From Briefing.com: On Monday, Microsoft (MSFT 25.78 -0.55), Dell (DELL 31.42 -0.55), Intel (INTC 20.36 -0.31), Cisco (CSCO 17.24 -0.69), Qualcomm (QCOM 36.00 -0.45), Applied Materials (AMAT 15.59 -0.19), and IBM (IBM 83.18 -1.74) all ended the day lower. Thus, it should come as little surprise to hear that the tech sector didn't start the week on the best of notes. Contributing to its downfall were a host of reasons that ranged from the simple act of profit taking to concerns about the Fed's likely course of action at the 2-day FOMC meeting that begins Tuesday.
For the record, Briefing.com expects a rate cut of 25 basis points on Wednesday and a risk assessment that is again focussed on disinflationary forces.
As for Monday's action, it was clear that buyers had little interest in the proceedings as breadth figures favored decliners by roughly a 3-to-1 margin, while down volume trounced up volume by a comfortable 8-to-1 margin, at both the NYSE and the Nasdaq. The disparity in those readings, particularly at the Nasdaq, were a bit surprising given the noteworthy announcement out of the biotech sector that IDEC Pharmaceuticals (IDPH 36.96 -2.01) and Biogen (BGEN 41.55 -2.25) are planning a merger of equals.
The lackluster response to the aforementioned merger agreement suggests the market wasn't all that enamored with the proposed union, but at the same time, the lackluster response also fits with Briefing.com's contention that bullish momentum is tiring. Just a few weeks ago, this news, in all likelihood, would have triggered a rally in the biotech sector, if not the broader market. On Monday, it did neither. In fact, the biotech index dropped 3.9% in its wake.
The absence of leadership from the biotech stocks weighed heavily on the tech sector, but in truth, there wasn't any leadership to be found as weakness was broad-based from both a market-cap and industry standpoint. Mindful of that, the weakening market internals, and the potential still for earnings warnings from tech companies with back-end loaded quarters, and we continue to believe the sidelines remain the place to be at this juncture. -- Patrick J. O'Hare, Briefing.com
5:25PM Monday After Hours price changes vs 4pm ET levels: Following the regular session's broad-based sell-off, the tone of the after hours session has improved as traders have accumulated shares on weakness. Presently, the S&P futures, at 982, are 2 points above fair value, while the Nasdaq 100 futures, at 1205, are also 2 points above fair value.
Contributing to the positive tone of trading is BellSouth's (BLS 27.84 +0.82) announcement that it is increasing its dividend by 9.5% to $0.23 per common share, bringing its dividend yield to approximately 3.4%. Over the last five quarters, BLS has increased its quarterly dividend 21% from $0.19 to $0.23 per common share.
In the technology space, Sirius Satellite (SIRI 1.77 +0.01) named Jay Clark as Executive Vice President, in charge of programming Programming. Clark, who joined SIRI in April 2002 as Vice President of Entertainment/Information Programming, will now be responsible for all of the company's programming initiatives and content over its 60 commercial-free music streams and 40+ news, sports and entertainment streams.
The quick services restaurant space, however, has weakened following Sonic Corp's (00C0 23.29 -1.04) Q3 (May) earnings miss. EPS rose 14% to $0.40 and missed the Reuters Research consensus estimate by a penny. Revenues increased 10% to $122.6 mln, fueled by a system-wide same-store sales rise of 0.3%.
Finally, energy company Halliburton (HAL 22.00 -0.57) said it plans to sell $1 bln of 20-year senior bonds convertible into company stock. The sale has the potential to grow by $200 mln, and HAL did not say how it plans to use proceeds from its private bond sale. On Friday, the company announced that it sees Q2 (June) diluted EPS from continuing operations of at least $0.02, below consensus forecasts at the time, due to continued due diligence on current asbestos claims.
Tomorrow, the market will take note of a quarterly earnings report from Federal Express (FDX 62.02 +0.03) and the 10 ET release of June Consumer Confidence. The consensus estimate is set at 82.0, versus Briefing.com's estimate of 85.0.
For added detail on these, and other developments, be sure to visit Briefing.com's In Play, Earnings Calendar, and Economic Calendar page. -- Heather Smith, Briefing.com
Close Dow -127.80 at 9072.95, S&P -14.04 at 981.65, Nasdaq -33.90 at 1610.82: Stocks relinquished a sizable portion of their recent gains as a number of distressing developments for corporate America suggested some profit-taking activity was in order... A New York Times article indicated that money managers and independent accounting experts believe that Fannie Mae (FNM 68 -1.85) may have posted a big loss last year that was obscured by the complexity of its accounting... Furthermore, Tenet Healthcare (THC 12.12 -4.11), Avery Dennison (AVY 49.63 -4.66), and Rohm & Haas (ROH 31.98 -0.82) reduced their quarterly earnings outlooks, and kept concerns about the June quarter warnings season on the front burner... Other factors that contributed to malaise of the market included the 1.7-2.2% fall in the major European bourses, and the debate over the outcome of the FOMC's June meeting... Pundits are virtually split over whether a 25 basis point cut or 50 basis points cut will occur, with either decision signaling that the Fed remains worried about the economy's growth rate, and the risk of disinflation...
Given such overhangs, traders chose to sell into the previous months' strength rather than bid stocks higher, and the indices finished near their lows of the day... Underscoring the bearish tone of trading were the unfavorable breadth figures, the heavy volume totals, and the strong industry participation on the pullback... Growth-oriented groups that have paced the market's recent rally were the main-targets of sellers, with financial, technology and biotech pacing the way lower... The latter was undercut by criticism of Biogen (BGEN 41.58 -2.22) and IDEC Pharmaceuticals' (IDPH 36.96 -2.01) announced merger of equals...Nasdaq 100 -1.9%, Russell 2000 -2.3%, SOX -2.1%, S&P Midcap 400 -1.7%, NYSE Adv/Dec 794/2472, Nasdaq Adv/Dec 797/2436
9:58AM Centillium sets new benchmark with ADSL chipset (CTLM) 10.12 -0.31: The Company announced the Palladia 220, which is an ADSL 2/ADSL2plus-compatible chipset for customer premises equipment that can deliver up to 50 Mbps and extend the reach 22,000 feet. In addition, it is scalable to provide a full suite of connectivity options such as high speed Wi-Fi.
U.S. stocks were mixed after investors received a better-than-expected reading on consumer sentiment, and the Federal Reserve's two-day policy meeting kicked off in Washington, D.C. Market opinion is fairly unanimous on the likelihood of a rate cut, but Wall Street remains divided on whether the FOMC will lower rates by 25 or 50 basis points. The S&P 500 added 2 points (+0.1%) to 983. Financial and consumer stocks accounted for more than half of the increase. The DJIA advanced 37 points (+0.4%) to 9109. The Nasdaq Composite slipped 5 points (-0.3%) to 1605. August crude ended the session in New York at $28.78 a barrel with most traders expecting the Energy Department and American Petroleum Institute to report a rise in last week's crude inventories. In the currency sector, the U.S. dollar rose to a five-week high ahead of an expected interest rate cut from the Federal Reserve. Some money managers said the possibility of another interest rate cut to 1 percent or 0.75 percent will force investors to buy equities because keeping money in cash will offer little return. Money-market mutual funds have an average 0.67 yield, according to ImoneyNet Inc., a research firm that tracks money funds. There is $2.18 trillion in money funds, the Investment Company Institute said.
Strong Sectors: grocery, tobacco, homebuilders, paper packing, tobacco
Top Stories . . . A measure of U.S. consumer confidence was higher than expected in June, driven by optimism about the economy's prospects six months from now. Americans' view of the current economic situation deteriorated.
Advanced Micro Devices, Intel's biggest rival in making personal-computer processor chips, reduced its second-quarter sales forecast by 14 percent.
Vivendi Universal, trying to cut $16 billion of debt, received five offers for its U.S. entertainment assets and may narrow the field of potential buyers starting next week, people familiar with the situation said.
FedEx, the world's largest overnight-delivery company, said profit rose 19 percent in its fiscal fourth quarter as the home delivery service added in 2000 boosted demand for its U.S. ground shipping business.
Senators drafting legislation creating a $108 billion trust fund to compensate victims for asbestos exposure have agreed on criteria for establishing medical eligibility.
Of Note . . . Verizon Wireless replaced McDonalds for the No. 1 crown in media spending last year, according to the annual Superbrands issue published by Brandweek magazine. McDonalds, had led the list since 1995. Verizon Wireless took the top slot, followed by McDonalds in No. 2. Cingular Wireless, Home Depot and AT&T Wireless filled out the 3, 4, and 5 slots respectively.
Quotes of Note . . . Dell CEO Michael Dell said Monday that the U.S. economy appeared to be stabilizing and may even be improving. He declined to say how this was affecting his own company's business, but reportedly said Dell was doing "just fine."
Juggling Portfolios . . . Smith Barney's institutional equity strategy team removed Home Depot from its "Recommended List" while adding New York Times and BEA Systems. Strategist Tobias Levkovich said Home Depot's removal was prompted by its "strong year-to-date outperformance." Firm says BEAS is well-positioned to benefit from the move to web-based computing, remains a leader in the application server market, and has consistently continued to execute well. Firm commented that NYT’s recent pullback presents a good entry point.
International . . . USA Today has a feature on China, which indicates the economy is taking-off once again now that the SARS problem has been contained. SARS had cooled an economy that had been growing at a 9.9% first-quarter pace, but now, economists say China is still capable of reaching a 7% growth rate.
Wall Street Speak . . . Smith Barney plans to once again change its rating scale, moving to a simplified "buy," "hold," "sell" system, according to a source at the brokerage firm. Clients of the Citigroup unit are to receive details of the change, which is expected be implemented in September, together with their June brokerage statements. "We hope this new way of articulating our position on a stock will be more straightforward and easily understandable," a memo to brokers said. No changes were to be made to the risk rating system. Smith Barney currently assigns ratings of "outperform," "in-line" and "underperform" to the stocks it covers.
Eco Speak . . . The Conference Board's consumer confidence index fell slightly to 83.5 in June from a revised 83.6 in May. This is the first drop in confidence in three months. Markets expected a larger decline. Wall Street forecasters had predicted that consumer confidence would fall to 82.4 in June. Consumers were gloomy about current economic conditions, but were more optimistic about the longer-term. The Expectations Index rose to 95.9 in June - its highest level since last September. The Present Situation Index fell to 64.9, its lowest level since the height of the Iraq war. The employment outlook was more favorable in June. Those expecting more jobs to become available in six months rose to 19.0 percent from 17.9 percent.
CFO Confidence? . . . A survey of Chief Financial Officers of U.S. companies revealed a renewed optimism about the U.S. economy and showed expectations for an increase in company revenues and earnings. The June "CFO Outlook Survey" conducted by Financial Executives International and Duke University's Fuqua School of Business discovered that almost seven out of ten CFOs are more optimistic this quarter compared with just 25 percent last quarter. And half of the CFOs interviewed are more optimistic about their companies' financial prospects this quarter vs. 37 percent last quarter. The surveyed CFOs predict corporate earnings will increase 13.5 percent on average over the next 12 months while revenues are expected to rise an average of 6.3 percent. The more favorable outlook was partially driven by the decline in the U.S. dollar. Despite their optimism, however, CFOs expect capital spending to increase a paltry 1.5 percent over the next 12 months.
Financials . . . Lehman Brothers analyst Brock Vandervliet cut his rating on Bank One shares to "underweight" from "equal weight" on concerns about long-term organic growth. "We believe the stock is fully valued given the expected earnings stream and is likely to underperform the rest of the integrated providers," Vandervliet said.
Charles Schwab agreed to buy the private asset management business of State Street for about $300 million. The report, citing an unnamed person familiar with the matter, said the companies would probably announce the agreement later this week.
Lehman downgraded Bank One to Underweight from Equal-Weight. The downgrade was based on their belief that the company will have a tough time generating sustainable long-term organic growth. The firm believes that there is a high degree of acquisition risk and that ONE will execute on a large acquisition in part to address the persistent organic growth issues; firm thinks stock is fully valued and is likely to underperform the rest of the Integrated Providers. The firm cuts target to $39 from $43.
Prudential analyst David Trone upgraded both Morgan Stanley and Merrill Lynch to "buy" ratings from a "hold," citing a faster-than-expected rebound in retail investor activity and the recent pullback in the stocks. Pru also upped its 2003 and 2004 earnings estimates on the two brokerages to reflect higher revenue in asset management and retail brokerage. On Morgan, Trone said he believes the "risk-reward ratio has not been this favorable since early October 2002." The firm also says some of MWD's risks regarding aircraft leasing and credit card loan losses appear to be dissipating. The firm raised 2003-04 EPS estimates for both company's above consensus, and raised MER's target to $54 from $47 and MWD's target to $51 from $47.
Rep. Richard Baker, chairman of the House capital markets subcommittee, has introduced legislation to reform oversight of Freddie Mac and Fannie Mae, the government sponsored enterprises in the home mortgage market. The bill would abolish the current regulator and transfer oversight to the Office of Thrift Supervision, which would be renamed the Office of Housing Finance Supervision. The new entity would have broad powers to impose civil penalties and remove officers and directors whenever there is an unsafe or unsound practice uncovered, according to the legislation. Baker, a longtime critic of Freddie and Fannie, said he hopes the bill will serve as a platform to enhance GSE regulation. A hearing on the bill is scheduled for Wednesday.
Expect average Year over Year 2nd quarter 2003 EPS growth of 7.5% for the mid-cap regional banks. The general trends witnessed in 1st quarter 2003 should continue this quarter: pressure on the net interest margin, minimal top-line revenue growth, and tight expense controls. Moreover, expect most companies to meet expectations (on a reported basis) only through massive buybacks and securities gains. Since most, if not all of our companies are spread-dependent and credit quality has not been an issue, NIM compression remains the biggest threat to mid-cap regional banks' earnings growth due to prepayment risk (still high) and reinvestment risk (still too low). In order to reflect the current operating environment we are fine tuning certain EPS estimates and price targets. In addition to reiterating our prior concerns regarding prepayment and reinvestment risk, analysts have become increasingly concerned about "cash flow risk", e.g. the risk that banks and/or thrifts, faced with limited alternative reinvestment opportunities will have to keep investing excess cash flows into ever lower yielding assets such as mortgage loans or MBS. The shape of the yield curve is more important than the direction of rates. Another Fed rate cut will hurt NIMs further, but a steepening of the curve due to improved economic activity may offset some of the compression. Assuming the yield curve does not steepen, the banks most vulnerable to further NIM compression include Astoria Financial, North Fork Bancorp, and Rosyln Bancorp, while those that are least vulnerable are Bank North and New York Community Bank. Furthermore, analysts are concerned that the recent run-up in the group may be short-lived, as we believe there is a real possibility for earnings shortfalls (on an operating basis) to occur. Analysts feel that better buying opportunities will manifest themselves after 2nd quarter 2003 earnings season. Look to increase positions that you feel comfortable with.
Oil & Gas . . . Schlumberger announced the sale of its NPTest business unit for $220 million in cash. The transaction is expected to close in July, and Schlumberger will record a net loss of $12 million in the second quarter as discontinued operations. The sale is being made to a partnership led by Francisco Partners and Shah Management.
Halliburton is planning to sell $1 billion of convertible debt, the oil and gas company said. Houston-based Halliburton, which also has an engineering and construction group, said the notes are expected to carry a maturity of 20 years and may be convertible, under certain conditions and if the company chooses not to retire the notes with cash, into Halliburton stock at a price to be determined.
JP Morgan upgraded Ensco to Neutral from Underweight based on the following factors: 1) a 56% higher day rate on an ultra-premium jackup in the Gulf of Mexico, 2) an improved outlook for the premium jackup fleet, 3) greater confidence in their 2nd half 2003 estimates, and 4) a better risk/reward profile resulting from the stock's recent underperformance.
Frontier Oil recently announced a merger with Holly Corp. The deal is expected to close in August. Based on our projections for earnings on the Holly refining assets, proforma balance sheet, and assuming monetization of Holly’s pipeline assets, Frontier’s valuation is compelling. Projected trading range is $14-$22, which equates to 2.4x-4.0x EV/EBITDA, based on our 2004 estimates. Upon completion of the deal, Frontier’s market capitalization is expected to grow to over $700 million, from current capitalization of $455 million. The added liquidity, combined with an improving balance sheet, may result in some multiple expansion, though our analysis assumes EV/EBITDA multiples to be unchanged from our previous projections. Continue to project above average refining margins in 2004. Frontier’s earnings sensitivity to a $1/bbl
change in refining margins is projected to rise from $1.30 per share to $1.37 per share, or 58% of 2004 earnings estimate following completion of the deal. At $15.76 per share, the stock trades at 2.9x EV/EBITDA, based on our 2004 pro forma estimates.
Transports . . . FedEx reported fourth-quarter earnings of $280 million, or 92 cents per share, up from a year-ago profit of $236 million, or 78 cents per share, and 2 cents ahead of the average estimate. Revenue rose in the latest three months to $5.83 billion from $5.42 billion in the same period a year earlier. The company said total average daily package volume at its FedEx Ground and FedEx Express businesses grew a combined 5 percent on a year-over-year basis due to continued strong growth in its ground business and in international express shipments. FedEx expects earnings in the fiscal first quarter of 52-60 cents a share but cautioned that it "continues to be concerned about the current state of the economy and June volume trends at Ground and Freight are tracking slightly below management's expectations." Analysts on average are expecting fiscal first quarter earnings of 57 cents a share. FedEx said it's maintaining earnings target for the year at $3-3.15 per diluted share. It reiterated that it expects significant increases in pension and healthcare costs in fiscal 2004, the impacts of which will be realized throughout all four quarters. Looking at the economy, FedEx said: "During fiscal 2004, the company expects the U. S. economy to remain sluggish in its first fiscal quarter. Year-over-year economic improvement is expected to be evident in the second half of fiscal 2004, although sequential improvement may come earlier. The company believes that the fundamentals are in place for economic acceleration in the U.S. in the second half of fiscal 2004, including supportive conditions in the overall financial market, the recently approved tax stimulus package, continued accommodative monetary stance and improved consumer confidence."
Staffing . . . Robt Half was cut to Neutral at UBS based on valuation. The firm is saying the strength of the company's internal audit venture and the prospect of a robust demand recovery are already priced in. Also, firm thinks RHI's option issuance habits could prevent the shares from revisiting recent peak valuation levels; target is $21, but firm sees downside risk to $13.
Tobacco . . . Altria's tobacco unit, Philip Morris USA, filed an appeal of the $10.1 billion verdict handed down in March that said the firm had misled smokers into believing light cigarettes were less harmful than regular brands. The motion was filed with an appellate court in Illinois. The group also reportedly asked that the appeal be put on a speedier-than-normal timetable.
Retail . . . U.S. retail chain store sales rose 0.6 percent in the week ending June 21, according to the Bank of Tokyo-Mitsubishi/UBS index. BTM said sales of Scholastic's "Harry Potter and the Order of the Phoenix" helped book stores set daily sales records on Saturday. The book and wet weather in the East boosted mall traffic as well. The week-over-week gain was the largest in seven weeks. Sales are up 0.6 percent year-over-year. For all of June, BTM expects same-store sales to rise about 2 percent year-over-year.
NetFlix received a patent for its subscription rental service and several extensions. "Our team has focused their efforts on innovation to better serve our customers and on enhancing our intellectual property," said David Hyman, the company's general counsel. "We're gratified that the Patent Office has recognized what a leap forward the Netflix subscription service is."
Good Guys reported a net loss of $8.4 million, or 31 cents per share, in the first quarter, versus a loss of $4.6 million, or 18 cents per share a year ago, and the consensus for a 32 cent loss. The high-end electronic retailer said gross profit margin for the quarter decreased to 27.7 percent from 28.8 percent a year ago, reflecting higher promotional expenses, increased service costs and more sell-through of discontinued products. Net sales for the first quarter were $143.4 million, versus $171.0 million a year ago.
S.G. Cowen analyst raised Bebe to "outperform." Lauren Cooks Levitan said she is "increasingly optimistic about near-term trends and upcoming positive catalysts." SG Cowen is saying upcoming positive catalysts include: 1) expectations for a stronger than forecast June and 4th quarter comps, 2) 4th quarter EPS upside potential of $0.03-$0.04 above consensus, 3) likely increases in 4th quarter and 2004 guidance, 4) easy upcoming comps, and 5) a 7% short position (up from 5% in previous month) and a very small float. Bebe lifted its forecast for its fourth fiscal quarter to a range of 6 to 9 cents a share from 3 to 6 cents a share. On average, Wall Street analysts are expecting the retailer to report earnings of 5 cents a share.
Bank of America does not believe Walgreen’s valuation adequately reflects the risks of continued pharmacy growth deceleration and potential prescription pricing legislation. Target $24.
Rite-Aid reported a first-quarter profit before items of $600,000, or break even on a per share basis, better than the average estimate for a loss of a penny per share. Revenue rose 3.1 percent in the latest three months to $4 billion from $3.9 billion in the same period a year earlier. Same-store sales jumped 4.3 percent for the quarter. Looking ahead, the drugstore operator expects between breakeven results and a loss of $63 million for the year on sales of $16.5 billion to $16.7 billion.
Kroger reported first-quarter net earnings of $351.5 million, or 46 cents a share, vs. $321.7 million, or 40 cents a share, in the year-ago period, which included an after-tax charge of 8 cents a share. Quarterly sales rose 3.8 percent to $16.3 billion. The results topped the estimate of 45 cents a share. The supermarket chain said it expects identical food-store sales, including fuel, to be positive for the full year. Kroger also estimates that 2003 earnings-per-share would fall in a range of $1.55 to $1.63. First Call currently expects 2003 earnings to come in at $1.62 a share. The company also announced it is modifying its previous 2004 EPS guidance from previous outlook of $1.63 to a range of $1.55-1.63 versus consensus of $1.62.
CVS was upgraded at Lehman to Overweight from Equal-Weight. Lehman raised the target to $32 from $29. The firm continues to believe that CVS will show solid EPS growth in coming quarters, as the company controls expenses well despite the industry-wide slowdown in sales. Also, a favorable court ruling in Massachusetts overturning that state's Rx surcharge means lower Medicaid/state reimbursements are unlikely to pressure gross margins significantly.
Healthcare . . . Scripps said its second-quarter earnings are expected to be near the upper end of the company's previously reported guidance of 73 to 83 cents, excluding unusual items. The company reported it will have an unusual item in the quarter related to a $3 million write down in value for certain investments. The write-down will reduce reported earnings by about 3 cents per share. A survey of analysts is forecasting earnings of 83 cents per share for the media firm.
Pediatrix Medical Group is saying its nationwide billing practices are the subject of a civil investigation by the U.S. Attorney's Office. The provider of neonatal and maternal-fetal physician services believes the government will make a document and information request within the next few weeks, either informally or by subpoena, and it plans to cooperate with this request.
Tenet Healthcare target cut to $10 at Bank of America. As a result of the THC's dramatically lowering earnings guidance for 2003 and 2004, Banc of America lowered its target price from $17 to $10 based on its revised DCF valuation . The company has implied its commercial pricing negotiations are becoming increasingly arduous with an emphasis on contracts with stop-loss payments. The analyst points to stop-loss payment difficulties not being isolated to THC with it potentially being a risk factor for HCA Inc as well. The company does not expect total pricing trends to recover until the second half of 2004.
Drugs . . . Eli Lilly is saying a new study suggests its Zyprexa Zydis tablets may help schizophrenia patients, producing 'a significant improvement in their symptoms" and possibly a better attitude toward talking their medication.
Banc of America Securities cut Idec Pharmaceuticals to neutral from a buy rating, a day after Idec and Biogen detailed merger plans. "We do not believe this merger makes strategic sense given the lack of synergy across disease areas," BoA said. "Additionally, we view the geographic issues of this merger to be problematic... We believe that this merger will lead to a larger, slower growing company."
Novartis was upgraded at SG Cowen to Outperform from Market Perform. The firm cited the following factors: sector-beating 14% EPS growth rate in 2002-07, the company's late-stage R&D pipeline is expected to deliver 10+ drugs by 2007, and there is no major U.S. generic threat to pharma sales growth.
Eli Lilly reported Zyprexa results. A new study suggests that acutely ill schizophrenia and schizoaffective disorder patients with a history of medication noncompliance may experience significant improvement in their symptoms and may demonstrate a significantly improved attitude toward taking medication when treated with Zyprexa.
Biotech . . . MedImmune’s MEDI-507 demonstrated prolonged survival in preclinical leukemia trial. BioTransplant announced that MEDI- 507, the company's humanized monoclonal antibody, which has been licensed to MedImmune, for use as a stand-alone therapeutic agent, was featured in a study published in the July 1, 2003 edition of Blood. Specifically, a team of researchers found that treatment with MEDI-507 led to long term survival in a well-known murine model of adult T-cell leukemia. "We are encouraged by these promising results which suggest that MEDI-507 may have activity against T-cell leukemia, and we believe that this trial offers additional support for a clinical program evaluating MEDI-507 as a potential treatment for this indication."
Neurocrine Bio announced positive Phase I results with its proprietary, orally active small molecule Gonadotropin-Releasing Hormone receptor antagonist to evaluate the safety, pharmacokinetics, and pharmacodynamics of multiple dosing of NBI-42902 in healthy pre-menopausal women. Results demonstrated that NBI-42902 was safe and well tolerated.
Cubist Pharma commenced Phase I trial of CAB-175.
Banc of America downgraded Idec Pharma to Neutral from Buy, saying they do not believe that the IDPH-Biogen merger makes strategic sense given the lack of synergy across disease areas. In addition, firm views the geographic issues (east coast BGEN, west coast IDPH) to be problematic.
Prudential maintains their Buy rating on Idec, saying the combination of these two company's should be accretive and will give IDPH access to BGEN's global commercial and manufacturing infrastructure as well as provide BGEN access to IDPH's oncology expertise, which may allow for the development of IDPH's pipeline faster than could have been done alone.
Maxim Pharma reported results of lead drug candidate. The firm announced clinical results of its lead drug candidate Ceplene in the treatment of patients with metastatic ocular melanoma were presented at the First International Melanoma Research Congress. In a retrospective analysis of two clinical trials, patients with metastatic ocular melanoma treated with the combination of Ceplene and interleukin-2 (IL-2) achieved a median survival of 7.6 months compared to a median survival of 3.9 months for patients treated with IL-2 alone. Maxim plans to file an application for approval to market Ceplene for the treatment of Stage IV malignant melanoma in Europe in November.
Applied Molecular agreed to optimize two protein therapeutic candidates for Eli Lilly. AME will receive an upfront fee and has the potential to receive milestone payments and royalties on any products resulting from the collaboration. This represents AME's third collaboration with Lilly.
Medical Devices . . . Cytogen formed a strategic alliance with General Electric's GE Medical Systems division. The companies plan to market a total molecular imaging syste to evaluate prostate cancer. The system will combine GE Medical's Infinia Hawkeye imaging system with Cytogen's ProstaScint imaging agent.
Baxter received FDA approval for ARENA hemodialysis device.
First Albany reiterated a Neutral on Medtronic based on valuation. The firm believes the company will continue to maintain its market leadership positions in most of the industries it competes in, but believes the stock is fairly valued at its current level. Price target is $47.
Media . . . CIBC has trimmed its estimates for media giant Walt Disney for the fiscal third and fourth quarters as well as fiscal 2004 as a result of a "more delayed recovery at the theme parks," as well as higher-than-expected marketing costs.
DoubleClick inked a pact with EBay. EBay will use DoubleClick's online advertising software and services to provide the ad serving and management capability for its new Keywords on EBay service announced Tuesday. The service enables EBay sellers to reach targeted buyers on EBay through "bid-per-click" keyword advertising.
Liberty Media surfaced as the "possible front-runner" in the bidding for the U.S. entertainment properties of Vivendi Universal), the Wall Street Journal reported. In a surprise move, Liberty's offer included Universal Music Group as well as Vivendi's film and TV businesses. Vivendi received five bids on Monday -- the deadline for submitting an offer. Investor groups led by Marvin Davis and Edgar Bronfman Jr also bid for the music business. Bids from General Electric, which owns NBC, and Metro-Goldwyn-Mayer were only focused on Vivendi's Universal Studios film business and its TV operations including USA cable network, the report said.
American Greetings reported earnings of $19.7 million, or 27 cents per share, down from its year-ago profit of $44.5 million, or 60 cents per share. The company said the latest results were in line with its own estimate for the period. A single analyst was looking for a profit of 25 cents per share, on average. The latest results included a number of items that reduced pre-tax income by about $27 million in the period. Looking ahead, the greeting card firm projects a loss of 13 to 18 cents per share in the second quarter.
Interpublic was cut to Sell at Deutsche. The firm is saying the valuation appears overly optimistic given their belief that the co appears the most vulnerable out of the major agency groups to erosion of its competitive position. Price target is $12.50.
Hotel & Leisure . . . ParkPlace Entertainment raised its second quarter earnings projection to a range of 11 cents to 15 cents per share, up from 7 cents to 11 cents. The company said its earlier estimate was based on an assumption that May would be weak due to anxiety about SARS and America's military presence in Iraq. It said May, and the first three weeks of June, were a bit better than expectations.
Telecom . . . Goldman Sachs maintains In-Line on BellSouth. The firm is saying they don't see much of a follow-through for the stock after yesterday's 9.5% dividend hike, since the move has been telegraphed by mgmt and therefore largely discounted already, and dividend yield is not the primary driver of stock prices for telcos. In addition, other valuation metrics reveal that BLS is not generally cheaper than either SBC or Verizon.
Consumer Electronics . . . According to CEA consumer surveys, slower 1st quarter 2003 consumer electronic sales appear to be related primarily to concerns over the war with Iraq, which was no surprise. What was a more surprising result of the surveys was the fact that respondents were less concerned than expected over disposable income levels, the state of the economy, and the value of investments. In addition, consumers surveyed reported a high priority on consumer electronics when making decisions concerning the use of their disposable income. This data suggests to the CEA that consumer spending on consumer electronics may build momentum through the second half of the year, as concern over geopolitical uncertainties moderates. However, the CEA’s forecast is muted by the fact that, on balance, those surveyed responded that they would be spending less on consumer electronics over the next six months.
By category, demand for wireless technology is currently strongest, driven by solid sales of cell phones and wireless home networking products. Home information technology demand is running as the second best category, driven by personal computer and gaming products. Demand for video products is currently tracking third, supported by an emphasis at the retail level and strong sales momentum of DVD players and digital televisions. Finally, audio products continue to lag behind other categories, and have been negatively impacted by the focus on video products and contraction from “home-theater-in-a-box” packages.
Generally speaking, strong demand for newer products currently is offset by weaker-than-expected sales of older technologies. For example, in the video category, DVD player sales are up 17% year-to-date on a unit basis (or 700,000 units), vs. a forecast of 14%. However, VCR sales are down 32.5% on a unit basis (or 1 million units), vs. a forecast of a 15% decline, resulting in a net decrease of 300,000 units in the pre-recorded media player category. By revenues, DVD player sales are up 1% year-to-date, below the CEA’s forecast for 3% growth. In addition, digital television sales are up approximately 400,000 units year-to-date, equally offset by an approximate 400,000 unit (or 5%) decline in analog television sales.
Flat panel televisions and monitors, both in the LCD and plasma varieties, continue to drive growth in the video category. LCD televisions sales are up 900% year to date on a unit basis, while revenues are up 650%, ahead of forecast and already exceeding last year’s total shipments. Mr. Wargo reported that price points of LCD are holding up well. The average wholesale price for an LCD television is currently $1,100, and will most likely not reach the originally forecasted average wholesale price of $480 by the end of the year. Plasma also has experienced similar trends, where unit growth is up 450% and revenues have grown 300%, tracking on or slightly ahead of forecast. The average wholesale price for plasma is currently $4,400 and is expected to decrease to approximately $4,100 by the end of the year. The strong growth of flat panel sales during a period when consumers have shied away from large-ticket purchases leads the CEA to believe that the category is a “must-have” for many consumers. Finally, manufacturers have reported that the emphasis is shifting more towards LCD displays vs. plasma, as LCD utilizes more stable pixel technology, and is becoming cheaper and easier to manufacture, particularly for larger screen sizes.
According to Mr. Wargo, the category expected to make a big splash in the third and fourth quarters of this year is recordable DVD. So far in 2003, shipments have been light (approximately 61,000 units). However, the CEA expects the category to ramp-up as entry level prices of $300 are expected by the fourth quarter.
Consumer electronics products have become increasingly complex and product cycles continue to contract, making their integration into the home more difficult. Professional installation and servicing has become more important in the consumer electronics industry in order to meet the needs of consumers who are unable or unwilling to integrate a big-ticket purchase into their homes effectively on their own. The CEA believes that the ability to service these complex products may become a differentiating factor for pure consumer electronics retailers such as Best Buy and Circuit City in the face of stiffening price competition in an increasing number of categories from discount retailers, such as Wal-Mart. Mr. Wargo believes that Best Buy has taken the lead in this regard with its acquisition and subsequent rollout of the Geek Squad, a 24-hour at-home service provider. However, he also believes that the barriers to entry are low for Circuit City to build service capacity.
IT Services . . . Ericsson said it would outsource the development, implementation and maintenance of IT applications supporting its business worldwide to IBM. This is the second step in Ericsson's IS/IT outsourcing process. Competitively, this is an important win for IBM. It answers the question whether HPQ will knock IBM off of its services perch. 1,000 jobs would go, but these jobs were part of previously announced cuts. The financial details of the deal were not disclosed. Contract is expected to be signed in 3rd quarter.
Storage . . . Network Appliance and Sun Microsystems are in collaboration on next generation system area network technology. The focus will be on delivering the highest possible throughput from 10 Gb/s transports and enhancing the functionality of the Network Filing System standard which was introduced and developed by SUNW almost two decades ago. The joint effort builds upon Sun's work with the Storage Network Industry Association's RDMA for NFSv3 and Net App's work with the Direct Access File System protocol.
Network Equipment . . . Corning is saying that Chief Financial Officer James Flaws will reaffirm the company's outlook for the second quarter during a presentation at the Wachovia Securities Conference. The company expects between a loss of 2 cents per share and a profit of a penny per share on revenue ranging from $715 million to $745 million in the quarter. This outlook excludes items. Flaws will also tell attendees that Corning expects to return to profitability in the third quarter, and that it anticipates being profitable for the full year.
Soundview dropped its rating on Cisco Systems' to "neutral" from "outperform," citing the stock's recent run-up and a lack of evidence that the growth outlook for the second half of 2003 has improved. "We have seen little improvement on the relative momentum exiting April, which was primarily the result of moderate pent-up demand following a weak February/March," the firm said.
Soundview says they see no fundamental reason to raise their $17.50 target.
Fujitsu won a telecom equipment order reportedly valued at $849 million from Verizon. Order was for equipment compatible with an ultra high-speed SONET.
Juniper Networks was downgraded at Wachovia to Underperform from Market Perform. The firm is saying checks lead them to believe that spending in both China and Europe slowed in 2nd quarter. Also, firm says the stock's valuation at 80x their 2004 estimate is probably reflecting stronger business momentum than is likely to materialize. The firm sees valuation range at $8-$10.
Credit Suisse First Boston cut its rating on Alcatel from outperform to neutral, based on valuation. It said its sales and earnings estimates remain unchanged. "We believe that the current share price reflects the improvement in operating margins and stabilising revenues that we are modelling for the company over the next few years," the broker told clients. The firm sees only 8% upside to fair value.
Janney Montgomery Scott reiterated its 'buy' rating on NetScreen Technologies, saying channel checks indicate the company is executing well in the current quarter. The firm thinks demand for NetScreen's core firewall/virtual private network appliance products remains strong, and that its estimates may prove too conservative. 26 analysts are expecting NetScreen to post a profit of 16 cents per share in the June period, on average. Revenue for the quarter is projected at roughly $63.8 million.
J.P. Morgan Securities raised its rating on Ciena to neutral overnight, telling clients the move was "based on new visibility into revenue growth story over the next 2-4 quarters. While we still believe that Ciena's cost structure is too high, higher top line growth would require smaller changes in the cost structure to bring us closer to earnings per share breakeven down the road." The firm cited the following factors: 1) checks indicate that BT is likely a larger long-term customer than originally anticipated, 2) addition of new WaveSmith revs may include a deal with Verizon to complement existing SBC deal, 3) the possibility of additional TelMex orders following CoreDirector sales late last year, and 4) additional opportunities at AT&T on both new CoreDirectors and Metro ONLINE sales.
Semiconductors . . . AMD warned sales for the second quarter ending June 29 are now expected at $615 million. In its first quarter results, AMD said it expected second quarter sales to be at least $715 million. "The anticipated global sales improvement in the month of June did not materialize as we had anticipated," said CFO Robert J. Rivet. "In particular, the decline in personal computer and handset sell-through in China and other Asian markets, largely related to the SARS epidemic, significantly affected AMD's sales in the second quarter." Second quarter results are slated for release on July 16, 2003.
Transmeta chip was selected by Plexus for OEM customers as a key component in embedded product design applications.
PMC-Sierra was cut to Underperform at Piper Jaffray. Piper Jaffray downgraded to Underperform from Market Perform due to weak service provider spending in Asia and the seasonal summer slowdown. The firm also cited excessive valuation, saying the stock is vulnerable to correcting the excesses of the Feb-June runup. Target is $5.
FTC requests additional info from Genesis Microchip and Pixelworks. GNSS and PXLW announced it has received a request from the Federal Trade Commission for additional information and documentary material in connection with the proposed merger between the two companies.
Intersil announces sampling of a true global WLAN solution. The company announced its sampling a "true" dual band Wireless Local Area Networking or WLAN solution with its key customers and Original Design Manufacturers or ODMs. It is called the PRISM WorldRadio and is capable of allowing its users to establish a network connection throughout the world with any standards compliant 802.11 infrastructure encountered, which includes 802.11a, b, d, g, h, i, or j. It is capable of ranges that cover the vast WLAN spectrum of 2.40-2.50 and 4.9-5.85 GHz. In addition, the PRISM WorldRadio delivers the industry's best power performance by consuming up to 75% less power than competitive designs.
Boxmakers . . . Merrill Lynch upgraded Apple Computer to a "neutral" from a "sell" following Monday's launch of G5 PowerMacs, which the brokerage feels will lead to a replacement cycle in the segment. Merrill feels that increased sales of PowerMacs should positively impact Apple's bottom line over the next several quarters, particularly in September and December. G5 PowerMacs are scheduled to ship in August. The IBM announcement should end speculation about whether Apple would adopt the Pentium chip. Apple said that a three-gigahertz version of the G5 chip would be available within 12 months. Creates volume for the G5 which helps to lower IBM's costs and plainly another win for the semi business. Negatives for Apple could be New G5 chip doesn’t eliminate the real or perceived “megahertz gap” with Intel and could lead to a stall in other product line sales (i.e. Apple’s inability to synchronize growth in multiple product segments). Risk associated with our view that Apple may migrate to the Intel architecture owing to the megahertz gap with PowerPC, corporate IT issues with PowerPC chips and lower cost of implementation. High-cost of non-standard architecture and constraints of Motorola’s processor roadmap . Inability to capture a wider customer base and grow market share without a more compelling product offering to attract new users and penetrate the Wintel world. Shortening product lifecycles. Weak demand in core end-markets (consumer, education, creative) and delayed buying decisions in professional markets owing to prolonged macro weakness . Could face difficulties reconciling channel conflicts between retail stores and resellers which Apple is prepared to face to have greater control of its customer relationship.
Hewlett-Packard is promising to help companies manage complicated data storage systems. HPQ announced five new services today.
Software . . . Portal Software formed a strategic alliance with Microsoft. The companies plan to develop a telecommunications billing platform, combining Portal's billing and subscriber management software with Microsoft's .NET technologies.
Representatives from several states, including Texas and California, are discussing coordinated legal action to block Oracle's hostile takeover of Peoplesoft on antitrust grounds.
Dell to offer Novell's Linux software services to its enterprise customers.
Oracle CEO Larry Ellison, speaking at a user conference in London, refused to directly answer a question on whether Oracle planned to increase its $19.50 bid a share for PeopleSoft. Ellison cited James Bond, saying "Never say never" and then added, "we think the offer we have on the table is fully valued and very fair." He said that he expects a majority of PeopleSoft holders "will decide to sell... We've gone directly to the holders because (PeopleSoft's chief executive) said he wouldn't sell at any price and that's not a good basis for negotiations." Ellison told the audience that PeopleSoft's management team has refused to talk to Oracle. He also stressed that it's not Oracle's intention -- if a deal goes through - to "kill" PeopleSoft's products.
Soundview maintains their Neutral rating on Manugistics and $4 target. The firm noted continued wins in the government vertical have improved the co'mpanys outlook and MANU could exceed expectations but the firm says much of this appears to be priced in.
Manhattan Associates defended by Soundview. The firm maintains their Outperform rating and $38 target on MANH. The firm believes concerns over increasing competition and a weak pipeline are overblown, and continues to see several long-term growth drivers and would add to positions on any pullback.
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