Groupon short position almost 3 million shares: Nasdaq

Groupon short position almost 3 million shares: Nasdaq

Stock Market Predictions

(Global Markets) - There was a short position of almost three million Groupon Inc (GRPN.O) shares at the end of last week, according to Nasdaq data released on Friday.

Nasdaq said the number of Groupon shares held short as of November 15, or short interest, was 2.92 million. That is 8.3 percent of the shares available to trade, or the float, according to Thomson Global Markets data.

Nasdaq releases short interest data on a week lag, so the Groupon numbers do not include negative bets or hedges from this week.

Groupon shares plunged below the company's $20 IPO price on Wednesday. The stock slipped 1.2 percent to close at $16.75 on Friday.

(Reporting by Alistair Barr, editing by Gerald E. McCormick)

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Family Dollar up as Ackman's Pershing raises stake

Family Dollar up as Ackman's Pershing raises stake

Stock Market Predictions

CHICAGO (Global Markets) - Pershing Square Capital Management raised its stake in Family Dollar Stores Inc (FDO.N) to 8.9 percent, according to a regulatory filing made on Thursday, just weeks after its influential leader, Bill Ackman, praised the retailer as an attractive LBO candidate.

Shares of Family Dollar, which caters to low-income shoppers with a variety of household goods and food, climbed 3.5 percent to $53.29, outpacing a broad market increase. The shares rose just 3.6 percent since the beginning of the year through Wednesday.

Pershing Square now holds 10.87 million shares, or 8.9 percent of the company's stock, according to the filing with the U.S. Securities and Exchange Commission. The firm held close to 5.8 million shares, or 4.7 percent of Family Dollar's shares, as of March 31, according to Thomson Global Markets data.

Two weeks ago at the Ira Sohn Investment Conference, Ackman said that Family Dollar could become an attractive leveraged buyout candidate. Other hedge funds have also bought the stock this year.

(Reporting by Jessica Wohl, additional reporting by Phil Wahba in New York; Editing by Bernard Orr)

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Investors brace for European hit on earnings

Investors brace for European hit on earnings

Stock Market Predictions

NEW YORK (Global Markets) - Investors are about to find out if the economic woes in Europe are going to deliver a deep wound to U.S. company earnings instead of the mere scratch that many expect.

The fourth-quarter reporting period kicks off next week, and all eyes will be on erosion in sales in Europe, where the debt crisis has propelled the region toward a recession. This could dent positive sentiment just as investors start to focus on strong U.S. growth.

Analysts believe that low U.S. stock market valuations already factor in weakness from Europe for the fourth quarter, but there are concerns that earnings forecasts for 2012 have yet to account for deeper fallout.

"There's some unhealthy optimism that thinks somehow the U.S. can decouple from the rest of the world," said Shawn Hackett, president at Hackett Financial Advisors in Boynton Beach, Florida. "That is highly unlikely."

Companies including tech heavyweights Texas Instruments and Hewlett Packard and others like insurer MetLife have already cited fallout from Europe for reduced expectations. Analyst forecasts for fourth- and even first-quarter earnings have tumbled since the summer despite steady improvement in U.S. economic demand.

While all 10 S&P 500 sectors have seen profit estimates cut,

materials and financials have been the hardest hit. Other sectors that could get dragged down by Europe's problems include the industrial, consumer and technology sectors.

The overall S&P 500 forecast for fourth-quarter earnings growth has already been slashed, down to growth of 7.9 percent from 17.6 percent previously.

EUROPE'S STRUGGLE

Some 14 percent of all Standard & Poor's 500 company sales come from Europe, which would have a sure impact on results, said Standard & Poor's earnings analyst Howard Silverblatt.

"In earnings, when you're talking about pennies beating it or not, 14 percent of the number makes a difference."

The euro zone debt crisis has engulfed much of the continent as major institutions have found themselves exposed to debts in struggling nations such as Greece, Portugal, Italy and Spain. The latter two are the third- and fourth-largest economies in the euro zone and are struggling to reduce debt through severe spending cuts and higher taxes.

These problems are affecting economic growth. Italy grew just 0.2 percent in the third quarter from the previous year. Economists in a December Global Markets poll forecast the euro zone will contract by 0.3 percent in the fourth quarter, followed by a further 0.2 percent contraction in January-March, before a meager recovery in subsequent quarters.

Global companies with more than 50 percent of their sales in Europe and with a market cap greater than $5 billion underperformed other major averages in 2011, according to Thomson Global Markets data.

An index of 161 names meeting that criteria lost 13 percent in 2011, compared with a 5 percent drop for the MSCI World Index. Cisco Systems, which gets 56 percent of sales from Europe, is the largest U.S. name in this group.

Many other U.S. companies have less exposure to Europe than Cisco, but still generate a substantial portion of their sales - 20 to 30 percent - there. In these cases, it would take a more severe recession to hurt their revenues.

In a report on Thursday examining a number of industrial equipment companies, Morgan Stanley analysts pointed out that many executives were "cautiously optimistic" with expectations for a mild recession in Europe. Companies in that industry are expecting 4 to 6 percent revenue growth in 2012, but Morgan Stanley said "short-term trends" suggest estimates could fall short of that if world growth slows.

Companies including Dover Corp and Illinois Tool Works would be hurt, they wrote. Dow component 3M would also be hit in a "deep recession" in Europe.

"If we're dealing with organic revenue growth, you're going to be seeing earnings declines," said Hackett.

"In some cases, in the more cyclical businesses, it could be very severe, and I do not believe the stock market has priced in what the likely reality is."

Google's stock on Thursday was downgraded by brokerage Benchmark Co, whose analysts expect Google to suffer a decline in European advertising revenue.

PROFITS EYED FOR REBOUND

A drumbeat of negative preannouncements is also raising some concerns.

The ratio of negative to positive preannouncements over the last four weeks is at 3.3, and it hit a 10-year high late in December. The long-term average is 2.3, according to Thomson Global Markets data.

"The number of companies issuing negative guidance during the fourth quarter has increased, and this perhaps has flown a little under the radar screen over the last few weeks in our judgment," Morgan Stanley analysts wrote in a 2012 outlook. The firm expects the S&P 500 to end 2012 at 1,167, which would be an 8.8 percent decline from the current level.

The euro zone's weakness has another detrimental effect. Strength in the dollar against the euro will increase headwinds for earnings, because it makes U.S. goods more expensive in Europe.

"Each 1 percent appreciation in the U.S. dollar corresponds to an expected 0.97 percent decline in aggregate earnings," Morgan Stanley wrote.

Still, many stock strategists are hoping healthy sales from the United States, where the economy is slowly improving, will more than offset the negative impact of Europe.

"Europe is clearly the caboose on the train...(but) I don't think the caboose is as bad as most people think it is," said Ken Fisher, a billionaire investor whose money management firm oversees $40 billion in assets.

"At a time when people have been fearful of a weak Europe, the economy in America has been consistently stronger than people have though it would be," he added.

Several blue-chip companies with heavy exposure to Europe performed well in 2011. McDonald's, for instance, derives 42 percent of its sales from Europe, and it was the Dow's best performer last year, rising 31 percent.

Kraft Foods generates 32 percent of sales in Europe, and its stock rose 19 percent in 2011. And Apple gets 26 percent, according to Thomson Global Markets data, and its stock was up 25.6 percent.

Those gains would be in danger if Europe's fundamentals worsen.

Big-cap multinationals have "become a bit of a darling here in the last couple of months...they're probably more vulnerable to disappointments," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

(Reporting By Caroline Valetkevitch; Editing by Leslie Adler)

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Sino-Forest clobbered by short-seller's report

Sino-Forest clobbered by short-seller's report

Stock Market Predictions

TORONTO/NEW YORK (Global Markets) - A damning short-seller's report accusing Sino-Forest Corp (TRE.TO) of theft and fraud put the skids under the Canadian-listed company on Friday, even as it denied there was a problem.

Sino-Forest, which operates forest plantations in China, told investors to exercise "extreme caution" in assessing the report, issued by research firm Muddy Waters.

"Muddy Waters has a short position in the company's shares and therefore stands to realize significant gains from a share price decline that it precipitated," Sino-Forest said in a statement on Friday. Its shares fell 24 percent on Thursday.

Stock in Sino-Forest, whose top shareholder at the end of April was billionaire hedge-fund manager John Paulson, fell a further 65 percent on Friday, hitting a new low of C$4.81 before closing at C$5.23.

A record 42 million shares changed hands, making the company Toronto's most active stock by far.

CHARGES OF FRAUD, THEFT AND PONZI SCHEME

In a detailed, 37-page report, Muddy Waters said its researchers found that Sino-Forest had exaggerated its assets and falsified its investments.

"Like Madoff, (Sino-Forest) is one of the rare frauds that is committed by an established institution," it said, referring to convicted fraudster Bernie Madoff. Its "capital raising is a multibillion dollar Ponzi scheme, and accompanied by substantial theft."

Muddy Waters holds short positions on companies it reports on, and makes money when shares fall. It first won attention with a scathing report on Orient Paper Inc (ONP.A) in 2010.

Sino-Forest, which says it employed 3,900 people and managed 790,000 hectares of plantation trees in China at the end of last year, has reported steady earnings growth since its stock was first listed in Toronto in 1995.

But it has also had its share of controversy. It restated earnings in 2004, the same year that it proposed an executive compensation plan that investors saw as overly generous.

The company actively buys and sells forests, according to a report from Poyry's. The industry consultant said the company had a "dynamic" forestry estate.

"Unlike most forest owners and managers, Sino-Forest actively trades in forests. Each year the company both sells and buys forests, and accordingly the composition of the forest estate changes much more than for a business that is simply managing and harvesting a more static resource," Poyry's wrote in its 2010 annual report on the company's assets.

Thomson Global Markets Starmine shows 10 analysts follow the company, with four listing Sino-Forest as "strong buy," five as "buy" and one as "hold."

Dundee Capital Markets analyst Richard Kelertas put Sino-Forest "under review" pending more information, but said he did not believe the Muddy Water charges.

"To the best of our knowledge we believe that the allegations cited in the short-seller's 'research report' are false and without merit," he said, noting his conclusions were based on several years of conversations with management.

BMO Capital Markets cut its rating on Sino-Forest to "market perform" from "outperform" on Friday, and put its price target on the shares under review, "pending a better understanding of the company's timber holding."

PROBING THE ALLEGATIONS

Sino-Forest said its board had appointed a committee of three of its independent directors to investigate the allegations and complained the Muddy Waters report had a substantial impact on its reputation and securities prices.

"Sino-Forest wish to state clearly that there is no material change in its business or inaccuracy contained in its corporate reports and filings that needs to be brought to the attention of the market," the company said.

Paulson owned 14.13 percent of the shares as of the end of April 29, according to Thomson Global Markets data. An investor familiar with the situation said Paulson & Co had informed investors that Paulson is looking at the situation closely.

Sino-Forest shares represent about 2 percent of his Advantage Strategy and are not owned in any other Paulson strategies. A Paulson spokesman declined to comment.

The Ontario Securities Commission declined to comment on the allegations about Sino-Forest, which has an office in Mississauga, Ontario, outside Toronto.

BOND SELLOFF

The Muddy Waters report also prompted a sell-off in Sino-Forest bonds and dragged down the China high-yield offshore sector.

Thomson Global Markets data shows Sino-Forest has some $2.3 billion in debt financing outstanding, with credit ratings in the low grade, speculative range or junk status.

Its longest dated issue, maturing in October 2017, is currently yielding almost 17 percent, Thomson Global Markets data shows.

Credit default swaps, which protect fixed income investors against default or restructuring, are trading with an immediate upfront cost to investors of $493,000 plus an additional $500,000 annually for the five-year life of the contract, according to data provider MarkIt.

Muddy Waters has also published damning notes on RINO International Corp (RINO.PK) and China MediaExpress Holdings (CCME.PK), both of which have been delisted from the Nasdaq.

Following the report, RINO said its auditors had found accounting flaws. The chief financial officer at China MediaExpress later resigned, along with its auditors.

But some companies are fighting back.

Drew Bernstein, the chairman of Orient Paper's audit committee, said the Muddy Waters report on Orient was filled with untrue allegations. He said Orient Paper was perhaps the most vetted Chinese company following the report.

Its shares still trade on NYSE Amex.

(Additional reporting by Jennifer Ablan, Daniel Bases and Julie Gordon; writing by Janet Guttsman; editing by Frank McGurty)

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Travelers to post loss, slow buybacks after storms

Travelers to post loss, slow buybacks after storms

Stock Market Predictions

NEW YORK (Global Markets) - Devastating tornadoes like the twister that hit Joplin, Missouri, last month will push Travelers Cos Inc (TRV.N) to a second-quarter operating loss and force it to slow down share buybacks, the property insurer said on Friday.

The company also warned of worst-case-scenario industry losses on the recent tornadoes in the United States. Travelers is the second major property insurer, after Allstate Corp (ALL.N), to warn of at least $1 billion in second-quarter catastrophe losses from the series of deadly twisters.

Two companies losing nearly $2.5 billion in less than two months is especially noteworthy, since the entire insurance industry lost $13.6 billion to U.S. catastrophes in all of 2010.

Travelers' and Allstate's peers are likely to experience much of the same. MetLife (MET.N) said late Friday its auto and home insurance business lost as much as $153 million more than expected in April and May.

Travelers shares closed 3.1 percent lower, making them one of the biggest drags on the Dow Jones industrial average .DJI and the second-biggest decliner among S&P insurance shares.

Yet one analyst said there was a silver lining in all the catastrophes that could benefit the company.

"We think the record level of worldwide catastrophe losses will provide a catalyst for firmer insurance rates, and see (Travelers) well positioned to leverage that trend," said Standard & Poor's equity analyst Cathy Seifert in a research note, maintaining a "strong buy" rating on the company.

BUYBACKS AT RISK

The global insurance industry has had an unprecedented start to the year. Even without a major hurricane having made landfall, insurers are on track to post their largest catastrophe losses ever, due largely to earthquakes in Japan and New Zealand and a series of once-in-a-century tornadoes.

Analysts have said buyback programs across the industry were at risk, after years of heavy share repurchases that were driven by limited catastrophe losses and few other good options to deploy growing cash piles.

Analysts polled by Thomson Global Markets I/B/E/S had on average expected Travelers to earn $1.29 per share on an operating basis this quarter. Since late April, eight analysts have cut their second-quarter estimates, according to Thomson Global Markets data, but all of them still expected a profit.

As of Friday, none of the 18 analysts reporting earnings estimates on the company had expected it to lose money this quarter. Travelers has beaten Wall Street's average earnings estimate by at least 20 cents per share for the last three quarters in a row.

$1 BILLION LOSS

The difference this time is the weather. Travelers said Friday that its after-tax catastrophe losses for April and May were likely to be between $1 billion and $1.05 billion.

That is double what the company said it would expect to lose for all catastrophes in an average year, based on its long-term modeling.

As a result, the company will buy back less than $250 million in stock in the second quarter. In the first quarter, repurchases topped $1.1 billion.

In the second half of the year, Travelers said repurchases would be about $400 million in excess of operating income. As of late January, the company's total authorization for repurchases was $6.5 billion.

Travelers shares closed down $1.87 at $59.21. At those levels the stock was at its lowest point in nearly two months.

(Reporting by Ben Berkowitz; editing by John Wallace, Dave Zimmerman, Gary Hill)

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