From Briefing.com: The Nasdaq's losing streak was halted at six on Monday and it had the tech sector largely to thank for it. Spurred on by a round of favorable analyst comments and an underlying sense that the time was simply right for a bounce following the recent losing streak, participants targeted their buying efforts on technology issues. Those buying efforts, for the most part, lacked conviction as volume was a paltry 1.02 bln shares at the NYSE (lightest full day of the year) and a scant 1.21 bln shares at the Nasdaq.
Given the low volume, there isn't much reason to get too excited by Monday's advance, but for anyone who is long the market, a gain is still a gain. Merrill Lynch helped set the tone for Monday's tech trade with an upgrade of Oracle (ORCL 11.68 +0.39) to Buy from Neutral. Other supportive research calls included USB Piper Jaffray's upgrade of Adobe Systems (ADBE 33.26 +1.48) to Strong Buy from Outperform, and Lehman Bros'. upgrade of Seagate Technology (STX 22.17 +0.37) to Overweight from Equal Weight.
The software, semiconductor, telecom equipment, and biotech stocks comprised the core leadership groups for the tech sector. Strikingly, Monday's action was a bit of a role reversal as last week's standouts - blue chips - lagged behind the tech stocks.
As for the lack of volume, various sources attributed it to the summer doldrums and a guarded approach ahead of Tuesday's FOMC meeting. Briefing.com, and the market for that matter, isn't expecting any change in the fed funds rate. Separately, Briefing.com expects the accompanying policy directive to highlight the continued battle against disinflation. In a recent Fed Brief, our Chief Economist, Tim Rogers, also asserted that "The absence of comment on disinflation, or worse - a balanced risk assessment - would further fuel the bearish tone in long term interest rates and cut in to the aggressively accommodative policy the Fed has engineered."
Beyond the FOMC decision, and the Treasury market's reaction to it, tech investors are sure to be interested in what leading chip equipment maker, Applied Materials (AMAT 18.34 +0.46), has to say about its prospects when it reports its fiscal Q3 (Jul) results after the close. The Reuters Research consensus EPS and revenue estimates for fiscal Q3 stand at $0.04 and $1.099 bln, respectively. For Q4 (Oct), they are pegged at $0.06 and $1.21 bln. Most of the preview notes Briefing.com has seen suggest that AMAT results will post in-line with guidance (with a small possibility of upside) and that its forecast will be cautiously optimistic. Patrick J. O'Hare, Briefing.com
6:00PM Monday After Hours price levels vs. 4 pm ET levels: A winning session in the equities market is being followed by divergent trade in the after-hours. Presently, the S&P 500 futures are 1.3 above the fair value of 980, while the Nasdaq futures are 1.5 below the fair value of 1224.
Contributing to the weakness in the Nasdaq are several earnings reports and an earnings warnings. The first disappointing earnings report is from OSI Pharmaceuticals (OSIP 29.65 -0.98), a biotechnology company focused on the discovery, development and commercialization of oncology products. OSIP checked in with a Q3 (Jun) loss of $1.18 per share, $0.22 worse than the Reuters Research consensus of a loss of $0.96. Revenues rose 77.8% year/year to $8.0 mln versus the $5.7 mln consensus.
Another after-hours loser is electronics manufacturer, Electro Scientific (ESIO 15.00 -0.50), which reported Q4 (May) loss of $0.75 per share. Excluding a $10.1 mln impairment charge, ESIO's EPS was a loss of $0.38 per share. This was $0.24 worse than Reuters Research consensus of a loss of $0.14 and $0.26 worse than First Call consensus of a loss of $0.12. Revenues of $22.5 mln were down 44.4% year/year and below the $33.6 mln consensus.
Restaurant player, Bob Evans (00C0 25.00 -0.84), is also trading lower after reporting its Q1 (Jul) earnings of $0.55 per share, which were $0.02 below the Reuters Research consensus, but in-line with the Zacks consensus. BOBE's revenues of $295.5 mln were up 6.7% compared to the same quarter last year and above the Reuters Research consensus of $292.2 mln. Looking to FY04, the company said it sees EPS in the range of $2.07-2.15 versus the Reuters Research consensus of $2.15.
Also providing guidance and getting hit for it is the semiconductor company, Zoran Corporation (ZRAN 22.11 -1.80). The company updated its guidance to include the acquisition of Oak Technology (OAKT 6.93 -0.37). Pro forma EPS for Q3 (Sep) is now expected to be diluted by $0.10-0.12 from the previous range of $0.31-0.33 that ZRAN provided on July 24. The new guidance calls for Q3 EPS of $0.19-0.23, below the Reuters Research consensus of $0.32. For Q4 (Dec), ZRAN now expects pro forma EPS to be diluted by $0.08-0.10 from the $0.26-0.30 previously guided. The new guidance calls for Q4 EPS of $0.16-0.22, below the consensus of $0.26.
Among the few upbeat headlines in the after-hours session is Pacific Sunwear (PSUN 30.60 +0.40). This apparel retailer reported Q2 (Jul) earnings of $0.26 per share, in line with the Reuters Research consensus. Revenues rose 22.8% year/year to $234.4 mln and were above the $231.8 mln consensus.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar and Guidance pages. -- Victoria Glikin, Briefing.com
4:17PM Zoran guides below consensus for Q3 (ZRAN) 23.87 +0.67: Company warns for Q3 (Sep). Pro forma earnings per share are expected to be diluted by $0.10-0.12 from the $0.31-0.33 the Company guided on 7/24 to $0.19-0.23, Reuters Research consensus is $0.32. For Q3, pro forma earnings per share will exclude acquisition related costs including a one-time charge for in-process R&D and the amortization of purchased intangibles as well as a probable one-time restructuring charge. For Q4, Company expects pro forma earnings per share to be diluted by $0.08-0.10 from the $0.26-0.30 previously guided to $0.16-0.22, R.R. consensus is $0.26. Pro forma earnings per share for Q4 will exclude non-cash amortization of acquisition-related costs such as deferred compensation and acquired technology.
Close Dow +26.26 at 9217.35, S&P +3.00 at 980.59, Nasdaq +17.48 at 1661.51: It was the same tune, different verse on Wall Street today - stocks spent most of the session trading in guarded fashion, only this time, the technology sector was the main target of buyers instead of the blue chip issues... After one week of relative outperformance, the Dow and S&P 500 took a backseat to the tech-heavy Composite, where traders rotated money into the tech shares whose investment appeal had been heightened by their losses over the past six sessions...
Analyst upgrades of several large-cap technology issues like Adobe Systems (ADBE 33.33 +1.55), Broadcom (BRCM 20.89 +0.65), and Oracle (ORCL 11.66 +0.37) also contributed to the group's strong showing... The latter was upgraded by Merrill Lynch to Buy from Neutral in what was largely a valuation-driven ratings call... Elsewhere, the rest of the market was only able to put up meager gains as investors were otherwise preoccupied with the slowing nature of the rally's momentum, and concerns surrounding the Fed's meeting tomorrow...
While economists are in agreement that the FOMC should leave short-term interest rates unchanged, they are divided as to whether the risk assessment will shift to reflect an assumption of stronger economic growth... Given such an overhang, conviction on the part of buyers was particularly weak, with advancers barely outpacing decliners at the NYSE and Nasdaq, and volume totals checking in at their lowest levels of the year... Brokerage, homebuilding, casino, and health insurance registered the most severe losses, which served to lock the indices in a narrow range for the extent of the day...NYSE Adv/Dec 1921/1282, Nasdaq Adv/Dec 1973/1181
2:56PM Floor Talk : It's a slow day on Wall Street. Trading desks hoping to see action pick up following the FOMC meeting tomorrow. Since no change in rates expected (futures market pricing in 0% chance of rate change), focus will be on the deflation vs inflation question. At this point, funds futures market suggests next action will be a 25 bp tightening in 2004... Analysts busy putting out previews of AMAT's earnings report set for tomorrow night. However, most of the ones we've seen suggest that AMAT results will post in-line with guidance (with a small possibility of upside) and issue cautiously optimistic guidance... In this light volume environment, seeing quite a few stocks break out on rather thin turnover (e.g. CCMP +2.77, MICC +2.75, MBT +2.40, HILL +1.68, ABRX +1.62). With many of the weaker hands shaken out during recent pullback, traders are taking advantage of this thin environment to put pressure on short-sellers in many of the momentum names.
9:06AM Broadcom upgraded at AG Edwards (BRCM) 20.24: AG Edwards upgrades to Buy from Hold based on valuation; firm says the stock has become more compelling with the recent decline in share price, and they believe that the co will be able to outgrow its end mkts while maintaining a tight cost structure. Target is $25.
9:01AM NVIDIA GPU selected for HP Pavilion zd7000 notebook (NVDA) 15.50:
8:08AM M-Systems NAND flash available to Palm OS licensees (FLSH) 14.65: Palm Inc (PALM) and M-Systems announce plans to enhance the memory solution for Palm OS handhelds and smartphones. Joining the Palm OS Ready Program, M-Systems' NAND flash-based memory storage technologies will be made available to Palm OS licensees.
12:07PM Ratings Briefing - ORCL : Some ratings changes are bound to attract more attention than others. Today's upgrade of Oracle (ORCL 11.68 +0.39) to Buy from Neutral at Merrill Lynch is one of those likely to garner plenty of attention. After all, given the August doldrums, an upgrade of a big name like ORCL by a prominent brokerage firm like Merrill Lynch is certainly notable. Nevertheless, a closer look reveals that Merrill's upgrade is not as revolutionary and upbeat as a brief glance may suggest - but first, the details of the upgrade.
According to Merrill Lynch, while ORCL's long-term growth rate is subject to the maturity of its core businesses, the company does have good short-term exposure and leverage to a gradual economic recovery due to its exposure to telco, financial services, and government spending, which comprise 40% of ORCL's revenues and are expected to rebound. With the stock having traded off more than 17% in the last two months without a material change in fundamentals, Merrill thinks downside is limited and looks for the stock to experience healthy upside potential as the economy and software spending improve over the course of the next year.
Merrill's upgrade, though, isn't exactly ground-breaking as 19 analysts currently have the equivalent of a Buy rating on the stock versus 19 others with the equivalent of a Hold rating and only one analyst with an Underweight rating. So, what's another upgrade, especially when Merrill concedes that it remains concerned about the maturation of ORCL's business long-term? Frankly, today's ratings change strikes Briefing.com as a trading call more so than an investment recommendation. Given the recent decline in ORCL, technical analysis, in our view, favors near-term upside from current levels as long as ORCL manages to maintain a posture above its 200-day moving average at $11.75.
As far as investors are concerned, however, today's ratings change by Merrill Lynch is far less of an event than the current uptick in price suggests. To that end, Merrill is quick to point out that longer-term questions with regard to ORCL remain. Briefing.com agrees, having asserted in a recent Story Stock that the company must make inroads at the application level if it is to remain a major player in the enterprise market. ORCL may have some upside potential in the near-term, but at this juncture, we would suggest investors take a wait-and-see approach. -- Victoria Glikin, Briefing.com
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