Stock Market Predictions

AIG strikes upbeat tone as shares rise sharply

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While the outsized fourth-quarter profit was a one-time event linked to a tax accounting change, underlying it was a long-term assumption that the company has stopped its multibillion dollar crisis-era losses.

"It signifies our view that we have returned to sustainable profitability," Chief Financial Officer David Herzog said on a conference call with analysts.

From the first quarter of 2008 through the third quarter of 2011, AIG lost a total of just over $106 billion. Over that 15-quarter stretch it lost more than $1 billion in 10 different periods. But management said it no longer expects such losses to be routine.

"The important thing to take into account here is, the reason they were able to take the deferred tax asset into the numbers is they believe and have confidence they can actually utilize those tax assets," said Gloria Vogel, senior insurance analyst at Drexel Hamilton.

"It's not the number ... it's just the thought that they can actually demonstrate profits," said Vogel, who started coverage on AIG last week with a "buy" rating.

AIG shares rose 4.8 percent to $29.32 in morning trade, their highest level since late July of last year. Over the last three months, the stock has gained more than 46 percent, nearly triple the gains for the broader insurance index.

At Friday's levels, AIG is also back above the U.S. Treasury's $28.73 breakeven point on its 77 percent stake in the company for the first time in months.

The company would not give any sort of forecast Friday on when Treasury might sell shares again, though it has said previously the government was waiting for a window where they could be sold profitably.

AIG also admitted for the first time on Friday that it has been buying mortgage-backed securities from the auctions the Federal Reserve has held of its Maiden Lane II portfolio.

That portfolio, comprised of bonds the government took off AIG's hands during the financial crisis, has been sold piecemeal since the Fed rejected an offer for the whole thing from AIG last March.

Since the Fed rejected that offer, AIG had steadfastly refused to say whether it was buying any of the bonds, either at the auctions or on the secondary market.

The Fed is expected to sell the last of the bonds soon, and AIG said Friday the proceeds from the sales are likely to exceed what the Fed is owed. As a result, AIG will get one-sixth of the excess funds, part of the original deal during the bailout.

Those funds will go toward paying down the Treasury's preferred interest in the entity that controls AIG's one-third stake in Asian insurer AIA Group.

(Reporting By Ben Berkowitz; Editing by Derek Caney, Dave Zimmerman)

WellCare says whistleblower withdraws objection to settlement

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In 2010, WellCare agreed to pay $137.5 million to the U.S. Department of Justice and other federal agencies to settle lawsuits accusing the health insurer of overcharging for its Medicaid and Medicare programs.

However, the settlement could not be executed as it was opposed by the whistleblower, which led to a hearing by a U.S. federal court to determine the fairness of the settlement.

In a regulatory filing, WellCare said the whistleblower expects to sign the settlement agreement in a move to dismiss his claims against the company after the Civil Division has given final approval to a pending share award agreement.

Shares of the company were up 4 percent at $69.90 on Friday on the New York Stock Exchange.

(Reporting by Anand Basu in Bangalore; Editing by Gopakumar Warrier)

Merit Medical shares fall on fourth-quarter profit miss

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On Thursday, the company reported a fourth-quarter adjusted profit of 18 cents a share, a cent below consensus estimates of 19 cents a share, according to Thomson Global Markets I/B/E/S.

The company also forecast 2012 revenue between $392 million and $402 million.

Shares of the South Jordan, Utah-based company were trading down 8 percent at $12.25. They had touched a low of $11.51 earlier in the session. (Reporting by Vidya P L Nathan in Bangalore; Editing by Sriraj Kalluvila)

Clearwire shares fall on Google stake sale

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An analyst said that Google's sale of the shares at a discount could be followed by other investors ditching their shares in the wireless service provider.

Google would reap just over $47 million from the sale of the shares, implying a massive loss of $453 million for Google, which invested $500 million in Clearwire in 2008. Google has already taken impairment charges of $443 million in recent years related to the investment.

Cable operators, including Comcast Corp (CMCSA.O) and Time Warner Cable (TWC.N), also have invested in Clearwire, which is majority owned by Sprint Nextel (S.N).

Since the cable operators have recently entered an agreement to resell mobile services from Verizon Wireless, the biggest U.S. mobile service, the concern is that they will also sell their stakes in Clearwire. Before the Verizon deal the cable operators depended on Clearwire as their wholesale provider.

"With no strategic reason to hold Clearwire shares, these ownership stakes could also make their way into the market," said Evercore analyst Jonathan Schildkraut.

Time Warner Cable said it does not have any immediate plans to sell its stake in Clearwire. Comcast did not respond to requests for comment.

According to a document filed with regulators on Friday, Google said it would sell the 29.4 million shares it holds in Clearwire for $1.60 per share to Clearwire's other strategic investors, which include Intel Corp (INTC.O), or on Nasdaq.

Clearwire shares closed down 15 cents, or 6.84 percent, at $2.11 on Nasdaq after the news. If the Google sale is conducted on Nasdaq, it will start on or about February 27.

Google invested in Clearwire in November 2008 along with Intel, Comcast and others as the search giant wanted to help kick off the company's plan to build a high-speed network.

Shares in Google closed up $3.79 at $609.90 on Nasdaq.

(Reporting by Sinead Carew in New York, Alexei Oreskovic in San Francisco and Yinka Adegoke in New York; editing by Mark Porter, Phil Berlowitz)

Deckers, Crocs slide on weak first-quarter profit outlooks

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Deckers shares slipped more than 12 percent on Friday, while those of Crocs fell 8 percent.

Deckers stock has lost almost a third of its value since October 2011, when it raised it full-year revenue outlook due to increased demand of its sheepskin boots.

The world's biggest athletic shoe maker Nike (NKE.N) has also faced higher costs of raw materials and labor, but has managed to pass these on to its customers by hiking prices.

Goleta, California-based Deckers expects first-quarter earnings per share to halve from last year due to rising sheepskin prices.

"With guidance clearly disappointing, we acknowledge shares could be in the penalty box near term," Susquehanna Financial analyst' Christopher Svezia wrote in a client note.

However, Svezia said he believes in Deckers' main UGG Brand and expects the forecast to prove conservative.

(Reporting by Chris Jonathan Peters & Meenakshi Iyer in Bangalore; Editing by Viraj Nair)

Sears quells liquidity, not retail, fears

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The news boosted shares of the operator of Sears department stores and the Kmart discount chain by nearly 19 percent, the biggest jump in more than three years, and quelled some concerns about the financial health of the retailer which on Thursday also posted a $2.4 billion quarterly net loss and a 19th straight quarter of declining sales.

The moves were seen by the market as boosting Sears' liquidity profile, but did not erase the other problems plaguing the retailer, which had $747 million in cash at the end of the fiscal year, down from $1.36 billion a year earlier.

"The actions announced today buy time, they do not buy success," Credit Suisse analyst Gary Balter said. "They are steps in the right direction, but we believe that the hole that has been created will not be as easy to climb out of as investors believe."

Balter said it would be tougher for Sears to reach previous levels of profitability as it spins off some of its best-returning assets. He has an "underperform" rating on the stock.

Ratings agency Moody's said its "negative" outlook on the retailer's credit rating remained unchanged.

"They can close stores, reduce inventory, terminate employees and raise capital, but nothing is being done to improve their image or products in the stores," said Ron Friedman, a partner with accounting firm Marcum LLP.

Chairman and top shareholder Edward Lampert rejected criticism that his perceived underinvestment in Sears' retail operations was one of the major causes of dwindling sales.

"Despite what some believed, increased marketing spend and increased inventory dollars do not automatically generate higher sales or higher profit," Lampert said in letter to shareholders. "More marketing and inventory dollars are not required to generate higher sales or profits, especially in a company that already spends over $1.5 billion in marketing and has over $8 billion invested in inventory."

Sears Holdings' struggles are well-documented. The company's sales have fallen every year since hedge fund manager Lampert merged two of America's iconic retail chains - Kmart and Sears Roebuck and Co - in 2005 in an $11 billion deal.

The chain, home to iconic brands such as Craftsman tools and Kenmore appliances, is a victim of the weak economy, stiff competition and its own missteps. In addition to problems such as run-down stores and dowdy merchandise, Sears also faces cut-throat competition from the likes of Home Depot (HD.N), Lowe's (LOW.N), Wal-Mart (WMT.N), Target (TGT.N), Best Buy (BBY.N),JC Penney (JCP.N), Macy's (M.N) and Kohl's (KSS.N).

In late December, the company said it will close as many as 120 of its Kmart and Sears discount and department stores.

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Graphic-Sears vs other department stores: link.reuters.com/dam76s

Graphic-Valuation of top U.S. retailers: r.reuters.com/gam76s

Lampert's letter: link.reuters.com/ten76s

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The company has also been kept on a tight leash by CIT Group (CIT.N), one of the lenders that provides short-term loans to Sears suppliers while they are waiting to be paid by the retailer.

"I hope this ... will finally quiet the skeptics who recently predicted their short-term demise," said Bobby Cohen, chief executive of Lochem Capital. His firm serves as an intermediary between buyers and suppliers.

Analysts have long looked for Lampert to consider selling some of Sears' real estate or otherwise try to tap the value of the company's assets beyond the retail operations.

"The actions of the asset sales and business separations of the outlets and hometown stores is management showing the Street that it can pull liquidity levers if it so chooses," Morningstar analyst Paul Swinand said.

Sears stressed that it had substantial liquidity and strong assets even as it needs to improve operating performance.

"Sears Holdings has a profit problem, not a liquidity nor an asset problem," Lampert said. He is Sears' largest shareholder and owns directly and through related entities about 59 percent of the retailer.

Sears also said it planned to reduce its borrowing needs by managing inventory better. For instance, Sears is planning to cut inventory during the October-to-November peak period.

Sears' shares, which lost more than half their value in 2011, had risen almost 64 percent this year before Thursday's gains. Analysts tie the 2012 share surge to short sellers trying to cover their positions rather than an improvement in Sears' fundamentals.

According to Data Explorers, about 12 percent of Sears shares were being shorted as of Wednesday, as investors bet the stock price would fall. That represented about 93 percent of what was available to short.

PRIME REAL ESTATE

Sears said it would spin off its Sears Hometown and Outlet businesses and certain hardware stores through a rights offering that expects to raise $400 million to $500 million. Designed for small to mid-size markets, the Sears Hometown Stores consist of hundreds of independently owned and operated U.S. stores.

Lampert has called the Hometown and outlet stores avenues of growth in the past.

Sears also said it had reached a deal to sell 11 stores to No. 2 U.S. mall owner General Growth Properties (GGP.N) to generate $270 million in cash proceeds in the next 60 days. The stores General Growth is buying from Sears are in its own malls.

One of those stores is in Ala Moana in Honolulu, arguably the highest revenue-generating mall in the United States, with sales per square foot of over $1,200. The Ala Moana store accounted for between $200 million and $250 million of the $270 million, a source familiar with the deal said.

The Honolulu mall is heads above the average high-quality malls, also called "class A" which typically generate over $400 a square foot. Two others in the group of 11 are class A, Fashion Place, in Murray Utah, and The Woodlands Mall, in Woodlands, Texas. Three others are above average, generating sales of $300 per square foot to $450 per square foot. The other three are below that, said Benjamin Yang, analyst at Keefe, Bruyette & Woods.

General Growth COO Shobi Khan said in a statement that the deal boosted the mall owner's opportunities to add selling space as well as attract a new tenant to the anchor space.

Sears reported a huge fourth-quarter net loss after a poor showing during the holiday season. The net loss was $2.4 billion, or $22.47 a share, after a number of charges, compared with a profit of $374 million, or $3.43 a share, a year earlier.

Excluding one-time items, Sears earned 54 cents a share.

Sales fell $518 million to $12.5 billion for the quarter that ended January 28. Sales at its U.S. stores open at least a year fell 3.4 percent, including a 4.1 percent decline at its namesake department stores and a 2.7 percent fall at Kmart.

On Wednesday, the company's Canadian unit, Sears Canada Inc (SCC.TO), posted a more than 50 percent drop in quarterly earnings.

Sears Holdings shares closed 18.7 percent higher at $61.80 on Thursday on the Nasdaq. General Growth shares closed up 2.8 percent at $16.64 on the New York Stock Exchange.

(Reporting By Dhanya Skariachan; Additional reporting by Ilaina Jonas, Phil Wahba and Brad Dorfman; Editing by John Wallace, Maureen Bavdek and Matthew Lewis)

Kaydon to pay special dividend; shares jump

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The company -- which has returned $105 million to shareholders through regular cash dividends in the last five years -- will pay a special dividend of $10.50 a share.

"People are likely looking through the near-term operating performance and at the special dividend, and trading the stock up on that," William Blair & Co analyst Samuel Eisner said.

Kaydon will fund the $337 million special dividend through available cash and existing credit.

The company, which makes specialty ball bearings for wind turbines, also forecast 30 percent growth in wind energy revenue for the year, helped by a pick up in turbine installations before a production tax credit expires in 2012.

The production tax credit (PTC) gives a credit of 2.1 cents per kilowatt-hour to an owner of a wind-energy project once a wind turbine begins to produce electricity, and has been a major driver of growth of wind energy in the United States.

"There's normally a rush to get wind energy installations in before the expiration of the tax credit," Eisner said.

He added that the benefit the company was seeing in 2012 was from the industry stocking up before the credit runs out.

For 2012, Kaydon, which also caters to the industrial, aerospace, medical and electronic equipment industries, expects wind energy sales to grow at least 30 percent to $70 million, versus a 44 percent drop in 2011.

Net sales for the fourth quarter rose 3 percent to $108.1 million, but missed analysts' estimates of $122.1 million, as wind energy sales fell more than a fifth and some shipments were deferred.

The deferred wind energy shipments are expected to be released in the first half of 2012, Kaydon said.

Net profit fell by a fourth to $8.7 million, or 27 cents a share.

The Ann Arbor, Michigan-based company's shares jumped to $38.62 on the New York Stock Exchange, their highest since July last year. The stock has gained a third of its value since its year-low last October, excluding Friday's gains.

(Additional reporting by Sayantani Ghosh in Bangalore; Editing by Viraj Nair, Maju Samuel)

Chelsea Therapeutics soars as FDA panel backs key drug

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The FDA panel voted 7 to 4 in favor of the drug's approval on Thursday. Its recommendation will now be taken into consideration by the FDA, which is expected to make a decision on the drug by March 28.

Wedbush Securities analyst Liana Moussatos said she sees more than an even chance of the drug being approved by the action date, and the company's stock price at least doubling if the approval comes through.

Last week, the company received briefing documents from the U.S. Food and Drug Administration raising questions related to the short duration of clinical studies and the limited size of the study population given the orphan status that the drug, Northera, has.

Orphan status is granted by the U.S. health regulator to drugs that treat a rare condition affecting less than 200,000 Americans and guarantees a marketing exclusivity of seven years.

But analyst Moussatos cautioned that there was still a risk that the FDA may seek additional trials on the drug.

Northera, which has been in use in Japan since 1989, has shown some post-marketing safety issues, and is being tested in an ongoing trial -- Study 306b. Results from the study are expected in the third quarter of 2012.

Leerink Swann analysts said despite the potential utility of the 306b study, additional trials would be required.

"Nearly all panelists noted the desire for additional clinical trials, preferably in longer durations, to be required in the post-marketing setting," they said.

Northera is being studied to treat neurogenic orthostatic hypotension -- a disorder resulting from the deficient release of a neurotransmitter used by autonomic nerves to send signals to regulate blood pressure.

Needham analyst Alan Carr said approval by the FDA action date would prove a challenge.

"The agency may discount the (advisory panel) advice and insist on additional pre-approval trials anyway."

Even if the FDA follows the panel's recommendation, there is little time to agree on label and post-approval trial requirements ahead of the action date, Carr said.

Shares of Charlotte, North Carolina-based Chelsea, which have fallen 52 percent since the company received the briefing documents last week, were trading up 52 percent at $3.67 on Friday on the Nasdaq.

(Reporting by Kavyanjali Kaushik in Bangalore; Editing by Roshni Menon)

OmniVision set to regain smartphone market share, shares jump

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OmniVision, whose products are used in HTC Corp's (2498.TW) EVO and Motorola Mobility Holdings Inc's (MMI.N) Droid X, also reported strong third-quarter sales.

At least two brokerages raised their price targets on OmniVision's stock, saying the company was on track to recapture lost market share in the smartphone segment.

Robert W. Baird & Co, which has a "neutral" rating on the stock, said Apple's iPad could boost OmniVision revenue by 30 percent over the sensor maker's revenue from iPhone last year.

Strong demand for tablets during the holiday season drove shipment volumes during the third quarter, the company said on a post-earnings conference call with analysts on Thursday.

The company's 8-mega pixel camera sensors should be a major revenue and earnings drivers, said Canaccord Genuity, which rates the stock "buy."

Shares of Omnivision, which pioneered imaging sensors that use both sides of the chip to deliver better quality in a smaller-sized camera, rose to a four-month high of $18.60 on the Nasdaq.

(Reporting by Monika Shinghal in Bangalore; Editing by Don Sebastian)

Microsoft rally brings likely hedges against sharp reversal

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Microsoft Corp (MSFT.O) hit levels not seen since April 2008 earlier this week, and the stock is up 21 percent since the beginning of the year, bringing out unusually high interest in the options market from investors.

The option activity popped up early on Friday and in the put

contracts with a strike price far below the value of the stock, which ended 0.35 percent higher at $31.48.

The U.S. equity market has performed well all year, with the S&P 500 index rising 8 percent in 2012. Technology shares have led the way, particularly big-cap names, as the Nasdaq 100 .NDX is up 14 percent so far this year.

The transactions involved the puts, giving the right to sell the stock at $27 each by March 16 expiration, a 14 percent decline for the shares in the next three weeks. But these out-of-the-money puts have such a low probability of being profitable they could be seen as no better than a lottery ticket.

"We are seeing heavy volume from the buy side on Microsoft's far out-of-the-money puts, particularly the March $27 strike," said TD Ameritrade chief derivatives strategist J.J. Kinahan.

The $27 strike carried total volume of more than 44,700 contracts traded on Friday, nearly six times their open interest, according to options analytics firm Trade Alert.

It does look like the March $27 puts were bought at an average premium of four cents per contract, said Interactive Brokers Group option analyst Caitlin Duffy.

"There does not appear to be any obvious catalyst for this put buying so it could be a big holder of long stock hedging his position and unwilling to incur a big cost to do so," Kinahan said.

The March $27 puts have low odds that Microsoft would be under that strike price by March expiration. These puts appear to be equivalent to catastrophic insurance and "as such, there is a low probability of this happening," Kinahan said.

Option traders often look at the delta of the option, which measures the change in the option price relative to the move in the underlying stock price.

"The delta of the March $27 put is minus 0.03, which tells us that the options market is pricing in a 3 percent chance that the option will be in-the-money by expiration," said Steve Place, a founder of options analytics firm investingwithoptions.com.

"The trade may be a hedge initiated by an investor long the stock or a low-cost, low probability bearish bet on a pullback in the shares by March expiration," Interactive's Duffy said.

In all, about 99,000 puts and 73,000 calls traded on Friday in Microsoft, data from Trade Alert showed.

(Reporting By Doris Frankel; Editing by Chizu Nomiyama)