Mixed economic data as well as J.P. Morgan's reduction on General Electric's 2003 estimates had the major indices in a broad-based retreat. The S&P 500 dropped 15 points (-1.5%) to 994. The DJIA slid 114 points (-1.2%) to 9179. The Nasdaq Composite fell 28 points (-1.7%) to 1648. All three indexes had their biggest drops since May 19. Leading economic indicators as well as the Philly Fed showed improvement but current account deficit rose to a record high and the job market continued to be sluggish. The Standard & Poor's 500 Index has climbed as much as 26 percent from its 2003 low on March 11 on expectations that economic and profit growth will accelerate in the second half of the year. Some investors say forecasts for growth fail to support the advance. The 10-year Treasury note closed up 5/32 to yield 3.35 percent while the 30-year government bond fell 9/32 to yield 4.415 percent. Yields on longer maturities have moved up substantially over the past week amid a string of better-than-expected economic reports.
Top Stories . . . The number of Americans filing for unemployment benefits last week fell to 421,000, the lowest in five weeks, and a gauge of leading indicators showed the U.S. economy may be poised to improve over the next six months.
Philadelphia-area manufacturing expanded this month for the first time since February, adding to evidence factories are rebounding from an Iraq war slump.
Forest Laboratories Inc., maker of the antidepressant Celexa, said one of its experimental medicines failed in a study of patients with mild to moderate Alzheimer's disease. The drugmaker's shares fell as much as 11 percent, the biggest drop in almost three years.
Lehman Brothers, the fourth-biggest securities firm by capital, said profit surged 48 percent in the second quarter as bond sales and trading climbed.
Quote of Note . . . ``This has been a tremendous move up, but not reinforced by earnings growth,'' said Seth Glickenhaus, who has worked on Wall Street for more than 70 years and manages almost $1 billion at Glickenhaus & Co. The rally ``is either over, or it's going to end soon,'' he said.
``The economic data isn't quite showing that we are going to have this huge boost in the economy,'' said Jay Finkel, a trader at Lord Abbett, which oversees $57 billion. ``The market is discounting that we are going to be doing better the second half of this year, if we don't, that will hurt stocks.''
Fed Speak Of Note . . . A Washington Post article, suggesting a reduction of 50-basis points, instead of the conventional wisdom for a 25-basis point cut. This has sent the dollar higher, while bolstering bonds.
Market Comment . . . For the past few sessions, the market has been digesting substantial gains scored over the past 3-1/2 months, but sidewise appears satisfactory.
Gurus . . . Jason Trennert, strategist for International Strategy & Investment, notes that only twice since 1953 has the S&P 500 gained more than 20% in the first 3-months after reaching a low. Both times, it returned less than 7 in the next 3-months, and even less during the next 18-months. Since you are starting from depressed levels, the initial gains are very dramatic, and the law of percentages also play a role. The S&P 500's six biggest percentage gainers this year are priced below $10-a-share. The are: Dynegy, Williams, Avaya, Corning, PMC Sierra, and AES Corp. As stocks rise and become more expensive relative to earnings, gains become more difficult. Trennert increased his year-end estimate for the S&P 500 to 1050, a 4% advance from yesterday's close. He stresses quality stocks that pay a dividend, which will become more attractive as the rally starts to mature.
On the Kudlow-Cramer Show last evening, Jim Cramer suggested the auto stocks look interesting. Of course, General Motors yields over 5%, and Ford, 3.5%. This morning, First Boston recommended DailmerChrysler, which yields over 4%.
Chris Johnson, head of quantitative research at Schaeffer's Investment Research, notes a new 16-year low in the ranks of bearish newsletters might send out a warning sign. However, Johnson says any decline might not last, and he sees the NASDAQ Composite rising another 20% this year, to 2000.
Of Note . . . The Wall Street Journal reports that the amount of electricity generated from solar, wind, and other nontraditional sources is likely to double in the U.S. and Canada during the next decade amid the plunge in renewable-energy costs, according to a report expected to be released today by Navigant Consulting, a firm whose study was largely funded by energy and utility company's.
Bad Girl Honor Roll . . . A federal judge on Thursday scheduled the high-profile trial of Martha Stewart to begin on Jan. 12. Oral arguments for motions in the case will be heard on Nov. 18, Judge Miriam Cedarbaum said. Attorneys for the defense argued that they had not had the opportunity to see much of the discovery compiled by the prosecution, which includes 23 to 30 boxes of material, they said. Stewart's attorney, Robert Morvillo, said that while he has had some access to files, attorneys for Peter Bacanovic, Stewart's former stockbroker and co-defendant, have had no access.
Eco Speak . . . US leading economic indicators rose 1 percent in May, "finally" pointing to a recovery, the Conference Board said Thursday. Eight of the 10 indicators increased in May, led by money supply, consumer expectations and stock prices. Two other indicators held steady in May. Economists expected a gain of 0.7 percent after April's 0.1 percent gain. "But the dangers present in the first five months of the year have not disappeared completely," said Ken Goldstein, economist at the board. "Chief among them is a lack of business confidence." The coincident index rose 0.1 percent in May after falling four of the previous eight months. The lagging index dropped 0.1 percent in May.
Activity in the manufacturing sector improved in June in the Philadelphia region, the Federal Reserve Bank of Philadelphia reported Thursday. The Philly Fed index rose to 4.0 from negative 4.8 in May, the first gain since February. Positive readings indicate expansion in the sector. The increase matched expectations on Wall Street, though it fell short of so-called "whisper numbers" that it would rise into double digits. New orders and shipments both remained just below zero.
The 12-month rate of high-yield debt defaults fell for a fifth straight month in May, rating agency Fitch said Thursday. The rate of defaults was 11.8 percent, down from 13.5 percent in April and 16.4 percent at the end of 2002. Thirteen issuers defaulted on their bond obligations in May, the largest of which was UHaul parent Amerco. The defaulted issuer count through May totaled 47, down 50 percent from 93 for the comparable period in 2002. New high-yield issuance totaled $66 billion in the first five months of the year, well ahead of the $55 billion sold in the first five months of 2002. The bulk of new bonds were used to refinance existing debt at lower interest rates.
The U.S. current account deficit expanded to a record $136.1 billion in the first quarter, owed to a wider gap in goods trade and increased foreign investor appetites for U.S. Treasury and corporate-issued securities, according to government figures released Thursday. Foreigners shifted to net sellers of U.S. stocks in the period from net buyers in the previous three months, while the U.S. dollar depreciated 5 percent against a group of seven major currencies tracked for this report, dulling the attraction of owning U.S.-based assets. Further accounting for a wider deficit, the U.S. surplus in services trade narrowed in the first three months of the year, the Commerce Department said in its report. The fourth quarter's current account deficit stood at a revised $128.6 billion -- the previous record. The current account report takes the goods and services trade data already released by the agency and adds all financial transfers between U.S. government and business and foreign interests.
Financials . . . Merrill Lynch lowered full year estimates on General Electric. 2003 estimates go to $1.59 from $1.61 versus consensus $1.61 due to lackluster short-cycle order trends. Firm's 2004 estimate goes to $1.72 from $1.75 versus consensus $1.76. The firm believes the company could use tomorrow's analyst meeting as an opportunity to narrow current full- year guidance to the low end of the previous $1.55-$1.70 EPS guidance range.
Southern Financial Bancorp expects earnings for the current quarter and for the full year to be stronger than originally expected. The company also said it was boosting its quarterly cash dividend by 2 cents a share to 15 cents. The new dividend will payable Aug. 20 for shareholders of record on Aug. 6.
The Wall Street Journal's "Heard on the Street" column says that Freddie Mac could restate its earnings by between $1-$3 billion, according to people familiar with the matter; the move would boost the company's bottom line for the past 2-3 years, but reduce net income by the same amount during the next several years. However, some analysts believe the company's earnings might suffer little or not at all if the housing market continues to boom, offsetting any earnings taken away by the restatement, and earnings could also be affected positively by other changes in accounting that may be under consideration.
A.G. Edwards reported earnings of $0.35 per share, $0.05 better than the consensus of $0.30. Revenues were $552.0 million versus consensus of $523.5 million.
Morgan Stanley was downgraded at JP Morgan to Underweight from Neutral following yesterday's results. The firm says the company missed consensus by $0.13 when counting a $287 million pretax impairment charge at Ansett Wordwide (MWD's aircraft leasing unit), representing a $0.16 impact to EPS. Looking forward, firm says expectations for rising credit card charge-offs in 2nd half 2003 and continued uncertainty related to its aircraft biz add a degree of difficulty to the company's 2H03 recovery.
Lehman Brothers reported 2nd quarter earnings of $1.67 per share, $0.50 better than the consensus of $1.17.
Putnam Lovell analyst James Mitchell upgraded Lehman Brothers to "sector outperform" after the company's fiscal second-quarter earnings report "blew away" expectations. "While we don't want to overreact to perhaps an unsustainable level in fixed-income trading, the above average results in each area illustrates Lehman continues to grab market share in most products," Mitchell.
General Electric estimates trimmed at JP Morgan. The firm revisited its investment thesis on GE in the face of share price appreciation in recent months. The firm concludes that investors should be able to find better returns in other industrial stocks that offer more attractive valuations. Firm lowering its 2003 estimate to $1.58 from $1.60; maintains below-consensus 2004 estimate of $1.70 on view that the $1.76 consensus will come down.
Mid-Atlantic Realty Trust agreed to be acquired by Kimco Realty for about $444 million, or $21 per share. Kimco's stock is adding almost 4 percent to $38.51. The companies expect the deal to close on or about Sept. 15. Kimco said it will own interests in 684 properties following completion of the acquisition.
Energy . . . The utility sector has kept pace with a surging stock market - both up 15% year-to-date. Including dividends, utility total return has slightly exceeded that of the S&P 500. Analysts have been positive on utilities since late last year on the view that fundamentals were turning up and valuations were quite cheap. Continue to be encouraged by the sector's improving free cash flow outlook and more disciplined capital allocation (albeit somewhat forced by the rating agencies). At this point, however, the group is more fairly valued relative to the stock market. Utilities now trade at a forward P/E that is roughly 70% of the S&P 500 average, essentially back above historic norms for the first time in three years. Relative to 10-year Treasury bonds,
however, the sector is trading at a 60 bp yield premium versus an historic 60 bp yield discount. Considering that the tax rate on dividends (15%) is now much lower than that on interest income (35%), this yield differential is even more enticing. Thus, still see upside on a yield and growth basis in the current low interest-rate environment. In other words, the group call is becoming more of an economic and interest rate call. From a technical standpoint, the sector still looks attractive. The next soft resistance on the UTY index is in the 305 area with strong resistance at 330. The UTY is currently at 295. Three main stock themes have been driving the group this year: 1) The natural gas price increase and resulting benefits to those with exposure to higher gas and power prices; 2) The turnaround in high-beta, credit-sensitive companies; and 3) The attraction of high-yielding stocks given lower taxes on dividends and low interest rates. The latter two themes seem inconsistent with each other over the long term. One characteristic that appears undervalued in the utility sector today is growth - in earnings and dividends. While this can be understood by past disappointments, we believe companies with
strong internal growth are among the best relative values in the group right now. Highlight FPL Group, Constellation Energy, and Entergy.
With respect to the other themes outlined above, continue to recommend Dominion Resources, Exelon, and PPL as plays on the natural gas upcycle; analysts like FirstEnergy, TXU and as credit-sensitive restructuring plays; and Cinergy for its high current yield. Analysts are raising price targets on these companies by 5%-10% based on our view that the group still has room to the upside in this low interest-rate environment. In addition, all the companies recommended except Cinergy trade at discounts to the group average P/E multiple.
risks in the sector remain the difficult merchant gas-fired generation outlook, much higher interest rates, the potential for weak 2nd quarter results due to mild weather, and the risk of lower allowed returns in the declining interest-rate environment.
Metals . . . Goldman Sachs is switching favorite base metals exposure to Aluminum from Copper. Consequently, the firm is downgrading FCX. Goldman's top picks are Alcan and Alcoa. Also slightly more positive on gold on back of recently revised US dollar forecast, leading to an upgrade of AU to In-Line from Underperform.
Prudential raised its rating on Newmont Mining to "hold" from "sell."
David Christensen at CS First Boston lowered his gold sector rating to "market weight" from "overweight," citing the "horrific" operating performance reported by gold miners due higher operating costs and recent gold stock trading activity. Christensen also said that gold prices have averaged $346 an ounce so far in the second quarter versus $352 in the first quarter, the first time gold prices have not increased sequentially in the last 10 quarters. Christensen added that most reports of demand for gold, especially in the jewelry market, have been negative, while mine production has increased. He noted that gold prices rose 11 percent over the last three months, while gold shares rose 21 percent. "In our view, the recent rally in the gold price is not supported by fundamentals but is more reflective of short-term speculative trading activity," Christensen said.
Transports . . . Fitch downgraded the debt of both GM and GMAC one notch to "BBB+" from "A-". Ratings outlook remains negative. Fitch cites "increasingly more negative incentives environment"; "weaker than expected" performance in US light vehicles. The firm has concerns about healthcare and pension costs; and "longer term concerns about GM's competitive position especially in key US market and especially in light of the upcoming UAW negotiations".
Qatar Airways placed a $5.65 billion airplane order with Airbus.
Consumer Durables . . . Herman Miller tightened 4th quarter revenue guidance range from $305-325 million to $318-322 million versus consensus of $312 million. The company does not provide pro forma EPS guidance, 4th quarter GAAP EPS guidance of a loss of $0.01-0.03 includes charges, not comparable to estimates. MLHR also announces it will move Canton, Georgia manufacturing to its Spring Lake, Michigan campus, resulting in a $0.14 charge.
Consumer Products . . . Leapfrog (educational toys) was downgraded at Merrill Lynch to Neutral from Buy based on valuation, as the stock has hit their $34 target.
Retail . . . Kohl's was upgraded at Bernstein to Outperform from Market Perform. The firm is saying expectations for a 2nd quarter preannouncement are largely discounted in the current stock price. In addition, firm also views the current top-line weakness as a result of poor weather and a soft economy, not an indication of a secular problem. The firm cuts target to $58 from $60.
CVS was downgraded at UBS to Neutral from Buy based on valuation. The stock is nearing their $31 target. The firm's 2003 estimates are also at the low-end of guidance, as they believe it would be difficult to gain operating leverage in a sluggish sales environment in 2nd half 2003.
Bed Bath & Beyond downgraded at Wachovia to Market Perform from Outperform based on valuation, as the stock has now reached their $40-$43 target range. Although the company's fundamental performance and execution remain quite good. The firm sees little opportunity for further multiple expansion given the deceleration in BBBY's square footage growth and an expected EPS growth rate of about 20%.
Michaels Stores declared its first dividend, expanded the share repurchase program. The company announced its first-ever quarterly cash dividend of $0.10 per share. MIK also approved the repurchase of up to 1 million additional shares of stock. "Recent tax code changes make it possible to employ dividends to add value and to broaden and diversify our investor base, even as we continue to improve our infrastructure, invest in growth opportunities and satisfy our capital requirements."
Restaurants . . . Yum, the parent of Taco Bell, KFC and Pizza Hut, said sales at stores open more than a year were flat last month but higher by 1 percent for the quarter. It credited strong same-store sales from Taco Bell and Pizza Hut, which offset disappointing numbers from KFC.
Krispy Kreme Doughnuts announced the opening of a store in Sydney, Australia, its first store outside of North America. "This is a landmark event in Krispy Kreme's history," said Scott Livengood, the doughnut seller's chairman. The company said it plans to open 30 stores in Australia and New Zealand over the next 5 years.
Healthcare . . . CalPERS board approved an 18.4% HMO rate increase for 2004. SG Cowen views this news as a positive data point on the 2004 HMO pricing outlook, although politicization of CalPERS' HMO rate-setting process likely diminishes its relevance as pricing benchmark.
Medical Devices . . . St. Jude Medical downgraded at CIBC s to Sector Perform from Sector Outperform based on valuation, as the stock has exceeded their $59 target. The firm says the stock may trade lower in the near-term based on their expectation that 2nd quarter results will only be in-line and that the ICD biz is likely beginning to feel a pinch from CRT-D devices.
Drugs . . . Forest Labs Alzheimer's study fails to demonstrate statistical significance. Based on a preliminary analysis of a recently completed study, memantine administered to patients currently receiving acetylcholinesterase inhibitor therapy for the treatment of mild to moderate Alzheimer's disease failed to demonstrate statistically significant differences on cognitive or global outcomes versus placebo/acetylcholinesterase treatment.
Merrill Lynch upgraded Wyeth to Buy from Neutral based on the company's accelerating growth potential. The firm says high-margin products (including Enbrel, Prevnar, Effexor) could drive earnings upside, partnered-product momentum (including Amgen's Enbrel, Johnson & Johnson's Cypher stent, MEDI's Flumist) could drive investor enthusiasm, and money flows could benefit WYE because it lacks near- to medium-term patent expiration exposure and can sustain earnings growth through 2007. The firm also notes that the stock trades at a 12% discount to the 2004 group average multiple. Target is $55.
Schering-Plough was downgraded at Morgan Stanley to Equal-Weight from Overweight based on valuation. The firm has enormous confidence in Schering Plough's new CEO, but says he's likely entering a clean-up phase, which means that odds are good that investors can buy the name at lower prices; and while none of the concerns facing the stock are new (U.S. attorney's investigations, tough competitive dynamics). The firm is uncomfortable justifying a higher price target until they get better visibility on base EPS. Target is $22.
Abbott Labs presented new Humira data this week from pivotal Phase III and ongoing clinical trials of Humira showing the effectiveness in adult Rheumatoid Arthritis in patients with early and established disease and sustained response up to 4 years.
XOMA initiated Phase I of vascular inflammation inhibitor MLN220. This is a humanized monoclonal antibody being developed for conditions related to inflammation of the heart and blood vessels. MLN2201 is one of two products currently under development as part of an ongoing collaboration with Millennium Pharma.
Biotech . . . Neurobiological Tech is down 21.5% after partner FRX said on Thursday that a clinical trial of its experimental treatment for Alzheimer's disease did not significantly add to patients' ability to understand their surroundings and take in information. NTII is set to receive only 1% of expected AD royalties.
AVI BioPharma reported positive Neugene cancer trail. The firm announced positive results from a Phase Ib clinical trial with its Neugene antisense cancer drug, AVI-4126, targeting the oncogene c-myc. The trial demonstrated the effectiveness of systemic drug delivery into solid tumor tissues for both breast and prostate cancer patients. Over-expression of c-myc has been described in these and many other types of cancer.
Cellegy Pharma reported positive interim results for female sexual dysfunction treatment. The firm announced that an interim analysis of a Phase 2 study using Tostrelle 0.5% (testosterone gel) to treat women with sexual dysfunction showed a response rate of 71% versus a placebo response of only 13%. Based on these results and other information gathered from the study, the company amended the original trial protocol and will continue this study in preparation for a Phase 3 trial plan.
DOR Biopharma will advance lead product to Phase II. The company announced that its lead product orBec has demonstrated positive results in preliminary experiments with animal models of Irritable Bowel Syndrome (IBS)-like pain. Based on these positive findings, DOR is planning to conduct a Phase II clinical trial in patients who suffer from post-infection IBS. (Briefing's Biotech News Rating Scale puts this news at 1, or low priority).
Media . . . aQuantive initiated with Strong Buy at Roth and $14 target. The firm is saying the company stands to grow substantially this year and next as the post-bubble Internet ad model gains credibility and a greater share of Fortune 1000 marketing budgets.
Scholastic will sue the Daily News and seek "tens of millions of dollars" for copyright infringement after New York Daily News published details and excerpts from not-yet-released Harry Potter novel.
EchoStar announces that U.S. District Court in Atlanta granted EchoStar's motion for summary judgment against Gemstar Development Corp, ruling that Gemstar does not have standing to enforce U.S. Patent No. 4,908,713 (the '713 patent).
Cablevision found accounting problems with an internal review initiated by the company. They identified improper expense accruals at the national services division of CVC's Rainbow Media Group. The company says the improper accruals identified to date are insignificant to the previously-reported financial results of CVC and Rainbow, and said it has notified appropriate government authorities of the matter. Cablevision fired Kate McEnroe, president of its AMC Network, and 13 other AMC employees.While CVC claims that there is no reason to believe that the problem is more widespread (and no reason to dispute this), investors who have been burned by accounting scandals in the past may be more cautious given the review.
USA Interactive is changing name to InterActiveCorp. The Company's Internet address will be IAC.com and its ticker symbol will change from "USAI" to "IACI" on June 23.
Charter Comm will amend its credit agreement of the $5.2 billion senior secured credit facilities agreement. The amendment permits the creation of intermediate holding company's in Charter's corporate structure between Charter Communications Holdings and the bank borrower, Charter Communications Operating; in connection with the amendment, Charter is also contributing the equity of certain subsidiaries to Charter Communications Operating.
Telecom . . . UTStarcom signed a $28.7 million pact with China Netcom.
Sprint PCS was cut to Sell at Deutsche. Price target $4. Deutsche Securities based their view that the market is rating PCS on par with global leaders such as VOD, which belies the considerable challenges PCS faces. The firm prefers AT&T Wireless(target $8.10) for exposure to the sector, and reiterated their Sell ratings on Nextel (target $12) and Alltel (target $41).
RBOCs will announce large-scale fiber-optic deployments. The Wall Street Journal reports that SBC, BellSouth, and Verizon are launching a plan that eventually will string high-performance fiber-optics directly from central telecom hubs to homes and businesses. As early as this week, the 3 RBOCs are expected to issue a combined request for proposals to start buying and testing equipment for large-scale fiber-optic deployments, with the final contracts derived from these proposals possibly valued at $500 million to $1 billion.
IT Services . . . Soundview downgraded EDS to Neutral from Outperform after the company laid out a new plan to reduce costs and grow their business. The firm likes the new management, the plan puts a lot on management's plate at the same time it is trying to fix a host of structural issues. The firm believes it will be about 1.5 years before today's plan helps EPS. Price target is $24.
Storage . . . Sun Microsystems CEO calls takeover talk "nonsense". The rumors of a takeover bid for Sun Micro are "nonsense" as no U.S. company could afford to buy the computer maker, Sun CEO Scott McNealy was quoted as saying on Thursday. "It's been 21 years, ever since we were founded, that I've been hearing this kind of thing," McNealy told Italian financial newspaper Il Sole 24 Ore in an interview. "Sure, we are a public company, but we have a capitalization of about $17 billion, then you'd have to come up with a 30 to 40 percent premium to make a bid for us. What U.S. company -- apart from a condemned monopoly -- has $25 billion in cash?"
Network Equipment . . . FBR reiterated Juniper Networks with an Underperform and $2 target. The firm is saying investor sentiment may be ahead of fundamentals. JNPR is selling at a P/E of 200x their 2004 EPS estimate of $.07 (half of the Street's estimate),and even with prospects of flat revs JNPR sells for 9x 2004 sales, about twice that of market leader Cisco.
Lucent awarded $100 million CDMA management service contract from Telecom New Zealand has signed a $100 million agreement with Lucent Technologies for the global network provider to manage its 027 CDMA mobile network.
Nokia rose after the chief financial officer of RF Micro Devices said he is optimistic that cellphone sales will pick up later this year.
CIEN has pulled back since the closing of WaveSmith acquisition - there was no lock-up on the deal so this has resulted in some selling pressure. There will be an announcement of the short list for the GIG-BE contract award, which we expect in early/mid July. The recently announced contracts with British Telecom and KPN could provide
slight upside to revenue estimates for October Quarter. Nevertheless, the stock’s quarterly break even is still $175 million, or 2.5x ahead of the current run rate.
Semiconductor Equipment . . . Entegris reported 3rd quarter earnings of $0.05 per share, $0.02 better than the consensus of $0.03. Revenues rose 17.2% year/year to $70.0 million versus the $67.3 million consensus. The company sees 4th quarter sales "about even" with $70 million 3rd quarter number versus consensus of $70 million.
Semiconductors . . . LSI Logic was upgraded at Lehman to Equal-Weight from Underweight and raised their target to $8 from $6 based on their belief that business may have finally bottomed. The firm also cites their expectations for a solid June and September, strength in storage and stability in communications and consumer, compelling valuation, and low expectations for a rev decline of 7% for 2003.
Lehman downgraded Fairchild Semi to Equal-Weight from Overweight due to heightened risk to their EPS estimates and relatively high valuation. The downgrade is based in part on yesterday's analyst day. The firm thinks orders will be soft this summer, particularly in Asia (75% of sales) as a result of SARS and excess inventories, and that gross margin will remain under pressure. Target is $13.
Micron was upgraded to Neutral at UBS and raises their target to $12 from $8 following last night's results. The firm expects the stock to remain range-bound from $10-$14 until the co can demonstrate a clear path to profitability, and given the prospect of continued losses for the next 5 quarters, firm thinks the stock is richly valued at $13.50. At the same time, the prospect of stable to rising DRAM ASPs will likely support the stock above the $10 level.
Standard & Poor's revised its outlook on Micron Technology to negative from stable, citing continued price pressures and weak demand levels, which have weighed on the memory chipmaker's profitability and liquidity. S&P affirmed its "B+" corporate credit.
Micron would not give any hard guidance numbers outside of their expectations that production would see an increase in the low single digits (percentage terms). MU also saw a decrease of 15% in ASP's in the quarter and would not give guidance as to where they saw ASP's headed.
Software . . . NetScreen was initiated with Strong Buy at SG Cowen. Despite one of the richest valuations in the sector, firm says NSCN is poised to deliver substantially above-consensus growth, driving further stock price upside. Core VPN/Firewall appliance segment among best in SW. To grow at 29% in 2003, 24% CAGR through 2006. Gaining share against market giants Cisco and Nokia/Checkpoint. Product superiority will drive share gains, exceptional growth. Independent tests verify NSCN has the fastest product with no signs that competitors are closing the gap. Setting estimates above St. as future looks bright. A strong segment, share gains and superior products lead us to set 2004 (Sep) estimates above consensus, especially on revenue line. Company is a winner by all measures -- growth, profitability, ROIC, and market segment. The firm sees fair value at $26.
Openwave plans to accelerate its cost-reduction plan for the second half in order to slash operating expenses and achieve its goal of breaking even on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis. The company said the plan calls for the elimination of 180 jobs, or 12 percent of its employees, resulting in a charge of between $8 million and $14 million, which will be recorded in the June and September quarters.
Oracle’s increased bid of $19.50 will pressure Peoplesoft’s board to suspend the poison pill. Despite bid increase, economics of deal favorable. Analysis of PSFT's services revenue suggests positive return on debt capital for ORCL even at $19.50. Some economic justification to raise the offer if necessary, depending of course on cost of debt and customer retention rate assumptions. Offer assigns PSFT reasonable valuation. By upping its bid, ORCL is valuing PSFT at 2.3X rev plus cash, in-line to above the average multiple for our large-cap software index.
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