From Briefing.com: 7:00PM Daily Sector Wrap: A discussion of Best/Worst performing groups for Q2 : Looking at the top performers, one thing definitely stands out: selective stock picking was the key. The leader continued to be Energy (+6.98%), which looks like it could maintain this title through Q3. Industrials(+7.97%) recovered from a slow start in Q1. On the downside were the Financials (-2.94%); as interest rate hikes loomed, investors sold out of their positions. Also, considering Financials account for 21% of the S&P, we can see why the market struggled to make much headway. It's atypical to have a rising stock market led by the Energy sector without the upside performance in the Financials and Semis... see the Daily Sector Wrap for full report
Close Dow -51.33 at 10282.83, S&P -3.56 at 1125.38, Nasdaq -8.89 at 2006.66: The major indices picked up where they left off yesterday (down), although their losses were not nearly as large (-0.3% to -0.5%)... The June employment report proved to be disappointing to investors, although upon reflection, its numbers seemed to carry some positive implications for the market... Hence, today's pullback was fairly contained and orderly... Three out of the four components of the jobs data missed consensus expectations: average hourly earnings at +0.1% (consensus of +0.3%), average work week at 33.6 hours (consensus of 33.8 hours), and nonfarm payrolls at 112K (consensus of 250K)... The unemployment report (at 5.6%) was the only thing that met the consensus forecast... The indices turned south immediately following the numbers, but never traveled significantly below their opening lows - perhaps because investors reasoned that the Fed would be less inclined to tighten significantly off the data... The bond market also staged an impressive rally following the report - the 10-year note up 27 ticks - and helped bring interest rates lower... Hence, interest rate sensitive stock groups - like homebuilding, REIT, gold, and utility - attracted the interest of buyers...
The majority (health care, tech, retail, and industrial) of sectors did not, with the most significant laggard being semiconductor... A Deutsche Securities downgrade of Intel (INTC 26.30 -0.72) to Hold from Buy - citing supply chain uncertainties - brought that group down... SOX -2.1, NYSE Adv/Dec 2149/1149, Nasdaq Adv/Dec 1435/1588
3:59PM Maxtor (MXO) 6.30 -0.17: Maxtor lowered Q2 guidance after the close on Thursday. Management cited lower than expected unit shipments and an aggressive pricing environment; ASPs fell $4 Q/Q to $71. Management forecasts Q2 shipments to be approximately 11.6MM units. Pro-forma EPS is expected to be ($0.16-0.20) on revenue of $820-825MM vs. Reuters Research consensus at ($0.07) on $956.50MM. Gross margin is expected to be 9-10%. Operating expenses are forecast to be approximately $115MM.
The company implemented cost reduction measures to partially offset the impact of the expected shortfall. The company will eliminate 400-500 positions to further lower expenses. Reductions are expected to save the company $60-80MM annually when completed.
The following table shows price multiples and Y/Y growth rates for MXO compared against peers in the computer systems and peripherals group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Rev Growth (%) TTM 2004E 2005E TTM 2004E 2005E Maxtor (MXO) 0.3 12.6 0.4 0.4 0.4 13.2 2.2 3.2 Seagate Technology (00C) 0.8 8.8 1.0 1.1 1.1 0.5 (4.4) (3.9) Western Digital (WDC) 0.5 9.6 0.8 0.8 0.8 15.5 10.5 2.2 Komag (KOMG) 0.5 4.1 0.8 0.8 0.8 37.9 5.3 4.0 Computer Systems & Peripherals 1.1 17.7 1.5 n/a 9.7 n/a *P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of June 25, 2004. **P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of June 25, 2004.
MXO shares trade at a modest discount to peers and, based on our inverted EVA/DCF model, are priced for sustained upper single digits revenue growth from C06 assuming 5-6% operating margin. Shares are priced for substantial upside provided management moves to aggressively lower company's operating cost structure and improve operating margin. Improving end market demand, low growth and margin expectations, and ongoing cost reduction initiatives provides strong support for shares at current level. We would acquire position over time/write puts on shares.--Ping Yu, Briefing.com 3:08PM Tech Relative Value Ideas Performance Update The table below shows the updated performance, as of June 30, 2004, for companies highlighted in Relative Value Ideas on June 1, 2004. Return calculations are simple returns and are not time-weighted. The June 04 Focus List returned 2.7% vs. 2.9% for the Nasdaq Composite, (0.2%) for the SOXX, 2.3% for the Dow, and 1.8% for the S&P. Company Ticker *P/SG Ratio **P/OPG Ratio Date Price as of 06/30/04 Co Ind Avg Co Ind Avg Price % Change Adobe Systems ADBE 2.9 2.9 12.3 34.7 06/01/04 44.74 46.50 3.9 Altera ALTR 5.5 2.5 26.8 29.6 06/01/04 22.71 22.16 (2.4) ASM International ASMI 0.7 2.3 10.8 87.9 06/01/04 21.41 20.68 (3.4) Brooktrout BRKT 0.9 2.0 44.2 32.8 06/01/04 9.64 10.82 12.2 California Micro Devices CAMD 2.2 2.5 n/a 29.6 06/01/04 13.44 11.53 (14.2) Cedara Software CDSWF 3.0 2.9 23.4 34.7 06/01/04 6.80 7.70 13.2 Computer Services CSVI 0.7 1.0 6.2 17.9 06/01/04 33.75 38.00 12.6 Corrillian Corp CORI 2.3 2.9 16.7 34.7 06/01/04 5.03 5.04 0.2 Digital River DRIV 3.7 2.9 33.8 34.7 06/01/04 31.45 32.63 3.8 Ditech Comm DITC 3.5 2.0 19.8 32.8 06/01/04 19.88 23.34 17.4 Embarcadero Tech EMBT 3.1 2.9 30.8 34.7 06/01/04 11.30 12.36 9.4 II-VI IIVI 1.8 1.0 14.9 16.7 06/01/04 25.86 30.66 18.6 Plantronics PLT 2.5 2.0 15.7 32.8 06/01/04 40.13 42.10 4.9 SS&C Tech SSNC 2.9 2.9 12.4 34.7 06/01/04 22.74 18.70 (17.8) SupportSoft SPRT 2.7 2.9 20.7 34.7 06/01/04 9.65 8.68 (10.1) Tektronix TEK 1.8 0.9 21.5 64.8 06/01/04 31.70 34.02 7.3 WebEx Comm WEBX 1.8 1.0 10.3 17.9 06/01/04 24.00 21.76 (9.3) Average 2.7% Nasdaq Composite IXIC 2,047.79 2.9% Philadelphia Semi Index SOXX 485.09 (0.2%) Dow Jones Ind'l Avg DJI 10,435.48 2.3% S&P 500 SOXX 1,140.84 1.8% *P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of June 25, 2004. **P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of June 25, 2004.
The May 04 Focus List (Story Stocks, Relative Value Ideas on May 3, 2004) returned 8.2% vs. 5.6% for the Nasdaq Composite, 10.0% for the SOXX, 1.2% for the Dow, and 2.1% for the S&P.
Look for an updated list of names that we think are attractively priced on a relative value basis at the beginning of each month. We will also continue to highlight relative value ideas on the Story Stocks and Tech Stocks pages on a regular basis.
E-mail if you wish to receive notification when we post an updated list. Specify Relative Value Ideas in subject or body.--Ping Yu, Briefing.com
2:41PM Tech Relative Value Ideas Focus List Relative value is one way of identifying companies with potential for above average returns. It is based on the idea that company price multiples revert to the mean over time; i.e., companies trading at a discount to industry peers will move higher towards the average and companies trading at a premium will move lower.
The table below shows companies with improving operating performance that are attractively priced vs. industry comparables on a price multiples-to-growth basis. Companies are ordered alphabetically. Company Ticker Sector *P/SG **P/OPG Sales Growth (%) Co Ind Avg Co Ind Avg Co Ind Avg Adobe Systems ADBE Software & Program 2.9 2.9 12.3 34.7 26.3 7.2 ADTRAN ADTN Communications Eqpt 3.2 2.0 18.3 32.8 21.7 (3.3) Alliance Data Systems ADS Computer Services 1.9 1.0 14.2 17.9 24.4 4.0 Analog Devices ADI Semiconductors 3.7 2.5 20.6 29.6 26.3 18.9 ASM International ASMI Semi Cap Eqpt 0.7 2.3 10.8 87.9 23.1 0.0 California Micro Dev CAMD Semiconductors 2.2 2.5 n/a 29.6 37.5 18.9 CREE CREE Semiconductors 2.9 2.5 15.0 29.6 37.6 18.9 DSP Group DSPG Communications Eqpt 2.6 2.0 20.5 32.8 22.3 (3.3) Embarcadero Tech EMBT Software & Program 3.1 2.9 30.8 34.7 10.4 7.2 II-VI IIVI Scientific & Tech Instr 1.8 1.0 14.9 16.7 12.1 (1.3) Innodata Isogen INOD Comm Services 1.1 1.0 10.4 17.9 38.2 4.0 Intuit INTU Software & Program 2.0 2.9 12.3 34.7 15.3 7.2 Kulicke & Soffa KLIC Semi Cap Eqpt 0.5 2.3 25.9 87.9 30.7 0.0 Macromedia MACR Software & Program 2.1 2.9 26.0 34.7 9.7 7.2 Plantronics PLT Communications Eqpt 2.5 2.0 15.7 32.8 23.5 (3.3) Sigmatel SGTL Semiconductors 2.1 2.5 18.4 29.6 172.1 18.9 SupportSoft SPRT Software & Program 2.7 2.9 20.7 34.7 28.2 7.2 Texas Instruments TXN Semiconductors 2.3 2.5 25.1 29.6 20.9 18.9 Tibco Software TIBX Software & Program 2.7 2.9 31.5 34.7 13.4 7.2 TOM Online TOMO Computer Services 1.0 1.0 3.7 17.9 316.8 4.0 Transaction Sys Arch TSAI Software & Program 1.4 2.9 13.5 34.7 8.9 7.2 WebEx Comm WEBX Computer Services 1.8 1.0 10.3 17.9 34.1 4.0 Xilinx XLNX Semiconductors 4.1 2.5 23.4 29.6 20.9 18.9 *P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of June 25, 2004. **P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of June 25, 2004.
Adobe Systems (ADBE 45.04 -0.86): Trading at 7.0x F04 revenue of $1.576B (+21.7% Y/Y) and 6.4x F05 of $1.727B (+9.6% Y/Y); 27.6x F04 EPS of $1.63 and 25.4x F05 of $1.77.
ADTRAN (ADTN 32.79 -0.13): Trading at 5.4x C04 revenue of $1.070B (+23.5% Y/Y) and 4.8x C05 of $1.306B (+13.9% Y/Y); 31.2x C04 EPS of $1.05 and 27.6x C05 of $1.19.
Alliance Data Sys (ADS 41.31 -0.69): Trading at 2.7x C04 revenue of $1.249B (+19.9% Y/Y) and 2.4x C05 of $1.391 (+11.4% Y/Y); 29.7x C04 EPS of $1.39 and 26.3x C05 of $1.57.
Analog Devices (ADI 44.12 -0.73): Trading at 7.9x F04 revenue of $1.070B (+36.9% Y/Y) and 6.5x F05 of $1.306B (+22.1% Y/Y); 27.2x F04 EPS of $1.62 and 19.7x F05 of $2.24.
ASM Int'l (ASMI 19.84 -0.31): Trading at 1.0x C04 revenue of $1.052B (+48.7% Y/Y) and 0.8x C05 of $1.230B (+16.8% Y/Y); 14.6x C04 EPS of $1.36 and 12.0x C05 of $1.65.
California Micro Devices (CAMD 10.43 -0.33): Trading at 3.1x F05 revenue of $92.33MM (+% Y/Y) and 3.1x F06 of $92.33MM (+% Y/Y); 22.2x F05 EPS of $0.47 and 15.1x F06 of $0.69.
CREE (CREE 21.80 -0.08): Trading at 3.1x F04 revenue of $302.89MM (+31.8% Y/Y) and 3.1x F05 of $390.49MM (+28.9% Y/Y); 30.7x F04 EPS of $0.71 and 22.5x F05 of $0.97.
DSP Group (DSPG 25.96 -0.50): Trading at 4.4x C04 revenue of $179.32MM (+17.3% Y/Y) and 3.8x C05 of $208.25MM (+16.1% Y/Y); 24.7x C04 EPS of $1.05 and 21.1x C05 of $1.23.
Embarcadero Tech (EMBT 12.00 +0.00): Trading at 5.1x C04 revenue of $60.74MM (+17.0% Y/Y) and 4.5x C05 of $69.57MM (+14.5% Y/Y); 32.4x C04 EPS of $0.37 and 27.3x C05 of $0.44.
II-VI (IIVI 29.22 -0.73): Trading at 3.0x F04 revenue of $147.19MM (+14.8% Y/Y) and 2.6x F05 of $166.93MM (+13.4% Y/Y); 26.3x F04 EPS of $1.11 and 22.0x F05 of $1.33.
Innodata Isogen (INOD 3.90 -0.10): No estimates available.
Intuit (INTU 37.88 -0.01): Trading at 3.5x F04 revenue of $1.863B (+12.9% Y/Y) and 2.7x F05 of $2.041b (+9.5% Y/Y); 23.0x F04 EPS of $1.65 and 19.8x F05 of $1.91.
Kulicke & Soffa (KLIC 10.00 -0.27): Trading at 3.5x F04 revenue of $769.56MM (+55.7% Y/Y) and 2.7x F05 of $798.32MM (+3.7% Y/Y); 8.1x F04 EPS of $1.24 and 7.9x F05 of $1.26.
Macromedia (MACR 23.16 -0.12): Trading at 3.5x F05 revenue of $421.83MM (+14.1% Y/Y) and 2.7x F06 of $475.48MM (+12.7% Y/Y); 28.6x F05 EPS of $0.81 and 22.7x F06 of $1.02.
Plantronics (PLT 41.99 +0.20): Trading at 4.0x F05 revenue of $488.12MM (+17.1% Y/Y) and 3.6x F06 of $558.43MM (+14.4% Y/Y); 27.1x F05 EPS of $1.55 and 22.7x F06 of $1.85.
Sigmatel (SGTL 27.00 -1.06): Trading at 3.5x C04 revenue of $161.20MM (+60.8% Y/Y) and 2.7x F05 of $203.61MM (+26.3% Y/Y); 24.3x F04 EPS of $1.11 and 20.3x F05 of $1.33.
SupportSoft (SPRT 8.42 -0.15): Trading at 6.1x C04 revenue of $67.36MM (+26.4% Y/Y) and 4.9x C05 of $83.00MM (+23.4% Y/Y); 24.8x C04 EPS of $0.34 and 24.1x C05 of $0.35.
Texas Instruments (TXN 23.02 -0.52): Trading at 3.0x F04 revenue of $13.015B (+32.3% Y/Y) and 2.8x F05 of $15.089B (+15.9% Y/Y); 31.x C04 EPS of $1.05 and 24.8x C05 of $1.37.
Tibco Software (TIBX 8.01 +0.06): Trading at 3.5x F04 revenue of $371.92MM (+40.8% Y/Y) and 2.7x F05 of $471.33MM (+26.7% Y/Y); 36.4x F04 EPS of $0.22 and 26.7x F05 of $0.30.
TOM Online (TOMO 12.84 -0.24): Trading at 3.5x C04 revenue of $123.00MM (+39.5% Y/Y) and 2.7x C05 of $162.48MM (+32.1% Y/Y); 14.1x F04 EPS of $0.91 and 11.2x F05 of $1.15.
Transaction Sys Arch (TSAI 20.79 +0.25): Trading at 3.5x F04 revenue of $147.19MM (+6.2% Y/Y) and 24.2x F04 EPS of $0.86.
WebEx Comm (WEBX 20.52 -0.11): Trading at 4.3x C04 revenue of $245.22MM (+29.5% Y/Y) and 3.5x C05 of $305.09MM (+24.4% Y/Y); 23.6x C04 EPS of $0.87 and 20.5x C05 of $1.00.
Xilinx (XLNX 31.65 -0.15): Trading at 4.3x C04 revenue of $1.849B (+32.3% Y/Y) and 3.5x C05 of $2.227B (+20.4% Y/Y); 25.9x C04 EPS of $1.22 and 22.0x C05 of $1.44. Buying companies that trade at a discount to peers on a price multiples basis, factoring in growth and margin rates, can help reduce portfolio volatility while offering the potential for above average returns when judiciously applied as part of a comprehensive research and analysis framework for assessing company competitiveness, operating performance and investment potential. But keep in mind that a company trading at a discount to peers is not necessarily undervalued and may trade lower.
Look for an updated list of names that we think are attractively priced on a relative value basis at the beginning of each month. We will also continue to highlight relative value ideas on the Story Stocks and Tech Stocks pages on a regular basis.
E-mail if you wish to receive notification when we post an updated list. Specify Relative Value Ideas in subject or body.--Ping Yu, Briefing.com 10:15AM Integrated Silicon Solution (ISSI) 10.26 -0.79: Integrated Silicon Solution lowered Q3 guidance. Management cited a seasonal slowdown in demand within the consumer products market, and lower than expected deliveries of 16MB and 64MB SDRAM wafers. EPS is expected to be $0.15 on revenue of $58MM (+138.7% Y/Y) vs. Reuters Research consensus at $0.17 on $64.45MM.
We commented in the Tech Stocks page, June 16, 2004, that semiconductor demand appears to be plateauing. Semiconductor companies experienced rapid growth over the past four quarters, with semiconductor growth exceeding end market growth, accelerating from under 5% Y/Y to over 25% Y/Y by last quarter. The divergence may be due to components inventory replenishment after a protracted industry downturn. End-market demand momentum continues to build; demand for semiconductors is likely to moderate but not contract over the coming quarters.
The following table shows price multiples and Y/Y growth rates for ISSI compared against peers within the semiconductor components group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Rev Growth (%) TTM 2004E 2005E TTM 2004E 2005E Integrated Silicon Solutions (ISSI) 1.3 (54.5) 2.1 1.9 1.5 78.2 136.8 49.1 Alliance Semi (ALSC) 3.9 9.4 7.8 4.3 n/a 38.8 81.6 n/a Atmel (ATML) 1.3 n/a 2.0 1.6 1.4 18.7 33.2 13.5 Catalyst Semi (CATS) 1.0 10.6 1.7 n/a 31.7 n/a Cypress Semi (CY) 1.0 25.9 1.8 1.5 1.3 19.4 30.4 15.2 Integrated Device Tech (IDTI) 2.8 n/a 4.2 3.3 2.8 0.4 27.4 17.2 Micron Tech (MU) 1.3 362.9 2.3 2.1 1.7 39.1 44.3 23.6 STMicroelectronics (STM) 1.5 60.9 2.6 2.2 1.9 16.2 23.9 13.6 Semiconductor Components 2.5 29.6 4.3 n/a 18.9 n/a *P/SG Ratio: Normalized trailing 12 month (Price / Sales) / Growth ratio as of June 25, 2004. **P/OPG Ratio: Normalized trailing 12 month (Price / Operating Income) / Growth ratio as of June 25, 2004.
Shares are down over 46% since the Q1 preview, Story Stocks, January 12, 2004, when we commented that the market is already aggressively pricing in growth and margins expectations and suggested investors wait for a 20-25% pullback. We continue to expect ISSI to post strong double digit top-line growth and improving operating results over the coming quarters, driven by new product introductions and aided by the improving global economy. The company's fabless operating model and tight control of operating expenses positions company to improve margins. But with market expectations still relatively high--shares are priced for sustained upper 20% revenue growth from F06 assuming 20% operating margin--we would continue to hold off until the company materially accelerates top-line growth.--Ping Yu, Briefing.com
7:41AM Integrated Silicon reduces Q3 guidance (ISSI) 11.05: As noted in the On the Wires comment, ISSI reduced its Q3 outlook... see 05:37.
7:20AM SIA reports that worldwide sales of semiconductors rose to $17.32 bln in May : Worldwide sales of semiconductors rose to $17.32 bln in May, a sequential increase of 2.1% from the $16.97 bln reported in April and a 36.9% increase from May 2003, the Semiconductor Industry Association (SIA) reported today. The SIA said the increase is normal for May, which is traditionally one of the stronger months for semiconductor sales. "Worldwide sales of microchips followed historical patterns in May, normally a strong month for the industry," said SIA President George Scalise. "At $17.32 billion, global semiconductor sales reached their highest level since December of 2000, reflecting continued healthy economic growth, especially in the United States and China. The industry fundamentals continue to look good, leading us to expect strong growth through the remainder of 2004. Customers appear to be managing inventories prudently even in the face of supply-demand constraints."
7:14AM Benchmark Elec guides Q2 in-line (BHE) 27.95: Company issues in-line guidance for Q2 (Jun), sees EPS of $0.37 or greater vs the consensus of $0.37 on revs of $483.32 mln vs the consensus of $482.19 mln.
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