From Briefing.com: General Commentary
Tech shares bucked the general market trend to close 1.2% higher. Advancers led decliners 1.8:1. Gainers rose 3% while losers fell 1.5%. Tech saw strength across the board but Friday's action is likely traders taking advantage of the light, half-day session to bid shares higher. Remember that tech valuations are already stretched pretty thin and a weak start to the holiday shopping season may be enough to spook investors. Look for follow through next week only on a strong start to the holiday shopping season.
On the earnings calendar: tune in to ADC Telecommunications' (ADCT 2.45 +0.03) Q3 results for the tenor of telecom carrier spending, after the close on Tuesday; Synopsys (SNPS 29.96 +0.39) reports Q4 results after the close on Thursday. On the economic calendar for Monday, look to the national ISM index for a gauge of manufacturing activity, as well as October Construction Spending and November Auto Sales. Have a great weekend and a profitable trading week.--Ping Yu, Briefing.com
Names that have dropped below their lower volatility bands and may snap back:
Company (Ticker) Close Change % Change
Adtran (ADTN) 65.82 +0.26 +0.4%
Advanced Fibre Comm (AFCI) 22.38 +0.03 +0.1%
American Power Conversion (APCC) 21.96 -0.19 -0.5%
BCE (BCE) 22.37 +0.08 +0.4%
ECtel (ECTX) 5.22 -0.02 -0.4%
Merisel (MSEL) 5.90 -0.18 -3.0%
QAD (QADI) 12.33 +0.12 +1.0%
Rockford Group (ROFO) 5.85 nc nc
Names that have risen above their upper volatility bands and may consolidate:
Company (Ticker) Close Change % Change
AudioCodes (AUDC) 11.65 +0.75 +6.9%
Ceragon Network (CRNT) 7.47 +0.77 +11.5%
Commonwealth Telephone (CTCO) 37.62 -0.10 -0.3%
Comtech Telecom (CMTL) 33.34 +0.32 +1.0%
Equinix (EQIX) 26.71 +0.66 +2.5%
Evolving Systems (EVOL) 17.10 +1.70 +11.0%
Globecomm Systems (GCOM) 7.00 +1.19 +20.5%
Harris Corp (HRS) 38.77 +0.32 +0.8%
Integrated Silicon Solution (ISSI) 18.70 +0.70 +3.9%
NovAtel (NGPS) 10.04 -0.09 -0.9%
11:25AM QSound Labs -- Momentum Profile (QSND) 1.88 +0.33: Stock trades up 21% on relatively thin volume of 142k shares (avg 12.4k). Driving the interest in this stock is co's recent positioning in the VoIP market. In April, co's QTelNet Inc unit acquired the assets of e-tel Corp, which consisted primarily of Internet telephony-enabling software, hardware inventory and trademark rights. QTelNet's products consist of FreeRide gateways and telephones that are targeted to small businesses customers who can use their existing Internet connections to accomplish inter-office long distance communications with toll quality voice performance. FreeRide products comply with H.323 protocol standards for Internet telephony and work with any analog telephone line. Currently, FreeRide products are certified by or for use with the following switches: Lucent (IP Imerge Centrex), Sprint PBX, Tadiron PBX and Telrad PBX. QTelNet sells FreeRide products, primarily within North America, through a network of dealers that the company is in the process of establishing.
11:05AM Socket Communications -- Small-cap profile (SCKT) 4.34 +0.46: Socket Communications is showing relative strength today, and is now trading within 10% of its 52-week high of $4.46. The co designs, manufactures, and sells products that connect hand-held and notebook computers to the Internet, computer networks, and peripherals through both wireless and cable connections. In its most recent earnings release on Oct 22, the co reported that Q3 sales rose 53% YoY and 11% sequentially to $5.7 mln, and reported positive pro forma net income and crossed into cash flow positive territory. According to its most recent 10-Q, customers that accounted for at 10% of total sales for the qtr include Tech Data (31% of sales) and Ingram Micro (13%). Mkt cap: $115 mln, float: 26.5 mln shares, avg daily volume: 410k shares.
11:00AM InterNAP picked up as VoIP trade (INAP) 2.00 +0.16: Issue is seeing a pick-up in buy interest (+8.5%) as momentum accounts look for 'undiscovered' Voice-over-Internet-Protocol (VoIP) names following advances in sector names such as ZTEL +85%, VOCL +33% and VTEK +20%. Internap a provider of performance-based routing services over the Internet. The co recently announced strong results from an IP Readiness Assessment performed by NEC for VoIP calls made on its network. Sales are expected to climb 19% next year to $166 mln, for a price/sale ratio of 1.9x.
10:00AM Z-Tel Tech seen as VoIP play (ZTEL) 1.58 +0.02: Today's positive Wall St Journal article on Voice-over-IP (see In Play 8:03 ET) is helping group extend its advance following heavy momentum buying on Wednesday: VTEK +21%, EGHT +9%, VOCL +5%. Flying under the VoIP radar screen is Z-Tel Tech (ZTEL), a provider of integrated telecommunications services targeted to residential and small business subscribers. In a note out this morning, Needham highlights co as one of the names likely to benefit from the VoIP trend. According to firm, ZTEL is forging a VoIP strategy, including deploying company-owned soft-switches, which will allow ZTEL to serve S.M.E. customers from SDSL and T1 last mile circuits with VoIP / VoDSL. According to Needham, the co already has traction in the S.M.E. segment and seems well positioned to leverage VoIP alongside its advanced back office systems and in conjunction with its value-added services, such as unified messaging and speech-activated dialing, to create a sizable converged voice/data business in 2004. Firm views this new avenue as a catalyst for ZTEL shares.
9:36AM Lexmark reit Buy at Smith Barney (LXK) 76.51 -0.12: Firm reiterates its Buy rating after receiving data for sales of printers and related supplies in the U.S. during Oct that suggests demand remains solid with qtr/qtr pricing manageable.
9:20AM VoIP names finding bid : After experiencing profit-taking in early pre-market trading following significant gains Wednesday, several VoIP-related names have now turned positive as traders position for another run: VTEK +8.5%, EGHT +6%, VOCL +5.8%, NTOP +2.8%.
Rambus (RMBS) 30.00 +4.75 : Wins in FTC, Infineon trials seen -- Dow Jones
1:25PM ADC Telecom (ADCT) 2.45 +0.03 ADC Telecommunications is scheduled to post Q3 results after the close on Tuesday. Reuters Research prints consensus EPS at $0.00 on revenue of $186.3MM (-15.6% Y/Y) and Q4 of $0.00 on $182.7MM (-8.6% Y/Y); F03 EPS of ($0.04) on $766.2MM and F04 of $0.04 on $778.4MM (+1.6% Y/Y).
Valuation
On an inverted DCF/EVA basis, assuming 2000 bps improvement in gross and operating margins, ADCT's valuation implies that management must grow revenue by 18% per year for the next ten years to support current valuation.
On a price multiples basis, ADCT trades at 2.6x F03 revenue of $766.2MM and 2.5x F04 revenue of $778.4MM; 61.3x F04 EPS of $0.04.
Summary
The 2000 bps Y/Y improvement in gross and operating margin factored into our model is in line with management's long-term goal and achievable given ADCT's operating history. Management has made significant progress in taking costs out of the company. Despite declining sales, gross margin has improved sequentially in each of the last four quarters from 20.4% to 38.5%. SG&A, as a percent of sales, improved from 27.8% to 26.4% over the same time frame.
The 18% annualized growth as implied in our model is significantly above the expected growth in carrier capex over the next two-three years. U.S. carrier budgets are forecast to stabilize in the $40B range and to modestly increase in 2004 and 2005.
There is little downside risk in view of ADCT's improving operating performance, strong balance sheet, over $700MM in deferred tax assets (expires through 2022), improving industry outlook and high operating leverage. But given the high growth rate required to justify current valuation, we would hold off on initiating a new position until it is clear the company can deliver at least sustainable high single-digits growth or on a 15-20% pullback.--Ping Yu, Briefing.com
1:12PM Weekly Wrap :
It was an impressive week for the stock market. Every day was up for all the indices (except for a small loss in the S&P on Friday), and last week's losses were more than completely reversed. The economic data were extremely strong, but that did not appear to be the catalyst for the gains. The market showed tepid responses to each release, and actually posted its best gains on Monday, a day when there were no releases.
Instead, the bullish tone appeared to be related to the simple fact that the Thanksgiving week is typically an up week. That brought out the underlying bullish tone.
The economic releases this past week included a significant upward revision to third quarter real GDP to an eye-popping 8.2% annual rate. That was Tuesday, when a jump in November Consumer Confidence to 91.7 from 81.7 in October was also reported, as was a 4.9% decline in October Existing Home Sales. That latter report was not of concern because sales are still at very high levels. Wednesday's economic data included an impressive 3.3% surge in October Durable Goods News Orders with strength across key categories. The data showed that business spending continues to rise. New Claims for unemployment also fell impressively to just 351,000. October Personal Income rose 0.4%, the Chicago PMI Index reflected strong manufacturing with a very high 64.1 reading, and New Home Sales posted a 3.5% drop for October.
Overall, the economic numbers were extremely strong and supported the underlying bullish sentiment in the market.
The earnings reports this past week were good overall, but there were none that had broad impact or merit particular mention. Other corporate news was also limited. This week, the typical concerns that come out when the market is down got little mention. There was no reduction in the global political tensions, the dollar weakened even further, and gold and oil prices stayed high, but this week that was all ignored. The underlying bullish sentiment burst through, using the historical trend of Thanksgiving week trading as the best available excuse for further buying.
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 9628.53 9782.46 153.93 1.6 % 17.3 %
Nasdaq 1893.88 1960.26 66.38 3.5 % 46.8 %
S&P 500 1035.28 1058.20 22.92 2.2 % 20.4 %
Russell 2000 525.93 546.51 20.58 3.9 % 42.7 %
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