From Briefing.com: 4:20 pm: The market managed to sustain its gains on Tuesday. As had been the case yesterday, buying interest was broad-based. The difference today, though, was that there were some macro factors that supported the market's rise. Bond yields stabilized, the price of crude declined, and influential areas of the market provided leadership. Underpinning the optimistic tone was another dose of M&A activity.
In the early going, the Treasury market staged a recovery. With that, stocks rose and followed Treasuries' direction for part of the session. Bond traders lacked a catalyst, however, and demonstrated some caution ahead of Friday's much anticipated Employment report. At the close of equity trade today, the 10-year was yielding 4.87%. That still leaves it at a 22-month high, but the facts that bonds were less defensive and their yields stood relatively still provided some relief for the stock market.
That stabilization was one reason for a solid, market-leading gain in the Financial sector (+1.2%). Another reason was the brokerage industry. Per usual, that group lent considerable momentum. The merger and acquisition front continues to be a robust one, and reports that Computer Sciences (CSC 59.80 +2.51) is up for sale, that 3M (MMM 77.04 +1.20) is considering a divesture of its branded pharmaceutical business, and that International Paper (IP 34.90 +0.18) is selling over $6 billion worth of land only emphasized that idea today. On a related note, Citigroup (C 48.21 +0.80) was another factor. The Fed lifted a ban on its ability to pursue major acquisitions. The rate-sensitive Utilities sector (+1.1%) also caught a bid from the tame Treasury trade.
Lately, the equity market has not responded to energy price action in a very consistent manner. For example, both intra-day spikes and late-day slides went under yesterday's radar, but an extended decline in crude was a reason behind today's rally. The 3% pullback in natural gas and a decline in heating oil were also supportive. The action was bullish for the broader market, and even more so in that it did not (today) result in any market-dragging selling in the Energy sector. In fact, that area of the market contributed a strong 1.3% gain. A catalyst was gasoline, which rose more than 1%. Expectations ahead of tomorrow's inventory report were a reason behind the disjointed trade across the complex. Analysts are expecting a 1.2 million barrel build in crude and a 1.4 million drawdown in gasoline supply. The latter is garnering some particular attention as supply concerns surface ahead of the summer driving season.
Industrial stocks also fared well today. 3M, as mentioned above, benefited from M&A news. Transportation stocks caught a bid from the energy price declines, and the Dow Jones Transportation Average hit an all-time high. Positive comments on Caterpillar (CAT 75.30 +1.80) lent further upside to the sector as well as to the Dow. Speaking of Dow components, Merck (MRK 35.48 +0.07) also received some added attention. With the first quarter earnings season looming, the market is mindful of guidance updates. Merck, for its part, upped its first quarter guidance. The good news was somewhat stifled, however, by the fact that its full-year guidance was left intact. Check Point Software (CHKP 18.76 -1.07), on the other hand, issued a profit warning. That stock weighed on the Nasdaq, but it did not prevent its advance.DJ30 +58.91 NASDAQ +8.62 SP500 +8.12 NASDAQ Dec/Adv/Vol 1477/1561/2.06 bln NYSE Dec/Adv/Vol 1377/1905/1.50 bln
4:31PM Bell Micro authorized to distribute RadiSys advanced embedded systems (BELM) 6.17 -0.03 :
4:07PM PMC-Sierra to acquire Passave to address rapidly growing FTTH mkt; affirms Q1 revs (PMCS) 12.26 -0.12 : Co to acquire Passave Inc., a developer of semiconductors for the Fiber To The Home (FTTH) access market for $300 mln in stock. It's estimated that between 45-60 mln homes worldwide will be connected using Passive Optical Networking technology by 2010... Co also affirms prior Q1 (Mar) guidance for $85-88 mln in revs. Consensus is $85 mln.
1:01PM EMC Corp and Intel form OEM, technology relationship (EMC) 13.57 +0.22 : EMC and Intel (INTC) today announced a multi-year storage original equipment manufacturer and expanded technology agreement focused on the growing storage requirements of small- and medium-sized businesses. As part of the agreement, Intel will offer a networked storage system based on the EMC CLARiiON AX150, introduced yesterday, to Intel resellers and distributors worldwide.
9:04AM Gapping Down : PWAV -13% (Deutsche downgrade on lowered guidance)
Latest Updates All times are Eastern Time
10:25 am Williams Scotsman: Robert W. Baird reiterates Outperform. Target $26 to $30. Firm is saying recent indications that the nonresidential construction recovery is continuing at a strong pace gives them confidence that the stock's current valuation multiples can be sustained. Furthermore, firm's visit with numerous key contacts at the industry's largest convention strengthens their belief that WLSC is poised to benefit from multi-year trends.
10:24 am Ceradyne: Friedman Billings reiterates Underperform . Target $46 to $43. Firm says the Army will present to the House Armed Services Committee its production outlook for the Interceptor Body Armor system. At that time, it will announce its intention to reduce monthly production for ESAPI from 30K sets to 20K sets. Therefore, while CRDN's FY06 earnings will be exceptional, firm believes that FY07 earnings will be down.
10:23 am MarineMax: Dougherty & Company reiterates Buy. Target $35 to $37. Firm is saying that the co acquired substantially all of the assets and properties of Surfside 3 Marina and that the co stated the transaction is expected to be $0.10 to $0.12 accretive to EPS in the first 12 months after the acquisition. Firm believes co's revenues and earnings are highly seasonal and they estimate that over 100% of earnings accretion expected from the deal in the first 12 months will occur in the June and September quarters.
10:05 am Liquidity Services: RBC Capital Mkts initiates Outperform. Target $16. Firm is saying that the co is unique in eCommerce as it has 1) a large, fragmented, addressable market, 2) exclusive arrangements with vendors, and 3) high, protected gross margins with scalability.
10:05 am Duke Energy: RBC Capital Mkts reiterates Outperform. Target $32 to $34. Firm is saying they remain positive on the Duke Energy story, as they believe that there is value to be unlocked by splitting the Gas and Electric businesses. Further, the firm believes that overall 4-6% earnings growth over the next several years coupled with an approx 4% dividend yield is attractive given the reduced level of risk following the sale of the merchant power business outside of the U.S. Midwest. The firm also believes that Duke has a strong mgmt team, led by Paul Anderson, with a proven track record for creating shareholder value.
10:04 am Rackable Systems: RBC Capital Mkts reiterates Outperform. Target $40 to $60. Firm continues to expect upside execution for the quarter and the full fiscal year. The primary risks to firm's assumptions relate to the timing of capital expenditures by key internet-related customers, Rackable's ability to fulfill orders due to strong demand across its product portfolio, and co's ability to increase and train its direct sales force to enable Rackable to broaden its vertical market penetration. On a 12-month basis, firm assumes potential downside to the $25 level on below consensus execution and upside potential to the $75 level on above consensus results.
10:03 am LivePerson: WR Hambrecht reiterates Buy. Target $7.5 to $8.5. Firm is saying that they believe that business activity remains very healthy and that the co is on track for a solid Q1.
10:02 am True Religion: Morgan Keegan upgrades Mkt Perform to Outperform. Firm upgrades based on: 1) an appealing entry point given TRLG's recent pullback, 2) the opportunity for a 1Q06 upside earnings surprise, and 3) firm's belief that mgmt will ease concerns about the back-half of the year when it provides backlog numbers concurrent with the next earnings release.
10:02 am FEI Company: Punk, Ziegel & Co initiates Buy. Target $26. Firm is saying they believe FEIC is poised for improvements in operating efficiency following the conclusion of its reorganization and restructuring efforts in 2005. The firm sees FEIC as undervalued due to its prior struggles and believe that the impact of its recently completed reorganization has yet to be appreciated by the market. The firm believes market dynamics will favor FEIC as equipment spending returns to the semiconductor industry and as data storage moves to perpendicular drives. Also, they say funding for nanoscale science and engineering research is growing globally as both governments and private institutions develop special programs and centers devoted to pushing this frontier.
10:01 am Abercrombie: FTN Midwest reiterates Buy. Target $75 to $65. Firm is saying that continuing weakness in denim sales continue throughout March which is posing a big risk for the co given the large exposure to the category. Firm says that they have heard that the co is cancelling denim orders to adjust inventory levels in the wake of slower trends in an attempt to minimize markdown risk. Firm believes a continued slowdown in the denim category could have a pronounced impact on ANF's business as they estimate the total denim category represented 30-40% of total sales last year.
12:00 pm Citigroup (C)
48.05 +0.64: The mergers and acquisition landscape has been dotted with one deal after another, making for a lovely sight for a host of investment banks. This year it has been particularly pleasant for Citigroup, which leads the pack year-to-date from a volume standpoint, having advised on deals totaling $332.9 billion.
The irony in Citigroup's standing is that it has been barred by the Federal Reserve since last March from making big acquisitions of its own. The restriction imposed by the Fed was driven by its belief that Citigroup needed to devote increased attention to implementing its compliance risk management program fully and effectively. The Fed's order came about following a series of compliance shortcomings by Citigroup, none more prominent perhaps than those that led to Japan ordering a shutdown of Citigroup's private banking operations in September 2004.
As of yesterday, though, the Fed lifted the ban it imposed on Citigroup. In a letter that originated from the Federal Reserve Bank of New York and which was addressed to CEO Charles Prince, it was noted that Citigroup had "...made significant progress in implementing its new compliance risk management program. Consequently, the understanding that you would refrain from significant expansion is no longer in operation."
This is good news for Citigroup for obvious reasons, the most important of which is that it puts the bank back on a level competitive playing field in an industry where consolidation has been rampant and has been driven by a desire to increase operating efficiency, fee-based income, product offerings and, above all, market share. This news isn't going to lead to a spike in Citigroup's stock, but it will remove a weight that has contributed to Citigroup's underperformance since the Fed's order was delivered last March. In the ensuing period, shares of Citigroup have risen 1.4% versus gains of 3.0% for Bank of America (BAC), 16.0% for J.P. Morgan Chase (JPM), 9.0% for Wachovia (WB), 35% for Merrill Lynch (MER), and 45% for Goldman Sachs (GS).
--Patrick J. O'Hare, Briefing.com
10:17 am 3M (MMM)
77.45 +1.61: Less than 24 hours after expanding its position as the world's second-largest supplier to the dental industry by completing its acquisition of OMNII Oral Pharmaceuticals, 3M Co., a leader in the Industrial sector, announced that it is exploring strategic alternatives for its global branded pharmaceuticals business, which develops, manufactures and sells branded drug products related to dermatology, women's health, cardiology and respiratory medicine. 3M remains committed to meeting the increasing demand for more and better preventive oral health care solutions in the faster growing dental segment.
According to Brad Sauer, an executive vice president of 3M Health Care, 3M's branded pharmaceuticals business is a "valuable asset and there are more opportunities for technology and market synergies with a company other than 3M." Despite 3M's world renown reputation for creating iconic brands like Scotch tape, Post-it Notes, Scotchgard, and Thinsulate, the company's Health Care business accounted for a hefty portion (21%) of 3M's total top line last year, generating $4.37 bln in fiscal 2005 revenue selling well-known drug products like Aldara, Difflam, Duromine, Tambocor, Maxair, and Minitran. Sauer added, "The best way for this business to grow is for it to be free to pursue separate strategies under the direction of a dedicated pharmaceutical industry company with a business model better suited to maximize its potential."
Since continued success in today's competitive pharmaceutical marketplace requires broad pipelines of new drugs, significant investments, and a longer term risk-reward business model than applies to most other 3M businesses, according to management, 3M's initiatives to focus more on its core competencies makes sense. To assist 3M in exploring its strategic alternatives, 3M has retained Goldman Sachs (GS) as its advisor, which also plays into our bullish outlook for investment banks.
-- Brian Duhn, Briefing.com
10:07 am Merck (MRK)
35.48 +0.07: Merck & Co. on Tuesday raised its earnings guidance for the fiscal first quarter, and reaffirmed its outlook for the full year, due to strong sales of its cholesterol-lowering drug Zocor. Specifically, the Whitehouse Station, New Jersey-based drug maker said it expects first quarter earnings of $0.71 to $0.75 per share, excluding restructuring charges related to site closures and job cuts. Analysts on average are looking for earnings of $0.64 per share, according to Reuters Estimates. For the full year 2006, the company continues to see earnings in the range of $2.28 to $2.36 per share, excluding restructuring charges, versus the consensus estimate of $2.34 per share.
Despite the improved outlook, Merck said the guidance does not reflect the establishment of any reserves for any potential liability relating to the ongoing Vioxx litigation. Following the withdrawal of Vioxx from the market in September 2004, after studies linked the drug to increased risk of heart attack and stroke in patients taking the drug for 18 months or longer, Merck faces almost 10,000 lawsuits.
In the latest product liability suit over the company's withdrawn painkiller, deliberations are expected to begin today in a New Jersey state court, where two long-term users of Vioxx blame the drug for their heart attacks. The trial marks the first pair of lawsuits involving patients who allegedly took the drug for longer than 18 months. Additionally, another trial is under way in a Texas court. In the midst of its mounting legal challenges, the company has already lost one trial and won two.
--Richard Jahnke, Briefing.com
09:42 am ConocoPhillips (COP)
64.62 +0.21: ConocoPhillips, the third largest US oil company, provided a first quarter interim update, which includes the completion of its acquisition of Burlington Resources. COP has recently been tracking oil prices closely, which have reaccelerated toward the seventy dollar level. Prices are weakening a bit today, however, on speculation of weekly oil statistics expected from the Dept. of Energy Wednesday being bearish. Conoco reaped the rewards of lofty oil prices, garnering $63.28 WTI price in the first quarter, up from 5.4% from the fourth quarter.
Its production of oil equivalent per day basis (BOE), including Synrcude and excluding Lukoil, is expected to be flat from the prior quarter. COP forecasts higher output in Australia, Venezuela and the US Lower 48 that is expected to be offset by lower production in Alaska, Norway, and Nigeria due to unscheduled shutdowns. Conoco expects Q1 refining and marketing margins to be lower due to the narrowing of heavy-light crude oil differentials and increased turnaround activity. Refining margins declined 10% to $10.56 per barrel. The refining capacity utilization rate is expected to be in the mid-80% range - normal for this time of year. The good news is that the 248,000 b/d Alliance refinery located in Belle Chasse, LA, returned to partial restoration of crude throughput.
Exploration expenses are expected to be down on a sequential basis to $125 mln due to decreased dry-hole cost and leasehold impairments. Conoco also stated its midstream business would be down in the first quarter, while it restructures the chemicals business. Corporate debt was approximately $32.2 bln and the company has a cash balance of $3 bln. All in all, there was nothing really out of the normal seasonal patterns from ConocoPhillips.
We remain Overweight the energy sector and suggest investors buy into weakness. COP continues to trade at a discount to its peers at 6.7x, compared to Exxon (XOM) at 10.4x, Chevron (CVX) at 7.8x, and Occidental Petroleum (OXY) at 8.8x.
--Kimberly DuBord, Briefing.com
09:13 am Computer Sciences (CSC)
57.29: Computer Sciences Corp. on Tuesday confirmed that its board of directors has decided to explore strategic alternatives to enhance shareholder value, including a potential sale of the company. The El Segundo, California-based computer services firm also announced a restructuring that will eliminate about 5,000 jobs from its global work force, and result in restructuring charges of about $375 million.
Earlier, The Wall Street Journal reported Computer Sciences was in talks that could lead to a potential sale worth more than $10.6 billion. According to the Journal, the company is an attractive target for private equity firms, as well as other strategic players looking to expand into the computer outsourcing business, where low-cost providers in India and Asia are aggressively competing for market share.
With respect to its restructuring program, which is designed to streamline operations and leverage the increased use of lower cost resources, the company said it will cut approximately 4,300 jobs during fiscal 2007 and approximately 700 in fiscal 2008. A majority of the jobs cuts will come from Europe where the company's consulting and systems-integration business has been largely struggling. The company said it expects the restructuring plan to result in pre-tax savings of about $150 million in fiscal 2007 and about $300 million in fiscal 2008, excluding restructuring charges of roughly $345 million and $30 million in fiscal 2007 and fiscal 2008, respectively.
In response to the news, Computer Science shares, which have traded near the high end of their 52-week range, are up 5.00% in pre-market action. Fueled by the possibility of a sale or restructuring, the stock is up about 26% over the last twelve months.
--Richard Jahnke, Briefing.com
09:05 am Check Point Software (CHKP)
19.83: On January 30th Check Point Software beat analysts' expectations but Wall Street wasn't too thrilled with the Internet security software maker's guidance, which looked weak from an organic perspective since it included an acquisition with uncertain earnings contributions. Last night, Check Point lowered its previous outlook based on slower industry growth, a customer shift toward subscription contracts, and the exclusion of about $40 mln in additional revenue following management's decision not to acquire Sourcefire.
The company now sees Q1 (Mar) EPS of $0.30-0.31 (consensus $0.33) on revenues of $133-134 mln (consensus $149.16 mln). For fiscal 2006, Check Point expects to earn $1.37-1.45 per share (consensus $1.41) on revenues of $580-610 mln (consensus $637.22 mln). Check Point will report its complete first quarter financial results before the market opens on April 24th.
According to CEO Gil Shwed, the success of Check Point's subscription and SmartDefense programs resulted in a healthy increase in deferred revenues and contributed to the overall business generated in the quarter. Nevertheless, since the Sourcefire acquisition was considered a key component to improving the company's emerging product portfolio, there are concerns about Check Point's ability to grow now that there's a gap in its Internet protocol communication security lineup and the sustainability of operating margins remains uncertain. Check Point, though, says there is momentum out there and the company could dip into its coffers of more than $1.3 bln in cash to return value to shareholders via stock buybacks or even issue a dividend. The lack of near-term catalysts, however, suggests limited upside potential and detracts from the stock's investment appeal at this time.
-- Brian Duhn, Briefing.com
08:44 am NTL, Inc. (NTLI)
29.12: Britain's largest cable-television provider, NTL, Inc., has agreed to buy Richard Branson's Virgin Mobile Holdings Plc in a sweetened offer of 962 mln pounds (USD$1.67 bln), tacking on wireless phone service to its Internet and television network arsenal. Similar to the US, the cable providers in Britain are offering a bundled-service approach in order to combat escalating competition. Attracting new customers is much easier if providers offer a suite of TV, fixed-line, Internet, and wireless services in one package. Demonstrating the importance of the wireless assets for NTL, the company raised its original December 2nd bid by nearly twenty percent.
Virgin Mobile shareholders will get 372 pence cash per share, after rejecting NTL's previous bid. Branson's Virgin Group, which owns 71.2% of the phone company, will receive about 123 million pounds in cash and will become NTL's largest shareholder with a 10.6% stake. Branson will also take a seat on its board. For NTL, which plans to adopt the Virgin brand on all of its products, this is the second multibillion acquisition it has made in less than a year. The company agreed last October to buy Telewest Global, Inc., Britain's second largest cable operator for $6 bln. The move puts NTL in direct competition with News Corp's (NWS/A) BSkyB, Britain's largest satellite provider.
Virgin itself does not own a cellular-phone network. Instead it leases capacity from T-Mobile International AG and Deutsche Telekom AG (DT). Virgin does, however, have more than 4 mln users versus 15 mln for Britain's second largest operator 02 Plc, which is being acquired by Spain's Telefonica SA (TEF).
--Kimberly DuBord, Briefing.com |
