With the bull stampede well into its fourth-month, and with Monday's 200-point moon-shot, it was only fitting and proper to see a day of pause. The Dow has gained in 16 of the past 20 sessions, on the premise that stimulus now brings economic satisfaction later. The DJIA dropped 29 points (-0.3%) to 9293, with Kodak accounting for more than three quarters of the decline. The S&P 500 fell 1 point (-0.2%) to 1010. The Nasdaq ended at fresh 13-month highs, gaining 8 points (+0.5%) to 1677. No economic news was released Wednesday. Government bonds slipped for a third straight session, with longer-maturity issues again taking the biggest hit. The 10-year Treasury slid 27/32 to yield 3.365 percent while the 30-year government bond plunged 1 24/32 to yield 4.40 percent. Most market participants are projecting a quarter-point rate cut when the Federal Reserve meets next week to decide on monetary policy. The National Bureau of Economic Research said it needs more time to determine whether the recession that began in March 2001 is now over. In the currency sector, the U.S. dollar edged higher against its major counterparts, climbing 0.3 percent to 117.78 yen while the euro declined 0.8 percent to $1.1685.
Weak Sectors: leisure products, homebuilding, auto manufacturers, biotech
Top Stories . . . Eastman Kodak, the world's largest maker of film, cut its second-quarter profit forecast by more than half and blamed SARS, lower prices and weak film sales as people use more digital cameras.
Oracle, the world's No. 2 business-management software maker, increased its hostile offer for rival PeopleSoft Inc. to $6.3 billion after PeopleSoft countered with a revised plan to acquire J.D. Edwards.
Morgan Stanley, the second-largest U.S. securities company by capital, said second-quarter profit declined 25 percent as the firm wrote down the value of airplane leases it holds and investment-banking revenue fell.
Bear Stearns., the best-performing Wall Street stock the past three years, said earnings fell from the same quarter a year ago, which included a one-time gain from an investment in clothing retailer Aeropostale.
Electronic Data Systems, the world's second-largest seller of computer services, plans to eliminate about 2,700 workers, or 2 percent of its staff, by the end of this year because of slowing demand.
Quotes of Note . . . People are ``buying on every dip,'' said Michael Palazzi, head of Nasdaq trading at SG Cowen Securities Corp. ``There is a fear factor going on here. There are a lot of people who have missed this rally, people who are struggling for performance.''
``The fact that Oracle was not able to get PeopleSoft on the cheap is a positive development, and does show we're seeing more optimism toward technology stocks,'' said Sally Anderson, a money manager at Kopp Investment Advisors, which oversees $1.7 billion in Edina, Minnesota. ``Suddenly, investors are more willing to assume more risk.''
Gurus . . . Morgan Stanley strategist Steve Galbraith has urged clients to scale back investments in stocks and bonds, and put more money into cash. He took 5% out of stocks and bonds, and placed them into cash, leaving his asset allocation at 65% stocks, 20% bonds, and 15% cash. He says the recent rallies in both stocks and bonds have lowered expected returns, although, he does concede that cash returns close to zero are not very appealing.
A Merrill Lynch survey of 270 Global Asset Managers shows a two-year low in cash, and 71% seeing global stock markets as fairly valued or over-valued. The Global Managers have begun to sour on the Eurozone, while viewing the euro as over-valued. They have begun to look to emerging market currencies as undervalued, and yesterday's restless rotation did feature shares in the Asian markets.
Weak Dollar Good or Bad . . . As for that nostrum that a falling dollar will trigger foreign investors to pull out of U.S. markets, it's not happening. David Gitilitz, economist for Trend Macrolytics, argues that the drop in the dollar has made U.S. assets less expensive, and while sustaining a currency loss on your initial investment, the dollar decline has also made new investments cheaper to buy.
Poli Speak . . . The White House formally endorsed the permanent repeal of the federal estate tax as the House prepared to vote on the measure later Wednesday. Under current law, the federal tax on large estates is gradually phased out by 2010. The tax is reinstated in full after 2011. "Eliminating the death tax is a matter of basic fairness," the White House said Wednesday. The repeal, which has strong support in the House, would cost the federal treasury about $162 billion over the next 11 years. The cost would rise to about $820 billion in the next 10 years. The legislation faces long odds in the Senate, because it would need at least 60 supporters before it could be considered.
Democratic presidential hopeful Dick Gephardt opposes the expensing of stock options and will back legislation that calls for a three-year moratorium on any new rules that would require companies to book the cost of stock options. The Missouri congressman expressed his views while making a speech in Silicon Valley, home to hundreds of technology companies that would be most affected by the expensing of stock options. The Financial Accounting Standards Board, the private-sector board that write U.S. accounting standards, is considering expensing stock options.
Refi Again? . . . Applications for mortgages in the United States rose last week as the average rate for 30-year fixed home loans excluding fees fell to a record-low 4.99 percent. Applications for refinancings rose 1.3 percent. Applications for new purchases were essentially flat. Mortgage rates have fallen in tandem with falling bond yields as investors speculate that the Federal Reserve will lower its overnight rate again next week. The MBA has been tracking applications and rates since 1990.
Investment Lesson . . . The summer slows down for most semiconductor suppliers. In the last dozen years, we can recall only two years where the summer didn't slow materially -- 1995 and 2000. In those two cases, things came undone in 4th quarter. There is an unmovable force that obstructs the industry's path in 3rd quarter: Europe goes on vacation for the month of August, and Europe represents roughly 20% of the world market for chips. Summer vacations are the rule in other geographic regions as well. One rule of thumb is to take the sequential growth for June for non-PC chip and non-wireless companies and trim it by 30-60% for 3rd quarter. Models essentially reflect this, with 3.5% median growth for 2nd quarter and 2.2% for 3rd quarter (a 37% deceleration). Unfortunately, First Call consensus reflects acceleration in the median growth during 3rd quarter, from 3.6% to 5.3%.
Financials . . . The Wall Street Journal reported Lehman Brothers could be liable for more than $80 million due to pending bankruptcy proceedings involving defunct mortgage lender. The co was a financial backer of First Alliance Corp which currently has two cases pending before a federal judge in Santa Ana, CA.
Bear Stearns reported 2nd quarter earnings of $2.05 per share ($280.4 million), $0.33 better than the consensus of $1.72. This compared with $342.9 million, or $2.59 per share in the year-ago period. Revenues fell 9% year/year to $1.46 billion versus the $1.37 billion consensus. The company also increased its common stock cash dividend over last qtr by 17.65% to $0.20 per share.
Morgan Stanley reported 2nd quarter (May) earnings of $0.71 per share ($599million), excluding $0.16 aircraft impairment charge, $0.03 better than the consensus of $0.68. In the year-ago period, the investment bank reported net income of $448 million, or 72 cents per share. Revenues rose 1.5% year/year to $5.05 billion versus the $5.05 billion consensus.
The Bank of New York reiterated the expected impact of the Pershing acquisition on its operating results, based on the assumption that market activity will remain at recent levels. The company added that the synergy estimate of $22 million for 2003 remains "on target." Meanwhile, the company expects to exceed its client retention target of 90 percent.
Diversified . . . Robert Cornell at Lehman Brothers raised his price targets on a number of diversified industrial companies due to expectations that the general economy will improve in the second half of the year, and that industrial production could pick up meaningfully in the first quarter of 2004. He lifted his target on General Electric to $35 from $30, on Honeywell to $30 from $25, on 3M to $140 from $135, on Emerson to $65 from $55, on Hubbell to $40 from $35 and on Cooper Industries to $45 from $40. "We think project-type spending could accelerate more significantly as managements get more confident in the demand outlook," Cornell said.
Homebuilders . . . DR Horton plans $100 million notes offering and will use the proceeds to call the approx $100 million outstanding principal amount of its 9% senior notes due 2008.
Oil &Gas . . . Baker Hughes was downgraded at Bank of America to Neutral from Buy based on valuation, as the stock is near their $35 target.
Energy . . . Duke Energy was upgraded at J.P. Morgan to "neutral" from "underweight," after Moody's Investors Service downgraded the company's credit ratings . The brokerage said that Moody's decision to give Duke a stable instead of a negative rating was key. Standard & Poor's also cut Duke's credit ratings by one notch, but assigned a negative outlook. Management has sold over $1.0 billion of noncore assets out of the $1.6 billion targeted; it has exited out of proprietary trading; and it has lowered its capital needs and overall risk profile. In addition, management has taken several steps to restructure and right-size the company, with the objective to defend its corporate credit rating and reduce its debt load.
Chemicals . . . Millennium Chem downgraded at Smith Barney to Underperform from Outperform based on a weak painting season. The firm cuts 2003-04 estimates below consensus, and lowers price target to $11 from $14.
Defense . . . Northrop Grumman was awarded an additional $220 million contract to expand the communications, navigation and identification abilities for the U.S. Army's Comanche helicopter. The defense contractor has now received contracts totaling $428 million for developing the reconnaissance helicopter's communications capabilities.
Industrial Equipment . . . Caterpillar released its May Dealer Retail Statistics report showing an increase (+2%) in Machinery sales for the fourth consecutive month and continued flat engine sales on a three-month rolling basis versus year ago. Machinery results by geography were mixed with North America and Asia posting strong gains at 5% and 40%, respectively, while Europe and Latin America were down 5% and 43%, respectively. Low interest rates and continued investment in infrastructure contributed to results in North America and Asia, respectively. Sales in Europe and Latin America were hindered by continued slow economic activity. Engine sales were up across all segments but Petroleum. Truck, Power, Industrial, and Marine sales were up 9%, 1%, 8%, and 18%, respectively while Petroleum was down 19%. Petroleum sales continue to be well below YA levels reflecting continued concerns about the global economy. However, conditions are set for recovery as energy prices remain attractive and gas reserves are low. The impact on earnings of these results should be positive given Caterpillar's business mix. Machinery represents 65% of Caterpillar equipment sales, with North America accounting for 55% of sales in this sector, or 35% of total equipment sales. In addition, Power Generation and Truck represent 20% of total equipment sales.
Transports . . . Merrill Lynch upgrades AMR and America West to Buy from Neutral. The firm cited the following factors: revenue outperformance, aggressive cost-reduction efforts, and their comfort with the company’s' liquidity positions. AMR's target is $13, AWA's target is $7.
General Motors said its manufacturing operations are improving as the world's largest automaker raises the speed at which it builds cars, citing the latest data from the 2003 Harbour Report North America. The largest improvement in productivity came from the metal stamping operations, at 11.3 percent, while the company's vehicle assembly operations improved by 6.4 percent.
Lear Corp was downgraded at RW Baird to Neutral from Outperform based on valuation, as the stock has reached their target of $48.
JP Morgan downgraded CNF to Underweight from Neutral based on their expectation that losses at Menlo Forwarding to continue, and that the co's Con-Way subsidiary could face some pressure from weak regional LTL markets.
RW Baird reiterated Overweight on auto suppliers. Following the group's recent move (up 30-40% since March), firm believes the stocks are where they should be at this stage in the cycle, but believes further valuation expansion to "normal" levels could boost values by more than 50% over the next 3-6 months. Firm would aggressively buy American Axle, Gentex, Magna, Methose, and Superior Industries based on inexpensive valuations.
Analysts are lowering Genreal Motor’s earnings estimates for this year and next as continued pricing pressure should yield lower margins; also, a lowered discount rate will increase pension and OPEB expenses in 2004. Incentives continue to run at record levels and it is difficult for us to see an end in sight, as inventories remain high and production schedules appear to be aggressive. The declining interest-rate environment has been a boon for GMAC's mortgage business and has been largely responsible for offsetting the profit shortfall in the automotive business; it should account for a majority of the company's profits in the third and fourth quarters but will likely return to a more normalized level towards the end of the year and into 2004. The same interest-rate decline should result in a ratcheting down of the discount rate by 100 basis points at yearend; as a result, envisage a $1.40 hit to EPS next year due to rising expenses associated with its pension and OPEB liabilities. Still see value in the shares given current P/E multiples and a dividend yield of 5.1%; however, the market is overlooking industry fundamentals in its pursuit of deep cyclical exposure and more economic leverage; thus, take some profits at these levels; maintain Outperform rating.
Photography . . . Eastman Kodak now sees 2nd quarter EPS of $0.25-0.35 vs. consensus of $0.68 and previous guidance (April 23) of $0.60-0.80. However, company cites several non-recurring items as reason for shortfall, including lower-than-expected revenues from consumer film / photographic paper due to SARS outbreak in Asia and charges related to exiting Phogenix joint venture, certain asset impairments, restructuring actions, and concerns with certain intellectual property agreements.
Toys . . . UBS Warburg downgraded Mattel to Neutral from Buy. At their analyst meeting, MAT emphasized "a near-term bump" because of retail and market share issues, which firm interprets as a potential numbers miss for 2nd quarter. The firm cuts target to $21 from $26.25.
Hasbro was downgraded at Jefferies to Hold from Buy based on valuation, as the stock is nearing their $19 target.
Consumer Products . . . Clorox updated 4th quarter outlook for EPS of $0.67-0.68, slightly below the consensus of $0.69 as well as low single-digit volume and sales growth compared with the year ago 4th quarter. The company sees 2003 EPS of $2.22-2.23 verss consensus of $2.24. The consumer-products company said the new outlook reflects the impact of the wet spring weather, which reduced consumer demand for auto products and seasonal products.
Retail . . . Best Buy reported 1st quarter earnings of $0.21 per share ($69 million), $0.01 better than the consensus of $0.20. Revenues rose 11.1% year/year to $4.67 billion versus the $4.63 billion consensus. Best Buy said rising selling, general and administrative expenses due to increased promotional activity at its U.S. stores hurt its gross profit rate in the first quarter. The company sees 2nd quarter (Sep) EPS of $0.27-0.32 versus consensus of $0.27. Maintaining guidance for 2004 with revenue growth of 11-13% year/year and 2004 EPS in the range of $2.17-2.22, in line with consensus of $2.19.
Pier 1 Imports was downgraded at JMP to Market Perform from Market Outperform, citing valuation and continuing negative traffic counts.
Healthcare . . . Lincare Holdings downgraded at Merrill Lynch . The firm believes it is prudent to take a more cautious view towards LNCR shares until the situation with Medicare drug benefit legislation clarifies itself, probably by Oct 1.
Bally Fitness issued $200 million of notes and refinance credit facility.
Medical Devices . . . Bioject Medical inks agreement to supply NIH, whereby the federal government will utilize Bioject's Biojector 2000 (B-2000) needle-free technology in HIV and Ebola clinical trials. Under the agreement, Bioject will be reimbursed by the Government on a time and materials basis between $250,000 and $1.0 million per year for the services it performs.
Drugs . . . Watson Pharma was upped to Outperform from Market Perform at Piper Jaffray. The firm sees WPI as the best way to play a potential deal to open up the generic Wellbutrin SR market. Firm's price target goes to $52 from $34.
Allergan was downgraded at JP Morgan to Neutral from Overweight based on valuation, as firm feels there is not much upside left with the stock trading at 35x their 2003 estimate versus the group average of 25x.
MedImmune was cut to Market Perform at Adams Harkness on firm's view that FluMist sales will be lackluster until populations most likely to benefit (children younger than 5, high-risk adults and kids, and the elderly) are included in the label (current label covers healthy people aged 5 to 50). Moreover, firm does not see additional catalysts that will drive the stock higher in the next 6 months.
MedImmune was downgraded at Deutsche to Hold from Buy, saying the FDA's approval of FluMist was widely expected and discounted in the stock. The firm sees no further major catalysts within the next 5 months and expects MEDI to trade side-ways in the near-term. Target is $42.
Biotech . . . Gen-Probe announced that its West Nile virus assay is now available for use by blood centers in the U.S. to begin clinical testing of the virus in freshly donated human blood. According to the company, within weeks, approx 80% of the U.S. blood supply will be screened using the Gen-Probe assay. The product will be distributed by Chiron. When FDA study requirements have been met, Gen-Probe will submit a Biologics License Application (BLA) to the FDA to permit commercial sales of the product.
ICOS no longer plans to pursue a financing under that universal shelf registration statement following the pricing of a private offering of convertible subordinated notes on June 16.
Media . . . New York Times sees 2nd quarter GAAP EPS of $0.43-0.47 versus consensus of $0.54. The firm cited higher costs as result of war-related expenses, higher newsprint prices and higher benefit and compensation expenses. The company also expected 2003 EPS to increase "in the low- to mid-single digits."
CNET elects not to proceed with its proposed private placement of convertible notes announced yesterday. "We determined that the available terms were not sufficiently attractive given that our current capital and internally-generated cash flow will meet our growth objectives for the foreseeable future."
John Malone, head of Liberty Media, confirmed that the company is interested in the entertainment assets of Vivendi Universal. However, Malone is not working with Barry Diller, Chairman and CEO of USA Interactive, nor with Viacom on the deal. "I wouldn't rule it out, that after the fact, if we are a successful bidder, that we would want to have a discussion with USA Interactive about how to improve our relationship," said Malone. "But at this time we are on completely independent trajectories."
Bear Stearns released a new report today on the marketing services stocks under our coverage (Arbitron, Alliance Data Systems, Acxiom, ADVO, Catalina, Harte-Hanks, and Valassis), in which they analyze the growth drivers of each of these companies and consider their valuations in today's market. Although the market is well into an advertising recovery, marketing services companies have generally not benefited
from the improving environment. BS takes a closer look at these companies to determine if this relatively lackluster performance signals an investment opportunity in front of a potential rebound, or if it is a sign of a secular change resulting from reallocation of marketing dollars. The marketing services stocks in our group have underperformed the market since the trough on March 11, up only 21% versus a 23% overall rebound, and have also meaningfully underperformed our advertising universe, which is up 58% over the same period. Valuations in general remain below historical levels, which in select cases may create a great entry point for the longer-term investor. Are we at an inflection point? It is difficult to generalize on the group as the fundamentals of each business are so different. Some areas such as direct marketing and market research look well positioned to see healthy demand over the next 12 months.
Marhta Stewart is a relatively young company still early in its growth curve. Licensing business provides consistent, high-margin revenue stream from agreements with retailers (Kmart, Sear’s Canada, Seiyu, Sherwin Williams) and manufacturers (Bernhardt Furniture, Shaw Floor Coverings). Slow-moving efforts to develop non-Martha products and personalities are starting to pay off. Continued uncertainty relating to Martha Stewart’s trading controversy has dramatically impacted business results with no end currently in sight. Long lead times for magazine advertising suggest no near-term turnaround. Circulation trends could further deteriorate significantly. Key merchandising partner Kmart (accounting for over 50% of MSO’s EBITDA) struggling with reduced sales and floor traffic. MSO’s alternatives in the case of Kmart’s failure to meet current contract requirements are greatly reduced by stock trading controversy. Possible management/staff exodus given current business status. Major retrenchment from Internet/Direct Commerce business undermines concept of “Omni-“ media strategy. Lack of uses for large cash position. Repurchase has not been considered an option given thin public share float and trading controversy. Legal liability related to trading controversy could eventually drain cash hoard.
Hotel & Leisure . . . UBS Investment Research lowered its rating on Host Marriott to 'reduce' from 'hold' due to valuation.
Telecom . . . UTStarcom was cut to Sell at Deutsche based on their belief that the co has less visibility going into 2004, growth is slowing, and that its earnings risk profile will worsen as the mix shifts from PHS to broadband. Target is $26.
Talk America initiated with a Sell at Fulcrum and $8 target. The firm believes the stock is expensive at 13.2x their 2004 EPS est, and thinks the company's business model will be caught in the adverse cross currents of the growing RBOC-Cable clash, which completely overshadows near-term operating fundamentals.
IT Services . . . EDS expects pretax restructuring charges and asset write-downs totaling $425 million to $475 million in 2003 -- "an after-tax impact of 58-64 cents per share" -- a portion of which may be recognized in the current quarter. The charges are related to an acceleration in its Best Shore initiative and streamlining of its cost structure. As part of the restructuring, company plays to reduce its workforce by approximately 2%. EDS maintained 2nd quarter EPS guidance of $0.33-0.38 (before ex items) versus consensus of $0.34, and revenues of $5.4-5.6 billion versus estimate of $5.39 billion.
Network Equipment . . . Tellabs closes Vivace Networks acquisition. Vivace is a provider of flexible, high-performance multi-service edge switches.
WR Hambrecht encourages investors to buy shares of Foundry Networks ahead of expected solid June quarter results. Based on firm's most recent checks with sources, firm is becoming increasingly comfortable that Foundry will meet its "high end of the Street" $0.11 EPS on $94.8 million in revenue estimate for the June Quarter versus consensus of $0.10 and $93.14 million.
Semiconductor Equipment . . . Goldman Sachs commented on Semi Equip Book-to-Bill of 0.89 was below the Goldman Sachs 0.91 estimate and slightly above the Street estimate of 0.88. Following the report, Goldman Sachs is reiterating its Attractive coverage view on group. The firm believes that 6-9 month investors should be overweight the group due to increasing signs of cyclical growth beginning in 3rd quarter and still reasonable valuations as per firm's normalized free cash flow based analysis.
Semiconductors . . . Intersil WLAN chip selected by 3Com OfficeConnect Wireless 11g solution consisting of an access point , gateway and PC card.
JMP Securities downgrades Intersil to Market Perform from Market Outperform based on valuation, as the stock is trading near their $25 target.
Marvell target raised to $36 from $32 at CIBC. The target increase is based on relative valuations and expectations that growth continues in storage and communications businesses. Firm continues to believe that investors remain overly pessimistic towards the GigE controller business.
Lehman Brothers raised its rating on Vitesse Semiconductor to 'equal weight' from 'underweight.' The firm made the same call on PMC-Sierra and Applied Micro Circuits. Lehman said it believes the companies' telecom business will improve due to a combination of a stable end-market, low inventories and the conversion of application-specific integrated circuits (ASICs) to application-specific standard product (ASSPs). The firm believes the "vast majority" of inventory corrections and capital expenditure reductions are in the past, with inventories at large communication vendors such as Cisco Systems, Lucent Technologies and Nortel Networks) at their lowest levels in three years. "While we believe that valuations have expanded considerably to anticipate revenue growth we believe business has bottomed and upside potential to our estimates is likely," Lehman said.
DRAM manufacturers are building internal inventories. According to a variety of sources, DRAM manufacturers are holding back supply from the spot market right now in hopes of raising spot prices and perhaps even contract prices. Micron's quarter ended two weeks ago, and the company is now building internal inventories after pushing to get product out the door through late May. Other firms and speculators are also holding inventories in the hopes of getting better pricing later in the summer.
DRAM demand is not especially strong. Despite the recent price move, DRAM demand generally has not increased above its normal run rate and do not believe content per box is growing any faster than it usually grows. Base configurations remain at 256Mb per corporate box, with "2 for 1" memory specials offered when memory prices become attractive enough. Do not believe that the content per box story is enough on its own to cause us to get more positive on our DRAM outlook.
DDR 256Mb 400MHz part has lots of bark but little bite. Despite being priced at a 40% premium in the spot market versus the 266MHz part, the 400MHz part is not enough of total volume to really deliver meaningful upside for most DRAM manufacturers in the next two quarters. Expect volumes at 400MHz to be about 5% of total volume in 2nd quarter rising to 10-15% in 3rd quarter. Given the success that Samsung, Infineon, ProMOS, Powerchip Semi, Nanya, and Mosel are having at producing the 400MHz part, do not believe a supply shortage will persist on this spec -- unlike the SDRAM to DDR transition.
Boxmakers . . . Electronics For Imaging raised pro forma 2nd quarter EPS of $0.15-0.16, from $0.14 per share estimate issued on April 16th, based on "strong demand for its color embedded products". The consensus is $0.15.
Apple Computer upgraded at Needham to Buy from Hold based on the strength of accelerating iPod sales, a possible rebound in PowerMac sales beginning this fall, and the fact that AAPL is abandoning its long-standing strategy of confining its software to the Mac platform, which will enable the company to target its digital entertainment products and services at the entire market. Target is $23.
Software . . . Electronic Arts was downgraded at Bear Stearns to Peer Perform from Outperform based on valuation. The stock has exceeded their $68 target. The firm expects the shares to stall out in the near-term due to summer seasonality, a light release calendar, and tough June comps. Given the success to date of NBA Street Vol. 2, Def Jam Vendetta, and The Sims Superstar coupled with strong catalog sales, analysts are raising June Quarter EPS estimate to $0.01 from ($0.03) and are raising 2004 EPS estimate to $3.18 from $3.14. With two weeks left in June, Electronic Arts has shipped roughly 60% of it projected 10 SKUs for the June Quarter. The remaining 40% of EA’s release schedule reflects 4 SKUs of F1 Career Challenge (PS2, XB, GC, PC) which are set to ship in the last week of June or potentially early July. Key drive titles for the Quarter are NBA Street Vol. 2 (PS2, XB, GC), Def Jam Vendetta (PS2, GC), and Sims Superstar Expansion Pack (PC). According to channel checks both NBA Street Vol. 2 and Def Jam Vendetta have sold well during the quarter. While both have hit the top-ten charts throughout the Quarter, NBA Street Vol. 2 has been a persistent top-5 seller since its release on April 23rd. Observations are consistent with the Management’s recent remarks in the beginning of May stating that it had already shipped
more than 750,00 units of NBA Street Vol. 2 and 650,000 units of Def Jam Vendetta. On the PC-side, EA has had several titles on the top-ten list during the quarter, including several Sims titles (recently released Sims Superstar (released on May 14th), The Sims Deluxe, and The Sims Unleashed), Command & Conquer: Generals, and Battlefield 1942.
TIBCO Software was upgraded at Fulcrum to Buy from Neutral based on the stabilization in its business due to the co's ability to win deals both large ($1 million+) and small (less than $500k). The firm also says notable wins in the qtr came from the beverage, high tech, media, and transportation industries, which are all outside of TIBX's core finance and oil/gas verticals. Target is $9.
ThinkEquity upgrades click2learn and Saba Software to Equal-Weight from Underweight, saying recent conversations with both buyers and vendors participating in the LMS market leads them to believe that demand has stabilized and is poised to improve. Despite their Equal-Weight ratings, firm has a $5 target on CLKS and a $8.50 target on SABA.
Lackluster NPD data could signal weakness for Adobe according to Smith Barney. ADBE's May revenue results appeared lackluster and thus believes the month's revenue results could be signaling a relatively weak end to the 2nd quarter.
Hyperion Solutions was started with a Neutral at RW Baird. The firm is saying they are concerned about valuation; with the stock trading at 39x their 2003 estimate and 1.9x sales, the stock trades at a premium to both the biz intelligence and enterprise software groups. Target is $40.
Oracle announced that it will raise its cash tender offer for PeopleSoft to $19.50/share, or approx. $6.3 billion. "Oracle remains committed to acquiring PeopleSoft and will not be deterred by management's maneuvers to maintain control of a company they do not own." Oracle still expects the deal to be accretive, excluding the amortization of intangibles. ORCL says transaction would be immediately accretive for its shareholders and accretive in a year on a GAAP basis. The Co is confident they will prevail with revised price.
Oracle announces that it has filed suit against PeopleSoft, its board of directors, and J.D. Edwards. Oracle contends that PeopleSoft and its board breached their fiduciary duties, including failure to act in the best interest of PeopleSoft's shareholders. Oracle seeks, among other things, rescission of the amended J.D. Edwards merger agreement and redemption of the PeopleSoft "poison pill."
Oracle survey of PSFT holders suggests $19.50 is the right price. "In the last few days, Oracle executives have had the opportunity to speak with the holders of a majority of PeopleSoft," commented Oracle CEO Larry Ellison. "Many of those shareholders indicated the prices at which they would tender their shares. Therefore, Oracle is raising its all-cash offer to $19.50 per share."
Check Point Software reit Underperform at Goldman Sachs. The firm sees near-term bottom-line growth concerns. Also views Nokia's release of an SSL-based VPN solution using their own software as a mild negative for CHKP. Believes this could suggest some cooling in the CHKP/Nokia relationship and in the meantime adds additional competition.
Connecticut's attorney general announced that the state plans to file an antitrust lawsuit against Oracle to block its hostile takeover attempt of rival software company PeopleSoft. The lawsuit, to be filed today in U.S. District Court in Hartford, alleges that Oracle's planned takeover would violate state and federal antitrust laws, directly damage the state and its economy, and raise prices for software and technology services by reducing competition. Oracle raised its offer for PeopleSoft earlier on Wednesday to $6.3 billion, or $19.50 a share, up from $5.1 billion, or $16 a share.
Internet . . . FindWhat.com raised revenue guidance for 2nd quarter and 2003. The firm sees 2nd quarter EPS of "at least" $0.11 on revs above $17 million consensus is $0.11 and $15.8 million. The company also sees 2003 EPS of "at least" $0.46 and revs above $67.5 million versus consensus is $0.47 and $67.03 million. FWHT also announces the acquisition of privately-owned ESPOTTING MEDIA for approximately $163 million ($27 million cash and approximately 8.1 million FWHT shares).
FindWhat.com was upped to Buy at Legg Mason. The upgrade from Hold follows announcement this morning of the Espotting acquisition. In firm's view, Espotting has an attractive distribution network, including Yahoo UK & Ireland, Ask Jeeves, and UKPlus. Espotting's advertisers are also among the premier European advertisers, including Opodo, Hotels.com, and eBay. Price target goes to $24 (40x 2004 est).
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