On Monday, the Nasdaq opened firmer and after a brief dip, began to rally. Then, after drifting mostly sideways, it resumed its rally late in the day. This action has it closing well, just above last Thursday's pivot highs (minor resistance) and at new closing highs for the year.
The S&P put was even more impressive. It cut through last Thursday's pivot high and managed to take out its prior high for the year.
So what do we do? The fact that the indices were able to rally to make back all of Friday's losses (and then some) is a positive. Nervous longs who were shaken out are now faced with the decision of getting back in or watching the rally leave them behind. And, eager shorts, who were quick to call a top last week, are now faced with losses. Looking to the sectors, nearly all were up nicely on Monday. This action keeps most in strong uptrends and puts many such as banks, telecom, drugs, HMOs, and homebuilders at or near new 52-week highs. Other sectors that were beginning to look questionable such as the semis and to a lesser extent software also bounced back nicely on Monday. Therefore, once again, continue to focus on the long side. However, make sure you are honoring your protective stops, trailing stops and taking partial profits when offered.
Looking to potential setups, Encana (ECA), mentioned Friday (originally mentioned in late May (a)) and in the strong independent oil & gas sub-sector, looks like it has the potential to rally out of a pullback. Talisman Energy (TLM), in the same sub-sector and also mentioned Friday, looks like it has the potential to rally out of a Double Top Knockout-like formation (email me if you need the rules).
Icos (ICOS), in the strong drugs-other sub-sector (a), looks poised to rally out of a pullback/micro-cup and handle-like formation.
U.S. stock indexes were slightly higher after several positive economic reports. Stocks managed a gain for a fifth day in six to close at their highest in about a year. Pfizer climbed after the world's biggest drugmaker said 2004 profit would top analyst forecasts, while Coca-Cola fell as regulators conduct an informal inquiry of its sales. The S&P 500 added 1 point (+0.1%) to 1011. Drug stocks had seven of the 10 biggest gains. The DJIA rose 4 points to 9323. The Nasdaq Composite gained 2 points (+0.1%) to 1668. It last closed above that level on May 23, 2002. Consumer prices in May rose unexpectedly and eased the market's worries about deflation. Meanwhile, housing continued to remain red hot, with housing starts jumping by a larger-than-expected 6.1 percent in May. Bonds traded lower for the second day on the economic data news. Merrill Lynch released a survey of 270 asset managers which showed cash levels at a two-year low and also 71% managers view the stock market as overvalued.
Strong Sectors: drug, gold, Internet, airlines
Weak Sectors: biotech, homebuilding, oil
Top Stories . . . U.S. consumer prices excluding food and energy rose last month by the most since August 2002, reflecting higher costs for public transportation, medical care and housing.
U.S. industrial production rose in May for the first time since February amid signs manufacturers may be gearing up for increased demand, a Federal Reserve report showed. Factory capacity in use stayed at a two-decade low.
U.S. Treasuries fell in New York after a government report showed consumer prices excluding food and energy rose last month by the most since August 2002, damping speculation inflation is slowing.
The dollar gained against the euro and the yen for a second day in New York trading as a report showed U.S. industrial production expanded for the first month in four in May.
U.S. drug stocks rose, led by Pfizer Inc., after the world's biggest drugmaker projected 2004 profit and revenue that topped analyst forecasts.
Rite Aid's former chief executive officer, Martin Grass, pleaded guilty to conspiring to inflate income by $1.6 billion at the No. 3 U.S. drugstore chain and agreed to an eight-year prison term.
Coca-Cola, the world's largest soft drink maker, found its employees improperly manipulated results of a market test of fountain sales at Burger King after an investigation into claims by a former employee.
Cash is trash! . . . Tobias Levkovich, strategist for Smith Barney, says there is still $5.2-trillion in potential buying power sitting in money market funds, savings and checking accounts, and certificates of deposit.
Fund Flow . . . Banc of America notes that investors have poured more money into U.S. stock funds than they have taken out for 13-consecutive weeks.
Hitler Proportion of Note . . . German business confidence fell to the lowest level since the 1993 recession, as the ascent of the euro crushed export expectations.
Upsetting Note . . . Barry Manilow is 57.
The Dow gets a Nickname . . . The DJIA's 201-point gain on Monday has been coined the "Rocket Rally" by some traders at the New York Stock Exchange. It was the Dow's sixth jump of 200 points or more so far this year.
Asset Allocation . . . Morgan Stanley shifts 5% out of both bonds and stocks into cash, which leaves their new asset allocation at 65% stocks, 20% bonds, and 15% cash; firm believes the recent powerful rallies have materially lowered expected returns in stocks and bonds, and they are moving to a broadly neutral equity position from modestly overweight; in addition, although the S&P 500 is now at their year-end target and is about 20% overvalued, they continue to see stocks as offering relatively superior returns in a low-yield world.
Of note. . .A Merrill Lynch global fund manager survey revealed that portfolio managers are not comfortable jumping back into equities until there are clear signs of an upturn in the world economy.
"Before fund managers end their love affair with bonds and switch into equities they need to see much more compelling evidence for an upswing in the world economy," stated David Bowers, Merrill's chief global investment strategist.
The brokerage found that half of the fund managers surveyed in June said world stock markets were fairly valued, reversing 12 straight months in which a majority of managers described equities as cheap. Further, 66 percent of asset managers now believe the equity market is "overbought" on a short-term basis.
Gurus . . . Richard Dickson, technical analyst at Lowry Research, said all the overbought readings, including those in momentum, trend and sentiment indicators, appear to providing validation of the stock market's recent strength rather than a warning of an impending pullback. "While we would not be surprised to see some quick profit-taking after yesterday's big rally, at this point, minor selling appears to define the near-term risk for the market," Dickson said in a note to clients. The Dow industrials is currently up 3 points at 9,322 after powering up 202 points on Monday. He said it would take a fall through major support at 8,750, on heavy volume, to indicate a more significant setback for the Dow.
Pru strategist Ed Yardeni observes that while the S&P 500 is selling at 17-times projected 2003 earnings, there are still 195-companies in the S&P with multiples below 15, providing wiggle room.
Ralph Acampora shifted focus to the big pharmas, with potential break-outs for Bristol-Myers, Eli Lilly, Merck, and Pfizer.
On the Kudlow-Cramer Show last evening, Barbara Ryan of Alex Brown said her favorite remains Pfizer, although Schering-Plough does have some speculative appeal. Today, Pfizer will hold a big analyst bash in New York, and will roll-out their pipeline. The Wall Street Journal this morning talks about an anti-smoking pill, and the continued efficacy of Lipitor.
Eco Speak . . . US consumer prices were unchanged in May, while the core rate, excluding the volatile food and energy costs rose 0.3 pct - its largest gain since Aug 2002. The rise in the core rate was a surprise. Wall Street economists had expected the overall CPI to decline 0.1 pct and for the core rate to remain flat. The gain in the core rate was boosted by a record rise in the cost of hotel rooms. On a year-on-year basis, the CPI was up 2.1%, while the core rate was up 1.6 pct. Despite the increase in the core rate in May, inflation is still trending lower this year. For the first five months of 2002, the CPI is running at a 2.3% seasonally adjusted annual rate, compared with a 3.0% rate over the same period last year. The core rate is running at a 1.1% rate, down from a 2.1% rate in the first five months of 2002. Energy prices fell 3.1% in May after falling 4.6% in April. Food prices rose 0.3 % after falling 0.1 % in the previous month.
U.S. industrial output barely expanded in May, but without the drag of weaker car production, would have increased more last month. U.S. industrial output rose 0.1 percent that month, rather than the average forecast for a 0.1 percent drop. April was revised to show a slightly larger 0.6 percent drop. Capacity use remained unchanged last month from April, at 74.3 percent, meaning roughly 25 percent of U.S. plants remain idle. Manufacturing output increased 0.2 percent and without cars would have increased 0.3 percent. Durable goods production ex-autos expanded 0.5 percent, for the first increase in several months. Utilities output contraction of 0.8 percent offset a 0.8 percent rise in production at the nation's mines.
Housing units started rose 6.1 percent to a 1.732 million-unit annualized rate in May. The increase was owed in large part to a 35 percent surge in groundbreaking for apartment and condominium buildings. It was the biggest one-month increase for the volatile multi-family sector since December 1998. The closely watched single-family home sector recorded a 1.5 percent increase in construction starts in May. By region, starts in the Northeast fell 1.3 percent as wet weather kept construction crews away. Starts rose 0.7 percent in the West, jumped 14 percent in Midwest and surged 7.4 percent in the South. Building permits, a gauge of future activity, rose 3.7 percent overall last month. Single-family permits nosed up 0.3 percent after rising 1.6 percent in April. Multi-family construction permits shot up 18.1 percent.
Financials . . . AG Edwards upgraded SAFECO to Buy from Hold based on valuation. The firm suspects the near-term weakness in the stock has to do with the higher-than-normal weather catastrophe losses expected in 2nd quarter, but say it is their experience that over the long-term investors "normalize" weather losses and that declines in insurers' stock prices associated with higher-than-normal weather catastrophe losses are short-term in duration.
FBR upgraded FleetBoston, Mellon, Bank of New York. Friedman Billings Ramsey upgrades FBF to Outperform from Market Perform given the progress the company is making in repairing its retail and wealth mgmt operations, as well as their belief that the company's exposure in Latin America and loans to troubled corporations have been adequately addressed and no longer pose a threat to future earnings. Firm upgraded MEL to Outperform from Market Perform based on the progress the co is making in repairing its institutional asset mgmt franchise as well as positive trends in its mutual fund complex and private banking business. Firm upgrades Bank of New York to Market Perform from Underperform, saying the risk of higher provisions and potential integration problems stemming from recent acquisitions have become less of a concern.
Charles Schwab said total client daily average revenue trades were 143,900 in May, up 20 percent from the level in April, and up 15 percent from year ago levels. Net new assets brought to the company by new and current clients in May totaled $2.7 billion, compared to $1 billion in April. Total client assets were $833.5 billion at the end of May, compared to $798 billion at the end of April. Daily average revenue trades for the first 10 trading days in June were 172,000. "The improved securities market environment we've seen in recent weeks has continued thus far into June," CEO David Pottruck.
Charles Schwab said its expects its second-quarter financial performance to show "significant improvement" over the first quarter given the recent increase in trading revenue. Analysts currently expect the discount broker to earn 7 cents a share on revenue of $983.4 million for the quarter ending June, on average, versus earnings of 5 cents a share and revenue of $900 million in the first quarter. The company said total client average daily trades for the month of May increased 13 percent from April and 11 percent from year-earlier levels to 199,600. Net new assets increased $2.7 billion for the month, bringing total client assets to $833.5 billion.
MetLife said its vice chairman and chief investment officer, Jerry Clark, would retire effective July 1 after 35 years with the company. Lee Launer, most recently the head of the insurer's real estate investments, will assume CIO duties. The company also announced a number of organizational changes as a result of its annual leadership review, including the naming of a general counsel and new heads of its retirement and savings and actuarial, tax and financial risk management divisions.
American Express announced it is to acquire the UK fund manager Threadneedle, a subsidiary of Zurich Financial. The acquisition is expected to close in the fourth quarter of 2003. American Express does not expect any impact on earnings in 2003 and believes the deal will be mildly accretive to earnings in 2004. American Express agreed to purchase Threadneedle for 340 million pounds ($570 million). Threadneedle has 44 billion pounds ($73 billion) of assets under management, including assets managed on behalf of Zurich Financial. As a percentage of total assets under management, the purchase price of 77 bp appears low relative to the 2-4% paid on average for recent acquisitions. The purchase price relative to assets under management typically varies based on the type of assets (i.e. equities, fixed income or money market) and customer base (retail, institutional or high net worth). Threadneedle is expected to continue to manage a portion of Zurich Financial's assets, but it is unclear what percentage of total assets under management have been excluded from the deal. Threadneedle will retain it name. This acquisition gives American Express an instant presence in UK and enables Zurich Financial to continue to shed "noncore" businesses, consistent with its strategy. It is unclear whether American Express intends to issue stock, debt or a combination, to fund the acquisition. While there are limited details about the asset mix and earnings of Threadneedle, American Express expects the deal to have no significant impact on earnings in 2003 and to be mildly accretive to earnings in 2004. Assuming the deal is completed as an all stock acquisition, that Threadneedle retains the entire $73 billion asset base, and that incremental earnings to AEFA are about 18 bp of Threadneedle’s assets under management, estimate that the deal could be accretive to earnings by about $0.07 in 2004, assuming some new shares issued to finance the acquisition. American Express will reinvest a significant portion of the incremental earnings into reengineering initiatives, though we have raised 2004 estimate by $0.02 per share.
MBNA filed an 8-K with May 2003 credit data. These data showed a slight increase in the chargeoff rate (2bp from April) and a significant sequential decline (12bp from April) in the delinquency rate which is likely to be a leading indicator of future credit improvement. Loan growth was strong again in May and in only two month, the company has exceeded our Q2 growth estimate. The managed chargeoff rate increased to 5.37% in May from 5.35% in April. The managed delinquency rate for the whole portfolio declined to 4.48% in May from 4.60% in April. Excluding loan growth of 1.3% (15.7% annualized), analysts estimate that the managed chargeoff rate would have been 5.45% in May, about a 10bp increase from April. The credit trends for the managed credit card and consumer loan portfolios were similar to overall trends in the managed portfolio. The current credit trends appear consistent with management's guidance that the chargeoff rate is expected to trend lower for the remainder of the year with minor monthly fluctuations. Loan growth remains strong amid a weak economy and weak consumer spending. This reflects the company's continued success in affinity marketing. Growth thus far is higher than we had estimated ($3.3 billion in two months versus estimate of $3.0 billion for 2nd quarter). The chargeoff rate is in line with our estimates (average of 5.36% for April and May compared to 5.35% estimate for 2nd quarter).
Providian released an 8-K with May credit statistics. The company provided data for its on-balance-sheet portfolios and its securitized loans separately. Analysts have estimated managed trends but can't tell how accurate estimates are. In May, the loss rate for loans held on-balance sheet increased to 15.16% from 14.50% in April and the 30+ delinquency rate increased to 8.68% from 8.34% in April. The Trust's loss rate increased to 20.40% from 19.8% in April while the 30+ day delinquency rate declined to 11.9% from 12.3% in April. In May, Providian transferred $538 million of on-balance sheet receivables into the Mastertrust. Excluding this transfer, the on-balance sheet chargeoff and delinquency rates would have been 28 bp and 58 bp lower, respectively. And the Trust's chargeoff and delinquency rates would have been 18 bp and 35 bp higher, respectively.
Diversified . . . Tyco International was downgraded to 'hold' from 'buy' from Legg Mason, which cited valuation and not the company's disclosure of plans to re-state past SEC filings for fiscal 1998 to the first half of 2003. The firm noted the stock is close to its price target of $20 per share. However, Legg Mason said it's struggling to gauge the "intrinsic profitability" of the fire and security businesses, which are the focal points of the restatements. "We still believe that newfound interest in cyclical stocks tends to favor our Buy-rated, deep cyclical machinery stocks more than the tumultuous, low-visibility Tyco turnaround," Legg Mason said
Homebuilders . . . Centex was cut to Buy from Strong Buy at BB&T based on valuation. The firm's new price target of $105 (up from $95) represents less than 25% upside. (At BB&T, a Strong Buy rating implies a return potential of at least 25%).
Oil & Gas . . . Transocean reported on May 23 that it had experienced an equipment failure on the Discoverer Enterprise rig, saying that the rig would be taken out of service for an unspecified period of time to fix the problem. The rig is under contract to BP at a rate of approximately $200,000 per day, but the dayrate goes to zero when the rig is unable to perform due to a mechanical failure of a major rig component. The incident involves the marine riser string which runs from the rig (floating on the ocean surface) to the sea floor. The riser consists of joints of heavy pipe that are connected by bolts. The bolts connecting two joints of pipe failed and caused the riser to separate and fall to the sea floor. Yesterday Transocean reported that the riser will not be fixed for another two to three weeks, and that the Discoerer Enterprise probably will not go back on its contracted dayrate with BP until mid-July. In addition, Transocean will inspect risers on another 8 rigs which are of the same design as the riser that failed. This process could result in additional lost revenue if the rigs are taken out of service for the purpose of riser inspections and/or repairs.
Energy . . . Ballard Power Systems announced the receipt of a $1.75 million fuel cell order from a "new major automotive customer." "Our automotive business continues to grow and we are very pleased to be adding another auto company to our customer base," said Ballard CEO Dennis Campbell.
DTE Energy has reduced the production volumes from its synthetic fuel facilities. DTE says move sill increase earnings from the facility, given its ability to recognize the tax credits generated from these facilities against current taxable income.
Transports . . . AirTran and Northwest Airlines were upgraded to "overweight" by Lehman Brothers because shares of the two companies haven't run up as much as the broader group. Gary Chase at Lehman lowered his rating on Delta Air Lines to "equal weight" from "overweight," due primarily to relative valuations. Chase noted that AirTran and Northwest shares participated "much less in the powerful rally in airline shares" over the past several months, and believes the stocks will "catch up" with the sector. He also feels that Delta is fundamentally the best positioned airline, but he sees less near-term upside given that it has nearly achieved his $16 price target. "We continue to believe that we are at the beginning of a gradual, but powerful airline upcycle," Chase said. "However, in our view, the post-war rally in airline shares leaves few compelling opportunities in the sector."
Banc of America downgraded Harley-Davidson to Neutral from Buy based on their belief that HDI's retail sales continue to be weak in 2nd quarter and that the gap between supply and demand has collapsed. The firm believes that HDFS income will face difficult comps in 2004 in the face of stabilizing interest rates and market share, and that gross margin expansion will be limited by new capacity, the introduction of new models, and limited increases in pricing next year. The firm cuts target to $39 from $50.
Food & Beverage . . . J.M. Smucker reported earnings of $23.2 million, or 46 cents per share, up from its year-ago profit of $6.7 million, or 28 cents per share. Excluding items in both periods, the company earned 51 cents per share, and 39 cents per share, respectively. Six analysts were looking for a profit of 47 cents per share in the April quarter, on average. Sales at the firm totaled $329 million in the three months ended April 30, up 87 percent from $176.1 million in the same period a year earlier. The newly acquired 'Jif' peanut butter and 'Crisco' vegetable oil brands contributed $143 million in sales in the latest quarter. The company said the latest results exceeded expectations due to strong category growth and market share gains. Looking ahead, J.M. Smucker sees earnings of $2.25 to $2.30 per share on revenue of roughly $1.4 billion for fiscal 2004. This estimate includes a charge of $12 million, or 15 cents per share, for restructuring.
Tobacco . . . CSFB raises their price target for Altria to $50 from $45, saying that improving fundamentals, declining litigation pressure in the U.S. tobacco business, and the currency benefit from a weaker U.S. dollar should drive outperformance in MO shares versus the S&P 500 over the next 12-18 months. Firm also raises RJR's target to $35 from $28.
Retail . . . US chain store sales rose 0.3% in the week to June 14, boosted by buying for the Fathers Day holiday, according to Bank of Tokyo-Mitsubishi, Ltd and UBS Warburg. The gain reverses a 0.3% decline in the previous week. Sales were up 0.6 pct year-on-year compared with a 1.0 pct gain last week. BTM-UBSW said it expects June sales to be up 2.0 pct.
The Wall Street Journal's "Heard on the Street" column says that a number of analysts and investors believe that when Footstar’s K-Mart-related problems and accounting issues are behind it. The company will be in a good position to add to a run that has seen its stock price more than triple from the low of $3.30 it hit when its accounting woes surfaced in November; as steep as the run-up has been, the shares continue to trade more cheaply than most rivals in terms of many of the most-common valuation metrics.
Circuit City reported a loss from continuing operations of $43.9 million, or 21 cents per share, for the first quarter, 3 cents narrower than the average estimate of 21 analysts polled by Thomson First Call. In the same period a year earlier, the company lost $1.3 million, or a penny per share, on the same basis. Sales slipped 9 percent in the latest three months to $1.93 billion from $2.12 billion in the same period a year earlier. The consumer electronics retailer attributed the drop in year-over-year sales to significant declines in average retails due to rapid technology development in the industry, and economic weakness, which was exacerbated by the war in Iraq.
Pier 1 Imports reported net income of $19.1 million, or 21 cents a share, down from 23 cents a share in the year-earlier period, but in line with the average analyst forecast compiled by Reuters Research. Revenue for the quarter ending May rose 4.8 percent to $402.7 million, versus analyst estimates of $403.3 million, and comparable-store sales dipped 3.6 percent. The specialty home-furnishings retailer said consumers were more cautious in the first quarter due to weakness in the economy, geo-political concerns and adverse weather. Looking ahead, the company expects earnings to be 21 to 25 cents a share for its second quarter, and $1.45 to $1.50 for the full fiscal year, versus analyst projections of 24 cents and $1.47, respectively.
Apparel . . . Columbia Sportswear downgraded at RBC to Sector Perform from Outperform based on valuation. Although firm sees the potential for meaningful upside to 2003-04 estimates, they see little potential for further multiple expansion. The firm raised target to $56 from $50.
Healthcare . . . Lawrence Keusch at Goldman Sachs cut his rating on Bausch & Lomb to "in line" from "outperform," due primarily to relative valuation. The stock closed at $39.75, just shy of Keusch's $40 fair value estimate. He noted that the stock has appreciated 33 percent since the March 12 close, versus an average gain of 14 percent among the other medical device makers he covers. Keusch continues to expect the lens maker to meet 2003 earnings estimates based on operational outperformance, continued cost cutting and beneficial currency translation. "Nonetheless, with little in the way of near-term catalysts and the stock having reached our estimated fair value, we now expect the shares to perform in-line with our covered universe, prompting our rating change," Keusch said.
ILEX Oncology was upgraded at Piper Jaffray and they raised their target to $23 from $17, citing encouraging feedback from physician checks and strong IMS sales data trends for Campath.
Medical Devices . . . Guidant announced plans to discontinue the Ancure AAA stent graft product line. The company will ship product until October 1, 2003 and will continue to provide long-term clinical support for patients already implanted with the device. Management did not change 2003 EPS guidance but did suggest that discontinuing this unprofitable business could add a penny per quarter. At this time, however, analysts are not changing 2003 EPS estimate of $2.05 or 2004 EPS estimate of $2.10. Guidant expects to complete settlement discussions with the Health and Human Services by the end of the month. Discussions with the agency apparently relate to compliance and reporting issues, and should not impact the FDA approval and timing of other products. With respect to impending individual or class-action lawsuits, management indicated there were 7,700 device implants prior to the March 2001 recall and 5% of these procedures – 385 patients – incurred adverse events such as emergency surgery or death. 385 patients – incurred adverse events such as emergency surgery or death. Further, of the 2,628 medical device reports (MDRs) where Guidant claimed responsibility, 88% would not have been reported if labeling were appropriate. Thus, this suggests that patient claims may be limited to less than 400, although we can never be assured as to these numbers and still cannot assess the magnitude of settlement per case. In general, Guidant believes they have sufficient insurance to make any settlement “manageable”.
Drugs . . . Pfizer cut its 2003 earnings forecast, citing the effect of inventory reductions related to the Pharmacia acquisition. Pfizer CFO David Shedlarz speaking at an analyst meeting said the No. 1 drugmaker now expects to earn $1.73 per share in 2003, down from an earlier projection of $1.80 per share. Shedlarz, however, affirmed the company's 2004 profit forecast of $2.13 per share and sees revenues of $54 billion versus consensus estimate is $51.8 billion.
The Wall Street Journal is reporting that Pfizer's Lipitor, a cholesterol medication, appears to be slated for some important new uses.
Amylin Pharma submits amendment NDA for Symlin (pramlintide acetate), to the FDA. This news should be viewed as slightly positive as the NDA amendment was expected after company's initial NDA was rejected in Oct 2001. On approval the peak sales for this drug is projected to be around $400 million. However, possibly offsetting news is company's announcement last night of a $150 million convertible offering).
Biotech . . . Biomira and its European pharmaceutical partner Merck announced before the bell that their experimental Theratope failed to achieve its primary effectiveness goals in testing on patients with advanced breast cancer. Theratope vaccine was considered the lead candidate for BIOM with a sales potential of up to $1 billion. Of note the ENHANZYN adjuvant used in Theratope is licenced from Corixa which uses it in its marketed Melacine melanoma vaccine.
Genentech and Biogen will collaborate in the research and development of a BR3 protein, currently in Biogen's pipeline, which will be used to develop drugs to treat disorders such as rheumatoid arthritis and lupus.
BioMarin Pharmaceuticals plans to sell $125 million worth of convertible subordinated notes due 2008. The notes will be sold to qualified institutional investors, and they will convert to BioMarin common stock at a yet to be determined price.
Seattle Genetics said it has achieved two pre-clinical production milestones related to its antibody-drug conjugate collaboration agreement with Celltech Group. The milestones trigger undisclosed payments to Seattle Genetics. Details about the nature of the milestones weren't provided.
Generex Biotech reported oral insulin study results. The studies further indicate that co's proprietary Oralin insulin formulation has the potential to be used safely and effectively in place of injected insulin to treat patients with Type-1 and Type-2 diabetes.
Media . . . J.P. Morgan doesn't see any hope of a profit this year for Martha Stewart Living Omnimedia, lowering its estimate of full-year results to a minus-6 cents a share from a gain of 5 cents a share. In 2004, the results are forecast to be half of earlier expectations at 20 cents a share instead of 40 cents a share. In what analyst Douglas Arthur calls a "base case" scenario relating to the flagship magazine, he thinks that "the carnage in 2003 runs its course and that a slow healing with readers and advertisers begins to right the ship by 2005." He sees a tough outlook ahead for revenues from products, including those at Kmart, and expects the company to downsize the Internet business. Once legal and advertising costs are shaken, he expects the company to be back on track, but not until 2005. He's got a underweight rating on the stock.
Netflix price target raised to $30 at Roth Capital. The company's earnings outlook improving rapidly, subscriber growth remains resilient.
Pulitzer reaffirmed guidance for 2003, backs previously provided guidance of at least $1.95 versus consensus of $1.99. PTZ also announced revenues increased 2.6% for four-week accounting period ended June 1.
DoubleClick reiterated its previous earnings estimates for the current quarter and full year. The online advertising firm expects second-quarter revenues to come in from $61 million to $63 million with earnings per share at break-even to 2 cents. Full-year revenues should be in the range of $250 million to $300 million with EPS of 3 cents to 12 cents. The consensus estimate of analysts is for DoubleClick to earn 2 cents per share in the sceond quarter and 12 cents on the year.
CNET Networks plans to sell about $100 million worth of convertible senior notes due 2013 in a private offering. The deal will include a $15 million over-allotment option. The technology media firm plans to use the proceeds for general corporate purposes, acquisitions, working capital, and strategic expansion.
Aryeh Bourkoff at UBS Investment Research raised the rating on Charter Communications to "neutral" from "reduce," and lifted the price target to $3.50 from 79 cents. Bourkoff feels the company no longer warrants a bankruptcy valuation given that it has been able to avert a comprehensive restructuring in the near term, and an overall looser financing environment.
Legg Mason upgraded Gentiva Health Services to Buy from Hold based on the following factors: 1) firm believes that the document subpoena does not reflect a significant risk for the co because it is commonly used by the government to request documents from health care providers, 2) believes that internal systems are in place to mitigate the risk of potential criminal acts such as fraud, 3) co's recent track record with litigation has been positive, and 4) company has the financial flexibility to absorb a potential adverse judgment if one were to occur. Target is $11.
Hotel & Leisure . . . International Game Tech was cut to Neutral from Buy at Davenport.
Telcom . . . Qwest received a 'multi-year, multi-million dollar' data communications services contract from Scottrade, a privately held online brokerage firm. The deal calls for Qwest to provide private routed communication network connections among Scottrade's 178 branches in 47 states.
Level 3 Communications announced an agreement to supply Cox Communications with optical wavelength services.
Adam Quinton at Merrill Lynch downgraded AT&T to "sell" from "neutral," citing continued delays in the recovery of its enterprise business and increasing competitive intensity in its consumer business. Quinton said that despite strong free cash flow and support from its dividend yield, the stock offers a "less attractive" reward versus risk profile given the recent run up in the share price. Quinton mentioned that while competition in the consumer business intensifies as the RBOCs pursue bundles and cut prices. Firm recommends that investors looking for yield switch from AT&T to Verizon, which has a higher yield at 3.9% versus T at 3.6%.
IT Services . . . Computer Sciences announced it exceeded its original estimated value of the Navy task orders by approximately $200 million. Raised estimate to $700 million from $500 million over 15 years.
EDS opened its first call center in India, adding to the software development centers it already runs in the country.
Semiconductors . . . SanDisk and Sony have signed a cross licensing agreement that expands the scope of their memory stick cooperation with a new cross license agreement. Based on the agreement, SanDisk and Sony will further promote Memory Stick throughout the industry respectively. "We are very pleased to have SanDisk manufacture Memory Stick products to help further expansion of Memory Stick's connected world among a variety of compatible products and meet growing market demand," commented Sony's Corporate EVP.
Lattice Semi proposed a $200 million offering of zero coupon convertible notes. The proceeds are expected to be used to redeem $175 million of existing 4 ¾% convertible subordinated notes due 2006. LSCC's 2004 EPS could increase by $0.06 or about 20% on interest savings. However, it is impossible to gauge the L-T dilution impact as the conversion terms were not disclosed. Estimates remain unchanged.
Analog Devices, Texas Instruments, National Semi, Cypress are other companies that have debt outstanding and are candidates for refinancing. CY has already announced plans to refinance debt.
Broadcom and Qualcomm collaborate on Bluetooth solutions for CDMA mobile phones. This collaboration, when finalized, will extend Qualcomm's complete solution, by providing its customers with streamlined, fully tested Bluetooth integration for 3G CDMA wireless devices. As part of the collaboration, Qualcom's Mobile Station Modem baseband solutions, which include fully integrated Bluetooth baseband technology, will be combined with Broadcom's short-range wireless RF products.
Boxmakers . . . Dell's direct model provides an information advantage that is underestimated. Dell is more notable as a user than a creator of information technology. Both its corporate and consumer businesses benefit. In selling to corporate customers, the direct model should apply to the entire supply chain. Much of Dell's business is now "frictionless," where the order goes directly from customer to Dell's build-to-order system. Furthermore, Dell managers and sales reps have more account information than do competitors. Dell hopes to skim off the most profitable business, which isn't reflected in market share statistics based on sales. The company's advantage in consumer PCs appears to be even bigger. Thanks to unique URLs for each ad, Dell can tell quickly which ads are effective. Moreover, it can cut its losses by correcting mistakes fast. Continue to find little to worry about with Dell's fundamentals. Analysts are Neutral on the stock; however, with the P/E over 30X, upside earnings surprises are unlikely given its focus on share gain, management not seeing a demand pickup, and Dell offering less operating leverage than more downtrodden IT Hardware names.
Software . . . Lehman Brothers said it sees Microsoft "due for a rally" for defensive reasons. MSFT has underperformed software stocks since the start of the year, Lehman noted. "The recent rally in the software sector implies that Wall Street believes in a material IT spending pick-up. However, our recent conversations with IT managers would not suggest a material pick-up in spending, leading us to recommend a defensive strategy with Microsoft." The firm believes that EPS estimates for the June quarter and 2004 are conservative, MSFT could be the biggest winner if legal issues have a negative impact on the adoption of Linux, and says valuation remains compelling. Target is $35.
Pegasus Solutions was cut to Hold from Buy at Legg Mason based on valuation.
JP Morgan finds it interesting that Nokia (Check Point Software's largest partner) chose to develop its own SSL VPN solution rather than use technology from Check Point Software (CHKP). While firm does not believe this is a signal of a deteriorating relationship, firm does view it as a negative for CHKP if SSL VPN's gain in popularity at the expense of IPSEC VPN products.
The Amdocs billing solution selected by Vodafone Hungary to support its rapid growth, which has exceeded 50% over the last 6 months.
PeopleSoft was upped to Outperform at Piper Jaffray on view that the risk/reward has improved as new JDEC proposal is more accretive than the original offer. Moreover, if Oracle is serious about acquiring PSFT, the price will likely have to be sweetened.
Progress Software reported 2nd quarter earnings of $0.18 per share which was $0.01 better than the consensus of $0.17. Revenues rose 14.8% year/year to $77.6 million versus the $75.7 million consensus.
Microsoft reached a $21 million settlement with W. Virginia that ends the state's appeal of MSFT's federal antitrust settlement. The settlement leaves MA as the last state seeking a tougher remedy against MSFT.
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