From Briefing.com: 6:12PM Monday After Hours prices levels vs. 4 pm ET: The after hours has assumed a more positive tone on the heels of today's disappointing finish, with the S&P futures, at 1097, 2 points above fair value, and the Nasdaq 100 futures, at 1415, 5 points above fair value. Tonight's corporate developments have been fairly sparse, but most have been of an upbeat nature.
The below table lists the night's most pressing news items, as well as the stocks' reactions:
After Hours Mover % Change Move Reason for Move
Dycom (DY) +3% Provider of specialty contracting services matches the Q3 (Apr) Reuters Research consensus EPS estimate of $0.23, but handily beats the consensus revenue estimate of $197.8 mln (revenues rose 57% to $219.6 mln); Company goes on to guide Q4 (July) EPS and sales above the Street's forecasts; Q1 (Nov) was also pegged at the high-end of estimates; DY has underperformed the market the past 3 months
Medtronic (MDT) +1% As suggested in this morning's Wall Street Journal, medical device maker does top the market's Q4 (Apr) top and bottom-line expectations; Management describes 'market share gains and accelerating growth across all operating segments;' On its conference call, company says its highly anticipated drug-eluting stent, Endeavor (due out next year), should add $1 bln in sales in its first full year on the market, contributing about $0.35 a share to EPS
Monster Worldwide (00C0) -1% Internet company announces its intention to buy Tickle Inc, a site that offers psychological and self-help tests for career assessment purposes; Deal is structured as an initial cash payment of $29.5 mln plus 1 mln shares of MNST stock, to be followed by potentially $40-plus mln over 3 years, depending on Tickle's ability to meet certain financial hurdles; According to Monster, Tickle is profitable and generated $25 mln in sales over the last 12 months
Novell (NOVL) -6% Network software maker reports Q2 (Apr) earnings of $0.03 per share on revenues that rose 6% to $293.6 mln; NetWare (its largest product) sales, though, fell roughly 5% - helping to solidify the view that NetWare (tied to the Linux operating system) is losing share to Windows-based technology; Stock has also sold off on a 7 day sequential increase in days sales outstanding (to 67)
VeriSign (VRSN) -2% Internet and telecom company says it plans to purchase Germany-based Jamba!, a wireless content provider, for $273 mln in cash and VRSN stock; VeriSign said the acquisition 'may have some incremental impact to Q2 (June) results,' but was comfortable enough reiterating its Q2 forecast; Company adds that it expects Jamba! to generate $70 mln in revenue in 2H04, to be neutral to FY04 (Dec) EPS and to be modestly accretive to FY05 EPS
Tomorrow, earnings reports are still fairly slim, but there are two economic reports on the docket: May Consumer Confidence and April Existing Home Sales. Briefing.com's estimate, as well as the consensus estimate, can be found on the Economic Calendar.
For more detail on these, and other developments, be sure to visit Briefing.com's Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
4:16PM AXT Inc misses by $0.02, guides Q2 lower (AXTI) 2.16 +0.04: Reports Q1 (Mar) net loss of $(0.11) per share, $0.02 worse than the Reuters Research consensus of $(0.09); Revenues rose 14.5% year/year to $9.8 mln vs the $9.9 mln consensus. Co expects Q2 revenue and loss per share of $9.1-$9.8 mln and $(0.11)-$(0.10) vs consensus of $10.2 mln and $(0.08).
4:06PM Silicon Labs and TCL Mobile Comm establish joint wireless development lab (SLAB) 47.58 +0.33: SLAB and TCL Mobile Communication announced a joint development laboratory focused on radio frequency (RF) design for wireless handsets. TCL is one of the fastest growing handset makers in China, where according to industry analysts co's market share ranks in the top five.
Close Dow -8.31 at 9,958.43, S&P +1.78 at 1,095.34, Nasdaq +10.89 at 1,922.98: Today's session offered yet another instance of the "one step forward, two steps back"-kind of trade that the market has been dealt over the past two months... After gapping higher at the open on optimism that Saudi Arabia is committed to raising its crude oil output by 8% at the June 3 OPEC meeting, the market lost its traction as participants speculated that the potentially increased supply of the commodity would be insufficient to meet the rising demand... As a result, the price of crude oil spiked to a new multi-year high of $41.82/bbl, while the market backed off its opening highs...
Also dampening participants' enthusiasm was the Nasdaq's failure to lift above its two-week range top at 1937... These factors, combined with traders' lack of conviction to the market, as demonstrated by the anemic volume totals, led to the market's meltdown through the morning, although the major averages managed to close off their respective session lows... The bulk of the sectors ended the day in the green, with leaders to the upside including the hardware, networking, telecom, gold, REIT, industrials, oil services, transportation, coal, and utility groups...
The tobacco sector was among the few notable laggards after a federal judge refused to limit the $280 bln worth of fines the government is seeking at a trial due to start in September... Elsewhere, the bond market was little changed, with the 10-year note up 5/32, bringing its yield down to 4.73%...NYSE Adv/Dec 2404/904, Nasdaq Adv/Dec 1939/1167
3:16PM McData (MCDTA) 4.74 +0.16: McData reported Q1 results last week. The provider of open storage networking solutions published pro-forma EPS of $0.01 on revenue of $97.229MM (-5.8% Y/Y) vs. revised guidance of $($0.01)-0.02 on $94-104MM and Reuters Research consensus at $0.00 on $98.90MM.
Total port count for all products increased approximately 4% Y/Y but revenue declined due to the continued lengthening of the sales cycle for high-end purchases, a slower than expected ramp of high-volume channels, delays in new product distribution agreements and seasonality. This contrasts with Q4 performance, when product revenue increased 2.9% Y/Y and service revenue increased 50.5%, driven by a new product cycle at channel partner IBM and strong demand for FICON-based Director products.
The following table shows sales and Y/Y change by revenue segment. Segment Revenue
($ in MM) % Sales Y/Y Growth
Product 79.3 82% (13.8%)
Service 12.1 12% 30.1%
Other 5.8 6% 208.7%
Total 97.2 100% (5.8%)
Gross margin declined 7 bps Y/Y to 56.4%. Operating margin declined 816 bps Y/Y to 0.6%.
Management indicated the pricing environment is stabilizing but business continues to be highly concentrated in EMC, which accounts for approximately 45% of sales, and IBM at 25%.
The concentrated customer base and lengthening sales cycle is obscuring visibility and causing results to be lumpy. Guided for Q2 pro-forma EPS of ($0.02)-0.00 (GAAP of -$0.10 to -$0.08) on revenue of $92-100MM (-14.0% to -6.6% Y/Y) vs. consensus at $0.01 on $105.26. Gross margin is expected to be in the mid 50% range. Management sees revenue growth accelerating by Q4 and in F05 due to new product launches. Management reiterated commitment to controlling expenses. Total operating expense is forecast to come in at $55-58MM.
The following table shows price multiples and Y/Y growth rates for MCDTA compared against industry comps within the computer systems & peripherals and software & programming groups. Company *P/SG **P/OPG P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
McData (MCDTA) 0.5 (46.6) 1.4 1.3 1.1 8.2% 3.7% 15.4%
Brocade Comm (BRCD) 1.8 (11.8) 2.7 2.4 2.1 (2.7%) 13.6% 12.2%
Emulex (ELX) 2.1 10.1 4.0 3.8 3.2 21.1% 23.2% 18.0%
Cisco Systems (CSCO) 3.9 18.6 7.1 6.7 5.9 9.6% 16.6% 14.6%
QLogic (QLGC) 2.3 7.6 4.9 4.5 4.1 25.6% 5.6% 10.8%
Veritas (VRTSE) 2.6 14.3 5.7 5.2 4.6 21.8% 16.5% 11.4%
Computer Sys & Peripherals 0.9 17.3 1.3 n/a 11.1% n/a
Software & Programming 2.7 32.9 4.9 6.5%
Blended 1.4 22.0 2.2 9.9%
*P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of May 21, 2004.
**P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of May 21, 2004.
MCDTA shares have declined over 49% since the Q3 review, Story Stocks, December 2, 2003, when we first suggested investors wait for a 20-25% pullback, and over 41% since the Q4 review, Story Stocks, February 27, 2004, when we reiterated our cautious position. Shares are now, based on our inverted EVA/DCF model, priced for sustained upper single digit revenue growth from F06 assuming 10% operating margin. Implied growth falls to the lower single digits range assuming 15% operating margin, which is in line with management's long-term target of 15% or better operating margin based on mid 50% gross margin and operating expense at approximately 40% of sales.
Our cautious stance following Q3 and Q4 results was based on competitive product and price pressures, which distorted the outlook for MCDTA, and called into question MCDTA's ability to achieve the growth and operating margin improvement implied in our model. These pressures, while still present are moderating, and management has addressed gaps in the company's product portfolio with the acquisitions of Nishan Systems (real-time multi-protocol SAN routing) and Sanera Systems (scalable SANs).
Enterprise spending is beginning to pick up. A primary focus is on extending and maximizing IT resources though blade server technology, information life cycle management, and utility computing, all of which are expected to drive demand for intelligent switching and network storage solutions. Nishan and Sanera position MCDTA to capitalize on these trends. We would acquire at current level.--Ping Yu, Briefing.com
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