Replies to post #331 on Sector Investing

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Technical Analysis: The Dow Approaches Support
by Paul Shread

http://stocks.internetnews.com/close/article/0,1785,1701_2233981,00.html

July 10, 2003 - The Dow (first chart below) is approaching important support at 8925. Note also that RSI is at 50 on the Dow; that level has been good for a bounce since the March low, so it's a doubly important test for the Dow here. GE's earnings and producer prices tomorrow morning could turn out to be critical reports. Resistance on the Dow is 9108-9150, 9261 and 9352. The S&P (second chart) bounced at its lower channel line today. Below 985, 966 looks like the next support. Resistance is 992, 1002-1004, 1010 and 1015. The Nasdaq (third chart) put in a nasty-looking "evening star" reversal today, a white candlestick followed by a doji and then a red candlestick, and on a big gap down no less. Support is 1685-1695 and resistance is 1735-1747. The equity put-call ratio could stand to show a little more fear here to bolster the bull case. In short, no technical damage today, but the bulls need to get it together soon.

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RobBlack.com MarketWrap:

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The Dow Industrials received a boost after shares of Intel and Home Depot were upgraded. Retail, financial and biotech stocks were the day's best sector performers. The S&P 500 added 9 points (+0.9%) to 998. The Nasdaq Composite gained 18 points (+1.0%) to 1733. The DJIA advanced 83 points (+0.9%) to 9119. More than two stocks rose for every one that fell on the NYSE. Some 1.2 billion shares changed hands on the Big Board, 15 percent less than the daily average over the past three months. It was the slowest full day of trading since May 23. S&P 500 companies boosted second-quarter profit 5.2 percent, on average, according to an analyst survey by Thomson Financial. Earnings will jump by 13 percent in the third quarter and 21 percent in the fourth.

Strong Sectors: department stores, semis, wireless services, application software

Weak Sectors: airlines, disk drive, tobacco

Top Stories . . . U.S. wholesale prices excluding food and energy fell in June for the second time in three months, reflecting cheaper automobiles, computers and appliances, a government report showed.

The U.S. trade deficit held close to the widest ever for a third straight month as demand for non-oil imported goods continued to rise.

General Electric, the world's second-largest company by market value, said 2003 profit will be $1.55 to $1.61 a share, the low end of its forecast range.

Coca-Cola, the world's largest soft-drink maker, said federal officials are investigating a former executive's charges that it inflated sales with improper accounting.

The Securities and Exchange Commission froze the assets of Michael Lauer's Lancer Management Group LLC, saying the hedge fund manager overvalued his portfolio to keep investors in the fund and attract new ones.

Quote of Note . . . ``We have seen some indications that second-quarter earnings will be favorably reported,'' said Tim Ghriskey, who manages the Ghriskey Capital Partners LLC Hedge Fund. Ghriskey said some reports have show an improvement in demand in July. ``These factors are pushing technology prices higher.'' He owns shares of computer-related stocks including Sun Microsystems Inc.

``In order for the market to improve, we need to see stronger economic data and positive earnings revisions,'' said Owen Fitzpatrick, who helps oversee $9 billion at Deutsche Bank Private Wealth Management in New York. ``The most important thing from companies will be the commentary on the rest of the year.''

Fund Flow . . . Trim Tabs estimated that all equity funds had inflows of $2.9 billion in the four business days ending July 9 vs. inflows of $2.5 billion in the prior week. Additionally, equity funds that invest primarily in U.S. stocks witnessed inflows of $2.2 billion compared with inflows of $400 million during the prior week. And bond funds had inflows of $1.3 billion vs. inflows $1.8 billion the prior week.

Rumor Du Jour . . . Market rumor of Comcast interest in Tivo.

Rumor that Macromedia could be acquried by Adobe.

Eco Speak . . . Wholesale prices rose 0.5 percent in June, the Labor Department said. The core rate, which excludes volatile food and energy prices, fell 0.1 percent. Overall wholesale prices rose 2.9 percent in the past 12 months. Finished energy goods rose 3.4 percent in the month, led by a 7.6 percent rise in gasoline prices. Prices of goods in the intermediate stage of production rose 0.5 percent in the month.

U.S. trade with foreign nations picked up in May, pushing the trade deficit up 0.5 percent to $41.8 billion. Exports rose 0.9 percent to $82.1 billion in May on better sales of autos, capital goods and industrial materials. Meanwhile, imports rose 0.7 percent to $123.9 billion in May, the second highest level in the past two years. Foreign producers sold more autos and capital goods, while sales of imported industrial materials dropped as the price of crude oil sank. Imports are benefiting temporarily from the devalued U.S. dollar.

ECO Comment . . . June PPI rose a stronger than expected 0.5% (2.9% year over yera), as the core (excluding food and energy) dipped -0.1% (-0.3% yoy). The annual rate on core growth is approaching the cyclical low of Dec's -0.5% and that's what the Fed's got its eye on. Separately, the May trade deficit of $41.8 compares to an upwardly revised (smaller deficit than previously reported) $41.6 billion in April. Modest change as May exports rose 0.9% while imports rose 0.7%.

Financials . . . FFLC Bancorp voted to increase its quarterly dividend by 30 percent, moving the payout to 13 cents per share from 10 cents. The bank holding company attributed the boost to continued profitability of its First Federal Savings Bank of Lake County, and recent reductions in federal taxes on corporate dividends.

Hartford Financial upgraded at Legg Mason to Buy from Hold to reflect a more upbeat assumption on life earnings and its leverage play on potential asbestos reform. Many of the overhang issues that had caused them to be overly cautious on the name are behind it. The firm believes that the stock's valuation should expand as the life insurance segment outlook brightens while the P&C segment continues to fire on all cylinders. Target is $68.

The Wall Street Journal's "Heard on the Street" column discussed Freddie Mac's federal financial regulator examination of its newly installed chief executive Greg Parseghian's role in its recent accounting problems. Freddie Mac's spokesman states that the company's internal investigation of Mr. Parseghian's potential involvement with its recent woes suggests the answer is no. However, his new position has come under scrutiny given his previous role as the company's chief investment officer were he oversaw the company's $600 billion mortgage portfolio. Investors getting into the stock believe Mr. Parseghian would not have accepted this position had he felt his trading operations which he oversaw had anything to do with the company's earnings issues.

General Electric posted a decline in second-quarter earnings $3.8 billion, or 38 cents a share, from $4.4 billion, or 44 cents a share, a year earlier. GE sees 3rd quarter of $0.39-$0.42, 4th quarter of $0.46-$0.49. The consensus estimate for 3rd quarter is $0.42 and for 4th quarter is $0.48. GE guides full year to $1.55-$1.61 from $1.55-$1.70; consensus $1.60 General Electric said revenue in the second quarter was $33.4 billion, little changed from the year ago period. It said industrial sales were down 9 percent to $17.6 billion "reflecting lower U.S. gas turbine sales at Power Systems." Sales of product services grew 11 percent to $5.6 billion and financial services revenues of $15.9 billion were up 14 percent. CEO Jeff Immelt said: "The year is turning out as planned... As expected, the ramp-down of our turbine shipments in the first half created earnings pressure. However, we are executing with broad-based strength to generate significant growth in the second half. We see nine of 13 businesses growing in double digits and more favorable comparisons in Power Systems and Insurance."

Bankrate recovery highlighted in BusinessWeek. The company's ability to rise out of the dot.com ashes and rally to its current levels is profiled in BusinessWeek article. Revenues are primarily driven through advertising with most of the turnaround attributed to CEO Elisabeth DeMarse taking the helm in 2000. A hedge fund manager not identified in the article points to its forward trading valuations of 26 times 2003 estimates and 23 times estimates with its peer companies trading at 38 times 2003 estimates and 23 times 2004 forecasts.

T. Rowe Price downgraded by Raymond James to Market Perform from Outperform. The firm is saying the stock's potential upside is already reflected in its current value. The stock is currently selling at 25.7x their 2003 est., which is well above its average historical P/E of 21.2x over the last 5 years, and on a relative P/E basis the stock is selling at 136% of the S&P 500 vs. its average historical valuation level of 92%.

Track Data (New York-based financial services company) provides direct access brokerage, real-time financial market data, news, and research to institutional and individual investors through dedicated telecom lines and the Internet. The stock has doubled in the past week, and is beginning to look like TradeStation which seemingly has been making new highs day after day since March as the stock has gone from $2 to $12.50.

Capital One started with a Buy at AG Edwards and $60 target, citing stabilizing credit losses, expansion opportunities, and an attractive valuation.

Homebuilders . . . KB Home authorizes repurchase of up to 2 million additional shares.

Oil & Gas . . . Millennium Chemical upgraded to Buy from Neutral at UBS on valuation. Price target $13.

Transports . . . JetBlue announced intentions to sell $150 million worth of convertible notes to qualified institutional buyers. The company the notes would be convertible into common stock at an initial conversion price of $63.75 a share. Jetblue Airways priced 2.6 million share offering at $42.50.

UBS downgraded SouthWest to Reduce from Neutral (target $13) and downgraded Airtran to Neutral from Buy (target $12), saying valuations are getting stretched despite the fact that the discounters continue to gain share aggressively.

Defense & Aerospace . . . Boeing will work with British, Spanish, Austrian and American firms on aerospace fuel-cell technology research. The group, which includes Intelligent Energy, Diamond Aircraft Industries, Sener, Aerlyper and Advanced Technology Products, will work on developing an electric-motor glider that's powered by fuel cell technology. A flight test could come in late 2004 or 2005 and much of the work will be done at Boeing's research operations in Spain.

United Defense awarded $64 million Marine contract. The company received a contract initially funded at $64 million from the U.S. Marine Corps to provide material kits and remanufacture hulls for amphibious assault vehicles for Taiwan under a Foreign Military Sales award. The contract has a potential total value of $128 million.

Lockheed Martin received a $260 million U.S. Army contract to improve the Patriot antimissile battery. The program will include software, testing and modification work, among other areas, with flight tests of the new missile to begin in September 2006.

Food & Beverage . . . The U.S. Attorney's Office has initiated an investigation related to allegations raised in a civil litigation filed in Atlanta by a former Coca-Cola employee, Matthew Whitley. He claims that the company was improperly accounting for sales. Coke said it would cooperate with the investigation.

Coca-Cola informed of investigation by U.S. Attorney that the United States Attorney's Office for the Northern District of Georgia has initiated an investigation arising from the allegations raised in civil litigation recently filed in Atlanta by Matthew Whitley, a former employee. The Company will cooperate with the inquiry.

Tobacco . . . The Wall Street Journal reports Moody's Investor Services believes the rise in popularity of deep discount cigarettes will have an even further effect on pricing pressure. While credit agencies have already cut ratings due to price constraints and litigation, this latest development suggests no upside in outlook anytime soon. The report to be issued today suggests the big four, which consists of Altria Group, RJR, BTI and Loews Corp will see "continued erosion in operating performance and credit ratings".

Consumer Products . . . Avon Products hit a new 52-wk high.

Restaurants . . . Checkers Drive-In Restaurant upped to Strong Buy at Roth. Price target $16.50. The upgrade from Buy is based on strong sales and profit margin momentum and the anticipation of continued gains on both counts. "Checkers currently has perhaps the fastest growing sales and profit margins in the restaurant industry, and at 20.6 times fully taxed 2004 EPS and with an estimated EPS growth rate of 15-20% over the remains extremely attractively priced."

Retail . . . Goldman Sachs upgraded Staples to an "outperform" from an "in-line" rating on belief there's an "improving macroeconomic backdrop for office products retailers."

Wet Seal was downgraded at Wachovia to Underperform from Market Perform, as the shares have appreciated 35.4% over the past 7 weeks vs. a 9.6% increase in the S&P 500, while fundamentals have not improved and have actually deteriorated. The firm believes the stock could trade at 13-15x their 2004 est. of $0.45 (very unclear at this point), which equates to a $6-$7 stock.

Banc of America Securities lifted Kohl's to a "buy" rating from a "neutral," telling clients that the retailer is "biting the bullet on inventory" in the second quarter to benefit the second half of the year. Additionally, BofA said comparisons "ease from here."

Long's Drugs Stores is saying June same-store sales fell 2 percent. Total sales for the five weeks ended July 3 dipped 0.5 percent to $438.1 million from $435.8 million in the same period a year earlier. The firm broke down the same-store sales figure to a 3.2 percent increase for pharmacy sales and a 6.1 percent decrease for front-end sales. It estimates pharmacy same-store sales were dropped by roughly 130 basis points due to the substitution of generic subscriptions for higher priced, name-brand drugs.

Talbots was cut to Neutral from Outperform at CSFB. The downgrade is based on a combination of valuation, expectations and challenges. Target $31.

Too, Inc. was cut to Neutral from Outperform at firm for similar reasons.

Banc of America Securities upped Home Depot to a "buy" from a "neutral," noting that the Dow component has made "real strides" and that "sales are apt to show meaningful improvement as a result." BofA feels that second-quarter comparable sales should "turn positive and continue to accelerate thanks to execution improvements, easier compares and lumber prices." Home Depot has "corrected merchandising miscues" and that "sales are apt to show meaningful improvement."

BJ's Wholesale cut to Sell at Lazard from Hold. The stock is now trading at a 13.9x multiple, which is expensive in the face of declining earnings and cloudy visibility. The firm does not believe this type of unproven turnaround story -- that is a distant No. 3 in its industry -- warrants much above their current 11.5x multiple of a $15 price target; moreover, should BJ need to increasingly discount its membership in order to drive traffic, one could justifiably argue that the co will evolve over time into nothing more than an overgrown grocery store, which trade at an average of 9-10x multiples.

Goldman Sachs upgrades Staples to Outperform from In-Line and resumes coverage of Office Depot with an Outperform rating. The firm sees an improving macroeconomic backdrop for office products retailers relative to their broader Hardlines Retail coverage, assuming that the industrial economy is bottoming; firm views SPLS as the more conservative option of the two, with clearer visibility and less risk, but less upside given peak operating margins and a higher multiple; with ODP, earnings visibility, but they see acceleration in retail sales trends off trough levels and greater potential upside given the stock's lower valuation.

Kohl's was upgraded at Banc of America to Buy from Neutral, as they think KSS made a major positive move yesterday by biting the bullet on inventory since they believe it will allow the company to go into the back half of the year relatively clean. Comps should ease from here, and both competitive and macro pressures should ease in 2nd half 2003. Target is $64.

Healthcare . . . Quest Diagnostics downgraded at CIBC to Sector Underperform from Sector Perform based on valuation, as the stock has exceeded their $60 target. Firm also downgrades the healthcare services group based on valuation, saying much of the good news (moderating cost trends, strong pricing) is currently reflected in stock prices, leaving less room for 2nd half 2003 upside. AET is top pick.

DaVita could be poised for more upside according to BusinessWeek. The article highlights the kidney dialysis services provider in light of its recent 52-week high of 27.58 on July 2. The company has 500 outpatient centers in 33 states treating 45,000 patients. DaVita has turned around ever since new management was put into place in 1999 with controls installed and a cleaning up of the balance sheet. The company used $133 million from overseas assets to cut debt and improve credit. A hedge fund manager sees the company earning $2.09 a share in 2003 and $2.26 in 2004 with a price target of 35.

Thoratec Labs was cut to Peer Perform from Outperform at Bear Stearns based on valuation.

Drugs . . . Dr. Reddy's said a federal court had dismissed the generic drugmaker's suit seeking to remove a legal obstacle to a generic version of Pfizer's blockbuster antidepressant, Zoloft. Dr. Reddy's had asked that the court declare the company's generic Sertraline antidepressant didn't infringe on Pfizer's patent. The court found that Pfizer needed more time to investigate the matter. Dr. Reddy's said it would provide Pfizer with additional information, "and, if necessary, to renew its suit thereafter."

Teva Pharmaceutical was granted tentative approval by the U.S. Food and Drug Administration for fosinopril sodium tablets, the generic version of Bristol-Myers Squibb's Monopril tablets for the treatment of hypertension and the management of congestive heart failure. Annual sales of the brand product, which is made by Bristol-Myers, are approx $269 million.

CV Therapeutics target raised to $43 at Deutsche after company reacquires Ranexa rights.

Biotech . . . Epix Medical said its experimental imaging agent produced encouraging results in late-stage testing. Epix and pharmaceutical partner Schering AG announced late Thursday that their experimental imaging agent improved the detection of vascular disease.

Millennium Pharma's recent dip may have been unwarranted according to Busines Week. BusinessWeek article discusses the recent drop in MLNM stock as a buying opportunity. Its recent fall in price coincided with rumors of the company being takeover bait with Johnson & Johnson as a potential suitor. However, the only announcement with JNJ was its agreement to market its Velcade drug overseas with mixed reviews on the terms of the deal. The editor of "Medical Technology Stock Newsletter" believes the stock can hit 30 in a year in light of its raising the ante by retaining 100% of the U.S. rights on Velcade.

EPIX Medical was upgraded at Needham to Strong Buy from Buy. The firm is saying the company's MS-325 Phase 3 trial results were not only outstanding, but were reported sooner than anticipated, which could lead to earlier approval of the drug. The firm raised target to $24 from $17.

Media . . . Credit Suisse First Boston issued cautious comments overnight on AOL Time Warner, saying it expects earnings per share in the second quarter at the media group to decline 15 percent from the year-ago period to 10 cents. "On the cable IPO, we believe that AOLTW management may opt not to attempt it after all, with the reason being that recent asset sales and the surprise $750 million settlement from Microsoft is enough to satisfy the balance sheet critics," CSFB said, adding that: "We think the AOL division is still a major issue, and the potential for any future sustainable growth is unlikely."

Charter Communications is saying certain of its direct and indirect subsidiaries plan to sell a total of $1.7 billion in newly issued senior notes in private placements. The cash proceeds of the combined offering will be used to fund previously announced cash tender offers for a portion of its convertible senior notes, other senior notes and senior discount notes. Charter specifically anticipates up to about $500 million of the proceeds would be used to pay down credit-line debt.

Tech . . . Prudential initiates coverage of the IT Hardware sector with a Market Outperform rating. The firm anticipates a modest recovery in IT demand beginning in 1st half 2004, and expects demand to build through 2nd half 2004 and accelerate into 2005, with U.S. large corporate rebounding first followed by small- and medium-sized businesses, Europe, and Asia Pacific, with a 6-9 month lag. In addition, firm sees growth in Windows- and Linux Intel-based servers at the expense of proprietary RISC/UNIX platforms (benefits DELL), and believes another trend is the drive toward more strategic IT and business process outsourcing (IBM best positioned, HPQ gaining momentum). Initiates coverage of CDWC, DELL, IBM, IM, HPQ, and TECD with Buy ratings, and GTW, AAPL, and SUNW with Hold ratings.

Network Equipment . . . Ericsson saw its second half and 2004 sales forecasts cut by Goldman Sachs, on concerns over a weak third quarter and on a postponement of Chinese 3G contracts. It decreased second half sales estimates by SEK1 billion and 2004 sales by SEK8 billion. Goldman is keeping its EPS estimates in-tact due to its perception that the company's restructuring is ahead of schedule.

Juniper reported 2nd quarter revenue of $165 million (+5% Quarter/Quarter) and EPS of $0.03 slightly beat expectations. Despite B2B >1 and increased deferred revenue, company guided to flat 3rd quarter. Analysts are revising 2003 up slightly to reflect better 2nd quarter and flat 3rd quarter. 2003 revenue now $656 million and EPS now $0.10. 2004 rev and EPS remain essentially flat at $748 million and $0.16, +$.01 due to slight changes to GMs, share count and interest experience. Because company remains committed to driving EPS growth largely through revenue growth, we can't stretch revenues to justify higher stock prices at the current time. Cisco, Nortel, Lucent are the preferred names with more operating leverage.

Pacific Growth cautious on NetScreen's high Asia exposure as JNPR's 10% sequential decline in Asia reflects a slow market in Asia for networking products in the June quarter. Yet the company's 16% growth in North America reflects a pick-up in that mkt for networking products; therefore. The firm believes that company's such as NSCN, which have high Asian exposure and low North American exposure, may be challenged from a geographic perspective.

Semiconductors . . . Thomas Weisel upgraded Intel to "outperform" from "peer perform," and established a $30 price target. Eric Gomberg said check with over 40 chip resellers suggests that optimism appears to be growing that a recovery is underway, which should lead to a gradual rise in information technology products in the second half of the year. Checks suggest growing optimism that an IT recovery is under way, which is likely to result in a gradual uptick in demand for IT products in 2nd half 2003 and a stronger spending environment in 2004. The firm believes the secular shift from desktop PCs to notebooks is accelerating, and they expect margin expansion to be the catalyst for INTC's EPS growth over the next several quarters. Price target is $30. Gomberg is maintaining his second quarter estimates, but raised his third and fourth quarter forecasts to earnings of 16 cents a share and 20 cents a share, respectively, from 14 cents and 18 cents.

Powerwave upped to Buy at Adams Harkness following last night's earnings report. Firm says it expects network expansion announcements from operators such as Cingular, AT&T, and Sprint to offer potential upside to revenue, positively impacting valuation and perception of the group. As such, firm upgrading rating to Buy with a $10 price target, based on 2.5x 2004 sales estimate, a 16% discount to the comp group mean of 3.0x estimated 2004 sales.

Silicon Strategies reporter that Infineon filed an appeal with the U.S. Supreme Court seeking to overturn an appellate court ruling absolving Rambus of fraud for failing to disclose pending SDRAM patents to the JECEC Solid State Technology Association panel while the body was drafting an industry SDRAM standard. An Infineon spokeswoman said the German chipmaker is asking the Supreme Court to find that lifting a fraud verdict against Rambus "is a clear disregard of the appellate procedure."

Powerwave was upgraded to Overweight at ThinkEquity. The firm is increasing the price target to $10 in light of the company's 2nd quarter results. Despite the market remaining "difficult", the analyst believes co is looking to new opportunities within Europe and N. America to fuel growth for PWAV in 2nd half 2003. In addition, the expanded relationship with ERICY should also serve as an impetus to help accelerate growth for 2004.

Nortel is a 57% customer for Powerwave. PWAV management guided for 10-20% 3rd quarter revenue growth, management believes US carriers will spend to improve network quality ahead of mobile number portability deadline in November.

Despite mixed data points, the recovery in Semis that began in mid-'01 continues at a modest rate. Expect most companies to report results that are in-line or better than our projections for June and guide for modest growth. Checks suggest an uptick in telecom could boost growth. We expect guidance to be for growth of 3-6% Quarter/Quarter. There are concerns about 3rd quarter guidance, Texas Instruments and calender year pose risk. Recent channel checks indicate continued weakness due to excess handset inventories. There are concernes this weakness could continue into September. Quarter/Quarter growth has typically been in the 3-5% range based on 10 years of data. However, growth rates can vary dramatically, suggesting September growth is anything but 'normal'.

Cypress Semi’s recent channel checks indicate continued weakness due to excess handset inventories. Weakness could continue into September and believe estimates for CY are at risk. Expect $193.1 million and EPS $.01, below consensus. Reports 7/17.

Xilinx have some concern about XLNX’s end market exposure so expect $315 million and EPS $.13.

Integrated Device continues to be a top Communication Memory pick. Expect $83 million and EPS ($.05). Reports 7/17.

Texas Instruments channel checks indicate continued weakness due to excess handset inventories. There are concerns this weakness could continue into Sept. and believe estimates for TXN are at risk. Wireless exposure 25%+. Expect $2.03 billion and EPS $.06. Reports 7/21.

Altera channel checks suggest ALTR’s consumer, industrial and auto products gained design wins at OEMs. Expect $202 million and EPS $.09. The firm reports 7/21.

Lattice Semi has the potential for upside given telecom-related strength in the firm’s FPGA business. However, channel checks suggest weakness in the lower end of LSCC’s CPLD business will offset some of this strength. Expect $59 million and EPS $.02.

Linear Tech expect $163 million and EPS $.20. Reports 7/23.

Integrated Silicon has the most potential for upside. Strong 802.11g trends benefit ISIL. Expect $172.6 million and EPS $.15. Reports 7/23.

Analog Devices continues to be the top analog pick. Believe the company’s changing DSP strategy has not yet been reflected in stock. Expect $517.4 million and EPS $.21. Reports 8/14.

For National Semi expect $420 million and EPS $.12. Reports 9/5.

Software . . . Although still tepid, a recovery in IT spending is clearly underway as evidenced by government statistics, customer surveys, anecdotal comments and recent company results. Spending priorities continue to focus on doing more with existing systems rather than launching new projects, favoring areas like disaster recovery, security and integration over applications. Based on bottoms up model, combined 2nd quarter revenues for the leading large cap SW companies should show healthy mid single-digit growth and acceleration over recent quarters. Margins should continue to expand, while balance sheets improve further.

Microsoft expect unearned revenues to grow Quarter/Quarter by over $100 million after two Quarter’s of decline and overall revs to show steady growth to $7.85 billion (+8%), with pre-options expensed EPS of 23¢ (vs. 21¢). Reports 7/17. Analyst meeting 7/24.

Computer Associates total revenues should be $805 million (+5%) with a GAAP loss of $.03 and operating EPS of $.09. Reports 7/23. The User group meeting next week seeing much higher attendance.

Veritas should deliver another strong Quarter that is above guidance and Street and potentially above our high-end estimates of $400 million (+10%) in revenues, with GAAP EPS of $.13 and operating EPS of $.17. Reports 7/23.

Verisign should finish in line with expectations of $265 million (-17%) in revenues, with a GAAP loss of $.03 and fully-taxed operating EPS of $.14. Reports 7/24.

Group 1 Software expects first-quarter earnings of $1.5 million to $1.8 million, or 9 to 11 cents per share. Two analysts are currently looking for a profit of a dime per share in the period. Revenue, however, is projected at between $23.6 million and $23.9 million for the period, a range the company said is below its full-year outlook for growth of 10 to 12 percent due to an inability to close a number of expected transactions, particularly in its DOC1 division. The marketing software firm reaffirmed its outlook for the year though, saying some delayed deals have already closed in July and that its sales pipeline remains satisfactory.

Business Objects defended by Pacific Growth. The firm receives confirmation that Sales VP Americas, Bill Robinson, is no longer with BOBJ. Firm views this as an relatively irrelevant data point, and BOBJ should be bought on the weakness created by this news.

JMP maintains underperform on Siebel System with a price target $6. Yesterday the Superior Court in San Mateo County cleared the way for a lawsuit brought by the Teachers' Retirement System of Louisiana (TRSL) to proceed to trial on Nov 3. The firm says their understanding is that this lawsuit has 2 primary causes: 1) TRSL claims that SEBL directors breached their fiduciary duty to the stockholders by authorizing excessive compensation for Mr. Siebel, and 2) TRSL alleges that thousands of directors' stock options were issued in 1999 and 2000, but were concealed from stockholders. Firm believes the trial is likely to add to SEBL's legal expenses, result in further depositions and interrogatories that could distract mgmt and board members, and reinforce the perception that SEBL must improve its corporate governance.

Siebel told analysts Friday that in light of its recent decision to end one-on-one interviews with investors and analysts, the company is asking analysts to submit all questions by e-mail ahead of its earnings conference call on July 22. The move is meant to ensure all company information is "distributed in an open, publicly available manner," Siebel wrote to analysts. "We will attempt to address as many of these questions or concerns as possible during the call," the company wrote.

Articles of Note

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RobBlack.com MarketWrap:

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The market begins month number 5 of the bull-run that began on March 12th. This week, about 1/3 of the S&P 500 stocks will report bottom-line results, and Wall Street will be focused on the number and guidance going forward. Upbeat reports from Citigroup and Bank America have bolstered sentiment, while a Merrill Lynch upgrade of Intel may allow the overachieving Nasdaq to further overachieve. In Monday’s session, the S&P 500 added 5 points (+0.5%) to 1003. The DJIA jumped 57 points (+0.6%) to 9210 and the Nasdaq Composite gained 20 points (+1.2%) to 1760. The S&P 500 has climbed 26 percent from this year's low in March amid optimism that growth in profits and the economy will accelerate. Government bonds tumbled, with the 10-year Treasury note off 20/32 to yield 3.705 percent, while the 30-year government bond plunged 1 5/32 to yield 4.755 percent. There were no economic reports on Monday's agenda in a week that will be jam-packed with key releases. Among them: June retail sales, the June consumer price index and June industrial production.

Strong Sectors: semiconductor, financial, wireless, storage, internet, auto, gold, retail, drug

Weak Sectors: oil service

Top Stories . . . Citigroup and Bank of America, the two biggest U.S. banks by market value, said second- quarter earnings rose, driven by surging consumer demand for mortgages and credit cards.

Boise Cascade, the fourth- biggest U.S. maker of lumber and paper, agreed to buy office- supply retailer OfficeMax Inc. for $1.15 billion and said it will consider reducing its dependence on manufacturing further.

Wal-Mart Stores, the world's largest retailer, said July sales at stores open at least a year are rising at the high end of its forecast for a gain of as much as 4 percent, led by purchases of groceries and swimwear.

Continental Airlines, the fifth- largest U.S. carrier, is delaying deliveries of 36 Boeing Co. planes as the airline seeks to lower costs and stem losses caused by a slump in travel spending.

Yahoo!, the owner of the world's most-used Internet sites, said it will acquire Overture Services for $1.63 billion to enhance its position in Web searching, a fast-growing area where Google has emerged as the leader.

Quote Of Note . . . ``This is a big earnings week and to have those two companies (Bank of America and Citigroup) come in and beat estimates. I think lends a little credence to this market rally,'' said Benjamin Pace, who helps oversee $22 billion at Deutsche Private Wealth Management.

``The market's gotten into a little bit of a momentum stage, where money is coming into the market,'' driving stocks higher, said Matt Sauer, director of research at Oak Value Capital Management Inc., which manages $1.4 billion in Durham, North Carolina. ``There's no money left to be made in cash.''

Of Note . . . The S&P has climbed 25 percent since touching this year's low in March amid optimism that economic growth will accelerate. Companies such as Intel may benefit as businesses and consumers make purchases they had earlier put off, investors have said.

Gurus . . . On the Nightly Business Report, Bernie Schaefer, the widely-followed option strategist, says he believes the NASDAQ will continue to outperform the S&P, as technology will continue to lead. He would be buying 6-month calls in Ford and Calpine, while buying put options in General Electric.

On the Kudlow-Cramer Show, Jim Cramer has upped his Dow forecast to 10,000, while Larry Kudlow is staying with 10,800. Bob Froelich, Chief Strategist for Scudder remains constructive, and would be buying Microsoft and EMC Corp.

On The Wall Street Week Show, Bob Olstein, the balance sheet maven, would continue to concentrate on companies with excess cash flow. He would be buying Chubb, with a target of 90, and Tyco, with a target of 25. He would be shorting JetBlue and Yahoo!.

On the Rukeyser Show, panelist Bob Stovall would be a buyer on dips. Some high yielding favorites would be BP, Sara Lee, and Vornado.

Banc of America economist Peter Kretzmer projects sustained improvement in consumer spending, but believes businesses will remain cautious, tempering the acceleration of economic growth. Ketzmer thinks the economy will rise to trendline growth, but no materially higher, as he projects pickups in inventory building and business investment to be relatively muted and delayed.

Richard Bernstein, Merrill Lynch's chief quantitative strategist, said only four of its 10 profit indicators suggest the profit cycle will be stronger than current expectations. He notes that indicators showing improvement are technical ones while fundamental readings remain "quite weak," which suggests that earnings expectations for the second half of the year may be "much too optimistic." To wade through current market conditions, Bernstein advises investors to overweight "higher-quality" assets: companies that pay dividends and have better-than-average balance sheets.

David Malpass, global economist at Bear Stearns, believes a "strong acceleration" in the economy is likely as a result of a snapback in inventories and business investment. He added that tax rate cuts are spreading and demand in Europe should strengthen due to the stronger euro, while Japan may be on the verge of coming out of a 13-year deflationary period.

Smith Barney institutional equity strategist Tobias Levkovich reiterated his positive stance on the financial sector, telling investors that he favors big banks and diversified financials rather than regional banks. "The earnings story for the largest financial institutions is far better than that for the smaller regionals, which are more dependant on net interest margin spreads," Levkovich explained. He feels the financial sector is "well positioned for incremental relative performance gains" and estimates 15 percent to 20 percent upside from current levels. "Improving capital markets should boost many financial companies' investment banking, brokerage and asset management results, which are coming off depressed levels," the strategist concluded.

Eco Speak . . . Sherry Cooper, global economic strategist at BMO Financial Group, believes that expectations for a second-half rebound will be justified this year. "Stocks have risen sharply since their lows in early October, and, for the first time since early 2002, stocks are up year-over-year. Also, for the first time since 1999, stocks have outperformed bonds," she noted. Cooper said there's a "very good chance" the U.S. will have the strongest economy among the Group of Seven most industrialized nations for the remainder of this year and next. "U.S. corporate balance sheets have improved and so has American competitiveness." While Cooper acknowledges that U.S. stocks are not cheap by historical standards, she believes equities "look cheap" in comparison to bonds. Cooper does expect some sideways action in stocks during the second-half of the year as they work off overbought levels and as a precursor to a "sustained rally next year."

Takeovers? . . . Barron's article provides a list of 35 stocks, which could be potential acquisition targets according to equity strategist Vadim Zlotnikov of Sanford C. Bernstein. His list is based off of cash flow which would support an acquisition price that's higher than recent trading levels. The 35 stocks are the following: ABF, AIN, AM, ALOG, ANN, BN, BBOX, HRB, CLS, CVG, CBE, EDS, FD, FLS, FL, FDP, GR, IM, IBC, KWD, NCR, JCP, PBY, PPG, RJR, RDK, SFA, SHPGY, SVU, TXT, TOM, TUP, USTR, WLP, ZLC. In addition, these stocks are also highly ranked on Mr. Zlotnikov's stockpicking screens.

Biz Survey . . . Business executives around the globe are more confident about business conditions, according to a survey conducted by an economics consulting and forecasting firm. The Economy.com business confidence index reached a new high of 130.6 in the week ending July 11 vs. 127.9 last week. Executives of North American manufacturing and transportation companies were particularly bullish, the firm said. Confidence fell slightly among executives in Asia, Europe and Latin America. The survey is just six months old, so it doesn't have a strong track record of forecasting growth.

Barron’s Press . . . Barron's interviewed Brian Stark and Micheal Roth, whose partnership fund has been up 18.45% a year since 1994. The two lawyers's fund specializes in risk arbitrage, convertible arbitrage, distressed investing and capital structure arbitrage. The fund's picks consist of GM, F and CCL. It has pared back its convertible exposure in the past six months and built significant exposure in the distressed markets with a special interest in the airlines, directly and indirectly. The example given for airline companies is AMR through its relationship with Dallas-Forth Worth Airport Facility revenue bonds. Some of these municipal bonds have cross default protection in the event that AMR went bankrupt and default on these bonds, it would be forced to accept or reject the lease of the facility at DFW airport. This facility is a key hub for American Airlines and would likely still have a need for these facilities even if it went bankrupt.

American Express and Sony drew separate articles in Barron's lauding their prospects. The weekly publication said American Express has climbed out of its post-9/11 trench and the question is how high its stock can climb. Already, the credit and travel company has lifted its ratio of price-to-expected earnings to 19, above a regular 16, says Barron's. Key components of further gains would be increased business travel and a legal victory by banks that are fighting Visa and MasterCard exclusivity contracts, which could open the field to American Express credit cards. Barron's notes in a cover story that Sony is a potential value stock buy. The stock has moved up since it was clobbered by an April earnings warning, but U.S.-listed shares are still down 20 percent year to date, Barron's notes. Calculating market cap and debt, minus cash, against earnings, Barron's says Sony has a 6.6 ratio vs. AOL Time Warner's 9.9. A turnaround plan to cut costs would have to pan out and the company chairman's vision of interconnected electronic products would have to work. Patience is the key, says Barron's, as Sony has set a 2006 target year for doubling its profit margin.

Financials . . . Sandy Spring Bancorp reported second-quarter net income of $8.8 million, or 60 cents per share, compared to $7.2 million, or 48 cents per share in the year-ago period. The company beat the forecast of 53 cents per share in a survey of analysts on income from the early termination of a sublease agreement.

Citigroup said strong consumer businesses like credit card and mortgage lending lifted quarterly earnings above Wall Street estimates. The company posted income from operations of $4.30 billion, or 83 cents per share, up 12 percent and 14 percent respectively from year-ago levels. The earnings per share were 3 cents ahead of the analysts consensus. Revenues rose 7.6% year/year to $19.35 billion versus the $19.43 billion consensus. "Citigroup's performance this year continues to be outstanding, with 12 percent income growth in the second quarter driven by an 8 percent increase in our total revenues. We also reached an important milestone this quarter, as our total stockholders' equity and trust preferred securities exceeded $100 billion," Sanford Weill, Chief Executive Officer. Citigroup's approved a 75 percent increase in its quarterly common stock dividend to 35 cents a share from 20 cents a share. The dividend is payable on August 22, 2003, to stockholders of record on August 4, 2003. "The recent change in the tax law levels the playing field between dividends and share repurchases as a means to return capital to shareholders. This substantial increase in our dividend will be part of our effort to reallocate capital to dividends and reduce share repurchases," CEO Sandy Weill.

Bank of America said second quarter earnings rose to $2.74 billion, or $1.80 per share, up 23 percent from $2.22 billion, or $1.40 per share, a year ago. The bank said revenue grew 12 percent to $9.78 billion. It said credit losses declined from the prior quarter and year and were at their lowest level since first quarter 2001. Provision for credit losses was $772 million, down 7 percent from the first quarter. In investment banking, it said: Global Corporate and Investment Banking earned $440 million, down 14 percent from a year ago. Revenue decreased 2 percent to $2.26 billion.

Marshall & Ilsley reported earnings of $134.7 million, or 59 cents per share, up from its year-ago profit of $120.4 million, or 54 cents per share, and a penny ahead of the average estimate. As of June 30, assets stood at $34.1 billion, up from $29.1 billion at the same time last year.

M&T Bank reported net income of $134 million, or $1.10 a share, down from $1.19 a share in the year-earlier period. Excluding non-recurring items, earnings were $1.38 a share, exceeding the average analyst forecast of $1.24 a share, helped by growth in average loans outstanding and the benefits of a continued low interest rate environment. The regional bank holding company added that it expects to meet expectations for the full year.

BB&T said second quarter net income fell to $316.2 million, or 67 cents per share, compared to $328 million, or 68 cents per share last year on merger-related and other nonrecurring charges. The bank reported operating earnings of $336.9 million, or 71 cents per share, up from 68 cents. The figure matched the forecast of 71 cents per share. The company is forecasting 2003 EPS of $2.75 to $2.85 vs. $2.84 expected by Wall Street.

American Home to acquire Apex Mortgage and will reorganize as a REIT. Currently, deal valued at $6.21 per Apex share. AHMH expects deal to be accretive to be 2003 and 2004 earnings per share, as well as to its book value.

Oil & Gas . . . Jefferies reiterated a Buy on Maverick Tube and $28 target. The firm attributes the stock's weakness last week to a pre-announcement by competitor LSS and overall softness in the OSX. The firm says the unexpected jump in LSS's steel costs are not a direct reflection on MVK's steel costs, and continue to expect MVK's steel costs to trend down in 2nd half 2-03.

Transports . . . Continental Airlines said it will defer firm deliveries of 36 Boeing 737 aircraft originally scheduled for delivery in 2005, 2006 and 2007 on weakness in the aircraft industry. "We can't determine our need for additional airplanes until we see some return on the capital we've invested in our existing fleet of new airplanes and are confident we have a competitive long-term cost structure," said Chief Executive Officer Gordon Bethune. The airline will take scheduled delivery of four 737-800 aircraft in the fourth quarter of 2003 and 12 737-800 aircraft in 2004. In addition, Continental is in discussions with The Boeing Company regarding the terms of delivery of the 11 remaining 757-300 aircraft that Continental has on order. "We can't determine our need for additional airplanes until we see some return on the capital we've invested in our existing fleet of new airplanes and are confident we have a competitive long-term cost structure... We are not going to invest in aircraft that we cannot profitably fly in the current marketplace."

Defense & Aerospace . . . UBS downgraded Textron to Neutral from Buy in order to reflect continued signs of weakness in the business jet market. The firm cuts 2004 est. below consensus and cuts target to $40 from $46.

Industrial Equipment . . . Prudential reiterated a Buy on Deere and $56 target, citing "very solid" June sales; firm continues to anticipate the co will benefit from higher equipment demand levels, primarily in its North American agricultural equipment division, which should drive higher revs against an improving internal cost structure.

Education . . . Edison Schools inked a definitive merger agreement with a company formed by its founder and an affiliate of Liberty Partners, a private equity firm based in New York City. The deal values Edison Schools at about $174 million, including the assumption and refinancing of outstanding debt.

Banc of America reiterates their Sell rating on DeVry. The firm is saying their bearish outlook is based on the severe challenges in reconciling valuation with the beleaguered state of enrollment at the co's core DeVry Institutes business; firm's research indicates that DV's primary locations are, in general, operating at 1998 levels. Target is $20.

Food & Beverage . . . Interstate Bakeries reported a fourth-quarter net loss of $4.57 million, or 10 cents per share vs. a gain of $22 million, or 45 cents per share in the year-ago period. The loss of 10 cents per share includes restructuring charges of $3.46 million, or 5 cents per share. Revenue fell to $818 million from $832 million. A survey of analysts was targeting a loss of 3 cents per share and revenue of $826.8 million. The food company cited a reduction in branded sales volume, coupled with "significant" cost increases in ingredients, energy and employee-related costs. The company said it won't provide an earnings per share target by quarter or for the year.

Pilgrim's Pride expects to report higher-than-anticipated earnings for the fiscal third quarter, citing "improved" conditions in the fresh chicken market as well as "significant" profit improvement from greater efficiencies in the poultry producer's Mexico operations. The company now expects earnings for the quarter ended June 30 to range from 40 to 42 cents per share, including one-time gains of 24 to 26 cents. This compares favorably to the consensus view of 5 cents. The one-time gains reflect Pilgrim's Pride compensation from vitamin lawsuit settlements. Pilgrim's Pride, which will report results on July 23, also announced that the Hart-Scott-Rodino regulatory waiting period has expired on its pending deal with ConAgra Foods to acquire ConAgra's chicken division.

Performance Food warned for 2nd quarter, now sees 2nd quarter $0.48-0.49 versus consensus of $0.51 and prior guidance of $0.50-0.52, based on "industry-wide increased demand from quick-service restaurants for new premium salad products". The company also issues 2003 EPS guidance, sees $1.75-1.79 vs. estimate of $1.78.

Restaurants . . . McDonald's said system-wide sales rose 10 percent over the same period a year ago to $11.5 billion for the second quarter, and increased 11 percent to $3.9 billion for the month of June. Excluding the effect of foreign currency translation, sales increased 4 percent and 5 percent, respectively. Comparable store sales for the quarter rose 4.9 percent, and increased 7 percent for the month. The fast food behemoth added that it expects to earn 37 cents a share in the quarter ending June, matching the average analyst forecast. MCD also reports comparable sales increases of 7.0% for the month and 4.9% for the quarter.

Retail . . . Wal-Mart said on its weekly phone update that July U.S. comparable store sales were tracking at the "high end" of its 2 percent to 4 percent range. The strongest categories for the week ended July 11 were men's apparel, electronics, toys and swimwear, the retailer said, while the Northeast was the strongest region.

OfficeMax entered into a definitive agreement to be acquired by Boise Cascade in a deal valued at $1.154 billion, or $9.00 per share. Boise will pay the purchase price in cash and common stock, using 30% cash and 70% common stock. Boise has the option of increasing the cash component to 45% and decreasing the stock component to 55%, at its discretion. BCC sees deal adding $0.15-$0.30 to 2004 earnings.

Healthcare . . . Johnson & Johnson was upgraded to an "outperform" rating from a "peer perform" by Bear Stearns in a note entitled "It's cheap, it's J&J and the concerns are well known." Rick Wise told clients that he feels the stock is increasingly attractive for long-term investors at current levels and that most of investors' concerns are "well understood and have been discussed by the investment community." J&J will unfurl its second-quarter earnings on Tuesday, with First Call anticipating earnings-per-share of 69 cents.

Cigna lowered its second-quarter profit estimate and cautioned on its full-year results. Specifically, Cigna said that second-quarter income will range from $1.00 to $1.15 per share and that full-year 2003 income will be between $5.00 and $5.25 per share. Analysts had been carrying a 2003 earnings consensus of $6.01 a share. Cigna cited the impact of steeper-than-expected medical inflation and a slowdown in membership. In addition to his other executive duties, Chairman and CEO Ed Hanway will move to directly manage the company's health-care operations, replacing Patrick Welch. The company also hired industry veteran John Coyle to help manage Cigna HealthCare.

Cigna membership losses should benefit United Health. .

CIGNA target cut to $40 from $50 at Bank of America.

Medical Devices . . . Michael Weinstein at J.P. Morgan upgraded Guidant to "overweight" from "neutral." JP Morgan cited the following factors: 1) their belief that the impact of drug-eluting stents will not prove as damaging to GDT's near-term earnings as the Street has previously perceived, 2) their view that the value of GDT's CRM biz suggests downside support near $40 with significant upside should the co demonstrate progress in drug-eluting stents, and 3) their expectation that the near-term newsflow around GDT's everolimus DES program is likely to prove positive.

Drugs . . . Mara Goldstein at CIBC World Markets upgraded Merck to "sector performer" from "sector underperformer”. The firm is citing increased clarity on revenue acceleration following the expected spin-off of the company's Medco unit and attractive valuation. Goldstein added that the drug giant is likely to meet 2003 and 2004 financial targets.

Merck was upped to Sector Perform at CIBC based on increasing visibility for revenue acceleration following expected spin-off of Medco, better comps for Vioxx (arthritis) and Singulair (asthma), and valuation. Establishes target of $64.

AstraZeneca said its anti-clotting drug Exanta is as effective as the current standard of care treatment regimen, enoxaparin/warfarin, in the treatment of acute venous thromboembolism and secondary prevention of recurrent VTE events, according to a study unveiled in Birmingham, England. The six-month study also showed a favorable trend for Exanta in bleeding and mortality rates compared with the standard therapy regimen, AstraZeneca said.

Forest Labs target goes to $69 from $63 at UBS.

Pfizer announced that a study presented at an AIDS conference found a statistically significant reduction in Viracept-associated diarrhea through a step-wise dietary and pharmacological intervention program. The application of this algorithm was also linked to an enhanced quality of life for those individuals.

Biotech . . . ImClone Systems said its anti-cancer compounds showed promise in preclinical research, which is done on animals. "We're pleased with the progress that ImClone Systems' pipeline programs have made this year and with the valuable contribution that these data will make on our future research and development," Harlan Waksal, the company's chief scientific officer said.

Gilead Sciences said its second quarter 2003 earnings will exceed analyst expectations, driven primarily by higher product revenue. A survey of analysts is currently forecasting earnings of 20 cents per share and revenue of $179.4 million. Gilead estimates its total net revenue will be in the range of $236-239 million. The company cited strong sales growth of Viread, one of its antiviral drugs for the treatment of HIV. Gilead expects that Viread sales will be approximately $165 million for the second quarter, compared to $107 million for the first quarter.

Entremed (released positive pre-clinical data on its Panzem drug candidate. The company said Panzem demonstrated anti-cancer activity and a lack of toxicity in three separate pre-clinical studies.

Gilead Sciences announces positive Emtriva results of a Phase III clinical trial that show Emtriva significantly more potent in suppressing replication of HIV when compared with another NRTI, stavudine (d4T), in combination with other antiretroviral agents.

Alkermes was upgraded at Jefferies to Buy from Hold and raises their target to $13.50 from $10, citing the following factors: 1) high likelihood of an approval letter for Risperdal Consta within the next 3 months, 2) continued approval in foreign mkts and stronger than expected performance in countries where Risperdal Consta has already been launched, 3) improved understanding of the development and regulatory timeline for Vivitrex, and 4) the fact that hedging activity following the announced and upcoming conversion of the debt issue has precipitated a pullback in the stock.

Vertex Pharma presented the first preclinical results for 640385, an investigational HIV protease inhibitor (PI) jointly discovered by GlaxoSmithKline and Vertex. The compound has shown activity in vitro against the HIV virus, including strains resistant to multiple protease inhibitor drugs.

Cephalon cut to Market Perform at UBS Piper Jaffray. The firm transfers coverage and lowers rating to Market Perform from Strong Buy. The firm believes CEPH has little hope of holding off generic competition for its flagship product Provigil; while many current investors maintain focused on the relatively strong near-term prospects. The firm expects attention to steadily shift toward the longer-term generic issues. Target $49.

Dendreon announced updated results from its ongoing Phase 1 trial of APC8024. The company’s investigational immunotherapy for breast, colon, and ovarian cancer, indicate APC8024 is showing continued clinical benefit and targeted T-cell immune responses in patients with advanced, metastatic, Her-2 positive breast cancer; also, results were presented for the first time that demonstrated a durable immune response could be boosted by re-treatment with APC8024.

Geron announced that preclinical data on its telomerase inhibitor anti-cancer drug GRN163 demonstrate excellent safety and tolerability of daily intravenous dosing in rats for 4 weeks and, in a separate study, in dogs for 7 days, as well as good tolerability of continuous intracranial delivery for the same time periods in both species; also, a series of stability studies demonstrated that GRN163 has appropriate stability in both liquid and powder formulations.

Zymogenetics demonstrated that Interleukin 21 (IL-21) treatment suppressed the growth of the tumors in mice without the toxic effects commonly seen with other cytokine therapies.

Gilead Sciences target goes to $78 at Merrill Lynch.

Media . . . E.W. Scripps expects third quarter earnings to be 55 to 65 cents a share, below the average analyst forecast of 68 cents, hurt by the media company's continued investment in the Shop At Home Network. Revenues rose 24.8% year/year to $474.9 million versus the $478.8 million consensus. For the second quarter, the company reported net income of $64.7 million, or 80 cents a share, up from 33 cents a share in the year-earlier period. Excluding non-recurring items related to investment write-downs, earnings were approximately 83 cents a share, in line with analyst forecasts. Operating revenue increased 25 percent to $474.8 million.

TiVo and AOL unveiled an offering for AOL members who are TiVo subscribers that allows them to program their TiVo DVR through the AOL service.

Cable network ESPN said that radio talk show host Rush Limbaugh will join its "Sunday NFL Countdown" pre-game show. Walt Disney owned ESPN said Limbaugh will "provide a weekly opinion piece on an aspect of the NFL making news that week" and challenge the opinions of the show's other analysts on various NFL-related issues.

The Wall Street Journal reports PanAmSat has suffered new technical problems which could force it to "swap" out two additional orbiting spacecraft. In addition, the company would also have to seek additional insurance claims and therefore complicate its efforts to cut its capital expenditures.

Telecom . . . Deutsche Telekom was upgraded at Merrill Lynch to Buy from Neutral based on valuation. In addition, following a meeting with T-Mobile USA mgmt, firm now feels that numbers will remain robust in coming quarters and their concerns over execution risk have been alleviated.

Verizon started with a Sell at Kaufman. Price target $34. The firm cites sum-of-parts-valuation for its rating and target; says would be sellers of the stock at least until it approaches the low 30s or a dividend yield of close to 5%.

UTStarcom started with a Buy at Prudential with a Buy rating and $47 target. The firm believes the company will likely maintain its strong sales and EPS momentum, benefiting from its leadership in wireless PHS in China, strong backlog, and excellent visibility.

Titan Pharma announced preclinical anti-cancer study results demonstrating that Pivanex, combined with the approved chemotherapeutic agent docetaxel, significantly increased anti-tumor activity in non-small cell lung cancer cells.

EMS . . . Solectron remains in compliance with its debt covenants following the obtainment of amendments to minimum tangible net worth covenants. The amendment was obtained on July 9, and relate to the company's undrawn $450 million credit facilities.

Storage . . . Network Appliance signs distribution agreements with the North American Computer Products group of Arrow Electronics, Inc. and Avnet Hall-Mark, which are value added distributors of enterprise servers, storage, software and services. This new development will allow the co's storage solutions to be offered to regional and specialized VARs in geographies and markets not previously covered.

Sun Microsystems boardroom meeting next week to address contentious stock options issue. Financial Times article discusses the contentiousness associated with the stock options issue in light of Sun's looming boardroom challenge to its official position of not deducting the cost of stock options from earnings, which is happening next week. The article suggests the company's directors will come to a showdown on the issue at its company board meeting on July 23. The opposition will be led by Lynn Turner, a former chief accountant of the SEC and outspoken proponent of expensing options, who joined the co's board last year. However, Mr. Lynn will have to face a strong proponent of not expensing options from the co's chairman and chief executive Scott McNealy.

McDATA and Network Appliance extended storage networks partnership.

Network Equipment . . . Motorola's mobile content download platform selected by China Unicom. MOT's Java technology-based download platform will deliver mobile content to its millions of subscribers in China over its CDMA2000 1X network.

Semiconductor Equipment . . . Semiconductor equipment sales are expected to rise 4 percent in 2003 over sales of $19.8 billion a year ago, according to a survey of companies conducted by Semiconductor Equipment and Materials International. Leading the way is an anticipated 30 percent growth in assembly and packaging equipment, and an expected growth of 18 percent in chip testing equipment. Wafer processing is projected to remain flat. Growth is expected to increase to 24 percent in 2004 and 18 percent in 2005, and contract slightly in 2006.

The Wall Street Journal article suggests customer cautiousness in ordering new equipment to expand capacity might be coming to an end soon. The article points to one piece of evidence being factories filling up with Taiwan Semi recently reporting its factories operating at 86% capacity in the second quarter, up from 67% in the first quarter. In addition, market research firm Gartner estimates plant utilization at 81% for the entire industry. However, Intel plans to spend between $3.5 billion and $3.9 billion in 2003, which is down as much as 25% from last year. The article also suggests excess optimism is possible with last year being used as an example due to TSMC and other co's placing orders in Spring 2002 only to cancel them by Semicon due chip demand being illusory.

Applied Materials will set tone for SemiCon with 7/14 analyst meeting. Expect slowly building confidence in mid term outlook. Despite speculation, we expect no layoffs beyond those announced. KLA Tencor, Lam Research, Brooks Automation analyst meetings on 7/15. Most products have been pre-announced. Cautious optimism from LRCX, KLAC, a bit more cautious BRKS (Near-Term). Teradyne, Novellus, Lam Research, KLA Tencor, ancelis should meet June Quarter expectations. Expect Septmber Quarter bookings guidance +10%. None suggests a big 2nd half 2003 turn but tightening utilization, strong unit growth, improving foundries, and a slew of 300mm projects sets up strong 2004 rebound. Larger cap names now trading at 30-35x 2004E. Stocks may pause but expect further upside as recovery anticipation turns to confirmation. Analysts are more confident about modest order improvement in 2nd half. Risk/reward still positive. Advise buying on any dips/weakness.

Applied Materials will focus on new etch. CMP, and ECP tools at SemiCon show. Rising utilization (now 86%) at TSMC is a bullish sign especially for AMAT. It is still early, but July Quarter on track (flat guidance). Analysts speculatively expect October bookings up around 10%.

KLA Tencor reports 4th quarter on 7/24, expect their analyst meeting (7/15) to be largely product focused. Given that June is historically KLAC‘s strongest Quarter, anticipate bookings will exceed conservative flat guidance. Estimate $335-345 million (+6-10% Quarter/Quarter). Best positioned name in the group with the only issue is valuation.

Novellus will be the first major front-end vendor to report 2nd quarter on 7/21. Analysts are looking for $0.05 on $238 million (flat). Despite its mid-Q reaffirmation of $188M in orders (- 23% Quarter/Quarter), we expect the company to show upside - est. orders above $200 million. Continue to believe that NVLS is one of the key names to own in the space.

Semiconductors . . . Smith Barney downgraded Altera and Xilinx to "in-line" from "outperform," citing valuation concerns. Altera is a dime better at $19.23 and Xilinx is 19 cents higher at $27.81. Analyst Clark Westmont said Altera is trading near or above pre-2000 levels on a relative and absolute basis and Altera is trading in the top quartile of its 10-year historical valuation range. He has a $15 price target for Altera and cut his Xilinx price target to $28 from $30.

Merrill Lynch raised its rating on Intel to buy from a neutral rating and put a $29 price target on the stock on expectations for improvement in gross margins. "Better average selling prices should continue to flow from the shift towards mobile machines, where Intel sees better pricing, and a shift towards higher-priced Pentium M processors within the mobile segment," Merrill told clients. "We also think Intel has been able to price less aggressively in its desktop processor business as AMD has continued to struggle."

Smith Barney Europe is calling cyclical bottom in European Semis. They are upgrading the European Semiconductor industry (to Marketweight from Underweight). On a stock specific basis, firm raising ASML to Outperform from In Line (target to Eur15 from Eur6.30), ST Micro target goes to US$22 from US$18. Maintaining Outperform rating and Eur11.5 target on Infineon.

Broadcom introduced a new Fast Ethernet switch.

Pixelworks chip selected for Samsung's latest LCD television.

Boxmakers . . . CDW Corp as cut to In-Line at Goldman Sachs based on valuation. Firm believes that the biggest risk to its downgrade is that CDWC could put its large cash balance to work to build value for investors; thinks that part of recent run has been driven by speculation of the possibility for an increased dividend.

Software . . . Intuit bought Income Dynamics in a stock deal value at $10 million to help its TurboTax users determine the fair market value of items donated to charities. Intuit does not expect the acquisition to materially change its fiscal 2003 or 2004 outlook. Intuit reaffirmed 2003 & 2004 EPS in line with consensus. The company reaffirms Y03 EPS guidance of $1.36-1.39, versus consensus of $1.37, and 2004 EPS of $1.57-1.67 vs. estimate of $1.62.

Yahoo reached a definitive agreement to acquire Overture Services for roughly $1.63 billion. The deal calls for Yahoo to swap 0.6108 shares of its common stock and $4.75 in cash for each Overture share. The transaction is expected to close in the fourth quarter.

Pumatech (business synchronization software) announced the signing of a co-development agreement with Japan's Hitachi to synchronize Hitachi's Web-based messaging service with personal digital assistants, and Macintosh and Microsoft-based email services. Hitachi plans to market the combined product in Japan beginning in the fall of 2003.

SoundView Technology upgraded Tibco Software to a "neutral" rating. SoundView said it believes that it can sustain profitability for the foreseeable future, separating it from the other pure plays.

Compuware (business software for mainframe and server computers) indicated that fiscal first quarter results would fall short of expectations. John Rizzuto at CS First Boston said that while the company did not give specifics on expenses, he believes they will be "well above" expectations "as the mix deterioration alone does not justify the earnings shortfall."

WSJ says Computer Associates will unveil new programs in the on-demand field at its user conference. CEO Sanjay Kumar expects 1/4 of CA’s customers to do some sort of on-demand computing in the next two to three years. CA's platform-independent systems management portfolio offers key advantage in this effort. More details at user group meeting today and tomorrow. Look for news in security, storage and Linux along with these new initiatives in on-demand computing.

Barron’s article speculated that if Oracle were to succeed in rolling up Peoplesoft and JD Edwards, Oracle could solidify its place in applications and pose a more serious threat to IBM. The article says that both MSFT and IBM might have to rethink their stances on the application SW business and postulates that IBM should consider hooking up with SAP. Points to the application server as the key. ORCL, IBM and SAP each offers one. The app sever, as well as MSFT's .NET technology, is at the heart of the race to the next big thing: Web Services. MSFT has already moved into applications through acquisition and could certainly do more. IBM has staked out a position in infrastructure. It could change this stance but may prefer to become the partner of choice for all the second and third tier apps vendors. It is way too soon for such speculation since PSFT is still far from in ORCL's grip. IBM has close to 100 strategic ISV partners; acquiring SAP would undermine its credibility with all of these.

Articles of Note

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