From Briefing.com: 4:20 pm : There were two primary factors behind Wednesday's advance. First, the latest rise in the Consumer Price Index matched the market's expectations. Second, crude ended its two-day rebound and dropped sharply. The indices sustained solid gains all day, and broad-based buying took eight of the ten economic sectors higher.
With respect to the CPI data, the total rate increased a more than expected 0.7% last month. It's the core rate of CPI, which excludes food and energy, to which investors pay attention, and its 0.2% increase brought no surprise. Especially on the heels of last week's higher than expected rise in the Producer Price Index, the market appeared relieved by the in-line read. In our view, however, that data does not assuage inflation concerns. The data support arguments that core inflation is at the high end of what the Fed will tolerate, and do not alter expectations of further rate hikes. Nonetheless, the stock market interpreted the data with a bullish perspective. The Treasury market similarly took a bid from the in-line core read, and rate-sensitive areas of the stock market rallied. Banks surged, and strength in the thrifts and mortgage industry helped the Financial sector advance 1.9%. That leadership was the muscle behind today's market, as the sector accounts for more than 20% of the S&P.
Technology was also a strong source of support. The sector was an early laggard, but buyers took it out of the red and to a 0.9% gain. Semiconductors, office electronics, and communication equipment were the strongest pockets. The latter industry is one of our favorite areas across the tech board, and positive comments from Banc of America about its Q1 prospects help attract interest. The industrial bellwethers helped drive today's Dow, and took the Industrial sector up a supportive 1.0%.
The second catalyst was a sharp decline in energy prices, specifically in crude oil. Continued geopolitical tensions had helped spur crude's rebound over the prior two sessions, but the commodity gave back close to 3% today and finished at $60.84 per barrel. The energy price action was supportive for the broader market. Transportation-related stocks benefited, and the particularly energy price sensitive Consumer Discretionary sector also gained. General Motors (GM 21.20 -0.21) was a sore spot there, after Moody's cut its debt rating a further notch into junk territory, but wide-spread strength that ranged from homebuilding to footwear to apparel countered its effect. Gaming was another bright spot, due to Harrah's (HET 72.77 +0.41) earnings-induced rise.
Selling across the Energy sector was a separate effect of the energy price action. That area of the market declined 1.4%. Its loss was offset by eight others' gains, but still had somewhat of a capping effect on the indices' advances. On a separate but related note, reports today indicated that, after decades of negotiations, Alaska has reached an agreement with XOM, BP, and COP to build a $20 billion pipeline to transport natural gas from the North Slope to the rest of North America. Although that's good news for the producers, the focus rested upon today's price action, and those stocks did not advance. Telecommunications was the other lagging sector. Sprint Nextel (S 23.80 -1.13) was the culprit there. The company reported fourth quarter earnings that fell a penny shy of expectations, and its decline weighed upon the sector. Strength in Centurytel (CTL 36.42 +1.59), which was a result of its announced $1 billion share buyback program, was a mitigating factor.
Separately, Federal Reserve Vice Chairman Feguson resigned. His resignation will be effective April 28, but reports indicate that he will not attend the March FOMC meeting. That development did not appear to have much, if any, effect upon today's trade.DJ30 +68.11 NASDAQ +20.21 SP500 +9.64 NASDAQ Dec/Adv/Vol 1155/1864/1.86 bln NYSE Dec/Adv/Vol 1064/2224/1.62 bln
4:01PM Sun to Acquire Aduva (SUNW) 4.29 : Co and Aduva today announced that they have entered into a definitive agreement pursuant to which Sun will acquire Aduva. Aduva technology allows enterprises to automate the processes associated with patch and dependency management -- providing a solution that scales from individual servers, up to large scale data centers with tens of thousands of machines in complex networks. Aduva currently runs an active dependency service for Solaris and Linux servers, easing the burden on systems administrators deploying a continuous stream of patches, updates, and changes required throughout the data center lifecycle.
12:36 pm TJX Cos. (TJX)
24.56 +0.05: Discount retailer TJX Companies said fourth quarter net income was up 75% year/year to $289 mln and earnings per share were $0.60. Excluding one-time items, pro forma EPS checked in at a much lower $0.46 but was still a penny better than the upwardly revised Reuters Estimates consensus. On February 2nd, the operator of the nation's No. 1 and No. 2 off-price retailers in T.J. Maxx and Marshalls, respectively, raised Q406 profit forecasts after January same-store sales increased 5.0% (the Briefing.com consensus at the time was 2.9%). Management attributed the strong finish to the year to "solid execution of off-price fundamentals, namely maintaining liquid inventories, making the right buys late in the season, and flowing fresh product at compelling values." Spillover of holiday-season spending into the warmest January in over a hundred years certainly didn't hurt either.
Fourth quarter net sales rose 9% year/year to a record $4.7 bln, matching analysts' expectations, led by 4% growth in Marmaxx (T.J. Maxx and Marshalls) comparable sales to $3.1 bln. The company's Winners/HomeSense, T.K. Maxx, HomeGoods, A.J. Wright and Bob's Stores divisions, in order of sales contribution, all enjoyed year/year growth.
As TJX begins its new year, driving profitable sales growth will continue to be management's top priority, according to Chairman and Acting CEO Ben Cammarata who reiterated, "Inventories are in excellent shape and we remain extremely focused on executing all aspects of our business." Consolidated inventories, on a per-store basis, including the warehouses, were down 11% in Q4. The fact that there were 4.3% fewer shares outstanding, as $85 mln was spent repurchasing 3.6 mln shares in the period, also assisted in stronger year/year profit growth. During the fourth quarter, TJX completed its $1 bln share buyback program that was initiated in 2004 and continues to chip away at a new $1 bln program that, once completed, will retire about 9% of the company's outstanding shares based on current prices.
For the fiscal year ending January 27, 2007, TJX expects EPS in the range of $1.42-1.46 (consensus $1.55), which represents a 10-13% year/year increase and is based upon estimated consolidated comparable store sales growth of 2-3%. For Q107, the company sees EPS of $0.31-0.33, which is also below the Reuters Estimates consensus of $0.35.
--Brian Duhn, Briefing.com
12:29 pm Taser Intl. (TASR)
9.87 -0.53: Taser International on Wednesday reported lower third quarter profits as sales were hurt by a recent investigation into its accounting and concerns over the safety of its weapons. Shares of the company, in turn, fell more than 7% during the regular trading session, paring recent gains. Although market sentiment towards the beleaguered company appears to be improving, with shares up more than 40% so far this year, we believe it is prudent for investors to take some money off the table at this juncture as the company continues to recover from a challenging year, with profits continuing to struggle amid sluggish sales.
Taser's fourth quarter net income fell to $92,697, or nil per share, compared with $4.7 million, or $0.08 per share, a year earlier. The results fell short of analysts' estimate of $0.01 per share, according to Reuters Estimates. Sales slipped approximately 34% to $12.6 million, while sales, general, and administrative expenses jumped 50% from a year ago. Analysts, on average, were expecting revenue of $12.5 million.
While the company has been engulfed in controversy over the safety of its products and accounting issues for the past year, the negative perception surrounding the company appears to be lessening. During the quarter, the Securities & Exchange Commission concluded the investigation into the safety of the company's products and its accounting, with a recommendation of no enforcement action. Furthermore, Taser has had 12 wrongful death and personal injury lawsuits dismissed, with 5 being dismissed during the latest quarter.
--Richard Jahnke, Briefing.com
10:20 am Medtronic (MDT)
54.94 -0.63: Medical device maker Medtronic on Tuesday reported a 23% rise in third quarter profits that matched Wall Street's targets, led by strength in its two largest product lines, implantable defibrillators and spinal products. The Minneapolis, Minnesota-based company also raised its earnings guidance for fiscal years 2006 through 2008 to the upper end of its previously stated ranges.
In the third quarter, Medtronic earned $670 million, or $0.55 per share, up from $544 million, or $0.45 per share, a year earlier. Amid a host of product recalls from rival Guidant Corp. (GDT) and growing demand for defibrillators, revenue rose 9.4% year/year to a record $2.77 billion. That, however, fell short of analysts' expectations of $2.9 billion, according to Reuters Estimates.
Sales growth was led by Medtronic's two largest segments, cardiac rhythm management, which makes implantable defibrillators, and its spinal and ENT (ear-nose-throat) business. Implantable defibrillators and spinal products, which increased 21% and 19%, respectively, during the quarter accounted for approximately 45% of the company's top line. Meanwhile, growth in the company's other segments was comparatively soft. Its neurological and diabetes businesses grew just 6% to $489 million, while its vascular business grew 6% to $236 million. Cardiac surgery revenue of $154 million in the quarter declined 6% from the year ago period.
For 2006, Medtronic expects to earn $2.20 to $2.23 per share on revenue of midway between $11.1 and $11.6 billion, in line with the Reuters Estimates consensus for earnings of $2.22 per share and revenue of $11.47 billion. For fiscal 2007, the company expects earnings of $2.50 to $2.55 on revenue of $12.5 to $13 billion. That compares with analysts' expectations for earnings of $2.54 per share and revenue of $13.06 billion. Furthermore, Medtronic forecasted fiscal 2008 EPS of $2.88 to $2.98 per share and revenue of $14 to $15 billion.
The latest result continues to demonstrate the company's strong performance in the face of growing demand for the company's defibrillators and spinal products. However, tepid growth in other business areas has restrained top line growth and continues to limit more meaningful upside potential. Until the company can gain greater traction in its other business segments, we would not commit new money to the stock at this time.
--Richard Jahnke, Briefing.com
10:11 am OfficeMax (OMX)
29.12 +1.10: On January 24th OfficeMax detailed a turnaround plan to attain stronger operating and financial performance. Besides closing 110 underperforming stores during the first quarter of 2006, the struggling company plans to develop a single supply chain for its retail and business customers, upgrading its inventory management system, as well as implementing a major IT overhaul -- key initiatives which could boost fiscal 2006 earnings by as much as $100 mln before taxes. This morning, the nation's No. 3 office supplies retailer inched one step closer to turning itself around following several years of missed execution by actually matching analysts' expectations. The Itasca, Illinois-based company had missed Wall Street's forecasts for five consecutive quarters.
Excluding multiple non-recurring items, OfficeMax reported Q4 (Dec) earnings of $0.07 per share, in line with the Reuters Estimates consensus. Revenues fell 8.7% year/year to $2.46 bln but checked in above the $2.35 bln consensus. Contract segment sales increased 9.4% in Q4, benefiting from five additional selling days in the period, while improved expense controls, which more than offset declines in gross margin due to competitive pricing and higher delivery costs from increased energy prices, helped the Contract segment's operating profit increase nearly 50% to $30 mln. OfficeMax Retail segment sales increased 6.8% year/year as strength in Print and Document Services helped offset varying sales performance among geographic regions and flat same-store sales in most product categories.
Based on improved Contract and Retail results, CEO Sam Duncan believes that OfficeMax is positioned to achieve the 2006 and intermediate-term goals outlined in its turnaround plan. Management expects 2006 total consolidated sales to be flat to slightly up from the $9.16 bln in 2005 (consensus $9.17 bln), Retail segment same-store sales growth to be in the low single digits and Contract segment sales growth to be in the mid-single digits.
Unlike competitors Staples (SPLS) and Office Depot (ODP), which continue to open hundreds of stores and trade at more attractive forward P/E multiples of 20x and 21x, respectively, OfficeMax has not opened new stores in five years and trades at 29x estimated fiscal 2006 EPS of $0.96. Also, keep in mind that the company's closest rival, Office Depot, reported earlier this month that its Q4 profits more than doubled and that it plans to acquire a controlling stake in South Korea-based Best Office Co to boost overseas sales and garner an even larger chunk of the $300 bln office products market. Our view on OMX is neutral at this juncture, as we want to see further signs of progress with its restructuring initiatives.
--Brian Duhn, Briefing.com
09:58 am Martha Stewart Living Omnimedia (MSO)
17.17 +0.68: Martha may be facing the wrath of Donald Trump over the failure of her version of The Apprentice, but her namesake company is clearly gaining traction, posting its first quarterly profit in two years assisted by improving advertising trends for its flagship magazine. Investors are looking past the nine cent miss in earnings and are eyeing MSO as a turnaround play after being left for dead.
The Publishing unit, which generates the bulk of revenues and profits, showed continued traction, proving evidence advertisers are starting to gain confidence in the turnaround at the company being led by Susan Lyne. Revenues rose sharply to $41.1 mln from $26.1 mln last year. Advertising pages in Martha Stewart Living increased 133% sequentially and 44% for the full year.
The company reported a profit of $2.9 mln, or 6 cents per share, on revenue growth of 40% to $84.5 mln. Looking ahead, the company provided annual revenue guidance of $270-$280 mln versus the consensus estimate of $274.62 mln. New initiatives put in place by Lyne, aimed at leveraging the brand across multiple platforms, are bearing fruit. We would argue the downside appears limited at this juncture. Still, investors should be wary chasing the name as this is still a turnaround story, which brings considerable operational risks. Shares are trading at 5.4x price/book and 4x price/sales.
--Kimberly DuBord, Briefing.com
09:34 am Sprint Nextel Corp. (S)
24.93: As expected, Sprint Nextel had many moving parts in the fourth quarter, including the integration of Nextel Communications, but overall, the number three mobile-phone company's operations are right on track. The 2 mln wireless subscribers added in the quarter, more than its October forecast of 1.4 mln, was the standout item. Sprint, which generated wireless revenue growth of 10% to $8.2 bln and is a suggested holding in our Active Portfolio, continues to outpace the industry in wireless growth. After strong reports from the rest of group, though, Sprint's pro forma earnings of 33 cents per share, which were up 3.1% year/year but a penny shy of the consensus estimate, is weighing on the stock in pre-market trading.
Sales were on target with expectations, rising 63% to $11.3 bln and driven by double-digit growth in wireless, local data services, and dedicated IP services. Long distance revenues fell 4% to $1.7 bln. Local revenues increased 4% year/year led by strong momentum in DSL adds. Adjusted OIBDA increased 7%, led by double-digit growth in wireless with ARPU (Average Revenue Per User) growing by a double-digit percentage sequentially. Sprint ended the year with a very strong balance sheet and a billion dollars in free cash flow, providing it considerable financial flexibility to complete recently announced acquisitions and additional cash distributions.
Sprint forecasted annual revenues of $41 bln "or more," excluding its local business which it's spinning off in the second quarter. Sprint hopes to expand wireless EBITDA margins by 200 basis points to 37.5%. Its full year capex budget is $5.7 bln, excluding re-banding. Overall, it was a solid quarter and we retain our positive outlook on the stock driven by stronger than expected wireless subscriber growth. We will get further details during the company's annual analyst meeting on March 7th.
--Kimberly DuBord, Briefing.com
09:09 am Harrah's Entertainment (HET)
72.36: Harrah's Entertainment swung to a loss in its fiscal fourth quarter, due in large part to hurricane-related expenses and write-downs for discontinued operations. Specifically, the world's largest casino operator posted a net loss of $142.2 million, or ($0.78) per share, compared with net income of $76.9 million, or $0.68 per share, in the year ago quarter. Excluding charges and other one-items, adjusted earnings from continuing operations were $0.66 per share - ten cents better than the Reuters Estimates consensus.
Total revenue for the period increased 76% from a year ago to $2.1 billion, due to the recent acquisition of Caesars Entertainment and strength in the company's West and East operations. In the West, revenues rose 135% to $859.1 million, driven by the addition of Caesar's four Nevada properties, which include Caesars Palace, Bally's Las Vegas, Paris Las Vegas, and the Flamingo Las Vegas. Excluding acquired properties, the region grew 6.9%. In the East, revenues rose $170%, helped by the addition of Caesars Atlantic City and Bally's Atlantic City. Without the acquired properties, the region grew 14.7%. Meanwhile, revenues at casinos open for at least one year rose 12.3%, while cross-market play, or gaming by customers outside of Harrah's properties, increased 23.3% from a year ago.
Briefing.com currently has an Underweight rating on the Consumer Discretionary sector, however the gaming industry continues to be a pocket of a strength. Shares of Harrah's gained about 6.5% in 2005 and are up more than 2% so far this year. Given its strong collection of branded properties and the ongoing integration of Caesars Entertainment, the company remains well positioned to capitalize on the growing gaming market and should see further share price gains.
--Richard Jahnke, Briefing.com
08:55 am Jack in the Box (JBX)
38.40: Jack in the Box said that Q1 (Dec) net earnings totaled $25.2 mln, roughly flat with the $25.4 mln earned a year earlier. Excluding a charge of $0.04 from a legal settlement, the fifth largest publicly-traded fast food chain by revenue reported earnings of $0.74 per share, six cents better than the Reuters Estimates consensus. Operating margin was 16.4% of sales, slightly better than 16.3% a year ago but shy of the 16.9% forecast due primarily to a 50 basis point increase from higher utility costs and a 20 basis point increase from higher tomato costs.
Total revenues rose 11.1% year/year to $820 mln, well above the $776 mln consensus due in large part to a 7.9% gain in comparable sales at its popular Qdoba Mexican Grill chain, which marked the 26th consecutive month of positive sales comparisons. Same-store sales at Jack in the Box company restaurants increased 5.5%, beating the Briefing.com Benchmark Consensus of 2.0%. Four company and franchised Jack in the Box restaurants opened in Q1, along with two new Quick Stuff convenience stores, but that was below guidance due to construction delays; JBX still plans to open 45-55 restaurants in the year. Qdoba opened 23 company and franchised restaurants in Q1, as forecast.
Looking to the second quarter, management guided EPS to a range of $0.57-0.59, which includes the effect of expensing stock options but is still above the Reuters Estimates consensus of $0.54. Management also updated its earnings guidance for fiscal 2006, saying it expects to earn approximately $2.57-2.60 per share, which is up from its previous forecast of approximately $2.50-2.54 per share. Jack in the Box is well-positioned to expand its reach from primarily a regional, West Coast operation to a fast-food chain with a more national focus over the next few years. Separately, McDonald's (MCD), which is already a proven success story with a global reach, is a suggested holding in our Active Portfolio.
-- Brian Duhn, Briefing.com
08:42 am Oil Companies Reach Pipeline Deal
After decades of negotiations, Alaska has reached an agreement with three of the super majors to build a $20 billion pipeline to transport natural gas from the North Slope to the rest of North America. According to the Wall Street Journal, Exxon (XOM, British Petroleum (BP), and ConocoPhillips (COP) will build a pipeline that stretches from several hundred miles north of the Arctic Circle into Canada. Most the gas would ultimately end up right here in Chicago, where it will be distributed.
Governor Frank Murkowski told reporters in Anchorage that the three companies will pay state taxes on the pipeline's profit at a rate of 20%, less than the earlier proposal of 25% - good news for the producers. The taxes will be offset by a 20% tax credit on any profit the companies reinvest in the state. Alaska, which gets the majority of revenues from oil production royalties and taxes, will now be able to capitalize on higher natural gas prices after reserves were left undeveloped due to the inability to move the gas.
Alaska has an estimated 35 trillion cubic feet of gas reserves and the possibility of shipping 4.5 bcf/d, or 7% of the average US consumption, accounting to BP statistics. The deal still needs to be approved by lawmakers, according to Murkowksi. The House Resources Committee meets today. The Trans-Alaska Pipeline began shipping oil in the late 1970s. Since then producers have been looking for ways to bring gas to the market that is coming out of the ground along with the crude. This issue has been a hot button in the state for years, and at this point it's unclear whether the bill will pass without amendments. The agreement, if passed, is certainly good news for the producers, but it will take over a decade before the natural gas ever reaches the market.
--Kimberly DuBord, Briefing.com
09:51 am PMC-Sierra: CIBC Wrld Mkts downgrades Sector Outperform to Sector Perform. Firm says that with MRVL's acquisition of Avago's printer business and increased competition in routers, they see risk to the MIPS business in 2007. They also worry that investor expectations in comm have come up, and PMCS shares could lag until this plays out. Firm also believes the MIPS business (20%-25% of sales) is at risk in 2007, and cites valuation.
09:51 am Nutrisystem: Kaufman Bros reiterates Buy. Target $46 to $55. Firm ups target following earnings. The firm came away impressed on all fronts saying - new customer additions remain strong, old customers are reactivating at higher rates, price increases are not hurting growth, further efficiencies are being derived from cost of sales due to increased scale and leverage, customers are being added at lower costs and new initiatives are ahead of plan.
09:50 am EDS: Stifel Nicolaus reiterates Buy. Target $30 to $34. Firm ups target based on valuation. The firm said the analyst meeting was upbeat, with co detailing 8% operating margin goal and its strategy. The firm says the CFO leaving for EBAY is disappointing, but co is in far enough to its turnaround to be less of a concern.
09:50 am ATI Tech: UBS reiterates Buy. Target $20 to $22. Firm is saying they believe the R520 stumble is being the co and they expect derivatives and new chipset announcements in the near future.
09:49 am TEKELEC: Oppenheimer downgrades Buy to Neutral. Firm says downgrade is due to a significant financial restatement and the co's inability to assure investors that the restatement process and FY05 10-K will be completed by the March 16th filling deadline.
09:44 am NIC Inc: AG Edwards initiates Buy. Target $8. Firm is saying they believe EGOV can continue to post solid revenue and earnings growth through expanding existing state relationships. In addition, the outlook for new contracts with additional states over the next 2-3 years appears quite good.
09:42 am Smith Micro Software: Rodman & Renshaw upgrades Mkt Perform to Mkt Outperform. Target $12. The firm believes that SMSI provides investors with one of the best opportunities to benefit from the growing demand for multi-media services over wireless networks via its compression technology that enables 1) better bandwidth usage 2) improved downloading and 3) increased memory space in handsets.
09:39 am Linn Energy: RBC Capital Mkts initiates Outperform. Target $25. The firm says that investors should benefit from LINE's ability to grow its cash flow and distribution significantly through acquisitions and through drilling. Firm says the primary growth is expected to come from acquisitions, and the stock should respond to further evidence that LINE can continue to execute accretive acquisitions. They expect drilling alone to grow production and reserves by more than 10% in 2006 and at a similar rate in 2007. They project 13% per year growth in the distribution over the next 5 years.
09:37 am GSI Group: Needham & Co reiterates Buy. Target $13 to $16. Firm is saying business at GSIG is on a clear upswing, as evidenced by recent quarterly results, including 4Q bookings of $90 mln-- the highest quarterly bookings quarter in six years. The firm says GSIG's shares, which have increased more than 30% since the end of October, continue to offer solid value, particularly given what they believe could be upside to their CY06 EPS estimate.
09:36 am TEKELEC: Morgan Joseph downgrades Buy to Hold. Firm is noting Tekelec announced plans to take a significant charge in 4Q05 and restate its financial statements for 2003, 2004, and the first three quarters of 2005. The co will take a non-cash impairment charge of about $51.3 mln in 4Q05 to write-off purchased technology and goodwill incurred as part of the Taqua acquisition. The firm believes the writedown is the correct move. They says while this represents the latest in a string of troubling events concurrent with a problematic acquisition, it should represent the final action needed to rationalize Taqua. |
