From Briefing.com: Tech investors decided to take profits on Tuesday after concluding that 11% in six sessions is a good run for a sector already valuation challenged. The Philadelphia Semiconductor Index (SOXX 545.10 -15.55) slumped 2.77%. Decliners overwhelmed advancers 17:1. The Nasdaq Composite (IXIC 2096.44 -15.34) slipped 0.73% and the Briefing.com Tech Index (BTI) eased 0.2%. Among BTI companies, decliners outnumbered advancers 1.6:1, with decliners shedding 2.5% and advancers popping 3.5%.
After the close, Linear Technology (LLTC 43.95 -1.00) reported Q2 EPS of $0.23 on revenue of $186.021MM vs. consensus at $0.23 on $183.75MM. Gross margin improved 310 bps to 76.5%; operating margin by 530 bps to 52.6%. Management spent $82MM to repurchase 2MM shares of common stock; a poor use of funds in our opinion. As noted in the Q2 preview (Story Stocks, Jan 12, 2004), LLTC shares are priced at a high premium; management will need to achieve revenue growth and operating margin expansion significantly above the industry average and recent performance for investors to justify owning shares at current valuation. Even with market share gains this will be difficult to sustain over the long-term. We would wait for a 35-40% pullback before initiating a minor position.
Looking ahead, Apple Computer (AAPL 24.12 +0.39), Intel (INTC 33.59 -0.56), QLogic (QLGC 50.36 -1.95), Teradyne (TER 26.75 -0.99) and Yahoo! (YHOO 48.80 -0.94) report after the close on Wednesday, and Fairchild Semiconductor (FCS 25.50 -0.99), Juniper Networks (23.01 -0.71) and Sun Microsystems (SUNW 5.50 +0.05) report after the close on Thursday.
Tech shares are likely to exhibit above average volatility near-term given generally high valuations. Nevertheless, we remain moderately bullish on technology shares as sector fundamentals offer some of the best opportunities for revenue growth and margins expansion. We would take advantage of the volatility to buy into quality, attractively priced names / sell richly priced shares into strength as part of a rebalancing of the tech portion of the portfolio to a neutral market weight. Please visit the Story Stocks and Daily Sector Wrap pages for the latest thinking on investment opportunities across market sectors, and the Page One, Looking Ahead and Economic Briefing pages for broad market perspective and outlook. For active investors and traders, visit the In Play, Swing Trader, and The Technical Take pages for actionable ideas.--Ping Yu, Briefing.com
5:56PM Linear Tech reports in line, slightly upside on revs; increase quarterly dividend (LLTC) 43.95 -1.00: Reports Q2 (Dec) earnings of $0.23 per share, in line with the Reuters Research consensus of $0.23; revenues rose 28.2% year/year to $186.0 mln vs the $183.7 mln consensus. Co raise its quarterly dividend to $0.08 from $0.06, increasing co dividend yield to 0.73% from 0.53%.
5:53PM LLTC reports in line for Q2, slightly up on revs 43.95 -1.00:
3:32PM Linear Tech Earnings Preview (LLTC) 43.80 -1.15: Linear Technology reports its Q3 after the market close today, with Reuters Research consensus standing at $0.23 in EPS and $183.7 mln in sales. CSFB expects the co to beat consensus, and would watch for continued downtrend in average selling prices and growth in its high-end consumer business. Merrill Lynch expects co to report in-line with its guidance, with no upside to that number. The firm expects revenues from its power management business to drive most of the top line growth during the quarter, and thinks investors are over-focused on the lack of gross margin leverage, while missing the fact that tight cost control delivers plenty of leverage at the operating profit level.
5:55PM Tuesday After Hours prices levels vs. 4 pm ET: The market has shown more resilience in the after hours trade versus its disappointing performance in the regular session Presently, the S&P futures, at 1121, are 1 point above fair value, and the Nasdaq 100 futures, at 1530, are 3 points above fair value. Very few companies have issues press releases tonight as earnings season looks to heat up tomorrow after the close with Intel (INTC).
The following is a list of companies making headlines, and the reasons behind the stock's resulting move:
After Hours Mover % Change Move Reason for Move
Adolor (ADLR) -24% Small-cap biotech company says that Entereg, its treatment for post-operative bowel obstruction, failed to show a statistically significant benefit at either dose tested; Adolor still plans to submit a new drug application to the FDA anyway as some patients showed benefits
Internet Security (00C0) -5% Provider of security management solutions announces Q4 (Dec) net income may be below the previously stated guidance of $0.13-0.17 per share; Stock is up 47% since September
Plantronics (PLT) +5% Designer of communication headsets surpasses the Q3 (Dec) Reuters Research EPS estimate by $0.09 on sales that climbed 24% to $107.6 mln ; Plantronics also put Q4 (Mar) EPS and revenues above the consensus estimate; Shares have been on an upward path (+150%) since March
Rockwell Collins (ROK) unch Industrial products provider guides EPS higher for FY04 (Sept) citing, among other things, higher than expected sales in the commercial systems business; Briefing.com turned positive on the Industrials in early December, upgrading them to Overweight (see Sector View page)
Synovis Life Tech (SYNO) -23% Small-cap medical device company warns Q1 (Jan) "will be well below analysts' estimates" with net earnings below 1Q03 levels and revenues near 1Q03 levels
Tomorrow, the market will take note of a sprinkling of earnings and economic reports. November Trade Balance and December PPI are due out at 8:30 ET, and Delta's (DAL) Q4 (Dec) report is also on tap before the open.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
5:21PM Apple Computer (AAPL) $24.12 +0.39 Apple Computer is scheduled to publish Q1 results after the close Wednesday. Reuters Research prints consensus Q1 EPS at $0.14 on $1.897B and Q2 at $0.07 on $1.690B.
Management continued investing in R&D during the three year downturn to tranform the company from a PC company to a provider of digital consumer electronics. At the same time, management aggressively developed opportunities within the consumer and higher education markets, and built distribution channels/relationships, particularly the retail and VAR (value added reseller) channels. Efforts are beginning to pay off as the company rolls out new hardware, software and online content/services, distributed via multiple channels (catalog, independent reseller, Internet, retail and VAR) across all four of the company's target customer markets (Business, Consumer, Creative, Education). Sales are growing, gross margin is stable, iPod, iTunes and the developing retail presence is igniting new interest in the brand and the company claims a 29% unit share of the MP3 player market (54% revenue share).
Valuation
On an inverted DCF/EVA basis, assuming firm balance sheet management and steady Y/Y improvement to:
10% operating margin by F06, AAPL's valuation implies that the company must grow revenue by 35% each year for the eight years beginning in F06 in order for investors to justify owning shares at current valuation.
15% operating margin by F06, AAPL's valuation implies that the company must grow revenue in the high teens range for the eight years beginning in F06 in order for investors to justify owning shares at current valuation.
20% operating margin by F06, AAPL's valuation implies that the company must grow revenue in the high single digits range for the eight years beginning in F06 in order for investors to justify owning shares at current valuation.
Consensus Y/Y growth for F04 and F05 is 14.2% and 6.9% respectively. On a price / sales basis, Apple Computer trades at 1.3x Reuters Research consensus F04E revenue of $7.089B (+14.2% Y/Y) and 1.2x F05E revenue of $7.581B (+6.9% Y/Y), and 60.3x F04E EPS of $0.40 and 44.7x F05E EPS of $0.54.
Summary
AAPL has a high operating leverage business model. New products and expanded distribution are driving revenue growth. iPod, retail and software comprise an increasing percent of sales and are sources of margin upside. The company has a strong balance sheet with over $4.5B in cash (quick ratio of 2.3:1; current ratio of 2.5:1). Shares are attractively priced, reflecting uncertainty over whether the company will ultimately be successful in getting iPod customers to buy Apple PCs over lower-priced Wintel systems. We would accumulate at current level and add on pull-backs.--Ping Yu, Briefing.com |
