Wall Street Breakfast: Must-Know News

April 24, 2012  |  includes: AAPL, ABT, CHK, CNVGF.PK, DB, FB, HNZ, NFLX, NOK, NSRGY.PK, QQQ, RDS.A,SPY, WMT, WPI, YHOO

Top Stories
Netflix plummets on poor outlook. Netflix (NFLX) shares were -16.1% premarket after the company yesterday predicted that it would add just 200K-800K online subscribers in Q2 in the U.S., way below consensus of 1.2M and putting into doubt the firm's goal of 7M net adds in 2012. In Q1, Netflix swung to a net loss of $0.08 a share from a profit of 1.11 last year, beating forecasts, while revenue jumped 28% to $870M. Opinion:Mixed bag for Netflix.

Justice begins Wal-Mart bribery investigation. The DOJ has reportedly started a criminal probe of Wal-Mart (WMT) for allegations of systemic bribery in Mexico. The U.S. Foreign Corrupt Practices Act bans companies from bribing foreign officials to win business, and enforcement of such has been stepped up in recent years. Opinion: Wal-Mart's Mexican opportunity.

Watson to buy Actavis in $5.6B deal. Watson Pharmaceuticals (WPI) is close to announcing a $5.6B deal to buy Actavis, Reuters reports. The acquisition is an important one for Deutsche Bank (DB), which was left holding billions of euros of Actavis debt after a leveraged buyout in 2007.Opinion: Winning long-term plays in generic drugs.

Top Equities News
Facebook Q1 results mixed. Facebook's (FB) Q1 net income fell 8.1% on year to $205M from $223M even as revenue climbed 45% to $1.06B, with monthly active users jumping to 901M from 845M at the end of Q4. One troubling datapoint was that ad revenue growth fell to 37% on year from 69% in 2011, in spite of reports of improved monetization. The trend may add to fears that Facebook isn't growing fast enough to warrant a $100B+ valuation. Opinion: Facebook trips down the IPO path.

TI gives optimistic outlook after earnings fall. Texas Instruments' Q1 EPS fell to $0.32 from $0.55 and beat forecasts while revenues dropped 8% to an in-line $3.1B. Analog sales fell only 1% on quarter in spite of seasonality, which suggests TI is benefiting from synergies related to its acquisition of National Semiconductor. TI also gave Q2 guidance that may exceed some estimates, helping to send shares 3.7% higher in after-hours trading. Earnings call transcript: Management discusses Q1 results.

The Apple juggernaut seen continuing but analysts cautious. Apple (AAPL) is expected to show that it continued its onslaught in FQ2 when it releases earnings later, with EPS forecast at $10.06 vs. $6.40 and revenue +49% to $36.8B. However, there's been a fair amount of cautious commentary ahead of the report. BGC's Collin Gillis predicts that the price-sensitivity of emerging markets buyers, which has contributed to strong Android demand, will limit Apple's growth. Opinion: Buy Apple before today's earnings.

Fitch cuts Nokia to junk. Fitch has downgraded Nokia (NOK) from BBB- to BB+, or junk status, despite the handset maker sitting on €4.9B of net cash. Fitch said it could cut the company's ratings further unless its performance starts to improve over the second half of 2012 and in 2013. But given the headwinds, Fitch is not convinced that Nokia can manage this. Opinion: Nokia ready to soar on Lumia 900 success.

McClendon scrutiny increases New questions are swirling around Aubrey McClendon's borrowing of $1.1B to buy stakes in Chesapeake (CHK) wells. Reuters reports he sold out of two company-controlled wells just as Chesapeake was divesting those properties. One analyst imagines a scenario where a financially strapped CEO might do a deal that's not the best price for the company. Opinion: McClendon's missteps won't derail the company.

Nestle plans asset sales of up to $1.8B following Pfizer deal. Nestle (NSRGY.PK) may sell $1.2B-$1.8B worth of assets from the infant-nutrition unit that it's buying from Pfizer for $11.85B in order to allay antitrust concerns in countries around the world, Bloomberg reports. Potential suitors could include Heinz (HNZ), Abbott Labs (ABT) and P-E funds. Opinion: Undervalued biotech picks.

Cove recommends Shell's increased $1.8B bid. Cove Energy's (CNVGF.PK) board will recommend shareholders accept an increased cash offer from Shell Exploration and Production (a subsidiary of RDS.A). Shell's sweetened offer of 220 pence a share values Cove at £1.12B ($1.8B) and will help Shell expand its footprint in Mozambique. Opinion: Mozambique's drilling potential.

Yahoo, Yahoo Japan still unable to agree to a deal. Yahoo Japan has discussed a possible share buyback from key shareholder Yahoo (YHOO) but no agreement has been reached, Yahoo Japan CFO Toshiki Ohya has said. Opinion: Yahoo will break $17 on strong Asian assets.

Top Economic & Other News
Social Security money running out faster than thought. The reserves for the Social Security fund that pays disabled benefits will run out in 2016, two years sooner than thought, a government report projects. If the fund is combined with the larger retiree one, all the reserves would be used up by 2033, three years earlier than forecast. With the can so far away, what are the odds Congress will act? Opinion: Do demographics point to slower recoveries?

No change expected from Fed. The FOMC is due to meet today, with the WSJ's Jon Hilsenrath not expecting the Fed to shift from its January stance. Recent data has been strong and weak but nothing too extreme, and while inflation forecasts are edging higher, it's not enough for an early rate hike. Further QE? Those expecting it "are likely to be disappointed too." Opinion: Stocks can't levitate on twist alone.

BOJ expected to ease further. The Bank of Japan is likely to ease monetary policy on Friday, Reuters reports, by increasing its ¥30T ($370B) asset purchase program by ¥5T or ¥10T. The bank may also extend the maturity of government bonds it buys to around three years from the current two years. Opinion: Time to trade the collapse of the yen.

Today's Markets:
In Asia, Japan -0.8%. Hong Kong +0.3%. China flat. India flat.
In Europe, at midday, London +0.4%. Paris +1.2%. Frankfurt +0.7%.
Futures at 7:00: Dow +0.3%. S&P +0.4%. Nasdaq +0.6%. Crude flat at $103.06.. Gold +0.4% to $1639.30.

Today's economic calendar:
7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
9:00 S&P Case-Shiller Home Price Index
10:00 New Home Sales
10:00 Consumer Confidence
10:00 State Street Investor Confidence Index
10:00 FHFA House Price Index
10:00 Richmond Fed Mfg.

Notable earnings before today's open: AKS, APD, ARMH, BHI, CE, CIT, COH, DLPH, HSY, ITW, JNS, MHP, MMM, NVS, PCAR, PH, PNR, RAI, RF, SNV, T, TROW, UTX, WFT, WU, X
Notable earnings after today's close: AAPL, ACE, AFL, BIDU, CBG, CHRW, EW, FTI, HTS, ITC, JNPR, LIFE, NBR, NFX, NSC, QCOR, QEP, RFMD, TSS, WIT