From Briefing.com: 4:48PM Intersil beats Q4 consensus by $0.02, guides EPS higher for Q1 (ISIL) 26.85 +0.91 : Reports Q4 (Dec) earnings of $0.27 per share, $0.02 better than the Reuters Estimates consensus of $0.25; revenues rose 38.2% year/year to $175.6 mln vs the $169.9 mln consensus. Co issues upside guidance for Q1, sees EPS of $0.26-0.27 vs. $0.22 consensus. Co says it expects Q1 revs to be approximately flat with Q4; Reuters Q1 consensus is $165.21 mln.
4:45PM Virage Logic reports in-line; guides Q2 above consensus (VIRL) 11.25 : Reports Q1 (Dec) net of breakeven, excluding non-recurring items, in line with the Reuters Estimates consensus of ($0.00); revenues fell 13.4% year/year to $13.7 mln vs the $13.7 mln consensus. Co issues upside guidance for Q2, sees EPS of $0.2-0.04, ex-stock based compensation vs. $0.01 consensus.
4:41PM Plexus beats by $0.05, beats on revs; guides Q2 EPS above consensus (PLXS) 23.48 -0.43 : Reports Q1 (Dec) earnings of $0.28 per share, $0.05 better than the Reuters Estimates consensus of $0.23; revenues rose 14.2% year/year to $328.3 mln vs the $321.3 mln consensus. Co issues upside guidance for Q2, sees EPS of $0.31-0.36, ex items, vs. $0.25 consensus; sees Q2 revs of $330-345 mln vs. $335.30 mln consensus.
4:36PM Cirrus Logic beats by a penny, ex items; guides in-line (CRUS) : Reports Q3 (Dec) earnings of $0.09 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.08; revenues rose 9.7% year/year to $48.3 mln vs the $47.6 mln consensus. Co issues in-line guidance for Q4, sees Q4 revs of $41-45 mln vs. $44.73 mln consensus.
4:35PM Silicon Storage beats by $0.06; guides for Q1 (SSTI) 4.98 +0.10 : Reports Q4 (Dec) earnings of $0.08 per share, $0.06 better than the Reuters Estimates consensus of $0.02; revenues rose 12.8% year/year to $133.2 mln vs the $134.5 mln consensus. Co issues guidance for Q1, sees GAAP EPS of 0.07-0.12, which does not appear to be comparable to the $0.00 consensus; sees Q1 revs of $117-132 vs. $121.69 mln consensus.
4:30PM Analog Devices shareholder rights plan terminated (ADI) 38.93 : Co announced today that, as part of the co's continuing efforts to employ best practices in corporate governance, its Board of Directors has voted to terminate the shareholder rights plan (commonly known as a "poison pill") adopted in 1998 and to redeem all outstanding rights under the plan. The co will buy back the rights at the redemption price of $0.0005 per share payable in cash on March 15, 2006 to the holders of ADI's common stock as of the record date of February 24, 2006.
4:29PM PMC-Sierra reports in-line (PMCS) : Reports Q4 (Dec) earnings of $0.07 per share, excluding non-recurring items, in line with the Reuters Estimates consensus of $0.07; revenues rose 1.8% year/year to $77.6 mln vs the $78.5 mln consensus.
4:20PM Sirenza Micro reports in-line, ex items (SMDI) : Reports Q4 (Dec) earnings of $0.08 per share, excluding non-recurring items, in-line with the Reuters Estimates consensus of $0.08; revenues rose 29.5% year/year to $19.5 mln vs the $19.2 mln consensus.
4:19PM Applied Micro beats by a penny, ex items (AMCC) : Reports Q3 (Dec) earnings of $0.02 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.01; revenues rose 0.4% year/year to $65.2 mln vs the $65.1 mln consensus.
4:18PM Trident Microsystems beats by $0.02, says it sees strong L.C.D. T.V. momentum, guides Q1 revs higher (TRID) 21.46 -0.99 : Reports Q2 (Dec) earnings of $0.17 per share ex items, $0.02 better than the Reuters Estimates consensus of $0.15; revenues rose 22.3% year/year to $40.6 mln vs the $39.4 mln consensus." Co says it saw strong momentum for L.C.D. T.V. from many consumer electronics customers; co adds that several of its top-tier O.E.M. customers appear to have gained market share. Co says that it now expects to beat the typical seasonal effect of the consumer electronics market and generate relatively flat or slightly up revenues in the March quarter (Q1 consensus called for a sequential revs decline to $36.54 mln).
4:16PM Qualcomm beats by a penny; issues in line guidance for Q2; guides for Y06 (QCOM) 47.58 -0.49 : Reports Q1 (Dec) earnings of $0.39 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.38. QCOM reports MSM chip shipments of 47 mln vs 47 mln guidance. Co issues in-line guidance for Q2, sees EPS of $0.35-0.37 vs. $0.36 consensus; sees Q2 revs of $1.63-1.73 bln vs. $1.73 bln consensus. Co issues downside guidance for FY06, sees EPS of 1.43-1.47, ex items vs. $1.50 consensus; sees FY06 revs of $6.7-7.1 bln vs. $7.04 bln consensus. "Looking forward, we expect continued growth of CDMA2000 1xEV-DO products in North America, Japan, South Korea and Latin America. We remain encouraged by the consumer uptake of WCDMA services in Japan and Europe, and will continue working closely with operators during their ongoing WCDMA and HSDPA network deployment and optimization efforts. We remain well positioned to capitalize on the growth of 3G, thanks to the extensive value chain of partnerships that exists to rapidly bring new innovations to consumers and enterprise customers."
4:15 pm : Lackluster trading left Wednesday's market vacillating within proximity of the flat line for most of the session. A market-dragging drop in the Energy sector, coupled with a sharp decline in December home sales, squelched the early bullish bias and closed the indices with modest losses.
Although crude futures recovered much of their day-long decline, their pullback gave energy traders incentive to take some profits. An unexpected drawdown in crude supply was a bearish factor for the broader market, and the fact that gasoline and distillates inventories rose much better than expected exacerbated selling across the Energy sector (-2.0%). Further reports of solid earnings from energy companies, which today included Amerada Hess (AMH 60.56 +0.42) and ConcocPhillips (COP 63.29 -1.19) were offset, but nonetheless underpin our Overweight rating on Energy. Following disappointing fourth quarter results from Exelon (EXC 57.83 -1.03), the Utilities sector (-1.5%) also levied a weighty loss.
Plagued by a plunge in the homebuilding industry, Consumer Discretionary (-0.5%) similarly suffered selling. This morning, the economic calendar featured data that reflected a 5.7% decline in December existing home sales. While Ryland (RYL 70.40 -4.77) and Centex (CTX 70.80 -2.49) both reported strong quarterly earnings, each posted dismal new order numbers that further corroborated a slowdown in the housing market in the face of rising interest rates.
Behind the early buying action was some news on the M&A front. Confirmation that Disney (DIS 25.45 -0.54) will acquire Pixar (PIXR) for $7.4 billion underscored the idea that cash flow remains strong at many companies and will fuel the strong merger trend throughout the year; at the same time, DIS shares declined and weighed upon the Discretionary sector. As a side note, DIS is a stock that we continue to favor and is a member of our suggested portfolio for active investors. The two-month bidding war for Guidant (GDT 75.29 -1.49) ended with Boston Scientific's (BSX 23.55 -0.45) victory, but the news sent those individual stocks, as well as the trumped Johnson & Johnson (JNJ 58.55 -0.81), lower. Conversely, Abbott Labs (ABT 42.25 +2.19), which will acquire some of Guidant's assets as part of the deal, helped limit the Health Care sector's (-0.1%) slide. Abbott also delivered strong earnings results today, as did HMO WellPoint (WLP 72.85 -0.34).
Leadership was unspirited, and rested almost entirely within the Telecom (+1.6%) and Materials (+0.6%) sectors. Surging Allegheny Technology (ATI 46.93 +2.41) shares, due to its profit report, and Morgan Stanley's increase in 2006-2007 price assumptions on copper, aluminum, zinc, and gold boosted the former. Solid earnings from Bell South (BLS 27.40 +0.48) drove the latter.
Vacillating Technology (+0.1%) and Financial (+0.2%) sectors were in part responsible for the indices' dips in and out of the red. Uneasiness ahead of Qualcomm's (QCOM) report and an earnings-induced drop in Computer Associates (CA 27.74 -1.14) joined extended declines in TXN and AAPL in challenging Tech. The Financial sector, meanwhile, faced a submerged Treasury market and relative weakness across the insurance board. However, both of the market's two most influential sectors managed to regain positive - albeit modestly positive - footing before the bell, at which point the major averages erased much of their late day losses.DJ30 -2.48 NASDAQ -4.60 SP500 -2.18 NASDAQ Dec/Adv/Vol 1659/1375/2.25 bln NYSE Dec/Adv/Vol 1865/1455/1.87 bln
1:02 pm WellPoint (WLP)
73.56 +0.37: WellPoint on Wednesday reported sharply higher profits for its fiscal fourth quarter, led by an increase in medical enrollment, and raised its outlook for the current year. For the quarter, the largest U.S. health insurer said net income rose to $652 million, or $1.04 per share, from $184.5 million, or $0.46 per share, in the same period last year. Excluding a net realized investment loss of $0.01, however, the company earned $1.05 per share. According to Reuters Estimates, the company was expected to post EPS of $1.04.
As of December 31, 2005, medical enrollment totaled approximately 33.9 million members, representing an increase of 6.1 million over the year ago period. That includes 4.8 million members from the acquisition of WellChoice last month. Organically, enrollment increased by about 81,000 members during the fourth quarter, with the bulk of the growth in the State Sponsored and National Accounts businesses.
Operating revenue increased 67.5% to $11.3 billion from $6.7 billion in the prior year, including contributions from Anthem and WellChoice. On a comparable basis, fourth quarter operating revenue increased by $617.6 million, or 5.8% year/year. In the Health Care segment, operating gain increased by $111.7 million, or 14.2%, compared with $784.5 million in the prior year, due in large part to solid membership growth, lower than expected medical costs, and synergies generated through the Anthem-WellPoint merger. The Specialty segment reported an operating gain of $18.0 million, or 18.5%, reflecting strong performance in the company's pharmacy benefit management ("PBM") and behavioral health businesses - a trend that underpins our Market Weight rating on the Health Care sector.
Based on the strong quarterly report, WellPoint raised its earnings guidance for fiscal 2006 to $4.54 per share, up from its previous forecast of $4.51 per share and including $0.20 in stock option expense. In addition, the company sees full year revenue of $57.3 billion. As those estimates include the operations of recently acquired WellChoice, they may not be comparable to the Reuters Estimates consensus for EPS of $4.61 on revenue of $53.31 billion. Nonetheless, investors have responded to the company's solid fourth quarter performance and optimistic outlook for the year by lifting shares during the regular trading session. At the current level, shares are trading at 18.4x trailing twelve month earnings, compared with 23.3x for UnitedHealth Group (UNH)
--Richard Jahnke, Briefing.com
11:38 am Ryland Group (RYL)
71.86 -3.31: Ryland Group, one of the nation's largest homebuilders, on Tuesday posted a 50% rise in fourth quarter profits, helped by higher sales prices and a record number of closings. However, the company said new orders, which is the principal driver for future growth, declined 4.7% in the period, despite a 9% rise in new order dollars. Accordingly, research firm AG Edwards lowered its outlook on the company, prompting a subsequent pullback in Ryland shares.
For the fourth quarter, the Calabasas, California-based builder said net income increased to $162 million, or $3.32 per share, up from last year's profit of $108.7 million, or $2.17 per share - twenty cents better than the Reuters Estimates consensus of $3.12 per share. Revenue, meanwhile, grew 23% to $1.53 billion, fueled by a an 11% increase in contract closings and a 12.6% increase in the average selling price, which rose to $286,000 for the quarter.
Due to the increasing cost of new homes, new order dollars for the period rose to $904.2 million from $830.4 million a year earlier. However, new orders fell to 3,066 units from 3,217 units last year. Elsewhere, homebuilder Centex (CTX) also reported strong quarterly earnings, but like Ryland, the company posted dismal new order numbers - further corroborating a slowdown in the housing market in the face of rising interest rates.
Meanwhile, the latest report from the National Association of Realtors on Wednesday suggests that the Fed's ongoing rate hikes are taking hold in slowing growth in the nation's housing market. According to the report, December existing home sales fell 5.7% to a 6.60 million annual rate. That was was below analysts' expectations of a 6.85 to 6.90 million rate. Accordingly, homebuilder shares are trading down as data points to further declines in the housing market. The Philadelphia Stock Exchange Housing Sector Index, a gauge of 21 homebuilding companies, was down nearly 2% in intraday trading.
--Richard Jahnke, Briefing.com
11:28 am Automatic Data Processing (ADP)
45.59 -0.47: Overall, the employment situation continues to slowly improve, as strong labor productivity partly substitutes for payroll growth. The unemployment rate, however, recently returned to a post-recession low of 4.9% in December. It is perhaps not surprising, then, that Automatic Data Processing, one of the largest payroll processors serving approximately 590,000 clients worldwide, reported a 31% year/year increase in Q2 (Dec) profits, as the number of employees on its clients' payrolls rose more than 2% amid growth in all U.S. market segments.
Excluding a one-time, non-cash charge of $0.02 related to the sale of its $100 mln Brokerage Services' financial print business, second quarter earnings of $0.49 per share actually missed the Reuters Estimates consensus by a penny but were ahead of management's expectations. As a reminder, ADP raised its fiscal 2006 EPS guidance to 22-25% growth on Oct. 26, 2005, following positive results and the trends witnessed in its fiscal first quarter.
Total second-quarter revenues rose 9.3% year/year to $2.15 bln (consensus $2.17 bln), benefiting from particular strength in the Employer Services' business which is expected to maintain double-digit sales growth. Sales results were also particularly strong in National Accounts and Small Business Services. Although year-to-date sales have been weak internationally, Chairman and CEO Arthur F. Weinbach noted in the press release that ADP's pipeline is "solid."
Moving into the second half of the year, Weinbach added, "With our core businesses executing well against plan and the additional revenues from the Dealer Services acquisition, we anticipate about 10% revenue growth for fiscal 2006, up from previous guidance of high single-digit revenue growth." As a result, ADP raised the bottom end of its EPS forecast to $1.93-1.96, representing 23-25% year/year growth, from its prior forecast of $1.91-1.96. "We are increasingly confident in achieving the higher end of the range," Weinbach concluded.
-- Brian Duhn, Briefing.com
10:08 am Netflix (NFLX)
29.74 +5.00: Neflix shares opened sharply higher on Wednesday, gaining more than 15%, after the online movie rental service reported strong earnings and rapid subscriber growth for its fiscal first quarter. For the three months ended December 31, Netflix said it earned $38.1 million, or $0.57 per share, compared with $5.6 million, or $0.09 per share, a year earlier. However, backing out a tax benefit and other one-time items, the company posted earnings of $0.17 per share - two cents better than Wall Street's estimate, according to Reuters Estimates.
On the top line, revenue climbed 36% to a record $195 million, as the number of subscribers grew 60% year/year. Netflix ended the fourth quarter with approximately 4.2 million total subscribers, up from 2.6 million at the end of the same period last year. During the quarter, the Los Gatos, California-based company said gross subscriber additions increased 48% year/year to 1.16 million, while net subscriber additions were 587,000, compared with 381,000 for the same period last year.
Importantly, Netflix's churn rate declined to a record low 4.0%, versus 4.4% last year and 4.3% in the prior quarter, as fewer customers canceled their service - a strong indication of the company's current value proposition for renting movies. At the same time, however, Netflix paid more to attract customers during the quarter as subscriber acquisition costs increased to $40.65 per gross subscriber addition, up from $34.64 a year earlier.
Given its solid performance and continued positive momentum, Netflix lifted its outlook for the current quarter and fiscal year 2006. Specifically, the company expects first quarter revenue to be between $219 and $224 million, versus the consensus estimate of $216.05 million, and full-year revenue of at least $960 million, versus $959.71 million. The company also forecasted ending subscribers of at least 5.9 million for the year, up from its previous estimate of at least 5.65 million. In addition, management reaffirmed its goal to reach 20 million subscribers within the 2010 to 2012 time frame.
Despite lingering concerns over Netflix' business model in the face of emerging technologies, such as video-on-demand and computer download, the company is clearly making progress in the online DVD rental space with its strengthening competitive positioning and broadening consumer appeal. Furthermore, continued innovation and aggressive price promotions have helped to attract/retain customers and drive top line growth.
--Richard Jahnke, Briefing.com
09:43 am BellSouth (BLS)
27.20 +0.28: Shares of BellSouth have moved higher after the company posted better than expected fourth quarter earnings. Excluding non-recurring items, the nation's No. 3 regional phone company reported earnings of $0.53 per share, which beat the Reuters Estimates consensus by nine cents and were up 36% year over year. Total revenue rose 9.2% year/year to $8.66 bln (consensus $8.56 bln), driven by the addition of 204,000 net DSL subscribers and Cingular Wireless customer growth.
Normalized results from continuing operations include BellSouth's 40% proportionate share of Cingular's revenues and expenses. BellSouth and AT&T (T), formerly SBC Communications, are the parents of Atlanta-based Cingular, the nation's largest wireless provider reaching 54.1 mln subscribers. It is worth noting, though, that total revenue was reduced by $48 mln due to billing credits and an estimated 60,000 disconnected access lines related to Hurricane Katrina, leaving BellSouth's total access lines at around 20 mln at year's end. BellSouth estimated in early September that the future cost to restore its hurricane-damaged network would amount to around $400-600 mln. However, those estimates were upwardly revised to around $700-900 mln, as only about $250 mln of the restoration costs are expected to be covered by insurance.
Further, BellSouth finished 2005 with strong operating cash flow of $3.3 bln and a solid balance sheet, as management reduced debt by $3.4 bln in 2005 and repurchased nearly $1.0 bln of its outstanding shares in Q4. In October 2005, the board of directors authorized the repurchase of up to $2.0 bln of common stock through the end of 2007.
Excluding early upside momentum, shares of Bellsouth are relatively flat for the year while competitors AT&T and Verizon Communications (VZ), which are integrating big acquisitions and upgrading their networks, are up 2.0% and 3.9%, respectively.
-- Brian Duhn, Briefing.com
09:27 am ConocoPhillips (COP)
64.48: ConocoPhillips, the third largest US oil company, generated over a billion dollars more in income from continuing operations in the fourth quarter compared to last year. This fact demonstrates just how different the operating environment has become for energy companies. Soaring energy prices have resulted in record profits for producers. COP's per share figure surpassed expectations by four cents, but that masks the true profit growth and cash flow generation taking place - the reason we remain a bull on energy stocks.
Conoco generated $4.7 bln in cash from operations, of which it spent $3.0 in capital projects, paid $429 mln in dividends, reduced debt by $981 mln, and repurchased $759 mln in common stock. Margins on all levels continue to expand. It ended the quarter with a debt to capital ratio of 19%, down sequentially from 21%.
COP produced 1.88 mln barrels of energy equivalents (BOE) per day in the quarter. This figure includes 1.59 mln BOE/day (+4.6% quarter/quarter) from exploration and production and 0.28 mln BOE/day from its LUKOIL investment. Income from the E&P segment grew 6% sequentially and 45% yearly to $2.4 bln, with Midstream income coming in at a lofty $688 mln.
Worldwide refining capacity was only 88% due to its Alliance and Lake Charles refineries remaining shut down after Hurricane Katrina and Rita, respectively. Lower worldwide quarter/quarter refining margins, hurricane impacts, and higher utility and turnaround costs cut into Refining & Marketing income, which came in at $1.0 bln - down from $1.4 bln last quarter.
Conoco is the first of the super-majors to report earnings. These stocks have been moving up in tandem with oil prices, which have been sparked by concerns over Iran's nuclear program. We remain bullish on the oil and gas producers as the energy markets continue to reflect global tensions and tight market conditions. COP is trading at a significant discount to its peers at 6.8x, compared to Exxon (XOM) at 11.8x, Chevron (CVX) at 9.3x, and Occidental Petroleum (OXY) at 9.1x earnings.
--Kimberly DuBord, Briefing.com
09:18 am Colgate-Palmolive (CL)
53.75: The maker of its namesake toothpaste and dishwashing liquid reported Q4 (Dec) earnings of $0.69 per share, which excludes restructuring costs and a gain of $32.9 mln related to the sale of its heavy-duty laundry detergent brands in Southeast Asia to rival Procter & Gamble (PG). After five quarters of merely matching Wall Street's expectations, Colgate-Palmolive beat analysts' forecasts by a penny.
Like many other major companies of late posting lighter than expected sales, Colgate followed suit. Its revenues rose 3.6% year/year to $2.9 bln, but that was slightly below the $2.96 bln consensus estimate. Nonetheless, North America, where Colgate generates about 21% of its overall sales, was strong, as respective sales and unit volume growth of 8.5% and 6.0% were fueled by new product sales and market share gains. Latin American sales, which account for the bulk of Colgate's total top line (24%), grew 16.5% year/year to an all-time record level amid toothpaste market share gains seen in nearly every country in the region.
Further, gross profit margins (ex items) of 56.0% hit an all-time record, improving 100 basis points from a year ago -- the largest quarterly gross profit increase in three years. Helping Colgate get back on track with strong gross profit margin increases was a 2.0% rise in global pricing -- the largest increase in 21 quarters. Combined with a reduction in overhead expenses, improved gross margins allowed Colgate to build its overall profitability while still investing in even stronger levels of advertising behind global toothpaste and manual toothbrush brands, both of which increased their market share to all-time record highs. Global advertising supporting Colgate's brands of $306.4 mln was a fourth quarter record level, led by a strong double-digit increase in worldwide media.
Colgate's stock is about 6% off its 52-week high of $57.15, which was reached on Dec. 16, and shares are down 1.5% so far in 2006. Given the defensive nature of the Consumer Staples sector and our preference for household product stocks in the space, a backdrop of slowing economic growth and earnings deceleration should bode well for a stock like Colgate. Management expects growth momentum to continue throughout the year, returning Colgate to double-digit EPS growth in 2006 as early as Q1.
-- Brian Duhn, Briefing.com
08:59 am Boston Scientific (BSX)
24.00: Boston Scientific on Wednesday announced that it has agreed to acquire medical device maker Guidant Corp. (GDT) for $27 billion, ending a two month bidding war with rival Johnson & Johnson (JNJ). Under the terms of the deal, Boston Scientific will pay $80 per share for Guidant, or $42 in cash and $38 in Boston Scientific common stock.
Johnson & Johnson let a midnight deadline pass without revising its previous offer of $24.2 billion, or $71 per share. As such, Guidant's merger agreement with Johnson & Johnson was terminated, leaving the company in the hands of Boston Scientific. Boston Scientific, accordingly, will pay Johnson & Johnson a $705 million break-up fee owed by Guidant for ending its earlier agreement.
As previously announced, Boston Scientific's offer also includes an agreement with Abbott (ABT) to divest Guidant's vascular intervention and endovascular businesses, as well as certain rights to the company's drug eluting stent program. Under the proposed transaction, which will enable Boston Scientific and Guidant to rapidly secure antitrust approvals, Abbott will pay approximately $6.4 billion in cash to Boston Scientific, including $4.1 billion in purchase price for the Guidant assets, a loan of $900 million, and an agreement to acquire $1.4 billion of Boston Scientific shares.
Upon completion of the merger, which is still subject to antitrust clearance and shareholder approval, Boston Scientific will gain access to the $10 billion market for pace makers and defibrillators. However, given the safety concerns and legal issues surrounding Guidant's products, the value of such a deal remains uncertain for Boston Scientific shareholders.
--Richard Jahnke, Briefing.com
08:53 am Hershey Co. (HSY)
54.10: Higher prices and new products sweetened Hershey's profits by 3.4% in the fourth quarter. Net income grew to $172.8 mln, or $0.70 per share, up from $167.1 mln, or $0.67 per share, last year. Stripping out one-time items and stock based compensation, earnings were a penny over consensus.
New and seasonal products generated 4% of the 6.7% top line growth to $1.35 bln in the quarter. The Pennsylvania-based company released several new products, like the Kissable, in order to increase its overall market share over rival, Mars Inc. Gross margins widened to 39% from 38.7% in the year prior, as SG&A expenses declined a full point to 16.6% of sales.
Rising commodity prices are pressuring the entire industry. Sugar prices from Brazil, the world's biggest producer, continue to rise on increasing demand from the US for sweeteners and the fact that more of the Brazilian crop is being used to make automotive fuels. According to Bloomberg, sugar prices are expected to average 14.74 cents per pound this year, up 46% from 10.03 cents in 2005.
This was a kissable quarter considering the cost headwinds Hershey faced with sugar accounting for 10% of total costs. What the languishing stock price fails to show is Hershey's stable and high quality profit growth. The company reaffirmed FY06 forecasts, aiming to combat the inflationary environment through higher price realizations and operational efficiencies. Its leverage is apparent, as it is forecasting 3-4% sales growth generating earnings per share above its long-term growth goal of 9-11%. We think Hershey remains a solid investment due to its attractive defensive characteristics, including a multiple of 20x earnings and a dividend yield of 1.81%.
--Kimberly DuBord, Briefing.com
08:45 am Xerox (XRX)
14.46: Xerox's fate rests on its ability to drive growth for color digital printing systems improving its overall sales mix towards higher margin products. Color revenues, as a percentage of the overall top line, grew 5% for the year to 32%. Despite a 17% rise in color sales in the fourth quarter, total sales were roughly flat year-over-year. Growth was negatively impacted by a significant product shift towards lower-priced systems. One bright spot was entry level color and office desktop multifunction devices, which fuel post-sales annuities over time.
For the quarter, total revenues fell 2% to $4.25 bln on negative currency and product mix, but rose a point on a constant currency basis. Post-sales and financing revenues, which accounts for 70% of total revenues, were flat ex-currency. Cost controls helped to increase gross margins by 50 basis points to 41.4%. Earnings came in at $0.32 per share, excluding non-recurring items, in-line with the market's expectations. Xerox ended the quarter with $1.4 bln in operating cash flows, leaving it in a strong, flexible financial condition for FY06, which includes plans to buyback $500 mln in stock.
Xerox issued in-line guidance for the first quarter of $0.20-$0.23 per share versus the $0.22 consensus estimate. Also, it reaffirmed guidance for the full year, saying it sees EPS at the "high-end" of $1.00-$1.07 per share versus the consensus estimate of $1.04. The turnaround at Xerox has taken much longer than most expected, as it has failed to show any significant traction in ramping the color segment. If it's able to reach the high end of guidance, that would equate to 14% earnings growth at best. The stock is trading at 13.8x and we would not be a buyer above $14.00 per share.
--Kimberly DuBord, Briefing.com
10:48 am First Cash: JMP Securities reiterates Mkt Outperform. Target $29 to $29. Following Q4 results, as firm believes 20% plus earnings growth will persist, driven by same-store sales and unit growth while improving earnings visibility adds excitement to the story.
10:47 am Pervasive Sftwr: Needham & Co downgrades Buy to Hold. Firm believes any stock price appreciation will come in excruciatingly slow increments. While PVSW can probably grow earnings by constantly squeezing costs in the face of 0-5% rev growth, the firm says the co no longer represents the homerun potential that could have materialized.
10:43 am W&T Offshore: Harris Nesbitt upgrades Neutral to Outperform. Target $32 to $32. Firm believes that with the purchase of Kerr-McGee's Gulf of Mexico shelf properties, WTI is poised to increase production (+80%) and reserves (+74%), become the third-largest acreage holder on the GOM shelf, and increase its 2P/3P reserves by 3-fold. With the addition of oil and gas hedges at strong commodity prices and the high PV nature of GOM assets, they expect the transaction to be accretive to earnings and cash flow in 2006.
10:30 am Astec Industries: Robert W. Baird downgrades Outperform to Neutral. Firm also downgrades BUCY to Neutral from Outperform, saying that while they remain optimistic about the fundamental outlook, they believe the market may have already discounted stronger financial performance. The stock's recent run, its current valuation, and their view of peak earnings potential signal to them that the risk/reward profile has become more balanced.
10:22 am Ultra Petroleum: Harris Nesbitt reiterates Neutral. Target $70 to $70. Firm ups price target following the co's reported year-end proved reserves of approximately 2.02 Tcfe, representing a 32% increase from the prior year reserve estimate of 1.53 Tcfe. They note that the co has more than doubled its inventory in Wyoming to over 2,800 locations, resulting in an inventory life of +17 years at the current drilling rate. They estimate the co will have spent about $290 mln in 2005 and produce ~72 Bcfe, yielding a ~785% reserve replacement ratio.
10:21 am 3M Company: Longbow downgrades Buy to Neutral. Downgrade follows Q4 results, firm is saying 5% growth is no longer sufficient. With top line growth likely to continue at the low end of targeted range and opportunities for margin expansion diminishing as Healthcare Division continues to suffer from generic competition in Pharmaceuticals and price competition in Personal Care, they believe EPS growth is likely to decline to low double digits.
10:18 am Headwaters: Adams Harkness downgrades Buy to Hold. Firm says there is more Sec. 29 risk here as they see the first signs of customers beginning to curtail production_nothing more, nothing less. They think the shares are range-bound until the Sec. 29 overhang begins to work itself out.
10:18 am Applebee's: Morgan Keegan upgrades Mkt Perform to Outperform. Target $22 to $22. Upgrade is based on the belief that comps and traffic trends bottomed in Dec and could likely post an improving trend through 2006, leading to better than expected operating performance and potential share price appreciation.
10:16 am Jacobs: Sanders Morris Harris reiterates Buy. Target $76 to $76. Firm is encouraged that several important lagging mkt segments appear poised for impressive growth, namely PharmaBio, Federal Programs, Buildings, and Infrastructure. The firm says these particular mkt segments have the ability to deliver strong bookings in a recovery phase.
10:13 am Zions Bancorp: Sanders Morris Harris reiterates Buy. Target $80 to $80. Firm continues to believe that ZION's share price has yet to fully reflect its expanding market share and solid growth opportunities given its strong position in many of the nation's fastest-growing marketplaces.
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Don, I'm just happy for you that your short term buy is already in the green! |
