From Briefing.com: 5:02PM Market Wrap : For the first time since early May, the market closed on an upbeat note for a second consecutive session as investors finally began to embrace some upbeat news on the economy. Before the market opened, there wasn't any specific reasoning behind the early positive tone other than traders simply trying to keep some semblance of a good thing going in the wake of so many down days fueled by a change in focus on the negatives. That is until encouraging GDP data hit the wires at 8:30 ET.
4:20 pm : For the first time since early May, the market closed on an upbeat note for a second consecutive session as investors finally began to embrace some upbeat news on the economy. Before the market opened, there wasn't any specific reasoning behind the early positive tone other than traders simply trying to keep some semblance of a good thing going in the wake of so many down days fueled by a change in focus on the negatives. That is until encouraging GDP data hit the wires at 8:30 ET.
As expected, first quarter real GDP was upwardly revised from a strong advance read of 4.8%, checking in at a large 5.3% annual rate of growth. While 5.3% growth helped undermine the recent exaggerated fears in the market that economic growth was slowing sharply, the fact that such expansion was also below economists' larger forecasts of 5.8% growth showed that the economy picked up steam in Q1, but didn't grow too fast to ruffle the inflation hawks' feathers. To wit, the accompanying chain deflator -- a closely watched inflation indicator -- held steady at 3.3%, suggesting the economy is growing enough to sustain respectable profit growth while keeping inflation under control.
With regard to industry strength, which has been waning of late as concerns about the Fed going too far with its tightening has prompted investors to lock in profits across every sector, upside leadership from all 10 economic sectors provided some relief and underscored a sense that stocks are still oversold on a near-term basis. Even though the market stability yesterday and today doesn't eliminate the chances of further fear-based selling, especially ahead of tomorrow's core PCE deflator, some renewed enthusiasm has reduced the risks and suggests the market may at least stall the downward bias that has plagued equities over the last couple of weeks.
Despite the inflationary impact of rising commodity prices, Energy and Materials paced the day's gains, surging 3.1% and 2.1%, respectively. Crude oil prices erased most of the 2.7% lost yesterday and gold reclaimed about 2% following its biggest one-day loss in 12 years. Evidently, investors chose to return their focus to earnings prospects from the most profitable of all the sectors. Also providing some influential leadership to the upside was Financial, as resurgence in M&A activity and the successful debut of MasterCard (MA 45.40 +6.40), the biggest IPO in two years, played into our bullish outlook for brokerage stocks. Birmingham-based banks Regions Financial (RF 34.40 -1.13) and AmSouth Bancorporation (ASO 28.01 -0.89) announced a merger of equals valued at around $10 bln.
Technology, which has been one of the biggest sore spots of late, also closed sharply higher, as evidenced by the tech-heavy Nasdaq turning in the best performance among the majors. A multi-year partnership between Yahoo (YHOO 32.92 +1.13) and eBay (EBAY 33.88 +3.68) and a 1.7% surge in networking helped offset further deterioration in chip stocks. Consumer Staples also tacked on a 1.0% gain, getting a huge boost from Wal-Mart (WMT 49.43 +1.40), which hit its best levels of the year after it was upgraded. BTK +1.89% DJ30 +93.73 DJTA +1.05% DJUA +0.94% DOT +1.44% NASDAQ +29.07 NQ100 +1.23% R2K +1.93% SOX -0.44% SP400 +1.21% SP500 +14.31 XOI +3.08% NASDAQ Dec/Adv/Vol 797/2227/1.99 bln NYSE Dec/Adv/Vol 773/2469/1.66 bln
2:56 pm Guilty Verdict in Enron Trial
Today the closely-watched Enron trial came to a close with a jury decision that probably surprised few, but which was met with a sense of vindication by many. To that end, former executives Kenneth Lay and Jeffrey Skilling were both found guilty of fraud, and other charges, that led to the bankruptcy of the energy trading company they once ran , as well as the loss of more than $1 billion in retirement funds for thousands of employees who also lost their jobs.
In one sense, the end of the Enron trial brings to a close a scandalous period in stock market history that was fraught with greed and corruption. It falls short, though, of providing complete closure. Regardless of the verdict, neither the company's former shareholders nor its employees will ever be made whole again for the losses they suffered as a result of the accounting improprieties committed by a small group of individuals who, apparently, did need one more yacht to water ski behind.
While an appeal is sure to be made, the verdict at this juncture means both Mr. Lay and Mr. Skilling should be spending at least the next 25 years in jail. In a strange twist of fate, sentencing will take place September 11.
--Patrick J. O'Hare, Briefing.com
1:10 pm MasterCard (MA)
43.89 +4.89: MasterCard became a publicly-traded company today following the pricing of its IPO last night that ended up being lower than previously expected. Specifically, shares in MasterCard were priced at $39 each versus an expected range of $40-43. Altogether MasterCard offered 61.52 million shares, or 46% of its stock, raising approximately $2.4 billion in the process.
It has been intimated that MasterCard failed to fetch a higher price because of general market conditions (i.e. the stock market has been suffering lately), as well as the understanding that Vonage's (VG) debut yesterday as a publicly-traded company went woefully bad. Various reports suggest the company's legal problems, which entail an antitrust lawsuit filed by merchant groups that allege unlawful price fixing, were an added factor in the $39 pricing.
The negative weights notwithstanding, the investing public is still clamoring for the company's stock today, which is trading more than 10% higher from the offering price. The favorable reception speaks to the influence of the MasterCard brand. It hasn't hurt either that the stock market has maintained a positive disposition today, leaving many investors in a better state of mind to consider investing in a company whose payment solution influence in their life can be seen whenever they use their debit cards and/or credit cards.
The money raised by MasterCard represents the largest IPO since General Electric (GE) spun off Genworth Financial (GNW) in May 2004. The Associated Press reports that company is expected to use most of the proceeds raised in its offering to redeem Class B shares and to defend itself against legal challenges.
--Patrick J. O'Hare, Briefing.com
11:57 am Polo Ralph Lauren (RL)
56.37 +0.68: Shares of Polo Ralph Lauren traded higher on Thursday, gaining more than 3% during the regular session, after the apparel designer and retailer reported better than expected fourth quarter profits, and reaffirmed its outlook for fiscal 2007. Based on the latest results, which were highlighted by higher sales and improved profit margins, we remain positive on the company's long-term outlook.
For the fourth quarter, Ralph Lauren said its profits increased to $63 million, or $0.58 per share, compared with $23.4 million, or $0.22 per share, in the year ago period, when results were weighed by a one-time charge of approximately $100 million related to a legal dispute with Jones Apparel Group (JNY). According Reuters Estimates, analysts had expected earnings per share of $0.57.
On the top line, revenue grew 8% year/year to $972 million, driven by a 15% increase in retail and a 6% increase in wholesale sales. Total company comparable store sales rose 3.0% during the quarter, reflecting an increase of 1.2% at Ralph Lauren stores, 10.6% at Club Monaco stores, and 2.8% in factory stores. Additionally, Polo.com revenues increased 73%. Retail operating margin improved 380 basis points, compared to a loss of 3.5% in the year ago period. Meanwhile, the company said wholesale sales were bolstered by the inclusion of Polo Jeans and footwear, the launch of Chaps for women and boys, as well as increased sales in Lauren and its full-priced menswear business. Wholesale operating margin rose 300 basis points to 20.5% from 17.5% last year.
For fiscal 2007, Ralph Lauren backed its forecast for earnings of $3.15 to $3.25 per share, excluding $0.15 to $0.20 for stock options expense, versus the consensus estimate of $3.21 per share. The company also projected sales growth to be a low double digit percent for the year, and to range from the high teens to low twenties percent for the current quarter.
Separately, Ralph Lauren plans to shutter its U.S. Polo Jeans business in 2007 as it refocuses its global jeans brands, according to a report by Women's Wear Daily. The company, which bought back the Polo Jeans license for $355 million in February from Jones Apparel, will maintain the Polo Jeans brand internationally, but discontinue the brand in the U.S. in a move to expand the denim offerings in the Lauren and Polo Ralph Lauren businesses.
--Richard Jahnke, Briefing.com
11:01 am Yahoo! (YHOO)
As far as stock performance goes, it hasn't been a very good year for either Yahoo! (YHOO 32.75, +0.96) or eBay (EBAY 32.44, +2.24). To date, the stocks are down 16% and 25%, respectively, as concerns about growth prospects have weighed on investor sentiment. Today, however, both stocks are up in sync following news that the companies have formed a strategic partnership that is aimed at producing mutually beneficial growth opportunities.
It was noted in a press release that the multi-year agreement focuses on four major components in the areas of search and graphical advertising, online payments, a co-branded toolbar, and the opportunity to explore "click-to-call" functionality. As part of the arrangement, Yahoo! will become the exclusive third-party provider of all graphical advertisements throughout the eBay.com site while eBay's PayPal service has been selected by Yahoo! to be the exclusive third-party provider of its online wallet.
The initiatives will start to roll out this year with full implementation expected to be achieved in 2007. Neither company expects there to be a material impact on financial results in 2006. Any financial impact will be incorporated at the time business outlooks for 2007 and beyond are provided.
The arrangement is being looked upon as an answer to Google's (GOOG 375.55, -5.70) growing competitive influence. By the same token, the seemingly cozy nature of the Yahoo!-eBay partnership is, in all likelihood, sparking the thought that the two companies could eventually do something even more significant down the road as far as partnering goes. Time will tell, but for now, the market seems to like this latest development between the two companies.
(Disclosure: Briefing.com has a business relationship with Yahoo!... my wife is also an eBay addict)
--Patrick J. O'Hare, Briefing.com
10:48 am Sanderson Farms Inc. (SAFM)
28.72 -0.58: Shares in Sanderson Farms Inc. lost some ground Thursday after the company reported that an oversupply of chickens resulting from avian flu fears plucked the company's financials of potential gains. The poultry producer reported a second-quarter loss of $0.83 per share, $0.34 worse than Reuters Estimates consensus of ($0.49). Revenues fell 13.1% year over year to $225.1 million versus consensus of $226.7 million.
Rival poultry producers Tyson Foods Inc. (TSN) and Pilgrim's Pride Corp. (PPC) have also reported declines in sales and margins as a result of a current glut of chickens.
According to Joe Sanderson, Jr., chairman and chief executive officer of Sanderson, overall market prices for poultry products were significantly lower in the second quarter of 2006 compared with prices a year ago. At the same time, cash market prices for corn and soybean meal, the company's primary feed ingredients, increased 6.5% and decreased 4.1%, respectively, compared with the second quarter a year ago, he said.
The Laurel, Miss-based company said it will reduce weekly production by about 4.3% and postpone construction of a new poultry facility in Waco, Texas for 90 days to help bring supply back in line with demand. The company will also defer about $29 million in capital expenditures until fiscal 2007.
--Christine Marie Nielsen, Briefing.com
10:09 am Network Appliance (NTAP)
31.98 -1.50: Network Appliance's fourth quarter profits slipped from a year ago, hurt by a charge for repatriating foreign earnings, but met Wall Street's expectations on an adjusted basis. Still, investors pressured shares lower during early market activity as profit margins for the quarter slipped on higher operating expenses.
Net income for the fiscal fourth quarter was $59.2 million, or $0.15 per share, down 6.6% from $63.4 million, or $0.16 per share, a year earlier. Excluding a non-recurring income tax expense of $22.5 million for the repatriation of foreign profits, earnings were $0.23 per share - in line with the Reuters Estimates consensus. Revenues rose 32% year/year to $598 million, exceeding the consensus estimate of $585.4 million.
Despite the overall solid fourth quarter report, gross margin for the quarter took a step back. Specifically, the company reported gross margin of 59.7%, down 160 basis points from the same quarter last year, and below analysts' expectations of 60.9%.
Looking to the current quarter, Network Appliance forecasted earnings of $0.23 to $0.24 per share, excluding stock options expense and other one-time items, versus the consensus estimate of $0.22 per share. It also projected sales to grow between 36% and 39% year/year. For the fiscal year, the company expects earnings of $0.99 to $1.04 per share, ex-items, on sales growth of 28% to 30%, which equates to approximately $2.65 to $2.69 billion. According to Reuters Estimates, analysts on average are looking for earnings of $0.99 per share on revenue of $2.64 billion for the year.
--Richard Jahnke, Briefing.com
09:48 am Michaels Stores Inc. (MIK)
38.61: Arts and crafts retailer Michaels Stores Inc. continues to mold a business that would look solid to outside investors. The company said Wednesday that it saw earnings of $0.38 per share in the first quarter, in line with Reuters Estimates consensus of $0.38. Revenues rose 1.4% year over year to $832.5 million versus $845.7 million consensus.
In March, Michaels said it had hired investment bank J.P. Morgan to explore its strategic options. It said it might put itself up for sale in hopes of increasing market share and improving customer service. While the need to hire an outside investor to find strategic possibilities worried some who are bullish on the stock, thoughts were that the company's healthy market share in the area, strong cash flow, and lack of debt was attractive to potential investors.
Over 10 private equity groups have surfaced to explore an offer for the arts and crafts retailer. The interest of the groups is noteworthy because private equity funds typically purchase companies or controlling stakes, restructure the business, then cut costs and sell the businesses later for a profit.
The company said it sees earnings per share of $0.19 to $0.21 for the second quarter versus $0.21 consensus. Michaels said it plans to open between 40 and 45 new stores during fiscal 2006. For 2007, the company said it sees earnings per share of $1.92 to $1.98 versus $2.02 consensus. The company also said it sees 2007 revenue growth of 7% to 8%, or roughly $3.93 to $3.97 billion versus $3.93 billion consensus.
--Christine Marie Nielsen, Briefing.com
09:44 am Regions Financial (RF)
Alabama can't stay out of the nation's spotlight. Last night the state's own Taylor Hicks was crowned this year's American Idol, and this morning, it has been announced that Birmingham-based banks Regions Financial (RF 36.42, +0.89) and AmSouth Bancorporation (ASO 29.15, +0.25) will get together in a merger of equals. Given the terms of the deal, we suspect AmSouth shareholders are happier about Hicks' crowning than they are about this transaction.
In essence, the partnership is being forged in the form of a "take-under." According to the press release, AmSouth shareholders will receive 0.7974 shares of Regions for each share they own. Based on where RF closed Wednesday, that translates to $28.33 or roughly 2.0% below where shares of ASO closed on Wednesday. As far as regional bank deals go, it is a reasonable price for Regions to pay as it equates to 2.71x AmSouth's book value. Bank deals are often priced between 2.0-3.0x book value.
Most shareholders, though, have it in their mind that if their company is going to be acquired, it will come at a premium to the current stock price; hence, there is sure to be disappointment in the headline offer. Mindful that there is no premium for ASO shareholders in the current offer, one can't rule out the possibility of a rival bidder entering the fray or shareholder dissension leading to a sweetened offer from Regions before the deal is officially closed.
The deal itself makes good strategic sense. Given the banks' geographical connection, there aren't likely to be any disruptive cultural shifts that might occur if, say, either was being acquired by a Northeastern or Western bank. Additionally, their geographic connection will produce ample cost-savings opportunities and will enhance the combined entity's status as a regional banking power.
The latter should bolster Regions' (the name will be retained) ability to compete with larger banks for customer deposits and loans, or perhaps one day garner a more lucrative takeover offer from a larger bank looking to pick up market share in key states like Florida and Texas. In the meantime, Regions expects to realize cost savings of $400 million pre-tax. The integration effort will result in the operation of 2,000 branches in 16 states across the South, Midwest and Texas, making the combined company one of the top 10 bank holding companies in the U.S.
--Patrick J. O'Hare, Briefing.com
09:12 am TiVo (TIVO)
7.14: TiVo Inc. on Wednesday reported a wider loss in the fiscal first quarter, primarily due to costs associated with litigation, more aggressive price offerings, and the expensing of stock options, but beat Wall Street's estimates for a larger loss. For the quarter, the pioneer of the digital video recorder posted a net loss of $10.7 million, or ($0.13) per share, compared with a year ago loss of $857,000, or ($0.01) per share. That was nine-cents better than the Reuters Estimates consensus of a loss of ($0.22) per share.
TiVo's service and technology revenues, which includes recognition of Comcast development revenue of $7.2 million, increased 38% to $55.1 million, compared with $40 million in the year ago period. The company said it added 91,000 TiVo-owned subscriptions in the quarter, versus 104,000 last year. Standalone churn remained at 0.9% per month, resulting in a net gain of 51,000 in new TiVo-owned subscriptions. Additionally, the company netted approximately 2,000 new subscriptions through DirecTV customers using its products.
In the current quarter, Tivo, which faces increasing competition from satellite TV providers like DirecTV (DTV), as well as an ongoing patent suit with EchoStar Communications (DISH), said it expects a net loss of $12 to $15 million with service and technology revenues in the range of $50 to $53 million. The loss includes the anticipated effects of rebates for expanded retail channel distribution of the company's dual-tuner DVR, higher marketing spending driven by the impact of new pricing models, expensing of stock options, and costs resulting from ongoing patent litigation, the company said. According to Reuters Estimates, analysts are forecasting revenue of $52.51 million for the fiscal second quarter.
--Richard Jahnke, Briefing.com
08:59 am Hormel Foods Corp. (HRL)
33.88: Shares in multinational marketer of consumer-branded meat and food products Hormel Foods Corp. were poised to open slightly higher Thursday after the company said it saw second-quarter earnings of $0.48 per share, $0.03 better than a Reuters Estimates consensus of $0.45 thanks to strong growth in grocery products and specialty foods units. Revenues rose 4.3% year over year to $1.37 billion versus consensus of $1.39 billion. The company issued guidance that was in line with expectations.
The company said it sees GAAP earnings per share of $0.37 to $0.45 versus $0.42 consensus for the third quarter. Hormel raised its guidance for 2006, anticipating GAAP earnings per share of $1.94 to $2.04, up from previous company guidance of $1.94 to $2.04, versus $1.97 consensus.
In early April, the company, which has a market cap of about $4.67 billion, announced it acquired canned ready-to-eat chicken maker Valley Fresh of Turlock, Calif. for approximately $78 million. Annual sales are approximately $68 million, and Hormel Foods expects the deal to be accretive to its 2006 earnings.
Jeffrey Ettinger, president and chief executive officer of Hormel, said in a press release that the company "delivered outstanding results in the second quarter despite the headwinds of a difficult protein environment and significantly higher energy costs." He said the company's ability to deliver a 20% increase in earnings in light of current conditions is a testament to its continued focus on growing value-added product lines and on combating cost pressures by achieving improved operating efficiencies in plants and supply chain areas.
The company will hold a conference call later this morning to discuss its financials.
--Christine Marie Nielsen, Briefing.com
09:51 am Nordstrom: Credit Suisse upgrades Neutral to Outperform. Target $38 to $40. Firm ups rating and price tgt saying the co has proven to be among the best "execution" stories in retail in recent years and they expect this trend to continue as mgmt turns its attention to underperforming merchandise segments, new store growth and capital realignment.
09:47 am Network Appliance: RBC Capital Mkts reiterates Sector Perform. Target $31 to $34. Firm ups price tgt following earnings. The firm says they view the recent weakness in the stock as more reflective of broader portfolio allocation issues than any reduced sentiment among investors. The firm says the shares have returned to Momentum status given Street sentiment that is high on alignment and upside execution potential.
09:46 am Westamerica Banc: RBC Capital Mkts reiterates Sector Perform. Target $57 to $53. Firm cuts tgt following yesterdays press release regarding its operating conditions. The firm notes competitive loan pricing and loosened underwriting standards in the banking industry are limiting the opportunity to originate commercial loans,
09:44 am Fannie Mae: Banc of America Sec reiterates Neutral. Target $50 to $48.5. Firm cuts price tgt following the OFHEO report; firm continues to prefer FRE
09:43 am El Paso: UBS reiterates Buy. Target $18 to $20. Firm ups tgt to reflect the near completion of several projects in the pipeline segment and the firms review of EP's probable/possible reserves. Firm believes that the full value of the E&P and pipeline segments are not totally reflected in the current valuation.
09:42 am Hershey Foods: UBS reiterates Buy. Target $61 to $67. Firm raises tgt based on increased comforts in their NT forecasts and confidence in management's LT growth strategy. Firm believes that HSY will continue to benefit from multiple expansion driven by rev acceleration and abatement of NT worries.
09:41 am EchoStar: Janco Partners reiterates Mkt Perform. Target $33 to $30. Firm cuts tgt saying the co has been the on receiving end of adverse litigation headlines over the last few days relating both to an Atlanta 11th Circuit Court of Appeals decision relating to importation of distant network signals and on the Tivo patent case relating to willful infringement.The firm sees no reason to own EchoStar stock as they now arrive at only a $30 price target (with no further litigation fallout imbedded) using their S&P 500 linked valuation template.
09:40 am ON Semiconductor: Cowen & Co initiates Outperform. Firm initiated with an outperform and believes that the stock can appreciate 75-95% relative to the market in the next 12 months. Firm believes the co is in the early stages of significantly expanding dollar content per customer design, allowing it to drive above-average growth. Firm is also very comfortable with mgmt's proven ability to focus on and minimize costs/spending, thereby allowing a greater percentage of rev growth to find its way to the bottom line.
09:38 am Novamed: Avondale Partners initiates Mkt Outperform. Target $9. Firm initiates with an outperform based on an outpatient surgery market that is large and growing. The firm also says the top 10 players combined control less than 20% of existing centers. They say the need for professional mgmt and benefits of scale will lead to continued industry consolidation. They expect NOVA to participate as both consolidator and ultimately, consolidatee. The firm notes Tom Hall became CEO in Nov 2005. The firm notes he inherited a strong team and a solid portfolio of centers. They say most recently Hall was President of Matria Healthcare (MATR) where he helped engineer 700% appreciation in MATR shares over 4 years. They expect Hall to lead NOVA to faster growth and improving profit margins in the next few years which will drive these shares much higher as well.
09:35 am Possis Medical: Lazard Captial downgrades Buy to Hold. Firm downgrades rating saying that investors should prolong from adding positions for the next year until prolonged recovery progresses further and key clinical trial is closer to completion. Firm is encouraged by the fact that 50 drive units were sold in the quarter, up from 30 in F2Q, which is likely to add to gross catheter consumption. However, because of a lack of material catalysts and a lengthening of Possis' recovery phase, firm believes that events over the next 12 months are unlikely to provide enough reason to attract more buyers to POSS. Risks include rising competition from Kerberos and VASC, potential for the co's inability to combat negative perception surrounding AngioJet and/or lack of surgeon belief in the benefits of a high-tech product such as AngioJet, and continued sales force turnover. |
