From Briefing.com: 4:20 pm : The major averages closed sharply lower Thursday as soaring commodity prices and higher interest rates -- the main reasons behind our Neutral market view -- exacerbated concerns about inflation and Fed policy as aggressive selling efforts weighed on stocks across the board.
On the commodity front, gold prices closed at a new 26-yr high and copper was up 9% at one point early on and finished at another historic high. Further underscoring our Overweight rating on the Materials sector was silver, which closed at its best levels since January 1981. Also, crude oil prices continued to regain some upward momentum, closing up 1.6% at $73.25 a barrel amid ongoing geopolitical concerns tied to Iran and Nigeria as well as refinery outages adding to supply concerns. Neither oil's surge nor gold's gain, however, were enough to provide sector support for Energy and Materials. As this year's top two performers, investors still viewed today's overall bearish sentiment as an incentive to lock in recent gains.
Technology, though, was the biggest drag on the market from a sector standpoint. As if Microsoft (MSFT 23.22 -0.55) missing Q3 (Mar) forecasts by a penny two weeks ago and then warning for the current quarter wasn't enough, nervousness this week was renewed following Dell's (DELL 24.51 -0.38) disappointing guidance Monday night, which continues to weigh on PC stocks. Less than 24 hours later, continued weakness independent of inflation fears was exacerbated after a disappointing sales forecast from Cisco Systems (CSCO 20.05 -0.70) fueled concerns of slowing growth in tech. Further consolidation in the semiconductor group, which continues to exhibit a negative bias going into the seasonally slower months, also contributed to Technology's 2.4% drubbing that turned the sector negative for the year.
With the broad-based nature of upside surprises acting as a recent source of buying support for the market in the face of rising interest rates, a Q1 disappointment from Dow component American International Group (AIG 63.15 -3.39) garnered extra scrutiny that weighed heavily on Financials. The rate-sensitive sector also lost ground as more attractive yields in Treasuries prompted consolidation in large-cap bank stocks.
The yield on the 10-yr note hit a 4-year high of 5.17% before closing at 5.15%. One of the top five biggest days of corporate issuance, only mediocre foreign interest in a widely watched 10-yr note auction and still no clear indication from the Fed about further rate hikes weighed on Treasuries throughout the session. With the Fed now focused on "incoming data" to determine Fed policy, a lower than expected rise in April retail sales data briefly improved sentiment in both bonds and stocks before the bell. However, since steady growth in consumer spending keeps economic growth on a strong growth path, uncertainty as to whether or not a pause is in the cards at the next FOMC meeting kept buyers on the sidelines.
The Dow, which came within 80 points of hitting its all-time high just yesterday, is now more than 220 points away as 28 of 30 components post losses. The only component to post a gain was Johnson & Johnson (JNJ 58.84 +0.52), which was upgraded to Buy from Neutral at Banc of America. Alcoa (AA 36.02 -0.20) was the only other Dow stock catching a bid throughout most of the session, as aluminum prices hitting their highest levels since June 1988 lifted AA shares to a new 52-week high; but late-day consolidation efforts closed the stock lower. Meanwhile, the S&P and Nasdaq recorded their biggest losses since January 20th, with even more conviction behind the tech-heavy index's poor performance coming from heavy volume to the downside.
Among only a handful of bright spots on a day where decliners outpaced advancers on both the NYSE and Nasdaq by a 3-to-1 margin was News Corp. (NWS.A 18.58 +0.58). A suggested holding in our Active Portfolio, the stock hit a new 52-week high after more than doubling Q3 (Mar) profits and doubling its share buyback program to $6 bln. Nonetheless, with earnings season coming to a close, as more than 450 companies in the S&P 500 have already reported, and the market's focus shifting to "incoming data" after the Fed provided no clear indication yesterday of a pause in its tightening efforts, an overwhelming sense of nervousness kept sellers in control of trading from the open to the close. BTK -1.3% DJ30 -141.92 DJTA -1.0% DJUA -1.1% DOT -1.6% NASDAQ -48.04 NQ100 -2.2% R2K -2.4% SOX -2.3% SP400 -1.3% SP500 -16.93 XOI -1.0% NASDAQ Dec/Adv/Vol 2454/630/2.48 bln NYSE Dec/Adv/Vol 2577/690/1.81 bln
4:01PM Vishay withdraws Class C common stock and size of Board Proposals From Consideration (VSH) 16.83 -0.25 : Co announces that its Board of Directors determined to withdraw from consideration at the co's 2006 annual meeting of stockholders held today proposed charter amendments authorizing shares of new Class C common stock and placing sole authority for determining the number of directors in the hands of the Board of Directors.
3:56PM FEI Company: Japan Electronics manufacturer selects FEIC system for in-fab root cause analysis (FEIC) 24.20 -0.65 : Co announced that a global Japanese electronics manufacturer has selected FEI's DA 300 in-fab defect analyzer for its factory. The advanced automated system will enable critical root cause analysis in a fraction of the time required by other techniques and will be used for the first time ever to rapidly analyze process defects in C.C.D. semiconductor devices.
2:17PM Lexar Media announces ITC commences investigation of Toshiba based on Lexar complaint (LEXR) 9.35 -0.13 : Co announced that the U.S. International Trade Commission (ITC) has voted to commence an investigation into whether Toshiba Corp, Toshiba America, and Toshiba America Electronic Components, are infringing three Lexar patents. Lexar, in a complaint filed with the ITC on April 11, 2006, is seeking all possible relief, including a permanent exclusion order to bar the importation into the U.S. of Toshiba's infringing NAND flash chips and cards, as well as products that incorporate Toshiba's infringing chips. Additionally, Lexar's complaint requests a cease-and-desist order to bar further sales and distribution of infringing products that have already been imported into the United States by Toshiba.
11:34AM NASDAQ 100 Trust aggressive break under May low stalls near its 200 day ema at 40.71-- session low 40.70 (QQQQ) 40.87 -0.80 : Its 200 day sma is at 40.62.
10:46 am EchoStar Communications (DISH)
30.80 -1.45: EchoStar Communications said Thursday that its first quarter earnings tumbled more than 50%, due in part to a $74 million settlement with TiVo (TIVO), and fell short of analysts' expectations. For the quarter, the no.2 U.S. satellite TV provider, behind DirecTV (DTV), posted net income of $147 million, or $0.33 per share, compared with $318 million, or $0.70, a year ago. The results included a $74 million charge related to the TiVo settlement, as well as $23 million related to the early redemption of debt securities. According to Reuters Estimate, analysts on average were expecting the company to earn $0.41 per share.
First quarter revenue increased 13.1% to $2.29 bln, matching the consensus estimate, as subscriber related revenue rose 15% to $2.18 bln. EchoStar added approximately 225,000 net new subscribers during the period, down from 325,000 a year ago. The company ended the quarter with 12.27 million total subscribers, a 9.2% increase from 11.23 million subscribers last year. Average revenue per subscriber was $59.93, compared with $57 a year earlier.
At the same time, however, EchoStar said subscriber acquisition cost increased 6.7% to $665, up from $623 last year. It also noted that its monthly churn, or customer losses, increased to 1.57% in the quarter, compared with 1.44% in the year ago period.
Based on the mixed first quarter results, which were depressed by certain charges and higher marketing costs amid increased competition, shares of the company traded lower during the regular trading session, falling more than 4%.
--Richard Jahnke, Briefing.com
10:41 am JC Penney Co. Inc. (JCP)
65.62 -1.21: Shares of J.C. Penney Co were near flat after the company said it saw first-quarter earnings of $0.90 per share excluding a charge related its sale of the Eckerd drugstore chain. That was $0.02 better than a Reuters Estimates consensus of $0.88.
The company, which operates 1,021 department stores nationwide, said it sees earnings per share of $0.60 versus $0.58 consensus for the second quarter. It said it sees earnings per share of $4.24 to $4.34 for 2007, up from previous guidance of $4.22 to $4.32 and consensus of $4.35 per share.
The company reported its 12th straight quarter of increasing same-store sales. First quarter total department store sales increased 2.2% and comparable department store sales increased 1.3%, in line with the company's expectations. Sales were strongest in fine jewelry, family footwear, children's clothing, and men's clothing, and grew the most in the Southeast and West.
During the quarter, J.C. Penney, which has a market cap of about $15.66 billion, announced a joint venture to open Sephora cosmetics sections in its stores and to add about 175 new stores over the next four years.
Early this year, J.C. Penney authorized a new $750 million stock repurchase program and also announced a 44% increase in its annual dividend to $0.72 per share. These initiatives, management said, demonstrate the board's confidence in the company's longer-term prospects. The company expects that the repurchase program will be completed in 2006.
Myron Ullman, III, chairman and chief executive officer of the company, said a cycle time reduction program will increase the speed of new product introductions and added that the company will make further improvements in a multi-channel initiative with jcp.com, providing access at all stores.
--Christine Marie Nielsen, Briefing.com
09:36 am Urban Outfitters Inc. (URBN)
21.16: Urban Outfitters on Thursday reported first quarter results that fell short of Wall Street's expectations, hurt by increased markdowns and weak same store sales. Specifically, the company, which operates under the Anthropologie, Free people, and Urban Outfitters brands, said net income declined to $20.3 million, or $0.12 per share, from $27.4 million, or $0.16 per share, a year earlier. That was three-cents below the Reuters Estimates consensus.
Revenue for the period grew 16.7% to $270 million, versus the consensus estimate of $274.14 million. The company attributed the increase to a 22% increase in the number of stores in operation, a 65% jump in Free People wholesale sales, and a 17% gain in direct-to-consumer sales. That, however, was partially offset by a 3% decline in total company same store sales during the quarter. By brand, same store sales decreased by 2% at Anthropologie and 4% at Urban Outfitters, and increased by 14% at Free People.
"The recent seismic shift in women's fashion presents both challenges and opportunities for our company," stated chairman and president Richard Hayne. "In order to better capitalize on future opportunities, we appropriately applied heavy markdowns during the first quarter to turn slower moving merchandise and rationalize our weeks of supply."
For the latest quarter, Urban Outfitters said gross margin decreased by 636 basis points year/year, due to aggressive markdowns to clear seasonal merchandise and an increase in store occupancy rates, as a percentage of net sales, as a result of the reduction in same store sales.
Based on the disappointing first quarter results, shares of the company traded sharply lower in pre-market activity. Amid declining sales trends, the stock has fallen more than 36% since reaching a 52-week high in November, and is down approximately 15% already this year.
--Richard Jahnke, Briefing.com
09:23 am Movie Gallery, Inc. (MOVI)
3.16: Movie Gallery Inc. seemed somewhat larger than life when it said Thursday that it saw first-quarter earnings of $0.90 per share, $0.02 better than the Reuters Estimates consensus of $0.88, thanks largely to its acquisition of rival Hollywood Entertainment Corp. Revenues for the latest period rose 2.5% year over year to $4.22 bln versus the $4.24 bln consensus.
Movie Gallery's shares have fallen 90% over the last year as a result of online competition of the likes of Netflix, Inc. (NFLX).The company, the number two video store operator in the U.S. with approximately 4,800 stores, reported same-stores declined 6.5%, reflecting continued softness in the video rental industry.
Joe Malugen, Chairman, President and Chief Executive Officer of Movie Gallery, said in a press release that the video rental industry also continues to be challenged by a soft home video release schedule, but that recent box office successes are encouraging. He said Movie Gallery is pursuing a comprehensive set of initiatives to drive revenues, maximize margin opportunities, and further improve its operating efficiencies.
The market, however, remains unconvinced as shares continue to languish at multi-year lows. Not helping matters, currently the short interest is 60% of the float. Yet, today shares are moving back a bit from dismal depths in the pre-market after sales beat estimates.
In the first quarter of 2006, the company closed 46 stores, some of which where overlap trade areas served by competing Movie Gallery and Hollywood stores. In total, this effort is expected to be beneficial to net income during 2006.
--Christine Marie Nielsen, Briefing.com
09:19 am News Corp.
18.00: The good news just keeps on coming from the media and broadcasting industry. For all those not tuned in, Disney (DIS) and Time Warner (TWX) kicked off the season with big hits, following last night by mega-media giant, News Corp. Viacom (VIA), the cable and film company run by Sumner Redstone, also broadcast an upside report due to higher film revenues.
The positive momentum continues for News Corp, a suggested holding in our Active Portfolio, as profits exceed forecasts and the street's expectations. In the third quarter, earnings of $0.26 per share topped consensus by six cents. Net income grew 14% to $1 bln driven by double-digit percentage increase in its TV, cable, and magazines segments, along with a $90 mln improvement at SKY Italia. The satellite broadcast network added 112k subs in the quarter bringing its total to 3.710 mln, up 14.6% y/y. Total revenues rose 2.6% year/year to $6.2 bln. Demonstrating its financial flexibility, the company doubled its share buyback program to $6 billion initiated last June.
MySpace, the ultra-hip online community, expanded to over 70 million registered users, solidifying its preeminence as one of the fastest growing sites on the Internet, according to the company. News Corp launched Mobizzo this quarter, a comprehensive new destination for mobile content. Like Disney, News Corp is aggressively developing new ways of distributing and monetizing its content across a multitude of new media platforms.
Considering the current business trends and strong advertising markets, News Corp could surpass its forecasts of EBIT growth of 12% this year. Given its strong operating momentum and long-term growth potential, News Corp remains a standout amongst its peers. Notwithstanding the 22% gain since we added to the Active Portfolio, we think the stock remains attractively valued.
--Kimberly DuBord, Briefing.com
09:43 am Rare Hospitality: Susquehanna Financial initiates Positive. Firm believes the combination of the steady LongHorn operations, coupled with the high growth long-term potential of the Capital Grille concept, gives investors the opportunity to play two different segments of the restaurant industry.
09:43 am Mortons Restaurant Group: Susquehanna Financial initiates Positive. Firm believes that upscale casual and fine dining are the most attractive restaurant segments, given their relative insulation from consumer pressures, less competition, and strong operational performance.
09:41 am JDA Software: Brean Murray initiates Strong Buy. Target $20. Firm believes that annual revenues remain stable, despite lumpy execution, driven by a predictable maintenance stream and the co's announced acquisition of Manugistics, which should be significantly accretive to '06 and '07 EPS.
09:40 am Immersion Corp: Thomas Weisel downgrades Outperform to Peer Perform. Firm downgrades rating on stock based on the belief that the core business remains soft, especially gaming, future royalty payments by Sony and Nintendo look unlikely based on recent announcements and upside to current $90.7 mln Sony judgment now seems less likely, in their view, following Sony PS3 controller announcement this week.
09:39 am Ensco: Clear Asset Mngmt initiates Buy. Target $60. Firm is saying that with oil prices over $70 per barrel, more difficult properties have become more economically feasible to drill and ESV has been there to capitalize on this opportunity.
09:39 am Federated: Oppenheimer upgrades Neutral to Buy. Firm saying that as the consolidator, and the strongest operator in the department store sector, the co is positioned to produce substantial earnings growth and returns to shareholders.
09:37 am Option Care: Jefferies & Co downgrades Buy to Hold. Target $16 to $13.5. Firm downgrades rating on stock after the co reported results below consensus; firm says margin erosion in OPTN's specialty pharmacy segment makes them question the co's ability to meet its 2006 guidance without making acquisitions, and valuation seems pricey.
09:32 am Teva Pharm: Banc of America Sec reiterates Neutral. Target $45 to $35. Firm cuts target following earnings miss. The firm says the co did not adequately address the key issue. The of has the generic industry changed so much that the only real profit is going to come from the 6-mo. exclusivity periods? The firm says Teva's US generic business reported 0% growth, and the co defended that "as expected" it was a period when there were no major new launches. The firm says when asked about major launches in the quarter results not in the year-ago period, such as Oxycontin ER, Zithromax, Allegra, and others -- the co indicated that without new launches in the quarter, there would be no offset to natural price erosion. The firm is also somewhat concerned that the undisclosed buyout price for Copaxone could be an eventual burden in 2008.
09:31 am Freeport-McMoRan: RBC Capital Mkts reiterates Sector Perform. Target $65 to $73. Firm ups target to reflect their new gold price forecast. The firm says they believe Freeport would be an attractive target to senior metals and gold producers. The firm says the quality and uniqueness of Grasberg would likely lead to competing bids if an offer were made.
09:29 am TOM Online: Brean Murray downgrades Strong Buy to Accumulate. Target $30 to $28. Firm is saying that TOMO remains one of their favorite long-term picks in the China Internet sector. The firm notes the co delivered solid 1Q06 results, continues to widen its lead on #2 Sina (SINA) and is well positioned to monetize emerging services such as wireless micro payments (UMPay) and VoIP (Skype). However, the firm says they are reducing their ests to reflect a soft 2Q06 outlook due to softer S.M.S and W.A.P revs. The firm says they had also projected higher rev contributions in 2Q06 from the World Cup in their previous model. |
