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Early Edge: Compass Minerals, Southwest Airlines, First Solar, Inc., and Apple Inc.

A rumored buyout bid could potentially create the world's biggest salt company

by 3/3/2009 9:29:10 AM
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Today's column includes merger-and-acquisition speculation for Compass Minerals International, Inc. (CMP), a revenue warning from Southwest Airlines Co. (LUV), a "watershed acquisition" for First Solar, Inc. (FSLR), and some new additions to the Mac family from Apple Inc. (AAPL). Each day, Early Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.

Compass Minerals International, Inc.

The shares of Compass Minerals International, Inc. (CMP: View sentiment for CMPsentiment, chart, options) are bouncing higher ahead of the open, thanks to speculation that German fertilizer firm K+S AG might launch a buyout bid. "K+S does want to make an acquisition in the U.S. and in the salt area, and Compass comes up as the best fit for K+S," a source close to the matter told Reuters. The acquisition of CMP would make K+S the largest salt producer in the world.

According to reports, the acquisition offer could be priced at $2.4 billion, or $78 per share. The board of K+S is scheduled to meet in mid-March, says the Reuters source, to determine if they are comfortable with their financing situation and whether to proceed with the offer.

In pre-market trading, CMP is up 1.7%. The stock could catch a boost today if short sellers are spooked into covering their bearish bets, as short interest represents a significant 5.8% of the equity's float.

However, any short-squeeze rally would likely be short-lived, as this accumulation of shorted shares translates to just 1.6 times the security's average daily volume. Additionally, technical resistance looms overhead from CMP's 20-day moving average, which capped Monday's gains.

Southwest Airlines Co.

Southwest Airlines Co. (LUV: View sentiment for LUVsentiment, chart, options) reported its February traffic figures last night, and the company confessed to a "significant" decline in business passenger traffic. LUV said that passenger revenue per available seat mile (PRASM) has increased roughly 2% for the first 2 months of the year, suggesting that this metric experienced a sharp contraction in February following January's jump of 6%.

LUV price chart"As a consequence of the continued deterioration in revenue and booking trends and the current economic environment, the company's revenue outlook for the remainder of the year is more cautious," warned LUV.

Shares of the airline are modestly higher ahead of the open, defying the dismal outlook. However, LUV remains trapped beneath resistance from its 10-week and 20-week moving averages, which have pressured the stock lower since September 2008.

If today's warning attracts the attention of analysts, LUV could be hammered with price-target cuts. The stock's average 12-month price target stands at $11.20, a premium of 103% to Monday's closing price.

First Solar, Inc.

Late Monday, word hit the Street that First Solar, Inc. (FSLR: View sentiment for FSLRsentiment, chart, options) acquired OptiSolar's pipeline of solar projects for $400 million in stock. The pipeline includes projects at various stages of development, including a high-profile, 550-megawatt installation for PG&E Corp. (PCG). First Solar CEO Mike Ahearn called the deal a "watershed acquisition," adding that the purchase will "catapult us into a whole new league."

The acquisition is expected to decrease FSLR's earnings per share by 35 to 40 cents for 2009, and provide a modest boost to earnings in 2010. Revenue for 2009 is expected to jump by roughly $70 million.

A couple of analysts have adjusted their price targets on FSLR ahead of the open. Citigroup dropped its target from $160 to $130 and backed its "hold" rating on the stock, while Lazard upped its price target from $140 to $145 and reiterated a bullish "buy" opinion.

Investors aren't nearly as ambivalent as the brokerage crowd. Traders are cheering the news ahead of the open, sending FSLR up 5.3% in electronic trading. With the stock poised to bounce off support at the century mark, bears might be rushing to cover today -- short interest accounts for a healthy 11.5% of FSLR's float.

Apple Inc.

Apple Inc. (AAPL: View sentiment for AAPLsentiment, chart, options)

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