From Briefing.com: 4:20 pm : The market's see-saw action -- up one day and down the next -- continued Thursday as investors used sluggish retail sales, higher energy prices and rising bond yields as the latest excuses to consolidate recent gains. Yesterday, a technology-induced rally helped the Nasdaq record its second largest gain of the year so far (+1.5%) and close at a six-week high, which followed an unfounded Google-inspired sell-off a day before that.
Before the market opened, investors sifted through a plethora of same-store sales results from more than 75 retailers. However, the reappearance of cold weather in February, which is typically a decent barometer for spring merchandise, checked in with the smallest gain in nine months and weighed heavily on Consumer Discretionary -- the day's worst performing sector. Among the notable retailers missing forecasts were specialty apparel names like Talbots (TLB 25.93 -0.40) and Chico's FAS (CHS 41.35 -6.41) as well as teen retailers like ANF, ARO, PSUN and HOTT. The three largest retailers, discounters Wal-Mart (WMT 45.06 -0.09), Target (TGT 53.71 -0.86) and Costco (COST 52.80 +0.61), beat expectations, as did Gymboree (GYMB 24.70 +1.84), a suggested holding in our Active Portfolio, and several dept stores (e.g. FD, KSS, JCP and JWN). Nonetheless, tempered sales growth following January's surprisingly strong gains, coupled with rising prices across the energy complex, weighed heavily on retail stocks as well as overall sentiment.
An increase in the cost of borrowing also sparked some nervousness, especially in the rate-sensitive Financial sector. A late-day turnaround in brokerage helped pare sector losses but weakness in several leading bank stocks (e.g. C, BAC, WFC) took a toll on the S&P's most influential sector. The yield on the 10-yr note (-12/32) hit 4.63% following reports that the ECB, albeit widely anticipated, raised their key lending rate to 2.50%. Bond traders speculated that the ECB will raise rates to 3% by year-end, which diminished the desire to own dollar-denominated Treasuries. Doing little to sideline ongoing concerns of further Fed tightening was another jobless claims read which checked in below 300K level for a 7th straight week, reflective of a strong labor market.
Technology turned positive briefly intraday and helped lift the Nasdaq into the green for a moment, but weakness in hardware and software overshadowed semiconductor's late-day recovery efforts. Energy, however, finished the day on a strong note and acted as the market's biggest source of buying support as oil prices (+2.3%) rose for a third straight day and closed above $63 per barrel. BTK +0.1% DJ30 -28.02 DJTA -0.7% DOT -0.1% NASDAQ -3.63 NQ100 -0.1% R2K -0.3% SOX +0.1% SP400 -0.4% SP500 -2.10 XOI +1.1% NASDAQ Dec/Adv/Vol 1701/1304/2.08 bln NYSE Dec/Adv/Vol 1794/1447/1.79 bln
5:01PM Chartered Semi reiterates guidance for Q1 (CHRT) 8.56 +0.01 : Co says "The quarter is progressing essentially in line with what we had anticipated earlier and therefore we are reiterating the guidance originally provided in January,"
4:03PM Finisar beats by $0.03, beats on revs (FNSR) 2.91 -0.01 : Reports Q3 (Jan) earnings of $0.03 per share, excluding non-recurring items, $0.03 better than the Reuters Estimates consensus of ($0.00); revenues rose 27.9% year/year to $93.5 mln vs the $90.4 mln consensus.
10:56AM Semiconductors Hldrs Trust edges to new session high of 38.82 (SMH) 38.82 +0.29 : Important resistance above here is at the Feb/Jan gap zone at 39.06/39.17.
4:23 pm Google (GOOG)
376.45 +11.65: Google shares traded sharply higher late Thursday after the Internet search giant offered positive comments for investors at a meeting with analysts. The increase retraced part of the drop from two days ago when the company said it would have to find "other ways" to boost revenue amid slowing growth.
According to Reuters, Google said it is aiming to become a $100 billion company and that it plans to put systems in place during 2006 to reach that scale. "I'll leave it to you to judge whether that is $100 billion in market capitalization or revenue," Google's chief executive said to analysts. Google, which currently boasts a market capitalization of $110.7 billion, generated $6.14 billion in revenue last year.
Google's other goals for the year include improving the quality of it core Web search and advertising business, increasing the size of its Internet audience, and expanding the number of products, services, and business partnerships, according to the Reuters press report. Furthermore, the report noted that the company remains committed to long-term growth and has no plans to change its policy of not setting short-term financial targets.
Google generates the bulk of its revenue from search-related advertising. During the meeting, it said that it "doesn't look like any portion of ad pricing is topping out, despite all the talk otherwise." It also noted that it has a deep pipeline of monetization, but thinks click through rates can improve a great deal.
--Richard Jahnke, Briefing.com
1:57 pm Chico's FAS (CHS)
40.96 -6.80: Chico's stock has tumbled more than 14% following the company's fourth quarter earnings report. The retailer has a long history of beating, or at least meeting, analysts' expectations. Last quarter was different, though, as Chico's fell a penny short of the consensus estimate with its profit of $0.24 per share. Making matters worse, the company reported February same-store sales growth of 5.7% versus the Briefing.com consensus estimate of 8.8%.
Although Chico's results did not live up to expectations, the company still reported record results on both the top and bottom lines. Net income was up 34.9% versus the prior-year period and net sales rose 31.6% to $376 million. Fourth quarter same-store sales grew 14.6%. During the quarter, each of Chico's brands achieved their highest Q4 front-line merchandise margins ever. However, the company's overall gross margin contracted 24 basis points to 59.38% due in part to the larger relative growth of its lower-margin brands. Increases in marketing, inventory clearance, and freight costs were also factors that contributed to the contraction. The company's operating margin contracted 30 basis points to 17.7%.
Chief Executive Scott Edmonds said that the company's growth strategies, designed to position Chico's for sustained long-term growth, will continue to pressure margins. Management expects 10-50 basis point quarter-over-quarter contraction throughout 2006, with the first half of the year likely to be less affected than the latter half. Excluding stock-based compensation expenses, the company anticipates full-year earnings growth that is "in the neighborhood of 25%." That translates to roughly $1.33 in earnings per share.
Taking today's decline into account, CHS shares are trading at 38.6x trailing twelve month earnings, which is a slight discount to their five-year average of 41.1x, but still a sharp premium to peers Talbots (TLB), which has recently agreed to purchase competitor J. Jill (JILL), and Liz Claiborne (LIZ). Although Chico's sports higher margins and is expected to grow its earnings at a higher rate than the aforementioned companies, its premium valuation is being called into question following the uncharacteristic earnings miss and management's assertion that margins will continue to face pressure throughout 2006.
--Lisa Beilfuss, Briefing.com
11:29 am Foot Locker (FL)
23.59 +0.33: Foot Locker reported an 8% rise in fourth quarter profits, helped by a reduction in its income tax valuation allowance and insurance proceeds related to Hurricanes Katrina, Rita, and Wilma. Net income rose to $96 million, or $0.61 per share, from $89 million, or $0.57 per share, in the same quarter last year. Excluding one-time items, earnings were $0.55 per share. Analysts on average were expecting $0.55 per share, according to Reuters Estimates.
Sales for the period grew 1.9% to $1.56 billion, in line with the consensus estimate. The results reflect solid sales gains in the company's North American businesses, partially offset by declines in certain international markets. Sales at stores open for at least one year increased 3.9%, reflecting continued efforts to increase productivity of its existing business, while also pursuing growth strategies. The company opened 119 new stores during fiscal 2005, remodeled or relocated 316 stores, and closed 165 stores. The closings include 25 that were impacted by recent hurricanes.
Additionally, Foot Locker expects earnings for the current quarter to be between $0.37 and $0.40 per share and fiscal 2006 to range from $1.75 to $1.85 per share. According to Reuters Estimates, analysts are expecting $0.39 and $1.81, respectively. During the year, the company also plans to open approximately 175 new stores, remodel 350 stores, and close 110 stores.
Shares of Foot Locker slipped more than 11% in 2005. However, after reaching a 52-week low at $18.74 in early November, the stock has gained about 26% amid signs of a rebound in the company's European business. Supported by strong North American performance as well as upcoming product releases and events, such as the FIFA World Cup, shares of the company remain attractive at current levels. The stock, which we covered in our Bargain Hunting column in early January, is valued at 14.2x trailing twelve month earnings, versus its historical average of approximately 15x over the past five years, and has a favorable price-to-sales ratio of 0.65.
--Richard Jahnke, Briefing.com
11:03 am Talbots (TLB)
26.09 -0.24: Topping analysts' forecast by a penny, Talbots today reported a fourth quarter profit of $0.37 per share that was up 32% from the year-ago period and flat on a sequential basis. Total sales increased 3.3% to $486.2 million. Retail stores revenue and direct marketing revenue each rose 3%; on a comparable-store basis, sales were up 1.6%. Management noted that the positive same-store sales growth drove the company's earnings growth, and said that inventory management was a contributing factor. Margins improved over the quarter, and they slightly expanded over the full-year.
Separately, the company reported a 6% decline in February same-store sales. Management partly attributed the weakness to a snowstorm and to the timing of promotional activities.
Excluding four cents in estimated stock option expenses, Talbots projects $0.65-0.69 in earnings per share for the current quarter. That range brackets the current consensus estimate and reflects roughly 3-10% year-over-year growth. With respect to its recent agreement to acquire J. Jill Group (JILL), Talbots indicated that it expects to complete the transaction during the second quarter. "Shortly thereafter," management said, it will provide additional information on full-year earnings and sales expectations. At this point, the Reuters Estimates consensus is pegged at $1.91 and $1.95 billion for full-year EPS and revenues, respectively.
At 15.2x trailing twelve month earnings, TLB shares are presently trading at a discount to their five-year average of 17.5x. However, an expected deceleration in consumer discretionary spending and the uncertainty surrounding the integration of J. Jill are expected to make material multiple expansion harder to come by over the near-term.
--Lisa Beilfuss, Briefing.com
10:30 am Hovnanian Enterprises (HOV)
47.07 +0.94: Hovnanian Enterprises posted relatively flat fiscal first-quarter earnings, as market conditions have cooled from their previous extraordinary levels, with respect to sales pace and price increases. The Red Bank, New Jersey-based homebuilder reported net income of $81.4 million, or $1.25 per share, compared with $81.5 million, or $1.25 per share, a year earlier - a penny better than the Reuters Estimates consensus. Revenue grew 21.2% to $1.28 billion from $1.05 billion.
During the first quarter, Hovnanian delivered 3,845 homes with a total sales value of $1.2 billion. That compares with deliveries of 3,266 homes in the year ago period. Net contracts were up 11.9% to 3,624 contracts, while the dollar value of those contracts increased 22% to $1.3 billion. The company's backlog as of January 31, including unconsolidated joint ventures, was 14,125 homes with a sales value of $4.9 billion, up 82% from the sales value last year.
Management reiterated its projections for fiscal 2006 of earnings between $8.05 to $8.40 per share, representing a 12% to 17% increase over 2005. According to Reuters Estimates, analysts are forecasting full-year earnings of $8.10 per share. Although the company's price and product diversity, as well as geographic mix, have helped to temper the effect of slower sales conditions, the company expects earnings to grow at a more measured pace than the extraordinary levels experienced over the past few years. The latest results, which follows a recent report that U.S. home sales slipped 5.0% in January, echoes comments from other homebuilders that the nation's housing market continues to slow and underpins our unfavorable view on the industry as mortgage rates continue to rise.
--Richard Jahnke, Briefing.com
09:45 am Fluor (FLR)
83.60 -4.21: With end-markets ranging from oil and gas to power, mining, and transportation, Fluor continues to benefit from favorable market conditions. The Aliso Viejo, California-based company closed its books on what was a strong fiscal year, growing earnings for the fifth consecutive period and setting new records on robust revenue growth. Fluor is one of the world's largest engineering, procurement, construction, and maintenance companies operating in twenty-five countries. Its outlook remains bright from what the company called an "unprecedented level of capital investment" within the industrial sector.
We continue to favor the industrial sector of the economy, choosing to shy away from the more consumer-driven areas wherein higher interest rates will start to erode profit growth. Fluor serves multiple industries, which are experiencing sizeable growth. Profits in the fourth quarter rose to $65.1 mln, or 74 cents per share, which included a $9.2 mln tax credit. Revenues soared 45% to $4.0 bln driven by the Oil, Gas, Global Services, and Government segments, offsetting weakness in Industrial & Infrastructure resulting from loss provisions. Debt-to-total capital declined to 21% from 26% last year.
Looking ahead, the company expects "ongoing strength" in new build awards and backlog to drive earnings. Just today, Fluor announced it will begin construction of a 200-megawatt, coal-fired power plant in Nevada for Newmont Mining (NEM) for commercial operation in 2008. For the year, the company forecasts earnings of $2.80-$3.10 per share versus the consensus estimate of $3.09. Fluor has made a considerable run over the last 12-months and is now trading at 28.4x forward earnings. We would be buyers on pullbacks, as we anticipate further upside in earnings if the company is able to navigate cost inflation.
--Kimberly DuBord, Briefing.com
09:33 am PetSmart (PETM)
26.21: Shares of PetSmart are expected to open higher following the company's fourth quarter earnings report. Excluding a benefit from a credit card rate settlement and an adjustment to its stock-based compensation expense, the company registered $0.47 in profit per share and surpassed analysts' estimates by a penny. This quarter marked the twelfth consecutive one that the company either beat or matched expectations. Versus the year-ago period, EPS grew nearly 15%.
Chief Executive Phil Francis said that traffic returned to a more normal pattern, the holiday season was a good one, and PetsMart's services business continued to generate meaningful and consistent growth. The company's top line rose 12.4% to $1.05 billion, with same-store sales up 4.5% during the quarter and pet services sales up 27%. The company's margins rose - with gross margin improving 63 basis points to 33.2% and operating margin expanding 22 basis points to 11.59%. Management asserted that PetsMart's full-year performance demonstrated its ability to thrive in a variety of economic conditions. Francis noted that the company gained market share and strengthened its competitive position.
For the current quarter, PetsMart anticipates earnings of $0.28-0.30 per share. The high-end of that forecast falls a penny short of the current consensus estimate. Same-store sales are expected to show low-to-mid single digit growth during Q1. For the full-year, PetsMart expects to book $1.37-1.39 in earnings per share, a range that brackets analysts' consensus estimate. That outlook translates to roughly 18% year-over-year EPS growth. Full-year sales on a comparable-store basis are expected to increase in the mid single digits. On its conference call, the company mentioned that price optimization should drive gross margin expansion in 2006.
We feel that PetSmart's long-term prospects emain bright given its industry-leading status, the growing popularity of pets in American households, and the fact that, at 23.9x trailing twelve month earnings, it trades at a considerable discount to its five-year historical average. Within the pet care industry, we also continue to like PetMed Express (PETS), which is up 41% since we added it as a suggested holding in our Active Portfolio in November; PETS is up 138% since it was first profiled as a Bargain Hunting idea in July 2005.
--Lisa Beilfuss, Briefing.com
09:03 am Ciena Corp. (CIEN)
4.35: Ciena Corp. on Thursday reported a narrower first quarter loss on higher revenues, and issued revenue guidance that topped analysts' expectations. For the quarter, the telecommunications equipment maker posted a net loss of $6.3 million, or ($0.01) per share, compared with a loss of $57 million, or ($0.10) per share, a year earlier. Excluding one-time items, the company's net loss amounted to $5.5 million, or ($0.01) per share. That was a penny better than the Reuters Estimates consensus of a loss of $0.02 per share.
Revenue for the first quarter totaled $120.4 million, representing an increase of 27.1% over the same period a year ago. Product sales, which accounted for 88% of the top-line total, rose 28.7% to $105.9 million, while services revenue increased 16.4% to $14.5 million. The company also delivered gross margin of 41.9%, an improvement of more than 1600 basis points from the year ago period and 200 basis points sequentially. Product gross margin improved to 43.0% from 42.2% a year earlier, while services gross margin improves to 33.9% from 24.5%.
Looking to the second quarter, Ciena, said revenues could increase as much as 7% sequentially, depending on the timing of orders from several larger customers. A 7% rise for the current quarter equates to approximately $128.8 million, exceeding analysts' expectations of $127.01 million, according to Reuters Estimates. Although the company continues to demonstrate continued revenue growth and gross margin improvement, it has yet to reach its goal of profitability. Without greater earnings visibility and a sustainable impetus for growth, it is difficult to justify owning the stock at current levels.
--Richard Jahnke, Briefing.com
08:54 am Costco (COST)
52.19: The largest US warehouse club reported a solid quarterly result punctuated by continued impressive same-store sale growth at home and abroad. Looking at Costco's comps over the last year, what stands out is its consistency, as sales have continually outpaced the company's largest rivals, which include Wal-Mart's (WMT) Sam's Club and BJ Wholesale Club (BJ). In the fiscal second quarter, comps kept up with the 12-month average of 7%, led by a 10% rise internationally and 7% in the US. Holiday shoppers headed to their local stores where they found the must-have items, including iPods, flat panel TVs, and digital cameras. Net income of $296.2 mln declined year/year due to a tax gain. Excluding items, earnings of 62 cents per share checked in two cents ahead of expectations.
Over the quarter, comparable store sales rose 7%, 9%, and 8% from December to February with total sales up 11% to $13.7 bln. Membership fees grew 10% to $269.7 mln. Gross margins narrowed slightly to 10.7% from 10.93% last year. SG&A actually declined slightly as a percentage of sales in the quarter. With Wal-Mart under scrutiny for worker compensation and benefits, Costco stands apart, paying its employees 40% higher, and thereby, reducing employee turnover. Costco's broad product and service offering is forcing competitors to improve selection and to upgrade merchandise. Separately, BJ's raised it annual membership fees by $5 at the start of the year and Costco has indicated it may follow suit, which would boost earnings growth.
With shares trading at the upper end of their historical range, the only caveat to the story is consumer spending. With a substantial store base in California, a decline in housing prices could negatively impact spending trends. The stock is trading at 22.6x forward earnings versus BJ at 16.4x and WMT at 15.4x.
--Kimberly DuBord, Briefing.com
10:01 am Oshkosh Truck: Banc of America Sec reiterates Buy. Target $58 to $62. Firm is giving the following reasons for target change: 1) They obtained further clarity on the FY06 Supplemental request, which points to higher and sustained growth in the military truck sector. 2) Recent discussion with mgmt also points to continued progress in the other two divisions. Revenue growth in Fire & Emergency via new products and market share gains has further to run, whilst margin improvement in Commercial looks to be on track. The firm says the co also has around $1 bln of ‘fire power' for acquisitions, increased dividends or stock buybacks.
10:01 am Jetblue Airways: Calyon Securities upgrades Reduce to Neutral. Firm is saying that despite their expectations for a 1Q06 loss due to high fuel prices. Their rating increase is based on expected modest capacity reductions by Delta Air Lines in crucial JetBlue markets, continuing strong travel demand, seasonality, leading to expected price increases.
09:59 am Imclone: Banc of America Sec reiterates Buy. Target $42 to $45. Firm is noting the approval for Erbitux's use in combination with radiation in head and neck cancer; the label includes a warning for use in combination radiation therapy in some patients.
09:58 am Oregon Steel: UBS reiterates Neutral. Target $37 to $43. Firm ups target to reflect their higher plate forecats and a higher multiple amid greater earnings certainty from the recent large diameter order.
09:58 am POZEN: RBC Capital Mkts reiterates Outperform. Target $15 to $25. Firm is saying that recent comments from GSK and POZN's top-line guidance for 2006 suggest their initial Trexima assumptions were too conservative. Moreover, their confidence in the timeline for PN has increased enough for them to now include this program in their valuation assessment of POZN.
09:57 am AutoZone: RBC Capital Mkts reiterates Sector Perform. Target $95 to $106. The firm believes the co fairly inexpensive, and that it is making investments that should benefit it over time, and that comparisons should ease in 2H.
09:56 am Genentech: UBS reiterates Buy. Target $115 to $110. Firm also raises their Rituxan estimates due to the favorable label. However, firm says this is offset by decreased Herceptin and Avastin estimates in 2007.
09:55 am Greif Brothers: KeyBanc Capital Mkts / McDonald upgrades Hold to Buy. Target $70. Firm is upgrading based on 1) improving fundamentals for volumes; 2) improving fundamentals for pricing; 3) continued realization of cost reduction initiatives in all parts of the business; and 4) attractive valuation.
09:54 am OmniVision: Needham & Co downgrades Buy to Hold. Firm is noting OVTI reported better than expected F3Q06 results last night after the close and guided F4Q06 down seasonally. The firm says despite an impressive rebound in megapixel products and a strong pipeline of new products, they are downgrading the shares both valuation and longer-term concerns about margins.
09:52 am Hartmarx: Brean Murray initiates Strong Buy. Target $12. Firm is saying the co is underfollowed and low investor profile company (e.g., does not conduct a quarterly earnings conference call) is excellently managed, in their view, and its shares are very inexpensive on both a fundamental and prospective buyout basis. They believe that now is a compelling entry point: the stock has pulled back due to below-average earnings growth guided to in 1H06 stemming from short-term factors. The firm notes for full-year 2006, mgmt recently guided to 12-20% EPS growth on low-mid single-digit revenue growth, and their projections only look to the mid-point of the rev range and high end of the EPS range, despite the fact that Hartmarx usually beats its conservative guidance.
09:51 am Watson Pharm: Leerink Swann initiates Outperform. Firm initates based on increased generic launch activity, coupled with ongoing cost control initiatives, could drive solid operating results in 2007 and beyond.
09:51 am Celestica: Am Tech/JSA Research upgrades Hold to Buy. Firm is saying they believe CLS will deliver better than consensus expectations of flat 2006 revenue growth driven by the ramp of new outsourcing programs including one for MSFT's X-Box 360 and a major consumer electronics O.E.M from Japan. Additionally, the firm says margin improvement should occur throughout 2006 as Celestica reduces manufacturing headcount by about 3,600 by the September '06 quarter.
09:48 am Altair Nanotechnologies: WR Hambrecht reiterates Buy. Target $4 to $5.5. Firm is saying in mgmt meetings earlier this week they were able to get more information on the co's battery advantages and the potential applications. |
