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Friday, November 18, 2005 9:40:42 PM
From Briefing.com: 4:58PM Weekly Wrap: At the beginning of the week Briefing.com reiterated its moderately bullish outlook for the stock market, noting there was a good prospect of a year-end rally occurring that would leave the S&P 500 with a gain of close to 5.0% for the year. At the end of the week the S&P 500 had moved closer to that target, as the blue chip average recorded its fourth consecutive weekly gain on the back of reassuring economic data, good earnings news, M&A activity, and confidence in Ben Bernanke's ability to take the place of Alan Greenspan as Fed Chairman.
The confidence in Bernanke was solidified when his nomination hearing before the Senate Banking Committee on Tuesday was highlighted with his advocacy of inflation targeting, a desire to make policy decisions more transparent, and a pledge to maintain the continuity of Greenspan's policies and policy strategies. Had the market's faith in Bernanke been shaken by his testimony, it can be presumed that both the Treasury and stock markets wouldn't have done as well as they did this week.
For the Treasury market, the yield on the 10-yr note dropped 7 basis points to 4.49%. The TICS report on Wednesday also played a supporting role in that drop as it revealed an impressive degree of foreign interest in owning U.S. securities that placated concerns about the willingness of foreigners to finance our trade deficit. The drop in market rates served as an underlying source of support for the stock market which, at the middle of the prior week, was staring at a yield of 4.64% on the 10-yr note.
Favorable inflation data played an equally important role in the stock and bond market's showing this week as neither the PPI nor the CPI report tripped any bothersome inflation alarms. Specifically, the core readings for both reports were digested with a certain sense of relief that inflation remains well contained. To that end, core-PPI fell 0.3% in October while core-CPI rose 0.2%. The latter reading did turn some heads for a brief time as it translated to a year/year increase of 2.1% that is viewed as being on the upper end of the Fed's comfort zone. Be that as it may, the stock and bond markets got past that, as it was recognized subsequent reports should contain even friendlier readings when factoring in the notable drop in energy prices of late.
The housing starts number for October was a bit softer than expected, providing evidence that rising mortgage rates are effectively cooling down the hot market. Nonetheless, in a sign of the improved sentiment in the marketplace, investors weren't unnerved by the thought of a slowing housing market so much as they were enthused by the thought that the slowdown in housing starts and signs that inflation is under control could convince the Fed not to raise rates as much as has been feared. That was reflected in the fed funds futures, as the April contract was showing only a 50/50 probability of a rate hike by Bernanke at his inaugural meeting as Fed Chairman.
Beyond the reassuring economic data, good earnings news from the likes of Wal-Mart, Lowe's, Home Depot, Hewlett-Packard, and Starbucks overshadowed some less than stellar reports from Disney, Applied Materials, Gap, and American Express, the latter of which told the market Q4 estimates are far too high. Retailers, by and large, dominated the earnings calendar, and with the exception of a November sales warning from Target, did little to stoke fears that the holiday season would be disappointing. In fact, warnings from companies like Target and Gap were generally dismissed as being company-specific in nature.
A better than expected Retail Sales report for October, which showed retail sales, ex-auto, increasing 0.9% versus a gain of 1.1% in September contributed to the sense that consumers are likely to show a willingness to spend this holiday season. Also helping was a further drop in oil prices. Crude futures ended the week down $1.27 at $57.21/bbl.
Cisco, for its part, showed a willingness to spend on Friday when it agreed to acquire set-top box maker Scientific-Atlanta for $6.9 bln, or $43 per share, in cash. That news capped off a week that began with news that Georgia-Pacific was going to be acquired by Koch Industries for $13.2 bln ,or $48 per share in cash. Other deals during the week included news that Alltel had agreed to acquire Midwest Wireless for $1.0 bln in cash and that Liz Claiborne was going to buy J. Jill Group for $366 mln, or $18 per share, in cash.
Separately, while General Motors was fending off rumors all week that it was on a path to a bankruptcy filing, fellow Dow component General Electric came through with an upward revision Friday to its FY06 EPS growth forecast. In conjunction with news that GE was selling its Insurance Solutions business to Swiss Re for $8.5 bln, General Electric, which is focusing on faster-growth businesses, raised its FY06 growth projection to 12-17% from 10-15%. That piece good news put a bid in the market that left the S&P at a 4-year high as of Friday's close.
2:30PM Autodesk (ADSK)
40.00 -7.10: Software maker Autodesk posted third quarter results that beat Wall Street estimates, however shares of the company have traded sharply lower in intraday trading due to seemingly disappointing guidance. ADSK shares, which have gained approximately 26% since the beginning of the year, excluding today's declines, are trading 15% lower on the news.
Bolstered by strong growth in revenues from new seats and subscriptions, the creator of the AutoCAD design-software program reported non-GAAP earnings of $77 million, or $0.31 per share, compared with $48 million, or $0.19 per share, for the year earlier period. That was a penny better than the consensus EPS estimate, according to Reuters Estimates. At the same time, the company said operating margin increased to 25% from 19% in the same quarter last year.
On the top-line, net revenues increased to $378.3 million, a 26% increase over $300.2 million reported in the prior year period. License revenues grew approximately 19% to $304.4 million - versus analyst expectations for $310 million - while combined revenue from subscription and upgrades rose 34%. Revenue growth was aided by increased market penetration for the company's vertical and 3D products, which saw combined revenues increase more than 100% over the prior year.
Despite another solid quarterly report, investors were focused on Autodesk's guidance. For the fourth quarter, the company said it expects earnings in the range of $0.34 to $0.36 per share on revenue of $405 to $415 million, which was in line with the consensus estimate of $0.36 on $411.11 million. Its full-year outlook was also consistent with expectations, with earnings predicted to be between $1.24 and $1.26 per share on revenue of $1.51 billion to $1.52 billion, versus consensus of $1.25 on $1.51 billion. However, looking to fiscal 2007, the company projected earnings of $1.41 to $1.45 per share, slightly lower than analyst expectations of $1.45 per share.
As evidenced by the market's reaction to the relatively positive report and earnings outlook, expectations for the company remain extremely high. Given Autodesk's aggressive growth targets and astounding stock performance over the past few years, investors continue to demand exceedingly strong performance from the company. Although Autodesk has tempered its forecast for the coming periods, it continues to benefit from increasing sales trends and expanding market presence for its industry-leading software.
--Richard Jahnke, Briefing.com
12:28PM H & R Block (HRB)
25.53 +1.68: Despite top-line growth across all of its segments, H&R Block reported a wider-than-expected second quarter loss as rising interest rates and industry pricing pressures impeded earnings in its mortgage business. Specifically, HRB said it lost $72.2 million, or ($0.22) per share, on revenue of $620.4 million. According to Reuters Estimates, the company was expected to post a loss of ($0.14) per share on revenue of $643.3 million.
HRB's home mortgage business, Option One, offset upside results in its Tax Services, RSM McGladrey, and Financial Advisors businesses. The company's mortgage services business reported pre-tax income of $61.0 million, down 44% from $108.5 million last year, even though revenue and loan originations were up for the period. H&R Block's Chairman and CEO attributed the weak earnings to increased margin pressure due to continuously rising interest rates. He noted that despite the mortgage rate increases it put into effect during the second quarter, rising funding costs in the secondary market limited the company's ability to realize margin improvement during the quarter.
Given the risk associated with the "unsettled market dynamics and the pace of secondary rate increases," HRB lowered its earnings forecast for the full year. The company now expects EPS to be between $1.90 and $2.15, down from its previously stated range of $2.12 to $2.32. That compares with the average analyst estimate of $2.11.
Despite the disappointing quarterly results and reduced outlook, which were entirely associated with mortgage expectations, shares of HRB have gained as much as 9% during the regular trading session. Although challenging market conditions have clouded prospects for the mortgage unit, the company continues to perform well across its other segments and is well positioned for the upcoming tax filing season, its seasonally strongest period.
--Richard Jahnke, Briefing.com
11:22AM Hewlett-Packard (HPQ)
29.34 +0.34: In contrast to Dell's disappointing report earlier this month, Hewlett-Packard posted better-than-expected fourth quarter results and offered an upbeat earnings forecast for the fiscal year. The number two PC maker, which has grappled to restructure operations, beat Wall Street estimates with earnings of $1.5 billion, or $0.51 per share, on revenue growth of 7%, totaling $22.9 billion. In the same period last year, the company earned $1.2 billion, or $0.41 per share, on revenue of $21.4 billion. The latest results, which exclude approximately $1.1 billion of restructuring-related costs, surpassed the consensus estimate for EPS of $0.46 and revenue of $22.76, according to Reuters Estimates.
For the current quarter, HPQ expects momentum to continue, with earnings before stock-based compensation expenses in the range of $0.46 to $0.48 per share and sales between $22.3 and $22.6 billion. This compares with the average analyst estimate for earnings of $0.44 per share and revenue of $22.6 billion. For the full-year, the company sees earnings, ex-items, of $1.88 to $1.95 per share on revenue of $89.5 billion to $91 billion. According to Reuters Estimates, analysts had projected EPS of $1.82 on revenue of $91.1 billion.
During the quarter, revenue growth was led by Asia Pacific, which was up 12% year/year to $3.8 billion. Revenue in EMEA grew 8% to $9.1 billion, while revenue in the Americas was up 5% to $10 billion. HPQ's two largest divisions, Personal Systems and Imaging and Printing, reported sales gains of 9% and 4%, respectively.
HPQ said revenue in its Personal Systems Group increased to $7.1 billion, with unit shipments up 13%. Operating profit of $200 million, or 2.8% of revenue, was up from $77 million, or 1.2% of revenue, in the prior year. In its Imaging and Printing Group, which accounted for more than half of the company's earnings from operations, revenue grew to $6.8 billion. With increased pricing pressures from competitors like Dell (DELL) and Lexmark (LXK), operating margins for the division slipped to 13.2%, down from 16.6%. Notwithstanding, the company reaffirmed operating margins in the range of 13% to 15% for fiscal 2006.
Operating margins were 7.6% companywide, compared with 7.0% a year earlier. Margins improvements in Personal Systems and Enterprise Storage and Servers were partially offset by declines in Imaging and Printing and HP Services. Although the company continues to make progress with restructuring its business to compete with competitors' lower-cost structure, namely Dell, weakening fundamentals in its core printing business continue to present significant concern. However, as the company remains focused on realigning its business by balancing revenue growth and aggressively cutting costs, the long-term prospects look compelling. Despite the myriad of challenges that HPQ still faces, the company's latest results mark its ability to successfully execute its restructuring initiatives and improve key business metrics.
--Richard Jahnke, Briefing.com
11:11AM General Electric (GE)
35.56 +0.90: Since reinsurance is volatile and consumes substantial capital to grow, General Electric today inked a deal to sell most of its struggling Insurance Solutions business to Swiss Reinsurance Co. for $6.8 bln. The initiative better positions GE to complete the transformation of its insurance portfolio, a business that lost $700 mln over the last five years in spite of a $3.2 bln capital infusion. Since 2002, GE's ongoing strategy to redeploy capital to faster-growth and higher-return businesses has generated roughly $25 bln in cash from the divestiture of five insurance businesses.
Even though GE expects to incur a loss of $2.8 bln on the sale, which is expected to close in the first half of 2006, the company boosted its quarterly dividend 14%, raised its share repurchase plan to $25 bln (from $15 bln) through 2008 and updated its outlook. While GE was on track to achieve earnings of $1.81-1.83 this year (consensus $1.82), due to a $0.10 contribution from its insurance unit, GE now sees FY05 earnings of $1.72 per share on a continuing basis. More notably, as the transaction provides greater future earnings visibility, the company sees FY06 earnings of $1.92-2.02 per share, up 12-17% year/year versus prior guidance of 10-15% growth.
So, what has been a "tough strategic fit" for GE, according to company Chairman and CEO Jeffrey Immelt, should help Swiss Re better compete against neighboring rival Munich Re, the world's largest reinsurer, and allow GE, the world's largest company by market capitalization, to enter 2006 with the fastest-growing, highest-return set of businesses it has had in a long time.
As one of just three sectors Briefing.com has rated as Overweight, our bullish view on the Industrials sector is partly based on what we believe will be a strong fourth quarter for GE. The stock, with a 29% sector weight (as of Sep. 30), has helped the S&P Industrial Index reach break-even for the year with today's 2.7% surge, but has underperformed its industrial brethren and the broader market. Nonetheless, we believe GE's strong balance sheet, improved dividend yield of 2.8%, and more aggressive buyback program are clear examples of the long-term appeal it holds for investment-minded individuals.
--Brian Duhn, Briefing.com
10:02AM Scientific-Atlanta (SFA)
42.07 +0.62: Scientific-Atlanta, a set-top box maker that Briefing.com added to its Active Portfolio on Sept. 16th, has been the target of takeover speculation in recent weeks. Accordingly, its stock has been on quite a run, gaining 26% from its low on Oct. 21 to its closing price of $41.45 yesterday. Today, the speculation has been put to rest, as Scientific-Atlanta made an official announcement that it has entered into a definitive agreement to be acquired by Cisco (CSCO) for approximately $6.9 billion or $43 per share in cash.
Briefing.com will take the occasion of this news to remove Scientific-Atlanta from its recommended portfolio for active investors. The $43 price tag represents a return of 11.3% from the price at which SFA was trading when it was added. Separately, we continue to have exposure to the set-top box market with Motorola (MOT), which is also a recommended holding for active investors.
Admittedly, we are a bit disappointed by the premium offered to shareholders as we believed Scientific-Atlanta had the wherewithal to deliver strong operating results in the coming year given 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. Now, it will be left to Cisco, for whom this deal makes sense, to tap that potential and profit from it. Cisco said it anticipates the transaction to be neutral to earnings in FY06 and slightly accretive to non-GAAP FY07 earnings.
In hindsight, Scientific-Atlanta's willingness to sell shouldn't come as a surprise. Recall that it noted in the third quarter that it had "material information" that has prevented it from buying back stock. Today's announcement lends clarity to what that "material information" was. Unfortunately, that means shareholders aren't likely to benefit from a large buyback.
--Patrick J. O'Hare, Briefing.com
9:24AM Gap, Inc. (GPS)
18.51: Last night, the specialty retailer reported Q3 (Oct) earnings of $0.24 per share, which matched the Reuters Estimates consensus, but were down 20% from a year ago. Gross margins of 35.3% declined 400 basis points due to promotions and markdowns while merchandise margins fell 240 basis points due to disappointing customer response to fall product lines. Net sales fell just 3.0% year/year to $3.86 bln, slightly below the $3.87 bln consensus, as the company maintained a disciplined approach to managing inventories. The third quarter ended with $2.5 bln in merchandise, down 3.0% from a year ago, while inventory per square foot was down 7.0% and is expected to be flat in Q4 versus a 6.0% increase last year.
Weak traffic across all three brands resulted in negative comps. Gap Stores turned in a 4.0% decline in monthly comps while chain-store sales at Old Navy, which account for the bulk of (41%) of total revenues, fell 8.0%.
Adding insult to injury, continued deterioration in the month-to-date traffic trends beyond anticipated levels, as the first holiday flows are below forecasts, led to management's decision to lower Gap's fiscal 2006 outlook. The company now sees FY06 earnings of $1.12-1.17 per share, well below previous guidance of $1.30-1.34 and the $1.25 consensus. "We are not optimistic about the fourth quarter, recognizing that it will take time to win back some of the customers we have disappointed," said CEO Paul Pressler during Gap's conference call last night.
Shares currently trade at 14.8x revised FY06 earnings, a discount to respective forward P/E multiples of 17.9 and 26.0 for rival Abercrombie & Fitch (ANF) and specialty retailer Gymboree (GYMB), a suggested holding in Briefing.com's portfolio for active investors. However, the current cloud of uncertainty hanging over Gap's long-term fundamentals, amid monthly traffic concerns, a shrinking customer base and difficult spending trends that have warranted our Underweight rating on the Consumer Discretionary sector, detracts from Gap's investment appeal at this time.
--Brian Duhn, Briefing.com
9:11AM Starbucks (SBUX)
31.22: Starbucks on Thursday reported quarterly results that beat Wall Street expectations, helped by new store openings and continued strength in its core coffee drinks. During the fiscal fourth quarter, the specialty coffee retailer said it earned $124 million, or $0.16 per share, compared with $103 million, or $0.12 per share, for the 14-week period a year earlier. The results were a penny better than the consensus estimate, according to Reuters Estimates.
Net revenues increased 13% to a record $1.7 billion from $1.5 billion last year. On a comparable 13-week basis, however, sales were up approximately 23%. Company operated retail revenues increased 14%, or 23% excluding the impact of the extra week, to $1.4 billion. The Seattle-based company said the increase was due to the opening of 735 new company-operated retail stores in the last twelve months and same-store sales growth of 8% during the latest quarter. A 4% gain in the number of customer transactions along with a 4% gain in the average ticket provided the lift for comparable sales.
Operating margin improved to 11.8% of total revenues from 10.7% in the 14-week period last year. The company attributed the improvement to lower cost of sales and store operating expenses. This was offset in part by higher general and administrative and other operating expenses.
While U.S. revenue climbed 17% to $1.4 billion, Starbucks' international business recorded a 22% sales gain totaling $279 million. The company continues to benefit from continuously expanding development potential in its international operations, particularly in China. Currently, Starbucks operates more than 300 stores in China, with considerable spending expected to drive expansion in the region. Starbucks plans to open about 1,800 new stores worldwide in fiscal 2006, with 150 new company locations and 350 licensed stores opening in international markets. The coffee retailer is also targeting earnings in the range of $0.72 to $0.74 per share, excluding stock-based compensation expenses, and sales growth of approximately 20%. Same-store sales growth is expected to be between 3% and 7%. Analysts, on average, were expecting FY06 EPS of $0.74 on revenue of $7.53 billion.
Per usual, Starbucks delivered strong quarterly results. However, its ability to exceed market expectations has become increasingly difficult as the domestic market becomes more saturated. As SBUX shares have been driven primarily by earnings growth and other factors concerning the sustainability of the company's high growth rate, continued momentum will be dictated by international expansion efforts as well as new beverage and food innovations. Given its strong execution and proven ability to develop successful product offerings, Starbucks still holds considerable growth potential.
--Richard Jahnke, Briefing.com
8:26AM Walt Disney Co. (DIS)
25.99: With Disneys fourth quarter troubles already discounted in shares, the market is looking to what Disney has to offer in 2006, which we think is shaping up to be a very lucrative year. The worldwide entertainment company is generating accelerating operating momentum going into the start of its fiscal year, finally firing on all cylinders, led by the ABC network, ESPN, Touchtone TV, and a possible recovery in its struggling film segment. We continue to sing Disneys praises as the near-term concerns over slowing DVD sales and the loss of Monday Night Football at ABC to ESPN have masked the companys growth prospects.
Disney reported its third consecutive quarter of double-digit earnings growth, besting analysts expectations by three cents. OIBDA came in lighter than expected owing to weak performance, as expected, in Studio Entertainment, in addition to Media networks. Free cash flow remained strong for the year at $2.4 bln. Fourth quarter net income was $379 mln, or 19 cents per share, compared to $516 mln, or 25 cents from last year. Revenues rose 2.5% to $7.73 bln. Excluding a slew of items, including a one-time gain and a write down, earnings per share was $0.20. Studio revenues plummeted 20% in lock step with the box office reception of several Miramax theatrical releases, which caused an operating loss of $313 mln.
Share catalysts to watch for include a Pixar (PIXR) deal, radio asset divestments, and theatrical releases. Bob Iger and Steve Jobs have obviously become much more warm and fuzzy, joining forces to allow consumers to download DISs hottest shows like Lost, Greys Anatomy, and Desperate Housewives, onto a new video iPod. This is a prime example of how Robert Igers leadership is expanding the companys focus to include new revenue streams to leverage its unmatched content library. The market was hoping for news on a distribution deal, but to no avail. A deal is expected by year-end.
Disneys pipeline of new properties and content, across its entire business, from the studio segment to the ABC Network, ESPN, theme parks and consumer products are expected to produce double-digit earnings growth again in FY06. With industry leading returns on invested capital of 7.3%, Disney drives shareholder value not just through earnings. Cash flows are also used to reward investors through continued buybacks and dividends. Some of the upside has been priced into shares, but we feel Disneys story has yet to be fully told. The stock trades with a forward price to earnings multiple of 20.0x and 9.2x EV/EBITDA. The multiple is approximately a 17% premium to the S&P 500, still below its historic premium of 20%.
We remain committed to the name as a suggested holding in our Active Portfolio due to its double-digit earnings growth, visibility, strong cash flow generation, shareholder value, and operating momentum. Looking at FY06, growth catalysts include margin acceleration at its film and theme parks, TV show syndication, TV DVD sales, and a strong box office schedule including Chronicles of Narnia, The Lion, The Witch, and The Wardrobe (12/9), the newest animated release from Pixar - Cars - and Pirates of the Caribbean: Dead Mans Chest.
--Kimberly DuBord, Briefing.com
9:51AM Altria (MO) Prudential reiterates OVERWEIGHT. Target $74 to $79. Firm thinks it is extremely likely that Judge Weinstein will certify the nationwide lights class action (Schwab), sooner or later. Even if it is sooner, firm views the short-term legal environment as favorable to the tobacco industry. Specifically, firm continues to believe that it is very likely (greater than 90% probability in each case) that both the Illinois and Florida Supreme Courts will issue opinions favorable to PM USA and the tobacco industry; and firm believes that these two events will be greeted favorably by the market.
9:36AM Secure Computing (SCUR) Kaufman Bros reiterates BUY. Target $15 to $18. Firm is saying they are impressed with the co's current position and how it will be augmented by Cyberguard.
9:33AM Nokia (NOK) FTN Midwest upgrades Neutral to BUY. Upgrade is as a result of recent improvement in North American mkt share, improved shelf presence in industrialized nations, and continued growth in emerging markets. Firm's checks suggest the co's presence in North America has improved, with 10% of contacts indicating Nokia was the most popular handset manufacturer in their Oct North American Handset Report. This was a dramatic improvement from the prior month in which no contacts reported Nokia as the most popular manufacturer. Firm says the recent success is specifically attributed to successful model introductions of clamshell products. Firm believes the greatest catalyst to Nokia is the improved mkt share the co is experiencing in higher margin markets, with expanded share in North America and Europe. Europe has improved in the last quarter and North America has recently offered improved uptake of Nokia products.
9:32AM Hewlett-Packard (HPQ) Prudential reiterates NEUTRAL. Target $28 to $36. Firm continues to have high regard for Mark Hurd who has shown that "the power of the axe" can be a big driver of earnings. However, looking into '06, they believe HPQ could face challenges as demand slows, component costs resume more normalized rates of decline, and DELL strengthens the efficiency of its model, making it a more formidable competitor once again.
9:31AM Exxon Mobil (XOM) Prudential initiates OVERWEIGHT. Target $69. Firm intitates, citing company's attractive relative valuation, strong overall shareholder yield, sector-leading ROC and robust upstream project portfolio.
9:29AM Walt Disney (DIS) CIBC Wrld Mkts downgrades Sector Perform to SECTOR UNDERPERFORM . Downgrade follows co reporting weaker than expected Q4 operating results. Firm notes that mgmt reiterated expectations for "strong double-digit" earnings growth in F06, however results will be back-end loaded. This compares with firm's previous EPS growth estimate of 19%, now 15%, and the Street's prior EPS growth est of 27%. Firm thinks it is premature to suggest multiple expansion, as the theme parks remain economically sensitive, EPS ests are likely to come in for 2006, and there is no clear plan how the co will realign its assets to pursue its strategic goals.
9:28AM Sycamore (SCMR) Lehman Brothers downgrades Equal-weight to UNDERWEIGHT . Target $4 to $4.15. Downgrade follows co stating it is exploring strategic options. Firm believes the co was close to selling itself, but this did not work out and now mgmt is planning the business as a stand-alone co. Firm says this increases the risk of a potential acquisition, which could use some of the net cash supporting the stock price.
9:27AM OmniVision (OVTI) AmTech Research upgrades Hold to BUY. Target $18. Firm's checks indicate increased 1.3MP and above activity for the October and January quarters for OVTI. They believe that with camera phones switching from VGA to 1.3MP in 2H05, there are a couple of suppliers like OVTI, MU, STM, and TOSBF that could benefit from this phenomenon. They believe Magnachip's delay in 1.3MP shipments during 2H05 benefits OVTI immensely, and their checks indicate that wafer starts for OVTI have been considerably strong.
9:26AM Activision (ATVI) Banc of America Sec downgrades Buy to NEUTRAL. Target $21 to $18. Downgrade is on valuation. Excluding cash the stock trades at 27x both this year's earnings and next year's earnings, and firm believes that most if not all of the potential positive news regarding ATVI's Holiday qtr is priced into the stock. Also, while firm thinks the co's 3Q06 est is achievable and there is likely to be upside, there may not be as much upside as some observers had expected. In addition, firm believes their current FY07 EPS est is likely to be near or slightly above the co's FY07 guidance.
The confidence in Bernanke was solidified when his nomination hearing before the Senate Banking Committee on Tuesday was highlighted with his advocacy of inflation targeting, a desire to make policy decisions more transparent, and a pledge to maintain the continuity of Greenspan's policies and policy strategies. Had the market's faith in Bernanke been shaken by his testimony, it can be presumed that both the Treasury and stock markets wouldn't have done as well as they did this week.
For the Treasury market, the yield on the 10-yr note dropped 7 basis points to 4.49%. The TICS report on Wednesday also played a supporting role in that drop as it revealed an impressive degree of foreign interest in owning U.S. securities that placated concerns about the willingness of foreigners to finance our trade deficit. The drop in market rates served as an underlying source of support for the stock market which, at the middle of the prior week, was staring at a yield of 4.64% on the 10-yr note.
Favorable inflation data played an equally important role in the stock and bond market's showing this week as neither the PPI nor the CPI report tripped any bothersome inflation alarms. Specifically, the core readings for both reports were digested with a certain sense of relief that inflation remains well contained. To that end, core-PPI fell 0.3% in October while core-CPI rose 0.2%. The latter reading did turn some heads for a brief time as it translated to a year/year increase of 2.1% that is viewed as being on the upper end of the Fed's comfort zone. Be that as it may, the stock and bond markets got past that, as it was recognized subsequent reports should contain even friendlier readings when factoring in the notable drop in energy prices of late.
The housing starts number for October was a bit softer than expected, providing evidence that rising mortgage rates are effectively cooling down the hot market. Nonetheless, in a sign of the improved sentiment in the marketplace, investors weren't unnerved by the thought of a slowing housing market so much as they were enthused by the thought that the slowdown in housing starts and signs that inflation is under control could convince the Fed not to raise rates as much as has been feared. That was reflected in the fed funds futures, as the April contract was showing only a 50/50 probability of a rate hike by Bernanke at his inaugural meeting as Fed Chairman.
Beyond the reassuring economic data, good earnings news from the likes of Wal-Mart, Lowe's, Home Depot, Hewlett-Packard, and Starbucks overshadowed some less than stellar reports from Disney, Applied Materials, Gap, and American Express, the latter of which told the market Q4 estimates are far too high. Retailers, by and large, dominated the earnings calendar, and with the exception of a November sales warning from Target, did little to stoke fears that the holiday season would be disappointing. In fact, warnings from companies like Target and Gap were generally dismissed as being company-specific in nature.
A better than expected Retail Sales report for October, which showed retail sales, ex-auto, increasing 0.9% versus a gain of 1.1% in September contributed to the sense that consumers are likely to show a willingness to spend this holiday season. Also helping was a further drop in oil prices. Crude futures ended the week down $1.27 at $57.21/bbl.
Cisco, for its part, showed a willingness to spend on Friday when it agreed to acquire set-top box maker Scientific-Atlanta for $6.9 bln, or $43 per share, in cash. That news capped off a week that began with news that Georgia-Pacific was going to be acquired by Koch Industries for $13.2 bln ,or $48 per share in cash. Other deals during the week included news that Alltel had agreed to acquire Midwest Wireless for $1.0 bln in cash and that Liz Claiborne was going to buy J. Jill Group for $366 mln, or $18 per share, in cash.
Separately, while General Motors was fending off rumors all week that it was on a path to a bankruptcy filing, fellow Dow component General Electric came through with an upward revision Friday to its FY06 EPS growth forecast. In conjunction with news that GE was selling its Insurance Solutions business to Swiss Re for $8.5 bln, General Electric, which is focusing on faster-growth businesses, raised its FY06 growth projection to 12-17% from 10-15%. That piece good news put a bid in the market that left the S&P at a 4-year high as of Friday's close.
Index Started Week Ended Week Change %Change YTD
DJIA 10686.04 10766.33 80.29 0.8 % -0.2 %
Nasdaq 2202.47 2227.07 24.60 1.1 % 2.4 %
S&P 500 1234.72 1248.27 13.55 1.1 % 3.0 %
Russell 2000 666.66 672.22 5.56 0.8 % 3.2 %
2:30PM Autodesk (ADSK)
40.00 -7.10: Software maker Autodesk posted third quarter results that beat Wall Street estimates, however shares of the company have traded sharply lower in intraday trading due to seemingly disappointing guidance. ADSK shares, which have gained approximately 26% since the beginning of the year, excluding today's declines, are trading 15% lower on the news.
Bolstered by strong growth in revenues from new seats and subscriptions, the creator of the AutoCAD design-software program reported non-GAAP earnings of $77 million, or $0.31 per share, compared with $48 million, or $0.19 per share, for the year earlier period. That was a penny better than the consensus EPS estimate, according to Reuters Estimates. At the same time, the company said operating margin increased to 25% from 19% in the same quarter last year.
On the top-line, net revenues increased to $378.3 million, a 26% increase over $300.2 million reported in the prior year period. License revenues grew approximately 19% to $304.4 million - versus analyst expectations for $310 million - while combined revenue from subscription and upgrades rose 34%. Revenue growth was aided by increased market penetration for the company's vertical and 3D products, which saw combined revenues increase more than 100% over the prior year.
Despite another solid quarterly report, investors were focused on Autodesk's guidance. For the fourth quarter, the company said it expects earnings in the range of $0.34 to $0.36 per share on revenue of $405 to $415 million, which was in line with the consensus estimate of $0.36 on $411.11 million. Its full-year outlook was also consistent with expectations, with earnings predicted to be between $1.24 and $1.26 per share on revenue of $1.51 billion to $1.52 billion, versus consensus of $1.25 on $1.51 billion. However, looking to fiscal 2007, the company projected earnings of $1.41 to $1.45 per share, slightly lower than analyst expectations of $1.45 per share.
As evidenced by the market's reaction to the relatively positive report and earnings outlook, expectations for the company remain extremely high. Given Autodesk's aggressive growth targets and astounding stock performance over the past few years, investors continue to demand exceedingly strong performance from the company. Although Autodesk has tempered its forecast for the coming periods, it continues to benefit from increasing sales trends and expanding market presence for its industry-leading software.
--Richard Jahnke, Briefing.com
12:28PM H & R Block (HRB)
25.53 +1.68: Despite top-line growth across all of its segments, H&R Block reported a wider-than-expected second quarter loss as rising interest rates and industry pricing pressures impeded earnings in its mortgage business. Specifically, HRB said it lost $72.2 million, or ($0.22) per share, on revenue of $620.4 million. According to Reuters Estimates, the company was expected to post a loss of ($0.14) per share on revenue of $643.3 million.
HRB's home mortgage business, Option One, offset upside results in its Tax Services, RSM McGladrey, and Financial Advisors businesses. The company's mortgage services business reported pre-tax income of $61.0 million, down 44% from $108.5 million last year, even though revenue and loan originations were up for the period. H&R Block's Chairman and CEO attributed the weak earnings to increased margin pressure due to continuously rising interest rates. He noted that despite the mortgage rate increases it put into effect during the second quarter, rising funding costs in the secondary market limited the company's ability to realize margin improvement during the quarter.
Given the risk associated with the "unsettled market dynamics and the pace of secondary rate increases," HRB lowered its earnings forecast for the full year. The company now expects EPS to be between $1.90 and $2.15, down from its previously stated range of $2.12 to $2.32. That compares with the average analyst estimate of $2.11.
Despite the disappointing quarterly results and reduced outlook, which were entirely associated with mortgage expectations, shares of HRB have gained as much as 9% during the regular trading session. Although challenging market conditions have clouded prospects for the mortgage unit, the company continues to perform well across its other segments and is well positioned for the upcoming tax filing season, its seasonally strongest period.
--Richard Jahnke, Briefing.com
11:22AM Hewlett-Packard (HPQ)
29.34 +0.34: In contrast to Dell's disappointing report earlier this month, Hewlett-Packard posted better-than-expected fourth quarter results and offered an upbeat earnings forecast for the fiscal year. The number two PC maker, which has grappled to restructure operations, beat Wall Street estimates with earnings of $1.5 billion, or $0.51 per share, on revenue growth of 7%, totaling $22.9 billion. In the same period last year, the company earned $1.2 billion, or $0.41 per share, on revenue of $21.4 billion. The latest results, which exclude approximately $1.1 billion of restructuring-related costs, surpassed the consensus estimate for EPS of $0.46 and revenue of $22.76, according to Reuters Estimates.
For the current quarter, HPQ expects momentum to continue, with earnings before stock-based compensation expenses in the range of $0.46 to $0.48 per share and sales between $22.3 and $22.6 billion. This compares with the average analyst estimate for earnings of $0.44 per share and revenue of $22.6 billion. For the full-year, the company sees earnings, ex-items, of $1.88 to $1.95 per share on revenue of $89.5 billion to $91 billion. According to Reuters Estimates, analysts had projected EPS of $1.82 on revenue of $91.1 billion.
During the quarter, revenue growth was led by Asia Pacific, which was up 12% year/year to $3.8 billion. Revenue in EMEA grew 8% to $9.1 billion, while revenue in the Americas was up 5% to $10 billion. HPQ's two largest divisions, Personal Systems and Imaging and Printing, reported sales gains of 9% and 4%, respectively.
HPQ said revenue in its Personal Systems Group increased to $7.1 billion, with unit shipments up 13%. Operating profit of $200 million, or 2.8% of revenue, was up from $77 million, or 1.2% of revenue, in the prior year. In its Imaging and Printing Group, which accounted for more than half of the company's earnings from operations, revenue grew to $6.8 billion. With increased pricing pressures from competitors like Dell (DELL) and Lexmark (LXK), operating margins for the division slipped to 13.2%, down from 16.6%. Notwithstanding, the company reaffirmed operating margins in the range of 13% to 15% for fiscal 2006.
Operating margins were 7.6% companywide, compared with 7.0% a year earlier. Margins improvements in Personal Systems and Enterprise Storage and Servers were partially offset by declines in Imaging and Printing and HP Services. Although the company continues to make progress with restructuring its business to compete with competitors' lower-cost structure, namely Dell, weakening fundamentals in its core printing business continue to present significant concern. However, as the company remains focused on realigning its business by balancing revenue growth and aggressively cutting costs, the long-term prospects look compelling. Despite the myriad of challenges that HPQ still faces, the company's latest results mark its ability to successfully execute its restructuring initiatives and improve key business metrics.
--Richard Jahnke, Briefing.com
11:11AM General Electric (GE)
35.56 +0.90: Since reinsurance is volatile and consumes substantial capital to grow, General Electric today inked a deal to sell most of its struggling Insurance Solutions business to Swiss Reinsurance Co. for $6.8 bln. The initiative better positions GE to complete the transformation of its insurance portfolio, a business that lost $700 mln over the last five years in spite of a $3.2 bln capital infusion. Since 2002, GE's ongoing strategy to redeploy capital to faster-growth and higher-return businesses has generated roughly $25 bln in cash from the divestiture of five insurance businesses.
Even though GE expects to incur a loss of $2.8 bln on the sale, which is expected to close in the first half of 2006, the company boosted its quarterly dividend 14%, raised its share repurchase plan to $25 bln (from $15 bln) through 2008 and updated its outlook. While GE was on track to achieve earnings of $1.81-1.83 this year (consensus $1.82), due to a $0.10 contribution from its insurance unit, GE now sees FY05 earnings of $1.72 per share on a continuing basis. More notably, as the transaction provides greater future earnings visibility, the company sees FY06 earnings of $1.92-2.02 per share, up 12-17% year/year versus prior guidance of 10-15% growth.
So, what has been a "tough strategic fit" for GE, according to company Chairman and CEO Jeffrey Immelt, should help Swiss Re better compete against neighboring rival Munich Re, the world's largest reinsurer, and allow GE, the world's largest company by market capitalization, to enter 2006 with the fastest-growing, highest-return set of businesses it has had in a long time.
As one of just three sectors Briefing.com has rated as Overweight, our bullish view on the Industrials sector is partly based on what we believe will be a strong fourth quarter for GE. The stock, with a 29% sector weight (as of Sep. 30), has helped the S&P Industrial Index reach break-even for the year with today's 2.7% surge, but has underperformed its industrial brethren and the broader market. Nonetheless, we believe GE's strong balance sheet, improved dividend yield of 2.8%, and more aggressive buyback program are clear examples of the long-term appeal it holds for investment-minded individuals.
--Brian Duhn, Briefing.com
10:02AM Scientific-Atlanta (SFA)
42.07 +0.62: Scientific-Atlanta, a set-top box maker that Briefing.com added to its Active Portfolio on Sept. 16th, has been the target of takeover speculation in recent weeks. Accordingly, its stock has been on quite a run, gaining 26% from its low on Oct. 21 to its closing price of $41.45 yesterday. Today, the speculation has been put to rest, as Scientific-Atlanta made an official announcement that it has entered into a definitive agreement to be acquired by Cisco (CSCO) for approximately $6.9 billion or $43 per share in cash.
Briefing.com will take the occasion of this news to remove Scientific-Atlanta from its recommended portfolio for active investors. The $43 price tag represents a return of 11.3% from the price at which SFA was trading when it was added. Separately, we continue to have exposure to the set-top box market with Motorola (MOT), which is also a recommended holding for active investors.
Admittedly, we are a bit disappointed by the premium offered to shareholders as we believed Scientific-Atlanta had the wherewithal to deliver strong operating results in the coming year given 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. Now, it will be left to Cisco, for whom this deal makes sense, to tap that potential and profit from it. Cisco said it anticipates the transaction to be neutral to earnings in FY06 and slightly accretive to non-GAAP FY07 earnings.
In hindsight, Scientific-Atlanta's willingness to sell shouldn't come as a surprise. Recall that it noted in the third quarter that it had "material information" that has prevented it from buying back stock. Today's announcement lends clarity to what that "material information" was. Unfortunately, that means shareholders aren't likely to benefit from a large buyback.
--Patrick J. O'Hare, Briefing.com
9:24AM Gap, Inc. (GPS)
18.51: Last night, the specialty retailer reported Q3 (Oct) earnings of $0.24 per share, which matched the Reuters Estimates consensus, but were down 20% from a year ago. Gross margins of 35.3% declined 400 basis points due to promotions and markdowns while merchandise margins fell 240 basis points due to disappointing customer response to fall product lines. Net sales fell just 3.0% year/year to $3.86 bln, slightly below the $3.87 bln consensus, as the company maintained a disciplined approach to managing inventories. The third quarter ended with $2.5 bln in merchandise, down 3.0% from a year ago, while inventory per square foot was down 7.0% and is expected to be flat in Q4 versus a 6.0% increase last year.
Weak traffic across all three brands resulted in negative comps. Gap Stores turned in a 4.0% decline in monthly comps while chain-store sales at Old Navy, which account for the bulk of (41%) of total revenues, fell 8.0%.
Adding insult to injury, continued deterioration in the month-to-date traffic trends beyond anticipated levels, as the first holiday flows are below forecasts, led to management's decision to lower Gap's fiscal 2006 outlook. The company now sees FY06 earnings of $1.12-1.17 per share, well below previous guidance of $1.30-1.34 and the $1.25 consensus. "We are not optimistic about the fourth quarter, recognizing that it will take time to win back some of the customers we have disappointed," said CEO Paul Pressler during Gap's conference call last night.
Shares currently trade at 14.8x revised FY06 earnings, a discount to respective forward P/E multiples of 17.9 and 26.0 for rival Abercrombie & Fitch (ANF) and specialty retailer Gymboree (GYMB), a suggested holding in Briefing.com's portfolio for active investors. However, the current cloud of uncertainty hanging over Gap's long-term fundamentals, amid monthly traffic concerns, a shrinking customer base and difficult spending trends that have warranted our Underweight rating on the Consumer Discretionary sector, detracts from Gap's investment appeal at this time.
--Brian Duhn, Briefing.com
9:11AM Starbucks (SBUX)
31.22: Starbucks on Thursday reported quarterly results that beat Wall Street expectations, helped by new store openings and continued strength in its core coffee drinks. During the fiscal fourth quarter, the specialty coffee retailer said it earned $124 million, or $0.16 per share, compared with $103 million, or $0.12 per share, for the 14-week period a year earlier. The results were a penny better than the consensus estimate, according to Reuters Estimates.
Net revenues increased 13% to a record $1.7 billion from $1.5 billion last year. On a comparable 13-week basis, however, sales were up approximately 23%. Company operated retail revenues increased 14%, or 23% excluding the impact of the extra week, to $1.4 billion. The Seattle-based company said the increase was due to the opening of 735 new company-operated retail stores in the last twelve months and same-store sales growth of 8% during the latest quarter. A 4% gain in the number of customer transactions along with a 4% gain in the average ticket provided the lift for comparable sales.
Operating margin improved to 11.8% of total revenues from 10.7% in the 14-week period last year. The company attributed the improvement to lower cost of sales and store operating expenses. This was offset in part by higher general and administrative and other operating expenses.
While U.S. revenue climbed 17% to $1.4 billion, Starbucks' international business recorded a 22% sales gain totaling $279 million. The company continues to benefit from continuously expanding development potential in its international operations, particularly in China. Currently, Starbucks operates more than 300 stores in China, with considerable spending expected to drive expansion in the region. Starbucks plans to open about 1,800 new stores worldwide in fiscal 2006, with 150 new company locations and 350 licensed stores opening in international markets. The coffee retailer is also targeting earnings in the range of $0.72 to $0.74 per share, excluding stock-based compensation expenses, and sales growth of approximately 20%. Same-store sales growth is expected to be between 3% and 7%. Analysts, on average, were expecting FY06 EPS of $0.74 on revenue of $7.53 billion.
Per usual, Starbucks delivered strong quarterly results. However, its ability to exceed market expectations has become increasingly difficult as the domestic market becomes more saturated. As SBUX shares have been driven primarily by earnings growth and other factors concerning the sustainability of the company's high growth rate, continued momentum will be dictated by international expansion efforts as well as new beverage and food innovations. Given its strong execution and proven ability to develop successful product offerings, Starbucks still holds considerable growth potential.
--Richard Jahnke, Briefing.com
8:26AM Walt Disney Co. (DIS)
25.99: With Disneys fourth quarter troubles already discounted in shares, the market is looking to what Disney has to offer in 2006, which we think is shaping up to be a very lucrative year. The worldwide entertainment company is generating accelerating operating momentum going into the start of its fiscal year, finally firing on all cylinders, led by the ABC network, ESPN, Touchtone TV, and a possible recovery in its struggling film segment. We continue to sing Disneys praises as the near-term concerns over slowing DVD sales and the loss of Monday Night Football at ABC to ESPN have masked the companys growth prospects.
Disney reported its third consecutive quarter of double-digit earnings growth, besting analysts expectations by three cents. OIBDA came in lighter than expected owing to weak performance, as expected, in Studio Entertainment, in addition to Media networks. Free cash flow remained strong for the year at $2.4 bln. Fourth quarter net income was $379 mln, or 19 cents per share, compared to $516 mln, or 25 cents from last year. Revenues rose 2.5% to $7.73 bln. Excluding a slew of items, including a one-time gain and a write down, earnings per share was $0.20. Studio revenues plummeted 20% in lock step with the box office reception of several Miramax theatrical releases, which caused an operating loss of $313 mln.
Share catalysts to watch for include a Pixar (PIXR) deal, radio asset divestments, and theatrical releases. Bob Iger and Steve Jobs have obviously become much more warm and fuzzy, joining forces to allow consumers to download DISs hottest shows like Lost, Greys Anatomy, and Desperate Housewives, onto a new video iPod. This is a prime example of how Robert Igers leadership is expanding the companys focus to include new revenue streams to leverage its unmatched content library. The market was hoping for news on a distribution deal, but to no avail. A deal is expected by year-end.
Disneys pipeline of new properties and content, across its entire business, from the studio segment to the ABC Network, ESPN, theme parks and consumer products are expected to produce double-digit earnings growth again in FY06. With industry leading returns on invested capital of 7.3%, Disney drives shareholder value not just through earnings. Cash flows are also used to reward investors through continued buybacks and dividends. Some of the upside has been priced into shares, but we feel Disneys story has yet to be fully told. The stock trades with a forward price to earnings multiple of 20.0x and 9.2x EV/EBITDA. The multiple is approximately a 17% premium to the S&P 500, still below its historic premium of 20%.
We remain committed to the name as a suggested holding in our Active Portfolio due to its double-digit earnings growth, visibility, strong cash flow generation, shareholder value, and operating momentum. Looking at FY06, growth catalysts include margin acceleration at its film and theme parks, TV show syndication, TV DVD sales, and a strong box office schedule including Chronicles of Narnia, The Lion, The Witch, and The Wardrobe (12/9), the newest animated release from Pixar - Cars - and Pirates of the Caribbean: Dead Mans Chest.
--Kimberly DuBord, Briefing.com
9:51AM Altria (MO) Prudential reiterates OVERWEIGHT. Target $74 to $79. Firm thinks it is extremely likely that Judge Weinstein will certify the nationwide lights class action (Schwab), sooner or later. Even if it is sooner, firm views the short-term legal environment as favorable to the tobacco industry. Specifically, firm continues to believe that it is very likely (greater than 90% probability in each case) that both the Illinois and Florida Supreme Courts will issue opinions favorable to PM USA and the tobacco industry; and firm believes that these two events will be greeted favorably by the market.
9:36AM Secure Computing (SCUR) Kaufman Bros reiterates BUY. Target $15 to $18. Firm is saying they are impressed with the co's current position and how it will be augmented by Cyberguard.
9:33AM Nokia (NOK) FTN Midwest upgrades Neutral to BUY. Upgrade is as a result of recent improvement in North American mkt share, improved shelf presence in industrialized nations, and continued growth in emerging markets. Firm's checks suggest the co's presence in North America has improved, with 10% of contacts indicating Nokia was the most popular handset manufacturer in their Oct North American Handset Report. This was a dramatic improvement from the prior month in which no contacts reported Nokia as the most popular manufacturer. Firm says the recent success is specifically attributed to successful model introductions of clamshell products. Firm believes the greatest catalyst to Nokia is the improved mkt share the co is experiencing in higher margin markets, with expanded share in North America and Europe. Europe has improved in the last quarter and North America has recently offered improved uptake of Nokia products.
9:32AM Hewlett-Packard (HPQ) Prudential reiterates NEUTRAL. Target $28 to $36. Firm continues to have high regard for Mark Hurd who has shown that "the power of the axe" can be a big driver of earnings. However, looking into '06, they believe HPQ could face challenges as demand slows, component costs resume more normalized rates of decline, and DELL strengthens the efficiency of its model, making it a more formidable competitor once again.
9:31AM Exxon Mobil (XOM) Prudential initiates OVERWEIGHT. Target $69. Firm intitates, citing company's attractive relative valuation, strong overall shareholder yield, sector-leading ROC and robust upstream project portfolio.
9:29AM Walt Disney (DIS) CIBC Wrld Mkts downgrades Sector Perform to SECTOR UNDERPERFORM . Downgrade follows co reporting weaker than expected Q4 operating results. Firm notes that mgmt reiterated expectations for "strong double-digit" earnings growth in F06, however results will be back-end loaded. This compares with firm's previous EPS growth estimate of 19%, now 15%, and the Street's prior EPS growth est of 27%. Firm thinks it is premature to suggest multiple expansion, as the theme parks remain economically sensitive, EPS ests are likely to come in for 2006, and there is no clear plan how the co will realign its assets to pursue its strategic goals.
9:28AM Sycamore (SCMR) Lehman Brothers downgrades Equal-weight to UNDERWEIGHT . Target $4 to $4.15. Downgrade follows co stating it is exploring strategic options. Firm believes the co was close to selling itself, but this did not work out and now mgmt is planning the business as a stand-alone co. Firm says this increases the risk of a potential acquisition, which could use some of the net cash supporting the stock price.
9:27AM OmniVision (OVTI) AmTech Research upgrades Hold to BUY. Target $18. Firm's checks indicate increased 1.3MP and above activity for the October and January quarters for OVTI. They believe that with camera phones switching from VGA to 1.3MP in 2H05, there are a couple of suppliers like OVTI, MU, STM, and TOSBF that could benefit from this phenomenon. They believe Magnachip's delay in 1.3MP shipments during 2H05 benefits OVTI immensely, and their checks indicate that wafer starts for OVTI have been considerably strong.
9:26AM Activision (ATVI) Banc of America Sec downgrades Buy to NEUTRAL. Target $21 to $18. Downgrade is on valuation. Excluding cash the stock trades at 27x both this year's earnings and next year's earnings, and firm believes that most if not all of the potential positive news regarding ATVI's Holiday qtr is priced into the stock. Also, while firm thinks the co's 3Q06 est is achievable and there is likely to be upside, there may not be as much upside as some observers had expected. In addition, firm believes their current FY07 EPS est is likely to be near or slightly above the co's FY07 guidance.
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