Trader Talk

Pisani: Wall St.'s Health Care Reversal, Pt. 2

U.S. stock futures lower on Asia, Europe weakness. While the historic health care vote dominated headlines, we are seeing weakness this morning out of Asia, where India's Sensex Index dropped 1 percent in response to Friday's quarter point rate hike.

There's also weakness in Europe, as Greece is down another 3.2 percent on uncertainty about what, if any, support Greece may get with its debt crisis. Germany continues to tell Greece to solve its own problems.


1) Suddenly, Wall Street can live with health care reform.

Hospital stocks like Tenet Healthcare , Community Health , Health Management trading up fractionally in light trading.

I pointed out last week the odd about-face that many on Wall Street had done on health care reform. While it was — and is — nearly universally reviled on the Street, traders and analysts began emphasizing the positive aspects of reform in the past two weeks.

This morning, many analysts are continuing that theme.

Citigroup says, "We continue to believe money will rotate back into healthcare stocks now that the uncertainty of 'reform' is lifted, boosting valuations longer-term, and the worst case "Public Plan" is off the table."

Bank of America/Merrill Lynch raised price targets for HMOs, saying "Increased clarity should help the group."

Bernstein agreed, adding that the package "offers top line growth from access expansion to 32 MM uninsured that will partially offset the margin compression from Health Insurance reform and budget cuts to Medicare Advantage."

Morgan Stanley said, "The passage of reform clears the way for investors to refocus on stabilization and improvement in the fundamental drivers of MCOs' [Managed Care Organization] earnings."

2) Despite strong topline growth, Tiffany falls 5 percent after a Q4 earnings miss. Why? The high-end jeweler's expenses rose 7 percent, reversing declines during much of the year. The firm cited "management incentive compensation expense" for the increase — meaning that it's rewarding staff members with greater bonuses or commissions for generating stronger sales.

How much stronger were those sales? Tiffany's total sales rebounded a higher-than-expected 17 percent on double-digit gains in its Americas, Asia, and Europe regions. Sales at its New York flagship store rose 22 percent.

Looking ahead for the year, earnings of $2.45-$2.50 surpasses Street expectations of $2.43, while sales are expected to grow by 11 percent (vs. 8 percent consensus) on particular strength in the Americas.

Tiffany is now clearly part of a trend of higher corporate expenses, particularly around compensation. American Eagle , Federal Express , and Nike all made similar comments recently.

3) Williams-Sonoma rises 2 percent after beating Q4 earnings estimates ($0.86 vs. $0.74 consensus) on a 7.6 percent rise in same-store sales, led by an 11.5 percent rise in comps at its Pottery Barn chain. Margins also surged home furnishings retailer cited reduced markdowns and continued to effectively cut costs.

Earnings and sales guidance for the current quarter and year also exceed estimates. In fact, Williams-Sonoma sees Q1 EARNINGS of $0.08-$0.11 vs. a Street's forecast for a LOSS of $0.01.

4) Coal giant Consol Energy (CNX) has agreed to commence a tender offer to buy all the CNX Gas . Consol does not currently own for $38.25 a share in cash, a substantial premium, since it closed at $30.80 Friday. Consol already owns north of 80 percent of the CXG; much of th eir gas production is done in conjunction with Consol's coal mining activity.

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