From Briefing.com: 4:20 pm: The market reclaimed the ground it lost yesterday. The S&P and Nasdaq fully erased their FOMC-induced losses, and the Dow came close to doing the same. The Technology sector's leadership was the muscle behind the advance, but buying was broad-based and took virtually every area of the market higher.
Buyers dominated the trading action from start to finish. There was not much meaningful news to account for investors' bullish bias. As such, it appeared to be a result of the stock market's hopeful view that the Fed is near the end of its tightening cycle. We don't necessarily concur, however. It isn't a guarantee that several more rate hikes are on the horizon, but we see the basically unchanged diction of the FOMC's policy directive as indicative of at least one more hike. Beyond that, monetary policy is uncertain and will, as the Fed has said, depend on the data. In our view, recent numbers have not given the Fed a reason to halt its tightening. Accordingly, the possibility of more rate hikes after May should not be dismissed. Lately, the stock market has demonstrated resilience to interest rate concerns. The implications of rising rates will inevitably lead to slower growth than Wall Street expects in the second half of the year, though.
While equities rallied, Treasuries took a different course. Bond traders appeared to have maintained a more cautious stance in the wake of yesterday's FOMC event and amid continued rate uncertainty. Because today's economic calendar lacked data (outside of the energy inventory report), there wasn't much to diverge that market's attention. Selling today was less profound, but yields across the curve rose nonetheless. At the close of equity trade, the 10-year was yielding 4.80% - a level not seen since June of 2004. Still, rate-sensitive areas of the stock market rose. The Financial sector trailed the broader market, yet it still booked a 0.4% gain. Banks traded in mixed fashion. Stocks at the regional and diversified end of the spectrum were relatively flat. Investment banks and brokers, meanwhile, continued their trend of outperformance. A raised profit forecast from TD Ameritrade (AMTD 20.96 +1.80) served as a catalyst there. Other particularly rate-sensitive areas of the market, like the Utilities sector (+0.8%) and the homebuilding industry, also attracted buyers.
Rising yields did not, today, deter buyers. However, that factor did not help stocks, and nor did rising energy prices. After surging yesterday, prices across the energy complex continued their streaks today. The Department of Energy's weekly inventory report was the driver. It was a mixed bag - crude supply rose much more than had been expected, while gasoline and distillate inventories both fell more than had been anticipated - that initially led to choppy energy trading. But the gasoline portion was ultimately the focal point. Its drawdown, which was more than three times the drop analysts had forecasted, garnered added attention as emphasis shifts to the summer driving season from the winter heating (i.e., distillates) season. Gasoline futures gained close to 2%, and crude closed at about $66.50 per barrel (+0.7%).
The Energy sector benefited from the price action and registered a supportive 1.0% gain. At the same time, areas of the market that are especially energy price-sensitive, like transportation stocks and retailers, also rose. On the other side of the commodity board, many metals also advanced. Several, including copper and silver, were at or near historic highs. As a result, related-stocks rose and Materials advanced 1.2%.
As mentioned above, the Tech sector fueled today's market. The tech-heavy Nasdaq, to that point, gained 1.5% and hit a five-year high. Tech areas that were yesterday's laggards were today's legs. Bargain hunters sent semiconductors surging. Hardware also soared. Upgraded Sun Microsystems (SUNW 5.25 +0.22) drove that industry, and a recovery in Hewlett-Packard (HPQ 32.72 +0.65) added momentum.
Not all of HP's fellow Dow components fared as well. General Motors (GM 22.15 -0.60) weighed on the average following its assertion that certain GMAC financial information should not be relied upon and will have to be restated. Questions over whether a sale of a controlling stake in GMAC will occur was not good for that stock. Downgraded Caterpillar (CAT 73.67 -1.20) was another weak blue chip, but upgraded 3M (MMM 77.56 +1.26) shares helped offset its decline within the Industrials sector. Reports that Northrop Grumman (NOC 68.67 +0.73) was awarded a $2.5 billion contract from the Department of Energy lent further upside to that area of the market. Pfizer (PFE 25.24 -0.11) also declined. That stock received some added attention today, due to reports that the company expects to fetch about $14 billion for it consumer products business, for which initial bids were reportedly expected today. It and other drug stocks pressured the Healthcare (+0.2%) sector, but HMOs were an offsetting factor. UnitedHealth's (UNG 55.98 +1.66) reaffirmation of its strong full-year guidance lent a measure of support, and underpinned our favorable view on the industry.DJ30 +61.16 NASDAQ +33.32 SP500 +9.66 NASDAQ Dec/Adv/Vol 849/2227/2.22 bln NYSE Dec/Adv/Vol 922/2381/1.57 bln
4:06PM Corning announces $15 mln investment to expand clean air plant in China (GLW) 27.44 +0.46 : Co announced that its board of directors recently approved a capital expenditure of approximately $15 mln to expand the manufacturing capabilities for clean-air products at Corning Shanghai Company in Shanghai, China. This investment will increase the manufacturing capability of the facility to meet anticipated demand for Corning advanced ceramic substrates for light-duty vehicle applications. Corning advanced ceramic substrates include thin-wall products that deliver higher performance for emission reductions. The expansion is expected to be fully operational by mid-2007.
2:12PM Semiconductors Hldrs Trust edges slightly above 200 day sma at 36.62-- session high 36.70 (SMH) 36.66 +1.05 : Note that the early March breakdown point is at 36.81 with its 50 day ema at 36.93.
9:34AM Rudolph Tech announced receipt of a multiple-system order from a top-ten U.S. semiconductor manufacturer (RTEC) 16.67 +0.47 : Co announced receipt of a multiple-system order from a top-ten U.S. semiconductor manufacturer for its all-surface, advanced macro defect detection system. Each all-surface system consists of a frontside inspection module, a backside inspection module and the new E25 Wafer Edge Inspection System module. No terms.
4:44 pm Whirlpool (WHR)
95.95 +6.38: Few things are as easy as they seem on Wall Street. For instance, consider Whirlpool's proposed acquisition of fellow appliance maker Maytag (MYG 21.81 +4.73). It was a deal that was announced last August and it was structured so that Maytag shareholders would receive $10.50 in cash and between 0.1144 and 0.1398 shares of Whirlpool stock for every share of common stock they owned in Maytag. Altogether the deal amounted to approximately $2.7 billion, including the assumption of debt, or $21 per share. Maytag closed Tuesday's session, however, at a lowly price of $17.08.
If you're doing the math at home, Maytag's price on Tuesday was roughly a 23% discount to the Whirlpool offer. It is unusual to see such gaps in takeover offers, unless it is believed by the market the deal won't get done, or that it won't get done under the original terms. That was the case here, as it was feared that the acquisition would get shot down by the Justice Department on antitrust concerns. Reports indicate that the combined company would control better than 70% of the washing machine market in the U.S.
Today, however, the Justice Department set aside those concerns and gave its blessing to the companies to complete their deal. In the wake of that news, it didn't take long for the wide gap between Maytag's stock price and the offer price to close. In fact, Maytag ended Wednesday's session at $21.81 as a flurry of short-covering activity (11.1% of its float was sold short as of March 10 - another sign the market had its doubts about the deal) powered shares of MYG right through the offer price.
An interesting, but not irrelevant sidebar to the story, is that Whirlpool successfully argued that it would still find it difficult to raise prices after buying Maytag due to the competitive influence of companies such as Haier Group (out of China), LG Corp. (out of South Korea), and Electrolux (out of Sweden). Its success in doing so highlights just how global the marketplace has become; and dare we say, the Justice Department's approval of the deal has some protectionist overtones as it will no doubt enhance Whirlpool's ability to compete on its home turf with those foreign counterparts.
--Patrick J. O'Hare, Briefing.com
11:32 am Lear Corp. (LEA)
18.93 +1.98: Shares of Lear Corp. rose sharply on Wednesday after the auto parts supplier announced several significant actions to strengthen its financial flexibility and improve its operational focus. Amid troubling times for the automotive industry, shares of the company have trended down nearly 57% over the past year and about 33% lower year to date.
The Southfield, Michigan-based company said it has obtained approval for $800 million in secured term loans, suspended its dividend, and plans to sell its European Interior Products business. The new term loans will mature no earlier than March 2012 and are expected to be made on market terms. The company plans to use the proceeds to refinance its 2007 debt maturities, as well as to retire its outstanding convertible senior notes and for general corporate purposes.
Additionally, Lear's board approved an agreement in principle to sell its European interior products division to International Automotive Components, the company's joint venture with WL Ross & Co. and Franklin Mutual Advisors. As a result, Lear will receive a 34% equity stake in the venture. The company also said that its board suspended its dividend to provide additional liquidity and flexibility given challenging industry conditions, which have been a significant drag on the overall Consumer Discretionary sector.
"The senior leadership of Lear understands that near-term challenges within the automotive sector are weighing heavily on investors' minds," said chief executive Bob Rossiter. "By refinancing our 2007 debt maturities early, investors can be assured that the company is financially sound and focused on improving our longer-term operating performance," he added.
--Richard Jahnke, Briefing.com
10:29 am Red Hat, Inc. (RHAT)
27.99 -0.82: Red Hat, the world's leading provider of open source solutions to the enterprise, said on Tuesday that its fourth quarter profits more than doubled from a year ago, topping Wall Street's estimate. However, the Raleigh, North Carolina-based company's earnings forecast for the fiscal first quarter fell short of expectations.
For the most recent quarter, Red Hat earned $27.3 million, or $0.13 per share, up from $11.8 million, or $0.06 per share, in the year ago period. That was a penny better than the Reuters Estimates consensus of $0.12 per share. Total revenues, which were in line with analysts' expectations, increased 37% year/year to $78.7 million, while subscription revenues grew 44%. Quarterly gross margin improved to 84%, from 81% last year, and operating margin improved to 25%, versus 13% a year earlier. More importantly, though, cash flow from operations during the period was up approximately 64% year/year.
Looking to the fiscal first quarter, Red Hat projected earnings of $0.08 per share on revenue in the range of $82.5 to $83.5 million. That compares with analysts' forecast for earnings of $0.09 per share and $83.2 million in revenue, according to Reuters Estimates.
Although the company has gained broad acceptance in the Linux community and continues to gain market share, expectations remain exceedingly high. At the current price level, Red Hat shares are trading at 68.8x forward earnings, compared with 17.6x for Microsoft (MSFT) and 33.1x for Novell. Furthermore, the stock holds an unfavorable P/E-to-growth ratio of 2.29. The company, to its credit, continues to demonstrate solid performance and is growing market share, but we wouldn't recommend committing new money to the stock given currently high expectations and lofty valuation levels.
--Richard Jahnke, Briefing.com
10:18 am TD Ameritrade (AMTD)
20.32 +1.16: We're in a period known as earnings warning season when companies, which are wrapping up their quarters, show a proclivity to communicate expected disappointments. It often goes unreported, however, that this is a period where companies also share positive surprises. TD Ameritrade (AMTD) is a case in point as the discount broker announced last night that it expects to exceed prior earnings guidance for its fiscal second quarter.
In January the company said it anticipated second quarter earnings to be in the range of $0.22-0.28 per share, but it now expects to exceed the high end of that range. Excluding a one-time $0.09 per share gain on the disposal of its investment in Knight Capital group, Inc., that means Ameritrade believes it will post a per share profit in excess of $0.19. The revised outlook was attributed to stronger than expected trading volume, as well as higher than expected balances and rates on investable assets.
Ameritrade reiterated its EPS guidance for the fiscal year, which translates to $0.73-0.91 when the Knight gain is excluded. According to Reuters Estimates, analysts on average were expecting EPS of $0.21 and $0.89, respectively, for the second quarter and full year. Those projections indicate that analysts had a sense that Ameritrade's initial guidance was conservative. With their assumptions being validated by Ameritrade's updated guidance and the tacit indication that the company's acquisition of TD Waterhouse is bearing fruit as expected, shares of AMTD are getting a nice lift today while the stocks of peer companies E*Trade Financial (ET 26.36 +0.79) and Charles Schwab (SCHW 17.72 +0.44) are riding its coattails.
The ability of these stocks to sustain a bullish bias will depend heavily on the broader market's behavior. If trading conditions worsen on account of, say, interest rate concerns, multiple expansion will be harder to achieve as there will be misgivings about their ability to keep delivering positive surprises on the earnings front. For now, though, the trend remains their friend.
(Disclosure: Briefing.com has business relationships with TD Ameritrade, E*Trade, and Charles Schwab)
--Patrick J. O'Hare, Briefing.com
09:32 am Northrop Grumman (NOC)
67.94: Northrop Grumman, the world's largest builder of warships, was awarded a $2.5 bln contract from the Department of Energy to manage and operate a Nevada nuclear weapons test site. The five-year contract includes management of a nuclear explosives safety team and support for hazardous chemical spill testing, according to a statement. The Northrop-led venture will include Aecom, CH2M Hill Cos, and Nuclear Fuel Services.
Shares in the defense contractor have been on a steady upward climb since October, gaining almost 30% over the last four months. The Aerospace & Defense group within the S&P 500 has performed exceptionally well, piloted by the bull cycle in commercial aviation and continued defense spending. Over the last 52 weeks, the group has gained over 22%, including a ten percentage point rise since January. We currently have an overweight rating on the Industrials sector, which encompasses a positive view on the defense contractors.
For its part, Northrop is expected to generate 20% earnings growth this year, followed by 9% in FY07. The stock trades at 18.7x trailing earnings versus the broader market's multiple of 17.8x. Defense stocks typically trade at a 15-20% premium during times of rising defense spending, which indicates there is room for further multiple expansion despite the recent run. Our favored names include Boeing (BA) and General Dynamics (GD).
--Kimberly DuBord, Briefing.com
09:07 am Pfizer (PFE)
25.35: The Wall Street Journal on Wednesday reported that GlaxoSmithKline (GSK), Colgate-Palmolive (CL), and Novartis (NVS) are among companies expected to submit offers for Pfizer's consumer products portfolio in first-round bidding today. Pfizer is targeting a price of about $14 billion, people familiar with the matter said, though it remains unclear whether the bidders will get to that level. According to the report, it could be months before the company evaluates the potential offers and declares a final winner.
In February, Pfizer said it would explore strategic alternatives for its consumer health business, which includes brands like Listerine mouthwash, Visine eyedrops, and Bengay pain-relieving cream, in an effort to "unlock the value of the business for Pfizer shareholders at a time when market valuations are attractive." Pfizer's consumer products division reported sales of $3.88 billion last year, accounting for approximately 7.5% of total revenues. Although that represents a small portion, the division has been a steady source of revenue for the company and is one of the most valuable in the business.
Separately, Pfizer confirmed that federal regulators are conducting an investigation into its marketing of cholesterol drug Lipitor, the world's best-selling medicine.
Briefing.com currently has a Overweight rating on the Health Care sector; however, we continue to favor growth industries such as managed care over pharmaceutical, which continues to adjust to changing business conditions. With Pfizer in the midst of realigning its business in the face of increasing uncertainty from patent expirations and recent regulatory scrutiny surrounding some of its drugs, we would remain on the sidelines with the stock.
--Richard Jahnke, Briefing.com
09:01 am General Motors (GM)
22.75: General Motors filed its delayed annual report with US regulators on Tuesday. The good news was that GM was able to file its 10k which included restatements for previous years. Moody's Investors Services actually threatened GM with lower debt ratings after the automaker missed its March 16th deadline. The bad news is that the filing does little to shore up investor confidence. Instead it raises serious concerns, including the sale of GMAC, GM's ability to draw on its revolving bank credit facility, and additional information about the government's investigations of the company.
The language used in the filing regarding the sale of GMAC suggests a deal is not imminent and even goes as far to suggest a deal may not get done at all. Further, GM also stated transactions with respect to ResCap and GMAC may "not delink GMAC credit rating from GM's credit rating or maintain ResCap's credit rating at investment grade."
Separately, the United Auto Workers union (UAW) has rejected Delphi's latest wages and benefit proposal. Union leaders stated the March 24th proposal "wasn't even close" to what it could submit to rank-and-file workers for a ratification vote, according to a UAW spokesman. The union has threatened to strike should Delphi ask the bankruptcy court for permission to void the existing contract and impose new terms. A strike would cripple GM, pushing the automaker towards bankruptcy.
GM also announced it will have to restate financial results for its home-mortgage unit, Residential Capital Corp. The restatement of recorded cash flows for 2003, 2004, and part of 2005 are minor bookkeeping issues and have no implications on cash, cash flows, or earnings.
At this point, a failure by GM to sell a controlling share in GMAC and reach an agreement with the UAW and Delphi would be a major blow to the automaker's turnaround plan, and put the final nail in CEO Rick Wagoner's coffin. We maintain our negative view on GM since, without major union concessions, GM's structural costs will continue to paralyze the failing automaker.
--Kimberly DuBord, Briefing.com
10:18 am TETRA Tech: Ferris Baker Watts upgrades Neutral to Buy. Target $53. Upgrade is based on their positive near- and longer-term earnings expectations related to several recent co announcements regarding acquisitions and major internal investment plans. The firm says these developments combined with the overall positive underlying fundamentals in the oil service market and the co's increasing role as an oil and gas producer, in conjunction with its well-abandonment business could, result in a quadrupling of 2005 earnings over the next three to four years.
10:09 am AnnTaylor: Nollenberger Capital initiates Neutral. Firm is saying that the co's recent improvements and stronger outlook are largely reflected in current valuation. Firm also states that the turnaround in operations has been fueled mainly by margin expansion resulting from excellent inventory management, lower markdowns, and greater full-priced selling.
10:09 am Limited: Nollenberger Capital initiates Buy. Target $30. Firm is saying that they believe there continues to be significant growth opportunities in the lingerie and beauty category via the co's successful subbranding strategy.
10:07 am Shuffle Master: Prudential reiterates Overweight. Target $33 to $50. Firm is saying their time with SHFL management gives them a better grasp on how the co plans to capitalize on what would be the largest table expansion opportunity in gaming history. The firm says for SHFL this includes shufflers, electronic multi-player tables, specialty tables, and secondary utility products.
10:07 am Gerdau AmeriSteel: KeyBanc Capital Mkts / McDonald reiterates Aggressive Buy. Target $10 to $12. Firm is saying that focus on non-residential construction and road building enhances attractiveness of this underfollowed co.
10:06 am Nucor: KeyBanc Capital Mkts / McDonald reiterates Aggressive Buy. Target $105 to $135. Firm is saying that the co has shown excellent ability to capitalize on recovering industry momentum over the past several years. Firm also states that recent price increases imply good opportunity for increment upside to earnings outlook.
10:05 am Firstbank Corp: Ryan, Beck & Co upgrades Mkt Perform to Outperform. Target $27. Firm is saying that the recent selloff represents an attractive buying opportunity and the current levels should mitigate any near-term downside risk.
10:05 am Akamai Tech: WR Hambrecht reiterates Buy. Target $28 to $33. Firm is saying recent events and announcements in the marketplace solidify their belief that the demand for digital content delivered via the Internet is accelerating. They believe high-profile events such as the NCAA Basketball Tournament and the increasing popularity of video downloads and streaming webcasts through distribution channels such as iTunes and the Comedy Central Motherload website are driving increased consumer awareness and online traffic through Akamai's network.
10:02 am Crosstex Energy: RBC Capital Mkts reiterates Sector Perform. Target $48 to $83. Firm ups target to reflect the higher cash flow rate the co has developed over the last few quarters. Firm also states that acquisitions and growth projects should increase cash flow over the next several quarters. Firm believes that with further distribution increases and required funding needs at XTEX, their should be significant growth in the cash flow going to XTXI.
10:01 am Lions Gate Entain: RBC Capital Mkts initiates Sector Perform. Target $10. Firm notes that LGF owns last major independent library as big studios/M.S.O.'s seek acquisitions to increase scale/leverage digital distribution platforms. They think this library makes LGF an attractive acquisition tgt and offers downside protection. However, they also think DVD-cycle-slowdown could pressure library margins further.
09:55 am ADA-ES: Wedbush Morgan initiates Buy. Target $28. Firm is saying that they believe the co has been able to prove the validity of its technology and will continue to receive additional commercial contracts, such as the four recently announced this month to supply mercury control systems at coal-fired power plants. Firm also believes that as the bar to burn coal with fewer emissions is raised, ADES stands to benefit given relatively inexpensive solution compared to other technologies.
biz.yahoo.com
What do you think Don... One more up day and my SMH will cross into the green above 37?
RtS |
