From Briefing.com: 4:20 pm : Investors looking for bargains following recent market weakness looked past a surge in bond yields. Instead, they embraced upbeat corporate news, a narrowing trade deficit and finally, for the moment anyway, sidelined their pre-occupation with higher energy bills as oil prices fell from 7-month highs. Crude oil futures closed down 0.5% and below $69/bbl following a larger than expected build in weekly crude inventories to 8-yr highs.
It is worth noting, however, that even though the market showed some resilience in the face of a sell-off in Treasuries, as the stock market may have already priced in the specter of higher rates over the last few sessions, below average total volume indicates that there was little conviction behind today's recovery efforts as much of the institutional money headed for the exits early. Consolidation in bonds, fueled by worries that the Fed will go too far with its tightening efforts to keep inflation in check and data that showed the trade deficit in February narrowed more than economists anticipated, lifted the yield on the 10-yr note (-12/32 at 4.97%) toward its highest levels in nearly four years and within reach of 5.0%. Rising borrowing costs have contributed to our Neutral market view.
With regard to sector strength and weakness, Industrials provided the bulk of support behind Wednesday's recovery efforts. The sector got a huge boost from Boeing (BA 83.31 +2.74), which hit an all-time high after inking a $4.6 bln aircraft deal with China -- a move that plays into our Overweight rating on the sector -- as well as gains in transportation stocks that benefited from oil's pullback. Health Care was also a source of market support, getting a big lift from a rebound in HMOs and strength in biotech despite consolidation in one of the group's biggest names. Genentech (DNA 80.71 -0.99), which is not a member of the S&P 500 but is still influential nonetheless, beat expectations and raised its outlook; but disappointing Rituxan sales prompted investors to lock in recent gains.
Consumer Discretionary was also in focus following better than expected earnings and upside guidance from Circuit City (CC 26.68 +2.07) and amid positive commentary from General Motors' (GM 20.08 +0.86) Vice Chairman of Global Product Development, Robert Lutz, regarding GM's ongoing turnaround. However, weakness in retail, homebuilding, and a 5.9% drubbing in Harley-Davidson (HDI 49.83 -3.14), which matched analysts' expectations but issued a disappointing Q2 shipment outlook, kept the sector from closing in positive territory.
Energy turned in the day's worst performance as participants used a pullback in oil prices as an incentive to consolidate recent gains in explorers and drillers. The absence of leadership from Technology also prevented the market from moving more aggressively to the upside. Semiconductor benefited from an upgrade on KLA-Tencor (KLAC 46.54 +0.74), upbeat analyst commentary on Micron Technology (MU 15.34 +0.24) and a 2.8% surge in Advanced Micro Devices (AMD 35.29 +0.94) heading into its earnings report. We have an Overweight rating on Technology. However, the gains in the chip space and relative strength in networking, fueled in part by an analyst upgrade on Motorola (MOT 23.98 +0.41), a suggested holding in our Active Portfolio, was not enough to offset weakness in computer hardware and storage. BTK +1.5% DJ30 +40.34 DJTA +0.3% DJUA +0.1% DOT -0.2% NASDAQ +4.33 R2K +0.7% SOX +0.6% SP400 +0.3% SP500 +1.56 XOI +0.1% NASDAQ Dec/Adv/Vol 1332/1653/1.55 bln NYSE Dec/Adv/Vol 1584/1651/1.39 bln
4:34PM Intl Rectifier exploring potential sale of all non-focus products business (IRF) 41.37 +0.22 : Co announces that it is exploring the potential sale of all the company's Non-Focus Products business, including both its Non-Aligned Products and Commodity Products segments. Non-Focus Products comprised 23% of co revs in the most recently reported qtr. These products are not considered to be aligned with the co's long-term objectives or do not meet its gross margin and revenue growth targets. Goldman, Sachs & Co. has been retained to advise the co on a possible sale.
4:27PM Nanometrics raises Q1 rev guidance (NANO) 13.04 -0.08 : Co expects Q1 revs to exceed Q4 revs by more than 25%, or by approximately more than $17.75 mln (consensus $16.7 mln). The co had previously guided for 15-20% sequential rev growth. This sequential increase excludes the contribution from Soluris Inc., which Nanometrics acquired during the quarter, for the last two weeks of the quarter.
4:22PM Lam Research beats by $0.03, ex items; cites market share gains (LRCX) 44.71 : Reports Q3 (Mar) earnings of $0.65 per share, excluding non-recurring items, $0.03 better than the Reuters Estimates consensus of $0.62; revenues rose 22.1% year/year to $437.4 mln vs the $424.7 mln consensus. Co notes that "Market share gains and solid execution drove strong results for the March quarter."
4:05PM Power Integrations believes it was first to invent technology covered by the patent that is subject of Fairchild's lawsuit (POWI) 24.01 +0.34 : Co responds to the patent-infringement lawsuit filed against it yesterday by Fairchild Semiconductor (FCS). POWI believes that it was first to invent the technology covered by the patent that is the subject of FCS's lawsuit, and that the lawsuit is therefore without merit. The co also notes that it does not expect FCS's suit to have any impact on its own patent-infringement lawsuit against FCS, initiated in October 2004 and currently pending in the U.S. District Court for the District of Delaware. That case is expected to go to trial during the third quarter of 2006.
4:02PM Avanex names new Chief Financial Officer (AVNX) 2.86 +0.00 : Co announced that it has named Cal R. Hoagland as chief financial officer. In his new role, Hoagland succeeds Tony Riley, who has served as the company's acting chief financial officer since September 2005. Riley will continue with the company as vice president of finance.
4:01PM JMAR Technologies appoints new CEO and Chairman of the Board (JMAR) 0.69 -.02 : Co announces it has appointed Dr. Neil Beer their new President and Chief Executive Officer. In addition, Charles Dickinson, who has served on the co's Board of Directors since 2001, has been elected the new Chairman of the Board.
10:16 am Synaptics: Thomas Weisel upgrades Peer Perform to Outperform. Firm upgrades stock based on the fact that the co has re-engaged with Apple with production volume in video iPods (and likely nano as well), checks point to potential additional share gains in notebooks, and the potential increased 2H handset design-win activity
10:15 am Siliconware Precision: Susquehanna Financial downgrades Positive to Neutral. Firm is saying they are adjusting their Semiconductor Manufacturing Services ratings to reflect their conviction that the current rate of I.C unit growth is unsustainable. The believe this could ultimately result in growing days of inventory at semiconductor companies, necessitating production cuts at foundries and OSATs
10:13 am OPNET: Kaufman Bros upgrades Hold to Buy. Target $11 to $14. Firm is noting the co reported a favorable settlement of pending patent infringement litigation defense and countersuit versus Compuware. The firm says the settlement does not involve material monetary exchanges, royalties, or license agreements between the two companies. They anticipate continued high legal expenses (approx $1.5 mln in fiscal 3Q06, ended December 31) to continue through the end of this month to wrap up legal items associated with the settlement. They believe OPNET will continue to benefit from its market-leading network mgmt products and recent investments in R&D, sales and marketing, and the expanding Cisco relationship.
10:12 am Station Casinos: Calyon Securities downgrades Buy to Add. Target $78 to $88. Firm is saying they believe STN shares can trade to $85-$90 over the next 12 months, but expect near-term share performance to be somewhat choppy. The firm says shares could face near-term pressure as the co works through high start-up costs associated with Red Rock, increases in promotional spending, and competitive responses.
10:11 am USEC Inc.: Jefferies & Co initiates Hold. Target $12. Firm is saying with energy costs rising and surplus uranium sales winding down in 2007, they expect EPS to peak in 2006. Firm thnks more progress on the American Centrifuge, and clarity on financing, might present a better entry point closer to 2007.
10:09 am Vimicro International: Needham & Co reiterates Buy. Target $14 to $22. Firm believes fundamentals in the co's primary PC camera and mobile handset multimedia processor businesses remain strong. While they believe the co is tracking to the mid- to high-end of its stated guidance for 1Q06, they acknowledge that the recent run-up in the share price heightens the risk of a stock pull back around the announcement of 1Q06 earnings and the IPO lock-up that expires on May 13. Firm would be more aggressive buyers of the shares on any pullbacks.
09:58 am Pier 1 Imports: UBS downgrades Neutral to Reduce . Firm is saying shares of Pier 1 have rallied lately upon the hopes that new merchandising will drive improved results at the co. The firm says results at PIR remain very weak and they see few if any signs that suggest the potential for substantial improvement at the co near term. The firm says for several reasons they view PIR as less attractive as a takeout candidate than other retail turnarounds. 1.) a share price that is already assuming recover; 2.) limited breakup potential and a lack of underlying assets; and 3.) the firm says PIR's stature as one of many home fashion chains.
09:57 am Google: JMP Securities downgrades Strong Buy to Mkt Outperform. Target $550 to $475. Firm downgrades based on a lower growth outlook due to slower query and monetization growth. Firm is now expecting Google to generate 13% sequential growth in net revenue and 58% year over year for FY06, down from their prior forecasts of 19% sequential growth for the quarter and 69% for the full year. Their reduced top-line outlook is the result of lower-than-expected growth in search queries and monetization on Google proprietary sites and the Google Network. They are also lowering their operating margin forecast by another 100 basis points as they expect the co to add more employees this year than they had been anticipating. Firm also lowers their rev and EPS ests, saying their new Q1 and FY06 net revenue and EBITDA estimates are now generally in line with consensus.
11:50 am Fastenal (FAST)
45.30 -1.16: In March Briefing.com reiterated its overweight recommendation for the Industrials sector based on several factors, which included operating momentum that was being driven by strong levels of business investment. One company that appears to be benefiting from the strength on the industrial side of the economy is Fastenal, which sells industrial and construction supplies through a network of more than 1,800 stores. Before the open, the company reported a 33.3% increase in its first quarter EPS and a 22.0% increase in net sales.
Specifically, Fastenal posted earnings of $0.32 per share that were a penny ahead of the Reuters Estimates consensus number on net sales of $431.7 million. The latter was slightly below the market's expectation, which was pegged at $433.7 million.
The sales shortfall has contributed to the weakness in the stock today, but it has not altered our bullish opinion of the stock considering the company demonstrated clear signs of operating progress. In particular, gross margins were up 100 basis points to 50.4% from the year-ago period while operating margins jumped an equal amount to 17.8%. The margin expansion is noteworthy given that Fastenal's average vehicle fuel cost surged 49% from the first quarter of 2005 due to higher prices, an effort to haul a greater percentage of its products using its own trucking network, and an increase in sales and store locations. Additionally, Fastenal's inventory growth of 19.6% trailed that of its sales growth, which suggests the company will be at less risk for margin contraction that is the result of moving its products with highly promotional pricing activity.
--Patrick J. O'Hare, Briefing.com
11:03 am Callaway Golf (ELY)
15.57 -1.33: Callaway Golf, a leading manufacturer of golf apparel and sporting equipment, said on Tuesday that it will miss Wall Street's targets for the first quarter, citing the later timing of its 2006 new product introductions compared with last year. Shares of the Carlsbad, California-based company, in turn, fell sharply during the regular trading session.
Recently, we covered Callaway with a positive view, given improved supply chain management and strong consumer response for the company's new products. That view remains intact. Despite the lower than expected first quarter results, which exceeded Callaway's internal targets and marked the second highest level of revenues in the its history, we believe continued progress in company's turnaround efforts still supports the stock's long-term prospects.
With respect to its guidance, Callaway said it expects earnings per share to be in the range of $0.31 to $0.33, on sales of approximately $300 million. Excluding an after-tax charge of $0.02 per share for employee stock-based compensation and $0.01 per share associated with the consolidation of the Top-Flite and Callaway Golf operations, the company expects earnings per share of $0.34 to $0.36. Analysts on average were expecting earnings of $0.48 per share on sales of $328 million, according to Reuters Estimates.
--Richard Jahnke, Briefing.com
10:12 am Circuit City (CC)
25.18 +0.57: Circuit City shares traded higher after the nation's No. 2 consumer electronics chain posted a 65% increase in fourth quarter profits due to strong sales and improved merchandising and supply management. Furthermore, the Richmond, Virginia-based company forecast strong sales growth for fiscal 2007 that exceeded analysts' expectations.
For the period ended February 28, 2006, net earnings rose to $141 million, or $0.80 per share, from $85.4 million, or $0.45 per share, a year earlier. Earnings from continuing operations were $146.6 million, or $0.84 per share. On that basis, the results beat analysts' estimate by seven cents, according to Reuters Estimates. Net sales grew 12.8% to $3.91 billion, up from $3.47 billion in the year ago period, while same store sales rose nearly 12%. Growth was led by triple-digit comparable store sales growth in flat panel displays, as well as double digit growth in portable digital audio products and notebook computers.
Looking to the first quarter, Circuit City expects earnings per share to be approximately breakeven, in line with the breakeven Reuters Estimates consensus. Additionally, the company expects fiscal 2007 revenue growth of 7% to 11%, or roughly $12.4 to $12.8 billion, with domestic comparable store sales growth of 5% to 7%. Currently, analysts on average are looking for sales of $11.6 billion.
While Circuit City continues to benefit from strong sales momentum and supply management initiatives, we still favor Best Buy (BBY) in the consumer electronics retail space. Last month, the company reported solid fourth quarter results and remains well positioned to benefit from a strong product cycle for consumer electronics and further expansion of its services business and new store format.
--Richard Jahnke, Briefing.com
09:02 am Genentech (DNA)
81.70: After the market closed on Tuesday, biotechnology company Genentech reported a 48% rise in first quarter earnings, helped by strong sales of its cancer drugs Avastin and Herceptin. Specifically, the South San Francisco, California-based company earned $421 million, or $0.39 per share, up from $284.2 million, or $0.27 per share, in the year ago period. Excluding one-time items, Genentech would have earned $491 million, or $0.46 per share. That compares with analysts' estimate of $0.41 per share, according to the Thompson First Call.
First quarter revenue totaled $1.99 billion, an increase of 35.8% from $1.46 billion a year earlier. Total product sales grew 39% to $1.64 billion during the period, with sales in the United States up 44% to $1.57 billion. Top line growth was led by U.S. sales of Avastin and Herceptin, which increased 96% to $398 million and 123% to $290 million, respectively. At the same time, U.S. sales of Rituxan increased 8% to $477 million and Tarceva sales grew 94% to $93 million.
Genentech said it expects sales to be stronger than expected in fiscal 2006 and forecast earnings per share to grow by 45% to 55% to approximately $1.86 to $1.98 per share. Analysts on average are looking for full year earnings of $1.85 per share.
Despite Genentech's strong first quarter results, shares of the company are trading slightly lower in pre-market activity. In 2005, the stock gained roughly 70% due to strong sales and positive clinical results for the company's portfolio of cancer medicines. However, shares are down nearly 12% year-to-date, due to valuation concerns. Accordingly, we would remain on the sidelines as shares appear relatively expensive given the recent run in the stock.
--Richard Jahnke, Briefing.com
08:52 am Boeing (BA)
80.57: Shares in Boeing are flying high this morning following news that China inked a deal with the aerospace company to buy 80 Boeing 737 planes worth an estimated $4.6 bln, part of an initial order for 150 planes unveiled last November. Further, Morgan Stanley took the opportunity to raise it price target to a lofty $110 per share from $80. The deal with China comes a week before President Hu Jintao visits the United States.
Carrier spending from Asia has been a key driver of the bull cycle in commercial aviation as airlines add new routes and more fuel efficient planes. The Chinese, in particular, have been ramping up purchases as regional air travel takes off. Last year, Boeing garnered a record 120 firm orders from China. The company anticipates retaining its 60-65% share of the Chinese market, despite fierce competition from rival Airbus. The Toulouse-based conglomerate claimed firm orders of 1,055 planes globally last year compared to 1,002 for Boeing.
We remain onboard with Boeing on the basis of its raised delivery guidance, backlog strength, possible margin expansion, operational performance, and robust cash flow. The company is firing on all cylinders. In addition, under new leadership, we hope to see Boeing further leverage its strong market position in the midst of this bull cycle. Shares are trading at 23.3x forward earnings.
--Kimberly DuBord, Briefing.com
08:40 am Harley Davidson (HDI)
52.97: Fat Boy, Dyna, Softail, and V-Rod...no, they are not nicknames for Harley Davidson's executive team, but rather, they are new bikes that hit the road in the first quarter. The world's largest motorcycle maker started out its fiscal year earning $234.6 mln, or 86 cents per share, up 3.2% on increased demand for its latest versions of namesake cruiser bikes. Per share profits were in line with consensus expectations.
The Milwaukee-based company reported sales rose 4% to $1.29 bln driven by the above-mentioned cycles, along with a new Touring and Sportsters that raised cycle shipments by 3.6% from the year ago period. Worldwide sales rose 6.9%, including a 5.8% increase in the US and an 11.6% rise internationally. The standout performance came from Japan, which posted a 16.3% jump in sales. Gross margins expanded 80 basis points to 38.4%, while operating margins remained flat at 24.2% due to higher operating costs.
Harley stated that its second quarter shipment plan is 78,000 2006 model year motorcycles. Production in the second quarter will also include approximately 13,000 2007 models to prepare for the new model introduction in mid July; however, these 2007 motorcycles will not be shipped until the third quarter. Its calendar year 2006 wholesale shipment forecast remains at 348,000 to 352,000 motorcycles. Harley also reiterated its long-term forecasts of 5-9% unit growth and 11-17% EPS growth. Overall, the quarter was solid. Still, weak domestic demand and rising interest rates do cause some concern despite Harley's strong franchise, earnings growth, and valuation.
--Kimberly DuBord, Briefing.com |
