From Briefing.com: Moderating macro economic news is good news. It means the economy continues on an expansionary path without significant risks of overheating and the Fed has greater latitude in terms of the timing of interest rate raises. That is the message embedded within the mix of strong Q1 earnings reports and recent economic data, including today's report on January existing home sales.
Existing home sales declined to a 6.04MM annual rate, down from 6.37MM in December. The decline reflects a continuing moderating of the sales trend as well as impact of the cold weather that gripped parts of the country last month.
On the corporate front, investors got a booster shot of adrenaline from Ingram Micro (IM 19.55 +3.49) which rose 21.7% after posting Q4 results that reveal the company is gaining market share and reaping the benefits of process re-engineering and cost reduction programs undertaken over the past two years, and more importantly, that the demand environment for technology continues to improve. IM is the world's largest distributor of information technology products, serves over 170K resellers worldwide and provides a representative picture of demand for information technology products and services.
The Philadelphia Semiconductor Index (SOXX 506.29 +9.07) climbed 1.82%. Advancers led decliners 17:1. The Briefing.com Tech Index (BTI) rose 1.0%. Advancers outnumbered decliners 2.0:1, with advancers rising 2.9% and decliners falling 2.2%.
The favorable corporate and macro economic data lifted the broad market. The Dow (DJI 10601.62 +35.25) gained 0.33%, the S&P (SPX 1143.67 +4.58) added 0.40%, and the Nasdaq Composite (IXIC 2022.98 +17.54) rose 0.87%.
Among today's movers, Comtech Telecommunications (CMTL 28.01 +3.21) rose 12.9% after raising Q2 and full year guidance, Dot Hill Systems (HILL 14.00 +1.71) gained 13.9%, Lightpath Technologies (LPTH 4.33 +0.49) climbed 12.8%, Tripath Technology (TRPH 5.67 +0.66) rose 13.2% and Vodavi Technology (VTEK 6.41 +0.73) jumped 12.9% after the provider of voice-over-IP products announced it was gaining market share.
After the close, Novellus Systems (NVLS 32.83 -0.64) raised Q1 guidance during its mid-quarter update. Management sees EPS of $0.08-0.10 with a bias to the high end. Revenue is expected to come in at $245-255MM vs. prior guidance of $240-250MM. Reuters Research consensus is at $0.09 on $248.84MM.
NVLS shares are down over 26% since November 25, 2003 when we wrote that there is no justifiable upside even if NVLS grew revenue at 30% because the market is already pricing into NVLS shares sustained 30%+ revenue growth and factoring in over 2500 bps in gross and operating margin improvement. Additionally, most semiconductor capital equipment companies are priced for 30% plus growth but semiconductor industry capital expenditures are expected to grow below this rate in 2004 and contract by 2006. There is limited upside even with the decline. We would continue to trade out of the semiconductor capital equipment group. For investors seeking a semiconductor capital equipment play, we would focus on ASM International (ASMI, 23.86 -0.23). Note that ASMI has risen over 39% since we first mentioned the company on the Tech Stocks page (October 14, 2003).
Looking ahead to Thursday: orders for durable goods and initial jobless claims are due at 8:30am ET; Autodesk (ADSK 25.90 +0.03), Bearingpoint (BE 10.25 +0.20), Marvell Technologies (MRVL 43.13 +0.95), McData (MCDTA 7.63 +0.18) and ScanSoft (SSFT 5.97 +0.30) report after the close.--Ping Yu, Briefing.com
6:05PM Wednesday After Hours prices levels vs. 4 pm ET: Stocks have extended their positive bias into the after hours, where the S&P futures, at 1144, are 1 point above fair value and the Nasdaq 100 futures, at 1474, are 3 points above fair value. Encouraging words from Novellus (NVLS) on its mid-quarter conference call has helped put a bid in the technology shares.
The below table details the semiconductor equipment maker's outlook, as well as other news items of the night.
After Hours Mover % Change Move Reason for Move
Darden Restaurants (00C) +1% Casual diner preannounces Q3 (Feb) EPS well above the Reuters Research consensus estimate citing stronger than expected sales and profitability in fiscal January and February; Stock has increased 16% since Briefing.com recommended DRI as a contrarian play in late Sept in a Story Stock; DRI had been beat up following its Q2 (Nov) warning
Men's Warehouse (MW) +3% After warning for Q4 (Jan) on Jan 7, the specialty retailer beats the Street's revised EPS forecast by $0.02; Men's Warehouse also issues EPS and sales guidance well above the consensus estimate; Stock has risen 18% since Jan
Midway Games (MWY) -11% Interactive software maker misses by $0.17 in its Q4 (Dec) report and also puts Q1 (Mar) sales at $12.0 mln versus the consensus of $39.3 mln; Management says it is currently negotiating with lenders to secure a $30 mln working capital financing arrangement; MWY has rallied nearly 90% since Nov
Novellus (NVLS) +1% Chip maker raises its Q1 (Mar) guidance on its mid-quarter call update; Novellus now sees revenues at $245-255 mln (consensus of $248 mln) and bookings at $330-340 mln; Shipments stand at $295-305 mln and EPS is at $0.08-0.10 with a bias to the upside (consensus of $0.09); Briefing.com profiled a call by Banc of America that said it believed management would raise orders guidance on In-Play
Starbucks (SBUX) -4% Coffee specialty store reports a 13% increase in Feb comps that (partially) resulted from strong post-holiday Starbucks Card redemptions; Management cautions, though, that the 'current high level of revenue performance is not sustainable' and that 20% revenue growth and 3-7% comps are 'the right level for longer-term expectations;' Words spook investors and cause profit-taking from SBUX's 40% run since Sept
Tomorrow's earnings calendar is dominated by retailers - American Eagle (AEOS), JC Penney (JCP), and The Limited (LTD) are among the more noteworthy names scheduled. January Durable Goods and initial claims for the week of February 21 are the two big reports on the economic calendar. Today's Looking Ahead column explains why the weekly jobless claims report will become more important as the market starts to consider when the Fed will raise rates.
For more details on these and other developments, be sure to visit Briefing.com's Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
3:40PM Novell (NOVL) 10.99 +0.03: Novell published Q1 results
4:46PM Novellus Mid-Qtr Update; Increases Q1 guidance (NVLS) 32.83 +0.64: NVLS has raised Q1 bookings guidance $330-340 mln vs. prior guidance of $305-315 mln. Co sees Q1 shipments of $295-305 mln and has also raised revenue guidance for Q1 to $245-255 mln (previously $240-250 mln), Reuters consensus is $248 mln and EPS of $0.08-0.10 w/ bias to upside, Reuters consensus is $0.09
1:58PM QLogic reaffirms Q4 and Q1 guidance on conference call (QLGC) 42.54 +0.68: Co continues to see Q4 (Mar) revenues growing 1-3% sequentially and Q1 (Jun) growing 3-6% over Q4 revenue. Co sees Q4 EPS of $0.36-$0.39 (consensus $0.38) and sees Q1 EPS of $0.37-$0.40 (consensus $0.40).
1:19PM QLGC could see V-shaped recovery at hard drive biz - ThinkEquity 42.49 +0.63: ThinkEquity reiterates their Overweight rating and $50-$52 target on QLogic (QLGC), as they believe the co's hard drive controller biz is poised for a V-shaped recovery as early as the June qtr; firm believes today's introduction of the UltraStar 10K300 from Hitachi Glogal Storage Tech supports this thesis, in that it is the first in a series of new QLogic design wins at the co. (See also the 10:03 comment for more.)
1:18PM FDA adopts rule requiring bar codes; should help MTLG, SBL, UNA : The FDA issues a final rule requiring bar codes on the labels of thousands of human drugs and biological products. Bar codes can help doctors, nurses and hospitals make sure that they give their patients the right drugs at the appropriate dosage. The FDA rule calls for the inclusion of linear bar codes -- such as are used on millions of packages of consumer goods -- on most prescription drugs and on certain OTC drugs that are commonly used in hospitals. In addition, the rule requires the use of machine-readable information on container labels of blood and blood components intended for transfusion. The FDA first proposed bar code requirements in March 2003, entertaining feedback before issuing a final ruling. New medications will have to include bar codes within 60 days of their approval; most previously approved medicines and all blood and blood products will have to comply within two years. Briefing.com Note: While the rule has been in the works for a year, we're hearing the 2-year timeframe is quicker than expected. Makers of bar code equipment include Symbol Tech (SBL 16.27 +0.64), Metrologic (MTLG 25.11 +1.05) and Unova (UNA 20.34 +0.04). Looking at the news from a trading perspective, MTLG has the smallest market-cap ($517 mln) and Float (approx. 10.7 mln shares).
11:12AM Research In Motion and Cingular introduce new BlackBerry Handhelds (RIMM) 90.78 +1.87:
10:03AM Floor Talk: QLGC 42.52 +0.66: We are hearing trader talk regarding a positive CNET article about Hitachi's progress in its Global Storage Technologies unit. Traders suggesting this would be a positive for QLGC as they supply fibre channel and SCSI controller chips to Hitachi for use in its enterprise disk drives.
Advanced Micro (AMD) 14.52 +0.51 : Oppenheimer upgraded Advanced Micro to Buy from Neutral based on an improving outlook for its NOR flash memory business and a stable outlook for its microprocessor business; also believes concerns about increased competition from Intel in both the processor and flash segments have been discounted in the share price and encourages investors to take advantage of recent weakness as a buying opportunity. Firm established a yr-end tgt of $18 (20x revised 2004 est).
Aeroflex (ARXX) 14.65 +0.44 : After the close, announced offering of 7.0 mln shares of common stock.
NVIDIA (NVDA) 22.50 +0.13 : Co introduced the NVIDIA GoForce 4000 and GoForce 3000 series of media processors that features NVIDIA nPower technology for ultra-low power consumption. The Go Force 4000 and 3000 require as little as one tenth of the power of traditional hardware codecs and even less power when compared to equivalent software-based solutions. In addition, NVIDIA announces that Mitsubishi will be the first manufacturer to carry phones based on these new products.
Skyworks (SWKS) 10.93 +0.58 : Skyworks (SWKS 10.93 +0.58): CE Unterberg reiterated their Short-Term Buy and $15 target on Skyworks and raised their Q2 (March) and FY04 ests above consensus, saying channel checks indicate that Q2 is tracking ahead of plan; co had guided Q2 revs/EPS to be flat at $175 mln/$0.04 (bucking the normal 10-15% seasonality in the handset mkt), but firm believes the co had entered Q2 with roughly 90% booked to reach flat, so unlike in the past, the co won't have to stretch to meet this guidance.
Texas Instruments (TXN 30.66 +0.75): Lehman reiterated their Overweight ratings on Texas Instruments and Qualcomm (QCOM 62.08 +1.07) as checks at this week`s 3GSM show in Cannes, France signal encouraging trends, with vendors such as Nokia, Motorola and Qualcomm outlining a more positive outlook. The firm believes, the best way to play the semiconductor universe is to focus on wireless and communications exposure. Based on recent channel checks, they believe in contrast to a subdued PC environment that current business fundamentals are steadily improving in wireless and communications following healthy growth in Q4.
Xilinx (XLNX) 41.07 +0.56 : Lehman upgraded Xilinx to Overweight from Equal-Weight and raises their target to $48 from $45; firm believes that near-term business momentum is robust, with the March qtr tracking at the high-end or above guidance of 7-10% sequential growth, and manufacturing leadership should enable the co to take mkt share from ASIC suppliers while preserving margins.
9:10AM Ratings Briefing - AEOS : Wachovia upgrades American Eagle Outfitters (AEOS 22.92) to Outperform from Mkt Perform, raises its Q1 comp estimate to +3.0% from flat, and raises its FY04 estimate to $1.20 from $1.15 and initiates an FY05 estimate of $1.35 (both well above consensus). Firm says the men's business is improving along with a broad menswear rebound, the juniors business also appears strong aided by trend-right merchandise, and better yr/yr weather seems to be helping the apparel business overall. One store manager told the firm that the company was having its best spring season in over three years. Valuation Range is $25 to $28.
What It Means:
At Wachovia, an Outperform rating denotes that a stock appears attractively valued; total return will exceed that of the market over the next 12 months. BUY
Marks the second time in the past week Wachovia has upgraded AEOS... on Feb. 18, firm upgraded to Market Perform from Underperform
Significant shift in outlook for stock should invite added buying interest, especially since the latest upgrade (to firm's highest rating) comes just a day before AEOS will report its year-end earnings results... analysts typically don't make such timely moves unless they are confident that good news will be shared
AEOS is a turnaround story, and thus, earnings expectations are low.... in raising its FY04 and FY05 estimates above the current Reuters Research consensus of $1.16 and $1.30, respectively, Wachovia is contributing to belief that stock isn't necessarily over-valued at 19.8x est. FY04 since estimates are depressed and have potential to move higher with other analysts following suit with upward revisions
Analyst jury pretty much split on AEOS's prospects: 6 Buy; 7 Outperform; 13 Hold; and 1 Underperform [source: Reuters Research]... would note that recent ratings changes have been skewed to the upside
Sidenote: on Feb. 19 Jefferies & Co. upgraded to Buy from Hold; on Jan. 21 Wedbush Morgan reiterated added stock to its Focus List, and on Feb. 5, reiterated its Buy rating... on Nov. 14, Briefing.com added stock to its active portfolio, highlighting it as an opportune turnaround play for patient-minded investors
Disclosure: I own 100 shares of AEOS-- Patrick J. O'Hare, Briefing.com
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