From Briefing.com: Stocks gained for a fifth session on Tuesday despite slipping into negative territory at the open. The indices were able to push head by 11:30am but the real strength came in the final two hours of trading as a lack of earnings downside surprises sustained hopes for a good Q3. At the close, the Dow added 59.63 to end the day at 9654.61, the S&P tacked on 4.90 for 1039.25 and the Nasdaq ended the session up 14.39 at 1907.85. Tech shares mirrored the broad market with advancers outnumbering decliners by almost 2:1.
Investors have reason to be optimistic, with the U.S. economy clearly on a growth track. But that does not mean underlying fundamentals have kept pace with valuations. After five days of gains, the Nasdaq is up over 6.7%. We reiterate the need for caution. For instance, as we detailed in our Stock Brief on Kemet, valuations are rich while rationalization within consumer electronics threatens to reshape the competitive landscape for component manufacturers. Demand for ever more powerful and portable digital devices, advances in semiconductor manufacturing processes, and end-market price pressures are driving the development of more compact integrated components, and forcing manufacturers, from autos to wireless products to rationalize their cost structures. This is in part achieved through the use of fewer parts and suppliers as was seen in autos in the 1980s and 1990s. The result is components manufacturers with limited product portfolios will find it increasingly difficult to compete in a world where product breadth, technological depth and global reach are all integral to success.
Vishay (VSH, 19.48 +0.35): Vishay, with the broadest product portfolio of semiconductors and passive components in the industry, is well positioned for a recovery and to capture share in the event of a shake-out. Company is beginning to reap the benefits of cost rationalization initiatives undertaken over the past few quarters. Attractively valued at 1.4x Reuters Research consensus C03E sales of $2.178B and 1.3x C04E sales of $2.335B; 59x C03E EPS of $0.33 and 28.2x C04E EPS of $0.69.--Ping Yu, Briefing.com
6:05PM Tuesday After Hours price levels vs. 4pm ET: The tone of the after hours session is rather subdued - with the S&P futures, at 1038, flat with fair value, and the Nasdaq 100 futures, at 1395, also flat with fair value - but for once, that is not due to a lack of corporate announcements. Indeed, several companies reported their quarterly earnings, or made changes to their outlooks, in a telling sign that the September quarter earnings season is beginning to ramp up.
Tonight's headliner has been Alcoa (AA 28.82 +0.63), the company that is recognized with kicking off the start of a reporting period. The world's leading producer of aluminum topped what could be considered lofty analyst expectations (See Briefing.com's preview of Alcoa's report) by exceeding the Q3 (Sept) Reuters Research consensus EPS estimate by $0.03, at $0.33. The strong bottom-line performance was fueled by solid gross margin expansion (to 20.8%, the company's best rate in two years), and was also aided by a 3% increase in total revenues, to $5.3 bln. Shares of AA have traded higher as a result of the report.
Another Dow component that is making headlines tonight has been McDonald's (MCD 24.71 -0.01). After Smith Barney upgraded stock of the fast food operator (during the regular session) to Buy from Neutral citing expectations of stronger sames store sales momentum, McDonald's reported a 10% increase in US comparable store sales during September, and a 9.5% rise during Q3 (Sept). The company also said that McDonald's brand same store sales increased 3.7% for September and 3.9% for the quarter in constant currencies. Jim Cantalupo, McDonald's Chairman and Chief Executive Officer, commented "our U.S. business is ahead of the pace we set for ourselves at the beginning of the year."
In keeping with the restaurant theme, YUM! Brands (00C 32.60 +1.03) reported a 10% increase in Q3 (Sept) EPS, to $0.54, which was $0.02 ahead of the consensus estimate. Revenues rose 4%, to $1.99 bln, and US blended same store sales increased 1%. Due to the strength of its largest businesses in its global portfolio, the proprietor of KFC and Pizza Hut restaurants (among others) raised its FY03 (Dec) EPS guidance to atleast $2.03 (consensus of $2.01). Yum! also said it saw Q4 EPS of $0.62, which was in line with the consensus expectation.
Among the most actively traded stocks in the extended session is Borland (BORL 8.90 -0.79). Stock of the software maker has slumped 8% after the company warned for Q3 (Sept). After guiding EPS to $0.03-0.05 on July 24, Borland said that seasonality and weaker than expected sales would cause the bottom-line to check in at breakeven to $0.02. The company also indicated that revenue should be below the consensus estimate, forecasting $69-71 mln against the consensus of $75.3 mln. Competitors of BORL include the likes of BEAS, IBM, MSFT, ORCL, and SUNW.
Finally, shares of Pinnacle Systems (PCLE 7.68 -0.67) have also tumbled due to a weaker than expected 1Q04 (Sept) outlook. The supplier of video solutions said that net sales should be approximately $71 mln, and that it should report a net loss of $0.12 per share. The Reuters Research estimates stood at $71.8 mln and a loss of $0.02, respectively. The company blamed the shortfall on sales and margins that were softer than expected, most notably in its US consumer products business.
For more detail on these, and other developments, be sure to visit Briefing.com's In Play, Earnings Calendar, and Guidance pages. -- Heather Smith, Briefing.com
3:08PM Skyworks viewed favorably by Pacific Growth going into earnings (SWKS) 10.51 +0.41: Pacific Growth is highlighting SWKS as the stock to play for the qtr. Firm believes that stock has been choppy of late as investors express concern that the co has not pre-announced upside in the quarter while a number of its competitors have. Pacific Growth believes that once investors get more comfortable that the co is on plan with its product introductions, platform ramps and ASP increases, the stock could move higher. Firm is expecting SWKS to exceed consensus for the qtr, and thinks co could provide one of the more positive surprises
2:42PM Broadcom strength attributed to technical breakout (BRCM) 30.71 +1.55: -- Update -- Numerous trading desks searching for reason behind BRCM's price strength today. The top reason we're hearing is that money is moving into stock following its technical breakout above its 52-wk high. (This level was highlighted in Briefing.com's Technical comment on BRCM at 09:53). Also some talk that investors/traders getting long in anticipation of co beating numbers when co reports next week.
2:39PM Marvell probing resistance (MRVL) 41.03 +0.24: -- Technical -- Afternoon advance brought MRVL back near resistance at Friday's high of 41.15 (session high 41.11) before it paused. The pullback has been limited in scope with the issue near these levels again in recent action. A secondary barrier of interest is slightly above at the Mid-Sep high of 41.23.
2:00PM Merix target raised to $22 at Needham (MERX) 17.62 +0.27: Needham reiterates their Buy rating and raises their target to $22 from $18; firm believes that MERX has reached an inflection point in orders that should produce near breakeven in Q2 and a solid profit in Q4; co has indicated that broad-based demand has accelerated, with a book/bill ratio for fiscal Q1 of 1.19, which has triggered the completion of the first phase of a new plant in Oregon that will initially add about 30% more capacity; firm .
11:45AM Applied Materials upgraded to Neutral at First Albany (AMAT) 19.45 +0.14: -- Update -- First Albany upgrades to Neutral from Underperform based on their belief that order momentum is set to accelerate in the near future and that the stock will perform well with positive news flow; however, firm says valuation remains an issue, and they believe that the spike in orders will be short-lived and that capital intensity is declining for the semi industry on a secular basis. Target is $20.
10:30AM B. Riley comments on Rambus appeal win; target $37.50 (RMBS) 26.75 +0.95: -- Update -- B. Riley says that yesterday's U.S. Supreme Court "Infineon vs Rambus" ruling was important for a number of reasons: 1) court cleared RMBS of fraudulent conduct at JEDEC; 2) court upheld the CAFC's Markman, which firm believes gives RMBS the clearly superior hand in its forthcoming infringement trials (firm expects this to be applied to MU and Hynix litigation as well); 3) court remanded the infringement case back to Virginia with a new, broadly construed Markman claims construction; and 4) court condemned the JEDEC standards setting body's patent disclosure policy as comprising a "staggering lack of defining details." Maintains Buy rating and establishes $37.50 target.
9:33AM Broadcom started with a Neutral at Fulcrum (BRCM) 28.94 -0.22: Firm starts coverage of issue with a Neutral with a negative bias. Firm questions the sustainability of growth fundamentals of co as Fulcrum expects: a) lower overall growth from its more mature businesses; b) increased competition in most markets; and c) continuous pressure on filling a new product pipeline.
Acacia Research (ACTG) 6.05 +0.45: ThinkEquity takes a look at ACTG, which has sent letters to several large online degree players seeking enforcement of its streaming media patents. The co has targeted DeVry and Capella Education, along with a number of not-for-profit schools. The news caught most of the cos by surprise as they are generally license holders of Real Networks and/or Microsoft Player. Even those that did not receive a letter told the firm they are hurriedly consulting with patent attorneys. The firm says that regardless of the merits of its claims, Acacia has arrived, and whether in the form of a royalty payment, or attorney's fees, it seems its existence will cost the industry something. Firm says a 2% royalty is the worst case scenario and is unlikely to cause much permanent damage. But ACTG is small and could be in for a fight.
Advanced Micro (AMD) 12.79 +0.63: UBS upgraded to Neutral from Reduce and raised their target to $12 from $5; firm believes that AMD's flash biz is doing well this qtr, and that investors will be focusing on breakeven and Athlon 64 units in 2004 rather than processor share losses, which should continue through 2004.
Altera (ALTR) 6.05 +0.45: UBS upgraded UBS to Buy from Neutral based on valuation; as the high Street ests have been brought back to more reasonable levels, they think the recent stock price decline has created a buying opportunity. Target is $22.
Metrologic Inst (MTLG) 40.05 -0.75: After the close, announced 2-for-1 split.
Transmeta (TMTA) 3.68 +0.70: JMP Securities initiated coverage with a Strong Buy rating and $5 target; after falling behind Intel and AMD in processor development, firm believes TMTA has restructured and is poised for a turnaround sparked by its new Efficeon mobile PC processor, which could potentially gain 5% mkt share in the 50-mln unit mobile PC mkt by 2005, yielding about $200 mln in sales given a $75 ASP; meanwhile, TMTA's flagship Crusoe processor should continue to ramp in embedded/thin client applications.
Applied Materials (AMAT) 19.88 +0.57: First Albany upgraded to Neutral from Underperform based on their belief that order momentum is set to accelerate in the near future and that the stock will perform well with positive news flow; however, firm says valuation remains an issue, and they believe that the spike in orders will be short-lived and that capital intensity is declining for the semi industry on a secular basis. Target is $20.
Brooks Automation (BRKS) 24.20 +1.20: After the close, filed $200 mln mixed shelf.
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