From Briefing.com: 4:20 pm : Mid-afternoon, the market fell out of what had been a very narrow trading range that surrounded the unchanged mark. Behind the equity market's fall was a rise in Treasury yields. Specifically, the yield on the benchmark 10-year jumped to 4.74% - a level not seen since June of 2004. A second factor behind today's losses was a drop in crude. The broader market failed to take a bullish cue, and selling across the Energy sector resulted in a market-dragging 2.8% loss.
The global interest rate environment continues to weigh on bond traders' sentiment. Additionally, economists' expectations for a solid February employment report, which is due out on Friday, added to Treasuries' troubles. The rate-sensitive Utilities sector took a hit and registered a 2.2% loss. As mentioned, it was the Energy sector that weighed heaviest. Prices across the energy complex were substantially lower. Crude futures ended their four-day gaining streak and dropped 2.3% on oversupply concerns. Several OPEC ministers today asserted that the cartel will maintain supply levels at its meeting on Wednesday. Additionally, the IAEA's chief helped to somewhat soothe geopolitical-driven supply concerns by announcing that a deal with Iran may be soon reached. Making matters worse for the Energy sector, Wachovia downgraded the integrated natural gas industry to Market-Weight from Overweight.
Seven other sectors also booked losses. The more defensive Consumer Staples and Healthcare sectors were amongst them, but demonstrated some relative strength. Upgraded Millipore (MIL 71.80 +3.18) shares were a particular bright spot that supported the latter. Despite the Treasury market action, the Financial sector again showed some resilience. Its decline lent some muscle to the broader market's fall, but, as it pared its loss, the indices moved off of their lows. Due to wide-spread selling, Technology (-0.7%) was an influential laggard. Semiconductors were a particular sore spot, but Texas Instruments (TXN 32.39 +0.10) outperformed ahead of its after hours mid-quarter update. On a related note, BlackBerry maker Research in Motion (RIMM 82.76 +10.84) settled its patent dispute with NTP.
The Telecommunications sector (+1.8%) was the lone advancer. A flurry of merger and acquisition news captured investors' attention, and a blockbuster $67 billion merger between AT&T (T 27.02 -0.97) and BellSouth (BLS 34.47 +3.01) occupied the spotlight. The deal will create the world's largest telecom company with a market cap of as much as $170 billion. AT&T anticipates synergies of $18 billion, and the purchase gives it full ownership of Cingular Wireless - the number one mobile-phone company in the U.S. As the deal fueled speculation over more telecom consolidation and integration, many telecom stocks attracted buyers. Verizon (VZ 33.71 +0.13) got some added attention and announced that it is working to acquire Vodafone's (VOD 21.90 +0.90) 45% stake in Verizon Wireless. One stock there that did not advance was AT&T, due in part to typical integration concerns that the acquiring company faces, and also because of the fact that it paid an 18% premium for BellSouth shares.
Other deals announced included Education Management Corp.'s (EDMC 41.64 +4.66) $3.4 billion buyout, J.P. Morgan's (JPM 41.43 -0.16) approximate $1.5 billion purchase of Kohl's (KSS 50.53 +1.73) credit card business, and General Motors' (GM 19.80 +0.59) sale of most of its Suzuki stake. The GM transaction is expected to generate about $2 billion in cash, and news of it helped limit declines in both the Dow and Consumer Discretionary sector (-0.5%).
Separately, Factory Orders fell a less than expected 4.5% in January. That data was the only item on the economic calendar, and had little effect on trade today.DJ30 -63.00 NASDAQ -16.57 SP500 -8.97 NASDAQ Dec/Adv/Vol 1929/1125/2.15 bln NYSE Dec/Adv/Vol 2303/995/1.64 bln
4:37PM Altera announces mid-qtr update; reaffirms Q1 sales growth of 4-7% sequentially, announces CFO retirement (ALTR) 20.27 : Co reaffirms that Q1 sales will be in line with prior guidance for 4-7% sequential growth (roughly $293.2-301.6 mln vs $298.8 mln consensus). New products are driving the company's growth with Stratix II, Cyclone II, MAX II, and HardCopy devices all showing strong results quarter-to-date. As a result of a previously disclosed Q4 manufacturing issue, some MAX 3000 and MAX 7000 device lead times lengthened. The co believes that this supply issue will be largely resolved early in Q2. Additionally, manufacturing constraints are preventing the co from meeting all of its strong demand for Stratix and selected Stratix II FPGAs. The co currently expects Stratix and Stratix II lead times to return to normal in the Q2. The co reaffirms that Q1 gross margin will be in the range of 65.5% to 67.5%. Co also announces that Nathan M. Sarkisian, 47, senior vice president and CFO, intends to retire by the end of 2006. His replacement has not been named.
4:30PM Xilinx reaffirms Q4 rev guidance of up 1-5% sequentially (XLNX) : Q4 (Mar) guidance equates to revs of $454-472 mln, vs $464.0 mln consensus. Co also states that Virtex-4 sales are strong, with solid increases from each of the three family domains. No conference call will be held in conjunction with this guidance revision.
4:30PM ATI Tech buys Shanghai-based XGI Technology Inc. alliance co (ATYT) 15.21 -0.27 : Co announces the acquisition of Shanghai-based Macrosynergy, an XGI Technology alliance co, as well as related personnel working out of XGI Technology's Santa Clara, California location. With the acquisition ATYT immediately increases its presence in Shanghai, China, considered to be the epicenter of China's burgeoning technology market. At the same time the co acquires the research and design expertise of an organization best known for its multimedia add-in boards for personal computers.
4:22PM Komag expects Q1 revenueto be on the high end of previous guidance of a 2-4% increase over the prior quarter (KOMG) 52.83 : Co says that market demand currently continues to be very strong. The co expects revenue in Q1 to be on the high end of previous guidance of a 2-4% increase over the prior quarter. The co believes supply of finished media and substrates continues to remain tight and the co is continuing to run at full manufacturing capacity. With continuing strong customer demand and some additional media production capacity from the capacity expansion in process, the co expects revenue in the 2Q06 to be above Q1. The co's capacity expansion plans are on, or slightly ahead of schedule. Based on the current schedule, the co expects to have total production capacity of approximately 35 mln finished disks per quarter exiting the 2Q06. Further, the co continues to expect to exit the 2006 calendar year with a quarterly production capacity of approximately 43 mln finished disks to meet commitments to customers.
4:07PM Texas Instruments guides Q1 EPS and revs in line with consensu (TXN) 32.33 +0.04 : Co issues in-line guidance for Q1 (Mar), sees EPS of $0.31-0.33, includes $0.04 in option expense, previous guidance $0.29-0.33, also including option expense, vs. $0.32 Reuters Estimates consensus; sees Q1 (Mar) revs of $3.22-3.35 bln, previous guidance $3.11-3.38 bln vs. $3.29 bln consensus. TXN sees Q1 semiconductor revs of $3.15-3.28 bln, previous guidance $3.05-3.3 bln
4:03PM Ramtron International revises Q4 results; Customer files bankruptcy leading to provision for bad debt (RMTR) 2.01 -0.02 : Co revised its previously announced financial results for Q4 and year-ended December 31, 2005. The revision is related to the recent bankruptcy filing of Iskraemeco, a leading European utility metering manufacturer and Ramtron product customer. Ramtron's fourth-quarter and year-end results, which were released prior to being notified of the bankruptcy, included $157,000 of receivables from Iskraemeco. The co will now make a reserve of $157,000 for provision for bad debts, which will be reflected in the company's Form 10-K SEC filing to be filed mid-March.
09:51 am Education Management (EDMC)
41.77 +4.79: After nearly ten years as a publicly-traded company, Education Management Corporation has decided to go private. Ranked No. 3 by revenue among for-profit colleges and universities, EDMC signed a definitive agreement to be acquired by Providence Equity Partners and Goldman Sachs Capital Partners in a transaction valued at about $3.4 bln. The deal has been unanimously approved by EDMC's Board of Directors and is expected to close during the summer of 2006 pending shareholder and regulatory approvals.
Under the terms of the agreement, the private equity investors will acquire all of EDMC's outstanding stock for $43.00 per share in cash, representing a 16% premium based on Friday's closing price and a takeout value of 3.33x the $1.02 bln EDMC generated in fiscal 2005 revenue. The transaction is expected to assist management further in EDMC's next phase of growth, enhancing the prospects of its education systems by increasing the number of academic programs, campus locations and online offerings. With considerable unmet demand for higher education in the U.S. and overseas, coupled with most competitors in the space trading well off historic highs, today's announcement will bode well for the group.
Industry leader Apollo Group (APOL), the only for-profit company listed on the S&P 500, generated $2.3 bln in fiscal 2005 revenue on a total enrollment of 315,000 and trades at 3.6x sales. The industry's second biggest player, Career Education (CECO), garnered $2.0 bln in revenue last year from its 104,000 students and trades at 1.6x sales. Nonetheless, the mounting regulatory scrutiny tied to everything from the quality of for-profit schools' academic offerings, versus traditional nonprofit colleges, to overly aggressive sales tactics, will continue to act as a limiting factor for the time being.
-- Brian Duhn, Briefing.com
09:19 am General Motors (GM)
19.21: After losing over eight billion dollars last year, GM is raising cash by selling its 17% stake in Suzuki Motors. On Tuesday, GM plans to sell its 92.4 mln shares of the Japanese automaker for 230 billion yen in cash, roughly $1.96 bln. The news wasn't all that surprising considering it's an easy way to generate funds and refocus efforts to other higher growth areas. The news did make headlines, but what the market is really waiting for is news of a partial sale of its financing unit, GMAC. The board meets today to discuss an offer on the table to sell a majority stake to buyout firm Cerberus Capital Management. The deal would be a significant step forward to regaining an investment grade rating for GMAC and reducing the cost of making auto loans.
The announced sale sent shares in Suzuki Motors tumbling. GM will retain a 3% share, with a one-year option to buy back the full stake. The gain on the sale will be recorded in the first quarter, according to GM. Chairman Osamu Suzuki stated the two companies plan to start a new project, but would not elaborate on the specifics. Last year, GM sold its entire 20% stake in Fuji Heavy Industries, which makes Subaru cars, in part to Toyota Motors (TM) for $315 mln in cash with the remaining going to the market.
At this point, the market is expecting GM to get the GMAC deal done. Speculation over the possibility has been rising after GM met with the US Pension Benefit Guaranty agency to make its case for why a sale would benefit the unit. According to Bloomberg, the agency may review the sale, which board member Jerome York has stated is worth roughly $11 bln, to determine how it would affect GM's pension status. GMAC remains the breadwinner for GM, the sale of which would enhance GM's liquidity. According to Wagoner, GM has in excess of $19 bln in cash, including money from a retiree health care fund. Shares in the automaker are crossing below the twenty-dollar level. We continue to hold the view that there are no investable themes to owning GM at this point, but maintain that the downside appears limited.
--Kimberly DuBord, Briefing.com
08:55 am Research In Motion (RIMM)
71.92: Ending more than four years of litigation, Research In Motion Ltd agreed to pay NTP Inc. $612.5 mln in a "full and final settlement of all claims." Announced after the market closed last Friday, the settlement averted a possible court-ordered shutdown of RIMM's BlackBerry wireless e-mail system and a disruption of service for its more than three million users in the U.S. With the ongoing legal battle acting as an overhang on the stock, investors have applauded the settlement this morning, lifting RIMM shares more than 15% in pre-market and toward a new 52-week high.
In conjunction with the settlement announcement, management provided preliminary unaudited operating results for the fourth quarter that were below the previously expected ranges. Net subscriber account additions for Q4 are expected to be in the range of 620,000-630,000, below the 700,000-750,000 range provided in December, as the possibility of brief outages or even a shutdown caused corporate and retail customers in the U.S. to defer BlackBerry purchases. Excluding litigation costs, management now believes the company will earn $0.64-0.66 per share on revenues of $550-560 million, Prior forecast ranges were $0.76-0.81 (consensus $0.79) and $590-620 mln (consensus $608 mln). With respect to the accounting treatment of the settlement, RIMM previously accrued $450 mln and an additional $162.5 mln will be recorded in Q4. RIMM is scheduled to report its Q4 results one month from today.
Even though a black cloud has been lifted, clearing the way for RIMM to refocus more energy on making popular handheld devices that meet end market demand for everything portable, everything digital, which plays into our overweight rating on Technology, we remain only cautiously optimistic on the name as persistent net subscriber addition misses compared to expectations may not be as temporary as RIMM management has alluded to.
--Brian Duhn, Briefing.com
08:45 am AT&T (T)
31.46: Consolidation and integration remain central themes within the telecommunications sector for 2006. AT&T announced its intentions Monday morning to buy BellSouth for $67 bln, expanding its reach into 22 states, and once again becoming the largest telecom company. The deal values BellSouth shares at $37.09 - an 18% premium to its closing price on Friday. AT&T's purchase gives it full ownership of Cingular Wireless - the jewel in the transaction. Further, the combination gives AT&T 20 million phone lines, bringing its total to 70 mln versus Verizon's 49 mln, according to Bloomberg. The competitive juices within the wireless industry are heating up with Verizon responding to the proposed buyout by calling its plan to purchase the 45% remaining stake in Verizon Wireless from Vodafone Group Plc (VOD) a "priority."
Cingular is the number one mobile-phone company in the US with 54.1 mln subscribers, trumping Verizon by 2.8 mln subscribers. AT&T plans to lose the Cingular name, choosing instead to sell wireless service under the AT&T brand. The company anticipates the acquisition will cut costs by more than $2 bln starting in 2008 and $3 bln in 2010, as it integrates all services under one brand. AT&T anticipates synergies of $18 bln, which is interesting considering that's the same figure it targeted for SBC, which is twice the size of BellSouth. This implies the company is anticipating considerable synergistic opportunities within wireless and at the local level.
Investors have been picking up shares of telecoms at a rapid pace in anticipation of further deals, coupled with the sector's attractive defensive qualities in a rising rate environment. The competitive landscape has intensified, sparking reconsolidation and reestablishment around local markets by providers. Their biggest competitors now lie outside the telecom sector, as the cable providers move in on their territory with a bundled approach of service offerings including voice. Telecos are responding in kind. Integration, wireline losses, and ARPU deterioration are the key risks too watch out for in the quarters ahead. The deal certainly will have its hoops to jump through to get regulatory approval, but most likely it will go through. Shares in AT&T have risen over 14% to date, which we feel is overdone at this point. Our favored names within the sector remain Sprint (S) and Verizon (VZ), which are trading at 14.9x and 13.1x, respectively.
--Kimberly DuBord, Briefing.com
10:00 am Wynn Resorts: Stifel Nicolaus reiterates Buy. Target $75 to $80. Firm ups target following the sale of the subconcession in Macau for $900 mln. The firm says the subconcession will allow P.B.L and its joint venture partner, Melco, to own and operate hotel casino resorts in Macau and will be effective until 2022. This transaction also opens the door for future Wynn/PBL developments around the world.
09:59 am Oregon Steel: KeyBanc Capital Mkts / McDonald reiterates Buy. Target $43 to $55. Firmis saying that with the signing of the R.E.X large diameter pipe contract, OS has booked its large diameter capacity out until 2007, which could represent the early stages of an energy-related bull market. As such, they believe earnings visibility for OS so far exceeds its peer group.
09:58 am Intel: Citigroup upgrades Hold to Buy. Target $26 to $24. While the firm recognizes that "bad news" is still likely forthcoming for 2Q06, they believe the stock reflects much of the bad news. Also, while AMD will remain stiff competition, firm sees INTC's prospects improving in 2H06 with respect to competitive position, seasonality, and proximity to Vista.
09:57 am Merrill Lynch: Prudential reiterates Overweight. Target $84 to $88. Firm is saying that they met with Dow Kim and Greg Fleming, coheads of Merrill's institutional securities business (almost two-thirds of Merrill's earnings). They sensed the environment is still good, especially in derivatives, fixed income (less mortgage exposure), and other areas that they deem "hot spots", including non-U.S., merger, prime brokerage, and commodities. Medium-term, the firm says the strategy is to stay-the-course with plans put in place in 2H03 to diversify by product and geography.
09:56 am Lear: KeyBanc Capital Mkts / McDonald downgrades Aggressive Buy to Buy. Firm is saying LEA remains their favorite higher-risk/higher-return auto parts supplier stock based on their out of consensus belief that earnings will improve materially due primarily to margin expansion driven by new business, lower product turnover costs and restructuring. However, they are lowering our rating to reflect the fact that recent auto supplier bankruptcies have caused investors to take a "show me" approach toward lower quality auto suppliers.
09:54 am Traffic.com: WR Hambrecht initiates Buy. Target $14. Firm os saying Traffic.com will be able to reinvent itself from a traditional media and advertising co into a next-generation traffic information leader that leverages new forms of distribution, most importantly the Internet, wireless devices, and in-car GPS systems, to generate significant growth over the next several years. They believe the key to success for this story will rely heavily on mgmt's ability to execute and bring the firm to cash flow profitability in the upcoming quarters.
09:54 am Cooper Tire: KeyBanc Capital Mkts / McDonald downgrades Buy to Hold. Firm is saying that despite rubber price increases in 2H05 as a result of both supply and demand factors, they had been estimating that CTB EPS would move into positive territory in 1Q06. However, natural rubber prices - 20% of raw material costs - jumped an additional 22% from Dec 30 to today, far more than the increase in 2H05 that they accounted for. The firm says with CTB on LIFO, higher cost rubber, once received, hits the income statement immediately. They say this could be an even more significant issue in 2Q06 than in 1Q06 due to the timing as to when this higher cost material will be received.
09:52 am Abercrombie: AG Edwards downgrades Buy to Hold. Firm is saying they are concerned about apparent marked deceleration in same-store sales that has related perceived implications for margins/earnings. As such, and in view of ANF's marked deceleration in inventory turnover, they believe it prudent to assume material reduction in gross margins.
09:51 am Countrywide: AG Edwards reiterates Buy. Target $41 to $43. Firm is citing several reasons that they took away from a recent visit with co mgmt that include: 1) they sense that volumes remain surprisingly strong at CFC; 2) gainon- sale margins appear to have rebounded and mortgage spreads have tightened considerably from year-end; 3) concerns about credit quality are overblown, as CFC is not retaining the credit risk associated with loans in overheated housing markets either in its bank portfolio or in the form of residuals; 4) continued growth in the bank appears to be a virtual certainty, and the earnings potential of this unit is underappreciated. |
