From Briefing.com: Frustrated? Depressed? Easily distracted? This isn't intended to be an ad for Prozac, but any one of those words could very well describe the mood of any number of technology participants with a bearish inclination. That's because the technology sector seems to know only one direction these days - and that direction is up. Thursday's trade was the latest in a series of bullish sessions for the tech sector, which carried the Nasdaq to its seventh consecutive winning session.
Again, there were plenty of items that worked in the momentum crowd's favor and which effectively kept sellers at bay. They included but weren't limited to the drop in interest rates, reassuring speeches from several Fed officials, appeasing comments on the economy from President Bush, a stronger than expected earnings report from National Semiconductor (NSM 31.99 +3.17), a Goldman Sachs upgrade of Cisco (CSCO 20.59 +0.35) to Outperform from In-Line, UBS upgrading numerous chip equipment companies, and Merrill Lynch raising its PC forecasts to reflect higher previous estimates and an improving market.
After the close, Intel (INTC 28.60 +0.38) provided an indication that the PC market is improving when it delivered its mid-quarter update. Investors will recall that the chip maker raised its Q3 (Sept) guidance on Aug. 22, taking its revenue outlook to $7.3-$7.8 bln versus a prior projection of $6.9-$7.5 bln and its gross margin expectation to 56%, plus or minus a couple of points, compared to a previous expectation of 54%, plus or minus a couple of points. With another 13 days of activity under its belt, Intel now sees revenues of $7.6-7.8 bln and expects gross margins toward the high end of the range of 56%, plus or minus a couple of points. It also noted that because of higher profit expectations for the year, its tax rate is now expected to be approximately 28% versus a prior expectation of 24%.
Intel's news is good news and the Nasdaq 100 futures were trading 5 points above fair value in its wake. That's not as big of a gain as one might expect, but with the winning streak the Nasdaq has been on, it can be argued that the good news has essentially been factored in already. Perhaps that means a sell-the-news response wins out on Friday, but regardless, Intel's news is the type of news that validates the bullish bias and is apt to leave participants willing to buy on interim periods of weakness.-- Patrick J. O'Hare, Briefing.com
6:06PM Thursday After Hours price levels vs. 4 pm ET levels: More of the same in the after hours session as the Nasdaq continues to lead the broader market. The culprit behind the tech buying drive lies with Intel (INTC 29.03 +0.43) and its move to narrow its Q3 (Sept) revenue guidance towards the high-end of its previous range. As a result, the Nasdaq 100 futures, at 1378, are 4 points above fair value, and the S&P futures, at 1029, are 1 point above fair value.
During its mid-quarter update, Intel said it expected Q3 revenues to be $7.6-7.8 bln, above the Reuters Research consensus estimate of $7.58 bln and the company's previous range of $7.3-7.8 bln. The latter, announced on August 22, was also above the consensus expectation of that time. Intel also said that gross margins should be toward the high end of the prior range of 56%, plus or minus a couple of points. Related companies of INTC include the likes of AMCC, BRCM, IBM, MRVL, and PMCS.
The other large announcement of the evening came from PeopleSoft (PSFT 20.14 +0.79). In its meeting with analysts, the software maker said that it expected Q3 (Sept) EPS of $0.10-0.11 on net sales of $575-590 mln. The company also said it forecasted FY03 (Dec) EPS of $0.52-0.55 and revenues of $2.145-2.175 bln, as well as FY04 EPS of $0.90-0.95 and revenues of $2.8-2.9 bln. The consensus estimates for such forecasts, however, do not include the costs/synergies of the anticipated merger with JD Edwards, and thus are not comparable with PeopleSoft's guidance. The latter also announced that it intended to cut about 750 to 1,000 jobs, or about 7% of its work force as a result of the acquisition.
Elsewhere, H&R Block (00C 43.95 +0.12) announced that its CFO of over two years, Frank J. Cotroneo, was leaving the company effective October 31. H&R Block said it was initiating a search for Mr. Cotroneo's successor.
Looking ahead, the market will pay special attention to the 8:30 ET release of the August employment report tomorrow. Given the labor market's softness over the past few years, economists will be looking to see if the recent drop-off in weekly initial claims will translate into nonfarm payrolls growth. The consensus estimate calls for payrolls to expand by 18K; Briefing.com is more optimistic at 25K. For more perspective on the report, and our expectations, be sure to visit the Economic Calendar.
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
6:15PM Chartered Semi revises Q3 guidance (CHRT) 6.69 +0.05: Company now sees Q3 loss per ADS of $0.30-0.34, vs Reuters Research consensus of ($0.36), and revenues of approx $134-138 mln (excluding CHRT's share of Silicon Manufacturing Partners - SMP), vs an estimate of $135.2 mln.
6:04PM Merix announces preliminary Q1 results (MERX) 12.66 +0.06: Company announces preliminary results for Q104, sees loss of $0.15-0.17 (including tax benefit) vs Reuters Research consensus of ($0.15). Excluding impact of valuation allowance against deferred taxes, co expects pro forma loss of $0.09-0.10. Co also reports prelim Q1 revenues of $30.7 mln vs an estimate of $28 mln.
12:25PM National Semi beats by $0.06, ex items, guides Q2 revs above consensus (NSM) 28.46 -0.36, halted: Reports Q1 (Aug) earnings of $0.18 per share, excluding special charges of ($0.03), $0.06 better than the Reuters Research consensus of $0.12; revenues rose 1.0% year/year to $424.8 mln vs the $417.8 mln consensus. Co also sees Q2 revenues of approx $441.8-454.5 mln (based on sequential growth of 4-7%) vs R.R. consensus of $438.8 mln.
10:05AM Powerwave target raised to $12 at ThinkEquity (PWAV) 9.68 +0.30: -- Update -- ThinkEquity raises their FY04 est a penny above consensus and raises their target to $12 from $10 following yesterday's announcement that VZ awarded NT a $1 bln contract (NT represents close to 60% of PWAV's business); firm expects to see additional contracts over the next several qtrs, continues to believe that local number portability will drive higher subsystems sales throughout 2003 and into 2004, and believes W-CDMA and CDMA EV should begin to benefit PWAV in Q1. Maintains Overweight rating.
9:43AM MEMC Elec initiated at Needham with Buy and $17 target (WFR) 12.54 +0.02: Needham is initiating coverage of WFR with a Buy rating and 12-month target price of $17 based on: 1) A solid financial position that will enable them to be profitable and grow their business unlike several competitors. 2) Favorable market conditions that include recovery of the semiconductor industry; increasing capacity utilization favoring APS; and consolidation in the industry favoring suppliers that are qualified for 300 mm diameter substrates (MEMC being one); 3) New management strategy focusing on profitability, market-share and technology.
Cypress Semi (CY) 17.96 +0.02: Needham downgraded to Hold from Buy after the co raised guidance last night, as firm no longer expects upside potential to significantly exceed downside risk at current price levels.
Merrill raising PC forecasts : Merrill Lynch making comments this morning regarding the resizing of the PC market and increasing growth forecasts. Firm raising PC forecasts to reflect both higher previous estimates and an improving market from 5% unit growth in 2003 and 10% in 2004 to 7% this year and 11% next year. The revenue estimates are more impacted with its previous forecast of -1% in 2003 and +2% in 2004 moving up to +4% this year and +8% next. However, due to most of this increase is in white boxes, the firm is not changing its DELL or HPQ outlooks.
3:36PM Best Buy (BBY) 52.87 -0.23: This morning, Best Buy announced a 17% year-over-year increase in total revenues to $5.39 bln compared to the Reuters Research consensus estimate of $5.26 bln. Additionally, the consumer electronics retailer raised its Q2 EPS forecast to $0.41-0.43 from previously increased guidance (August 7th) of $0.37-0.42 (consensus is $0.40). Citing stronger-than-expected sales of PCs and higher levels of customer traffic, Best Buy also raised its outlook for FY04, from an early-August adjustment of $2.27-$2.32 to a revised range of $2.30-2.35 (consensus is $2.36).
Who better than Best Buy, though, to "turn on the fun" when it comes to fun-damentals? Competitor Circuit City Stores (CC), which blew another fuse in mid-June when posting a Q1 loss of $43.9 mln? Improbable. CompUSA, which is now owned by Mexican billionaire Carlos Slim? Fat chance.
The bottom line is that the nation's leading consumer-electronics retailer remains a cut above the rest. So, what does the future have in store for Best Buy? We suspect plenty of good things at this juncture as we anticipate the holiday selling season to be stronger than recent years, with consumer electronics appearing on the top of most shopping lists.
Other items that are apt to help the company's cause include the progress of its international operations and the discarding of its troubled Musicland business, which was sold in mid-June. As for the former, it achieved a 4.1% increase in same-store sales in Q2 and saw total sales surge 44% to $480 mln.
Despite some good same-store sales growth gained from a strong back-to-school season and the revised earnings guidance to the upside, shares of BBY are trading lower today. The stock, however, had run up more than 94% since the company's Q4 results were reported on April 1st. In comparison, the Dow and S&P 500 have posted gains of 18.6% and 19.5%, respectively, over the same period. So, a case can be made that Best Buy's good news had already been factored into its stock and that the actual announcement provided an opportunity to take some profits. Whatever the case may be, though, Best Buy continues to operate in enviable fashion. Granted, BBY may not be a screaming buy right now in light of its strong run of late, but nonetheless, it is a retail stock worth holding for investment-minded individuals.-- Brian Duhn, Briefing.com
3:32PM Employment Preview: The economic numbers have been coming in consistently stronger than expected. Home sales, retail sales, industrial production, the ISM survey, you name it, it's been strong. Tomorrow, the biggest release of all is due, and expectations are for the first increase in payroll figures in seven months.
Most economists expect a small increase of maybe 10,000 to 25,000 in non-farm payrolls. Payrolls have fallen a combined 486,000 in the past six months. The data indicate that layoffs have declined in recent months. The number of new claims for unemployment has dropped in recent weeks, and the announced layoffs as measured by the Challenger, Gray & Christmas survey was at a very low level in August. That doesn't mean, of course, that a lot of companies were hiring.
Yet, many people often forget how big the US economy is. The number of jobs, as measured by payrolls survey, is 130 million. Most of those jobs are at smaller firms, as is most of the job growth. If McDonald's announces planned elimination of 2,000 positions over the next year, it makes headlines, but it is hardly a ripple in the total job numbers. There can be a lot of hiring under the radar screen at small firms, and a very small percentage looks big.
Consider: it takes job creation of about 100,000 a month just to keep up with population growth. To reduce unemployment significantly, payrolls will have to increase over 200,000 per month. That sounds like a huge number given the trends the past two years, but it has happened regularly in the past. A gain of even 50,000 payrolls reflects a very small gain across this large economy.
Closely watched as well will be the manufacturing component of payrolls. It is too early to expect manufacturing employment to bounce back significantly. Manufacturing trends lag the overall economic trends, and manufacturing employment lags even more. If anything close to unchanged is reported, it would be a strong signal for the economy. Also remember, as we pointed out in a recent Stock Brief, manufacturing employment has been flat over the past 40 years. It is a good indicator of short term swings in the economic cycle, but it is wrong to conclude that a sustained uptrend in manufacturing employment is required before this can be called a "real" recovery.
The employment data is the most significant economic release. Yet, in recent months, the market has often had a knee-jerk reaction to the data, then gone the other way. There are so many traders that set up for the data that it is hard to read what will happen even after the release. It is not any easy release to trade.
Also, it is highly unlikely that this release will change economic assumptions. The economy is clearly in a classic business cycle upturn. Employment may lag this cycle more than most, due to cautious business spending, but it will eventually turn up. The auto sales, home sales, and chain store sales are all very strong. Industrial production is up. Regardless of the numbers tomorrow, economists will still be forecast 4% to 5% real GDP growth for the third quarter. This particular employment release is not as critical as some employment releases, and will not alter underlying assumptions. |
