Stress test results are leaked

S&P 500: +15.73 (+1.74%)

Stress test results
Although the results are to be officially announced tomorrow, the stress test results were slowly leaked throughout the day. The leaks were greeted with cheers as the additional capital needed by the nation’s lenders was not as extensive as some had feared. Investors may also be taking comfort in the fact that some of the uncertainty that has plagued the banking sector is dissipating.

The Fed is expected to direct about 10 of the 19 banks undergoing government stress tests to boost capital so they can withstand losses in a worse economic environment. Those that are deemed to need additional capital will get six months to raise that money, which will likely come from private equity placements, a public stock offering, or a conversion of government-owned preferred shares into common equity.

Those that do not need additional funds include:

• Goldman Sachs Group
• Morgan Stanley
• MetLife
• JPMorgan Chase
• Bank of New York Mellon
• American Express
  

The banks that do need are additional funds include:

• Bank of America - $34 billion
• Citigroup - $5 billion or $10 billion (depending on the source)
• Wells Fargo - $15 billion
• GMAC - $11.5 billion.
• Regions Financial - unknown
  

Garmin (GRMN) -14.93%
Garmin’s first-quarter sales and profit trailed analysts’ estimates, hurt by declining orders for car-focused gadgets. Revenue from the automotive unit, which accounted for more than half the total, declined 43 percent. U.S. car sales dropped 34 percent in April, the 18th consecutive monthly decline.

Portable internet devices and smartphones, which have access to GPS, remain a long-term threat to Garmin since they are a convenient and more economical substitute to Garmin’s automobile and outdoor products. Garmin continues to develop a smartphone, although this is a notoriously difficult market to crack and the launch date has been pushed back several times.

At this point, however, the portable internet evolution is too callow to cast off the navigation device maker and Garmin’s shares should benefit from an increase in auto sales.


Harris Corporation (HRS) -8.02%
Harris fell after reporting a 27 percent decline in orders due to reduced government purchases, which led Harris to reduce its revenue expectations for 2010.

CEO Howard Lance described the reduced government purchases as a delay and expects several hundred million dollars in radio orders eventually will be received. Lance continued that beyond fiscal 2010, the company is well-positioned to return to growth.


Transocean (RIG) +2.22%
Transocean easily beat first-quarter earnings estimates as a 17 percent drop in operating costs offset weaker oil and gas prices. The results reflect the steadying influence of the firm’s largely contracted rig fleet.

Sticking to its commitment to reduce debt from the GlobalSantaFe acquisition, the company paid down nearly $600 million in debt during the quarter. Management indicated that the free cash flow from its backlog is more than adequate to repay its debt maturities as they come due over the next few years.

Peter Lazaroff, Junior Analyst