Afternoon Review

Citigroup (C) -19.96%
According to the Wall Street Journal, C has considered selling some or all of the company due to the sharp drop in Citi’s stock price. The report indicates that internal discussions at C are preliminary, and are not an indication that C’s management and board are backing down from their view that the firm has ample capital.

With $2 trillion in assets on its balance sheet, a C buyout would dwarf other recent takeovers. It also limits the number of firms that would be capable of buying the banking giant.

I recommend checking out this posting on WSJ’s blog Deal Journal, which compares Citigroup’s situation to that of Lehman Brothers, Bear Stearns and Merrill Lynch.

Dell (DELL) -5.20%
DELL reported better-than-expected 3Q earnings; however, the upside surprise was largely a result of cost cutting measures, rather than strong revenue results or increased profitability. The company has cut 8,300 jobs this year, bringing SG&A expenses down to 6.7 percent of revenue from 11 percent of revenue from a year ago. DELL credited its increased gross margin to a better product mix with more sales of higher margin software, peripherals and services. DELL spent $400 million to repurchase 21 million shares in 3Q, with the number of diluted outstanding shares falling 2 percent from the prior quarter and 14 percent from a year ago. DELL attributed its negative operating cash flow to slowing global industry demand in October.

The company did not give guidance, but expects global IT end-user demand will continue to be challenging. In turn, DELL will continue to cut costs and has implemented a hiring freeze across the company.

HJ Heinz (HNZ) +4.08%
HNZ easily topped quarterly earnings estimates and reaffirmed its fiscal 2009 earnings guidance. Revenues rose 3.5 percent year-over year, slightly less than estimates. All segments generated year-over-year organic sales growth, with the exception of U.S. foodservices. HNZ, which gets 55 percent of revenue overseas, received a $92 million pretax currency benefit on its decision to hedge against foreign currency gains.

Amgen (AMGN) +9.52%
The drugmaker’s medicine for a bleeding disorder received a “positive opinion” from European health advisors, which usually leads to regulatory approval.

This Bloomberg article discusses the unprecedented levels of bankruptcy potential among biotech firms. AMGN has said that it expects to be an acquirer in the coming years. With over $9.8 billion in cash and marketable securities plus free cash flow generation of over $1 billion a quarter, AMGN is in a terrific position to take advantage of the industry landscape.

Caterpillar +5.57%
CAT is predicting that more countries will create infrastructure stimulus plans similar to the program that China unveiled this month.

This article from the December 1 issue of Newsweek reviews the potential implications for infrastructure companies as countries around the globe consider stimulus packages focused on infrastructure. Such stimulus packages would benefit a number of companies like Caterpillar (CAT), Jacobs Engineering (JEC), Harsco Corporation (HSC), General Electric (GE), Emerson Electric (EMR), etc.

Wal-Mart (WMT) +4.46% %
WMT announced that CEO Lee Scott is stepping down and will be replaced by Mike Duke, effective February 1, 2009. WMT’s stock has outperformed the market since his appointment in January 2000, declining 15.8 percent compared to the S&P 500’s decline of 29.5 percent (both including dividends), as of November 14.

Quick Hits

• Arch Coal (ACI) surged 17.59 percent on news that George Soros’ hedge-fund firm bought 2.9 million shares of ACI.
• Microsoft (MSFT) advanced 12.26 percent after being upgraded at Oppenheimer.
• Autodesk (ADSK) has lost 14.57 percent as selling pressure mounts. The company fell out of favor when it issued downside guidance for the fourth quarter. Shares have also been downgraded by a few analysts.
• Google (GOOG) seems to roll out with a new feature to improve their search engine every week.
• Gas Prices Spiral Down to Near $2
• Weekend trivia: Since the Lehman bankruptcy on September 15, only one S&P 500 company has posted gains through today. Which company is it?
  

--

Peter Lazaroff, Junior Analyst