From Briefing.com: 6:00PM Wednesday After Hours prices levels vs. 4 pm ET: Today's late day rally makes its way into the extended session, where the S&P futures, at 1099, are 3 points above fair value, and the Nasdaq 100 futures, at 1421, are 4 points above fair value. Tonight's earnings pronouncements have been encouraging, but it's more probable to say today's sudden recovery effort has prompted more short-covering.
The below table lists tonight's relevant news items, as well as the stocks' reactions:
After Hours Mover % Change Move Reason for Move
Aeroflex (ARXX) +2% Small-cap semiconductor company for the aerospace and defense industries matches the Q3 (Mar) Reuters Research consensus EPS estimate of $0.11 and issues better than expected Q4 (June) revenue guidance; Sales should increase 10% sequentially, to approximately $128.5 mln (consensus of $122.7 mln); Competitors of ARXX include A, HON, and TXN
Ann Taylor (ANN) unch Specialty women's retailer reports a 74% surge in Q1 (Apr) EPS to $0.65 (consensus of $0.65) and a 23% increase in sales to $433.2 mln (consensus of $426.8 mln); Management reaffirms Q2 (July) EPS of $0.58-0.60 versus the market's expectation of $0.59; Stock doesn't get much of a boost as the company raised its Q1 outlook on 2 separate occasions earlier
Mamma.com (00C0) +18% Online direct marketing services company delivers Q1 (Mar) EPS of $0.04 on revenues of $4.2 mln; Although there are no consensus estimates for Mamma.com, the figures represent year/year growth of 100% and 135%, respectively; Briefing.com has been profiling MAMA on its In-Play, a Platinum product page, and the stock has soared over 160%
Mercury Interactive (MERQ) unch Provider of software to the business technology optimization (BTO) marketplace announces it plans to acquire privately-held Appilog for $49 mln in cash; Mercury said it is not changing estimates for the current quarter as Appilog, which does not yet have revenue, will not impact the top-line immediately; Management said it was purchasing Appilog for its technology
Walt Disney (DIS) +2% Dow component shows considerable upside to net income and revenues in its Q2 (Mar) report; Growth in the company's cable and theme-parks businesses made up for a weaker performance at its movie studio; Management noted it sees FY04 (Sept) EPS growth of 50% over FY03's result, which is in line with the Street's forecast; News comes as talks to renew Bob and Harvey Weinstein's, founders of Miramax, contract hit a snag; The current contract runs out in 2005
Tomorrow, the market will have earnings results from mass merchandisers Target (TGT) and Wal-Mart (WMT) to digest, as well as a number of economic reports. Weekly initial claims, April Retail Sales, and April PPI are all scheduled to be released, with the last one bearing special importance considering the stock market's obsession with inflation. For more insight into this, visit the 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
Close Dow +25.69 at 10,045.16, S&P +1.81 at 1,097.26, Nasdaq -5.76 at 1,925.59: What started out as yet another exercise in futility, with the major averages plummeting by 1.6-2.4% at their lows, ended with the market paring its losses in a significant fashion and the blue-chip averages closing in positive territory... The initial negative sentiment was largely the result of the market's continued obsession with rising interest rates and accelerating inflation, which led to excessive hesitation from buyers, particularly ahead of tomorrow's PPI report and in view of new multi-year highs realized by the price of crude oil...
The early weakness was especially notable in the face of Cisco's (CSCO 21.71 -0.54) better than expected Q3 earnings report and Qualcomm's (QCOM 63.32 -1.40) upward guidance, which failed to incite buying interest... In its decline, the Dow slipped below its 200-day simple moving average at 10,013, as well as the psychologically-significant 10K mark... Yet, the ability of the S&P 500 to maintain its standing above its 200-day simple moving average at 1078, put a halt to the earlier selling, inciting mild buying efforts... These efforts found added fuel in the banking sector, which is influential in determining market direction...
Specifically, the interest-rate-sensitive banking group, which had been in the red through the morning managed to start paring its losses in the afternoon, turning positive in the last hour of trade and inciting buying efforts in the broader market, as participants came to view the market to be oversold... Aside from the banking sector, leaders to the upside included the biotech, broker/dealer, oil services, and insurance groups... Among the laggards of note at the close were the semiconductor, gold, tobacco, personal services, and chemicals sectors...
Elsewhere, the bond market closed the session near its lows of the day, with the 10-year note down 11/32, bringing its yield up to 4.80%...NYSE Adv/Dec 1732/1589, Nasdaq Adv/Dec 1427/1737
11:21AM Cisco earnings color; effect on others - AmTech : AmTech highlights implications from the CSCO report: 1) Router revenues down 9% q/q -- JNPR taking mkt share at high-end during CSCO product transition; 2) CSCO appears to have taken mkt share from FDRY in Japan, but upbeat expectations for U.S. enterprise & govt bode well for FDRY; and 3) WiFi revs at CSCO up Q/Q despite industry seasonal downtrend -- BRCM, MRVL and ATHR are key WiFi chip vendors to CSCO. Firm says MSFT's departure from the WiFi equipment mkt is positive
for both Linksys and NTGR.
11:18AM Cisco Systems (CSCO) 21.81 -0.44: Cisco Systems published Q3 results after the close on Tuesday. The networking and communications leader published EPS of $0.19 on revenue of $5.62B (+21.7% Y/Y) vs. Reuters Research consensus at $0.18 on $5.548B. Extra week added 3-5% in orders. We suspect currency also had favorable impact though management did not quantify.
Enterprise bookings (50% of sales) increased in the low double digits Q/Q. Commercial bookings (25% of sales) increased in the mid teens; service providers bookings (25% of sales) increased in the upper single digits Q/Q. Demand was linear across the quarter and improved across geographies. Corporate executives are increasingly optimistic on the economy.
U.S. bookings (46% of sales) increased in the mid teens Q/Q. EMEA bookings (30% of sales) increased in the low double digits, with the U.K. posting 20%+ growth, northern Europe low double digits and Germany high single digits. Asia/Pacific bookings (10% of sales) exhibited normal seasonality as Greater China (3-4% of sales) slowed Q/Q; Y/Y growth remains solid. Japan bookings (8% of sales) increased in the 20% range. Americas Int'l bookings (6% of sales) increased in the high single digits.
The following table shows sales, gross margin and Y/Y change in gross margin by revenue segment. Segment Revenue
($ in B) % Sales Y/Y Growth Gross Margin Y/Y Variance
Product 4.730 84% 24.5% 69.3% (211)
--Routers 1.3 23% n/a
--Switches 2.3 41%
--Advance Technologies 0.9 16%
--Other 0.2 4%
Services 0.890 16% 8.7% 66.2% (171)
Total 5.620 100% 21.7% 68.8% (198)
Gross margin declined 198 bps Y/Y to 68.8% vs. guidance for 67-69%. Operating margin increased 103 bps Y/Y to 30.6%. Operating improvement despite increasing contribution from lower margin products, and firming components pricing environment reflects focus on productivity and cost efficiencies. Management estimates a 20% acceleration in Advance Technologies has a -0.5% impact on gross margin, and a 30% increase in the cost of semiconductor components has a -1.0% impact on gross margin. Seeing modest components pricing pressure, primarily for ASICs, PLDs, memory, PCBs and steel closures.
Guided for Q4 revenue of $5.789-5.901B (23-25% Y/Y or 3-5% Q/Q). Reuters Research prints consensus EPS at $0.19 on $5.748B. Gross margin is expected to be 67-69% and operating expense up 2-4% Q/Q due to year-end and prototyping expenses. The company is adding 1,000 positions, primarily to sales and engineering and remains committed to reducing operating expenses to 35% of sales.
CSCO's results and outlook are part of a series of generally positive datapoints that confirm our view of a global economy that continues on a path to recovery. It is bullish for tech but we would be highly selective in adding names to the investment portfolio. Despite recent market weakness, many tech names continue to trade at prices that reflect relatively high growth and margin expectations on a sustained basis. The following table shows price multiples and Y/Y growth rates for CSCO compared against industry comps within the communications equipment, software & programming, and computer systems & peripherals groups. Company *P/SG **P/OPG P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Cisco Systems (CSCO) 4.3 21.1 7.3 7.0 6.2 9.5% 15.4% 12.7%
ADC Comm (ADCT) 2.3 (44.2) 2.5 2.6 2.4 (21.8%) (7.8%) 7.8%
Alcatel (ALA) 1.4 (15.9) 1.3 1.2 1.1 (24.4%) 3.0% 5.3%
Avaya (AV) 1.1 29.1 1.6 1.7 1.6 (2.3%) (6.5%) 6.4%
Avici (AVCI) 1.7 15.4 3.4 2.9 2.3 23.8% 12.3% 26.9%
CIENA (CIEN) 5.1 17.5 6.6 5.3 3.8 3.5% 23.1% 38.9%
Enterasys (ETS) 0.8 (6.9) 1.0 1.1 1.0 (14.5%) (11.6%) 10.3%
Extreme Networks (EXTR) 1.5 (40.3) 1.9 1.8 1.6 (10.8%) (3.2%) 14.4%
Foundry Networks (FDRY) 1.8 8.5 4.0 3.7 3.3 32.9% 10.3% 13.5%
Juniper Networks (JNPR) 5.5 62.1 15.3 9.6 7.0 32.1% 75.1% 36.3%
LM Ericsson (ERICY) 2.5 (40.2) 2.7 2.5 2.3 (19.2%) 10.6% 7.8%
Lucent (LU) 1.4 25.0 1.7 1.6 1.5 (13.0%) 5.2% 5.9%
NetGear (NTGR) 0.6 25.2 1.4 0.9 0.8 26.1% 23.7% 13.9%
Nokia (NOK) 1.3 10.0 1.8 1.8 1.7 (1.6%) 3.2% 7.2%
Nortel (NT) 1.3 43.7 1.7 1.5 1.4 (7.2%) 10.7% 9.6%
Redback (RBAK) 1.6 (27.9) 2.3 1.8 1.4 (5.6%) 28.1% 1.3%
SonicWall (SNWL) 2.8 (32.6) 4.9 3.9 3.4 11.0% 41.6% 14.3%
Sycamore Networks (SCMR) 22.8 20.5 26.0 29.4 15.1 3.6% (5.2%) 94.7%
Tellabs (TLAB) 3.0 (26.1) 3.7 3.3 3.1 (12.5%) 14.7% 6.6%
WatchGuard (WGRD) 1.7 (16.3) 2.8 2.4 2.1 (2.4%) 14.2% 16.7%
3Com (COMS) 4.0 (22.4) 3.4 3.4 3.0 (37.0%) (26.1%) 14.4%
Dell (DELL) 1.6 20.3 2.2 1.9 1.6 17.1% 17.9% 15.5%
Check Point Software (CHKP) 6.5 15.4 13.1 11.2 9.9 3.9% 19.2% 13.1%
CyberGuard (CGFW) 2.1 (319.9) 5.4 4.8 3.4 38.5% 43.6% 41.0%
Internet Security Sys (ISSX) 1.5 20.0 2.8 2.5 2.3 1.0% 14.4% 10.2%
Network Associates (NET) 1.8 18.7 3.1 3.4 3.3 (7.2%) (10.8%) 3.2%
Secure Computing (SCUR) 2.2 29.1 4.2 3.5 2.9 4.9% 26.8% 19.9%
Symantec (SYMC) 3.3 17.2 7.9 6.3 5.5 32.9% 26.2% 14.1%
Websense (WBSN) 3.0 14.5 7.6 6.4 5.3 32.0% 28.0% 20.0%
Communications Equipment 1.5 31.3 2.0 n/a (2.8%) n/a
Computer Systems & Peripherals 0.9 17.9 1.3 11.0%
Software & Programming 2.8 35.7 4.9 6.7%
Blended 1.5 25.7 2.2 5.4
*P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of May 7, 2004.
**P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of May 7, 2004.
Advance Technology products (Security, VoIP, home networking, WLAN, Storage networking and Optical) are increasingly critical contributors to revenue. These markets in aggregate are forecast to grow at a compound annual rate in excess of 25% through 2007 and could contribute as much as $9-10B in annual revenue by 2007 assuming static market share; could be materially higher assuming market share gains.
We commented in the Q2 review, Story Stocks, February 4, 2004, that CSCO is positioned to deliver at least lower to mid teens growth and modest operating margin expansion in a mild recovery but that there is limited upside until Cisco demonstrates upper teens to lower 20% growth. CSCO shares have pulled back over 13% since the Q2 review and are now priced for sustained upper 20% growth assuming 32-33% operating margin. We would consider a small opening position for the patient investor but prefer waiting for an additional 10-15% pullback given expectations and market sentiment.--Ping Yu, Briefing.com
9:27AM ASML cut to Neutral at UBS in Europe 15.84: UBS in Europe downgrades ASML Holding (ASML) to Neutral from Buy as Q1 results confirm that this year will see strength in SPE spending, as the order backlog rose to 163 units from 124. Tight semiconductor capacity utilization rates and strong demand for wireless and digital consumer products lead the firm to increase its 2004 global litho tools estimate to 530 units from 435, and for ASML to 251 from 227 units. Firm notes there has been a close historical correlation between the stock and year-on-year growth in backlogs. The firm forecasts that growth in ASML's order backlog will peak in Q2.
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