From Briefing.com: 4:39PM Xilinx report EPS, includes items, beats on revs, guides Q4 revs in line (XLNX) 29.79 +0.99 : Reports Q3 (Dec) earnings of $0.23 per share, includes $25.3 mln charge, $9.5 mln gain, not comparable to the Reuters Estimates consensus of $0.27; revenues rose 26.5% year/year to $449.6 mln vs the $442.1 mln consensus. Co issues in-line guidance for Q4, sees revs up 1-5% sequentially, equates to Q4 revs of $454-472 mln vs. $464.00 mln consensus.
4:32PM Microchip beats by a penny; guides Q4 above consensus; boosts dividend 18.8% to $0.19 (MCHP) : Reports Q3 (Dec) earnings of $0.33 per share, $0.01 better than the Reuters Estimates consensus of $0.32; revenues rose 14.4% year/year to $234.9 mln vs the $234.1 mln consensus. Co issues upside guidance for Q4, sees EPS of $0.34 vs. $0.32 consensus; sees Q4 revs of $242 mln vs. $238.02 mln consensus.
4:30PM Motorola beats by a penny, guides Q1 in line (MOT) 24.35 +0.74 : Reports Q4 (Dec) earnings of $0.35 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.34; revenues rose 18.0% year/year to $10.43 bln vs the $10.46 bln consensus. Co issues in-line guidance for Q1, sees EPS of $0.27-0.29 excluding $0.02 stock option expense vs. $0.28 consensus; sees Q1 revs of $9.3-9.5 bln vs. $9.33 bln consensus. Co reports Q4 gross margin of 31.5% vs 32.4% street expectation. Co reports Q4 Mobile Device shipments of 44.7 million units.
4:26PM MIPS Techs beats by $0.04, ex items (MIPS) : Reports Q2 (Dec) earnings of $0.10 per share, excluding non-recurring items, $0.04 better than the Reuters Estimates consensus of $0.06; revenues rose 5.6% year/year to $16.4 mln vs the $15.6 mln consensus.
4:20PM Freescale Semi beats by $0.07; issues in line Q1 rev guidance (FSL) 26.85 +0.46 : Reports Q4 earnings of $0.45 per share, $0.07 better than the Reuters Estimates consensus of $0.38; revenues rose 4% year/year to $1.48 bln vs $1.48 bln consensus. FSL reports gross margins of 45.4% vs 43.9% single analyst est. Co sees Q1 revs $1.435-1.535 bln vs $1.48 bln consensus. Gross margins for the Q1 are expected to be slightly up from the operational level reported in the fourth quarter of 2005, excluding the benefit of the Delphi reversal and the impact of stock option expense related to FAS 123.
4:19PM Synaptics reports $0.03 above consensus, ex-items; guides Q3 revs in-line (SYNA) : Reports Q2 (Dec) earnings of $0.27 per share, excluding non-recurring items, $0.03 better than the Reuters Estimates consensus of $0.24; revenues fell 14.1% year/year to $48.6 mln vs the $48.4 mln consensus. Co issues in-line guidance for Q3, sees Q3 revs of $42-45 mln vs. $43.78 mln consensus. Rev guidance was based on expected seasonal declines following the holiday period. Co also believes that revs in the June quarter could be up sequentially from March quarter levels although their visibility beyond the March quarter is limited.
4:05PM California Micro reports $0.01 above consensus (CAMD) : Reports Q3 (Dec) earnings of $0.11 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.10; revenues rose 10.0% year/year to $19.6 mln vs the $19.2 mln consensus. According to Robert V. Dickinson, president and CEO, "I'm pleased to report that we achieved record revenue and unit shipments for the second consecutive quarter. Revenue from both our mobile handset products and from our personal computer and digital consumer electronics products increased sequentially and year-on-year." He also noted that bookings were $16.4 million, down from the record $20.0 million posted in Q2, and that design wins totaled 306, down from 353 in Q2.
4:20 pm : Stocks rebounded nicely following two days of consolidation as broad-based buying spurred by upbeat corporate news (e.g. earnings, dividend increases, M&A activity) helped stocks regain some upside traction amid above-average volume. A recovery in overseas markets, especially a 2.3% rebound in the Nikkei 225 following a two-day decline of nearly 6% which had many worried about a pending collapse, also calmed investors' nerves before the opening bell.
With regard to sector strength, Energy turned in the day's best performance, as Schlumberger (SLB 114.87 +6.55) raising its dividend 19% and a late-day surge in crude oil prices (+1.5%), coupled with upgrades (and ensuing record highs) on Halliburton (HAL 71.75 +1.73) and Baker Hughes (BHI 72.47 +3.89), played into our Overweight rating on the sector. Materials turned in the next best performance but the sector's 1.0% surge did not have as much of an impact on the overall market as did strength across the board in Technology. Tech got a huge boost from gains from several chip stocks, spurred by Advanced Micro Devices' (AMD 37.13 +3.76) strong Q4 earnings and improved margins as well as several analyst upgrades within the semiconductor space. Not even conservative guidance from Apple Computer (AAPL 79.03 -3.45), which prompted shareholders to keep knocking the stock from historic highs, could prevent the tech sector from extending its year-to-date gain to over 4.0%.
Consumer Discretionary also posted a solid gain, as investors welcomed reports that Walt Disney (DIS 26.24 +1.02) -- a suggested holding in Briefing.com's portfolio for active investors -- is in "serious discussions" to acquire Pixar Animation Studios (PIXR 58.87 +1.61). Upgrades in the retail group (i.e. EBAY, BBY and SKS) also added support which helped offset weakness in homebuilding. Weaker than expected Dec. housing starts and building permits, suggesting that the housing industry is leveling off, motivated investors to temporarily look past strong earnings reports from DHI and BZH and consolidate the group's 4.6% year-to-date surge.
Health Care was also been in focus following better than expected Q4 earnings from Pfizer (PFE 24.96 +0.87), which also increased its dividend 26%, and UnitedHealth Group (UNH 60.19 -1.03), which initially sold off on the news but recovered into the close, lending credence behind our promising outlook for HMOs. Despite the Philly Fed unexpectedly falling to 3.3 -- the lowest reading since last June and well below expected expansion of 13.0 -- Industrials got a lift from Union Pacific (UNP 85.02 +6.44), which hit an all-time high after handily beating expectations and providing upbeat comments about 2006.
Financial, however, failed to inch back into positive territory as quarterly disappointments from Washington Mutual (WM 43.33 -1.08) and BB&T Corp (BBT 41.08 -0.83) overshadowed Merrill Lynch's (MER 72.05 +2.20) impressive Q4 report and 25% dividend hike. Perhaps also weighing on the sector were concerns about a flattening yield curve, as the yield on 10-yr note (-10/32) rose to 4.37% amid a sharp decline in jobless claims to a very low 271,000 (consensus 315K) and renewed threats from Osama Bin Laden about terrorist attacks inside the U.S. BTK +0.6% DJ30 +25.85 DJTA +2.6% DJUA +0.8% DOT +1.4% NASDAQ +22.17 NQ100 +0.8% R2K +1.6% SOX +3.1% SP400 +1.3% SP500 +7.11 XOI +1.5% NASDAQ Dec/Adv/Vol 944/2095/2.32 bln NYSE Dec/Adv/Vol 990/2318/1.76 bln
4:54 pm Merrill Lynch (MER)
72.05 +2.20: The stock market still has a long way to go to reach the highs it hit in 2000, but if you looked only at the latest earnings report from Merrill Lynch, you might not know the difference. The $26.0 billion in net revenue posted by the investment bank in 2005 was within 1.0% of the full year revenue record the firm set in 2000. Stating the obvious, business is very good for Merrill Lynch.
The market's appreciation for the latter point is reflected in Merrill Lynch's stock, which hit a new 52-week high on Thursday following the firm's year-end earnings report that carried more than a few references to record results. To wit, net earnings of $5.2 billion for the year were a record; net earnings per diluted share of $5.27 were a record; pre-tax earnings of $7.4 billion were a record; and its pre-tax profit margin of 28.5% was a record. Impressively, despite an 8.0% increase in headcount, the firm's compensation expense fell to 47.8% of net revenues in 2005 from 48.3% in 2004, while non-compensation expenses were essentially unchanged.
The firm's operating momentum was evident in the fourth quarter as net earnings per diluted share jumped 27% to $1.51 on a 15% increase in net revenues to $6.78 billion. Separately, its 18.2% annualized return on average common equity was the highest quarterly figure in five years.
Merrill Lynch closed the year with a book value of $35.98, a 9.0% increase from the end of 2004. Based on Thursday's closing price, MER trades with a price-to-book ratio of just 2.0 versus competitors Goldman Sachs (GS), Morgan Stanley (MS), and Lehman Bros. (LEH), which sport price-to-book ratios of 2.42, 2.28, and 2.43, respectively. Accordingly, an argument can be made that Merrill Lynch is a value play in its industry, which we continue to believe is poised to do quite well in 2006 as merger and acquisition activity continues to increase.
Goldman Sachs (GS) holds the most favor for us from a fundamental standpoint and we like Morgan Stanley (MS) for its turnaround potential. Overall, though, Merrill Lynch's results validated our favorable view of the investment banks and did little to alter its own investment appeal.
--Patrick J. O'Hare, Briefing.com
2:23 pm Beazer Homes (BZH)
78.28 +0.69: Beazer Homes USA (BZH), one of the nation's largest homebuilders, reported strong quarterly results on Thursday, even as the housing market continues to experience a return to more normalized levels of activity.
The Atlanta, Georgia-based builder earned $90 million, or $2.00 per share, for the quarter ended December 31, 2005, up from $70 million, or $1.57 per share, a year earlier. Total revenue rose 21.3% to $1.11 billion, versus the year-ago $912 million, as an increase in closings bolstered results. Those numbers topped the consensus estimate of $1.97 on revenue of $1.05 billion, according to Reuters Estimates.
Beazer closed sales on 3,829 homes during the period, up 7.1% from a year earlier, as increases in the Southeast, Central, and Mid-Atlantic regions offset weakness in the Midwest and West regions. The company's backlog totaled 9,276 homes with a sales value of $2.78 billion. That represents a year/year increase of 10.1% and 18.3%, respectively. Furthermore, the company got 3,872 new orders in the quarter, up 9.2% from a year ago.
Given its current level of backlog, combined with expectations for further competitive advantages for large public builders, the company said it expects fiscal 2006 earnings to meet or exceed $10.50 per share. Analysts, however, had forecast EPS of $10.64 per share.
--Richard Jahnke, Briefing.com
12:31 pm eBay (EBAY)
47.33 +2.89: After the close on Wednesday, online auctioneer eBay said fourth quarter profits increased 36% and revenue rose 42% on strong year-end spending trends, but offered a disappointing forecast for the upcoming year. Shares of the company, in turn, traded higher during the regular trading session as investors focused on the better than expected quarterly results. eBay's report comes in the wake of a similar disappointing report by Internet bellwether Yahoo (YHOO) on Tuesday. In contrast, though, Yahoo shares fell more than 12% on Wednesday as a result of the news.
For the fiscal fourth quarter, eBay posted earnings of $279.2 million, or $0.20 per share, compared with $205.4 million, or $0.15 per share, a year earlier. On a pro forma basis, the company earned $340.1 million, or $0.24 per share - two cents better than the Reuters Estimates consensus of $0.22 and about 50% higher than the year-ago figure. Revenue, which rose to $1.33 billion, also beat Wall Street's estimates, as the company's payments business grew 48%, led by PayPal.
New listings on eBay increased 35% to 546.6 million, while total listings rose 33% from a year ago to about $1.9 billion. Gross merchandise value, or the total value of all successfully closed items on EBay's sites, climbed 22% year/year to $12.0 billion. Meanwhile, the number of eBay active users increased to a record 71.8 million in the fourth quarter, up about 28% over the number of active users reported in the same quarter last year.
Amid concerns of slowing growth, the San Jose-based company said it expects first quarter earnings, ex-items, of $0.22 to $0.23 per share on revenue between $1.365 and $1.38 billion. That, however, fell short of analysts' expectations for EPS of $0.24 and revenue of $1.39 billion, according to Reuters Estimates. eBay also forecasted fiscal year 2006 earnings of $0.96 to $1.01 per share, compared with Wall Street's estimate of $1.01 per share. Full year revenues were projected to be in the range of $5.7 to $5.9 billion, below the consensus estimate of $5.93 billion.
Overall, eBay's latest results continue to reflect the company's solid performance as expectations for Internet stocks remain exceedingly high. While its first quarter and full year forecast were below analysts' targets, the outlook still reflects robust growth for the maturing company.
--Richard Jahnke, Briefing.com
12:23 pm Home Depot (HD)
41.77 +0.08: During its annual meeting with analysts, Home Depot today unveiled its aggressive 2010 growth targets while also guiding 2006 revenues above Wall Street's estimates. In 2000, Home Depot also announced strategic targets that, by 2005, had resulted in 76% growth of its overall business.
Through targeted annual compounded sales growth of 9-12%, driven by 400-500 new store openings, the world's largest home improvement retailer expects to deliver annual earnings per share growth of 10-14% over the next five years. Its FY05 fiscal year ends January 29, at which point Home Depot expects to announce a profit of $2.64-2.67 per share. Applying its long-term target, the company should register between $2.90 and $3.04 in 2006 earnings per share. While these figures reflect a solid performance, high expectations leave them on the disappointing side relative to consensus estimates of $2.70 and $3.04, respectively. Separately, Home Depot asserted that, assuming the Hughes Supply acquisition closes near the end of its fiscal first quarter or during the beginning of its second, its top line should grow a better than expected 14-17% during FY06.
Home Depot also announced a 50% rise in its Q4 dividend (to $0.15 per share), marking the 76th consecutive quarter the company has paid a cash dividend. The increased payment will translate to an annual dividend of $0.60 in FY06, which marks a 50% jump and equates to a 20% EPS payout. Our Page One column this morning addressed the idea that further dividend increases will be one of the more important underpinnings for the market in 2006.
Additional five-year strategic targets for Home Depot include a 50-100 basis point expansion in its operating margin, cumulative operating cash flow of $50 billion, and $17-20 billion in cumulative capital expenditures.
The company plans on extending its leadership position to become the largest diversified wholesale distributor as well as the number one player in the services arena. Home Depot sees a $410 billion opportunity in the professional market, and intends to maintain its focus upon its growing Home Depot Supply segment. By the end of the decade, the company expects 1,500 Supply centers to account for 18-19% of overall sales. The aforementioned acquisition of Hughes Supply speaks to its focus on the supply segment. With respect to its services business, Home Depot expects that that unit will generate 5-6% of its top line. The company foresees a $110 billion market opportunity there, and has identified the increasing "do-it-for-me" trend as the driver of double-digit growth in that area.
Part of its vision includes dramatically increasing its direct-to-consumer channels, which it believes has the potential to be a $1.0 billion business by 2010.
--Lisa Beilfuss, Briefing.com
11:00 am Pfizer (PFE)
24.69 +0.60: Pfizer, the world's largest drug maker, on Thursday said fourth quarter profits fell due to increased generic competition, but the performance of new drugs and accelerated cost savings helped it top Wall Street's estimates. For the period, the drug maker said it earned $2.73 billion, or $0.37 per share, compared with $2.83 billion, or $0.38 per share, in the year ago period. Excluding non-recurring items, the company earned $0.51 per share, versus $0.58 per share a year earlier. Analysts, on average, were expecting $0.42 per share.
New York-based Pfizer attributed the better than expected results to better revenue performance in the Human Health segment and operating expense savings, combined with the acceleration of the "Adapting to Scale" cost savings to $800 million in 2005, which was double the goal for the year. Fourth quarter revenue fell 9% to $13.59 billion, with U.S. sales down about 16% as a result of the loss of exclusivity for key medicines and faltering sales of its arthritis treatment Celebrex. Meanwhile, Human Health, the company's largest division, generated sales of $11.66 billion, down 11% worldwide and 18% in the U.S. Consumer Health sales, in contrast, rose 5% to $1.04 billion worldwide, growing 3% in the U.S.
In the Human Health segment, a series of patent expirations, which included epilepsy treatment Neurontin and hypertension drug Accupril, continued to drive the top-line decline. In addition, uncertainty relating to Celebrex and the suspension of Bextra further contributed to the soft results. Sales for Celebrex itself slipped 53% to $472 million during the quarter, while Neurontin and Accupril sales declined 71% and 74%, respectively.
On a positive note, revenue for cholesterol drug Lipitor was up 3% to $3.36 billion during the quarter. Sales for the world's best selling drug were up more than 12% for the year. As an aside, Pfizer prevailed in a U.S. court decision involving a patent challenge to Lipitor, thus protecting its exclusivity until June 2011.
Despite the year/year decline in revenue and earnings, investors responded the to better than expected results by lifting shares more than 2% in early trading. Pfizer shares have gone from $40 to $20 over the past three years. For 2005, the stock fell about 10%. Although we have a Market Weight rating on the Health Care sector, we favor growth industries such as Managed Care over Pharmaceutical, which continues to suffer from increased volatility and uncertainty. Pfizer said it will provide guidance at its upcoming meeting with analysts on February 10th.
--Richard Jahnke, Briefing.com
10:14 am Adv. Micro Devices (AMD)
37.11 +3.74: The market was anticipating a strong result from AMD after Intel confessed to losing market share to its smaller rival and missing analysts' forecasts. There has been a debate brewing over just how much share AMD has been able to garner. Its fourth quarter results clearly signal that Intel may be losing more share than its willing to admit. Fourth quarter net income for AMD grew to $95.6 mln, or $0.21 per share. This compares to a loss last year of $30 mln, or $0.08 per share, resulting from losses in its former memory chip business and costs related to early debt retirement. Excluding non-recurring items, earnings surpassed consensus by 19 cents.
Revenues surged 45.4% to $1.84 bln, which included the Spansion flash memory business AMD spun off in an IPO in December. Sales also exceeded analysts' expectation of $1.65 bln. These results come just a day after Intel's shares lost almost three dollars following fourth quarter results and guidance that disappointed the Street. For AMD, it sang a different tune with sales of chips used in servers, PC, and notebooks jumping 79% to $1.3 bln. The strongest regions were the Americas, Europe and China with average sales prices rising 6 % in the quarter. The quarter was outstanding by many accounts from the top to the bottom line with gross margins expanding to 46.4% - well above consensus of 42.9%.
AMD's CEO Hector Ruiz targets 25-30% share of the market by 2009 and expects the chip maker to grow at 2x the rate of the PC market of 10%. During the conference call, management stated AMD's total market share for PC and server chips is 15.3%. This compares roughly to 12% in the previous quarter and 9% last year. With seasonal first quarter weakness expected, AMD expects sales to be "flat to slightly down" sequentially, but that would still represent a 70% year/year increase. Ruiz admitted he was concerned about possible overcapacity in the industry, as both companies ramp up production, possibly leading to a pricing war.
AMD, which has the first mover advantage with its new server and laptop chips, has clearly positioned itself well to gain market share and drive growth. AMD's success has caught Intel off guard, but don't expect the world's largest chip manufacturer to take this turn of events lying down. Intel is sure to use its size and market dominance to its advantage, which could result in rough seas ahead. Despite the strong showing from AMD, the stock was downgraded this morning by several analysts who cited peaking margins, concerns over excess supplies, and valuation. The stock trades at 48.1x forward earnings compared to Intel at 17.1x.
--Kimberly DuBord, Briefing.com
09:43 am Harley-Davidson (HDI)
51.90 +0.27: For the twentieth consecutive year, Harley-Davidson delivered record revenue, earnings, and motorcycle sales. On 6.5% top line growth, full-year 2005 earnings per share were $3.41 and up 13.7% from the year-ago period. According to the Reuters Estimates consensus, analysts had expected $3.38 in FY05 EPS. The company shipped 3.7% more motorcycles during the year, and worldwide retail sales of namesake motorcycles rose 6.2%. Strength in overseas sales, particularly 20% increases in Europe and Canada, were behind the rise. The company noted that retail sales were much stronger during the back half of the year, aided by enhanced existing models and the introduction of several new motorcycles for the 2006 model year.
The manufacturer also reported record top and bottom line results for the fourth quarter, registering $1.34 billion and $0.84 per share, respectively. Harley-Davidson's Q4 EPS translated to 18% year-over-year growth and surpassed Wall Street's forecast by two cents. Q4 marked the 28th consecutive time the company has trumped analysts' expectations. Motorcycle revenue, which accounted for 80% of overall sales in 2005, increased nearly 10% in Q4. International Harley-Davidson motorcycle sales rose 13% during the quarter, and its other business segments - parts and accessories and general merchandise - also saw solid increases versus last year.
Indicating that it believes its prospects for retail growth remain strong, Harley-Davidson said it expects 11-17% annual EPS growth in 2006. That translates to approximately $3.79-4.00 in EPS, the low end of which is a dime ahead of the current consensus estimate. A wholesale unit growth rate in the range of 5-9% is expected, and the company's 2006 Harley-Davidson motorcycle shipment target remains in the range of 348,000-352,000 units. With respect to its other business units, the company foresees the rate of growth in its parts and accessories segment surpassing that of its namesake motorcycle unit in the long term.
At roughly 13.5x the company's estimated 2006 earnings, HDI trades at a discount to the market multiple of 16.6x. While Harley's overall growth has slowed, and the market has discounted a new operating environment that includes slower top-line growth, its stock remains a suitable investment for value-oriented individuals seeking exposure to consumer companies with global brand leadership.
--Lisa Beilfuss, Briefing.com
09:23 am Unitedhealth Group (UNH)
61.22: Unitedhealth Group on Thursday reported an 18% increase in fourth quarter earnings as growth in premiums outpaced escalating medical costs. Net income for the quarter climbed to $870 million, or $0.65 per share, up from $739 million, or $0.54 per share, a year earlier. Excluding market launch expenses for the Medicare Part D prescription drug benefit program, fourth earnings of $0.67 per share exceeded the average analyst estimate of $0.65 per share.
Revenue grew 14.6% year/year to $12.05 billion, driven by higher premiums. That figure also topped Wall Street's forecast of $11.67 billion. The acquisition of PacifiCare Health Systems, which was completed on December 20, 2005, contributed approximately $440 million in revenue to overall fourth quarter results. As previously stated, Unitedhealth Group expects the merger to be accretive by $0.05 per share in 2006 and anticipates $200 to $250 million in cost synergies by 2008.
The latest results were further highlighted by a lower medical cost ratio and improved operating margin. The medical cost ratio, which measures medical costs as a percentage of premiums and fees, declined 90 basis points year/year to 78.2%, despite a modest rise in medical costs. Operating margin, meanwhile, expanded 11.9% from 11.3% in the same quarter last year.
Unitedhealth Group also raised its fiscal 2006 earnings forecast to $2.85 to $2.90 per share, including stock based compensation, up from its previous guidance of $2.82 to $2.85. That, however, may not be comparable to the current consensus estimate of $2.91.
With continued solid performance across its businesses, Unitedhealth Group has demonstrated exceptional bottom-line growth in recent quarters and has topped profit expectations for 30 consecutive quarters. Its stock price, accordingly, has risen in stride. In 2005 shares of the company gained more than 43%. Looking ahead, continued growth should be supported by the recent acquisition of PacifiCare, as well as the opportunity presented by Medicare Part D, which took effect on January 1, 2006. Briefing.com currently holds a Market Weight rating on the Health Care sector, with managed care stocks, and UNH in particular, seen as a pocket of strength.
--Richard Jahnke, Briefing.com
09:19 am Apple Computer (AAPL)
81.20: Despite record breaking first quarter revenues and profits, Apple is shining less brightly Thursday morning after the company's forecasts left much to be desired. Net income rose to $565 mln, or $0.65 per share, from $295 mln, or $0.35 cents per share, the year prior. The comparable figure surpassed consensus by three cents. Sales swelled 65% to $5.75 bln. Yet, Apple's conservative guidance, prompted by a seasonal drop-off in demand for iPods and product transition for the iMac to Intel-based processors, resulted in a fiscal Q2 (Mar) earnings forecast of $0.42 per share on revenues of $4.3 bln. This falls below Wall Street's expectations of $0.50 per share and revenues of $4.83 bln.
The market shouldn't be surprised Apple is taking a conservative tone for guidance - something the company is known for - considering seasonal declines are likely for iPods and given the Mac transition. Apple's management stated that it's too early to determine how consumers will react to the transition to the new, faster Intel-based PCs that do not start shipping until February. In the quarter, Apple sold a whopping 14 mln iPods - representing a 207% year/year increase over the prior year. Management stated sales of the new iPod nano were "stunning." PCs shipped totaled 667,000, up 7%, with Mac sales exceeding expectations.
Considering the parabolic rise in Apple's shares over the last year, the stock is ripe for a pause. It also could be said that AAPL is priced for perfection. We think the bears are not seeing the apple through the orchard here. Any weakness caused by Apple's conservative guidance represents an opportune time for long-term investors to step in and buy one the brightest growth stories in the technology sector.
--Kimberly DuBord, Briefing.com
08:52 am Walt Disney (DIS)
25.20: Fueled by lengthy negotiations between the two companies, speculation has been mounting that Disney may buy Pixar. Both sides said they wanted to get a distribution deal done by year-end, but clearly, that didn't happen. Disney's current distribution agreement with Pixar ends in June with the release of "Cars." Expectations for what a renewed distribution deal might look like spread to the possibility that Disney's Robert Iger and Pixar's Steve Jobs would extend the deal a step further into an outright purchase. Moreover, the belief that Pixar needs to get something signed to prepare its marketing and distribution campaign for its 2007 movie schedule has simply added to the speculation. Today, the Wall Street Journal confirmed Disney is in serious talks to acquire Pixar Animation Studios.
Shares of Pixar in Europe are already on the rise. The deal being discussed calls for a purchase price of $6.7 bln - a small premium to Pixar's current stock market value. An all-stock deal would make Steve Jobs the largest individual shareholder in Disney. An all-cash deal is unlikely given Disney's comments on targeting an "A" credit rating. One of Iger's main goals after taking the helm in October has been to repair the damaged relationship between the two companies, after frosty relations between Iger and Michael Eisner threatened the lucrative relationship. The WSJ stated a deal is still in the "sensitive" stage with both parties "haggling" over price. The parties could still settle on just a distribution deal..
There are pros and cons for both scenarios. If Disney buys Pixar it becomes the film animation studio for Disney, a key profit center for the company. Disney would likely agree to leave the current structure unchanged in order not to impact Pixar's successful corporate culture. A deal also puts Jobs on Disney's board. Adding a visionary like Jobs gives Iger an ace in the hole in merging content with distribution. It also enables Disney to leverage Pixar's creative talent through all of its distribution channels from consumer products to television and theme parks. The downside: a possible talent exodus, share dilution for Disney, geographically unsuited (Pixar in Emeryville and Disney in Anaheim), and management distraction for Disney, which already has an aggressive growth strategy laid out.
Clearly, the market views a deal as good news for both companies as shares have been moving higher as speculation rises. We continue to feel Disney offers a strong investment opportunity based on its standing as the best content play out there, married with its considerable marketing muscle, international distribution capabilities, and premier world-wide brand equity. We remain committed to the stock, a suggested holding in our Active Portfolio, due to its double-digit earnings growth, visibility, strong cash flow generation, and seasonal strength. Growth catalysts include margin acceleration at its film and theme parks, a strong box office schedule, ABC ratings, syndication of TV shows, and TV DVD sales for successful shows.
--Kimberly DuBord, Briefing.com
09:33 am Chaparral Steel: Ferris Baker Watts initiates Buy. Target $42. Firm notes that despite the competitive nature of the global steel industry, the co is a low-cost domestic producer of steel, serving mkt segments that are less susceptible to competitive pricing pressures, has an established management team with a solid strategy to grow its business, and generates high ROIC with strong free cash flow.
09:32 am Concurrent: Needham & Co upgrades Buy to Strong Buy. Target $3. Firm cites two primary reasons for the upgrade: First, the stock price has approx 50% appreciation to their tgt price. Second, and far more interestingly, they believe 2006 will see a sharp increase in V.O.D. capital spending by several major U.S. cable M.S.Os.
09:31 am SeaChange: Needham & Co upgrades Hold to Buy. Target $10. Firm believes 2006 will see a sharp increase in V.O.D. capital spending by several major U.S. cable T.V. operators. They believe the chief impetus to higher V.O.D. spending in 2006 will be Time Warner Cable's (TWX) Startover service.
09:30 am Synovus: Prudential upgrades Neutral to Overweight. Target $30 to $30. They believe that the outlook for Synovus is good, and that fourth quarter earnings provided a basis for higher expectations going forward.
09:29 am Apple Computer: Prudential reiterates Neutral. Target $67 to $67. The firm notes that AAPL mgmt stated that iPod supply/demand was in balance, exiting Q1. Prudential thinks that the lack of backlog, combined with the absence of new Q2 iPod introduction, could result in a pronounced seasonal unit decline in the March quarter (1st in history).
09:28 am Intel: Prudential reiterates Underweight . Target $19 to $19. Firm believes there is a fundamental shift in the P.C. M.P.U. industry and believe AMD will continue to take share. As a result, they believe that INTC may have miscalculated in its '06 rev growth forecast for up 6% to 9% YoY. They are modeling 3% top line growth for INTC which assumes INTC loses another 500 bps to AMD in '06.
09:27 am Imclone: UBS reiterates Buy. Target $40 to $40. Firm has updated Eribitux valuation to 2006 sales and updated their operating margin adjustment for U.S. sales. They now value Erbitux at $32.30/share (from $29). They say the most important near-term catalyst is PACCE trial results for P-Mab expected at Jan 26 AMGN investor day.
09:26 am Essex: CE Unterberg Towbin upgrades Market Perform to Buy. Target $25 to $25. Since firm's downgrade 6 months ago, the stock has drifted, and they believe the entry point is favorable and a number of positive catalysts are possible over the coming months. Firm continues to believe the co is very well positioned to benefit from the ongoing robust spending by the Intelligence Community on the War on Terror as well as the co's ability to make smart acquisitions.
09:25 am Mannkind: WR Hambrecht upgrades Sell to Hold. Upgrade is based on continued development progress for Technosphere Insulin, favorable Phase 2b data for the product reported earlier this week, as well as an expected upcoming Exubera approval. In addition, firm says that investors who have enjoyed a near-term trading opportunity should find NKTR shares relatively cheap just a week before the Jan 27 PDUFA date, whereas the MNKD PDUFA date, if ever, remains several years away. Firm says their view on MNKD is genuinely neutral - negative on valuation and competitive positioning, but very positive on inhaled insulin, which makes NKTR their top pick for 2006.
09:24 am El Paso: Calyon Securities reiterates Buy. Target $15 to $15. Firm's new price tgt is based on a 6.9X E.V. to 2007 est EBITDA multiple plus $1 per share for the N.P.V. of N.O.Ls. The increase is driven by a $100 mln increase in their EBITDA est, a slightly higher E.V. to EBITDA multiple, and debt reduction. They note that in their view, the E&P turnaround is complete. Management could not have been more clear in their disclosures over the past two days, and they believe it will be difficult for previously skeptical investors to continue forecasting flat reserves through 2007. |
