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Friday, December 16, 2005 11:24:55 PM
From Briefing.com: 4:26 pm Weekly Wrap
The stock market was up modestly this week on good news. The most important piece of news by far was the Federal Reserve policy statement.
On Tuesday, the Fed raised the fed funds rate target to 4 1/4%. It was the thirteenth straight meeting at which the target was raised 25 basis points. This time, however, the Fed changed the language of the policy statement. The wording suggested that the Fed would raise rates again, but also created the opportunity to end the current round of rate hikes in the near future.
The stock market reacted favorably. The S&P was up 7 points on Tuesday as a result, and the good cheer continued on Wednesday as the index rose another 5 points. Those moves produced the gains for the week.
The news the rest of the week was also generally good. The data continue to show an amazingly resilient economy. November retail sales were up 0.3%, and November industrial production jumped 0.7%. The December manufacturing surveys from the Philadelphia and NY regions showed good growth. Wal-Mart also re-affirmed that December sales were on track as forecast.
The most important release was probably the CPI data. The total index for November fell 0.6% on a big drop in gasoline prices. More noteworthy, the core rate was up 0.2% for the second straight month after five straight 0.1% increases. This reflects a very slight firming but it is not yet a clear trend.
The corporate news included upbeat outlooks from General Electric, Honeywell, and Procter & Gamble. Pfizer and Microsoft raised their dividends. News from the auto companies was mixed as Ford reached an agreement with the unions to reduce healthcare costs, but General Motors' debt was downgraded.
Acquisitions were also a big story this week as ConocoPhilips agreed to buy Burlington Resources for $35.6 billion. Additionally, there was a report that an investment group is getting ready to bid $9.6 billion for grocery retailer Albertson's and undertake what would be the second-largest leveraged buyout ever.
Oil prices continued to backpedal as they slipped to $58.06 from $59.39 the prior week.
The main theme was clearly that the Fed has created the opportunity to end the rate hikes. But there is no guarantee when that will happen. It will depend entirely on the data. If inflation picks up and the economy remains strong, the Fed will keep raising rates. If inflation remains in check, and there are signs that the rate hikes are starting to slow down segments of the economy such as housing, then the Fed might raise rates only one more time. No one, even the Fed, knows for sure.
The underlying market tone remains upbeat and there is still the possibility of further gains in this year-end rally. It is worth remembering, however, that after a strong December last year, the market hit a wall as soon as the new year started. --Dick Green, Briefing.com
Close Dow -6.08 at 10875.59, S&P -3.62 at 1267.32, Nasdaq -8.15 at 2252.48: While upbeat corporate news, plunging oil prices and falling bond yields helped investors eye blue chip bargains midday following yesterday's stalemate session, late-day volatility on account of quarterly options expiration contributed to the market's inability to close in positive territory. Known as "quadruple witching," such options-related activity, coupled with a mediocre Q2 report from Oracle (ORCL 12.69 -0.14) offsetting Adobe Systems (ADBE 38.82 +3.89) strong Q4 report, closed the technology-heavy Composite near session lows. Some rebalancing on the Nasdaq 100 also added to the volatility as Google (GOOG 430.15 +7.62), which hit a new all-time high amid reports it shut out Microsoft (MSFT 26.90 -0.02) by paying $1.0 bln for a 5% stake in Time Warner's (TWX 18.00 +0.16) AOL, will be officially added to the Nasdaq 100 on Dec. 19. The absence of leadership in Energy, which continues to account for the bulk of earnings growth on the S&P 500 but got hammered to the tune of -2.3% amid weakness across energy complex, also weighed on overall sentiment. Consumer Discretionary also closed lower as downside guidance from Carnival Corp (CCL 52.65 -2.19) and RadioShack (RSH 22.19 -1.53) overshadowed the encouraging TWX news as well as strong earnings reports from KB Home (KBH 74.92 +0.98) and Darden Restaurants (DRI 38.81 +4.01). Despite strength in steel, after Steel Dynamics (STLD 34.36 +0.74) issued upside Q4 EPS guidance, and gains in copper, after Morgan Stanley raised their estimates on Phelps Dodge (PD 141.00 +1.31) -- a suggested holding in Briefing.com's portfolio for active investors, weakness in chemicals weighed on Materials. The biggest drag came from consolidation in Monsanto (MON 75.61 -1.40), which hit an all-time high just nine days ago. Consumer Staples, which was in focus and provided early support following reports of a potential leveraged buyout of Albertson's (ABS 24.33 +0.34), also lost ground as investors locked in gains from Procter & Gamble (PG 58.11 -0.88), which hit a 52-week high two days. Of the four economic sectors that managed to hold onto gains, the rate-sensitive Financial and Utilities sectors posted modest gains. The 10-yr note closed up 4 ticks to yield 4.44%. Health Care also finished on an upbeat note, benefiting from by Johnson & Johnson's (JNJ 60.86 +0.70) entry into the insulin delivery market by acquiring Animas Corp (PUMP 24.03 +5.83) for $518 mln, while strong follow-through buying in United Technologies (UTX 58.03 +0.43), spurred by an analyst upgrade, helped Industrials eke out a small gain. Separately, the Q3 current account balance narrowed slightly (to -$195.0 bln from -$197.7 bln) but still checked in at its third highest level ever. Since another large deficit was widely anticipated, though, the report had little impact on overall trading. Nasdaq 100 -0.8, Russell 2000 -0.2, SOX -0.6, S&P Midcap 400 -0.5, XOI -1.7, NYSE Adv/Dec 1597/1700, Nasdaq Adv/Dec 1385/1661
2:44PM NVIDIA President and CEO Adopts 10b5-1 Stock Trading Plan (NVDA) 36.86 +0.34:Co announces Jen-Hsun Huang, president and chief executive officer, adopted a personal stock trading plan in December 2005. Under the stock trading plan, Mr. Huang, plans to sell up to 2.0 mln shares of co common stock over a period of approx 21 months, commencing March 2006, as part of a strategy for personal financial and estate planning purposes. Sales will continue at roughly quarterly intervals until a planned last sale in December 2007.
10:35AM Semiconductors Hldrs Trust fall to session lows, under yesterday's low of 38.19 (SMH) 38.11 -0.21: -Technical- Note Monday's bullish gap at 37.97/38.07, followed by the 20-day ema near 37.69.
2:24 pm Time Warner (TWX)
18.14 +0.30: After months of speculation over what Time Warner's plans were for AOL, news reports are indicating the media giant is now in exclusive negotiations with Google (GOOG). According to The Wall Street Journal, Google will pay $1 bln for a 5% stake in AOL, valuing the assets at $20 bln, or roughly 25% of TWX's market cap. The deal basically shuts out Microsoft, which was interested in gaining access to AOL's subscribers and has been in talks with AOL since January in an effort to gain access to its subscribers. A Time Warner spokesman has declined to comment on the speculation, yet Time Warner's shares are trading higher on the news.
The deal for Google makes complete sense. AOL is the means to acquire the connectively and content it lacks. The race between Yahoo, Google, and Microsoft is between who can offer the best web search results, with the easiest access, to garner the greatest percentage of user traffic. Additionally, one of AOL's greatest assets is its dominant market share in the instant message space with 51.5 mln users. GOOG is certainly eyeing this business, as a means to extend the instant message service it began in August. Recently, Microsoft's MSN and Yahoo! (YHOO) announced they will now let their users exchange instant messages for the first time. With a combined user base of 49.2 mln, according to Bloomberg, it would rival AOL.
AOL's greatest assets are its global brand name, top tier advertising strength, and dominance in the instant message space. It has been widely successful in drawing in customers through its video offerings on its sites, an area where Google is lacking. The market has been watching and waiting for signs of a deal, but to date, Time Warner has been tight lipped.
News of deal raises the possibility of a proxy fight between the Board and billionaire investor Carl Icahn. Icahn, who with a group of investors owns 3% of Time Warner, has been pressuring CEO Richard Parsons to spin off assets such as the cable unit and AOL, saying the company has failed to deliver on the promises it made in 2001.
--Kimberly DuBord, Briefing.com
11:38 am KB Home (KBH)
75.15 +1.21: On the heels of a strong quarterly report from homebuilder Lennar Corp. (LEN), KB Home posted record fourth results on improved sales and operating margin. After the close Thursday, the Los Angeles-based builder said net income rose to $310.6 million, or $3.51 per share, up sharply from $186.7 million, or $2.21per share, in the year ago period. Fourth quarter revenues increased 32% to $3.15 billion, fueled by higher volumes and average selling prices. KB Home was expected to posted EPS of $3.34 on revenue of $3.3 billion, according to Reuters Estimates.
Based on the strong financial results, the stock is up nearly 2%during the regular trading session. Meanwhile, shares have gained about 47% year-to-date, but are down 12% from its peak of $85.45 reached in July amid a slowdown in the housing market.
Specifically for the latest quarter, KB Home said housing revenue was up 33% year/year to $3.14 billion, as unit volumes improved 16% and the average unit selling price increased 15%. Unit deliveries grew to 11,946 from 10,285 last year, while the average selling price increased to $262,700 from $229,200, with growth across all the company's geographic regions. KB Home's operating margin during the period expanded 310 basis points to 15.7%, helped by higher housing gross margin as well as lower SG&A expenses, which declined 120 basis points year/year.
The company also reaffirmed its outlook for fiscal 2006 with projected earnings of $11.25 per share, based on its growing backlog and strong quarterly results. That represents an 18% increase over fiscal 2005 earnings. As of November 30, the company said its backlog exceeded 25,000 units, representing potential future revenues of $6.76 billion. Analysts, on average, are expecting FY06 EPS of $11.16 on revenue of $11.66 billion. Although KB Home, and other homebuilders, continue to report solid results, it is our view that the group will return to a "more normalized level" of sales and price appreciation, given the rising interest rate environment and wavering consumer confidence.
--Richard Jahnke, Briefing.com
10:20 am RadioShack (RSH)
22.55 -1.17: RadioShack, the nation's No. 3 consumer electronics retailer, on Friday warned that fiscal 2005 earnings will fall short of its previously stated forecast, due to waning sales of wireless and traditionally high margin products, such as batteries and accessories. The Fort Worth, TX-based company, however, reaffirmed its cash flow guidance of $80 to $100 million for the full year as the outlook for working capital has improved.
Despite sales growth in higher priced, lower margin products such as MP3 players and digital imaging, the Fort Worth, TX-based company said sales and profitability of wireless has been weaker than anticipated, including the expected impact of its wireless carrier transition. Earlier this year, RadioShack severed its ties with Verizon Wireless, and agreed to sell phones by Cingular Wireless and Sprint. "We entered 2005 with a plan to pursue an orderly transition to the future for our core RadioShack business," said president and CEO David Edmondson. "We have made significant progress in executing our improvement initiatives this year, yet it is clear that we need to move much faster, more aggressively and with more urgency to enhance company performance."
In October, RadioShack targeted fiscal 2005 earnings of $2.14 to $2.24 per share, including non-recurring items. Now, the company believes that it is unlikely that it will achieve this forecast. According to Reuters Estimates, analysts are expecting full year EPS of $1.80.
Shares of RadioShack have fallen sharply in early trading on account of the news. Amid heavy competition from larger rivals Best Buy (BBY) and Circuit City (CC), the stock is down more than 26% year-to-date. Despite some pockets of strength, we continued hold an Underweight rating on the Consumer Discretionary sector.
--Richard Jahnke, Briefing.com
10:12 am Darden Restaurants (DRI)
37.18 +2.38: Darden Restaurants, which has beaten analysts' expectations in ten out of the last eleven quarters, has done it again. After the bell last night, Darden posted a 35% year-over-year profit increase in its second quarter, beating the Reuters Estimates consensus of $0.31 by four cents.
The world's largest casual dining restaurant company by sales grew its top line 7.8% year/year to $1.33 bln, matching Wall Street's expectations. Its Olive Garden unit achieved its 45th consecutive quarter of U.S. same-restaurant sales growth, with a 6.4% increase versus a 5.5% increase a year earlier and the Briefing.com Benchmark Consensus of +6.2%. The increase reflected a 3% to 4% increase in guest counts and a 2% to 3% increase in check average. Red Lobster had record operating profits on Q2 sales of $588.8 mln, which reflected a U.S. same-restaurant sales increase of 2.7%. The Briefing.com Benchmark Consensus was +3.6%.
Darden's emerging businesses - Bahama Breeze and Smokey Bones - continued to strengthen operationally. While it is apparent that DRI's flagship Olive Garden and Red Lobster brands continue to enjoy industry-leading comparable growth, added visibility from Darden's two newest brands helps alleviate some of the reservation we've had about owning the stock since June, following the company's Q4 report. While Smokey Bones "needs further refinement to broaden consumer appeal," according to company Chief Operating Officer Drew Madsen, the chain reported record sales of $77.3 mln, a 31% year/year increase due primarily to the opening of 34 more restaurants. Same-restaurant sales at Bahama Breeze increased 1.9% due to higher guest counts than last year as management successfully implemented key elements of its turnaround plan.
Based on continued expectations of U.S. same-restaurant sales growth of 4% to 5% for Red Lobster and Olive Garden, and new unit growth of approximately 4%, Darden raised its sales and earnings guidance for fiscal 2006. The company now expects earnings per share growth for fiscal 2006 to be in the 15% to 20% range, which implies EPS of $2.05-2.14 (consensus $2.01) based on fiscal 2005 EPS of $1.78. Darden shares trade at a forward P/E of 16.6x, as does Brinker International (EAT), the nation's #2 restaurant operator behind Darden. However, McDonald's (MCD), which trades at 17.3x forward earnings and was added to our portfolio of suggested stocks for active investors on December 1st, remains our favorite in the space.
--Brian Duhn, Briefing.com
09:06 am Adobe Systems (ADBE)
34.93: After the close Thursday, Adobe Systems reported record quarterly results that beat Wall Street expectations and offered upbeat guidance for fiscal 2006, which includes the impact of recently acquired Macromedia. As a result, shares of the company have trended higher in pre-market trading. The stock is up about 13.3% since the beginning of the year.
Separately, Adobe announced the resignation of Murray Demo, executive vice president, finance and CFO, who has made a personal decision to leave the company in order to spend more time with his family. At the same time, the company announced the appointment of Peg Wynn, former vice president of human resources for Xilinx, as senior vice president of human resources, and Garrett Llg, former senior vice president and head of Asia Pacific at BEA Systems, as president of Adobe Japan.
For its fiscal fourth quarter, Adobe posted record revenue of $510.4 million, up nearly 19% from $429.5 million last year. Non-GAAP net income, which excludes the net tax impact of the repatriation of certain foreign earnings and investment gains, was $151.5 million, or $0.30 per share, compared with $110.4 million, or $0.22 per share, in the year ago period. Operating margin for the period improved 350 basis points to 37.6%. According to Reuters Estimates, Adobe was expected to post EPS of $0.29 on revenue of $506.96 million.
Looking to the fiscal first quarter, the company forecast revenue of $630 to $660 million and EPS between $0.28 and $0.30 per share, excluding purchase accounting and restructuring charges related to the acquisition of Macromedia, which was completed during the latest quarter. Analysts had targeted Q1 revenue of $536.52 million and EPS of $0.30; however the analyst projections do not include the contribution from Macromedia. For fiscal 2006, the company said it expects revenue of $2.7 billion and EPS of $1.26 to $1.30, which is not comparable to the consensus estimate for revenue of $2.27 billion and EPS of $1.23.
--Richard Jahnke, Briefing.com
08:57 am Oracle (ORCL)
12.20: The world's number three software maker saw net profits slip slightly in the second quarter due to lower database sales and higher acquisition costs. Still, stripping out extraordinary items, earnings did meet analysts' expectations. The Redwood Shores, California-based company reported earnings of $798 mln, or $0.15 per share, down 2% from $815 mln or $0.16 per share earned in last year's period. Revenues totaled $3.29 bln. The 19% rise was mostly achieved through the numerous acquisitions Oracle has made over the past year including, most notably, the $11.1 bln takeover of PeopleSoft Inc.
Oracle's database business, roughly 80% of the top line, is facing mounting price competition from Microsoft (MSFT). CEO Larry Ellison has been focused on building the application side of the business through acquisitions as the database market matures. Database license sales rose 5% to $792 mln, missing analysts' expectations for the second straight quarter, after rising 13% last year. License revenues for business apps soared 24% to $266 mln. New software license revenue for database and applications combined rose 9% to $1.06 bln, vs. company's expectations of a 5-15% gain. Oracle's acquisition of PeopleSoft vaulted it to the number two spot in the market behind SAP. With the Siebel acquisition, it's hoping to narrow the gap.
Looking to Q3, Oracle anticipates total revenues growing 9-12% to $3.4-3.5 bln versus the Reuters Estimates consensus of $3.5 bln. Total software revenue growth is expected to be 10-14%, or $2.7-2.8 bln, which includes new license revenues growing 10-20% to $1.0-1.1 bln. Earnings are projected to be $0.19 per share versus the Reuters Estimates consensus of $0.20. Share volatility has been the name of the game this year with shares down over 6% to date. The stock trades at a forward multiple of 16.0x. We remain Overweight Technology, but favor industries linked to the consumer and communication end markets.
--Kimberly DuBord, Briefing.com
08:43 am Albertson's (ABS)
23.99: Albertson's shares are already moving in European trading after the Wall Street Journal reported the investment group of Cerberus Capital, Kimco Realty (KIM) and Supervalu (SVU) are poised to win the auction for the grocer for $9.6 bln. The deal is worth $26 per share, according to people familiar with the deal. Albertson's, the second largest grocer, has suffered a slew of bad tidings, including a 20-week labor strike, hurricanes, and heightened competition from Wal-Mart (WMT).
A deal could be signed any day after Albertson's board meets this weekend. According to the WSJ, the specifics are still being hashed out with CVS (CVS), which is looking at purchasing its drug store operations for $4 bln of the total overall price. We feel the integration of ABS's drug stores will be challenging, resulting in the continued valuation disparity between CVS and Walgreen (WAG). Suitors are looking at the Idaho-based company's 2,500 store base, along with the fact the company owns the land and buildings occupied by 60% of its stores.
Shares spiked in September after the company put itself up for sale. There is sure to be eleventh hour negotiating, including a possibly entry from any number of investors. The WSJ states that for now, however, investors are resigned to the Cerberus deal, which could be the second-largest leveraged buyout ever in history with an enterprise value of $16 bln.
--Kimberly DuBord, Briefing.com
10:29 am Maritrans (TUG): The firm says that with one of the largest double hull fleets serving the U.S. coastwise trade and strong underlying industry fundamentals, the co provides an attractive niche play on the U.S. domestic shipping market.
10:28 am NexMed (NEXM): Firm notes that NEXM did announce a deal with Novartis for NM100060. However, they say the poor terms of this deal raise the possibility that Novartis may simply have paid for rights it does not intend to pursue, but instead to use the development rights to kill a potential competitor to its Lamisil franchise. Co also notes that The announcement that the CEO of NexMed, Dr. Joseph Mo, has left the company suggests to us that it will be even more difficult for the company to execute on its corporate strategy.
10:20 am Robt Half (RHI): Firm says that RHI has demonstrated that its specialized model yields better operating margins, and they believe the co will continue to capitalize on increasing demand for highly skilled workers.
10:20 am eCollege.com (ECLG): ECLG reaffirmed 4Q05 guidance and issued 2006 guidance well above the firm's estimate and consensus forecasts. With a large short position (roughly 14% of WASO as of November), the firm would anticipate share appreciation on this positive news.
10:18 am Barr Pharma (BRL): Firm believes the co is well positioned to realize robust growth in F2006 and beyond. They think several events could enable upside to F2006 estimates, saying the greatest EPS impact could come from continued limited competition for generic Allegra and patent litigation settlements. Based on their survey, they believe sales of the ParaGard I.U.D. could grow significantly in future years if marketed effectively.
10:04 am Cost Plus (CPWM): Firm believes Q4 EPS is increasingly at risk. Given significant exposure to Q4, where 38% of rev and 97% of EPS are achieved, firm believes that near-term risk far exceeds potential reward.
10:03 am Adobe Systems (ADBE): Firm believes the combined Adobe/Macromedia is a creative professional powerhouse, and early indications are that the acquisition of Macromedia is progressing better than they had expected. They are still waiting to see the product timetable for truly integrated products, but to date, are pleased.
09:57 am ATI Tech (ATYT): Downgrade is based on valuation and competition concerns. The firm believes that due to increasing competition in the cell phone market and an increasingly rich valuation that it makes sense to take profits in ATYT. The firm also cites concerns about the co losing the Motorola RAZR business for the 3G version of the highly popular phone, and dont expect any lift from the Xbox 360 launch period through the end of December.
09:53 am Goldman Sachs (GS): While firm believes that 2006 will be characterized by a continuation of the 2004-05 M&A and equity underwriting cycle, favorable equity market conditions, and a solid commodities trading environment -- offset by a decline in domestic fixed income performance -- firm believes that this appears to be already priced into the stock.
09:45 am Teva Pharm (TEVA): Firm believes Copaxone and patent settlements help keep TEVA's earnings growth steady. Although they find it difficult to include generic launches in their model until they have a court win or other source of confidence, they feel the increased visibility these settlements provide should be reflected in a higher multiple on near-term earnings. Firm notes that Teva has already announced or executed agreements with GSK on Lamictal, WYE on Effexor/Effexor XR, BMY on Paraplatin and CEPH on Provigil. They believe Teva's portfolio of patent challenges is the largest of the generic companies (especially in combination with IVAX), and say additional settlement announcements are likely.
09:44 am SFBC Intl (SFCC): Despite initially promising guidance and pleas of exoneration from the independent counsel review, they say material risks emerged Thursday related to the co's Canadian operations, its structure, possible conflicts of interest and governance. Firm now identifies several new misstatements from management that further shakes their confidence in management, its judgment, and its ability to deliver upon the new guidance. They also believe that SFCC inappropriately treated patients in Miami, and an employee has emerged who clearly wields influence (never disclosed), and whose background and character are of concern.
09:42 am Cal Dive (CDIS): Target increase follows co guidance. Firm believes there could be upside to their expectation for the profit contribution of the co's marine contracting vessels due to the robust GOM marine construction market. They believe the recent acquisitions of additional marine construction vessels position CDIS to benefit from the strengthening marine construction market and to take advantage of hurricane-related work in the GOM.
The stock market was up modestly this week on good news. The most important piece of news by far was the Federal Reserve policy statement.
On Tuesday, the Fed raised the fed funds rate target to 4 1/4%. It was the thirteenth straight meeting at which the target was raised 25 basis points. This time, however, the Fed changed the language of the policy statement. The wording suggested that the Fed would raise rates again, but also created the opportunity to end the current round of rate hikes in the near future.
The stock market reacted favorably. The S&P was up 7 points on Tuesday as a result, and the good cheer continued on Wednesday as the index rose another 5 points. Those moves produced the gains for the week.
The news the rest of the week was also generally good. The data continue to show an amazingly resilient economy. November retail sales were up 0.3%, and November industrial production jumped 0.7%. The December manufacturing surveys from the Philadelphia and NY regions showed good growth. Wal-Mart also re-affirmed that December sales were on track as forecast.
The most important release was probably the CPI data. The total index for November fell 0.6% on a big drop in gasoline prices. More noteworthy, the core rate was up 0.2% for the second straight month after five straight 0.1% increases. This reflects a very slight firming but it is not yet a clear trend.
The corporate news included upbeat outlooks from General Electric, Honeywell, and Procter & Gamble. Pfizer and Microsoft raised their dividends. News from the auto companies was mixed as Ford reached an agreement with the unions to reduce healthcare costs, but General Motors' debt was downgraded.
Acquisitions were also a big story this week as ConocoPhilips agreed to buy Burlington Resources for $35.6 billion. Additionally, there was a report that an investment group is getting ready to bid $9.6 billion for grocery retailer Albertson's and undertake what would be the second-largest leveraged buyout ever.
Oil prices continued to backpedal as they slipped to $58.06 from $59.39 the prior week.
The main theme was clearly that the Fed has created the opportunity to end the rate hikes. But there is no guarantee when that will happen. It will depend entirely on the data. If inflation picks up and the economy remains strong, the Fed will keep raising rates. If inflation remains in check, and there are signs that the rate hikes are starting to slow down segments of the economy such as housing, then the Fed might raise rates only one more time. No one, even the Fed, knows for sure.
The underlying market tone remains upbeat and there is still the possibility of further gains in this year-end rally. It is worth remembering, however, that after a strong December last year, the market hit a wall as soon as the new year started. --Dick Green, Briefing.com
Index Started Week Ended Week Change %Change YTD
DJIA 10778.58 10875.59 97.01 0.9 % 0.9 %
Nasdaq 2256.73 2252.48 -4.25 -0.2 % 3.5 %
S&P 500 1259.37 1267.32 7.95 0.6 % 4.6 %
Russell 2000 688.77 683.08 -5.69 -0.8 % 4.8 %
Close Dow -6.08 at 10875.59, S&P -3.62 at 1267.32, Nasdaq -8.15 at 2252.48: While upbeat corporate news, plunging oil prices and falling bond yields helped investors eye blue chip bargains midday following yesterday's stalemate session, late-day volatility on account of quarterly options expiration contributed to the market's inability to close in positive territory. Known as "quadruple witching," such options-related activity, coupled with a mediocre Q2 report from Oracle (ORCL 12.69 -0.14) offsetting Adobe Systems (ADBE 38.82 +3.89) strong Q4 report, closed the technology-heavy Composite near session lows. Some rebalancing on the Nasdaq 100 also added to the volatility as Google (GOOG 430.15 +7.62), which hit a new all-time high amid reports it shut out Microsoft (MSFT 26.90 -0.02) by paying $1.0 bln for a 5% stake in Time Warner's (TWX 18.00 +0.16) AOL, will be officially added to the Nasdaq 100 on Dec. 19. The absence of leadership in Energy, which continues to account for the bulk of earnings growth on the S&P 500 but got hammered to the tune of -2.3% amid weakness across energy complex, also weighed on overall sentiment. Consumer Discretionary also closed lower as downside guidance from Carnival Corp (CCL 52.65 -2.19) and RadioShack (RSH 22.19 -1.53) overshadowed the encouraging TWX news as well as strong earnings reports from KB Home (KBH 74.92 +0.98) and Darden Restaurants (DRI 38.81 +4.01). Despite strength in steel, after Steel Dynamics (STLD 34.36 +0.74) issued upside Q4 EPS guidance, and gains in copper, after Morgan Stanley raised their estimates on Phelps Dodge (PD 141.00 +1.31) -- a suggested holding in Briefing.com's portfolio for active investors, weakness in chemicals weighed on Materials. The biggest drag came from consolidation in Monsanto (MON 75.61 -1.40), which hit an all-time high just nine days ago. Consumer Staples, which was in focus and provided early support following reports of a potential leveraged buyout of Albertson's (ABS 24.33 +0.34), also lost ground as investors locked in gains from Procter & Gamble (PG 58.11 -0.88), which hit a 52-week high two days. Of the four economic sectors that managed to hold onto gains, the rate-sensitive Financial and Utilities sectors posted modest gains. The 10-yr note closed up 4 ticks to yield 4.44%. Health Care also finished on an upbeat note, benefiting from by Johnson & Johnson's (JNJ 60.86 +0.70) entry into the insulin delivery market by acquiring Animas Corp (PUMP 24.03 +5.83) for $518 mln, while strong follow-through buying in United Technologies (UTX 58.03 +0.43), spurred by an analyst upgrade, helped Industrials eke out a small gain. Separately, the Q3 current account balance narrowed slightly (to -$195.0 bln from -$197.7 bln) but still checked in at its third highest level ever. Since another large deficit was widely anticipated, though, the report had little impact on overall trading. Nasdaq 100 -0.8, Russell 2000 -0.2, SOX -0.6, S&P Midcap 400 -0.5, XOI -1.7, NYSE Adv/Dec 1597/1700, Nasdaq Adv/Dec 1385/1661
2:44PM NVIDIA President and CEO Adopts 10b5-1 Stock Trading Plan (NVDA) 36.86 +0.34:Co announces Jen-Hsun Huang, president and chief executive officer, adopted a personal stock trading plan in December 2005. Under the stock trading plan, Mr. Huang, plans to sell up to 2.0 mln shares of co common stock over a period of approx 21 months, commencing March 2006, as part of a strategy for personal financial and estate planning purposes. Sales will continue at roughly quarterly intervals until a planned last sale in December 2007.
10:35AM Semiconductors Hldrs Trust fall to session lows, under yesterday's low of 38.19 (SMH) 38.11 -0.21: -Technical- Note Monday's bullish gap at 37.97/38.07, followed by the 20-day ema near 37.69.
2:24 pm Time Warner (TWX)
18.14 +0.30: After months of speculation over what Time Warner's plans were for AOL, news reports are indicating the media giant is now in exclusive negotiations with Google (GOOG). According to The Wall Street Journal, Google will pay $1 bln for a 5% stake in AOL, valuing the assets at $20 bln, or roughly 25% of TWX's market cap. The deal basically shuts out Microsoft, which was interested in gaining access to AOL's subscribers and has been in talks with AOL since January in an effort to gain access to its subscribers. A Time Warner spokesman has declined to comment on the speculation, yet Time Warner's shares are trading higher on the news.
The deal for Google makes complete sense. AOL is the means to acquire the connectively and content it lacks. The race between Yahoo, Google, and Microsoft is between who can offer the best web search results, with the easiest access, to garner the greatest percentage of user traffic. Additionally, one of AOL's greatest assets is its dominant market share in the instant message space with 51.5 mln users. GOOG is certainly eyeing this business, as a means to extend the instant message service it began in August. Recently, Microsoft's MSN and Yahoo! (YHOO) announced they will now let their users exchange instant messages for the first time. With a combined user base of 49.2 mln, according to Bloomberg, it would rival AOL.
AOL's greatest assets are its global brand name, top tier advertising strength, and dominance in the instant message space. It has been widely successful in drawing in customers through its video offerings on its sites, an area where Google is lacking. The market has been watching and waiting for signs of a deal, but to date, Time Warner has been tight lipped.
News of deal raises the possibility of a proxy fight between the Board and billionaire investor Carl Icahn. Icahn, who with a group of investors owns 3% of Time Warner, has been pressuring CEO Richard Parsons to spin off assets such as the cable unit and AOL, saying the company has failed to deliver on the promises it made in 2001.
--Kimberly DuBord, Briefing.com
11:38 am KB Home (KBH)
75.15 +1.21: On the heels of a strong quarterly report from homebuilder Lennar Corp. (LEN), KB Home posted record fourth results on improved sales and operating margin. After the close Thursday, the Los Angeles-based builder said net income rose to $310.6 million, or $3.51 per share, up sharply from $186.7 million, or $2.21per share, in the year ago period. Fourth quarter revenues increased 32% to $3.15 billion, fueled by higher volumes and average selling prices. KB Home was expected to posted EPS of $3.34 on revenue of $3.3 billion, according to Reuters Estimates.
Based on the strong financial results, the stock is up nearly 2%during the regular trading session. Meanwhile, shares have gained about 47% year-to-date, but are down 12% from its peak of $85.45 reached in July amid a slowdown in the housing market.
Specifically for the latest quarter, KB Home said housing revenue was up 33% year/year to $3.14 billion, as unit volumes improved 16% and the average unit selling price increased 15%. Unit deliveries grew to 11,946 from 10,285 last year, while the average selling price increased to $262,700 from $229,200, with growth across all the company's geographic regions. KB Home's operating margin during the period expanded 310 basis points to 15.7%, helped by higher housing gross margin as well as lower SG&A expenses, which declined 120 basis points year/year.
The company also reaffirmed its outlook for fiscal 2006 with projected earnings of $11.25 per share, based on its growing backlog and strong quarterly results. That represents an 18% increase over fiscal 2005 earnings. As of November 30, the company said its backlog exceeded 25,000 units, representing potential future revenues of $6.76 billion. Analysts, on average, are expecting FY06 EPS of $11.16 on revenue of $11.66 billion. Although KB Home, and other homebuilders, continue to report solid results, it is our view that the group will return to a "more normalized level" of sales and price appreciation, given the rising interest rate environment and wavering consumer confidence.
--Richard Jahnke, Briefing.com
10:20 am RadioShack (RSH)
22.55 -1.17: RadioShack, the nation's No. 3 consumer electronics retailer, on Friday warned that fiscal 2005 earnings will fall short of its previously stated forecast, due to waning sales of wireless and traditionally high margin products, such as batteries and accessories. The Fort Worth, TX-based company, however, reaffirmed its cash flow guidance of $80 to $100 million for the full year as the outlook for working capital has improved.
Despite sales growth in higher priced, lower margin products such as MP3 players and digital imaging, the Fort Worth, TX-based company said sales and profitability of wireless has been weaker than anticipated, including the expected impact of its wireless carrier transition. Earlier this year, RadioShack severed its ties with Verizon Wireless, and agreed to sell phones by Cingular Wireless and Sprint. "We entered 2005 with a plan to pursue an orderly transition to the future for our core RadioShack business," said president and CEO David Edmondson. "We have made significant progress in executing our improvement initiatives this year, yet it is clear that we need to move much faster, more aggressively and with more urgency to enhance company performance."
In October, RadioShack targeted fiscal 2005 earnings of $2.14 to $2.24 per share, including non-recurring items. Now, the company believes that it is unlikely that it will achieve this forecast. According to Reuters Estimates, analysts are expecting full year EPS of $1.80.
Shares of RadioShack have fallen sharply in early trading on account of the news. Amid heavy competition from larger rivals Best Buy (BBY) and Circuit City (CC), the stock is down more than 26% year-to-date. Despite some pockets of strength, we continued hold an Underweight rating on the Consumer Discretionary sector.
--Richard Jahnke, Briefing.com
10:12 am Darden Restaurants (DRI)
37.18 +2.38: Darden Restaurants, which has beaten analysts' expectations in ten out of the last eleven quarters, has done it again. After the bell last night, Darden posted a 35% year-over-year profit increase in its second quarter, beating the Reuters Estimates consensus of $0.31 by four cents.
The world's largest casual dining restaurant company by sales grew its top line 7.8% year/year to $1.33 bln, matching Wall Street's expectations. Its Olive Garden unit achieved its 45th consecutive quarter of U.S. same-restaurant sales growth, with a 6.4% increase versus a 5.5% increase a year earlier and the Briefing.com Benchmark Consensus of +6.2%. The increase reflected a 3% to 4% increase in guest counts and a 2% to 3% increase in check average. Red Lobster had record operating profits on Q2 sales of $588.8 mln, which reflected a U.S. same-restaurant sales increase of 2.7%. The Briefing.com Benchmark Consensus was +3.6%.
Darden's emerging businesses - Bahama Breeze and Smokey Bones - continued to strengthen operationally. While it is apparent that DRI's flagship Olive Garden and Red Lobster brands continue to enjoy industry-leading comparable growth, added visibility from Darden's two newest brands helps alleviate some of the reservation we've had about owning the stock since June, following the company's Q4 report. While Smokey Bones "needs further refinement to broaden consumer appeal," according to company Chief Operating Officer Drew Madsen, the chain reported record sales of $77.3 mln, a 31% year/year increase due primarily to the opening of 34 more restaurants. Same-restaurant sales at Bahama Breeze increased 1.9% due to higher guest counts than last year as management successfully implemented key elements of its turnaround plan.
Based on continued expectations of U.S. same-restaurant sales growth of 4% to 5% for Red Lobster and Olive Garden, and new unit growth of approximately 4%, Darden raised its sales and earnings guidance for fiscal 2006. The company now expects earnings per share growth for fiscal 2006 to be in the 15% to 20% range, which implies EPS of $2.05-2.14 (consensus $2.01) based on fiscal 2005 EPS of $1.78. Darden shares trade at a forward P/E of 16.6x, as does Brinker International (EAT), the nation's #2 restaurant operator behind Darden. However, McDonald's (MCD), which trades at 17.3x forward earnings and was added to our portfolio of suggested stocks for active investors on December 1st, remains our favorite in the space.
--Brian Duhn, Briefing.com
09:06 am Adobe Systems (ADBE)
34.93: After the close Thursday, Adobe Systems reported record quarterly results that beat Wall Street expectations and offered upbeat guidance for fiscal 2006, which includes the impact of recently acquired Macromedia. As a result, shares of the company have trended higher in pre-market trading. The stock is up about 13.3% since the beginning of the year.
Separately, Adobe announced the resignation of Murray Demo, executive vice president, finance and CFO, who has made a personal decision to leave the company in order to spend more time with his family. At the same time, the company announced the appointment of Peg Wynn, former vice president of human resources for Xilinx, as senior vice president of human resources, and Garrett Llg, former senior vice president and head of Asia Pacific at BEA Systems, as president of Adobe Japan.
For its fiscal fourth quarter, Adobe posted record revenue of $510.4 million, up nearly 19% from $429.5 million last year. Non-GAAP net income, which excludes the net tax impact of the repatriation of certain foreign earnings and investment gains, was $151.5 million, or $0.30 per share, compared with $110.4 million, or $0.22 per share, in the year ago period. Operating margin for the period improved 350 basis points to 37.6%. According to Reuters Estimates, Adobe was expected to post EPS of $0.29 on revenue of $506.96 million.
Looking to the fiscal first quarter, the company forecast revenue of $630 to $660 million and EPS between $0.28 and $0.30 per share, excluding purchase accounting and restructuring charges related to the acquisition of Macromedia, which was completed during the latest quarter. Analysts had targeted Q1 revenue of $536.52 million and EPS of $0.30; however the analyst projections do not include the contribution from Macromedia. For fiscal 2006, the company said it expects revenue of $2.7 billion and EPS of $1.26 to $1.30, which is not comparable to the consensus estimate for revenue of $2.27 billion and EPS of $1.23.
--Richard Jahnke, Briefing.com
08:57 am Oracle (ORCL)
12.20: The world's number three software maker saw net profits slip slightly in the second quarter due to lower database sales and higher acquisition costs. Still, stripping out extraordinary items, earnings did meet analysts' expectations. The Redwood Shores, California-based company reported earnings of $798 mln, or $0.15 per share, down 2% from $815 mln or $0.16 per share earned in last year's period. Revenues totaled $3.29 bln. The 19% rise was mostly achieved through the numerous acquisitions Oracle has made over the past year including, most notably, the $11.1 bln takeover of PeopleSoft Inc.
Oracle's database business, roughly 80% of the top line, is facing mounting price competition from Microsoft (MSFT). CEO Larry Ellison has been focused on building the application side of the business through acquisitions as the database market matures. Database license sales rose 5% to $792 mln, missing analysts' expectations for the second straight quarter, after rising 13% last year. License revenues for business apps soared 24% to $266 mln. New software license revenue for database and applications combined rose 9% to $1.06 bln, vs. company's expectations of a 5-15% gain. Oracle's acquisition of PeopleSoft vaulted it to the number two spot in the market behind SAP. With the Siebel acquisition, it's hoping to narrow the gap.
Looking to Q3, Oracle anticipates total revenues growing 9-12% to $3.4-3.5 bln versus the Reuters Estimates consensus of $3.5 bln. Total software revenue growth is expected to be 10-14%, or $2.7-2.8 bln, which includes new license revenues growing 10-20% to $1.0-1.1 bln. Earnings are projected to be $0.19 per share versus the Reuters Estimates consensus of $0.20. Share volatility has been the name of the game this year with shares down over 6% to date. The stock trades at a forward multiple of 16.0x. We remain Overweight Technology, but favor industries linked to the consumer and communication end markets.
--Kimberly DuBord, Briefing.com
08:43 am Albertson's (ABS)
23.99: Albertson's shares are already moving in European trading after the Wall Street Journal reported the investment group of Cerberus Capital, Kimco Realty (KIM) and Supervalu (SVU) are poised to win the auction for the grocer for $9.6 bln. The deal is worth $26 per share, according to people familiar with the deal. Albertson's, the second largest grocer, has suffered a slew of bad tidings, including a 20-week labor strike, hurricanes, and heightened competition from Wal-Mart (WMT).
A deal could be signed any day after Albertson's board meets this weekend. According to the WSJ, the specifics are still being hashed out with CVS (CVS), which is looking at purchasing its drug store operations for $4 bln of the total overall price. We feel the integration of ABS's drug stores will be challenging, resulting in the continued valuation disparity between CVS and Walgreen (WAG). Suitors are looking at the Idaho-based company's 2,500 store base, along with the fact the company owns the land and buildings occupied by 60% of its stores.
Shares spiked in September after the company put itself up for sale. There is sure to be eleventh hour negotiating, including a possibly entry from any number of investors. The WSJ states that for now, however, investors are resigned to the Cerberus deal, which could be the second-largest leveraged buyout ever in history with an enterprise value of $16 bln.
--Kimberly DuBord, Briefing.com
10:29 am Maritrans (TUG): The firm says that with one of the largest double hull fleets serving the U.S. coastwise trade and strong underlying industry fundamentals, the co provides an attractive niche play on the U.S. domestic shipping market.
10:28 am NexMed (NEXM): Firm notes that NEXM did announce a deal with Novartis for NM100060. However, they say the poor terms of this deal raise the possibility that Novartis may simply have paid for rights it does not intend to pursue, but instead to use the development rights to kill a potential competitor to its Lamisil franchise. Co also notes that The announcement that the CEO of NexMed, Dr. Joseph Mo, has left the company suggests to us that it will be even more difficult for the company to execute on its corporate strategy.
10:20 am Robt Half (RHI): Firm says that RHI has demonstrated that its specialized model yields better operating margins, and they believe the co will continue to capitalize on increasing demand for highly skilled workers.
10:20 am eCollege.com (ECLG): ECLG reaffirmed 4Q05 guidance and issued 2006 guidance well above the firm's estimate and consensus forecasts. With a large short position (roughly 14% of WASO as of November), the firm would anticipate share appreciation on this positive news.
10:18 am Barr Pharma (BRL): Firm believes the co is well positioned to realize robust growth in F2006 and beyond. They think several events could enable upside to F2006 estimates, saying the greatest EPS impact could come from continued limited competition for generic Allegra and patent litigation settlements. Based on their survey, they believe sales of the ParaGard I.U.D. could grow significantly in future years if marketed effectively.
10:04 am Cost Plus (CPWM): Firm believes Q4 EPS is increasingly at risk. Given significant exposure to Q4, where 38% of rev and 97% of EPS are achieved, firm believes that near-term risk far exceeds potential reward.
10:03 am Adobe Systems (ADBE): Firm believes the combined Adobe/Macromedia is a creative professional powerhouse, and early indications are that the acquisition of Macromedia is progressing better than they had expected. They are still waiting to see the product timetable for truly integrated products, but to date, are pleased.
09:57 am ATI Tech (ATYT): Downgrade is based on valuation and competition concerns. The firm believes that due to increasing competition in the cell phone market and an increasingly rich valuation that it makes sense to take profits in ATYT. The firm also cites concerns about the co losing the Motorola RAZR business for the 3G version of the highly popular phone, and dont expect any lift from the Xbox 360 launch period through the end of December.
09:53 am Goldman Sachs (GS): While firm believes that 2006 will be characterized by a continuation of the 2004-05 M&A and equity underwriting cycle, favorable equity market conditions, and a solid commodities trading environment -- offset by a decline in domestic fixed income performance -- firm believes that this appears to be already priced into the stock.
09:45 am Teva Pharm (TEVA): Firm believes Copaxone and patent settlements help keep TEVA's earnings growth steady. Although they find it difficult to include generic launches in their model until they have a court win or other source of confidence, they feel the increased visibility these settlements provide should be reflected in a higher multiple on near-term earnings. Firm notes that Teva has already announced or executed agreements with GSK on Lamictal, WYE on Effexor/Effexor XR, BMY on Paraplatin and CEPH on Provigil. They believe Teva's portfolio of patent challenges is the largest of the generic companies (especially in combination with IVAX), and say additional settlement announcements are likely.
09:44 am SFBC Intl (SFCC): Despite initially promising guidance and pleas of exoneration from the independent counsel review, they say material risks emerged Thursday related to the co's Canadian operations, its structure, possible conflicts of interest and governance. Firm now identifies several new misstatements from management that further shakes their confidence in management, its judgment, and its ability to deliver upon the new guidance. They also believe that SFCC inappropriately treated patients in Miami, and an employee has emerged who clearly wields influence (never disclosed), and whose background and character are of concern.
09:42 am Cal Dive (CDIS): Target increase follows co guidance. Firm believes there could be upside to their expectation for the profit contribution of the co's marine contracting vessels due to the robust GOM marine construction market. They believe the recent acquisitions of additional marine construction vessels position CDIS to benefit from the strengthening marine construction market and to take advantage of hurricane-related work in the GOM.
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