From Briefing.com: 4:20 pm : Momentum from yesterday's late-day rally carried forth into today's session, but it did not last. Investors grappled with an array of items, and sellers eventually dominated. Leadership lacked, and each of the indices registered losses.
A 1.0% rise in the price of crude helped to take the steam out of the market. The Energy Department's report that natural gas supply last week fell less than expected initially sent energy prices lower. With the extension of their pullbacks, the market benefited. Reports that Nigerian terrorists engaged soldiers in an attempt to capture a fuel tanker, which came on the heels of yesterday's geopolitically-driven OPEC decision, weighed on the market. Crude rallied, and gasoline and heating oil also rose. That action squelched gains across the market, particularly in the Consumer Discretionary sector (-0.4%). At the same time, it did not spark any buying in the Energy sector, which would have potentially served as an offsetting factor. Energy fell 0.9% and weighed heavily. Tech was another influential sore spot. Google (GOOG 343.00 -10.88) was a drag, following news that it will pay $90 million to settle a click fraud lawsuit. Semiconductors were also weak, despite upside earnings and guidance from National Semi (NSM 27.18 -0.85).
Recoveries in metal commodities had helped the Materials sector (-0.2%), but its gain was erased by the bell. Several analyst upgrades (on NUE, X, and ECL) were supportive. Telecom (+0.3%) continued its outperformance today, and Consumer Staples (+0.2%) also clung to a gain. Those two sectors' modest contributions were muted by wide-spread selling, though.
The Treasury market remained in the stock market's spotlight. Some moderation in the 10-year note's yield was another factor behind the early, upbeat sentiment. Additionally, the yield curve had managed to stay out of inversion after exiting that yesterday. By the end of the day, though, the 10-year fell to a 4.72% yield and the curve flattened. Rate-sensitive areas of the market did not fare well. Pressured by banks, Financials declined a heavy 0.6%. The Utilities sector fell 0.5%, and homebuilders contributed to the Discretionary sector's weakness. Within the latter sector, General Motors (GM 21.28 +0.86) was its support. Reports indicated that it and Delphi are nearing a cost-cutting pact with the UAW. Reports also indicated that the UAW asserted that an agreement is not near, but GM still rose more than 4%. Boeing (BA 73.76 +0.94) was the Dow's other source of support, and helped limit the Industrials (-0.2%) sector's slide. The catalyst was news that the company received a new $406.5 million jet order. Speaking of the Dow, Johnson & Johnson's (JNJ 58.31 -0.43) board authorized a repurchase program of up to $5 billion in common stock.
Japan garnered a lot of attention today. The Bank of Japan announced its decision to abandon its five-year deflation-fighting policy. The move demonstrates the central bank's confidence in the country's economic turnaround, and supports our view that investors should continue to seek exposure to the Japanese market. The Nikkei jumped about 2.6%, and that bullish response was another factor behind early domestic gains. At the same time, the global interest rate environment continues to concern the market, and there is some degree of uncertainty over Japan's monetary policy.
Anticipation of tomorrow's employment data also helped keep the market in check. Economists are expecting a solid report. Given that expectations for Fed policy are well set, this is a time when stronger economic numbers are likely to be interpreted positively by the stock market. However, much focus will be placed on the hourly earnings portion. If the bond market sees that read as inflationary, that market is apt to weigh upon the stock market.
With respect to today's economic calendar, two items were featured. Initial Claims rose 8,000 to 303,000 - the first time in seven weeks that they have crept above the 300,000 mark. Still, initial claims remain at very low levels. Second, the trade deficit widened to $68.5 billion. Neither data had much effect upon trade today. DJ30 -33.46 NASDAQ -17.74 SP500 -6.24 NASDAQ Dec/Adv/Vol 1782/1213/2.07 bln NYSE Dec/Adv/Vol 1785/1447/1.55 bln
5:01PM Actel reaffirms Q1 rev guidance of up 2-5% sequentially (ACTL) : Co reaffirmed its other operating metric guidance, but said it expects to record a tax benefit of approximately $0.1-$0.3 mln in the qtr, vs previous guidance of a charge of $1.0-1.2 mln.
4:19PM Vishay announces intent to create new Class C common stock (VSH) 13.96 -0.15 : Co announces its intent to create new "Class C" common stock. The creation of Class C common stock would permit VSH to raise additional capital or engage in a range of investment and strategic opportunities without materially diminishing the voting power of its existing stockholders. Each share of Class C common stock would generally have terms identical to a share of Vishay's currently traded common stock (which would be renamed "Class A" common stock), except with respect to voting power. Each share of Class C common stock would have voting power equal to one-tenth of a vote when voting together with other classes of stock on matters presented to shareholders. VSH anticipates that the Class C common stock will also be traded on the NYSE, if and when issued.
2:35 pm Google (GOOG)
346.51 -7.37: Ever since Google's CFO appeared at an investment conference on Feb. 28 and stated the obvious that the company's growth will slow as the law of large numbers catches up to it, Google has found it hard to stay out of the media spotlight. At the same time, its stock has found it hard to sustain an upward move. Since the infamous growth remark, and a subsequent effort by the company at its analyst day to quell the growth concerns, shares of Google are down roughly 12.0%.
It was just yesterday, in fact, that Google's stock was being tossed about by the company's embarrassing admission that growth projections for its ads business, which were shown on slides at its analyst day, were only "speaker notes" and were not intended for public viewing or created for financial planning purposes. The clarification didn't help matters. Goldman Sachs cut its earnings estimates and Google's stock got clipped again. Today, Google has made headlines with an announcement that it has reached an agreement with plaintiffs in a click fraud lawsuit that was filed in Arkansas. The agreement still requires approval from the judge, which is expected.
According to Google, the settlement covers all advertisers who claim to have been charged but not reimbursed for invalid clicks dating from 2002 when its "cost per click" advertising program was launched and through the settlement date approved by the judge. Under its current policy, Google allows advertisers to apply for reimbursement for clicks believed to be invalid during the 60 days prior to notifying Google. Under the agreement, though, Google will open up the window for all advertisers, regardless of when the actual click fraud occurred. Google said its cost under the agreement will not exceed $90 million - a total that also includes attorneys fees.
The company will account for the settlement by charging attorneys fees as an expense, most likely in the first quarter, while credits granted to advertisers will be recorded as a reduction to revenue in the periods when they are redeemed.
For a company that reported $6.1 billion in revenues in FY05, $90 million is a drop in the bucket. According to a Piper Jaffray analyst, it qualifies as a modest amount to resolve an issue that carried potentially large headline risk. Be that as it may, the headline regarding the settlement hasn't done much to help Google's stock, which remains on the defensive and now trades 27% below the all-time high it reached in January.
--Patrick J. O'Hare, Briefing.com
1:09 pm Johnson & Johnson (JNJ)
58.45 -0.29: It is not uncommon to see a blue chip stock trade higher on an indication that the company's board of directors has authorized a large share repurchase plan. To wit, when Merrill Lynch (MER) announced a $6 billion share repurchase program on Feb. 27, its stock gained 1.5% that day, which translated to an approximate boost to its market capitalization of $1.10 billion. After yesterday's close, Johnson & Johnson (JNJ) made a similarly bold announcement, saying its Board had authorized the repurchase of up to $5 billion of common stock. Shares of JNJ, however, have dipped in the wake of the news.
The indifferent reaction will probably come as a surprise to some, but frankly, it is understandable for a couple of reasons.
First, there was an added caveat that there is no time limit to the authorization and that the program may be suspended for periods or even discontinued. In other words, there is no certainty for investors that the program will actually be carried out in full. This announcement has the appearance, then, of being a token gesture of sorts for shareholders who are disenchanted with the stock's performance and management's handling of the Guidant affair, which leads us to the second reason for the seeming indifference.
It wasn't that long ago that JNJ was embroiled in a bidding war with Boston Scientific (BSX) for Guidant Corp. (GDT) that it eventually lost. After much back and forth, JNJ's last offer was for $24.2 billion and it was comprised of cash and stock. Specifically, JNJ would have paid $40.52 per share in cash and would have offered 0.493 shares of stock for each share of GDT common. The cash component of the deal amounted to close to $14 billion. Accordingly, with JNJ's stock down 5.0% since that last offer was made and down 16.0% from its 52-week high, a $5 billion share repurchase program that isn't even guaranteed to be complete is ringing a little hollow for investors.
--Patrick J. O'Hare, Briefing.com
10:57 am Microsoft (MSFT)
27.34 +0.09: The basis for our Overweight view on Technology is an emerging secular trend towards what we call, "everything portable, everything digital." Microsoft, which was built on the back of the PC revolution, is taking the idea of portability to the next level with the release of what it calls the Ultra Mobile Pc. Today, Microsoft unveiled its "Origami" project - a paperback book-sized portable computer, which connects wirelessly and offers a full sized hard-drive. Microsoft isn't looking to replace the desktop, but it plans to promote the device as an alternative PC.
After months of speculation, Microsoft started a frenzy over its "new" project when it released cryptic messages that asked leading questions like, "Do you know me?" The company's approach stirred concerns about competitive pressures on Apple (APPL) and Sony (SNE). The ultra-mobile PC is a hybrid between a laptop PC and a host of mobile devices. This convergence of functionality is the obvious next step in this digital revolution that integrates all devices from handsets to MP3 players, notebooks, and gaming devices into one portable system. Bill Gates has been a long-time supporter of this idea of the tablet PC and the Origami is a considerable step forward in fulfilling this idea.
The ultra-mobile PC is lighter than 2 pounds with a seven-inch touch-screen using Intel (INTC) microprocessors running on a modified version of its Windows XP Tablet PC edition. According to the company, its lightweight and carry-everywhere hardware design allows users to connect, communicate, and be entertained anytime, anywhere, and at any time. Samsung Electronics, Taiwan's Asustek Computer, and China's PC-manufacturer the Founder Group, will release the first three ultra-mobile PCs. Microsoft is in talks with other PC and consumer electronics manufacturers to broaden the base. The new PCs are expected to sell between $599 and $999, but MSFT is hoping to sell one for under $500, but it would be depend on components used by manufactures.
We have argued that if there is a year to own Microsoft, this would be it. The Redmond-based company has a big product year ahead of it, including SQL servers and Office 12, not to mention a new flagship OS. After four years of waiting...and waiting...Microsoft plans to release its new operating system, Vista, this year. Today's release certainly goes a long way to show Microsoft's vision for the future and while we see considerable growth opportunities for this type of converged device, it will take time, including additional versions and a lower price tag, to determine adoption rates.
(Disclosure: Briefing.com has a business relationship with Microsoft)
--Kimberly DuBord, Briefing.com
10:00 am Hansen Natural Corp. (HANS)
103.72 +3.23: Surpassing Wall Street's expectations for a fourth consecutive quarter, Hansen Natural Corporation reported Q4 (Dec) earnings of $0.75 per share. That was $0.13 better than the Reuters Estimates consensus. Operating income surged 150% to $30 mln while net income also more than doubled, rising to $18.4 mln due primarily to a substantial increase in sales volumes of Monster Energy and, to a lesser extent, of Lost energy drinks and Joker Mad Energy drinks. Monster Energy has become the no.2 energy drink behind Red Bull.
Net sales surged 95% year/year to $98 mln, better than the $88.9 mln consensus and offsetting decreased sales volumes of Hansen's Natural Sodas, Hansen's energy drinks, Energade and Smoothies in cans. Gross margins increased 510 basis points to 45.6% largely due to the increased sales of higher margin products like Monster Energy and Lost.
Hansen now trades at 40.0x reported fiscal 2005 EPS of $2.59 and 30.1x estimated fiscal 2006 EPS of $3.55. With earnings projected to grow 20% per year for the next five years, the corresponding price-to-earnings growth rate of 2.00 reflects its pricey nature. Its fourth quarter success notwithstanding, the high valuation, the stock's volatile nature, and a building short interest position (now 28% of its float) are among the factors that detract from its investment appeal at this time.
-- Brian Duhn, Briefing.com
09:42 am TiVo (TIVO)
5.86 +0.11: The pioneer of the digital video recorder narrowed its net loss in the fourth quarter as subscriptions soared 45% after the company cut prices. The Alviso, California-based company reported a net loss of $19.5 mln, or 23 cents per share - a penny ahead of the consensus estimate. Strategic changes involving pricing, distribution, and service offering are taking hold and boosting subscriber growth. Management anticipates revenues in the first quarter to be in a range of $48-$50 mln versus a consensus estimate of $47.7 mln. The forecast at the high end equates to a sequential rise of possibly 5% from the fourth quarter, which grew 37.5% year/year to $47 mln.
CEO Thomas Rogers outlined initiatives to boost the company's subscriber base, which involve a new bundled service that will include hardware and subscription fees, along with adding Radio Shack (RSH) as a distribution partner. TiVo's biggest partner, DirecTv (DTV), will also begin selling its own DVR which is adding customers. The company unveiled a new service yesterday that allows customers to program DVRs from their Verizon handsets. This service comes after a consortium of cable companies, including Time Warner Cable, announced a joint venture with Sprint (S) integrating cable and wireless services on a single device.
TiVo added 4.36 mln subscriptions in the quarter with DTV accounting for 66%. Following aggressive pricing reductions by its competitors, TiVo cut prices in half to $49.99 for a box able to record 40 hours of programming. The company announced today it will end its lifetime memberships, which it had been selling for $299. Shares have been roughly flat over the last eight months after reaching a 52-week high in May. For those looking to cash in on rising DVR penetration, we would prefer the box manufacturers like Motorola (MOT), or the service providers like News Corp. (NWS/A), which owns 40% of DTV.
--Kimberly DuBord, Briefing.com
09:20 am Blockbuster (BBI)
3.87: Finally, after three consecutive quarterly losses, Blockbuster bounces back into the black. Operating income grew 119% year/year to $54.5 mln, driven by a 21.5% decline in SG&A expenses due to its improved cost management strategy and lower advertising expenditures. Excluding one-time items and share-based compensation, the nation's No. 1 video rental chain reported Q4 earnings of $0.17 per share, a significant improvement from the $0.07 earned a year ago, but Q4 results merely matched the Reuters Estimates consensus.
Lower operating costs were partially offset by a 17% decrease in gross profits primarily due to a decline in its top line. Total revenues fell 11.0% year/year to $1.53 bln, checking in well below the $1.69 bln consensus estimate. Gross margins fell to 51.8% from 55.6% a year ago as a result of growth in revenues from BLOCKBUSTER Online, which generates lower gross margins, and higher rental product purchases to improve availability in stores. "With the elimination of extended viewing fees and the launch of BLOCKBUSTER Online behind us," according to Chairman and CEO John Antioco, "we enter 2006 confident that the changes we have made to our business model and the decisive steps we took to achieve greater financial flexibility and reduce overall costs have better positioned us to further improve the profitability of our overall business." Antioco added, "As we end one of the most challenging years for the in-store rental industry, we are focused more than ever on the overall profitability of our business."
Separately, management indicated financial results for fiscal 2003, as well as the first three quarters of fiscal 2004 and fiscal 2005 will be restated after discussions with the SEC over accounting for its rental library and rental library activities. Management added that the change in how it accounts for its video library will not affect BBI's reported revenues, net income, total assets, shareholders equity, total cash flows, current cash or liquidity position, nor will it affect BBI's compliance with the financial covenants under its debt facilities.
Within the industry, we favor online DVD rental rival Netflix (NFLX), which continues to demonstrate strong subscriber growth despite a fierce price war with Blockbuster. The long-term investment proposition for NFLX remains intact as the company continues to grow and progress towards its goal of 20 mln customers by 2012.
--Brian Duhn, Briefing.com
08:58 am Michaels Stores (MIK)
33.29: Michaels Stores said fourth quarter profits rose 14% to $117 mln, or $0.86 per share, which was in line with the Reuters Estimates consensus. Total sales rose 7% year/year to $1.27 bln, also matching analysts' expectations. Revenues were adjusted on February 2nd to reflect management's preannouncement alongside the release of January same-store sales. Same-store sales in Q4 climbed 2.4% on top of last year's 6.7% increase, driven by continued strong demand for jewelry, beads, bakeware, candles, kids crafts, art and frames. The top line also got a lift from a 2.2% rise in average ticket and a slight increase in the number of transactions
As a percent of sales, reported operating income increased 60 basis points to 14.7%, but excluding accounting items, operating margins fell 70 basis points due to a 90 basis point reduction in gross margins. Later sell-through on holiday seasonal merchandise, additional markdowns to clear through slow selling fashion yarn product, a more promotional holiday environment, and the acceleration of 2006 merchandise led to lower gross margins.
For the first quarter, management sees EPS ranging from $0.38 to $0.40, which is at the low end of the $0.40 consensus estimate, as same-store sales are expected to fall 1-2% primarily due to continued softness in the yarn category while gross margins and operating margins are expected to decline by about 50 basis points and 100 basis points, respectively. For fiscal 2006, management sees EPS ranging from $2.00 to $2.05, representing a respectable 26-29% year/year increase but that is still below the Reuters Estimates consensus of $2.09. The company expects total sales to increase 8.5% year/year, in line with analysts' estimates, driven by a forecasted comparable store sales increase of roughly 2-3%, new store sales growth of 4% and an estimated 1.5% increase for the additional week of business. Operating margins are expected to grow about 100 basis points to 10.9% driven by both gross margin expansion as well as SG&A expense leverage.
Shares of Michaels Stores are up nearly 10% since bottoming in mid October, but are down 6% for the year compared to a 1.9% advance for the S&P Retail Index, and are 24% below their 52-week high of $43.61 reached last June.
-- Brian Duhn, Briefing.com
08:47 am Bank of Japan Shifts Course
Signaling the resilience of the Japanese economy, the Bank of Japan ended its five-year deflation-fighting policy. The move demonstrates the central bank's confidence in the country's economic turnaround, which has suffered through three recessions since 1990. Governor Toshihiko Fukui and the board voted to change the policy by reducing the amount of cash it has been flushing into the banking system by 80% to 6 trillion yen ($50.7 bln) over the next few months.
The policy shift signals the Bank of Japan anticipates deflationary conditions are retreating based on sustainable price increases, after seven years of falling prices, coupled with economic expansion. The move towards a more normalized monetary policy signals the BOJ may move to raise its benchmark interest rate by the end of the year. Prime Minister Junichiro Koizumi welcomed the news.
There has been much debate over the pace of a shift in monetary policy. Japan has suffered through numerous false starts over the years, which underscores a need for caution. Further, the government is concerned a change in policy could result in higher bond yields, increasing the interest payments on public debt which equates to 150% of the economy - the highest in the industrialized world.
Fukui stated the policy will remain accommodative and interest rates will be kept at "very low levels." The yen is strengthening on the view the interest rate differential between Japan and the US and Europe will be narrowing. If Japan raises rates this year, it will be the first time since the year 2000, compared to the US where the Fed has raised rates 14 times to 4.5% and has indicated it's still not finished. We maintain the view that investors should seek exposure to Japan, as well as Asia, as economic growth will have positive implications for the entire region.
--Kimberly DuBord, Briefing.com
09:56 am Dick's Sporting Goods: Banc of America Sec reiterates Buy. Target $40 to $44. Firm ups price target following strong Q4 results and outlook. They believe DKS will continue its gross margin improvement and is solidly positioned to continue market share gains, driven by solid results in its core business and an already improving sales trend at converted-Galyan's store base.
09:50 am Glenayre Tech: Morgan Joseph initiates Buy. Target $5.4. Firm is saying that the recent E.D.C deal combines recurring revenue and cash generation with a growth opportunity. The firm says the balance sheet is well capitalized, and the messaging business is growing rapidly.
09:48 am Qualcomm: UBS reiterates Neutral. Target $49 to $51. Firm ups guidance following upside guidance, which they say was largely driven by handset unit strength. Firm also views the increased dividend positively. They believe near term newsflow from tradeshows is likely to be positive for the co, but say headline risk regarding formal investigation from European Commission remains.
09:40 am Orthovita: Needham & Co initiates Buy. Target $5. Firm is saying Orthovita has a potentially major product in development. The firm says the co is not profitable, but generated $34.7 mln in revs in 2005, having grown revenues at 40%+ per year since 2002. They project that it will attain profitability by 2008.
09:38 am Eaton: AG Edwards initiates Hold. Firmis is saying with class 8 truck build downturn looming in 2007, ETN is working to show it's a diversified rather than cyclical industrial. The firm says transformation is promising but not complete.
09:26 am Mattson: Am Tech/JSA Research reiterates Buy. Target $12.65 to $14.25. The firm expects MTSN's analyst day on March 9th to be upbeat and to focus on growth and margin leverage opportunities with product line discussion of its dry strip and RTP platform. They are raising their CY06 EPS estimate from $0.53 to $0.62 (Street at $0.60) on improving industry order visibility.
biz.yahoo.com
I think Don might be able to tell us if estimates are generally lowered as an indivdual year goes on. But I think this is more a cyclical issue based on the hardship being placed on the economy due to rising interest rates, high energy costs, high deficits and low consumer savings.
The spending will have to slow at some point.
RtS |
