From Briefing.com: 4:20 pm : Late-day buying interest sent the stock market's major averages out of flat-line vacillation mode and to 2006's sixth day of gains. Resisting the consolidation efforts that set in Tuesday, buyers added to the indices' average 3.7% gain despite a profit warning from DuPont (DD 41.78 -0.77) and a 1% jump in the price of crude.
Due to the Dow component's slashed fourth quarter earnings forecast, the blue chip average wavered throughout most of the session, and the Materials sector (-0.9%) was the worst performer.
As investors' attention shifts towards the impending torrent of Q4 earnings reports, DuPont's sharp downside guidance blew a bearish air through what had been a generally upbeat futures trade before the open. The fact that DuPont's disappointment was pinned in part on the one-time, external impacts of hurricanes Katrina and Rita, however, helped minimize its effect upon the broader market.
With respect to the earnings front, Genentech (DNA 89.26 -4.08) delivered a solid Q4 report following Tuesday's close, but relatively disappointing sales of its growth-driving cancer drug Avastin drove the stock lower. Contributing to Healthcare's negative stance were declines in both Johnson & Johnson (JNJ 62.40 -0.70) and Boston Scientific (BSX 25.27 -1.21). In spite of its previous reluctance and a lowered bid that BSX had trumped, J&J is reportedly making last-ditch efforts to acquire the beleaguered medical device maker Guidant (GDT 70.45 +1.06). Utilities (-0.3%) also suffered some selling pressure today.
Another session of outperformance across the Technology (+1.0%) board served as the market's best source of support. Led by upgraded Broadcom (BRCM 58.55 +2.82) shares, semiconductors continued their streak - driving what is now a near 12% year-to-date gain in the SOX index. The hardware industry put in an equally strong performance; upgraded Hewlett-Packard (HPQ 31.37 +0.59) shares underpinned the bullishness Apple (AAPL 83.78 +2.92) catalyzed with its preliminary sales results Tuesday. Bank of America's raised price target and upped iPod estimates spurred further upside for AAPL.
A mixed inventory report from the Department of Energy initially sparked a market-dragging drop in the Energy sector, but traders' attention appeared to turn from higher than expected builds in gasoline and distillates to a considerably sharper than expected drop in crude supply. As a result, crude futures jumped 1.1% and re-incited buying action across the Energy sector that fostered a supportive 0.5% gain. At the same time, crude's rise had a muted impact upon other areas of the market.
The Consumer Discretionary sector (+0.4%), in particular, was unfazed. Home improvement retail was its brightest patch; Home Depot (HD 42.90 +1.10) extended the rise that Tuesday's acquisition news fueled, as it was helped by Banc of America adding it to the firm's Fresh Money Focus List and 30-Stock Model Portfolio. Lifted by Boeing (BA 70.64 +1.54), the Industrial sector (+0.2%) recovered late in the afternoon. The company beat out Airbus for a 68 plane, $11.8 billion contract with state-run Air India - the largest deal in the country's civil aviation history - and can be largely credited for the Dow's afternoon rise. Relative strength in brokers kept the influential Financial sector (+0.4%) on positive ground, a position that helped the broader market sustain Wednesday's gains. DJ30 +31.86 NASDAQ +11.04 SP500 +4.49 NASDAQ Dec/Adv/Vol 1478/1545/2.41 bln NYSE Dec/Adv/Vol 1449/1850/1.71 bln
10:05 am BB&T Corp: CSFB downgrades Neutral to Underperform . Firm downgrades their rating on the banking sector to Underweight from Market Weight. Firm also downgrades FITB and RF to Underperform from Neutral, as they believe investors that have recently bid up bank stocks are actually implying that the Federal Reserve cuts interest rates in 2006, not just merely holds them steady. They say the combination of slowing earnings growth and high valuations drive their sector downgrade to Underweight from Market Weight.
10:03 am Genentech: Rodman & Renshaw downgrades Mkt Outperform to Mkt Perform. The firm says that total expenses of $1,314 mln were modestly above their $1,277 mln expectation, mostly due to higher than expected R&D expenses and collaborative profit sharing which reduced EPS growth.
10:02 am Dentsply: FTN Midwest upgrades Neutral to Buy. Upgrade is based on their expectation for significant improvement in its FY06 internal growth. They expect XRAY to achieve their FY06 earnings estimate of $2.92 ($0.02 above consensus expectations), driven by improved results in Germany and market share gains in the domestic consumable and specialty market segments. In total, they expect XRAY's internal growth to more than double to 5.8% in FY06.
10:00 am MGI Pharma: Bear Stearns downgrades Outperform to Peer Perform. Firm is saying mgmt's 2006 Aloxi sales guidance of $285 mln-$300 mln is below their estimate $320 mln and Street estimates of roughly $310 mln. They believe that the C.I.N.V mkt may be more price sensitive than they originally anticipated, resulting in reduced visibility on Aloxi sales in 2006. They expect MOGN to trade sideways in the near-term as investors continue to monitor monthly IMS sales for Aloxi, inventory, unit pricing, and DSO's.
09:59 am American Reprographics: CIBC Wrld Mkts reiterates Sector Outperform. Target $22 to $22. Price target change is based on: (1) stronger evidence of an acceleration in non-residential construction activity; (2) reduced interest expense due to debt refinancing; and (3) robust FCF generation. Firm also increases its '06 EPS est. to $1.15 from $1.05. Co operates as a reprographics company including digital reproduction of construction documents.
09:56 am Delta Apparel: Nollenberger Capital initiates Buy. Target $22. Firm believes strength in the Soffe and Junkfood segments could lead to upward earnings revisions going forward, as they think these segments have the potential to continue to capture share in a difficult marketplace.
09:49 am Audible: Adams Harkness downgrades Buy to Hold. Downgrades follows co's preannouncement. Firm says that with changes in the business model and a Q4 disappointment, they believe the inflection point in the ADBL story lies a few quarters out. They say that despite Apple selling 14M iPods in DecQ, Audible had a disappointing Q4. They now anticipate a loss of ($0.11) in Q4, leading to full year EPS of ($0.05).
09:47 am Deckers Outdoor: Lazard Captial upgrades Hold to Buy. Target $32 to $32. Upgrade is following co's Q4 guidance, based on the potential upside to estimates. They say momentum in the UGG brand (more seasonally relevant product in 1H06, improved fall fashion offering and increased international penetration in 2H06) could provide upside to their Street-high 2006 EPS forecast of $2.15. Firm thinks increasing investor confidence in mgmt's ability to revitalize the Teva and Simple brand and to continue to grow UGG profitably will likely lead to multiple expansion.
09:43 am Nextel Partners: Lehman Brothers downgrades Overweight to Equal-weight. Firm notes that on 12/20, S and NXTP announced that their appraisers had determined a put price of $28.50 for NXTP`s shares -- at this price, they view this announcement as a positive for S.
09:59 am Gap, Inc. (GPS)
17.63 +0.15: Speaking at SG Cowen's consumer conference in New York, Gap's CFO Bryon Pollit reaffirmed the company's full year EPS guidance of $1.12 to $1.17 per share. Additionally, he noted that the results are trending toward the upper end of the range. The current consensus estimate calls for earnings of $1.14 per share. Gap, Inc., which also owns Banana Republic and Old Navy, reaffirmed guidance just last week, so today's comments were not "new" news, yet commentary regarding earnings trending toward the higher end of the forecast range may be viewed as incrementally positive.
Pollit stated the retailer intends to continue to raise its dividend and to repurchase shares. Gap's troubles have been well documented leaving many to speculate about a potential management shake up or a potential break up of the company. Continued fashion misfires and dull product lines led to an abysmal sales performance during the holiday season. December same-store sales fell 9% versus the Briefing.com consensus of 4.1%. That result followed declines of 4%, 5%, and 6% dating back to September.
Gap's stock has been range-bound for years with an average price around $19 per share. Currently, GPS is hovering around the $17 range as onlookers speculate over the fate of this once iconic American retailer. In a recent Wall Street Journal report, the clothing chain said it was trying to reverse slumping sales by redesigning its stores, making them friendlier and more approachable. The company's aim is to help customers who want to express individuality in their shopping, according to the article. Management seems to be delaying the inevitable as Gap struggles to emerge from its own shadow.
--Kimberly DuBord, Briefing.com
09:01 am DuPont (DD)
42.55: Shares in the Dow Industrial dropped in pre-market trading after DuPont slashed its fourth quarter earnings outlook, citing higher than expected disruptions caused by Hurricanes Katrina and Rita and poor performance in three business units. The company previously cut expectations for the quarter in October to $0.20-0.25 per share. Today, DuPont cut those estimates in half to approximately $0.10 per share, which is well below the Reuters Estimate consensus of $0.24.
The Gulf hurricanes caused operational disruptions due to prolonged power outages and logistical and supply disruptions. The hurricanes also swept through DuPont's third quarter causing a loss of 9 cents - the company's first in two years. Other factors impacting Q4 included temporary, unplanned production interruptions at three of its plants in Brazil, the Netherlands, and the US. Additionally, DuPont experienced a reduction in pretax operating income from a combination of lower than expected sales and higher costs for its crop protection chemicals, performance coatings, and surfaces.
The downside would have been worse, if not for a lower than expected tax rate. All the above mentioned items reduced pretax profits by $200 mln, according to the company. DuPont will hold a conference call today to address these issues. Fourth quarter earnings will be released on January 24th. Shares, which have recovered lost ground since bottoming in October following a better than expected Q3 result, took a turn for the worse in pre-market trading (-2.4%).
The thorn in the side of chemical companies is the price of natural gas and oil. Natural gas represents 70%+ of cash costs of production for some commodity chemicals and prices have risen 34% in the last year. The chemical companies are consumers of gas, which is used in the production of the key building blocks of petrochemicals, as well as its derivatives including methanol, ethane, propylene, ethylene, and polyethylenehe. As such, the recent slide in natural gas prices from $15.50 to $9.30 bodes well for the industry if seasonal patterns continue. Today's announcement, while severe, appears initially as one-time in nature with the exception of lower crop chemical sales. We'll have to wait until today's conference call to get a clearer picture of the outlook for the world's largest chemicals maker.
--Kimberly DuBord, Briefing.com
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