From Briefing.com: 4:35PM General Electric says it received a subpoena from the SEC on Apr 29 (GE) 36.25 +0.05:-Update- GE said it received a subpoena from the New York Regional Office of the SEC on Friday, April 29. The subpoena, which seeks documents relating to "certain loss mitigation insurance products," is general in nature. GE will cooperate fully with the SEC. The co understands that a number of other insurance and reinsurance companies have been subpoenaed by the SEC in relation to finite risk. One of GE's businesses, GE Insurance Solutions, has made limited use of reinsurance with finite characteristics to manage the risks of catastrophic events such as storms or hurricanes, and to protect itself and GE shareowners from the volatility that is inherent in its business.
4:17PM EMC and H-P agree to settle all outstanding intellectual property litigation (EMC) 12.84 :EMC and HPQ announce that they have agreed to amicably dismiss all claims and counterclaims with no findings or admissions of liability in a settlement of a longstanding patent dispute involving patent infringement allegations between the two companies. HPQ and EMC have been in patent litigation against each other since 2001. As part of this settlement agreement, HPQ will pay a net $325 mln balancing payment to EMC, which can be satisfied through the purchase for resale or internal use of complementary EMC products, such as the VMware product line, over the next five years. EMC and HPQ also have signed a five-year patent cross-license agreement.
4:15PM Digital Angel Q1 comes in $0.01 below only analyst estimate (DOC) 4.31 -0.07:DOC reports Q1 loss of $0.01 vs only analyst estimate of $0.00; revs up 24.4% from same period a year earlier to $13.4 mln vs. only analyst estimate of $14.0 mln. Revs from animal applications up 17.3% to $8.3 mln; revs from G.P.S. and radio communications up 38% to $5.1 mln. Gross margin rose to 44.7% vs. 42% a year earlier.
4:14PM TTM Tech reports $0.02 below consensus; guides Q2 EPS and Revs below consensus (TTMI) :Reports Q1 (Mar) earnings of $0.11 per share, $0.02 worse than the Reuters Estimates consensus of $0.13; revenues rose 2.0% year/year to $58.9 mln vs the $60.8 mln consensus. Co issues downside guidance for Q2, sees EPS of $0.10-0.12 vs. $0.15 consensus; sees Q2 revs of $58-61 vs. $63.65 mln consensus.
4:11PM Corning reaffirms Q2 guidance of $0.17-$0.19 in EPS, $1.08-$1.13 bln in sales (GLW) :
Close Dow +59.19 at 10251.70, S&P +5.31 at 1162.16, Nasdaq +7.00 at 1928.65: Market showed strong follow through from Friday, ahead of tomorrow's FOMC meeting, as arguably oversold conditions helped investors overcome a rebound in oil prices as well as mixed corporate and economic data... Earlier in the session, falling oil prices - under pressure amid reports of slowing economic growth and rising crude inventories - eased worries about higher energy costs eating into corporate profits and curbing consumer demand...
However, renewed buying interest in oil about an hour before the close of commodities trading, lifted the June contract above $50/bbl and spooked many investors into booking profits, as the commodity recouped more than half of the 4.0% lost on Friday before closing at $50.92/bbl (+$1.20)... But not even a 2.4% recovery in oil could keep buyers on the sidelines for very long, as an average 2.9% loss for the major indices last month - a month (April) historically among the best to own stocks - created buying opportunities across the board, as nine out of ten economic sectors closed in positive territory...
Pacing the way higher was Energy (+1.8%), which turned the corner in lock-step with the rebound in oil, as even Financial (+0.3%) pared modest losses to close to the upside... Financial was in focus all day, as news of American International Group (AIG 53.44 +2.59) finally setting a definitive date (May 31) to restate more than four years of financials countered an endorsement of Morgan Stanley's (MWD 49.39 -3.23) CEO Philip Purcell that could prolong conflict at the firm and several analyst downgrades of brokerage firms (i.e. GS, LEH, MER)... Technology also recovered lost ground, as strength in Hardware offset modest weakness in Semiconductor and Networking...
Hardware got a boost from Hewlett-Packard (HPQ 20.97 +0.50), which could see a possible migration of IBM customers now that Lenovo has completed its $1.75 bln acquisition of IBM's PC unit... Health Care (+0.4%) was also an influential leader to the upside, benefiting from strength in HMOs and Biotech, while Consumer Staples (+0.8%) got a boost from Sysco Corp's (SYY 35.41 +0.81) strong Q1 report... Transportation was also a bright spot, surging on the heels of Yellow Roadway's (YELL 51.05 +2.05) revised 65% cash offer for USF Corp. (USFC 45.16 +2.53)...
Telecom Services, however, closed lower, extending midday weakness following the withdrawal of Qwest's (Q 3.47 +0.05) previously "superior" $9.7 bln offer... Verizon Communications' (VZ 34.97 -0.83) sweetened $8.4 bln for MCI Inc. (MCIP 25.70 -0.83) was initially welcomed by investors hungry for Monday merger news, but Qwest's withdrawal and accompanying statement - "MCI never intended to negotiate in good faith with Qwest nor maximize shareowner value" - overshadowed the fact that the ongoing back-and-forth battle finally appears to have found closure...
In economic news, the April ISM index checked in at 53.3 (consensus 55.0), marking its fifth consecutive decline, but since any reading above 50 reflects growth in manufacturing and the survey did not represent any hard data, only Treasurys moved on the data... The benchmark 10-year note was off just 3 ticks to yield 4.21% following the data, but traders dug in their heels heading into tomorrow's FOMC meeting (2:15 ET), inching the benchmark 10-yr up 2 ticks into the close to yield 4.18%... Separately, Mar. construction spending rose 0.5% (consensus +0.3%), as the prior month's read was revised upward to 0.5%, but market participants on the whole paid little attention to the data...DJTA +1.7, DJUA +0.5, DOT +0.2, Nasdaq 100 +0.2, Russell 2000 +1.1, SOX -0.1, S&P Midcap 400 +0.8, XOI +1.4, NYSE Adv/Dec 2098/1168, Nasdaq Adv/Dec 1665/1403
9:15AM Gapping Down :NMG.a -4.6% (to be acquired for $100/sh; perhaps price too low), MWD -4.2% (declines mgmt change), SEBL -2.8% (Oracle has discussed Siebel buyout, but talks aren't active - WSJ), SHRP -8% (negative Barron's article), ECLP -11% (reports Q1; CEO steps down; First Albany downgrade), CTIC -6.5% (reports Q1; announces Phase 3 results for Xyotax), WTSLA -6% (reports JanQ), BRCD -2.1% (guides lower), CMVT -1.7%... Under $3: STEM -6.1% (reports Q1; down in sympathy: ASTM -2.5%).
9:00AM Gapping Up :MYGN +4.6% (Phase II trial results for Flurizan), AIG +4.6% (to restate financial statements - WSJ), MATK +4% (extends 18% move on Friday), OSIP +2.7% (submits supplemental new drug application for Tarceva), SIRI +2.3% (mentioned in Barron's), PRVD +2% (bounces after 31% drop on Friday), GOOG +1.4% (Prudential raising tgt to $284), PDE +6.5% (Smith Barney upgrade; Jefferies upgrade), MTSN +5.8% (selloff overdone says Legg Mason), CRXA +39% (to be acqyured by GSK), WGAT +5.5%, ELN +5.3% (entension of Friday's 17.5% move), BOOM +5.2%, TORM +15.5% ... Under $3: GENR +17% (Evizon Phase 2 data), CPN +4% (seeks NYSE inquiry on rumors about its finances - WSJ).
8:01AM Brocade reduces revenue guidance (BRCD) 4.35 :Co issues downside guidance for Q2 (Apr), sees EPS of $0.07 vs. $0.09 Reuters Estimates consensus; sees Q2 (Apr) revs of $144-145 mln vs. $157.97 mln consensus. BRCD cites "greater seasonality than expected, reflecting a lower level of enterprise spending, and an extended sales cycle causing business from end customers to push outside of the quarter" for downside guidance.
11:11AM Humana Inc. (HUM) 35.02 +0.37: Humana, the largest benefit health insurance manager for the US military, surpassed expectations with its first quarter earnings aided by Medicare enrollment and cost containment. Net income rose to $109.8 mln, or $0.67 per share from $67.8 mln last year. Excluding a tax benefit, earnings were $0.53 per share - a nickel better than the Reuters Estimates consensus. Revenues aspired 3.1% year/year to $3.39 bln just shy of estimates. Premiums, which make up with lion's share of the top line, rose 4% for last year's period to $3.29 bln.
Membership increased slightly to 7 mln as a 2.3% decrease in commercial members to 3.2 mln was offset by a 2.1% rise in government membership to 3.8 mln. Specialty members made of 1.8 mln up 7.1% y/y. The acquisition of CarePlus Health Plans of Florida was completed in February adding 50,000 customers eligible under Medicare. Humana is among the insurers that may benefit from the new prescription-drug plan offered next year through Medicare. The Louisville, Kentucky-based company is quite optimistic about its prospects for the year ahead. Its CEO, Michael McCallister said, "Our progress this quarter positions Humana to achieve substantial earnings growth throughout 2005 and longer term."
Within the Commercial segment, pretax earnings escalated 27% y/y to $49.5 mln due to a more profitable business mix. A significant rise in administrative services only (ASO), individuals, and consumer-choice product members widened margins by 70 basis points to 2.9%. HUM expects earnings to rise between 10-15% for the year. Commercial Enrollment declined 23% to 3.2 mln. On the cost side, premiums and administrative service fees decreased 5% due to a slide in membership and a shift to a higher percentage of ASO business. The medical expense ratio (medical expenses divided by premium revenues) was 82.2% down 130 basis points q/q due again to an improved risk profile. Per-member medical costs are expected to rise 8-10% for the year.
Within the Government segment, pretax earnings rose 13% to $72.2 mln driven by a significant growth in Medicare memberships and an improved medical expense ratio. Enrollment increased 19% to 449k. HUM projects Medicare Advantage membership in the range of 480-500k by the end of the year. TRICARE membership was flat at 2.87 mln. Premiums per member increased 10-12% y/y, due in part to higher reimbursement associated with the acquisition of CarePlus. It anticipates premiums for Medicare to rise 11-13% corresponding with the rise in medical costs for the year. TRICARE premiums are targeted to come in at $2.5 bln.
Medical expenses, which make up the bulk of operating costs about 85%, were up 2.6% y/y. Humana's overall medical expense ratio improved to 83.7% from 84.4% last year due mostly to a point gain from its Commercial segment. Operating margins expanded 50 basis points to 3.8% from last year's period. Looking ahead, Humana issued downside guidance for the second quarter of $0.47-0.50 per share, vs. $0.52 consensus. Yet for the full year, it once again raised expectations to $2.23-2.25, vs. $2.09 consensus. Humana lifted its FY05 figures back in February by 7% to $0.20. Revenues remained the same from Feb at approximately $14.5 bln.
The Health Care sector has regained interest in this volatile market environment due to its defensive characteristics. The managed care group including Aetna (00C), UnitedHealth Group (UNH), and WellPoint (WLP) has been quite strong as of late. HUM is up 17% year-to-date with shares enjoying further gains following the strong quarter. This was a solid start with improved profitability and cost containment, as higher premiums helped offset flat membership growth. Results were assisted in part by its acquisitions including PrescribIT Rx pharmacy in So. Florida as the company expands to better compete with the likes of WLP and UNH. The broader contention for the group is that costs will continue to slow and 2006 will bring unprecedented growth opportunities in Medicare. The stock is trading at 16.8x forward earnings roughly in-line with its 5-year historical average. ---Kimberly DuBord, Briefing.com
10:50AM Verizon Communications (VZ) $36.15 +0.35 (+1.0%) It is almost hard to believe that Verizon traded at $33.70 just a week ago, before their Q1 report and after MCI (MCIP) stated that the Qwest (Q) bid of $30 per MCIP share was superior. We said so, as well, because we believed at a $34 price, Verizon was appealing whether they wound up winning MCI or not. Today, MCI has stated that the new Verizon bid is superior and the market is reacting positively. Part of the reason for that is probably the fact that Verizon's new bid actually costs less, in terms of cash outlay, than their previously rejected bid.
Verizon won this current bid by playing its strongest trump card: the future value of VZ stock versus the future value of Q stock. They have actually decreased the cash component of this bid, from $8.75 per MCIP share to just $5.60 per share. They have, however, increased the ratio of VZ shares from the previous 0.4062 VZ shares per MCIP share to the 40% higher ratio of 0.5743 VZ shares per MCIP share. In addition, the bid includes a clause to ensure that the VZ stock swap is at least $20.40 of value, should VZ decline below $35.52 (the value at which the ratio equals $20.40). However, there is no upper limit on the value of the ratio, so that MCI shareholders will benefit if VZ stock continues to rise. At the current $36.15 level, for example, the swap value is $20.76, making the total VZ bid worth $26.36 currently, above the widely quoted $26.00 level.
The "future value" of VZ stock has clearly been the focus of the MCI board, as frequent readers of Briefing.com know. This bid by Verizon is extremely astute in capitalizing upon that fact. We had previously expected Verizon to be hesitant to raise the stock portion of the bid, and thought that a sharp increase in the cash portion would be necessary. However, this move is far more effective and almost certainly makes it impossible for Qwest to now respond. The reason is simple: MCI has made it clear that Q stock has little currency value. For Qwest to respond now, they must now move more towards an all-cash bid, which Verizon could effectively counter with an increased stock bid, perhaps even moving to an all-stock offer.
An all-stock offer has the built-in benefit of (possibly) being a tax-free exchange. This creates more value for MCIP shareholders by virtue of not having to pay taxes on the cash portion of the acquisition. While not all MCI shareholders might be subject to taxable transactions, many are, and the MCI board can use the tax benefits to justify the greater value of the VZ bid. With Qwest virtually "tapped out" on the cash portion of their bid, as evidenced by borrowing agreements from some MCI shareholders, it means Qwest might now be finally unable to respond.
Frankly, we didn't think the Verizon management and board would make such a tactically brilliant move at this point. We had thought they would wait until Qwest reports Q1 tomorrow and MCI reports on Thursday. If Qwest's report was weak, it might have emboldened Verizon to stick with their current bid, we thought. And if MCI's report was weak, on revenues, we thought it possible that Verizon might pass on MCI, and pick up $435 million as a 'consolation' prize.
However, this revised bid makes it clear that there was never anything tentative about Verizon's plans for MCI. The increased stock portion of the bid emphasizes the one truly valuable element in the entire battle: the future value of the telecom giant that emerges from a Verizon/MCI combination. Qwest can't even come close to selling such a dream. And by reducing the cash portion of the bid, Verizon lowers the market's worries about debt levels. In addition, by making the bid in accordance with the deadline that MCI set when they picked Qwest's $30 bid last week, as opposed to "buying time," Verizon positions themselves as "respectful gentlemen." Public image is critical in this battle, as Verizon and MCI will still need the blessing of the US government to complete a deal. Putting all the pieces together, this revised bid is a brilliant step that should finalize the acquisition of MCI by Verizon. At the current price levels, VZ still looks cheap, as a long term play on the eventual dominance of a VZ/MCI combination three years from now. - Robert V. Green
9:45AM Page One: Futures indicate an up open. The market put in a surprisingly strong performance on Friday, and the S&P actually ended with an increase for the second week in a row.
It is merger Monday, and there is a bit to report. Verizon (VZ) has upped its bid yet again for MCI. Neiman Marcus has agreed to be bought out by a private equity group for $100 a share in a $5.1 billion deal.
Oil prices also bring some good news. After dropping sharply on Friday and closing below $50 a barrel, the price is down another $0.60 this morning and barely above $49.
There will be plenty of earnings reports as the week goes on, but there are only a few to report on this morning. Sysco and Tyson Foods, the two largest to report, both had good earnings, but these companies are hardly going to move the market.
Earnings in aggregate remain excellent. It now appears that operating earnings for the S&P 500 in aggregate will be up 14%. That is twice the 7% gain expected at the start of the quarter. Second quarter estimates are currently at 7%. A repeat of the 14% may not happen, but given the tendency of Wall Street to underestimate current quarter numbers, a double-digit gain is probable.
It will be an active week. Tomorrow, the Federal Reserve's FOMC committee will make its policy announcement. Another 1/4% hike in the funds rate is expected, but the conflicting forces of firming inflation and a softer economy create uncertainty as to the wording the Fed will put in the announcement in order to signal future intentions. On Friday, the April employment data will be out. This release could indicate just how much of a soft patch the economy has hit. It will be an important release.
Our view remains neutral, and that should not be confused with a bullish stance. But we do disagree with some of the alarmist talk. This morning's Big Picture column discusses the recent use of the word stagflation. That word does not reflect current conditions at all. In fact, steady, noninflationary growth is within reach.
9:46AM LSI Logic (LSI) Moors & Cabot initiates BUY. Target $8. Firm says that the co's recent Q1 performance suggests that it is on the recovery path. Importantly, ASIC order visibility for Q2 is positive, and is historically a leading indicator of a sustainable recovery for the semi industry.
9:46AM Integrated Circuit (ICST) FTN Midwest upgrades Neutral to BUY. Target $22.5. FTN Midwest upgrades ICST as they think that consumer markets will drive upside to ICST numbers in 2H05 on the Xbox 360 launch (late 2H05), Sony PS3 (1H06), and digital TV product design-ins, translating to orders and revs in holiday builds. Firm also says PCs are showing tight supply on strong demand, OEMs are accelerating the adoption of new platforms, and new design-ins in networking and gains in telecom and communications should help support margins in 2H05.
9:45AM Viasys Health (VAS) Needham & Co upgrades Hold to BUY. Target $26. Needham upgrades VAS as they believe mgmt has finally rationalized the variety of businesses it inherited when the co was spun out of Thermoelectron, and they believe results going forward are likely to be more predictable and that growth should resume at a good clip. They note that the co made meaningful acquisitions in the last qtr that should be slightly accretive in 2005 and significantly accretive in 2006.
9:44AM Marvell (MRVL) AmTech Research upgrades Hold to BUY. Target $33 to $41. They believe rev and earnings will continue upward, and think the recent pull-back represents a good opportunity to build a position in the shares. They believe strength in enterprise HDDs is offsetting weakness in desktop while MRVL-specific programs in gigabit ethernet at CSCO, Huawei, DELL, HPQ, and NTGR and WiFi in the Sony PSP are helping MRVL grow faster than the market. For this year, they believe near-term strength in enterprise HDDs, rebound and share gains in desktop/mobile/microdrive HDDs, and news flow out of Sony PSP sales could serve as catalysts.
9:42AM Vascular Solutions (VASC) Adams Harkness initiates BUY. Target $15. Adams Harkness initiates VASC as they estimate the co can drive a two-year revenue CAGR of 40% from 2004 to 2006, given the early stage of existing products, the full product pipeline, and the expanding sales force. They cite catalysts as: 1) continued strong growth in the hemostasis, manual thrombus aspiration, and laser varicose vein markets; 2) a host of product introductions expected in 2H05 and 2006; 3) expanding usage driven by clinical data; 4) nearing profitability with a strong balance sheet; and 5) increasing Street coverage.
9:41AM Regent (RGCI) Sanders Morris Harris upgrades Hold to BUY. Target $7. Sanders Morris upgrades RGCI ahead of the co's Q1 report. Firm believes RGCI is an unloved, under-appreciated, oversold small-cap name, the stock price of which is not reflecting what they believe Terry Jacobs and the rest of the RGCI management team have in store for the balance of 2005. They say that the satellite radio threat is overblown, co's income statement is strong, the co has very little competition, margin enhancement is imminent and they see upside to consensus estimates.
9:41AM Clear Channel (CCU) Sanders Morris Harris downgrades Buy to HOLD. Target $44.5 to $35. Sanders Morris downgrades CCU after the co announced a major strategic realignment. Like Viacom's announcement that it is committed to splitting the co into two publicly traded entities, firm is simply not fans of financial engineering as a means to drive stock prices. In addition, firm says that further concern is derived from the notion that the bulk of the proceeds from the "CCO" IPO will not be used to fund operations for the Outdoor business at all, but will be funneled back to CCU's shareholders in the form of a $3/share special dividend.
9:40AM Favrille (FVRL) Brean Murray initiates SELL . Brean Murray initiates FVRL with a Sell, primarily due to their view that the co is engaged in an extremely risky Phase III clinical program that they believe decreases the efficacy of its FavId lymphoma vaccine. Furthermore, firm says FVRL is approximately two years behind its close competitor Genitope (GTOP), and oncologists could administer Genitope's MyVax (if approved) as part of any regimen in which FavId is proven efficacious by FVRL, thereby allowing GTOP to establish itself universally in non-Hodgkin's lymphoma well before FavId's potential approval. |
