MARKET TALK: Qwest's Debt Downgrade Spurs Telecom Options
15 Feb 11:03
Edited by George Stahl
Of DOW JONES NEWSWIRES
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11:03 (Dow Jones) Options of telecommmunication stocks see spiritied trading
Friday as these stocks slide and volatility rise after Standard & Poor's
lowered Qwest Communications' (Q) credit rating. Sprint Corp. (FON), for
instance, is off 36% so far this year and on Friday slipped $1.10, or 8%, to
$12.70, reaching a 52-week low in the process. At least one institutional
investor bought thousands of May 12.50 puts, which locks in until mid-May the
right to sell stock for $12.50 a share. These puts rose 55 cents to $1.30 with
2,000 contracts traded at the CBOE, while 3,153 contracts traded elsewhere,
compared with existing positions of 216 contracts. (KT)
10:54 (Dow Jones) Stocks are bouncing off their lows set following the
worse-than-expected University of Michigan sentiment numbers, but it's hard to
see the market rebounding too far into positive territory, if at all. Lingering
accounging concerns, the cooling confidence figures and an unwillingness to go
long ahead of three-day weekend will likely keep the bulls at bay. DJIA down 3
to 9999, Nasdaq off 19 at 1824 and S&P 500 losing 3 at 1114. (GS)
10:42 (Dow Jones) Steps by the FASB to tighten loopholes that allow companies
to keep billions of dollars in debt off their books won't help curb Enron-like
abuses, nor will it help make such transactions more transparent, some
observers say. The FASB agreed to draft a proposal that companies should report
"special-purpose entities" on their balance sheets if those SPEs have less than
10% in outside equity investment, up from 3% currently. Allen Tucci, a partner
at Tucci & Tannenbaum, a Philadelphia law firm that helps set up SPEs, says the
reason for his pessimism "goes back to the artificial nature of these things.
What companiesare really doing is contriving a method to move things off their
balance sheets that meets the technical requirements of the FASB. If those
targets change, the product will just change." (jaw)
10:35 (Dow Jones) High-grade corporates have opened unchanged to slightly
better, says Gary Brown, managing director and head of corporate trading,
Wachovia Securities, Charlotte. Qwest is trading at about 40 to 50 basis points
tighter, following its Thursday drawdown on it credit facilities. The market is
surprisingly active, with sizable pieces trading in all sectors. Everybody is
trying to get done by noon, so that they can go home for the long weekend.
(MCG)
10:30 (Dow Jones) The Economic Cycle Research Institute's weekly leading
index was up 1.4% from its 52-week moving average in the week ended Feb. 8.
Although less than the increases in the prior two weeks, the leading index has
been above its 52-week average in every one of the six weeks of 2002. From
September 2000 through December 2001, the index trailed its moving average.
(JM)
10:25 (Dow Jones) Investors may be selling off shares of IBM (IBM) on a New
York Times report that it didn't disclose that a $300M sale of its optical
transceiver unit to JDS Uniphase (JDSU) was used to lower its operating costs,
but Merrill Lynch analyst Steven Milunovich defended the company's accounting
practices. "We believe that the accounting seems proper, and the company
reports that it has been reviewed and approved by its auditors." In its
earnings call, IBM did say that the sale was included with intellectual
property income and licensing royalties. "Our only concern would be that the
company could have done more to call out the magnitude of the transaction."
Assuming the gain was $200M pretax, the transaction contributed roughly 8 cents
to EPS for the quarter, he said in a research report. (DLF)
10:22 (Dow Jones) If anything helps PayPal (PYPL) in trading today, it could
be the structure of the deal itself. The company has a very limited supply of
shares available. It sold 5.4M shares out of the 59.8M shares outstanding. That
means it is floating just 9% of its shares, a low percentage for the IPO
market. By contrast, the first technology IPO of this year, the $55M offering
for Synaptics (SYNA), which makers user interface products for notebook
computers, floated 22% of its outstanding stock. It finished its first day of
trading on Jan. 29 up 19.2%. (RJH)
10:10 (Dow Jones) Gap (GPS) won't reveal details on a new deal for a $1.3B
secured credit line that's slated to close in early March, and that suggests
that terms of the deal are far from finalized, says Emme Kozloff, an analyst at
Sanford C. Bernstein. The credit line will be secured with Gap assets, which
suggests that downgrades of its debt to junk status didn't surprise the
dealmakers. But it's not clear where the securable assets are, Kozloff says.
"Assuming an average $1B in new inventory in 2002 and a 50% liquidation ratio,
we can only account for $500M of available collateral," Kozloff says. Gap
leases virtually all of its stores, and "the only real estate Gap owns includes
a few office buildings and several distribution facilities." A sale-leaseback
option on those properties is a possibility, Kozloff says. (JMC)
9:59 (Dow Jones) The 4Q of 2001 was the worst in the tech sector since
Morgan Stanley began tracking it closely in 1995, the firm says. Some 77% of
the 456 tech firms in Morgan Stanley's coverage area have reported 4Q results.
The combined revenue of these companies fell 21% from a year earlier, Morgan
Stanely says. In contrast, the average tech revenue change for the last 26
quarters has been 13% GROWTH. Semiconductor firms posted the steepest decline
in 4Q, down 40% from 2000, followed by telecom equipment and data networking.
The strongest sectors were computer services, up 5%, and the category
"Internet: Portals/Commerce & PC Software," up 4%. (PDL)
9:53 (Dow Jones) University of Michigan consumer sentiment slipped to 90.9 on
a preliminary basis in February from 93.0 at the end of January. The index of
current conditions rose to 97.2 from 95.7, but the index of expectations
slipped to 86.8 from 91.3. (JM)
9:51 (Dow Jones) Industrial production declined by 0.1% in January, marking
the 15th decrease in 16 months. One encouraging sign: manufacturing production
was unchanged last month. These numbers suggest a bottom is being formed and
that a production recovery is imminent. Capacity utilization fell by 0.2
percentage points to 74.2%. (JM)
9:44 (Dow Jones) PayPal (PYPL) is coming to market, but at least one
influential IPO analyst wishes it wouldn't. David Menlow, president of
IPOfinancial.com, loved the deal last week, calling it one of the marquee deals
of the quarter. Since then, though, PayPal has disclosed patent-infringment,
regulatory and SEC problems. So Menlow is urging investors to tread cautiously.
"We can only caution everyone that this offering now looks like a trainwreck
waiting to happen," he says, giving it his "extreme risk" rating. (RJH)
9:40 (Dow Jones) Moody's cut its debt rating on American Tower (AMT)
Thursday, but Deutsche Banc, after an "extensive review," still likes the
wireless-towers group, assigning the sector a market-weight recommendation, but
noting that shares have "tremendous" upside potential. AMT, Crown Castle
International (CCI) and SBA Communications (SBAC) have buy ratings, while
Deutsche Banc has SprectraSite Holdings (SITE) at market perform. JP Morgan
says it's puzzled by Moody's debt cut, given that Moody's cited issues that are
already known. CCI's share-price decline is also puzzling, JP Morgan says,
because of the condition of the company's balance sheet; despite the positives,
investor concerns could throttle the performance of these stocks. (NBB)
(END) DOW JONES NEWS 02-15-02
11:03 AM |
