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Before the bell: Futures higher as investors await data

CBS Corp. (NYSE: CBS) announced Thursday it has signed a deal to buy CNet Networks Inc. (NASDAQ: CNET) for $11.50 a share in cash. CNet operates not only the CNET site, but also ZDNet, GameSpot.com, TV.com, mp3.com and others. The deal values CNet at about $1.8 billion and push CBS to among the 10 most popular Internet companies in the United States. CBS shares are down 2.9% in premarket trading while CNET shares are of course up over 42% to $11.31.

IAC/InterActiveCorp (NASDAQ: IACI)'s Ask.com has bought Lexico Publishing Group LLC, the parent of Dictionary.com, Thesaurus.com and Reference.com among other sites. Earlier this year, Lexico already agreed to be sold to Answers Corp (NASDAQ: ANSW), but the latter couldn't secure the necessary funds. Now, Lexico sold itself to Ask.com, for an undisclosed amount, although the number people are throwing around is $100 million. Could this acquisition help IACI gain -- even a little -- on market leader Google?

United Airlines (NASDAQ: UAUA) and Continental Airlines Inc. (NYSE: CAL), dropping ideas of a merger, are now talking about forming an alliance to still gain some benefits of working together. United appears relentless in its attempts to help its bottom line through a merger or an alliance. While talking to Continental about an alliance, it is still negotiating with US Airways Group (NYSE: LCC).

MOST NOTEWORTHY: Airlines, Chelsea Therapeutics and Clearwire were today's noteworthy downgrades:

• Merrill downgraded AMR Corp (NYSE:AMR), Delta Air Lines (NYSE:DAL), Continental Airlines (NYSE:CAL), US Airways (NYSE:LCC) and UAL Corp (NASDAQ:UAUA) to Neutral from Buy citing earnings risk this year from higher energy costs.
  
• Oppenheimer downgraded shares of Chelsea Therapeutics (NASDAQ:CHTP) to Perform from Outperform after their survey suggested physicians believe currently available generic treatments are adequate in neurogenic orthostatic hypotension, which could impact the company's lead drug Droxidopa.
  
• Clearwire (NASDAQ:CLWR) was cut to Sell from Hold at Citigroup on valuation, as they estimate fair value at $13.

OTHER DOWNGRADES:

• Goldman downgraded Kellogg (NYSE:K) to Neutral from Buy and Hershey Foods (NYSE:HSY) to Sell from Neutral.
  
• Piper lowered Orbitz Worldwide (NYSE:OWW) to Neutral from Buy.

Merrill Lynch downgraded shares of Delta (NYSE: DAL), United (NASDAQ: UAUA), US Airways (NYSE: LCC), AMR (NYSE: AMR), and Continental (NYSE: CAL) from "buy" to "neutral," according to Briefing.com.

Deutsche Bank maintained a "buy" on News Corp (NYSE: NWS) saying the company is less expensive than its peers, according to the AP.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

Higher oil prices and the surging aviation fuel costs they imply may reduce the benefits of an airliner merger, such as the potential deal between United Airlines and U.S. Airways, but they don't eliminate a merger's long-term positives, an analyst argued Tuesday.

Further, C. Leonard Bauer, independent stock analyst, told BloggingStocks Tuesday the potential United-US Airways union would benefit the sector in that it would be the second merger this year among major airlines in the United States, also known as the legacy carriers.

Shares of UAL Corp. (NYSE: UAUA), parent of United Airlines, are down 88 cents to $14.10, while US Airways (NYSE: LCC) are down 55 cents to $7.79 in Tuesday trading.

Sector right-sizing

"The deal would take another legacy carrier off the table, after the Delta-Northwest merger, and that can only help the sector from an earnings standpoint," Bauer said. "The United States airline sector leads the league in airline route redundancy and duplicate hubs. This second deal would further tighten the sector."

Reading the paper everyday means seeing a headline that another airline merger is in the offing. The most recent wave of articles is on a United Airlines (NASDAQ: UAUA) merger with US Air (NYSE: LCC). It is yet another example of two carriers hoping that they can get together and save costs, without alienating customers in the process.

According to The Wall Street Journal, "The companies have identified more than $1.5 billion in potential cost savings and revenue enhancements from joining forces." The word "potential" is the key.

Airline employees who are in unions have a good chance of shutting down a merged airline if they think they will loss a ton of jobs. Pilots, flight attendants, and mechanics all have plenty of leverage. A combination of United and US Air would have almost $10 billion in revenue a quarter. It would not take a very long strike to eat through $1.5 billion of that.

The number of pending mergers is also almost certain to get some of them canceled by The Justice Department. Members of Congress who have employees on airline payrolls are also likely to take a position. Today, the US has at least five major carriers. If Delta (NYSE: DAL) and Northwest (NYSE: NWA) get married, that cuts consumer choice down by a lot.

Don't count on a United hook up with US Air. It is not likely to happen.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

Before the bell: Futures lower after Microsoft's Yahoo deal fails

Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) reported a 64% drop in quarterly profit late Friday. At the company's annual meeting this past weekend, the legendary investor said that while a Berkshire unit has bought portfolios of subprime mortgages (and has frozen resets that were due to send interest rates on those loans higher) he warned investors that housing-market weakness isn't over yet and predicted more losses for banks. At the same time, Buffett said Sunday he will consider investing in the insurance business of U.K. banking giant Royal Bank of Scotland (NYSE: RBS) and is close to buying a medium-sized company in the country.

Hovnanian Enterprises Inc. (NYSE: HOV) estimated on Monday it would take $225 million to $275 million of land-related charges for the that fiscal second-quarter and said that home deliveries dropped 21% to 2,494 homes in the period. The company also turned cash-flow positive faster than it expected and tripled its full-year estimate of cash flow.

After being rejected by Continental Airlines Inc. (NYSE: CAL) last month, United Airlines parent UAL Corp. (NYSE: UAUA) is intensifying merger talks with US Airways Group Inc. (NYSE: LCC), according to The Wall Street Journal. A deal is said could emerge in as soon as 10 days. In light of rising fuel costs, the more than $1.5 billion in potential cost savings and revenue enhancements the companies see from joining forces is no doubt appealing more and more.

Another day. Another merger of two struggling airlines.

This time it''s UAL Corp.'s (NYSE: UAUA) United Airlines and US Airways Inc. (NYSE: LCC), which together lost more than $773 million in the first quarter are reportedly in are "advanced" merger talks, two sources familiar with the situation told The Associated Press. These "sources" may be public relations people who are leaking details of the deal at the direction of the investment bankers and the companies themselves.

Wall Street is reacting positively to the news sending shares of US Airways in mid-afternoon trading. I am not so sure a celebration is in order. For one thing, as Reuters and the Associated Press both have noted this is a marriage of necessity.

"The discussions intensified over the weekend after Continental Airlines Inc, which had been in negotiations with United, pulled out to explore a potential marketing alliance with AMR Corp's American Airlines and British Airways Plc," according to Reuters.

The combined company would have to compete against the combined Delta Airlines Inc. (NYSE: DAL) and Northwest Airlines Corp. (NYSE: NWA) which will create the largest airline.

Airline mergers have had such a lousy track record, what makes people think these will be any different?

It seems that despite Apple's crushing earnings and sales estimates Wednesday and Ford swinging to profit this morning, investors are wary of earnings. Stock futures declined early Thursday following Amazon's earnings, Starbucks' profit warnings as well as other companies. In addition, debate over an expected pause in the Federal Reserve recent wave of rate cuts as well as some data seem to leave investors more on a cautious mood this morning.

U.S. stocks ended higher on Wednesday after better-than-forecast results from Boeing (NYSE: BA) helped sentiment on the Street, albeit in a choppy manner. The Dow industrials finished nearly 43 points higher, or 0.34%, the S&P 500 rose almost 4 points, or 0.29%, and the Nasdaq Composite rose 28 points, or 1.29%.

Today, several economic reports are due out. At 8:30 a.m., weekly initial jobless claims will be released, as well as March durable goods orders. At 10:00 a.m., new home sales will come out, where another drop is expected.

Anyone planning a vacation this summer should remember two words: AirTran and Jet Blue Airways Corp. (NASDAQ: JBLU).

Those were the two airlines that came out on top of a national survey of airline quality released today that underscored the sorry state of the industry. Anyone who has flown since 9-11 knows that getting your teeth pulled is more fun. Planes are filled to the brim and are often late. Luggage often goes on magical mystery tours that bypass your destination.

Last year was more of the same, according the Associated Press

"There were more lost bags, more bumped passengers, more consumer complaints and fewer on-time flights than in the previous year," the story says. "The rate of consumer complaints was up 60 percent. US Airways (NYSE: LCC) had the most complaints last year. Southwest (NYSE: LUV) had the fewest."

Bad airlines are bad for the environment because it encourages more casual fliers to drive to their destinations. Even with soaring gas prices, flying isn't worth the trouble. I may have to fly this summer and I'm already dreading it.

--Freelance writer Jonathan Berr edits the blog Ketchup and Eggs.


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MOST NOTEWORTHY: The airline sector, Siemens and Internap were today's noteworthy downgrades:

• Lehman downgraded the airline sector to Neutral from Positive, citing higher fuel costs and the weakening economy. AirTran (NYSE: AAI) and U.S. Airways (NYSE: LCC) were downgraded to Equal Weight from Overweight. UBS said it can no longer recommend airline stocks due to weakening economy, high fuel prices, and less likely industry consolidation. The firm downgraded Continental Airlines (NYSE: CAL), Delta Air Lines (NYSE: DAL), Northwest Airlines (NYSE: NWA) and U.S. Airways to Neutral from Buy.
  
• Goldman removed shares of Siemens (NYSE: SI) from their Conviction Buy List as they believe the company may book additional charges of $1.2B this year.
  
• Jefferies cut Internap (NASDAQ: INAP) to Underperform from Buy as they believe the 10-K filing delay and revenue quality questions reduce visibility into the health of the business.

OTHER DOWNGRADES:

• Wachovia lowered Amgen (NASDAQ: AMGN) to Market Perform from Outperform.
  
• SI International (NASDAQ: SINT) was downgraded to Neutral from Outperform at Cowen.
  
• Citigroup cut Assured Guaranty (NYSE: AGO) to Hold from Buy.

UBS upgraded airliners including AMR Corp. (NYSE: AMR) from Sell to Neutral, Continental Air (NYSE: CAL), Delta Airlines (NYSE: DAL), UAL Corp. (NASDAQ: UAUA) and US Airways (NYSE: LCC) from Neutral to Buy. Delta was also upgraded by Bear Stearns from Peer Perform to Outperform. Most of these are gaining 3-5% in premarket trading.

Other notable calls include:

• LDK Solar (NYSE: LDK) was upgraded from Sector Underperform to Sector Perform at CIBC World Marktes. Shares are up 5% in premarket trading.
• Garmin (NASDAQ: GRMN) was downgraded by Deutsche Securities from Buy to Hold and the target price lowered from $125 to $90. Down 3% in premarket.

In addition to reaching an agreement with the EU today regarding its prices on iTunes downloads, Apple Inc. (NASDAQ: AAPL) Bloomberg reports that Apple will announce a new service on Jan 15 where iTunes users will now be able to rent movies for 24 hours for $3.99 as well as buy them. Apple will add News Corp. (NYSE: NWS) Fox and Time Warner (NYSE: TWX)'s Warner Bros. as suppliers, "according to people familiar with the agreements." Viacom Inc. (NYSE: VIA)'s Paramount, Walt Disney Co. (NYSE: DIS) and Lions Gate Entertainment Corp. (NYSE: LGF) will also be part of the agreement.

As regular readers may have observed I am one to mull things over a while before offering up a slice of investment opinion pie. A few weeks ago Barron's (subscription required) ran a cover story titled "Open Skies" discussing the imminent deregulation of trans-Atlantic air routes.

In this context they reviewed the potential for airline mergers, (something I have written about before in Why no airline mergers? Finally the answer...) and they commented on who the winners and losers might be. The article highlights the fact that there has been a 30 year agreement in place, "the Bermuda airline agreement" that limited Heathrow-U.S. air traffic to just four airlines: two British and two U.S. Other foreign airlines were barred flying to the U.S. except from their own nation's airports.

Under terms of a new agreement cast last April U.S and European Union airlines departing 27 nations will be able to fly direct routes. Barron's does a fairly thorough analysis in my view of the potential success among various airlines and those that may come up short.

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MOST NOTEWORTHY: The airline sector, Boeing and UBS were today's noteworthy downgrades:

• Morgan Stanley downgraded the airlines sector to Cautious from Attractive citing higher fuel prices and the weakening economy. The firm lowered AMR Corp (NYSE: AMR) to Underweight from Equal Weight and Northwest Airlines (NYSE: NWA) and US Airways Group (NYSE: LCC) to Equal Weight from Overweight.
  
• Morgan Stanley also downgraded Boeing (NYSE: BA) to Equal Weight from Overweight and has concerns that the 787 will not be retired as early as they previous believed.
  
• Lehman downgraded shares of UBS (NYSE: UBS) to Underweight from Equal Weight following the company's $10B write-down and capital injection from Singapore, which they point out will dilute existing shareholders.

OTHER DOWNGRADES:

• Credit Suisse lowered SAP AG (NYSE: SAP) to Underperform from Outperform.
  
• Goldman downgraded MGIC Investment (NYSE: MTG) to Sell from Neutral.
  
• Merrill downgraded Wachovia (NYSE: WB) to Sell from Neutral.