From Briefing.com: 4:20 pm : The market was headed for its fifth consecutive day of declines, but buyers stepped in about an hour and a half before the bell. The more defensive areas of the market attracted the most interest, but the late-day buying was relatively broad-based. Along with the Dow and S&P, eight of the ten economic sectors finished positively.
Rising interest rates continue to occupy investors' attention. The yield on the benchmark 10-year note remained at a 20-month high, but bonds were trading in somewhat of a holding pattern ahead of Friday's jobs report and in anticipation of Japan's interest rate decision. Subdued trade within the Treasury market appeared to have relieved stock traders, and the fact that the yield curve exited inversion for the first time since late January was a supportive factor. Rate-sensitive areas rebounded and helped the market rise. Ultimately, though, we expect high yields and impending rate hikes to continue to weigh on sentiment and limit gains.
The Energy market was also in today's spotlight. Crude dropped $1.53 per barrel and closed at $60.05. There were two catalysts. First, OPEC decided to leave production quotas unchanged at 28 million barrels per day, which leaves the cartel's output at a 20-year high. Although the decision was not surprising, there had been some speculation that over supply conditions would prompt a production cut. Geopolitical concerns are dictating policy at this point, and the decision served as a reminder that geopolitical tensions have the ability to affect the market. The Energy Department's inventory report further quelled the market's short-term supply concerns. Last week, crude oil inventory rose more than four times as much as had been expected, to 6.76 million barrels. That marked the highest supply level since May of 1999. Gasoline and distillates inventories fell more than anticipated, but were overshadowed by the crude aspect of the report.
For most of the session, the broader market failed to take a bullish cue in the drop in energy prices. Meanwhile, the Energy sector suffered and weighed heavily on the market. Near the end of the day, bargain hunters fully erased the sectors gain and took it 0.1% higher. One area that did appear to benefit from easing energy prices was retail. Coupled with some restaurant stocks, following solid same-restaurant sales from McDonald's (MCD 35.00 +0.36), retailers helped keep the Discretionary sector (+0.1%) on positive turf. Energy prices weren't the only commodities that fell. Metals extended their sharp pullbacks, and took a toll on the Materials sector (-0.7%).
Given the interest rate environment and expectations for a deceleration in growth, the defensive areas of the market outperformed today. Consumer Staples (+1.0%) again led trading from start to close. Drug retailers and household products, two of our favorite industries within the sector, fared best. Healthcare, another area known for its more defensive attributes, rose 0.6%. Biotech was a bright spot after an FDA advisory panel unanimously recommended the return of the potential blockbuster drug Tysabri.
The Tech sector closed on the flat line. Qualcomm (QCOM 49.60 +1.74) lent considerable upward momentum, on the heels of yesterday's guidance and due to some analyst target hikes today, and several tech bellwethers fared well. Significant pressure from semiconductors and semi equipment stocks was an offsetting factor. Among the laggards was Micron, which announced that it will merge with Lexar Media (LEXR 8.83 +1.74). Plaguing tech stocks again today was Google (GOOG 353.88 -10.57). In a filing with the SEC, the company indicated that it discussed growth projections at its analyst meeting that should not be interpreted as guidance. The indication prompted Goldman Sachs to cut its estimates and price target, and it was a cloud over the Nasdaq today.
Separately, Fed Chairman Bernanke spoke in Las Vegas today. The topic was banking, and did involve policy or the economy. His appearance did not affect trade within either the stock or bond markets today. DJ30 +25.05 NASDAQ -0.13 SP500 +2.73 NASDAQ Dec/Adv/Vol 1578/1443/2.12 bln NYSE Dec/Adv/Vol 1638/1606/1.76 bln
4:33PM Alliance Semi announces Bryant Riley as Chairman of the Board (ALSC) 2.75 +0.07 : Co announces that the Board of Directors of the co appointed Bryant R. Riley as an unsalaried Chairman of the Board, effective today, following the resignation of N. Damodar Reddy as Chairman of the Board. Mr. Reddy, whose resignation was tendered on March 7, 2006 and accepted by the Board on March 8, 2006, continues to serve as a member of the Board of Directors. On March 3, 2006, the co announced that it had made progress with respect to several separate potential asset sales involving its operating business units, including receiving a number of indications of interest from third parties and becoming party to one non-binding letter of intent. Since that time, the co has become party to an additional non-binding letter of intent relating to the potential sale of an additional business unit.
4:30PM Credence Sapphire D-10 selected by QUIK for next-generation manufacturing test requirements (CMOS) 8.34 -0.15 : Co announced that QuickLogic (QUIK) has purchased its Sapphire D-10 system. QuickLogic will use the Sapphire D-10 for the development and production of its next-generation, low power field programmable gate arrays.
2:15 pm McDonald's (MCD)
34.80 +0.16: Earlier today McDonald's reported its February comparable sales results and, well, they were comparable to past periods in that McDonald's reported a global comparable sales increase for the 34th consecutive month. Specifically, global comparable sales were up 4.7% on top of a 1.6% increase in the year-ago period. The Briefing.com Benchmark Consensus estimate was 4.1%.
The U.S. business, aided by the introduction of the Spicy Premium Chicken Sandwich, extended hours, and a popular breakfast menu, registered a 3.6% comparable sales increase. It was the company's European segment, though, that reported the largest increase, as comparable sales there rose 5.4% on the back of strong results in France and Germany. Comparable sales in the Asia/Pacific, Middle East and Africa region were up 3.9%.
If one wanted to find a negative in the sales update, it would lie in the understanding that the 3.6% increase in U.S. comparable sales was below the Briefing.com Benchmark Consensus estimate that called for a 4.9% increase. We wouldn't be bothered by that too much, though, given that weather was disruptive during the month and knowing also that the gain was achieved on top of a strong 4.6% increase in the year-ago period.
The market's tempered response can be attributed to McDonald's being a creature of habit, which is to say its recurring reports of operating success aren't as impressive to the market as they used to be. If anything, they are now fully expected. That point notwithstanding, McDonald's continues to churn out sales results that underpin its long-term investment appeal and which suggest it will be fully capable of bolstering shareholder value with stock buybacks and dividend increases. Its steady performance and upward revisions to consensus EPS estimates for the company are among the factors upporting its position as a suggested holding in our Active Portfolio. The February update didn't do anything to change that standing.
--Patrick J. O'Hare, Briefing.com
1:16 pm Biogen Idec (BIIB)
45.50: On January 23rd, Biogen Idec (BIIB) and Elan Corp. (ELN) received notification from the Food and Drug Administration that the Peripheral and Central Nervous System Drugs Advisory Committee will review Tysabri for the treatment of multiple-sclerosis (MS) on March 7, 2006. Today, that FDA advisory panel has unanimously recommended the return of the MS drug in the wake of passionate testimony from several patients and family members pleading for Tysabri's return. Shares of both BIIB and ELN are halted for trading as the committee wraps up its two-day meeting and decides what conditions should be met before Tysabri is put back on the market. While the FDA is not required to follow the advice of its advisory panels, it usually does.
As a reminder, Tysabri was voluntarily pulled from the market on February 28, 2005, after three patients being treated with Tysabri developed a rare brain disorder known as progressive multifocal leukoencephalopathy, or PML. Two of the patients died. That day, shares of both BIIB and ELN plunged, closing down 43% and 70%, respectively, and erasing nearly $17 bln in combined market capitalization. Biogen and Elan closed out 2005 with respective declines of 32% and 49% compared to a 25% gain for the AMEX Biotech Index.
Tysabri was introduced in November 2004 after receiving fast-track FDA approval following positive Phase III clinical trial results. However, safety concerns never allowed the drug to become the blockbuster that so many on Wall Street had hoped it would be. Analysts had forecasted Tysabri sales to reach as much as $3 bln annually, but in the fourth quarter of fiscal 2004, Tysabri sales only amounted to $3 mln, or about 0.5% of Biogen's total Q4 revenues of $586 mln. Although sales doubled during just the first two months of the first quarter, they still only amounted to 1.0% of the company's total top line. Following today's decision, Sanford Bernstein believes Tysabri sales could reach $700 mln a year by 2010.
--Brian Duhn, Briefing.com
11:09 am Take-Two Interactive (TTWO)
16.27 +1.42: Take-Two Interactive Software said it swung to a first-quarter loss amid continued transitioning in the industry to new hardware platforms, and that revenue was nearly halved due to challenging comparisons fueled by stronger holiday sales a year ago. The video game publisher reported a Q1 (Jan) loss of $0.41 per share, which was $0.30 worse than the Reuters Estimates consensus, as skyrocketing costs and lower retail pricing during the holiday selling season led to margin erosion. Gross margins fell to 21% from 36% a year ago as software development costs soared 270% to almost $16 mln. During its conference call, management said it has over 120 SKU's in various stages of development, representing over 40 different brands, and that about 70 products will ship in fiscal 2006.
It is worth noting, though, that consensus estimates, which have been widely gapped since TTWO withdrew its fiscal year guidance amid uncertainty about console numbers, also included stock based compensation expenses. Further, rivals Electronic Arts (ERTS), Activision (ATVI) and THQ Inc. (THQI) also reported disappointing quarterly results recently as they too continue to invest actively in new product development. Net sales fell 47% year/year to $265 mln but checked in above the $237.5 mln consensus estimate and company guidance of $230-250 mln. Xbox 360 titles were about 6% of revenues. Record sales of $502.5 mln enjoyed a year earlier included holiday sales of the blockbuster game Grand Theft Auto: San Andreas for Sony's (SNE) PlayStation.
Looking ahead, management stated that Xbox 360 hardware availabilities will remain constrained and that the pricing pressure it is seeing now in current generation software will continue through 2006. However, Take-Two did say it expects to return to profitability in its fiscal fourth quarter. According to CEO Paul Eibeler, Take-Two is "taking a hard look at every aspect of our business and are balancing the need to manage expenses while investing in creative resources and the infrastructure needed to support our diversification efforts." Management also noted that inventories were down significantly from the $136 mln at year's end to $107 mln and that TTWO generated approximately $38 mln in cash flow from operations in the quarter, bringing total cash and cash equivalents to about $143 mln. The company said it also recently completed a long-term agreement that allows Rockstar Games, the maker of Grand Theft Auto, to make products under its current management team for many years to come.
Evidently, the news, after Take-Two consistently disappointed and/or lowered expectations over the last three quarters, has restored expectations enough to renew buying interest in the stock. Shares, which hit a 2 1/2-year low of $13.64 on January 27th and were 50% below a 52-week of $29.60 reached on June 13th as of yesterday's close, are attracting bargain hunters this morning and have surged 10% so far.
-- Brian Duhn, Briefing.com
11:01 am Google (GOOG)
354.72 -9.73: Late Tuesday night, Google disclosed in a filing with the SEC that statements about sales projections were inadvertently posted on its website. The popular search engine said in the filing that PowerPoint slides showing Google expected revenue to grow by nearly 60% from the $6 bln generated in 2005 to $9.5 bln this year, and that profit margins in its AdSense business would "be squeezed in 2006 and beyond," were erroneously included in a slide accompanying the analyst day presentation on March 2nd. Google added that the sales figures "were not created for financial planning purposes, and should not be regarded as financial guidance" and that comments about profit margins do not "reflect Google's current expectations." Since going public in August 2004, Google has never provided revenue or earnings guidance to Wall Street and said it will remain "consistent with past practice."
Nevertheless, Google's goof is the latest in a sequence of difficulties it has had communicating with the investment community. Just last week, the stock plunged after CFO George Reyes said at a Merrill Lynch Internet conference that Google "was getting to a point where the law of large numbers starts to take root...at the end of the day, growth will slow." Even though Google later clarified that it still sees "significant opportunities" for revenue growth, the news fueled broad-based market consolidation and merely underscored that recent market gains were on shaky grounds. Google shares have lost more than 15% since disappointing Q4 earnings were reported on January 31st and are about 25% below the all-time high of $475.11 reached on January 11th.
-- Brian Duhn, Briefing.com
09:54 am Micron Technology (MU)
14.63 -0.35: A half hour before the opening bell rung, news broke that Micron Technology has entered into a definitive agreement with Lexar Media (LEXR) in a stock-for stock merger that will strengthen its NAND flash business. The deal values Lexar shares at $8.43 each based on Monday's closing price, bringing the price tag to $680 mln. NAND flash is a hot commodity due to its use in a multitude of portable electronic devices. It has become the preferred flash memory due to its high density, low cost, fast write times, and long re-write life expectancy with demand skyrocketing as consumer electronic devices increase capacity.
The deal makes sense for Micron since Lexar is the leading manufacturer and marketer of NAND flash memory products. Further, it goes a long way in transitioning Micron from its pure DRAM manufacturer status. Micron and Intel have announced a joint venture to build a pure NAND flash memory company. Our industry contacts are reacting quite positively to the news based on what is viewed as a compelling valuation given Lexar's clean balance sheet. Expectations are the deal should be accretive to Micron. The deal also heightens speculation that other players may step in or spark further consolidation in the industry. Under the terms of the deal, Lexar shareholders will receive 0.5626 shares of Micron stock for each common share they own. Micron anticipates issuing shares in exchange for 81.6 mln Lexar shares outstanding.
--Kimberly DuBord, Briefing.com
09:08 am OPEC Keeps Production Quota Unchanged
The Organization of Petroleum Exporting Countries plans to maintain output supplies near a two-decade high on concerns over violence in Nigeria and Iran's nuclear policy. The cartel, which is still meeting in Vienna, has agreed to keep quotas unchanged at 28 mln barrels per day due to high oil prices. As always, there was a great degree of speculation heading into the meeting on whether over supplied conditions would prompt OPEC to reduce output, but overriding geopolitical concerns are dictating policy at this point. The possibility that the UN may impose sanctions over Iran's nuclear program, along with an attack on a Saudi Arabian oil refinery last week, have heightened concerns.
Crude is moving lower this morning following the headlines out of Vienna. The April contract is currently trading at $61.08 per barrel, down $0.54. OPEC's President stated the markets are "behaving irrationally" as prices move higher, despite rising production. Prices are maintaining high levels due to concerns over possible supply disruption, whether it's Nigeria or Iran. Currently, there are roughly 400,00 barrels per day being lost out of Nigeria. There has been a slew of headlines coming from the Iranian Minister who has stated the country has "no intention to halt exports."
Commentary from other oil ministers indicates a level of concern about a possible oversupply condition in the second quarter. To that point, the market is expecting the weekly inventory data from the Dept. of Energy to show a build in crude of 1.7 mln barrels. OPEC will have a few more months of data under its belt until the next meeting, which will be held in Caracas on June 1st. Until then, any disruption at this point will cause prices to move materially higher.
--Kimberly DuBord, Briefing.com
09:03 am NYSE Group, Inc. (NYX)
After having completed its merger with electronic rival Archipelago Holdings (AX), which was the largest ever among exchanges, the world's biggest stock market -- the New York Stock Exchange -- will begin trading publicly today as NYSE Group Inc. under the symbol NYX. Ending its 213-year history as a private club basically owned by only 1,366 seat holders, it will now be possible for even the smallest of individual investors to own a stake in the Big Board.
According to Barron's, Archipelago's market capitalization of $3.2 bln implies that the NYSE Group will have a market value of more than $10 bln, representing about 120 times the combined company's fiscal 2005 net income. Merrill Lynch believes NYX is priced above-average for global securities exchanges at about 48x estimated fiscal 2006 earnings and 31.5x fiscal 2007 forecasts. Also, since AX shares have already gained 29% so far this year, and since the NYSE will go public via a merger and not an initial public offering, there is not expected to be a "pop" in NYX's opening price, as is typical with many IPOs.
Further, it is worth noting that Archipelago shares haven't attracted as much buying interest from large U.S. mutual funds as rival stock exchange Nasdaq Stock Market Inc. (NDAQ), which has been publicly traded since 2002 and has lower listing fees than the NYSE, and futures platform Chicago Mercantile Exchange Holdings (CME), which also debuted in 2002 and continues to gain market share from banks in currency futures. According to Morningstar, Nasdaq shares have garnered interest from fund giants like Fidelity Investments, American Funds, Dreyfus, Alliance Bernstein, and Neuberger Berman.
The NYSE may handle 50% of all U.S. stock trades, versus the Nasdaq's 40% share, and the integration of Archipelago's electronic-trading expertise will lead to higher trading volumes, which drive profits; but it remains to be seen if NYX shares will be able to mirror the impressive performances of NDAQ and CME as Wall Street waits to get an even clearer picture about NYSE Group's true earnings potential.
(Disclosure: Briefing.com has a business relationship with Nasdaq)
-- Brian Duhn, Briefing.com
08:47 am Pixar Animation (PIXR)
64.03: Last night Pixar reported what was probably its last quarter as a public company. The animation studio demonstrated why Walt Disney (DIS), a suggested holding in our Active Portfolio, is buying the company as the Pixar library continues to generate earnings. Without the benefit of a release until June when Cars will hit theatres, revenue growth in the fourth quarter and the year was piloted by The Incredibles and Finding Nemo, blockbusters with clear staying power. Net income in the quarter fell to $30.9 mln, or 25 cents per share, from $55.2 mln, or 45 cents per share, a year earlier when it released the hit about a family of super heroes. The per share figure sped past consensus by seven cents.
Revenues of $55.6 mln were derived from film revenues with the re-release of Toy Story 2 and the release of both installments internationally, as well as home video sales. Television licensing and home video sales for Finding Nemo contributed to $22.6 mln of the top line, with The Incredibles adding in $10.2 mln due to home video and consumer products sales. The SEC has ended a six month probe into the company's accounting. Pixar still faces lawsuits alleging it misled shareholders over its second quarter profits relating to home video sales.
The Disney and Pixar combined animation studio plans to release one Disney and one Pixar animated film per year, according to CEO Bob Iger. Disney hopes to release a Pixar sequel once every other year. Pixar's strength is the high quality of its films, from the story line to the animation. The concern with the merger, though, is that expansion could dilute the quality. We feel Disney, more than anyone, understands the enduring nature and earnings power of a film that connects with its audience. Despite the run in Disney's shares in anticipation of a Pixar deal, we think the company remains a strong investment in 2006 supported by double-digit earnings growth, visibility, strong cash flow generation, valuation, operating momentum, and shareholder value.
--Kimberly DuBord, Briefing.com
09:56 am Dick's Sporting Goods: Banc of America Sec reiterates Buy. Target $40 to $44. Firm ups price target following strong Q4 results and outlook. They believe DKS will continue its gross margin improvement and is solidly positioned to continue market share gains, driven by solid results in its core business and an already improving sales trend at converted-Galyan's store base.
09:50 am Glenayre Tech: Morgan Joseph initiates Buy. Target $5.4. Firm is saying that the recent E.D.C deal combines recurring revenue and cash generation with a growth opportunity. The firm says the balance sheet is well capitalized, and the messaging business is growing rapidly.
09:48 am Qualcomm: UBS reiterates Neutral. Target $49 to $51. Firm ups guidance following upside guidance, which they say was largely driven by handset unit strength. Firm also views the increased dividend positively. They believe near term newsflow from tradeshows is likely to be positive for the co, but say headline risk regarding formal investigation from European Commission remains.
09:40 am Orthovita: Needham & Co initiates Buy. Target $5. Firm is saying Orthovita has a potentially major product in development. The firm says the co is not profitable, but generated $34.7 mln in revs in 2005, having grown revenues at 40%+ per year since 2002. They project that it will attain profitability by 2008.
09:38 am Eaton: AG Edwards initiates Hold. Firmis is saying with class 8 truck build downturn looming in 2007, ETN is working to show it's a diversified rather than cyclical industrial. The firm says transformation is promising but not complete.
09:26 am Mattson: Am Tech/JSA Research reiterates Buy. Target $12.65 to $14.25. The firm expects MTSN's analyst day on March 9th to be upbeat and to focus on growth and margin leverage opportunities with product line discussion of its dry strip and RTP platform. They are raising their CY06 EPS estimate from $0.53 to $0.62 (Street at $0.60) on improving industry order visibility. |
