Stocks pulled back on moderately heavy volume as disappointing forecasts from Lucent Technologies and Ford Motor sparked concern that corporate profits in the second half of 2003 will miss estimates. Citigroup, the world's biggest financial company, slipped as Sanford Weill said he would step down as chief executive officer. Coca-Cola declined after its largest bottler, Coca-Cola Enterprises, cut annual profit and sales forecasts. The S&P 500 dropped 6 points (-0.6%) to 994, with financial shares accounting for a quarter of the drop. The DJIA fell 34 points (-0.4%) to 9,094. The Nasdaq Composite declined 5 points (-0.3%) to 1,747. On the earnings front, we've got about 80-companies bringing forth their bottom-lines. The S&P 500's members probably boosted second-quarter earnings by 5.9 percent, based on the average analyst forecasts compiled by Thomson Financial. Profit growth may swell to 13 percent in the third period and 21 percent in the fourth, according to Thomson Financial. On the fixed-income scene, bonds recovered after getting shellacked on Tuesday after Fed Chief Greenspan insisted that he had not tossed out contingency plans to buy Long-Term Treasuries as a last ditch effort to avert deflation. But, bond guru Bill Gross, who runs the world's biggest bond fund, said June was probably the high water-mark for a 3-1/2-year bond rally.
Weak Sectors: computer storage & peripherals, auto manufacturers, utilities, communication equipment, software, homebuilding, soft drinks, tobacco, gold, airline, biotech, drug
Top Stories . . . U.S. Treasuries rose for the first day in three in New York trading as investors were attracted to yields that earlier climbed above 4 percent, the highest in two months.
U.S. industrial production rose for a second straight month as factories built more consumer goods and cars, and consumer prices excluding food and energy held steady for the third time in four months.
Sanford Weill, who built Citigroup into the world's biggest financial company, stepped down as chief executive officer. The 70-year-old Weill will remain as chairman and his top adviser, Charles Prince, was named CEO.
J.P. Morgan Chase, the second- biggest U.S. bank by assets, said second-quarter profit rose 78 percent as bond sales and trading climbed and losses from bad loans declined.
Ford Motor, the world's second- biggest automaker by sales, said profit in the second quarter fell 27 percent after the company reduced North American production as sales slowed.
Quotes of Note . . . Intel ``was a blow out report. ` lot of folks are looking at these numbers and saying maybe the tech sector is indeed starting to rise and come back to life.''' said Charles Crane, who helps oversee $3.5 billion at Victory SBSF Capital Management.
`What I see so far seems to be quite good,'' said Klaus Kaldemorgen, who oversees about $32 billion as chief investment officer of equities at DWS Investment GmbH in Frankfurt. ``There is momentum behind these stocks and earnings comparisons are favorable.''
Of Note . . . Seventy-nine companies yesterday reported earnings that either matched or exceeded analyst expectations. Only nine companies had earnings that were below forecasts. For the S&P 500, earnings are expected to be up 5.9% in the second quarter, but are now projected to jump 13% in the third, and 21% in the fourth.
Gurus . . . Pimco's Bill Gross is cautious, saying the Treasury Market probably hit the "high-water mark" in June.
Eco Speak . . . U.S. manufacturing output grew in June at its fastest rate since January, strong evidence that demand for U.S.-made goods is recovering. Industrial production rose 0.1 percent in June for the second straight month. Manufacturing output rose 0.4 percent, the most since the 0.5 percent gain in January. Capacity utilization of the nation's factories, mines and utilities remained at 74.3 percent, indicating massive idle capacity in the world's largest economy.
Consumer prices rose 0.2 percent in June, while the core rate, which excludes the volatile food and energy costs remained unchanged. Both were largely in line with expectations. Wall Street economists had expected the overall consumer price index to rise 0.2 percent and the core rate to rise a slightly stronger 0.1 percent. On a year-on-year basis, the CPI was up 2.1 percent, while the core rate was up 1.5 percent. For the first six months of 2003, U.S. consumer prices have risen at a 2.2 percent seasonally adjusted annual rate. The core U.S. inflation rate is running at a 0.9 percent rate for the year.
Cautious U.S. businesses reduced their inventories of unsold goods by 0.2 percent in May as sales showed no growth. The reduction in inventories was the first since April 2002. The inventory-to-sales ratio - considered a good barometer of how much overstock is piling up - remained at 1.40. Inventories were unchanged in April while sales sank 1.7 percent. Wall Street was expecting inventories to be unchanged from April to May.
Bond Rout . . . Higher yields not only reflect the reflation, they may actually contribute to sustainable growth and a multi-year reflation. First, low Treasury bond yields were a form of risk aversion, diverting capital from more growth-oriented assets. Second, low
Treasury yields are contributing to distortions within the economy (activity that relies on unsustainably low interest rates). The interest rate extreme was itself an increasing risk to the long-term growth outlook, which may actually improve as interest rate expectations return to more normal levels.
Mortgage Applications . . . Applications for new mortgage loans in the United States rose modestly in the latest week, the Mortgage Bankers Association of America said. The group's refinance index fell 1.6 percent while loans to buy a home rose 8 percent. The average rate for a 30-year mortgage fell to 5.33 percent from 5.37 percent a week earlier.
Financials . . . Washington Federal reported earnings of $36.4 million, or 52 cents per share, up from $35.9 million, or 51 cents per share in the year-ago period. The Seattle bank matched the earnings forecast of 52 cents per share.
Fannie Mae estimates cut at JMP Securities given the recent bond market bloodbath. JMP Sec believes FNM's net interest margin is likely to narrow more quickly than firm was previously assuming as the company layers in longer-term debt to fund what are now likely to be long-lived asset cash flows. Firm's FY03 est. goes to $7.15 from $7.65 and FY04 to $7.95 from $8.05. The Reuters Research consensus estimate for 03 is $7.40 and for 04 is $8.11.
J.P. Morgan, the nation's second largest bank, said improving conditions across its business lines boosted its second quarter net income 78 percent above year ago levels and blew past Wall Street estimates. The company earned $1.83 billion, or 89 cents per share in the quarter, ahead of the consensus estimate of 62 cents per share. In the year ago quarter, Morgan posted second quarter operating earnings, excluding merger and restructuring charges, of 58 cents per share. The company posted 2003 second quarter revenues of 8.6 billion, up from last year's $7.9 billion and ahead of the consensus $8.5 billion estimate. J.P. Morgan won't raise its dividend for at least the next few quarters. Several of J.P. Morgan's rivals including Citigroup and Goldman Sachs have recently boosted their dividend payouts in response to new tax legislation and investor demand for higher return on stock investments.
J.P. Morgan raised its rating on the nation's largest broker, Merrill Lynch, to "overweight" from "neutral". "Second quarter 2003 results were a clear display of the operating leverage Merrill has created, and continues to create since its fourth quarter 2001 restructuring initiative, J.P. Morgan said. The firm lifted earnings expectations to $3.40 from $2.90 for 2003 and to $3.80 from $3.30 for 2004.
Northern Trust said its second-quarter earnings nearly halved to $66.6 million from $126.8 million, or 30 cents per share. The bank said a 14 cents per share, or $50.9 million, restructuring charge to reduce operating costs impacted the results. Its adjusted earnings of 44 cents per share met analyst estimates, and compared to last year's EPS of 56 cents per share. Revenues from continuing operations of $551.2 million were virtually flat, and trust fees were down 2 percent to $293.9 million for the quarter.
Bank One second quarter earnings rose on the back of strength in retail and capital markets business. The company also raised it quarterly dividend to 25 cents from 21 cents. For the quarter, the company earned $856 million, or 75 cents per share, up from $803 million, or 68 cents per share a year ago. The consensus mean EPS estimate of Bank One analysts polled was 73 cents. The company also approved a new $3 billion stock buyback program.
Bear Stearns announced it has received subpoenas from the SEC, NYSE and NASD for documents of information in connection with their investigation on stock research. Lehman Brothers has also received requests from the NYSE, which is acting in coordination with the SEC and NASD, for information relating to initial public offering "spinning".
Knight Trading said aggressive cost-cutting and rising stock market volume and volatility lifted the company to a second quarter profit, its first quarterly profit in more than a year. The company earned $14.8 million, or 13 cents per share, including a $1 million, or 1 cent per share loss from discontinued operations. The consensus mean analyst estimate was 13 cents per share. Knight lost $23 million, or 19 cents per share in the year-ago period. Second quarter 2003 revenues were $159.4 million, versus $129.9 million a year ago.
SouthTrust posted second-quarter earnings of $174.8 million, or 51 cents per diluted share, a 9 percent gain year-over-year. Analyst earnings estimates were for 50 cents per share. The bank attributed increases in efficiency, loan production and credit quality for the growth. Non-interest income increased 22 percent in the second quarter to $195.7 million, while net interest income dipped to $419.7 million from $431.3 million.
Provident Financial Group reported lower second-quarter net income with the impact of a previously announced sale of $471 million of subprime residential mortgages at a $40.1 million net discount. It also notched a $19 million gain on the sale its Merchant Services business. The company reported second-quarter net income of $13.2 million, or 26 cents per share, compared with $23.2 million, or 46 cents per share in the year-ago period. The Cincinnati bank said its net income would have risen 17 percent to $27.4 million, or 54 cents per share, excluding the impact from the sales of the subprime mortgages and the Merchant Services business. The company matched the forecast of 54 cents per share.
Compass Banc reported earnings of $0.68 per share, $0.03 better than the consensus of $0.65. Revenues rose 5.0% year/year to $355.3 million versus the $358.7 million consensus.
Homestore.com and MSN enter multi-year relationship. The firm entered into an agreement to provide new home and apartment content for the House & Home channel on the MSN network, the top online destination worldwide with over 300 million unique users each month.
Sears credit business sale should help valuations of MBNA, Capital One, and Providian according to Goldman Sachs. The firm believes that the relatively high premium of 10% paid for the Sears credit biz underscores both the scarcity of credit card portfolios
Homebuilders . . . UBS issued an upbeat assessment of the homebuilders,. UBS feels that several catalysts for the group are on the way -- including more strong readings on housing starts and building permits -- and views current weakness as a buying opportunity. The firm said it expects a strong June quarter from the homebuilders and estimates 20 percent earnings-per-share growth in 2003. UBS' large-cap top picks are Lennar and KB Home while Meritage is a top pick in the small-cap category.
Comerica reported second-quarter earnings of $170 million, or 97 cents per share, up from its year-ago profit of $157 million, or 88 cents per share, and a penny ahead of the average estimate. The firm said its margins were hurt by historic lows in interest rates, resulting in a drop in net interest income to $493 million in the latest quarter from $531 million in the same period a year earlier.
Oil & Gas . . . The Wall Street Journal's "Heard on the Street" column discusses Devon's increase in stock price in relation to unusually high natural gas prices. However, the article points to prices climbing in conjunction with the company's costs prompting analysts concerns of what would fuel the shares in the event of natural gas prices dropping. RBC Capital Markets analyst states "break-even gas price is a lot higher than people think. Management has countered such statements by suggesting they are not high cost producers. The article also suggests the "good news" for companies like Devon is natural gas prices are projected to settle at an equilibrium price which is significantly higher than the 1990s norm.
Energy . . . Mirant will be removed from the S&P 500 following yesterday's bankruptcy filing. Warehouse owner ProLogis will be its replacement.
Dynegy was upped to In-Line from Underperform at Goldman Sachs. The upgrade is based on yesterday's announced CVX convert renegotiation.
Peabody Energy reported 2nd quarter earnings of $0.59 per share, excluding ex items, $0.34 better than the consensus of $0.25. Revenues rose 5.5% year/year to $693.2 million versus the $665.0 million consensus. The company sees 3rd quarter EPS of $0.25-0.40 versus consensus of $0.43, sees 2003 EPS of $1.60-1.75 versus consensus of $1.49.
Defense & Aerospace . . . General Dynamics reported net earnings of $242 million, or $1.22 a share, down from $1.29 a share in the year-earlier period, but above the average analyst forecast of $1.17 a share, helped by "significant" program wins in its information systems and technology division. Revenue rose 12 percent to $3.94 billion, exceeding analyst forecasts of $3.64 billion.
Transports . . . Ford reported net income of $417 million, or 22 cents a share, down from 29 cents a share in the year-earlier period, but above the average analyst estimate of 19 cents a share. Revenue fell 3.6 percent to $40.7 billion, amid a 7 percent decline in worldwide vehicle sales. Looking ahead, the automaker said it expects to lose 15 cents a share in the third quarter, wider than the loss of 12 cents expected by analysts, due to lower planned production volumes. For the full year, however, Ford said it remained "committed" to its earnings forecast of 70 cents a share.
AMR reported a second-quarter net loss of $75 million, or 47 cents a share, versus a loss of $495 million, or $3.19 a share in the year-earlier period. Excluding special items, such as a $358 million cash payment from the Transportation Security Administration, the loss for the quarter ending June was $2.26 a share. Total operating revenue declined 4.1 percent to $4.32 billion. The parent of American Airlines attributed the improved results to labor and nonlabor agreements reached during the quarter, which helped mitigate lackluster demand resulting from Iraq campaign and the outbreak of severe acute respiratory syndrome. The company added that its cash position at the end of June was $2.4 billion, up from $1.85 billion at the end of May.
Swift Transports was upgraded at CSFB to Outperform from Neutral. The upgrade was based on their belief that SWFT's senior management is now far more re-invigorated about improving operating margins and will find a better balance between revenue growth, pricing, and earnings. The firm raised target to $27 from $18.
Johnson Controls reported fiscal third-quarter net income of $190 million, or $2 a share, up from $1.85 a share in the year-earlier period as strength in its automotive systems unit and favorable currency exchange rates helped offset declines in worldwide vehicle production levels and weakness in non-residential construction markets. The results exceeded that average analyst earnings forecast of $1.88 a share. Revenue for the quarter ending June rose 13 percent to $5.96 billion, topping analyst expectations of $5.46 billion. The automotive systems supplier said it now expects sales growth to exceed 10 percent, versus prior forecasts of 5 to 10 percent growth, to reflect the assumption that the U.S. dollar remains at current levels.
Gentex, a mirror auto parts supplier and fire protection products maker, said second quarter net income rose 22 percent $26.1 million, or 34 cents per share. Revenue rose to $116.9 million vs. $97.3 million a year-ago. Looking ahead, the company said it's "cautiously optimistic about the last six months of calendar 2003 and... (is) currently is on track for growth in mirror unit shipments this year of approximately 15 percent."
Harley-Davidson said second quarter revenue rose 22 percent to $1.22 billion. Second quarter earnings per share rose to 66 cents versus last year's 47 cents. Looking ahead, H-D cautioned it expects gross margin during the second half of the year "will be lower than that in the first half due to pricing, product mix and startup costs associated with the new factory for Softail motorcycles in York, PA." HDI is raising its expectation for HDFS's total year 2003 operating income to be approx 40% higher than in 2002.
Midwest Express said that its labor unions had ratified cost savings agreements. "The ratifications are one of a number of objectives Midwest Express Holdings has said it needs to achieve to avoid filing for Chapter 11 bankruptcy," the company said.
Polaris Industries target raised to $79 at AG Edwards.
Consumer Durables . . . American Standard reported second-quarter earnings of $133.9 million, or $1.83 per share, up from its equivalent year-ago profit of $126.1 million, or $1.71 per share. The latest performance was a penny ahead of consensus estimate for the period. Sales jumped 9 percent in the latest three months from a year ago to $2.265 billion, driven by outperformance in its each of its three businesses, air conditioning, bath and kitchen products, and vehicle control systems. However, citing a current 'lack of economic vitality,' American Standard narrowed its earnings forecast for 2003 to between $5.40 to $5.50 per share. The company's previous outlook was for earnings of $5.40 to $5.80 per share. The current average estimate is for a profit of $5.55 per share.
Wedbush Morgan reiterated a Buy on Select Comfort and raised their target to $25 from $22 following yesterday's in-line results. The firm believes the company is just beginning the life cycle of its successful branding campaign, and management's strategic initiatives should continue to drive sales momentum and operating-margin improvement. In addition, on a PEG basis, SCSS is trading at just about 1x and at a lower multiple than some of the other high-growth opportunity retailers like 99 cents stores and A.C. Moore.
Food & Beverage . . . UBS upgraded Anheuser-Busch to a "buy" rating from a "neutral," lifted its price target to $61 from $52 and hoisted 2003 earnings-per-share estimates to $2.47 from $2.46 while 2004's were upped to $2.78 from $2.75. UBS believes that recovering volumes and improved pricing power will allow BUD to gain traction. UBS said it expects 12 percent-plus long-term earnings growth for the beer giant.
Coca-Cola Enterprises reported net income of $259 million, or 56 cents a share, up from 47 cents a share in the year-earlier period. Excluding favorable tax items, earnings were 54 cents a share, matching the average analyst forecast. Net operating revenue rose 9 percent to $4.62 billion, exceeding analyst expectations of $4.56 billion. Volumes increased 1.5 percent during the quarter, amid flat case sales in North America and 7.5 percent growth in Europe. The soft drink bottler said it expects to earn $1.15 to $1.22 a share for the year, surrounding analyst projections of $1.20.
Procter & Gamble is putting its Sunny Delight and Punica juice drink units on the block in favor of pouring resources into snacks and coffee. The consumer products giant said it has hired Goldman Sachs to help it sell the businesses as a group or as individual units. P&G wants out of juice-selling because "the business model is better for companies that have chosen juice beverages as a corporate priority," said President Jorge Montoya.
Retail . . . UBS raised its rating on Circuit City to buy from neutral overnight, partly citing Sears credit card portfolio deal with Citigroup that set a 10 percent premium. "In our view there may now be greater value in Circuit City's credit operations," UBS said.
Abercrombie started with Underweight at Morgan Stanley and $27 price target. The firm sees ANF as the "poster child for a retailer that is relying on a back-half economic recovery," and says the co is not prepared for what could be a promotionally-induced margin hit; since a cost-cutting opportunity is non-existent, firm sees ANF as a comp story, and would like the name more in the mid-$20s.
Whole Foods was upgraded at Adams Harkness to Strong Buy from Buy and raised their target to $63 from $55. The firm believes comps improved throughout the qtr due to an improved consumer environment, re-accelerating industry growth, a higher positive contribution from new stores in comp base, and an improving sales trends at the three Harry's. The firm also cited valuation.
Tractor Supply was cut to Hold at BB&T. Although the company reaffirmed 2003 EPS guidance, even at the high end of guidance the back half of 2003 sets up for a rather abrupt slowdown in overall top- and bottom- line momentum, to 10% EPS growth on 8% sales growth. The firm also says valuation is full on a historical basis.
Apparel . . . Oakley reported second-quarter net income of $18.2 million, or 27 cents a share, down from 32 cents a share in the year-earlier period, and below the average analyst estimate of 29 cents a share. Net sales fell 0.9 percent to a less than expected $143.8 million, reflecting the "tepid" retail sales environment in the U.S. and adverse weather conditions. Meanwhile, international sales achieved record results. The sunglasses maker lowered its 2003 sales growth outlook to approximately 10 percent but reiterated its earnings forecast of 55 to 60 cents a share.
Oakley was cut to Sell from Hold at WR Hambrecht. The firm reiterated a$9.50 target.
Reebok cut to Equal-weight from Overweight at Morgan Stanley based on valuation.
Restaurants . . . Yum! Brands reported 2nd quarter EPS before unusual items of $0.48, beating our estimate and the consensus by $0.02. The upside surprise versus our model was primarily driven by lower than expected G&A expense. The company reaffirmed its full year EPS guidance of at least $2.00 and guided 3rd quarter expectations to $0.52. Yum also released period 7 (first 4 weeks of 3rd quarter) sales. Blended U.S. comps were flat with Taco Bell up 2% (versus up 9%), Pizza Hut up 4% (versus down 2%) and KFC down 7% (versus up 3%). Full 3rd quarter comps are projected to up 3%. International sales were up 3% in local currencies (versus up 14%) and rose 10% in dollars. The company continues to execute against its multi-branding and international expansion strategies. At quarter end, multi-branded units totaled 19% more than year-earlier levels and international unit counts were up 6%. Yum continues to generate significant cash flows, paying down $153 million of debt in the quarter and repurchasing $34 million of stock. Cash balances totaled $190 million at year-end. Yum remains one of our leading
candidates among restaurants to initiate a cash dividend over the next 18-24 months.
Healthcare . . . Johnson & Johnson was downgraded by Bank of America Securities to a "neutral," with the firm indicating that it's struggling to "find a catalyst" for the drug titan that will move it out of it current trading range. BofA also lowered its second-half profit forecast and sliced its price target to $58 from $70 following J&J's profit report on Tuesday.
Caremark Rx was cut to Equal-weight at Morgan Stanley based on valuation. The ffirm thinks investors should no longer be putting new money to work in the PBM group due to current valuation.
Johnson & Johnson upgraded at Thomas Weisel to Outperform from Peer Perform. The firm believes that Procrit is beginning to win back some of its lost accounts, because its Medicare reimbursement rate provides better economic incentive to oncologists, and they think that the recently-reported lower PRCA new cases further mitigates risk. In addition, the cmpany's 2nd quarter update indicates likely maintenance of other key franchises in the face of mid-term patent expirations, and the longer-term pharma pipeline is finally beginning to fill out.
Mediware Info Sysytems was started with a Buy at MDB-Analytic and $17 target. The upgrade reflects the company's sustainable long-term growth story, expanding leadership in blood bank clinical data mgmt, and their belief that regulatory growth drivers and its new product pipeline combine to target incremental market opportunities in excess of $200 million annually; firm also notes that the stock trades at 17.4x/13.3x their FY04/05 EPS estimates, with a sustainable 25% EPS compound annual growth rate.
American Pharma acquires marketing rights for 5 injectable products from Eli Lilly Canada.
Mid Atlantic Medical was downgraded at Banc of America to Neutral from Buy based primarily on valuation. The stock has increased 90% over the past 5 months and now carries a steep premium versus the managed care group average. The firm noted that the company also faces potentially increased competition in the Mid-Atlantic region from AET that could make it more difficult for MME to grow. Target is $54.
Medical Devices . . . St. Jude Medical reported second-quarter net earnings of $82 million, up 17 percent compared with the $70 million reported in the year-ago quarter. Earnings-per-share totaled 43 cents in the second quarter, up 13 percent over the 38 cents posted a year ago. The results were in line with the estimate. The company's sales totaled $495 million, up 23 percent from the $404 million reported in the year-ago quarter. Looking ahead, St. Jude said it expects earnings for the third quarter to fall in the range of 43 cents to 45 cents a share and continues to expect earnings-per-share of $1.75 to $1.80 for the full year. That compares to the 45 cents a share and $1.78 a share expected by First Call.
Aspect Medical Systems (brain monitoring technology) said its second-quarter loss narrowed from a year ago due to a combination of higher revenue and gross margins, and lower operating expenses. The company reported a loss of $1.8 million, or 9 cents per share, on revenue of $10.7 million for the three months ended June 28. In the same period a year earlier, it lost $3.7 million, or 20 cents per share, on revenue of $10.1 million. Looking ahead, Aspect forecast a loss of 9 to 13 cents per share on revenue of between $10 million and $11 million for the third quarter.
Immucor (blood transfusion-related products) reported fourth-quarter operating results that fell a penny short of Wall Street's consensus view and reduced gross margin targets for fiscal 2004 to reflect fluctuations in instrument revenue and lower mark-up on sales of its reagent products through third-party distributors in Europe. The company reported earnings of $4.2 million, or 31 cents per share, on revenue of $26.3 million, for the three months ended May 31. In the same period a year earlier, it earned $2.8 million, or 23 cents per share, on sales of $23.5 million. Immucor said the combined impact of a number of items in the latest quarter boosted earnings by 3 cents per share. Backing out these items, the company earned 28 cents per share, a penny below the average estimate. Looking ahead, Immucor dropped its gross margin target for 2004 to between 57 and 59 percent, and forecast earnings for the year of $1.20 to $1.28 per share on revenue ranging from $108 million to $111 million. Wall Street's current consensus view for the year is for a profit of $1.28 per share on revenue of $109.3 million.
Drugs . . . Credit Suisse cut its overweight of pharmaceuticals to 15 percent from 40 percent. Credit Suisse noted that the pharmaceutical industry is becoming a regulated industry, amid Maine's drug plan, the threat of drug re-importation from Canada, U.S. Congress generic reform, further oversight from the Food and Drug Administration and Medicare reform. "Regulated industries cannot have pharma company type margins or value creation," it said.
Pharm Resources upped to Buy at Wells Fargo Sec. The upgrade from Hold is based on view that resolution of the ribavirin litigation adds necessary certitude to PRX's future earnings. Firm also raising estimates to account for shared exclusivity between PRX and Geneva Generics to market generic Rebetol: 2003 goes to $3.10 from $2.65 and 2004 to $3.30 from $2.80. Firm establishes a target of $66 (20x 2004 est, which is in line with peer group avg of 19.8x).
Thomas Weisel Partners downgraded Pfizer to a "peer perform" rating from an "outperform," citing competitive threats to many of the company's brands -- including Lipitor, Viagra and Diflucan -- which it feels raises risks to earnings.
Bentley Pharm started with Strong Buy at Roth and $19 target. The firm expects EPS to grow 69% annually through 2005, with momentum driven by the company's specialty drug operations in Spain and increasing royalties from licensed products in the US utilizing the co's patented penetration excipient, CPE-215.
POZEN and GlaxoSmithKline to proceed with Migrain collaboration. The expiration of the Hart-Scott-Rodino Antitrust Improvements Act waiting period triggers $25 million in initial payments to POZEN by GSK and allows the two companies to actively begin the collaboration for the clinical development and commercialization of the relevant combinations of MT 400.
Biotech . . . Abgenix will receive a milestone payment from Pfizer triggered by Pfizer's filing of an investigational new drug application with the U.S. Food and Drug Administration. Abgenix said Pfizer's filing represents the second antibody product candidate to enter clinical studies from the companies' antibody research collaboration. Abgenix's antibody research alliance with Pfizer started in December 1997.
Ribapharm received adverse decision in patent dispute. The company says it plans to appeal a decision that granted defendants Three Rivers, Geneva Pharmaceuticals and Teva Pharmaceuticals their motion for summary judgment of non-infringement of the asserted patents in the patent infringement suit brought by Ribapharm and ICN Pharma (ICN).
Orchid Biosciences was awarded immigration testing contract by Norwegian government.
Genzyme reported net income of $70.8 million, or 32 cents a share, up from 23 cents a share in the year-earlier period, citing strong product sales and favorable currency exchange rates. Excluding non-recurring items, earnings were 34 cents share, exceeding the average analyst forecast of 32 cents. Revenue rose 30 percent to $347.7 million, topping analyst projections of $316.4 million. Looking ahead, the biotech firm adjusted its full-year earnings forecast to $1.30 to $1.35 a share from $1.25 to $1.35, versus analyst estimates of $1.30.
Cypress Biosciences was started with Market Outperform at Rodman & Renshaw. Price target $11. The upgrade is based on Phase II clinical data, firm believes that milnacipran could become the first safe and effective drug for Fibromyalgia Syndrome, and calculates that milnacipran could achieve sales of $1 billion in the U.S. market. In addition, firm believes that mgmt is capable of repeating the value creation process it saw with milnacipran with yet-to-be-identified drugs for other indications.
Media . . . Knight Ridder reported net income of $77.2 million, or 95 cents a share, up from 90 cents a share in the year-earlier period, as strength in general advertising sales and cost controls helped offset lackluster retail results and continued softness in help-wanted advertising. Analysts were expecting earnings of 93 cents a share, on average. Total operating revenue rose 0.9 percent to $721.6 million, roughly in-line with the $722.6 million expected by analysts.
Vivendi has formally rejected MGM's upped $11.5-billion bid for their entertainment unit.
Storage . . . EMC said second-quarter profit rose to $82 million, or 4 cents a share, compared with just $1 million, or breakeven, a year ago. That beat the 3-cent consensus of analysts. Revenue climbed 7 percent to $1.48 billion from $1.39 billion a year earlier. The comapny also sees 3rd quarter EPS of $0.04 versus consensus of $0.04, and revenue of $1.45-1.5 billion versus estimate of $1.49 billion.
Network Equipment . . . Sanders Morris Harris analyst Natarajan Subrahmanyan reiterated his "buy" rating on Cisco Systems and raised the price target to $21. He is citing the belief that Cisco could report fiscal fourth quarter revenue that is slightly above his estimate.
SG Cowen says that Samsung and Motorola (50% of the CDMA market) reports last night reinforced firm's price pressure thesis. According to firm, handset sales were down nearly 30% in June Quarter, which suggests Qualcomm's (QCOM) handset sales could go to 20 mln from 25 mln in March Qarter. This suggests a 3 million chipset build at time co is supposed to be depleting inventory.
Lucent Technologies warned late Tuesday that fiscal third quarter losses would be wider than expected citing weakness in its wireless business. The company no longer expects to return to profitability in fiscal 2003. CS First Boston analyst James Parmalee reiterated his "hold" rating on the stock but cut his price target to $1.80 from $2.05.
Motorola reported second quarter earnings that topped recently lowered expectations but indicated that third quarter results would fall short. Samuel May at USB Piper Jaffray followed by downgrading the stock to "market perform" from "outperform," citing the "challenging" second-half outlook and valuation. May has a $10 price target.
Qualcomm increased its quarterly dividend by 40 percent to 7 cents a share, payable Sept. 26 to shareholders of record on Aug. 29. "As a result of our very strong cash position and the recent change in the U.S. tax law making the distribution of dividends more efficient, we are pleased to increase the cash payout to shareholders," said CEO Irwin Mark Jacobs, the wireless technologies company's chairman.
Andrew Corp trades off on Lucent warning. LU is largest customer.
A.G. Edwards downgraded Echelon to "hold" from "buy," due primarily to valuation. The company announced that it was working with a Dutch utility company to examine deploying its networked energy services system. While Analyst Brett Miller believes the company will garner a disproportionate share of the device networking market, but current valuations, which are "at the high side of our comfort range," justify a "hold" rating.
Motorola reported 2nd quarter results in line with expectations, after the company had lowered guidance in early June. Total revenues were $6.2 billion versus revenue estimate of $6.2 billion and company guidance of $6.0 – 6.2 billion. Revenues were down 10% year/year but up 2% quarter/quarter. EPS excluding charges was a profit of $0.01 versus consensus estimate of break-even. Anlaysts are slightly lowering 3rd quarter 2003 revenue estimate from $6.41 billion to $6.34 billion, especially as the company’s handset revenue estimates for the third quarter are aggressive. Based on the company’s guidance, handset revenues should be up at least 17% quarter/quarter, which is likely unachievable, despite the weak 2nd quarter 2003. Handset shipments were 15.8 million versus 16.7 million in both 1Q03 and 2Q02. As a result, we believe that ASP’s were flat sequentially. Based on results from SonyEricsson and Nokia (which are expected to be up quarter/quarter in unit shipments when the company reports), Motorola is losing share in accounts, particularly in Asia, but to a lesser extent in the U.S. and Europe.
The semis division saw 2nd quarter 2003 revenues of $1.12 billion slightly above expectations of $1.08 billion. Particularly worrisome were weak bookings in the segment, which led to a book-to-bill of approximately 0.9. On the margins side, anlaysts are quite disappointed by the lower than expected margins in the semis business, which were minus-12.0% versus our expectation of minus-7.4%. Although Motorola’s valuation appears to be only slightly aggressive based on DCF analysis (at $10, MOT shares are discounting 9% revenue growth over the next ten years, 10% operating margins, a 4% terminal growth rate), need to see some stronger signs of recovery in the overall business and less uncertainty about the wireless infrastructure segment’s future in order to become more positive.
Semiconductors . . . WR Hambrecht commented on WLAN exit for Inegrated silicon. From a stock price perspective, firm believes that decision to sell its WLAN business to GlobespanVirata as a positive move from a stock price perspective, as it removes the overhang on stock stemming from an intense competitive environment in WLAN, while creating a pure analog play. Firm notes that it is surprised by the cheap valuation assigned to the business of 1.5x 2003 sales (notes that last year RFMD purchased Resonext at 5-8x 2003 sales). By exiting WLAN, the company can now focus on its more profitable analog business. Furthermore, analysts are positive on near term trends in WLAN, the transaction extricates the company from longer term concerns regarding pricing and profitability in the competitive WLAN chipset market. The company also gave positive preliminary results for its June Quarter indicating that results are expected to be above the guidance range of 5-7% sequential growth given last quarter, with 3 of its 4 product groups growing by greater than 10%.
M-Systems reported 2nd quarter loss of $0.01 per share, $0.02 better than the consensus of ($0.03). Revenues rose 74.1% year/year to $25.6 million versus the $24.0 million consensus.
RF Micro Devices was upped to Outperform at Thomas Weisel upgrades from Peer Perform on view that fundamentals have realigned and gross margins have turned the corner.
Bear Stearns is upgrading Intel from Peer Perform to Outperform. BS highlights that they are not making an absolute performance call on the stock, but a call that Intel will outperform the semiconductor sector. BS raised EPS estimates from $0.61 to $0.70 for 2003, and from $0.82 to $0.97 for 2004. The increase in estimates primarily reflects higher gross margin assumptions, which are now 56.0% and 57.0% for 2nd half 2003 and 2004, respectively, up from 51.8% and 52.6%. We have also raised revenue estimates slightly for 2nd half 2003 and 2004. BS end-2003 target price of $28 (based on 28x our proforma 2004 EPS estimate of $1.01) implies upside of 16% from the prior close. BS is aware that valuation could be an issue, BS is comfortable with our target multiple because: 1) proprietary semiconductor index is currently at 37x 2004E, therefore Intel's 28x is a significant discount; 2) The median forward P/E multiple for Intel for the past five years is 29x; 3) We now estimate higher earnings growth of 52% and 39% in 2003 and 2004 respectively. Intel's 2nd quarter 2003 results demonstrate Intel's execution in a period when a recovery in IT spending is a question mark. Intel has the potential to get significantly more leverage from its business model once IT spending does indeed accelerate. BS believes the stock will outperform the semiconductor universe with some absolute upside.
Intel reported 2nd quarter 2003 revenues of $6.82 billion (up 1.0% Quarter over Quarter), beating estimates of $6.70 billion and the company's $6.6-$6.8 billion guidance range. EPS of $0.14 also beat expectations of $0.13. Gross margin of 50.9% was higher than our estimate of 50.0%, and higher than guidance of "50% plus or minus a couple of points" that the company had re-iterated at its mid-quarter update. Intel guided for 3rd quarter 2003 revenues in the $6.9-$7.5 billion range. The mid-point of the range, at $7.2 billion, implies sequential revenue growth of 5.6% Quarter over Quarter (+1.2% to +10.0% Quarter over Quarter). Intel’s revenue is forecasted to grow 6.5% Quarter over Quarter in 3rd quarter 2003 to $7.26 billion, higher than the mid-point of the range, and estimate EPS of $0.19. Looking into 2nd half 2003, expect Intel to perform in line with seasonality, with possible upside due to notebooks being better. Remember notebook checks in Taiwan point to better than normal seasonality for 3rd quarter, while motherboard checks point to normal seasonality. Intel's continued ramp of Centrino should make the company a prime beneficiary of the strength in notebooks, as it leads to a higher-ASP product mix.
Intel did note that the macro backdrop has not improved – the company is not seeing a major corporate upgrade cycle or IT budgets being raised. Intel's 2nd quarter 2003 results demonstrate Intel's execution in a period when a recovery in IT spending is a question mark. Intel has the potential to get significantly more leverage more from its business model once IT spending does indeed accelerate. Some of this potential is reflected in estimates for 2004, as we do estimate that PCs will revert to stronger unit growth in 2004 as compared to 2003. However, a significant corporate upgrade cycle is not reflected in 2004 estimates.
Intel significantly raised its gross margin guidance for the full year, to 54% “plus or minus a couple of points”, from its prior guidance of 51%. The increase was attributed primarily to lower start-up costs and higher expected revenue. The company pointed out that some costs will shift from the COGS line to the R&D line, leading to some gross margin improvement. However, we estimate this factor accounts for less than one percentage point of the improvement in gross margin for 2003, and believe most of the gross margin improvement is due to higher utilization rates, and will fall through to the bottom line and result in better-than-expected earnings.
Boxmakers . . . Cray was upgraded at Hambrecht to Strong Buy from Buy. Price target goes to $14 from $10.40. The firm is citing improved confidence in the X1 product line following generally positive reviews from client sites; over the medium-term, firm sees CRAY continuing to reclaim HPC mkt share, and sees steeper growth in the underlying HPC mkt than is currently assumed.
Software . . . PeopleSoft raised the final price it will pay for software maker J.D. Edwards to $1.8 billion, up from its previous bid of $1.75 billion.
Mercury Interactive reported results that topped expectations. Net income for the quarter ending June was $16.9 million, or 19 cents a share, down from 20 cents a share in the year-earlier period. Excluding non-recurring items, earnings were 22 cents a share, topping the average analyst forecast of 20 cents. Revenue rose 26 percent to $118.1 million, topping analyst expectations of $114.9 million, amid a 53 percent increase in application management product revenue and a 17 percent rise in application delivery revenue. Looking ahead, the company expects to report full-year earnings, excluding non-recurring items, of 90 cents to $1 a share and revenue of $480 million to $500 million, versus analyst forecasts of 90 cents and $478 million, respectively.
Network Associates reported net income of $1.1 million, or a penny a share, down from 14 cents a share in the same period a year ago. On a pro forma basis, which excludes non-recurring items, earnings were 11 cents a share, in line with the average analyst estimate. Revenue fell 7 percent to $216.6 million, just shy of the $218 million expected by analysts. Looking ahead, the provider of network security software projected earnings of 10 to 12 cents a share for the third quarter and 20 to 22 cents a share for the fourth quarter, below analyst forecasts of 13 cents and 24 cents, respectively. The firm sees revenues of $220-225 consensus $226 million. For 4th quarter NET sees EPS of $0.20-0.22 versus consensus of $0.24.
Merrill Lynch raised its rating on BEA Systems to buy and set a $15 price target on the stock. "The basis for the upgrade is renewed confidence in the July second quarter, the upcoming 8.1 product cycle, the company's strategic value, and improving field execution," Merrill said.
Parametric reported a GAAP loss of $0.13 per share, $0.01 worse than consensus of ($0.12). Actual, which includes restructuring and other charges, is comparable to recent guidance (July 2) of GAAP net loss per share of $0.12-0.14 and consensus estimates, which also include these charges. Revenues fell 7.2% year/year to $165.2 million versus the $167.1 mln consensus. Co also issues guidance, sees GAAP loss of $0.10-0.14 versus consensus of ($0.05), and revenues of $160-170 mln versus estimate of $169 million.
Internet . . . FindWhat.com completed a 1 million share private placement.
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