From Briefing.com: 4:41PM Brooks Automation beats by $0.08; issues upside guidance (BRKS) 13.46 +0.31 : Reports Q2 (Mar) earnings of $0.22 per share, excluding charges and special items, $0.08 better than the Reuters Estimates consensus of $0.14; revenues rose 33.1% year/year to $169.2 mln vs the $157.4 mln consensus. Co issues upside guidance for Q3, sees EPS of $0.23-0.29 excluding approx $0.09 per share in certain charges and special items vs. $0.21 consensus; sees Q3 revs of $170-$180 vs. $172.70 mln consensus.
4:13PM Quantum DLT to acquire Advanced Digital Information Corp for $770 mln (DSS) 3.48 +.14 : Co announces a definitive agreement under which the co will acquire Advanced Digital Information Corp. (ADIC) for approximately $770 mln. The transaction is expected to be up to 15 cents accretive to the co on a cash earnings per share basis, with annual cost synergies of approx $45 mln in the first full year of combined operations. The co expects that this accretion should start to be reflected in its financial results within the second full quarter following the close of the transaction.
4:12PM Powerwave reports $0.04 below consensus, ex-items (PWAV) 10.73 : Reports Q1 (Mar) earnings of $0.03 per share, excluding non-recurring items, $0.04 worse than the Reuters Estimates consensus of $0.07; revenues rose 19.0% year/year to $193.1 mln vs the $195.3 mln consensus.
4:20 pm : The market rebounded nicely in the wake of Monday's late day sell-off, as the absence of more strong economic data provided some relief on the interest-rate front and placed extra emphasis on another batch of better than expected earnings. As a result, the Dow closed at a fresh six-year high and eight of ten economic sectors posted gains.
Dow component Verizon Communications (VZ 32.64 -0.15) beat Wall Street's estimates by a penny and added a record 1.7 mln customers, which plays into our Overweight rating on Telecom. However, the stock consolidated late in the day as an anticipated increase in operating costs clouded future earnings visibility. Nonetheless, with or without intraday leadership from the nation's No. 2 phone company, investors continued to rally around Archer Daniels Midland (ADM 41.90 +3.90), which soared to another historic high after posting a stronger than expected 29% increase in profits, keeping the S&P 500 on track for an 11th straight quarter of double-digit profit growth.
With regard to sector strength and weakness, Energy continued to provide some influential leadership to the upside. The sector extended its leading 15.6% year-to-date gain with 2.3% advance. Crude oil prices futures closing up 1.4% at $74.70 a barrel after Iran Deputy Oil Minister predicted crude will hit $100 a barrel by winter was the main catalyst stalling recent consolidation efforts. Devon Energy (DVN 62.87 +2.09) raising its long-term production growth outlook for 2006 through 2009 to 9.5% from 8% ahead of its earnings report tomorrow and Noble Energy (NBL 48.01 +1.91) more than doubling Q1 profits also provided sector support. As an aside, with Energy sector profits unlikely to grow at the same rate as over the past year, coupled with the likelihood of rising interest rates leading to slower economic growth, our market view remains Neutral as we believe the S&P's streak of 10% profit growth or more will come to an end in Q2 with aggregate growth currently projected at 7%.
The sense that yesterday's ensuing late day sell-off was overdone also prompted some bargain hunting opportunities in depressed areas, like Utilities. The year's second worst performing sector was Tuesday's second best performer, completely paring its 1.6% 2006 decline and turning positive for the year following strong earnings from TXU Corp (TXU 56.51 +6.60), FPL Group (FPL 39.78 +0.68), Entergy (ETR 69.51 +0.50), and NICOR (GAS 40.39 +0.67). Falling yields also restored buying support for the rate-sensitive Financials, which got an even bigger lift from a rebound in brokerage and strength in insurance. St. Paul Travelers' (STA 45.61 +0.21) Q1 net income rose nearly fivefold, which led to a boost in 2006 guidance, a 13% increase in its dividend and the authorization of a $2.0 bln share buyback.
Toyota Motor (TM 121.07 +3.69) and Honda Motor (HMC 36.99 +1.30) posted record-breaking sales for April, versus a 0.7% decline from General Motors (GM 23.21 +0.57), but the fact that the market had priced in an even larger disappointment restored some of the momentum behind GM reaching two-month highs. Strength in autos helped offset more consolidation in homebuilding and close the Consumer Discretionary sector in positive territory. Homebuilders were weak all day after Hovnanian Enterprises (HOV 36.39 -2.39) cut its Q2 and FY06 EPS outlook, providing another indication that the U.S. housing market is cooling.
Despite growing sales contributions related to Medicare prescription drug benefits plan, which helped Caremark Rx (CMX 46.81 +2.18) post a 16% rise in profits, raise its full-year guidance and plays into our Overweight rating on Health Care, the sector traded lower amid further consolidation in biotech, HMOs and medical equipment. BTK -1.6% DJ30 +73.16 DJTA +1.3% DJUA +2.4% DOT +1.8% NASDAQ +5.05 NQ100 +0.2% R2K +0.9% SOX +0.3% SP400 +0.5% SP500 +8.02 XOI +1.8% NASDAQ Dec/Adv/Vol 1369/1686/2.10 bln NYSE Dec/Adv/Vol 1222/2023/1.72 bln
3:50PM Microsoft: Gartner predicts longer Vista delay - CNet (MSFT) 24.06 -.23 : CNet reports the wait for the co's delayed Windows Vista could be even longer than expected, according to a research report issued this week. In March, the co announced that widespread distribution of Windows Vista would be delayed until early 2007. Now research firm Gartner Group has reported the operating system might not be fully available until at least the second quarter of next year. The co, however, maintains that everything is on schedule, inline with its March announcement. Gartner believes that as a result of modifications that the co made in 2004 to the modular structure of Windows, the software co will need more time for "shims," or tweaks made to reported problems. This process takes place reactively as users try out the Beta 2 release of the operating system. The upgrade from Windows XP to Vista will be as complex as the Windows 2000 release was, Gartner says. Windows 2000 took 16 months to get to manufacturing from its Beta 2 stage. The change to Windows XP from Windows 2000 only took 5 months from Beta 2, but it was "a relatively minor release," according the Gartner report.
2:59PM RSA Security: Microsoft to shelve token support in Vista - CNET (RSAS) 20.02 -.24 : CNET reports Microsoft (MSFT) has shelved plans to include built-in support for the co's tokens in Windows Vista, even though the co has been testing out the authentication technology for almost two years. In February 2004, MSFT Chairman Bill Gates said that Windows would be able to support easy integration with the co's popular SecurID tokens. That meant businesses would find it far easier to deploy a two-factor authentication system for logging on to networks and applications. However, almost two years after the SecurID beta-testing program kicked off, the co's chief executive, Art Coviello, disclosed that Windows Vista will not natively support the technology. Coviello expects MSFT to add native support for SecurID in future updates to Vista, after which he hopes demand will increase significantly for two-factor authentication, where people present a second form of identification as well as their password.
2:42PM Semiconductors Hldrs Trust extends pull back off morning/midday high of 37.39 (SMH) 37.05 -0.11 : Initial support is at the session/yesterday's lows at 37.01/36.99 with a secondary zone at 36.87/36.80 (50/200 sma, last week's low).
2:32PM Agilent announces reorganization of its Electronic Measurements Group (A) 38.19 +0.16 : Co announces a reorganization of its Electronic Measurements Group, merging the co's Operations Support Systems Group with two other existing businesses within E.M.G. David Churchill, Agilent's vice president and general manager of the Design Validation Division, will head the new business unit, named Network and Digital Solutions. Before joining Pat Byrne, Agilent senior vice president and president of E.M.G said, "The merger of OSSG with DVD and our Computing and Networking Solutions business will significantly strengthen our leadership position in the wireless-convergence and digital markets. The combination will enable EMG to realize important synergies in our delivery of solutions to common customer segments, as well as in our operations."
2:13PM PortalPlayer has inside track on video iPod - EETimes (PLAY) 10.90 -.61 : EETimes reports the fabless chip maker, which lost a major chunck of business in Apple Computer's (AAPL) iPod nano product line, is still the odds on favorite to win the socket in the next-generation video iPod, according to Craig Berger, an analyst with Wedbush Morgan Securities. "Still, there's good and bad news for the co. We continue to believe PortalPlayer will retain its socket in the soon-to-be-released video iPod given Apple's design constraints. While we maintain our thesis that the Video iPod will remain a two-chip solution in 2006, we are removing these units from our PortalPlayer revenue forecast in light of Apple's apparent ability to switch chip vendors at will," he said. The co supplies the media processor chip for the current iPod nano line. The co's media processor chip is still used in Apple's current video iPod line. But AAPL's next-generation video iPod socket is said to be up for grabs. Broadcom (BRCM), PortalPlayer and Samsung are said to be competing for the next-generation, video iPod socket. In other words, Samsung did not win the entire iPod business at AAPL âEuro” at least for now.
12:43 pm Loews Corp. (LTR)
107.80 +2.13: Diversified holding group Loews Corp. Tuesday said net income increased to $541 million from a restated $346.3 million a year earlier. Net income attributable to Loews stock rose to $473.4 million, or $2.54 per share, from $299.8 million, or $1.62 per share, in the year-ago period thanks to solid results at its oil-drilling, insurance and tobacco units. Reuters Estimates consensus had looked for a profit of only $2.21 per share.
Revenue increased 13% to $4.24 billion at the company, which has a market cap of about $19.98 billion. Word of the healthy financials sent shares in the stock to a new 52-week high early Tuesday at $107.88.
Holders of shares in Loews Corp. did take note, though, when the State of Michigan also filed suit against major U.S. cigarette makers Tuesday to recover funds due it under a $206 billion 1998 settlement agreement among states and tobacco companies. Lorillard Tobacco Co., a subsidiary of Loews which offers cigarette products under the brand names of Newport, Kent, True, Maverick, and Old Gold, has disputed part of its obligations.
Loews, which was founded in 1954 and is based in New York City, plans to conduct a 3-for-1 stock split next week. The company didn't provide any guidance with its quarterly earnings release.
--Christine Marie Nielsen, Briefing.com
12:30 pm IAC/InterActive Corp. (IACI)
29.00 -0.02: IAC/InterActive said Tuesday that its first quarter profits fell 32%, weighed down by an earnings decline at its Home Shopping Network television channel, as well as more challenging market conditions for its mortgage business. However, excluding the recent spin-off of the company's travel division Expedia (EXPE), the latest results topped analysts' expectations.
For the first quarter, IAC/InterActive reported net income of $47.2 million, or $0.14 per share, down from earnings of $68.9 million, or $0.19 per share, a year earlier. Excluding discontinued operations and other one-time items, adjusted earnings rose 32% to $106.5 million, or $0.31 per share. On that basis, the results were three cents better than the Reuters Estimates consensus of $0.28 per share.
Revenues rose 36.5% year/year to $1.55 billion, in line with the consensus estimate. Growth in the quarter was led by the company's two largest segments, Retailing and Services.
In Retailing, revenue increased 28% to $769.1 million as the inclusion of Cornerstone Brands, which was acquired in April 2005, offset disappointing sales at Home Shopping Network, particularly TV sales of health and beauty products and home fashions. Services revenue, which grew 27% to $482.5 million, was driven by higher concert and sporting event sales at Ticketing and strong top line growth at Lending. However, Lending's profits were impacted by higher marketing and operating expenses amid more difficult mortgage market conditions, the company said. Media & Advertising revenue was significantly higher at $117.6 million, reflecting the inclusion of Ask Jeeves, while Membership & Subscriptions revenue rose 16% to $178.4 million led by improved growth in Vacations and Personals.
Based on the latest report, IAC/InterActive shares have remained relatively unchanged during the regular trading session. The stock is up 2.4% so far this year and is trading at approximately 19.6x forward earnings.
--Richard Jahnke, Briefing.com
12:14 pm Hilton Hotels (HLT)
26.72 -0.23: Shares in Hilton Hotels Corp. were little changed Tuesday after the operator of the high-end hotel chain said it saw earnings of $0.20 per share in the latest quarter ended in March, $0.02 better than the Reuters Estimates consensus estimate of $0.18. The company said strong demand from business travelers and tax benefits from various one-time items played into its financials.
Hilton reported net income of $104 million, or $0.26 cents per share, versus a prior-year profit of $64 million, or $0.16 per share. The company said nonrecurring items like a contract termination fee, foreign exchange gains and other items bolstered the quarter's results. Across all brands, revenue from the company's owned hotels (majority owned and controlled hotels) was $508 million in the first quarter 2006, a 3% increase from $495 million in the 2005 quarter. Total revenue from comparable owned hotels - excluding the impact of property sales dating back to January 1, 2005, the results of the acquired hotels since February 23, 2006, and two owned properties in New Orleans which were impacted by Hurricane Katrina - was up 7.4%.
Stripping out gains and losses on asset sales and other nonrecurring items, the company, which has a market cap of about $10.33 billion, said adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, rose 30% to $328 million in the latest period. Revenue rose 41% to $1.52 billion from $1.08 billion in the year.
Total capital expenditures in the first quarter were approximately $150 million, including approximately $50 million expended for timeshare development.
The Watford, England-based hotelier, which owns over 2,500 properties globally, projected earnings per share between $1.12 to $1.19 per share, or recurring earnings per share from $1.06 to $1.13 for 2006. The Reuters Estimates consensus estimate is now pegged at $1.04. The company said adjusted EBITDA is expected to fall between $1.72 billion to $1.77 billion. Full-year revenue is expected to range from $8.04 to $8.11 billion.
The company's conference call to discuss its earnings began a short time ago.
--Christine Marie Nielsen, Briefing.com
12:07 pm Sirius Satellite (SIRI)
4.82 +0.20: Sirius Satellite Radio on Tuesday reported a wider first quarter loss as it continued to spend heavily on subscriber acquisition and new programming and content. Still, the results topped analysts' expectations, and the company raised its year-end subscriber forecast to over 6.2 million, sending shares higher during the regular trading session.
In the latest quarter, Sirius posted a loss of $458.5 million, or ($0.33) per share, compared with a year ago loss of $193.6 million, or ($0.15) per share. That included stock compensation expenses of $0.20 per share, the bulk of which went to Howard Stern and his affiliates. According to Reuters Estimates, analysts on average were expecting the company to post a wider loss of ($0.37) per share.
Revenue nearly tripled to $126.7 million from $43.2 million in the prior year period, as the company continued to grow its subscriber base. Sirius said it added 761,187 subscribers during the quarter, reflecting a 149% increase, bringing its total to approximately 4.08 million subscribers at the end of the period. For the second consecutive quarter, Sirius led the satellite radio industry with 57% of net subscriber additions, while achieving 64% retail market share and solid growth in its OEM channel. The increase, however, was offset by a 63%, or $42.1 million, increase in subscriber acquisition costs, as well as increased commissions to support subscriber growth. Programming and content expenses increased by $32.1 million to $56.4 million for the quarter, while sales and marketing expenses increasing by $4.2 million to $39.3 million.
Despite higher revenues and continued strong subscriber growth, the high cost of signing-up new customers and acquiring new content continues to weigh on bottom-line results for Sirius Satellite, as well as rival XM Satellite Radio (XMSR). As the company continues to spend heavily on acquiring subscribers and new programming talent, the near-term outlook for profitable growth remains clouded.
--Richard Jahnke, Briefing.com
11:59 am Verizon (VZ)
33.03 +0.24: Verizon reported its 2006 first quarter results this morning. It might be tempting to view the results as mildly "good" as earnings beat analysts' estimate by a penny ($0.60 versus the $0.59 estimate) while revenues fell short of estimates by about 1% ($22.7 billion versus $23.0 billion estimate). This "good" report could be then balanced against the fact that earnings were $0.63 in the year-ago period on much lower revenue of $18.0 billion. With such an outlook, it would be hard to get excited about Verizon's results. One can easily argue that a company that effectively grows revenues but earns less is hardly a good growth stock - particularly one with a $100 billion market capitalization.
However, such a "tempting" superficial review of Verizon's results ignores the fundamental shift in the telecom marketplace that is now in place - and which Verizon is investing heavily to position itself. That fundamental shift is toward the coming emergence of completely integrated "converged" telecom products. The world of "convergence" has been talked about for so long (and heavily hyped at the peak of the internet bubble) that the idea has a "boy who cried wolf" aspect to it.
The "old world" view of the telecom industry places the most importance on the growth of wireless customers. Fair enough, since that is the only place growth has been in the past five years. On that score, Verizon did well in Q1, with another quarter of strong growth. The company added 1.7 million customers, giving it a total of 53 million wireless customers. That customer growth is a 16.7% increase over the prior year, but with revenues increasing 18.8%, it also implies higher revenues per customer. On top of that, the wireless customer margin (EBITDA) was above 40%, a continuation of the margin expansion seen in the past year.
The future belongs to converged telecom products, as we have argued for nearly two years now. As a percentage of total revenue, converged telecom products are still insignificant at Verizon (and elsewhere), but the growth is encouraging and solid. The theme of Verizon for the past year - and probably the coming year as well - is "the buildout." The company is massively investing in the nationwide FiOS infrastructure (fiber-optic service), which will give it the first fully integrated "converged" network capable of carrying digital telephone (wireless, local, and long distance), video, data, and internet access on a single wholly-owned infrastructure.
Verizon is not only investing heavily in this future, it is clearly making strong progress in that direction. The integration of MCI is going well, which gives it ownership of a large part of the internet core backbone as well as an existing business "raw-data" customer base, which Verizon lacked. The extremely expensive rollout of the FiOS service is going well, with Verizon able to compete successfully against cable companies for video service in places where they are able to compete legally.
Add to this the extremely encouraging data Verizon reported that 80% of its FiOS customers are "triple-play" customers - meaning the customer is buying wireless telephone, internet access, and digital TV services as one package - and you have a very real and promising picture of the "future" converged telecom marketplace.
That "future" is clearly a lot closer than most people thought it would be a year ago, but Verizon is rushing forward into it as quickly as possible - and they are much further ahead than any other competitor. This progress is the truly exciting news in the Verizon Q1 results, but most media reports will overlook it, as the tempting superficial analysis is the "easy" way to look at Verizon. See today's Ahead of the Curve column (to be posted later this afternoon) for more on this idea and the quarter's results.
--Robert V. Green, Briefing.com
09:56 am Duke Energy (DUK)
28.92 -0.04: The diversified multinational energy company missed by a penny with its first quarter profit result.. Net income fell to $358 mln, or $0.37 per share, for the March period from $866 mln, or $0.88 per share, in the prior year after the company sold its stake in a gas-processing venture. Excluding one-time items and discontinued operations, earnings grew 11% to $0.48 per share.
Revenues fell to $3.2 bln from $5.3 bln, which the company attributed to the deconsolidation of Duke Energy Field Services (DEFS) following a 20% stake transfer to ConocoPhillips (COP). The sale is part of Duke's multi-year restructuring plan, during which it has been selling off unprofitable energy-trading and power generation operations in order to improve its financial standing and to streamline the company. On April 3rd, it completed its acquisition of Cinergy, which makes Duke the third largest US utility owner. Cinergy's earnings fell 55% in the quarter to $34.2 mln on higher costs and warmer temps.
During the quarter, Duke reported that despite mild winter weather, its electric and gas operations delivered a solid performance. Its two largest segments, Natural Gas Transmission and Franchised Electric, separately reported almost a 7% increase in earnings before interest and taxes. Despite lower proportional throughput, the transmission business generated 24% revenue growth on higher energy prices. Overall, it was a solid quarter, but at this point it's unclear whether it's enough to move the meter on the stock which has remained range-bound since January. The jump in yield on the 10-year note continues to weigh on the group, which has performed exceptionally well over the past several years.
--Kimberly DuBord, Briefing.com
09:40 am Pilgrim's Pride (PPC)
25.51 -0.36: Poultry producer Pilgrim's Pride Corp. Tuesday posted somewhat humbling financials for the latest period thanks largely to the threat of Avian Flu, with the company showing a net loss of $32 million, or ($0.48) per share, on total sales of $1.27 billion for the second quarter ended April 1, 2006. For the second quarter of fiscal 2005, the company reported net earnings of $56.4 million, or $0.85 per share, on total sales of $1.38 billion. The latest quarter's figures fell short of a Reuters Estimates consensus estimate of ($0.32) per share.
O.B. Goolsby, Jr., Pilgrim's Pride president and chief executive officer, said in a press release that the spread of H5N1 avian influenza in parts of Europe and Asia significantly reduced export demand, leading to higher inventory levels and lower overall market pricing. At the same time, industry production levels for the company - the second-largest chicken producer in the United States and Mexico and the largest chicken producer in Puerto Rico - have continued to increase, creating an oversupply situation and further weakening prices. The company said revenue for the period was $1.27 billion, down 8% from $1.38 billion a year ago.
The company, which has a market cap of about $1.72 billion, said market pricing for both breast meat and leg quarters declined approximately 30% from a year-ago levels. Additionally, U.S. chicken sales volumes declined approximately 4% because of lower demand versus a year ago due primarily to the effects of avian influenza concerns in the international markets.
Pilgrim's Pride said it has initiated a multi-point plan with the goal of improving the company's competitive position. The plan includes a reduction in the weekly slaughter rate of approximately 3%, which is equivalent to approximately 830,000 head per week, and a $25 to $40 million reduction in capital investment for fiscal 2006. The company's revised estimate for capital investment this year is $140 million to $175 million. The company plans a sharpened focus on cost reductions and improved efficiencies.
At the end of last month, share prices for chicken producers such as Pilgram's Pride and Tyson Foods Inc. (TSN) suffered after Russia said it would pull poultry import licenses as a result of the offloading of products without permission and concerns over food safety.
--Christine Marie Nielsen, Briefing.com
09:14 am Hovnanian Enterprises (HOV)
38.78: Amid ongoing concerns of a slowdown in the nation's housing market, Hovnanian Enterprises on Monday cut its second quarter and fiscal year forecast, citing continued production delays, slowing sales, higher cancellations, and increased discounts and incentives. While the housing market has yet to collapse, as suggested by recent housing data, it continues to cool off from the heated levels of previous years. The warning, which echoes similar comments from other large builders, corroborates our unfavorable view on the industry as demand returns to more normal levels in the face of rising interest rate headwinds.
Based on the announcement, shares of the Red bank, New Jersey-based homebuilder traded sharply lower in pre-market activity.
For the current quarter, Hovnanian now expects to earn $1.40 to $1.50 per share, down from its previous projection of $1.55 to $1.80 per share. Analysts on average are currently looking for earnings of $1.68 per share, according to Reuters Estimates. Based on deliveries to date, current backlog, and expectations for future orders, the company also lowered its outlook for the full year with earnings anticipated to be between $7.20 and $7.40 per share. That compares with its previous forecast for earnings of $8.05 to $8.40 per share and the consensus estimate of $7.92 per share.
While Hovnanian experienced a 22% increase in the dollar value of net contracts in the first quarter, the company said it expects to report approximately a 20% decline in net contracts for the second quarter. It credited the unanticipated decline to the sequential increase in cancellation rates over the past two quarters. Typically, second quarter cancellation rates are lower than those of the first quarter, the company said. The higher cancellation rates, as well as increased resale listings and increased use of sales incentives, reflect overall slower market conditions and an increased level of resale homes for sale in certain markets.
--Richard Jahnke, Briefing.com
08:56 am Caremark Rx (CMX)
44.63: Caremark, the second largest pharmacy benefit manager, or PBM for short, reported a 16% rise in quarterly profits driven by higher margins and a greater contribution from its mail-order business. This was the first quarter as well that the company sold drugs for the new Medicare Part D program, which, since its January 1st debut, CMX has added 400,000 members. Net income in the first quarter grew to $228.2 mln, or $0.51 per share, besting expectations by a penny.
The specialty and mail order services business offers considerable growth potential for Caremark due to its high profit margin status. In the quarter, mail pharmacy revenues rose 11% to $3.1 bln with mail-order claims rising 5% to 15.1 mln. Retail revenues grew 4% to $5.7 bln, despite a 10% drop in prescription volumes due to the previously disclosed contract terminations that were offset in part by Medicare claims. Total revenues grew 7% to $8.9 bln, while gross margins widened to 6% of sales - a 25 basis point improvement over the prior year.
Based on the first quarter results and share repurchases, the company raised its full year guidance to a range of $2.29 to $2.35 per share on revenues of $34.6-$36.3 bln. This compares to its previous range of $2.25-$2.30 per share and consensus estimates of $2.30 per share and $35.41 bln.
Given Caremark's solid earnings growth, operating leverage and scale, margin expansion, robust cash flow generation, and growth in specialty and mail-order franchises, we continue to hold a favorable view on the stock. There are considerable risks, however, including overhanging legal issues, government regulation, and the timing on generic launches. The stock trades at 16.4x estimated FY07 earnings of $2.72 per share compared to Express Scripts (ESRX) at 19.6x and Medco Health (MHS) at 16.6x.
--Kimberly DuBord, Briefing.com
08:26 am Archer Daniels Midland (ADM)
38.00: It's clear something has changed after the world's largest maker of ethanol appointed former Chevron Corp (CVX) executive Patricia Woertz as chief executive officer. Archer Daniels Midland sits right in the middle of a very lucrative corn field. This agricultural company is rushing to expand its energy unit in order to ramp ethanol output - a gasoline additive made from corn. This is the first time in the company's 104-year history that a woman will take over the helm, which is a move we certainly applaud. It also comes at a critical time when the nation's focus has turned green, well, actually yellow.
The world's largest grain processor reported third quarter profits rose 29% to $348 mln, or $0.53 per share, compared with $269 mln, or $0.41 per share, in the prior year. Excluding items, EPS of $0.54 far exceeded the consensus estimate of $0.46 per share. Operating profits soared 46% to $549 mln on 8% revenue growth, driven by oilseeds processing and corn processing due to improved ethanol and sweetener selling prices. Agricultural Service operating profits increased principally on improved transportation results. Operating margins widened 160 basis points to 6%.
As one of the only large-cap ethanol stocks, ADM will remain in the alternative energy-induced spotlight. Valuation concerns aside, the outlook for the company remains positive as it ramps capital spending on energy-related projects from ethanol to bio-degradable plastics. Considering the rise in the stock, the market may take a breather on it during this transition to assess the new CEO. For investors looking for a stock that actually benefits from higher gasoline prices, ADM is the name for you. However, we would suggest waiting for a pullback to add to shares considering the stock is trading well above historical multiples.
--Kimberly DuBord, Briefing.com
10:23 am Airgas: KeyBanc Capital Mkts / McDonald downgrades Buy to Hold. The firm says the stock is priced for perfection in our view, with multiples at multiyear highs. At the same time, the firm did not get the sales pickup or gross margin improvement that they hoped, and with the dynamics behind that fact unchanged, it is prudent to nudge their FY'07 forecast down a bit.
10:22 am Lehman Brothers: Wachovia downgrades Outperform to Mkt Perform. Wachovia is lowering their Brokerage Sector rating to Market Weight from Overweight. Firm states that drastic outperformance makes the call easy to make with the AMEX broker dealers index up 18% year to date. Firm also states that most important, debt fundamentals are starting to slow. Debt has and will continue to be the underpinnings of the broker world. Firm also states that while they continue to believe there are solid secular underpinnings for this market, cyclical factors might be beginning to weigh somewhat. Firm still is a long-term bull on this space. However, given the prolonged strength in this group and emerging signs of pockets of some weakness, combined with the prospect of a re-steepening of the curve driving money into banks, firm believes the brokerage group no longer warrants an Overweight rating.
10:21 am RLI Corp: Ferris Baker Watts upgrades Neutral to Buy. Target $59. Firm is saying despite RLI's strong first quarter results, RLI shares have retreated more than 10% over the last month. The firm thinks this pull back represents an excellent opportunity to acquire shares of a high-quality E&S franchise at an attractive multiple.
10:20 am Bottomline Tech: Needham & Co downgrades Strong Buy to Hold. Firm is saying they knew Bottomline's March through December comparisons would be difficult. The firm didn't realize how slow. The firm says the co now expects to have flat sequential rev and $0.05 in EPS for the next "several" quarters. Bulls interpreted this as a natural transition to subscription. The firm had modeled this transition as well, so the new numbers imply slower growth, across the board, than they had forecast.The firm says their Strong Buy rating was ill-timed. They don't expect the stock to collapse because investors adore any kind of recurring revenue story. However, they say the highly valued recurring rev companies such as Ultimate, Concur and Salesforce.com have fast revenue and EPS growth.
10:08 am Kenexa: Wedbush Morgan downgrades Buy to Hold. Target $30 to $34. Firm cuts rating and price target despite the co's solid Q1 operating results last night, as the co's organic growth could be slowing and the stock is trading very close to their new price target of $34. The firm also expected higher Q2 guidance, which could have been tempered by management seeing decelerating organic growth in its core business.
10:07 am VeriSign: RBC Capital Mkts reiterates Sector Perform. Target $22 to $24. Firm ups target following completion of the m-Qube acquisition. Firm says this came ~2 weeks earlier than they originally anticipated, and believes it help broaden out VRSN's Communication Services Group offering. Firm likes the addition of m-Qube as it strengthens VRSN's move to an infrastructure provider which compliment their content provider business (Jamba/Jamster). They wouldn't be surprised to see an additional $3 mln revenue upside to their Q2 estimates and in each of the next two quarters with an additional $0.01-$0.02 EPS upside to their full year FY06 estimate.
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