles

"Fast Money" Picks for Thursday

Post author By ToddSullivan
Post date July 26, 2007

Here are today’s picks

TODAY’S PICKS

Eric Bolling recommended owning MEMC Electronic Materials (WFR) Open $57.76

Guy Adami liked Harley-Davidson (HOG). Open $58.66

Pete Najarian preferred Bristol Myers (BMY) Open $31.59

No stock pick from Jeff Macke.

WEDNESDAY’S RESULTS

Vodafone (VOD) down over 3% today represented a buying opportunity, Guy Adami says. Open $32.09 Close $32.32 Gain $.13

Pete Najarian liked Teva Pharmaceuticals (TEVA) Open $43.44 Close $43.29 Loss $.15

Jeff Macke reiterated that Costco (COST)is a buy. Open $60.15 Close $60.30 Gain $.15

Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation week))

Adami= 8-6 Gain $27
Bolling= 7-7 Loss $4.18
John Najarian= 13-3 Gain $15.54
Macke= 15-8 Gain $6.01
Pete Najarian=4-2 Gain $20.29
Seymore= 1-1 Gain $.01
Finerman= 1-2 Gain $.68

Tags davidson

Articles

Today’s Upgrades / Downgrades

Post author By ToddSullivan
Post date July 26, 2007

Here are todays calls.

UPGRADES

AtheroGenics AGIX Needham & Co Underperform » Hold
VASCO Data Security VDSI Lazard Capital Sell » Hold
Human Genome HGSI Lazard Capital Sell » Hold
PC-TEL PCTI B. Riley & Co Neutral » Buy
CyberSource CYBS Wedbush Morgan Hold » Buy
Convergys CVG Wedbush Morgan Sell » Hold
Vignette VIGN Roth Capital Hold » Buy
LHC Group LHCG Stifel Nicolaus Hold » Buy
Amerigroup AGP Stifel Nicolaus Hold » Buy
Aaron Rents RNT Merriman Curhan Ford Neutral » Buy
Baidu.com BIDU Citigroup Hold » Buy

DOWNGRADES

Exelixis EXEL Stanford Research Buy » Hold
Business Objects BOBJ Wedbush Morgan Strong Buy » Buy
Mattson MTSN Am Tech/JSA Research Buy » Sell
F5 Networks FFIV Janco Partners Buy » Accumulate
Southwest Air LUV Matrix Research Strong Buy » Buy
Actuant ATU Matrix Research Strong Buy » Buy
Advantest ATE Matrix Research Hold » Strong Sell
Lincare LNCR Stifel Nicolaus Buy » Hold
Newport NEWP Needham & Co Buy » Hold
Covenant Transport CVTI Wachovia Outperform » Mkt Perform
Akamai Tech AKAM Jefferies & Co Buy » Hold
Akamai Tech AKAM Credit Suisse Outperform » Neutral
Akamai Tech AKAM Merriman Curhan Ford Buy » Neutral

Articles

Dow’s Quarterly Results: A Brilliant Management Job

Post author By ToddSullivan
Post date July 26, 2007
2 Comments on Dow’s Quarterly Results: A Brilliant Management Job

It what perhaps could be the toughest operating environment in over a decade for Dow Chemical (DOW), management did a brilliant job with company and the results were earnings growth in what was expected to be a flat or declining quarter (especially after DuPont’s (DD) recent earnings release).

Highlights

— Sales for the quarter set a new Company record, rising 6 percent from
the same period last year to exceed $13 billion for the first time in
Dow’s history.
— Earnings were $1.07 per share, up from $1.05 per share last year.
— Equity earnings for the quarter increased to $258 million, up 11
percent from 2006.
— Solid cash flow in the quarter supported investment in organic growth
and acquisitions, as well as $400 million in share repurchases.
— Purchased feedstock and energy costs surged by almost $700 million
compared with the first three months of the year – the highest ever
sequential increase. Year over year, costs increased by more than $550
million.
— Strong volume increases in Asia Pacific, Latin America and most
operating segments in Europe offset continued weakness in the North
American housing and automotive sectors.

How many businesses could experience a record increase in input costs of almost a billion dollars and still produce a year over year increase in earnings? A key factor was the Joint Venture strategy Dow has embarked on that to date in 2007 has produced 11% year over year earning growth. As new ventures are announced monthly, shareholders have to be excited about their potential.

Said CEO Andrew Liveris, “We have a very clear strategy, with well-defined priorities, which we are executing with discipline to deliver strong financial results for the Company.”

“During the quarter, our global strength, diverse business portfolio, focus on price/volume management and commitment to joint ventures combined to overcome an unprecedented rise in feedstock and energy costs.

“In addition, we continued to invest in exciting new joint ventures, such as the recently announced Dow Crystalsev project in Brazil, in our Performance businesses with acquisitions like Wolff Walsrode, and in strong organic growth programs – implementing a strategy that can deliver a consistent earnings growth profile through the years ahead.”

I had been expecting earning a small decline in earnings and Dow being able to pull of an increase is just fantastic new. Here is some math. Currently 50% of Dow input cost are the raw material costs that are skyrocketing. Many of the recently announced venture will be in areas that will enable Dow to obtain feedstock at less than a third of their current costs. If we translate that to their current structure, that means Dow will recognize those costs going from 50% to around 20% for most of it’s major product lines. These are cost savings that will drop directly to the bottom line as Dow sells in global markets so their end selling price will not be affected. Theoretically, this means Dow could be looking at 30% eps growth just from cost savings alone. The fact that eps from the current ventures grew 11% while non-JV earnings grew 1.5% in the recent quarter only serve to back up this assertion.

Dow transition to a JV models will have a compounding effect as high cost revenues are replaced with dramatically lower ones, compounding their eps effect.

Commenting on the Company’s outlook, Liveris said, “We expect global GDP to remain healthy, as the U.S. economy stabilizes and growth around the world continues to be strong.

“We anticipate solid demand through the third quarter, although Agricultural Sciences is likely to see a typical seasonal decline. Feedstock and energy costs are expected to remain relatively high and volatile through this quarter. Our performance through the first half of the year reinforces our view that our strategy is working and that we will continue to deliver strong results for the Company and for its shareholders.”

So far so good…

Tags dow

Articles

Starbucks Still Doesn’t Get It

Post author By ToddSullivan
Post date July 25, 2007
10 Comments on Starbucks Still Doesn’t Get It

You own a business that is suffering declining store traffic for consecutive quarters. Your business is being challenged by competitors that offer a quality product at a fraction of the price you charge for yours. What do you do? If you are Starbucks (SBUX) you raise prices and make the affordability gap between you and your competitors even greater? Please tell me how this make sense.

Starbucks recently announced that meeting estimates for the upcoming quarter “would be a challenge” due to higher milk and coffee prices. Now, if they were serving more people each day, this decrease in margins would be offset by the additional transactions. What this warning tells me is they are still facing stagnant or declining store traffic in addition to decreasing margins. Can anyone explain how making your product less affordable will solve this store traffic issue?

I mean, Mcdonalds (MCD) and Dunkin Donuts both serve milk and coffee so we must assume they are facing the same cost pressures, right. It would be foolish to assume only Starbucks is facing these issues. Today McDonald released results and revenue came in 12% higher at more than $6 billion, while sales at restaurants open for more than a year were up 7.4%. They also met expectations of 71 cents a share profit from operations, 26% higher than last year and Starbucks admits they are struggling . How did McDonald’s do it? They sell a quality product at affordable prices, novel. Said CEO Jim Skinner “In the U.S., we are aggressively going after the $60 billion beverage industry with the focus on coffee. We added credibility in this arena now with lots of premium coffee last March. Today, premium coffee sales are up 20%. This credibility gave us brand elasticity to expand further into specialty beverages. Currently, we are testing a wider range of offerings including hot and cold drip coffee beverages an espresso-based coffee and ice beverages. We are encouraged by the preliminary results. Including these specialty offerings, total coffee sales are up more than 30%.”

I have been pounding this point since January, Starbucks is at the peak of what they can charge for a cup of coffee. Increasing those prices will lead to further decreases in store traffic and with Starbucks now relying on more ancillary sales to customers for revenues and profits, decreased visits now have a compounding negative effect on the bottom line.

I also fully understand the hard core Starbucks “aficionados” will continue to visit Starbucks no matter what type of home equity loan becomes required to purchase a latte, it is the casual customer who is walking away in hoards and the numbers continue to back up this assertion. Goldman Sachs (GS) analyst Steven Kron said today that higher prices could reduce store traffic given the state of the consumer, media coverage and increasing competition in the coffee space. Not could Steve, will.

The only way for Starbucks to reverse this decline is to get more people into their stores. Once there they will buy more muffins, sandwiches, CD, toaster ovens, and SUV’s or whatever else they sell there now. Raising prices will not accomplish this. If the consumer is becoming more cost conscious and recent retail sales report would support this than one must assume discretionary items like a cup of coffee will be one of the first items they will pinch pennies on.

I also recognize that it is only 9 cents on some drinks (ones in cups?), but we live in a appearance is reality world out there and the last thing people want to hear nowadays are the words “price increase”. It is a turn off and the extra revenue they may get per cup is more than offset by the negative sentiment they are creating.

I have asked this question repeatedly and have yet received a decent answer. Why should I pay $5 for a cup of coffee when I can get the same thing for $2 other places and not have the DMV like “wait in line” experience?

Answer? I shouldn’t and apparently increasingly other folks are not either.

Tags mcd, sbux

Articles

Dow Falls 226: Predictably, Hysterical Headlines Follow

Post author By ToddSullivan
Post date July 25, 2007

About 4:15 yesterday my blackberry started buzzing as the end of the day emails came pouring in. They contained the words “tumbles”, “plummets”, “free fall” and other dramatic phrases. My initial reaction in seeing them was to think the market collapsed and there was blood running in the street. After reading the details of a 226 point drop in the Dow Jones Average, my reaction was “are you kidding me?”.

Gang, 200 points stopped being a big deal a real long time ago and a whole lot of perspective is needed here. Look at it this way, if you owned a $140 stock and it dropped $2.26 today, would you panic? That is exactly what the Dow did. A piddly little $2 drop. Now, you might be slightly annoyed at the $2 drop but if anyone ever asked you how your stock did today would you say it “plummeted” or “collapsed” ? Me either.

We need to stop looking at the number gain and loss for the Dow and start focusing on it’s percentage gain or loss. As we climb higher and higher, not only are 200 point swings either up and own more insignificant, but mathematically, they are more likely. Both these scenarios diminish the importance of the event. It also stands to reason that as we climb towards 15,000 and then 20,000 (FYI, 20,000 is only 35% higher than today) not only should we expect more 200 point swings but we should logically expect the occasional 300 point swing to appear.

Again, this is really no big deal. It does makes for a snappy little headline though and those who live off inducing market panic for news purposes will start using colorful adjectives to describe these days. I mean, “Dow Plummets 226 Points” will attract more readers than “Dow Slips 1.6%”, right?

Stop looking at the points and start following the percentages, it will save you some unnecessary angst.

Articles

"Fast Money" Calls For Wednesday

Post author By ToddSullivan
Post date July 25, 2007

Here are today’s picks and yesterday’s results. It seem the gang is getting a little skittish..

Wednesday’s Picks

Vodafone (VOD) down over 3% today represents a buying opportunity, Guy Adami says. Open $32.09

Pete Najarian liked Teva Pharmaceuticals (TEVA) Open $43.44

Jeff Macke reiterated that Costco (COST)is a buy. Open $60.15

Tuesday’s Results

Jeff Macke liked Microsoft (MSFT).Open $31.19 Close $30.80 Loss $.39

Pete Najarian preferred Sterlite Industries India Limited (SLT). Open $17.97 Close $17.07 Loss $.97

Guy Adami recommended American Express (AXP).Open $64.66 Close $61.17 Loss $3.49

Eric Bolling said keep an eye on Google (GOOG) Open $512.51 Close $514 Gain $1.49 and recommended owning IBM (IBM) Open $116.38 Close $116.17 Loss $.21

Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation week))

Adami= 7-6 Gain $26.87
Bolling= 7-7 Loss $4.18
John Najarian= 13-3 Gain $15.54
Macke= 14-8 Gain $5.86
Pete Najarian=4-1 Gain $20.44
Seymore= 1-1 Gain $.01
Finerman= 1-2 Gain $.68

Articles

Upgrades / Downgrades

Post author By ToddSullivan
Post date July 25, 2007

Here is the late Tuesday and early Wednesday action

UPGRADES

Hain Celestial HAIN UBS Neutral » Buy
Payless Shoe PSS KeyBanc Capital Mkts / McDonald Buy » Aggressive Buy
Countrywide CFC Keefe Bruyette Underperform » Mkt Perform
Alaska Comms ALSK Lehman Brothers Underweight » Equal-weight
Amazon.com AMZN Lehman Brothers Underweight » Equal-weight
Amazon.com AMZN Bear Stearns Underperform » Peer Perform
Seabright Insurance Holdings SEAB Friedman Billings Mkt Perform » Outperform
Amazon.com AMZN RBC Capital Mkts Sector Perform » Outperform
Amazon.com AMZN JP Morgan Underweight » Neutral
Total System TSS JMP Securities Mkt Perform » Mkt Outperform
Ultra Clean Holdings UCTT Needham & Co Hold » Buy
Ultra Clean Holdings UCTT Stanford Research Hold » Buy
Telus TU RBC Capital Mkts Sector Perform » Outperform
Amylin Pharms AMLN Stanford Research Hold » Buy
Sonoco Products SON Matrix Research Buy » Strong Buy
Commercial Metals CMC Matrix Research Buy » Strong Buy
Ceragon CRNT Morgan Joseph Hold » Buy
Rightnow Tech RNOW Credit Suisse Neutral » Outperform
Wachovia WB Citigroup Hold » Buy

DOWNGRADES

Radian Group RDN Friedman Billings Outperform » Mkt Perform
MGIC Investment MTG Friedman Billings Outperform » Mkt Perform
PMI Group PMI Friedman Billings Outperform » Mkt Perform
Spectrum Pharma SPPI Friedman Billings Outperform » Mkt Perform
Skechers USA SKX First Albany Buy » Neutral
Inter Parfums IPAR Oppenheimer Buy » Neutral
Overseas Shipholding OSG Banc of America Sec Buy » Neutral
Weight Watchers WTW Lehman Brothers Equal-weight » Underweight
Nutrisystem NTRI Lehman Brothers Overweight » Equal-weight
Countrywide CFC Friedman Billings Mkt Perform » Underperform
Sterling Financial STSA Punk, Ziegel & Co Accumulate » Mkt Perform
Tellabs TLAB Kaufman Bros Buy » Hold
Astec Industries ASTE Janco Partners Accumulate » Mkt Perform
Netflix NFLX Cowen & Co Outperform » Neutral
Neoware Systems NWRE BMO Capital Markets Outperform » Market Perform
Cumulus Media CMLS BMO Capital Markets Outperform » Market Perform
TASER TASR Feltl & Co. Buy » Hold
San Juan Basin Royalty SJT AG Edwards Buy » Hold
DuPont DD BB&T Capital Mkts Buy » Hold
Netflix NFLX Needham & Co Buy » Hold
American Express AXP Friedman Billings Outperform » Mkt Perform
Canadian Natl Rail CNI Stifel Nicolaus Buy » Hold

Articles

Today’s 52 Week Low Club

Post author By ToddSullivan
Post date July 24, 2007

Here are today’s 52 weeks lows. If you own a regional bank, homebuilder or mortgage company, even though they are not here, assume they also hit a new low. I am sick of putting them here everyday.

USG Corporation
TZOO Travelzoo Inc
TRB Tribune Company
TRMP Trump Entertainment
TBL The Timberland Company
SMRT Stein Mart Inc
PSA Public Storage, Inc
NFLX Netflix, Inc
MSO Martha Stewart Living
LZB La-Z-Boy Incorporated
JRC Journal Register Co
JNY Jones Apparel Group
GCI Gannett Co.
FIG Fortress Investment
FBN Furniture Brands
CFC Countrywide Financial
CC Circuit City Stores
BGP Borders Group, Inc

Tags bgp, CC

Articles

Upgrades / Downgrades

Post author By ToddSullivan
Post date July 24, 2007

Here is the late Monday and early Tuesday calls..

UPGRADES

Rightnow Tech RNOW Credit Suisse Neutral » Outperform
Wachovia WB Citigroup Hold » Buy
Lee Enterprises LEE Wachovia Underperform » Mkt Perform
Xcel Energy XEL Lehman Brothers Underweight » Equal-weigh
Expedia EXPE Soleil Sell » Hold
Chemtura CEM KeyBanc Capital Mkts / McDonald Underweight » Hold
Forest Labs FRX Pacific Growth Equities Neutral » Buy
Illumina ILMN Pacific Growth Equities Neutral » Buy
Eagle Rock Energy EROC RBC Capital Mkts Sector Perform » Outperform
Jack In The Box JBX Wedbush Morgan Hold » Buy
TiVo TIVO Kaufman Bros Hold » Buy
Navteq NVT UBS Neutral » Buy
Satyam Computer SAY Stifel Nicolaus Hold » Buy
Progressive PGR Stifel Nicolaus Sell » Hold
Fifth Third FITB Stifel Nicolaus Sell » Hold
Knoll KNL Matrix Research Buy » Strong Buy
Stoneridge SRI KeyBanc Capital Mkts / McDonald Hold » Buy

DOWNGRADES

Parametric PMTC Jefferies & Co Buy » Hold
Turkcell TKC Bear Stearns Outperform » Peer Perform
Netflix NFLX Cantor Fitzgerald Buy » Hold
Lifepoint Hospitals LPNT CIBC Wrld Mkts Sector Outperform » Sector Perform
Chesapeake Energy CHK Fortis Bank Buy » Hold
Astec Industries ASTE BB&T Capital Mkts Buy » Hold
Dexcom DXCM First Albany Buy » Neutral
Canadian Natl Rail CNI Citigroup Buy » Hold
Cumulus Media CMLS Barrington Research Mkt Perform » Underperform
TASER TASR Merriman Curhan Ford Buy » Neutral
Wachovia WB Punk, Ziegel & Co Buy » Mkt Perform
Labor Ready LRW Davenport Buy » Neutral
Nucryst Pharma NCST Sun Trust Rbsn Humphrey Buy » Neutral
Open Text OTEX Canaccord Adams Hold » Sell
Netflix NFLX Cantor Fitzgerald Buy » Hold
Netflix NFLX Jefferies & Co Buy » Hold
Cephalon CEPH Am Tech/JSA Research Buy » Neutral
Transocean RIG Deutsche Securities Buy » Hold

Articles

Citigroup Turnaround Progressing

Post author By ToddSullivan
Post date July 24, 2007

Much like a large ocean liner turns slowly, Citigroup’s (C) size determines that a turnaround at the banking giant will not be immediate. But, when you have consecutive quarters of year over year strong earnings growth for the fist time in recent memory, one must be encouraged.

International operations posted a 34% increase in earnings and “alternative investments ” (read: hedge fund operations) saw a 77% increase. Citi has made a huge push internationally the past two years and those efforts are now paying off in a major way. In thew recent quarter they closed the acquisition of Egg in the UK (credit card and online banking businesses) and Grupo Cuscatlan (Central American banking). Deals for the Bank of Overseas Chinese and Taiwan, of Bisys and of ATD are all businesses that will expand operations in high growth markets. Also they closed Old Lane early this month and managers Vikram Pandit and John Haven that come with the have a value that cannot be quantified. Most significantly, they now own 60% of Nikko Cordial in Japan in a deal that puts them in the forefront in that region. Roughly 1/3 of the international units growth came from acquisitions meaning that Citi is consistently picking winners.

The big negative and the reason for jittery investors selling shares? Credit costs rose to $934 million in the quarter, including a $259 million rise in credit losses and a $465 million charge to increase loan loss reserves. The $465 million net charge compares to a net reserve release of $210 million in the prior-year period, the company said. Simply put, credit losses are expected to mount…. no kidding. Bank after bank so far has reported the same thing so this should be no surprise. What this news means is that for the first time during his reign, CEO Chuck Prince was able to manage the business to it’s best quarter ever during a tough time. Since we are so worried about load losses, let’s look closer at the same quarter last year. Last year Citi released $210 million from loss reserves that help earnings and this year added $465 to them. That is a cool $675 million swing to earnings or a additional 12% earnings from operations in 2007 over 2006 when these items are backed out. That is significant because it means that when US credit improves and yes it will, Citi is sitting pretty with it’s international operations to really boost earnings.

The consumer unit experienced a 15% earnings decrease and again, this was not totally unexpected. It was pointed out that they are opening up new locations at a “very healthy clip” and this will negatively impact earnings for that segment until those locations are up and running.

Citi is also still cutting costs and said they were “less than halfway” through the $2.3 billion they anticipate saving this year through staff reductions and IT improvements. The reductions to date have finally lead to operations leverage improvements as witness by Q2’s revenue increase of 20% vs cost increases of 16%.

Where does all this leave us? Citi finally seems to be being “managed” and is producing results. It will not happen overnight but I do not have a problem getting paid a rock solid 4.2% by them to wait. T think the street is waiting for confirmation of a turnaround and another strong quarter or two should do the trick and get shares that trade at only 12 times earnings running.

Articles

"Fast Money" Picks for Tuesday

Post author By ToddSullivan
Post date July 24, 2007

Here are Tuesday’s picks and Monday’s results

Jeff Macke likes Microsoft (MSFT).Open $31.19

Pete Najarian prefers Sterlite Industries India Limited (SLT). Open $17.97

Guy Adami recommends American Express (AXP).Open $64.66

Eric Bolling says keep an eye on Google (GOOG) Open $512.51 and recommends owning IBM (IBM) Open $116.38

Monday’s Results

Jeff Macke told investors to add to their position in Microsoft (MSFT) Open $31.16 Close $31.19 Gain $.03

Pete Najarian recommended Clorox (CLX) on recent options volume. Open $63.90 Close $64.87 Gain $.97

Jon Najarian liked Zimmer Holdings (ZMH), Open $88.08 Close $89.39 Gain $1.31 as well as Rowan (RDC) Open $44 Close $45.70 Gain $1.70

Tim Seymour preferred buying Stillwater Mining Company (SWC) Open $11.25 Close $10.91 Loss $.34

Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation week))

Adami= 7-5 Gain $30.56
Bolling= 6-6 Loss $5.46
John Najarian= 13-3 Gain $15.54
Macke= 14-7 Gain $6.25
Pete Najarian=4-0 Gain $21.17
Seymore= 1-1 Gain $.01
Finerman= 1-2 Gain $.68