From Briefing.com: Updated 07-May-03 General Commentary: Well, after being on fire for the past few weeks, the Nasdaq finally looks a little overcooked. For the second straight session, the index faded into the close - never a good short-term sign.
Briefing.com also notices that several of the second and third tier names that have helped to pace the sector's impressive earnings-related run (such as CIEN, FFIV, PMCS, CTLM, EXTR, NEWP, AMCC, etc) are now exhibiting extreme overbought signals. Stocks, and the market for that matter, can remain overbought for some time before eventually rolling over. But at this point the near-term risk/reward ratio no longer favors the upside.
Does that mean the Nasdaq is about to capitulate? No. Just that it looks more and more like techs are about to enter a period of backing and filling - -consolidation, if you will. This is a normal and healthy part of any intermediate- to long-term advance.
If Briefing.com's bullish intermediate- to long-term call is correct, then whatever pullback we do witness in the days to come will prove relatively shallow and short-lived. No major support levels will give way, and traders will tend to use dips as a new entry opportunity.
As confirmation of this viewpoint, we will be watching to make sure that support near the 50-day moving average on the Nasdaq (1384), as well as the key industry groups, holds during a retreat. Given the increasingly favorable earnings picture, prospects for an economic rebound now that war is over, sharp drop in energy prices and monetary/fiscal stimulus, Briefing.com is confident that these floors will hold.
Robert Walberg, Briefing.com
:13PM Tuesday After Hours price changes vs 4pm ET levels: In keeping with the slide in stocks following the Fed's decision to switch its economic assessment to one weighted towards weakness, the tone of the after hours session is flat. Presently, the S&P futures, at 934, are flat with fair value, and the Nasdaq 100 futures, at 1151, are 3 points below fair value. Not surprisingly, networking giant Cisco's (CSCO 15.63 -0.27) Q3 (Apr) earnings report has taken center stage tonight.
After guiding revenues to the downside on February 5, CSCO topped the revised consensus estimate of $4.58 bln with revenues of $4.62 bln. CSCO similarly exceeded the EPS consensus estimate of $0.14 by a penny, which represented bottom-line growth of 36%. On its conference call, CSCO said it looks for Q4 (July) bookings to be slightly above Q3 levels, gross margins to be approximately 68-70%, and revenues to be flat with Q3 (consensus of $4.68 bln). As a result, competitors of CSCO - such as CIEN, EXTR, FDRY, and JNPR - are trading lower in sympathy with CSCO's below consensus Q4 revenue guidance.
5:34PM Cisco Systems biased to upside in Q4 rev. guidance (CSCO) 15.90 +0.1: -- Update -- Chambers notes in Q&A portion of call that if pressed on the issue of revenue guidance for flat on sequential basis in fiscal Q4 (Jul), his bias would be a little bit to the upside
5:11PM Cisco Systems gives Q4 guidance (CSCO) 15.90 +0.51: -- Update -- On call, says it expects fiscal Q4 (Jul) revenues to be flat and bookings to increase slightly versus Q3... Current Reuters Research consensus revenue estimate for fiscal Q4 is $4.678 bln (company reported revenues of $4.618 bln in Q3)... separately, expects gross margin approx. 68-70%, opex to be flat to up 1-2%, interest and other income to be flat, tax rate at 28.0%, and share count down slightly in Q4
5:02PM Cisco Systems (CSCO) 15.90 +0.51: -- Update -- On call, says that most CEOs are still conservative when it comes to spending, but that it is starting to see a few CEOs become a little more cautiously optimistic
4:53PM Cisco Systems comments on product bookings (CSCO) 15.90 +0.51: -- Update -- On call, says product booking in U.S. in fiscal Q3, which represented 45% of total product bookings on a geographic basis, were a little bit better than expected in April, but stresses that it is far too early to consider a sustainable trend
4:47PM Cisco Systems plans to remain active in market with share repurchase program (CSCO) 15.90 +0.51: -- Update --
4:41PM Cisco Systems book-to-bill below 1.0 (CSCO) 15.90 +0.51: -- Update -- On call, says book-to-bill in Q3 was slightly below 1.0
4:10PM Cisco Systems beats by a penny (CSCO) 15.90 +0.51: Reports Q3 (Apr) pro forma earnings of $0.15 per share, $0.01 better than the Reuters Research consensus of $0.14; revenues fell 4.2% year/year to $4.62 bln vs the $4.58 bln consensus.
3:26PM Cisco Systems Earnings Preview (CSCO) 15.72 +0.33: The true barometer of the technology sector reports its much anticipated Q3 earnings after the close. The current Reuters Research earnings estimates are for $0.14 per share and revenues of $4.58 bln. In a preview of the qtr, RBC Capital Mkts sees co performing at the low-end of its guidance. From a guidance standpoint, believes co will guide sequential revenue growth in the flat to up modestly range. In a Fulcrum note, the analyst expects co. to provide book-to-bill numbers below the targeted 1.0 mark We should also note that this analyst has a sell rating on the shares given the confluence of lackluster earnings growth, declining gross profit margins and weak spending environment. In contrast, a Bear Stearns analyst cites in his preview the possibility of book-to-bill not being as bad as expected with backlog potentially exhibiting a decline. The analyst also cites, as many others who cover the stock, the lack of significant upside near term given the challenging business conditions in its target markets.
5:15PM Ahead of the Curve: Cisco (CSCO) Cisco's report staves off fears of valuation collapses as every single margin increases. (See the Story Stock below for full explanation. The revenue decline, the lowest quarterly revenue Cisco has had since the quarter ended 10/26 2001, seven quarters ago, is obviously a negative sign, but it is "balanced" by the continued rise in gross margin and net margin. The following table summarizes the margins for the last three quarters.Margin Q1 2003 Q2 2003 Q3 2003 (4/26/03)
Gross Margin, total 69.3% 70.4% 70.8%
Gross Margin product 69.2% 70.6% 71.4%
Operating Margin 29.1% 32.5% 32.8%
Net Margin 12.8% 21.0% 21.4%
As mentioned in an earlier Story Stock, the high valuation metrics for Cisco are now based on this remarkable upward in margins. The continual upswing in margins exactly parallels Cisco's stalled revenue history. For the past seven quarters, Cisco's revenue has not grown, but margins have increased every single quarter. The gross margin increases probably means that Cisco is cost-reducing their components without having to lower prices. The operating margin increase means that the layoffs and cost cutting have worked - lower costs without harming the ability to operate.
Management deserves tremendous credit for this acheivement. The only question now for investors is "How long can this last?" CSCO is off slightly after-hours, so others may be asking the same question. You can't develop a 3 to 5 year investment premise on "ever-increasing-margins." Someday, this expanding margin scenario will flatten out. Chambers is probably hoping for a revival of the tech market to arrive before the margin expansion game is played out. Might happen, but the revenue trend supports the opposite view. - Robert V. Green, Briefing.com
12:02PM Cisco Preview 15.71 +0.32: After taking a look at the guidance and a little bit of history, Briefing.com has put together some things to keep in mind ahead of Cisco's fiscal Q3 (Apr) earnings report tonight.
The company guided to the downside on Feb 5, calling for third quarter revenue to be flat to down as much as 3% sequentially, from $4.71 billion. According to Reuters Research, at that point in time, analyst consensus called for third quarter revenue of $4.75 billion.
The Feb 5 guidance equates to a range of $4.57 bln - $4.71 bln. The current Reuters consensus now contains an estimate range with a low of $4.4 bln, and a high of $4.67 bln, with 30 analysts contributing. Consensus is now $4.578 bln.
Analysts, arguably, are cautious relative even to the Feb 5 guidance, as 8 of the 30 contributing analysts have a revenue estimate less than $4.57 bln, the low end of the range implied by the guidance. Conversely, no one is above the top end of the guidance range.
There are 37 earnings estimates in the consensus, with twenty-eight analysts at $0.14, six analysts at $0.13 and three at $0.15. Although no EPS guidance was given, consensus could be said to be generally cautious.
HISTORICALLY-
On Nov 6, CSCO provided guidance calling for second quarter revenues to be flat to down 3% to 4% sequentially from Q1 revenues of $4.85 billion. That equated to a guidance range of $4.656-4.705 bln. At that point, when the guidance was given, consensus was $4.91 bln. Consensus then fell to $4.725 bln, ABOVE the top of the guidance range. CSCO's revenues came in at $4.713 bln, below consensus.
Earnings estimates were all low in Q2, no one had the $0.15 actual. Consensus was $0.13, with 1 analyst at $0.12, six at $0.14 and twenty-two analyst estimates at $0.14.-- Brett Ames, Briefing.com
3:40PM Dollar plunges following Fed, bonds rally : Dollar getting just creamed in here versus just about everything under the sun. EUR rallying over a full figure to 1.1416, through 1.1360 intraday resistance. No need for dollar shorts to cover in here obviously, with the potential for further interest rate differential down the road. The 10-yr has rallied to +21/32 from -3/32 since the Fed announcement.
9:34AM Zoran upped to Strong Buy at Adams Harkness; target $32 (ZRAN) 16.80 +0.30: The upgrade from Buy is based on view that OAKT buy creates a leading multimedia IC supplier that is quickly distancing itself from the field. Believes merger should significantly raise co's longer-term profitability, expand its customer base,and offer substantial new revenue opportunities.
Bear Stearns downgrades TSM, UMC : Bear Stearns out of Asia downgrades TSM to Peer Perform from Outperform based on the following factors: 1) they believe TSM's strong Q2 guidance is priced in, 2) end-demand for PCs is further deteriorating in Q2 based on the motherboard shipment numbers out of Taiwan, 3) there could be more incremental weakness in clone demand for motherboards and handsets from Asia, and 4) they have little reason to expect a pickup in handsets. Firm also downgrades UMC to Peer Perform from Outperform.
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