From Briefing.com: 4:20 pm : Stocks rebounded modestly in the wake of Wednesday's broad-based slide as investors weighed easing interest rate concerns and a favorable court ruling against mixed monthly retail sales.
With the Fed's focus still centered on "incoming" data, especially ahead of Friday's influential jobs report, the ISM services index pulling back from four solid months of above 60% growth to a June read of 57.0% -- the slowest pace since January, provided more evidence the policy makers may be nearing an end with their rate hikes. The employment component slipping to 52.0 from a relatively strong 58.0 and the prices paid component falling to 73.9% from 77.5% in May were also encouraging with regard to Fed policy, helping Treasuries regain some traction and pushing the yield on the 10-yr note (+09/32) to session lows at 5.18%.
Per usual, the Dow Jones Industrial Average turned in the best performance after the Florida Supreme Court rejected a $145 bln verdict against tobacco companies for injuring smokers. After unanimously concluding that the punitive damages award was "excessive as a matter of law," shares of Dow component Altria (MO 77.76 +4.43), which is also the tenth most influential SnP 500 constituent, turned positive and soared to an intraday all-time high.
Despite further deterioration in software and semiconductor stocks, as well as weakness in some retailers like Costco Wholesale (COST 55.85 -1.00) after it missed analysts' same-store sales forecasts, the Nasdaq closed just above the flat line amid strength from Nasdaq-100 components like Yahoo (YHOO 33.11 +0.64) and Biogen Idec (BIIB 47.04 +0.76).
Retailers reported that June sales rose 2.6%, which was at the low end of The International Council of Shopping Centers' projected 2.5-3.0% range and well below the 3.8% gain averaged in the first five months of the year. Since June is the second most important month of the year for retailers behind December, as stores begin clearing out summer items to make room for fall merchandise, indications that consumers are starting to feel the effects of rising economic pressures actually played into the argument for a potential pause at the Fed's next meeting in early August. BTK +0.5% DJ30 +73.48 DJTA -0.7% DJUA -0.5% DOT -0.4% NASDAQ +1.75 NQ100 -0.2% R2K +0.1% SOX -0.3% SP400 +0.3% SP500 +3.17 XOI +0.2% NASDAQ Dec/Adv/Vol 1413/1597/1.64 bln NYSE Dec/Adv/Vol 1245/2015/1.41 bln
4:47PM Market Internals (MKTIN) : The Dow increased 0.66% closing at 11225, the Nasdaq was up 0.08 % to finish at 2155, and the S&P was up 0.25% to finish at 1274. Leading sectors included: tobacco +5.7%, gas util +4.3%, fertilizers and agricultural chem +2.2%, airlines +2.0 %, apparel retail +2.0%. Lagging sectors included: railroads -2.6%, home entertainment sftw -2.2%, oil and gas equip -1.8%, home furnishings -1.5%, building products --1.5%. Today's movement came from lower than average volume (NYSE 1409, vs. closing avg of 1732; Nasdaq 1643, vs. 2096), with higher advance/decline ratios (NYSE 2015/1245; Nasdaq 1597/1413, and with new highs outpacing new lows (NYSE 80/66, Nasdaq 80/60).
4:33PM Cisco Systems announces agreement to acquire Meetinghouse (CSCO) 19.63 +0.03 : Co announced a definitive agreement to acquire the privately-held Meetinghouse Data Communications, Inc. of Portsmouth, NH. Under the terms of this agreement, CSCO will pay approximately $43.7 mln in cash and assumed options for Meetinghouse. The acquisition is subject to various standard closing conditions, including applicable regulatory approvals, and is expected to close in the first quarter of CSCO's fiscal year 2007, ending October 28, 2006.
4:30PM PLX Tech Announces Resignation of CFO; sees Q2 revs of $19.2-19.3 mln vs $18.6 mln consensus (PLXT) 12.06 +0.01 : Co announced that Rafael Torres, chief financial officer, has decided to leave the company to become the chief financial officer of a larger public technology company outside the interconnect-silicon chip market. Michael Salameh, chief executive officer, will become acting chief financial officer effective July 19, 2006 until a permanent chief financial officer is identified. The Company has launched a search to identify a CFO that can help scale the Company as it continues to execute its growth strategy. Co also announced it sees Q2 revs of $19.2-19.3 mln vs $18.6 mln consensus.
4:06PM PMC-Sierra CFO to resign; co affirms prior rev guidance for Q2 (PMCS) 9.04 +0.03 : Co announces that CFO Alan Krock has given notice that he will be leaving the co for personal reasons following a reasonable transitional period. Co also says it expects Q2 (Jun) revenue will be at the mid-point of prior guidance of $108-112 mln and vs consensus of $114.4 mln. Note, that guidance excluded revenue from the acquisition of Passave Inc. that closed on May 4. Briefing Note: Consensus is a bit higher, but that may have included Passive revenue; co is affirming prior guidance.
1:35PM Brooks Automation announces it wins significant order from Jusung for multiple vacuum automation systems (BRKS) 11.86 +0.31 : Co announced that Jusung Engineering, an equipment manufacturer based in Kyungkido, South Korea, recently placed a significant multi-million dollar order for Brooks' proven Gemini Express 6000 vacuum system. The GX6000 will be employed as the backbone for semiconductor wafer transport in Jusung's leading edge 300mm deposition and other critical processes.
12:13 pm Big Tobacco Gets Boost from Latest Verdict
In a favorable turn of events for the major tobacco companies, the Florida Supreme Court on Thursday rejected a $145 billion verdict against the industry in the Engel case. The decision upholds a 2003 appellate court ruling that it had been a mistake to certify a class-action lawsuit representing up to 700,000 Floridians, which resulted in the largest punitive damage award in history.
Defendants in the case include Philip Morris USA, a unit of Altria Group (MO), Reynolds American's (RAI) R.J. Reynolds Tobacco Co. and Brown & Williamson units, Loews Corp's (LTR) Lorillard Tobacco Co., and Vector Group's (VGR) Ligget.
As a result of the decision, which should free up millions of dollars that the companies had allocated to the case, tobacco stocks traded sharply higher. Altria Group, which plans to break up its tobacco and food businesses, saw its shares gain more than 7% during the regular trading session, while Reynolds American shares were up nearly 6%. Loews Corp. shares were up about 4% and Vector Group shares climbed 5%.
--Richard Jahnke, Briefing.com
11:16 am Gymboree (GYMB)
34.84 +0.92: Amid a mixed batch of same-store sales reports for June, Gymboree stood out as one of the more successful retail stories, reporting a 9.0% comparable store sales increase versus the Briefing.com consensus estimate that called for 7.0% growth. In turn, Gymboree, which is a suggested holding in Briefing.com's Active Portfolio, raised its earnings per share guidance for the second quarter and fiscal year.
The encouraging results from Gymboree weren't anything new, as the specialty retailer has made a habit of topping expectations and raising its guidance. The fact that it managed to do so again in the face of high gas prices, rising interest rates, and flooding on the East Coast validates our positive view of the company.
We must admit, however, that Gymboree's position as an Active Portfolio holding is under review knowing that the stock is up 163% since we added it to our portfolio and considering we aren't advising one to commit new money at this juncture given the changing macro-economic environment and the retailer's challenging comparisons. In other words, we still like the company, but we are having doubts as to whether the risk-reward profile is truly attractive enough for the active investor with a shorter time horizon.
With respect to Gymboree's performance in June, all geographic regions posted positive comparisons in the month, with the strongest merchandise segment being Kid-Boy, followed by Baby-Boy, Kids-Girl, and Newborn.
Gymboree now expects to post a loss of ($0.05)-($0.03) per share for the second quarter, including a $0.04 per share impact from stock-based compensation, and full-year EPS of $1.41-1.44, including $0.14-0.15 per share of stock-based compensation. Its prior estimates were a loss of ($0.09)-($0.07) and $1.37-1.40, respectively. The fact that consensus estimates were pegged at ($0.06) and $1.54 - or levels better than the company's own guidance - reflects the market's understanding that Gymboree is known for conservative forecasting. At the same time, it also reflects high expectations that are likely to prove more challenging to meet in a manner that will drive material multiple expansion.
--Patrick J. O'Hare, Briefing.com
10:46 am Wal-Mart (WMT)
46.83 -0.19: After reporting disappointing June sales results, Wal-Mart reiterated its earnings guidance for the fiscal second quarter. Specifically, the world's largest retailer said it expects earnings for the quarter to be within its previously stated range of $0.70 to $0.74 per share, compared with analysts forecast of $0.73 per share, according to Reuters Estimates.
Elsewhere, rival Target Corp. (TGT) reported a 4.8% increase in June same store sales, near the high end of its forecast, and better than the 4.6% consensus estimate. The company also said it expects to meet or beat analysts' earnings estimates of $0.69 per share for the second quarter.
For the month of June, Wal-Mart reported a 1.2% gain in U.S. same store sales, short of analysts' expectations for a 2.3% increase. The company's Wal-Mart Stores division saw sales at stores open at least one year rise 1.1% during the five-week period, while its Sam's Club division posted a 1.3% increase, excluding the impact of fuel sales. Total company sales for the month rose 10.4% to $33.12 billion, from $29.99 billion last year. International sales, which include sales from the consolidation of Seiyu and Wal-Mart Central America and the acquisition in southern Brazil, climbed 29.5% to $7.6 billion.
Wal-Mart said results were driven by average tickets, as traffic was down for the month. Chief financial officer Tom Schoewe said Wal-Mart continues to see customers consolidating their trips, as company research among shoppers points to an increasing concern about the rise in gas prices over last year.
Although sales growth for June was displeasing, amid continued pressures on U.S. consumers, we believe shares continue to hold long-term investment appeal at the current price level for patient-minded investors.
--Richard Jahnke, Briefing.com
10:28 am Target Corp (TGT)
48.99 +0.72 : Target Corp. did better than hit a bulls-eye Thursday when it said its June same store sales increased 4.8%, outdoing a Briefing.com consensus for an increase of 4.6%. The sales were not only near the stronger end of the store's forecast, but also came in at the upper portion of same-store sales seen for discount retailers overall. As a result, Target's stock pulled up from nearly a 52-week low.
The company said total sales for the five weeks ended July 1 rose 11.3% to $5.09 billion, with pharmacy, household goods, and infant products among top sellers in the month.
The retail giant, which has a market cap of about $41.68 billion, said it expects to see a gain in July same-store sales of 4% to 6%.
With trailing 12-month earnings at about 17x, the stock is about even with competitor Wal-Mart Stores Inc. (WMT); however, Wal-Mart Thursday did not make quite as good of a showing, indicating June same store sales increased 1.2%, the low end of its forecast.
Briefing.com continues to view the prospects for Target's stock with guarded enthusiasm. To the company's credit, June is considered the second most important month of the year in a retailer's calendar behind December, representing a period during which merchants begin to clear out summer stock to make room for fall goods.
As interest rates and gas prices continue to be absorbed by Target's key public, its customers are focused on buying more of what they need than what they want, and this is likely to be the case for the company for months going forward.
--Christine Marie Nielsen, Briefing.com
09:43 am Time Warner (TWX)
17.13: There has been much speculation over the last year about what Time Warner will do with its aligning AOL unit, including talk of a possible sale. But now, it appears that TWX may be moving in a different direction. Instead of selling off AOL, why not just give away the service for free?
Time Warner is considering offering all of AOL's services, including email, free of charge to anyone with a high-speed Internet connection, which accounts for roughly a third of its subscriber base, according to an article in the Wall Street Journal. While the idea may sound counterintuitive, it does make sense considering the growth driver for AOL isn't subscriber revenues, but advertising. AOL would give up $2 bln in subscription fees, betting that the move would pay off in dividends through higher advertising rates.
AOL CEO Jonathan Milled presented the idea to top TWX executives last week, according to the article. The two billion in lost revenue could in part be made up through lower costs achieved through expected job cuts and lower operating expenses. Furthermore, AOL still has a large paying dial-up customer base that uses its service as a means to connect to the web. AOL has already been discounting its service through packaged deals with broadband service providers.
This strategy shift may be TWX's best opportunity to leverage AOL's greatest assets: its global brand name and traffic, top tier advertising strength, and dominance in the instant message space. The unit has hung like a weight around Time Warner's neck since its acquisition in 2000, and despite continued impressive performance by its Time Warner Cable, AOL remains the sentiment driver of shares. Therefore any opportunity the media giant has to alter this view could finally move the dial for the stock, which has flat-lined for years. Our favored names within the media industry are still Disney (DIS) and News Corp (NWS/A), both suggested holdings in our Active Portfolio.
--Kimberly DuBord, Briefing.com
09:06 am P.F. Chang's China Bistro (PFCB)
37.35: P.F. Chang's China Bistro, which operates two Asian-themed restaurant chains, on Thursday said it would miss analysts' earnings expectations for the second quarter, due to lower than expected revenue and continued pressure on labor costs. For the latest quarter, the company reported that same store sales slipped 1% at P.F. Chang's China Bistro and 3.9% at Pei Wei Asian Diner. Meanwhile, total revenue grew 14% to $226 million, but fell short of the company's previous forecast of $229.4 million and analysts' expectations for $228.56 million.
As a result of the revenue shortfall, as well as pressure from labor costs, P.F. Chang's said it expects to earn between $0.29 and $0.31 per share in the second quarter, shy of analysts' forecast. Analysts on average were looking for earnings of $0.33 per share, according to Reuters Estimates. Last year, the company posted earnings of $0.34 per share.
Based on the announcement, the company's shares are trading sharply lower in pre-market activity. The stock is down more than 40% since reaching a 52-week high at $65.12 last July, and is off nearly 25% since the start of the year, as higher fuel costs and rising interest rates have weighed on the company, and the Consumer Discretionary sector in general, with more people eating in and downgrading their dining options.
--Richard Jahnke, Briefing.com
08:56 am American Eagle Outfitters (AEOS)
33.77: Shares in clothing retailer American Eagle Outfitters Inc. were poised to open slightly higher Thursday after the company raised its second-quarter guidance and reported better-than-expected June same-store sales.
The company, which has a market cap of about $5.06 billion, said that based on strong quarter-to-date performance, it anticipates second-quarter earnings per share of of $0.41 to $0.43 versus Reuters Estimates consensus of $0.41. That was up from previous guidance of $0.39 to $0.41.
American Eagle also reported that June same-store sales increased by 19%. Briefing.com consensus had been for a gain of 7%.
American Eagle has seen a steady improvement in the last year or so - a turnaround, as only last December the company issued an earnings warning for its fourth quarter. The recent rally has left shares at about 17x trailing 12-month earnings - just about even with its competitors.
While margin expansion will be harder to achieve in what could be a more challenging macro environment in the months ahead, the company is proving to be a solid performer and appears to be an attractive buy on price dips.
--Christine Marie Nielsen, Briefing.com
08:42 am Tesoro Corp (TSO)
75.03: Demand growth, lower than normal utilization levels, and crude prices, along with logistical concerns regarding new ethanol and sulfur regulations have led to rising refining margins. As such, refining stocks continue to perform well given the tight fundamental environment and seasonality. Today, Reuters reported that oil refiner Tesoro is in talks to buy Lyondell-Citgo Refining LP's 270,000 barrels per day operations valued at more than $4 bln.
The plant is 58.7% owned by US chemicals firm Lyondell and 41.2% owned by Venezuelan state oil company subsidiary Citgo. Both parties agreed in April to end their troubled relationship which began after President Hugo Chavez accused US oil companies of taking advantage of Venezuela. Tesoro wants to take control of the refinery, located on the Houston Ship Channel, some time between mid-August and late October, according to Reuters. The plant processes high-density, high-sulfur crude which sells at a discount to light, sweet crude.
While Lyondell has already made its intensions to sell known, Citgo said it wanted to weigh bids before a sale nears by the end of the year. Tesoro, which operates six refineries in the western US, Hawaii, and Alaska, grew to its current size by acquiring refineries sold off during the mega-mergers that took place over the last decade. The strategy sent its debt to capital to a high of 69% in 2002, which had declined to 35.6% by the end of 2005. The stock has gained over 20% this year and is now trading at 8.9x forward earnings.
--Kimberly DuBord, Briefing.com
09:46 am MEMC Elec: Susquehanna Financial initiates Neutral. Firm is saying that near-term catalysts such as constricted polysilicon supply are positive while negatives include a delayed 10-K filing due to restatements, growing poly supply and increased wafer inventory at chipmakers.
09:45 am Layne Christensen: Oppenheimer initiates Buy. Target $37. Firm is saying that a growing population and years of municipal of under spending could lead to a significant increase in spending to upgrade aging water and wastewater infrastructure while soaring gold and base metal prices have pushed mining activity close to the historical peak reached in 1997.
09:44 am MasterCard: Stifel Nicolaus initiates Sell . Target $40. Firm is saying that increasing consolidation among merchants, issuers, and acquirers will lead to margin pressure and increases the risk of disintermediation.
09:44 am Quest Software: Credit Suisse downgrades Outperform to Neutral. Target $21 to $15. Co cites the probability of a de-listing caused by the need to restate over five years of financial statements, the potential for a further expansion of the review, and risk of mgmt turnover.
09:35 am j2 Global: Friedman Billings reiterates Outperform. Target $35 to $37. Firm raises price tgt, but removes stock from their Top Picks list. Firm believes JCOM is firing on all cylinders and had a good June quarter, which includes signing at least one 'very large' enterprise deal. They think th co is one of the best positioned software vendors in the market, given its fertile market opportunity and profitable operating model (40%-plus operating margins). Firm still believes there is plenty of room to go on JCOM, as the co continues to execute on all fronts.
09:27 am Valassis: Prudential downgrades Overweight to Underweight . Firm downgrades saying that the co surprised them by announcing the purchase of Advo (AD) for $37/share. VCI has talked about enhancing shareholder value, which firm had hoped would be a sale of the co, yet went the other way with a large acquisition that firm believes will be dilutive to earnings in 2006-07 and possibly in 2008. |
