India's Kingfisher slips to third spot, IndiGo gains

India's Kingfisher slips to third spot, IndiGo gains

Stock Market Predictions

MUMBAI (Global Markets) - India's struggling Kingfisher Airlines (KING.NS) slipped in market share to the third position in October, from second in September, ceding ground to budget airline IndiGo, government data showed.

Kingfisher is unlikely to recover lost ground in coming months because the loss-making carrier has canceled scores of flights in November, catching both customers and government authorities by surprise and spooking investors.

Chairman Vijay Mallya said earlier this week Kingfisher canceled the flights to stop flying on heavily loss-making routes. Kingfisher has also said some aircraft were grounded for fleet reconfiguration after the airline decided to leave its low-cost business.

Kingfisher recorded a market share of 16.7 percent for October, a busy season for the airline industry, trailing IndiGo at 19.6 percent.

Kingfisher was almost neck-and-neck with state-run Air India, which had a share of 16.6 percent, while Jet Airways (JET.NS) remained the dominant carrier with a market share of 24.8 percent, which included its subsidiary JetLite.

Close on Kingfisher's heels was budget airline SpiceJet (SPJT.BO) with a share of 16.1 percent.

Domestic air traffic remained robust, growing 18.3 percent in Jan-Oct from the same period a year ago to 49.6 million passengers. But the numbers have failed to translate into profits for India's airline industry, where all the major carriers except IndiGo are loss-making, hit by high jet fuel costs and an inability to raise fares in a cut-throat market.

The Center for Asia Pacific Aviation (CAPA) has forecast a record $2.5 billion to $3 billion loss for Indian airlines for the year ending March 2012, with state-run Air India alone likely to account for more than half of it.

(Reporting by Aniruddha Basu; Editing by Paul Tait)

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Jefferies starts Coca-Cola with buy, PepsiCo with hold

Jefferies starts Coca-Cola with buy, PepsiCo with hold

Stock Market Predictions

(Global Markets) - Jefferies initiated coverage on Coca-Cola Co (KO.N) with a "buy" rating, citing the company's dominant global product portfolio and an exposure in the emerging markets.

The brokerage also started coverage on PepsiCo Inc (PEP.N) with a "hold" rating, saying it sees the company being hurt by slower growth in both its domestic and international businesses, modest growth in volume and rising commodity costs.

"We expect (Coca-Cola) to deliver another year of mid-single digit volume growth in 2012 driven by the Latin America, Pacific and Eurasia and Africa segments," analyst Jeff Farmer said in a note to clients and started Coca-Cola with an $80 price target.

Earlier this month, Coca-Cola had said it will invest $2 billion in India over the next five years, to compete with PepsiCo in one of the fastest-growing economies.

However, the analyst said PepsiCo's product portfolio is weighted to slower growing geographies and categories, a disadvantage at a time when investors are increasingly pursuing emerging market exposure.

"About 40 percent of (PepsiCo's) operating income is generated outside of the United States, a big number, but one that puts the company at a disadvantage to its primary global competitor, Coca Cola, at almost 80 percent," Farmer said.

He was also concerned over the possible Frito Lay North America spin-off reported by the New York Post.

"Recent precedents such as Kraft (KFT.N), Sara Lee (SLE.N) and Fortune Brands FO.N suggest that large-cap consumer company spin-offs have not resulted in material value creation," Farmer said.

The analyst set a price target of $70 on PepsiCo stock.

Shares of Coca-Cola closed at $66.62 and those of PepsiCo closed at $64.09 on Thursday on the New York Stock Exchange.

(Reporting by Arpita Mukherjee in Bangalore; Editing by Esha Dey)

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H&R Block shares fall on weak Q1

H&R Block shares fall on weak Q1

Stock Market Predictions

(Global Markets) - Shares of H&R Block (HRB.N) fell 13 percent on Friday, a day after the largest U.S. tax preparer posted a 36 percent rise in quarterly loss, mainly due to a charge related to the sale of its consulting subsidiary RSM McGladrey.

Analysts said though some investors may have been surprised by the huge charge, the company had indicated it when they announced the sale of RSM, and so it was expected to have an impact on the results.

Morningstar analyst Vishnu Lekraj said the RSM sale was a favorable action and that the stock's fall was due to uncertainties over H&R's future growth and general market conditions in which companies missing estimates are getting punished.

"Selling of RSM McGladrey and taking that charge is some near-term pain that's going to provide some long-term opportunities and some good long-term strategic moves," Lekraj told Global Markets.

Kansas City, Missouri-based H&R Block reported a lower-than-expected first-quarter revenue of $267.6 million.

H&R Block shares, which had earlier hit a low of $13.19, recouped some of their losses to trade down 12 percent at $13.38 on the New York Stock Exchange.

(Reporting by Aman Shah in Bangalore; Editing by Sriraj Kalluvila)

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New UBS boss seeks fresh start after trading scandal

New UBS boss seeks fresh start after trading scandal

Stock Market Predictions

ZURICH (Global Markets) - The new interim boss of UBS faced a daunting task on Sunday as he tries to get the Swiss bank back on its feet after Oswald Gruebel quit as chief executive over the $2.3 billion loss it ran up in alleged rogue trading.

Sergio Ermotti said on Saturday the scandal had revealed a risk exposure that was "totally unacceptable" and his first priorities would be to review the bank's controls and conclude an internal investigation into the losses.

A 51 year-old from Switzerland's Italian-speaking region of Ticino, Ermotti was being groomed as a possible successor at the helm since he joined UBS as head of Europe, Middle East and Africa in April from UniCredit.

"We are aware that we are facing turbulent times externally and this latest incident is only adding much more necessity for us to react. But let's not forget that UBS is one of the best capitalized banks worldwide," he told journalists.

Gruebel, a 67-year-old banking veteran who helped turn around rival Credit Suisse last decade, was brought out of retirement to try to revamp UBS after it almost collapsed in 2008 under the weight of more than $50 billion lost on toxic assets.

UBS shares fell more than 10 percent since the news broke on September 15, trading at their lowest level since shortly after Gruebel took over in early 2009, but they rose 4.8 percent on Friday on hopes the board would agree a major restructuring.

Ermotti, who Chairman Kaspar Villiger said was a strong candidate to replace Gruebel permanently, said an internal investigation of what went wrong bank should conclude in 10 to 14 days although UBS might not be able to disclose its findings, pending external probes.

OPPORTUNITY OUT OF DISASTER

The board asked Ermotti to speed up a scaling back of the investment bank, which he said would be detailed at an investor day already planned for November 17 in New York.

Villiger said he had no doubts about the future of investment bank head Carsten Kengeter, whose fate had also hung in the balance, saying he and his team had done an "excellent job" to limit losses from the unauthorized trades.

Villiger declined to comment on whether Kengeter could still be a candidate to take over as CEO, saying only the board was looking at both internal and external candidates and should decide on a permanent replacement within six months.

UBS had already said in August it would axe 3,500 more jobs to shave 2 billion Swiss francs off annual costs, with almost half from the investment bank, which had grown to almost 18,000 staff as Kengeter tried to rebuild the battered franchise.

(Additional reporting by Steve Slater in London; Editing by John Stonestreet)

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Mixed response for Rose Rock, Memorial Production IPOs

Mixed response for Rose Rock, Memorial Production IPOs

Stock Market Predictions

(Global Markets) - Shares of energy companies Rose Rock Midstream LP (RRMS.N) and Memorial Production Partners LP (MEMP.O) received a mixed response on Friday, after failing to garner much investor interest during the run-up to their initial public offerings.

Shares of Memorial Production closed on Nasdaq at $18.78, a percent down from the $19 offer price, after remaining at that level through most of Friday's trading session.

On Thursday, the company had cut the number of units in its initial public offering (IPO) by a tenth and priced them at the lower-end of the $19-$21 expected price range.

Rose Rock shares closed flat at $20 on the New York Stock Exchange after opening 3 percent higher.

Tulsa, Oklahoma-based Rose Rock had recently been in the centre of a bidding war between Plains All American (PAA.N) and SemGroup Corp (SEMG.N).

Plains had urged SemGroup to defer the IPO, saying it would reduce the value available to shareholders in a potential SemGroup sale.

Rose Rock Midstream, which raised $140 million from the IPO, plans to use the proceeds to make a cash payment to SemGroup.

The units in the IPO made up 41 percent of Rose Rock, with SemGroup indirectly owning the rest.

Rose Rock's IPO was underwritten by investment banks led by Barclays Capital, Citigroup and Deutsche Bank Securities.

Houston, Texas-based Memorial Production raised $181 million from its IPO, partly to reduce debt.

Memorial Production, which owns assets in south and east Texas, was formed in April by Memorial Resource Development LLC to own and acquire oil and natural gas properties.

Raymond James, Citigroup and Wells Fargo Securities were the lead underwriters to the Memorial Production offering.

(Reporting by Brenton Cordeiro, Tanya Agrawal and Ashutosh Pandey in Bangalore; Editing by Sreejiraj Eluvangal and Joyjeet Das)

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Penney gross margin slips on price-cutting

Penney gross margin slips on price-cutting

Stock Market Predictions

NEW YORK (Global Markets) - J.C. Penney Co Inc (JCP.N) forecast weaker-than-expected third-quarter earnings as more price cutting threatened to further dent its gross margin, sending its shares down 1 percent in morning trade.

The department store chain reported second-quarter profit in line with the average Wall Street estimate as merchandise available only at Penney stores boosted sales at its stores.

But early in the quarter, Penney found itself having to offer more discounts after sales were soft, lowering gross margin by 1.1 percentage points to 38.3 percent. The company said gross margin would also take a slight hit in the current quarter.

Penney CEO Myron Ullman, who is stepping down in November, said consumers are likely to remain stressed.

"The tumultuous last 10 days or so hasn't given our core customer, the middle income family, any reason to be more confident," Ullman said on a call with the investors.

U.S. consumer sentiment worsened sharply in early August, falling to the lowest index level since 1980, according to a survey released on Friday by Thomson Global Markets/University of Michigan.

Unemployment has been above 9 percent for about two years now while wages have stagnated, curbing middle class and less affluent consumers' ability to shop.

Penney reported that second-quarter net income was little changed from a year earlier at $14 million, or 7 cents per share. That was in line with Wall Street analysts' average forecast, according to Thomson Global Markets I/B/E/S.

Net sales were down 0.8 percent to $3.91 billion, largely because of its exit from its catalog business. Same-store sales were up 1.5 percent, a slower clip than Macy's, Dillard's and Kohl's Corp.

Penney forecast earnings per share in the current quarter will range between 15 cents and 20 cents, below analysts' average forecast of 23 cents.

Penney shares were down 1 percent at $26.56, while Kohl's (KSS.N) were up 1 percent, and Macy's (M.N) slipped 0.4 percent. The S&P 500 index .SPX was up 0.5 percent.

MARGINS UNDER PRESSURE

Penney, whose shoppers are more exposed to an economic slowdown than rival Macy's Inc or higher-end chain Nordstrom Inc (JWN.N), forecast sales at stores open at least a year, or same-store sales, to rise between 2 percent and 3 percent in the third quarter, helped by exclusive merchandise.

Penney in recent years has worked to remake itself into a fashionable destination with exclusive lines such as Liz Claiborne (LIZ.N) clothing and stores-within-its-stores for cosmetics seller Sephora and Spain's fast-fashion chain Mango.

Penney suffered dramatic sales declines during the recession. Sales are recovering, in part because of those higher end lines, but are still below 2008 levels.

Exclusive lines give shoppers a reason to choose one chain over another and lowers the risk of having to slash prices to stay competitive and take a hit to their gross margin.

But Wall Street Strategies analyst Brian Sozzi told Global Markets that Penney has further to go than Macy's or even Kohl's in offering merchandise to entice shoppers to pay up.

"Penney has more exposure to selling basic items," like white T-shirts, Sozzi said.

Macy's, Kohl's and Dillard's all reported steady or higher gross margin for the second quarter.

Earlier this week, department store peers Macy's, Nordstrom and Kohl's all raised their profit outlooks and forecast strong sales for the rest of the year. Late Thursday, Dillard's Inc (DDS.N) reported quarterly profit more than doubled.

U.S. retail sales in July posted their biggest gain since March, tempering fears that the world's largest economy might be slipping back into recession. Excluding autos, sales increased 0.5 percent, well above forecasts for a 0.2 percent gain.

Penney, which is in the process of selling its outlet business, said it was offering voluntary early retirement packages to certain employees. The chain will say next quarter how many employees are eligible and what the costs might be.

In June, Penney announced that Apple Inc's (AAPL.O) senior vice president of retail, Ron Johnson, will become CEO after Ullman steps down. Ullman will become executive chairman of the board.

(Reporting by Phil Wahba, editing by Gerald E. McCormick, John Wallace, Phil Berlowitz)

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Morgan Stanley falls hard on concerns about Europe

Morgan Stanley falls hard on concerns about Europe

Stock Market Predictions

NEW YORK (Global Markets) - Morgan Stanley (MS.N) shares fell 10.5 percent on Friday, far more than comparable financial stocks, on concerns about its exposure to European banks.

The shares of the second-largest U.S. investment bank closed at $13.50, a penny above its intraday low.

Other large bank and brokerage stocks also fell, but not nearly as much. Chief rival Goldman Sachs Group Inc (GS.N) dropped 5.3 percent to $94.55, with larger U.S. banks down 3.5 percent to 4.8 percent. The NYSE Arca Securities Broker/Dealer Index, which includes Morgan Stanley, fell 4.7 percent.

"Investors are still worried about Morgan Stanley's exposure to Europe and that's going to weigh on the stock," said Derek Pilecki, founder of Tampa, Florida-based Gator Capital Management, which operates long-short equity strategies in financial stocks. "I think this will pass, but it may take some time."

Morgan Stanley shares hit their lowest since December 2008 last week after finance blog Zero Hedge reported the bank was at risk because of its exposure to French banks.

Morgan Stanley has zero net exposure to France, including French sovereign debt and French banks, a source familiar with the matter said on Friday.

Nonetheless, investors appeared to be reacting to fears in the credit markets related to Morgan Stanley.

The cost of insuring $10 million worth of the bank's five-year bonds against default spiked to $470,000 on Friday, almost three times what it was on June 30.

Morgan Stanley credit default swaps were more expensive than Italian banks Monte dei Peschi and Unicredit SpA CRDIN.UL, as well as French banks Credit Agricole CAGRCO.UL and BNP Paribas SA (BNPP.PA), said Otis Casey, director of credit research at Markit. Its swaps were also pricier than Bank of America Corp (BAC.N), the largest U.S. bank, which has been plagued by investor concerns about its legal liabilities.

"Morgan Stanley CDS are among the widest of its U.S. peers in CDS trading and significantly wider than French banks," said Casey. "In part, it's hurt by perception because the markets are jittery."

A higher swap price indicates the market perceives a higher risk.

Credit default swaps are very thinly traded compared to equities, but many stock investors still view the product as an important measure of risk because they portended problems leading up to the financial crisis.

Walter Todd, a portfolio manager at Greenwood Capital whose fund holds 106,000 shares of Morgan Stanley, expressed frustration at the impact that credit default swaps appeared to have on Morgan Stanley shares.

There was no specific information to cause the stock to fall so sharply on Friday, he said, noting investors who do not own Morgan Stanley bonds can make speculative bets by buying credit default swaps, while also shorting its equity.

"It's like seeing an overweight person walking down the street, buying a life insurance policy on him, then buying a gun and shooting him," said Todd.

Morgan Stanley's stock was down on Friday on heavy volume, with 51.3 million shares changing hands, 76 percent more than its 50-day average of 29.2 million shares. It was the fifth most actively traded stock on the New York Stock Exchange.

Morgan Stanley is likely to offer detailed information about its European exposure when it reports third-quarter results next month, analysts said, but other factors have also been weighing on large bank stocks.

Wall Street has cut its earnings expectations for large U.S. banks sharply through 2012 due to declining asset values, low interest rates and a weak business environment.

Analysts now expect Morgan Stanley to report third-quarter earnings per share of 36 cents, on average, according to Thomson Global Markets I/B/E/S, down from 47 cents a month ago. They also cut estimates for the fourth quarter and for 2012 by 16 percent and 10 percent, respectively. Goldman has received even sharper estimate cuts.

(Reporting by Lauren Tara LaCapra; editing by Robert MacMillan and Andre Grenon)

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