While many companies are on the defensive, having been battered in the first three days of trading after last week’s terrorist attacks in New York and Washington, a few are searching for appealing stories for investors.
In the embattled electronics retailing sector, Best Buy Co. displays something of an edge. It is well-positioned, compared with competitors, with more high-margin DVD players, cameras, and other digital products on its shelves. Other companies, such as Fort Worth, Texas-based Radio Shack Corp., have a larger mix of audio products and PCs, which are off many consumer lists.
“It is premature to speculate how consumers and the flow of product might be affected by the events of last week,” Darren Jackson, its senior vice president, finance, says cautiously. But the company “will monitor the situation closely and gauge our business carefully.” Investors liked that tack, especially since it follows yesterday’s 10 percent quarterly earnings rise.
The company did take a serious step back in the wake of the attacks last week, though, temporarily shuttering 100 Best Buy stores and 700 Musicland stores. Very prudent, of course, with retail sales slumping in the days after the attacks.
Home improvement businesses often outperform the market in times of economic peril. And Lowe’s Cos. has taken full advantage of the attraction. Lowe’s has been trying to close the gap with industry leader Home Depot Inc., opening stores in major metropolitan markets where Home Depot has been dominant.
While other companies’ capital plans are being curtailed, Lowe’s seems to analysts to be on track to continue, according to Reuters. Analysts like its strong average store productivity, 76 percent versus Home Depot’s 60 percent.
Deutsche Banc Alex. Brown boosted the Lowe’s rating to “strong buy” from “buy” yesterday, bringing it up to Home Depot’s recommendation. That helped Lowe’s stock recover a bit from the 10 percent drop in the share price it experienced on Monday. Home Depot’s shares followed the same two-day pattern of a sell-off and partial recovery.
The Buyback Signal
As reported here yesterday, other companies are using share-repurchase announcements as their way of expressing confidence in the economy, and their companies’ part in it. More than 70 have announced buyback plans that could total more than $12 billion, according to Dow Jones. Among those joining the line: Siebel Systems Inc., Cardinal Health Inc., and Starbucks Corp.
“Companies want to demonstrate their commitment to shareholders and their industry,” says Richard Peterson, Thomson Financial’s market strategist.
The SEC’s temporary rule changes have stimulated the activity, allowing companies to repurchase shares during the first transaction of the day and during the last half-hour of trading, and raising the percentage of average daily trading covered in the repurchase to 100 percent from the normal 25 percent.
Starbucks CFO Michael Casey says he considers the buyback a chance “to support the country, support the shareholders, and make a good economic transaction for the company.”
Say It with Bond Offerings
A couple of high-profile corporate bond offerings also have seemed designed to bolster economic confidence. Indeed, Walt Disney Co. CFO Thomas Staggs said that was his company’s intention in selling $1 billion of two- and three-year notes to Goldman Sachs Group Inc.
Still, corporate bonds yesterday underperformed Treasuries, as traders were struggling to see the value in the sector. Disney’s two- year notes yielded 100 basis points more than Treasuries, but because of soaring Treasury prices, the notes carried a coupon of 3.9 percent, Reuters reported.
The news agency quoted one investment-grade syndicate official as saying: “You’re still waiting for the sticker shock to settle in, and it’s tough for people to jump in at these new levels. You look at the two-part Disney deal; a two-year ‘single-A’ sale at 100 over looks pretty good, but you look at a 3.9 percent coupon, and that doesn’t look very good.”
One trader described the market as “very, very quiet” and said the customer base is “waiting to see what kind of stability we have over the next couple of days, and see whether new issues are coming to market.”
