Investors on Wednesday applauded the policy of a preliminary earnings announcement by insurer Conseco (CNO), which said it expected to meet Wall Street estimates on higher core earnings. Shares popped 38% in early trading.

The Carmel, Ind.-based insurer said Tuesday it expects operating earnings of 22 cents a share in the second quarter, a reflection of higher profits from its Bankers Life segment. A month ago, it shed a number of unprofitable policies in a move to shore up its capital.

The company plans to report earnings Aug. 4, but the much beaten-down stock rallied because the company has increased sales in key segments, such as Colonial Penn and Bankers Life.

"Conseco, on a preliminary basis, and consistent with its first quarter performance, expects to report continued profitability in the second quarter," Chief Executive Jim Prieur said in a statement. "Also consistent with our expectations was an increase in second quarter earnings over the seasonally weak first quarter by our Bankers Life business, which also had a 6% increase over 2008 in core sales for the quarter."

Randy Binner, an analyst with FBR Capital Markets, said Colonial Penn's $11 million profit was about 40% above his own estimates. He added that the in-line results showed improvement in the business's credit losses, which Conseco estimated between $13 million and $25 million, and which Binner called "a manageable result."

One factor in the sharp rise in Conseco shares could be short sellers who were caught out by the insurer's good news. Although only about 5% of its public float was held short as of July 24, there had been a nearly 50% boost in short interest in the previous two weeks, according to ShortSqueeze.com.

Bottom Line: Sell
With Conseco blunting its investment losses and getting better results from its core businesses, today's spike could be a good chance to take profits.

No Yippee for Yahoo on Microsoft Search Deal

Tech giants Microsoft (MSFT) and Yahoo (YHOO) ended a long courtship Wednesday with news of a pending a 10-year search agreement, but investors slammed Yahoo's footwork on the deal. Shares were down 11% in midday trading.

Details on the partnership will be unveiled Thursday when Microsoft holds its annual analyst day. Instead of a full merger, the companies will share search revenue, with Yahoo getting 88% of the revenue generated from its sites in the first five years of the agreement.

"In simple terms, Microsoft will now power Yahoo search while Yahoo will become the exclusive worldwide relationship sales force for both companies premium search advertisers," the companies said in a joint statement.

The preliminary terms of the agreement would put Microsoft's Bing search engine into Yahoo, giving the combined entity a 28% share of the U.S. search market, according to data from ComScore. It's not enough to make 70%-share owner Google (GOOG) quake in its boots, but it raises the viability of better results in video, mobile, and online commerce, where Google dominates.

Thomas Weisel Partners analyst Christa Quarles got to the heart of investor skepticism in a note published Tuesday evening. "Combining search indexes and reorganizing a global sales force across two companies is not a trivial matter and a distraction that Google can take advantage of," she wrote. "It is unclear what the cost savings would be to Yahoo."

Allan Krans, an analyst at Technology Business Research, believes Microsoft got the better end of the deal.

"Through billions in investments, Microsoft bought and built all of the technology and data center capacity it needed to support the online marketplace that is search and advertising," but had a less than 10% share of the market, Krans wrote. "A lack of search volume is not a trivial problem; it s the fundamental flaw that is preventing any success of positive financial return from the business."

Brigantine Advisors analyst Colin Gillis said regulator concerns and privacy laws could be an issue as the deal progresses. He also said Microsoft may be trying to kick-start a weak collaborator.

"We would be more supportive of an agreement if not for our regulatory concerns as Yahoo search is in a decline that may not reverse," he wrote Wednesday.

Collins Stewart analyst Sandeep Aggarwal said Wednesday the estimated $700 million boost to Yahoo earnings could only be considered a positive contribution, but Benchmark analyst Clayton Moran disagreed.

The absence of an upfront payment, his estimate of net annual savings of about $275 million and not getting 100% of search revenue all make Yahoo the weaker partner, he said.

"Additionally, the advertising market is not showing signs of recovery and Yahoo just re-entered a new investment phase," Aggarwal wrote.

Krans called it for Microsoft. "The deal is a clear win for Microsoft, which receives the search volume it needs, without the risk and expense of a full acquisition of Yahoo, all for a fraction of the proposed acquisition price," he wrote.

Bottom Line: Hold
Yahoo is taking a beating, and may for a while, but it's going to get revenue it couldn t generate on its own and that will ultimately help its bottom line.