HP sinks as investors flee business revamp

HP sinks as investors flee business revamp

Stock Market Predictions

NEW YORK/BANGALORE (Global Markets) - Shares of Hewlett-Packard slumped by more than 20 percent to a six-year low on Friday as investors wiped about $16 billion off the market value of the world's biggest PC maker in a resounding rejection of its plan for a major shake-up.

Investors also appeared to lose confidence in Chief Executive Leo Apotheker after a flurry of HP announcements on Thursday including an $11.7 billion acquisition offer, a shuttering of its mobile efforts and the potential spin-off its PC business.

This was on top of disappointing financial guidance for the third quarter in a row. HP may also be risking future PC sales as its customers could flee to rivals like Dell Inc in the uncertainty, one analyst said.

"They're doing too many things at the same time," said Sterne Agee analyst Shaw Wu.

Even if it makes sense in the long term, HP should not have told the world it was thinking of getting rid of its PC business, which brings in 16 percent of its profits, Wu said.

"Why would anybody want to do business with them if it's up for sale," he said. "To have this in limbo for 12 months is going to be pretty material."

On top of this, investors worried that HP's offer of nearly $12 billion for British software company Autonomy Corp was too high and questioned why it was giving up so soon on the mobile business it bought for $1.2 billion from Palm Inc, Wu said.

HP shares fell as low as $22.76 on Friday making it the biggest loser on the New York Stock Exchange. Before the announcements its shares had closed at $31.39 on Wednesday. Investors fled to rivals like Dell, pushing its shares up nearly 3 percent, as it is expected to profit from HP's chaos.

"There's not a lot of confidence in (Apotheker's) management," said Wu, noting that he had to lower guidance every quarter since he joined HP. "This is just further proof,"

At least two brokerages downgraded Palo Alto, California-based HP, and five cut their price targets, mainly citing uncertainty and expenses related to the restructuring.

"Last night HP may have eroded what remained of Wall Street's confidence in the company and its strategy," Needham & Co said in a research note.

Gleacher & Co analyst Brian Marshall cut his price target for the stock to $39 from $50 saying he "materially underestimated the magnitude and timing of this metamorphosis."

He said however that HP "is undergoing a sound strategy transformation by focusing on high-growth, high-margin opportunities in the enterprise/commercial markets."

With a forward 12-month price-to-earnings ratio of 5.6, the company is trailing its peers, including Dell, Apple and IBM according to Starmine SmartEstimate.

Before Thursday's news HP's stock had already lost nearly a fifth of its value since it reported quarterly results in May.

HP said it has already stopped production of its WebOS-based devices like its TouchPad tablet, which failed to attract buyers.

Cypress Semiconductor Corp -- the main supplier of touch controllers for TouchPad -- will also hurt if the company pulls the plug on the product, brokerage Collins Stewart said.

Cypress' shares fell 1 percent to $16.93 on Friday.

HP has been struggling with its once hugely popular PC business, as niftier gadgets like Apple's iPad have eaten into its business.

Thursday's weak forecast follows smaller rival Dell's lowered revenue outlook earlier this week that dragged down both stocks.

Both companies have been venturing out of traditional comfort zones and into enterprise solutions and services, but continuing soft sales have been a constant source of trouble.

Brokerage Robert W. Baird said HP is no longer a "safe haven" stock and expects it to lose market share.

HP's decision to spin off the PC business reflects commoditization, as consumers change the use of computers, and this may hurt Intel, the world's largest supplier of PC chips, brokerage Nomura said in a note.

"A reversal in average selling prices would remove a key revenue driver over the last six quarters (for Intel)."

(Additional reporting by Rachel Chitra in Bangalore; Editing

by Don Sebastian, Joyjeet Das, Dave Zimmerman)

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Morgan Stanley rallies, analysts defend on France

Morgan Stanley rallies, analysts defend on France

Stock Market Predictions

(Global Markets) - Morgan Stanley (MS.N) shares rallied on Friday, despite continued weakness in global markets, as analysts said that fears about its exposure to French banks were overblown and that the bank was prepared to manage risk.

At midday the stock had given up some early gains but was still up 3.7 percent, far outstripping the broader market. In the previous five trading sessions, the bank lost more than 21 percent of its value, reducing its market capitalization by more than $6.8 billion.

Other financial stocks also rose, after days of being slammed by the weak financial outlook and market malaise.

The KBW Bank Index .BKX rose 1.5 percent, led by a nearly 3.8 percent gain for Bank of America Corp (BAC.N). Most members of the broker-dealer index .XBD also rallied, led by Morgan Stanley and by a 4.3 percent gain for Jefferies Group Inc (JEF.N).

But even with the rally, there were signs the market was still not fully confident in Morgan Stanley's strength.

The cost to insure Morgan Stanley's debt in the credit default swap market jumped on Friday even as swaps on other U.S. banks came off their highs, with the cost to insure the company's bonds rising above that of Bank of America bonds for the first time since late August.

CDS costs to insure Morgan Stanley's bonds for five years were last up 39 basis points to 438 basis points, the highest level since March 2009, according to Markit. That means it would cost $438,000 per year to insure $10 million in debt for five years.

FRENCH FEARS

Like many other banks, Morgan Stanley has been hurt by fears of weak third-quarter performance, a gloomy economic outlook and a Federal Reserve plan to lower long-term interest rates that could compress margins.

The pressure increased Thursday with a post on the well-known finance blog "Zero Hedge" that said Morgan Stanley was at serious risk because of its exposure to French banks.

The blog said Morgan Stanley's French exposure was greater than its market capitalization and about two-thirds of its entire book value. French banks are some of the biggest victims of the panic in recent weeks about Greek debt and the effect a default would have on Europe.

Wall Street analysts were quick to rush to Morgan Stanley's defense. Bernstein Research's Brad Hintz -- himself a former treasurer of the company -- said Friday that Morgan Stanley's total exposure to France was probably less than $2 billion.

"We believe Morgan Stanley's risk management staff and its trading units are fully aware of the highly publicized risks emanating from Europe and warnings about the firm's potential exposure to a European Sovereign crisis," Hintz said in a note. "There is solid evidence that shows Morgan Stanley has been taking action to limit risk in preparation for potentially difficult market conditions ahead."

The Wall Street Journal reported that Credit Suisse also defended Morgan Stanley's French position in a note late Thursday, saying any risk to the bank in the euro zone was not a surprise and would be manageable.

The market also shrugged off an estimate change on Morgan Stanley. JMP Securities analyst David Trone cut his third-quarter profit forecast by 10 percent on expected losses in the bank's bond portfolio.

(Reporting by Ben Berkowitz in New York, additional reporting by Karen Brettell; Editing by Gerald E. McCormick and John Wallace)

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Amazon shares dip on growth concerns

Amazon shares dip on growth concerns

Stock Market Predictions

(Global Markets) - Amazon.com Inc shares fell to their lowest level since late March on Thursday on concern about sales growth during the online retailer's crucial fourth quarter.

Goldman Sachs analysts said in a note from Wednesday that Amazon has typically bested overall online sales growth by 23 points.

comScore reported earlier this week that online holiday spending in the U.S. rose 15 percent to a record $35 billion from November 1 to December 26, versus the comparable period last year.

That would suggest a 38 percent increase in Amazon sales this season, below the 40 percent increase Wall Street expects, wrote Goldman, which expects 44 percent, including Kindle sales.

"While the comScore numbers are just one data point which does not capture international sales or breakout individual companies' sales, taken alone they seem to suggest the potential for downside risk to consensus forecasts for 4Q 2011," the analysts said.

Shares of Amazon fell as low as $166.97 in early trading on Thursday, the lowest level since late March. The stock recovered by midday to $173, down 0.5 percent.

Amazon shares reached almost $250 in October, but have dropped by about 30 percent since then. Shares of rival e-commerce company eBay have lost roughly 10 percent in the same period.

Amazon said on Thursday it has sold "well over" 1 million Kindle e-reader and tablet devices per week this month.

Goldman's 44 percent sales growth forecast for the fourth quarter, versus a year earlier, includes three to four percentage points of growth from Kindle device sales that the analysts said are not currently incorporated in Wall Street consensus estimates.

(Reporting By Phil Wahba and Alistair Barr; editing by Mark Porter and Tim Dobbyn)

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Coal miner Walter's shares rise on takeover talk

Coal miner Walter's shares rise on takeover talk

Stock Market Predictions

(Global Markets) - Shares of Walter Energy (WLT.N) rose for a second day on Friday on reports that the U.S. coal mining company is the target of a takeover.

The newspaper, The Australian, reported that BHP Billiton (BHP.AX) (BLT.L), the world's largest mining company, is considering a $6 billion bid for the company. It cited no sources.

On Thursday, a British newspaper, The Independent, said BHP and Anglo American (AAL.L) were interested in acquiring Walter, which has large reserves of steel-making metallurgical coal. That report said Anglo had poured cold water on such talk when it first came up in September.

BHP declined to comment. The company has flagged that it would chase acquisitions in commodities where it is not one of the leading players, after it was forced to scrap three big takeovers between 2008 and 2010 on competition and political concerns.

As one of the world's biggest coal producers, it would be likely to run into competition hurdles if it bid for Walter Energy.

UBS analyst Glyn Lawcock played down the likelihood that BHP would be interested in Walter Energy as BHP has the ability to double coking coal production from its Australian operations and is also focusing on Indonesia.

"U.S. coal producers are generally higher cost and lower margin than Australian assets within BHP current portfolio. I'm not sure why BHP would want to do it," he said.

A spokesman for Alabama-based Walter said the company would not comment on speculation

The company's shares rose 12 percent on Thursday and jumped 6 percent on Friday morning before easing to close up 2.8 percent at $77.36.

Analyst Lucas Pipes, of Brean Murray Carret & Co, said the price rise was clearly linked to the market talk that Walter was a target.

He said U.S. coal producer Peabody Energy (BTU.N) and European steelmaker ArcelorMittal (ISPA.AS) (MT.N) had just received final approval to go ahead with their joint acquisition of Australian miner Macarthur Coal (MCC.AX).

"That indicates there's still a lot of demand for met coal reserves and Walter falls into that category," Pipes said.

Other U.S. coal stocks rose on Friday on macro-economic issues, analysts said. Alpha Natural Resources (ANR.N) ended up 4.8 percent to $21.65, Arch Coal (ACI.N) finished 4.4 percent higher at $17.50 and Peabody Energy (BTU.N) rose 3.2 percent to $39.46. The Dow Jones coal index .DJUSCL closed 4.4 percent higher.

(Reporting by Steve James in New York and Sonali Paul in Melbourne; editing by Dave Zimmerman, Bernard Orr and Tim Dobbyn)

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Sony shares dip on report to buy Ericsson phone venture stake

Sony shares dip on report to buy Ericsson phone venture stake

Stock Market Predictions

TOKYO (Global Markets) - Sony Corp (6758.T) shares fell 1.8 percent in early trading after The Wall Street Journal reported on Thursday that the firm is nearing a deal to buy Telefon AB LM Ericsson's (ERICb.ST) half of their smartphone venture.

Talks were ongoing and could break apart at any time, the paper said, citing people familiar with the matter.

Both Ericsson and Sony declined to comment on the report. The dip in Sony's shares to 1,444 yen compared with a gain of 1.2 percent in the benchmark Nikkei 225.

(Reporting by Tim Kelly; Editing by Joseph Radford)

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Analysis: Investors likely to wait out 2012 drug launches

Analysis: Investors likely to wait out 2012 drug launches

Stock Market Predictions

SAN FRANCISCO (Global Markets) - Burned by disappointing early sales for new, high-profile biotech medicines in 2011, healthcare investors are cautious ahead of this year's expected crop of drug launches.

Not so long ago, biotech makers could practically bank on seeing their company values jump once they obtained regulatory approval to market a drug. Now, investors are more likely to wait on the sidelines, or short a stock, ahead of proof the new treatments will be a commercial success, a process that could take months.

"People are all freaked out about product launches," said ISI Group analyst Mark Schoenebaum.

Well aware of that angst, drug developers are spending far more time laying the groundwork to get paid by insurance plans and to convince doctors and patient groups of their medicines' value as they prepare for regulatory approval.

"There was a time when products got full value prior to launch. I think we have now swung back in the other direction," said John Orwin, chief executive officer at Affymax Inc (AFFX.O), which expects U.S. regulators to decide by late March whether to approve its experimental anemia drug.

Shares of Dendreon Corp (DNDN.O), maker of the novel therapeutic prostate cancer vaccine Provenge, ended last year down 83 percent from their peak in May, while Human Genome Sciences (HGSI.O) finished with a drop of 75 percent after launching Benlysta, the first new drug for lupus in more than 50 years.

Initial sales of Provenge and Benlysta failed to live up to lofty expectations, and investors are cautious ahead of early sales results for drugs launched in 2011 by companies including Incyte Corp (INCY.O), Seattle Genetics (SGEN.O) and Savient Pharmaceuticals (SVNT.O).

Even shares of Vertex Pharmaceuticals (VRTX.O), which launched hepatitis C drug Incivek last year with record-breaking sales of $420 million for its first full quarter on the market, ended the year 44 percent below their 52-week high.

The overall sector is up so far this year, and still outperforms the wider stock market. The Nasdaq Biotech Index .NBI rose 12 percent in 2011, compared with a flat return for the Standard & Poor's 500 Index .SPX.

The growing challenges for new drugs -- reimbursement, regulatory issues and safety concerns -- were major topics here this week at the annual JP Morgan healthcare conference. "Sometimes there is a gap between customers' expectations and companies' expectations," said Yoshihiko Hatanaka, CEO of Astellas Pharma (4503.T), Japan's No. 2 drugmaker. "It is critical for us to reduce that gap."

Astellas has partnered with Medivation Inc (MDVN.O) to develop prostate cancer drug MDV3100, which could win regulatory approval as soon as late 2012.

TREND AWAY FROM BIG LAUNCHES

As the market has begun to recognize that innovative drugs have unproven real-world outcomes, companies are pursuing more niche markets.

"There is a trend away from big launches," said Ulrik Schulze, global leader for biopharma R&D at Boston Consulting Group.

In the 1990s, it typically took less than two years for a new pharmaceutical to reach peak sales, he said. That time frame is widening as companies grapple with pressure from payers and a greater focus on whether a new treatment truly improves upon existing ones.

Some drugmakers are even starting to compete on the basis of price at a drug's launch, rather than expect a premium for its novelty.

Regeneron Pharmaceuticals Inc (REGN.O), which began selling its macular degeneration drug Eylea in November, said this week that sales in the first six weeks totaled $24 million to $25 million -- well above the $5 million expected by Wall Street.

Eylea competes against Roche AG's (ROG.VX) well-established Lucentis, but is priced slightly lower on a per-dose basis and can be given less frequently.

CEO Leonard Schleifer said Regeneron was careful ahead of its launch to lay the groundwork with retinal physicians and to set up a system for reimbursement.

"If you deliver a product that physicians, payers, and patients think is an important product, your launch will be fine," he said.

Affymax also plans to undercut the price of its biggest rival for the treatment of anemia in kidney dialysis patients -- Amgen Inc's (AMGN.O) blockbuster Epogen.

"We recognize that peginesatide has to be part of a solution to lower costs," Orwin said, referring to the Affymax drug.

Amgen CEO-elect Robert Bradway said the company expects competition from Affymax sometime this year, but still anticipates less erosion in Epogen sales relative to 2011. Sales of Epogen, which totaled $2.5 billion in 2010, have waned over the last several years amid safety concerns.

Amgen expects the Food and Drug Administration to decide in late April whether to approve its bone drug Xgeva, or denosumab, for preventing the spread of prostate cancer to the bone.

"Xgeva is the biggest opportunity for us in 2012," Bradway said.

But uptake of denosumab for osteoporosis has been gradual and some Wall Street analysts are wary of Xgeva's potential relevance in the prevention of bone cancer.

The first high-profile drug that could reach the market this year is diabetes treatment Bydureon, which is being developed by Amylin Pharmaceuticals (AMLN.O) after it recently ended a long-time diabetes partnership with Eli Lilly & Co (LLY.N).

The latest deadline for an FDA decision on Bydureon is January 28.

Bydureon faces strong competition from similar drugs and Amylin will for the first time be responsible for launching a drug on its own.

"We think there is substantial uncertainty and think that there is somewhat more risk of sales falling short than of exceeding our estimates," Cowen and Co said in a research note to clients.

(Reporting by Deena Beasley, editing by Matthew Lewis)

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CenturyLink Q1 beats but forecast fails to inspire

CenturyLink Q1 beats but forecast fails to inspire

Stock Market Predictions

BANGALORE (Global Markets) - CenturyLink Inc (CTL.N) posted a better-than-expected quarterly profit as gains at high-speed Internet customers offset those disconnecting their home phones, but the rural telephone operator forecast second-quarter earnings below market.
Regional phone companies like CenturyLink, which acquired rival Qwest for $10.6 billion last month, face the challenge of finding new ways to grow as consumers disconnect home phones in favor of Web and mobile services.

The company agreed to buy Savvis Inc (SVVS.O) for $2.5 billion last month to beef up its data center business and cash in on growing demand for cloud services.

CenturyLink forecast second-quarter earnings of 63-67 cents a share, on revenue of $4.40-$4.43 billion, including the impact from operations of its recent Qwest buy and certain other items.

Analysts, on average, had expected earnings of 72 cents per share, according to Thomson Global Markets I/B/E/S.

For full-year 2011, the company expects earnings of $2.55-$2.65 per share, while analysts were expecting $2.96.

CenturyLink's 2011 outlook looks conservative, brokerage UBS said in a note to clients.

"While the clear focus today is on updated guidance post-Qwest, we do not think investors should penalize the shares for a headline EPS guide that is below expectations," Nomura analyst Mike McCormack said.

CenturyLink shares fell nearly 3 percent as investors flagged its outlook numbers.

Nomura's McCormack said the Qwest merger has the potential to draw out meaningfully higher synergies than current estimates. "We think CenturyLink will reward patient investors."

CenturyLink said it expects to achieve about $375 million in annual run-rate synergies end of 2011 in connection with its 2009 acquisition of Embarq.

STRONG Q1 INTERNET SUBSCRIBER ADDS

During the first quarter, CenturyLink was able to slow the rate of line loss in its business and tap the demand for high-speed Internet and high-bandwidth services, Chief Executive Glen Post said in a statement.

The company lost 516,000 access line customers, ending the quarter with 6.4 million lines, down 7.5 percent from a year ago.

However, it added more than 52,000 high-speed Internet customers to end the quarter with about 2.4 million.

"Access line and broadband subscriber trends were both slightly better than our forecast," Stifel Nicolaus analyst Christopher King said.

For January-March, excluding items, CenturyLink earned 76 cents a share, topping estimates of 70 cents per share.

CenturyLink shares were trading flat at $40.31 on Thursday on the New York Stock Exchange. They touched a low of $39.28 earlier in the day.

(Reporting by Saqib Iqbal Ahmed in Bangalore; Editing by Unnikrishnan Nair and Joyjeet Das)

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