From Briefing.com: Stocks took it on the chin Friday after consumer confidence unexpectedly declined. The University of Michigan preliminary survey on February Consumer Confidence revealed consumers became bearish on the economy in February despite an improving corporate spending environment and firming job market.
The drop in confidence is more a function of the political diatribes taking place around the nation during primary season than it is a reflection of deteriorating economic fundamentals, as high profile candidates seize on slow job growth and the flow of jobs overseas as major campaign themes. The fact is, economic fundamentals continue to improve domestically and abroad as was so clearly reflected in results from Dell (DELL 34.55 +0.98) and Analog Devices (ADI 50.64 +1.65).
The two economic bellwethers posted results that reveal spending is picking up across the globe. ADI's results in particular indicate a recovery in industrial spending. Investors responded favorably to the two companies, and tech shares rallied in kind but was unable to sustain the momentum. The Philadelphia Semiconductor Index (SOXX 510.57 -8.21) lost 1.58% after briefly trading higher during the morning session. Decliners outnumbered advancers 8:1. The Briefing.com Tech Index (BTI) fell 1.0%. Decliners led advancers 2.4:1. Decliners lost 2.5% and advancers gained 2.5%.
The Dow (DJI 10627.85 -66.22) dipped 0.62%, the S&P (SPX 1145.81 -6.30) slipped 0.55% and the Nasdaq Composite (IXIC 2053.56 -20.05) gave up 0.97%.
Today's movers: GRIC Communication (GRIC 4.29 -1.13) dropped 21% after guiding below consensus.
Looking ahead to next week: Agilent Technologies (A 37.08 +0.16), Network Appliances (NTAP 21.70 -0.77) and Photronics (PLAB 19.63 -0.11) report after the close Tuesday, ADC Telecom (ADCT 3.27 -0.05); Applied Materials (AMAT 21.77 -0.28), Intuit (INTU 48.41 -0.27) and OmniVision Technologies (OVTI 48.53 +0.66) report after the close Wednesday; and BEA Systems (NTAP 12.66 -0.14) and Hewlett-Packard (HPQ 23.01 +0.10) report after the close Thursday.
Please visit the Story Stocks and Daily Sector Wrap pages for the latest thinking on investment opportunities across market sectors, and the Page One, Looking Ahead and Economic Briefing pages for broad market perspective and outlook, and the Economic Calendar page for scheduled data releases. For active investors and traders, visit the In Play, Swing Trader, and The Technical Take pages for actionable ideas.
Have a good holiday.--Ping Yu, Briefing.com
6:05PM Weekly Wrap :
This week was awash in a number of events that carried a good degree of influence for the economy/global markets, and yet the US stock market finished relatively unchanged for the week. The Dow, Nasdaq, and S&P 500 shot up and down over the course of several sessions and finally settled for an essentially flat close - in a telling sign that the indices' once unstoppable bullish momentum is starting to slow.
The headliner of this week was undoubtedly Fed Chairman Greenspan's semi-annual monetary report to Congress. Dr. Greenspan addressed the House Financial Services Committee and the Senate Banking Committee over Wednesday and Thursday, respectively, and delivered what was generally an upbeat assessment of the economy. He said that the 'odds of sustained growth are good' and expressed optimism that hiring will accelerate throughout the year - pegging the unemployment rate at 5.25-5.5% in 4Q04. The current job situation, however, is far booming, and Greenspan used that reason (along with still benign inflation) as why the 'Fed can be patient in removing its current policy recommendation.'
Stocks, bonds, and gold all got a tremendous boost from Dr. Greenspan's reassurances that the Fed won't be raising interest rates anytime soon, and rallied when the Q&A period ended on Wednesday. The dollar did just the opposite, falling near its all-time lows against the euro. The Fed head spoke to the dollar's depreciation over the past year, and said that it has been 'gradual' and has had no 'material adverse side effects' on US capital markets. Greenspan's comments undid all of the greenback's gains at the start of the week, coming off the G7 meeting where the group expressed its desire to avoid 'excess volatility and disorderly movements in exchange rates' - a statement that stood in stark contrast to its stance calling for 'more flexibility in exchange rates' at its last meeting.
OPEC was another organization that had a surprising announcement for the market. After reports suggested that the oil cartel was likely to leave quotas unchanged, the group vowed instead to cut production by about 9% (or 1 mln barrels a day) starting April 1. The Tuesday decision sent the price of crude oil spiking from $32.83/bbl to $34.56/bbl on Friday.
As a result, the oil & gas drillers, equipment, and exploration issues rounded out the top groups of the stock market this week. Basic material and brokerage also were also among the best performers as this week marked the fourth week the blue chip issues outperformed technology. The latter turned in a respectable showing, but was pressured by sizable losses in semiconductor equipment. Briefing.com has recommended a Market Weight position in technology, and an Overweight position in financials, materials, and energy since December 11. For more information on our sector weightings, visit our Sector View page.
The Dow, however, was the most notable index this week as it moved to its best levels since June 2001 on Wednesday. Other than the 'Greenspan rally,' the Dow benefited from a sharp lurch in component Walt Disney's (DIS 27.60 +3.52) price. The Mouse received an unsolicited bid from cable company Comcast (CMSA 31.23 -2.70) to acquire it for approximately $56 bln. The action there is still unfolding as the latest reports indicate that Disney's Board of Directors will reject the offer as too low - something the market seemed to signal by bidding DIS above the per share offer price.
Next Week lacks some of the excitement of this week, but it is fairly full with earnings and economic reports - an area that, despite its disappointments with January Retail Sales (including auto), weekly initial claims, December Trade Balance, and February Michigan Consumer Sentiment, seemed to take a backseat to all the events of this week. On Monday, the market is closed in observation of Presidents' Day, and on Tuesday through Friday, earnings from a number of retailers and tech names dominate.
Briefing.com looks for the market to perform much as it has over the past few weeks - maintaining a fairly neutral disposition as it still contends with valuation issues. Over the long-term, however, we continue to believe long-term investors should have exposure to equities as corporate growth strengthens and fiscal and monetary policy remains stimulative.-- Heather Smith, Briefing.com
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 10593.03 10627.85 34.82 0.3 % 1.7 %
Nasdaq 2064.01 2053.56 -10.45 -0.5 % 2.5 %
S&P 500 1142.76 1145.81 3.05 0.3 % 3.0 %
Russell 2000 584.07 585.14 1.07 0.2 % 5.1 %
3:41PM Analog Devices (ADI) 50.61 +1.62: After the close Thursday, Analog Devices published Q1 EPS of $0.30 on revenue of $605.4MM (+29.5% Y/Y) vs. Reuters Research consensus at $0.28 on $587.68MM.
The company experienced improving demand throughout the quarter. Backlog increased 23% Q/Q to $475MM.
Margins. Gross margin increased 291 bps Y/Y to 57.1%. Operating margin increased 804 bps Y/Y 24.4%. Guidance. Guided for Q2 EPS of $0.34-0.35 on revenue of $650-665MM (+29.5-32.5% Y/Y) vs. consensus at $0.32 on $619.58MM. Raised full-year growth to 30%.
Summary. Results reflect broad-based recovery across market segments and ADI's diverse product portfolio and customer base.Broad Product Base Broad Customer Base
# of Generic Pdts Cumulative Sales # of Customers Cumulative Sales
Top 1 2% Top 10 12%
Top 10 12% Top 150 36%
Top 25 21% Top 1,000 41%
2000 100% 60,000 100%
Shares are, based on our inverted EVA / DCF model, priced for sustained 30% revenue growth assuming steady Y/Y improvement to 35% operating margin. We think ADI will be able to deliver on these expectations.
First, on the sales growth side of the equation, ADI has historically outgrown the semiconductor industry because of the company's technology and management leadership, and high performance analog ICs (integrated circuits), 78% of sales, are critical to a wide range of systems.
Second, management's goal is to grow revenue at 2x the industry average. According to Taiwan Semiconductor (TSM 10.60 -0.29), the semiconductor industry is in the early stage of a multi-year 20%+ annual growth cycle.
Third, ADI is successfully selling more content into customers' products even as some of these products experience exponential growth in demand (e.g. digital still cameras; $10-15 of content per unit), and garnering design wins with Blackfin (5K customers evaluating; over 1K active design ins).
Fourth, on the margin side of the equation, ADI is continuing to move down the cost curve as the semiconductor recovery unfurls. Management remains focused on constraining operating expense growth below revenue growth and is targeting 60% gross margin and a 10-15 pts increase in operating margin.
Fifth, analog ICs Products are generally proprietary designs with long product life cycles and high barriers to entry, resulting in low capital intensity and as a result, offers companies some of the best margin opportunities within the semiconductor industry.
Sixth, ADI is seeing increasing spending from industrial and infrastructure customers. Industrial and infrastructure products carry higher gross margin.
Finally, power management sales mix is shifting from lower margin desktop power management solutions in favor of higher margin notebook power management solutions.
We would continue to accumulate ADI as well as Intersil (00C0 24.86 -0.33).--Ping Yu, Briefing.com
10:22AM Dell (DELL) 34.96 +1.39: After the close Thursday, Dell published Q4 EPS of $0.29 on revenue of $11.512 (+18.3% Y/Y) vs. Reuters Research consensus at $0.28 on $11.511B. The company is seeing strength across geographic markets and product segments; early signs of recovery in enterprise spending.
Geographic Market. China unit shipments up 36% Y/Y; Japan up 25%; India up 59%; Korea up 100%; Americas International up 29%. U.S. corporate units up 11%. European business product segment (desktop, notebook, server) unit shipments up 40%.Geographic Market Unit Growth Revenue Growth Revenue % of Sales
Americas Business 20% 15% $5.614B 49%
U.S. Consumer 26% 14% $2.148B 19%
EMEA 33% 27% $2.553B 22%
Asia-Pacific / Japan 34% 22% $1.197B 10%
Total 25% 18% $11.512B 100%
Product Segment. Server units up 40% with U.S. shipments up 49%. Storage units up 47%; $1.8B annual run-rate. Software & Peripherals revenue up 36%. Services revenue up 35%; $3.0B annual run-rate. Printer units up 100% Q/Q.Product Segment Unit Growth Revenue Growth Revenue % of Sales
Desktop 21% 6% ~$6.0B 52%
Notebook 40% 22% ~$3.1B 27%
Enterprise 32% 32% ~$2.4B 21%
Total 25% 18% $11.5B 100%
Margins. Gross margin declined 13 bps Y/Y to 18.2%. Operating margin increased 11 bps Y/Y 8.5%.
Guidance. Guided for Q1 EPS of $0.28 on revenue of $11.2B (+17% Y/Y) vs. consensus at $0.28 on $11.224B.
Summary. Q4 results point to market share gains and recovery in enterprise spending with muted pricing pressure. Operating margin improvement despite modest gross margin erosion and challenging pricing environment underscore strength of Dell's business model.
Shares are, based on our inverted EVA/DCF model, priced for sustained high 20% revenue growth assuming 10% operating margin.
Improving industry fundamentals, strong emerging markets demand, Dell's well managed operating model and market share gains support high 20% revenue growth, and gives us the confidence management will be able to achieve the growth rate implied in our model.
As noted in the Q3 review (Story Stocks, November 11, 2003), we think Dell shares can trade at a leadership premium multiple of 2.0-3.0x F05 sales (2.5-3.5x TTM), or $37-$55, but given that the market is pricing in 10% operating margin, Dell will have to demonstrate greater progress towards low 20% growth or 10% operating margin in order for shares to sustain the higher price on an EVA/DCF basis. As a result, we would prefer buying on a 8-13% pull-back.--Ping Yu, Briefing.com
10:16AM MRVL: Dell's comments on ramp of new 24-port gig-E switch positive for co - AmTech 43.19 +0.42:
10:12AM OVTI stronger after JP Morgan suggests buying ahead of next week's 2-for-1 stock split and Feb 18 earnings 49.40 +1.53:
9:32AM MKSI downgraded at Stanford Group 25.43 +0.55: Stanford Group downgrades MKS Instruments (MKSI) to Hold from Buy, as they believe the stock will be unable to sustain a material upward move as order growth slows; firm says they are hearing that growth in production rates in the June qtr are likely to slow to the 10-15% range (from the March qtr's likely 20-25% range); firm says the mostly likely industry scenario that would cause this slowdown is OEMs seeing Q2 order growth slowing or getting indications from semi co's that second half order rates will slow from first half rates.
9:10AM NVDA upped to Over Weight at Pacific Growth 23.52: Pacific Growth upgrades NVIDIA Corp (NVDA) to Over Weight from Equal Weight. Trading at a P/E of 27.7x and an EV/'05 Sales ratio of 1.7x, firm does not see stock as particularly expensive, given the earnings leverage coming from expanding gross margins. A qtr ago firm cited uncertainty around PCI-Express, the NV4x transition, and lack of visibility in to competitive landscape as reasons for not upgrading. Firm now believes there is improved visibility. With IDF coming next week, and the roadmaps from co and ATI Tech laid out, firm is much more confident in NVIDIA's EPS outlook. Raises FY05 est to $0.85 from $0.73 and establishes FY06 EPS tgt of $1.10.
8:25AM CCMP upgraded at Oppenheimer 44.33: Oppenheimer upgrades Cabot Micro (CCMP) to Buy from Neutral, but cuts their target to $54 from $58; while the co's Q1 earnings came in slightly above ests, the stock has seen a significant decline in recent weeks in response to a 5-point decline in gross margins resulting from yield problems and warranty-related costs on advanced slurries; firm notes that the same problem occurred last March when customers pushed for tighter specs, and it took CCMP a qtr to improve yields; however, firm expect gross margins to recover to 51%, which is at the higher end of CCMP's guidance range of 50%, plus/minus 2%.
Advanced Micro Devices (AMD 14.94 -0.15): The Wall Street Journal reported that several big companies, including IBM and Sun Microsystems have adopted an AMD chip called Opteron to make server systems. Even HPQ, which helped develop Intel's Itanium and plans to unify several computer lines around it, now is expected to add Opteron-based servers to its product line. Craig Barrett, CEO of archrival INTC, is expected to mount a stage in San Francisco and demonstrate a technology for boosting the power of standard microprocessors, which is a concept AMD introduced last April.
finance.yahoo.com
Thanks for keeping us updated on the BPNDX G!
RtS |
