From Briefing.com: It wasn't a tech wreck on Tuesday, but clearly, the sector broke down as the Nasdaq fell through support at 1686 - the top end of the June trading range. Unlike before, though, buyers weren't in any rush to defend that level as rising interest rates, a lack of leadership, an inability to benefit from the stronger than expected ISM Services Index, and apprehension ahead of Cisco's (CSCO 18.86 -0.40) earnings report kept them on sidelines.
Suffice it to say, if the initial response to Cisco's fiscal Q4 earnings report is any indication, the sidelines is where buyers are likely to remain on Wednesday.
Although Cisco posted an in-line pro forma profit of $0.15 per share and slightly exceeded the consensus revenue estimate of $4.68 bln, its margin expansion story was dealt a blow as gross, operating, and net profit margins were all down on a sequential basis. Beyond that worrisome consideration, which Briefing.com will elaborate more on in a Story Stock and Stock Brief on Wednesday, Cisco didn't provide any real sense that a meaningful pickup in end demand is imminent.
For Q1 (Oct), revenues are anticipated to be up 2-4% on a sequential basis and gross margins are projected to be in a range of 67-69%. For the just completed quarter, gross margins were 69.9% and revenues were $4.70 bln. Company guidance implies that Q1 revenues should be in the range of $4.80-4.89 bln (consensus $4.81 bln), but even at the high end of guidance, revenues would still be up less than 1.0% from the yr-ago period. The takeaway, which Briefing.com won't argue with, is that Cisco's stock, at 30x est. FY04 earnings before Tuesday started, has gotten ahead of itself. Accordingly, look for valuation concerns to be an oft-cited factor for any weakness in its stock and the broader market.
In absolute terms, Cisco's report wasn't bad, but at the same time, it certainly wasn't strong enough to justify the premium multiple that was accorded the stock. Shares of CSCO were down 5.0% in extended action from where they closed Tuesday's regular session.
Briefing.com, of course, has professed to being cautious about the tech sector's near-term prospects for a while now given the sharp run-up in stock prices since the March lows. In the wake of Cisco's report, the loss of leadership noted above, and the technical deterioration, we remain wedded to the view that the path of least resistance for the time being lies to the downside.-- Patrick J. O'Hare, Briefing.com
5:56PM Tuesday After Hours price levels vs. 4 pm ET levels: The dismal tone of trading in the regular session has carried over into the after hours session, where the S&P futures, at 959, are 6 points below fair value, and the Nasdaq 100 futures, at 1213, are 18 points below fair value. The source of the extended session's malaise is Cisco (CSCO 17.94 -0.92) following the manufacturer of networking and communications products' in line Q4 (July) report.
Specifically, Cisco matched the Reuters Research EPS estimate of $0.15 on revenues that fell 3% to $4.70 bln. Gross margins, however, declined 84 basis points on a sequential basis. The company's guidance was similarly uninspiring, with Q1 (Oct) revenues projected to be up 2-4% on a sequential basis (to $4.80-4.89 bln versus the consensus of $4.81 bln) and gross margins forecasted to be 67- 69%. Competitors of CSCO include the likes of CIEN, EXTR, FDRY, JNPR, NT, and SCMR, and all of the aforementioned are also down in the extended session.
Checkfree (CKFR 21.13 -5.16) stock has also gotten clobbered, although its pullback lies more with the company's Q4 (June) earnings miss and Q1 (Sept) earnings warning. The provider of financial electronic products reported EPS of $0.22, a penny short of the consensus estimate, on revenues that increased 13% to $144.6 mln. Looking to 1Q04 (Sept), management said it expects revenue of $135-140 mln (consensus of $144.5 mln) and EPS of $0.18-0.20 (consensus of $0.22). The company's outlook for FY04, however, was somewhat more reassuring as it said EPS should be $0.93-0.97 (consensus of $0.96).
Strikingly, shares of Prudential (00C 34.60 -0.02) have traded off in tonight's negative session despite the company's much better than expected Q2 (June) report. The financial services conglomerate exceeded the consensus EPS expectation of $0.60 by $0.07. As for FY03 (Dec), Prudential expects solid EPS growth and pegs its forecast at $2.25-2.40, in line with the Wall Street consensus of $2.35.
One stock, though, that has bucked the bearish tone of trading has been WebMD (HLTH 11.23 +0.19). The on-line health advice provider topped the consensus Q2 (June) EPS expectation by a penny, at $0.11, and showed a revenue increase of 8% to $246.5 mln. Q3 EPS was forecasted at $0.11 (consensus of $0.12) and revenues were projected at $257-262 mln, handily above the consensus estimate of $255.9 mln.
Finally, Weight Watchers (WTW 44.06 +0.76) has also attracted some buying interest following its Q2 (June) report. The provider of weight loss services exceeded the Reuters Research EPS estimate of $0.51 by a penny, and exhibited sales growth of 19% to $258.9 mln. The company, however, cut its FY03 (Dec) EPS guidance to $1.59-1.64 from $1.63-1.71 - the latter, though, still represent an EPS increase of 21-25% from the year-ago result.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar and Guidance pages. -- Heather Smith, Briefing.com
5:53PM Ahead of the Curve: Cisco (CSCO) 17.90 -1.36 (-7%) [Full day change - after-market change is: -0.96 (-5%) ] Cisco reported today, after the close, and met earnings estimates and exceeded revenue estimates. But the stock is off an additional $1 in after-market trading, after falling $0.40 during the day. It is now off a full -7% for the day. Why? Because every significant margin declined. As we pointed out in Tuesday's Ahead of the Curve on the Stock Brief page, the only reason Cisco has been able to support the valuations it has - a PE of 42 and Price/Sales of 7.5 - is that the company has done a great job of expanding margins over the past two years. The margin expansion story is now over. That leaves strong revenue growth as the only real driver for future earnings - and the outlook is still mixed on that score. That means analysts at institutions everywhere are staying late in Manhattan offices calculating new valuation metrics for the stock - the "right price" for the company. When they finish, the reports will be on portfolio manager's desks in the morning. Tomorrow is when those managers act on the reports. With billions in institutional holdings, it will be very interesting to how they react to this story. We will provide the same type of report for you - the Briefing.com reader before the market opens tomorrow morning. Look for an abbreviated analysis on the Story Stock before the open and a full, detailed report on the Stock Brief shortly thereafter. - Robert V. Green, Briefing.com
5:24PM Cisco Systems releases guidance (CSCO) 18.86 -0.40: -- Update -- Revenues are expected to be up 2-4% sequentially. Gross Margins are forcasted to be 67- 69% Operating expenses up 2-3% in terms of dollars.
4:39PM Cisco Systems earnings growth (CSCO) 18.86 -0.40: -- Update -- On the call, management states that future earnings growth will driven by topline growth -- suggests that more acquisitions are ahead.
4:09PM Cisco Systems reports in line (CSCO) 18.79 -0.47: Reports Q4 (Jul) earnings of $0.15 per share, in line with the Reuters Research consensus of $0.15; revenues fell 2.6% year/year to $4.70 bln vs the $4.68 bln consensus.
Close Dow -149.72 at 9036.32, S&P -17.35 at 965.47, Nasdaq -40.50 at 1673.56: Today's session started out poorly and only got worse from there... Volume was light and breadth figures firmly unfavorable, with the Advancers/Decliners line and the Up/Down volume ratio negative by a roughly 2-to-1 margin... Investors refused to bid the market higher due to the sharp rise in interest rates, lack of leadership and technical deterioration, with the S&P 500 failing the supports at 972 (lower end of June/July trading range) and the Nasdaq failing the support at 1695 (30-day exponential moving average)...
Also contributing to the market's negative bias was apprehension ahead of Cisco's (CSCO 18.86 -0.40) Q4 earnings, slated to be reported after the close today... As a result, the major averages closed the session down 1.6-2.4% with the vast majority of sectors, including financial, retail, transportation, biotech, and large-cap technology participating wholeheartedly in the sell-off... Although better-than-expected, the ISM Services report (at 65.1 versus consensus of 58.0) did little to alter the market's negative bias...
Dating back only to July 1997, this report is often dismissed by the market because it has never been tested in a post-recessionary environment... Elsewhere, the bond market also spent the entirety of the session on the defensive, with the 10-year note closing the day down -31/32, with its yield at 4.41%...NYSE Adv/Dec 1017/2237, Nasdaq Adv/Dec 1042/2092
3:24PM Cisco Systems Earnings Preview (CSCO) 18.84 -0.42: -- Update -- Cisco Systems is scheduled to report Q4 results after the close, with consensus ests standing at $0.15 in EPS and $4.68 bln in sales. Merrill Lynch expects the co report in-line EPS, to slightly exceed their rev est of $4.7 bln, and to have a book-to-bill above 1, fueled by improvement in the U.S. enterprise mkt and led by Federal and strength in the SME mkt; in addition, firm believes the mkt will be primarily focused on the co's rev outlook, which should show a 2-3% sequential improvement for Q1 (factoring in the Linksys acquisition). On the other hand, Fulcrum expects CSCO's guidance to be conservative, and expects mgmt to guide Q1 revs to be flat sequentially and to provide a cautious near-term outlook for its core biz while speaking positively of its new opportunities (especially on SANs and service provider space).
2:03PM CTI Molecular cut to Neutral from Strong Buy at First Albany (CTMI) 13.85 -2.03: -- Update -- Firm believes CTMI shares could trade in a range of $12-$15 until competitive pressures alleviate.
1:44PM Research In Motion takeover speculation (RIMM) 25.51 -2.57: -- Update -- RIMM has seen some significant volatility since last Friday as various takeover rumors buffet the stock. Merrill Lynch theorizes that an HPQ takeover of RIMM would make some strategic sense, as HPQ has focused on the wireless data space and owning the BlackBerry would offer them instant traction in the business segment; also, HPQ's Indigo acquisition was about the same size as RIMM, and would broadly fit the definition of a small acquisition. On the other hand, UBS views an HPQ acquisition of RIMM as unlikely, saying it would be ill−timed (see 9:32 comment); firm believes that RIMM's mgmt would likely only consider selling the co as a fallback position if its marketing efforts were unable to capitalize on its technology assets, yet since Feb 2002 RIMM has essentially doubled its distribution channels, subscriber base, rate of subscriber growth, and quarterly rev; in addition, RIMM should be profitable for the first time this qtr excluding provisions for the NTP patent violation case.
9:42AM CTI Molecular cut to Neutral at BofA Sec (CTMI) 13.98 -1.90: -- Update -- The downgrade from Buy follows this morning's earnings warning. Firm cutting its FY04 est to $0.69 from $0.80 and reducing price target to $14 from $27.
ATI Tech (ATYT) 11.68 -1.20: Wedbush Morgan downgraded to Hold from Buy based on valuation as well as increasing competition from INTC in notebook integrated chipsets and NVDA in integrated chipsets for both desktop and notebook; firm expects INTC's mkt share to increase significantly next spring in integrated notebooks, and are now more convinced about the probability that NVDA will enter a license agreement with INTC to sell integrated chipsets for desktops and notebooks.
Rudolph Tech (RTEC) 18.24 -2.12: Fahnestock downgraded to Neutral from Buy; while it believes the co is poised to grow somewhat faster than the overall equipment industry, firm is concerned over the shares' rich valuation, weak orders, and a concentrated customer base; 6-month target is $14, and 12-18 month target is $22.
finance.yahoo.com
Thanks Don for the kind words. I'm hardly perfect. I did overreact to earlier statements about me being unwise to pay for Briefing.com's advice.
At any rate the market will do what it will do. I hope everyone can make money be they long or short. I hope that we can do it without further unkind words. Lets continue to make this one of the best threads on SI.
RtS |
