TheStreet.com's Jim Cramer says these stocks will be killed today, and attentive investors can get them on the cheap.
Oh my, Costco (NASDAQ: COST) (Cramer's Take). I didn't expect that one. That's the best -- it's a shocker. I can't recall how many years it has been since I have seen the words "well below" and "Costco" together.
You can see how it happened: Costco held out. They didn't raise prices. Almost everyone else is raising prices and many are losing customers -- look at Safeway (NYSE: SWY) (Cramer's Take) or Supervalu (NYSE: SVU) (Cramer's Take). But two held out: Costco and Wal-Mart (NYSE: WMT) (Cramer's Take).
When you lump in the ridiculous price hikes that Costco had to take in its gasoline business, you see that it simply wasn't making much money selling anything.
As the second quarter earnings crunch begins in earnest this week, the bear market has investors jittery and prognosticators spinning out dire warnings. In the wake of mixed results from Alcoa (NYSE: AA) and General Electric (NYSE: GE) kicking things off last week, here's a look at what Wall Street is expecting from many of the companies scheduled to report this coming week.
Analysts surveyed by Thomson Financial are expecting the following companies to report a rise in earnings when compared to the same period of the previous year.
Nucor Corp. (NYSE: NUE): $1.80 EPS (36.6%) on sales of $6.4 billion (+53.0%)
Google Inc. (NASDAQ: GOOG): $4.74 EPS (24.9%) on sales of $3.9 billion (+41.6%)
Nokia Corp. (NYSE: NOK): 56 cents EPS (23.2%) on sales of $19.9 billion (+17.8%)
CSX Corp. (NYSE: CSX): 90 cents EPS (21.1%) on sales of $2.9 billion (+12.8%)
Altera Corp. (NASDAQ: ALTR): 27 cents EPS (18.5%) on sales of $346.7 million (+8.4%)
IBM (NYSE: IBM): $1.82 EPS (+17.6%) on sales of $25.9 billion (+9.0%)
eBay Inc. (NASDAQ: EBAY): 41 cents EPS (17.1%) on sales of $2.2 billion (+18.0%)
Though the quarter is winding down, there are still earnings reports to come, including Walgreen Co. (NYSE: WAG) and Kroger Co. (NYSE: KR). Both companies are expected to report profit growth this coming week.
Walgreen is expected by analysts surveyed by Thomson Financial to report third-quarter earnings of 59 cents per share, up 6.8% from the same period of last year, on revenue of $15.1 billion. The company has provided positive surprises in four of the past five quarters -- by two cents in the previous quarter.
Based in Deerfield, Ill., Walgreen is the largest drug store chain in the U.S. in terms of sales, and has more than 6,200 stores in the U.S. and Puerto Rico. In the past year, the company's revenues were $53.7 billion and its net income totaled $2.0 billion. Its long-term EPS growth forecast is 14.0%, which is less than the retail industry average, as well as less than that of rival CVS Caremark (NYSE: CVS). The consensus recommendation of analysts has recently shifted from hold to buy Walgreen.
The share price is up 4.0% since the beginning of the year, and up from 11.6% from a year ago. It trades at a P/E ratio of 20.68. Shares closed Friday at $41.35.
Private equity giant Blackstone Group (NYSE: BX) and leading grocery chain Kroger Co. (NYSE: KR) are scheduled to report earnings this week. Here's a quick peek at them ahead of results.
Blackstone went public in 2007 and has yet to beat earnings estimates. When the company reported third-quarter results back in November, earnings came to 21 cents per share, well below the consensus forecast of analysts polled by Thomson Financial of 30 cents, as well as the previous quarter's earnings of 46 cents (its first report after the IPO). For the current quarter, analysts expect only 19 cents per share, and $1.47 for the year.
The analysts' consensus recommendation is to buy Blackstone, with 3 of 8 analysts rating it a strong buy. Shares have fallen since the IPO to a low of $14.16 last week, but closed Friday at $14.58.
For news about Blackstone that could influence the earnings results, see BloggingStocks' Blackstone coverage.
Shares in supermarket chain Safeway (NYSE:SWY) dropped 7% yesterday setting up investors with an interesting investment opportunity. The stock is off more than 25% from its' 52-week high. Investors were spooked about a slowdown in same store sales. I think investors need to take a second look at the company.
With an economic slowdown, many consumers will turn to home made food as opposed to eating out. This will be a big benefit to the supermarket. Another catalyst for the stock is that, unlike other food retailers like restaurants, they are able to pass on rising costs to the consumer. This will help keep their bottom line from dropping.
At these levels for investors looking for an inflation protected portfolio, you may want to take a look at Safeway.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no positions in any stock mentioned as of 2/22/08.
Among companies reporting quarterly earnings on Thursday were Safeway Stores Inc. (NYSE: SWY), the largest food retailer in North America, and Newmont Mining Corp. (NYSE: NEM), one of the world's largest gold producers.
Despite ongoing efforts to upgrade the image of its stores, Safeway, which reported that fourth-quarter earnings in-line with the consensus estimates of analysts surveyed by Thomson Financial, also reported that same-store sales slowed.
The quarterly earnings came to $301.1 million, or 68 cents per share, for the period that ended December 29, down 2% from $307.9 million, or 69 cents per share, in the same quarter of 2006, when tax benefits lifted results. Excluding that gain, earnings per share would have climbed by more than 11%. Fourth-quarter revenue rose 7% to $13.36 billion, which beat the analysts' average estimates.
Despite signs of a slowdown, the fourth quarter capped Safeway's most profitable year since 2001. The company earned $888.4 million, or $1.99 per share, on sales of $42.3 billion, compared to earnings of $870.6 million, or $1.94 per share, on revenue of $40.2 billion in 2006. For 2008, Safeway forecast earnings of $2.25 to $2.35 per share, in-line with analysts' expectations.
Safeway shares fell more than $3 in morning trading, reaching a new 52-week low of $28.80.
The market's choppy/consolidating pattern (or perhaps worse) continues, with several unknowns weighing on the minds of investors. It goes without saying then, that in this market defensive stocks represent a prudent addition to almost any portfolio. The grocery store sector is a dependable defensive, and in this category, Safeway is worth a review.
Safeway Inc. (NYSE: SWY) is one of North America's largest grocery store chains, with more than 1,700 stores, primarily in the West, Midwest, and Mid-Atlantic United States. Safeway also operates the Vons, Dominick's Finer Foods, Carr-Gottstein (Alaska), Genuardi's, and Randall's Food Market Chains (Texas). SWY also has an international presence via ownership of about 125 Casa Ley food/variety stores in Mexico.
Other positives: Safeway has struck the right balance between its high quality/wide selection Safeway stores and Safeway supercenters: the former, via remodeling, better reflect middle-income customers' needs, and the later have displayed solid traffic. This winning formula leads many analysts to conclude that Safeway should be able to build on its 8% grocery store sector market share.
The risks? Analysts are keeping an eye on intensifying competition: wholesale operations and warehouses represent the biggest threat, as they boast comparable economies of scale.
The First Call mean rating for SWY is: Hold [15 firms]. Mean 2008 target: $39.00 [high: $42, low: $34].
Stock Analysis: Safeway is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from SWY's shares. Sell/Stop Loss if you were to purchase shares in this company: $23.
MOST NOTEWORTHY: Sprint Nextel, Safeway, PharmaNet Development, Millennium Pharmaceutical and Telefonica were today's noteworthy upgrades:
Wachovia upgraded shares of Sprint Nextel Corporation (NYSE: S) to Outperform from Market Perform as they believe the company is within six months of reaching a sustainable turnaround in subscriber growth and that investor expectations can not get much lower.
CIBC upgraded shares of Safeway Stores Inc (NYSE: SWY) to Sector Outperformer from Sector Performer after the company's strong quarter in a challenging environment.
Jefferies raised its rating on PharmaNet Development Group Inc (NASDAQ: PDGI) to Buy from Hold as they believe the company should achieve leverage in margins after executing its turnaround.
Millennium Pharmaceuticals Inc (NASDAQ: MLNM) was upgraded to Outperform from Neutral at Baird. The firm said expectations for Millennium and Velcade are low and would be buyers for the quarter given the ASH meeting and downstream pipeline visibility.
Telefonica SA (NYSE: TEF) was upgraded to Buy from Hold at Citigroup following the company's earnings growth guidance.
OTHER UPGRADES:
Centene Corporation (NYSE: CNC) was upgraded to Overweight from Equal Weight at Lehman Brothers.
MOST NOTEWORTHY: dELiA's Inc. (DLIA), Hearst-Argyle TV (HTV) and Safeway (SWY) were today's noteworthy downgrades:
Friedman Billings downgraded dELiA's Inc (NASDAQ: DLIA) to Market Perform from Outperform citing the difficult near-term environment.
Deutsche Bank would use Hearst-Argyle TV's (NYSE: HTV) tender offer for the remaining shares of HTV at $23.50 as an opportunity to sell shares and cut the stock to Hold from Buy.
Merrill cut Safeway (NYSE: SWY) shares to Sell from Neutral citing the slowing California economy and the potential threat from Wal-Mart (NYSE: WMT) entering the California market with its new Tesco (OTC: TSCDY) format...
OTHER DOWNGRADES:
Vimicro (NASDAQ: VIMC) was cut to Underweight from Equal Weight at Morgan Stanley.
MOST NOTEWORTHY: Sunpower (SPWR), U.S. Steel Group (X), Sysco Corp (SYY), Safeway (SWY), Performance Food Group (PFGC) and Kroger (KR) were today's noteworthy downgrades:
Sunpower Corp (NASDAQ: SPWR) was downgraded to Buy from Strong Buy at Needham and to Neutral from Buy at Merrill Lynch, both based on valuation.
U.S. Steel Group (NYSE: X) was downgraded to Neutral from Outperform at Credit Suisse on valuation.
Sysco Corp (NYSE: SYY), Safeway Inc (NYSE: SWY), Performance Food Group (NASDAQ: PFGC) and Kroger (NYSE: KR) were downgraded to Hold from Buy at BB&T Capital. The firm expects higher food cost inflation to impact near-term real sales growth and margins industry-wide...
OTHER DOWNGRADES:
Merrill Lynch downgraded shares of Huntington Bancshares (NASDAQ: HBAN) to Sell from Neutral following the company's Q2 report.
Hershey (NYSE: HSY) was downgraded to Peer Perform from Outperform at Bear Stearns.
The best way to beat Wal-Mart (NYSE: WMT) is to avoid trying to copy it, and some grocery stores are finally figuring that out. After years of trying to compete with the big box on price, which is impossible, they're now trying to offer consumers what Wal-Mart can't offer: A less hectic shopping environment, better service, and a generally more pleasant experience. And they're finding out that many, many consumers are willing to pay a a little extra for that.
Grocers are finding that they can beat Wal-Mart with services like prepared foods, and consumers like that stores like Kroger (NYSE: KR) and Safeway (NYSE: SWY) are rarely out of stock on items, a common problem at Wal-Mart supercenters. Some consumers are also realizing that by following the weekly specials, they can sometimes save money by shopping at traditional grocery stores.
The moral of the story is clear: Most mom and pop stores, and even huge chains like Kroger, will never really be able to compete with Wal-Mart on price. So why bother trying? When a Wal-Mart opens up nearby, they will lose some customers. But there is an ample market for quality service and a good shopping experience, the two things that Wal-Mart really can't provide.
When looking at ways to compete, companies have to ask themselves "What can I do that my competitor can't?" After finally realizing that they won't win in a price-war with Wal-Mart, they've given up that battle. And that just might be the first step toward victory.
TheStreet.com's Jim Cramer says these stocks will be killed today, and attentive investors can get them on the cheap.
As the second quarter earnings crunch begins in earnest this week, the bear market has investors jittery and prognosticators spinning out dire warnings. In the wake of mixed results from 
Walgreen is expected by analysts surveyed by Thomson Financial to report third-quarter earnings of 59 cents per share, up 6.8% from the same period of last year, on revenue of $15.1 billion. The company has provided 
Blackstone went public in 2007 and 
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