From Briefing.com: 4:08PM Jabil Circuit reports $0.02 better than consensus; guides Q2 in-line; guides Y06 to high end of previous guidance (JBL) :Reports Q1 (Nov) earnings of $0.44 per share, excluding non-recurring items, $0.02 better than the Reuters Estimates consensus of $0.42; revenues rose 31.1% year/year to $2.4 bln vs the $2.3 bln consensus. Co issues in-line guidance for Q2, sees EPS of $0.34-0.38 vs. $0.36 consensus; sees Q2 revs of $2.1-2.3 bln vs. 2.14 bln consensus. Co issues upside guidance for FY06, sees EPS of $1.65, previous guidance was $1.55-1.65, vs. $1.61 consensus; sees FY06 revs of $9.3 bln, previous guidance was $8.7-9.3 bln, vs. 9.03 bln consensus.
4:04PM FSI Intl Q1 loss $0.11 better than consensus; guides Q2 revs in-line (FSII) :Reports Q1 (Nov) loss of $0.14 per share, $0.11 better than the Reuters Estimates consensus of ($0.25); revenues fell 4.3% year/year to $18.6 mln vs the $17.4 mln consensus. Co sees Q2 revs of $20-24 mln vs. $22.32 mln consensus.
4:00PM Diodes signs definitive agreement for Anachip acquisition for approx $30 mln; will be accretive to 2006 earnings (DIOD) 31.50 -2.59:Co announces it signed a definitive stock purchase agreement to acquire Anachip Corporation. Anachip's main product focus is Power Management ICs. Anachip's products are widely used in LCD monitor/TV's, wireless 802.11 LAN access points, brushless DC motor fans, portable DVD players, datacom devices, ADSL modems, TV/satellite set-top boxes, and power supplies. For the year ended December 31, 2005, revenue from Anachip's Power Management ICs is expected to be approx $35 mln, generating approx $2.5 mln in net income, and the acquisition is expected to be accretive to the co's 2006 earnings. The all-cash transaction of $30 mln is expected to in close mid- January 2006.
4:13PM Electronic Arts expects Q3-Q4 and FY06 guidance to be well below prior guidance (ERTS) : -Update- Co announced that it expects net revenue and earnings per share for the third and fourth fiscal quarters and fiscal 2006 to be well below both the financial guidance provided by EA on November 1, 2005 as well as current consensus estimates. The changes are primarily the result of unanticipated market declines in both North America and Europe. "Holiday sales are not meeting expectations... For the December quarter, it is likely the industry will be down double digits on a percentage basis."
Close Dow -30.98 at 10805.55, S&P -0.30 at 1259.62, Nasdaq -0.32 at 2222.42: Stocks fell for the fourth straight day, extending the broader market's longest losing streak since October, as investors were concerned that ongoing strength in the housing market would spur further Fed tightening. Even though a smaller than expected 0.1% rise in core-PPI indicated that higher energy prices have not led to broad inflationary pressures, better than expected housing starts and building permits stole the spotlight. Nov. housing starts checked in above the 2.0 mln annual rate for a seventh straight month while strong permits suggested that builders still expect starts to stay at a strong rate in the months ahead -- one of Fed Chairman Greenspan's largest concerns. The 10-yr note closed down 5 ticks to yield 4.46%. With regard to industry leadership, seven of ten economic sectors closed in negative territory. Telecom Services turned in the day's worst performance following reports that ex-Qwest Communications (Q 5.65 -0.12) CEO Joseph Nacchio was indicted and confirmation that Sprint Nextel (S 24.47 -0.17), a suggested holding in Briefing.com's portfolio for active investors, will buy the remaining 68% of Nextel Partners (NXTP 27.84 +1.52) for about $6.5 bln. Consumer Staples was another weak spot, as consolidation efforts weighed on Altria (MO 76.06 -0.52), which a new 52-week high Dec. 15th, and Wal-Mart (WMT 48.60 -0.36) lost ground amid reports that it is under investigation for the transportation of hazardous waste. Despite a rebound in HMOs that extended the group's year-to-date gain to 42%, which plays into our Market Weight rating on Health Care, profit-taking in Pfizer (PFE 24.00 -0.32) -- yesterday's best performing blue chip -- weighed on the sector. Continued weakness in Consumer Discretionary lent further support for Briefing.com's Underweight rating on the sector. Weighing most heavily on the sector was General Motors (GM 19.85 -1.20), which hit an 18-year low amid reports that the auto maker could lose its coveted No. 1 position (by total volume) to Toyota in 2006 and is recalling nearly 426,000 vans. Despite Target (TGT 54.03 +1.23) saying Dec. comps growth of 4-5% remains on track, a 0.9% rebound in oil prices to $57.85/bbl and perhaps worries that New York City's first transit strike in 25 years could have a major negative impact on holiday shopping placed some added pressure on select retailers. Technology also lost ground as chip stocks, which struggled to offset weakness in hardware and networking, failed to hold onto the bulk of their gains. Energy, which was off nearly 4.0% over the last three sessions, however, gained ground. Financial also traded higher, benefiting from a stronger than expected Q4 report from Morgan Stanley (MWD 57.71 +1.04), one of our favored picks in the brokerage space. Nonetheless, their leadership was not enough to snap the market's four-day losing streak. DJTA -0.1, DJUA +0.3, DOT -0.3, Russell 2000 +0.1, SOX +0.5, S&P Midcap 400 +0.3, XOI +0.7, NYSE Adv/Dec 1618/1668, Nasdaq Adv/Dec 1347/1689
9:00AM Lexar Media to Offer USB flash drives with Google applications (LEXR) 8.38 :Co announced it is bringing Google (GOOG) applications directly to customers by including Picasa, Google Toolbar and Google Desktop Search applications on its line of popular USB flash drives. Customers who purchase a Lexar JumpDrive simply have to plug the device into the USB port, on their computer, where the user will be prompted with instructions to easily install the free applications.
1:59 pm Sprint Nextel (S)
24.38 -0.26: Sprint Nextel has agreed to buy Nextel Partners (NXTP) for $28.50 per share - up from NXTP's halted per share price of $26.36. The deal had been a major overhang on Sprint, ending months of bickering over the value of its largest mobile-phone affiliate. Sprint, which already owns 32% of the affiliate, will pay total acquisition costs of $10 bln, including $9 bln in equity and $0.07 bln in net debt. This equates to an 8% premium to yesterday's price.
After months of public wrangling over the price between Sprint Nextel and Nextel Partners, the deal is signed after two appraisers came up with values only 9% apart. The deal, which implies an enterprise value for Nextel Partners of $10 bln, is likely to close in the second quarter of 2006. According to Bloomberg, Sprint Nextel will have spent more than $11 bln to resolve disputes with affiliates relating to its August merger.
We view the deal news as positive for Sprint Nextel as it eliminates a major hurdle, not to mention a distraction for management as they move forward with the integration of Nextel. The affiliate issue has also been an overhang on the stock. We retain our positive view of the company, which is a suggested holding in our Active Portfolio.
--Kimberly DuBord, Briefing.com
09:43 am Tyco (TYC)
According to The Wall Street Journal, Tyco International is nearing an approximate $1 billion divesture of its plastics-and-adhesives unit to private-equity firm Apollo Advisors.
The news follows Tyco's assertion last spring, after suffering a sizeable loss during its fiscal second quarter, that it would try to sell the unit. Rising energy prices have served as a particular burden, as they've made resins, the raw material from which plastic is made, more expensive. At the same time, tough competition from both foreign and domestic producers has limited the company's ability to pass on the cost increases to customers. According to The Journal, the plastics unit generated $1.85 billion in revenue in fiscal 2005 and a loss of $115 million.
Over the past 12 months, TYC shares have declined more than 20%. Chief Executive Ed Breen has said that the company's stock is undervalued, and that he would seek ways to address a "valuation disconnect." Along with the plan to sell the plastics unit, Breen outlined a plan this fall that included divestures of additional smaller units alongside investment of corporate cash in its higher-margin healthcare and home-security segments.
The report indicates that, per people familiar with the matter, the two parties are preparing an announcement that could come in the following days. They added that negotiations could fall through at this sensitive stage; spokespersons at both ends of the deal declined to comment.
--Lisa Beilfuss, Briefing.com
09:28 am Morgan Stanley (MWD)
56.67: Following in the footsteps of Lehman, Bear and Goldman, which were out with their quarterly results last week, Morgan Stanley reported fourth quarter earnings rose 49%, exceeding expectations, buoyed by a rise in trading along with a tax benefit. This is the first full quarter under the leadership of John Mack, and even though the company's turnaround will likely be a multi-year process, the market was looking for some signs of improvement.
Net income rose to $1.79 bln, or $1.68 per share, from $1.20 bln, or $1.09 per share, last year as rising investment banking and trading business helped to overcome higher credit card losses and expenses related to management turmoil. Net revenues rose 28% to $7.0 bln, propelled by a 47% rise in Institutional Securities, a 21% increase in Retail and 25% hike in Asset Management. Return on equity pro forma for the year rose to 19.0% compared to 18.2% in 2004. Due to departing executives, the compensation ratio rose to 38% from 35% a year ago, but declined sequentially. We would expect to see this figure inflate next year, which could restrict margin expansion.
The rise in Instructional Securities was driven by growth in fixed income and equities trading, hitting a record $1.6 bln. As we've seen from the entire brokerage industry, investment banking remained strong in the quarter. Advisory revenues were $479 mln, the highest in five years, with underwriting revenues reaching $623 mln - up 65% yea/year. Retail Brokerage grew on the top and bottom line on higher client asset levels in fee-based accounts. Asset Management, which accounts for 13% of total sales, saw institutional assets rise $5 bln during the quarter, making up the bulk of the $8 bln of inflows over the last twelve months, ending the year at $232 bln. Retail assets actually declined by $2 bln to $199 bln.
A spike in bankruptcy notices led to a substantial drop in pre-tax income within the Discover credit card unit. Net revenues fell 21% to $694 mln. A higher cost of funds ate into pre-tax income, as did higher expenses resulting in a pre-tax margin of 9% compared to 31% a year ago. Morgan remains one of our favored picks in the brokerage industry as a turnaround play, and has returned 19% since bottoming in May. Considering the relative outperformance, Morgan now becomes more of a "show-me" stock. Shares are trading at a forward multiple of 11.2x on expected earnings growth of 15% next year.
--Kimberly DuBord, Briefing.com
09:09 am Exxon Mobil (XOM)
57.70: The Wall Street Journal on Tuesday reported that the Alaska Gasline Port Authority has filed a federal lawsuit against Exxon Mobil Corp. and BP Plc. (BP), accusing the two companies of colluding to restrict North Slope natural gas supplies. The lawsuit, filed on Monday in U.S. District Court in Fairbanks, Alaska, comes as natural gas prices have reached historic highs on fears of a colder than expected winter.
The Port Authority plans to develop an 800 mile pipeline to move an estimated 37 trillion cubic feet of natural gas. It said that it has acquired $18 billion in federal guarantees and the necessary permits to build the pipeline that would transport natural gas from the North Slope to Valdez, where it will be liquefied and shipped to U.S. and Canadian markets, The Journal said.
However, in its suit, the Port Authority alleges that Exxon and BP engaged in a series of illegal agreements and acquisitions that prevented the sale of natural gas from the North Slope and seeks a court order to end the alleged collusion by the companies, according to The Journal. Exxon and BP, two of Alaska's largest oil and gas leaseholders, denied the allegations that they acted together to prevent the group from securing a deal to develop the new pipeline by restricting natural gas from Alaska's North Slope to U.S. markets. Although, the two companies are in talks with Alaska state officials to build a rival pipeline, estimated to cost $20 billion, that will deliver 4 billion cubic feet of natural gas per day.
Despite the news, shares of both Exxon and BP were slightly higher in pre-market trading.
--Richard Jahnke, Briefing.com
09:00 am Wal-Mart (WMT)
48.96: Wal-Mart said that it is under criminal investigation by the U.S. Attorney's Office in Los Angeles for the transportation of hazardous waste between its California stores and Las Vegas return center.
According the company's SEC filing, the government's probe focuses on whether the company has violated the Resource Conservation and Recovery Act in improperly using its own trucks - rather than certified hazardous waste carriers - to transport material deemed hazardous to centralized facilities. The world's largest retailer had received a grand jury subpoena seeking documents and information relating to its "receipt, transportation, handling, identification, recycling, treatment, storage, and disposal" of such waste. The California Department of Toxic Substances Control has requested similar documents and information, and Nevada authorities are similarly looking into the matter.
Wal-Mart stated that, historically, its practice has been to consolidate certain returned merchandise at its return centers, and then dispose of merchandise classified as "hazardous waste" by transporting that material from the return center to a certified waste disposal facility using a certified hazardous waste carrier. To comply with the Resource Conservation and Recovery Act, hazardous waste must be shipped directly from the store to a certified disposal facility, using a certified carrier.
In its filing, the company indicated that it is fully cooperating with authorities, but that it cannot predict the outcome of the probe or any potential loss that may arise.
--Lisa Beilfuss, Briefing.com
08:48 am American International Group (AIG)
65.82: The world's largest insurer is in negotiations to acquire properties from closely held developer Mori Trust Co. for more than 400 billion yen ($3.4 bln), according to the Nihon Keizai newspaper. The news drove the Nikkei higher on expectations the real estate market, which is down 80% from peak prices in the 1990's, is finally recovering.
American International Group may buy an office tower and a commercial building site in downtown Tokyo. This is the latest sign property prices are rising in Tokyo for the first time in 15 years. We continue to think investors should have exposure to Japan as the economic recovery is finally taking hold. Given the end to deflation, a recovering real estate market, and rising consumer and business confidence, the Japanese market will be one of the best performers in 2006.
If completed, the AIG purchase would be the largest transaction ever in the Japan's property markets, according to the newspaper. It would include the site for a 37-floor building that is close to Tokyo's main train station and the 19-story Marunouchi Trust Tower North, which houses KPMG Japan and Daiwa Securities. Onlookers took note of the price AIG is willing to pay, suggesting asset prices are worth more and sparking a rally in Japanese property stocks. The Nikkei has gained 19.7% this year and is currently hovering at 15,641 - a level not seen since the fall of 2000.
--Kimberly DuBord, Briefing.com
10:00 am Northeast Utilities (NU): Firm expects investment in its regulated utility to support attractive, low-risk earnings growth, especially after it exits its non-regulated operations and transitions to a pure-play regulated utility through 2006.
10:00 am Saifun Semi (SFUN): While the upside potential of N.R.O.M. is high, they believe that the technology still faces key challenges, and that the current valuation reflects a balanced risk-reward. For the current valuation to be attractive, they need to be more confident about at least one of: 1) further proof of traction in data flash; 2) key "SFUN-enabled" licensees (IFX and M.X.I.C.) reaching the next stage in competitiveness; 3) evidence of success stories on quad-bit; or, 4) significant additional licensees.
09:59 am aQuantive (AQNT): Firm expects the co to invest in technology and expand its client support staff, they don't expect to see significant earnings upside, and as such they think AQNT is fairly valued at this time.
09:58 am Express Scripts (ESRX): Firm foresees a bright earnings outlook for ESRX looking into 2007. Firm believes ESRX should further raise its generic penetration rate to the low 60% level. Additionally, they think specialty drug sale traction and optimized Part D enrollment drug usage should provide new earnings growth.
09:58 am Medco Health Solutions (MHS): Firm believes the co can generate substantial earnings growth in the coming year. They believe the has tremendous embedded generic earnings leverage potential, and think the co's Accredo franchise should produce good organic earnings growth from account penetration. Finally, they say Medco's new innovative service programs and Medicare drug benefit program should provide some modest earnings lift.
09:57 am Caremark Rx (CMX): Firm believes that like other PBMs in 2007, CMX will be focused on driving higher generic and mail order penetration rates, growing specialty drug sales and optimizing the Medicare Drug Benefit program. Firm thinks the co's efforts to reposition the franchise should begin to yield solid earnings growth traction and rising EBITDA margins.
09:38 am Marvell (MRVL): Firm is saying recent proprietary checks with industry and channel sources have led them to believe that MRVL is benefiting from favorable trends in HDDs and optical storage that impact the near-term, and more importantly, 2006. Their sources indicate that Toshiba will soon debut a higher capacity 80 GB microdrive version at the upcoming C.E.S. in Las Vegas that could be used in future vPods and other storage-hungry devices. In optical, they believe MRVL is currently engaged in next-generation S.O.C. design activity with at least three leading players in DVD recording drives for PC desktops and notebooks with more material revenue contribution in 2H06. Firm raises their current qtr (Q4) and FY07 ests above consensus.
09:34 am Coldwater Creek (CWTR): Firm believes the co's 35%+ sq. ft. growth and 700 basis points of margin expansion opportunity make CWTR a compelling investment. While there are execution risks, they believe that its investments in human capital and productivity tools will help it reach its sales and margin targets.
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