From Briefing.com: 4:20 pm : After witnessing their first down week since late September, the pendulum swung back to favor the bulls Monday amid resurgence in M&A activity, some upbeat Fed speak and strong sector leadership.
The absence of potentially disruptive economic reports also gave investors the green light to get back into equities, especially since so much weaker than expected data of late have prompted investors to question the sustainability of market gains.
The Dow snapped a six-day losing streak while the S&P 500 and Nasdaq posted their biggest one-day increases since October 12.
Just four days after reports showed private equity firms set a new record for fund raising ($178 bln), several firms went on a shopping spree Monday. Among the most notable deals was the proposed $3.7 bln buyout bid for Four Seasons Hotels (FS 82.31 +18.44). The deal includes investors ranging from current CEO Isadore Sharp to Saudi Prince Alwaleed Bin Talal and Microsoft (MSFT 28.86 +0.13) Chairman Bill Gates.
In addition to a renewed focus on hotels as potential takeover targets, the Consumer Discretionary got an additional lift from restaurants. After consulting with Wachovia Securities (WB 55.16 +0.86), OSI Restaurants (OSI 39.75 +7.32) agreed to be taken private for roughly $3.0 bln.
A $2.2 bln offer for Swift Transportation (SWFT 29.85 +5.80) that includes backing from Morgan Stanley (MS 76.15 +1.87) also helped to renew optimism that more M&A deals are on the horizon, providing a floor of support for the broader market and especially the brokerage firms positioned to benefit. To wit, Financials provided some influential leadership and got some added support late in the day as Treasuries turned positive. As a reminder, the 10-year note on Friday plunged 30 ticks, the biggest decline since July 21, 2005, lifting its yield to 4.71% and taking a toll on rate-sensitive stocks.
Other M&A announcements included Abbott Laboratories' (ABT 47.45 -0.19) $3.7 bln bid for Kos Pharmaceuticals (KOSP 77.06 +26.97) and McKesson's (MCK 49.61 +1.09) $1.8 bln offer for Per-Se Technologies (PSTI 27.50 +3.05).
Of the nine sectors closing higher, Technology paced the way to the upside, getting a big boost from bellwether Cisco Systems (CSCO 24.68 +0.91). The stock, which is also a suggesting holding in the Briefing.com Active Portfolio, surged 3.8% and hit an intraday 52-week high ahead its Q1 report on Wednesday.
Even Energy participated in Monday's broad-based rally. Crude for December delivery, which was off more than 1.0% at $58.50/bbl early on after threats of attacks on oil facilities in Nigeria failed to materialize, closed up 1.6% at $60.07/bbl. Aside from some short covering, OPEC suggesting some members may take further action to reduce output at the December meeting if the market doesn't become more balanced provided a floor of support for the commodity. Fortunately for the bulls, the Energy sector took notice and, because of its leadership as a large contributor to the overall earnings picture on the S&P 500, helped investors temporarily look past oil's potential to sustain inflation pressures.
Providing an additional vote of confidence that left investors less anxious about Tuesday's midterm elections were comments from Chicago Fed President Michael Moskow. Albeit a non-voting Fed official this year (he votes in 2007), Moskow's hawkish remarks took a back seat to the market's preoccupation with economic growth. As a result, Moskow saying that he does "not see the slowing in housing markets spilling over into a more prolonged period of weakness in the U.S. economy overall," lent some additional relief and eased concerns about the severity of the economic slowdown. BTK +1.2% DJ30 +119.51 DJTA +1.8% DJUA -0.5% DOT +1.6% NASDAQ +35.16 NQ100 +1.7% R2K +1.4% SOX +1.8% SP400 +1.1% SP500 +15.48 XOI +1.3% NASDAQ Dec/Adv/Vol 922/2152/1.82 bln NYSE Dec/Adv/Vol 805/2469/1.38 bln
10:01AM Micron and Intel announce they are ahead of schedule on their development of the NAND flash memory joint venture, IM Flash Technologies (MU) 14.05 +0.07 : Intel (INTC) and Micron announce they are ahead of schedule on their development of the NAND flash memory joint venture, IM Flash Technologies. Since the formation of IM Flash in January, the companies have brought online a state-of-the-art 300 millimeter (mm) NAND fabrication facility in Manassas, Virginia, and a Lehi, Utah, 300mm facility is on track to be in production early next year. Additionally, Micron and Intel introduced in July the industry's first NAND flash memory samples built on 50 nanometer (nm) process technology. Both companies are sampling 4 gigabit 50nm devices now, with plans to produce a range of products, including multi-level cell NAND technology, starting next year. Intel and Micron also announced their intent to form a new joint venture in Singapore that will add a fourth fabrication facility to their NAND flash memory manufacturing capability, subject to execution of final agreements for creation of the joint venture co.
9:28AM Carrier Access announces the appointment of COO (CACS) 6.16 : Co announced that Allen Snyder has been appointed as executive vice president and chief operating officer. Prior to joining Carrier Access, Snyder was the chief operating officer of Openwave Systems (OPWV).
8:05AM MIPS Techs selected by TXN for low-power IP phone solution (MIPS) 7.41 : Co announces that Texas Instruments has licensed the MIPS32 24Kc processor core for its newest generation of Gigabit Ethernet IP Phone System-on-a-Chip. TXN's TNETV1051/1052/1053 devices are dual-core communications processors based on a 300 MHz MIPS32 24Kc core and TXN's 150MHz C55x DSP, and are optimized with a comprehensive suite of IP phone applications software. TXN's integration of the high-performance, low-power MIPS32 24Kc core onto the platform helps reduce the cost, development time, power consumption and complexity of IP phone solutions and accelerate manufacturers' time-to-market.
7:32AM Brooks Automation announces sale of Brooks Software division to Applied Materials (BRKS) 13.49 : Co announces the signing of a definitive agreement under which Brooks will divest and sell its software division, Brooks Software, to Applied Materials (AMAT). Brooks Software is a provider of real-time applications for greater efficiency and productivity in collaborative, complex manufacturing environments. Under the terms of the definitive agreement, which was approved by the board of directors of both cos, Applied Materials will pay Brooks Automation $125 mln in cash for the Brooks Software Division.
7:00AM Virage Logic: Ikanos selects Virage Logic as trusted IP partner, inks three-year full access deal (VIRL) 9.67 : Co announces that that Ikanos Communications (IKAN) has selected Virage Logic as a trusted IP partner. Expanding on its longstanding relationship, the new three-year agreement calls for Ikanos to have access to the complete Virage Logic IP offering - including embedded memories, standard cell libraries, and I/O libraries - on various process technologies from 180-nanometer (nm) to 65nm for multiple foundries.
10:10 am XM Satellite Radio (XMSR)
13.27 +1.88: XM Satellite Radio reported a narrower loss for the third quarter to beat Wall Street's expectations, helped by strong subscriber growth and increases in average revenue per subscriber. Its stock traded sharply higher on the news, gaining more than 16% in early-market activity.
Shares of the company have languished in recent months, as the high cost of attracting new subscribers and acquiring new content continue to weigh on company fundamentals and investor sentiment. The stock has lost about 53% since the beginning of the year, and is down about 7% since we last outlined our bearish opinion in June. With stiff competition and rising costs continuing to weigh on prospects, we would remain on the sidelines.
For its most recent quarter, XM Satellite posted a net loss of $83.8 million, or ($0.32) per share, compared with a loss of $131.9 million, or ($0.60) per share, in the year ago period. Revenue rose 57% year/year to $240.4 million, driven by a sharp boost in subscriptions for the company's satellite radio service. Analysts on average were expecting a wider loss of ($0.45) per share on sales of $234.8 million.
XM Satellite recorded 868,007 gross subscribers during the quarter, finishing the period with approximately 7.2 million subscribers. However, the company said the cost of acquiring new users rose to $60 from $53 last year, as it continues to invest in new technologies and programming entertainment.
Based on the latest results, XM Satellite expects to end the year with total subscribers of between 7.7 and 7.9 million, up from its prior guidance of 7.7 to 8.2 million. Given the expected increase in subscriber additions, the company projected full-year revenue in a range of $810 to $815 million. Analysts, however, are looking for full-year revenue of $920.96 million, according to Reuters Estimates.
--Richard Jahnke, Briefing.com
09:32 am Four Seasons Hotels (FS)
63.87: Shares of Four Seasons are becoming as pricey as their hotel rooms in pre-market trading after the luxury hotelier received a $3.7 bln bid from a management-led group that includes Bill Gates and Prince Alwaleed bin Talal. The offer of $82 per share in cash reflects a 28% premium to the stock's closing prices on Friday. The buyout is another in a string of takeovers as real estate prices in the world's largest cities are on the rise and construction costs soar. Shares in the Toronto-based company, which owns 74 hotels around the world, skyrocketed 28% in pre-market trading.
The offer comes from a group including Four Seasons Chairman and CEO Isadore Sharp, controlling shareholder Triples Holdings Ltd, Kingdom Hotels, which is owned by Prince Alwaleed bin Talal, and Cascade Investment, which is owned by Bill Gates. Sharp said in a statement that the deal is "the best way to preserve and expand the long-term strategy, vision, and core values of Four Seasons." He went on to say the deal was the only "one I am prepared to pursue."
The deal, subject to shareholder and regulatory approval, would result in Triples holding 10% of the shares, with the balance split between Kingdom Hotels and Cascade. The company is scheduled to release its third quarter results before the market opens on Thursday. Back in August, its second quarter results bested expectations by four cents with per share profits of $0.46. While a stronger Canadian dollar created some headwinds, higher revenues and cost management yielded a 150 basis point margin improvement in the quarter. At the time, management raised its full year outlook driven by healthy industry fundamentals, luxury segment strength, and year-to-date performance. Shares have risen 45% to date.
--Kimberly DuBord, Briefing.com
09:10 am Overstock.com (OSTK)
17.78: Shares in Overstock.com Inc. lost over 15% in premarket trade after the bargain online retailer reported a third quarter loss of $1.19 per share, $0.36 worse than the Reuters Estimates consensus of ($0.83). Revenues fell 6.3% year over year to $158.7 million versus consensus of $182.7 million as visits to the company's site didn't necessarily result in purchases.
For the first time in the company's history, quarterly revenue decreased compared to the prior year. In a press release, Company Chairman and Chief Executive, Patrick Byrne, characterized the results as "poor."
Byrne said that early fourth quarter revenue continues to lag slightly behind last year's revenue, although improvement is expected to be seen into the holiday season. Depending on how the next few quarters play out, the company may or may not need to raise cash in 2007, he said.
Negative earnings, profit margin and operating margin explain why OSTK's stock has lost almost 50% of its value in the 52-week period. Then there's the fact that this small-cap stock with a market cap of about $366 million has a towering $85 million in debt. Even at current levels, the stock is no bargain.
--Christine Marie Nielsen, Briefing.com
09:03 am El Paso Corp (EP)
13.91: El Paso, the owner of the largest natural gas pipeline network in the US, posted a profit of $135 mln on higher shipping rates and prices. Third quarter profits reached 18 cents per share, a penny ahead of expectations, compared to a loss of $321 mln or $0.50 per diluted share for the same period in 2006. The results included $48 mln, or 4 cents, of re-tax non-cash mark-to-market (MTM) gains on derivatives for its natural gas hedging program.
The year ago period included costs associated with asset sales and a drop in its hedging contract. This quarter, El Paso piped in revenues of $1.0 bln, compared to $752 mln in the prior year. Its pipeline business led the way, reporting a 12% increase in EBIT (earnings before interest and taxes) to $305 mln. The implementation of new rates, along with sales from additional capacity and ongoing pipeline expansion projects drove the performance. Total throughput rose 7% to 22,375 BBtu/d.
The Exploration & Production unit suffered a decline due to the MTM losses on derivatives. Production grew slightly to 744 mln cubic feet equivalent per day (MMcfe/d), up 3% from the prior quarter and 7% from last year. Last year's hurricanes are still having an impact, as shut-ins and production delays shaved 25 MMcfe/d this year. Natural gas prices were about on par with last year, while total per-unit cash costs increased to $1.95 per Mcfe or 12% due to higher lease operating costs related to an acquisition and GOM repairs.
Today's results demonstrate El Paso's ongoing success of its restructuring program implemented under new leadership. The company, which carries about a third of US gas supplies, has been selling off assets to reduce debt and expand its investment in power plants and energy trading. The stock has gained almost 15% to date, inline with Kinder Morgan (KMI), and well above gains in Williams Cos (WMB) of 7%. Mother Nature is dictating the fates of all natural-gas leverage plays this time of year, as the question remains whether colder temps will be able to burn off record storage levels. EP trades at 11.2x forward earnings, offering a dividend of 1.15%.
--Kimberly DuBord, Briefing.com
08:49 am Marvel Entertainment (MVL)
25.05: Marvel Entertainment said Monday its third quarter profit fell 44% from a year ago, due in part to lower contract renewals for its character licenses, but managed to beat Wall Street's expectations. The company, which lends its more than 5,000 characters, such as Spider-Man, X-Men and Daredevil, to licensing, publishing, and toy development, also raised its outlook for the full year, sending shares higher in pre-market activity.
Despite the better than expected report, however, we continue to hold a neutral view on the stock, as Marvel continues to shift its focus on being a comic book publisher and licensor to a movie production studio.
For the latest quarter, Marvel posted net income of $13.2 million, or $0.16 per share, compared with $23.4 million, or $0.23 per share, in the year ago period. However, analysts were expecting a more modest profit of $0.12 per share, according to Reuters Estimates. Sales totaled $92.2 million, up 14% from $81.1 million last year, as lower licensing sales were offset by strong gains in toys and publishing.
Marvel said licensing sales fell 14.6% to $28.3 million, due to lower new and renewal contract sales. Meanwhile, publishing sales rose 19.8% to $30.9 million, and toy sales were up 49% at $33 million. Operating margin in the toy segment, however, shrank as the company transitioned to making its own toys instead of hiring a toy licensee to do so.
Based on the better than expected results, Marvel raised its financial outlook for the full year. The company now expects to earn between $0.61 and $0.64 per share on sales of $330 to $340 million, versus its previous estimate of earnings of $0.50 to $0.60 per share on sales of $320 to $350 million. Analysts expect a full year profit of $0.59 per share on sales of $336.01 million. For fiscal 2007, the company forecasted earnings in a range of $1.35 to $1.55 per share on sales between $375 and $435 million, while analysts are looking for earnings of $1.22 per share and sales of $459.76 million.
--Richard Jahnke, Briefing.com
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