S&P 500: +6.37% Dow: +5.80% NASDAQ: +7.07%
Johnson Controls (JCI) -6.87%
Johnson Controls, the largest maker of automotive seats, was left out of today’s rally after it announced plans to sell 8 million equity units with an initial amount of $50 per unit, or $400 million, and $100 million in convertible senior notes due 2012 for a total of $500 million.
Also hurting shares was a negative report from Sterne Agee & Leach, which lowered their expectations for Johnson Controls explaining “How, or to what extent, bankruptcies of U.S. auto manufactures negatively affect Johnson Controls is largely an unknown at this time and presents ongoing risks.”
The analyst note does acknowledge the company is in a better position than United Technologies (UTX) or Ingersoll-Rand (IR) to capture a larger portion of the stimulus spending to improve energy efficiency of government buildings – thanks in large part to an established position with the Department of Energy. However, the stimulus benefit is unlikely to offset contracting new build nonresidential construction.
Wal-Mart Stores (WMT) +2.44%
Citigroup downgraded shares of Wal-Mart on the possibility that legislators will pass the Employee Free Choice Act, which would allow employees to organize without holding meetings and make it more difficult for companies to talk to their workers about unionization.
The report argues that Wal-Mart is directly threatened by this legislation because they are the largest food retailer, a sector that has historically been unionized. Unions would undoubtedly increase labor costs for the company and could be a significant drag to earnings.
The Wall Street Journal reported today that they bill faces opposition in the Senate from several senators – five Democrats and one Republican – which could complicate passage.
United Technologies (UTX) +8.60%
Shares of United Technologies rose despite the company announcing a 5 percent reduction of its work force this year, a reduced buyback program and a decrease in yearly guidance.
Citing a deteriorating outlook for global construction markets and commercial aerospace, the company now forecasts earnings of $4 to $4.50 a share, including restructuring charges, on revenue of about $55 billion. The company had previously projected earnings of $4.65 to $5.15 a share, on revenue of about $57 billion.
Last December, United Technologies predicted an economic recovery in the second half of 2009 which they now say “appears unlikely.”
Arch Coal (ACI) +10.36%
Arch Coal agreed to buy a mine in the Wyoming’s Powder River Basin (PRB) from Rio Tinto for $761 million and integrate it with an adjacent operation.
Arch expects to generate cost savings by combing the purchased mine with its own, while expanding its already large presence in the PRB. This is especially important given the push for “clean coal,” since the PRB coal has emits less toxins when burned than other coal. As a result, Arch is able to charge a premium for this coal.
Arch’s debt rating was lowered by Moody’s cut its outlook to “negative” from “stable” on the coal company, citing concern that the acquisition would hurt Arch’s liquidity/ S&P said in a statement that it will lower Arch’s credit rating if the U.S. recession persists and demand for coal remains weak.
These credit downgrades are reasonable considering the aggressive nature of this purchase – they are funding it mostly with debt. Still, Arch’s large presence in the PRB is a considerable competitive advantage.
Quick Hits
- Bernanke Urges Rules Overhaul to Stem Risk Build-Ups
- Merck Deal Puts Pressure on Johnson & Johnson and others
- The Challenges to Efficient-Market Theory
- Ten Questions for Those Fixing the Financial Mess
Peter Lazaroff, Junior Analyst
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