From Briefing.com: 6:24PM Tuesday After Hours prices levels vs. 4 pm ET: The June quarter reporting season may start tomorrow, but it's still 'warnings' season as far as the market is concerned. A barrage of software companies have issued quarterly updates tonight, and the majority of which have been negative in tone - echoing Veritas Software's (VRTS) cautious words in the regular session. Presently, the S&P futures, at 1115, are flat with fair value, and the Nasdaq futures, at 1453, are 5 points below fair value.
The below table lists the evening's developments: Company Stock Move Reason for Move
Applebee's (00C0) 22.82 +0.03 (+0.1%) Casual restaurant chain says June system-wide comparable store sales rose 6.8%, on higher guest traffic and average customer checks; Management now sees Q2 (June) EPS of $0.35-0.36 versus the Reuters Estimates consensus of $0.35; Stock has fallen 9% since mid-June as investors have rotated out of consumer discretionary issues; Briefing.com has recommended APPB as a top play in the dining group for over a year
Ascential Software (ASCL) 11.25 -2.77 (-19.8%) Corporate software maker expects Q2 (June) and FY04 (Dec) results to come in well below consensus estimates because of cautious corporate spending and delayed or abandoned deals; License revenues were hardest hit; Company is a small-cap player, but the news reinforces the negative sentiment on the software space following so many warnings tonight; ASCL had fallen below its 50 and 200-day moving averages in recent sessions
JDA Software (JDAS) 10.00 -1.85 (-15.6%) Rival to software vendor Veritas (VRTS) warns for Q2 (June), putting EPS at $0.03-0.04 and revenues at approximately $54 mln versus the Street estimates of $0.07 and $64 mln, respectively; The company cited international weakness and a failure to close certain deals in the Americas region; Stock dropped 4% today off Veritas' reduced outlook (which was also due to an orders shortfall) and has taken competitor ORCL down with it
Kana Software (KANA) 1.75 -0.36 (-17.1%) Provider of customer relationship management (CRM) software issues downside guidance for Q2 (June); Now sees a loss of $0.16-0.20 on sales of $10.5-11.5 mln; Company also cited cautious enterprise spending and a number of deals that did not close; This is the second consecutive quarter Kana has warned; The company's CFO left the company in May while it was in the midst of restructuring efforts
Quest Software (QSFT) 12.16 +1.05 (+9.5%) Company is the last of the software names to give business updates; however, it actually gives a bullish outlook; States that EPS and revenues will be at the high end of previous guidance (EPS of $0.07-0.09 and revenues of $90.0-91.0 mln); QSFT sold off 9% today in the aftermath of Veritas's warning; Smith Barney upgraded QSFT to Buy from Hold on May 10, saying it saw 33% upside to its revised price target of $16
Tomorrow, there are no economic reports on the calendar and no earnings reports of note. After the close, however, Alcoa (AA), Genentech (DNA), and Yahoo! (YHOO) are scheduled to report.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
6:13PM Extended Systems lowers Q4 guidance (XTND) 5.03 +0.03: Co warns of a Q4 GAAP loss of $0.01-0.03 on revs of $7.7-$7.9 mln vs previous guidance of a profit of $0.00-$0.05 on revs of $8.0-9.1 mln... No estimates available.
5:19PM Swing Trader: CSX, FLIR, PG, KMG, NEM : The markets extend their losses to a third session led by Technology, especially in the Semi and Software groups. Energy continued to outperform, but appears to be losing its short-term momentum as indicated by the XLE below. Some Semiconductors appear short-term oversold and due for a bounce as they test the bottom of their monthly trading ranges. Check out INTC, ALTR, AMAT, PMCS, KLAC, ADI, MXIM, LLTC for trading ideas. On the short-side, watch for set-ups in some Insurance-related names like WLP, UNH, ATH, and AET. Overall, this market remains extremely volatile and should continued to be approached with extreme caution, taking profits and losses quickly...(continued)
Close Dow -63.49 at 10,219.34, S&P -9.19 at 1,116.19, Nasdaq -43.23 at 1,963.43: The day was dominated by negative sentiment towards semiconductor stocks, and by concern over higher oil prices...before the open, semiconductor company Conexant (CNXT 2.34 -1.74) lowered revenue and profit guidance for the quarter, and then Lehman Brothers downgraded the semiconductor sector and lowered earnings estimates for Intel (INTC 26.10 -0.23)...software company Veritas (VRTS 16.95 -9.60) also warned...on top of that, oil prices were higher overnight on concern over supply from a Russian company that has a deadline for paying back taxes... the market opened lower and drifted lower from there...it wasn't' until a final hour bounce that any significant demand developed, and even that faded...the focus was almost entirely on technology stocks and the associated weakness, as the top 5 most actives on the NYSE were all technology companies...volume was light on the NYSE as just 1.2 billion shares traded, while 1.9 billion traded on the Nasdaq with the focus on technology...advancers outpaced decliners by a large margin...it was not a day to remember for Wall Street as not much happened, and what did, was negative...NYSE Adv/Dec 1288/1989, Nasdaq Adv/Dec 787/2333
3:36PM Treasuries trade off following early data, end day down : The treasuries slumped lower on the day, after a slight bid early in the session as flight-to-quality positions established ahead of the weekend were unwound. The market had ranged around on a short leash through the weekend and overnight trade, and was initially bid following the less-than-stellar 59.9 headline print on the ISM services report. Players appeared to shrug off the data, but upon closer examination considered some of the components that hit record highs (prices paid and the employment inputs which both jumped significantly). Oil prices were the day's focus, taking any curiosity that may have lit up the bonds, after Friday saw the most substantial price run-up in 6 months on the heels of disappointing jobs data. Richmond Federal Reserve President Broaddus spoke early, offering general economic platitudes that held little interest. The talk has begun to turn on the upcoming auctions ($15 bln new 5-years Wednesday and $10 bln in TIPS Thursday) and whether they will fare as well as the past strong auctions. After initially flattening, the 2-10-years found the 193 area appealing, and basically sat there. The 10-years are -06/32nds yielding 4.480%; 2-years are -01/32nds yielding 2.546%; 3-years are -02/32nds yielding 2.929%; 5-years are -05/32nds yielding 3.634%; 30-years are -08/32nds yielding 5.224%
3:51PM Amkor Technology (AMKR) 5.52 -0.36: Amkor Technology lowered guidance last week. The provider of semiconductor packaging and test services said that Q2 EPS is expected to be $0.06 on revenue of $492.5MM (+30.3% Y/Y) vs. prior guidance of $0.17-0.22 on $487.8-501.8MM. EPS estimates include $0.11 after-tax gain on the sale of 10.1MM shares of ASI common stock.
Management lowered Q2 gross margin forecast from approximately 24% to 19% due to unfavorable product mix. Company realized lower than expected sales of higher margin advanced packages, including ChipArray BGA, MicroLeadFrame and Stacked CSP, and higher than expected sales of lower margin PBGA products. Higher factory costs due to capacity expansion and rise in materials costs also contributed to the lower margin expectations.
Management is focusing on improving product mix, consolidating supply chain around lower cost vendors and raising prices selectively. Expects improvement in product mix in H2:04.
The following table shows price multiples and Y/Y growth rates for AMKR compared against industry comps within the semiconductor group. Company *P/SG **P/OPG P/S Y/Y Rev Growth (%) TTM 2004E 2005E TTM 2004E 2005E Amkor Tech (AMKR) 0.4 6.4 0.6 0.5 0.4 18.1 27.8 33.1 Advanced Semiconductor Eng (ASX) 0.9 11.9 1.4 1.1 0.9 33.6 29.2 23.8 ASE Test (ASTSF) 0.7 25.1 1.6 1.1 0.9 78.4 38.5 22.2 ASAT Hldgs (ASTT) 0.4 (133.3) 1.1 0.8 0.7 9.9 31.7 23.7 ChipPAC (CHPC) 0.9 53.6 1.3 1.1 0.9 25.3 31.9 17.9 Siliconware Precision Ind (SPIL) 1.1 19.7 1.7 1.3 1.2 30.7 31.8 12.0 ST Assembly (STTS) 1.0 29.2 1.9 1.3 1.2 67.1 55.2 6.4 Semiconductors 2.4 28.1 4.1 n/a 19.6 n/a *P/SG Ratio: Normalized trailing 12 month (Price / Sales) / Growth ratio as of July 2, 2004. **P/OPG Ratio: Normalized trailing 12 month (Price / Operating Income) / Growth ratio as of July 2, 2004.
Shares trade at a discount to peers but are priced for sustained upper teens revenue growth from C06 assuming 9-10% operating margin, making shares at best fair value unless the company achieves operating margin in the lower teens and accelerates top-line growth.--Ping Yu, Briefing.com
1:37PM Conexant Systems (CNXT) 2.32 -1.76: Conexant Systems lowered Q3 guidance, citing aggressive price competition in the WLAN market and flat sequential results in the digital set-top box and DSL businesses. Pro-forma EPS is expected to be $0.02 on revenue of $265-270MM (+135.8-140.2%) vs. Reuters Research consensus at $0.05 on $313MM.
Management remains optimistic regarding the size of targeted market opportunities and said the company will be aggressive in defending its WLAN market share. WLAN is integral to the convergence of wireless broadband access functions into a growing base of applications including cell phones, handhelds, personal computers, set-top boxes and DSL (digital subscriber line) and VoIP (voice-over-IP) systems.
Management reiterated commitment to long-term operating model of 45% gross margins and 15% operating margin. The company is expected to deliver gross margin for the June quarter within prior guidance. Management said the company continues to realign businesses and is on track to achieve pro-forma operating expenses at or below the $100MM target by the December quarter. Additionally, the company has made significant progress in consolidating the GlobespanVirata and Conexant DSL product lines, and continues to win the majority of design starts in both central office and customer premise applications.
The following table shows price multiples and Y/Y growth rates for CNXT 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 Conexant (CNXT) 1.0 (15.8) 1.5 1.0 0.8 34.1 85.9 25.6 Agere Systems (AGR) 1.3 (62.6) 1.9 1.8 1.6 3.7 9.4 14.7 Analog Devices (ADI) 3.5 19.7 7.0 5.9 4.9 26.3 36.9 22.1 Broadcom (BRCM) 3.0 (56.2) 7.2 5.2 4.4 58.4 60.4 18.9 Infineon (IFX) 0.8 105.2 1.2 1.4 1.2 17.9 (0.6) 12.5 LSI Logic (LSI) 1.1 (22.6) 1.6 1.4 1.3 (0.3) 14.1 12.1 Microtune (TUNE) 5.3 104.9 5.1 2.7 2.7 (25.8) 41.3 1.5 STMicroelectronics (STM) 1.5 61.0 2.4 2.1 1.9 16.2 24.1 13.7 Texas Instruments (TXN) 2.2 24.0 3.9 3.1 2.6 20.9 32.5 15.7 Semiconductors 2.4 28.1 4.1 n/a 19.6 n/a *P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of July 2, 2004. **P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of July 2, 2004.
CNXT is one of the most attractively priced names within the semiconductor space. Factoring in today's 41% pullback, shares trade at a discount to peers, and are priced for sustained lower to mid single digits revenue growth from F06 assuming 10-11% operating margin.
Management had previously estimated the total addressable market at $5.8B in 2004 growing at a CAGR of 18% through 2007 ($6.4B in 2005; $7.2B in 2006; and $8.1B in 2007), and signaled that the company can grow 15-20% annually.
Near-term price reductions shrink the size of the overall market to the degree that price cuts exceed unit volume demand and calls into question the company's ability to achieve 15-20% growth. Yet there is reason to believe CNXT will be able to grow revenue materially above the single digits rate and improve operating margin above the 10-11% range reflected in our model, given the company's strong positions in the fast growing DSL, satellite set-top box and WLAN markets, and ongoing cost reduction programs.--Ping Yu, Briefing.com
11:35AM Schering-Plough (SGP) 17.93 -0.14: This dog of the drug world, which reported a loss in its last quarterly report, has become a favorite of the investment community. SGP has advanced 12% since mid-June under the influence of two analyst upgrades and a positive Barron's article. Popular sentiment is that the stock is poised to rally - following five years of underperformance (-66%) - with the date of an important drug approval fast approaching.
The action date on Schering-Plough (SGP) and Merck's (MRK) joint venture Vytorin is set for July 24. Analysts expect the approval to be a slam dunk given the drug's strong safety profile and large market applicability. Vytorin serves a new niche in the cholesterol-lowering area - reducing LDL (i.e. 'bad cholesterol) while improving HDL (i.e. 'good cholesterol') - and does it by using Schering-Plough's Zetia to boost the potency of Merck's Zocor. This approach avoids the hazardous effects (renal impairment, muscle-damaging conditions) associated with higher dosages of statin drugs like AstraZeneca's (AZN) Crestor.
The sales potential for Vytorin is large - with brokerages firm such as Deutsche Securities suggesting the drug could capture 20% of the market. This could mean several billions for Schering-Plough, despite its 50/50 partnership with Merck. Both companies could launch Vytorin as early as September, and bring in an estimated $200 mln in revenues.
This is not to say, however, that Schering-Plough's well-publicized problems are behind it. Former sales juggernaut Claritin continues to suffer from generic competition, and its hepatitis C franchise (20% of pharmaceutical revenues) continues to lose share to leader Pegasys (Roche). Management has stood behind its discouraging forecast for FY04 (suggesting earnings could trail FY03) and served to underscore the company's transitional nature.
Still, Briefing.com believes sentiment is shifting in favor of SGP, and would recommend purchase at these levels for long-term investors. Despite its recent move, the stock trades at less than a dime above its price at our writing on January 26 (see Story Stocks' archive via the BriefingSearch tool). We believe the July 24 FDA action date on Vytorin will result in a pop to SGP, which should be maintained upon a successful launch. The company is not out of the woods yet, but its slate of new products (Temodar, Remicaid, Noxafil, and Vytorin) and more favorable industry environment (as investors seek groups relatively unaffected by interest rate hikes) enhance its investment appeal. -- Heather Smith, Briefing.com
12:22PM Varian Semi wins multiple ion implanter orders from 'major N. American semiconductor manufacturer' (VSEA) 35.01 -1.02: Co announced today that it has won multiple orders for its single wafer VIISta 80HP high current ion implanter from a major North American semiconductor manufacturer. The VIISta 80HP ion implanters will be shipped to the customer's facility this month. Amount of the order and manufacturer information were not disclosed in release.
12:12PM Treasury market ticks lower, ISM data indicates continued growth : The market has stumbled some since the open, with price pressure coming in following the dissection of the ISM services data. After a calm open and range trade, prices began ticking lower after the report, although the initial response was to trade quietly higher as the headline number showed a worse than expected 59.9. While a number above 50 shows continued expansion, this was the biggest fall since late 2001. The data breakdown, however, showed that prices paid had jumped to a record 74.6 from May's 74.4 and the employment component also posted a record 57.4 from 56.3. EuroZone bonds fell into the end of trade, although yields have remained near the month's lows. The dollar fell against the British on potential UK rate hikes, while the yen tumbled, shedding 1.2% since Friday's close, as officials fret over upcoming election results. The yield curve has taken a bit of flattening, with the 2-10-year ticking to a tad beyond 191 from 193.2. The 10-years are currently -06/32nds yielding 4.480%; 2-years are -02/32nds yielding 2.554%; 3-years are -03/32nds yielding 2.934%; 5-years are -05/32nds yielding 3.634%; 30-years are -06/32nds yielding 5.218%.
9:07AM Sierra Wireless: Brightpoint to distribute Voq professional phone in N. America (SWIR) 36.53: Co announced an agreement with Brightpoint North America, L.P., a subsidiary of Brightpoint (CELL) to distribute the Voq Professional Phone, developed by SWIR, in North America. The Voq Professional Phone has successfully completed network compatibility testing on the AT&T Wireless GSM (Global System for Mobile communication) and GPRS (General Packet Radio Services) network, and will be commercially available to North American customers in July.
8:37AM QCOM target raised to $93 at Piper 72.27: Piper Jaffray believes Qualcomm (QCOM) remains a compelling investment for growth-oriented investors due to improving WCDMA datapoints, growing traction of EV-DO, and continued strong replacement sales in CDMA markets. Also, the firm believes the recent weakness in South Korean, Indian, and Chinese CDMA markets is temporary. The firm expects several recent handset introductions to stimulate CDMA replacement sales at both Verizon Wireless and Sprint PCS during 2H04. The firm believes the stock can trade at 30x FY06 estimate of $2.85, adjusting for $7 per share in cash. Therefore, the firm raises its target to $93.
10:58AM VERITAS Software (VRTS) 18.17 -8.38: Veritas lowered Q2 guidance before the open. Management attributed the shortfall to weak demand for software licenses within the U.S. enterprise market. Asia/Pacific and Europe generally met expectations.
Pro-forma EPS is expected to be $0.18-0.19 on revenue of $475-485MM vs. Reuters Research consensus at $0.24 on $502.05MM. License revenue is forecasted to be $263-273MM; services revenue to be $212MM.
The following table shows price multiples and Y/Y growth rates for VRTS compared against peers in the software & programming group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Rev Growth (%) TTM 2004E 2005E TTM 2004E 2005E VERITAS Software (VRTS) 2.8 17.0 4.2 3.8 3.4 20.9 16.3 11.6 EMC (EMC) 2.2 35.8 3.9 3.2 2.8 21.8 29.6 14.4 Microsoft (MSFT) 4.2 30.0 8.7 8.4 8.0 13.5 13.5 5.7 Oracle (ORCL) 3.1 10.6 5.9 5.5 5.1 7.2 7.3 8.6 BMC Software (BMC) 1.3 (40.4) 2.8 2.6 2.4 6.9 6.9 6.5 Computer Associates (CA) 2.3 240.9 4.9 4.4 3.9 8.2 9.0 11.0 Mercury Interactive (MERQ) 3.3 66.4 7.9 6.5 5.6 31.6 34.3 16.4 Quest Software (QSFT) 1.9 46.2 3.6 3.2 2.8 (0.6) 19.8 14.4 Software & Programming 2.9 34.2 5.2 n/a 7.1 n/a *P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of July 2, 2004. **P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of July 2, 2004.
VRTS is off over 31% on the reduced guidance, and is down almost 45% since the Q1 review, Story Stocks, January 29, 2004, when we highlighted the company's decelerating license revenue growth, and suggested investors wait for at least a 15-20% decline and until there are signs of an acceleration in license revenue growth to the low 20% range before buying into shares.
Risk-reward profile is greatly improved. Shares are now priced for sustained lower teens revenue growth from C06 assuming 33% operating margin. We would continue to seek confirmation of accelerating license revenue growth but would consider a minor position.
Storage is likely to command a higher percent of enterprise technology spending as corporations digitize processes. VRTS will benefit from this trend as well as from the continuing recovery in corporate technology spending. We think enterprise spending is slowly ramping, current weakness nothwithstanding.--Ping Yu, Briefing.com
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