11:55pm (EST)
1. Market Summary
2. Kickin’ It with Live Nation Entertainment
3. IPOs Remain Hot
4. Earnings
5. The Week Ahead
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1. Market Summary
The bulls pulled out another win on Friday which padded their lead for the week as the Dow added 13 points, or 0.1%, to close at 10,607. It was the third weekly win for the bulls as they continue to push the upper limits of a four-month long trading range. For the week, the Dow gained 145 points, or 1.4%, and is up 5.9% in September.
The S&P 500 added a point, or 0.1%, to settle at 1,125 and for the week the index popped 16 points, or 1.5%. For the month, the S&P is up 76 points, or 7.3%.
The Nasdaq continues to pace the current rally and advanced 12 points, or 0.5%, to end Friday at 2,315. For the week, the index jumped 73 points, or 3.3%, and is up a stellar 9.5% in September.
September, which is historically a weak month for the market, is halfway over and the rally has been impressive. The bears were pushing major support levels when we left August as the Dow was struggling to stay above the 10,000 level and actually closed below this mark on August 26 at 9,985.
On the last day of August, the Dow traded to a low of 9,915 and has since added nearly 700 points in less than three weeks. We said last week that 10,600 would be the next level targeted and the bulls will now push 10,800 while the bears will target 10,400 as they try to gain some momentum back.
The S&P 500 closed just above our 1,125 mark as it “officially” closed at 1,1,25.59. The index has reached the “bottom end” of our “top end” range which is 1,150 for the index. The S&P tested 1,131 intraday on Friday which happens to be the June 21 intraday high before the index corrected and fell 120 points in 8 days. Yes, two weeks later after this “intraday” high was hit, the S&P fell to a low of 1,010 by July 1. Keep this in mind if the index fails to hold 1,100 this week.
The Nasdaq has powered past the 2,300 level and we said the bulls could stretch this to 2,350. Tech has led much of the flip-flopping during this 4 month headache and has bounced from an intraday low of 2,100 since the end of August to current levels. The Nasdaq hit a high of 2,341 in mid-June and promptly tanked to 2,061 by the first of July.
We mentioned all of this because this week is normally a brutal week on the week after September option expirate which was last Friday. The aforementioned levels for the 3 major indexes will either act as a top (resistance) or the bulls will ignore history as they look for a jailbreak.
After 3 straight weeks of gains in July then a crummy August, the market is once again at the fork in the road. The bears will be waiting at these levels as we head into the week and have their roadblocks set up. Either the bulls breakout or the bears have their heavy artillery waiting once again.
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2. Kickin’ It with Live Nation Entertainment
From time-to-time, we like to cover stocks that are trading under $10 as these companies are either in the early stages of development of their share prices have been whacked to where they might represent good values.
In our past few years in our Weekly Wraps, we have covered such gems as Dendreon (DNDN, $42.00, up $0.40), which was at $4, and Imax (IMAX, $15.13, up $0.34) which zoomed from $3 to a 52-week high of $21.
Live Nation Entertainment (LYV, $9.65, down $0.01) may not make these kinds of moster gains but the shares are down 40% from their 52-week high of $16.90 which has peaked our interest.
The company was formerly known as Live Nation and is a producer of live music concerts worldwide. Live Nation Entertainment operates in 5 segments: concert promotion and venue operations, sponsorship, ticketing solutions, e-commerce and artist management. The entainment powerhouse has their fingers in a lot of pies as they own, operate, have booking rights for, and an equity interest in, 142 venues. Their prized pocessions include a number of House of Blues locations, such as The Fillmore in San Francisco, the Hollywood Palladium, the Heineken Music Hall in Amsterdam and the O2 Dublin. In 2009, they sold over 140 million tickets and promoted over 21,000 concerts.
Live Nation Entertainment acquired Ticketmaster last year which was their only major competitor, and in the process, basically created a $5 billion monopoly with almost a 90% market share. Think about the last time you bought a ticket to almost anything music related. It was probably done through either Live Nation Entertainment or Ticketmaster.
Monopolies are usually good for businesses (think Apple) because they give the company “pricing power”. Those pesky service fees you pay that make a $40-50 ticket a $60-$65 ticket by the time you finish paying have gone up dramatically over the years,as have ticket prices themselves. However, 2010 has been a lousy year for live music.
In mid-July, Live Nation Entertainment dropped 10%, from $11.42 to $10.19, after giving Wall Street an earnings warnings by saying its 2010 numbers would come in at $405 million, down from $445 million last year, despite the benefits of its merger with Ticketmaster Entertainment. Moreover, the company said, at the time, earnings could fall to $365 million if things got worse.
Live Nation Entertainment reported earnings a few weeks later in early August and their net loss was $35 million, or $0.20 a share, which was worse than the $27 million, or $0.33 a share, they lost in the year-earlier period. Revenue fell 10% to $1.3 billion if you include Ticketmaster’s results prior to its merger which closed in January.
For the year, the company maintained its aforementioned outlook for adjusted operating income, which excludes merger-related costs and other special items.
Behind the numbers, Live Nation Entertainment said the most popular acts continue to sell out but other music acts, such as U2, Rihanna, The Eagles, Simon and Garfunkel, The Jonas Brothers and Limp Bizkit have canceled or postponed tour dates. In addition, there are so many acts out there touring these days as they try to make up for lagging CD sales that selling out shows has become difficult.
The other problem is that middle-of-the-road bands are trying to get that same $50 or $60 price that the heavyweights are getting and concert goers are balking. They’re getting nipped in the bud.
The stock went on to hit a low of $8.17 in mid-August but has since rebounded during the current rally and has stayed in the $8-$9 range. This generally indicates a good bottom has been put into a stock but we usually like to wait for a company to report a couple of “good quarters” or see a major improvement before thinking shares are “cheap”.
Live Nation Entertainment is scheduled to give its next earnings update in early November and we will be listening to what they have to say about the business and their costs, as well as the ticket pricing environment. If they cutting ticket prices, we would like to see growth in their other revenues such as concessions and merchandise, but it’s all about ticket sales.
Remember what we said about pricing power? The main catalyst for this stock, other than an improving concert scene, is the fees they pay entertainers. Watch to see if these fees start to drop as the company puts the hammer down on the acts they book. The company can force these fees to come down since they are the only option in town, and this means that even without ticket growth, Live Nation can improve its margins.
Long term, we always like monopolies. Eventually, they figure out a way to make money by squeezing somebody, and the stock moves higher. Unfortunately, that could be a ways in the future, or at least two or three quarters unless the company says something good in a couple of months.
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3. IPOs Remain Hot
The IPO (initial public offering) continues to shine as investors look for new ideas on companies that are making noise.
There has been a lot of hype on the upcoming IPOs expected from General Motors and Skype, but there have been quite a few offerings that have soared this year.
One of the best-performing deals has been the offering from Indian travel website MakeMyTrip (MMYT, $38.62, down $1.85) which we profiled in mid-August and jumped nearly 90% in its first day of trading to close at $25. Shares are up another 50% since.
The company raised $70 million by pricing 5 million shares at $14 which was at the high end of its expected $12-$14 range but they should have held out for more.
Chinese real-estate website SouFun Holding (SFUN, $73.50, up $6.50) was the latest to join the party. The company sold nearly 3 million American Depositary Shares (ADRs) for $42.50 each, and raised $125 million in the process. The company had planned to sell shares for $40.50-$42.50 and they closed at $67 on their first day of trading before adding another 10% on Friday.
Be careful with this one as SouFun faces stiff competition. Real Estate Information (CRIC, $9.55, up $0.74) went public last October and raised $216 million and is its major threat but SouFun could also be hurt by China’s efforts to cool its red-hot property sector.
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4. Earnings
MONDAY – Discover Financial Services (DFS, $15.57, down $0.22) and Lennar (LEN, $13.99, down $0.10).
TUESDAY – Adobe Systems (ADBE, $32.78, down $0.07), Analogic Corporation (ALOG, $42.20, up $0.24), AutoZone (AZO, $220.88, up $1.99), ConAgra Foods (CAG, $22.09, up $0.03), Carnival Corporation (CCL, $35.92, up $0.40), Darden Restaurants (DRI, $44.73, down $0.27), FactSet Research Systems (FDS, $82.05, down $0.48) and General Mills (GIS, $36.17, down $0.57).
WEDNESDAY – Bed Bath & Beyond (BBBY, $41.10, down $0.69), Copart (CPRT, $35.76, down $0.13), IHS (IHS, $64.94, up $0.34), Jefferies Group (JEF, $24.65, down $0.13), CarMax (KMX, $23.65, up $0.17), Progress Software (PRGS, $28.79, up $0.52) and Red Hat (RHT, $38.34, up $0.90).
THURSDAY – Ameron International (AMN, $62.01, down $0.14), Comtech Telecommunications (CMTL, $25.04, down $0.34), Finish Line (FINL, $15.18, down $0.13), Neogen (NEOG, $31.89, up $0.87), Nike (NKE, $77.26, up $0.62), Park Electrochemical (PKE, $26.7, up $0.43), Spectrum Control (SPEC, $12.78, down $0.04) and Tibco Software (TIBX, $15.82, up $0.17).
FRIDAY – None worth mentioning.
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5. The Week Ahead
There are a few notable economic reports due out this week so here is what to watch for:
The U.S. Federal Reserve’s policy meeting and U.S. housing starts will be released Tuesday. The Federal Reserve’s meeting will set monetary policy for the next six weeks and many on Wall Street don’t expect the Fed to announce a second round of asset purchases. Housing starts are expected to fall 2.9% to 530,000 in August after falling 1.7% to 546,000 in July.
On Thursday, first time claims for unemployment benefits will be released and came in at 450,000 last week. Any continuation in the downward trend would be be good news for the bulls. Also, existing-home sales are expected to come in at 4.4% for August to 4 million units. This is up from the record plunge in sales to 3.8 million units for July.
The government will release the durable goods report for August on Friday. The suit-and-ties are forecasting a 0.3% drop after a 0.4% gain in the prior month. New home sales are expected to rise 6.9% to 295,000 units after falling 12.4% to an all-time low of 276,000 in July.
We will be back Monday morning at 9am (EST) with our next update!
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