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From Briefing.com: 5:59PM Swing Trader: MRVL, KLAC : -- Technical -- The market traded modestly higher off the open and managed to approach last Thursday's highs before giving up its gains. An early afternoon rally back to the session highs also managed to fail leaving the S&P and Nasdaq closing at their session lows. Not exactly the most convincing signs of a rally after becoming quickly oversold the last 3 weeks. Market Breadth was negative today...(continued)

Close Dow +42.78 at 10485.65, S&P +2.86 at 1174.28, Nasdaq +1.46 at 1992.52: News of the biggest tech buyout ever, falling oil prices, a stronger dollar and arguably oversold conditions lifted stocks at the open and closed the market on an upbeat note in the face of deteriorating breadth figures... Underpinning a positive sentiment at the open was news that a consortium of seven private-equity firms plan to acquire SunGard Data Systems (SDS 34.36 +2.81) for roughly $10.8 bln...
Led by Silver Lake Partners, the proposed largest leveraged buyout in 15 years signaled a huge increase of cash among buyout firms, piquing the possibility that more large deals could be in the works... Also helping investors shrug off three consecutive weeks of market declines was a 1.4% sell off in oil prices... Profit taking in crude oil futures ($54.05/bbl -$0.79), amid reduced concerns of insufficient inventories and a stronger dollar, eased inflation fears and provided a floor of support for stocks throughout the session...

Reports of a large 8.2 earthquake, occurring on the same fault line off the coast of Indonesia as the one that caused December's deadly tsunami, temporarily renewed modest buying interest in oil futures but failed to rattle investors as the commodity still closed lower... The dollar climbed to a 4-month high against the yen (107.22) and advanced to a six-week high against the euro (1.2891), extending last week's gains amid higher interest rates and expectations that economic reports later in the week will show an improving U.S. economy... While there was no economic data for equity investors to sift through today, bond traders were wary ahead of this week's data, as Treasurys closed near session lows... The benchmark 10-year note finished down 9 ticks to yield 4.62%...

Unaffected by higher bond yields, due to strength in Insurance (+2.2%), Banks (+0.4%) and Brokerage (+0.3%) was Financial (+0.7%), after the SEC subpoenaed as many as 12 executives at American International Group (AIG 57.02 +1.41)... Another economic sector closing higher was Consumer Discretionary (+0.6%), led by strength in Department Stores (+1.7%), amid a 1.7% sell off in gasoline futures ($157.2/gal)... Weakness in Drug Retail (-1.6%) following a Q2 earnings disappointment from Walgreen (WAG 45.11 -1.12), however, minimized gains...

Technology finished in split fashion, as late-day strength in Software (+0.2%), after Symantec (SYMC 21.35 +0.42) authorized a $3 bln share buyback expansion, offset modest weakness in Semiconductor and Hardware... Telecom Services (+0.2%) climbed following a favorable FCC ruling regarding high-speed Internet service while Utility and Consumer Staples also eked out gains...

Health Care Distributors (-6.6%), however, led Monday's list of laggards after AmerisourceBergen (ABC 54.03 -7.08) lowered its Q2 and FY05 earnings outlook while Biotech (-1.3%) was also weak after Phase III clinical studies showed Ligand Pharmaceuticals' (LGND 5.88 -2.35) drug Targretin to be ineffective in significantly extending the lives of lung cancer patients... Electronic Manufacturing Services (-3.9%) closed lower after Bear Stearns downgraded Solectron (SLR 3.67 -0.59) and Sanmina-SCI (SANM 5.06 -0.21) while weakness in Steel (-2.6%) and a stronger dollar pressured the Materials sector (-0.5%)... News that Iraqi security forces surrounded Iraq's most-wanted Abu Musab al-Zarqawi arguably provided a modest boost to overall sentiment around the open; but even after the report was disregarded as a bad translation, stocks held their ground... DJTA -0.1, DJUA +0.1, DOT +0.5, Nasdaq 100 +0.2, SOX -0.1, S&P Midcap 400 +0.1, XOI -0.3, NYSE Adv/Dec 1454/1850, Nasdaq Adv/Dec 1412/1666

1:47PM Sector Watch: Semi Index -SOX- positive but stalls at resistance : The index (SOX 419.21, +0.8%) pushed higher out of the starting gate but the rally stalled in the first 10 minutes of trade at its 20/50 day ema at 422 (session high 422.40) with limited range trade persisting over the last several hours. Top performing components today include: INTC +1.6%, NSM +1.3%, XLNX +1.1%, MXIM +1%, LLTC +1%, TER +1%. Weaker names today include: AMD -1.5%, AMAT -0.3%, LSI -0.3%. (click for chart)

9:12AM Gapping Down : LGND -18% (clinical data), SLR -10% (Bear Stearns downgrade), TIN -9% (Carl Icahn does not intend to nominate board candidates; may reduce probability that TIN is broken up; BofA downgrade), BDCO -7.7% (reports Q4), LEXR -7% (reports Q4; speculation that Toshiba award may be less than expected), HLYW -6.7% (BBI -6.5% drops bid for the co), ENWV -4.7% (5 mln share offering), TASR -3.5% (estimates cut at Morgan Keegan), SANM -3.2% (Bear Stearns downgrade), GM -1.4% (UBS downgrade).

8:58AM Gapping Up : IMMR +35% (confirms $90.7 mln judgment in patent case against Sony), MOVI +15% (Blockbuster drops bid for HLYW, speculation MOVI may become target), SDS +10% (to be acquired by private equity group), NFLX +9.6% (announces that it has over 3 mln subscribers), ANTP +6.1% (extends last week's momentum), SYBR +5.5% (extension of 30% move on Thursday), ALCO +4.9% (highlighted favorably in Barrons), MLNM +4% (to discuss full approval of Velcade), ALVR +3.5% (Barron's story), YHOO +2.4% (positive Goldman note), CHKP +2.3% (CSFB upgrade).

2:52PM AmerisourceBergen Corp (ABC) 54.23 -6.88: The road continues to be rocky for AmerisourceBergen, the wholesale pharmaceutical distributor. Over the last six months, earnings quality has been poor and the company has tempered guidance continuously. Before the open on Monday, ABC severely reduced its earnings guidance for Q2 and FY05. ABC, as well as the industry, continues to face a challenging environment with lower market growth, pared down buy-side income, and uncertainty surrounding the new fee-for-service agreements.

ABC now sees Q2 EPS of $0.75-0.85 a substantial shortfall from the Reuters Estimates consensus of $1.11. For the full year, the picture does not look any better. It expects earnings in the range of $3.10-4.00 down from $4.00-4.10 vs. consensus of $3.82. Full year earnings were just revised down back on December 22nd. ABC stated, the drop-off was primarily due to reduced buy-side profits resulting from lower than anticipated inventory levels associated with its ongoing transition to fee-for-service (FFS) contracts with branded pharmaceutical manufacturers. For Y06, the company sees EPS of $3.60-4.40, vs. consensus of $4.44 assuming pharmaceutical market growth in the high-single digits.

Surprisingly enough, the stock has appreciated over 5% since its last downward revision at the end of the year. The other distributors, Cardinal Health (CAH) and McKesson (00C) have also held steady, despite a challenging industry. ABC is not faring as well as its competitors. The company lost two big customers last year, Veterans Administration and Advance PCS, which have negatively impacted revenue. Taking into consideration today's revision, and the likelihood that earnings will most likely hit the bottom of the FY05 range, earnings will be flat to negative year/year. This once growth stock has now turned to a value play trading at 15x forward earnings.

ABC said it remains committed to its share repurchase program. In Feb, it announced plans to repurchase up to 5.7 mln shares. Today, it also increased its FY05 cash flow guidance by $1 bln due to inventory liquidation, funds, which may be used to bump up this authorized plan. For now, we would suggest caution as the industry faces numerous challenges including slowing US pharmaceutical market growth and changes in profit dynamics through vendor margins, increasing mail-order penetration, and fewer forward buying opportunities, in addition to regulatory risks from Medicare/Medicaid payments.----Kimberly DuBord, Briefing.com
2:50PM Walgreen Co (WAG) 45.27 -0.85: Just last week we wrote about how the drug retailers have been one of the best performing groups year-to-date. Today, shares are trading down slightly after Walgreen reported a penny shy of expectations for Q2, after topping estimates for the last three consecutive quarters.

Net earnings for the quarter rose 15% year/year and 51.6% quarter/quarter to $487.9 mln, or $0.47 per share excluding a penny in litigation gains. On the top line, the second quarter is seasonally strong due to the holiday selling season. Sales rose 12.3% y/y to $10.99 bln, just slightly under the consensus estimate.

Same-store sales, or those stores open for more than a year, grew 7.7% for the quarter. Although last year's number did include an extra day because of leap year. Its front-end and pharmacy continue to drive sales. Front-end comps rose 4.1%, while prescriptions, which accounted for 61% of sales, increased 10.1%. Third party plans now account for over 90% of all script sales.

It added 178 new stores in the first half of the year vs. 140 last year on track to reach a net increase of 365 this year. Walgreen's success has, in part, been through its added-value services like the new digital-photo processing service it now offers. This investment, however, increased SG&A expenses by 71 basis points. WAG noted higher salary and store expenses were offset by lower insurance costs. Strong generic drug sell-throughs helped boost gross margins by 83 basis points y/y to 28.4%.

Even though earnings and sales momentum continue to be strong, the stock is fully valued. It's trading at 29.3x forward earnings, right in-line with its historical average. Shares also trade at a substantial premium to the S&P 500 Staples Sector on a current P/E basis of 31.4x and 19.6x, respectively. We would suggest investors take advantage of any weakness caused by WAG's headline miss in CVS shares. CVS (CVS), a suggested holding in our Active Portfolio, offers investors further upside due to its restructuring progress made with its Eckerd stores and positive comps trends, coupled with a reasonable valuation of 19.6x forward earnings----Kimberly DuBord, Briefing.com

12:46PM SunGard Data Systems (SDS) $34.70 +3.15 (+9.9%) Usually, information moves the price of a stock immediately. But sometimes, there is a lag time, which usually implies an assessment of risk versus the potential reward is important. SunGard's announcement today of an agreement to be acquired by a group of well-heeled private equity firms is an example. The consortium of investor firms is led by Silver Lake Partners and includes such "big names" as Bain Capital, Blackstone, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts, Providence Equity, and Texas Pacific Group. The all-cash purchase is for $36 per share, with an expected close of this transaction in the third quarter of 2005, or about six months away.

Last Monday, SunGard issued a press release stating the company was in discussions regarding the possible sale of the entire company. Ironically, such a disclosure might not have been necessary, except for the company's planned spin-off of the Availability Services division of the company. No possible price was set for the acquisition, but the stock rose from the $25 level to the $31 level almost immediately. The risk at this point was very high, since the possible acquisition value of SDS was pure speculation. Nevertheless, the stock rose about 24%. The assessment that SDS was undervalued by the market, and probably part of the reason an acquirer was interested in the first place, offset the risk that the deal would be below the $31 level.

But you could still have bought the stock after the announcement came out - if you were comfortable with the risk that the price would not be much higher than $31 - and have seen the reward side win out over the risk side. The risk in taking a position at $31 was that the deal would either fall apart or not be above $31. That risk turned out to be minimal, as the announcement today has brought the stock to the $34 level, for a return of 10% in just one week.

But the price is still below the $36 all-cash acquisition price, about 4% lower. What does the risk/reward scenario look like now? The risk now is that the deal will not close, for whatever reason, and the stock will fall to possibly much lower levels. This risk is strengthened since the prospectus for the acquisition has not yet been filed, meaning whatever conditions upon which the purchase is based have not yet been disclosed.

The possible reward, then, for taking a position today, comes from capturing the $36 per share transaction when the deal closes. Is that adequate reward? The first step is to calculate how much of the expected gain is actually compensation for the risk taken. A six month return of 3.7% is approximately equal to a 7.5% annual compounded yield. With 6-month treasuries slightly over 3%, this makes the compensation for the risk of the deal going through only slightly more than a 4% annual rate. Another way of looking at it is that a new position at $34.70 will provide a total of $1.30 in gains. A full $0.55 of those gains can be earned without risk by investing in a 6-month T-bill. That leaves $0.75 as the compensation for risk, which is about equal to a 2.2% return or an annual rate of 4.4.% In short, the total reward for taking the risk the deal won't go through is about 2.5 times the risk free return of a T-bill. With the possibility of summer being a very difficult time to generate good returns in the market, the 7.5% annualized return on taking a position now might like a good way to take a bench-seat while the market struggles for six months.

Any assessment of whether that is an appropriate reward for taking this risk is very personal. However, we think it is very likely that this deal will close at the stated price, given the types of investors in the buying group, the strong market position of SDS products, and the future growth possibilities. One of the larger ongoing trends in the financial services industry is the automation of financial transactions. This trend is still in its development stages and has a long run ahead of it. SunGard is well positioned to exploit it, particularly in private hands. - Robert V. Green

11:08AM Shopping.com (SHOP) 17.78 -0.22: It wasn't too long ago that the idea of comparison shopping over the Internet was touted as the "biggest development in the history of commerce." The idea looked like it would forever destroy pricing power by manufacturers of goods and services and would push all retail models into the "volume" game. Several websites touted their expertise in the area and just waited for traffic tidal wave to sweep them away.

CNET Networks and My Simon were early entrants to a market that never really took off. Has anything really substantial changed that would make the economics of the comparison shopping platform more attractive to investors? Certainly there has been an explosion in the popularity of MP3 players and a few other devices in the consumer electronics market, and the comparison shopper makes that purchase a little easier, but are the fundamentals shifting to where we are going to use comparison shopping tools like the one developed by Shopping.com for most of our purchases?

The simple (and obvious) answer is no. There is not a glaring need to have comparison shopping services performed for every purchase a consumer makes. The types of purchases that benefit from comparison shopping are only those with a significant amount of features on the product or stated another way a high degree of complexity. These are not your average every day items for consumption, they are not sold at every corner drug store or super mart. They are high specialized goods and available only a few places.

Now that we know where comparison shopping works for us as consumers, we can get a better idea of where it works for us as investors. So right off the top we know that because of what the service is good for we know that the market is very small. More over it is not a market that is expected to increase. We don't know of too many product manufacturers that want to make a product more complex, the pendulum is swinging in the complete opposite direction.

The next and probably biggest idea killer is that it takes relatively small amounts of technology and capital to start a comparison shopping service. So not only will competition flourish, the greater implication is that pricing power will erode over time. This also speaks to the idea that exit strategies for these type of investments (especially those that are private currently) are stuck with very few options.

There is a market for these types of companies, as they do drive qualified traffic to merchants and also provide enormously high conversion rates. One problem that this creates is a lack of lifetime shoppers or any type of customer loyalty. Instead the process effectively commoditizes most every aspect of the shopping experience and makes it all about cost. So while the product can be most useful in some areas, the business model just doesn't seem to have all that it takes.

8:20AM Page One - Ahead of the Open: It is Monday, and there is indeed more merger news. Stock futures indicate an up open. The market has been down each of the past three weeks, however, and there are some important economic releases to deal with late this week that threaten to roil the markets.

The merger news this morning is a $10.4 billion buyout of Sungard Data Systems (SDS) by a private equity firm. This deal was rumored last week and is thus no surprise, but it is nevertheless a positive influence on the market.

It will be a very light week for earnings news, but there is a report of note out this morning. Usually steady Walgreen (WAG) reported earnings of $0.47 per share for the quarter ended February 28, a penny below expectations. There are a few retailers that will report earnings later this week, but the real concern will be any earnings warnings announcements. The final week of the calendar quarter is typically a period when companies that are not going to hit Wall Street expectations make an announcement to that effect. This morning, Amerisource Bergen warned. The possibility of more warnings this week poses a risk to the market.

The economic releases this week will be important. The core PCE number on Thursday (a component of the personal income data) and the average hourly earnings figure in the March employment data will be critical. These inflation indicators have the potential to increase already heightened concerns about inflation.

Mondays have had a positive bias lately. Merger announcements have helped. Yet, a positive open to the week has not translated into gains for the entire week, as the focus has shifted away from the economy and earnings to inflation and interest rates. The focus on the negative is likely to continue this week, but that may soon change as first quarter earnings reports will start to move to center stage with General Electric and Alcoa scheduled to start the season on April 7. For now, our view is still neutral and cautious.

http://biz.yahoo.com/mu/story.html