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Wednesday, November 02, 2005 11:21:09 PM
From Briefing.com: 5:32PM Microsemi to acquire Advanced Power Tech (MSCC) :Co and Advanced Power Technology (APTI) announces the signing of a definitive agreement for the co to acquire APTI. Under the terms of the agreement, each APT shareholder will receive $2.00/share in cash and 0.435 shares of the co's common stock for each share of APTI common stock. The combined co should have a profitable operating model that should generate significant cash. The combined entity has potential consolidation opportunities inline with previous restructuring efforts at both companies to improve efficiencies. Together, the companies should in time perform at greater than our 50% gross margin and 27% operating margins goals. The co expects the transaction to be accretive to its third quarter fiscal year 2006 results.
5:23PM Intersil announces $150 mln stock buyback (ISIL) 23.18 +0.58:
Close Dow +65.96 at 10472.73, S&P +12.00 at 1214.76, Nasdaq +30.26 at 2144.31: Following yesterday's detour, the equity market managed to return to gaining ground today. Buyers took control of trading action in the early going, rallying again and helping to further erase some of the indices' sharp quarter-to-date losses. Despite a blank economic docket and amid an absence of substantial market movers on the earnings front, the bullish sentiment showed no sign of wavering over the course of the day. Leadership was broad: Eight of the ten economic sectors retained gains from the morning on, and the two laggards got a late boost that sent them onto positive turf. Consumer Discretionary put in another leading performance. Rising Time Warner (TWX 17.93 +0.36) and Comcast (CMCSA 28.90 +0.80) shares, along with running retailers and outperforming homebuilders, sent the sector upwards by 1.8%. With respect to Time Warner, a better than expected Q3 earnings report and an announced $7.5 bln increase to its share buyback plan attracted buyers. Reports that a consortium of the country's largest cable operators - which includes Comcast and Time Warner - will sell cell phone service that runs over Sprint Nextel's (S 24.07 +0.22) wireless network sent both stocks higher. Retailers, for their part, rallied ahead of tomorrow's torrent of October same store sales data; Wal-Mart's (WMT 47.49 +0.50) previously-announced upside guidance and last week's strong read on consumer spending had perhaps helped catalyze an air of optimistic anticipation. In addition, a better than expected report from the EIA knocked crude into negative territory and helped keep its price below $60.00/bbl for another session - further aiding the Discretionary sector's advance. At the same time, the report did not impede the Energy sector's rise. Transocean (RIG 60.32 +2.22), a recommended holding in Briefing.com's Active Investor portfolio, lent especial support. Upon news that it was awarded $985 mln in contracts from Anadarko Petroleum (APC 91.00 +0.89), shares closed 3.6% higher. Despite a languishing Treasury market, within which the 10-year's 4.61% yield hit a seven-month high today, wide-spread strength and particular rises in property and casualty insurers, banks, and brokers pushed Financials to a 0.9% gain. Largely on account of semiconductors' performance, Tech contributed a weighty 1.2%. In addition, the surging subgroup sent the SOXX index and Nasdaq to outperforming gains. Offering further upside was Electronic Arts (ERTS 60.22 +4.43), which extended an 8.0% earnings-spurred gain that marked home entertainment software the S&P's best performing group today. Along with those particular pockets of strength, broad-based buying countered an 18% plunge in Symantec (SYMC 19.42 -4.58) that followed the company's disappointing earnings guidance. Along with Utilities, Healthcare had stood as the session's laggard. As mentioned earlier, though, both sectors cleared the flat line just ahead of the bell. With respect to the former, positive analyst comment on TXU Corp. (TXU 92.57 +2.13) and a better than expected earnings report delivered by Duke Energy (DUK 26.71 +0.52) helped foster a 0.5% rise. Healthcare, meanwhile, occupied much of the session's spotlight. Continuation of a jury's deliberation regarding the second of about 7,000 Vioxx liability suits against Merck (MRK 28.35 -0.17), which commenced yesterday, agitated investors. Further, reports that Johnson & Johnson (JNJ 61.32 -0.58) may nix its $25.4 bln acquisition of Guidant (GDT 60.46 -2.64) - which the FTC cleared today - helped stunt the sector. However, strength in healthcare suppliers pulled Healthcare to a +0.1% finish. NYSE Adv/Dec 2430/849, Nasdaq Adv/Dec 2135/895
3:37PM Duke Energy (DUK)
26.54 +0.35: Since the beginning of the year, investors have flocked to utility stocks, so much so that the Dow Jones Utilities Average has surged 17% year to date while the S&P Utility Sector has climbed 10.3%. Briefing.com, though, has maintained a Market Weight rating on the sector since April 15 - a call that has been on the mark as both the sector and the S&P 500 have risen 4.3% since then.
Before the bell, one of the utility sector's largest companies, Duke Energy, reported third-quarter net income of $41 mln, an 89% decline from the $389 mln earned a year ago, as total revenues plunged 40% year/year to $3.03 bln. Dukes strategic decision to exit much of its merchant generation business (D.E.N.A.) had a large impact on Q3 earnings, but the company believes the move should position it for stronger results over the long-term.
After backing out charges amounting to $0.84 per share related to the sale of its Duke Energy North America (D.E.N.A.) business, which was partially offset by a gain of $0.39 linked to the sale of certain assets to ConocoPhillips (COP), ongoing Q3 (Sep) earnings of $0.56 per diluted share beat the Reuters Estimates consensus by $0.08. Duke added that it expects to exceed its employee incentive goal of $1.65 per share on annual ongoing basic earnings, a number it revised upward from $1.60 to reflect the exit of the D.E.N.A. business.
Despite the external events (i.e. hurricanes) affecting the energy industry, the company, based on the quality of its existing assets and the focused efforts of its more than 20,000 employees, delivered solid results. Should Duke win final approval in the first half of 2006 of its proposed $9.0 bln merger of Ohio-based Cinergy (CIN), it will add more than 1.5 mln customers throughout Ohio, Indiana, and Kentucky to its more than 2.0 mln customers in North and South Carolina.
DUK shares have pulled back more than 10% in the last month and the stock sports a 4.7% dividend yield one of the top 25 dividend yields in the S&P 500. While rising interest rates are apt to serve as an obstacle for multiple expansion over the near-term, Duke's restructuring activity, industry-leading position, and attractive dividend yield make it a viable investment alternative for the income-oriented investor.
--Brian Duhn, Briefing.com
2:57PM Nortel Networks (NT)
3.31 +0.10: Nortel Networks on Wednesday reported a narrower third quarter loss as revenue increased, but the results fell short of analysts' expectations. The telecommunications equipment maker, which has suffered in the wake of an accounting scandal last year, posted a net loss of $105 million, or ($0.02) per share, compared to a loss of $259 million, or ($0.06) per share, in the year-ago period. The latest results included a special charge of $37 million related to restructuring activities and $20 million for the re-filing of the company's tax returns, as well as adjustments from prior periods which increased net loss by about $15 million. According to Reuters Estimates, analysts had expected EPS of $0.02.
Meanwhile, revenue rose 22% from a year ago to $2.66 billion and surpassed the consensus estimate of $2.62 billion. In the latest quarter, Nortel said revenue from carrier packet networks rose 41% to $754 million, while revenue from GSM and UMTS networks rose 24% to $674 million. Enterprise networks increased 16% to $685 million and CDMA networks increased 5% to $539 million.
The company, based in Brampton, Ontario, said gross margin was 38% of revenue in the third quarter and included an additional projected loss of about $71 million related to the BSNL contract in India in 2004. Excluding the charge, gross margin would have been 40.6%, down from both the first and second quarter levels, despite the company's restructuring efforts.
Nortel expects revenue to grow in the range of 13% for the full year, as compared to fiscal 2004. That translates to revenue of $11.1 billion, versus the consensus estimate of $10.87 billion. Additionally, Nortel sees gross margin in the range of 40% to 44% of revenue.
As a result of the consoling outlook, investors have pushed Nortel shares more than 4% higher during the regular trading session. At the same time, though, shares are down approximately 6% since the beginning of the year, as the company struggles to recover from an accounting scandal and continues to execute its restructuring plan and cost-saving initiatives. With the turnaround story continues to play out for Nortel, investors should remain on the sidelines until greater progress can be seen.
--Richard Jahnke, Briefing.com
1:07PM Transocean (RIG)
59.71 +1.61: Transocean, the world's largest offshore oil and natural-gas driller, announced that Anadarko Petroleum has agreed to rent two deepwater rigs under a three-year contract that will generate $985 mln in revenues. Contracts are for its Discover Spirit and Deepwater Millennium fifth generation drillships that will commence in June of 2007 in the Gulf of Mexico.
We continue to pound the table on Transocean, a suggested holding in our active portfolio, as the market has yet to fully price in the potential upside in the offshore drilling cycle. Today's announcement continues to support our view of a prolonged drilling cycle creating multiple expansion for the offshore drillers. RIG owns the largest and most complete fleet of mobile offshore rigs, operating in virtually every region and every rig type around the world. The stock trades at 13.4x FY06 estimates of $4.45 per share (+162% y/y). This compares to the 10-year average for the offshore drilling group of 21.3x. The argument can be made that RIG deserves a premium valuation to the group as it operates the premier fleet of deepwater assets, owning 13 of the world's 26 fifth generation rigs.
Today's news is notable for two reasons. First, the Discover Spirit will generate revenue of $520 mln over the duration of the contract, which equates to almost $475,000 per day, while the Millennium is contracted at $425,000. This is the highest long-term contracted dayrate Transocean has ever achieved on any rig.
Secondly, the contract doesn't start until 2007 and extends until 2010. This is the second and third contract signed by Anadarko. What this tells us is that producers are becoming increasingly concerned over a potential shortage of deepwater rigs. Producers appear to be scrambling to lock up assets from the established operators. This provides increased visibility, supporting our view that the drilling cycle could last well into 2007 and beyond. It also shows producers' confidence in forecasted levels for oil and gas prices - meaning producers are expecting prices will remain above historical levels.
Producers have historically been hesitant to sign longer-term contracts since they have been severely burned in past cycles. We started to see a shift in this view over the past several months, starting with a contract agreement RIG signed with Petrobras. The deal announced in June was worth an estimated $985 mln for 5 Transocean rigs totaling 19 rig years.
The Discover is currently drilling in the Gulf of Mexico for Unocal, operating at a water depth of 3,664 feet. The Millennium can drill down to 30,000 feet and is currently working at a depth of 9,132 feet in the Gulf for Anadarko. The commencement date is when current agreements for rigs with Anadarko and Royal Dutch Shell will expire.
--Kimberly DuBord, Briefing.com
12:50PM Johnson & Johnson (JNJ)
61.36 -0.54: Johnson & Johnson received conditional approval from the Federal Trade Commission for its proposed acquisition of Guidant Corp. (GDT), which has suffered in recent months amid a host of malfunctions and recalls of its implantable heart devices. Early Wednesday, the FTC cleared the merger under the conditions that JNJ divest certain rights and assets of its businesses in drug-eluding stents, endoscopic vessel harvesting products, and anastomotic assist devices because of anti-trust concerns.
Although JNJ has received clearance for its planned $25.4 billion acquisition, the company said that it is not required to proceed with the deal under the original terms as it believes the recent recalls and other developments affect both Guidant's short-term and long-term outlook. In a press release, the company said it has had discussions with Guidant regarding a restructuring of the terms of the agreement, however it noted that it "cannot assure that the companies will resume those discussions or, if discussions do resume, whether they will be able to reach agreement on revised terms that would allow it proceed with the transaction."
While JNJ has indicated that it might rescind its acquisition of Guidant, the outcome of the deal is still unknown. According to the terms of the agreement, however, JNJ has 48 hours following the FTC clearance to complete the transaction.
--Richard Jahnke, Briefing.com
11:48AM Scientific-Atlanta (SFA)
36.02 +0.95: Today Time Warner (TWX) reported that third quarter digital video subscribers rose 149,000 over the previous quarter and now total 5.2 mln. This was the single largest third quarter increase since 2002, according to TWX. Digital penetration of basic cable subscribers reached 48% at quarter's end. Additionally, Time Warner Cable reported digital video recorder (DVRs) net adds of 134,000. This compares to 132,000 in the June quarter and 136,000 in March. Overall, digital penetration grew 2% sequentially to 24% - nearing critical mass.
Scientific-Atlanta, a suggested holding in our Active Portfolio, is the primary supplier of set-top boxes for Time Warner. The media giant accounts for 21% of total sales, followed by Cablevision (13%) and Comcast (8%). Cablevision has achieved the strongest digital video penetration at 58% at the end of June. It averages 2.0 digital set-top boxes per household. This was a solid performance by TWX this quarter. We'll keep tuned in to see if the pace is sustainable.
The market has been waiting for SFA to resume share repurchases, but the company noted in the third quarter that it has material information that has prevented it from buying back stock, which will likely be resolved by year end. SFA has roughly $1.5 bln in cash on the books, which is equal to about $10 per share. A resumption of its buyback activity would be a clear catalyst for shares.
Shares in SFA have suffered selling pressure due to concerns over a slower capital spending by the MSOs ahead of the Adelphia acquisition. These concerns have eased of late as the market has turned its focus towards Q4 growth prospects and potential buybacks. We like SFA on the growing penetration and demand for DVRs, HD set-tops, and advanced digital network solutions, in addition to SFA's emerging penetration in the untapped European market. The digital wave continues to gather steam.
---Kimberly DuBord, Briefing.com
11:14AM Beazer Homes (BZH)
63.29 +3.09: In spite of rising interest rates and concerns about a nationwide housing bubble, Beazer Homes reported strong fourth quarter results that surpassed Wall Street's expectations, and offered upside guidance for fiscal 2006. The Atlanta, Georgia-based homebuilder said net income more than doubled from a year ago to $164.4 million, or $3.61 per share, and revenue increased 49.8% to $1.8 billion. The quarter included a favorable tax adjustment which reduced tax expense by approximately $4.0 million, or $0.09 per share. Excluding one-time items, the company would have earned $3.52 per share - $0.41 better than the consensus EPS estimate of $3.11. Homebuilding gross margin also expanded 350 basis points to 23.9% and operating margin expanded 350 basis points to 14.1%, demonstrating continued strong execution and favorable pricing.
Beazer recorded new order growth of 15.5%, or 4,937 homes, with a sales value of $1.4 billion. In a statement, the company cited increases in all regions except the West, where community opening delays in Nevada and California resulted in fewer available sales opportunities than expected. Home closings, meanwhile, climbed 24.3% from a year ago to a record 6,339 homes with increases in all regions except the Midwest. In the Midwest, the company said increased closings in Ohio and Kentucky were offset by a decline in Indiana.
For fiscal 2006, Beazer issued initial earnings guidance of $10.50 per share, stating that its strong level of backlog and expectations for further competitive advantages for large public builders support continued growth. Analysts, on average, had projected FY06 EPS of $10.39 on revenue of 5.48 billion, according to Reuters Estimates. The company's backlog remains strong at 9,233 homes with a sales value of $2.72 billion and provides the basis for continued strong performance in the current year.
Despite the Fed's ongoing tightening policy and steady rise in interest rates, the housing market remains strong. It continues to be Briefing.com's view that mortgage rates would have to approach the mid/upper 6.0% level to significantly constrain growth. Given the recent pull-back in prices, shares of Beazer Homes, which are off more than 8% from their highs set in July, warrant consideration for longer-term investment value.
--Richard Jahnke, Briefing.com
9:38AM Electronic Arts (ERTS)
59.00 +3.21: Electronic Arts reported fiscal second quarter results late Tuesday that beat Wall Street expectations. However, the video game publisher issued cautious guidance for the crucial holiday season and lowered its outlook for the full year.
With Microsoft's Xbox 360 expected to be released later this month and Sony and Nintendo scheduled to launch new game systems next year, the company may realize a slowdown in demand for current titles. EA's long-term prospects, however, remain intact as softer game sales, as well as higher development costs, are typical during hardware transition periods. With 5 blockbuster games expected to be released for the Xbox 360 during the current quarter, along with more than 12 new titles for existing consoles, the company continues to be one of the best positioned video game publishers.
For the latest quarter, sales declined 6% from a year ago to $675 million, but surpassed analysts' estimate of $634.6 million. EA, based in Redwood City, CA, said sales were driven by such titles as Madden NFL 06, NCAA Football 06, Burnout Revenge, FIFA 06, NBA Live 06, and The Sims 2: Nightlife - each selling more than one million copies in the period. Meanwhile, earnings were $46 million, or $0.15 per share, excluding non-recurring items, as compared with $98 million, or $0.31 per share, for the prior year. Analysts were expecting EPS of $0.05, according to Reuters Estimates.
As EA prepares for the launch of next-generation game consoles from Microsoft, Nintendo, and Sony, the company recorded a 16% year/year rise in research and development costs during the quarter, to $182 million. At the same time, general and administrative expenses climbed approximately 24% to $52 million.
While the upcoming release of new hardware should bolster long-term prospects for EA, as well as other large video game publishers, the high cost of creating new games will likely hamper near-term results. In addition, high gas prices and the effect on consumer spending trends may impact results. To that end, EA offered conservative guidance for the upcoming holiday season. The company said it expects earnings between $1.18 and $1.28 per share on revenue of $1.48 to $1.58 billion, well below analysts' expectation for earnings of $1.41 per share on revenue of $1.63 billion. For the full fiscal year, EA projected EPS between $1.45 and $1.60 and revenue of $3.25 to $3.40 billion. That compares with the analyst EPS forecast of $1.56 on revenue of $3.35 billion, according to Reuters Estimates.
--Richard Jahnke, Briefing.com
9:28AM Sprint Nextel (S)
23.85: In a press release, Comcast (CMCSA), Time Warner Cable, Cox Communications, and Sprint Nextel Corp (S) announced they will form a joint venture that "will accelerate the convergence of video entertainment, wireline, and wireless data and communication products and services." The venture aims at servicing the 41 million customers served by the cable companies, along with Sprint's nearly 46 mln subs.
The joint venture will accelerate the next generation of products and services for consumers by taking "the best of cable's core product and interactive features with the vast potential of wireless technology." In our recent upgrade of the Technology Sector, we highlighted an emerging theme that we called "everything portable, everything digital" as a growth catalyst for the sector. We continue to see this evolution at work across many different industries from consumer electronics to cable providers. As a leading supplier of digital content contribution and distribution systems and transmission networks, we recommended Scientific-Atlanta (SFA) as one way to play the digital wave sweeping the media industry.
The convergence of cable and wireless makes complete sense as it enables a seamless, wireless interface between programs. Consumers will be able to interface between email, home and mobile voicemail, DVRs, and the Internet. In the first half of 2006, the new venture plans to offer consumers a "Quadruple Play" to include video, wireless voice, data, high speed Internet, and cable phone service. Its aim is to serve consumer demand for a "third screen" beyond TV and computers. There will be co-branded wireless handsets that will integrate cable and wireless services on a single device The devices will be sold through Sprint retail stores, third-party distributors, and RadioShack (RSH) stores, with all parties retaining "full economic benefits of the acquired customers."
The next-gen handsets will connect customers over Sprint's new high-speed Power Vision EV-DO network. Investors can demo the new device on http://64.207.132.216/ where they will see a handset with interactive menu options to surf the web, listen to voicemail, read email from all locations (home, work, or PCS), or watch their favorite TV channels from ESPN to MSN. The device is quite impressive. Consumers can click on the PVR button to record a show on their home DVR for later viewing.
The deal is mutually exclusive for 3 years and a 20-year term, with a combined initial investment of $200 mln. Sprint has committed $100 mln and the combined cable companies will provide the rest. Sprint, another suggested holding in our active portfolio, will benefit from the additional revenue streams without the costly capital investment.
--Kimberly DuBord, Briefing.com
9:07AM Panera Bread Co. (PNRA)
58.02: Well, it appears Panera Bread Company (PNRA) made exactly what it kneaded - bread, as in bottom line dollars. Last night, the operator of 825 bakery-cafes in 35 states reported record third-quarter net income of $11.7 mln, a 36% year/year increase. Earnings per share of $0.37 grew 32% from the year ago period, matching analysts' revised expectations for the eighth time in ten tries. On October 18, Panera raised its Q3 (Sep) EPS outlook, upping forecasts to $0.36-0.37 from $0.34-0.35.
That same autumn day two weeks ago, Panera reported a 7.9% increase in system-wide comparable bakery-cafe sales, which were in-line with the Briefing.com Benchmark Consensus and marked the 17th consecutive period in which system-wide comps have beaten year/year comparisons. During the third quarter, system-wide comps grew 8.2%, as the opening of 30 bakery-cafes helped quarterly revenues rise 31% to $148.6 mln from $113.8 mln a year ago.
Since all key metrics showed strength in the third quarter, with management recently citing three catalysts for the growth - (1) the introduction of an antibiotic-free chicken sandwich and salad, (2) the rise of Panera's catering business and (3) price increases - the St. Louis-based quick-casual restaurant also raised its outlook.
For the fourth quarter, Panera expects 54 new bakery-cafe openings (24 company and 30 franchise), earnings of $0.48-0.49 per share and quarterly system-wide comp growth of 5.25-5.75%. Its fourth quarter EPS guidance translates into FY05 earnings of $1.62-1.63 per share, which would be up appriximately 30.0% from the prior year. For fiscal 2006, the company sees earnings of $1.97-2.01 per share (consensus $1.97), before expensing stock options.
At the current price level, Panera trades at roughly 36x trailing twelve month earnings versus its 5-yr historical average of 43.5x.
--Brian Duhn, Briefing.com
8:23AM Time Warner (TWX)
17.57: It has been a rollercoaster ride for Time Warner's shareholders over the past year, but finally there may be light at the end of the tunnel. TWX not only beat the consensus estimate by two pennies in the third quarter, it also reaffirmed guidance for the full year and boosted its stock buyback. We will have to wait for the conference call to gather insight on what the media conglomerate has planned for AOL. The once poster child for the Internet revolution has shrugged off its dead weight status and has become a hot property again on reports that Microsoft and Google are both interested in the AOL portal whose greatest assets are its global brand name, top tier advertising strength, and dominance in the instant message space.
Time Warner, the largest media company, reported an 80% jump in earnings on double-digit growth at its Cable and Network units. The cable business is the jewel in TimeWarner's crown, far outpacing the rest of the TWX family of assets in terms of growth. Net income in the quarter rose to $897 mln, or $0.19 per share, compared to $499 mln, or $0.11 per share, last year, which included $500 mln to settle accounting probes. Sales increased 6% to $10.6 bln.
Time Warner Cable is the second largest cable provider in the US behind Comcast. By offering a bundled service plan that includes high-speed data, digital phone, and digital video products, Time Warner has been able to ramp up subscribers. The bundled approach greatly improves service offerings and integrates TimeWarner more into the "digital home," while minimizing defections. Time Warner plans to spin off 16% of the cable business to the public next year after it completes the acquisition of defunct cable provider, Adelphia. AOL launched a new version of AOL.com in July with tons of free content to attract advertisers. CEO Richard Parsons stated the unit will need additional revenue streams to offset declining subs.
The film unit had a sweet quarter benefiting from the success of Wedding Crashers and New Line studio and Warner Bros' Charlie and the Chocolate Factory. Both films were the third and fourth best selling movies this year, compensating for the massive bomb that was The Dukes of Hazzard. Its cable channels, including TNT, TBS, Cartoon Network and CNN, all performed well. Free cash flow totaled $3.3 bln, with net debt at quarter's end at $12.4 bln, down $3.8 bln from last year. TWX will boost its stock buyback by $7.5 bln to $12.5 bln over the next 21 months. The repurchase falls short of the $20 bln activist shareholder Carl Icahn was targeting.
--Kimberly DuBord, Briefing.com
10:02AM Pepsi Bottling (PBG) UBS upgrades Neutral to BUY. Firm says that prior to the sharp increases in commodity costs, pricing had a substantially positive impact on bottler profits (and pricing expectations had a substantial impact on bottler multiples). They note that in 2005, while the co has been achieving solid net rev per case growth, the stock has been flat. For 2006, as COGS growth slows, they believe strong pricing will once again lead to share appreciation.
10:01AM MarineMax (HZO) Jefferies & Co upgrades Hold to BUY. Firm believes that the difficult December qtr earnings comparison has been fully discounted, with the shares now 30% off of their high of a few months ago. They think the co's low trading float of just 16.8 mln shares somewhat limits the stock's liquidity. Therefore, given the thin float, they feel it advisable to begin to build positions before the general investor focus moves beyond the already discounted difficult December qtr comparison.
9:52AM BJ Services (BJS) Lehman Brothers downgrades Overweight to EQUAL-WEIGHT. Target $40 to $35. Firm says that int'l growth in 2006 will likely lag its peers and pricing in the U.S. has been disappointing. Also, the stock has appreciated by 14% since July 26 compared with a 5% gain in the OSX.
9:52AM EDS (EDS) Friedman Billings upgrades Mkt Perform to OUTPERFORM. Target $32. Friedman Billings upgrades EDS after Q3 results. The firm believes NMCI is performing slightly better than expected, and says mgmt remains confident that GM will be resigned as it has guided, with an announcement coming in early 2006. The firm says EDS continues to shrink its total capital base while concurrently growing its free cash flow.
9:51AM American Science & Engineering (ASEI) Oppenheimer upgrades Neutral to BUY. Target $68. Oppenheimer upgrades ASEI as the stock has retrenched since their downgrade in September to a level that they believe is once again attractive relative to their medium-term earnings outlook. Firm remains confident that the outlook remains bright for the co, as it benefits from: 1) proprietary backscatter X-ray technology; and 2) a mgmt team that has proven to be highly effective.
9:45AM Mercury Interactive (MERQ) Banc of America Sec downgrades Buy to NEUTRAL. Target $42 to $35. Goldman Sachs downgrades MERQE after the co announced that CEO Amnon Landan, CFO Doug Smith, and General Counsel Susan Skaer have resigned due to improprieties related to stock option valuation, and that the co will not report today. Firm says these extraordinary developments include both execution risk given mgmt changes and risk of delisting, but says the only potential positive on the horizon is that the co may now appear to be an attractive acquisition target given its dominance in the higher growth testing market.
9:44AM Navteq (NVT) Fulcrum upgrades Neutral to BUY. Target $40 to $48. Firm believes the key concern coming out of Q3 was that European rev growth slowed to 13% from 20%-30% in the 1H05. As reasons for the slowdown, they say the co cited weak vehicle sales volume for key models at Mercedes and BMW with high navigation take-rates, as well as PND cannibalization of aftermarket turn-by-turn systems. While they recognize that these issues could cap near-term upside in ests, they believe it is reasonable to assume that vehicle sales volumes will stabilize at Mercedes and BMW within several qtrs, and estimate the co's exposure to aftermkt T.B.T. systems in Europe is just 3%-4% of rev.
9:40AM FLIR Systems (FLIR) Am Tech/JSA Research initiates BUY. Firm also adds the stock to their Focus List. They note that the stock is down 36% year-to-date stemming from the recent Q3 earnings disappointment and the loss of the competitively bid Thermal Binocular Systems contract for the U.S. Marines. However, they believe that despite the Q3 shortfall, long-term favorable fundamentals remain intact. They view FLIR to be an attractive growth co well positioned to benefit from expanding infrared opportunities in both military and commercial markets.
5:23PM Intersil announces $150 mln stock buyback (ISIL) 23.18 +0.58:
Close Dow +65.96 at 10472.73, S&P +12.00 at 1214.76, Nasdaq +30.26 at 2144.31: Following yesterday's detour, the equity market managed to return to gaining ground today. Buyers took control of trading action in the early going, rallying again and helping to further erase some of the indices' sharp quarter-to-date losses. Despite a blank economic docket and amid an absence of substantial market movers on the earnings front, the bullish sentiment showed no sign of wavering over the course of the day. Leadership was broad: Eight of the ten economic sectors retained gains from the morning on, and the two laggards got a late boost that sent them onto positive turf. Consumer Discretionary put in another leading performance. Rising Time Warner (TWX 17.93 +0.36) and Comcast (CMCSA 28.90 +0.80) shares, along with running retailers and outperforming homebuilders, sent the sector upwards by 1.8%. With respect to Time Warner, a better than expected Q3 earnings report and an announced $7.5 bln increase to its share buyback plan attracted buyers. Reports that a consortium of the country's largest cable operators - which includes Comcast and Time Warner - will sell cell phone service that runs over Sprint Nextel's (S 24.07 +0.22) wireless network sent both stocks higher. Retailers, for their part, rallied ahead of tomorrow's torrent of October same store sales data; Wal-Mart's (WMT 47.49 +0.50) previously-announced upside guidance and last week's strong read on consumer spending had perhaps helped catalyze an air of optimistic anticipation. In addition, a better than expected report from the EIA knocked crude into negative territory and helped keep its price below $60.00/bbl for another session - further aiding the Discretionary sector's advance. At the same time, the report did not impede the Energy sector's rise. Transocean (RIG 60.32 +2.22), a recommended holding in Briefing.com's Active Investor portfolio, lent especial support. Upon news that it was awarded $985 mln in contracts from Anadarko Petroleum (APC 91.00 +0.89), shares closed 3.6% higher. Despite a languishing Treasury market, within which the 10-year's 4.61% yield hit a seven-month high today, wide-spread strength and particular rises in property and casualty insurers, banks, and brokers pushed Financials to a 0.9% gain. Largely on account of semiconductors' performance, Tech contributed a weighty 1.2%. In addition, the surging subgroup sent the SOXX index and Nasdaq to outperforming gains. Offering further upside was Electronic Arts (ERTS 60.22 +4.43), which extended an 8.0% earnings-spurred gain that marked home entertainment software the S&P's best performing group today. Along with those particular pockets of strength, broad-based buying countered an 18% plunge in Symantec (SYMC 19.42 -4.58) that followed the company's disappointing earnings guidance. Along with Utilities, Healthcare had stood as the session's laggard. As mentioned earlier, though, both sectors cleared the flat line just ahead of the bell. With respect to the former, positive analyst comment on TXU Corp. (TXU 92.57 +2.13) and a better than expected earnings report delivered by Duke Energy (DUK 26.71 +0.52) helped foster a 0.5% rise. Healthcare, meanwhile, occupied much of the session's spotlight. Continuation of a jury's deliberation regarding the second of about 7,000 Vioxx liability suits against Merck (MRK 28.35 -0.17), which commenced yesterday, agitated investors. Further, reports that Johnson & Johnson (JNJ 61.32 -0.58) may nix its $25.4 bln acquisition of Guidant (GDT 60.46 -2.64) - which the FTC cleared today - helped stunt the sector. However, strength in healthcare suppliers pulled Healthcare to a +0.1% finish. NYSE Adv/Dec 2430/849, Nasdaq Adv/Dec 2135/895
3:37PM Duke Energy (DUK)
26.54 +0.35: Since the beginning of the year, investors have flocked to utility stocks, so much so that the Dow Jones Utilities Average has surged 17% year to date while the S&P Utility Sector has climbed 10.3%. Briefing.com, though, has maintained a Market Weight rating on the sector since April 15 - a call that has been on the mark as both the sector and the S&P 500 have risen 4.3% since then.
Before the bell, one of the utility sector's largest companies, Duke Energy, reported third-quarter net income of $41 mln, an 89% decline from the $389 mln earned a year ago, as total revenues plunged 40% year/year to $3.03 bln. Dukes strategic decision to exit much of its merchant generation business (D.E.N.A.) had a large impact on Q3 earnings, but the company believes the move should position it for stronger results over the long-term.
After backing out charges amounting to $0.84 per share related to the sale of its Duke Energy North America (D.E.N.A.) business, which was partially offset by a gain of $0.39 linked to the sale of certain assets to ConocoPhillips (COP), ongoing Q3 (Sep) earnings of $0.56 per diluted share beat the Reuters Estimates consensus by $0.08. Duke added that it expects to exceed its employee incentive goal of $1.65 per share on annual ongoing basic earnings, a number it revised upward from $1.60 to reflect the exit of the D.E.N.A. business.
Despite the external events (i.e. hurricanes) affecting the energy industry, the company, based on the quality of its existing assets and the focused efforts of its more than 20,000 employees, delivered solid results. Should Duke win final approval in the first half of 2006 of its proposed $9.0 bln merger of Ohio-based Cinergy (CIN), it will add more than 1.5 mln customers throughout Ohio, Indiana, and Kentucky to its more than 2.0 mln customers in North and South Carolina.
DUK shares have pulled back more than 10% in the last month and the stock sports a 4.7% dividend yield one of the top 25 dividend yields in the S&P 500. While rising interest rates are apt to serve as an obstacle for multiple expansion over the near-term, Duke's restructuring activity, industry-leading position, and attractive dividend yield make it a viable investment alternative for the income-oriented investor.
--Brian Duhn, Briefing.com
2:57PM Nortel Networks (NT)
3.31 +0.10: Nortel Networks on Wednesday reported a narrower third quarter loss as revenue increased, but the results fell short of analysts' expectations. The telecommunications equipment maker, which has suffered in the wake of an accounting scandal last year, posted a net loss of $105 million, or ($0.02) per share, compared to a loss of $259 million, or ($0.06) per share, in the year-ago period. The latest results included a special charge of $37 million related to restructuring activities and $20 million for the re-filing of the company's tax returns, as well as adjustments from prior periods which increased net loss by about $15 million. According to Reuters Estimates, analysts had expected EPS of $0.02.
Meanwhile, revenue rose 22% from a year ago to $2.66 billion and surpassed the consensus estimate of $2.62 billion. In the latest quarter, Nortel said revenue from carrier packet networks rose 41% to $754 million, while revenue from GSM and UMTS networks rose 24% to $674 million. Enterprise networks increased 16% to $685 million and CDMA networks increased 5% to $539 million.
The company, based in Brampton, Ontario, said gross margin was 38% of revenue in the third quarter and included an additional projected loss of about $71 million related to the BSNL contract in India in 2004. Excluding the charge, gross margin would have been 40.6%, down from both the first and second quarter levels, despite the company's restructuring efforts.
Nortel expects revenue to grow in the range of 13% for the full year, as compared to fiscal 2004. That translates to revenue of $11.1 billion, versus the consensus estimate of $10.87 billion. Additionally, Nortel sees gross margin in the range of 40% to 44% of revenue.
As a result of the consoling outlook, investors have pushed Nortel shares more than 4% higher during the regular trading session. At the same time, though, shares are down approximately 6% since the beginning of the year, as the company struggles to recover from an accounting scandal and continues to execute its restructuring plan and cost-saving initiatives. With the turnaround story continues to play out for Nortel, investors should remain on the sidelines until greater progress can be seen.
--Richard Jahnke, Briefing.com
1:07PM Transocean (RIG)
59.71 +1.61: Transocean, the world's largest offshore oil and natural-gas driller, announced that Anadarko Petroleum has agreed to rent two deepwater rigs under a three-year contract that will generate $985 mln in revenues. Contracts are for its Discover Spirit and Deepwater Millennium fifth generation drillships that will commence in June of 2007 in the Gulf of Mexico.
We continue to pound the table on Transocean, a suggested holding in our active portfolio, as the market has yet to fully price in the potential upside in the offshore drilling cycle. Today's announcement continues to support our view of a prolonged drilling cycle creating multiple expansion for the offshore drillers. RIG owns the largest and most complete fleet of mobile offshore rigs, operating in virtually every region and every rig type around the world. The stock trades at 13.4x FY06 estimates of $4.45 per share (+162% y/y). This compares to the 10-year average for the offshore drilling group of 21.3x. The argument can be made that RIG deserves a premium valuation to the group as it operates the premier fleet of deepwater assets, owning 13 of the world's 26 fifth generation rigs.
Today's news is notable for two reasons. First, the Discover Spirit will generate revenue of $520 mln over the duration of the contract, which equates to almost $475,000 per day, while the Millennium is contracted at $425,000. This is the highest long-term contracted dayrate Transocean has ever achieved on any rig.
Secondly, the contract doesn't start until 2007 and extends until 2010. This is the second and third contract signed by Anadarko. What this tells us is that producers are becoming increasingly concerned over a potential shortage of deepwater rigs. Producers appear to be scrambling to lock up assets from the established operators. This provides increased visibility, supporting our view that the drilling cycle could last well into 2007 and beyond. It also shows producers' confidence in forecasted levels for oil and gas prices - meaning producers are expecting prices will remain above historical levels.
Producers have historically been hesitant to sign longer-term contracts since they have been severely burned in past cycles. We started to see a shift in this view over the past several months, starting with a contract agreement RIG signed with Petrobras. The deal announced in June was worth an estimated $985 mln for 5 Transocean rigs totaling 19 rig years.
The Discover is currently drilling in the Gulf of Mexico for Unocal, operating at a water depth of 3,664 feet. The Millennium can drill down to 30,000 feet and is currently working at a depth of 9,132 feet in the Gulf for Anadarko. The commencement date is when current agreements for rigs with Anadarko and Royal Dutch Shell will expire.
--Kimberly DuBord, Briefing.com
12:50PM Johnson & Johnson (JNJ)
61.36 -0.54: Johnson & Johnson received conditional approval from the Federal Trade Commission for its proposed acquisition of Guidant Corp. (GDT), which has suffered in recent months amid a host of malfunctions and recalls of its implantable heart devices. Early Wednesday, the FTC cleared the merger under the conditions that JNJ divest certain rights and assets of its businesses in drug-eluding stents, endoscopic vessel harvesting products, and anastomotic assist devices because of anti-trust concerns.
Although JNJ has received clearance for its planned $25.4 billion acquisition, the company said that it is not required to proceed with the deal under the original terms as it believes the recent recalls and other developments affect both Guidant's short-term and long-term outlook. In a press release, the company said it has had discussions with Guidant regarding a restructuring of the terms of the agreement, however it noted that it "cannot assure that the companies will resume those discussions or, if discussions do resume, whether they will be able to reach agreement on revised terms that would allow it proceed with the transaction."
While JNJ has indicated that it might rescind its acquisition of Guidant, the outcome of the deal is still unknown. According to the terms of the agreement, however, JNJ has 48 hours following the FTC clearance to complete the transaction.
--Richard Jahnke, Briefing.com
11:48AM Scientific-Atlanta (SFA)
36.02 +0.95: Today Time Warner (TWX) reported that third quarter digital video subscribers rose 149,000 over the previous quarter and now total 5.2 mln. This was the single largest third quarter increase since 2002, according to TWX. Digital penetration of basic cable subscribers reached 48% at quarter's end. Additionally, Time Warner Cable reported digital video recorder (DVRs) net adds of 134,000. This compares to 132,000 in the June quarter and 136,000 in March. Overall, digital penetration grew 2% sequentially to 24% - nearing critical mass.
Scientific-Atlanta, a suggested holding in our Active Portfolio, is the primary supplier of set-top boxes for Time Warner. The media giant accounts for 21% of total sales, followed by Cablevision (13%) and Comcast (8%). Cablevision has achieved the strongest digital video penetration at 58% at the end of June. It averages 2.0 digital set-top boxes per household. This was a solid performance by TWX this quarter. We'll keep tuned in to see if the pace is sustainable.
The market has been waiting for SFA to resume share repurchases, but the company noted in the third quarter that it has material information that has prevented it from buying back stock, which will likely be resolved by year end. SFA has roughly $1.5 bln in cash on the books, which is equal to about $10 per share. A resumption of its buyback activity would be a clear catalyst for shares.
Shares in SFA have suffered selling pressure due to concerns over a slower capital spending by the MSOs ahead of the Adelphia acquisition. These concerns have eased of late as the market has turned its focus towards Q4 growth prospects and potential buybacks. We like SFA on the growing penetration and demand for DVRs, HD set-tops, and advanced digital network solutions, in addition to SFA's emerging penetration in the untapped European market. The digital wave continues to gather steam.
---Kimberly DuBord, Briefing.com
11:14AM Beazer Homes (BZH)
63.29 +3.09: In spite of rising interest rates and concerns about a nationwide housing bubble, Beazer Homes reported strong fourth quarter results that surpassed Wall Street's expectations, and offered upside guidance for fiscal 2006. The Atlanta, Georgia-based homebuilder said net income more than doubled from a year ago to $164.4 million, or $3.61 per share, and revenue increased 49.8% to $1.8 billion. The quarter included a favorable tax adjustment which reduced tax expense by approximately $4.0 million, or $0.09 per share. Excluding one-time items, the company would have earned $3.52 per share - $0.41 better than the consensus EPS estimate of $3.11. Homebuilding gross margin also expanded 350 basis points to 23.9% and operating margin expanded 350 basis points to 14.1%, demonstrating continued strong execution and favorable pricing.
Beazer recorded new order growth of 15.5%, or 4,937 homes, with a sales value of $1.4 billion. In a statement, the company cited increases in all regions except the West, where community opening delays in Nevada and California resulted in fewer available sales opportunities than expected. Home closings, meanwhile, climbed 24.3% from a year ago to a record 6,339 homes with increases in all regions except the Midwest. In the Midwest, the company said increased closings in Ohio and Kentucky were offset by a decline in Indiana.
For fiscal 2006, Beazer issued initial earnings guidance of $10.50 per share, stating that its strong level of backlog and expectations for further competitive advantages for large public builders support continued growth. Analysts, on average, had projected FY06 EPS of $10.39 on revenue of 5.48 billion, according to Reuters Estimates. The company's backlog remains strong at 9,233 homes with a sales value of $2.72 billion and provides the basis for continued strong performance in the current year.
Despite the Fed's ongoing tightening policy and steady rise in interest rates, the housing market remains strong. It continues to be Briefing.com's view that mortgage rates would have to approach the mid/upper 6.0% level to significantly constrain growth. Given the recent pull-back in prices, shares of Beazer Homes, which are off more than 8% from their highs set in July, warrant consideration for longer-term investment value.
--Richard Jahnke, Briefing.com
9:38AM Electronic Arts (ERTS)
59.00 +3.21: Electronic Arts reported fiscal second quarter results late Tuesday that beat Wall Street expectations. However, the video game publisher issued cautious guidance for the crucial holiday season and lowered its outlook for the full year.
With Microsoft's Xbox 360 expected to be released later this month and Sony and Nintendo scheduled to launch new game systems next year, the company may realize a slowdown in demand for current titles. EA's long-term prospects, however, remain intact as softer game sales, as well as higher development costs, are typical during hardware transition periods. With 5 blockbuster games expected to be released for the Xbox 360 during the current quarter, along with more than 12 new titles for existing consoles, the company continues to be one of the best positioned video game publishers.
For the latest quarter, sales declined 6% from a year ago to $675 million, but surpassed analysts' estimate of $634.6 million. EA, based in Redwood City, CA, said sales were driven by such titles as Madden NFL 06, NCAA Football 06, Burnout Revenge, FIFA 06, NBA Live 06, and The Sims 2: Nightlife - each selling more than one million copies in the period. Meanwhile, earnings were $46 million, or $0.15 per share, excluding non-recurring items, as compared with $98 million, or $0.31 per share, for the prior year. Analysts were expecting EPS of $0.05, according to Reuters Estimates.
As EA prepares for the launch of next-generation game consoles from Microsoft, Nintendo, and Sony, the company recorded a 16% year/year rise in research and development costs during the quarter, to $182 million. At the same time, general and administrative expenses climbed approximately 24% to $52 million.
While the upcoming release of new hardware should bolster long-term prospects for EA, as well as other large video game publishers, the high cost of creating new games will likely hamper near-term results. In addition, high gas prices and the effect on consumer spending trends may impact results. To that end, EA offered conservative guidance for the upcoming holiday season. The company said it expects earnings between $1.18 and $1.28 per share on revenue of $1.48 to $1.58 billion, well below analysts' expectation for earnings of $1.41 per share on revenue of $1.63 billion. For the full fiscal year, EA projected EPS between $1.45 and $1.60 and revenue of $3.25 to $3.40 billion. That compares with the analyst EPS forecast of $1.56 on revenue of $3.35 billion, according to Reuters Estimates.
--Richard Jahnke, Briefing.com
9:28AM Sprint Nextel (S)
23.85: In a press release, Comcast (CMCSA), Time Warner Cable, Cox Communications, and Sprint Nextel Corp (S) announced they will form a joint venture that "will accelerate the convergence of video entertainment, wireline, and wireless data and communication products and services." The venture aims at servicing the 41 million customers served by the cable companies, along with Sprint's nearly 46 mln subs.
The joint venture will accelerate the next generation of products and services for consumers by taking "the best of cable's core product and interactive features with the vast potential of wireless technology." In our recent upgrade of the Technology Sector, we highlighted an emerging theme that we called "everything portable, everything digital" as a growth catalyst for the sector. We continue to see this evolution at work across many different industries from consumer electronics to cable providers. As a leading supplier of digital content contribution and distribution systems and transmission networks, we recommended Scientific-Atlanta (SFA) as one way to play the digital wave sweeping the media industry.
The convergence of cable and wireless makes complete sense as it enables a seamless, wireless interface between programs. Consumers will be able to interface between email, home and mobile voicemail, DVRs, and the Internet. In the first half of 2006, the new venture plans to offer consumers a "Quadruple Play" to include video, wireless voice, data, high speed Internet, and cable phone service. Its aim is to serve consumer demand for a "third screen" beyond TV and computers. There will be co-branded wireless handsets that will integrate cable and wireless services on a single device The devices will be sold through Sprint retail stores, third-party distributors, and RadioShack (RSH) stores, with all parties retaining "full economic benefits of the acquired customers."
The next-gen handsets will connect customers over Sprint's new high-speed Power Vision EV-DO network. Investors can demo the new device on http://64.207.132.216/ where they will see a handset with interactive menu options to surf the web, listen to voicemail, read email from all locations (home, work, or PCS), or watch their favorite TV channels from ESPN to MSN. The device is quite impressive. Consumers can click on the PVR button to record a show on their home DVR for later viewing.
The deal is mutually exclusive for 3 years and a 20-year term, with a combined initial investment of $200 mln. Sprint has committed $100 mln and the combined cable companies will provide the rest. Sprint, another suggested holding in our active portfolio, will benefit from the additional revenue streams without the costly capital investment.
--Kimberly DuBord, Briefing.com
9:07AM Panera Bread Co. (PNRA)
58.02: Well, it appears Panera Bread Company (PNRA) made exactly what it kneaded - bread, as in bottom line dollars. Last night, the operator of 825 bakery-cafes in 35 states reported record third-quarter net income of $11.7 mln, a 36% year/year increase. Earnings per share of $0.37 grew 32% from the year ago period, matching analysts' revised expectations for the eighth time in ten tries. On October 18, Panera raised its Q3 (Sep) EPS outlook, upping forecasts to $0.36-0.37 from $0.34-0.35.
That same autumn day two weeks ago, Panera reported a 7.9% increase in system-wide comparable bakery-cafe sales, which were in-line with the Briefing.com Benchmark Consensus and marked the 17th consecutive period in which system-wide comps have beaten year/year comparisons. During the third quarter, system-wide comps grew 8.2%, as the opening of 30 bakery-cafes helped quarterly revenues rise 31% to $148.6 mln from $113.8 mln a year ago.
Since all key metrics showed strength in the third quarter, with management recently citing three catalysts for the growth - (1) the introduction of an antibiotic-free chicken sandwich and salad, (2) the rise of Panera's catering business and (3) price increases - the St. Louis-based quick-casual restaurant also raised its outlook.
For the fourth quarter, Panera expects 54 new bakery-cafe openings (24 company and 30 franchise), earnings of $0.48-0.49 per share and quarterly system-wide comp growth of 5.25-5.75%. Its fourth quarter EPS guidance translates into FY05 earnings of $1.62-1.63 per share, which would be up appriximately 30.0% from the prior year. For fiscal 2006, the company sees earnings of $1.97-2.01 per share (consensus $1.97), before expensing stock options.
At the current price level, Panera trades at roughly 36x trailing twelve month earnings versus its 5-yr historical average of 43.5x.
--Brian Duhn, Briefing.com
8:23AM Time Warner (TWX)
17.57: It has been a rollercoaster ride for Time Warner's shareholders over the past year, but finally there may be light at the end of the tunnel. TWX not only beat the consensus estimate by two pennies in the third quarter, it also reaffirmed guidance for the full year and boosted its stock buyback. We will have to wait for the conference call to gather insight on what the media conglomerate has planned for AOL. The once poster child for the Internet revolution has shrugged off its dead weight status and has become a hot property again on reports that Microsoft and Google are both interested in the AOL portal whose greatest assets are its global brand name, top tier advertising strength, and dominance in the instant message space.
Time Warner, the largest media company, reported an 80% jump in earnings on double-digit growth at its Cable and Network units. The cable business is the jewel in TimeWarner's crown, far outpacing the rest of the TWX family of assets in terms of growth. Net income in the quarter rose to $897 mln, or $0.19 per share, compared to $499 mln, or $0.11 per share, last year, which included $500 mln to settle accounting probes. Sales increased 6% to $10.6 bln.
Time Warner Cable is the second largest cable provider in the US behind Comcast. By offering a bundled service plan that includes high-speed data, digital phone, and digital video products, Time Warner has been able to ramp up subscribers. The bundled approach greatly improves service offerings and integrates TimeWarner more into the "digital home," while minimizing defections. Time Warner plans to spin off 16% of the cable business to the public next year after it completes the acquisition of defunct cable provider, Adelphia. AOL launched a new version of AOL.com in July with tons of free content to attract advertisers. CEO Richard Parsons stated the unit will need additional revenue streams to offset declining subs.
The film unit had a sweet quarter benefiting from the success of Wedding Crashers and New Line studio and Warner Bros' Charlie and the Chocolate Factory. Both films were the third and fourth best selling movies this year, compensating for the massive bomb that was The Dukes of Hazzard. Its cable channels, including TNT, TBS, Cartoon Network and CNN, all performed well. Free cash flow totaled $3.3 bln, with net debt at quarter's end at $12.4 bln, down $3.8 bln from last year. TWX will boost its stock buyback by $7.5 bln to $12.5 bln over the next 21 months. The repurchase falls short of the $20 bln activist shareholder Carl Icahn was targeting.
--Kimberly DuBord, Briefing.com
10:02AM Pepsi Bottling (PBG) UBS upgrades Neutral to BUY. Firm says that prior to the sharp increases in commodity costs, pricing had a substantially positive impact on bottler profits (and pricing expectations had a substantial impact on bottler multiples). They note that in 2005, while the co has been achieving solid net rev per case growth, the stock has been flat. For 2006, as COGS growth slows, they believe strong pricing will once again lead to share appreciation.
10:01AM MarineMax (HZO) Jefferies & Co upgrades Hold to BUY. Firm believes that the difficult December qtr earnings comparison has been fully discounted, with the shares now 30% off of their high of a few months ago. They think the co's low trading float of just 16.8 mln shares somewhat limits the stock's liquidity. Therefore, given the thin float, they feel it advisable to begin to build positions before the general investor focus moves beyond the already discounted difficult December qtr comparison.
9:52AM BJ Services (BJS) Lehman Brothers downgrades Overweight to EQUAL-WEIGHT. Target $40 to $35. Firm says that int'l growth in 2006 will likely lag its peers and pricing in the U.S. has been disappointing. Also, the stock has appreciated by 14% since July 26 compared with a 5% gain in the OSX.
9:52AM EDS (EDS) Friedman Billings upgrades Mkt Perform to OUTPERFORM. Target $32. Friedman Billings upgrades EDS after Q3 results. The firm believes NMCI is performing slightly better than expected, and says mgmt remains confident that GM will be resigned as it has guided, with an announcement coming in early 2006. The firm says EDS continues to shrink its total capital base while concurrently growing its free cash flow.
9:51AM American Science & Engineering (ASEI) Oppenheimer upgrades Neutral to BUY. Target $68. Oppenheimer upgrades ASEI as the stock has retrenched since their downgrade in September to a level that they believe is once again attractive relative to their medium-term earnings outlook. Firm remains confident that the outlook remains bright for the co, as it benefits from: 1) proprietary backscatter X-ray technology; and 2) a mgmt team that has proven to be highly effective.
9:45AM Mercury Interactive (MERQ) Banc of America Sec downgrades Buy to NEUTRAL. Target $42 to $35. Goldman Sachs downgrades MERQE after the co announced that CEO Amnon Landan, CFO Doug Smith, and General Counsel Susan Skaer have resigned due to improprieties related to stock option valuation, and that the co will not report today. Firm says these extraordinary developments include both execution risk given mgmt changes and risk of delisting, but says the only potential positive on the horizon is that the co may now appear to be an attractive acquisition target given its dominance in the higher growth testing market.
9:44AM Navteq (NVT) Fulcrum upgrades Neutral to BUY. Target $40 to $48. Firm believes the key concern coming out of Q3 was that European rev growth slowed to 13% from 20%-30% in the 1H05. As reasons for the slowdown, they say the co cited weak vehicle sales volume for key models at Mercedes and BMW with high navigation take-rates, as well as PND cannibalization of aftermarket turn-by-turn systems. While they recognize that these issues could cap near-term upside in ests, they believe it is reasonable to assume that vehicle sales volumes will stabilize at Mercedes and BMW within several qtrs, and estimate the co's exposure to aftermkt T.B.T. systems in Europe is just 3%-4% of rev.
9:40AM FLIR Systems (FLIR) Am Tech/JSA Research initiates BUY. Firm also adds the stock to their Focus List. They note that the stock is down 36% year-to-date stemming from the recent Q3 earnings disappointment and the loss of the competitively bid Thermal Binocular Systems contract for the U.S. Marines. However, they believe that despite the Q3 shortfall, long-term favorable fundamentals remain intact. They view FLIR to be an attractive growth co well positioned to benefit from expanding infrared opportunities in both military and commercial markets.
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