Up and down the East Coast today, there's enough cold, grey rain to go around. At times like these, we can't help but dream of retiring to a sunny, warm island somewhere, pina colada in one hand, trashy book or iPod in the other. But then the nagging thoughts begin, especially, "Will we have enough money to fulfill that wish someday?"

Robert Brokamp, our resident retirement genius, has the answers to help us get there. If you haven't already, check out his article from yesterday, "What Retirement Will Cost." And if you'd like to take an additional step toward shoring up your future of leisure, why not sign up for a free trial to The Motley Fool's Rule Your Retirement newsletter? There's no obligation, and heck, your 401(k) will thank you for it.

In today's Motley Fool Take:

Is MCI Junk?


Bill Mann (TMF Otter)

For a company that just ascended from bankruptcy, MCI(Nasdaq: MCIP) still has a lot of debt on its ledgers -- $5.9 billion as of its most recent 10-Q. It also has a substantial cash pile, $5.6 billion. Now that the S&P has assigned a non-investment grade of B+ to MCI corporate paper and senior unsecured notes, the question is whether the company will use some of the assets in column B to lower its exposure in column A. This is not ideal.

MCI's indentures have what is called a "reset" feature on them. If both S&P and Moody's(NYSE: MCO) rate MCI's corporate debt below investment grade, then the interest rate that the company pays on them may increase by as much as 2%. With the company's capital structure so heavily levered, such an outcome would cost MCI millions (about $60 million per 1% per year) in increased financing costs each year on existing debt. It would also substantially affect the attractiveness of additional financing for the firm, which S&P believes that MCI will pursue to fund stock buybacks as well as its bodacious 8% dividend, the latter of which costs the company $127 million per quarter.

As Philip Durell noted when he selected MCI in the Inside Value newsletter, this company isn't exactly the high-flier it used to be. The telecommunications business, particularly the legacy long distance voice segment that MCI dominated along with AT&T(NYSE: T) and Sprint(NYSE: FON) for the better part of the 1980s and 1990s. Overconfidence in the mid-1990s led to overcapacity, which led to overcapitalization, which led to a large number of bankruptcies, including that of MCI itself in 2002. With the VoIP revolution in full swing, upstart companies like 8X8(Nasdaq: EGHT) and deltathree(Nasdaq: DDDC) are gnawing on the long distance cash cow, adding further pressure on these companies without really accruing much in the way of economic profits themselves. It should thus be no wonder why each of these former titans is seeking out partners for merger or acquisition.

MCI's shares barely budged on the news, while its bonds lurched higher. At the moment, MCI's senior notes due in 2014 trade at 106.5, which is a premium to face value. This leads to the other part of Philip's thesis on MCI: The company is priced as if a second collapse of the equity is probable. Given that MCI's plan is to limit its capital expenditures and pay out as much of its cash flows as possible to shareholders, all while dressing itself up for potential acquisition, I think that the bond pricing gives a much better picture of the staying power of the company. And when it comes right down to it, anyone who has been watching telecom for a while should not be surprised that there is still plenty of question about whether all of the capital dedicated to it will generate an economic return.

See also:

Bill Mann owns none of the companies mentioned in this article.

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Altria's Pricey Smokes


Seth Jayson (TMF Bent)

Though there are plenty of reasons investors might worry that tobacco's days are numbered, the folks over at Altria Group(NYSE: MO) don't seem too worried. Today the headlines buzzed with confirmation of a long-predicted price hike. Really it was more like the revocation of a wholesale markdown, with the final effect estimated at about a dime a pack.

Is this really good news for the entire industry, as is being so widely reported today? If so, it's worth only a half a point at big producers such as Reynolds American(NYSE: RAI) and Imperial Tobacco(NYSE: ITY). The steady consumption of tobacco despite heavy taxes, odd fire regulations, and the sometime-pariah status of smokers might suggest that tobacco companies have some degree of pricing power, but the quarterly market-share results prove that this is a complex dance. Smokers will move to cheaper butts if they have to, which is why investors shouldn't get overly excited by the short-term positives heralded by the move. If consumers migrate to other brands, you can bet the coupons will come back.

That's not to say investors shouldn't look at tobacco stocks, which have been pretty decent performers lately, not surprising given the solid results they've been posting. Perhaps it also reflects easing fears about litigation overhead -- something there's less of at UST, which butters its bread with smokeless products. Despite Altria's recent price recovery, there could be more upside ahead. Measured by P/E and enterprise value-to-free cash flow ratio, it's still cheaper than the peers mentioned here, and it's got superior margins to all except UST.

For related Foolishness:

Seth Jayson has positions in no firm mentioned.

Quote of Note

"True friends stab you in the front." -- Oscar Wilde

Peter Lynch the Grocer


Rich Duprey

I gotta admit I did a double take. The press release read: "Winn-Dixie Appoints Peter Lynch President and CEO."

No, it's not that Peter Lynch.

Supermarket chain Winn-Dixie (NYSE: WIN) ousted its current CEO Frank Lazaran and replaced him with a namesake of the all-star investor. It's a shakeup that probably wasn't completely unexpected -- in light of the grocer's recent poor performance. The company has been in a tailspin for the past six years, losing more than 85% of its value, and there seems to be little sign of the malaise abating.

Peter Lynch comes to Winn-Dixie from competitor Albertson's (NYSE: ABS), the No. 2 grocery chain that has itself only recently rebounded. Supermarkets and grocery stores in general, including Kroger (NYSE: KR) and Safeway (NYSE: SWY), have been feeling the pinch from labor disputes that upset the apple cart. Add in discount retailers moving onto their turf and one sees a picture of supermarket turmoil.

Earlier this year, Winn-Dixie announced a turnaround plan that included strengthening the brand, cost cutting, market analysis, and store remodeling. But when Lazaran said, "This company needs to change," he probably didn't have his own job in mind. Yet with the chain trading below book value of $5.40 per share, declining revenues of $2.3 billion, and a cash-flow-negative status, the board of directors undoubtedly felt the fish was rotting from the head down. The larger-than-expected $153 million loss in first quarter results, coupled with the decision for the company to be dropped from the S&P 500 stock index, only hastened his departure.

While at Albertson's, Lynch presided over an asset rationalization initiative as well as a $500 million reduction program that led to an 18% increase in net income, a 15% increase in sales, and earnings per share that would have been in line with analyst expectations had it not been for the devastating hurricanes that swept through the Southeast this past summer.

He'll have his work cut out for him at Winn-Dixie. The grocer has been losing market share to the likes of Wal-Mart (NYSE: WMT), Costco (Nasdaq: COST), and privately held Publix, and it expects to close 124 stores by next April. It's sure to be a period of protracted pain.

Whether Peter Lynch the grocer can turn in results similar to those of Peter Lynch the mutual fund superstar remains to be seen.

Fool contributor Rich Duprey is easily distracted by bright shiny objects. He owns shares of Wal-Mart, but does not own any of the other stocks mentioned in this article.

Sirius' Sobering Slide


Rick Aristotle Munarriz (TMF Edible)

While digital radio satellites may know their way around the laws of gravity, it seemed as though shares of Sirius Satellite Radio(Nasdaq: SIRI) were destined to defy its existence. The stock had been on an eye-opening tear over the last two months.

Back in October I wrote about how the company mattered again. It had just signed up Howard Stern to a multiyear, multichannel contract, and despite having a whopping 1.3 billion shares outstanding -- and counting -- it was a worthy candidate for our Rule Breakers newsletter at $3.70 a share.

Yet my optimism for continued near-term gains was put to the test when the stock soared, lapping past the market cap of its larger rival XM Satellite Radio(Nasdaq: XMSR). Yes, I know that with Stern and the savvy hiring of Viacom(NYSE: VIA) radio guru Mel Karmazin it was just a matter of time before Sirius began signing up more digital radio listeners than XM, but that was supposed to be our little secret. The market wasn't supposed to discount that this early in the SatRad arms race.

When the stock lapped the $6.66 mark two weeks ago I warned, tongue-in-cheek, that it was suffering from satanic possession. While I was a firm believer in the company's long-term prospects, it was wrong to ignore both its pricey valuation and the critical concerns posed by some fellow Fools.

Yet the stock defiantly marched higher. Topping out at $9.43 before gravity got the better of the shares, the stock fell sharply on Wednesday after a pair of analyst downgrades. Yesterday the stock closed at $7.17, pricing the enterprise at a beefy $9 billion.

Is satellite radio going to revolutionize the radio industry? Absolutely. Can you pay too much for front row seats for said revolution? Absolutely.

One has to be realistic. I get plenty of anecdotal affirmations in email form. Yesterday someone wrote me that a satellite radio installer at Best Buy(NYSE: BBY) claimed that he was doing three times as many new car installations for Sirius as for XM. I get glowing outlooks from folks back from car dealer showrooms on the success of installed receivers on new model automobiles.

Channel checks rock. Anyone who remembers our early days of Fooldom can recall the spot on optimism for Iomega(NYSE: IOM) and its first batch of Zip drives. Yet the reality here is that even with the NFL in full swing and with Stern pitching Sirius despite Viacom's muzzle, the company has publicly projected that it will sign up only half as many new subscribers as XM will this quarter.

Yes, just yesterday my wife was on strict orders that all I want for Christmas is Sirius. But then there's my brother-in-law, who bought an XM system over the weekend and then got two more for his teen-aged kids in order to take advantage of XM's discounts on additional subscriptions.

As the early adopter columnist in our new Rule Breakers research newsletter, I couldn't be more excited to see early shareholders being rewarded lately in both Sirius and XM. This is going to be an exciting place to be as free radio bites its fingernails to the bone. But just as someone wouldn't overpay for a satellite radio receiver, it's important to pay realistic near-term prices for the satellite radio stocks as well. If your only due diligence is reading a post on a free discussion board that reads "SIRI see $10 by Monday" then you might want to take in some market basics first.

It's okay to get excited about tomorrow -- as long as you understand the lessons and gravity of today.

Longtime Fool contributor Rick Munarriz thinks that XM and Sirius will defy the cynics and the skeptics over the coming years. He only hopes that they learn to treat their income statements and balance sheets a little better. He does not own shares in any of the companies mentioned in this story and is a member of the Rule Breakers analytical team.

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For a list of all our stories from today, see our Today's Headlines page.