Molycorp (MCP) a Pretender or Contender?

All the hoopla surrounding rare earths after China said they're cutting back on exports brought attention to a vital, but little-known industry, which extremely important to devices like mobile phones. The biggest name emerging from the newly-found popularity is Molycorp (NYSE:MCP), which has become the face of the industry outside of China.

Molycorp announced recently it is acquiring AS Silmet to get a foothold in Europe, while it attempts to expand its U.S. domestic business.

Bizarrely, Colorado Congressman Mike Coffman has introduced the Rare Earth Supply-Chain Technology and Resource Transformation (RESTART) Act of 2011, in order to attempt to take advantage of the media-inspired fears that somehow the world is going to end if the government doesn't create a new department to face the "national security issue."

It appears this is the environmentalists and progressives getting all worked up about this, as rare earths supply needed elements to build solar and electric cars, among other things. Rare earths also are invaluable to mobile phones, although when China threatened to pull back on shipments to Japan not too long ago, Japan said they would simply use different materials, showing this is another "crisis" being used to control the market and expand government.

As far as Molycorp within that scenario, there are major concerns even with the soaring price of rare earths on skyrocketing demand.

Most of that centers around its decision to reconstructing its mine, mill and other facilities at Mountain Pass, California.

Molycorp say they're looking at a period of about 2 years to complete the project, which will cost somewhere around $500 million.

Add to that the anti-business and mining climate you get with California, and you have a lot of potential problems arising and quite possibly delaying the project.

This will be a major part of the success or failure of Molycorp, and it will pressure margins and earnings with that much capex.

Molycorp closed Thursday at $68.45, gaining $6.39, or 10.30 percent.

Royal Caribbean (RCL) Remains Unconvincing to Investors

Shares of Royal Caribbean Cruises (NYSE:RCL) are trading down today even though they received a rating boost from Credit Suisse (NYSE:CS).

Analyst Joel Simkins said, "While the new cruise cycle is still in its early innings, investing in these stocks requires a view that industry pricing power will continue to recover in the face of a still sluggish global economy."

"We believe RCL is well positioned to benefit from one of the most attractive and youngest fleets in the industry, strong relative earnings leverage (1% in net yield adds 7.3% to 2011 EPS versus 5.8% for CCL), disciplined fuel hedging strategies, and balance sheet deleveraging initiatives, which should allow it to generate earnings power above prior peak levels during the next few years. In addition, slowing supply growth and a better commitment to expanding returns over cost of capital should further assist in driving increased long-term earnings power."

A major problem the company faces in the short term is the unrest n the Middle East, where many of its destinations lie.

Long term they still need to convince shareholders and potential investors about the lack of free cash flow over recent years, which has mainly come from capex on new ships.

In other words, are they done expanding and ready to market, or are they still in the building out stage.

It appears this spending is already on the decline, and will probably drop more in the years ahead, resulting in free cash flow of $1.1 billion in 2011 and $1.7 billion in 2012.

Bulls think this is a good entry point.

Royal Caribbean was trading at $ 40.22, falling $0.29, or 0.72 percent, as of 12:02 PM EDT.

BHP (BHP) Spending $9.5 Billion to Expand Iron Ore, Coal Operations

BHP (NYSE:BHP) announced it is going to spend about $9.5 billion to expand Australian iron ore and coal mining operations. BHP has said they have plans in place to spend about $80 billion over the next five years to expand the company.

With commodity prices having soared for years, BHP is looking to grow by organic means rather than through acquisitions, as the valuations of quality companies have skyrocketed and cost in many cases are prohibitive.

The company has also failed at three major takeover tries, and it appears countries are also protecting their raw materials as well, as in the case of Potash Corp. (NYSE:POT) in Canada.

The leading global miner said it would invest $6.6 billion in a total investment of $7.4 billion to continue production growth in the company's western Australian iron ore operations.

Investment will include the development of the Jimblebar mine, rail links and additional berths and ship loaders at its Port Hedland site.

BHP said it had also approved three key metallurgical coal projects at its Bowen Basin site in Queensland.

BHP will put in $2.5 billion of the total $5 billion investment, which will see the new Daunia mine developed, its Broadmeadow mine's life extended by 21 years and the stage three expansion of its Hay Point coal terminal.

In a third statement, the company added it had approved a $400 million investment to expand Hunter Valley Energy Coal in New South Wales with the goal of increasing production.

BHP Billiton closed Friday at $90.07, falling $0.59, or 0.65 percent.

Exxon (XOM) Boosting Capex Up To $37 Billion

Exxon Mobil Corp(NYSE:XOM), said its annual capital spending could rise to as much as $37 billion, evidence the world's largest publicly traded oil company is confident that crude demand is returning with economic growth.

Exxon's annual capital spending will range from $33 billion to $37 billion during the next several years, up from $32.2 billion last year, the company said on Friday in its annual filing with the U.S. Securities and Exchange Commission.

Exxon will likely provide more detail about its planned spending increase at an analyst meeting next month, but many other oil companies, encouraged by prolonged high crude prices have raised capital expenditures.






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Barrick (ABX), Newmont (NEM), AngloGold Ashanti (AU), Gold Fields (GFI) Facing Capex Challenges

The world's four biggest (by production) primary gold miners have now reported preliminary numbers for 2010; Newmont (NYSE:NEM) has arguably produced the best overall numbers. On another tack, Barrick's (NYSE:ABX) awesome cash generating powers were on full view for 2010: for those rare investors prepared to look forward into the longer term, Barrick's outcome probably wins the contest.

Revenues at both Barrick and Newmont are assisted by sales of copper, a metal which turned in a singularly spectacular price performance across 2010. AngloGold Ashanti (NYSE:AU) finally killed off its hedge book in October 2010, at costs running into billions of dollars spread across the past three years. Barrick wiped its hedge book out rapidly in 2009, also at a multi-billion dollar cost.

Earlier this week, Barrick for the first time added free cash flow (simply operating cash flow, less capital expenditure) to its key statistics. An aggregation of the numbers for the four big gold diggers shows operating cash flow of USD 11.3bn for 2010, more than USD 3bn higher than the outcome for 2009, and well over double 2008's comparable number. (For insomniacs: BHP Billiton, the world's biggest diversified resources group, produced operating cash flow in 2010 of USD 24.7bn).

Aggregate capital expenditure for the top four gold miners in 2010 was USD 6.9bn (nearly half of that was from Barrick), rising inexorably as costs increase, but also indicating that the groups remain confident to invest in growth. Combined free cash flow for 2010 was USD 4.4bn, twice the outcome for 2009. Dividend payments have been rising, and the groups have been attending to balance sheet metrics. Net debt (including cash) fell sharply by end-2010 to USD 4.4bn, from a peak of USD 8.6bn two years previously.





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ConocoPhillips (NYSE:COP) Jumps on Dividend Boost, Share Buyback

Shares of ConocoPhillips (NYSE:COP) are moving up Friday on news they increased their quarterly dividend by 20 percent authorized a share buyback of $10 billion, according to a company release.

The $10 billion share buyback is above and beyond the $5 billion buyback announced by ConocoPhillips in March.

At this time approximately $1 billion remains under the announced March buyback program.

ConocoPhillip's dividend was raised from $0.55 to $0.66, a 20 percent boost. On an annualized basis that's $2.64. The dividend yield is 3.1 percent.

The oil giant also announced capital expenditures for 2011 will be $13.5 billion. About 90 percent of capex will go toward Exploration and Production.

ConocoPhillips was trading at $71.43, up $1.35, or 1.93 percent, as of 1:46 PM EST.

SM Energy Company's (NYSE:SM) Cash Flows to Trail Capex

SM Energy Company (NYSE:SM) will continue to be challenged by capex and cash flow, according to Jefferies, although they still raised their PT and EPS on the company.

Jefferies said, "cash flows should continue to trail capex as activity remains robust in the Eagle Ford and Williston. Ample borrowing capacity and asset sales should help plug the deficit."

They boosted their full year 2011 EPS estimate from $0.94 to $1.10, as earnings drivers should continue on. Jefferies introduced their full year 2012 EPS estimate at $1.52.

Jefferies maintains a "Hold" rating on SM Energy, which closed Wednesday at $59.02, gaining $2.98, or 5.32 percent. Jefferies also raised their price target on SM to $56.

Powerwave Technologies (NASDAQ:PWAV) PT, EST Estimates Raised on Capex Wireless Trends

Citing a survey confirming wireless capex trends are expected to continue, Canaccord raised their PT and EPS estimates on Powerwave Technologies (NASDAQ:PWAV).

Canaccord says, "We believe Powerwave is well positioned for solid 2011 sales and earnings growth, as our carrier CAPEX survey indicated solid wireless CAPEX trends in 2011 driven by new 4G network builds in North America and 3G builds in developing markets such as India. Further, our survey indicated strong capacity and coverage spending plans.

"Based on a solid pipeline of opportunities and improving profitability, we are increasing our 2011 pro forma EPS estimate to $0.21 from $0.19 and introducing our 2012 estimate of $0.27."

Canaccord Genuity reiterates a "Hold" rating on Powerwave Technologies (PWAV), which closed Monday at $3.53, down $0.03, or 0.84 percent. Canaccord increased their price target on Powerwave from $2.25 to $3.75.

Ericsson (NASDAQ:ERIC) Earnings Limited Even with Sales Growth

While Ericsson (NASDAQ:ERIC) sales are expected to surge in 2011, the emerging markets that growth will occur in will have limited earnings potential because of lower margins.

Canaccord says, "We believe Ericsson is well positioned for solid 2011 sales, as our carrier capex survey indicated solid wireless trends in 2011 driven by new 4G network builds in North America and 3G builds in developing markets such as India. However, due to our expectations for the mix in global wireless sales shifting to lower-margin developing markets, we anticipate limited earnings growth in 2011 for Ericsson.

"ERIC reports Q4/10 results on Jan. 25 (pre-market), and we remain comfortable with our Krona 60.3 revenue (in line with consensus) and $0.28 pro forma EPS (above consensus) estimates."

Canaccord Genuity maintains a "Hold" rating on Ericsson (ERIC), which was trading at $11.69, down $0.10, or 0.85 percent, as of 2:56 PM EST. Canaccord has a price target of $11 on Ericsson.

Consolidated Edison (NYSE:ED) Offers No Surprises with Guidance

Coming off a good quarter, which largely met expectations, and earnings beating expectations, Consolidated Edison's (NYSE:ED) guidance was comparable with what was being looked for.

Barclays says, "ED reported full-year 2010 operating EPS of $3.45 (ex. $0.04 favorable M-T-M) v. our $3.46E and consensus of $3.43...ED's 2011 EPS guidance is between $3.45 - $3.65, and in-line with our '11E of $3.55E. The Company outlined a $2.1B capex program, and $600M in long-term debt financings. Equity issuance will be limited to the company's dividend reinvestment and employee stock plans for which we are projecting to be between $50M - $85M. The apparent benefit from bonus depreciation will likely be offset through customer refunds issued at the cost of capital.

"We reiterate our EW and price target, predicated on '12E of $3.70, with a 5% large-cap premium to our 12.7X utility group multiple."

Barclays reiterates an "Equalweight" rating on Consolidated Edison (ED), which closed Friday at $49.87, down $0.66, or 1.31 percent. Barclays has a price target on ED of $49.

Intel's (Nasdaq:INTC) Capex for 2011

Reporting what they're calling the best quarter in the history of the company, Intel (Nasdaq:INTC) reported how they see their capex in 2011.

They started off saying they had total cash investment of $21.5 billion for the fourth quarter, about 1.2 billion more than they spend in the third quarter, and close to $7.6 billion more than spent in the fourth quarter of 2009. Cash generated from operations for full year 2010 was 16.7 billion.

Saying they see their core businesses continuing to grow strong in 2011, along the movement of graphics transistors to their leading edge processing technology, Intel said they are projecting capex of about $9 billion, with a lot of that going toward building and equipping incremental high volume manufacturing factory at 22-nanometer.

For research and development, they are going to add more than $700 million, focusing on building their leadership in the server and PC segments. They also want to continue to design and expand more generations of products, and add to their product line markets like tablets and smartphones.

First Solar (NASDAQ:FSLR) Pressured by Capex, Margins

While First Solar (NASDAQ:FSLR) remains one of the favorites of the solar sector, they do face some significant challenges and uncertainty, including margin and capex concerns.

Barclays (NYSE:BCS) noted, "Although investor expectations were high, guidance was somewhat better than the buyside EPS consensus of $9.00. More importantly, we think the guidance is based on conservative assumptions for both systems and modules business and believe room for upside to $10.00+ exists if overall demand environment turns out to be in line with expectations.

"Key concerns: (i) 2011 capex expected to increase to - $1bn, (ii) Back-end loaded guide, Q1 guidance below consensus - most revenues/earnings expected to be in 2H11. Q1 EPS of - $1.25 is below consensus of - $1.67, (iii) Systems margins not sustainable - DOE loan/Agua Caliente financing and Ontario projects inflate 2011 margins, (iv) No overall gross margin guidance was provided, (v) EPC revenue guidance assumes allocation for greater than 400MW projects."

Barclays maintains an "Equalweight" rating on First Solar, which closed Wednesday at $135.15, down $1.89, or 1.38 percent. They have a price target of $144 on them.

Chevron (NYSE:CVX) Releases 2011 Capex Budget

Chevron (NYSE:CVX) released their capex budget for 2011, and it is about $5.4 billion more than the budget for 2010.

Barclays (NYSE:BCS) noted, "CVX announced its 2011 capital and exploratory budget of $26 billion (including $2 billion for affiliates), compared to its 2010 budget level of $21.6 billion, or a 20% increase. Eighty-seven percent of the program is directed towards the upstream, 11% in downstream, and the remaining 2% in other. So far year to date, 2010 capital expenditure was $15.5 billion (Upstream: $13.8 billion, Downstream: $1.6 billion, Other: $0.2 billion), which suggests full-year spending may come in at $21.5-$22.0 billion. The 2011 capex budget of $24 billion (net of affiliates) is $2 billion higher than our previous forecast of $22 billion. While the higher capex budget is a slight negative, in our view, it is not as negative as some were anticipating in the market (previously, we heard of estimates as high as $30 billion)...Lower 2011 EPS to $10.40 from $10.50 per share."

Barclays maintains an "Overweight" rating on Chevron, which closed Friday at $87.03, up $0.38, or 0.44 percent. They lowered their price target on them from $110 to $107.

Joy Global (NASDAQ:JOYG) Could Soar if Mining Capex Goes to Equipment

There is no doubt capex in the mining sector is going to go up significantly over the next year, for Joy Global (NASDAQ:JOYG), and other equipment makers, the question is how much will be allocated toward equipment, as a large portion is expected to be spend on infrastructure.

Barclays (NYSE:BCS) said, "We think the continued upward revisions in expected mining capex from major producers underscore our thesis of a long-duration mining up-cycle, which should benefit equipment makers such as JOYG. Vale recently almost doubled its 2011 capex to $24bn from $13bn, while Xstrata provided current visibility of - $23bn in spending out to 2016. Altogether, we are expecting almost a - 50% yoy growth in capex in 2011 (vs. 2010) from the major mining producers, compared to JOYG management's expectation of - 10%-15% for 2011 suggested early in 2010. While there could be a near-term lull in orders as producers initially focus their spending on infrastructure, we think the need for large mining equipment should eventually catch up to overall development and we could see acceleration in original equipment orders by mid-2011."

Barclays maintains an "Overweight" on Joy Global, which closed Friday at $79.08, up $0.72, or 0.92 percent. They have a price target on Joy Global of $82.

AMR's (NYSE:AMR) RASM Guidance Exceeds Expectations Says Barclays (NYSE:BCS)

RASM guidance from AMR Corp (NYSE:AMR) came in at 47 percent for the fourth quarter, above the 4.8 percent Barclays (NYSE:BCS) had been looking for.

Barclays commented, "Yesterday (Wednesday), AMR provided encouraging 4Q mainline RASM guidance in excess of what we had been expecting. The carrier expects its 4Q mainline RASM to increase by - 7% (we had been modeling +4.8%)...AMR remains our top pick as we believe margin improvement at AMR should exceed the industry average in 2011. More importantly, cash generation in 2011 should screen best in the industry as the carrier makes a turn from a CapEx-heavy 2010 to a more normalized CapEx year in 2011...We revise our estimates to account for the carrier's 4Q RASM guidance as well as the current fuel curve. Our 4Q estimate increases to ($0.35) from ($0.45), while our FY11 estimate remains at $1.20."

Barclays maintains an 'Overweight' rating on AMR Corp., which closed at $7.95, up $0.24, or 3.18 percent. Barclays has a price target of $18 on them.

Coldwater Creek (NASDAQ:CWTR): Nowhere to go but Up?

After reporting third quarter results last Thursday, Coldwater Creek (NASDAQ:CWTR) revealed losses weren't as bad as they were expected to be, with losses coming in at $10.9 million, or $0.12 a share. In 2009 in the same quarter, losses were $34 million, or $0.37 a share.

With little in the way of expectations going forward, FBR Capital sees any good news as helpful, and maintains their "Outperform" rating on them.

FBR said, "We have been underwater, as it were, in this recommendation since the company’s October preannouncement. The reason we stayed after the bad news was that it seemed to be all priced in. We hoped that things would get better with the rest of the industry in November. It seems that has not happened and the merchandise turn is likely a ways off. However, we believe management change will drive improved performance. We also think earnings are at trough. The bottom line is simply that if they just break even next year, the stock is cheap on EBITDA in our view. With the reduction in capex for next year, free cash flow generation will likely be significant. And now no one is expecting anything good, so any improvement whatsoever will likely be rewarded.

"Based on company’s guidance, we are revising our 4Q10 EPS to ($0.27) from ($0.06). We are also revising our CY11 EPS estimate to $(0.00) from $0.15."

Coldwater closed Friday at $3.26, dropping $0.18, or 5.23 percent. FBR has a price target of $6 on the specialty retailer.

Starbucks (NASDAQ:SBUX) Focusing on Margins, China

After falling from being one of the darlings of Wall Street, Starbucks (NASDAQ:SBUX) has quietly fought its way back over the last couple of years and looks poised for revenue and earnings growth as the focus on China and widening margins.

Deutsche (NYSE:DB) said, "A change in mindset can be a powerful enabler. Starbucks presented its domestic business with an eye toward enhancing margins, its International business focused on creating positive mix in China and a stable capex build, and finally its CPG business highlighted unique competitive advantages to drive high margin growth. Happily, we saw sparse evidence of the purely store-based growth metrics and simple demographic cases (i.e. low penetration) for growth. Return implications are bullish.

"Moving 2011 forecast $0.02 to $1.52, 2010 $$0.07 higher to $1.70 Changes are driven by slightly higher store growth more in line-with company targets, slightly higher comps, CPG growth and further gains on the cost side."

Deutsche Bank maintains a "Buy" rating on Starbucks, which closed Thursday at $32.76, gaining $1.06, or 3.34 percent. They have a price target of $35 on Starbucks, raising it from $33.

Cooper (NYSE:CBE), WESCO (NYSE:WCC), SPX (NYSE:SPW), ABB (NYSE:ABB) Should Benefit from Short Lead Times

With capital expenditures for electric utilities expected to rise in the near term, suppliers like Cooper (NYSE:CBE), WESCO (NYSE:WCC), SPX (NYSE:SPW) and ABB (NYSE:ABB), which have product portfolios with relatively short lead times stand to benefit in the near term.

Of those, ABB have the longest lead time, and may have to wait until the second half of 2011 before they benefit from increased capex.

FBR said, "After declining for the last several quarters, electric utility capex appears to be turning around and our analysis of capex plans of 46 U.S. Electric Utilities suggests potential for a solid pickup in spending. This pickup would be driven by (1) a potential catch-up in spending as electricity demand recovers following two years of declines; (2) new EPA regulations that should drive investment in environmental projects; (3) longer-term need to upgrade the aging T&D grid and ongoing investments in renewables, which necessitates buildout of the transmission infrastructure; and (4) generally strong balance sheets and easier credit availability where CDS spreads are considerably tighter from levels seen in 2009. More near term, we see a pickup related to spending push-out from 2010, during which year-to-date utility spending has tracked meaningfully below plan primarily due to unseasonably warm weather, and possible postponement of expansion at low utilization plants. Our analysis is supported by discussions with several U.S. shareholder-owned utilities at the recent Edison Electric Institute conference, where many companies commented on outlook for solid spending growth driven by environmental, reliability, and transmission spending. This improving capex outlook has positive implications for electrical equipment suppliers, in our view. Specifically, we see upside for suppliers with product portfolios that have relatively short lead times, who could benefit from the near-term pickup in spending, including Outperform-rated Cooper. WESCO should benefit from any spending pickup on the distribution infrastructure. Market Perform-rated SPX, and non-covered ABB also stand to benefit, but their longer lead-time products suggest a 2H11 impact. With regard to implications for Electric Utilities under coverage, high levels of capital expenditures remains consistent with robust rate base growth trajectories for the regulated utilities for the foreseeable future."

Cooper closed Monday at $54.32, down slightly by $0.04, or 0.07 percent. Wesco ended the session at $47.89, falling $0.71, or 1.46 percent. SPX closed at $65.96, down $0.31, or 0.47 percent. ABB ended almost level at $19.57, losing $0.01, or 0.05 percent.

Suntech Power (NYSE:STP) Needs to Give Answers on "Pluto"

Suntech Power (NYSE:STP) had its price and earnings per share targets lowered by Jefferies, as the company looks like it has major challenged with Pluto and expansion.

There will be an analyst day coming up on December 6, and Jefferies says investors and analysts should be looking for three things:

"1) 2011 capacity expansion plan and required capex;

2) wafer capacity ramp up and its impact on cost structure; and

3) road map to fix Pluto encapsulation and interconnection issues and ramp up Pluto capacity."

Earnings per share estimates were lowered for full year 2011 to ($0.43)/$2,777.6 million from ($0.38)/$2,618 million. For full year 2012 the company lowered their EPS estimates $0.01 to $1.02.

Suntech was trading at $7.48, losing $0.05, or 0.66 percent at 10:39 AM EST.

Citigroup (NYSE:C) Sees Possible $10 Billion Share Buyback by Rio (NYSE:RIO)

Citigroup (NYSE:C) said they believe Rio Tinto (NYSE:RIO) could launch a $10 billion share buyback sometime in 2011 while maintaining their capex project for its mine projects.

“We expect Rio to move into a net cash position in 2011. This will allow the company to look at growing through M&A or returning cash to shareholders through buybacks,” Citigroup wrote in a note.

After the takeover of Alcan in 2007, Rio Chief Executive Officer Tom Albanese has worked on paying down the debt from the deal and profits increased as metal prices, along with coal and iron ore, went up.

Citigroup estimates net cash for Rio Tinto to be $9.4 billion in 2011, and increasing to $23.9 billion in 2012. Capex is expected to reach $9 billion in 2011.

Rio said their focus is on investing in areas that will add growth to the company.