From Briefing.com: 6:54PM Swing Trader: IBM, LTR, ALL, EBAY :Markets came under pressure during the first hour of trade and stabilized thoughout mid-day. It wasn't until the Fed minutes were released that Bond Yields dropped and a broad based rebound in the market ensued. All in all, a strong high volume turnaround across the board, less the Energy sector. Interest-rate sensitive groups (Financials, Reits, Utilities) staged the more impressive rallies on the day. The big question now is how much of a follow-through, if any, will we see?...(continued)
4:28PM Vishay commences offer to exchange 2.90 VSH shares for each Siliconix share (VSH) 11.75 0.00:Co announced today that it has commenced an offer to exchange 2.90 shares of its common stock for each share of common stock of Siliconix incorporated (SILI) not owned by Vishay. Cash will be paid in lieu of fractional shares of Vishay. Vishay currently owns approximately 80.4% of the outstanding shares of Siliconix.
Close Dow +59.41 at 10507.97, S&P +6.55 at 1187.76, Nasdaq +13.28 at 2005.40: Stocks staged a late-day reversal, taking a bullish cue from a rebound in bonds, after minutes from the Fed's March meeting raised confidence that more aggressive policy tightening was not necessary at this time... At 2:00 ET, the March FOMC Minutes suggested the Fed is of the belief that an accelerated pace of policy tightening (i.e. 50 basis points) does not currently appear necessary...
Market participants were fearful ahead of the release, under the assumption that the minutes would reveal more hawkish inflation commentary; but when investors recognized that the remarks were relatively in line with what the market has known all along, renewed buying interest in Treasurys pushed yields on the 10-year note to levels (4.35%) not seen in over a month and, in turn, ignited broad-based buying efforts in equities... The benchmark 10-year note closed up 16 ticks to yield 4.36%, as a comment from PIMCO's Bill Gross - "a 50 basis point rate hike is out of the question" - also helped strengthen the conviction that policy makers won't accelerate the pace of further interest rate hikes...
However, the knee-jerk recovery from an overall sluggish day of trading, highlighted by a record trade deficit, mixed earnings/guidance and volatile oil prices, should arguably be taken with a grain of salt, as the sustainability of such a sudden turnaround - essentially [yet strangely] spurred by the reality that rates will continue to rise (just not as fast as many may have expected), remains in question...
Meanwhile, a widening in the Feb. trade deficit to a record $61.0 bln (consensus -$59.0 bln), up from last month's revised $58.5 bln as imports rose 1.6% against two months of flat export growth, was largely the cause for alarm early on that underpinned a bearish sentiment that kept every major economic sector under pressure throughout much of the session... But in the end, an improved sentiment heading into more earnings reports helped 9 of the 10 economic sectors turn positive... Pacing the way higher, benefiting from falling bond yields, was Financial (+1.2%), which reversed early weakness following the indictments of 15 current and former NYSE specialists charged with fraudulent and improper trading as well as downside Q1 guidance from Alliance Capital (AC 44.16 -2.56)...
Other interest-rate sensitive areas like Utility (+1.0%) and Homebuilding (+2.7%) followed suit to the upside while Technology was also an influential leader finishing higher... Health Care (+0.6%) also recovered some lost ground despite mixed earnings results... Abbott Labs (ABT 47.90 +0.15) matched analysts' Q1 forecasts and issued in-line Q2 and FY05 EPS guidance while Genentech (DNA 57.62 +1.02) beat Q1 expectations by $0.04, which gave Biotech a boost...
Other notable guidance came from Black & Decker (BDK 87.75 +8.08), which raised its Q1 EPS outlook well above expectations while BMC Software (BMC 14.90 +0.25), despite guiding Q4 (Mar) EPS and revenues below consensus estimates, found buyers in the wake of an analyst upgrade... Energy (-1.1%), however, on the heels of a 3.4% sell off in oil prices, closed lower... Crude oil futures ($51.86/bbl -$1.85) fell 3.4% following an IEA report that stated slowing demand from China, rising OPEC output and higher global inventories should help lower near-record prices... The Materials sector, which paced the way lower midday amid news that the trade gap with China fell to $13.9 bln from last month's read of $15.3 bln, finished flat...
Separately, the Mar. Treasury Budget checked in at -$71.2 bln, a slight $2 bln improvement from a year ago but larger than the -$69.8 bln economists expected; however, since the data can be predicted with reasonable accuracy, the market has paid little attention to the report... DJTA +1.0, DJUA +1.0, DOT +0.5, Nasdaq 100 +0.7, Russell 2000 +1.0, SOX -0.1, S&P Midcap 400 +0.5, XOI -1.4, NYSE Adv/Dec 2075/1213, Nasdaq Adv/Dec 1685/1395
3:44PM Afternoon Wrap: Market surges higher as rates tumble :It was a decidedly ugly session with the broad based slide into the afternoon resulting in new 2005 intraday lows for the mid- and small- cap averages. The Dow and Nasdaq indices probed their 2005 lows initially after the Fed commentary but the sharp plunge in interest rates sparked a dramatic reversal (Dow pushed 169 points off the low, Nasdaq Comp 37 points off its low). Rate sensitive groups have led the charge (Housing +2.8%, Insurance +1.8%, REITS +1.6%, Banking +1.4%, Utility +1.1%, Broker/Dealer +0.8%) along with Biotech +1.2%, Transportation +1.1% and Retail +0.9%. Energy (Oil Service -1.6%, Oil -1.3%, Natural Gas -1.2%) and Defense -1.1% are still firmly lower.
3:41PM ETF Winners/Losers :ETF Winners: Real Estate (RWR +1.42%, ICF +1.08%), Financials (IYF +1.35%, XLF +1.27%, IYG +1.19%), Taiwan (EWT +1.31%), Utilities (IDU +1.16%).... ETF Losers: Energy (XLE -1.49%, IGE -1.48%, IYE -1.34%, VDE -1.2%, IXC -0.99%), Technology (VGT -1.32%, MTK -1.29%).
3:41PM Earnings Calendar :After the close, MANU and WTSLA are the only co's scheduled to report. Tomorrow morning, look for results from ASML, BBT, CBH, CBSH, FAST, HDI, and PTMK.
12:20PM Oracle announces RFID collaboration with Intel (ORCL) 12.38 -0.02:Co announces that it and Intel development and technical teams will be working together to further optimize RFID and sensor-based products based on a common service-oriented enterprise framework for ease of customer adoption and deployment. These will integrate currently available products from ORCL and INTC, including Oracle Application Server 10g, Oracle Database 10g, Oracle E-Business Suite, and Intel processor-based handheld, PC, mobile, server, and communications platforms.
11:56AM Previewing Advanced Micro (AMD) 16.84 -0.18:After Wednesday's close AMD will report its Q1 results. With its flash memory business expected to be a drag, there isn't much table pounding ahead of the result. For added perspective on the report and a glimpse of how AMD has traded leading up to, and following, its results for the past 8 quarters, be sure to visit Briefing.com's Looking Ahead page.
9:14AM Gapping Down :TZOO -18% (reports Q1; light on revs), CACS -16% (guides lower; multiple downgrades), MALL -59% (completes spin-off of eCost.com), FLIR -10% (guides Q1 below consensus), OTEX -10% (expects "modest shortfall" for MarQ), SLNK -8.8% (guides below consensus; Kaufman downgrade), ATSN -7.7% (guides lower), NFLD -5.1% (reports FebQ), JNJ -1%.... Under $3: FCSE -14%.
8:57AM Gapping Up :TIVO +6.2% (Smith Barney upgrade), NICE +6.1% (CIBC upgrade), BDK +6% (raises guidance), GEPT +16% (receives Lufthansa cockpit door surveillance system reorder), RNAI +5% (co's collaborator publishes "breakthrough research" on Huntington's Disease), CHKP +2% (Jefferies upgrade), AIG +1.7% (bounces after recent weakness).... Stem cell stocks are strong on a related WSJ article: STEM +6%, ASTM +4%, GERN +3.7%.... Under $3: VNWI +53% (to sell operations to Claranet), TGEN +18% (has a collaboration with RNAI - ssee above).
11:28AM MCI (MCIP) $26.07 +0.06 (+0.2%) Like a basketball game, where the final two minutes is often the entire game and the most exciting, the battle for MCI by Verizon (VZ) and Qwest (Q) is showing the most drama at the very end. Verizon's registration statement today, which registers the VZ shares that will be issued in the MCI acquisition, is like a free throw after an amazing 3-pointer. That 3-pointer that almost seals the Verizon lead was the side-deal with MCI's largest shareholder, Carlos Slim Helu, for 13.4% of MCI.
The registration filing is really just a prelude to being able to call for a shareholder proxy on the Verizon acquisition offer. The currently signed agreement between Verizon and MCI gives Verizon the right to call for this proxy at any time after the shares are registered.
Much is being made today about the fact that the "maximum price" for the shares listed in the filing is $25.13, which represents the share value of the MCIP shares that the VZ registered shares will replace. This value is less than the $25.72 per MCIP share that Verizon paid for Slim Helu's MCI shares. However, that registration price is meaningless. As an unapproved filing, an amendment can be made to the filing at any time. In fact, an amendment could happen as part of the approval process. So the fact that a maximum price is listed in the S-4 today doesn't mean anything.
The likely outcome now, in our opinion, is that Verizon will raise its bid for the rest of the MCI shares to an offer equal to or similar to that given to Carlos Slim Helu. It seems virtually impossible that Verizon management's plan is to "pay up" in a side-deal, but "low-ball" the rest of the company. Such a scenario would entangle the acquisition in a web of law suits and bad publicity. Verizon needs good publicity to finalize the acquisition with government agencies, so a purchase plan that does not treat all MCI shareholders equally is not in Verizon's interest. The greater likelihood is that Verizon is fully aware of this. And if you believe that, it means Verizon decided to pay $25.72 per share for MCI before they finalized the side deal. The side-deal, in fact, only demonstrates their willingness to pay more for the entire company.
That means this battle is coming very close to the end. Verizon will pay more, but not a lot more, than their current $23.50 per share bid (which includes $0.40 MCI dividend). The exact structure of the bid may not be identical to Slim Helu's deal, but it will be close enough to be judged "equal." At that point, Qwest would have to come up with close to $30 per share to win, which they have already declined. With today's registration filing, the last two minutes have begun, Verizon has both the lead and possession. Qwest has no time-outs to stop Verizon from calling a proxy vote once the registration filing is approved, so they have to try something before today's filing is approved. Verizon may actually be waiting for Qwest's next move before they raise their bid, but it is very clear now that Verizon's determination is stronger than Qwest's and the only unknown is the final score, or price-per-MCIP share. - Robert V. Green
10:44AM Under the Radar -- PainCare and Gentiva (PRZ, $5.10; GTIV, 17.70)
We are revisiting outpatient care, a past sector pick, as our Under the Radar stock group this week, noting that Pain Care Holdings (PRZ), the stock we highlighted in our previous profile, has now emerged as a stock-performance leader, rising about 30% from our last profile in late January.
We initially highlighted PainCare as a trading idea we thought would play out over several months, while pointing out some concerns about the company's acquisition strategy that kept us from considering PRZ as a buy-and hold stock. We told readers that our target was the $4.50 to $6 range.
Yet the conversation we had last week with Pain Care CFO Mark Szporka allayed many of our fears about the company's acquisition strategy - the main reason we had reservations. At this point, if this was a stock in our portfolio, we would like to continue holding PRZ for a while longer. At this point, we can't find any reason to believe the stock's uptrend will end soon, and we continue to like the outpatient sector.
In addition our update of PRZ, we are highlighting a new stock that's a lot further down the list of the medical-outpatient sector's hot performers: Gentiva Health Services (GTIV). We think Gentiva can gain market share, and possibly post near-term gains, provided it stays above the $17 area.
Sector:
Since our Jan. 28 sector profile, outpatient care has become one of the top-performing stock groups on the Street, recently surpassing many of the oil and metals categories. We think it may trail only department stores - another of our past sector picks. (We note that Gottschalks (GOT), the best-performing dept. store stock in recent months, was our individual stock pick).
The performance of outpatient services companies, as we pointed out less than three months ago, is being driven by doctors who are increasingly turning to specialists for ancillary health services - everything from dialysis to pain management. The outpatient companies arguably can provide better specialized services than doctors can, and in many cases at lower prices.
With several exceptions, outpatient home care companies still seems to be producing earnings growth in the high-teens or in some cases the low-20s, on internal revenue growth in the mid-to-high single-digit range, excluding acquisitions.
Stocks in the group are benefiting from sector rotation, Sheryl Skolnick, analyst with Fulcrum Global Partners, tells us. With many of the large pharmaceutical stocks under pressure (with Pfizer (PFE) as the poster child), she says that shareholders are looking for alternative investments. Skolnick says that many are now taking a look at outpatient services companies, on hopes of improved Medicare reimbursements ahead, and improving earnings.
Leaders:
There are about 7 outstanding stocks in the group that have ranked among the best-performing names anywhere in recent months. Medicore (MDKI), which operates kidney dialysis centers, has risen more than 60% since late Jan. LCA Vision (LCAV), a company that runs laser eye-surgery centers, and Horizon Health (HORC), a contract manager of rehabilitation programs, each have risen about 30%. Radiation Therapy Services (RSTX), Psychiatric Solutions (PSYS) and Option Care (OPTN) all have been outstanding performers in the near-term.
We note that Dialysis Corp. of America (DCAI), a small-float favorite and one of the best percentage gainers of all stocks in '04 (up 473%), is one of the few notable losers of late in the group, tumbling to less than $19 from a peak of $35 in early March. We still note, however, that DCAI is down only about 5% since our sector profile.
While we think that gains for many of the top-performing stocks in the group will not continue at the torrid pace set in recent months, we like the potential long-term trends. We think stock gains could continue in '05, provided that earnings in the hospital sector in general continue to be strong.
Stocks: PRZ and GTIV
PRZ: We now feel more comfortable about PainCare after we learned more about its acquisition strategy directly from management.
Our main hang-up with PRZ had been that the co generates much of its growth through acquisition. But we now understand a lot more about the discipline the co employs with its takeovers. We like the fact that the company has a set acquisition model for each clinic that it buys, which includes a 5-year employment with the doctors, and a potential bonus paid to the firm being acquired for exceeding EBITDA targets. The company plans to do about six acquisitions this year.
PainCare's objective is to buy established, high-margin practices, then increase margin between 25 and 50% within the first two years, then 7 to 10% thereafter, by adding additional services (orthopedic rehab, electo-diagnostics, outpatient surgery, etc.) We believe the acquisition model is working, since the company told us PRZ has increased operating margins 35% during '04 in the practices that it owned at the beginning of that year.
While PRZ carries a significant amount of goodwill on its balance sheet as a result of its past acquisitions, we note that the company has not had to take impairment writeoffs. PRZ has no off-balance sheet transactions. The co still has about $15 mln in debt from convertible debentures, but the debt is shrinking. Right now, we think PRZ is fairly stable, and we can't foresee any other potential red flags for PRZ holders, unless growth somehow stalled or acquisition costs unexpectedly rose. We do note that the company is expected to post earnings soon -- more than likely in the second week of May.
Going forward, we can see PRZ shares going to $6 - the high end of the previous $4.50 to $6 target range mentioned in our January profile, based on technical strength on a recent surge in volume and increased professional ownership (more than 35% of the shares out are now held by institutions, up from about 5% or less in Oct. '04.) We would NOT be willing to hold the name at this point if it fell below the $4.50 level.
GTIV: The new name we are watching in outpatient services is Gentiva Health, the leading provider in the U.S. of home health care services, which include home nursing care, physical, speech, respiratory and neurological therapy. We see GTIV as a bit of a turnaround story, as we think the stock has recently recovered from a scandal that alleged conflicts of interests involving a contract with Cigna, one of its largest customers (about 30% of revs)
Gentiva shares gapped lower - to less than $13 from $17.60 -- in mid-November, after a story in the Wall Street Journal alleged that Cigna, through a relationship with GTIV, allowed the manufacturer of a low-priced insulin pump to process physician requests for a competing higher-priced pump. Allegedly, when physicians wanted approval for one of the more expensive pumps, the requests were routed to the low-priced pump maker. At the time, analysts were worried that the scandal would do damage to GTIV's reputation, potentially keeping it from signing new managed care clients.
The scandal didn't seem to harm business, however, and Raymond James has since called the scandal overblown. When it announced results in February, GTIV handily beat earnings estimates, with sales that rose 10.5% year-over-year. The company reported growth from both Medicare (revs up 18%) and its commercial business (revs up 20%). The company also raised '05 EPS guidance, and reiterated '05 revenue targets.
Moreover, the company said it did not consider a lawsuit resulting from the scandal to be material, to the point that it would not even include the lawsuit in its 10-K filing.
We note that GTIV shares trade at 21Xs forward earnings - a price we find to be comparable to its position in its group, and decent vs. its 15% expected earnings growth. We think that gross margins of 38.4% are lower than many of the top performers, but we do note that GMs are improving (up 1.9 points from a year earlier), partly because the company is garnering more business from Medicare, which is more profitable than Medicaid. We note that the company has about $113 mln in cash, equivalents and investments on its balance sheet (mkt cap is about $420 mln), and it periodically buys back shares.
Technically speaking, GTIV's chart is easy to read. The stock has recently broken out above $17, which seems to be the significant support area (we would not hold it below that price). The chart suggests that the uptrend dating from mid-'03 is not broken. On a technical basis, we think stock has a chance to rise to $20 in the next six months. -- Mike Tarsala, mtarsala@briefing.com.
10:41AM Abbott Laboratories (ABT) 47.75 -0.11: The Abbott Park, Illinois-based drug manufacturer generated double-digit growth in both its medical and pharmaceutical units for the Q1, which it released before the open. The company earned $837.9 mln, or $0.53 per share up 1.8% year/year. The top line grew 16% y/y with currency adding 2.6% to $5.38 bln. The quarter included the sales of its lower-margin hospital products spun off into Hospira Inc, therefore earnings from continuing operations, excluding charges, rose 9.4% to $0.58 per share meeting consensus estimates.
Growth was broad-based for the quarter with sales up 16.5% internationally (currency added 5.8%) and 14.4% in the US. The Pharmaceutical Product Group, which accounts for 59% of total sales, jumped 20.1% led by brands HUMIRA, Kaletra, Ultane/Sevorane, Depakote, and Mobic - sales of the latter were $296 mln inline with the Briefing.com consensus. Its antibiotic franchise of Biaxin and Omnicef grew 45% due to the strength of a late flu season. Within the Pharma group, US sales grew 20% and international up 17.7%. ABT noted that despite its Synthroid brand losing patent protection, its brand retention exceeds 65%. Sales of pediatric and adult nutritionals also help drive international sales. The TAP joint venture with Takeda Pharma declined 11.5% as stronger Prevacid sales offset weakness in Lupron.
Medical Product Group sales grew 10.1% driven by worldwide diagnostic sales, including double-digit gains in its Abbott Diabetes Care up 74% y/y. This group gained 2% points in terms of US market share due to the success of new product launches. Ross Nutritionals sales rose only 1.7%, as solid growth in Adult Nutritionals offset weakness in Pediatric, which faced difficult y/y comps. A reduction in retail channel inventory hurt its Similac infant formula sales. The vascular unit received FDA approval to begin its drug-eluting stent clinical trial, ZOMAXX II. It also began enrolling patients for FDA approval in its carotid stent trial, known as ACT I, which is a next-generation vessel closure system.
Gross margins were 53% down from 55.3% last year due to higher sales of low margin Mobic (+185%) and Pediatric Nutritionals. Operating margins were 21.1% - up 70 basis points from last year. ABT discussed this decline in profitability, saying product mix distorted margins this quarter. Its FY05 target is 54%. R&D rose 8% and SG&A increased 12% - in-line with guidance. The R&D increase speaks to Abbott's focus shift to new drug development supporting its pipeline, in particular higher-margin branded proprietary drugs like HUMIRA. ABT will also begin expensing stock options in July of this year and will provide guidance on the per share impact on its Q2 conference call.
Shares have risen 24% over the past year, with ABT increasing shareholder value through a dividend hike announced back in Feb. Overall, this was a solid quarter with strong top line growth led by its Pharmaceutical unit, both in the US and internationally as well. The only caveat for the quarter was the slight dip in gross margins due to lower margin mix due on higher sales of co-promoted and distributed products.
Looking ahead, ABT issued in-line guidance for Q2, sees EPS of $0.56-0.58, ex items vs. $0.58 consensus and reaffirmed FY05 of $2.47-2.53, ex items vs. $2.49 consensus. We maintain our positive view of the company as it focuses on building a portfolio of proprietary products. Key metrics to watch are possible margin trend weakness, sales mix, and drug pipeline development. Shares are trading at 19.1x forward earnings below its 5-year average of 22.1x. ----Kimberly DuBord, Briefing.com
9:17AM Page One - Waiting for Earnings Trends and FOMC Minutes : The broad market is on hold, awaiting an evaluation of the trend in earnings. There is also a potentially large impact this afternoon from the release of the March FOMC minutes.
Yesterday, the S&P 500 index rose a minuscule 0.01 points. There was very little action.
The Nasdaq did not fare as well, as it lost 7 points. Technology stocks are struggling, and there is more negative news to deal with today. Yesterday after the close, two more software companies warned of lower than expected earnings for the first quarter. This has been a common theme in this industry, and now BMC software and Open Text are on the list.
The limited earnings news is fairly good. Genentech beat by 4 cents (although there was some disappointment about certain revenue categories). Abbott Labs reported in line, and beat on revenues. Pepsi Bottling beat by 3 cents, and Ameritrade by a penny. Black & Decker said earnings would be above expectations.
The concerns in the software sector may drag on the Nasdaq, but the reports so far won't have broad impact. Futures suggest a near flat open for the S&P.
The March FOMC minutes will be released at 2:00 ET. This is the meeting that led to the change in wording in the policy statement reflecting a greater concern about inflation. The minutes will therefore be scrutinized to determine the level of the Federal Reserve's concern about inflation. If a great deal of concern is expressed, the stock market could take a hit on fears that the Fed will take a hawkish stance towards interest rates.
Oil prices are up a bit this morning and just below $54 a barrel. The February trade balance was a record -$61 billion, but the markets barely blinked at that. The only earnings report after the close is from Manugistics. Apart from the FOMC minutes, the market is in a wait-and-see mode with regards to the trend in first quarter earnings reports. --Dick Green, Briefing.com
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