From Briefing.com: 4:56PM Weekly Wrap: It was all about biding time this week as the market continued to look ahead to next week's key events, namely the FOMC meeting, the restoration of sovereignty to Iraq, and the June employment report. The waiting period, however, wasn't marked with total disinterest as a number of favorable earnings announcements and a resurgence of buying interest in the influential semiconductor sector, which drove the SOX Index up 5.7%, created some excitement.
The Nasdaq and the Russell 2000, which are populated with a number of technology stocks, stole the show this week as far as the major indices are concerned, having rallied 1.9-3.0%. Participants, apparently, scrapped some of their recent risk aversion and chased some beaten down names in aniticipation of a better performance in Q3, which begins next week. The Russell 2000, we should note, experienced a late surge of buying on Friday related to a reconstruction of the index that was finalized after Friday's close.
The rebound plays weren't limited exclusively to the aforementioned areas. Some noticeable gains were also registered by the brokerage stocks, as reassuring earnings reports from Morgan Stanley (MWD) and Goldman Sachs (GS) induced some bargain hunting activity based on the belief that the market's current concerns about the industry's earnings prospects in the changing interest rate environment are somewhat overdone.
The AMEX Securities Broker/Dealer Index gained approximately 3.0% and provided a welcome dose of support for the broader market along with the regional bank group, which got a boost from takeover speculation that followed Monday's announcement from Wachovia (WB) that it would be acquiring SouthTrust (SOTR) for $14.3 bln.
The energy, steel, diversified metals, aluminum, homebuilding, biotech, gold, building materials, and transportation groups were some of the other standouts. The latter group rallied in the wake of a strong earnings report from FedEx (FDX), which was replete with increased guidance for fiscal Q1 (Aug), another dip in oil prices that was helped along by the settlement of a strike in Norway, and the recognition that the leading transport index was breaking out to a new 52-wk high.
The laggards of note included the hypermarkets & supercenters, broadcast & cable TV, managed health, food distributor, general merchandise, drug, entertainment, publishing, integrated telecom, and advertising groups. Within those areas, Wal-Mart (WMT) and AT&T (T) were story stocks of interest. The former fell 4.7% in the wake of a judge's ruling that a sex discrimination suit against the company could move forward as a class action; meanwhile, the latter dropped 9.3% after lowering its FY04 revenue outlook due to ongoing pricing pressure, recent changes in FCC policies, and new product initiatives.
Their losses, though, pale in comparison to Career Education Corp. (CECO), which plummeted 20% on the pernicious announcement that it received a formal order of investigation from the SEC. That daunting news cast a pall on the entire post-secondary education group with peer companies like Corinthian Colleges (COCO) and Apollo Group (APOL) dropping 8.1% and 7.9%, respectively.
There was a limited flow of economic data this week, but what there was can be characterized as mixed. New home sales and existing home sales both hit record levels in May; initial claims rose 13K to 349K, but were pretty much in line with expectations; and the durable orders (-1.6% vs consensus +1.5%) and final revision to Q1 GDP (to 3.9% from 4.4%) reports were both disappointments.
The Treasury market took some comfort in the mixed bag of data as it tempered concerns about the FOMC being aggressive with its rate hikes. In turn, the market was also underpinned by some flight-safety buying that was precipitated by coordinated bombings in Iraq and Turkey and the brutal beheading of a South Korean worker in Iraq. For the week, the yield on the 10-yr note fell 7 basis points to 4.64%.-- Patrick J. O'Hare, Briefing.com
3:25PM Silicon Image (SIMG) 11.97 +1.73: Silicon Image raised Q2 revenue guidance after the close on Thursday. Revenue is expected to be $41.595-43.03MM (+71.2-77.1% Y/Y) vs. prior guidance of $36.2-39.1MM (+48.8-60.7% Y/Y) and consensus at $39.83MM. Q3 revenue is expected to be $43.675-47.333MM (+80.5-95.6% Y/Y) vs. consensus at $42.95MM.
The following table shows price multiples and Y/Y growth rates for SIMG compared against peers in the semiconductor group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Rev Growth (%) TTM 2004E 2005E TTM 2004E 2005E Silicon Image (SIMG) 3.0 (31.1) 7.6 5.3 4.1 28.6 53.4 29.6 Analog Devices (00C) 3.7 20.4 7.4 6.2 5.1 26.3 36.9 22.0 Genesis Microchip (GNSS) 1.8 (86.7) 2.2 1.8 1.5 (17.4) 17.3 23.3 National Semiconductor (NSM) 3.1 22.4 3.9 3.2 2.8 10.2 23.9 11.3 Pixelworks (PXLW) 2.3 79.9 4.7 3.6 2.8 36.9 44.1 27.3 ATI Technologies (ATYT) 1.7 22.1 2.5 2.2 1.9 0.3 35.2 13.3 Broadcom (BRCM) 3.0 (55.5) 7.7 5.5 4.6 58.4 60.7 19.7 nVidia (NVDA) 1.2 38.8 1.8 1.6 1.5 9.1 14.3 7.2 STMicroelectronics (STM) 1.5 59.7 2.5 2.1 1.9 16.2 23.9 13.6 Texas Instruments (TXN) 2.3 24.2 4.0 3.2 2.8 20.9 32.3 15.8 Trident Microsystems (TRID) 4.2 n/a 5.3 5.3 3.6 (8.0) 2.5 48.2 Semiconductor Components 2.5 29.6 4.2 n/a 18.3 n/a *P/SG Ratio: Normalized trailing 12 month (Price / Sales) / Growth ratio as of June 18, 2004. **P/OPG Ratio: Normalized trailing 12 month (Price / Operating Income) / Growth ratio as of June 18, 2004.
Shares trade at a premium to peer group and, based on our inverted EVA/DCF model, are priced for sustained upper 20% to 30% revenue growth from F06 assuming 20% operating margin; management's near-term target is 20% operating margin. Implied growth rate falls to lower to mid 20% assuming 25% operating margin. Improved revenue momentum favors continued upward bias but upside is limited given high expectations priced into shares. Would not chase; wait for a 10-15% pullback.--Ping Yu, Briefing.com
12:24PM Hewlett-Packard discovers design flaw in 3rd-party memory modules used in notebook PCs (HPQ) 20.85 -0.17: Co announced that during routine testing of notebook PCs, the company identified a design flaw in certain notebook memory modules used across the industry that could potentially cause users to experience serious problems with their notebooks. The memory modules in question are not manufactured by HP and were supplied by third parties.
8:04AM Aeroflex to divest shock and vibration control biz (ARXX) 12.21: Company announces its decision to divest its shock and vibration control device manufacturing business, which had sales of $11.4 mln and operating income of $479,000 for nine months ended March 31, 2004, and to seek a strategic buyer. Co's strategic direction is to dedicate its resources to growing its automated test and microelectronic solutions businesses. Co's shock and vibration control biz does not represent a significant portion of its consolidated operating results.
8:02AM SanDisk and SiliconSystems Sign Cross License Agreement Covering Flash Patents (SNDK) 22.06: According to the terms of the agreement, SanDisk and SiliconSystems will be cross-licensed to use flash system patents of both companies for specifically defined product applications. Details of the agreement are confidential.
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