Investors sent shares of AMR (AMR),
Financing is the lifeblood of the airline industry, and the breadth and complexity of AMR's deal is a sign not only that the company is in better shape, but that the broader economy is starting to improve.
AMR got $1 billion from the sale of some AAdvantage frequent-flier miles to Citigroup (C),
AMR has worked hard to pay down debt over the past several years according to Morningstar analyst Basili Alukos, it's knocked out about $1.1 billion. Analyst Helane Becker of Jesup & Lamont pointed out that AMR had debt due Oct. 4 and the capital raising affords them more flexibility.
Chairman, President and CEO Gerard Arpey said on a Thursday conference call that flexibility was crucial in the wake of a severe economic downturn. Arpey said consolidating the airline's hub system Dallas/Fort Worth, Chicago, Miami and New York will keep expenses in check. The company also announced its American Eagle unit planned to buy of 22 CRJ700 aircraft from Bombardier, with plans for delivery in 2010.
Becker says airlines were some of the only companies that were able to raise money when credit markets were all but frozen over the past eyar, but that it came at costs of 13% to 17%. Now, at least, AMR is doing it in an improving environment, and this financing package can be lumped in with increasing home sales and other signs of an improving economy.
Bottom Line: Sell
Take profits on this big jump, let the dust settle and find another attractive re-entry point if you still think airlines are in a position to record genuine organic growth.
Investors rebooted after Oracle (ORCL)
The Silicon Valley database software maker said revenue for the quarter ended Aug. 31 dropped about 5% to $5.05 billion, from $5.33 billion a year ago and below Street estimates of $5.2 billion. It earned 30 cents a share, in line with analyst estimates. Earnings rose by a penny a share.
On a Wednesday evening conference call, Oracle President Safra Katz said the company's slow sales were both seasonal and due in part to rival SAP.
"We had slower-than-usual growth in database middleware license revenue in Europe and (Asia Pacific). This is a result of two factors, a very tough year-over-year comparison, and the impact of some of our software company resellers, most notably SAP, who is selling less database because its applications business is down 40%," Katz said. The second quarter is off to a stronger start, Katz said, and that may also see a secular pickup as economic conditions improve.
Some Analysts were also concerned that Oracle's blockbuster merger with Sun Microsystems (JAVA)
While Oracle drew praise for keeping costs in line and reducing expenses, Benchmark analyst Brent Williams saw the drop in the company s database licensing revenue (-22% versus an expected 10% drop) drop as a major issue. "Management attributed this to weakness in Europe and Asia/Pacific and a difficult comparison from the prior year when several large deals closed, Williams wrote Thursday. However, our numbers accounted for the tough comparison, so it s hard to characterize this performance as other than execution."
Bottom Line: Buy
The stocks decline may be a decent opportunity for investors who buy into a global recovery story that will factor in big increases in information technology spending.