From Briefing.com: Tuesday's session might as well have been scheduled to start at 14:15 ET, because there was essentially nothing happening to that point, which marked the announcement of the Federal Open Market Committee's decision on the course of monetary policy. The indices, at the time, said it all, as the Dow, Nasdaq, and S&P were sitting on gains of 7, 8, and 1.22 points, respectively. Following the FOMC decision, however, the market came alive and it did so with a bullish bias.
Helped along by program trading and a sense of appreciation for the FOMC's decision not only to leave the fed funds rate unchanged, but to signal that it has no intention of raising rates anytime soon, equity participants opened their wallets and bid prices higher. The buying efforts were broad-based and, once again, the technology sector assumed a leadership position.
As was the case on Monday, volume was light (1.13 bln at NYSE and 1.34 bln at Nasdaq), but there was a pickup in trading activity following the FOMC decision that, arguably, kept the NYSE from experiencing a new low for the year in terms of volume. Rallies on low volume - and sell-offs, too - are to be taken with a grain of salt, because they connote a lack of conviction that suggests the trend can easily reverse itself. Be that as it may, investors with long positions have reason to be pleased by the action thus far this week as dips have been treated as a buying opportunity.
The surge on Tuesday, it should be noted, catapulted the Nasdaq back above its 50-day simple moving average (i.e. 1676.95), and at its closing level of 1687.01, it is sitting just above the June trading range top/July range floor. As noted in Tuesday's Technical Take, sustained follow beyond these resistances neutralizes the weaker short term pattern and bolsters the view that the July/August period is merely part of a relatively short-lived correction.
Bullish conviction is expected to be tested on Wednesday following the latest earnings report from Applied Materials (AMAT 18.45 +0.11). The leading chip equipment maker reported Q3 (Jul) earnings of $0.05 per share, excluding a $0.07 restructuring charge, $0.01 better than the Reuters Research consensus on revenues of $1.09 bln that were down 25% year/year. On its conference call, AMAT said it sees Q4 (Oct) EPS of $0.04-0.05, excluding items, and revenues that are "flat to slightly up" from Q3. The Reuters Research consensus estimates are set at $0.06 and $1.21 bln, respectively. Like Cisco's report, AMAT's report wasn't necessarily bad in its own right, but considering its stock trades at 141.9x est. FY03 earnings and 41.0x est. FY04 earnings, it certainly doesn't jibe with the premium multiple that has been assigned to it.-- Patrick J. O'Hare, Briefing.com
6:24PM Tuesday After Hours price levels vs. 4 pm ET levels: A relatively subdued after hours session as the late-day rally tapers out, due in part to Applied Materials' (AMAT 18.32 -0.12) Q4 (Oct) warning. As a result, the S&P futures, at 989, are 1 point below fair value, while the Nasdaq 100 futures, at 1239, are 3 points below fair value.
To begin, the world's largest chip maker reported an year/year EPS increase of 29% to $0.05 and topped the Reuters Research consensus estimate by a penny. Revenues fell 25% to $1.10 bln and net orders decreased 41% to $1.05 bln. Although management said that orders should improve 10% sequentially in Q4 (Oct), it said that EPS should be $0.04-0.05, below the consensus estimate of $0.06, and that revenues should be flat to slightly above Q3's levels (vs. the consensus of $1.21 bln). Arch rival NVLS has also traded lower as a result of AMAT's warning.
Another technology component - Maxim Integrated (MXIM 39.32 -0.43) - has lost steam following its earnings report. The semiconductor company matched the Q4 (June) consensus expectation of $0.24 on revenues that rose 5% to $295 mln. Citing the company's stronger cash position, management raised the quarterly dividend from $0.04 to $0.08 per share.
Computer Sciences Corp (00C 43.58 -0.04) also showed some improvement in its technology-related services, with Q1 (June) revenues rising 29% to $3.55 bln. EPS met the Reuters Research estimate of $0.51, excluding charges, and the company commented that "our current 32-month federal pipeline of opportunities is approximately $38 bln." Looking ahead, CSC said it anticipates Q1 (Sept) revenues of $3.55 bln (up 27-29%) vs the $3.43 bln consensus - and EPS of $0.58-0.60 (consensus of $0.59). For the rest of the year, the company said that it is comfortable with the consensus revenue and EPS estimates.
Turning to the retail space, Abercrombie & Fitch (ANF 28.60 -0.76) delivered a Q2 (July) 13% increase in EPS to $0.35 that was one penny ahead of the consensus estimate. Revenues rose 8% to $355.7 mln, whereas comparable store sales fell 8%. Its outlook reflected the difficult selling environment, as management said "if the Q2 sales trend continues, we are comfortable that we can report flat to slightly higher EPS for Q3." For comparison purposes, ANF reported $0.48 in 3Q02 as compared to the current consensus estimate of $0.54.
Finally, in a widely anticipated move, European drug maker AstraZeneca (AZN 42.30 +1.40) reported that the FDA approved its cholesterol-lowering medicine, Crestor, in doses ranging from 5 to 40 milligrams. Peak sales estimates for the drug have been pegged at $5 bln, with competing statin drugs including Lipitor (PFE), Zetia (SGP/MRK), Zocor (MRK), Pravachol (BMY).
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar and Guidance pages. -- Heather Smith, Briefing.com
5:10PM Applied Materials comments on CY03 capex spending (AMAT) 18.45 +0.11: -- Update -- On call, AMAT says it look for CY03 (Dec) capex spending to be "flat to slightly above" CY02 levels, which assumes an uptick in the second half of the year.
4:59PM Applied Materials warns for Q4 EPS (AMAT) 18.45 +0.11: -- Update -- On conference call, AMAT says it sees Q4 (Oct) EPS of $0.04-0.05, excluding items, and revenues "flat to slightly up" from Q3's result of $1.09 bln... The Reuters Research consensus estimates are set at $0.06 and $1.21 bln, respectively... Management adds that it looks for Q4 orders to be up by approximately 10% from Q3's figure of $1.05 bln.
4:36PM On call, Applied Materials says it expects a sequential rise in orders in Q4 (AMAT) 18.45 +0.11: -- Update --
4:06PM Applied Materials beats ex items (AMAT) 18.40 +0.06: Reports Q3 (Jul) earnings of $0.05 per share, excluding a $0.07 restruct charge, $0.01 better than the Reuters Research consensus of $0.04; revenues fell 25% year/year to $1.09 bln vs the $1.10 bln consensus.
3:14PM Applied Materials Earnings Preview (AMAT) 18.29 -0.05: The semiconductor capital equipment behemoth reports its Q3 after the close today with Reuters Research earnings consensus of $0.04 per share and revs of $1.1 bln. Banc of America Securities suspects there is little that AMAT can report that can "stem" current sell-off unless guidance exceeds the optimistic forecast. Firm believes the probability of beating is low with the stock likely heading back to $15. Analyst believes Dell's earnings announcement Thu will have more of an impact on AMAT given the implications of data for end market demand (which is currently still weak).On the other hand, SG Cowen believes the co's DRAM orders should be strong with 10% order guidance for the Oct quarter. Firm believes stock is poised to move higher as recovery "plays out". Analyst recommends building positions on weakness.
4:24PM Computer Sciences reports in line, ex items, guides Q2 in line with consensus (CSC) 43.60 +0.91: Reports Q1 (Jun) earnings of $0.51 per share, excluding after-tax special charge of $3.9 mln or approx ($0.02) charge related to acquisition of DynCorp, in line with the Reuters Research consensus of $0.51; revenues rose 29.1% year/year to $3.55 bln vs the $3.43 bln consensus. Co also guides, sees Q2 EPS of $0.58-0.60, vs R.R. consensus of $0.59.
4:14PM Maxim Integrated reports in line, doubles dividend (MXIM) 39.67 +0.89: Reports Q4 (Jun) diluted earnings of $0.24 per share, in line with the Reuters Research consensus of $0.24; revenues rose 5.3% year/year to $295.0 mln vs the $298.2 mln consensus. Co's Board also increases quarterly dividend from $0.04 per share to $0.08.
3:28PM Maxim Integrated Earnings Preview (MXIM) 39.22 +0.44: Maxim reports its Q4 after the close today with Reuters Research earnings consensus of $0.24 per share and revs of $298.2 mln. JMP Securities believes the co will meet its June quarter expectations with the co likely benefiting from strengthening demand for high-end analog products. Firm cites concerns over the co losing market share in high growth analog/power management market to competitors. Fulcrum expects the co report earnings consistent with its updated guidance on June 4. In addition, the analyst expects the co to report book-to-bill above 1.0 in conjunction with backlog growth.
2:57PM Planar Systems: Review of 10-Q less than encouraging -- Ryan Beck (PLNR) 23.62 -0.73: Ryan Beck, which has an Underperform rating on the stock, says a review of the company's 10-Q provides a "less than encouraging outlook" for PLNR. The co's rev growth appears to come from its lowest-margin, most-competitive segment: selling monitors via Dell. Medical margins are suffering from competitors realizing the low barriers to entry afforded by the flat panel monitor space. Competition and commoditization plague the flat panel industry and outsized margins do not appear sustainable, based on the medical and commercial segment operating deterioration.... Based on firm's free cash flow model, it would encourage purchase of the stock below $13.
10:25AM Zoran reit Over Weight at Pacific Growth (ZRAN) 22.59 -1.32: --Update-- Firm considers ZRAN to be undervalued at current trading levels; notes that co's dilution forecast for FY03 was in line with firm's expectations; believes that management maintained its tradition of providing fairly conservative guidance as the co waits to get a better sense of the combined operations. Firm raises FY04 est to $1.20 from $1.10.
10:12AM UBS weighs in on DSL vs cable : UBS says DSL's market share of HSD (high speed data) lines "turned the corner" in 2Q03 as telecom operators narrowed the gap for the first time in more than 5 quarters. DSL increased its market share to 37.6% of total broadband subscribers from 37.2% in 1Q03 while cable's share fell slightly to 62.4%. The firm expects the Bells to continue to take share in 2H03 with Verizon (VZ) expected to double its net adds over 1H03. Longer-term, the firm anticipates a more even market share. Firm maintains its Neutral ratings on SBC, VZ, BLS and its Buy rating on COX.
9:50AM HPQ setting up for a big Q4 -- SG Cowen 20.12 +0.16: SG Cowen believes that "Big Bang 2" initiatives combine brand, ease of use, and mkt prowess in consumer technology, bolster FQ4 outlook, and drive all important supplies usage and growth. Also thinks that market's recent disproportionate preoccupation with seasonally weak FQ3 revenue makes this an attractive entry point. For Q4, firm expects EPS to meet or surpass firm's $0.35 est. Finds stock highly attractive at just 12.8x CY04 EPS.
9:49AM F5 Networks: checks suggest momentum is healthy - Pac Growth (FFIV) 17.81 +0.31: Pacific Growth maintains their Overweight rating on FFIV, saying recent checks suggest business momentum remains healthy, fueled by demand for latest generation of switches; also, co sees strong interest in uRoam products and firm is bullish on its Dec qtr ramp, and firm believes the co is executing well on its channel strategy.
9:35AM ULCM -- WR Hambrecht pounding the table ahead of earnings 9.81 +0.06: WR Hambrecht says it would aggressively buy shares of ULCM prior to its Q2 earnings report. While early in the Oct quarter, firm's sources indicate that business momentum remains robust. With its increasingly optimistic industry outlook, WR Hambrecht believes ULCM offers investors the best appreciation potential within the Communications Infrastructure sector throughout the remainder of 2003. Also believes that recent sell-off in shares of ULCM subsequent to Cisco's results has been unfounded. Notes that recent indications of improving business at several of Ulticom's switching customers, such as Sonus, UTStarcom, Siemens, and Cisco, fuel firm's optimism for accelerating and increasingly visible growth opportunities at the co.
9:31AM ZRAN defended by CIBC 22.70 -1.21: CIBC believes that weakness creates a buying opportunity. Notes that at 21x CY04 est, stock trades at a meaningful discount to peers' 29x; with superior margins and growth outlook, stock remains one of the best plays in Digital Media semi space. Firm's price target is $30.
IXYS Corp (SYXI) 7.75 +1.15: Needham upgraded to Buy from Hold, saying it remains confident in SYXI's fundamentals and its ability to achieve a resurgence in its operating performance following a difficult FY03, as the co benefits from increased demand for power semis, particularly from the co's customers in the medical, industrial, and consumer electronics end mkts. Target is $9.
Skyworks (SWKS) 9.38 +0.39: Monday night, co filed a $250 mln mixed shelf registration... Tuesday morning, Legg Mason reiterated its Buy rating and $13 target on view that the shelf is a prudent measure, which will afford co an increased degree of flexibility regarding any capital raising activities. As highlighted in firm's recent notes, Legg Mason believes recent data in, and around, the wireless handset industry continue to trend positively; believes SWKS is also seeing the same positive momentum in its business, which should become evident in the firm's Sept and Dec results.
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