From Briefing.com: 4:20 pm: Buyers dominated the trading action, and helped correct a good part of Tuesday's Google-induced drop. The Nasdaq fully erased yesterday's loss, and the Dow and S&P significantly rebounded. The action showed that the broader market's reaction to comments from Google's management, which were assertions of the obvious, was overdone. Nonetheless, it reflected an underlying sense of nervousness and reflects our view that the market will continue to trade in a choppy fashion until the interest rate uncertainty is quelled.
Bargain hunters focused much of their attention on tech stocks (+2.0%), and buying there was broad-based. Today, the sector nearly doubled its year-to-date gain and led the broader market's advance. Surging semiconductors were a particularly strong source of support, and communication equipment issues also soared. Application software, following better than expected earnings results and guidance from Autodesk (ADSK 41.57 +3.92), was another strong pocket. Solid gains in a number of bellwethers were supportive. Two of the brightest were Hewlett-Packard (HPQ 34.01 +1.20) and Cisco Systems (CSCO 21.06 +0.82), the latter of which is one of our recommended holdings for active investors.
The Energy sector (+1.6%) also helped lift the broader market. Drillers fared especially well. Rowan Companies (RDC 41.25 +1.00) jumped after delivering record fourth quarter revenues and upside earnings, and Transocean (RIG 77.42 +3.24), another of our portfolio picks, climbed on news that it won a Chevron (CVX 57.21 +0.73) contract to build a deepwater drillship. On a related note, the Energy Department released its latest inventory stats this morning. Crude and gasoline supplies rose slightly more than had been expected, and the drawdown in distillates matched analysts' forecast. Like the rest of today's economic data, the report brought no real surprise. Crude continued to recover from Monday's plunge. Its advance was enough to draw buyers back to the Energy sector, but, at the same time, it was modest enough that the broader market was unperturbed.
Led by steel, metals stocks also advanced and helped take the Materials sector 1.1% higher. Telecom, the S&P's best performer year-to-date, continued its outperformance and rose 1.4%. Despite a weighty decline in General Motors (GM 19.92 -0.39), the Consumer Discretionary advanced 0.7%. The auto manufacturers reported February sales today, and GM and Ford (F 7.92 -0.02) both disappointed. DaimlerChrysler (DCX 56.48 +1.01), on the other hand, booked an unexpected gain. An earnings and guidance-related rise in Brown-Forman (BF-B 75.72 +5.36) supported Consumer Staples (+0.3%), and earnings-related strength in Medco Health Solutions (MHS 59.28 +3.56) helped Healthcare (+0.2%) recover. The Utilities sector (-0.4%) was the sole decliner, and its loss was fully offset by its nine counterparts.
It was another heavy day of economic data. The docket included personal income and spending data that rose relatively close to expectations, a better than expected read on the ISM Index, and lower than expected construction spending growth. The core PCE deflator, which was arguably the most important piece of data released today, was up an ambiguous 0.2%. The year-over-year gain was 1.8%, which is slightly below the upper end of the Fed's forecast range. In aggregate, the reports brought little surprise and do not affect our neutral market view or interest rate expectations.DJ30 +60.12 NASDAQ +33.25 SP500 +10.58 NASDAQ Dec/Adv/Vol 957/2109/2.20 bln NYSE Dec/Adv/Vol 952/2308/1.63 bln
4:20PM OmniVision reports $0.08 above consensus; guides Q4 in-line (OVTI) 27.21 : Reports Q3 (Jan) earnings of $0.53 per share, $0.08 better than the Reuters Estimates consensus of $0.45; revenues rose 34.8% year/year to $137.3 mln vs the $136.1 mln consensus. Co issues in-line guidance for Q4, sees EPS of $0.35-0.40 vs. $0.39 consensus; sees Q4 revs of $120-130 mln vs. $127.57 mln consensus.
4:16PM Fairchild Semi appoints Mark S. Frey Chief Financial Officer (FCS) 18.55 +1.17 : Co announces the appointment of Mark S. Frey as executive vice president and CFO.
09:59 am Utd Nat Foods: Prudential reiterates Neutral. Target $30 to $31. Firm ups target following earnings. The firm says Michael Funk, the co's new CEO, has moved quickly to put a senior mgmt team in place and to smooth out the relationship with Whole Foods. In their opinion, this could lead to incremental business opportunities and productivity enhancements.
09:58 am Intel: Stifel Nicolaus reiterates Buy. Target $35 to $30. Firm is saying they completed a round of checks with their contacts both at Intel and throughout the manufacturing supply chain, which point to a relatively slow 1Q that they believe is stabilizing at a slower run-rate and likely to come in at the low-end of the co's original guidance, at best. The firm believes Intel suffered through a January that was much weaker than expected, which then looks to have stabilized through February, although at January's lower base.
09:58 am Cogent: Oppenheimer downgrades Buy to Neutral. Firm downgrades due to the disappointing earnings conference call in which COGT disclosed that the visibility into 2006 has eroded due to the uncertain timing of potential contract wins and the timing of revenue recognition. Although they continue to believe that COGT is one of the best-positioned companies in the Homeland Security sector by virtue of its strategic focus on high growth, high margin and high dollar value biometrics markets, they suspect the stock will decline sharply today and represent dead money over the next several months.
09:57 am American Railcar Industries: UBS initiates Neutral. Target $34. Firm is saying that despite their expectation of peaking railcar industry volumes in 2006, ARI's backlog provides pricing and volume protection into early 2008.
09:56 am Freightcar America: UBS initiates Neutral. Target $72. Firm is saying they expect continued earnings growth through 2007 to be largely offset by multiple compression approaching the expected 2006 peak in railcar deliveries.
09:33 am Genesco: BB&T Capital Mkts downgrades Buy to Hold. Firm is saying while they think the stage is set for the co to report a strong Q4'06 (Thursday, March 2), they also believe that comp trends have deteriorated thus far in Q1'07 against not-easy comparisons, muting a near-term outlook.
09:31 am Mentor Graphics: Needham & Co upgrades Hold to Buy. Target $14. Firm upgrades following the co's Analyst Day. They believe that a solid renewal pipeline in 2006 (and even better one in 2007) and a modestly more aggressive stance on cost management than we had previously assumed should enable the co to meet or exceed their current estimates, which should help drive the shares higher.
09:25 am Home Prop of NY: KeyBanc Capital Mkts / McDonald upgrades Underweight to Hold. Firm upgrades given their expectation for reduced long-term volatility in HME's earnings as well as a modest benefit to growth from the co's utility reimbursement initiatives. The girm says in addition to greater stability long term, they believe that the stock's current valuation represents fair pricing relative to its peers as well as on an absolute basis.
09:20 am Adolor: WR Hambrecht reiterates Buy. Target $24 to $35. Firm is saying despite relatively strong out-performance in ADLR shares over the last six months compared to the NASDAQ Biotechnology Inde, they believe the co has significant catalysts throughout the remainder of the year that should keep momentum in the stock.
09:19 am AutoZone: Kevin Dann downgrades Buy to Hold. Target $100. The firm says that despite improvements in its stores and other initiatives to boost sales, AZO is continuing to lose market share to Advance Auto Parts (AAP) and O'Reilly Automotive (ORLY).
2:49 pm Liz Claiborne (LIZ)
37.29 +1.26: On February 7th, Liz Claiborne announced strategic steps to better capitalize on its brand growth opportunities by streamlining operations and redeploying resources to more efficiently manage its multi-brand and multi-channel portfolio. This morning, the positive impact of lower sourcing costs and a changing mix within its portfolio resulted in improved gross margins, which increased to 48.0% in the fourth quarter from 46.6% a year ago. Company-wide expense control initiatives also resulted in improved operating margins, which increased to 10.8% compared to 10.2% in the same period last year.
The specialty retailer reported Q4 earnings of $0.74 per share. Excluding $0.04 in option expense, adjusted earnings of $0.78 checked in six cents better than the Reuters Estimates consensus. Net sales rose 0.2% year/year to a record $1.2 bln, in line with Wall Street's forecasts. Wholesale Apparel net sales fell 7% year/year to $647 mln, primarily driven by decreases in its domestic Liz Claiborne, Ellen Tracy, Sigrid Olsen and licensed DKNY Jeans (men's) businesses as well as discontinuation of the Kenneth Cole womenswear license. Wholesale non-apparel net sales rose 12% year/year to $174 mln, primarily due to increases in cosmetics, Juicy Couture and mid-tier handbags. Retail net sales increased 10% to $368 mln due to 14% comparable sales growth in its Lucky Brand business and 2.0% comparable sales growth in its outlet business, with the latter business adding 36 stores in fiscal 2005.
For the first quarter of 2006, management projects net sales to decrease in a low-single-digit range compared to the same period last year, operating margins to range between 6.7-7.2% and EPS to range from $0.60-0.64 excluding non-recurring items of $0.18; the Reuters Estimates consensus is $0.62. For fiscal 2006, management sees EPS of $2.94-3.09 (consensus $3.00), excluding $0.36 in net charges. Shares of LIZ are up 4.8% so far in 2005, which puts it slightly ahead of the S&P Retail Index (+3.4%). Shares of LIZ trade at 12.6x trailing twelve month earnings, which is a discount to their five-year historical average of 13.9x.
--Brian Duhn, Briefing.com
11:26 am Brown-Forman (BF.B)
76.34 +5.98: How about a toast to Jack, Jack Daniels that is, which helped put a sparkle in the third quarter results for Brown-Forman. Strong sales of the Tennessee whiskey propelled profits for the wine and spirits company. An eight cent beat and raised guidance have sent shares soaring in early trading. Net income rose 27% year/year to $120.5 mln, or 98 cents per share. Sales grew 5% year/year to $636.8 mln. The market overlooked downside Q4 guidance, instead choosing to focus on the company's raised expectations for fiscal 2006. Its revised outlook for earnings from continuing operations is $2.79-$2.85 per share, up from a prior reading of $2.73-$2.79 and versus the consensus estimate of $2.78.
The quarter was driven by strong sales of Jack Daniels, profit growth for Fetzer Wines, and improving trends in Finlandia Vodka. Growth was broad-based with adjusted net sales and gross margins improving 10% and 13% respectively. Depletions for its premium products, Jack Daniels, Southern Comfort, and Finlandia, grew in the high single-digits, representing 60% of volumes. SG&A costs rose in the quarter due in part to international distribution changes. Brown-Forman continues to exceed expectations each quarter supported by strong underlying demand and solid execution. Our only hesitation remains valuation, as shares trade at 27x forward earnings and 4.3x price to sales.
--Kimberly DuBord, Briefing.com
10:23 am Autodesk (ADSK)
41.15 +3.50: Autodesk posted record fourth quarter results that topped analysts' estimates, driven by increased penetration of its 3D products and strong growth in new seats and subscriptions. The software maker also issued positive revenue and earnings guidance for the current fiscal year. Amid extremely high expectations for the company, Autodesk shares have slipped about 12% year-to-date, but are still up 27% over the past year.
After the close Tuesday, the creator of the AutoCAD design software program reported non-GAAP earnings of $91 million, or $0.37 per share, compared with $75 million, or $0.30 per share, in the year ago quarter. The results, which exclude $8 million in-process R&D expenses related to the acquisition of Alias and $1 million amortization of purchased intangibles, beat the consensus EPS estimate by two-cents, according to Reuters Estimates.
Revenues increased 17% to $417 million, from $356 million last year, led by strong growth in new seats and emerging businesses. Revenues from new commercial seats increased 16%, while combined revenues from new commercial seats of the company's 3D products increased 73%. Subscription revenues were up 53% over the fourth quarter of last year. Meanwhile, operating margins improved 100 basis points to 23% as the company continued to demonstrate strong productivity and profitability.
Based on its quarterly performance and better than expected adoption of its 3D products, Autodesk provided an encouraging outlook for fiscal 2007. Earnings are expected to be between $1.45 and $1.50 per share on revenue of approximately $1.80 to $1.83 billion. That compares with analysts' forecasted earnings of $1.45 per share and revenue of $1.75 billion. For the current quarter, the company anticipates earnings between $0.30 and $0.32 per share and revenue of $425 to $436 million. According to Reuters Estimates, analysts are expecting earnings of $0.33 per share and revenue of $417.6 million. Despite the mixed first quarter guidance, Autodesk continues to benefit from increasing sales trends and expanding market presence for its industry-leading software. As such, we would continue to look for further gains in the stock, in spite of seemingly high expectations.
--Richard Jahnke, Briefing.com
10:00 am Saks, Inc. (SKS)
19.06 +0.16: After breaking even in Q3 following a larger than expected loss in Q2, Saks slipped back into the red in the fourth quarter, recording a net loss of $2.2 mln or $0.02 per share. After backing out $0.47 in non-recurring items related to goodwill and other asset impairments, the department store operator reported Q4 (Jan) earnings of $0.45 per share, which was $0.13 worse than the Reuters Estimates consensus of $0.58.
Total revenues fell 14% year/year to $1.77 bln versus the $1.82 bln consensus estimate. The revenue figure was pre-announced on February 2nd alongside Jan same-store sales results. As expected, the company's Fifth Avenue Enterprises division (SFAE) was weak, due to significant markdowns and two major clearance events during the quarter, and was "unacceptable" according to CEO Stephen I. Sadove. Comparable store sales rose 1.4% in the quarter, which was "substantially below our expectation of a mid-single digit increase," Sadove added. The division's operating income totaled $7.6 mln, a $50.4 mln decline from a year ago. On a positive note, Saks Fifth Avenue's New York flagship store, which comprises nearly 20% of SFAE's revenues, achieved solid sales growth in Q4 on top of a very strong performance last year.
Separately, the company also announced today that its board has adopted a resolution expressing its intention to declare a special cash dividend of $4.00 per common share immediately following the completion of its Northern Department Store Group (NDSG) divestiture, which is being sold to Bon-Ton Stores (BONT) for about $1.2 bln and is expected to close by March 13, 2006. Among the publicly-traded department stores, we believe Kohl's (KSS), which was highlighted on our Bargain Hunting page last week, is an attractive value-oriented investment idea.
--Brian Duhn, Briefing.com
09:44 am Rowan Companies (RDC)
41.38 +1.13: Robust market conditions for the offshore drillers endure. Rowan Companies, an oil and gas driller, generated record revenues in the fourth quarter as rig utilization and dayrates soared. Revenues grew 66.4% to $317.4 mln as average world-wide dayrates rose 28% year/year to $134,000. The company anticipates global competition for high quality assets will increase in 2006, putting further upward pressure on dayrates. Lower crude prices have been weighing on the drillers, but today's strong quarterly result from Rowan, coupled with the second day of record contract wins for Transocean, should refocus the market towards the strong underlying fundamentals supporting a longer-term cycle for the drillers.
Rowan reported income from continuing operations of $69.5 mln, or 63 cents per share, compared to $16.4 mln, or 15 cents per share, in the same period of 2004. The results included gains on the sale of assets and insurance recoveries in excess of hurricane losses, which included four lost jackups and one heavily damaged rig, contributing to 14 cents net of tax. Excluding items, earnings came in a full dime ahead of expectations. The average Gulf of Mexico dayrate hit a record of $92,100, up 24% quarter/quarter and 82% year/year. Land utilization was 89%, up from 83% in the year period, with rates averaging $21,100 up12% quarter/quarter and 53% year/year.
--Kimberly DuBord, Briefing.com
09:33 am American Eagle Outfitters (AEOS)
25.47: On December 1st, American Eagle Outfitters provided a disappointing update on its November sales performance, forcing the teen clothing retailer to cut its fourth quarter EPS guidance to a range of $0.70 to $0.72 from $0.73 to $0.75; the Reuters Estimates consensus at that time was $0.74. As a result, the stock closed at $20.75, down 8.5% and lost nearly $290 mln in market capitalization.
This morning, however, it appears management's cautionary stance was somewhat unnecessary, since Q4 earnings actually checked in at $0.74 per share. Excluding $0.03 in non-recurring charges, that was two cents better than the downwardly revised Reuters Estimates consensus of $0.72, marking the ninth time in 10 tries that AEOS has beaten analysts' expectations. Total sales rose 13% year/year to $764 mln, above the $753 mln consensus estimate.
November's comparable store sales growth of 1.7% may have missed the Briefing.com consensus of 10.8% but better than expected increases of 9.8% (consensus 3.4%) in December and 11.3% (consensus 6.8%) in January more than made up for a struggling start to the holiday shopping season. As a result of Q4's surprise, management issued upside guidance for the first quarter, saying it sees EPS of $0.36-0.38 (consensus $0.35). In a separate release, the company also reported that same-store sales grew 6.0% in February versus the Briefing.com consensus estimate of 3.9%.
It is worth noting, though, that gross profits as a percentage of sales in Q4 fell to 46.3% from 49.3% a year ago, due to a lower merchandise margin as well as the de-leveraging of buying, occupancy and warehousing costs. Operating margins also deteriorated, coming in at 22.8% versus 25.5% in the same period last year. With the normalization of promotional activities compared to historically low levels, margin pressure should continue to be evident in coming quarters. That consideration and ongoing, difficult same-store sales comparisons are among the key factors that prompt us to continue to have a cautious view on the stock.
--Brian Duhn, Briefing.com
09:13 am AutoZone (AZO)
96.68: AutoZone, the nation's largest auto parts retailer, on Wednesday reported second quarter profits rose 3% from last year, as new initiatives aimed at deepening customer relationships boosted sales. Specifically, the Memphis, Tennessee-based company posted earnings of $97 million, or $1.25 per share, compared with $94.1 million, or $1.16 per share, a year earlier. Excluding stock option expense and other one-time items, earnings were $1.29 per share - a penny better than the Reuters Estimates consensus.
Sales for the quarter rose 4% to $1.25 billion, while sales at stores open at least one year edged 0.4% higher. The company, which has been revamping its stores to improve the customer shopping experience, said retail sales increased 4% year/year to $1.04 billion amid slowing sales trends and increased competitive pressures. Commercial sales remained flat with the year ago quarter at $154,729. Meanwhile, operating margin increased 187 basis points to 14.2%, and gross profit as a percentage of sales increased 70 basis points to 49.1%. AutoZone credited the improvement to ongoing category management initiatives as well as reduced sales of non-core, lower-margin merchandise.
Although the latest results reflect the company's commitment to increasing profitability, it is still too early to tell if current initiatives are enough to offset slowing growth trends as competitors such as Advanced Auto Parts (AAP) and O'Reilly Automotive (ORLY) continue to narrow the sales gap. AutoZone currently trades at 12.7x forward earnings, compared with 16.8x for AAP. Despite the lower valuation, we continue to favor AAP in the auto parts retail space given its comparatively strong fundamentals and ongoing store format conversion.
--Richard Jahnke, Briefing.com
08:56 am Medco Health Solutions (MHS)
55.72: The good news just keeps on coming from the pharmacy benefit managers. After strong quarterly reports from Caremark (CMX) and Express Scripts (ESRX), Medco Health Solutions followed suit, besting analysts' expectations on strong sales of mail-order prescriptions. Net income for the quarter was $176.8 mln, or 57 cents per share, up from $132.8 mln, or 48 cents per share, last year. Excluding items, earnings per share of 66 cents surpassed consensus by a nickel. Medco became the largest pharmacy benefits provider by virtue of its acquisition of Accredo Health with $4.9 bln in annual sales.
Generic dispensing rates rose to 52.5% in the quarter, up 4.4 points from last year. Its mail-order services enable it to reach 90% generic substitution rates within 30 days, much faster than the retail pharmacies. As such, MHS is well positioned to benefit from the slew of brand-name drugs coming off patent in 2006. Q4 revenues jumped 21.2% to $10.8 bln, supported in part by an extra week and the acquisition. Net revenues rose on higher volumes and prices on brand-name drugs, offset by announced customer losses. Gross services margins widened, due in part to higher generics, to 79.4% from 59.1% last year.
MHS handles more than 7 mln of the 43 mln eligible Medicare members and hopes to increase that figure to 9%, or $11 bln of the $124 bln of the Medicare-eligible drug spend, according to the company. Management narrowed its fiscal year guidance to $2.23-$2.30 from $2.18-$2.30 per share. Despite the strong profit growth, the entire group continues to suffer from downside pressure as investors take some money off the table after a strong run-up in shares. We think the outlook continues to support further profit acceleration and would be buying on pullbacks.
--Kimberly DuBord, Briefing.com |
