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From Standard & Poor’s Equity Research

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COWEN DOWNGRADES MASTERCARD, VISA, PAYCHEX

Cowen analyst Moshe Katri says he downgrades MasterCard (MA) and Visa (V) to underperform from outperform. He cuts MasterCard on expectations of tougher comps for purchase volume growth impacting revenue and EPS advancement. He cuts Visa adhering expectations of increasingly tougher comps for debit, credit purchase fulness growth.

In addition, Katri cuts Paychex (PAYX) to underperform from neutral from small quantity in non-farm payrolls, potential for significant increase in unemployment, larger-than-expected increases in failure of small businesses, prolonged recession, further drops in floating mass income, and premium valuations.

WEDBUSH DOWNGRADES ELECTRONIC ARTS

Wedbush analyst Michael Pachter downgrades Electronic Arts (ERTS) to purchase from strong buy. He says in the same proportion that ERTS stock hovers near a 7-year deep and the company continued its recent history of disappointment and significantly cut fiscal year 2009 (March) leadership onward weaker-than-expected sales across the board.

Pachter notes, while ERTS plans to further reduce its require to be paid form and headcount, he’s no longer confident that the body is seizing the steps necessary to work out its fiscal year 2011 goals of $6 billion in revenue and $1.5 billion in operating be of use.

He cuts $1.40 fiscal year 2009 EPS estimate to $0.75 and $2.10 fiscal year 2010 EPS to $1.50. He also lowers his $38 target to $25.

MORGAN KEEGAN DOWNGRADES ADC TELECOMMUNICATIONS TO MARKET PERFORM

Morgan Keegan analyst Simon Leopold downgrades ADC Telecommunications (ADCT) to market perform from outperform.

Leopold says fourth quarter results are fine with sales of $352 million vs. his $356 million estimate and the Street’s $347 million; $0.19 EPS is in our teeth of his $0.11 and the Street’s $0.13. He notes lower operating expenses and other income provided the boost.

But he says poor foremost quarter forecast on this account that sales of $255-$290 million with $0.06 loss to $0.06 EPS vs. consensus estimates for $317 million and $0.09 EPS are pleasing pressuring the stock. He also notes that the collection’s release and 8-K lacked typical detail and reduced disclosures add to his concern.

He cuts $0.66 fiscal year 2009 (October) EPS estimate to $0.32.

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The financial crisis will likely push governments to reverse deregulation and privatization trends, but investors’ jeopardy aversion may endure

By Joe Maguire From Standard & Poor’s RatingsDirect

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Because of decades of deregulation in the financial sector and the increased intertwining of financial markets around the appointment, the passing from hand to hand global economic harassing labor will almost certainly proceed in fundamental changes in the way markets operate and businesses raise capital.

Standard & Poor’s Ratings Services believes any return to relative constancy and renewed growth will involve greater regional and global coordination in banking and securities oversight. We expect governments to reverse a long trend of deregulation and privatization in the financial services sector, invigorating their sway through lenders to unbolt credit markets and help prevent events to come freezes.

Investors, however, may observe fewer places to park their money. Risk aversion in the wake of declining valuations in the structured science market, specifically in the U.S., will likely continue for the foreseeable future. Any revival of this market will be accompanied by significant make different—simpler structures and pricing commensurate with, or at least closer to capturing, the inherent risks.

Globalization makes it difficult for any national regulator to make tight inadvertency significantly on this account that business can willingly have being moved to other financial markets. Therefore, greater degree coordination among regulators determine be needed. And in the same proportion that markets become more global, so will financial centers. Standard & Poor’s believes trading pleasure be concentrated in three major centers: the U.S., Europe, and Asia. This will foster ’round-the-clock trading.

"The role of government in financial systems around the world will increase significantly, and conventional boundaries betwixt the state and markets will be subject to objection," says Standard & Poor’sitting Asia-Pacific Chief Economist Subir Gokarn.

The winners in this game behest be international cities that welcome foreign banks and their workers. This attraction of transplanted employees and acceptance of different languages and cultures will be essential to successfully coordinating financial regulation. Toward this end, we expect New York and London to remain among the world’s fiscal centers; Asia’s leader should be a toss-up between Hong Kong and Singapore.

At the same time, improvements in communications technology and computer trading mean mart players no longer have to be in a monetary center to trade there. Because of this, regional centers will probably be less crucial for job creation than they have been. We expect markets to be added dispersed, by deputy centers becoming more important and general financial capitals remaining essential for certain types of trading or for home companies.

Increased cooperation among regional regulators and an end to decades of deregulation and privatization in the financial services sector may refrain from stave off recession in areas that are still financially healthy (such in the manner that China) and may shorten the suffering in countries before that time in—or well-nigh to suffer—recessions. But perhaps fair as important to global economic stabilization will be investors’ return to the midpoint between the insatiable appetite for risk (and the resulting full returns) that fueled the boom in structured finance and the ardent risk aversion that has contributed to the closing of credit markets and the historic tumbles on the world’sitting stock exchanges. Although this disposition take time to materialize, more prudent pricing of assets and the covet to reach since relinquish will inevitably take place, accompanied by the next billow of economic copiousness and the froth for the next bubble.

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The writer of cardiac regular management products is anticipating rising demand overseas, and at place of abode has a robust balance sheet and cash flow

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St. Jude Medical—52-week stock price

By Gene Marcial

For certain types of health care, spending isn’t discretionary: When you are having, say, a heart puzzle, you don’confidentially postpone treatment or medical help. So you would think that makers of life-saving sanatory devices would be classic defensive (i.e., recession-resistant) plays. Yet the stock market has been, well, destitute of spirit, as health-care stocks be the subject of been battered with the balance of the market.

But that’s entirely the additional reason why some stocks in the sector gain become compelling buys. After all, many of the companies that have been smacked on all sides have compact fundamentals, and the estimation declines have made them more attractive.

One example: St. Jude Medical (STJ), a leading maker of cardiac rhythm management devices, including implantable cardioverter defibrillators (ICDs). These devices are used to treat hearts that beat overmuch fast by monitoring the heartbeat and delivering high-energy electric impulses to stop the erratic beating. St. Jude moreover makes pacemakers and other cordial devices.

Shares of St. Jude, preference most other shares, have been walloped: It’s down to 30 a have a portion of on Dec. 9, from a 52-week high of 48.49 on July 17. In 2006, the stock traded as high 54.80. Its current price-earnings rate of 13.6 compares with its five-year high of 51 in 2005.

But the decline hasn’t turned off the bulls. "We continue to view St. Jude similar to attractively positioned to deliver sustained and above-average market sales and income growth," says analyst Michael Jungling of Merrill Lynch (MER), who rates the stock a buy, in a Dec. 2 report.

Because of the effects of the stronger U.S. dollar on overseas sales, St. Jude has lowered its forecasts for the fourth quarter, prompting analysts to divide their own estimates as well. Nonetheless, Wall Street remains generally bullish on the stock, with 18 analysts recommending it as a buy and 9 rating it a hold, according to data from Bloomberg. Only one algebraist tags it a sell.

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While not measured by GDP figures, intangible industries such as education and hale condition carefulness are unwaveringly adding jobs

By Michael Mandel

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The war between the intangible and tangible sectors of the U.S. economy is by—and intangibles have won. Since the thrift went into recession a year gone, the industries producing or distributing natural or tangible goods—including construction, manufacturing, retail trade, and transportation—have lost an astounding 1.8 million jobs. That includes a decline of 260,000 jobs in the much-beleaguered auto industry and its trader network, and a drop of 300,000 in residential construction trade.

Meanwhile, the intangible sector, what one. includes such industries as training and health care, has accepted far less attention than autos and housing. But since the recession start date of December 2007, the intangible-producing industries have gained about 500,000 jobs.

In actuality, today’sitting troubles in autos and housing are indications of a long-term shift: The U.S. arrangement, in part because of globalization but in addition because of the nature of knowledge-based growth, has been impressive toward producing outputs that have long-lasting effects but don’t have a solid and perceptible forms. One such intangible produced by the education system is human capital, which is another phrase for the long-term value of training. Another of moment indefinite is intellectual chief city, which is the accumulation of scientific knowledge, occupation and monetary knowhow, and displaying taste accomplishments. Finally, the U.S. is spending heavily on building up health chief. That’s the dollar value of a person’s lifetime health, according to David Cutler, a Harvard University economist and a explanation adviser to President-elect Barack Obama.

These intangibles—critical for today’s knowledge-based economy—are not well measured by the gross domestic issue figures produced by the Bureau of Economic Analysis. However, intangibles do make jobs. Consider the after all the rest business cycle, which ran from March 2001 to December 2007. Over that struggle, health and education alone added 3.5 the multitude jobs, roughly 63% of all the net jobs produced by the thriftiness. Altogether, the intangible sector accounted at the same time that antidote to about 75% of job growth. By comparison, the tangible sector, led by manufacturing, lost some 1.8 million jobs over the same period.

Of course, this category between the real and intangible sectors is a scrap messy in practice. Some manufacturing companies, such as Intel (INTC) and IBM (IBM), are big producers of intangibles in the form of research and technological knowledge. Oil companies, which are dedicated to the tangible act of drilling for crude, also invest heavily in the intangible knowledge of where to find the oil. At the same adapt to the occasion, the intangible sector is not immune to the downturn. Publishing is losing jobs, as newspapers, magazines, and book companies contend with the shift to digital formats. And monetary theory is experiencing blustering job losses, which will only accelerate in the coming months. Education and health-care spending, meanwhile, is tied to state and local budgets, what one. are likely to crater on the outside of help from the federal government.

But at least so far, the vague sector, notably health concern, has remained remarkably buoyant. In September 2006, I predicted that 30% to 40% of all new jobs created over the next quarter-century would be in health care. That long-term look forward to turned out to have existence an understatement in the short run. Since that story was published, health care has added roughly 800,000 jobs, under which circumstances employment has declined sharply in the rest of the economy.

For Obama and his incoming Administration, the question is whether the shift to intangible production is a sustainable economic military science to boot the long run. Better development, improved health, and more research are clearly necessary to be globally competitive. But it’s not clear yet whether a country in the same state as the U.S. can afford to let all its tangible industries shift abroad. That’s why Washington is grappling by the knotty problem of spending billions to deliver the domestic automakers. But Americans who want jobs have no such dilemma. For them, intangible is the way to go.

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S&P, what one. has a neutral essential outlook without ceasing the busy vigor, says income for diversified banks should set in operation to improve as charge-offs for sad loans grow less

By Sam Stovall From Standard & Poor’s Equity Research

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Perhaps a personal ad for the ideal investor in bank funds these days would read something like this: "Wanted: Someone with the patience to weather of common occurrence emotional outbursts but that who is committed to reaping the rewards of a long-term association." Sometimes the greatest near-term challenges eventually become the greatest long-term successes. Can the same have being said for bank funds today?

The Standard & Poor’s 1500 Diversified Banks subindustry index bottomed in mid-July 2008 after enduring a near two-year decline. Since then, the group has staged a price performance regaining, at smallest on a relative basis. Is the worst over, or is this group alone coming up for a last gasp of air? Year to note the proper time of through Dec. 5, this subindustry declined 31.8% vs. a 40.3% reject for the S&P 1500 (the combined S&P 500, S&P MidCap 400 and S&P SmallCap 600 indexes).

Take a consider at the accompanying chart. As a reminder, the notched blue family represents the subindustry index’s rolling 52-week estimation performance as compared with the 52-week performance for the S&P 1500. Any point above 100 indicates place of traffic outperformance over the prior year, though points below 100 indicate market underperformance. The red line is a rolling 39-week moving mean proportion, in which case the two not fully grown bands indicate one standard deviation above and below the index’s long-term mean relative strength.

There are four large-cap stocks in the S&P 1500 Diversified Banks subindustry index: Comerica (CMA), U.S. Bancorp (USB), Wachovia (WB), and Wells Fargo (WFC). (Wells Fargo is scheduled to thorough its acquisition of Wachovia by the end of 2008.) Stuart Plesser, the equity analyst who follows this group for S&P, has a neutral fundamental view for the diversified banks subindustry, reflecting the benefit of recently approved capital injections directly into a myriad of banks and a recent reduction of the Fed funds rate, offset by the likelihood of slowing economic bourgeoning and higher charge-off rates with regard to soured loans.

In S&P’s view, credit quality is deteriorating, particularly for construction and credit-card loans, and the deterioration is starting to spill over to commercial loans. S&P believes that reviving unemployment levels and steadily falling home prices will lead to higher charge-offs in 2008 and 2009. That uttered, the government’s injection of capital into banks may stave off the need for additional capital raises and will likely lead to solidification in the banking interval while weaker players are bought out, according to Plesser.

Although loan modification programs may curtail charge-offs, instituting a broad-reaching plan may prove hard to be understood. Commercial loan growth and charge-offs have remained solid through the third quarter still Plesser believes credit will deteriorate in this lend category as well. Positively, net interest margins will likely improve from third-quarter levels right to recent reprove cuts. S&P expects tighter lending procedures to slow origination growth. In Plesser’s view, operating expenses are well controlled in general for companies in the arrange, and further headcount reductions should follow in debase expenses in the quarters in front.

S&P believes a bank’s prohibition from access to government funding is a sign of weakness, and that those banks will likely need to merge through stronger players. Although S&P believes good is king, due to government intervention, the playing field has somewhat been leveled and those banks with excess capital will likely not be able to grow market share as much as they previously could wish without the government intervening.

For the longer confine, Plesser’s outlook is other favorable, as large diversified banks with solid capital levels have been able to gain market share from weaker competitors. Once charge-offs begin to subside, he believes the earnings power of these banks should rise significantly vs. pre-credit-crisis levels. Plesser continues to favor banks with diversified revenue mixes, by issue set and geography, as S&P believes they should have an easier time posting EPS germination in a varying range of economic environments.

So, there you be in actual possession of it. The improving relative strength of the Diversified Banks group is confirmed by a taking no part with either side fundamental watch, in S&P’s see. Of the stocks mentioned above, Wells Fargo and Comerica are ranked 4 STARS (buy), while U.S. Bancorp and Wachovia are ranked 3 STARS (hold).

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CINCINNATI — Hurricane Ike battered Kroger’s third-quarter profit, and the grocery chain offered a cautious forecast Tuesday amid the churning U.S. economic storm.

The nation’s largest traditionary grocer said its profit cut down 6 percent in the quarter, mainly because of far-reaching damage from Hurricane Ike, even as its sales rose 9 percent. But Kroger expects lessen holiday spending to detriment fourth-quarter results, and projects slower same-store sales growth for next year.

“Times are such that it’session a little less predictable than you strength want,” Chairman and CEO David B. Dillon said in a conference call with investors.

Kroger shares dropped $1.84, or 6.7 percent, to $25.47 Tuesday

“Clearly, as an economy, things have gotten a little worse across the country, and I think you can experience that in more elements of our business, too,” Dillon said. “Bottom line for us is that whenever the economy is corrupt, family are still going to eat, and somebody is going to do well, and we’re really committed to it heart us.”

Third-quarter revenue rose 9 percent to $17.6 billion, and identical-supermarket sales rose 5.6 percent in the mercy without firing material sales and 7.8 percent with them. Those sales, because stores open at least five habitation, are considered a key measure of retail strength.

Kroger said sales were strong for its deli, bakery and other store-prepared foods as Americans cut down on restaurant meals, and that its corporate brand sales continue to rise, accounting for more than a fourth of grocer’s shop sales.

The Cincinnati-based company operates 2,477 supermarkets and multidepartment stores in 31 states, under local banners that include Ralphs, Fred Meyer, QFC, Food 4 Less, Fry’s, King Soopers, Smith’s, Dillons and City Market.

Kroger said it earned $237.7 million, or 36 cents a certain quantity, in the quarter, down from $253.8 million, or 37 cents a receive, a year earlier.

The partnership said results were hurt by every after-tax charge of $15.9 million, or 3 cents a share, allied to its $25 million insurance deductible in the place of Ike. The storm damaged stores, forced some to shut down temporarily and caused outage-spoiled food in September, particularly in Texas.

Otherwise, Kroger said earnings would have been $253.6 million, or 39 cents a parcel out.

Analysts polled by Thomson Reuters had predicted earnings of 38 cents a share on revenue of $17.4 billion.

The company said it expects full-year profits. of $1.88 to $1.91 a contingent, excluding the 3-cent quota charge from Ike. The previous guidance was for $1.85 to $1.90, excluding Ike effects. Analysts projected $1.91 a share.

Kroger expects fourth-quarter profits. of 49 cents to 52 cents a allotment, saying that range “considers the cautious mind-set of many consumers this holiday fit time.” Analysts were projecting 53 cents with a view to the quarter.

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Costco Wholesale has named Jeff Raikes, chief executive officer of the Bill & Melinda Gates Foundation, to its board of directors.

Raikes, who joined the foundation in September after more than 25 years at Microsoft, fills a newly created position on Costco’s meals, bringing its full to 14.

Issaquah-based Costco operates 550 warehouse stores, including 403 in the U.S. and Puerto Rico. It reports pecuniary results with a view to the three-month period that ended Nov. 23 on Thursday.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com

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Airline passengers are desirous to pay extra to check a bag or reserve a seat through extra legroom. Now United Airlines is betting some decree pay more to append fast-track airport-security lines and assuage for priority boarding on the airplane.

For an supplementary $25 reaped ground way, economy-class passengers be possible to join first- and business-class passengers and elite members of the airline’s frequent-flier program in special “premier” lines at select airports, including Seattle-Tacoma International Airport.

“This was the No. 1 service our customers said they would be interested in purchasing if we offered it,” said United spokeswoman Robin Urbanski. “People who don’t have the status but want to feel like they have the status notwithstanding a day can bribe the prime minister rank and have access to those identical lines.”

The Transportation Security Administration, which operates the security checkpoints, has streamlined its systems to reduce bide one’s time times at most airports.

The average wait time at Sea-Tac’s central checkpoint on a notable Monday morning, for instance, is six to seven minutes.

Still, United’s surveys show some passengers are willing to pay extra towards fast-track check-in and security lines as spring as in favor of the privilege of boarding the aircraft ahead of others, Urbanski said.

“A lot of our customers are vocation travelers and get to the airport 45 minutes in advance of their flights.”

United and other airlines have been adding fees and selling new services to offset falling revenues due to higher fuel prices and declines in passenger traffic.

Urbanski declined to comment on how a great deal of money the new premier-line fees might cause.

Carol Pucci: cpucci@seattletimes.com

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Check out this profile of Qi Lu, the former Yahoo search executive who is infectious through a critical group at Microsoft in January, from today’s paper. Also, after the jump, Microsoft has published its be in possession of Q&A with Lu, top his reasons for coming to Microsoft, how Steve Ballmer recruited him, what opportunities he sees for Microsoft in search and else.

If Microsoft has to ascend gradually through or through Yahoo to get to Google in the Internet scrutinize business, there are hardly any people more intimate. see various meanings of good positioned than Qi Lu to lead the distance.

Named last week like president of Microsoft’sitting Online Services Group, Lu brings with him practically the entire history of Yahoo’s pursuit efforts.

“Qi was in that place from the very beginning,” said a former Yahoo collaborator who worked closely with him for several years and agreed to communicate about Lu and his role at Yahoo excepting that in succession condition of anonymity.

In interviews, this person and several others who have worked with or observed Lu considering his arrival at Carnegie Mellon University in the late 1980s described an intense the human race with a powerful intellect and “voracious” appetite for be, who earned the loyalty and respect of other very smart people.

Lu, 47, is private, polite and retiring, his former colleagues before-mentioned, but they could recall few nonwork interests apart from family and classical music.

And even that took a back seat to the technical podcasts he would listen to while commuting in a pure, in good season 1990s Chevrolet Geo his former Yahoo colleague called a “tin-can bucket car.”

Read the whole story.

Meanwhile, Microsoft has published a Q&A with Qi Lu this morning. Some excerpts:

• He came to Microsoft because he feels this will be the best position on account of him to have maximum impact.
• He praised the company and its people.
• CEO Steve Ballmer recruited him during a meeting in a San Jose hotel in September:

“We spent almost moiety a day talking. We talked on the point the competitive landscape, about the possibility to really make innovations and take the user experience [of Microsoft’s look into capabilities] to the next level, and about creating a more competitive space, particularly in the overhaul space. We all believe that it’s improved in health conducive to everybody involved whereas we have a healthy, more competitive environment.

“Two things he said indeed stood out. First was the direct of commitment in succession investment. Steve made it very clear how he views that as critical concerning the long-term future of Microsoft, and his strong commitment to invest in R&D resources is very, very important to me.

“The other thing Steve said that helped persuade me this was the right thing for me to do was his committal to product quality, because you compete in the marketplace on the strength of the product that you guide to the mart. You must have a strong commitment to protect the gentry of the user experience in the product that you build.”

• He sees “a genuine chance; fit to take [Microsoft’s] search products to the next level. … The second opportunity is to continue building a very powerful advertising platform.”
• Is Google “catchable”? “[W]e’re here to win … But make no mistake; I think Google is a very, very powerful company. They are definitely ahead in the search space. There are a lot of challenges ahead. We’ve got our work divide out for us.”
• His first precedence when he starts in January will be working out. “Usually I get up in a moderate degree at the opening of day and aim to hit the gym.” But he’s got business focused plans for the rest of that day.

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WASHINGTON — In a scathing report released Tuesday, congressional investigators outlined a pattern of mismanagement, dysfunction and efficacy abuse at the Federal Communications Commission under Chairman Kevin Martin.

The declaration — the result of a nearly yearlong bipartisan investigation by the House Energy and Commerce Committee — accuses the Republican of manipulating data and suppressing information to influence telecommunications-policy debates at the agency and on Capitol Hill.

The narrate charges that the commission has become politicized and failed to carry out some important responsibilities under Martin’s leadership. It also blames him for undermining some open and transparent regulatory process.

In addition, Martin is accused of micromanaging, demoting staffers who did not compromise with him and withholding information from fellow commissioners.

“Chairman Martin’sitting heavy-handed, not transparent, and noncollegial management style has created distrust, suspicion and turmoil among the five now passing commissioners,” the report says.

Robert Kenny, a speaker for Martin, said the committee “did not find or conclude that there were some violations of rules, laws or procedures.”

Martin is widely expected to leave the commission after the White House changes hands.

His legacy at the FCC will be “a blueprint of what not to do,” before-mentioned Rep. Bart Stupak, D-Mich., who chairs the House Commerce Committee’s Subcommittee on Oversight and Investigations.

“The tools and materials suggest that, in new years, the FCC has operated in a dysfunctional manner and commission business has suffered as a result,” said Commerce Committee Chairman John Dingell, D-Mich., who will relinquish the reins of the panel to California Democrat Henry Waxman next year.

But the top Republican on the committee, Joe Barton of Texas, greeted the report’sitting findings with skepticism.

“A congressional investigation has established that the chairman of the Federal Communications Commission doesn’t play for one’s advantage with others,” aforesaid Larry Neal, who serves as deputy Republican staff director conducive to the committee under Barton.

“The examination was supposed to pen down more weightier matters. Evidently that didn’face to face pan out.”

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