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1. Two Points of InterestAlan Farley
4/8/2009 1:26 PM EDT 1. Insurers have been getting sold all day, after gapping higher on news of TARP eligibility. They've just taken another leg down in the last half hour, which will make a late-day recovery more difficult. 2. Retailers are up big ahead of March same-store sales data to be released after the close and before Thursday's open. This type of positive action into the data usually triggers a sell-the-news trade. Intraday Prudential Financial ( PRU) chart here.
2. AT&T Strike Is Likely but a Long-Term PositiveDavid Eller
4/8/2009 12:46 PM EDT AT&T's ( T) employment contract with the Communications Workers of America (CWA) expired on Saturday, and the threat of a strike has recently pressured the stock. However, the key sticking points being negotiated are not comparable with those of competitors or non-union management. The likely outcome is a compromise that will boost EPS by 2 cents to 4 cents in the next 12 months. AT&T has had numerous outages by trying to maintain its existing wireless network in the face of an exponential traffic increase generated by Apple's ( AAPL) iPhone. Additionally, the exclusivity window is closing, and this is no time to have increased downtime. However, a high-level contact indicates that AT&T's management will let the strike occur because it will highlight the discrepancy between union and non-union benefits. A long-term strike has the potential to hurt the company by increasing churn, but if it is short lived, it will result in an operating expense benefit of 2 cents to 4 cents to EPS over the next 12 months. While this small contribution wont have a significant impact on valuation, the stock is likely to close the gap to $27 for safe 5% trade. The expired union agreement covers 112,000 employees, of which 80,000 are focused on the landline business. Considering the migration away from landlines to mobile, it should be no surprise that the company wants to reduce costs in this non-strategic area. According to the CWA, the sticking points are 1.) AT&T is trying to shift a portion of its health care costs to employees, and 2) the company wants to end retirement health care coverage and pensions for new hires. The union benefit packages, however, are not comparable with those of competitors or non-union management. This is why the company believes a strike will result in the shift of public opinion away from the union.