From Briefing.com: 6:37PM Tuesday After Hours : prices levels vs. 4 pm ET: The positive bias evident in the regular session has disappeared after hours amid some disappointing earnings commentary from several companies, with Cisco Systems (CSCO) topping the list in that respect. Presently, the S&P futures, at 1074, are 5 points below fair value while the Nasdaq 100 futures, at 1330, are 18 points below fair value.
The table below lists some of the more notable after hours items/movers. For the full rundown of companies reporting their results, and the added detail surrounding those reports, be sure to visit our (Hourly) In Play, Earnings Calendar, and Earnings Guidance pages. Company Stock Move Reason for Move
Cisco Systems (CSCO) 19.29 -1.17 (-5.7%) Reports Q4 (Jul) earnings of $0.21 per share, ex items, $0.01 better than the Reuters Estimates consensus of $0.20; revenues rose 26.0% year/year to $5.93 bln vs the $5.89 bln consensus... Stock trading lower after hours, though, as market unsettled by several items: (0) dip in Q4 gross margins to 68.4% from 69.9% in prior year (B) increase in DSOs and inventories and (c) company's expectation that 1Q05 revenues will be flat to up 2.0%; translates to revenue of $6.045 bln on high end versus Reuters Estimates consensus of $6.058 bln... CSCO weakness is weighing a on a number of related stocks like JNPR, EXTR, FDRY, RBAK, BRCM and PMCS... separately, in their latest fiscal years, SLR, JBL, and CLS derived more than 10.0% of net sales from CSCO
National Semiconductor (NSM) 14.30 -1.40 (-8.9%) Co lowered its revenue guidance for Q1 (Aug). NSM's new guidance is for revs to decline 4-5% from the $571.2 mln revs achieved in the recently completed Q4 (previously guided on 6/10, during its Q4 earnings conference call, for Q1 revs of flat to up 3% sequentially); Reuters consensus is $579.1 mln. Said NSM's distributors slowed their order patterns more than expected and adjusted inventory levels to reflect shortened lead times. In addition, growth rates for flat panel display products softened and demand from certain Chinese wireless handset manufacturers was weaker than expected.... news comes on the heels of both Merrill Lynch and Banc of America Securities trimming their earnings estimates for NSM in the past two days
Abercrombie & Fitch (ANF) 30.80 -2.66 (-8.0%) Reports Q2 (Jul) earnings of $0.44 per share, $0.01 better than the Reuters Estimates consensus of $0.43; revenues rose 12.8% year/year to $401.3 mln vs the $404.3 mln consensus. Co stated, "We are pleased with our second quarter results. Despite a difficult sales trend, our results reflect strong margin improvement and solid EPS growth of 26%." Co said that assuming a continuation of the Q2 sales trend, coupled with the continued investment in the business, earnings will be similar to last year's Q3 EPS when company reported $0.51... the problem with that outlook is that the current Reuters Estimates consensus is $0.59... related stocks include the likes of GPS, LTD, PSUN and AEOS, which reports before the open on Thursday
Computer Sciences (CSC) 41.87 -2.33 (-5.3%) Reports Q1 (Jun) earnings of $0.58 per share, $0.01 better than the Reuters Estimates consensus of $0.57; revenues rose 5.1% year/year to $3.74 bln vs the $3.76 bln consensus. Company reaffirms in-line guidance for Q2 (Sep)... still sees EPS of $0.63-0.68 vs. Reuters Estimates consensus of $0.66 on rev growth of approx 7-9%; sees Y05 EPS of $3.10-3.20 vs consensus $3.14, and revenues of approx $16.25 bln, vs consensus of $15.93 bln.... slight miss on top-line consensus for Q1 is triggering some after hours selling activity that is being exacerbated by the broader disappointment surrounding CSCO's report
Walt Disney (DIS) 22.40 -0.04 (-0.2%) Reports Q3 (Jun) earnings of $0.31 per share, excluding restructuring and impairment charges totaling $56 mln or $0.02 in connection with the proposed sale of the Disney Stores in North America and closure of certain other stores, $0.04 better than the Reuters Estimates consensus of $0.27; revenues rose 17.2% year/year to $7.47 bln vs the $7.13 bln consensus.
Tomorrow, there aren't any market moving earnings reports or economic releases on the docket. Nonetheless, the market will have more than enough to focus on as it continues to digest the FOMC's policy directive, the Cisco report, and the movement in oil prices.
-- Patrick J. O'Hare, Briefing.com
5:35PM CSCO secondary names extend declines after CSCO -6.4% guidance: PMCS -8%, BRCM -5.7%, JNPR -5.3%, FDRY -4% :
5:11PM CSCO -4% report hits Comm IC names, NSM -7% warning takes down other Semis: PMCS -7%, BRCM -4%, XLNX -3.5%, ALTR -3%, KLAC -1.4%, AMAT -1.2% :
5:04PM Daily Sector Wrap : The Fed raised rates by a quarter point to 1.5% leaving "measured pace" language in place. In its policy statement, Fed said "output growth has moderated and pace of improvement in labor market condition has slowed", but "..economy appears poised to resume a stronger pace of expansion going forward." Strength was broad based on light summer volumes: Tech +1.7%, Materials +1.6%, Telecom +1.5%, Discretionary +1.4%, Health Care +1.4%, and Industrials +1.4%. Energy (-0.48%) was the only sector in the red. Semis held up well despite Lehman downgrading sector. The dollar strengthened against major currencies. Crude, after hitting $45 level, closed down 0.76% to $44.50...cont.
5:01PM UTStarcom request 5 day extension for Q2 filing (UTSI) 17.98 +0.58: Co announced that it has filed a request with the SEC for a 5-day extension with respect to the filing of its Quarterly Report on Form 10-Q for Q2 (Jun). Specifically, in connection with its Q2 closing and review process, UTSI identified a single equipment sale transaction in a single geographical sales market in the amount of approx $1.9 mln that was initially proposed to be recorded as revenue for Q2. Co determined that this transaction did not meet the qualification requirements for recognition within Q2 and as a result did not include this as revenue in the release of its Q2 results. Upon identification of this matter, co immediately notified its audit committee which commenced a full review and analysis of the facts and circumstances surrounding this transaction. The audit committee had not completed this review and analysis by the filing deadline for the Form 10-Q, and therefore co had not finalized its unaudited financial statements for Q2 by then.
5:00PM OSI Pharm reports in line, light on revs; announces U.K. reduction plans (OSIP) 53.31 +0.61: Reports Q3 (Jun) loss of $1.19 per share, in line with the Reuters Estimates consensus of ($1.19); revenues fell 62.4% year/year to $11.2 mln vs the $12.1 mln consensus. Co also announced that it proposed to consolidate all of its U.K.-based oncology research and development activities into its New York locations by approx 11/30. The consolidation could result in a reduction in co's U.K.-based oncology workforce by approx 90 employees and a reduction in the overall research headcount globally. Co anticipates savings of $10-15 mln per year in annual operating expense, however OSIP also anticipates that its overall workforce will remain at approx 500 employees as it continues to expand its sales force ahead of an anticipated approval of Tarceva.
4:58PM National Semi falls 1.10 pts, 7%, in after hours on reduced guidance... analyst were out in front on this one (NSM) 15.70 +0.08: -- Update -- As noted in the 09:28 comment this morning, analysts have been taking down NSM estimates aggressively the past two days. Yesterday, Merrill Lynch slashed its FY05 est to $1.02 from $1.33 and FY06 to $1.02 from $1.52 (both numbers were well below consensus). This morning, BofA Sec reduced its estimates on NSM and commented that they thought current Street consensus would likely prove aggressive... Briefing.com Note: Always surprised when market is taken off guard by an earnings warning when analysts are slashing estimates on consecutive days. Can't remember the number of times the past 6 months that numbers were taken down by multiple analysts, only to have co warn within the week, and the shares react as if the market was completely surprised by the event.
4:16PM Computer Sciences beats by a penny, reaffirms Q2 & Y05 guidance in line (CSC) 43.02 -0.62: Reports Q1 (Jun) earnings of $0.58 per share, $0.01 better than the Reuters Estimates consensus of $0.57; revenues rose 5.1% year/year to $3.74 bln vs the $3.76 bln consensus. Company reaffirms in-line guidance for Q2 (Sep), still sees EPS of $0.63-0.68, vs. Reuters Estimates consensus of $0.66, on rev growth of approx 7-9%; sees Y05 EPS of $3.10-3.20, vs consensus $3.14, and revenues of approx $16.25 bln, vs consensus of $15.93 bln.
4:10PM Cisco Systems beats by a penny, ex items, beats on revs (CSCO) 20.46 +0.41: Reports Q4 (Jul) earnings of $0.21 per share, ex items, $0.01 better than the Reuters Estimates consensus of $0.20; revenues rose 26.0% year/year to $5.93 bln vs the $5.89 bln consensus.
Close Dow +130.01 at 9,944.67, S&P +13.82 at 1,079.04, Nasdaq +34.06 at 1,808.70: The Fed raised the fed funds rate target 1/4% to 1 1/2%...the move, announced at 2:15 ET, was fully expected and had little impact on the day's action...stock indices opened higher, trended higher through early afternoon, and improved even more after the Fed announcement, closing at their highs of the day...the Fed statement noted that energy prices had slowed economic growth, and that labor market improvement had slowed...other than that, the statement was exactly the same as from the prior meeting...there were thus no real clues as to what the Fed might do at the September 21 meeting...
the statement reiterated that "the Committee believes that policy accommodation can be removed at a pace that is likely to be measured"...the data between now and then will determine what the Fed does...oil prices pushed through $45 a barrel today, but had little impact on stocks, and closed down $0.32 at $44.52...volume was extremely light again today...the steady, positive action today was largely seen as a bounce from oversold conditions, and was led by technology and financial services sectors...
after the close, Cisco and Disney are due to report earnings, with Wal-Mart and Dell due on Thursday...NYSE Adv/Dec 2384/917, Nasdaq Adv/Dec 2210/910
2:38PM Cisco Systems (CSCO) 20.16 +0.11: Cisco Systems is scheduled to publish Q4 results after the close on Tuesday. The company entered Q4 with the demand environment exhibiting linearity, and improvement across geographies. Management noted that corporate executives are increasingly optimistic on the economy, and the company is focused on increasing productivity and cost efficiencies.
Management previously guided for Q4 revenue of $5.789-5.901B (23-25% Y/Y or 3-5% Q/Q). Reuters Research prints consensus at $0.20 on $6.057B (+28.8% Y/Y). Gross margin is expected to be 67-69% and operating expense up 2-4% Q/Q due to year-end and prototyping expenses.
The company is adding 1K positions worldwide, primarily to sales and engineering but remains committed to reducing operating expenses to 35% of sales. CSCO posted improved operating results in Q3 despite seeing modest components pricing pressure, and increasing contribution from lower margin products. Management estimates a 30% increase in the cost of semiconductor components has a -1.0% impact on gross margin, and a 20% acceleration in Advance Technologies revenue growth has a -0.5% impact on gross margin.
Advance Technology products (Security, VoIP, home networking, WLAN, Storage networking and Optical) are increasingly critical markets in helping the company sustain growth. These markets in aggregate are forecast to grow at a compound annual rate in excess of 25% through 2007 and could contribute as much as $9-10B in annual revenue by 2007 assuming static market share.
The following table shows price multiples and Y/Y growth rates for CSCO compared against industry comps within the communications equipment, software & programming, and computer systems & peripherals groups. Company *P/SG **P/OPG P/S Y/Y Rev Growth (%)
TTM 2004E 2005E TTM 2004E 2005E
Cisco Systems (CSCO) 3.7 17.9 6.5 6.2 5.4 9.6 16.6 14.7
Communications Equipment 1.6 14.9 2.4 n/a 2.9 n/a
Computer Systems & Peripherals 1.0 15.9 1.4 9.9
Software & Programming 2.6 31.4 4.7 7.3
Blended 1.5 18.9 2.3 7.2
*P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of July 30, 2004.
**P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of July 30, 2004.
CSCO has declined over 18% since the Q2 review. Shares are at fair value assuming sustained lower 20% revenue growth from F06 and lower 30% operating margin. Growth expectations are ahead of the company's seven year compound annual growth rate of just under 20%; margin expectations are in-line with recent performance. We have commented in the past that CSCO is positioned to deliver at least lower- to mid-teens growth and modest operating margin expansion in a mild recovery but that there is limited upside until the company demonstrates sustained upper teens to lower 20% growth. The contribution from Advance Technologies markets could be materially higher assuming market share gains but much of the growth from these markets are already priced into shares.--Ping Yu, Briefing.com
1:45PM ScanSoft (SSFT) 3.91 +0.25: ScanSoft reported Q2 pro-forma EPS of $0.03 on revenue of $46.127MM (+66.3% Y/Y) vs. Reuters Research consensus at $0.01 on $40.72MM. Gross margin decreased 840 bps Y/Y to 75.1%. Operating margin increased 612 bps Y/Y to 9.6% on scale efficiencies.
Results were driven by continued growth in network speech solutions in the North America telecommunications market, and by embedded speech and PDF solutions.
The following table shows sales, gross margin and Y/Y change in gross margin by revenue segment. Segment Revenue Gross Margin
$ in MM % Sales Y/Y Growth (%) in Y/Y Variance (in bps)
Product Licenses 34.648 75 35.0 89.8 114
Professional Services 11.436 25 1,236.0 30.6 12,415
Related Parties 0.043 nm (96.5) n/a
Total 46.127 100 66.3 75.1 (840)
Guided for Q3 pro-forma EPS of $0.03-0.04 on $45-47MM (+36.4-42.4% Y/Y) vs. consensus at $0.06 on $48.47MM. Gross margin is expected to be flat to up one point, with operating expenses comparable to Q2 at $30-31MM. Q4 EPS is expected to be $0.09-0.11 on $55-58MM (+17.3-23.7% Y/Y). Gross margin is expected to increase to 78-79%, and operating expense is expected to be $31-32MM.
The following table shows price multiples and Y/Y growth rates for SSFT compared against the software and programming group. Company *P/SG **P/OPG P/S Y/Y Rev Growth (%)
TTM 2004E 2005E TTM 2004E 2005E
ScanSoft (SSFT) 1.3 (51.1) 2.4 2.1 1.9 50.6 41.5 13.5
Adobe (ADBE) 3.2 14.2 6.7 6.3 5.8 19.0 24.0 9.4
IBM (IBM) 1.1 11.7 1.5 1.5 1.4 9.7 7.9 6.2
Microsoft (MSFT) 3.8 25.1 8.0 7.6 7.1 13.5 5.6 7.6
Nuance Comm (NUAN) 1.4 (10.1) 2.3 2.2 1.8 24.7 9.7 22.5
Software & Programming 2.8 35.7 4.9 n/a 6.7 n/a
*P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of July 30, 2004.
**P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of July 30, 2004.
SSFT has pulled back almost 20% since we highlighted the company on May 10, 2004. Shares trade at a discount to peers and are at fair value assuming sustained lower teens revenue growth from C06 and 19-20% operating margin.
Increased demand for professional services ultimately translates into higher margin license revenue. Revenue momentum is expected to build throughout the year as the company rolls out new generations of network solutions enterprise products (TTS & ASR), and launches multiple products across the productivity applications families. Management pegs the company's addressable PDF market opportunity alone at over $400MM annually, growing at 15%. We would accumulate.--Ping Yu, Briefing.com
9:26AM InterDigital Comm (IDCC) 14.47: InterDigital Communications reported Q2 pro-forma EPS of $0.01 on revenue of $29.379MM (+14.0% Y/Y) vs. Reuters Research consensus at $0.03 on $29.63MM. Operating margin decreased 939 bps Y/Y to 9.5%.
The company continued to diversify its license base; saw increased contribution from Research In Motion, Sanyo and Sierra Wireless. NEC accounted for 36% of sales vs. 50% in Q1; Sharp 30% vs. 13%; and Sony-Ericsson 15% vs. 22%.
Management reiterated expectations for revenue from current licenses to be $27-30MM per quarter for the rest of the year (+0.7-11.9% Y/Y for Q3; +9.3-21.5% Y/Y for Q4). Consensus is at $30.86MM for Q3. Operating expense is expected to increase 6-9% Q/Q, primarily due to patents administration and licensing.
The following table shows price multiples and Y/Y growth rates for IDCC compared against the semiconductor group. Company *P/SG **P/OPG P/S Y/Y Rev Growth (%)
TTM 2004E 2005E TTM 2004E 2005E
InterDigital Comm (IDCC) 4.5 41.9 7.0 6.3 3.8 8.6 10.7 68.1
Qualcomm (QCOM) 5.8 15.5 12.0 10.8 9.5 21.3 30.3 13.4
Texas Instruments (TXN) 1.8 14.6 3.6 2.9 2.3 28.6 31.8 13.1
Semiconductors 2.0 18.7 3.5 n/a 24.0 n/a
*P/SG Ratio: Normalized trailing 12 month (Price / Sales) / Growth ratio as of July 30, 2004.
**P/OPG Ratio: Normalized trailing 12 month (Price / Operating Income) / Growth ratio as of July 30, 2004.
IDCC is attractively priced relative to direct comp QCOM and on an EVA/DCF basis. Shares are at fair value assuming sustained mid-teens revenue growth from C06 and 35% operating margin. High operating leverage license revenue model suggest room for upside to estimates. Management expects IDCC to conclude additional licenses during the year based on the company's vast patent portfolio of over 4K issued patents and applications. The company is targeting the broad range of companies selling CDMA solutions as well as emerging opportunities in the cellular and WLAN markets.--Ping Yu, Briefing.com
9:05AM Ratings Briefing - MRGE : WR Hambrecht upgrades Merge Technologies (MRGE 13.09) to Buy from Hold based on attractive valuation, excellent industry fundamentals in the PACS (Picture Archiving and Communication Systems) arena, and solid execution. Firm believes the stock is undervalued relative to the peer group, especially when factoring in its estimated 47% earnings growth rate in 2005; also, several data points this past quarter lead firm to the conclusion that the PACS market continues to accelerate, as Cerner, McKesson, and IDX all noted the strength seen within the radiology business. Target is $20.
What It Means:
At WR Hambrecht a Buy rating means the firm recommends actively buying; these stocks are expected in absolute dollar terms to appreciate at least 10% over the next six months
Why the Call Should Move the Stock
MRGE is not a heavily-traded stock (3-month avg. daily volume is 68,272 shares) and has a relatively small float of 10.3 mln shares... accordingly, an upgrade to buy should pique the interest of speculative accounts
Upgrade follows on the heels of a weak period for the stock (MRGE is down 23% since hitting an interim peak of $17.00 on May 11) and should help create sense that it is poised for a bounce
Stock being highlighted as a relative value play with strong earnings growth prospects (firm estimating 47% in 2005) - an attractive combination for a market struggling to find value these days due to concerns about a deceleration in the earnings growth rate from the 20%+ range to the mid-teens
Firm's $20 price target implies that there is ample upside potential for the name
Sidenote:
On July 14 Moors & Cabot said it believes that MRGE has become significantly undervalued relative to the financial performance it expects to be reported over the next year; also noted that it continues to believe that MRGE is a clear candidate for acquisition by large co's with substantial health care operations, such as General Electric, Siemens, Philips, or Toshiba;
Current ratings distribution: 3 Buy and 1 Outperform [source: Reuters Estimates]
--Patrick J. O'Hare, Briefing.com |
