U.S. stocks dropped, sending the S&P 500 Index and the DJIA to their biggest losses in more than four months, on concern that economic and profit growth this year will be disappointing. Shares of companies that provide raw materials, including chemical maker DuPont and Alcoa, the world's largest aluminum producer, led the retreat. The S&P 500 lost 16 points (-1.5%) to 1123. The S&P 500 has jumped 39 percent from its 2003 low on March 11. Profit growth for the benchmark's members will slow to 13 percent this year from 18 percent, according to Thomson Financial, and could stifle the stock rally. The DJIA shed 160 points (-1.5%) to 10,296. Both indexes had their biggest declines since Oct. 22 and fell for a third consecutive day. The Dow erased its gain for the year. The Nasdaq 31 points (-1.6%) to 1964. The benchmark is down 61 percent from its record of 5048 reached four years ago today. Three stocks dropped for every one that advanced on the NYSE, the broadest decline since July 17. Some 1.7 billion shares changed hands on the Big Board, 14 percent more than the three-month daily average.
Strong Sectors: household & personal products Weak Sectors: internet, networking, semiconductor, software, telecom, biotech, drug, banking, industrials, gold, oil services, transportation, broker/dealer, aluminum, iron & steel, metal mining, coal
Top Stories . . . The U.S. trade deficit widened to a record $43.1 billion in January, as exports of foods, consumer goods and auto parts declined and prices of imported oil rose, a government report showed.
The dollar rose against the euro in New York on speculation the U.S. economy will grow faster than Europe, where Germany is struggling to emerge from recession.
Bank of America's securities unit agreed to pay $10 million to settle U.S. Securities and Exchange Commission allegations that the firm failed to furnish documents to the SEC staff during an investigation.
Lucent Technologies, the biggest U.S. telephone-equipment maker, had its credit rating raised to B by Standard & Poor's because slumping demand in the telecommunications industry has stabilized.
Microsoft, Time Warner's America Online, Yahoo! and Earthlink, the four largest U.S. Internet mail providers, sued hundreds of bulk e-mail senders under a new U.S. law designed to curb spam.
Pfizer, the world's largest drugmaker, said the Justice Department is investigating how the company marketed two medicines and a federal grand jury is seeking information on Rezulin, a diabetes drug.
Quotes of Note . . . ``We've come very far and are facing a decelerating trend in earnings in the next few months; the market is going to price that in. The market has been expensive for a while.'' Owen Burman, who helps manage $1.2 billion as chief investment officer at Riggs Investment Advisors in Washington, D.C.
``We've had such tremendous fiscal stimulus in 2003 and this is going to come to a screeching halt in 2004,'' said Charles Minter, chairman of Comstock Partners Inc., which manages $120 million.
Mortgages . . . Applications increased for the fourth consecutive week, according to the Mortgage Bankers Association, depressing 30-year fixed-rates to 5.34% from 5.49%. The applications index rose 1.2% in the week of March 5th with the purchase index rose 1.4%. Refinancing increased a moderate 1.0%, adding fuel to consumer spending. The share of loans going to refinancing fell to 56.1 percent from 56.4 percent. The share of loans with adjustable rates fell to 28.1 percent from 28.8 percent.
Martha Who? . . . The New York Times highlights Chris Casson Madden, the author of 16 books on the home, who is trying to do for J. C. Penney what Martha Stewart did for Kmart. In May, Penney will introduce over 1,700 products, everything from bath towels to furniture, that Ms. Madden and her staff designed and that will be called the Chris Madden With J. C. Penney Home Collection. . According to the paper, unlike Kmart's deal to have Ms. Stewart design linens, kitchenware and other goods, Penney is not giving Ms. Madden exclusive domain. The company has also hired Colin Cowie, a television lifestyle personality, as its spokesman for bridal products. Also Barbara Smith, the restaurateur, and Katie Brown, an author of decorating books, who have both put in their time on cable television, say they have been barraged by calls from networks, venture capitalists, furniture companies and people from Hollywood scouting the contenders to Ms. Stewart's throne.
PC Growth . . . Worldwide PC shipments are projected to grow by about 11 percent in 2004 and 2005 before slowing to roughly 8 percent through 2008, according to a survey by IDC. Shipment value is expected to grow by more than 5 percent for the next two years, followed by growth of roughly 3 percent through 2008. "The PC market recovery seems to be in full swing," said IDC director Loren Loverde. "While some caution remains, the key trends we saw in 2003 - aggressive pricing, improving business spending, and consistent growth in portables - should keep overall growth in double digits for the next couple of years."
Mobile Growth . . . A record 520 million mobile phones were sold in 2003, up 20.5 percent on 2002, Gartner research said, citing strong replacement demand in mature markets and higher than expected growth in emerging markets. "2003 sales surpassed industry expectations with the fourth quarter presenting a challenge to many vendors as they struggled to meet supply," said Ben Wood, principal analyst at Gartner. "This unprecedented demand is set to continue in 2004 with the first quarter already looking strong. We've increased our market estimate for 2004 to 580 million units." Finland's Nokia remained the leader, but, on a worldwide basis, it suffered a decline in market share to 34.7 percent from 35.1 percent share in 2002. Motorola was second with a 14.5 percent share, down from 16.9 percent in 2002. Germany's Siemens was fourth at 8.4 percent from 8 percent. No. 3 Samsung gained share to 10.5 percent from 9.7 percent in 2002.
Eco Speak . . . Inventories at U.S. wholesalers grew 0.1 percent in January, but sales increased even faster at 0.6 percent, helping keep the inventory-to-sales ratio to a record low 1.17, the Commerce Department reported. Inventories were 2.3 percent higher than a year earlier. Sales were up 7.6 percent since January 2003. In January, inventories of durable goods increased 0.6 percent. Sales of durable goods rose 0.2 percent. The inventory-to-sales ratio for durable goods remained at a record low 1.47 set last month. Inventories of nondurable goods decreased 0.6 percent. Sales of nondurable goods increased 1.0 percent. The inventory-to-sales ratio for nondurable goods fell to a new record low of 0.89.
The U.S. trade deficit widened by 0.9 percent in January to a record $43.1 billion. The widening of the trade deficit was unexpected. The consensus forecast of Wall Street economists was for the deficit to narrow slightly to $41.9 billion. Both imports and exports fell in January, but exports fell faster than imports. Imports fell 0.5 percent to $132.1 billion. Exports fell 1.2 percent to $89 billion. This is the largest decline in exports since last August. The U.S. trade deficit with China widened to $11.5 billion in January compared with $9.4 billion in the same month last year. The January petroleum deficit of $10.8 billion was the highest since last March.
Financials . . . Janney downgrades Sovereign Banc to Hold from Buy and cuts their target to $24 from $26, as they now assume the stock will remain trading at a P/E discount this year due to its acquisition pace. The firm had been assuming some multiple expansion, but now assume none due to the added risk the acquisitions bring, particularly given the high prices being paid. Also, firm says the co appears to be a buyer rather than a seller in the near-term, and thus a takeover premium would be inappropriate for SOV at this time.
Friedman Billings Ramsey reiterates their Outperform rating on Capital One. The firm raises their 2004 EPS estimate, and raises their target to $85 from $83 after the company reported stronger than expected credit statistics. The firm says Feb's managed net credit losses reached 4.75%, down 25 basis points from Jan's 5.0% -- the lowest level in 18 months; also, delinquencies also saw a continued improvement of 25 basis points, falling to 4.14% in Feb from 4.39% in Jan.
The Financial Times reports that Fannie Mae paid a net $25.1 billion on derivatives transactions in under four years, nearly all of which may represent losses that cannot be recouped, in turn depressing future earnings. The potential scale of the liabilities have yet to be recognized in the company's earnings or in the minimum capital adequacy required by its regulator. It raises fresh doubts about the financial health of the mortgage finance giant. According to the article, Fannie Mae acknowledges it has taken losses in its derivatives trading that have not yet been recognized in its earnings, but declines to disclose the amount. An independent analysis of Fannie's accounts suggests it may have incurred losses on its derivatives trading of $24 billion between 2000 and 3Q03. Any net losses will eventually have to be recognized on Fannie Mae's balance sheet, depressing future profits. "They have used the derivative accounting rules for cash flow hedges to defer some losses that they have taken," said John Barnett, senior analyst at the Center for Financial Research & Analysis, an independent research firm. "They may not be as well-capitalised as they appear to be for regulatory purposes."
Fannie Mae does not have $25 billion in unrealized losses as a report in the Financial Times alleged, the mortgage giant said Tuesday. The story said Fannie Mae paid a net $25 billion on derivatives since 2000 - nearly all of which may represent losses that cannot be recouped. The story said the losses could reduce future earnings. In a statement, Fannie Mae's Investor Relations chief, Jayne Shontell, said the story used "an wholly invented methodology...(that was) flawed and the subsequent implications are wrong." Shontell said the company would clarify its financials in a regulatory filing next week.
Capital One released its monthly managed data for February today. Credit quality and loan growth were better than expected. Managed receivables grew during the month, reflecting we believe reduced seasonality as the company's portfolio continues to shift away from card loans which typically experience seasonal pay downs early in the year. The managed chargeoff rate declined to 4.75% in February from 5.00% in January and an estimated 5.10% in December. Dollar chargeoffs declined during the month to about $282 million from about $296 million in January and an estimated $298 million in December. The managed delinquency rate declined to 4.14% at the end of February, from 4.39% at the end of January and 4.50% at December 31. Dollar delinquencies declined to about $2.96 billion from about $3.12 billion at the end of
January and about $3.21 at the end of December. Credit quality and loan growth during February were both better than we had expected. Growth in non-card loans seems likely to continue to offset normal seasonal pay downs of card balances. Analysts are raising 2004 EPS estimate to $5.54 from $5.45 and are establishing a 2005 EPS estimate of $6.20 to reflect faster portfolio growth and better than expected credit trends. Analysts are maintaining a Peer Perform rating as they expect COF shares to remain near recent levels.
Oil & Gas . . . El Paso will delay the release of its fourth quarter 2003 earnings, which is currently scheduled for March 11, 2004, pending the completion of a review of the impact of its recently announced reserve revision.
Arch Coall’s new 10-K disclosed the company's intention to sell Triton Coal Company's Buckskin mine to Kiewit Mining Company for $82 million. The transaction is contingent upon the completion of Arch's acquisition of Vulcan Coal Holdings, which owns the equity of Triton Coal Company and the Buckskin and North Rochelle mines. Analysts are not surprised by the proposed Buckskin sale and believe it was always Arch’s intention to sell Buckskin to the highest bidder. Analysts are not convinced Arch’s standing with the FTC has become any clearer in light of this fact, and would caution investors from reading too much into the proposed Buckskin sale. If approved the acquisition will be financed through cash, revolver, and line of credit. At December 31, 2003 Arch had available liquidity of $580 million; Cash $254 million, Revolver $306 million (Including LC's), Line of Credit $20 million. After the proposed acquisition Arch would have $298 million in available liquidity. Market fundamentals remain very strong and the pricing outlook is positive. CAPP is especially tight with current NYMEX spot prices at $53 per ton. Arch will use liquidity to develop its Dal-Tex mine in the east. The underground mine at Dal-Tex will replace the depleting Mingo Logan. The lower cost surface mine is the company's real focus but presents permitting troubles. Arch appears to be the highest valued stock in the universe trading at a forward multiple of 7.6x 2005 estimate (ex Triton). The group is trading at an average of 6.0x our 2005 estimate. Shares rose after the proposed Buckskin sale; however, the Triton acquisition could still present issues.
Paper . . . UBS sees the recent pullback in the Paper & Forest Products sector as a buying opportunity. The firm believes this was driven by speculation by at least one firm that Weyerhaeuser pushed out the March containerboard price increase. UBS says this does not appear to be the case. WY's 10-K filed Friday indicates an intent to follow the $40/ton March increase with $10/ton for April. GP, IP and TIN previously announced $50/ton increases. The firm believes the weakness in containerboard stocks creates an opportunity to take positions in the strongest grade in the industry. Demand is tracking ahead of year-ago levels and inventories are near a nine-year low. Also, higher wastepaper costs should provide leverage for implementing the price increase. The firm favors Smurfit-Stone, Intl Paper and WY.
Imaging . . . The Wall Street Journal reports that in a move to protect its intellectual property related to digital imaging, Eastman Kodak has sued rival camera-maker Sony in claims that the Japanese electronics maker violated 10 patents issued by Kodak between 1987 and 2003 related to image compression, digital storage and other digital camera and video technologies. The lawsuit, which seeks unspecified monetary damages and an injunction against further infringement, underscores the increasingly competitive nature of the digital-camera market.
Defense & Aerospace . . . Titan announced that it was awarded an indefinite-delivery, indefinite-quantity Program Management Multiple Award Contract -- having a potential ceiling value of up to $460 million over five years -- to provide Naval Air Systems Command support services for all phases of naval aircraft and aviation weapon systems.
Goldman Sachs downgrades Raytheon to Underperform from In-Line and cuts 2004-05 EPS estimates below consensus. The firm says valuation appears expensive on all metrics with the stock trading at 25x their 2004 estimate (versus 18x for peers) and 20x their 2005 estimate (versus 17x for peers). Also, the biz jet recovery has yet to take hold, with the medium aircraft segment (RTN's primary segment) showing the least amount of improvement in the used market, and management's guidance for 2004 assumes no further problems at N.C.S. and Technical Services, which has been an over−optimistic assumption in the past.
Transports . . . According to WSJ's "Heard on the Street" column, after emerging from bankruptcy-court protection nearly a year ago, US Airways is scrambling for its survival again. "It became pretty obvious the original plan wasn't going to work," says David Bronner, CEO of the airline's largest investor, Retirement Systems of Alabama, and nonexecutive chairman of US Airways. The co hasn't earned a dime from operations since it left court protection. "We've got to put something together fast," he says. "Red ink means problems." The smart money has been confounded before by US Airways. Hedge-fund managers Michael Steinhardt and Julian Robertson came to grief a decade apart over their big stakes in the company. Investor Warren Buffett ultimately made money on his big US Airways bet, but not before writing off 75% of its value and calling it a "mistake." British Airways, which bought a big chunk in the early 1990s as part of a marketing tie-up, ended up writing down its investment and dumping its marketing partner three years later. Competitors are buzzing that US Airways is headed back into Chapter 11. If it does, a new cast of shareholders could be as badly burned as their predecessors.
The New York Times reports that the Ford will license hybrid technology from the Toyota in a deal that could help establish Toyota's system as a standard for the industry. Ford will incorporate the Toyota technology into a hybrid system it plans to introduce late this year in a gasoline-electric version of its Escape sport utility vehicle, the two companies said yesterday in a statement. The Ford vehicle would be the first hybrid offered by an American carmaker and the first application of hybrid technology in a S.U.V. Powered by the combination of a gasoline engine and an electric motor. Kurt Sanger, auto analyst for ING Securities in Tokyo, said the importance of the deal with Ford was that "Toyota is setting the standard for the hybrid power train.'' "Toyota is making strides to build critical mass for its hybrid program,'' Mr. Sanger said.
Restaurants . . . Krispy Kreme reported earnings of $0.26 per share, ex items, in line with the consensus of $0.26. Revenues rose 35.7% year/year to $185.5 million versus the $184.9 million consensus. The company sees 2005 EPS of $1.16-1.18 versus the consensus of $1.18.
The WSJ's column "Ahead of the Tape" highlights Krispy Kreme. The sales performance was ostensibly solid and the co forecast that it would meet earnings projections for 2005. But, according to paper, there have been some cracks in the glaze, and these raise questions among investors about whether Krispy Kreme is the kind of growth story that deserves a stock price that is trading at 33x 2005 estimates. The increasingly likely scenarios seem to be that the multiple shrinks over time, which would mean the stock remains flat even if the earnings rise, or the co misses earnings estimates and the stock collapses. The main concern is that new stores seem to have lower average weekly sales than the older stores. Krispy Kreme stores no longer are opening with the blockbuster sales of old, nor are they getting the free media attention from the likes of local TV stations. J.P. Morgan's John Ivankoe, who rates the stock an "underweight," points out that the company plans to open 95 to 100 new stores this year, up from his expectation of 78 stores. He reads that as an attempt to hit earnings targets by accelerating new store development at a time when new stores sales are below expectations.
Retail . . . Merrill Lynch reiterates their Buy rating on Coach and raises their target to $54 from $45. The firm says they were impressed by their preview of fall 2004 products, and continue to believe the co has turned a corner, with a stepped up sense of fashion and newness that is matched by no one in the market today.
Talbots reported earnings of $0.38 per diluted share, $0.02 worse than the consensus of $0.40. Revenues fell 0.1% year/year to $431.5 million versus the $433.0 million consensus and the $433.8 million consensus.
Drugs . . . Abbott Labs announced that its current 5-year contract with the American Red Cross has been amended to supply a second infectious disease test for screening donated blood. Through this amendment, ABT will now supply the American Red Cross with the hepatitis B surface antigen assay, in addition to continuing to supply the test for HIV-1/-2 antibodies.
Serologicals' inked a multi-year distribution deal with Novo Nordisk. The agreement is for worldwide distribution of Serological's human recombinant insulin for use in cell culture media markets through 2006.
Healthcare . . . Tenet Healthcare sold off on heavy volume in early action. The stock fell more than 12 percent to $10.30, bouncing slightly after plumbing a 52-week low of $9.99 earlier in the session. Volume has already reached 8.9 million, almost 50 percent above its daily average of 6 million. Before Tuesday's opening bell, the company said 94 percent of the lenders involved in its revolving credit facility had agreed to amend certain terms of their agreement. Tenet said the changes include an increase in maximum leverage to 5.5 from 3.5, a lowering of the required fixed charge ratio to 1.5 from 2, and a reduction in total available under the line to $800 million from $1.2 billion. Also, the amended deal pledges the capital stock of certain operating units, and causes certain units to guarantee the company's obligations to the banks.
Medical Devices . . . Morgan Stanley upgrades Medtronic to Overweight from Equal-Weight and raises their target to $60 from $54. The firm's recent visit to Europe confirmed that the Driver stent platform could emerge as potentially the top drug-eluting stent platform in that region; with few holes in its CRM product line, the co should benefit from market expansion related to SCD-HeFT, and the spinal biz is looking more attractive as the first entrants in the US artificial disc implant market may not be as formidable as previously thought.
OraSure Tech announced that the U.S. FDA has approved the transfer of manufacturing of its OraSure HIV-1 oral specimen collection device from Oregon to the company's Bethlehem, PA facilities. With the receipt of these FDA approvals, the Company is now permitted to manufacture its OraSure and Western blot products in Pennsylvania. As a result of the transfer, company expects to add approximately 20 new manufacturing jobs at its Bethlehem, PA facilities.
Biotech . . . Geron and Merix Bioscience execute an agreement under which Geron has acquired the exclusive right to use Merix's platform technology in therapeutic cancer vaccines using the enzyme telomerase as an antigen. Under the agreement, Geron also obtained co-exclusive rights to use the Merix platform technology in cancer vaccines using other defined antigens. In addition, the cos have agreed to a cross licensing arrangement with respect to new technology in the field. Geron issued five million shares of its common stock to Merix.
Media . . . Viacom's Chief Executive Sumner Redstone said the company might seek to buy a cable-television operation. But Redstone said at an investor conference in Florida that no deals were "happening today," according to the story. Viacom does not "need distribution for defensive purposes," but the time might come "where we could decide ... for the future growth of Viacom we could add more distribution, for example, cable systems," the story quoted Redstone as saying. Redstone made it clear Viacom was not interested in acquiring satellite television service EchoStar Communications Corp.
Wachovia downgrades Lamar Advertising to Market Perform from Outperform based on valuation. The stock trades at 14.7x their 2004 EBITDA estimate and 18.1x 2004 free cash flow, which are discounts of 7% and 15% to peers. The firm believes that higher discounts are more appropriate given LAMR's ~20% slower growth versus peers. Valuation range is $41-$43.
RealNetworks' announced that consumer usage of its Rhapsody Internet jukebox service jumped more than 14% in February, with customers streaming more than 48 million songs on-demand. This is the ninth consecutive month of double-digit growth in consumer usage of Rhapsody.
Modem Media reported its 4th quarter 2003 results. Revenue and cash EPS in the quarter was $16.4 million and $0.06 (excluding one-time charges and using a normalized tax rate), respectively. Both revenue and EPS exceeded our estimates as the business appears to be on more stable ground. The demand environment appears to have stabilized over the last year. Encouragingly, the interactive marketing environment has likely bottomed and the company's pipeline is building. "Clients are cautiously optimistic" about 2004 and Modem is hiring as a result. However, we sense voluntary turnover could be an issue for Modem. Modem effectively managed its cost structure throughout a tough 2003 and should continue to produce healthy
operating margins for full year 2004. The company generated EBITDA margins of 21% this quarter. The company indicated its intentions to invest a couple million in additional business development efforts in 1st quarter 2003, which should depress margins somewhat for the quarter.
The company gave its guidance for 1st quarter 2004, expecting revenue to be between $15-$16 million and EPS to be in the $0.02-$0.04 range (we are at the top-end of both ranges). The company also guided for 2004 revenue to grow 10-15% and EPS to be $0.23 to $0.26 (after producing $0.21 in 2003). New top and bottom-line estimates for 2004 are $69 million (12% growth) and $0.24, respectively. The stock currently trades at 31.3x 2004 EPS estimate, a premium to the market and a broad group of peers. While the business fundamental are encouraging, look for a pull back before recommending the stock.
Omnicom gave an upbeat presentation at our media conference today. CEO John Wren was optimistic on the ad environment and commented that recent meetings with large advertisers suggest higher spending levels in 2004. He reiterated OMC's goal of double-digit revenue and earnings growth this year. New business activity is picking up and clients are finally focusing on driving top line growth. While OMC hopes to improve op margins this year through higher productivity and a more flexible cost structure, there are still some factors weighing on costs, particularly in 1st half 2004, such as ongoing reorganization in Europe, higher incentive and more cash compensation, and ongoing cost associated with Sarbanes Oxley. Mgt believes that
OMC ultimately can return to its historic peak profitability. The shift to more cash incentive compensation will continue over the next 2-3 years, although the biggest move was already made in 2003. Omnicom plans to release details later this week on its plans to expense stock options
(including pro forma historical numbers) which is expected to begin in 1st quarter. Estimate the dilution to be about 6.5% in 04, a level significantly less than most of its peers. OMC discussed its acquisition strategy noting that it expects to spend more on acquisitions this year than last, but
doubts it will return to peak levels. Cash flow is expected to be strong this year and management has no urgency to repay debt as they are comfortable with their capital structure leaving excess funds to invest in acquisitions even after dividends, share repurchases, and earnouts.
Hotel & Leisure . . . Six Flags to reached an agreement in principle for the sale of Six Flags Worlds of Adventure, located near Cleveland, Ohio, to Cedar Fair, L.P. The transaction contemplates a sale of substantially all of the assets of the park for a cash purchase price of U.S.$145 million. In addition, Six Flags announced that it had reached an agreement in principle to sell its European division to a private investment firm for a purchase price of U.S.$200 million. The transaction will not include company's interests in Warner Bros. Movie World Madrid.
Wells Fargo initiates two casinos with Buy ratings: Mandalay Resort Group with a $67 target and Ameristar Casinos with a $34 target. As for MBG, the co should continue to reap the benefits of recently completed capital improvement projects, which should lead to revenue growth, margin expansion, and significant free cash flow. As for ASCA, the co has benefited from lower interest rates, reducing its capital costs. Rising cash flows could lead to further debt reduction, acquisitions, or the initiation of a dividend.
Telecom . . . The Wall Street Journal reports that staff at the FCC have endorsed a Nextel plan that would allow the co to gain valuable new spectrum in return for protecting police and fire radios from interference by the co. According to article, Nextel could potentially pay more than the $850 million it originally proposed to do the job, and would be required to sign off on an open-ended commitment to pick up the tab for moving public safety radio to interference-free zones within the 800 MHz range of the radio spectrum. The FCC staff rejected Nextel's proposal to throw some less-valuable airwaves into the trading mix, focusing instead on the value of what Nextel will give up in the 800 MHz and what it will gain in the valuable 1.9 GHz range. At the same time, the staff rejected a proposal by Verizon Communications that would have simply required Nextel to reorganize the 800 MHz spectrum band to protect emergency responder radios without providing the co with 10 Mhz of new spectrum in the 1.9 GHz range.
Dow Jones reported on Tuesday evening that the FCC’s Wireless Bureau had circulated a draft recommendation among FCC commissioners that supported giving Nextel some amount of 1900 MHz spectrum in exchange for an open-ended commitment to fund a public safety transition to new spectrum bands. Nextel may not have to turn in its 700 and 900 MHz spectrum as part of the deal. The deal is not yet complete. The FCC commissioners will still need to sign off on the deal, and there has been extensive political pressure against the Nextel proposal. Getting the wireless bureau signoff was the first and possibly highest hurdle to approval. The report leaves a number of questions unanswered. 1) For how much could NXTL be on the hook? 2) Will NXTL get the entire 10 MHz of 1900 MHz spectrum if it doesn’t return the 700 and 900 MHz bands? 3) What will be the timing of Nextel receiving any 1900 MHz spectrum? 4) What will NXTL do with the
1900 MHz spectrum, and how will that affect the company’s financials going forward.
Getting this situation resolved will be positive for Nextel, and could be as much as a $2-3 billion boon to the company depending on how much spectrum it receives and the amount it is required to pay. Though Nextel has offered to pay $850 mm in the past we believe that the cost could reach as much as $2 billion instead. A successful swap would change our thinking in a few key ways: 1) Company would be less likely to bid for a competitor; 2) company is more likely to build a national CDMA or wimax broadband network, potentially dragging FCF due to high Capex requirements; 3) company becomes more valuable to a potential future acquirer as its spectrum can be used for CDMA or GSM.
Network Equipment . . . Corning enters into an agreement with Fuji Photo Optical for licensing the use of Corning patents concerning molded glass parts used for digital still cameras, display systems, and other products which require small, durable and quality optical lens systems. Details of this agreement are not disclosed.
Fulcrum believes Foundry's operating results should continue to benefit from the expansion of the 10 Gigabit Ethernet switching market. Price target $28.
Lucent credit rating raised to B at S&P, outlook goes to Positive from Negative.
Interdigital reports earnings of $0.02 per share, $0.04 worse than the consensus of $0.06. Revenues fell 8.9% year/year to $24.7 million versus the $27.8 million consensus. Company cites higher directors' and officers' liability insurance premiums, patent licensing costs, investments in product and technology development, trade show costs and consulting costs associated with a review and update of IDCC's strategic plan for shortfall.
UBS says its research suggests that Advanced Fibre Comms missed a milestone in the Verizon FTTP rollout. Specifically, based on the firm's discussions with industry sources, the firm believes the co failed to deliver FTTP equipment suitable for lab evaluation several weeks ago. Some may conclude that this delay has led to a re-bidding of the Verizon FTTP contract. However, the firm does not believe this has happened. On the other hand, if software issues are discovered that take several months to fix, then there is a risk Verizon may look to bring other vendor(s) back into the FTTP rollout plan.
CIBC suggests that Cisco's recent underperformance vs. the S&P is a potential negative indicator for the sector's overall macro outlook. If this persists, they expect rotation within the sector away from more speculative names. According to the firm, this may have recently begun. CIBC notes that broader-market investors are already rotating away from the sector - selling Cisco because its the only name they likely own. In the past, this has sparked a rotation within the sector. Investors have generally sold more speculative names and sought safety in Cisco. Speculative names did extremely well over the last 6 months due to increasing optimism about a spending recovery. With a more stable, but arguably more mixed macro outlook now, there seems to be less enthusiasm about future tech spending - as evidenced by macro-level investors selling out of Cisco.
Schwab Soundview says their European contacts suggest accelerating uptake with Research In Motion by U.K. and German enterprises; moreover, with aggressive promotions of the BlackBerry-enabled Nokia 6820 starting this month. The firm says subscriber net adds are likely to continue their positive trend. Maintains Neutral rating, raises 2004-05 estimates (2004 a penny above consensus, 2005 a nickel below), and raises their target to $100 from $48.
Semiconductor Equipment . . . Piper Jaffray initiates coverage of Entegris with an Outperform rating and $17 target. The firm believes that the co maintains a greater than 80% market share in wafer and reticle shippers and carriers (its core market), and enjoys the pricing power to enable protection of gross margins; also, firm anticipates further facilities consolidation, and believes that solid execution should eliminate this overhang on share price.
Semiconductors . . . SG Cowen says it expects quarterly updates from the semiconductor company’s to reflect continued improvement in fundamentals with the PLD company’s at least reiterating mid-single digit Quarter/Quarter revenue growth and National Semi beating numbers and guiding for more. NSM remains one of the firm's favorite investment ideas for 2004. The firm believes Altera, Actel will both reiterate 1st quarter revenue guidance there is a modest possibility that they tighten guidance to the upper end of their respective ranges.
The WSJ reports that Intel is notifying PC manufacturers and other customers in China that it will be unable to comply with a Chinese government technical requirement by June 1 and as a result may not be able to offer its Centrino products in China after that time. A company spokeswoman said Intel is working with the Chinese government to resolve the matter.
First Global said it believes the recent decline in Intel is "somewhat overdone" given the outlook on corporate information technology spending remains "quite positive." The firm said it would rate the chipmaker as a short-term "buy" with a price target of $33 to $34. The stock has dropped 18 percent since its Jan. 8 close of $34.24
Software . . . Merriman Curhan upgrades Oracle to Buy from Neutral and establishes a $16.50 target as the company continues to dominate the non-mainframe database market and is leveraging its large customer base to up-sell its Real Application Clusters database option and its 9iAS application server. The firm says 3rd quarter results should be in-line or ahead of expectations as channel checks suggest Oracle did well selling database licenses in 3rd quarter and the firm expects momentum to be sustained into the seasonally strong fiscal 4th quarter. The firm believes 4th quarter guidance should not disappoint. The $16.50 target is based on a P/E of 30x 2005 EPS estimate of $0.55.
Merrill Lynch upgrades Cadence Design to Buy from Neutral. The firm is citing valuation, their belief that the co will have addressed competitive issues this year, and their belief that bookings growth estimates are achievable this year; firm's view on the EDA as a whole group is that it still is in the early stages of an industry recovery. Target is $20.
Schwab Soundview initiates coverage on Micromuse with an Outperform rating and $12 target. The firm believes that the company's business is at a positive inflection point, with demand trends in telecom, enterprise, and government improving; at the same time. The firm says the company has a cost structure that should enable it to profit from these improving trends, and their inputs suggest the co is taking market share and benefiting from carriers rationalizing their network infrastructures and building out new services.
Hot Items - Check out the "Hot Items" page (updated daily)
Disclaimer: Due to the nature of the Internet, RobBlack.com and Goodwyn, Long & Black (GLB) does not make specific trading recommendations or give individualized market advice. Information contained in this publication is provided as an information service only. RobBlack.com and (GLB) recommends that you get personal advice from an investment professional before buying or selling stocks or other securities. The securities markets and especially Internet stocks are highly speculative areas for investments and only you can determine what level of risk is appropriate for you. Also, readers should be aware that GLB, its employees and affiliates may own securities that are the subject of reports, reviews or analysis within this publication. We obtain the information reported herein from what it deems reliable sources, no warranty can be given as to the accuracy or completeness of any of the information provided or as to the results obtained by individuals using such information. Each user shall be responsible for the risks of their own investment activities and, in no event, shall GLB or its employees, agents, partners, or any other affiliated entity be liable for any direct, indirect, actual, special or consequential damages resulting from the use of the information provided. Rob Black and (GLB) carry positions in many of the names reported on. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. RobBlack.com and Goodwyn, Long & Black Investment Inc. relies on information provided by corporations, news services, in-house research, published brokerage research, Edgar filings, and also may include information from outside sources and interviews conducted by ourselves. Readers should not rely solely on the information contained in this publication, but should consult with their own independent tax, business and financial advisors with respect to any investment opportunity, including any contemplated investment in any security.
Market Data 
Markets 
AI
