Stock Market Predictions

Japan's MUFG converts Morgan Stanley shares

Stock Market Predictions

Morgan Stanley said it would book a non-cash charge of $1.7 billion against second-quarter earnings as a result of the conversion, which was announced in April.

For Mitsubishi UFJ (MUFG), the deal will result in more than 200 billion yen ($2.48 billion) in profit in the April-June quarter, according to Japanese newspaper Nikkei.

The Japanese company's earnings are expected to get an estimated 80 billion yen boost from its share of Morgan Stanley's net profit, Nikkei reported. MUFG will also get an additional seat on Morgan Stanley's board.

Mitsubishi UFJ rode to the rescue of Morgan Stanley at the height of the financial crisis, buying $9 billion of convertible preferred shares from the investment bank in October 2008. While the deal was a lifeline for Morgan Stanley at the time, the roughly $800 million dividend on the stake put a big dent in the U.S. bank's earnings.

The two partners renegotiated their original deal two months ago, giving MUFG the right to convert an additional 75 million shares, valued at roughly $1.7 billion today and resulting in the non-cash charge against Morgan Stanley's second-quarter earnings.

The conversion will raise Morgan Stanley's capital levels and increase its so-called Tier 1 common equity ratio, a key measure of a bank's capital strength, by 2.7 percentage points to a comfortable 14.5 percent, based on first-quarter numbers.

MUFG still owns some $500 million worth of preferred shares, on which Morgan Stanley pays about $50 million a year in dividends.

(Reporting by Rachana Khanzode in Bangalore and Knut Engelmann in New York; Editing by Saumyadeb Chakrabarty)

Ford stock up on expectations of market share gain

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Automakers will report U.S. light vehicle sales Friday and sales are expected to be up slightly.

"Ford could likely outpace overall U.S. light vehicle sales, which we believe could 'boost' share in the near-term," Buckingham Research Group analyst Joseph Amaturo wrote in a research note dated June 30.

Analysts also cited comments by Ford's U.S. sales analyst George Pipas on Wednesday that the industry's June sales might be better than May's and that full-size pickup truck sales were rebounding as gasoline prices receded. Pickup trucks, a segment dominated by Ford and other U.S. automakers, generate higher profits.

Investors were relieved that the auto market was not weakening, analysts said, citing a Thursday report that factory activity in the Midwest accelerated in June.

Ford shares were 3.3 percent higher at $13.86 on the New York Stock Exchange in afternoon trading on Thursday. Earlier they reached as high as $13.97. Shares of U.S. rival General Motors Co (GM.N) were up 0.2 percent at $30.35.

Buckingham projected that Ford's share in June would be in the high-17 percent range. So far this year, Ford's share of the U.S. auto market -- the second-largest in the world -- is 17.2 percent. Ford took 17.8 percent of the market in May.

Pickup truck sales are expected to underperform the overall industry because consumers are seeking more fuel-efficient cars, Amaturo said. Still, Ford is likely to gain share in that segment because its offerings are more attractive.

"We expect Ford's full-size pickup sales to outpace GM's full-size pickup sales given Ford's EcoBoost V6 engine," Amaturo wrote.

(Reporting by Deepa Seetharaman and Ben Klayman, editing by Gerald E. McCormick)

FDA chides Novartis on meningitis vaccine promotion

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The U.S. Food and Drug Administration in the letter dated June 24 and released on Friday said some statements in a recorded phone call and professional slides from March were "false and misleading."

The FDA also said the promotional materials falsely imply that FDA-approved use of Menveo is consistent with published recommendations by the U.S. Advisory Committee on Immunization Practices, a panel of federal vaccine experts that advises the U.S. Centers for Disease Control and Prevention.

The FDA requested that Novartis immediately stop using such promotional material and the company's spokeswoman said the vaccine unit has already done that.

"(The unit) takes this communication very seriously and has immediately ceased the dissemination of the material in question," said spokeswoman Brandi Robinson. "We are committed to addressing the FDA's concerns adequately and expeditiously."

Earlier this month, the FDA accepted Novartis's application to broaden the use of Menveo in infants and toddlers from 2 months of age. The vaccine, which protects against strains of the meningococcal disease that causes potentially deadly meningitis, is approved in the United States for people aged between 2 and 55.

Novartis has three types of meningitis vaccines, and it is optimistic that its meningitis franchise will be a blockbuster. The company is also hoping its meningitis franchise will help the unit reduce its dependency on sales from pandemic vaccines.

The FDA posted the warning letter here: here

(Reporting by Alina Selyukh. Editing by Robert MacMillan, Bernard Orr)

TMX shares rise after deal with LSE called off

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Shares of TMX, operator of the Toronto Stock Exchange, climbed as high as C$44.14 after the news, adding to gains before the confirmation was published. A media report had said the London Stock Exchange (LSE.L) had lost the battle for TMX Group in a proxy vote.

(Reporting by Ka Yan Ng; editing by Rob Wilson)

Darden eyes changes at Olive Garden, shares up

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Darden will adopt a pricing tactic it used to turn around results at its Red Lobster chain, executives said on Friday, as new data suggested the economy may not be as weak as feared.

Bernstein Research analyst Sara Senatore said recent economic jitters had casual dining investors on edge and Friday's manufacturing data likely had a big part in rallying the shares of Darden and Brinker International Inc (EAT.N).

Darden, which also operates the LongHorn Steakhouse chain, saw its stock rise nearly 5 percent while Brinker, parent of Chili's Grill & Bar, was 6 percent higher in early afternoon trading.

Results from Olive Garden lately have disappointed investors. In the fourth quarter ended on May 29, the chain was the only one of Darden's "Big Three" brands to show a fall in monthly visits.

Featured dishes and advertising campaigns at Olive Garden recently have failed to hit their mark, and the company is making changes, executives said on a conference call with analysts.

"They're going to emphasis more price certainty" by picking one price for limited time offers, said Miller Tabak & Co analyst Stephen Anderson.

Darden used that tactic at Red Lobster, which just turned in its first quarterly traffic gain in 15 consecutive quarters.

"It's the kind of strategy we think has helped right the ship at Red Lobster," said Anderson.

The company said the first month of its fiscal year was a "very solid start," and Drew Madsen, Darden's president and chief operating officer, struck a cautiously optimistic tone during the company's conference call.

"We are encouraged by the gradual and sustained improvement in our industry and we anticipate continued modest recovery during fiscal 2012," Madsen said.

Darden said it is getting more of its traffic from diners with incomes above $75,000. While a bigger share of its customers is coming from that well-heeled group, the company said all of its diners were budgeting carefully and seeking value.

Orlando, Florida-based Darden, one of the restaurant industry's top performers, also plans to eliminate $65 million to $75 million in costs this year.

Food costs are rising for all restaurant operators, but Darden now expects its food inflation to be in the lower half of its forecast of 5 percent to 5.5 percent.

The company has locked in food costs for the first half of this fiscal year, said Chief Financial Officer Brad Richmond, who expects food inflation to ease in the second half.

On Thursday, Darden reported a fiscal fourth-quarter profit that matched Wall Street estimates.

It forecast full-year earnings of $3.82 to $3.92 per share, above analysts' expectations of $3.81, according to Thomson Global Markets I/B/E/S. That forecast includes an expected 2.5 percent increase in combined same-restaurant sales at Olive Garden, Red Lobster and LongHorn Steakhouse.

Darden bought 2.3 million shares of its common stock during its fourth quarter.

Its board also declared a quarterly dividend of 43 cents per share, a 34 percent increase from the company's previous quarterly dividend.

(Reporting by Lisa Baertlein; Editing by Lisa Von Ahn and Tim Dobbyn)

Smith & Wesson shares rise on robust handgun sales

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The company is benefiting from the redesign and launch of small handguns that are easier to conceal and carry.

"It appears that the consumer trend toward smaller handguns is growing, and (Smith & Wesson's) newer, smaller products are seeing particular sales strength," Northland Capital Markets analyst Chris Krueger wrote in a note.

The company's pistol sales grew about 30 percent in the quarter. Its firearms backlog rose 153 percent to $186.7 million, sequentially.

Krueger said the backlog has returned to the levels seen post the election of U.S. President Barrack Obama, when gun sales surged on fears of new regulation.

For the year ending April 2012, the company forecast net sales of $420-$440 million.

Analysts, on average, were expecting sales of $413.71 million for the period, according to Thomson Global Markets I/B/E/S.

Fourth quarter adjusted earnings stood at 15 cents, ahead of Wall Street projections of a 4 cent profit.

Shares of the Springfield, Massachusetts-based company were trading up more than 10 percent at $3.31 on Friday afternoon on Nasdaq. They touched a high of $3.40, earlier in the session.

(Reporting by Meenakshi Iyer and Arpita Mukherjee in Bangalore; Editing by Joyjeet Das)

Jury says Exxon must pay $1.5 billion for leak

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Verdicts released by the Baltimore County Circuit Court on Friday showed the jury awarded the 160 plaintiffs in the case against the oil company more than $1 billion in punitive damages.

That figure is in addition to the $495 million in compensation that the jury awarded the plaintiffs for damage caused by the 26,000 gallons of gasoline that leaked from a pressurized line in Jacksonville, Maryland over 37 days in January and February in 2006, according to media reports.

Exxon Mobil said the company would appeal the verdict.

"As we've stated throughout the last five years, we sincerely regret this unfortunate accident. We apologize to the Jacksonville community and have devoted significant resources to clean-up, recovery and remediation activities," a spokeswoman said in an emailed statement.

The damage award is far higher than the $900 million that Exxon Mobil paid in civil penalties for lawsuits related to the 1989 Exxon Valdez oil spill in Alaska's Prince William Sound, although the company has said it spent more than $4 billion on clean-up costs and total legal settlements.

In the Valdez case, Exxon successfully appealed a jury's original ruling that called for it to pay $5 billion in punitive damages, and eventually had that amount cut to about $500 million.

The Maryland case stemmed from a fuel leak that reached the groundwater in the community, which relies on private wells for drinking water.

The company has said it already had spent more than $46 million on the spill's cleanup and been fined $4 million by the state.

The case is the second related to the spill. The jury in the first lawsuit, which involved fewer plaintiffs, awarded $150 million in compensatory damages. Exxon Mobil has appealed that verdict.

Shares in Exxon Mobil closed up 66 cents to $82.04 on the New York Stock Exchange, in a broadly higher market.

(Additional reporting by Matt Daily in New York; Editing by Derek Caney)

Oshkosh shares up 16 percent as Icahn seeks talks

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Oshkosh, which makes tactical vehicles for the military and specialty trucks for construction, is the latest diversified industrial and defense company to be targeted by activist investors for a potential breakup, at a time when defense stocks languish on fears of softening military spending.

Shares of Wisconsin-based Oshkosh, which also makes fire and emergency equipment and cement mixers, were 16 percent higher at $33.62 on the New York Stock Exchange in afternoon trading, valuing the firm at more than $3 billion.

Analysts said a split of its defense and commercial businesses is a possibility, but some said profits from any sale of assets could remain subject to hefty taxation unless Oshkosh could find a way to spin off the entities.

"Given Icahn's history and the fact Oshkosh is a relatively small company, we believe there may be a better than average chance that OSK may get carved up in a future strategic action," said Peter Skibitski, analyst at SunTrust Robinson Humphrey.

"We estimate a potential carve up value for Oshkosh at roughly $35 (a share)," he said.

Ralph Whitworth's Relational Investors LLC, which pressured industrial conglomerate ITT Corp (ITT.N) to split up its defense and water purifying businesses earlier this year, last week reported a stake in L-3 Communications and urged the contractor to divest low-performing units.

"While near-term end market concerns continue, an activist shareholder could unlock significant value, in our view," Jefferies & Co. analyst Stephen Volkmann said of Oshkosh in a note to clients on Friday.

Oshkosh said in a statement late on Thursday it is open to dialogue with shareholders, adding that the firm believes Icahn's investment is "evidence of his belief in the value of the company."

Icahn, who has agitated for big changes at companies, held 9.51 percent of Oshkosh shares as of June 20, according to a Securities and Exchange Commission filing on Thursday.

A tough U.S. defense spending outlook and uncertainty over state and local budgets has weighed on Oshkosh shares this year, which are still down about 6 percent year to date despite Friday's rally.

"Currently Oshkosh is essentially trading at a depressed defense multiple with the market giving almost no credit for the construction and specialty truck related business," Jefferies' Volkmann wrote.

He added that the company's military truck business "could be attractive" as defense budget limits trigger some consolidation.

It is not clear if any defense contractors would find the defense part of the company attractive, especially at a time when the United States winds down wars in Iraq and Afghanistan, people familiar with the industry said. But private equity firms could potentially be interested in different parts of the company, they added.

(Reporting by Roy Strom and Soyoung Kim in New York, and Karen Jacobs in Atlanta; Editing by Tim Dobbyn, Dave Zimmerman)

Chile La Polar drops on client compensation plans

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The company has admitted that it restructured the debt of hundreds of thousands of clients without their consent, limiting loan provisions that would have hurt its bottom line.

"The drop is due to the fact that the firm has to pay out funds for the renegotiation with clients," said Claudio Gonzalez, head of research at Santiago's Tanner brokerage.

Starting July 11, the company has said it will refund clients who overpaid due to the unilateral refinancing.

The scandal has also forced the company to increase loss provisions by $890 million, wiped out as much as $1 billion of its market valuation, triggered a criminal investigation and prompted the firing of at least 11 senior managers.

The company met on Friday with creditors holding $139 million of its securitized bonds, agreeing to a more exhaustive investigation of the firm's finances.

Most of La Polar's creditors agreed to hold off accelerating payment of securities on Wednesday.

Chile's No. 4 retailer has $580 million in outstanding corporate bonds, and Wednesday's deal was seen as key for the department store chain to remain viable.

(Reporting by Felipe Iturrieta. Translated by Alexis Krell. Editing by Simon Gardner, Brad Haynes and Gerald E. McCormick)

Landmark turbine deal powers Vestas shares

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The shares traded up 7.8 percent at 128.80 crowns by 10:38 a.m. EDT, after touching a near two-week high 132 crowns, outpacing a 1 percent rise in Copenhagen's blue-chip index.

Vestas said the French renewable energy company would buy at least half its onshore wind turbines in Europe, and at least 30 percent of future onshore turbines in the U.S., from Vestas for delivery in 2012 to 2014.

The deal included an immediate firm order for turbines with 180 megawatts (MW) of capacity.

But Vestas Chief Executive Ditlev Engel said on Thursday the deal had potential to bring in orders for turbines with total capacity of 2,000 MW or more.

Vestas does not disclose the value of orders, but a rule of thumb is that turbines cost 1 million euros ($1.45 million) per megawatt, meaning it could be worth 2 billion euros or more.

"We consider this framework agreement to be strategically important," Sydbank senior analyst Jacob Pedersen said in a note to clients, adding he expected this kind of deal to become more common and for Vestas to win more of them.

Vestas, the world's biggest wind turbine manufacturer, has forecast its order intake this year will be between 7,000 and 8,000 MW.

Orders so far this year total 2,109 MW. This includes unannounced orders of an estimated 300-500 MW in the second quarter, Pedersen said.

"So orders are continuing to come in later than we had expected," Pedersen said. "We believe the pace of the order intake must increase markedly over the next two months for Vestas to get projects going by the end of 2011 and achieve its 2011 prognosis."

Vestas said on Thursday the new agreement with EDF Energies Nouvelles did not alter expectations for 2011 results.

The company on Friday announced two more orders of 60 MW from Brazil and 29 MW from Mexico.

($1=.6876 Euro)

(Reporting by John Acher; Editing by David Hulmes)