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From Briefing.com: Close Dow +79.69 at 10552.78, S&P +10.79 at 1227.68, Nasdaq +25.82 at 2141.22: Stifled throughout the morning, the stock market staged and sustained a noon-hour rally, as easing prices across the energy complex and ensuing sector leadership pushed the major indices to their highest levels of the week... With only two days remaining before Q3 comes to a close, end-of-the-quarter window dressing on the part of portfolio managers may have also contributed to the day's broad-based buying efforts...

Although crude's price tag rose back to $66.79/bbl (+$0.44), a strong build in natural gas (+$0.085 $14.18/mln BTUs) inventories amid ongoing supply disruptions as well as gasoline's (-$0.129 $2.21/gal) downward momentum from four-week highs perhaps best grabbed traders' attentions. As the pre-earnings season's market's focus remains fixated upon energy price action, and since there was little news on any front to offer a divergence or counter sentiment today, commodity trading gave investors a reason to seize bargains across the board following two weeks of declines and lackluster action during the last few sessions.Surging into the leader's slot today was the influential Financial sector, fueling the afternoon rally and driven by a 1.8% gain in brokers - for which soaring E*Trade (ET 17.24 +0.91) shares is largely responsible. Investors sent the online broker's shares up over 5.0% after hearing it will reportedly pay $1.6 bln for JP Morgan's (JPM 34.35 +0.43) Brown Co. for $1.6 bln in cash. A recovery in banks (+1.1%) also lent support, as did gains in 81 of the sector's 84 issues...

Matching the Utilities sector's 1.1% gain, Technology also served as an influential leader to the upside. Jumps in semiconductor (+1.4%), disk drives (+1.9%), hardware (0.9%), and software (+1.7%), results of widespread buying action, offset modest consolidation in the networking group (-0.3%). Benefiting from gasoline's pullback, rebounded retailers (+1.2%) and a recovery in homebuilders (+1.7%) - bolstered by a series of analysts' upgrades - helped send the Consumer Discretionary sector to a +0.8% finish. CSFB's increased Q3 earnings forecasts for eBay (EBAY 41.20 +2.27) also lent sizeable support...

After faring relatively well through the downbeat morning, on account of PepsiCo's (PEP 56.76 +1.70) momentum spurred by better than expected Q3 (Sep) earnings and heightened FY05 guidance, Consumer Staples also notched higher intraday and turned in a 0.8% advance. The session's sole laggard was Telecom Services, but its 3.2% weighting on the S&P essentially muted its 0.1% loss in terms of the overall market... With respect to the double dose of economic data delivered today, the final Q2 GDP read checked in at 3.3% - matching economists' expectations as well as the Q1 read; the deflator, meanwhile, came in at 2.6% (consensus 2.4%)... Katrina-induced jobless claims came in at 356K, falling 76K (consensus 420K)...

Ultimately, neither report garnered much notice or elicited much action within the equity market, as the GDP data are essentially "old news" and post hurricane initial claims have been a moving target over the past few weeks... Treasuries, conversely, took a bearish cue and closed the 10-year note down nine ticks and at a 4.29% yield...DJTA +1.70, DJUA +0.92, DOT +0.85, Nasdaq 100 +1.35, Russell 2000 +1.11, SOX +1.55, S&P Midcap 400 +1.24, XOI +0.33, NYSE Adv/Dec 2252/1014, Nasdaq Adv/Dec 1850/1178

5:00PM MU prelim reports gross margin 22.4% vs 18.8% street expectation (MU)

4:31PM hi/fn expects Q4 to be lower than expected (HIFN) : -Update- Co states that rev for Q4 are likely to be in the $8.5-9.0 mln range (Reuters consensus $12 mln), which would be about $3 mln lower than the co had expected at the beginning of the quarter and will have the associated impact on operating results. Orders from several key customers were delayed, as the telecommunications and related businesses continue to work through inventories and end demand issues.

4:06PM Metrologic Inst accused of patent infringement by Symbol Tech (MTLG) :Co announces that it has been served with a complaint alleging that certain of its products infringe certain patents owned by Symbol Tech (SBL). Symbol also filed a similar complaint with the International Trade Commission naming certain of Metrologic's products that were recently found by an arbitrator not to be included under the parties' existing cross license agreement.

3:26PM Research In Motion (RIMM)
70.50 -6.75: With shares having one of their biggest down days in recent months, the market's disenchantment with RIM is both ostensible and severe. The impetus for the negativity - concerns over slowing growth rates - is the reason shares have been, and will continue to remain, in a trading range. Net adds were disappointing, up 5% from last year, and below management's and analysts' estimates. The disappointment was blamed on seasonality and weak European sales. The question now is whether the market is just not seeing the forest through the trees, or has the RIM story now become one of maturing growth? The answer, unfortunately, won't be found in these second quarter results, but more than likely, in the quarters ahead as the company rolls out out a bevy of new products.

Onto the results, RIM generated revenue of $490.1 mln, up 8% q/q and 58% y/y. That was ahead of its own guidance and the street's expectations. Still, since this is a net-adds story, let's look at the actual. Q2 net adds were 620,000, which was at the low end of its target range of 620-650k. Total subs were 3.65 mln. The net adds figure compares to adds of 592,000, 470,000, 387,000, 317,000, and 270,000 over the last five quarters - a clear deceleration in terms of percentage change. There are seasonal trends at work here. Summer is a particularly weak period as RIM's core enterprise customers are out vacationing and new product launches are anticipated for Oct/Nov.

Before legal costs and a write-down, earnings comparable to consensus were $0.61 per share, matching expectations. Net income for the quarter rose to $111.1 mln, or $0.56 per share, up from last year when RIM earned $70.6 mln, or $0.36 per share. Still, this was a sequential decline despite higher sales. BlackBerry, named for its seed-like keypad, handheld revenues (70% of total) were $343 mln with Services revenues of $86 mln. ASPs declined to $360 from $375 due to a product shift, a trend which will continue in Q3 as RIM lowers prices for existing models in conjunction with the launch of new products. Adjusted gross margins fell within the mid-point of guidance of 56.2%.

RIM raised third quarter revenue estimates by $13 mln to $540-570 mln and reiterated its earnings outlook. It sees net adds in the range of 680-710k. For the fourth quarter, seasonal trends are apparent, as the company expects adds to jump to a range of 775-825k. RIM also introduced EPS guidance of $0.74-$0.81 per share. That compares to the current consensus of $0.71 and will likely cause the street to adjust its numbers.

Looking at the company from its infancy, RIM's ability to adjust to changing market conditions through leading technological innovation and a broad-thinking approach has enabled its Blackberry to become the de facto standard for the enterprise market. The company now does business with carriers from around the globe, from Airtel in India, to Vodaphone in Europe. It plans a beta trial in China by its fiscal year end. That aside, data points on legal issues and product launches will be the main driver of shares for now.

Peering through the trees, subscribers are likely to accelerate in the second half on the back of new product launches, aggressive carrier spending in Europe outside of Vodaphone, and BIZ penetration. Management confirmed a faster upgrade cycle, which helps to relieve concerns over replacement trends. The majority of its 3.65 mln subs have been added in the last year, meaning users already have new devices. To that end, device shipments of 955k also beat estimates, driven by enterprise upgrades in North America - a market which has remained strong. RIM is betting the combination of sleeker (traditional models quite bulky) and more stylish models, with greater operating and processing power including EV-DO and EDGE devices, will drive subscriber growth.

Shares are trading at 27.3x forward earnings on earnings growth of 22% in FY06 and 30% in FY07. The competitive landscape encompasses basically every major handset OEM. Just on Monday, Verizon, Microsoft, and Palm announced a joint partnership to bring the new Treo 700 to market. This new wireless mobile runs Windows Mobile 5.0 featuring Outlook, Office, and Internet Explorer Mobile. The Motorola Q is certainly the closest in terms of direct competitiveness to the BlackBerry and quite a compelling product based on its widely successful RAZR model. Here are forward multiples for just a few on the competitive landscape: Palm (PALM) 17.8x, Nokia (NOK) 16.9x, Motorola (MOT) 20.5x and Samsung Electronics 12.5x. ---Kimberly DuBord, Briefing.com

3:09PM Red Hat (RHAT)

21.26 +4.75: Red Hat, the world's leading distributor of Linux software, reported a 42% jump said in second quarter profits on robust revenue growth and higher profit margins, exceeding analyst expectations. The Raleigh, North Carolina-based company said it earned $16.7 million, or $0.09 per share, versus $11.8 million, or $0.06 per share, in the year ago period. According to Reuters Estimates, analysts were expecting EPS of $0.07.

At the same time, Red Hat's revenue grew by 42% to $65.7 million, compared with last year's $34.9 million. Enterprise subscription revenues increased 56% year/year to $54.3 million, eclipsing the consensus estimate of $52.8 million. In contrast, revenue from its services business, decreased slightly to $11.4 million. Costs associated with its subscription sales were $4.3 million, while costs for its services were $6.6 million. Collectively, though, the company generated healthy gross margin of 83%, a considerable improvement from 81% in same period last year. Operating expenses as a percentage of revenue also improved to 64% and helped operating margin grow to 20%, as compared to 15% last year.

More importantly, however, cash flow from operations grew 48% year/year to $45.8 million, representing the second consecutive break-out quarter following prior flat sequential trends. The improvement reaffirms Red Hat's prior guidance of $162 to $168 million in full-year operating cash flow, which could in turn bolster investors' confidence in the company's ability to generate accelerated cash flows in subsequent periods. After repurchasing $11.6 million of common stock and $20 million of face value of its convertible bonds during the quarter, cash and investments totaled $966 million at the end of August, the company noted.

Looking ahead to the third quarter, Red Hat said it expects earnings in the range of $0.09 to $0.10 per share on revenue between $70.5 million and $71.5 million. Analysts had forecast EPS of $0.08 on $69.3 million in revenue. The company also raised its full year profit outlook to a range of $0.31 to $0.35 per share and narrowed its revenue target to $270 million to $275 million from $265 million to $275 million. This compares to the average analyst forecast for EPS of $0.30 on revenue of $269.5 million.

As the leading open source and Linux provider, Red Hat continues to see increased acceptance of its technology. Although the value proposition for the company's operating system remains debatable, the results for the quarter reflect improving operations and growth in market share within the open source arena, largely at the expense of competitors such as Novell (NOVL). Last month, Novell reported smaller third quarter earnings as revenue declined on weaker than expected software sales and charges related to its restructuring efforts. Accordingly, the company said net income declined 90% year/year and revenue fell by 5%, despite favorable translation effects.

Notwithstanding, Microsoft (MSFT), whose Windows software dominates the OS market, continues to perform well and is expected to generate double digit revenue growth in FY06. As such, the widespread embrace of Red Hat's "alternative" open source platform and consumers' willingness to adopt to a new technology will ultimately dictate the long-term success of the business. Accordingly, at 70x the FY06 EPS estimate of $0.30, the current valuation level for Red Hat appears quite excessive. However, given its improving fundamentals, combined with strong growth in revenue and cash flow, the investment proposition appears compelling for growth investors willing to accept a higher level of risk. --Richard Jahnke, Briefing.com

11:39AM E*Trade Financial (ET)

17.00 +0.67: Online brokerage E*Trade Financial said on Thursday it would acquire BrownCo, an online brokerage service of JP Morgan Chase & Co. (JPM), for $1.6 billion in cash - marking its second major acquisition since its failure to merge with Ameritrade (AMTD) earlier this year. Amidst rapid industry consolidation, which has stemmed from increased pricing pressure in a highly challenging and competitive environment, the company has aggressively moved to strengthen its competitive position and provide greater operational scale. In August, the company agreed to purchase HarrisDirect from Bank of Montreal (BOM) for $700 mln.

E*Trade said "the acquisition of BrownCo complements the recent acquisition of HarrisDirect by strengthening and extending its asset gathering strategy with a strong customer demographic, while delivering greater scale." As an "ideal strategic fit," the deal is expected to generate operating synergies of approximately $154 million, representing $91 million in cost savings and $63 million in additional revenue. Furthermore, it is anticipated to increase annual earnings by $0.07 per share within nine months after closing, the company noted.

BrownCo has 200,000 active accounts with an average account balance of $145,000 - the second highest average in the industry - and approximately $29 billion in assets. In addition, the company has about 28,000 daily average revenue trades (DARTs). After the deal closes, E*Trade will have nearly 4.3 million customer accounts, about $160 billion in assets under management, total customer cash and deposits of $27 billion, and approximately 160,000 daily average revenue trades. For the month of August, the company generated 121,086 trades per day - a decrease of 3.7% from July and an increase of 37.3% from a year ago.

As industry consolidation continues to move forward, E*Trade's acquisitive efforts, specifically related to BrownCo, should help diversify its revenue stream, lessen dependence on commission revenue, and enhance its asset gathering capabilities. In addition, the company should benefit from immediate share gains in the online trading space, as well as a number of cross-selling opportunities afforded by BrownCo's affluent customer base. As the company works to integrate operations and realize potential synergies, the benefits should become readily apparent in short time.

Earlier this year, rival Ameritrade agreed to acquire TD Waterhouse, rebuffing E*Trade's $5.5 billion bid. In the face of rapid consolidation and heightened competitive pressures in the industry, the major players in the online brokerage space have been aggressively moving to broaden their scale of operations and to expand their market presence. However, while E*Trade and Ameritrade have made headlines as "consolidators," Charles Schwab (SCH) has not been a notable player in the consolidation game, despite ongoing merger-related speculation. As such, given the restlessness in the industry, E*Trade's recent acquisitions, and the resulting synergies, appear promising and present a favorable outlook for further growth opportunities, as compared to its peers. (Disclosure: Briefing.com has a business relationship with E*Trade, Ameritrade, TD Waterhouse, and Charles Schwab) --Richard Jahnke, Briefing.com

10:40AM PepsiCo (PEP)

56.78 +1.72: The divergence between Coke and Pepsi's shares began a few years ago. At the same time, Pepsi was moving faster in growing its market presence in the non-carbonated world of juices and water. Pepsi's vision of growth outside the traditional carbonated drink segment has helped propel shares 57% since their low in July of 2002, opposed to a loss of 2% for Coke.

Pepsi continues to get the ingredients just right. Thursday, the company reported its strongest sales gain in over three and a half years driven by demand for, you guessed it, non-carbonated drink offerings, including Gatorade and Aquafina. This is Pepsi's fifth consecutive quarter of besting the market's expectations, and this time, it did so by five cents! How Pepsi became a growth story and Coke became a restructuring story is as clear as a bottle of Aquafina when you look at sales performance over the last five years. Pepsi has soaked up 7% in sales, compared to a paltry 2% for Coke.

Today, Pepsi reported third quarter earnings of $0.78 per share, ex-items. Net income actually dropped 37% to $864 mln, or $0.51 per share, the result of a $468 mln, or $0.27 per share, charge from repatriating $7.5 bln in overseas earnings. For investors wondering why they keep seeing these "repatriations" in quarterly earnings, companies are taking advantage of a new law enacted that provides a one-time tax window to bring back foreign profits under a lower tax rate. The move does result in charges, but the benefits far outweigh the charges.

Adding additional fizz to today's report, Pepsi also raised its full year earnings guidance. Clearly, PEP believes it will be able to weather the storm on consumer spending in the wake of Hurricanes Katrina and Rita. It now sees earnings in a range of $2.64-2.65, excluding items, vs. consensus of $2.61. Using $2.65 for FY05, this would equate to a Q4 EPS figure of $0.64 per share and earnings growth of 17.2% from last year.

Revenues rose 12.8% year/year to $8.18 bln - again well above the $7.81 bln consensus. Volumes rose 8% in Q3 and 6% year-to-date. Pepsi continues to successfully navigate through ever-changing consumer taste trends. Health-conscious consumers' preference for low-calorie drinks rather than soda continues to drive sales. PepsiCo Beverages North America (PBNA) volumes grew 8%, fueled by 24% growth in non-carbonated beverages, including double-digit gains in Gatorade, Aquafina, and Propel. Warmer weather helped boost sales this summer. PBNA operating profits rose 16%, reflecting strong sales, offset by higher raw material, energy, and transportation costs. Carbonated sales were flat, as Pepsi and Mountain Dew suffered low single-digit declines, equalized by gains in Sierra Mist. The diet segment grew in the mid-single digits range on the launch of several new products. Pepsi ramped up promotional spending and lowered prices ahead of the Labor Day weekend.

Frito Lay North America (FLNA) grew sales by 6%, with revenue growth outpacing volumes due to favorable pricing and mix. FLNA is where we will see most of the rising cost pressure on Pepsi. During the quarter, operating margins were impacted by damaged caused by Hurricane Katrina and increased marketing costs. Growth was broad-based across snacks and beverages within the Pepsi International segment, generating revenue and operating profit growth of 17 % and 28%, respectively.

We find little cause to doubt Pepsi's prospects, a view apparently shared by the market, which has sent shares up 3% in early trading. As it continues to innovate and expand its presence overseas, Pepsi remains on track as a long-term growth story generating solid top and bottom line growth. Shares now trade at 22.1x current and 21.9x forward earnings, compared to a 5-year average of 25.9x. On a price/sales valuation, PEP trades at 3.0x vs. KO at 4.6x. KO does hold some allure as a never-ending restructuring story, but first, it needs some fresh thinking at the top. That, however, is a whole other bag of chips.--Kimberly DuBord, Briefing.com

9:39AM Page One - Still Inching Higher

The S&P 500 index posted its third straight minor advance yesterday. It gained 1.23 points. That is three straight up days that together sum to less than 2 points.

Of course, anything up is better than a down day, particularly given that most of the market chatter has been about negative factors. Oil has firmed and is up another $0.30 this morning to $66.55 a barrel. There was a report yesterday that credit card delinquencies reached record levels in the second quarter. Home sales were down in August. All this has added to concerns that consumer spending will be restrained in the months ahead.

The good news is mostly what has not happened. There have been very few earnings warnings. Tomorrow is the final day of the calendar quarter and yet there have been no major warnings that have hit the broad market. The technology sector in particular has been very quiet.

The economic news is still open to interpretation. Almost all of the data is still pre-Katrina. Any weakness in the data inevitably leads to talk of recession. That is borderline ridiculous. But it will be at least several weeks before the market gets enough post-Katrina data to put such fears to rest.

This morning, new claims for unemployment plunged 79,000 to 356,000. About 60,000 of those claims were Katrina related, which means that the underlying number was only 296,000. That reflects a strong job market nationally. The high levels of claims the past three weeks due to Katrina have not been as bad as feared. Second quarter real GDP growth was unrevised at 3.3%.

The corporate news this morning is good. PepsiCo reported fiscal third quarter profits 5 cents ahead of expectations. Software company Red Hat reported earnings well ahead of expectations. ETrade continued its acquisition spree, announcing the purchase of BrownCo for $1.6 billion.

The market has actually performed quite well given the current focus on negative issues. The market may continue to be restrained for several more weeks. Once earnings reports start up in mid-October, conditions will improve. The prospects for good third quarter earnings reports and fourth quarter guidance that reflects little or no impact from the hurricanes will set a much better underlying tone for the market. -- Dick Green, Briefing.com

9:37AM Cintas (CTAS) JP Morgan initiates OVERWEIGHT. Initiation is based on the co's superior position to capitalize on improving U.S. employment trends, its industry-leading margins and dominant mkt share position, coupled with projected robust EPS growth over the next two fiscal years. They believe the co's focus on organic growth, complemented by accretive acquisitions and new business initiatives, should enable it to grow EPS faster than the industry.
9:36AM Mills Corp (MLS) JP Morgan upgrades Neutral to OVERWEIGHT. Firm believes the stock's relative valuation has over-corrected on the downside, and its relative multiple should improve due to above average growth prospects and better marginal earnings quality. With all of its moving parts and complexity, they still view the co as a higher risk development story within the REIT (and mall) space, but believe that the stock's relative valuation has over-corrected.

9:35AM Aramark (RMK) JP Morgan initiates NEUTRAL. Firm believes the co will continue to be a leader in food service and facilities mgmt, as well as the uniform rental and uniform direct sales industries. However, they do not think the co is positioned as well as the pure uniform cos to capitalize on improving employment trends. While the co has exhibited a solid track record of rev growth and its EPS have grown slightly faster than rev over the past five years, they note that this is primarily the result of lower interest expense and share repurchases.

9:34AM Medcath (MDTH) Legg Mason upgrades Sell to HOLD. Upgrade is based on valuation and an announcement that David Nierenberg, an activist shareholder, filed a 13-D disclosing an increase in ownership to 8.1% from 6.4% and urging MDTH's board to take action to increase shareholder value. They note that Mr. Nierenberg proposes the co hold a secondary offering and sell 2.5 mln primary shares and the two private equity firms that own approximately 57%, sell 5.0 mln shares. While they believe Mr Nierenberg's offering thesis may have merit, they think the activist filing may spur MDTH's mgmt to consider other strategic alternatives to increase value.

9:34AM Medarex (MEDX) Needham & Co initiates BUY. Target $13. Firm believes MEDX's powerful antibody generating platform, in combination with a promising clinical pipeline and an experienced management team, represents a compelling investment opportunity.

9:33AM Fidelity Banc (FFFL) Sandler O'Neill downgrades Hold to SELL . Firm cites their belief that the co will struggle to meet consensus expectations over the remainder of the year and into 2006, as well as valuation. Firm says the main risk to their rating is a potential sale of the co, which is often speculated.

9:33AM Oak Hill Fincl (OAKF) Advest initiates BUY. Target $36. Firm believes the co is back on track fundamentally, after experiencing isolated credit quality issues earlier this year. They note that OAKF has fallen 23% YTD, and believe the price weakness has presented a buying opportunity.

9:32AM Honda Motor (HMC) CSFB downgrades Outperform to NEUTRAL. Firm thinks the co's current strong performance has already been factored into the share price, and while there appears little risk of a price downturn, they believe upside potential is less than 10%.

9:32AM Southside Banc (SBSI) Sandler O'Neill downgrades Buy to HOLD. Target $23 to $21. Firm believes the co will be more negatively affected than most banks by the flat yield curve as a result of SBSI's leverage strategy.

9:31AM ON Semiconductor (ONNN) Wedbush Morgan initiates BUY. Target $7. Firm also initiates IRF with a Buy and $65 tgt, and initiates FCS with a Hold and $17 tgt. For ONNN, firm thinks the co offers a compelling risk/reward story given the firm's unusually stable gross margins during the recent downturn, positive channel dynamics, further cost reduction opportunities, and reasonable valuation. For IRF, they believe gross margin expansion will continue in Dec'05 as sales seasonally ramp, and say channel dynamics appear healthy, providing a positive backdrop for investors. For FCS, they believe the stock has somewhat limited upside given its anticipated revenue growth rates and future earnings power.