From Briefing.com: 5:59PM Wednesday After Hours :prices levels vs. 4 pm ET: Selling continues in the after hours, where the S&P futures, at 1085, are 3 points below fair value, and the Nasdaq 100 futures, at 1394, are also 3 points below fair value. Tonight's earnings pronouncements have come from mostly technology companies - none of which are influential enough to inspire buying interest in the broader market.
The below table lists the night's most important developments, as well as the stocks' reactions:
After Hours Mover % Change Move Reason for Move
Black Box (BBOX) -14% Computer network equipment distributor misses the Q4 (Mar) Reuters Research consensus EPS estimate by $0.06 on revenues that fell 4% to $129.7 mln (consensus of $137.5 mln); Company also said it has entered into a $2 mln settlement agreement in the case captioned In Re Black Box Corporation Securities Litigation; Despite the end to the lawsuit, BBOX sells off on the wide Q4 miss
Brocade (BRCD) -3% Data storage networking company delivers an in line Q2 (Apr) report - accented by a loss of $0.03 per share; Company remains in the midst of a turnaround as it said it is laying off 110 employees - about 9% of its headcount; Stock drops as a result of the announcement, and in an extension of its 12% slide this month; Now trading below its 200-day moving average
Intuit (00C0) -8% Maker of TurboTax reports a 14% increase in Q3 (Apr) profits to $1.20 (consensus of $1.16) and a 12% rise in sales to $713 mln (consensus of $706.6 mln) during the all-important tax season; Q3 accounts for nearly 40% of annual revenues; Company goes on, however, to warn for Q4 (July) - erasing all of the stock's gains since early May
Men's Warehouse (MW) +5% Retailer specializing in professional wear shows strong upside to the Q1 (Apr) Reuters Research top and bottom-line estimates; US same store sales jumped 12% for the period; Management also guided Q2 (July) and FY05 EPS and revenues above market expectations; Company has benefited from the shift away from casual clothes at work
Symantec (SYMC) -1% Antivirus software maker says it plans to acquire anti-spam software-maker Brightmail - which had plans for an IPO - for about $370 mln in cash; Transaction is expected to close by early July, and Symantec said it is too early to estimate the impact on GAAP results from the purchase; Brightmail's software protects more than 300 mln mailboxes, and is used by about 1,800 customers, including 8 of the top 12 Internet service providers in the US
Tomorrow, Treasury Secretary Snow and Fed Governor Bernanke will be speaking at various engagements - the latter likely to stir things up with his hawkish views. An earnings report from Ciena (CIEN) and three economic reports will keep the market occupied during the morning.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com .-- Heather Smith, Briefing.com
4:33PM Credence beats by $0.04, guides Q3 above consensus (CMOS) 12.11 +0.54: Reports Q2 (Apr) earnings of $0.06 per share, $0.04 better than the Reuters Research consensus of $0.02; revenues rose 123.8% year/year to $95.1 mln vs the $87.2 mln consensus. Co also guides, sees Q3 EPS of $0.15-0.17, vs the R.R. consensus of $0.09, and revenues of $116-120, vs an estimate of $100.3 mln.
Close Dow -30.80 at 9,937.71, S&P -2.81 at 1,088.68, Nasdaq +0.35 at 1,898.17: What started out as a terrific session for market enthusiasts, with the Nasdaq advancing as much as 2.0%, ended up with the bitter disappointment of a relatively flat to slightly lower close for the major averages... The early optimism was largely an extension of yesterday's rally, supported by a lack of disturbing geopolitical headlines and upbeat comments from the likes of Hewlett-Packard (HPQ 20.72 +0.89) and Applied Materials (AMAT 18.76 -0.09)...
In its advance, the Dow lifted above the psychologically-significant 10K level, as well as its 200-day simple moving average at 10,033, inciting additional buying in the broader market... While leadership to the upside was broad-based with laggards being identified in terms of sectors that are showing the smallest gains, volume was only moderate at best, speaking to participants' lack of conviction to the move higher... In that same vein, the Nasdaq's failure to lift above the top of its recent trading range at 1037 (session high 1036) cooled the market's advance and the participants' enthusiasm even further...
With two hours of trade remaining, selling of S&P futures by a Tier 1 firm drove the market lower, while the relatively uninspiring volume totals and Friday's monthly options expiration exaggerated the extent of the move... At market close, sector leadership was mixed with leaders to the upside including the networking, semiconductor, communications equipment, gold, coal, iron & steel sectors... Among the laggards of note were the biotech and REIT groups... Elsewhere, the bond market was able to close off its worst levels of the day, although the 10-year note was still down 9/32, bringing its yield up to 4.77%... NYSE Adv/Dec 1791/1526, Nasdaq Adv/Dec 1669/1487
1:52PM Applied Materials (AMAT) 19.31 +0.46: Applied Materials reported Q2 results after the close on Tuesday. The world's largest supplier of semiconductor capital equipment and services posted Q2 pro-forma EPS of $0.24 on revenue of $1.831B (+24.8Y/Y) vs. Reuters Research consensus at $0.24 on $1.697B.
Orders increased 128% Y/Y to $2.2B. Backlog increased 1.4% Y/Y to $2.8B. Southeast Asia/China accounted for 22% of orders; Taiwan 21%; North America 19%; Japan 17%; Korea 13%; and Europe 8%. The following table shows bookings by customer application and linewidth: Application Linewidth
Logic / Other 31% >0.10µ, <=0.15µ ~60%
Foundry 44% <=0.10µ ~30%
DRAM 25% >0.15µ ~10%
Gross margin improved 1,284 bps Y/Y to 46.5%. Operating margin, excluding extraordinary items, improved Y/Y from a loss to 25.5%, in-line with management's goal of 25% on $2B in revenue.
Management sees continued broad-based strength for semiconductor equipment and services worldwide, with fab utilization rates running close to 100% and a stable equipment pricing environment. Capital spending for equipment is expected to grow by approximately 40% Y/Y in 2004 as semiconductor firms proceed with investments in capacity expansion for 200mm fabs, and in new technologies including 300mm, which represented approximately 51% of AMAT's orders.
The equipment share of capital spending is expected to increase from the mid 50% range to over 70% as companies transition to 300mm. There are approximately 30 300mm fabs currently being equipped; 16 are expected to continue adding equipment in 2005, and another 19 are scheduled to come on line. China is expected to continue expanding for several quarters, primarily with 0.18µ and 0.25µ technologies, and 200mm fabs. Management forecast capital expenditures in China to increase from an estimated $2.6B in 2004 to over $10.0B by 2010.
Guided for orders to grow by approximately 5-10% Q/Q and revenue by 5% Q/Q. EPS is expected to be $0.23-$0.25 on $2.119B (+93.5% Y/Y) vs. consensus at $0.23 on $2.110B.
The following table shows price multiples and Y/Y growth rates for AMAT compared against peers within the semiconductor capital equipment group. Company *P/SG **P/OPG P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Applied Materials (AMAT) 4.7 (329.6) 5.4 4.1 3.3 54.4% 74.7% 23.1%
ASM Int'l (ASMI) 0.9 49.3 1.2 0.9 0.8 12.2% 51.3% 16.8%
KLA-Tencor (KLAC) 4.2 37.2 6.5 5.9 4.0 (2.4%) 13.2% 46.9%
Kulicke & Soffa (KLIC) 0.7 (16.6) 0.8 0.7 0.6 14.9% 57.0% 9.5%
Lam Research (LRCX) 2.4 88.8 3.7 3.3 2.0 5.7% 19.8% 61.6%
Novellus Systems (NVLS) 3.1 (206.9) 4.5 3.3 2.7 4.5% 42.5% 22.9%
Semitool (SMTL) 2.2 (15.1) 2.8 2.2 1.3 (9.4%) 22.3% 74.6%
Semiconductor Capital Equipment 2.3 427.6 2.9 n/a (3.4%) n/a
*Normalized P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of May 14, 2004.
**Normalized P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of May 14, 2004.
AMAT has declined over 19% since the Q1 review, when we commented that double-digit bookings growth may temper immediate valuation concerns but that there are instances where the premium for perceived industry leadership is simply not worth its value in psychological or real currency.
Shares are still priced close to perfection despite the pullback. Based on our inverted EVA/DCF model, the market is expecting sustained upper teens to 20% revenue growth from F06 assuming 30% operating margin, a rate of growth that is based on near peak operating margin and that continues to imply AMAT captures significant market share in a semiconductor market that is growing by at least 15% per year.
We continue to prefer ASM International (ASMI 20.02 +1.14).--Ping Yu, Briefing.com
10:12AM Hewlett-Packard (HPQ) 21.21 +1.38: Hewlett-Packard published Q2 pro-forma EPS of $0.34 on revenue of $20.113B (+11.8% Y/Y) vs. Reuters Research consensus of $0.34 on $19.330B.
Corporate IT demand environment continues to improve but pricing remains highly competitive. Company used pricing to drive market share.
Revenue increased approximately 4% Y/Y after adjusting for favorable currency. Americas revenue (42% of sales) increased 4% Y/Y to $8.74B. EMEA (41% of sales) increased 17% Y/Y to $8.3B. Asia/Pacific (12% of sales) increased 22% Y/Y to $2.4B. Japan (5% of sales) increased 21% Y/Y to $0.967B.
The following table shows sales, growth and operating margin by revenue segment. Segment Revenue ($ in MM) % Sales Y/Y Growth Operating Margin Y/Y Variance
Enterprise Storage 3,979 20% 8.2% 3.0% 142
Software 222 1% 23.3% (22.1%) 1,293
HP Services 3,492 17% 14.8% 9.4% 36
Technology Solutions 7,693 38% 11.5% 5.2% 97
Imaging and Printing Grp 6,098 30% 10.6% 15.6% 118
Personal Systems Group 5,991 30% 16.9% 0.8% 35
Financing 469 2% (6.4%) 7.5% 331
Corporate Investments 114 1% 35.7% (42.1%) (1,028)
Eliminations (252) (1%) 76.2% n/a
Total 20,113 100% 11.8% 6.7% 31
Industry standard servers increased 32% Y/Y in unit terms and 15% Y/Y in dollars. Personal systems increased 16% in unit terms and 17% in dollars; desktop units increased 13%, revenue increased 14%; notebook units increased 19%, revenues increased 26%. Color printer unit shipments increased 42% Y/Y; photo printer units increased 26%; digital camera units increased 53%; all-in-one units increased 38%.
Gross margin declined 194 bps Y/Y to 25.2%. Operating margin increased 31 bps Y/Y to 6.7%. Selling, general and administrative expense increased 0.8% Y/Y and declined by 154 bps Y/Y to 14.0% of sales.
Improving operating performance masked by decline in gross margin as cost of goods grew at a faster rate than revenue. Management continues to focus on taking costs out of the supply chain and streamlining the company's cost structure, and is comfortable with near-term target for upper single digits operating margin. Guided for H2 revenue of $39.7-40.7B vs. consensus at $39.8B; Q3 consensus EPS is $0.32 on $18.760B (+8.1% Y/Y); Q4 is $0.42 on $21.013B (+5.8% Y/Y).
HPQ shares are, based on our inverted EVA/DCF model, priced for sustained lower teens revenue growth from F06 assuming 9-10% operating margin.
The following table shows price multiples and Y/Y growth rates for HPQ compared against peers within the computer systems & peripherals, computer services and software & programming groups. Company *P/SG **P/OPG P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Hewlett-Packard (HPQ) 0.5 15.3 0.8 0.8 0.7 9.1% 7.4% 6.2%
Dell (DELL) 1.5 18.6 2.0 1.8 1.5 17.9% 18.8% 15.5%
Elec Data Sys (EDS) 0.3 (68.6) 0.4 0.4 0.4 1.4% (5.5%) 1.1%
EMC (EMC) 2.1 34.3 3.7 3.1 2.7 21.8% 25.9% 14.3%
Gateway (GTW) 0.5 (4.2) 0.4 0.4 0.4 (14.8%) 2.3% 7.3%
IBM (IBM) 1.1 11.5 1.6 1.5 1.4 9.7% 8.0% 6.1%
Lexmark (LXK) 1.7 15.2 2.4 2.3 2.1 11.1% 11.0% 9.7%
Sun Microsystems (SUNW) 0.9 (18.8) 1.1 1.1 1.1 (6.9%) (4.2%) 1.9%
Unisys (UIS) 0.5 9.0 0.7 0.7 0.6 5.9% 5.3% 6.6%
Computer Sys & Periph 0.9 17.2 1.3 n/a 11.2% n/a
Computer Services 1.1 17.6 1.5 4.9%
Software & Programming 2.7 34.1 4.8 6.9%
Blended 1.3 20.8 2.0 8.5%
HPQ trades at a discount to peers. Shares are close to fair value on a DCF basis. Catalysts for closing discount and for sustainable upside include: 1) improving the company's revenue growth and operating margin performance relative to peers; 2) accelerating blended topline growth to lower teens (upper single digits on an organic, constant currency basis); and/or 3) improving operating margin to 10% to lower teens range.--Ping Yu, Briefing.com
9:07AM Ratings Briefing - HPQ : CIBC upgrades Hewlett-Packard (HPQ 19.83) to Sector Outperformer from Sector Performer after "stellar" Q2 results. Firm says that the company is one step ahead of expectations: it has secured balanced mix, is displaying supply chain expertise, and is up-selling despite rising component costs and the lull in retail mkt in 1H04. Also, firm says the reversal of the Q1 dip in services margins augurs 2H04 upside. Assuming that HPQ continues to execute at least in-line with expectations, firm believes the stock's valuation gap is overly harsh and likely to close, moving through a long-term cyclical tech upswing from which the company remains a primary beneficiary as a market share consolidator. Target is $30.
What It Means
At CIBC a Sector Outperformer rating means stock is expected to outperform the sector during the next 12-18 months
Why the Call Should Move the Stock
Upgrade from CIBC will be added source of support for HPQ, which helped its own cause last night by posting solid Q2 (Apr) earnings results and providing upbeat guidance for 2H04
An "after the fact" upgrade (i.e. after earnings report) from a leading analyst can pique buying interest as it validates investors' belief that a company's earnings news was indeed encouraging... according to tracking firm StarMine, CIBC analyst, Ali Irani, receives 4 out of 5 stars for his EPS estimate accuracy on HPQ, and overall, for the trailing two fiscal years and four quarters
Note draws attention to HPQ being a value play, which should strike a chord with participants searching for bargain hunting opportunities amid the recent sell-off... says 23% discount to S&P 500 should limit downside for HPQ
Firm's $30 price target speaks to belief that there is strong upside potential for HPQ, as it is roughly 50.0% above the level where HPQ closed the regular session on Tuesday
Sidenote
CIBC disclosure show that (A) CIBC expects to receive or intends to seek compensation for investment banking services from HPQ in the next 3 months (B) HPQ is a client for which CIBC has performed non-investment banking, securities-related services in the past 12 months and (c) CIBC has received compensation for non-investment banking, securities-related services in the past 12 months
On March 29, Barron's did a cover piece on HPQ that highlighted stock's discounted valuation... on May 7, Wall Street Journal's "Heard on the Street" column discussed the idea that the HPQ-Compaq merger hasn't paid off for investors
--Patrick J. O'Hare, Briefing.com |
