From Briefing.com: Close Dow +53.95 at 10820.28, S&P +6.58 at 1254.85, Nasdaq +14.60 at 2241.67: Paving the way towards a fifth consecutive week of gains, each of the equity market's major indices finished the session at their best level of the session. While quiet economic and earnings fronts limited market-moving catalysts today, buyers maintained control of the trading action and pushed all of the ten economic sectors higher. Rises in a pair of Dow components spurred some early bullishness; Boeing (BA 68.96 +2.01) soared after landing some hefty jet orders this weekend, and General Motors (GM 23.56 -0.49) jumped after CEO Rick Wagoner discussed the company's four-point turnaround plan that aims to shave $7 billion in costs by the end of next year. While the former remained a bright spot till the end of trading, the latter reversed course mid-afternoon and fully relinquished its intraday gain; the loss of GM's leadership, however, was more than offset by broad-based buying efforts that continue to position the market for a traditional year-end rally that is apt to close the S&P with the 5% gain Briefing.com expects for 2005. Energy assumed the front-running position from the early going, rising alongside an uptick in crude (+$0.52 $57.75 per barrel) following its lowest close in five months on Friday. While that sector's 2.1% gain provided the most substantial support, BA paired with Lockheed Martin (LMT 61.21 +1.25) to push Industrials to a solid 0.7% rise. Regarding LMT, the stock was sent higher following reports that the company and the consortium it lead has decided against an acquisition of Computer Sciences Corp. (CSC 48.39 -6.46). CSC, conversely, plunged. While the Technology sector's advance had been stunted for most of the session, wide-spread buying similarly took root there and pulled it just above the flat line. Aided particularly by an upgrade-induced run in American Express (AXP 50.87 +0.96), as well as through relative strength found in both brokers and banks, Financials extended a 0.5% gain. Day-long strength within the Treasury market, following two weeks of back-to-back gains, perhaps directed some further buying interest towards the rate-sensitive sector. Consumer Staples also maintained solid standing, lifted 0.3% on account of reaffirmed November same-store sales guidance of +3-5% from Wal-Mart (WMT 49.62 +0.12) and because of an upside-earnings sparked rise in Campbell Soup (CPB 30.95 +1.25). Healthcare recovered just before the bell and booked +0.2%; Materials (+0.6%), Telecom (+0.3%) Utilities (+0.2%), and Consumer Discretionary (+0.5%) also rose. This holiday-shortened week offers little in the way of either economic or earnings data; today's economic calendar featured just one item - October leading indicators (+0.9% versus +0.8% consensus) - which was essentially overlooked by the stock and bond markets alike. NYSE Adv/Dec 2036/1266, Nasdaq Adv/Dec 1893/1159
8:31AM Therma-Wave announces agreement for $10.4 mln private placement (TWAV) 1.40 :Co expects to close transaction on or prior to Nov 23, intends to use proceeds from this transaction for general corporate purposes. Under the terms of financing, TWAV will issue an aggregate of 10,400 shares of Series B Convertible Preferred Stock at a purchase price of $1,000 per share, and warrants to purchase 1.56 million shares of common stock.
10:57AM General Motors (GM)
24.39 +0.34: In its ongoing struggle to become competitive with other global auto manufacturers, General Motors announced it will close 12 facilities, reducing GM North America capacity by 1 million units by the end of 2008. GM is facing dire consequences if the company does not make drastic changes to return to profitability and increase its competitiveness. Today's announcement is one step in the right direction, but GM still has a long road ahead. Capacity utilization is a major component of reducing its structural costs, which weighs heavily on the automaker.
The million unit reduction is in addition to the previously implemented reduction of one million units between 2002 and 2005. Factoring in new capacity from its new Delta Township facility in Lansing, Michigan, overall GMNA capacity will be 4.2 mln units - down 30% since 2002. A total of 30,000 manufacturing jobs will be lost, up from its previously announced estimate of 25,000 in June. GM hopes this target level will be reached mainly through attrition and early retirement, but it still needs UAW approval.
GM will close five assembly plants in Michigan, Tennessee, Georgia, and Okalahoma, as well as numerous service and parts and powertrain facilities. All told, Wagoner expects the reduction will reduce GM's annual operating expenses of $41 bln by $7 bln, by the end of next year. The reductions are part of GM's four point turnaround plan and are designed to reduce capacity, while ensuring production flexibility. Interestingly, even though SUV sales have softened considerably, none of the listed plant closings produce these vehicles. GM is clearly still banking on consumers' appetite for these higher profit margin vehicles.
GM continues to lose market share to Asian rivals like Toyota, Honda, and Nissan. According to industry analysts, the plan, while certainly not the aggressive move some would have hoped, is based on a 25% share estimate. With its numbers continuing to decline, this may prove to be quite optimistic on GM's part. Losing $4.8 bln this year alone, GM now has its feet put to the fire, forced to make the necessary changes to reduce its backbreaking structural costs, which also includes receiving the necessary concessions from the UAW. The Union has recently admitted that GM doesn't have the "market share to support its current structure," according to Al Benchich president of UAW of 909.
The stock is by far the worst performer in the Dow Jones Industrial Average, plummeting 40% to date. October sales figures did little to draw in buyers, as they dropped 26%. We continue to recommend investors steer clear of shares given the nature and severity of GM's problems. While the restructuring and capacity reduction is a step in the right direction, GM needs to accelerate the pace given the rate of market share losses. According to trade publication Automotive News, GM's market share, which peaked at 51% in 1962, fell to 26% in the first ten months - the lowest level since 1925.
--Kimberly DuBord, Briefing.com
9:20AM Boeing (BA)
66.95: Boeing's shares are flying high in the pre-market, trading up on news the aerospace company won previously unidentified orders worth up to $4.6 bln. The deals were announced at the Dubai Air Show, which brought in total orders for 138 planes worth $17 bln in just two days. Boeing is going head-to-head with Airbus and continues to enjoy a surge in commercial aircraft orders, particularly for its new Dreamliner, which boosts improved fuel efficiency. The aircraft has been winning orders from carriers around the globe, as carriers look to replace old, inefficient aircraft. According to Bloomberg, as of November 18th, Boeing has 659 orders, compared to the Toulouse, France-based Airbus at 494.
Boeing is close to doubling its orders booked in 2004 on the back of its widely successful Dreamliner - its first new aircraft in fifteen years. The world's largest aircraft lessor, International Lease Finance Corp (ILFC), ordered 20 Dreamliners, due in 2008, worth an estimated $2.7 bln. ILFC President and COO John Plueger gave his stamp of approval, stating "I'm sure it's just the first in a series of orders," going on to say he "sees the 787 driving the (design of) next generation of single-aisle planes." Additionally, Low-Cost Aircraft Leasing (LCAL) ordered six 787 planes with an additional nine more possible, worth a combined $1.9 bln.
Both deals were listed on Boeing's 2005 net order tally found on its website. Total orders for 2005 now stand at 733, including 453 777s, 173 787s, 64 777s, and 43 747s. There are currently 26 "Unidentified" orders for the Dreamliner. The strongest demand for the 787 has come from Asia with carriers trying to ramp up fleets in order to accommodate rising demand. The top five global carriers for the new 787s are Japan Airlines (30), Northwest Airlines (18), China Eastern Airlines (15), Air China (15), and Air Canada (14).
Boeing's shares have stalled recently on valuation concerns, conservative 2006 delivery assumptions, and growth prospects for its defense segments. The stock is trading at 28.4 current and 21.8x forward earnings - well above its five-year historical valuation of 18.1x. We think investors should buy on weakness as the current up cycle in commercial aviation supports a bullish long-term view on the stock. This view is based on the prospects of accelerating profit margins, cash flow generation, earnings growth momentum, and the continued success of its category-killer, the Dreamliner. Boeing recently hit some turbulence with the strike of its machinists, but under new leadership, Boeing signed a new deal and resumed production within weeks. Boeing will release its fourth quarter results on January 25th. According to the Reuters Estimates, earnings are expected to be $0.46 per share on revenues of $15.1 bln. For the full year, consensus estimates are $3.00 per share, followed by $3.31 in FY06.
--Kimberly DuBord, Briefing.com
9:14AM Wal-Mart (WMT)
Wal-Mart (WMT) said that, based on weekly sales results through last Friday, November comparable store sales growth is still estimated to be within its previous guidance of 3% to 5%. Strong demand for groceries, especially throughout the South, Southeast and Southwest, which checked in stronger than general merchandise sales, contributed to management's conviction for healthy comparable results. This news follows a sales warning from rival Target (TGT) one week ago, which ignited concerns about weaker than expected holiday spending.
Wal-Mart also noted that this week is the retailer's busiest of the period because it includes Thanksgiving weekend and traditionally kicks off the holiday shopping season. Management, however, said it will not comment specifically on sales volumes for the day after the Thursday, repeating the mistake it made last November. A year ago, WMT reported a disappointing 0.7% increase in same-store sales growth because it's "Every Day Low Prices" were not low enough for thousands of shoppers looking for deeper discounts. Since this weekend also accounts for the biggest chunk of Wal-Mart's annual sales and profit, management will provide a Nov. sales estimate next Saturday.
Currently, WMT trades at 18.7x forward earnings compared to a richer earnings multiple of 20.5x for Target, which said it will report lower sales for November. Wal-Mart was recently profiled by Briefing.com as a bargain hunting opportunity for investment-minded individuals.
--Brian Duhn, Briefing.com
9:03AM Hershey Co. (HSY)
54.00: Hershey Co. on Monday announced a new organizational structure to better leverage its scale in the U.S. and accelerate growth in key international markets. The Hershey, PA-based candy maker said the new structure would include the formation of a U.S. Commercial Group, an International Commercial Group, and a Global Growth and Innovation Group.
The U.S. Commercial Group will focus on building Hershey's confectionary leadership and build on its scale in the U.S. snack market, while the International Commercial Group will be responsible for pursuing growth opportunities in key markets in the Americas and Asia. The company said the Global Growth and Innovation Group will help develop global brands as well as strengthen marketing capabilities worldwide.
The company, whose brands include Hershey's, Reese's, and Almond Joy, said changes under the new structure are effective immediately and should strengthen its current performance and drive long-term momentum. The new structure is further expected to bolster the company's innovation pipeline, which continues to drive top-line growth.
For its latest quarter, Hershey reported a 9.1% year/year increase in revenue to a record $1.4 billion, with its portfolio of new products providing the platform for growth. Given the company's new organizational structure and focus on long-term growth, innovation-led momentum continues to support favorable prospects. At the current price level, HSY trades at approximately 20.5x forward earnings.
--Richard Jahnke, Briefing.com
8:23AM Time Warner (TWX)
18.03: The magic continues for Time Warner's Harry Potter series, after its latest installment Harry Potter and the Goblet of Fire cast a spell over moviegoers this weekend breaking numerous box office records. The wizarding world's newest hit sold an estimated $181.4 mln worth of tickets worldwide. Goblet of Fire, not only eclipsed its three predecessors, but became the fourth-largest ranking film in North America of all time. Warner Bros., the film's distributor, cashed in $101.5 mln on its opening weekend.
The film, in which Harry finds himself in a tournament of champions competing against other wizarding schools, opened worldwide, taking in $80 mln. This includes a new record in Britain of $24.6 mln, $19.8 mln in Germany, and $6.8 mln in Mexico. The film, directed by one of Britain's renowned directors, Mike Newell, was number one in each of the 19 territories it opened. Harry swept past Newcorp's (NWS/A) Walk the Line, a biopic based on the life of Johnny Cash. Disney's Chicken Little slid into third place, but its winnings of $99.2 mln over the past two weeks certainly aren't chicken feed. Author J.K. Rowling released the sixth book in the seven book series this summer, published by Scholastic (SCHL). The book sold 11 mln copies in the first nine weeks. The fifth book is currently in pre-production.
Other films expected to generate their own bit of magic this holiday season include Walt Disney's The Chronicles of Narnia: The Lion, the Witch, and the Wardrobe and NBC Universal's (GE) King Kong. Harry was able to rescue what has been a lackluster year at the box office. Time Warner is now the reigning tournament champion at the box office this year with ticket sales of $1.42 bln, followed by News Corp's 20th Century Fox Film Corp at $1.25 bln, according to Nielsen EDI. The three previous films brought in anywhere between $88.4 mln and $93.7 mln their opening weekend.
The Goblet of Fire ranks fourth behind Sony's (SNE) Spider Man ($114.8 mln), Star War's Episode III - Revenge of the Sith ($108.4 mln; NWS/A), and Dreamwork's (DWA) Shrek 2 with $108 mln. We have written extensively about the media sector, which has been overlooked and under-loved for good reason since the "bust" times. We feel the timing is right with increasing visibility, renewed focus on shareholder returns, and growth prospects for the industry, which typically outperforms this time of year. We are currently under the spells of News Corp and Disney. Both are suggested holdings in our Active Portfolio due to their respective growth prospects, discounted valuation, double-digit earnings growth, and attractive shareholder value.
--Kimberly DuBord, Briefing.com
9:59AM Nike (NKE) JP Morgan downgrades Overweight to NEUTRAL. JP Morgan assumes coverage of Nike; while they believe NKE is poised to deliver high-single digit top-line growth given its global growth initiatives, they see limited upside to near-term earnings growth.
9:58AM Advanced Medical Optics (EYE) Bear Stearns upgrades Peer Perform to OUTPERFORM. Bear Stearns upgrades Advanced Medical Optics based on continued positive feedback on the rollout of the high margin ReZoom lens, positive trends/feedback on the co's OUS refractive business, and increased clarity on the 2006 P&L.
9:56AM Potash (POT) CIBC Wrld Mkts downgrades Sector Perform to SECTOR UNDERPERFORM . Target $85 to $70. CIBC downgrades Potash Corp and cuts their tgt to $70 from $85, as they believe the inventory levels are an indication that the potash supply demand balance is not as "tight" as previously thought.
9:54AM Cisco Systems (CSCO) Banc of America Sec reiterates BUY. Target $22 to $20. Oppenheimer downgrades Cisco based on what they assess to be a significant execution risk against the relatively modest upside, and the apparent difficulty of finding advanced technology opportunities that are capable of moving the revenue needle significantly. While they acknowledge the strategic value of the acquisition of SFA, they believe the upside potential does not offset the execution risk. Furthermore, they believe the modest impact of this, Cisco's 8th Advanced Technology initiative, reflects the co's difficulty in identifying the technologies that can drive future revenue growth above the 11% to 12% CAGR that they believe is fully reflected in the current stock price.
9:53AM Business Objects (BOBJ) Needham & Co reiterates BUY. Target $40 to $44. Needham raises their Business Objects saying with the co's momentum building in the BI end markets, its strong XI product cycle likely extended through 2006 with the forthcoming release 2, and a favorable competitive environment, they believe BOBJ shares are positioned for a strong run through the end of the year and well into 2006.
9:52AM TiVo (TIVO) Stanford Research upgrades Sell to HOLD. Target $5. Stanford upgrades Tivo saying the potential for a Q3 surprise, positive CES event, seasonality, and short-covering may support the stock near-term.
9:51AM Maguire Properties (MPG) Legg Mason upgrades Hold to BUY. Target $32. Legg Mason upgrades Maguire Properties saying if the widely expected Arden sale/privatization deal gets done, they expect MGP's share price to increase, as investors will likely lower their cap rate assumptions for Southern California real estate and want to shift into another Southern California name to stay invested in one of the few good office markets.
9:50AM aQuantive (AQNT) Janco Partners initiates MKT PERFORM. Target $23. Janco initiates AQNT saying at 20x '06E adjusted EBITDA, they believe that AQNT is priced for perfection. They say management has unequivocally delivered on its promises of margin improvements at Razorfish and continued strong market share gains for its Digital Marketing Technology businesses. Firm is concerned that investors will be reluctant to ascribe materially higher multiples to AQNT's business lines as revenue and EBITDA growth slow. |
