From Briefing.com: 4:20PM Dell will more double previously announced share repurchase to $2 bln this quarter (DELL) 38.15 -0.98: -- Update --
Close Dow +27.56 at 10486.02, S&P +2.67 at 1184.06, Nasdaq -0.18 at 1999.14: Blue chip indices showed resilience into the close, hanging onto modest gains earlier spurred by falling oil prices and lower bond yields... But the Nasdaq, albeit closing off just 0.01%, finished lower... A tendency to sell into strength, as all three major indices had recorded two straight days of gains, arguably contributed to the late-day pullback, as nervousness also set in ahead of Dell's (DELL 38.15 -0.98) analyst meeting and Alcoa's (AA 29.98 0.00) earnings report...
While crude oil futures ($55.85/bbl -$0.19) were only down a modest 0.3% for the day, selling pressure closed the commodity to the downside for the third day in a row, mitigating speculation that higher energy prices will contribute to inflationary pressures... Earlier, profit taking pushed the commodity much lower, as builds in inventories continued to drive down prices, providing a floor of support for both stocks and bonds... Crude oil inventories rose 2.4 mln barrels, (consensus +2.5 mln) and distillates rose 672K barrels (consensus -1.4 mln), but gasoline inventories fell 2.1 mln barrels, slightly more than the expected 2.0 mln barrel decline...
With gasoline inventories having arguably moved into the spotlight ahead of the busy summer driving season, declining inventories should remain a concern, as high gas prices pressure discretionary spending... Meanwhile, falling bond yields also lent support to equities, as Treasurys got a lift following Greenspan's comments, as the benchmark 10-year note closed up 8 ticks to yield 4.43%... Yesterday, the Fed Chairman mentioned that oil was in a "price frenzy" while today, he testified about the oversight of government-sponsored enterprises (GSEs) Fannie Mae (FNM 54.15 +1.87) and Freddie Mac (FRE 63.80 +2.04)...
One sector that benefited from lower bond yields and large gains in both FNM and FRE was Financial (+0.7%), in contrast to Utility (-0.4%) and Homebuilding (-1.1%) - with the latter under pressure after Standard Pacific (SPF 69.51 -5.14) reported a year-over-year decline in Q1 orders - which both closed lower... Energy (+1.7%), strangely, found the most strength amongst the 10 largest economic sectors, while the more influential Health Care (+0.2%) and Industrials (+0.1%) also found buying interest...
Biotech paced the way higher, taking a bullish cue from a rally in shares of Human Genome Sciences (HGSI 10.02 +0.76), which reported positive results in Phase II trials of its rheumatoid arthritis drug LymphoStat... Technology, however, was mixed, as modest gains in Semiconductor, following multiple chip stock upgrades at Merrill Lynch, struggled to offset weakness in Software (-0.3%), under pressure amid mixed guidance... Siebel Systems (SEBL 8.26 -0.89) - the most actively traded issue on the Nasdaq - issued a warning for Q1 while Autodesk (ADSK 32.07 +1.18) issued upside FY06 guidance...
The Consumer Staples sector (-0.2%) also posted modest losses after Anheuser-Busch (BUD 45.62 -1.82) lowered Q1 EPS guidance while Consumer Discretionary (-0.5%) finished lower amid weakness in Retail (-0.8%), ahead of March same-store sales and Bed Bath & Beyond's (BBBY 36.74 -0.56) Q4 earnings report, which was expected after the bell... Telecom Services (-0.6%) was also weak after MCI Inc. (MCIP 25.39 +0.38) again rejected Qwest's (Q 3.78 -0.08) sweetened $8.9 takeover bid in favor of Verizon Communications' (VZ 35.51 +0.15) lower $7.6 bln offer... Separately, the SEC voted 3-2 to extend the trade-through rule to Nasdaq-listed shares - a rule that guarantees investors will get the best price on all electronic trades... DJTA -0.2, DJUA -0.4, DOT -0.4, Nasdaq 100 -0.2, Russell 2000 +0.3, SOX +0.2, S&P Midcap 400 +0.2, XOI +1.5, NYSE Adv/Dec 1985/1265, Nasdaq Adv/Dec 1614/1471
2:54PM Dell edges to minor new low for the week (DELL) 37.99 -1.14: -- Technical -- Stock has extended today's pullback in recent action to establish a minor new low for the week leaving it just above support at the 200 day sma and the March/five month low at 37.91/37.85 (session low 37.95).
9:11AM Gapping Down : Gapping down on disappointing earnings/guidance: SEBL -10.7% (also downgrades from Jefferies, Needham, Wachovia), SCHN -9.2%, RIMM -4% (also Garban cuts to Sell; $55 target), NABI -3.3%... Other News: SIRI -2.5% (Goldman initiates with Underperform), MAMA -7.6%.
9:03AM Gapping Up : HGSI +9.1% (positive clinical data), GLBL +8.2% (awarded 3-year ONGC pipeline replacement contract), ALKS +6.3% (says JAMA publishes positive results of Phase III study), VEXP +11% (momentum from yesterday's 221% move), NTAP +4.7% (co and IBM team to take on EMC; Morgan Keegan upgrade), INTV +4.6% (reports FebQ), ELN +4.4%, ADSK +3.9% (raises guidance), BIIB +2.5% (Phase III study of Rituxan met its primary endpoint), NYER +20%, OXGN +15% (started with a Buy at Wells Fargo; tgt $7)... Comm IC stocks are strong: BRCM +2% (Merrill upgrade), PMCS +2.7% (Merrill upgrade), ALTR +2.4% (Merrill upgrade)... Under $3: PAX +125% (may receive bid from Byron Allen).
8:30AM S&P futures vs fair value: +4.6. Nasdaq futures vs fair value: +5.5. Futures market ticks a bit higher, indicating an even stronger start for equities... Software should be in focus again amid mixed earnings outlooks - a warning from Seibel Systems (SEBL) and upside guidance from AutoDesk (ADSK), while Semiconductor should attract buyers following multiple Merrill Lynch upgrades on chip stocks... Some other notable ratings changes include upgrades on PFE, GPS, JCP and BHI while AIG, ADM, BUD and SEBL have been downgraded
8:16AM Network Appliance and IBM team to take on EMC (NTAP) 27.21: NTAP and IBM announced strategic storage relationship to "take on EMC", will drive information on demand solutions and expand IBM's portfolio of storage solutions. Under terms of deal, NTAP and IBM will enter into OEM agreement that will enable IBM to sell IBM branded solutions based on NTAP unified and open network attached storage and iSCSI/IP SAN solutions, including NearStore and the NetApp V-Series Systems, as well as associated software offerings. Agreement also promotes enhanced integration of NTAP applications with IBM Tivoli Storage Manager.
6:26AM Genentech, Biogen Idec and Roche announce that a Phase III study of Rituxan met its primary endpoint (DNA) 57.15: DNA, BIIB and Roche announces that a greater proportion of Rituxan-treated patients achieving an American College of Rheumatology 20 response at week 24, compared to placebo. The study included patients with active rheumatoid arthritis who have had an inadequate response or were intolerant to prior treatment with one or more anti-TNF therapies. Further analysis of the data are ongoing and will be submitted for presentation at an upcoming medical meeting. A preliminary analysis of the data did not reveal any unexpected safety signals. The most common side effects in the Rituxan arm included headache, upper respiratory tract infection and nasopharyngitis. The reported rate of serious adverse events was comparable across the two treatment arms.
6:19AM Autodesk raises guidance (ADSK) 30.89: Company issues guidance for Q1 (Apr), sees EPS of $0.27-0.29 vs. Reuters Estimates consensus of $0.27 on revs of $340-350 mln, consensus $339 mln. For Q2 co sees EPS of $0.21-0.23, consensus $0.23 on revs of $335-345 mln, consensus $331.9 mln. For Y06 the company sees EPS of $1.10-1.15, consensus $1.09 on revs of $1.425-1.475 bln, consensus $1.388 bln.
11:39AM MCI (MCIP) $24.99 -0.02 (-0.1%) "Show me the money, not the stock," appears to be the message that the MCI board is sending to Qwest. The announcement today that the board has rejected the increased Qwest bid, despite its "higher" current value, clearly means that the MCI board thinks the future value of VZ stock (with MCI) will be much higher than the future value of Q stock (with MCI).
In fact, it could be argued that the board feels the future value of VZ stock will be at least 25% more than the future value of Q, but not 30% more. This is because the MCI board, according to the Wall Street Journal, told Qwest that an offer equal to $30 per MCIP share would be acceptable. A $30 per share offer would be 28% higher than the Verizon (VZ) bid.
Actually, the proper way to analyze the future value of the two bids is to say that the "net present value" of the Q bid has to be 28% higher than the net present value of the VZ bid in order for the future value of the Q stock portion of the bid to be higher than the future value of the VZ stock. Without knowing the time frame or the assumed growth rates for each stock that the board is using in such an analysis, it is hard to precisely analyze their growth expectations for each stock. It is obvious, however, that the MCI board has much lower growth expectations for Q stock than it does for VZ stock.
Although the Wall Street Journal article is not specific, it can be assumed that MCI asked Qwest (Q) to increase the cash portion of the bid to $16.00 in cash per share, not increasing the ratio of Qwest stock that would be exchanged. The ratio of Qwest stock was already reduced from the 4.144 shares of Q per MCIP in prior bids to the latest 3.373 Q shares per MCIP with a $14.00 collar. Since first bidding for MCIP Qwest stock has fallen from the $4.40 level to today's $3.80 level, a collapse of about 14%.
It can also be assumed that the MCI board probably knew that Qwest could not come up with a $16 per share cash bid. Qwest already provided MCI with financing commitment letters for the $13.50 cash per share component of their offer, which is a total of almost $4.4 billion. At $16.00 cash per share, the total cash needed is more than $5. 2 billion, meaning Qwest would have to borrow $800 million more, an 18% increase. Qwest already has more than $17 billion in debt, the service of which is already 17% of revenues. In fact, it is probably reasonable to assume that the MCI board called the lenders who issued the commitment letters to see if Qwest could carry an additional $800 million.
With Qwest rejecting the $30 offer, it looks like all but the last dance is over. The MCI board now has some kind of analysis justifying the VZ bid as better, probably using projections of future value of the two stocks. That analysis probably supports a view that to be "better" in present value terms, the Qwest bid has to carry $16 worth of cash. Now, in fact, the MCI board has not said "No" to Qwest; they made Qwest be the one to say "No." That maneuver becomes the defense the MCI board can use against any claims that they failed in their fiduciary duty.
All that remains now is the last waltz: a shareholder vote on the Verizon offer, which the already signed Verizon-MCI agreement allows Verizon to initiate, not the MCI board. Although there are a lot of big MCI shareholders who said the wanted the "superior" Qwest bid, it may turn out that this was all just a way to squeeze the most out of Verizon. As we have said for a long time, Verizon will wind up owning MCI and for a long term investment premise, the price of VZ is currently extremely low. - Robert V. Green
10:46AM Research In Motion (RIMM) 74.08: The Waterloo, Ontario-based company reported fourth quarter results after Tues close topping consensus estimates. The upside was driven by strong gross margin expansion on a higher contribution from services and software. Earnings came in at $0.71 per share, $0.06 above consensus on revenues up 10.6% y/y and 11% q/q to $404.8 mln, vs. the $409.6 mln consensus. Earnings excluded a tax gain of $151.6 mln and costs of $294.2 mln to settle litigation with NTP Inc.
Besides the headline earnings figure, the market closely watches the number of new subscribers. For the quarter, the total number of BlackBerry subs grew by 470k above the company's guidance of 435-455k and the Streets' estimate of 451k. Strong subs offset weaker device sales (shipped 710k units) due to carrier inventory tightening. ASPs rose to $478 from $370 last quarter on the introduction of higher-end handsets, although the company expects to remain flat in Q1. It added 6k enterprise servers. The revenue breakdown was 66% handhelds, 17% service, 14% software, and 3% other. Higher margin software revenue helped boost overall profitability from 52% last quarter to 57%.
RIMM said it expects to surpass 3 mln subs in Q1 - up almost 20% from the current level. It also plans to launch BlackBerry with an additional 100 carriers this year. In terms of guidance, the company maintained its Q1 revenue forecast of $430-455 mln due to standout May net adds of 560-590k, vs. Reuters consensus of $452 mln. It expects subs to range between 450-590k and GAAP EPS of $0.51-0.56 vs. consensus of $0.68. The lower than expected earnings not only for Q1, but for the full year as well, is due to a higher than anticipated tax rate of 30% caused by the NTP settlement. RIMM had anticipated a 7% rate in Q1, steadily rising to 25-30%. The lower guidance may weigh on shares in the near-term.
In terms of profitability, RIMM expects further gross margin expansion raising forecasts from 51-54% range to 54-56% due to increased software and services mix, economies of scale in manufacturing, and robust net subs. For the Q2, it anticipates revenues between $460-485 mln - lower than the Reuters consensus of $492 mln due to seasonal weakness in Aug. The wireless solutions company expects to see continued reduction in relative inventory levels from carriers in Q1 and Q2, which is factored into guidance. Industry analysts believe this is not a reflection on the demand side, but more a function of carriers deciding to carry less handset inventory from all vendors.
Even though revenues and device sales came up short, margin improvement demonstrates earnings leverage in its model. Profitability gains buttressed by continued strong subscriber growth were the highlights of the quarter. RIMM expects to hit the 3 mln sub level just six months after reaching 2 mln, demonstrating the strong momentum in BlackBerry's global expansion and penetration. Research In Motion has not only been a phenomenon in the US, but has also gone global with over 20% of its subscriber base outside North America. New markets, handset models, carrier adds, and increased penetration into the retail market will continue to drive growth over the longer-term. Some of the catalysts this year will be the new 7100 series launch in Europe and over the longer-term as its breeches the shores of Asia.
The stock is trading at 36.4x forward earnings vs. its competitors Microsoft (MSFT) at 19.0x, Nokia (NOK) 15.4x, and PalmOne (PLMO) at 16.9x. We suggest investors look past lower guidance and take advantage of any weakness. RIMM holds its analyst meeting on April 18th, which may also serve as a catalyst for shares. ----Kimberly DuBord, Briefing.com
8:48AM Page One - Oil Provides a Modest Boost Amidst Mixed Sentiment : It is another day of light news. Oil prices remain a focus. They are down a bit this morning to under $56 a barrel. The inventory data will be out at 10:30 ET and could cause volatility in the price.
Federal Reserve Chairman Greenspan's comments yesterday about a potential easing in oil prices helped support the stock market. The S&P has bounced off its recent low of 1164 and is now moving towards the middle of its recent trading range, as reflected in the chart below.
Alcoa traditionally starts off each earnings season, and it reports after the close today. However, there are no other reports of note the remainder of the week, and next week there aren't many reports until Thursday. It will continue to be slow in terms of corporate news.
The news today includes a mixed earnings report from Blackberry maker Research in Motion (RIMM) which has the stock indicated significantly lower. Siebel Systems (SEBL) warned of lower than expected earnings for this quarter. The MCI board has decided it is in the interest of shareholders to reject the extra $1.5 billion that Qwest is offering, and voted to go with Verizon.
The market remains in a trading range mentality. The focus is drifting away from inflation fears ( at least temporarily). The 10-year note yield has eased back under 4.50%, helping sentiment. The better tone may allow for the bounce to continue for a while, but there is still no strong momentum in either direction.Dick Green, Briefing.com
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