From Briefing.com: Friday's market action, like that of the preceding week, was marked by early morning strength followed by mid-morning weakness and late afternoon fatigue. Tech shares ended the day, with decliners marginally outnumbering advancers. The laggards slipped, on average, a modest 1.9% while gainers edged up 2.5%.
The October employment report showed non-farm payrolls increased a higher than expected 126K, providing confirmatory evidence that the business landscape, at least in the minds of corporate executives, is starting to look quite green. The report gave investors a mild burst of adrenaline but it was not enough of a booster shot to sustain early morning strength. By late afternoon, the larger than expected increase in September Consumer Credit, driven by auto sales, left investors wondering once again whether consumers are getting tapped out, and if the baton had successfully passed from consumer to enterprise in this relay race of economic recovery and market revaluation.
To answer this question, investors will be tuning in to earnings reports from several major retailers due on Tuesday, Nov 11, including JC Penney (JCP 23.19 -0.20), May Dept Stores (MAY 29.22 +0.16) and TJX Companies (TJX 22.75 +0.55). In tech, investors will be focusing on Dell (DELL 36.00 -0.34), due to report Q3 results on Thursday, Nov 13, and Hewlett-Packard (HPQ 23.00 -0.48), due to publish Q4 results on Wednesday, Nov 19, to divine the tenor of consumer and enterprise spending. Please visit the Earnings Calendar for details.
For markets to move forward with conviction, investors are demanding accelerating revenue growth, margins expansion, and payroll gains that are higher by several orders of magnitude. This will come in time. In the interim, it will continue to be a mild tug of war between optimism and fear. Have a wonderful weekend and a profitable trading week.--Ping Yu, Briefing.com
6:12PM Weekly Wrap :
The market got about all it could ask for this week in that the two most important items of the week - Cisco's (CSCO) earnings report and the October employment report - were nothing short of encouraging. That point notwithstanding, the broader market struggled to make much headway as blue chip stocks took a breather while small- and mid-cap shares toed the line along with the indefatigable technology sector.
The final numbers tell the story. The Dow was up 0.1% this week and the S&P 500 was up 0.2%. Meanwhile, the Russell 2000, the S&P 400 Midcap Index, and the Nasdaq Composite were up 2.8%, 2.1%, and 2.0%, respectively.
Those strong gains were led by technology stocks, which stayed in rally-mode following Monday's upbeat report on September billings from the Semiconductor Industry Association. As one might expect, the report fueled continued buying interest in the semiconductor and semiconductor capital equipment stocks that contributed to a 6.0% rally in the SOX Index. The latter, in turn, hit a new 52-week high, and as it so happens, each of the major indices hit new 52-week highs as well this week.
Other sector standouts included apparel, tobacco, telecom equipment, electronic manufacturing services, securities, aluminum, railroad, restaurant, and regional bank. On the flip side, the biotech, managed care, airline, integrated telecom, paper, and gold sectors were among the notable weak spots.
Despite the solid gains in the Nasdaq, and small- and mid-cap indices, it was the underperformance of the blue chip averages that seemed to resonate more with market participants when the week came to a close. The reason being is that they failed to rally in a meaningful way to both Cisco's encouraging report and the better than expected October employment report. The former suggested there has been a welcome improvement in technology spending, whereas, the latter clearly repudiated the jobless recovery argument. For October, nonfarm payrolls increased 126K, and after revisions to August and September data, showed a 286K increase in nonfarm payrolls over the last three months.
The limiting factor was rooted in concern that the improving job picture might invite a Fed tightening sooner rather than later. Briefing.com continues to believe that a tightening isn't likely until 2H04, but nonetheless, the anticipation of higher rates was enough to stymie blue chip stocks, especially after the Reserve Bank of Australia and the Bank of England both raised their key lending rates earlier in the week.
This fear of higher interest rates promises to be an impediment for the market going forward and should serve to slow the speed at which the market has been climbing since March, and in the case of the Nasdaq, since last October. At this juncture, though, concern about higher interest rates won't undercut the market altogether given the outlook for strong profit growth in Q4, the persistence of low inflation, and the realization that higher market rates would be more of an offshoot of strong economic growth than rising inflation. -- Patrick J. O'Hare, Briefing.com
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 9801.12 9809.79 8.67 0.1 % 17.6 %
Nasdaq 1932.21 1970.74 38.53 2.0 % 47.6 %
S&P 500 1050.71 1053.21 2.50 0.2 % 19.8 %
Russell 2000 528.22 542.96 14.74 2.8 % 41.7 %
4:07PM Asyst Technologies (ASYT) 18.29 -0.66: After the close Thursday, Asyst Technologies reported Q2 EPS of ($0.41) on revenue of $51.3MM (-24.9% year-over-year) vs. Reuters Research consensus at ($0.32) on $50.0MM (-26.8% year-over-year).
Management provided a positive, if preliminary, business outlook for flat panel display fabs, 300mm Greenfield, and 200mm and 300mm expansion projects. The company closed the quarter with a book-to-bill of 1.2.
Management guided for Q3 revenue of $59.0MM (+15.0% sequentially and -22.0% year-over-year) vs. consensus at $56.6MM (+10.3% sequentially and -25.2% year-over-year). Consensus EPS is at ($0.17).
Margins
Gross margin improved 1360 bps sequentially and declined 1560 bps year-over-year to 23.4%, the former reflecting efficiencies gained as company transitions to outsourced manufacturing, the latter the impact of the 24.9% year-over-year decline in revenue. SG&A declined 14% year-over-year. As a percent of sales, SG&A increased by 500 bps to 29%.
Valuation
Shares trade at 3.3x F04E revenue of $219.7MM and 2.3x F05E consensus revenue of $352.9MM; 33.9x F05E consensus EPS of $0.54. On an inverted DCF/EVA basis, assuming 11%-12% operating margin, ASYT's valuation implies that it will need to deliver low 30% revenue growth over the next 10 years to justify the current valuation.
Summary
Even if ASYT achieves the significant operating margin expansion as implied by our model, a low-30% 10-year compound annual growth rate would make ASYT a $3.7B annual revenue company at the end of the forecast period, significantly exceeding ASYT's achievable market share and revenue level when compared against the addressable market opportunity. For investors seeking a play in semiconductor capital equipment, we would, instead of ASYT, focus on ASM International (ASMI 18.95 -0.19).--Ping Yu, Briefing.com
3:11PM Floor Talk : Trading desks continue to spend a good portion of their day filtering through various rumors. It's actually pretty interesting how some of these events play out. For example, this week we saw chatter that AEOS had pulled out of a conference quickly morph into a rumor that comps would disappoint and CEO change was imminent. In this case, the reality was almost exactly in line with the early speculation, as both events occurred. Yesterday, there was talk of a special board meeting by Bayer to consider a sale of the company. As it turned out, Bayer (BAY +7%) announced the spin-off of its chemical division, causing the stock to run today. Wall Street is awash in rumors throughout the day; some make sense, many are ridiculous, and a few are obvious plants. This week, the rumor mill was propelled largely by chatter out of the AeA conference in San Diego. One notable rumor making the rounds this week was that INTC is considering a play for a fabless communications integrated circuit company such as MRVL, BRCM or PMCS. For more color on this particular story, see today's "Floor Talk" comment on the Briefing.com Stock Briefs page. (http://www.briefing.com/sub/stocks/stockbriefs.htm)
1:57PM Applied Materials: checks suggest order strength - Prudential (AMAT) 25.45 -0.16: Prudential says that checks suggest the co has been seeing strength across business segments, and they believe Oct qtr orders could be in the $1.15-$1.2 bln range (vs guidance of $1.15 bln and consensus of $1.13 bln); in addition, firm says current business momentum suggests Jan qtr orders could be very strong, and guidance could be up 10-15% and the actual number could be even higher). Firm raises their CY04 est to $0.59 from $0.51 (a penny above consensus) and raises their target to $30 from $25.
10:28AM Silicon Storage price tgt raised at Unterberg (SSTI) 13.12 +0.17: CE Unterberg Towbin raises its tgt range to $15-$18 after co held a very upbeat analyst day. Firm is also raising its Q4 est to $0.03 from $0.02 and FY04 to $0.33 from $0.25, while still expecting upside to these numbers. In firm's opinion, co's strong Q3 results and very upbeat outlook for next two quarters clearly demonstrate that SST is executing and delivering numbers.
9:14AM NVDA Color 18.17: Nvidia shares are up 21% in pre-market after the co guided sequential revenues higher despite street expectations of a soft Q4. Also being viewed favorably by the market was positive gross margin guidance from the co. While Bear Stearns believes the positive gross margin guidance will carry the name higher this morning, firm advises investors not to chase the stock at these levels. Instead, would wait to see if co's market share stabilizes and a lower stock price before turning more positive, noting that its strategic concerns regarding co's product portfolio still linger. Merrill Lynch is removing its Sell rating on the stock and moving to Neutral, as qtr indicates that the worst is seemingly behind the company.
8:54AM Advanced Micro downgraded at Oppenheimer (AMD) 17.04: Oppenheimer downgrades to Neutral from Buy, saying uncertainty regarding AMD's plans for a 300mm advanced wafer facility has caused them to take a more cautious near-term view; until more details on AMD's 300mm plans emerge, firm believes concerns regarding funding and the potential income statement impact will weigh on the shares.
8:52AM Integrated Silicon downgraded at B. Riley (ISSI) 17.63: B. Riley downgrades to Neutral from Buy based on valuation, as the stock has exceeded their $17.05 target. |
