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Monday, June 13, 2005 11:02:17 PM
From Briefing.com: 6:02PM Swing Trader: BOW, DHI, LM : -Technical- Despite a weak opening this Monday morning, Market Breadth finished positive today as Advancers outpaced Decliners (1.28 to 1), UpVolume was greater than DownVolume (1.81 to 1) and New Highs exceeded New Lows (about 3.2 to 1). Leading sectors included Paper, Healthcare Providers, Software and Natural Gas. Airlines were a laggard (due to NWAC news), however, look poised for another run after pulling back. Friday is option expiration so we should expect some volatility (false and/or extended moves) this week, so be sure to adjust your risk accordingly. The SPY remains within its current up-channel above its 20-day ema...(continued)
4:19PM Hewlett-Packard names R. Todd Bradley as EVP of its Personal Systems Group (HPQ) 23.89 +0.47:Co appointed R. Todd Bradley to serve as EVP of its Personal Systems Group (PSG), which includes co's notebook and desktop PCs, handhelds, monitors, workstations and related support services. Bradley, 46, most recently spent four years at palmOne (PLMO), three as Pres/CEO. His appointment re-establishes PSG as a standalone business, following its combination in January 2005 with the Imaging and Printing Group (IPG). Vyomesh (V.J) Joshi, who had served as executive vice president of the combined Imaging and Personal Systems Group, will resume his former role as executive vice president of IPG.
Close Dow +9.93 at 10522.56, S&P +2.71 at 1200.82, Nasdaq +5.96 at 2068.96: The stock market held its ground today in the face of an earnings warning from Morgan Stanley (MWD 50.88, +1.00) and a surge in oil prices ahead of OPEC's meeting Wednesday in Vienna... Its resilience can be attributed mostly to the gains registered in the telecom services (+1.0%), basic materials (+0.7%), health care (+0.5%) and technology (+0.4%) sectors, but it can't be said that there was a lot of conviction behind those buying efforts...
To wit, volume at the NYSE and Nasdaq was on the light side as participants held their respective interests in check, mindful that a batch of important, and telling, economic data is on the horizon... Specifically, there are the Retail Sales and PPI reports on Tuesday, the CPI and Industrial Production reports on Wednesday, Housing Starts on Thursday, and the Univ. of Michigan Consumer Sentiment report on Friday... That said, there was a rally effort made in the morning session that saw the Dow, Nasdaq, and S&P gain 77, 15, and 8 points, respectively, at their best levels of the session...
There wasn't a specific news item that served as an excuse for that uptick, but it was noted that the rally try in equities coincided with a retreat in the Treasury market... Accordingly, there was speculation that the move had to do with an asset allocation trade that favored the technology and basic materials sectors... The move was short-lived, though, as the indices spent the better part of the afternoon retracing the gains posted in the morning session.... Rising oil prices were a factor in that pullback as crude futures (+$2.08) moving back above $55/barrel provided an excuse to sell into the early strength... The move in oil was attributed to the oft-cited concern about supply being inadequate to meet demand...
In this instance, it was driven by a belief that OPEC, despite any effort to raise production quotas at this week's meeting, doesn't have the spare production capacity necessary to curtail energy prices in a meaningful way... Separately, it is worth noting that the financial sector (+0.02%) saw its morning strength fade in the afternoon which, in turn, acted as an influential weight on the broader market... The consumer staples (-0.3%) and industrials (-0.01%) sectors, however, were the only economic sectors that failed to post a gain on Monday...
In corporate news, the biggest story of the day was the announcement by Morgan Stanley's CEO, Philip Purcell, that he would be retiring on account of the negative media attention surrounding his management and the mass defections of late by key personnel... This news, in effect, overshadowed a separate announcement from Morgan Stanley that it expected Q2 EPS to come in well below consensus estimates due to weakened market conditions...
On a brighter note, United Technologies (UTX 52.72, +0.26) reaffirmed its FY05 EPS outlook and joined with the likes of Caterpillar (CAT 97.58, +0.56), AIG Group (AIG 55.50, +0.41), and Hewlett-Packard (HPQ 23.89, +0.47) to produce a positive finish for the Dow... NYSE Adv/Dec 1869/1406, Nasdaq Adv/Dec 1610/1391
9:23AM More On the Wires :Siebel Systems (SEBL) says U.S. General Services Administration selects SEBL customer relationship management as platform for its Enterprise CRM Initiative... Central European Media (CETV) applies for listing of class A common shares on Prague Stock Exchange; expects to start trading by end of June... Magma Design Automation (LAVA) says it strengths co-op w Infineon Tech (IFX) in jointly developing standardized flow based on LAVA's software for IFX's advanced 65-nanometer designs... Advent Software (ADVS) says Indus Capital Partners successfully completed implementation of Geneva... Lockheed Martin (LMT) receives a $36.4 mln contract to deliver and install two additional P-3C Anti-Surface Warfare Improvement Program kits and install three previously ordered kits for the US Navy... Boeing (BA) reports 'strong progress' on many aspects of the new 787 Dreamliner that make the airplane more appealing to passengers and airlines... Brooke Corp. (BXX) to list on Nasdaq... EFI (EFII) says R.R. Donnelley & Sons (RRD) chooses Prograph as the job management system for their magazine, catalog and retail insert manufacturing platform... Applied Digital (ADSX) to join the Russell 3000 Index and Russell 2000 Index; Microvision (MVIS) expects to be added to Russell Microcap Index...AstraZeneca (AZN) comments on results of phase II dose finding study for Galida saying 'past focus in type 2 diabetes management has been glucose; however, there is increasing need for single agent that can target both glucose and dyslipidemia associated with type 2 diabetes; Galida study provides new insights on treating both glucose and lipid abnormalities in type 2 diabetes, and potentially, its underlying metabolic defects'... Precis (PCIS) names current COO Nicholas Zaffris as chairman... See previous On the Wires at 8:59, 8:52, 8:46, 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
8:59AM More On the Wires :Transkaryotic Therapies (TKTX) says 30-day antitrust waiting period for Shire Pharma (SHPGY) transaction expired on June 10... Citrix Systems (CTXS) says Enterprise Bank and Trust is using the CTXS Access Platform... Solectron (SLR) buys ServiceSource Europe Limited; terms not disclosed... Merck (MRK) says results from new prespecified analysis of Vytorin vs. Atorvastatin (V.Y.V.A.) trial involving subgroup of 428 patients w/ type 2 diabetes were consistent with overall V.Y.V.A. trial announced earlier this year... Principal Financial (PFG) to offer about $500 mln of non-cumulative perpetual preferred stock, co also OKs sue of substantially all preferred securities proceeds to repurchase outstanding common stock... Century Casinos' (CNTY) African unit to buy 60% of Balele Leisure; terms not disclosed... Gabelli (GBL) accelerates vesting of stock options... Plains All American Pipeline (PAA) to construct crude oil storage facility at St. James, Louisiana for about $70 mln... Central European Media (CETV) applies for listing of class A common shares on Prague Stock Exchange; expects to start trading by end of June... See previous On the Wires at 8:52, 8:46, 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
8:52AM More On the Wires :Worthington Industries (WOR) says its board OKs repurchase of up to 10 mln shares... LaBarge (LB) set to join the Russell 3000 Index, Russell 2000 Index, and new Russell Microcap Index when Russell Investment Group reconstitutes its family of U.S. indexes on June 24... MeadWestvaco's (MWV) Intelligent Systems announces suite of intelligent R.F.I.D. networking hardware and software offerings that co says enables retailers to deploy affordable item-level tracking solutions... Nutrition 21 (NXXI) says results from new clinical trial that shows daily supplementation with Diachrome can improve uncontrolled blood sugar levels and cardiovascular risk factors in people with type 2 diabetes on prescription medications in managed care setting... Theravance (THRX) says GlaxoSmithKline (GSK) enrolls first subjects in a Phase 1 clinical study designed to assess safety, tolerability and pharmacokinetics of THRX's investigational, inhaled bronchodilator, GSK656398 for treatment of chronic obstructive pulmonary disease... See previous On the Wires at 8:46, 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
8:49AM Pfizer says new data shows patients taking Lipitor experienced major reductions in heart attack and stroke (PFE) 27.68 :-Update- Co announces that data presented at the annual meeting of the American Diabetes Assoc show that patients with diabetes and coronary heart disease who took Lipitor and lowered their cholesterol to well below recommended levels experienced significantly fewer heart attacks and strokes than those who lowered their cholesterol to achieve recommended levels.
8:46AM More On the Wires :Avid (AVID) proposed acquisition of Pinnacle (PCLE) clears U.S. antitrust review, expected to close in 3Q05... Key Technology (KTEC) to consolidate its two Walla Walla, Wash. facilities as part of a plan to reduce operating costs... Workstream (WSTM) says American Red Cross enters contract for Workstream Compensation software... Siemens (SI) forms new division called Siemens Medical Solutions Molecular Imaging which combines its nuclear medicine operations with CTI Molecular Imaging... aQuantive's (AQNT) Avenue A / Razorfish says InterActive Corp's (IACI) Hotels.com selects Avenue A / Razorfish as its interactive agency... Pemco Aviation (PAGI) says its Pemco Aeroplex enters into memorandum of agreement w/ Boeing (BA) Aerospace Support Center where the 2 companies will remain teamed to compete for next contract to perform programmed depot maintenance for U.S. Air Force KC-135 aircraft; total value of agreement over 10 years is expected to be $2 bln... See previous On the Wires at 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
8:43AM Pfizer gets approval letter for Lyrica (PFE) 27.68 :Co announces it received FDA approval to market Lyrica for adjunctive treatment of partial onset seizures in adults with epilepsy. Dr. Jacqueline French, Professor of Neurology, University of Pennsylvania Medical School comments, "There is a significant need for new antiepileptic drugs, as no new agent has been introduced in five years. Poor seizure control in patients with epilepsy has emotional and functional consequences that can significantly diminish quality of life. In clinical trials, Lyrica significantly reduced the frequency of seizures in patients who continue to experience seizures despite their standard treatment with antiepileptic medicines."
8:42AM Millennium Pharm reports VELCADE study results (MLNM) 7.79 :Co reported VELCADE study results for the treatment of patients with indolent and mantle cell non-Hodgkin's lymphomas. Interim study results were reported from the multicenter, phase II trial of weekly versus twice- weekly dosing of VELCADE in combination with rituximab, in patients with indolent lymphomas. In these patients who were previously pretreated with chemotherapy and rituximab, response rates were similar in both arms (35 and 41 percent) and the safety profile improved with the weekly schedule. Data from a separate multicenter study, indicated promising response rates and progression- free survival in follicular, marginal zone and mantle cell lymphomas with single agent VELCADE (56, 43 and 40 percent, respectively).
8:36AM More On the Wires :RailAmerica (RRA) reports total carloads for May 2005 were 109,648, up 10.3% from 99,407 in May 2004, aided 4,856 carloads due to acquisition... CDW Corp (CDWC) says it gets three-year enterprise software agreement to deliver Microsoft software to the U.S. Navy, deal worth $11 mln if all options are exercised... Borland Software (BORL) announces recent customers including APIR Systems, BNP Paribas Securities Services, Maybank Sdn Bhd, New Zealand Reserve Bank, Scotiabank, TIAA-CREF and Visa International... Transatel signs agreement with Epiphany (EPNY) and Capgemini's Telecom, Media & Entertainment industry to implement a new CRM system for client management... See previous On the Wires at 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
12:34PM Instinet Group (INGP) 5.29 -0.02: Traditionally, stocks have been traded on the floors of exchanges, such as the New York Stock Exchange (NYSE), and more recently through electronic exchanges, such as the Nasdaq. However, the creation of electronic communication networks (ECNs) has allowed institutions and individual investors to execute trades at faster speeds, lower costs, and with greater transparency than traditional execution systems. ECNs are computerized order matching systems that provide a network between brokers and traders and allow for direct electronic access to markets, without relying on specialists to match buyers and sellers.
The concept of automatically matching buy and sell orders has been around for many years, however, until recently, the implementation has been hindered by the lack of suitable technology. Innovations in networking technology and the advent of the Internet have led to the development of modern electronic trading systems.
The period of ferment for ECNs began in 1970 with the creation of Instinet as an "alternative trading mechanism" for institutional investors. From its inception, it has focused primarily on the trading needs of the institutional investment community by providing a platform that is conducive to trading large volumes directly and anonymously with other investors. Its acclaim was illustrative of the change in trading patterns and was driven by the growth in passive money and increased focus on execution costs.
It was not until the 1990s that Instinet, and other electronic trading systems, significantly altered the landscape of financial markets and the process of investing. The widespread adoption of the Internet and the development of sophisticated networking technologies allowed the company to develop faster and more efficient execution systems to meet the demands of the rapidly changing financial markets. The fruition of the company during this period allowed both large institutional investors and small individual investors to actively participate in the growing financial markets without being subject to high transaction costs and preferential order executions. Instinet's platform provided greater accessibility to the once arcane financial markets and sparked the growth of savvy individual investors and day traders.
While early ECNs clearly presented a more efficient alternative to traditional exchanges through lower costs, greater trading volume, and increased information flow, the proliferation of ECNs have led to an increasingly fragmented market where order flows are being obstructed many competing firms. This has created a landscape of illiquidity for many large investors and hindered market efficiency. As such, many firms have been pressured to consolidate, in an effort to combine their order books and increase market share.
The announcement in April that Instinet will merge with the Nasdaq, and that the New York Stock Exchange will acquire Archipelago Holdings, reflects the prospects of electronic networks to establish more efficient transaction systems and create greater access to various markets. The deal between Instinet and the Nasdaq, valued at $935 million, will help reduce pricing pressures on the firm and create new opportunities through a broader and more complete product offering. While Instinet's merger agreement with Nasdaq substantiates its technology and abilities, current fundamentals have lacked clarity. The most recent quarterly earnings were reported lower than consensus estimates and reflect rapidly declining revenue growth. Current valuation levels at 39x trailing earnings does not justify fundamental weakness and increased competitive pressures, despite the perceived synergies in the announced merger. --Richard Jahnke, Briefing.com
12:19PM Morgan Stanley (MWD) 51.80 +1.87: Whether it was voluntary or not, Chairman and Chief Executive Officer Philip Purcell announced his resignation in a letter to employees after months of high profile departures and public scrutiny. The investment bank has been at the center of a media fire storm sparked by a battle between the CEO and ex-Morgan executives calling for Purcell's ouster. The CEO's management style and performance has been under much contention as the company has lagged well behind all its peers in terms of earnings and stock performance.
The timing of the announcement came on the same day the company warned second quarter profits would be 15-20% below last year's results. Morgan cited difficult market conditions, certainly not a surprise, and guided earnings in a range of $0.88-0.94 vs. $1.29 in the first quarter and $1.10 last year. The Brokers will remain in the spotlight all week with the release of second quarter results. Lehman Bros (LEH) kicks things off on Tuesday, which is expected to post solid profit growth due to a strong fixed income market. Lehman is followed by Bear Sterns (BSC) on Wednesday and Goldman Sachs (GS) on Thursday. Morgan (00C) releases its earnings next Wednesday, June 22nd.
Purcell said he is planning to retire from MWD amid calls for his ouster from numerous former executives and dissent shareholders. The board announced it has hired an executive search firm and would not consider any of the dissident executives, including former President John Mack, for the position. Purcell will stay on until a successor has been named no later than the company's next annual meeting next March. In a prepared statement he said, It has become clear that in light of the continuing personal attacks on me, and the unprecedented level of negative attention our Firm — and each of you — has had to endure, that this is the best thing I can do for you, our clients and our shareholders.
Last year was a record in terms of earnings growth for the investment banks and brokers. Goldman, Merrill, Bear Sterns, and Lehman reported blowout earnings quarter after quarter leaving Morgan in their dust. After hitting a high back in 2000, MWD's shares have lost over half their value compared to the Amex Broker Dealer index (XBD) which has gained over 50% percent. The market has responded in kind following today's annoucement sending the stock up over 3%.
The board has stood by Purcell for months now as the company continued to loose top talent to its competitors. For years, there has been a rift between longtime Morgan and ex-Dean Witter employees, which arrived with the merger of the two companies back in 1997. Purcell sent the first shot in March stripping Stephan Newhouse, who had worked at Morgan since 1988, of his title as President replacing him with Zoe Cruz and Stephan Crawford. Newhouse, along with all the members of its management committee including Vikram Pandit, Terry Meguid, John Havens, and Joseph Perella, have all left the firm.
The outlook for the company remains unclear. It depends who finally takes the helm whether he/she rights the ship or decides to split up the businesses. Also, there is the matter of retaining existing and possibly rehiring key employees. Prior to the departure of Purcell there were expectations the firm would be sold, but now this option appears less a possibility. There are little synergies between the institutional and retail business so it would make sense to split the two. The retail brokerage side has been a main area of contention. This former Dean Witter unit pre-tax operating profits where half that of its two larger peers Merrill Lynch and Citigroup's (C) Smith Barney last year at 8%. The institutional business accounts for almost 60% of revenues and 40% of profits. Due to the restrictions on cross selling products, the asset management business could also be sold or spun off.
We would suggest that the downside risk in shares is limited as new leadership could unlock the inherent value within the company. To this point, Morgan says it remains on track with its plan to spin-off its Discover unit in the next three to six months. Share performance is likely to be news driven for some time with catalysts including the potential rehiring of former executives. The stock is trading at 11.0x forward earnings vs. its five-year historical average of 14.8x.----Kimberly DuBord, Briefing.com
8:52AM Page One - More Action This Week, Presumably : Stock futures suggest a flat open. There isn't much news this morning, and it could be a slow start, but this week should bring more action than last week.
The schedule of events includes Retail Sales and PPI tomorrow, CPI and Industrial Production on Wednesday, and Housing Starts on Thursday.
There are also some earnings reports of note due. Brokers highlight the list. Lehman Brothers reports on Tuesday, Bear Stearns on Wednesday, and Goldman Sachs on Thursday. Adobe also reports on Thursday.
Oil prices are unchanged this morning at $53.50 a barrel ahead of an OPEC meeting on Wednesday. The yield on the 10-year note has backed up a bit and is at 4.07%. A little more rational, but nothing for the stock market to worry about. The dollar has rallied further to 1.2062 against the euro. Still no talk that this signals a big stock market rally from those who vociferously proclaimed that a weaker dollar signalled an imminent crash. No comment as well from the sage of Omaha, Warren Buffett.
In corporate news, Morgan Stanley CEO Purcell has apparently retired, voluntary or not. The company also warned of lower than expected profits for this quarter. United Technologies reaffirmed profit guidance for this quarter.
The six month S&P 500 chart is a nearly flat line. That doesn't mean that there are not good investment opportunities, however, as discussed in Briefing.com's Big Picture column this morning. Dick Green, Briefing.com
9:50AM Merck (MRK) Friedman Billings downgrades Mkt Perform to UNDERPERFORM . Target $32 to $27. Firm believes that anticipated top- and bottom-line pressures, strategic realignment risk, and substantial negative headline risk from approaching Vioxx litigation could cause the stock to lag the large-cap drug group and the mkt. They think that potential risks and modest growth prospects for the co are reasons to look elsewhere in the large-cap pharmaceutical sector.
9:50AM Aztar (AZR) JP Morgan upgrades Underweight to NEUTRAL. JP Morgan upgrades AZR citing: 1) expansion in AC is finally driving higher casino revs, which they say is likely to accelerate into the seasonally strong summer months; 2) despite relatively disappointing growth in the mkt's overall gaming revs in AC in May, the co experienced 23.4% growth; and 3) the co has been the subject of industry consolidation discussions. If returns on invested capital in AC improve, then they think investors are likely to resurrect that debate.
9:49AM Wendy's (WEN) Piper Jaffray downgrades Market Perform to UNDERPERFORM . Piper Jaffray downgrades WEN as they view the stock's current valuation as reflecting a takeover premium at a time when they view the probability of such activity as less than likely. Firm notes the restaurant industry's record of successful strategic buyers for critical mass venues is limited at best. They do not expect any to surface in this case. For financial buyers, they view the bull case as overlooking the magnitude of capital required to fund remodels that will be required to maintain both Tim Hortons' and Wendy's current competitive positions.
9:48AM Nutri/System (NSI) Thomas Weisel initiates OUTPERFORM. Following the recent restructuring of the business, firm believes that the co is still in the early stages of capitalizing on a large mkt opportunity and is well positioned to benefit from ongoing strong demand for diet products and services with a solid customer value proposition, unique Internet-based distribution platform, strong brand, and experienced mgmt team.
9:47AM Men's Wearhouse (MW) Legg Mason downgrades Buy to HOLD. Firm thinks the co's turnaround is in progress, saying the improvement has outpaced expectations, led by the rebound of the K&G division, the cyclical surge in men's apparel consumption and the ongoing benefits of mkt share gains in a consolidating sector. However they are cautious regarding the share price.
9:47AM Powerwave (PWAV) Lehman Brothers upgrades Equal-weight to OVERWEIGHT. Target $9.5 to $13. Lehman upgrades PWAV as they believe that carriers in the US and Europe continue to spend on their wireless networks at healthy levels. Firm believes that their wireless infrastructure mkt forecast of 5% growth may prove conservative, and they believe that REMEC merger synergies could add more than mgmt's $0.08-$0.10 (firm thinks $0.10-$0.20 is feasible), yielding 2006 EPS of $0.65-$0.75.
9:46AM Novamerican Steel Inc. (TONS) CIBC Wrld Mkts initiates SECTOR PERFORM. Target $40. Firm thinks the co, like all service centers, will likely see pressure from lower steel selling prices, which will pressure margins in the near term. Over the medium term, they believe the co will continue to seek additional growth opportunities, which should provide some stability to earnings relative to their earnings forecast for 2005.
9:45AM Neiman-Marcus (NMG.A) Smith Barney Citigroup downgrades Buy to HOLD. Target $104 to $100. Smith Barney downgrades NMG.A saying they expect the takeout of $100/share to close by Nov 1. Firm suggests switching into FD wich they say offers a potential total return of 31%. Firm raises their FD tgt to $92 from $80, based on higher pro forma EPS estimates and a target multiple of 15x, and says to value the co as a "turnaround story."
9:43AM ConAgra (CAG) Prudential upgrades Underweight to NEUTRAL. Target $24. Firm thinks that more "shoes" may drop when new CEO is appointed, but say that short term, that may not be the case it as they believe the Board is trying to protect dividend for as long as possible. Now that the Q4 short fall is known, they believe investor focus moves to the CEO appointment and FY06 prospects, and sees the potential for less negative news on both counts.
9:43AM Leadis Tech (LDIS) Needham & Co upgrades Hold to BUY. Target $11. Needham upgrades LDIS as they believe the combination of a robust forecast for mobile handset unit shipments, a stabilization in small panel LCD controller/driver pricing, recent management additions and the volume ramp of multiple T.F.T. LCD design wins with tier-one customers should drive significant growth in revenue and earnings in 2H05 and beyond. Firm believe the co's approximate $4 net cash per share and improving fundamentals should mitigate downside risk.
4:19PM Hewlett-Packard names R. Todd Bradley as EVP of its Personal Systems Group (HPQ) 23.89 +0.47:Co appointed R. Todd Bradley to serve as EVP of its Personal Systems Group (PSG), which includes co's notebook and desktop PCs, handhelds, monitors, workstations and related support services. Bradley, 46, most recently spent four years at palmOne (PLMO), three as Pres/CEO. His appointment re-establishes PSG as a standalone business, following its combination in January 2005 with the Imaging and Printing Group (IPG). Vyomesh (V.J) Joshi, who had served as executive vice president of the combined Imaging and Personal Systems Group, will resume his former role as executive vice president of IPG.
Close Dow +9.93 at 10522.56, S&P +2.71 at 1200.82, Nasdaq +5.96 at 2068.96: The stock market held its ground today in the face of an earnings warning from Morgan Stanley (MWD 50.88, +1.00) and a surge in oil prices ahead of OPEC's meeting Wednesday in Vienna... Its resilience can be attributed mostly to the gains registered in the telecom services (+1.0%), basic materials (+0.7%), health care (+0.5%) and technology (+0.4%) sectors, but it can't be said that there was a lot of conviction behind those buying efforts...
To wit, volume at the NYSE and Nasdaq was on the light side as participants held their respective interests in check, mindful that a batch of important, and telling, economic data is on the horizon... Specifically, there are the Retail Sales and PPI reports on Tuesday, the CPI and Industrial Production reports on Wednesday, Housing Starts on Thursday, and the Univ. of Michigan Consumer Sentiment report on Friday... That said, there was a rally effort made in the morning session that saw the Dow, Nasdaq, and S&P gain 77, 15, and 8 points, respectively, at their best levels of the session...
There wasn't a specific news item that served as an excuse for that uptick, but it was noted that the rally try in equities coincided with a retreat in the Treasury market... Accordingly, there was speculation that the move had to do with an asset allocation trade that favored the technology and basic materials sectors... The move was short-lived, though, as the indices spent the better part of the afternoon retracing the gains posted in the morning session.... Rising oil prices were a factor in that pullback as crude futures (+$2.08) moving back above $55/barrel provided an excuse to sell into the early strength... The move in oil was attributed to the oft-cited concern about supply being inadequate to meet demand...
In this instance, it was driven by a belief that OPEC, despite any effort to raise production quotas at this week's meeting, doesn't have the spare production capacity necessary to curtail energy prices in a meaningful way... Separately, it is worth noting that the financial sector (+0.02%) saw its morning strength fade in the afternoon which, in turn, acted as an influential weight on the broader market... The consumer staples (-0.3%) and industrials (-0.01%) sectors, however, were the only economic sectors that failed to post a gain on Monday...
In corporate news, the biggest story of the day was the announcement by Morgan Stanley's CEO, Philip Purcell, that he would be retiring on account of the negative media attention surrounding his management and the mass defections of late by key personnel... This news, in effect, overshadowed a separate announcement from Morgan Stanley that it expected Q2 EPS to come in well below consensus estimates due to weakened market conditions...
On a brighter note, United Technologies (UTX 52.72, +0.26) reaffirmed its FY05 EPS outlook and joined with the likes of Caterpillar (CAT 97.58, +0.56), AIG Group (AIG 55.50, +0.41), and Hewlett-Packard (HPQ 23.89, +0.47) to produce a positive finish for the Dow... NYSE Adv/Dec 1869/1406, Nasdaq Adv/Dec 1610/1391
9:23AM More On the Wires :Siebel Systems (SEBL) says U.S. General Services Administration selects SEBL customer relationship management as platform for its Enterprise CRM Initiative... Central European Media (CETV) applies for listing of class A common shares on Prague Stock Exchange; expects to start trading by end of June... Magma Design Automation (LAVA) says it strengths co-op w Infineon Tech (IFX) in jointly developing standardized flow based on LAVA's software for IFX's advanced 65-nanometer designs... Advent Software (ADVS) says Indus Capital Partners successfully completed implementation of Geneva... Lockheed Martin (LMT) receives a $36.4 mln contract to deliver and install two additional P-3C Anti-Surface Warfare Improvement Program kits and install three previously ordered kits for the US Navy... Boeing (BA) reports 'strong progress' on many aspects of the new 787 Dreamliner that make the airplane more appealing to passengers and airlines... Brooke Corp. (BXX) to list on Nasdaq... EFI (EFII) says R.R. Donnelley & Sons (RRD) chooses Prograph as the job management system for their magazine, catalog and retail insert manufacturing platform... Applied Digital (ADSX) to join the Russell 3000 Index and Russell 2000 Index; Microvision (MVIS) expects to be added to Russell Microcap Index...AstraZeneca (AZN) comments on results of phase II dose finding study for Galida saying 'past focus in type 2 diabetes management has been glucose; however, there is increasing need for single agent that can target both glucose and dyslipidemia associated with type 2 diabetes; Galida study provides new insights on treating both glucose and lipid abnormalities in type 2 diabetes, and potentially, its underlying metabolic defects'... Precis (PCIS) names current COO Nicholas Zaffris as chairman... See previous On the Wires at 8:59, 8:52, 8:46, 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
8:59AM More On the Wires :Transkaryotic Therapies (TKTX) says 30-day antitrust waiting period for Shire Pharma (SHPGY) transaction expired on June 10... Citrix Systems (CTXS) says Enterprise Bank and Trust is using the CTXS Access Platform... Solectron (SLR) buys ServiceSource Europe Limited; terms not disclosed... Merck (MRK) says results from new prespecified analysis of Vytorin vs. Atorvastatin (V.Y.V.A.) trial involving subgroup of 428 patients w/ type 2 diabetes were consistent with overall V.Y.V.A. trial announced earlier this year... Principal Financial (PFG) to offer about $500 mln of non-cumulative perpetual preferred stock, co also OKs sue of substantially all preferred securities proceeds to repurchase outstanding common stock... Century Casinos' (CNTY) African unit to buy 60% of Balele Leisure; terms not disclosed... Gabelli (GBL) accelerates vesting of stock options... Plains All American Pipeline (PAA) to construct crude oil storage facility at St. James, Louisiana for about $70 mln... Central European Media (CETV) applies for listing of class A common shares on Prague Stock Exchange; expects to start trading by end of June... See previous On the Wires at 8:52, 8:46, 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
8:52AM More On the Wires :Worthington Industries (WOR) says its board OKs repurchase of up to 10 mln shares... LaBarge (LB) set to join the Russell 3000 Index, Russell 2000 Index, and new Russell Microcap Index when Russell Investment Group reconstitutes its family of U.S. indexes on June 24... MeadWestvaco's (MWV) Intelligent Systems announces suite of intelligent R.F.I.D. networking hardware and software offerings that co says enables retailers to deploy affordable item-level tracking solutions... Nutrition 21 (NXXI) says results from new clinical trial that shows daily supplementation with Diachrome can improve uncontrolled blood sugar levels and cardiovascular risk factors in people with type 2 diabetes on prescription medications in managed care setting... Theravance (THRX) says GlaxoSmithKline (GSK) enrolls first subjects in a Phase 1 clinical study designed to assess safety, tolerability and pharmacokinetics of THRX's investigational, inhaled bronchodilator, GSK656398 for treatment of chronic obstructive pulmonary disease... See previous On the Wires at 8:46, 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
8:49AM Pfizer says new data shows patients taking Lipitor experienced major reductions in heart attack and stroke (PFE) 27.68 :-Update- Co announces that data presented at the annual meeting of the American Diabetes Assoc show that patients with diabetes and coronary heart disease who took Lipitor and lowered their cholesterol to well below recommended levels experienced significantly fewer heart attacks and strokes than those who lowered their cholesterol to achieve recommended levels.
8:46AM More On the Wires :Avid (AVID) proposed acquisition of Pinnacle (PCLE) clears U.S. antitrust review, expected to close in 3Q05... Key Technology (KTEC) to consolidate its two Walla Walla, Wash. facilities as part of a plan to reduce operating costs... Workstream (WSTM) says American Red Cross enters contract for Workstream Compensation software... Siemens (SI) forms new division called Siemens Medical Solutions Molecular Imaging which combines its nuclear medicine operations with CTI Molecular Imaging... aQuantive's (AQNT) Avenue A / Razorfish says InterActive Corp's (IACI) Hotels.com selects Avenue A / Razorfish as its interactive agency... Pemco Aviation (PAGI) says its Pemco Aeroplex enters into memorandum of agreement w/ Boeing (BA) Aerospace Support Center where the 2 companies will remain teamed to compete for next contract to perform programmed depot maintenance for U.S. Air Force KC-135 aircraft; total value of agreement over 10 years is expected to be $2 bln... See previous On the Wires at 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
8:43AM Pfizer gets approval letter for Lyrica (PFE) 27.68 :Co announces it received FDA approval to market Lyrica for adjunctive treatment of partial onset seizures in adults with epilepsy. Dr. Jacqueline French, Professor of Neurology, University of Pennsylvania Medical School comments, "There is a significant need for new antiepileptic drugs, as no new agent has been introduced in five years. Poor seizure control in patients with epilepsy has emotional and functional consequences that can significantly diminish quality of life. In clinical trials, Lyrica significantly reduced the frequency of seizures in patients who continue to experience seizures despite their standard treatment with antiepileptic medicines."
8:42AM Millennium Pharm reports VELCADE study results (MLNM) 7.79 :Co reported VELCADE study results for the treatment of patients with indolent and mantle cell non-Hodgkin's lymphomas. Interim study results were reported from the multicenter, phase II trial of weekly versus twice- weekly dosing of VELCADE in combination with rituximab, in patients with indolent lymphomas. In these patients who were previously pretreated with chemotherapy and rituximab, response rates were similar in both arms (35 and 41 percent) and the safety profile improved with the weekly schedule. Data from a separate multicenter study, indicated promising response rates and progression- free survival in follicular, marginal zone and mantle cell lymphomas with single agent VELCADE (56, 43 and 40 percent, respectively).
8:36AM More On the Wires :RailAmerica (RRA) reports total carloads for May 2005 were 109,648, up 10.3% from 99,407 in May 2004, aided 4,856 carloads due to acquisition... CDW Corp (CDWC) says it gets three-year enterprise software agreement to deliver Microsoft software to the U.S. Navy, deal worth $11 mln if all options are exercised... Borland Software (BORL) announces recent customers including APIR Systems, BNP Paribas Securities Services, Maybank Sdn Bhd, New Zealand Reserve Bank, Scotiabank, TIAA-CREF and Visa International... Transatel signs agreement with Epiphany (EPNY) and Capgemini's Telecom, Media & Entertainment industry to implement a new CRM system for client management... See previous On the Wires at 8:29, 8:20, 8:15, 8:00, 7:46, 7:19, 7:09, 7:00, 6:45 and 6:36.
12:34PM Instinet Group (INGP) 5.29 -0.02: Traditionally, stocks have been traded on the floors of exchanges, such as the New York Stock Exchange (NYSE), and more recently through electronic exchanges, such as the Nasdaq. However, the creation of electronic communication networks (ECNs) has allowed institutions and individual investors to execute trades at faster speeds, lower costs, and with greater transparency than traditional execution systems. ECNs are computerized order matching systems that provide a network between brokers and traders and allow for direct electronic access to markets, without relying on specialists to match buyers and sellers.
The concept of automatically matching buy and sell orders has been around for many years, however, until recently, the implementation has been hindered by the lack of suitable technology. Innovations in networking technology and the advent of the Internet have led to the development of modern electronic trading systems.
The period of ferment for ECNs began in 1970 with the creation of Instinet as an "alternative trading mechanism" for institutional investors. From its inception, it has focused primarily on the trading needs of the institutional investment community by providing a platform that is conducive to trading large volumes directly and anonymously with other investors. Its acclaim was illustrative of the change in trading patterns and was driven by the growth in passive money and increased focus on execution costs.
It was not until the 1990s that Instinet, and other electronic trading systems, significantly altered the landscape of financial markets and the process of investing. The widespread adoption of the Internet and the development of sophisticated networking technologies allowed the company to develop faster and more efficient execution systems to meet the demands of the rapidly changing financial markets. The fruition of the company during this period allowed both large institutional investors and small individual investors to actively participate in the growing financial markets without being subject to high transaction costs and preferential order executions. Instinet's platform provided greater accessibility to the once arcane financial markets and sparked the growth of savvy individual investors and day traders.
While early ECNs clearly presented a more efficient alternative to traditional exchanges through lower costs, greater trading volume, and increased information flow, the proliferation of ECNs have led to an increasingly fragmented market where order flows are being obstructed many competing firms. This has created a landscape of illiquidity for many large investors and hindered market efficiency. As such, many firms have been pressured to consolidate, in an effort to combine their order books and increase market share.
The announcement in April that Instinet will merge with the Nasdaq, and that the New York Stock Exchange will acquire Archipelago Holdings, reflects the prospects of electronic networks to establish more efficient transaction systems and create greater access to various markets. The deal between Instinet and the Nasdaq, valued at $935 million, will help reduce pricing pressures on the firm and create new opportunities through a broader and more complete product offering. While Instinet's merger agreement with Nasdaq substantiates its technology and abilities, current fundamentals have lacked clarity. The most recent quarterly earnings were reported lower than consensus estimates and reflect rapidly declining revenue growth. Current valuation levels at 39x trailing earnings does not justify fundamental weakness and increased competitive pressures, despite the perceived synergies in the announced merger. --Richard Jahnke, Briefing.com
12:19PM Morgan Stanley (MWD) 51.80 +1.87: Whether it was voluntary or not, Chairman and Chief Executive Officer Philip Purcell announced his resignation in a letter to employees after months of high profile departures and public scrutiny. The investment bank has been at the center of a media fire storm sparked by a battle between the CEO and ex-Morgan executives calling for Purcell's ouster. The CEO's management style and performance has been under much contention as the company has lagged well behind all its peers in terms of earnings and stock performance.
The timing of the announcement came on the same day the company warned second quarter profits would be 15-20% below last year's results. Morgan cited difficult market conditions, certainly not a surprise, and guided earnings in a range of $0.88-0.94 vs. $1.29 in the first quarter and $1.10 last year. The Brokers will remain in the spotlight all week with the release of second quarter results. Lehman Bros (LEH) kicks things off on Tuesday, which is expected to post solid profit growth due to a strong fixed income market. Lehman is followed by Bear Sterns (BSC) on Wednesday and Goldman Sachs (GS) on Thursday. Morgan (00C) releases its earnings next Wednesday, June 22nd.
Purcell said he is planning to retire from MWD amid calls for his ouster from numerous former executives and dissent shareholders. The board announced it has hired an executive search firm and would not consider any of the dissident executives, including former President John Mack, for the position. Purcell will stay on until a successor has been named no later than the company's next annual meeting next March. In a prepared statement he said, It has become clear that in light of the continuing personal attacks on me, and the unprecedented level of negative attention our Firm — and each of you — has had to endure, that this is the best thing I can do for you, our clients and our shareholders.
Last year was a record in terms of earnings growth for the investment banks and brokers. Goldman, Merrill, Bear Sterns, and Lehman reported blowout earnings quarter after quarter leaving Morgan in their dust. After hitting a high back in 2000, MWD's shares have lost over half their value compared to the Amex Broker Dealer index (XBD) which has gained over 50% percent. The market has responded in kind following today's annoucement sending the stock up over 3%.
The board has stood by Purcell for months now as the company continued to loose top talent to its competitors. For years, there has been a rift between longtime Morgan and ex-Dean Witter employees, which arrived with the merger of the two companies back in 1997. Purcell sent the first shot in March stripping Stephan Newhouse, who had worked at Morgan since 1988, of his title as President replacing him with Zoe Cruz and Stephan Crawford. Newhouse, along with all the members of its management committee including Vikram Pandit, Terry Meguid, John Havens, and Joseph Perella, have all left the firm.
The outlook for the company remains unclear. It depends who finally takes the helm whether he/she rights the ship or decides to split up the businesses. Also, there is the matter of retaining existing and possibly rehiring key employees. Prior to the departure of Purcell there were expectations the firm would be sold, but now this option appears less a possibility. There are little synergies between the institutional and retail business so it would make sense to split the two. The retail brokerage side has been a main area of contention. This former Dean Witter unit pre-tax operating profits where half that of its two larger peers Merrill Lynch and Citigroup's (C) Smith Barney last year at 8%. The institutional business accounts for almost 60% of revenues and 40% of profits. Due to the restrictions on cross selling products, the asset management business could also be sold or spun off.
We would suggest that the downside risk in shares is limited as new leadership could unlock the inherent value within the company. To this point, Morgan says it remains on track with its plan to spin-off its Discover unit in the next three to six months. Share performance is likely to be news driven for some time with catalysts including the potential rehiring of former executives. The stock is trading at 11.0x forward earnings vs. its five-year historical average of 14.8x.----Kimberly DuBord, Briefing.com
8:52AM Page One - More Action This Week, Presumably : Stock futures suggest a flat open. There isn't much news this morning, and it could be a slow start, but this week should bring more action than last week.
The schedule of events includes Retail Sales and PPI tomorrow, CPI and Industrial Production on Wednesday, and Housing Starts on Thursday.
There are also some earnings reports of note due. Brokers highlight the list. Lehman Brothers reports on Tuesday, Bear Stearns on Wednesday, and Goldman Sachs on Thursday. Adobe also reports on Thursday.
Oil prices are unchanged this morning at $53.50 a barrel ahead of an OPEC meeting on Wednesday. The yield on the 10-year note has backed up a bit and is at 4.07%. A little more rational, but nothing for the stock market to worry about. The dollar has rallied further to 1.2062 against the euro. Still no talk that this signals a big stock market rally from those who vociferously proclaimed that a weaker dollar signalled an imminent crash. No comment as well from the sage of Omaha, Warren Buffett.
In corporate news, Morgan Stanley CEO Purcell has apparently retired, voluntary or not. The company also warned of lower than expected profits for this quarter. United Technologies reaffirmed profit guidance for this quarter.
The six month S&P 500 chart is a nearly flat line. That doesn't mean that there are not good investment opportunities, however, as discussed in Briefing.com's Big Picture column this morning. Dick Green, Briefing.com
9:50AM Merck (MRK) Friedman Billings downgrades Mkt Perform to UNDERPERFORM . Target $32 to $27. Firm believes that anticipated top- and bottom-line pressures, strategic realignment risk, and substantial negative headline risk from approaching Vioxx litigation could cause the stock to lag the large-cap drug group and the mkt. They think that potential risks and modest growth prospects for the co are reasons to look elsewhere in the large-cap pharmaceutical sector.
9:50AM Aztar (AZR) JP Morgan upgrades Underweight to NEUTRAL. JP Morgan upgrades AZR citing: 1) expansion in AC is finally driving higher casino revs, which they say is likely to accelerate into the seasonally strong summer months; 2) despite relatively disappointing growth in the mkt's overall gaming revs in AC in May, the co experienced 23.4% growth; and 3) the co has been the subject of industry consolidation discussions. If returns on invested capital in AC improve, then they think investors are likely to resurrect that debate.
9:49AM Wendy's (WEN) Piper Jaffray downgrades Market Perform to UNDERPERFORM . Piper Jaffray downgrades WEN as they view the stock's current valuation as reflecting a takeover premium at a time when they view the probability of such activity as less than likely. Firm notes the restaurant industry's record of successful strategic buyers for critical mass venues is limited at best. They do not expect any to surface in this case. For financial buyers, they view the bull case as overlooking the magnitude of capital required to fund remodels that will be required to maintain both Tim Hortons' and Wendy's current competitive positions.
9:48AM Nutri/System (NSI) Thomas Weisel initiates OUTPERFORM. Following the recent restructuring of the business, firm believes that the co is still in the early stages of capitalizing on a large mkt opportunity and is well positioned to benefit from ongoing strong demand for diet products and services with a solid customer value proposition, unique Internet-based distribution platform, strong brand, and experienced mgmt team.
9:47AM Men's Wearhouse (MW) Legg Mason downgrades Buy to HOLD. Firm thinks the co's turnaround is in progress, saying the improvement has outpaced expectations, led by the rebound of the K&G division, the cyclical surge in men's apparel consumption and the ongoing benefits of mkt share gains in a consolidating sector. However they are cautious regarding the share price.
9:47AM Powerwave (PWAV) Lehman Brothers upgrades Equal-weight to OVERWEIGHT. Target $9.5 to $13. Lehman upgrades PWAV as they believe that carriers in the US and Europe continue to spend on their wireless networks at healthy levels. Firm believes that their wireless infrastructure mkt forecast of 5% growth may prove conservative, and they believe that REMEC merger synergies could add more than mgmt's $0.08-$0.10 (firm thinks $0.10-$0.20 is feasible), yielding 2006 EPS of $0.65-$0.75.
9:46AM Novamerican Steel Inc. (TONS) CIBC Wrld Mkts initiates SECTOR PERFORM. Target $40. Firm thinks the co, like all service centers, will likely see pressure from lower steel selling prices, which will pressure margins in the near term. Over the medium term, they believe the co will continue to seek additional growth opportunities, which should provide some stability to earnings relative to their earnings forecast for 2005.
9:45AM Neiman-Marcus (NMG.A) Smith Barney Citigroup downgrades Buy to HOLD. Target $104 to $100. Smith Barney downgrades NMG.A saying they expect the takeout of $100/share to close by Nov 1. Firm suggests switching into FD wich they say offers a potential total return of 31%. Firm raises their FD tgt to $92 from $80, based on higher pro forma EPS estimates and a target multiple of 15x, and says to value the co as a "turnaround story."
9:43AM ConAgra (CAG) Prudential upgrades Underweight to NEUTRAL. Target $24. Firm thinks that more "shoes" may drop when new CEO is appointed, but say that short term, that may not be the case it as they believe the Board is trying to protect dividend for as long as possible. Now that the Q4 short fall is known, they believe investor focus moves to the CEO appointment and FY06 prospects, and sees the potential for less negative news on both counts.
9:43AM Leadis Tech (LDIS) Needham & Co upgrades Hold to BUY. Target $11. Needham upgrades LDIS as they believe the combination of a robust forecast for mobile handset unit shipments, a stabilization in small panel LCD controller/driver pricing, recent management additions and the volume ramp of multiple T.F.T. LCD design wins with tier-one customers should drive significant growth in revenue and earnings in 2H05 and beyond. Firm believe the co's approximate $4 net cash per share and improving fundamentals should mitigate downside risk.
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