From Briefing.com: 4:20 pm : The major averages closed mixed Monday as investors turned their focus to earnings and paid particular attention to the growth prospects (or lack thereof) for all 10 economic sectors.
Wall Street forecasts for the SnP 500 now calling for aggregate Q2 operating earnings growth of 11-12%, up from single digits early in the quarter that threatened to snap a winning streak of 11 straight quarters of double-digit profit growth, was the main focus Monday. Alcoa (AA 33.41 -0.14), which was scheduled to kick off earnings season officially after the close, underpinned an early sense of optimism about companies' ability to grow profits in a rising interest rate environment.
Nonetheless, having already surged 16% year-to-date in anticipation of its largest quarterly profit since at least 1997, investors locked in recent gains ahead of Alcoa's report and became more concerned about the growth prospects within the influential Technology sector. As the year's worst performing sector, the market continued to price in the possibility that tech sector earnings may come in even worse than an anticipated decline of 3.0% from a year ago. The Computer Storage and Peripherals group turned in the day's worst performance after EMC Corp (EMC 10.41 -0.77) cut its Q2 outlook. Ongoing Tech worries were exacerbated after Merrill Lynch downgraded the entire sector to Underweight amid liquidity concerns and recommended investors look at higher quality and more defensive sectors.
When it was all said and done, that's exactly what many market participants did. Consumer Staples, helped by a 2.8% surge in CVS Corp (CVS 31.34 +0.88) after it posted stronger-than-expected June same-store sales growth of 8.4% and Tyson Foods (TSN 15.28 +0.83), which soared 5.7% after it was upgraded. Health Care, also due in part to its defensive characteristics, posted a respectable gain; but Financials provided the bulk of market leadership as typical Monday merger news lent some support for brokerage stocks.
A potential $4.4 bln takeover of Foot Locker (FL 27.40 +2.56) headed by Kohlberg Kravis Roberts and Apollo Management was the day's biggest headline while Kraft Foods (KFT 30.21 +0.01) agreed to buy United Biscuits for about $1.1 bln. Kimco Realty (KIM 37.41 +0.54), meanwhile, agreed to acquire Pan Pacific Retail Properties (PNP 69.32 -0.68) for $2.9 bln.
Further underscoring investors' focus on strong balance sheets and subsequent earnings potential, the Energy sector's resilience in the face of continued consolidation in crude futures since hitting all-time highs above $75 per barrel last week was also worth noting. Standard and Poor's is currently forecasting operating earnings for the Energy sector to be up 25.1%, again providing the largest contribution to operating profit growth for the SnP 500.BTK -1.04% DJ30 +12.88 DJTA +0.37% DJUA +0.53% DOT -0.64% NASDAQ -13.13 NQ100 -0.83% R2K -0.04% SOX -2.2% SP400 -0.17% SP500 +1.86 XOI +0.17% NASDAQ Dec/Adv/Vol 1674/1351/1.59 bln NYSE Dec/Adv/Vol 1275/1968/1.28 bln
4:42PM Market Internals (MKTIN) : The Dow increased 0.12% closing at 11104, the Nasdaq was down 0.62% to finish at 2117, and the S&P was up 0.15% to finish at 1267. Leading sectors included: apparel retail +2.6%, airlines +2.3%, drug retail +2.2%, managed health +2.1 %, trucking +2.0%. Lagging sectors included: computer storage and peripherals -5.7%, communication equip --2.3%, semi equip -2.1%, semis -1.9%, IT consulting and services --2.5%. Today's movement came from lower than average volume (NYSE 1278, vs. closing avg of 1724; Nasdaq 1613, vs. 2066), with mixed advance/decline ratios (NYSE 1986/1264; Nasdaq 1357/1672, and with new lows outpacing new highs (NYSE 69/76, Nasdaq 47/119).
4:05PM California Micro appoints Kevin J. Berry Chief Financial Officer reporting to Robert V. Dickinson, president and CEO (CAMD) 3.67 -0.03 :
3:59PM Market View: Well defined mixture (TECHX) : The overall market performance to start the week was mixed but the battle lines were clearly drawn with technology dominating the losers list. Sectors that broke under their June lows included Disk Drive -2.6%, Networking -2.3%, Semi HOLDRs -2.2% and Computer-Hardware -2.1% which resulted in Nasdaq underperformance (Nasdaq 100 came within two points of its June/52-wk low at 1511). Today's upside leadership (Airline +1.8%, Healthcare +1.1%, REITs +1%) are above their May/June highs and within relative close proximity to March peaks.
3:31PM Conferences and Shareholder/Analyst Meetings of Interest : Events of interest tomorrow, July 11th, include: ASYT Analyst Meeting; LRCX to Hold Analyst and Investor Meeting; KLAC, MKSI at SEMICON West 2006; LNC Conf Call; PLAB, WFR at JP Morgan SEMICON West Mini Conf; PNRA,COSI, GES, IFF at CIBC World Markets Annual Consumer Growth Conf; SUNW New x64 Enterprise Systems Launch; TSCM TheStreet.com and Avondale Partner's Investor Day.
2:56PM Technical Trader: Semi HOLDRs extends pull back (TECHX) : The steady decline off of the opening session high (-3.5%) has been extended to support mentioned this morning at 31.00 (10:51 update) in recent trade with no signs yet of stabilization (session low 30.98). Next support below is in the 30.75 area. Individual names near support include: KLAC (at 39.19, held above June low at 39.06-- session low 39.16); ALTR (at 16.58, June low at 16.42-- session low 16.55); AMAT (at 15.71, congestion 15.55/15.45-- session low 15.69); INTC (at 18.18, 50% retrace/congest 18.07/18.00-- session low 18.12).
10:09 am Chattem Inc. (CHTT)
29.75 +0.66: Shares in consumer products maker Chattem Inc were trading near unchanged Monday after seeing an initial dip in pre-opening trade on word that the company missed on both its top and bottom lines, indicating a reduced outlook for the fiscal year of 2006.
The company, which has a market cap of about $565 million, reported second quarter earnings of $0.52 per share, including $0.05 in option expense which analysts were including in their estimates. That was $0.06 worse than the Reuters Estimates consensus of $0.58. Revenues rose 4.9% year over year to $79.4 million versus $84.9 million consensus.
As it was, the stock had been trading at about a 52-week low after investors priced in increased advertising and promotional spending for unsuccessful new products Icy Hot Pro-Therapy and Selsun Salon. The company said Monday that the decrease of adjusted net income in the second quarter of fiscal 2006, in spite of an increase in total revenues, was a direct result of increased ad and promotional spending.
The company issued reduced guidance for the fiscal year of 2006, seeing earnings per share of $1.90 to $2.20, down from previous company guidance of $2.30 to $2.40 versus $2.16 consensus. The company also said it sees full year 2006 revenues of $295 million to $310 million, down from previous company guidance of $315 million to $330 million, versus $318.41 million consensus.
The company also issued in-line guidance for the full year of 2007, seeing earnings per share of $2.50 or greater versus $2.49 consensus. Chattem executives noted Monday that the company's Gold Bond lotion has lead business, seeing a sales increase of 46% in the first six months of fiscal 2006, compared to the prior-year period.
While trailing 12-month earnings of 13.9x puts the stock at a bit of a discount to competitor companies, the mixture of disappointing financials for the latest period and a reduced outlook for the year should give investors pause before they get involved in this one.
--Christine Marie Nielsen, Briefing.com
09:27 am EMC Corp. (EMC)
11.18: Nine days before EMC is scheduled to report earnings, the world's largest maker of storage computers and software lowered second quarter revenues and earnings guidance. The stock has already taken a hit recently following EMC's $28 per share offer for RSA, which the market deemed as too high of a price tag for the company, which makes tags and software that controls network access.
For the second quarter, EMC now sees revenues of $2.58 bln, down from its previous guidance of $2.66 bln and the $2.67 consensus estimate. Earnings are now projected to be lower by a penny to $0.12 per share on a GAAP basis. The company is blaming the miss on its product mix, saying it received more orders than expected for its new Symmetrix DMX-3 systems and fewer for its prior-generation DMX-2.
It's unclear whether the market will give EMC the benefit of the doubt. New product releases can cause delays in orders as customers await the newest products, which does seem to be the case here, at least at first glance. Shares are recovering from initial losses after management indicated it ended the quarter with a backlog of $100 mln during today's conference call. EMC's bookings in the quarter rose 14%.
The stock has lost over 18% year to date and is now trading at 19.9x trailing earnings. EMC has been dead money for years with its last high of $22.32 reached in July of 2001.
--Kimberly DuBord, Briefing.com
09:12 am Foot Locker (FL)
24.84: Shares of Foot Locker are trading slightly higher in pre-market activity, amid speculation that an investor group headed by Kohlberg Kravis Roberts & Co. and Apollo Management are looking to acquire the retailer. According to Women's Wear Daily, a deal could happen within the next two to three weeks, with a possible bid price greater than $30 per share.
Foot Locker, the world's leading athletic footwear retailer, operates more than 3,900 stores under several banners, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction USA and Foot Locker international.
An offer price of $30 per share, or a deal of approximately $4.4 billion, would represent a 25% premium on the stock, based on its average trading range of $24 since May, when WWD first reported the company was being targeted for a leveraged buyout. Shares of Foot Locker were down more than 11% in 2005. However, since scraping a 52-week low last November at $18.74, the company's stock has gained about 33%.
Since we highlighted the company in a recent Bargain Hunting column, shares are up roughly 7%, supported by the company's healthy domestic business, solid balance sheet, and free cash flow. While we still believe the company's shares look attractive at the current multiple of 14x forward earnings, versus its historical average of 16x earnings, a buyout, which would reward investors with a hefty premium, bolsters the current investment proposition.
--Richard Jahnke, Briefing.com
09:01 am Helen of Troy (HELE)
18.27: Mythical character Helen of Troy may have been the most beautiful woman in the world, but the company of the same name failed to woo this week. Helen of Troy Ltd., seller of licensed personal-care products and accessories, on Monday reported earnings that missed expectations and looked for in-line guidance for fiscal 2006.
The company, which is behind brands such as Vidal Sassoon and Revlon, reported seeing first-quarter earnings of $0.21 per share, $0.05 worse than a Reuters Estimates consensus of $0.26. The company said the financials reflected increases in the cost of goods sold and reduced selling prices combined with increases in selling, general and administrative expenses. Revenues rose 2.4% year over year to $130.4 million versus the $127 million consensus.
The company issued in-line guidance for the full year of 2006, seeing earnings per share of $1.70 to $1.80 versus $1.78 consensus. It also looked for full year revenues of $600 to $620 million versus $611.20 million consensus. This projection comes, however, after a poor track record on matching previous guidance and during a time that macro economic conditions are weighing on the company's results.
With respect to its business, Helen of Troy designs, produces, and markets brand-name personal care products that are sold primarily through mass merchandisers, drugstore chains, warehouse clubs and grocery stores. It is also licensed to sell products under popular trade names while some of its own trade names include Brut, Vitalis, Epil-Stop, and OXO, the latter of which was acquired in June 2004.
In the fiscal year of 2005, sales to Wal-Mart (WMT) and Sam's Club, a unit of Wal-Mart, accounted for approximately 25% of net sales for the company. Its top five customers, meanwhile, accounted for approximately 44% of net sales, so it is clear that Helen of Troy carries a customer concentration risk. This comes as a concern in light of the fact that Wal-Mart said June same-store sales rose only 1.2% at its U.S. stores open at least a year, the low end of its forecast of 1% to 3%.
Helen of Troy executives said in a press release Monday that early indications are that retail sell-through of higher-end personal care products in the mass distribution channel have been encouraging. They also noted that the company is introducing new professional appliance products in late August.
However, a steady stream of earnings disappointments coupled with a debt-to-equity ratio that has neared 75% in recent days makes this a stock that even contrarian investors shouldn't jump into head first at this time. Market participants would be better served to wait for evidence that a deterioration in margin trends has begun to turn around before getting involved.
--Christine Marie Nielsen, Briefing.com
08:35 am The Walt Disney Co. (DIS)
29.83: Pirates of the Caribbean: Dead Man's Chest pillaged and plundered through every box office record this weekend, earning a swashbuckling $132 million in box office sales - the largest opening ever. Disney's second installment of this fantastically lucrative franchise, starring an unforgettable Johnny Depp as flamboyant Captain Jack Sparrow, beat out Spider Man, Shrek 2 and the last installment of the Star Wars trilogy.
Walt Disney's adventure sequel hauled in $55.5 mln on Friday, which set the record for single-day releases and raised the bar for the weekend's tally. The industry was expecting the movie to pull in around a hundred million, but $132 mln in three days was a treasure beyond folklore. The Curse of the Black Pearl opened with $46.8 mln and an end tally of $305 mln domestically. Dead Man's Chest is well on its way to surpassing these figures with a likely $330 mln in both domestic and international box office, creating a lifetime profitability for Disney of $250 mln, according to Deutsche Bank.
The movie business can be a boom or a bust. Like everyone else, Disney has also suffered at the hands of an unforgiving movie god. Last year, Disney's Studio segment EBIT tumbled 66% to $207 mln. But this year, Disney's slate has been full of hits, including The Lion, The Witch , and the Wardrobe ($744 mln in worldwide box office), Pixar's Cars ($200 mln tally after this weekend), and now Dead Man's Chest. The next Pirates installment hits theaters next May, followed by the next Narnia in the subsequent fiscal year.
We have long been fans of Disney, adding the stock as a suggested holding in our Active Portfolio back in March of 2005. It has been a whirlwind fifteen months, with the entrance of a new CEO, Robert Iger, and the acquisition of Pixar, but it's Disney's continued operating momentum, earnings growth, and attractive valuation that solidify our investment premise.
--Kimberly DuBord, Briefing.com
09:36 am ADTRAN: Thomas Weisel downgrades Outperform to Peer Perform. Firm downgrades based on 1) weaker-than-expected growth prospects for the co's HDSL/T1 segment and 2) aggressive guidance for 2H06 while a diminished growth outlook makes firm more cautious.
09:34 am Hugoton Royalty: AG Edwards downgrades Buy to Hold. Firm downgrades based on lack luster near-term distribution outlook and valuation
09:30 am Yahoo!: Susquehanna Financial upgrades Neutral to Positive. Firm upgrades saying near-term they believe the co is positioned to modestly exceed forecasts thanks to strong user growth, branded advertising strength, currency benefits, and share buybacks and that YHOO will see share improvements as new traffic drivers and monetization strategies lead to estimate increases and potential multiple expansion.
09:28 am IBM: UBS reiterates Neutral. Target $90 to $82. Firm cuts price tgt saying recent checks and lack of publicly announced deals point toward lower than expected bookings for IBM. The firm says for 2Q06 they now expect signings of about $10 bln vs $12-13 bln previously, given a weaker outsourcing market. The firm says their checks also point toward some weakness in high end server sales. Given bookings and hardware trends, the firm is also cutting their EPS ests for 2006 (to $5.75 from $5.80) factoring in lower services and hardware revs, partially offset by higher intellectual property income and cost cutting.
09:28 am Alkermes: Merriman Curhan Ford initiates Buy. Firm initiates saying sales of Alkermes' Risperdal Consta exceed $500 mln per year, and they estimate sales of Alkermes' Vivitrol will approach $1 bln by 2012. They firm says Alkermes' Exenatide L.A.R and A.I.R Insulin have similar blockbuster potential, translating into a diversified stream of license and milestone payments, manufacturing fees, and royalty revenues.
09:26 am Cephalon: Merriman Curhan Ford initiates Neutral. Firm initiates saying the market is underestimating the potential for Sparlon and Vivitrol, but risks remain elevated. THe firm says Cephalon's development pipeline includes Nuvigil for excessive sleepiness, Sparlon for ADHD, and a number of mid-stage oncology products. They believe these products represent meaningful long-term revenue opportunities for Cephalon. They also say they believe the market overreacted to an unfavorable advisory committee recommendation and, following Cephalon's submission of data supporting a misdiagnosis of SJS, they expect full approval of Sparlon by year-end.
09:25 am RCN: Merriman Curhan Ford initiates Buy. Firm initiates saying under new management, the co has unlocked shareholder value by selling off its Mexican cable subsidiary, has reduced debt and its interest rate, and acquired what they believe is a very strategic fiber asset, which today is worth more than twice what was paid.
09:24 am Cyclacel Pharma: Needham & Co initiates Buy. Target $9. Firm initiates saying they believe the co's technology value of $34 mln is modest, and given the current stock price, presents an attractive investment opportunity. They say following Cyclacel's reverse merger with Xcyte in order to become a public co, CYCC ended 1Q06 with $30 mln, not including $42 mln in net proceeds from an April 2005 private placement. They say with an annual burn of $23-25 mln, they expect the co to have sufficient funds into 2008.
09:23 am ACADIA Pharmaceuticals: Brean Murray initiates Strong Buy. Target $15. Firm initiates saying in 2005, about $14 bln of antipsychotics were sold, but their adverse effects and inconsistent efficacy leave significant room for improvement, and they believe that ACADIA has the drugs that may address these unmet needs. The firm believes that ACADIA will release positive interim Phase 2 results for ACP-103 in adjunctive schizophrenia therapy, as well as initiate Phase 3 trials in 1H07 in both PD treatment-induced psychosis and sleep maintenance insomnia. ACP-104 is currently in Phase 2 for schizophrenia, and the firm believes that it may better address the negative symptoms of the disease, a key unmet need. |
