Stock Market Predictions

Jefferies shares fall, analyst cuts price target

Stock Market Predictions

Jefferies shares were down 3.8 percent at $11.55 in morning trade on the New York Stock Exchange, after falling as low as $11.12.

KBW analyst Lauren Smith lowered her price target on Jefferies to $17 from $22, after running a scenario to quantify the impact of Jefferies shifting its funding and leverage to a model more like those used by Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N).

Smith said such a move would raise Jeffries' interest costs by $350 million per year and lower its earnings by 50 cents per share -- more than one-third of its estimated earnings for 2012, according to Thomson Global Markets I/B/E/S.

"We believe the continued overhang of increased regulatory oversight and the speculation for the potential negative impact on EPS could limit a recovery in the stock price," said Smith.

On Thursday, Jefferies shares fell as much as 20 percent, and were briefly halted, before closing down 2 percent at $12.01.

Initial worries about the company's exposure to Europe were damped by the bank's disclosure that it has a net short position on troubled sovereign debt. Yet analysts have also been citing concern that the quick downfall of competitor MF Global Holdings Ltd (MFGLQ.PK), which filed for bankruptcy protection on Monday, could lead to stricter regulation of small Wall Street firms like Jefferies.

Holdings of sovereign debt from Belgium, Ireland, Italy, Portugal and Spain and a heavy reliance on overnight loans crippled MF Global's ability to fund itself and retain clients.

After MF Global sought bankruptcy protection, ratings agency Egan Jones downgraded Jefferies, saying the bank is also too highly leveraged with a heavy reliance on short-term debt.

Analysts and company executives have dismissed comparisons to MF Global, arguing that Jefferies does not take on the same kind of proprietary risks nor does it have as much leverage.

Oppenheimer analyst Chris Kotowski issued a report on Jefferies titled "Drawing Some Differences with MF Global." He noted that Jefferies' leverage ratio was 14 to 1 as of September 30, compared with 34 to 1 for MF Global.

Kotowski characterized Jefferies as "a very conservatively run firm" and said the recent sell-off is "overdone."

Yet the potential for a regulatory crackdown on Jefferies cannot be dismissed, analysts said.

"There may be a frenzy of new regulation aimed at unregulated financial companies," Rochdale Securities analyst Richard Bove said in a report on Tuesday. "Jefferies could be impacted by such a development."

KBW's Smith said Jefferies shares will trade in line with larger and more tightly regulated Wall Street rivals for the near term. Her new $17 price target for Jefferies represents 122 percent of tangible book value. Morgan Stanley trades at 54 percent of its September 30 tangible book value, while Goldman trades at 89 percent of tangible book value.

(Reporting by Lauren Tara LaCapra in New York; Editing by Matthew Lewis and Steve Orlofsky)

McGraw-Hill, CME Group to form index JV

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McGraw-Hill, owner of the S&P Indices, said it will hold a 73 percent stake in the venture and expects the agreement to immediately add "a couple of cents" to its annual earnings.

The deal is the latest step in McGraw-Hill's restructuring of its portfolio of businesses, which also include Standard & Poor's credit ratings, other financial and market information, and textbooks for children and college students. Dissident shareholders have been pushing the company to move faster with the overhaul, charging that the mini-conglomerate has fallen short of its potential.

In September McGraw-Hill outlined plans to split into two separate publicly traded companies, one for its education business and one for its financial and markets businesses.

At the heart of the CME deal is a change in the 30-year relationship between the two companies in which McGraw-Hill has licensed its indexes to the Chicago-based operator of markets in return for per-trade fees. In the joint-venture, McGraw-Hill will take a share of profits from all of CME's stock-related products instead of collecting licensing fees.

CME Group will control 24.4 percent of the joint-venture, while Dow Jones will hold the remaining 2.6 percent stake. CME owns 90 percent of a CME Group/Dow Jones joint venture and News Corp, (NWSA.O) owner of the Dow Jones name, holds the rest.

"It is a big announcement," said Douglas Arthur, an analyst at Evercore Partners. "The index business is very lucrative, big and growing. You are taking two big players and combining them to develop more products and secure long-term relationships."

The companies said the S&P 500 stock index and the Dow Jones industrial average will continue to be maintained separately.

S&P/Dow Jones Indices will have annual revenue of more than $400 million and begin operations in the first half of 2012, the companies said in a statement.

Operating profit margins will be more than 50 percent and annual revenue will rise to more than $435 million in the first year, Terry McGraw, chief executive of McGraw-Hill, said in a conference call with analysts.

McGraw-Hill will report results from the venture as part of its consolidated financials. CME will report its stake as an equity interest. CME said that the deal will not change its 2012 earnings because the revenue it gives up to McGraw-Hill will be offset by not having to pay licensing fees.

The joint-venture will be headed by Alexander Matturri, executive managing director of S&P Indices.

For McGraw-Hill, the new venture should bring more attention from investors to its index business, which is now overshadowed by S&P credit ratings, Arthur said.

Shares of McGraw-Hill and CME were down less than 1 percent in Friday morning trading after the announcement.

McGraw-Hill was advised by BofA Merrill Lynch, Goldman Sachs and Deutsche Bank. Barclays Capital acted as exclusive financial adviser to CME Group.

(Reporting by David Henry in New York and A. Ananthalakshmi in Bangalore; Editing by Joyjeet Das, Viraj Nair and Steve Orlofsky)

Buffett urged to "come to Europe" by Cheuvreux

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The bulk of his Berkshire Hathaway (BRKa.N) investments are tied up in U.S. firms, with just 4 percent allocated to Europe and 2 percent to Asia, but Cheuvreux said European companies such as ABB (ABBN.VX) and Unilever (ULVR.L) may be worth a look.

"European equities have recently bottomed out, reaching very attractive valuation levels. When we compare the European champions we have selected to deals made by Berkshire Hathaway in the U.S., we see that these European stocks offer higher growth potential and more attractive valuations," they said.

After a turbulent summer, with the FTSEurofirst 300 .FTEU3 falling 10 percent in August alone, the market has stabilized on hopes politicians were getting to grips with the euro zone debt crisis, but remains down 12 percent on the year.

In the United States, by contrast, the Dow Jones industrial average .DJI is up just over 3 percent in the same period.

Buffett's stated aim is to buy firms he can understand, with long-term prospects, operated by honest and competent people and at an attractive price, the broker said, which leaves lots to choose from on this side of the Atlantic.

His track record reveals a preference for insurance, clothes and consumer staples. Picking stocks in those sectors, the broker also suggests targets in the "particularly attractive" capital goods and autos sectors.

In insurance, Cheuvreux picked Zurich Financial (ZURN.VX) and AXA (AXAF.PA); in apparel retailing, H&M (HMb.ST); in household & personal care, Unilever (ULVR.L); in capital goods, ABB (ABBN.VX); and in automotive, Volkswagen (VOWG_p.DE) and Daimler (DAIGn.DE).

"The idea is to underline the value-investing opportunity in Europe," Luca Solca, Cheuvreux's new head of European research and lead author of the report, said. "Concern about euro zone debt has brought about unprecedented value in many areas."

Focusing on "sector champions" with good long-term investment opportunities, including sector-leading positions, Solca said Buffett was the logical reference as "he typically takes long-term positions and focuses on very high-quality names."

Among Buffett's current European investments are a 3 percent stake in Tesco (TSCO.L), a 2 percent stake in Sanofi-Aventis (SASY.PA), a 3.1 percent stake in Swiss Re (SRENH.VX) and a 10.5 percent stake in Munich Re (MUVGn.DE), the broker said.

Amag to slash workforce, shares rise

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The restructuring comes just two weeks after Amag's plan to buy Allos Therapeutics Inc (ALTH.O) fell apart, after its shareholders refused to approve the deal.

The company expects to record restructuring charges of about $3.2 million -- most of them in the fourth quarter -- but hopes to reduce 2012 operating expenses by $20-$25 million.

Amag itself had received a buyout offer from private equity firm MSMB Capital Management in August.

"I don't think we have ruled out anything at this point among the alternatives," Senior Vice President Chris White said on a conference call with analysts, hinting that the company may be open to selling itself.

The Lexington, Massachusetts-based company expects a low double-digit growth for its flagship product Feraheme -- an anemia drug -- next year.

Amag's Chief Executive Brian Pereira would leave, effective immediately, and Chief Financial Officer Frank Thomas would take over as the interim CEO, the company said.

For the quarter ended September 30, the company posted a net loss of $16.6 million, or 78 cents a share, compared with a loss of $17 million, or 81 cents a share, in the year-ago period. Revenue was up 10 percent at $17.6 million.

Analysts expected a loss of $1 a share on revenue of $16 million, according to Thomson Global Markets I/B/E/S.

Amag shares were up 14 percent at $15.71 on Friday morning on Nasdaq after earlier touching a high of $15.98 -- a level last seen in July.

(Reporting by Zeba Siddiqui in Bangalore; Editing by Joyjeet Das)

Hansen shares rise on Q3 sales beat

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Sales in October were about 31 percent higher than last year, the company said on a conference call with analysts.

Longbow Research analyst Alton Stump said October sales growth accelerated from reported third-quarter revenues, implying fourth-quarter revenues will beat estimates, driving up the stock today.

On Thursday, the company had reported a lower-than-expected quarterly profit sending shares down as much as 5 percent after the bell.

"While EPS came in a penny below the Street, the three focal points to the story -- sales growth, international expansion, gross margin -- didn't skip a beat," SunTrust Robinson Humphrey analyst William Chappell wrote in a note.

Hansen said it is continuing with its strategy to expand the Monster Energy brand into new international markets, with additional launches in South America, Central and Eastern Europe, and Asia planned for the near future.

Net sales for the third quarter rose 24.4 percent to $474.7 million, above analysts' estimates of $463.7 million.

Stifel Nicolaus analyst Mark Astrachan said demand for Monster Energy remains robust and it continues to anticipate sustained low double-digit sales growth for Hansen over the next 3-5 years.

Shares of the company, which competes with privately held Red Bull, were trading up at $95.50 on Nasdaq on Friday noon.

(Reporting by Chris Jonathan Peters in Bangalore;Editing by Supriya Kurane)

Commerzbank turns off money tap after Q3 Greece hit

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"We are not doing business which is not to the benefit of Germany or Poland," Chief Financial Officer Eric Strutz told analysts on a conference call discussing third-quarter earnings on Friday. "We have to focus on supporting the German economy as other banks pull out."

Commerzbank's retrenchment to its home turf shows that even Europe's largest economy, which has been relatively sheltered from the euro zone crisis, is feeling the heat. Survey data on Friday showed that private sector activity in the euro zone shrank at the fastest pace in 28 months.

Commerzbank, which is 25 percent owned by the State, is accelerating the pullback from euro zone nations and cutting risky assets to avoid another state bailout after a 798 million euros ($1.10 billion) impairment on Greek assets pushed it to a third-quarter operating loss.

Having cut exposure to indebted euro zone countries by more than 20 percent to 13 billion euros, including a 52 percent haircut on Greek debt, the Frankfurt-based lender said it would continue reducing its public sector debt in Portugal, Italy, Spain, Ireland and Greece, mirroring a similar move made by French rival BNP Paribas (BNPP.PA).

"When resources are tight you shrink back to your strongest footprint. Other banks face similar choices," said Keefe Bruyette & Woods analyst Matthew Clark.

On Friday it emerged that Royal Bank of Scotland (RBS.L) reduced the number of non-core real estate loans by 2.3 billion pounds ($3.7 billion) during the third quarter.

Euro zone banks have shed risky assets to avoid underpinning their loan books with more capital as demanded by the European Banking Authority.

European banks must raise 243 billion euros to achieve a core tier one capital ratio of 9 percent using a more stringent definition of capital, J.P. Morgan analysts said in an October 19 note.

Commerzbank said it had a core tier one ratio of 9.4 percent at the end of September and needs to raise 2.9 billion euros to meet tougher capital requirements set out by the European bank regulators.

"We can meet the required capital ratio by, for example, reducing risk assets in non-core areas, selling non-strategic assets or by means of retained earnings and we do not intend to tap new state funds," Commerzbank said.

Commerzbank will keep its Eastern European BRE Bank unit and its online arm comdirect but may sell other units as it seeks to cut risky assets by a further 30 billion euros. Its property financing unit Eurohypo will also stop taking new business, the bank said.

EURO ZONE STILL A WORRY

"The outlook for the current year and 2012 is subdued," the company said in its report, citing the risk of escalation of the European sovereign debt crisis and stricter capital requirement for the industry.

In a conference call with analysts, finance chief Strutz was more forthright, saying efforts to resolve the euro zone crisis need to be intensified, "We have now had 18 summits. The last ones were more encouraging that the first 15. But I feel we will have more summits."

The whole stability of Europe depends on "whether Italy gets its act together," he said, citing a key economy seen vulnerable to contagion.

The lender's exposure to the country was 14.3 billion euros at the end of September, 7.9 billion of which in sovereign debt.

The lender was also forced to drop its 2012 profit target.

"We continue to be committed to our original operating profit target of 4 billion euros for the group but, on account of the market environment, we will be unable to reach this target next year," Chief Executive Martin Blessing said.

Its shares fell 6.05 percent to 1.64 euros at 1353 GMT, as the STOXX Europe 600 Bank index .SX7P fell 1.9 percent.

The third-quarter operating loss of 855 million euros compared with a year-earlier profit of 116 million was worse than the 683 million euros loss estimated in a Global Markets poll as investment banking income wilted.

Even the lender's core business of lending to German mid-sized companies failed to impress. "Q3 results were weaker than expected, particularly performance in the core bank was disappointing," Equinet analyst Philipp Haessler said.

($1=0.728 Euros)

(Additional reporting by Christoph Steitz and Sarah Marsh; Editing by Hans-Juergen Peters and Helen Massy-Beresford)

Santader files lower-than-expected bid for Kredyt Bank: report

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The newspaper also said the deal could hence not go ahead and quoted a source close to negotiations as saying Santander would also want to share with KBC the burden of funding foreign currency loans.

Kredyt Bank has mortgages denominated in euros and Swiss francs in its portfolio, but must turn to its Belgian mother-bank to obtain the currencies.

In October, sources told Global Markets Santader could team up with private equity firm Apax to buy Kredyt Bank.

(Reporting by Gabriela Baczynska; Editing by Ed Lane)

Bank of America shares fall after stock swap plan

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The decline in the bank's stock on Friday was deeper than the broader market and the 1.5 percent decline in the KBW Bank Index .BKX. The shares closed at $6.49, down 51 percent for the year.

Bank of America said in a filing Thursday that the stock swap it was exploring was "economically advantageous" because of the lowered market value of the bank's preferred shares. But issuing up to 400 million common shares would dilute the holdings of other shareholders.

"We believe this is purely a financial engineering tactic to enrich BAC's capital base in an earnings per share neutral transaction," Guggenheim Partners analyst Marty Mosby said in a research report Friday. "However, we also believe investors are in no mood to give any bank management team the benefit of the doubt and will likely sell shares on this news."

Bank of America CEO Brian Moynihan has repeatedly said the bank does not need to issue common stock to cover mortgage losses or meet new international standards. A bank spokesman said the move should be viewed as a swap that leaves the company with more common stock, which is viewed more favorably by regulators.

The exchange would reduce Bank of America's book value by 2 to 3 percent and increase its Tier 1 common capital ratio by about 20 basis points to about 8.8 percent, CLSA analyst Mike Mayo wrote in a note to clients.

"An increase in common equity is probably a necessary step given unresolved mortgage-related issues, the Fed's unwillingness to grant a dividend increase in (the second half of 2011), and a Tier 1 common ratio that is lower than peer," Mayo wrote. "However, this also reflects poorly on management who were previously adamant that BAC did not need to raise any additional common capital."

(Reporting by Rick Rothacker in Charlotte, North Carolina; Editing by Richard Chang)

Sprint says may use debt to fund Clearwire

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But one research firm warned that hopes for Sprint's participation in a long-awaited financing deal for Clearwire may have been too high.

Sprint sold $4 billion in bonds on Friday, according to underwriters. The company had included Clearwire funding among possible uses for the debt proceeds when it announced the offering on Friday morning.

But Sprint executives later told debt investors that Clearwire's inclusion on that list did not indicate any increased willingness to fund the debt-strapped wireless network operator, according to one investor.

"Specifically, they said they were not going to invest any more that would put them above a 50 percent voting share in Clearwire," said Scott Dinsdale, a vice president for KDP Investment Advisors, a research and asset management firm.

Dinsdale said he participated in an investor call held by lead manager JPMorgan to discuss the debt offering.

Sprint has a majority stake in Clearwire but holds less than 50 percent of voting rights in the company, as a way to insulate itself in the case of a Clearwire default.

Sprint, whose credit rating was downgraded on Friday, declined to comment beyond a brief statement in which it said other potential uses for the proceeds could be repaying existing debt and upgrading its network.

SPRINT RAISES $4 BLN

Shares in Clearwire closed up 8 percent on Friday, after rising as high as 28 percent. Sprint had previously refused to say if it would help Clearwire's current efforts to raise almost $1 billion in financing.

But KDP's Dinsdale said Sprint told the conference call it only included Clearwire on the list for legal reasons.

Mizuho analyst Michael Nelson said it would have been striking if Sprint had not included Clearwire.

"It provides a glimmer of hope," said Nelson.

Investor nerves have frayed after Sprint executives triggered a 32 percent drop in Clearwire's shares on October 7, when they suggested at an investor conference that a Clearwire bankruptcy could be "constructive."

Sprint, Clearwire's biggest customer, also said at the event that it would only sell phones for Clearwire's current service through the end of 2012.

Sprint has since softened its tone. It said on October 26 that it was negotiating an expansion of its network deal with Clearwire, but refused then to discuss funding prospects.

Clearwire is seeking up to $300 million to fund operations and about $600 million for a network upgrade that it urgently needs to help it compete with rivals and win wholesale customers other than Sprint.

It said earlier this week that the companies were in talks but that they had "gaps" due to differing strategic goals.

Even after Friday's move, Clearwire's low share price indicated investor concern that it could still end up filing for bankruptcy, Mizuho's Nelson said. Standard & Poor's CCC+ rating of Clearwire also indicates a bankruptcy risk.

SPRINT DOWNGRADE

A Clearwire spokesman declined to comment. Clearwire said earlier this week that it has enough money to fund its operations for the next 12 months.

Sprint itself needs to raise financing to upgrade its network and pay for the high cost of its agreement with Apple Inc to sell iPhone.

S&P downgraded Sprint's corporate credit rating one notch to B+ from BB- on Friday but said it is no longer under review for another downgrade. Ratings downgrades tend to increase the cost of raising capital.

Sprint said on October 26 that it could need up to $7 billion in new financing.

On Friday it priced $4 billion in two tranches, including $3 billion in junior guaranteed notes due in 2018 with a 9 percent yield. The second tranche was $1 billion of non-guaranteed notes due in 2021 with an 11.5 percent yield, according to underwriters of the debt.

One source familiar with the matter had said earlier in the day that Sprint was looking to issue $2 billion to $2.5 billion in junior guaranteed 2018 notes at a yield of 9 percent and $500 million of 2021 unguaranteed debt for about 11.5 percent.

Clearwire closed up 14 cents, or 8 percent, at $1.89 after touching $2.25 earlier in the session on Nasdaq. Sprint closed up 6 cents or 2 percent at $2.87 on New York Stock Exchange.

(Additional reporting by Stephen Carter in New York; editing by Gerald E. McCormick, Derek Caney, Bernard Orr and Richard Chang)

Groupon shares surge but concerns linger

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Groupon's stock closed up 31 percent but the first day pop paled in comparison to LinkedIn, the professional social network that went public in May, whose shares doubled in their debut. Real estate website Zillow also nearly doubled in its debut in July.

Groupon sells Internet coupons for everything from spa treatments to nose jobs and is one of this year's most closely watched IPOs. It has won plaudits for its phenomenal growth, but its ability to sustain that expansion in the face of intense competition from the likes of Google Inc has been questioned.

Still, a strong first few trading days could help other private Web companies -- such as Angie's List, social gaming firm Zynga and even Facebook -- pursue their own IPOs.

Groupon's offering, the largest by a U.S. Internet company since Google's in 2004, is the first major IPO since the market descended into a slump in August. There remains a huge backlog of companies that filed to go public earlier this year, then put their plans on hold.

"They wanted to have a decent pop on the stock so they didn't take that much public," said David Berman, a consumer technology and retail specialist at hedge fund firm Durban Capital. "They created demand by limiting supply, and they got the pop."

After a grueling year of preparing for the IPO, Chief Executive Andrew Mason -- now worth $1.2 billion with ownership of over 46 million shares -- and Chairman Eric Lefkofsky rang the opening bell on the Nasdaq, then hugged in Times Square.

Dozens of people involved in the IPO -- including bankers, investors, current and former employees -- painted a picture of the excruciating path the three-year-old Web phenom took to become the first daily deals site to go public in the United States.

"We continue to be concerned about Groupon's model, especially given the low barrier for entry into this space," said Michael Yoshikami, head of money-management firm YCMNET Investment Committee. "But it's a familiar name and investors tend to gravitate to familiar names at first."

The shares rose as high as $31.14, or 56 percent above the IPO price, at one point pushing the market value of the company to $19.9 billion. They closed at $26.11, 31 percent above their $20 IPO price and granting Groupon a value of $16.7 billion.

CRACKLE AND POP

Groupon put up the third-highest trading volume on the Nasdaq Friday, with nearly 50 million shares changing hands.

A spokeswoman for Deutsche Boerse AG's International Securities Exchange said it expects to list options on Groupon on November 14, with other major exchanges expected to follow suit. Options can be used to bet on the direction of stocks, or to hedge stock positions.

Groupon was founded in October 2008 and has never been profitable. In the nine months ended September 30, it posted a net loss attributable to common stockholders of $308.1 million on revenue of $1.1 billion.

Employees at company headquarters in Chicago donned lime green T-shirts emblazoned with the company's ticker symbol "GRPN" printed in old, ticker-tape-style lettering.

Some analysts and investors warn that Groupon's early surge could be a short-term phenomenon and its shares could reverse course and trade down like those of Internet radio station Pandora Media Inc.

There are still lingering questions about Groupon's business model and about competition from better-funded rivals such as Amazon.com Inc and Google.

Groupon has lost two chief operating officers in the past year and had to adjust its accounting twice under regulatory pressure.

Still, a small float helped drum up demand.

On Thursday, Groupon upsized its IPO and sold 35 million shares for $20 each. But that stake amounts to only about 5 percent of the company. Underwriters on the IPO were led by Morgan Stanley, Goldman Sachs and Credit Suisse.

The $700 million raised was on the larger side for a U.S. IPO, but the 5.5 percent represented the second-smallest share float in the United States in the past decade, according to capital markets data provider Ipreo.

"There's a lot of excitement around the shares. But we should put this in context. The company sold 35 million shares and almost 29 million traded in less than an hour," Morningstar analyst Rick Summer said. That suggested heavy "flipping", or investors selling stock they got in the IPO.

"We don't think they can have 50 percent growth and make money at the same time," Summer said. "They have to pay to launch new categories, get new merchants and new customers. They have to spend to grow."

(Reporting by Clare Baldwin, Brendan McDermid, Rodrigo Campos, Edward Krudy and Phil Wahba in New York, Alistair Barr in San Francisco and James Kelleher and Doris Frankel in Chicago; editing by Derek Caney, Gerald E. McCormick, Steve Orlofsky, Andre Grenon and Bernard Orr)