From Briefing.com: Investors received further confirmation on Wednesday that inflationary pressures remain tame despite rising commodity prices. As expected, the February Consumer Price Index rose 0.3%. The core, which excludes food and energy, rose 0.2%, modestly above consensus at 0.1% (read the Economic Briefing page for analysis and commentary).
In a repeat of Tuesday's opening action, investors once again stepped in to bid stocks higher at the open on the overall favorable economic data and earnings outlook (see Page One for details). Stocks trended steadily higher to finish near session peaks.
Tech shares led the market rally. The Philadelphia Semiconductor Index (SOXX 487.09 +10.05) rose 2.1%. There were no decliners among the 18 companies that form the index. The Briefing.com Tech Index (BTI) gained 1.9% with advancers outnumbering decliners 3.7:1. Advancers jumped 3.3% and decliners dropped 2.7%.
The Dow (DJI 10300.30 +115.63) closed higher 1.1%, the S&P (SPX 1123.75 +13.05) up 1.2% and the Nasdaq Composite (IXIC 1976.76 +33.67), aided by the strong tech sector, up 1.7%.
After the close, Jabil Circuit (JBL 28.16 +0.78) posted Q2 results ahead of expectations and raised guidance above prior forecast and consensus. We would continue to accumulate shares. Visit Story Stocks on Thursday for review and investment summary. TIBCO Software (TIBX 7.77 +0.65) also posted results ahead of consensus.
Looking ahead to Thursday, Adobe Systems (ADBE 36.26 +0.91) and Solectron (SLR 6.07 +0.12) report after the close.
The recent weakness in tech has improved the risk reward profile for many tech shares but valuation remains a concern. Continue to exercise selectivity in adding names to investment portfolios. Actively manage risks and dampen near-term volatility by diversifying portfolios across sectors and names. Visit Story Stocks daily for the latest thinking on investments across sectors. Two tech names highlighted today are Anteon International (ANT 28.21 +0.02) and Trident Microsystems (TRID 14.58 +2.89). Both trade at a discount to peers on a relative value basis. We would continue to accumulate ANT and TRID. ANT is highlighted in the Relative Value Ideas Focus List (Story Stocks, March 1, 2004).
Refer to the bottom of the Tech Stocks page for performance by sub-sector.--Ping Yu, Briefing.com
5:56PM Wednesday After Hours prices levels vs. 4 pm ET: Some of today's buying enthusiasm has calmed, and resulted in a relatively subdued extended session. Presently, the S&P futures, at 1124, are 2 points above fair value, and the Nasdaq 100 futures, at 1431, are 1 point below fair value. Tonight's earnings announcements have come from a number of different industries and have been mostly upbeat:
The below table lists the after hours' news items, as well as the stocks' reactions:
After Hours Mover % Change Move Reason for Move
Herman Miller (MLHR) -6% Home furnishings retailer beats by a penny in its Q3 (Feb) report on light revenues; Goes on to guide Q4 (May) EPS to $0.12-0.17 versus the market's expectation of $0.20; Company has warned for 4 out of the last 5 quarters and traders take profits from its 20% run since Feb
Jabil Circuit (JBL) +1% Provider of electronic manufacturing services shows upside to the top and bottom-line consensus estimates in its Q2 (Feb) report and guides Q3 (May) EPS and revenues above the Street forecasts; Two days ago, Briefing.com profiled a call by Wells Fargo saying that investors should buy ahead of earnings (which should be ahead of estimates)
Kirklands (00C0) -19% Specialty retailer of home decor meets the Reuters Research EPS estimate of $0.73 on revenues that rose 6% to $132.7 mln; Company guides Q1 (Apr) EPS to the low-end of analyst estimates; Management also makes comments about a 'persistently sluggish sales environment' in its press release
Tibco Software (TIBX) +3% Software company surpasses the Q1 (Feb) consensus EPS estimate by $0.02 on revenues that rose 17% to $74.4 mln (consensus of $69.8 mln); Stock moved 9% higher today in anticipation of the release, and has charged higher off the better than expected results
Tomorrow, earnings releases are again few and far between, although Morgan Stanley (MWD) will be a standout following Bear Stearns (BSC) today and Lehman Brothers (LEH) yesterday. Economic reports are more plentiful, with weekly initial claims, February Leading Indicators, March Philadelphia Fed, and January PPI on tap. The latter was due out on February 19, but because of some problems converting the producer price data to a new classification system, it is being released tomorrow. A preview of it can be found in today's Looking Ahead column.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
5:47PM California Micro files shelf for 4.0 mln shares (CAMD) 11.14 +0.12:
4:05PM Jabil Circuit beats by$0.02, guides higher (JBL) 28.16 +0.78: Reports Q2 (Feb) earnings of $0.24 per share, $0.02 better than the Reuters Research consensus of $0.22; revenues rose 30.2% year/year to $1.49 bln vs the $1.39 bln consensus. Company sees Q1 EPS of $0.25-0.27 vs consensus of $0.24 on revenues of $1.575-1.625 bln, consensus $1.46 bln.
1:48PM Nasdaq Composite nearing midday high (COMPX) 1973 +30.3: -- Update -- -- Technical -- The index has spent much of the day vacillating on both sides of resistance mentioned earlier at 1968/1970 (see 10:05 update). In recent trade, however, it has edged back toward the midday high of 1974.29 with next resistances at 1982 and the 1991/2000 area (Feb low, Nov/Dec range top, 20 day exp avg).
11:03AM FDRY upgraded at FBW, tgt $22 17.51 +0.96: Ferris Baker Watts upgraded Foundry Networks (FDRY) to Buy from Hold based on valuation, saying the stock is currently priced at a level that, after an acquisition premium, is clearly accretive to larger industry participants such as Cisco and Juniper; firm also cites the co's strong balance sheet and cash flow, and believes that the industry is still in the early innings of the transition to 10 Gigabit Ethernet. Target is $22.
10:48AM LM Ericsson selected to upgrade Telefonica Unifon's network in Argentina (ERICY) 27.98 +0.74: Co announces that Telefonica's mobile operation in Argentina, Unifon, has selected ERICY as sole supplier to expand and upgrade their GSM network throughout the country. The agreement includes EDGE-capable GSM/GPRS 850 MHz and 1900 MHz equipment, transmission equipment, and a 5-year software and hardware support contract for Unifon's TDMA and GSM networks.
10:19AM SMI Color -- Early trading action ugly 15.81 -1.69: IPO comes under quick selling pressure, breaking sharply below its $17.50 offering price. Hearing that some buyers stepping in at these levels now that the flippers have been shaken out of the stock.
9:45AM TRID reiterated Buy at CE Unterberg 12.33 +0.64: CE Unterberg reits its Buy rating and $23-$25 target on Trident Micro (TRID). Trident will be a leading IC supplier to 2 of the top 4 LCD TV vendors in 2004. The firm has analyzed the low end TV story and believes that the potential loss by Trident to Genesis is over-hyped and the market is over-reacting to the situation. The firm continues to believe 2005 will be a Big year for Trident with advanced TV market growing 63% y/y and Trident increasing its dollar content with HiDTV ($20+ increase) and as such view this correction as a buying opportunity.
9:16AM NEWP upgraded to Strong Buy at Roth; target $23.90 15.65: Roth Capital upgrades Newport (NEWP) to Strong Buy from Buy, saying the recent sell-off is overdone; firm believes the semi equipment industry is in the early phase of recovery (should grow 35% this year), thinks that its fiber optics biz could be the catalyst in 2005; firm also notes that the co has $6.60/share in net cash, that its tangible book is $9.40/share, and they believe the co will break even this qtr and be profitable next qtr. Target is $23.90.
3:03PM Trident Microsystems (TRID) 13.23 +1.54: Trident Microsystems designs and markets semiconductors for digital media applications including digital set-top boxes and DPTVs (digitally processed television).
TRID is currently targeting three markets:
Progressive CRTTV--TRID commands a greater than 60% share of the China CRTTV market, which is projected to grow from approximately 2MM units in 2003 to more than 4MM units in 2004.
LCDTVs and PDPTV--TRID has a greater than 50% share of number three ranked Samsung (#1 ranked Sharp, #2 Sony and #4 Panasonic are primarily captive manufacturers). Management expects TRID to penetrate into more top tier OEMs in 2004.
HiDTV--The company announced, in December, a SOC chip that fully integrates HDTV audio and video decoding, analog video processing, TV features and requirements into a single chip. Management expects to have HiDTV design-in activities in H2:04 with revenue ramping in 2004 and more significant contribution in 2005.
Additionally, top tier notebook manufacturers are designing DPTV-SVP and HiDTV chips into notebooks.
Top five customers account for 77% of sales. The company announced in Q2 (last reported quarter) DPTV design wins at Sampo and DAEWOO Electronics; also announced DPTV-SVP design wins at KONKA and Samsung Electronics.
Revenue increased 22.2% Y/Y to $16.227MM in Q2, the second quarter that TRID operated as a digital media company following the company's restructuring in June. Digital media revenue increased 121.9% Y/Y to $15.89MM (98% of sales). Revenue from LCDTV and PDPTV products increased 137%; revenue from progressive CRTTV products in China increased 55%.
TRID experienced unexpected incremental revenue pull-ins from Q3 into Q2 of approximately 100K units or $1.6MM in revenue, mainly for CRTTVs in China as a result of the early Chinese new year. Management indicated during the Q2 conference call that Q3 results are expected to be above Reuters Research consensus despite the shift in revenue from Q3 into Q2. Consensus is currently at $0.02 on $13MM.
Gross margin increased 2427 bps Y/Y to 55.0% (56.4% on TTI product revenue), primarily as a result of product mix shift toward higher average selling price DPTV3D products. Operating margin increased 5230 bps Y/Y to 15.3% on lower R&D expense. SG&A expense increased in absolute terms but declined as a percent of sales.
Shares are, based on our inverted EVA / DCF model, priced for sustained low to mid 20% revenue growth assuming steady Y/Y improvement to upper teens operating margin.
Revenue growth and operating margin expectations are reasonable in view of market opportunities, TRID's technology position, management's gross margin target of 50-55% and recent operating performance. Look for TRID's growth to accelerate with the TV market, which generally picks up in the second half of the year.
The following table shows price multiples and Y/Y growth rates for TRID compared against industry comps.Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Trident Microsystems (TRID) 6.1 (78.3) 5.8 5.8 4.1 (31.6%) 0.3% 41.8%
Genesis Microchip (GNSS) 1.6 (163.6) 2.4 2.3 2.0 12.6% 9.6% 19.5%
Pixelworks (PXLW) 2.5 (188.4) 4.9 3.5 2.9 37.3% 33.7% 24.0%
Zoran (ZRAN) 1.8 (10.3) 3.3 1.9 1.6 45.0% 70.4% 21.5%
Semiconductor Components 2.8 68.1 4.3 13.8%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of March 12, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of March 12, 2004.
TRID owns approximately 77-78MM shares or 0.5% of United Micro Electronics (UMC 5.38 +0.05) common stock. Current market valuation understates the value of TRID's intellectual property and operating assets on a forward basis. We would accumulate.--Ping Yu, Briefing.com
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