From Briefing.com: 6:12PM Weekly Wrap: Market had skated through the month of September in reasonably good shape until this week, when a series of earnings warnings sent the indices tumbling back toward their July lows. Though EDS and JP Morgan dominated the headlines with their disturbing warnings, negative guidance was not confined to the beleaguered tech and brokerage groups. Stocks such as McDonalds (MCD), Kroger (KR), Duke Energy (DUK), Bowater (BOW), Knight-Ridder (KR), Illinois Tool (ITW) and Genzyme (GENZ) also guided earnings estimates lower. The cumulative effect on market psychology was extremely bearish, as reflected in the weekly performance of the indices.
Traders were also disappointed in the Industrial Production, Claims and Housing Starts/Building Permits data. While none of the reports, alone or collectively, gave much weight to the dreaded but overblown double-dip scenario, they did add to the negative psychology.
Ongoing uncertainties over the prospect for war in Iraq merely added to the flood of negative news. US attempt at getting UN nations to back its plan to ouster Saddam Hussein was at least temporarily thwarted when Iraq agreed to unconditional weapons inspections. Bush Administration continues to push its agenda, but Saddam's most recent bluff has muddied the picture once again.
Not all the news was bad and not all groups were losers, however. FedEx roared ahead on better-than-expected earnings; housing sector continues to post impressive earnings numbers (though investors don't seem to care), and interest rates continued to fall. Among the groups to buck the selling and post gains were Footwear, Air Freight, Medical Products, Apparel Retailers and Casino.
Looking ahead to next week, traders will again brace for a number of profit warnings. Meanwhile, we could get more bad earnings reports from the brokerage group as Goldman Sachs (GS) and Lehman Brothers (LEH) are scheduled to release results on Tuesday. Finally, the economic calendar is full of key data, including LEI, Consumer Confidence, Existing/New Home Sales and Michigan Sentiment (see Briefing.com's Economic Calendar for details).
Investors will also be watching closely to see if the indices can hold at the July lows. These floors come in at 7532.66, 1192.42, 775.75 and 354.11 for the DJIA, Nasdaq Composite, S&P 500 and Russell 2000, respectively.
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 8312.69 7986.02 -326.67 -3.9 % -20.3 %
Nasdaq 1291.40 1221.02 -70.38 -5.4 % -37.4 %
S&P 500 889.81 845.39 -44.42 -5.0 % -26.4 %
Russell 2000 389.99 367.28 -22.71 -5.8 % -24.8 %
3:55PM Xilinx (XLNX) 15.12 -0.27: Based on checks, Pacific Crest believes XLNX is tracking in line to Sept-qtr revenue guidance of $270-280 mln and gross margin expectations of 58-60%. Firm notes co is still catching up on Virtex-II supply, but believes this issue will not move beyond Sept. As a result, firm is less concerned about near-term effects with respect to 0.13 micron yield issues. Pac Crest rates XLNX a Buy and adds that shares trade in the mid-range of peak to trough levels.
3:24PM Conexant corp credit cut to B from B+ by S&P (CNXT) 1.17 +0.11:
2:24PM Sector Watch: Semiconductor : Group index (SOX at 248) edged to a minor new session (and multi-yr) low in recent action with MU (-10.1%)--estimates cut-- and TXN (-6.1%)--downgrade-- the weakest performers. Also on the defensive are: LSCC (-2.5%); MXIM (-2.6%); XLNX (-2.3%). On a short term basis, it takes a push back through resistances at 250 and 253 to improve the bias. Bucking the trend today are: MOT (+3.9%), AMD (+1.7%) and TER (+1.7%).
1:38PM Celeritek spikes on takeover announcement (CLTK) 7.85 +0.98: Anaren (ANEN) bids $8.75 "pending due diligence"; note that company says it may lower its offer after due diligence.
1:00PM Sifting Through the Semiconductor Rubble : For the semiconductor sector this has been a particularly brutal September, as the Philadelphia Semiconductor (SOX) index is down 17%, and trading at new multi-year lows. With preannouncement season holding the potential for additional Q3/FY02 profit warnings, group is apt to remain on the defensive for at least another couple of weeks. However, amid the storm there are some positive developments that suggest that traders might want to begin doing some nibbling in the beaten down sector.
First of all, several component issues have dropped to the point that they're trading at 1-to-2x cash on hand. Though companies continue to burn through cash during the downturn, cash levels should at least provide a cushion against additional weakness. In other words, the downside risk from current levels no longer looks so severe. Among the stocks that fit this category are TQNT, VTSS, AMD, CRUS, ESST, NVDA
Second, valuations are at historic lows with many of the stocks trading at deep discounts to sales and book value. AMD, FCS, CRUS and NVDA are among the stocks trading at discounts to sales, while TQNT, VTSS, AMD, CRUS, ZRAN, GNSS, LSCC, CMOS, KLIC sell below book value.
Third, we are starting to see some aggressive insider buying within the sector -- something that has been missing throughout most of the three-year decline. Action by insiders suggests that we may be closer to a bottom than the market currently expects. Insiders are buying stock in LSI, VTSS, NVDA, ALTR.
Finally, divergence between SOX and its long-term moving averages is abnormally and unsustainably wide. In other words, the sector is deeply oversold and due for a bounce. And for those traders looking to play that bounce, you might want to start by doing some additional research on the names listed above. -- Robert Walberg, Briefing.com
12:55PM Qualcomm (QCOM) 27.65 +1.93: Despite some mkt skepticism expressed at beginning of today's session regarding co's positive chip guidance, investors seem to have changed their minds, as shares surge 7.5%. AG Edwards upgrades to BUY from Hold; thinks transition to 3G networks will consolidate second-generation standards, prolonging QCOM's growth outlook. Wachovia Securities thinks QCOM is best way to invest in recovery of global handset demand; reiterates Strong Buy rating, but notes rating and $50 price target are dependent on recovery in handset demand in Y03, could be at risk if recovery fails. Soundivew Technology is not as optimistic; believes negative domestic handset pricing trends and oversupply caused by Nokia's 1X arrival will affect co's revs in Q103; maintains Neutral rating and below-consensus ests for Y03. Thomas Weisel is also cautious; thinks stock is fully valued at $30, limiting upside.
11:44AM Duke Energy (DUK) 19.85 -1.57: Earlier today, Duke Energy issued a troubling revision to its earnings expectations for 2002 and 2003. We say troubling, because there were a couple of revelations by the electricity and natural gas provider that spoke directly to the market's concerns about the pace of economic activity and lackluster earnings growth.
First and foremost, its revised earnings forecasts are pretty substantive. For 2002, Duke is projecting ongoing EPS, excluding one-time charges, in the range of $1.95-2.05. The earnings outlook for 2003, meanwhile, is flat versus 2002, and that assumes only a modest improvement from extremely depressed market conditions. Duke added that 2003 earnings could fall below earnings in 2002 if the North American merchant energy market doesn't improve. The current Multex consensus estimates for FY02 and FY03 are $2.47 and $2.63, respectively.
Secondly, Duke is reducing its capital expenditures plan for 2002 to $6.2 bln from $6.8 bln. For 2003, that plan has been reduced to a level that approximates $3.5 bln. Consistent with its decision to reduce capital expenditures, Duke announced that it is deferring construction of three power plants in the western United States.
The curtailment in business investment, of course, has been the biggest drag on the economy. At this juncture, it is disappointing to hear that an industry leader like Duke is cutting capital expenditures for next year by such a large amount. While Duke is in no way a proxy for total business investment, its decision to cut its capex plan is apt to fuel concerns that business investment, in general, might remain weak in 2003. That is an unsettling consideration, because if business investment remains weak, the economy will continue to grow below its long-term potential, and if it does, the labor market will show only modest improvement.
All things considered, Duke's stock is holding up fairly well today. Its resilience, so to speak, can perhaps be attributed to the appeal of its dividend yield, which is currently 5.54%, its solid cash flow generation, or the concession that it's bad news wasn't as big of a surprise as the headlines suggest.
After all, the difficulties of the merchant energy market and the investigations into Duke's trading activities, which have surely been a distraction, have been well-documented and clearly reflected in its depressed stock price. Nevertheless, Duke's investment appeal is lessened by the uncertain earnings environment in which it is operating.-- Patrick J. O'Hare, Briefing.com
12:16PM Qualcomm Intraday (QCOM) 27.76 +2.03: -- Update -- -- Technical -- The issue has surged roughly 10% off of yesterday's low and is now flirting with resistance between 27.7/27.8 (20/50 day ema, yesterday's high) and 28. Ability to stabilize above this area leaves the door open for a run to the top of its three month range top (30.6/31)
10:27AM QLogic shares down on Sun Micro concerns (QLGC) 27.94 -1.05: Shares were particularly weak at the open this morning, likely due to a pre-mkt Salomon Smith Barney note that said SUNW's acquisition of Pirus Networks has the potential to change the dynamics for QLGC's switch relationship with SUNW, which is a major customer of QLGC; maintains In-Line rating but cuts price target to $29 from $34.
10:04AM Nasdaq Composite Intraday : -- Technical -- Index opens on a modestly favorable note but was stymied near short term resistance in the 1235 area. Will need to see sustained gains beyond this level and the 1242 area to bolster the very short term turnaround scenario. Support is at yesterday's low (1216) and the Aug low (1205) in front of this summer's multi-year low of 1192.
10:25AM Anadigics (ANAD) 2.45 +0.05: Four days after slashing ests on select chip cos, including ANAD, Prudential deals another blow to co., downgrades to HOLD from Buy; lowers price target to $3 from $6 in belief of increasingly more challenging conditions for non-wireless business and lack of near-term catalyst. While lowering rating, firm continues to believe in co's leading InGaP HBT capabilities and increasing market share. Stock has advanced 2% despite downgrade, perhaps on last night's positive comments by QCOM regarding its Sept and Dec qtr outlook for CDMA chip, signaling that ANAD's wireless revs can be expected to track.
9:51AM Powerwave (PWAV) 4.00 +0.12: USB Piper Jaffray downgrades to MARKET PERFORM from Outperform after co lowers Q302 guidance yesterday. Firm sees difficult environment for infrastructure equipment suppliers, continually stagnating demand for infastructure equipment, particularly t-com equipment. Piper cites recent Nokia report of weaker-than-expected demand for its legacy GSM equipment and the LU warning as evidence of the latter point. Even though PWAV is the leading merchant supplier in the industry, firm believes co cannot escape the effects of this continued spending contraction.
9:33AM Ciena announces job cuts (CIEN) 3.39: Company will cut 17% of workforce, or 450 workers; plans to cut quarterly operating expenses to mid-$80 mln range by Jul qtr 2003 - revenues in most recent Jul qtr were $50 mln.
9:26AM Ultratech Stepper warns in 8K (UTEK) 9.65: In an 8K filing this morning, company warns that Q3 revenues will fall 50% sequentially, or roughly $10.4 mln vs the $15.5 mln consensus; cites depressed rate for new orders, pushouts, and cancellations.
9:23AM Duke Energy slides 16% to 18.00 after warning (DUK) 21.42:
9:13AM Sun Microsystems estimates cut below consensus at Prudential (SUNW) 2.70: Prudential cuts ests for SUNW based on the belief that the co is experiencing a "lower-water level" across the board as a result of weak I/T spending, particularly in Europe; cuts FY03 est to a loss of $0.04 from earnings of $0.07 (well below consensus of earnings of $0.04).
9:10AM Stocks To Watch : The market is poised for a positive start to the session and there is no real surprise as to the impetus behind the push. Qualcomm (QCOM +7.2%) said last night that it is raising chip shipment expectations for Q4 and Q1 because of strong order input from customers and higher demand related to China.
The tech arena is broadly highly on this news but some concerns have been raised. CIBC said they are extremely skeptical regarding QCOM's 2002 forecast for CDMA handsets of 80-85 mln (firm still sees 64 mln), and believes that there is a strong potential for significant inventory builds of CDMA chipsets; suggests company will eventually will face a significant inventory correction, as handset sell through and chipset sales come into balance.
There has also been some negative commentary from the Street on other tech names. Texas Instruments (TXN -2.3%) was downgraded by Salomon Smith Barney based on expectations of slowing unit growth in semis, continuing weak demand in PC segment, and a seasonal peak in wireless component sales in Q4; also cut FY03 and FT04 estimates. Micron (MU close 15.28) had its estimates cut by Bear Stearns due to evidence indicating it is unlikely that DRAM bit demand will rebound for at least the next 2 qtrs.
9:07AM Duke Energy warns (DUK) 21.42: Company reduces FY02 estimate to $1.95-2.05 vs Multex consensus of $2.47; sees 2003 flat assuming modest improvement in energy market, vs consensus of $2.63. Also cuts 2002 capex to $6.2 bln from $6.8 bln and cuts 2003 capex to $3.5 bln, all of which will be internally funded. Finally, DUK defers construction of three power plants.
8:31AM Micron estimates cut at Bear Stearns (MU) 15.28: Bear Stearns cuts ests for MU in advance of their Sept 24 earnings release based on evidence indicating it is unlikely that DRAM bit demand will rebound for at least the next 2 qtrs; cuts Q4 est to ($0.21) from ($0.20), FY03 to ($0.02) from $0.26, and FY04 to $1.82 from $2.85 (all well below consensus).
8:21AM Qualcomm: CIBC skeptical on handset forecast, sees inventory correction (QCOM) 25.72: -- Update -- CIBC says they continue to be extremely skeptical regarding QCOM's 2002 forecast for CDMA handsets of 80-85 mln (firm still sees 64 mln), and believes that there is a strong potential for significant inventory builds of CDMA chipsets; firm believes co will eventually will face a significant inventory correction, as handset sell through and chipset sales come into balance.
8:10AM Texas Instruments downgrade details (TXN) 17.03: -- Update -- As mentioned at 7:39, Salomon Smith Barney downgrades TXN to In-Line from Outperform based on expectations of slowing unit growth in semis, continuing weak demand in PC segment, and a seasonal peak in wireless component sales in Q4; cuts 2003 rev/EPS ests to $9.6 bln/$0.60 from $10.1 bln/$0.75, cuts 2004 EPS est to $0.95 from $1.25 (both years are well below consensus), and cuts price target to $15 from $30.
7:54AM Qualcomm: analysts express skepticism (QCOM) 25.72: Stock already giving back some gains at 27.50 from 28.30 earlier; as we noted in our earlier opening indications comment, the upward chip guidance from QCOM is being viewed somewhat skeptically - many analysts are noting that the key will be the sell-through of the new handsets, and that there is a possibility of an inventory build-up later this year and early next.
7:39AM Texas Instruments downgraded at Solly (TXN) 17.03: Salomon Smith Barney downgrades to In-Line from Outperform and cuts price target to $15 from $30.
7:31AM Infineon sees no recovery next two qtrs (IFX) 7.52: Dow Jones reported last night that Infineon's CEO said the company's order book does not point to a recovery for at least the next two quarters, and there is no visibility beyond that.
6:52AM Citigroup: NASD plans charges against Solly unit, Grubman (C) 27.65: The Wall Street Journal reports that the NASD is preparing to file administrative charges of securities fraud against Salomon Smith Barney and its former telecom analyst Jack Grubman; the NASD has focused on whether Grubman misled investors by touting shares of Winstar, one of Salomon's investment-banking clients, amid evidence that the co was in deep financial trouble.
finance.yahoo.com^SOXX+ALTR+AMAT+AMD+ANAD+ANEN+BRCM+C+CIEN+CLTK+CMOS+CNXT+CRUS+DUK+ESST+GNSS+IFX+INTC+KLAC+KLIC+LLTC+LSCC+LSI+MOT+MU+MXIM+NSM+NVDA+NVLS+PWAV+QCOM+QLGC+SUNW+VTSS+TER+TQNT+TXN+UTEK+XLNX+ZRAN+^VIX+^IXIC&d=t
Don, since we now know all too well how cyclical this industry is perhaps you could note the current SOX information for reference in future cycles.
Thanks, RtS |
