From Briefing.com: 4:55PM Western Digital: John Coyne named Pres, COO (WDC) 19.65 -0.23 : Co appointed John Coyne president and C.O.O.. Arif Shakeel, previously president and C.E.O., remains CEO. The appointment is effective June 1, 2006. Mr. Coyne was previously Exec VP and C.O.O., having assumed the latter post in 2005. As president and C.O.O., Coyne will add responsibility for the company's business units to his existing leadership of business operations, hard drive and head manufacturing, materials, engineering, and IT.
4:20 pm : Stocks closed mixed as uncertainty regarding monetary policy acted as an overhang on the market throughout most of the session; that is, until a sense that stocks may be oversold on a short-term basis renewed enthusiasm for blue chips in the last hour of trading.
With the Fed saying last week that further rate hikes will depend on "incoming data," and key inflation reports (e.g. PPI and CPI) hitting the wires over the next two days, the realization that market valuations now have to be priced for at least another 1/4% increase in yields across the board prompted follow-through selling in the wake of last week's broad-based consolidation. However, as was the case last week, the Nasdaq bore the brunt of selling efforts again as higher interest rates continue to spark valuation concerns, especially in growth stocks. To wit, the Russell 2000 turned in an even worse performance since small cap stocks often are more adversely impacted by a rise in borrowing costs.
With regard to sector strength and weakness, this year's leaders were again today's biggest laggards. Energy paced the way lower as crude oil closing down 3.7% at $69.40 a barrel (-$2.64) shaved another 1.7% off its leading year-to-date gain. Oil prices continued to consolidate after Saudi Arabia's oil minister cited the risk of OPEC capacity expansions outstripping demand while Qatar's oil minister said that oil prices around $70 a barrel may slow global economic growth. Speaking of demand concerns, metals prices also plummeted Monday as traders let some air out of the speculative bubble that has recently lifted copper to historic highs and gold prices to their best levels in 26 years.
The absence of leadership from the year's best two performing sectors -- Energy and Materials -- which are also expected to contribute a significant portion of the profit growth on the S&P 500, initially weighed on sentiment throughout the session. At the end of the day, though, more relief on the commodity price front, as a rebound in the dollar weakened their appeal as alternative investments, helped alleviate some of the concerns about inflation and further Fed tightening. In its policy statement on May 10th, central bankers noted that "elevated prices of energy and other commodities have the potential to add to inflation pressures."
Since rates are starting to get to the level where even small increases start to leverage in valuation models, the negative tone that underpinned stocks most of the day fueled renewed buying interest in bonds as more attractive alternatives to equities. Treasuries bounced back after five consecutive days of consolidation, supported by a weaker-than-expected read on May NY Empire manufacturing activity. The yield on the 10-yr note fell to 5.14%. As a result, the rate-sensitive Financial sector provided some influential leadership that, in combination with the defensive-characteristics of Health Care and Consumer Staples renewing enthusiasm for two underperforming sectors, helped offset more consolidation across the board in Technology. Even Consumer Discretionary, which was under pressure after Target (TGT 50.04 -2.17) missed analysts' expectations by a penny as profit margins fell for the first time in two years, eked out a small gain. BTK +0.3% DJ30 +47.78 DJTA +0.1% DJUA +0.4% DOT -0.4% NASDAQ -5.26 NQ100 -0.1% R2K -0.7% SOX -1.0% SP400 -0.6% SP500 +3.26 XOI -2.3% NASDAQ Dec/Adv/Vol 1989/1090/2.04 bln NYSE Dec/Adv/Vol 1867/1364/1.87 bln
1:24PM Semiconductors Hldrs Trust slide to fresh session lows under 35.80 (SMH) 35.72 -0.22 : Next level of interest lies near the March reaction lows around 35.19/35.61.
1:20PM Cree hovering near session low of 28.89 and just above the April/two month low at 28.86 (CREE) 28.90 -0.58 : Its March low is at 28.65 with its 200 day ema at 29.39.
11:54AM Cohu sells Metal detection business (COHU) 16.85 -0.23 : Co announces it has sold substantially all the assets, excluding real property, of its metal detection equipment business, FRL, Incorporated to First Texas Holdings, for approx $3.2 mln in cash. The sale is expected to result in a pretax loss of approx $0.7 mln that will be recorded in Cohu's second fiscal quarter ending June 24, 2006.
12:07 pm BostonPrivate Fin: Ryan, Beck & Co upgrades Mkt Perform to Outperform. Target $35. Ryan Beck upgrades BPFH to Outperform from Market Perform and sets a $35 tgt saying they believe the recent pullback in the stock price represents an attractive opportunity to step into a high quality franchise.
10:06 am Saks: UBS reiterates Reduce . Target $16 to $12. UBS cuts their tgt on SKS to $12 from $16 saying with little confidence in the turnaround they think current fundamentals only support a value of $12 a share.
10:04 am Marshall & Ilsley: AG Edwards reiterates Buy. Target $48 to $50. AG Edwards raises their tgt on MI, before the open, to $50 from $48 as they look for core fundamental trends at MI to remain strong, as the banking operation should continue to generate top-tier loan growth trends, a relatively stable margin, and continued momentum at Metavante.
10:04 am Gold Fields: CIBC Wrld Mkts upgrades Sector Underperform to Sector Perform. Target $26 to $35. CIBC upgrades GFI to Sector Perform from Underperform and raises their tgt to $36 from $26 saying they expect gold prices to pause and possibly pull back by 10% before moving ahead to exceed the all-time high of $875/oz set in January 1980.
10:02 am Novatel Wireless: Morgan Joseph upgrades Hold to Buy. Target $17. Morgan Joseph upgrades NVTL to Buy from Hold and sets a $17 tgt saying by the end of 2006, they believe Novatel will diversify its revenues and will be generating sales in four product categories; PC cards, embedded modules, PC express mini cards, and Ovation wireless routers. During 2H06, the firm expects new product launches to drive accelerating revenue growth, and significant margin improvement.
10:01 am Bookham Tech: Merriman Curhan Ford upgrades Neutral to Buy. Merriman upgraded BKHM to Buy from Neutral saying with BKHM now down nearly 60% from recent highs and trading at 0.6x EV/revenues, they believe the negatives surrounding Bookham's recent gross margin results and outlook are more than priced into the shares. The firm says in some senses the co is in the same position it was nearly a year ago, with the main differences being a) a much stronger balance sheet and b) an optical networking market that is clearly in recovery.
10:00 am Warner Music Group: Am Tech/JSA Research upgrades Hold to Buy. Target $28 to $37. Amtech upgrades WMG to Buy from Hold and raises their tgt to $37 from $28 based on their belief that Street numbers are underestimating the impact of higher digital rev in FY06/FY07. They believe that key drivers for WMG's digital rev include the news today of MTV's URGE music service, the possible release of AAPL's new iPod, and a possible launch of a digital music service from AMZN later this year. Furthermore, the firm says chatter continues around EMI possibly increasing its offer for WMG into a $31-$33 range, up from the previous offer of $28.50 per share.
09:59 am Covad: Cowen & Co initiates Outperform. Capital One initiates GDP with a Buy and a $34 tgt saying they expect GDP to continue to rapidly grow production, reserves, and earnings. The firm says GDP has focused over 85% of its 2006 capital budget on the low-risk, high-growth Cotton Valley sands of east Texas and northwest Louisiana. The firm says significant additional potential exists to accelerate drilling in the Cotton Valley.
09:57 am Goodrich Petroleum: CapitalOne southcoast initiates Buy. Target $34. Capital One initiates GDP with a Buy and a $34 tgt saying they expect GDP to continue to rapidly grow production, reserves, and earnings. The firm says GDP has focused over 85% of its 2006 capital budget on the low-risk, high-growth Cotton Valley sands of east Texas and northwest Louisiana. The firm says significant additional potential exists to accelerate drilling in the Cotton Valley.
3:37 pm Bausch & Lomb (BOL)
49.87 +5.43: Embattled eye care company Bausch & Lomb announced today that it will be permanently removing its MoistureLoc contact lens solution from worldwide markets effective immediately. The decision came after an extensive investigation that showed no evidence of product contamination, tampering, counterfeiting or sterility failure that many feared had contributed to a rare eye infection called Fusarium keratitis.
Notwithstanding the favorable finding, the company did note that "some aspect of the MoistureLoc formula may be increasing the relative risk of Fusarium infection in unusual circumstances" and that it is continuing to investigate that link. Bausch & Lomb, which has delayed its 2005 10K filing, had net sales of $2.23 billion in 2004. It was mentioned in the press release that the MoistureLoc product contributed $100 million in sales in 2005. Separately, the FDA indicated that its scientific conclusion is that the association of the fungal infection is in fact just with the MoistureLoc solution.
The market's favorable response to the news is rooted in the belief that Bausch & Lomb's findings and the FDA's scientific conclusion will put to rest concerns that the association with Bausch & Lomb's contact lens solution and the fungal eye infection may be more direct, serious, and widespread than first reported. Moreover, there is a sense that today's announcement will mark the nadir of a seemingly endless slide in the stock, which traded at $87.89 as recently as last July.
In all likelihood, there is some short covering that is exacerbating the move in the stock so we'd be wary of jumping on the turnaround bandwagon just yet. Although it is certainly good that there was no evidence of tampering or product contamination, Bausch & Lomb can still expect to be hit with its share of liability lawsuits. Furthermore, despite its recommendation that users switch to its ReNu MultiPlus or ReNu Multi-Purpose brands, Bausch & Lomb will still be fighting the public's perception that its product was linked to a fungal eye infection. Rightly or wrongly, that is sure to crimp sales of its other products and perhaps hit profit margins as the company wages a necessary damage control and imaging campaign.
The company's uncertain status was reflected in the statement that it has not provided revenue or earnings guidance for 2006 and that it has not estimated the financial impact of this action on its 2006 results.
--Patrick J. O'Hare, Briefing.com
11:58 am Target Corp. (TGT)
50.14 -2.07: Retailer Target Corp. reported its first quarter results before the start of trading and, well, they weren't exactly on target. As a result, Target's stock has been placed in the crosshairs of interested sellers.
The first point of contention for investors was that Target's profit of $0.63 per diluted share, which was up from $0.55 per share last year, was a penny shy of the consensus estimate. A few weeks ago that might not have made such a big difference for the market, which chose to look at just about everything in a positive light. Now, with the concern the Fed will go further with its tightening activity than previously expected, market sentiment has shifted to a point that the market seems to be taking a glass-is-half empty view of earnings prospects. Hence, it has mattered little today that Target said it believes the first quarter results put it on track to achieve a mid-teen percentage increase in EPS for the full year.
Additionally, the bottom-line miss overshadowed a solid sales performance that was accented by a 12.1% increase in total revenues to $12.86 billion and a 5.1% increase in comparable store sales. The bottom-line miss, though, was magnified by the recognition that Target saw some compression in its gross margin rate, which slipped to 32.18% from 32.36% last year, and incurred a higher expense rate than the year-ago period. Specifically, SG&A expenses were 23.0% of sales versus 22.3% last year. These trends have stirred concerns about the possibility of ongoing margin pressure tied to the sale of lower margin products like groceries, as well as the effects of increased competition.
At its current level, TGT is trading at 17.9x trailing twelve month earnings. That is a substantive discount to its 10-year historical average of 26.5x. While there is a value case to be made for Target, concerns about margin pressures and consumer spending in the face of more rate increases will impede multiple expansion for the time being. As such, we'd be inclined to take a wait-and-see approach with Target's stock for now.
--Patrick J. O'Hare, Briefing.com
10:52 am Illinois Tool Works (ITW)
102.26 -0.53: Illinois Tool Works, a $12.8 billion in revenues diversified manufacturer, reported a 7% increase in operating revenues for the three months ended April 30, 2006, and reaffirmed its guidance for fiscal second quarter and full year. As a result, shares of the company, which are up more than 17% since the beginning of the year amid improving fundamentals and strength in the Industrials sector, have edged higher in early market activity.
For the most recent quarter, the Glenview, Illinois-based company said operating revenues consisted of 5% growth from base revenues and a 5% increase from acquisitions. Currency translation and inter-company sales lowered revenues by 3% in the period. The increase in base revenue reflects continued strong demand from North American end markets, the company noted.
After one month of actual results, Illinois Tool Works backed its forecast for second quarter earnings of $1.52 to $1.58 per share, versus the Reuters Estimates consensus of $1.57 per share. Base revenues for the current period are expected to grow between 4.2% and 6.2%. For the full year, the company said it expects to earn $5.89 to $6.07 per share, with base revenues forecasted to grow in a range of 4.6% to 6.0%. Analysts on average are looking for earnings of $6.04 per share for the fiscal year.
Shares of Illinois Tool Works have traded in a range of $78.50 to $107.08 over the past 12 months, benefiting from strong business activity. At the current price level, the stock is trading at roughly 19.1x trailing twelve month earnings, compared with 18.8x for industry bellwether General Electric (GE).
--Richard Jahnke, Breifing.com
09:35 am Inco Ltd. (N)
66.55: Canadian nickel miner Inco Ltd. raised its offer to acquire Falconbridge Ltd. (FAL) by $1.7 billion to approximately $17.5 billion as a result of soaring metal prices - a trend that continues to support our Overweight rating on the Materials sector - as well as speculation that Switzerland-based Xstrata PLC, which already owns a 20% of Falconbridge, is considering a rival bid for the Canadian mining concern. Furthermore, Inco said that the two companies have increased the break-up fee for their deal to create the world's largest nickel producer to $450 million, up from $320 million, helping to curb the threat from rival bidders.
Inco had announced its original intentions to acquire Falconbridge last October, but the deal has largely been stalled by regulatory concerns in both the United States and in Europe.
"The enhanced terms reflect the change in metal market dynamics and the additional value created in Falconbridge because of higher metal prices," stated Inco's chief executive Scott Hand. "The recent gains in copper and nickel markets and their outstanding prospects going forward make our transaction look even better today than when it was first announced," he added.
According to the Wall Street Journal, the revised agreement follows a move last week by Canada's Teck Cominco Ltd. to launch a $15.35 billion takeover of Inco and break up its its pact with Falconbridge, as mining companies continue to mount takeover strategies amid soaring metal prices. Furthermore, the Journal reported that Xstrata is considering whether to bid for the rest of Falconbridge, but may wait for regulatory scrutiny to play out, people close to the company said. Xstrata in recent months has also sounded out some industry giants about their taking over Falconbridge, with Xstrata making a play for Inco, according to the report.
--Richard Jahnke, Briefing.com
09:05 am PetMed Express (PETS)
15.30: When it comes to pet services, PetMed Express, which does business as 1-800-PetMeds, isn't necessarily a household name. Nonetheless, the company, which bills itself as America's largest pet pharmacy, has shown with each passing earnings report that it is becoming more relevant for an increasing number of households. That message was plain to see again in the fiscal year-end results from PetMed Express, which were reported today.
For the year PetMed Express achieved a 51% increase in net income to $12.1 million, or $0.50 per diluted share, on a 27% increase in net sales to $137.6 million. The company acquired 624,000 new customers compared to 510,000 in the prior fiscal year; meanwhile, retail reorder sales increased 29% to $88.4 million, which is a reflection of the loyalty of its existing customers.
The quarterly results from PetMed Express also underpinned its status as a growth company. Specifically, its profit of $3.1 million, or $0.13 per diluted share, in the seasonally slow period was up 30% from last year while net sales increased 25% to $29.4 million. According to Reuters Estimates, analysts were expecting a profit of $0.13 per share on net sales of $28.6 million. For the quarter, the company acquired approximately 94,000 new customers versus 80,000 new customers last year.
Regular readers of Briefing.com will recall that PetMed Express was a suggested holding in our Active Portfolio until March 7 when we removed it, citing several factors that included valuation concerns, insider selling, and its overbought status. In doing so, though, we also communicated our belief that PetMed Express was putting up results that highlighted its appeal for growth-oriented investors, as well as potential acquirers looking to increase their presence in the higher margin pet services business.
The company's latest results haven't altered our position; however, with the market showing increasing skittishness about rising interest rates and their corresponding impact on earnings prospects, particularly for growth-oriented stocks like PETS, we'd refrain from committing new money at this time.
--Patrick J. O'Hare, Briefing.com
08:55 am Boeing (BA)
87.01: Boeing's history is steeped in scandal, but hopefully, under the new leadership of Jim McNerney, this chapter has come to an end. According to the Wall Street Journal, Boeing has agreed to pay $615 mln to end three year-long investigations by the Justice Department into high-profile scandals that have plagued the company. This would be an important milestone and a victory of sorts for McNerney who is attempting to restore Boeing's reputation.
People familiar with the details told The Journal that the deal will allow Boeing to avoid criminal charges or any admission of wrongdoing. Current and former federal investigators describe the tentative settlement as the largest financial penalty ever imposed on a military contractor for weapons-program improprieties, according to the article. Boeing was under investigation for procurement violations and alleged corruption, which prompted a major overall of the company's corporate structure.
If reached, the settlement will lift a cloud over Boeing and allow the company to focus on what it does best - build great airplanes. Boeing continues to fly high, propelled by the bull cycle in commercial aviation and the missteps of its major rival, Airbus. The Toulouse, France-based company is currently re-examining its A350 aircraft after major sales campaign losses and public criticism. The company is expected to announce earnings at the Berlin air show on May 16th. That same day Boeing holds its investor conference, during which time it is expected to provide long-term return goals. While growth in the defense business moderates and notwithstanding the run up in shares, we continue to recommend Boeing given its continued success in the commercial aviation business and the prospect of further margin expansion ahead.
--Kimberly DuBord, Briefing.com |
