Stocks Rally — But Skeptics Wonder Why
Confused yet? Stocks rallying worldwide, but off their highs, as China denying it is reviewing its holding of euro sovereign bonds, while Spain won parliamentary backing for an austerity budget (by a single vote!).
Few believe this; most think more rumors — real and nonsensical — will surface in coming days (the Kuwait investment authority has already denied a rumor that it is reducing its exposure to eurozone investments).
Still, after being down 8 out of 10 days, how much stock for sale is there?
1) BP's "Top Kill" plan to staunch the oil flow appears to be having some success, though we won't know for sure for a few more hours. After enough mud is pumped through to stop the flow, Halliburton will pump in cement to permanently seal off the flow.
- Track the CBOE Oil Volatility Index (OVX)
Regardless: big changes are coming in drilling regulations worldwide. President Obama is set to unveil new drilling requirements for the Gulf of Mexico, and will likely continue the moratorium on deepwater drilling; new safety regulations have also been introduced in Canada and Norway.
Too early to say what this all means, but Bank of America/Merrill Lynch estimates that this could represent a 10 to 20 percent increase in drilling costs. This will certainly deter smaller players, but the safety upgrades could open up additional products for equipment manufacturers like Cameron International .
BP up 4 percent pre-open, modest gains in Transocean and Halliburton. Overnight, Oppenheimer upgraded BP to a buy, arguing "the upside potential is significantly greater than any further downside risk from the oil spill."
I would hope so — BP has lost 30 percent of its market capitalization since the start of the spill.
Total cost to BP, Oppenheimer estimates, could be $5 to $20 billion, and the current stock price reflects that worst-case scenario of $20 billion.
2) Government making a profit on Citi shares — so far. The apparently successful sale of the first 1.5 billion shares of the government's 7.7 billion share stake in Citigroup is good news, if only because the price--receiving $6.2 billion for selling that 1.5 billion shares, that's about $4.13 a share, well above their cost of $3.25, for a profit of about $1.3 billion.
In other words, the taxpayers are making money: good PR for Treasury, and for Citi. Bill Ackman has bought 150 million shares.
3) Tiffany up 4 percent pre-open, Q1 earnings beat expectations ($0.48 vs. $0.37 consensus) on greater-than-expected rebound in sales. Comps were strong across the board: up 26 percent at its New York City flagship store, up 15 percent in the Americas, up 14 percent in Europe and up 21 percent in Asia.
Because of its strong start to the year, the jeweler is raising its full-year guidance to $2.55-$2.60 vs. $2.51 consensus.
4) Big Lots Q1 earnings to Street estimates by a penny as the off-price retailer saw same-store sales rise 6 percent. Margins also improved because of lower markdowns.
Guidance for the current quarter of $0.44-$0.49 is mostly above the consensus forecast of $0.44, and comps are expected to grow 4 percent to 5 percent. The company also raises its full-year guidance, inline with current estimates.
5) Heinz Q4 earnings were a penny higher than expectations. Revenues rose 8 percent led particularly by strong growth in emerging markets where sales rose 21 percent, excluding currency impact.
With such a strong presence overseas (55 percent of total sales), CEO William Johnson cautions the company will feel effects of "significant currency fluctuations" in the current fiscal year. Still, organic sales are seen growing 3 percent to 4 percent, with earnings growth inline with Street estimates.
The food maker also raised its quarterly dividend 7 percent to 45 cents per share.
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