From Briefing.com: 4:20 pm : Stocks lost ground across the board Tuesday as renewed geopolitical concerns and rising oil prices overshadowed a banner start for the Q1 reporting season.
The market opened slightly higher as the absence of potentially upsetting economic data placed even more emphasis on a better than expected earnings report from Alcoa (AA 34.12 +1.29) lending credence to a widely expected 11th straight quarter of double-digit profit growth. Rohm & Hass (ROH 49.60 +0.55) raising its Q1 outlook and Nokia (NOK 21.20 +0.80) saying that the average selling price of its handsets in Q1 were stronger than expected were additional sources of early buying support that helped calm early nervousness underpinning by the market's preoccupation with rising oil prices and higher interest rates. At the end of the day, however, modest gains were completely gone, as broad-based consolidation fueled by growing validation about Iran's nuclear ambitions weighed on sentiment and closed all ten economic sectors lower.
Telecom Services turned in the day's worst performance (-1.6%) while Utilities and Health Care also posted losses of more than 1.0%. With regard to the latter, Bausch & Lomb (BOL 49.15 -8.29), which was downgraded by several analysts following the withdrawal of its ReNu contact lens solution, was the biggest drag on the sector. Biotech slipping into negative territory for the year added further weakness.
Technology was another influential leader to the downside, led by losses in excess of 1.3% in semiconductor, hardware and networking, while falling bond yields failed to bring recent buyers of bank and brokerage stocks back to the table. With regard to Treasuries, which usually set a more definitive tone for equities, the rotation into bonds was attributed to the same geopolitically driven, safe-haven buying interest that made stocks less attractive. The 10-year note (+06/32) logged its first back-to-back gain since February, knocking the yield down to 4.92%.
Materials, which benefited earlier in the day from renewed earnings optimism (e.g. AA and ROH), was not able to keep sellers at bay while Energy failed to take advantage of crude oil futures extending their 12% year-to-date gain. Oil prices closed at an eight-month high amid geopolitical unrest and an EIA report that forecasted retail gas prices to reach $2.62 per gallon this summer, up 13.7% from a year ago. Nevertheless, investors locked in some of the gains that have lifted the Oil & Gas Equipment index to the year's fourth best performance and stalled some of the momentum behind Energy. We still have an Overweight rating on the sector, based on projected Q1 EPS growth of more than 42%, but our Market View remains Neutral given high oil prices and uncertainty tied to monetary policy.BTK -1.9% DJ30 -51.70 DJTA -1.0% DJUA -1.0% DOT -1.2% NASDAQ -22.92 NQ100 -0.8% R2K -1.5% SOX -1.5% SP400 -1.0% SP500 -10.03 XOI -0.6% NASDAQ Dec/Adv/Vol 2272/767/2.12 bln NYSE Dec/Adv/Vol 2455/803/1.58 bln
4:22PM Pixelplus: Pixelplus Tech, a Taiwan affiliate, to be recognized as a consolidated subsidiary (PXPL) 7.30 -0.05 : Co announces that in connection with the work completed to date on its fiscal year-end 2005 audit, it has decided, pursuant to discussions with its independent auditors, that Pixelplus Technology, a Taiwan affiliate, should be recognized as a consolidated subsidiary commencing fiscal year 2005. Accordingly, co's audited financial statements for the fiscal year 2005 will consolidate P.T.I's results of operation. Pixelplus says that its Audit Committee, working with the co's management, has determined that the co's previously announced unaudited financial results for the Q4 of fiscal year 2005 and for the FY05 will need to be corrected. Previously issued earnings releases and similar communications relating to the results for those financial periods should no longer be relied upon. The proposed correction primarily relates to the co's revrecognition accounting for US$4.86 mln in sales to PTI during the 4Q05. Because P.T.I will be treated as a consolidated subsidiary for the purposes of the audited financial statements for FY05, the co's sales to P.T.I will not be recognized as revs. As a result of the consolidation, all of P.T.I's revs for fiscal year 2005 will be consolidated with the co's revs. Compared with previously announced unaudited financial results, PXPL's revs for the Q4 of fiscal year 2005 and for the FY05i s expected to be reduced by approximately $3.7 mln and US$2.5 mln, respectively, as a result of such correction.
12:37PM Fairchild Semi files patent infringement lawsuit against Power Integrations (FCS) 18.24 -0.23 : Co announces that it has filed a patent infringement lawsuit against Power Integrations (POWI) in the United States District Court for the Eastern District of Texas. The lawsuit asserts infringement of U.S. Patent No. 5,264,719 by POWI's pulse width modulation products. FCS and POWI have been in litigation since 2004 in the US District Court for the District of Delaware. This lawsuit is a separate action filed in the US District Court for the Eastern District of Texas.
10:28AM Merck to appeal punitive and compensatory verdicts in New Jersey VIOXX product liability case (MRK) 34.40 -0.02 : Co reports it was disappointed that a state court jury in New Jersey awarded punitive damages to a New Jersey resident who claimed that his long-term use of VIOXX contributed to his heart attack. The co said it will appeal the punitive verdict, as well as Wednesday's split verdict awarding compensatory damages to one of two long-term users of VIOXX. "Merck's actions were proper and did not, in any way, call for this award as defined by New Jersey law,". Notwithstanding today's award, the co said it is pleased that the jury found VIOXX was not a substantial contributing factor in the heart attack of Thomas Cona, who had claimed he took the medicine for more than 18 months, and thereby rejected Mr. Cona's failure to warn claim. Testimony during the trial showed that both plaintiffs, Thomas Cona and John McDarby, had several factors that increased their risk or contributed to their heart attacks. "This split verdict reaffirms our commitment to defending each case on a case-by-case basis," added Frazier. "Merck is in this for the long term."
2:47 pm Nasdaq Stock Market, Inc. (NDAQ)
41.69 +0.32: On March 10, Nasdaq Stock Market, Inc., made a surprise announcement that it had submitted a bid to acquire the London Stock Exchange (LSE) for approximately $4.1 billion. It didn't matter to investors that the LSE summarily rejected the bid as being inadequate since Nasdaq asserted in the same press release that it would be willing to discuss a revised proposal and that it was a confident a transaction could get done in the near-term. Shares of NDAQ shot up 10% that day.
It wasn't long before Nasdaq came back with an announcement, only this time it said on March 30 that it was withdrawing its offer for the LSE. That decision came as an equal surprise for investors, particularly since it was made without any detailed explanation. The supposition was that Nasdaq wasn't going to be forced into a position where it would overpay to gain a competitive edge in the exchange space. It was a decision its shareholders had to respect, although the lack of a detailed explanation prompted Briefing.com to speculate that Nasdaq knew something the rest of us didn't. We surmised that another bidder, namely NYSE Group (NYX), might have emerged.
Today we gained a greater understanding of what was happening. Although the NYSE Group could very well be working on something behind the scenes, what became known today is that Nasdaq purchased Threadneedle Asset Management Limited's entire stake in the LSE, which summed to 35, 404,265 shares. Nasdaq, in turn, purchased additional stock to bring its holdings in the LSE to 38,100,000 shares, which translates to a 14.99% stake. Altogether Nasdaq spent $781.7 million to complete the transaction.
Arguably, the transaction can be characterized as a passive-aggressive move since it puts the LSE on notice that Nasdaq now has a vested interest in the exchange and that it will certainly press to maximize the return on its investment. It is a shrewd move on Nasdaq's part since it accomplishes three things: (1) it gives it an important voice in influencing shareholder opinion in the event the LSE receives another buyout offer (2) it enables Nasdaq to capitalize on the LSE's independent success and (3) it creates great potential for Nasdaq to reap a financial premium in a buyout deal if it doesn't ultimately succeed in acquiring the LSE itself.
(Disclosure: Briefing.com has a business relationship with Nasdaq)
--Patrick J. O'Hare, Briefing.com
10:56 am Merck (MRK)
34.45 +0.03: According to a report by Reuters, jurors on Tuesday found Merck knowingly withheld information about Vioxx from the U.S. Food and Drug Administration, and awarded additional damages to a New Jersey man for a heart attack he suffered from long-term use of the now withdrawn painkiller. The jury, which already awarded John McDarby $4.5 million in compensatory damages last week, ordered the drug maker to pay $9 million in punitive damages.
Under New Jersey law, punitive damages can be as much as five times compensatory damages, which in this case would be $22.5 million. As such, the verdict is, arguably, a mild victory for Merck in what had been a closely watched trial because it marked the first pair of lawsuits involving patients who claim to have used Vioxx for more than 18-months and would set precedence for future cases.
Merck has lost two cases, against an equal number of victories, and another trial is underway in Texas. The company still faces nearly 10,000 lawsuits related to Vioxx, and the number continues to rise. This legal overhang is the primary reason we are not recommending Merck at this time.
--Richard Jahnke, Briefing.com
10:23 am Rohm & Haas (ROH)
50.01 +0.96: Rohm & Haas, a specialty materials company, raised its profit guidance for the first quarter citing positive fundamentals. The news underscores our bullish position on the stock, which has been based on the company's pricing power, diverse product base, and positive momentum in the electronics business, as well as the company's strong financial position. Rohm & Haas raised its first quarter per share profit guidance to $0.90-$0.93 - well above the consensus estimate of 78 cents.
Today, Rohm & Haas cited exceptionally strong Electronic Materials sales and earnings, particularly in the advanced technology products supporting the semiconductor market. This segment, which represents 17% of sales, posted a strong fourth quarter, and clearly, that momentum has carried through into the first quarter. ROH makes products that help semiconductor companies improve conductivity and performance, positioning Rohm & Haas well for rising demand for next generation chips.
The company also cited improved earnings in some of its largest chemical businesses driven by higher demand, favorable product mix, and tight expense controls, as well as higher selling prices. These areas helped ROH offset lower salt sales and earnings due to warm winter weather that reduced demand for salt for ice control. The Philadelphia-based company reports earnings on April 24th.
--Kimberly DuBord, Briefing.com
09:32 am Micron (MU)
14.91: Despite differentiating its product based toward higher margins areas like NAND flash and CMOS image sensors, memory still accounts for the majority of Micron's profits. In the second quarter, which is seasonally weak, lower average selling chip prices and weak demand weighed on revenues and profits. Without a $230 mln gain from its NAND flash joint venture with Intel (INTC), IMFT, the quarter would have been a loss. Net income increased to $193.2 mln or 27 cents per share, but the comparable figure is a loss of three cents versus the consensus estimate for a profit of 6 cents per share. Revenues came in weaker than expected, falling 6.3% year/year to $1.23 bln versus the $1.34 bln consensus estimate.
In the quarter, gross margins contracted to 19% from 27% in the year ago quarter as prices fell 12%. The quarter demonstrates why Micron is strategically expanding production through acquisitions and other ventures to reduce its dependency on the DRAM market, which is beholden to seasonal trends in PCs. NAND prices tumbled 50% since January due to rising inventories and weaker demand for MP3 players. Micron did note some stability in spot for flash, but cautioned that it did not have a read of pricing in the coming weeks.
The outlook remains mixed for the near-term with stable memory pricing, low inventories, and solid demand for CMOS sensors, offset by weaker seasonal demand for PCs and MP3 inventories. Despite a sloppy quarter, shares of Micron are trading slightly higher in the pre-market, but we would suggest investors sit on the sidelines for now.
--Kimberly DuBord, Briefing.com
09:10 am Bausch & Lomb (BOL)
57.44: Bausch & Lomb on Monday said that it is temporarily suspending shipments of its Renu contact lens solution while it investigates reports of fungal keratitis infections among contact lens wearers in the United States. For perspective, Renu lens care solutions generated approximately $45 million in sales in the U.S. in 2005.
Earlier on Monday, the U.S. Centers for Disease Control and Prevention warned that it is reviewing reports of 109 cases of the suspected eye infection. Although the majority of cases have not yet been reviewed, the CDC said that 28 of the 30 cases reviewed to date were contact lens wearers. The majority of those cases reported using Renu brand lens care products.
In a statement, Bausch & Lomb's chief executive Ronald Zarrella said, "The CDC data released today are both troubling and perplexing, as there is an apparent disproportionate representation of U.S. manufactured Renu with MoistureLoc in the underlying data. The source of these infections has not been determined. Based on our extensive testing, analysis and further internal reviews, and communications with leading experts, the available scientific evidence does not establish any type of Renu solution as a cause."
On account of the news, shares of Bausch & Lomb are trading sharply lower in pre-market activity, exacerbating the company's recent struggles. Last month, the company said that it is delaying releasing its 2005 annual report due to an internal accounting investigation. The stock scraped a new 52-week low on Monday and is down about 35% since its high of $87.89 last July. Given the current headwinds facing the company, we would not be buyers of the stock.
--Richard Jahnke, Briefing.com
08:40 am Alcoa (AA)
32.83: The world's largest aluminum producer reported surprisingly strong results as it doubled first quarter profits on higher metal prices. Alcoa's upstream business propelled earnings to a record $608 mln, or 69 cents per share, which was $0.17 above consensus. Alcoa has transformed itself, slashing costs and streamlining its business, the effects of which were magnified this quarter by a 24% hike ($2,534/ton) in aluminum prices. The company posted a new quarterly record in revenues of $7.24 bln, up 9% quarter/quarter and 16% year/year. Cost pressures have always been Alcoa's Achilles heel, but this time the company headed off inflated energy and raw material costs, finally enabling a robust pricing environment to flow through to the bottom line.
The upstream alumina and primary metals segments posted 32% and 84% sequential increases, respectively, in after-tax operating income. The downstream business was mixed with Engineered Solutions reporting positive improvement, while Alcoa suffered continued weakness in the Extruded and Packaging segments. Costs actually rose less than sales, resulting in a 260 basis point improvement in operating margins. Improved profitability, coupled with a strong aluminum market that was driven by demand from aerospace, construction, and power generation raises the outlook for the company.
Alcoa has certainly set a positive tone for the first quarter earnings reporting season as the results were solid by any measure. We would be buyers on pullbacks. Shares are trading at 14.8x forward earnings versus Alcan (AL) at 12.8x.
--Kimberly DuBord, Briefing.com
10:12 am Lifetime Brands: Brean Murray reiterates Strong Buy. Target $30 to $35. Firm ups target based on (1) the estimate changes; (2) higher conviction in annual 2006 and 2007 estimates (3) the fact the stock evidently, in light of its strong performance, has digested mgmt's skillfully rendered message that 1H06 will likely show soft EPS comparisons due to acquisition seasonality, mix and timing; and (4) the firm says the stock has also comfortably digested decreased sell-side sponsorship after an underwriter analyst departure, while it has picked up individual investor sponsorship through new recommendations in a few popular "retail" investor sources.
10:11 am DOV Pharma: Maxim Group initiates Buy. Target $31. Firm is saying they believe that the success or failure of bicifadine to procure a chronic pain indication constitutes the biggest swing factor for DOV's valuation. However, they view the valuation of DOV as compelling, and its risk/benefit profile is favorable for risk-tolerant investors.
10:11 am ADESA: UBS reiterates Buy. Target $30 to $35. Firm ups target as they remain optimistic towards longer-term prospects and have continued confidence in the co's ability to capitalize upon improving volume growth in the used car auction industry.
10:10 am A.S.V., Inc.: Miller Johnson downgrades Outperform to Market Perform. Target $34 to $30. Firm fowngrades on concerns that growth could slow down in the remainder of the year and that channel checks have not been as positive as in the past.
10:09 am Quiksilver: Nollenberger Capital initiates Buy. Target $18. Firm initiates with Buy based on the belief that the Rossignol integration is on track, co sales remain healthy, and Roxy has continued growth potential. Firm believes that new product categories will facilitate growth and that there are numerous geographic expansion opportunities for the co.
10:06 am Brooks Automation: Susquehanna Financial initiates Neutral. Firm is saying thier analysis suggests that BRKS has a sound strategy for rev growth and profitability improvement across its hardware, service, and software offerings, but their checks suggests that the path to successful execution will be a difficult one.
10:03 am Take-Two: Janco Partners upgrades Accumulate to Buy. Target $18 to $24. Firm is saying they have increased their earning multiple target from 18X to 20X as they believe corporate governance concerns will abate over the coming quarters. The firm says their earnings expectations have increased in the short term from stronger than anticipated channel traction from Oblivion. Their longer term expectations have increased based on our belief the co's current and emerging diversified pipeline will have strong success leveraging the ramping PSP, Xbox 360, and PS3 installed bases in addition to the increasingly ripe current generation installed base.
10:02 am Acorda Therapeutics: Lazard Captial initiates Buy. Target $8. Firm is saying that their Proprietary Lazard Capital Markets survey suggests significant potential demand for Fampridine-S.R. in M.S. patients. They expect positive Phase III results this year. The firm says their analysis of I.M.S trends over the past six months suggests that Zanaflex capsules are gaining share; they anticipate that this trend will continue.
09:59 am NetLogic: Lehman Brothers reiterates Overweight. Target $40 to $47. Firm noting that NETL remains their best small-cap idea given low revenue growth expectations and 2 new product families likely to accelerate growth in C06 & C07. They say 2004 and 2005 was driven by a single product (knowledge based processors) and a single customer (CSCO), but believe that significant customer and product diversification is likely to drive revenues, margins & the stock higher. With the CY acquisition, they believe that ALA & Huawei will emerge as new >10% customers by year-end. Firm also believes that NETlite, the entry-level product family is seeing design wins & will see revenues in 2H06. In addition, they believe that the NETL7 products will see revenues in C07. Firm raises their C06 & C07 ests |
