From Briefing.com: 4:20 pm : Some carryover momentum from Friday and a flurry of merger and acquisition deals had initially helped the equity market rise. Sharp rebounds in energy prices and rising bond yields took the steam out of the market, however. Last week, the indices closed in mixed fashion for the third consecutive time. The trend continued today.
This Merger Monday featured a host of deals. Amongst them were McClatchy's (MNI 51.55 -1.51) $6.5 billion purchase of Knight Ridder (KRI 63.92 1.08), Pinnacle Entertainment's (PNK 29.00 +1.04) approximate $2.1 billion cash acquisition of Aztar (AZR 37.21 +6.51), and Watson Pharmaceuticals' (WPI 29.00 -0.55) $1.9 billion cash agreement to buy Andrx (ADRX 23.73 +2.14). Further on the healthcare front, German drug company Schering AG (SHR 101.19 +21.49) received, and then rejected, an unsolicited $17 billion bid from Germany's Merck KGaA. As a side note, neither of those drugmakers are related to the similarly named U.S. pharmaceuticals. Despite the merger-related attention, the Healthcare sector spent the session near unchanged territory.
Occupying much of the M&A spotlight was Capital One's (COF 83.10 -6.82) $14.6 billion purchase of North Fork Bancorp (NFB 29.20 +3.80). NFB shares surged, and that deal spurred buying across the regional banking industry. Today's robust M&A front is reflective of what we believe will be a main theme of 2006, and the action supports our bullish view on the investment banking and brokerage industry. Like Healthcare, the Financial sector also finished in flat fashion. Rising interest rates continue to trouble investors, and extended weakness in the Treasury market was an overhang there as well as on the broader market. The yield on the benchmark 10-year note recovered somewhat from its session high, yet remained a level not seen since June of 2004. Bond traders lacked much of a catalyst, and technical factors, global interest rate worries, and anticipation ahead of the week's economic data contributed to that market's weakness. In particular, participants (in both markets) await Thursday's CPI report.
Spikes in prices across the energy complex were the second factor that stifled today's advance. Geopolitical tensions continue to support energy prices, which rebounded from oversold levels today. In particular, crude oil gained more than 3% and closed at $61.85 per barrel. Expectations for colder temperatures, and thus higher demand, prompted the price gains. In addition, traders are mindful of the fact that crude oil inventory is near a seven-year high, and that OPEC is pumping at its highest levels in 25 years. The Energy sector benefited, but leadership was limited to its 1.6% gain. Recoveries in metal prices had helped the Materials sector, but a sharp drop in PD, which announced a two-for-one stock split, left the sector unchanged. Upgrades on several steel stocks did little to attract buyers. Industrials was another sector that finished flatly. Boeing (BA 74.84 +0.05) had given it an early boost, but its gain was erased intra-day. As a side note, Barron's featured the company in a positive light, and reiterated the long-term bullish view we continue to hold on the stock.
The Technology sector also spent much of the day on the flat line. Largely to Apple's (AAPL 65.66 +2.47) credit, it managed to rise to a 0.2% gain. The stock enjoyed some renewed buying interest following an upgrade at Citigroup, and after Bear Stearns and Piper Jaffray issued some positive comments. The semiconductor group, however, capped the Tech sector's advance. Advanced Micro Devices (AMD 34.03 -2.60) was the sore spot; the stock dropped about 7% following an analyst downgrade. Comments from Deutsche Bank, which suggested that Intel (INTC 19.73 -0.12) will narrow or close its price/performance gap versus rival AMD, added to its troubles. DJ30 -0.32 NASDAQ +4.99 SP500 +2.55 NASDAQ Dec/Adv/Vol 1405/1599/1.68 bln NYSE Dec/Adv/Vol 1441/1820/1.51 bln
4:15PM Intersil announces departure of executive vice president and general manager of its Analog Signal Processing products group (ISIL) 26.16 -0.68 : Co announced that Mohan Maheswaran, executive vice president and general manager of its Analog Signal Processing products group, will be leaving the company in order to pursue another career opportunity.
4:09PM Chipmos Technology beats by $0.03; guides in-line for Q1 (IMOS) : Reports Q4 (Dec) earnings of $0.21 per share, $0.03 better than the Reuters Estimates consensus of $0.18; revenues rose 16.4% year/year to $130.4 mln vs the $130 mln consensus. Co issues in-line guidance for Q1, sees Q1 revs of $127-130 mln vs. $127.70 mln consensus.
10:37AM Ibis Tech announces final customer acceptance of Oxygen Implanter (IBIS) 3.45 +0.31 : Co announces final customer acceptance of the Ibis i2000 oxygen implanter that was ordered by Sumitomo Mitsubishi Silicon Corporation. The implanter was ordered in January 2005 and shipped to that customer in Japan in June 2005. "We are pleased that the SUMCO implanter has completed the final acceptance process, and we expect that SUMCO will begin using this tool for producing 300-millimeter SIMOX-SOI wafers immediately. This will provide an additional, highly qualified source of supply for SIMOX-SOI wafers to help satisfy the increasing demand."
10:18 am Vail Resorts (MTN)
36.50 +1.22: Handily surpassing analysts' expectations, Vail Resorts reported record second quarter results across the board. Excluding stock-based compensation expenses of $0.03, the company reported Q2 (Jan) earnings of $1.15 per share, $0.20 better than the Reuters Estimates consensus, as net income surged 33% to $43 mln while Resort Reported EBITDA jumped 15.4% to $96 mln.
Total revenues at North America's No. 2 operator of ski resorts rose 8.8% year/year to $288 mln (consensus $278 mln), getting a lift from record skier visits, which increased 8% from a year ago. Resort revenue -- the combination of Mountain and Lodging revenues -- rose 8.4% year/year to a record $278 mln, as Mountain revenue rose 15% year/year to $246 mln while Lodging revenue fell 25% from a year ago to $32 mln. Even after absorbing a decline at its Heavenly resort due to certain adverse weather impacts, price increases at all of its resorts, as season pass sales exceeded last year by 10.8%, helped offset a 5.4% increase in total segment operating expenses to $190 mln and prompted management to update its previously announced full-year guidance.
Based on the strength of today's results, management now believes that the company will be in the upper end of its fiscal 2006 guidance ranges for Resort Reported EBITDA of $175-185 mln and net income of $34-43 mln. The company also announced that its Board of Directors has approved the repurchase of up to three million shares of common stock, further underscoring the company's continued strong financial health and reflective of the Board's confidence in Vail Resorts' growth potential, financial outlook, and excess cash flow generation.
-- Brian Duhn, Briefing.com
10:09 am CarMax (KMX)
33.73 +2.61: After Friday's close, used car retailer CarMax raised its earnings guidance for the fourth quarter and fiscal year 2006, citing stronger wholesale sales and profits.At the current level, the stock is valued at approximately 26.1x trailing twelve month earnings, compared to14.7x for rival AutoNation (AN). In light of the substantial price premium, current exposure in the stock is not justified.
CarMax said it expects fourth quarter earnings in the range of $0.37 to $0.39 per share, up from its previous forecast of between $0.25 and $0.31 per share. The new estimate includes approximately $0.02 from favorable adjustments at CarMax Auto Finance. According to Reuters Estimates, analysts are expecting earnings of $0.28 per share. Additionally, the company said comparable store unit sales declined 3% during the quarter, falling near the low end of its expectations.
For the full year, the company said comparable store used unit sales rose 4% and expects earnings in the range of $1.38 to $1.40 per share. That represents earnings growth of between 29% and 31% compared with the $1.07 per share earned in fiscal 2005. Analysts on average are forecasting earnings of $1.29 per share.
Chief executive Austin Ligon stated, "We had a particularly challenging comparison to last year's 12% used unit comps, which included 5 percentage points attributable to rolling out a new subprime finance provider." This year, subprime-financed sales represented only approximately 2% of our fourth quarter unit sales, as a result of program changes implemented by the provider," he added. Without that decline Ligon said comps would have been slightly above the mid-point range of its original expectations.
--Richard Jahnke, Briefing.com
09:21 am Boeing (BA)
74.79: The jet-like propulsion in the commercial aviation industry has lifted shares of Boeing to multi-year highs. With BA up 30% over the last year, though, investors may be questioning whether blue skies are still ahead for the aerospace company's stock. We have long argued in favor of the Chicago-based manufacturer, which for the first time in five years booked more orders than rival Airbus in 2005. This weekend Barron's cast its vote in Boeing's favor with an auspicious article highlighting the ongoing aerial battle with the Toulouse-based Airbus.
The article outlined why Boeing will likely regain the title "king of the skies" this year on the wings of its highly successful 787 program. The Dreamliner, which boasts better fuel efficiency and lower operating costs than the Airbus lineup, garnered 235 orders last year compared to 54 orders for the A330. Additionally, its new iterations of 777 are capable of flying more passengers farther than its counterpart, the A340. Boeing is a centerpiece in our Overweight rating on the Industrials sector, as the cyclical upturn in commercial aviation takes flight.
However, we argue top line growth in commercial aviation is only 50% of the story. The other is Boeing's renewed focus on margin expansion that is being piloted by its newly-appointed CEO James McNerney. Productivity gains, improving procurement strategies and restructuring sub-assembly work are areas where McNerney is looking to drive profitability. We expect continued success from the commercial aviation business and further margin expansion ahead, while growth in the defense business moderates.
--Kimberly DuBord, Briefing.com
09:12 am Schering AG (SHR)
79.70: Drug stocks will be in focus today following reports that Schering AG (SHR), a leading producer of women's health products (it invented "the pill" more than four decades ago), received an unsolicited $17.4 bln cash offer from Merck KGaA, the Germany-based ancestor of its U.S. counterpart and Dow component Merck (MRK). Neither Merck nor Schering, though, are currently related to the U.S. drug makers with similar names.
Merck KGaA's offer is more than 15% above Schering's Friday closing price of $79.70 and represents a 35% premium to SHR's three-month average share price. A possible combination would create Germany's second biggest drug maker behind Bayer AG (BAY) with annual revenue of about $13.4 bln and a product pipeline of more than 30 projects in clinical development, 15 of which are in phase III or already filed for approval. Merck KGaA, known for its cancer drug Erbitux, expects the deal to create annual synergies of around 500 mln euro to be realized by 2009. Furthermore, it believes such a deal will be accretive to pro-forma adjusted EPS by more than 10%, even without taking into account synergies. The Merck family, which holds 73% of the company, intends to make a contribution of 1 bln euro to finance the acquisition.
SHR management, however, said the offer "significantly undervalues Schering and its prospects as an independent specialized pharmaceutical company." Merck KGaA's hostile offer underscores SHR's appeal as an acquisition candidate on the heels of recent takeover speculation that lifted Schering shares about 10% last week and have boosted SHR's stock price as much as 20% this morning.
--Brian Duhn, Briefing.com
09:04 am Knight-Ridder (KRI)
65.00: After searching for a buyer for more than four months, newspaper publisher McClatchy Co. (MNI) on Monday said it would acquire rival Knight-Ridder for approximately $6.5 billion, including $2 billion in assumed debt. The announcement highlights the troubles facing the newspaper industry, which include rising energy costs, shrinking circulation, and a poor advertising market.
Under the terms of the agreement, McClatchy will pay $40 in cash and 0.5118 Class A shares for each Knight-Ridder share. The transaction is expected to close within three to four months and values Knight-Ridder at $67.25 per share versus its closing price of $65.00 on Friday. McClatchy said it expects the deal to be dilutive to earnings per share in the mid-single digit range in the first year after closing, before becoming accretive by 2008.
The combined company will have 32 daily newspapers and approximately 50 non-dailies after the planned sale of 12 Knight-Ridder papers. The new company will have a combined daily circulation of about 3.2 million, making it the nation's second largest newspaper company. McClatchy noted that it would have had 2005 revenue of $2.83 billion and earnings of $754 million before interest, tax, depreciation, and amortization if it had ownership of all the papers it planned to retain.
--Richard Jahnke, Briefing.com
08:48 am Capital One (COF)
89.92: Merger Monday brought us a deal in the banking sector with Capital One announcing a $14.6 billion bid for North Fork Bancorp (NFB). Capital One, which just recently completed its acquisition of Hibernia Corp., has been on a buying spree expanding its business beyond credit cards and reducing funding costs by gaining a deposit base. This deal will nearly double its deposits and add 50 mln additional customer accounts. Capital One, the fourth largest issuer of Visa and MasterCards, will pay $31.18 in cash and stock for each share. North Fork gives COF 655 branches, mostly along the eastern seaboard from New York to Connecticut, and a presence in Texas and Louisiana.
Capital One expects to complete the transaction in the fourth quarter, which will add more than $84 bln in deposits and boost assets to over $84 bln. The specifics of the deal include each North Fork share being exchanged for $11.25 of cash, plus the value at closing of 0.2216 COF shares. Capital One also plans to repurchase $3 bln in stock during 2007 and 2008. North Fork CEO John Kanas will head the combined company's bank operations.
Capital One, known for its hilarious ads with David Spade uttering "What's in your wallet," is facing a tightening consumer credit environment. According to Bloomberg, the average credit card debt of households with at least two cards grew 2.2% per year from 2003 to 2005, down from an average of 8.6% between 1997 and 2002. Banks are facing narrowing net interest margins as short-term rates rise and long-term borrowing costs decline. The flattened yield curve environment is putting significant pressure on profitability. As such, diversification is key to alleviate some of the pressure. We expect M&A activity to continue to be a main component of returns within the financial sector, which we feel is best played through the brokers who benefit no matter what side of the bargaining table on which they sit.
--Kimberly DuBord, Briefing.com
09:24 am NPS Pharm: Susquehanna Financial downgrades Positive to Neutral. Firm following NPSP's announcement that it received an FDA approvable letter for Preos. They say the outcome was worse than their expectations, as the FDA expressed concern about the higher incidence of hypercalcemia and the reliability of the injection device. Firm is surprised by this response, as hypercalcemia is a known class effect of these agents. They say that at this point, it is unclear what additional information is being requested by the agency. Firm is also concerned that even if after the upcoming meeting with the FDA it is deemed that no additional clinical studies are necessary, the drug could be approved with a label that makes it difficult to be competitive in the marketplace. While the stock sold off sharply, with little clarity on these points, they are removing their U.S. sales estimates for Preos and delaying estimated launch.
09:23 am Kraft Foods: Banc of America Sec reiterates Buy. Target $32 to $34. Firm is saying that as costs have moderated in recent weeks they reduce cost ests by 170bps. The firm reaffirm their view that price increases will increasingly catch up to moderating cost inflation.
09:23 am Quest Software: Banc of America Sec reiterates Buy. Target $16.5 to $18. Firm is saying they continue to view mgmt's '06 guidance as conservative, given QSFT's history of strong execution and pattern of surpassing op margin expectations.
09:22 am H&E Equipment Srvs: Deutsche Securities initiates Hold. Target $27. Firm is saying that while the supply of construction equipment has traditionally been a very competitive market place, they believe H&E's strong OEM relationships and unique mix of distributor and rental sales channels are key competitive advantages.
09:19 am Coherent: Needham & Co upgrades Buy to Strong Buy. Target $38 to $42. Firm is saying that although the Excel acquisition is relatively small, it represents a major turning point for Coherent: marking its deliberate entry into the laser systems market. The firm says they have taken a closer look at the acquisition and found it more accretive than they originally estimated, and Coherent's activity in systems means higher margins, growth rate, and a tripling of its addressable market.
09:18 am Vasogen: AG Edwards downgrades Buy to Hold. Firm is saying that while the CRP data is intriguing, the overall lack of treatment effect in the SIMPADICO trial leaves the firm unwilling to recommend the commitment of additional money to VSGN at this time.
09:15 am Chico's FAS: Nollenberger Capital upgrades Neutral to Buy. Target $46. Firm is saying although margins and earnings are being restrained in 2006 due to increased investment spending, they believe the co has enhanced its potential future growth rate.
09:14 am Knoll: UBS reiterates Buy. Target $22 to $25. Firm is saying that as company's take on new locations, renovate offices, and consolidate employees, demand for systems has been especially strong.
09:09 am Nordstrom: UBS reiterates Buy. Target $48 to $51. saying mgmt's argument's for keeping credit are valid but in their view relatively minor points given how recent deals have been structured. The firm believes the greater issue is wanting to keep something in their pocket either for strategic oppty or for when upside from operations dries up.
09:08 am Select Comfort: Dougherty & Company reiterates Buy. Target $33 to $42. Firm is saying they believe Select's guidance and analyst event messages are inconsistent with a soft start to the March quarter and, therefore, believe the quarter started strongly. |
