From Briefing.com: There is a saying on Wall Street that one should never short a dull market. On Monday, that saying rang true as the market took flight at the opening bell and kept right on flying until the sound of the closing bell. The Nasdaq was the best performer on the day with a gain of 2.2%, but the Dow, which broke out of its two-and-a-half month trading range and achieved a new 52-wk closing high of 9412.45, stole the spotlight.
Modest improvement in the Treasury market also acted as a supportive factor for the bullish disposition in the equity market on Monday.
As far as the tech sector was concerned, the semiconductor stocks continued to take center stage for the crowd of buyers. Contributing to their appeal was an announcement from market forecaster Gartner that it had raised its 2003 growth estimate for the semiconductor market to 11.2% from 8.3%. That isn't a significant revision necessarily, but nonetheless, it was a revision in the right direction that fueled the sector rebound argument. Fittingly, the stocks continued to rally on momentum investing that was further encouraged by the SOX Index breaking out to a new 52-wk high of its own.
Gains in the tech sector were broad-based with the Internet, telecom equipment, and computer hardware stocks also assuming a leadership position. Breadth figures, as one might expect, were decidedly bullish with advancers outlegging decliners by a better than 2-to-1 margin at the NYSE and Nasdaq. Overall, the buying interest wasn't remarkably heavy as 1.11 bln shares changed hands at the NYSE while 1.49 bln were traded at the Nasdaq. The latter, though, is respectable for a Monday in August; and, in fact, it was the heaviest it has been since August 7.
The overriding criticism of Monday's rally is that it lacked conviction. That is fair, but it certainly won't rub investors with long positions the wrong way, because every little bit helps. Briefing.com would remind readers, though, that the VIX Index - a measure of volatility - also experienced an important technical development Monday in hitting a new 52-wk low at 19.28. As we have indicated before, such a level has been associated with at least short-term market tops. Accordingly, caution shouldn't be thrown to the wind at this juncture.
Separately, Hewlett-Packard (HPQ) will be in the earnings spotlight on Tuesday as the Dow component is scheduled to report its fiscal Q3 (Jul) results after the close. The Reuters Research consensus revenue and EPS estimates are $17.49 bln and $0.26, respectively. On Monday, A.G. Edwards upgraded HPQ to Buy from Hold.-- Patrick J. O'Hare, Briefing.com
6:00PM Monday After Hours price levels vs. 4 pm ET levels: The winning session in the equities market is being followed up by divergent trade in the after-hours session. Presently, the S&P 500 futures are trading half a point below the fair value of 999, while the Nasdaq futures are 2 points above the fair value of 1286.
Among today's few earnings reporters is the global diversified technology company, Agilent Technologies (A 22.89 +0.43). Agilent beat the Reuters Research consensus by $0.05 with its reported Q3 (Jul) loss of $0.02 per share, excluding numerous items that resulted in charges of $3.26 per share. Revenues rose to $1.50 bln, which was an 8.0% year/year increase and in-line with the consensus. According to CEO, Ned Barnholt, management is confident in the company's ability to achieve an operating breakeven cost structure of $1.45 bln and return to profitability in Q4. More specifically, the company sees Q4 EPS of breakeven to $0.10 (consensus $0.03) on revenues of $1.50-1.60 bln (consensus of $1.57 bln).
Another reporter is Gamestop (GME 13.20 +0.20), a video game and personal computer entertainment software specialty retailer. The company reported Q2 (Jul) earnings of $0.11 per share, $0.01 better than the Reuters Research consensus. This was at the high end of the guidance provided on May 21, which called for EPS of $0.09-0.11. Sales rose 11.5% year/year to $305.7 mln, above the consensus of $287.5 mln. Comparable store sales declined by 4.7% during the quarter, beating the company's previously issued guidance. Going forward, GME said it sees Q3 EPS of $0.16-0.18 (consensus $0.18) and Y03 EPS of $1.02-1.06 (consensus $1.02).
World leader in internet security, Symantec (00C0 49.20 +0.06), announced that it purchased a key security technology patent asset from Hilgraeve, Inc., which covers in-transit scanning for malicious code. The total cost of the purchase and the licensing of additional patents is $62.5 mln, resulting in an adjustment to the previously reported 1Q04 results of $0.05 per share. Looking to Q2, the company's guidance has not changed. As such, SYMC expects Q2 (Sept) revenues of $375-395 mln (consensus $389 mln), or pro-forma EPS of $0.41 at the midpoint of the revenue guidance (consensus $0.42). For FY04, SYMC sees revenues to be approximately $1.67 bln (in-line with consensus) and EPS of $1.96 (consensus $1.97).
Tomorrow morning look for earnings reports from five companies, including Home Depot (HD 34.14 +0.24) and Staples (SPLS 20.27 -0.11). On the Economic Calendar, look for the Housing Starts and Building Permits reports for July at 8:30 ET and the preliminary reading for the August Michigan Sentiment report at 9:45 ET.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar and Guidance pages. -- Victoria Glikin, Briefing.com
Close Dow +90.76 at 9412.45, S&P +9.07 at 999.74, Nasdaq +37.48 at 1739.49: Buyers came out of the woodwork, and turned what could have been another flat day of trading into a winning session for bulls... The Dow, in fact, set a new 14-month high - handily clearing its June/July recovery highs within the first 90 minutes of trading - and its technical break-out launched a broad-based rally that drove the S&P 500 and Nasdaq to new three-week highs...
Momentum groups such as semiconductor, disk drive, networking, computer hardware, and telecom quickly emerged as leaders, and found ample support in other relative strength names like auto, basic material, and retail issues... Such widespread leadership, consequently, paved the way for the indices' steady climb higher, and was evident in the market's solidly bullish breadth figures... Volume totals, however, ran at a higher rate than recent sessions, but were still light by the year's standards - indicating a lack of strong conviction on the part of buyers... Traders credited today's advance to pent-up buying interest stemming from last Thursday's black-out... Friday's economic data, as a whole, was in line to above consensus forecasts and indicated further improvement in national manufacturing...
Another factor that contributed to the session's march higher was the corrective bounce in the treasury market... The subsequent drop in interest rates drew more investors into stocks as it somewhat diminished the investment appeal of bonds... Finally, the dollar's march to a one-month high against the euro on the heels of the Bundesbank's admission that it has seen no evidence of a recovery in the German economy also helped put a noticeable bid in stocks...Nasdaq 100 +2.5%, Russell 2000 +1.9%, SOX +5.2%, S&P Midcap 400 +1.3%, NYSE Adv/Dec 2202/1082, Nasdaq Adv/Dec 2145/1036
12:48PM CTLM down on monthly Japan ADSL numbers 9.96 -0.49: CTLM down on Japan's report of its monthly ADSL numbers. Apparently, Yahoo BB!, who has CTLM's competitor GSPN as its partner for chips, reported a more respectable 139K in net adds earlier in the month. According to the Japan Post and Telecommunications, net additional subscribers for the month of July totaled 248,222 lines. CTLM's two largest customers are NEC and Sumitomo, who provide the ADSL products for NTT in Japan. Given the Yahoo! BB announcement earlier, the numbers suggest a potential gain in market share of net subscribers by Yahoo! BB.
10:04AM BRCM follow-up : Source of acquisition rumor appears to be comment by Piper Jaffray analyst Ashok Kumar. The analyst comments that a hypothetical acquisition of Broadcom (BRCM +5.7%) by Intel (INTC) would represent minimal organizational integration risk With ServerWorks likely to get squeezed out in 2004, Kumar believes BRCM faces a rough road ahead as a stand-alone co. With a mkt-cap of $6.3 bln, BRCM could be acquired for less than what Intel has spent on its previous communications acquisitions. Piper Jaffray notes that this is a hypothetical analysis and that it has no insight into Intel's acquisition plans.
1:50PM Skechers (SKX) 6.65 +0.03: It's always hard to predict a bottom for a stock, but this footwear company seems to be a lot closer to the bottom. Most retail stocks tend to trade between certain levels. Some years, they predict the fashion trends correctly and sometimes they are wrong. When looking for a retail stock, it's good to buy them when they are down. And SKX is down, the stock was at $18 this time last year. Skechers picked wrong on the fashion front. It's tough to fathom this, but the company's inventory ballooned an incredible 47% from year-end to June 30 while sales fell 13%. As a rule of thumb, you want sales and inventory growth to be somewhat close, unlike here. This is a big problem, and management says it's getting its act together. The company says it expects margin pressure in the short term as they will need to discount a lot of this merchandise. On a positive note, SKX expects that inventory will be in-line by year-end 2003. That's pretty encouraging if they can deliver. Valuation is tricky as there is little visibility in EPS right now, but the stock trades at a forward p/e of 17.5x. It's not great, but cos that are just barely positive, have unusually large p/e ratios. However, the stock is trading below its book value of $7.12 per share. SKX should be viewed as a turnaround candidate. At the end of last year, Vans (VANS 9.20 +0.10) was a similar company we argued was a good turnaround play and the stock has recovered somewhat. We expect Skechers to right its ship, timing is tough to predict, but it's better to buy washed out stocks before they become popular again. -- Robert J. Reid, Briefing.com
12:28PM Ratings Briefing - WMI : Who ever said that dealing with trash is stinky? Waste Management (WMI 25.31 +0.15), a waste services company with roughly $12 bln in annual revenues, would certainly disagree. UBS also has a differing opinion, as the brokerage firm upgraded WMI to Buy from Hold this morning, joining 7 other analysts with the equivalent of a Buy rating on the stock and leaving behind 5 others with the equivalent of a Hold rating.
UBS raised its rating on WMI as a result of: 1) increased conviction for a sizeable EPS jump in 2004 (FY04 estimate $1.52 versus Reuters Research consensus of $1.46); 2) favoring the more cyclical names in the group; and 3) view that WMI's announced dividend boost provides additional attraction for investors, while its heavily 2H-weighted share repurchase program will yield support for the stock, at a minimum. The firm expects WMI to benefit from the improving outlook for the U.S. economy, internal cost cutting, and continued strong free cash flow generation.
While UBS admits that meaningful improvement in industry conditions in 2H03 remains uncertain, because of the estimated 3-6 month lag the industry tends to have to the changes in the economy, the firm points out that the large fallout in industrial waste has had a significant impact on profitability, which is likely to be reversed as the economy continues to improve. That, combined with WMI's strides in reducing costs, is likely to produce a favorable combination.
Merrill Lynch also spoke to that effect when it upgraded WMI to Buy from Neutral on Aug. 5. Specifically, in Merrill's view, WMI's continued efforts to lower spending are starting to become evident and the firm believes that operational leverage is now in place for WMI to benefit from an economic recovery.
Briefing.com, for its part, looks for a continued improvement in the economy throughout 2H03, with increased participation from the manufacturing sector that would certainly benefit WMI. Nevertheless, in a recent story we advised to take a "wait-and-see" stance with regard to WMI until more improvement in the business is evident. We also noted, however, that we were somewhat encouraged by increased volumes in June, the significantly higher dividend yield, WMI's commitment to share repurchases, and cost-cutting initiatives. No new data-points have emerged since then, but given the analysts' more favorable view of the stock, as exemplified by the recent upgrades, Briefing.com thinks shares may now have more of a floor beneath them. -- Victoria Glikin, Briefing.com
11:30AM Lowe's (LOW) 50.94 +2.04: When Lowe's (LOW) reported its Q1 results in May, the market was a bit suspect that the home improvement retailer was being held back by a rejuvenated Home Depot (HD 33.85 +0.31), which will report its Q2 results tomorrow. The telltale sign in that respect was Lowe's stock price, which dropped $4 after the Q1 report. It didn't take long, however, for the market to reconsider matters as LOW is up 26% since reporting its Q1 results. That includes today's gain, which comes on the heels of a reassuring Q2 report.
Net earnings of $597 mln for Q2 improved 27.8%, sales rose 17.2% to $8.77 bln, and diluted earnings per share of $0.75 were up 27.1% from the yr-ago period. The attraction to Lowe's was apparent in the 6.9% increase in comparable store sales, which was well ahead of the 2-4% gain the company had projected in May.
Internal efforts, and better weather that drove pent-up demand for home improvement projects, were credited for the strong performance. Lowe's acknowledged that it experienced sales strength in every product category and in every region of the country. Strikingly, the company also noted that it is seeing signs of an improving macro economic climate that leave it feeling optimistic for the back half of the year.
The company's enthusiasm was backed up with its guidance, which calls for Q3 EPS of $0.50-0.51 (consensus $0.50) and FY03 EPS of $2.24-2.27 (consensus $2.19). The latter is up from the guidance of $2.16-2.20 provided in May, but that stands to reason considering Lowe's topped Q2 consensus EPS estimates by six cents.
Comparable store sales are expected to be up 4-5% for FY03. Investors will recall, of course, that the concerns about Home Depot's revival hit home in May when Lowe's checked in with a disappointing comparable store sales increase of 0.1% for Q1 and lowered its FY03 forecast to 3-4% from 4-5%.
Now that Lowe's is back to its original guidance, there is reason to believe that Q1 was more of an aberration than the start of a worrisome trend. Fittingly, LOW is trading up nicely today as the company's Q2 results suggest it hasn't lost its appeal among consumers. At roughly 23.0x est. FY03 earnings, valuation concerns may act as a limiting factor for its stock over the near-term, but fundamentally, the company remains sound, which is the key consideration for staying put as a long-term investor.-- Patrick J. O'Hare, Briefing.com
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