From Briefing.com: 5:54PM Preliminary Support And Resistance Table : -Technical- The market vacillated on both sides of the flat line for the first 90 minutes of the session but extended yesterday's reversal off the 52-wk highs into the afternoon before stabilizing in late trade. Despite the push off the lows the averages, led lower by Small-Caps (Russell 2000 -0.66%), ended on a negative note, Volume, however, rolled in below the previous day and below average (Nasdaq 1.766 bln, NYSE 1.578 bln) suggesting relatively modest selling pressure. For support and resistance levels for tomorrow a quick look at the current technical posture see The Technical Take. The full version is updated prior to the open tomorrow.
4:30PM TXN sees Q4 EPS of $0.41-0.43 , excluding $0.03 in stock based comp expense vs $0.41 Reuters consensus, prior guidance $0.39-0.43 ex $0.03 stock exp :
Close Dow -45.95 at 10810.91, S&P -6.33 at 1257.37, Nasdaq -8.75 at 2252.01: Mid-afternoon, sellers shoved the major averages out of the narrow red range that had bound them all day. Disappointment over the market's failure to sustain yesterday's gains perhaps gave investors a cue to continue consolidation efforts, and the absence of a influential catalyst left buyers standing at the sidelines. The selling wave somewhat tempered just before the close, but nonetheless left the indices well below the unchanged mark. Although energy prices have received some added attention with winter weather's arrival to some parts of the country, better than expected crude inventory stats from the EIA were more or less overlooked. The bullish data sent crude futures into the red, halting their six-day advance, and the Energy sector with it. Besides revoking leadership, though, the data had no effect. Broad-based declines dragged each of the ten sectors, but Financial's 0.8% plummet did the most damage. Wide-spread selling infected the sector, sparing virtually none of the S&P's financial issues. Banks led the slide as the benchmark 10-year note's (-08/32) 4.51% yield again served as a bearish backdrop. The past few weeks' stream of strong economic data has fed inflation-flustered traders' fears; anticipation of another ¼% rate-hike, which the FOMC is expected to announce next Tuesday, and uncertainty over the extent of the Fed's tightening cycle continued to weigh upon the bond market, the Financial sector, and the stock market at large. Particularly due to weakness in HMOs, Healthcare imposed a weighty 0.5% loss. WellPoint (WLP 76.87 -2.20) was the particular sore spot, running south after announcing its fiscal 2006 EPS outlook which, per the headline read, appeared to fall below the consensus estimate. The exclusion of a one-time item, however, translated to EPS that should be two cents higher than expected. To that end, WLP's forecast reflects Briefing.com's positive view of the managed care industry. Progress in the proposed Boston Scientific (BSX 25.77 -0.57) acquisition of rival Guidant (GDT 66.48 -0.40) sent both stocks lower and added to the sector's weakness. Technology relinquished its flat line status intraday, closing 0.4% lower. While upgraded Cisco (CSCO 17.78 +0.22) shares and Texas Instruments (TXN 33.56 +0.27) - rising upon optimistic anticipation of this evening's mid-quarter update - were the sector's brightest spots, extended weakness in semiconductors stood as a more than offsetting factor. Intel (INTC 26.11 -0.56), which will deliver its mid-quarter update Thursday night, spearheaded the way south. As mentioned, crude's pullback pushed Energy (-0.7%) lower while doing little to support the Discretionary sector (-0.2%). Consumer Staples (-0.4%), Industrials (-0.6%), Materials (-0.3%), Telecommunications (-0.6%), and Utilities (-0.8%) also suffered from wide-spread selling today. NYSE Adv/Dec 1229/2081, Nasdaq Adv/Dec 1152/1875
9:05AM UTStarcom signs agreement to supply CDMA handsets to S-Fone in Vietnam (UTSI) 8.56 :Co announces a contract to supply its C1161 CDMA 1x handsets to S-Fone, a nationwide CDMA service provider based in Ho Chi Minh City, Vietnam. Under the terms of the contract, the co will supply its C1161 model to S-Fone for use by the operator's subscribers in Vietnam. Financial terms not disclosed.
11:28AM 3M (MMM)
77.99 +0.29: The nearly six-month wait for a new leader at 3M is over. The St-Paul, Minnesota-based maker of everything from Post-It Notes to Scotch Tape has tapped Brunswick Corporation (BC) chief George W. Buckley as its new chairman, president and CEO, effective immediately. Buckley, an engineer by trade who helped right Brunswick's ship by effectively doubling BC's earnings power and boosting the boat maker's stock price to the tune of 150% since taking the helm in June 2000, will be expected to use some of his innovative expertise to get 3M refocused on its core businesses.
Handing over the reins just weeks before Santa tightens his own is interim chairman and CEO Robert S. Morrison, who helped keep the company on course after former CEO Jim McNerney abruptly left 3M on June 30. McNerney found a better fit for his GE Aircraft Engines expertise with aerospace giant Boeing Co. (BA).
Fortunately for 3M, McNerney's six-sigma implementation (a quality control process popularized by GE), coupled with other cost-cutting and productivity initiatives that compiled a five-part productivity overhaul upon McNerney's arrival at 3M in 2001, were already well integrated throughout 3M's organization. Further proof of 3M's ability to weather the storm in McNerney's absence has been evidenced in the stock price. Including the 4% lost on the day McNerney announced his departure, 3M is up about 10% since then.
While Brunswick is focussed on satisfying recreational enthusiasts by producing everything fun, from pleasure boats to bowling balls and billiard tables, Morrison has endorsed Buckley's excellent record of driving both sales growth and operational efficiency in such a wide range of global businesses. Morrison said, "George Buckley is a proven CEO with a terrific blend of strategic, business and analytical skills... and his strengths complement perfectly 3M's culture of innovation and operating effectiveness."
--Brian Duhn, Briefing.com
10:57AM Comverse Technology (CMVT)
27.71 +1.31: Comverse Technology said its third quarter earnings rose sharply, helped by strong sales and demand for its Total Communication portfolio, which includes call answering, advanced messaging, and real-time billing. After the close on Tuesday, the company reported net income of $37.1 million, or $0.17 per share, excluding non-recurring items, up from $17.4 million, or $0.08 per share, in the year ago period.
Supported by strong demand for its network systems solutions, Comverse said revenue for the quarter increased 21.8% from a year ago to $299 million. That represents the twelfth consecutive quarter of sequential sales growth. Moreover, the company continued to expand its operating margin. For the third quarter, operating margin improved to 10.2%, compared with 6.6% a year earlier. The latest results beat the consensus estimate for earnings of $0.15 per share on revenue of $292.41 million.
Separately, Comverse said its Verint Systems (VRNT) subsidiary continued to expand its activities providing actionable intelligence for security and business intelligence applications, fueling record third quarter sales and operating income. Sales for the quarter grew 22.3% year/year to $78.2 million, while income from operations increased 35.75 to $9.3 million. Unit operating margin expanded 120 basis points to 11.9% from 10.7% last year.
Based on its strong third quarter results, the company raised its guidance for the fourth quarter. It now sees earnings of $0.18 per share on revenue of $325 million, up from its previous forecast for earnings of $0.17 per share and revenue of $296 million. Analysts are expecting the company to post EPS of $0.18 on revenue of $288.2 million, according to Reuters Estimates. Given the continued strong results and high expectations, the stock is up more than 18% year-to-date. At the current level, CMVT shares trade at 34.0x forward earnings.
--Richard Jahnke, Briefing.com
10:53AM Gap, Inc. (GPS)
17.77 +0.06: On November 27, the National Retail Federation said retail sales surged 22% year/year to $27.9 bln over the crucial Thanksgiving weekend as roughly 145 mln shoppers flooded stores, lending credence to what Briefing.com believes will be a solid holiday selling season. Although there has been stepped-up promotional activity this year, it's apparent that not all retailers had people waiting in long lines on Black Friday to scoop up bargain opportunities. With consumers shopping primarily for electronics, housewares, and toys - as opposed to apparel many have discarded as too trendy or just not very exciting - Gap saw an 8.0% year/year drop in the number of shoppers walking the doors to its more than 3,000 locations.
According to The New York Times, the nation's largest specialty apparel retailer has now largely dismissed the holiday shopping season altogether. Gap is likely to take exception to that assertion, but it should be noted Gap CEO Paul Pressler told investors on Nov. 17 that management was "not optimistic" about Q4. The retailer aptly slashed FY05 EPS forecasts by about 14% and said it will take time to win back some of the customers Gap has "disappointed." Declining sales across all three divisions, meanwhile, has raised concerns about whether Pressler is the right man for the job.
Last Thursday, Gap same-store sales fell 4.0% (Briefing.com consensus -5.4%) while comps at the company's Old Navy and Banana Republic chains fell 2.0% and 5.0%, respectively.
While Pressler has been applauded for some successful restructuring activity (e.g. closing 300 poorly performing stores and wiping out much of its $3.4 bln debt load), the recent exodus of Gap's CFO, head designer and director of marketing paints a relatively confusing picture regarding top management's more risk-averse efforts of returning the company to its casual roots. At this juncture, it is still uncertain if the struggling retailer has the right plan in place to close the gap on competitors such as Abercrombie & Fitch (ANF) and American Eagle Outfitters (AEOS), which have done a much better job of late connecting with their target audience.
--Brian Duhn, Briefing.com
9:21AM An Energy Check-Up
Weather remains the dominant factor driving oil prices. Warmer temps well into the fall season drove crude prices well below sixty dollars per barrel, but now with colder temps and storms in the east coast, prices are gaining once again. Seasonal patterns play a dominant role this time of year in commodity and equity prices. All those who were selling out in October, as the Energy sector precipitously fell out of favor, can thank Mother Nature.
The prevailing theme in energy over the past year has been one of extreme caution due to a limited amount of spare capacity. Energy traders are now worried that cold temps will drain fuel supplies, rising expectations the market could face shortages of heating oil this winter. OPEC, which is expected to leave production unchanged at its Dec. 12th meeting, is pumping a record amount of crude, selling basically every barrel coming out of the ground. The global energy markets are extremely tight, operating without the benefit of a supply buffer in the event of a terrorist attack or natural disaster.
Crude oil for January rose 59 cents, or 1% to $60.53 per barrel on the New York Mercantile Exchange. Prices are down over 15% from their record high of $70.85 per barrel reach on August 30th - the day after Katrina made landfall. Today, the Dept of Energy will release its weekly inventory data, showing stockpiles of crude and distillates (heating oil, gasoline). Tensions are rising after al-Qaeda made a call for terrorists to attack oil installations in Islamic countries putting further upward pressure on prices.
We think investors should remain overweight Energy due to the sector's profit growth expectations, low valuations, and increasing shareholder returns as the energy market enters only the first phase of a long-term secular story. While, the Integrateds and E&Ps are the most leveraged to changes in oil prices, we prefer the oil services stocks, which are reaping the benefits of windfall profits as producers increase investment across the energy patch. Briefing.com's suggested holdings in our Active Portfolio include Grant Prideco (GRP), BJ Services (BJS) and Transocean (RIG).
---Kimberly DuBord, Briefing.com
9:14AM WellPoint (WLP)
79.07: Following the successful integration of Anthem and other significant achievements in 2005, WellPoint on Tuesday announced its outlook for fiscal 2006. The nation's largest health insurance provider forecast FY06 earnings of $4.51 per share, including $0.18 for the expensing of stock options. However, backing out the expensing charges, the company expects to earn $4.69 per share. According to Reuters Estimates, analysts expect the company to post earnings of $4.67 per share, excluding the option expense.
WellPoint also projected operating revenue of about $49.5 billion, an increase of 11% from fiscal 2005 estimates. Furthermore, the company expects medical enrollment to increase by approximately 3%. The current guidance, which represents a 15% increase over the EPS estimate of $3.93 for the current year, excludes the impact of the pending merger with WellChoice (WC). WellPoint confirmed its plans to acquire WellChoice in September for consideration of $6.5 billion, and expects the merger to close in the first quarter of 2006.
Concurrent with WellPoint's positive 2006 forecast, the company reiterated its commitment to its long term goal of achieving 15% earnings growth. As the company continues to integrate Anthem and WellChoice, as well as leverage its industry leading brand, it remains well positioned to capitalize on the current opportunities facing the industry.
--Richard Jahnke, Briefing.com
8:38AM General Motors (GM)
22.39: With pressure mounting and investors' patience waning, General Motors announced today a bevy of management changes in a desperate attempt to stem the tide of losses. The latest round of reorganization certainly won't be the last, but the Board's changes do give CEO Rick Wagoner a bit more time to cauterize the profit losses. The clear strategy is to shrink the company into profitability. Unfortunately, this misses the other 50% of the equation: GM needs to sell more cars.
GM has brought in a high-profile, cost-cutter named Frederick "Fritz" Henderson from Europe, to take over as Chief Financial Officer. Henderson is known for slashing 12,000 jobs in Europe, where GM hasn't posted an annual profit since 1999. In the second quarter of this year, the European business posted its first profit in five years, but then slipped into negative territory just a quarter later, losing $382 mln. Henderson has been globetrotting for most of his career, running the Asia Pacific unit from 2002 to 2004 after leading the Latin America, Africa, and the Middle East regional operations.
Henderson will be replaced by GM Europe President Carl-Peter Forster. Guy Briggs, 67, group vice president of North American manufacturing and labor relations, will retire on April 1st. Tim Lee, 53, who ran the European manufacturing for Henderson, will take over as North American manufacturing vice president on January 1st. The market holds considerable regard for current CFO John Devine, who came out of retirement to take the CFO position. Devine will be ending his five-year contract at the end of the month, but will remain a vice chairman for as much as a year, working with Henderson and Wagoner in executing GM's plan to turn around its failing North American operations.
--Kimberly DuBord, Briefing.com
9:25AM TEKELEC (TKLC) Robert W. Baird downgrades Outperform to NEUTRAL. Firm is citing Alcatel's Softswitch performance problems at Cingular. The firm believes Tekelec will lose its Cingular Switching rev in 2006 saying this loss creates negative psychological implications for Tekelec, and stresses its large dependency on Alcatel. Firm says this also casts doubt on joint future customer wins. The firm believes the stock is "dead-money" until a significant positive change occurs.
9:25AM Cadence Design (CDNS) RBC Capital Mkts upgrades Sector Perform to OUTPERFORM. Target $17 to $22. The firm believes that Cadence is increasingly in the sweet spot of customer requirements with broad EDA tool offerings, compelling technology advancements, and various packaging options at multiple price points.
9:25AM SW Energy (SWN) KeyBanc Capital Mkts / McDonald initiates HOLD. Firm says there is no question that the co has a huge undeveloped resource base in the Fayetteville Shale play in the Arkoma basin, however firm believes the current share price represents fair value.
9:22AM WebMD Health (WBMD) Needham & Co initiates HOLD. Firm believes the co is well positioned to benefit from increased usage of the Internet by consumers and healthcare professionals for health-related information services, as well as from a rise in online marketing by healthcare companies. However, the firm's positive fundamental view is tempered by their valuation analysis. Firm's fair value estimate is $30.
9:22AM Millennium Pharm (MLNM) Sun Trust Rbsn Humphrey downgrades Buy to NEUTRAL. Firm says that while pending Revlimid approval threatens Velcade sales, they see limited catalysts in 2006 to drive upside for the stock in the next 12 months.
9:21AM Nuance Communications (NUAN) Needham & Co upgrades Hold to BUY. Target $7.5. Firm is saying that while they don't believe chasing stock price momentum works, they do believe companies have a degree of fundamental business momentum (both up and down). They say that by all indications, it looks like the business will have legs for at least the next couple of years. They believe that while the stock may not see a huge multiple expansion, further consistent results should enable NUAN shares to advance in line with its EPS growth.
9:21AM Diodes (DIOD) Stanford Research reiterates BUY. Target $28 to $36. Firm raises price target following the co's announced acquisition of Anachip, through which it enters analog. Firm believes Anachip has positive implications for top line growth and margins. They estimate that Anachip's low end products carry margins at least as good as DIOD's gross margin of 35%, with the rest of the portfolio having the potential to bring the combined co's gross margin to above 37% in the next several quarters. They also say December revenue and EPS are likely trending to the higher side of guidance, with a strong chance of DIOD beating their expectations.
9:20AM Kennametal (KMT) KeyBanc Capital Mkts / McDonald downgrades Buy to HOLD. Downgrade is based on uncertainty that may arise with the departure of CEO Markos Tambakeras, especially in light of Tambakeras's strong performance over the past six years.
9:19AM Harleysville Grp (HGIC) KeyBanc Capital Mkts / McDonald reiterates BUY. Target $27 to $32. Firm is saying that as HGIC continues to improve underlying profitability and the overall quality of the book of business, they believe the co should trade closer to its peer group
9:18AM Audible (ADBL) Brean Murray reiterates ACCUMULATE. Target $14 to $16. Firm believes the co has been mining its data and has fine-tuned its subscription services to better address its current customers, and has also created a new program for potential new customers. Additionally, they say the co has redesigned its Web site to enhance the user experience with a streamlined checkout process.
9:00AM Ixia (XXIA) Ferris Baker Watts reiterates BUY. Target $19 to $17. Ferris Baker and Watts states, while they remain positive with regard to long-term outlook for Ixia (XXIA), they are handicapping prospects for earnings volatility with reduction of their three- to five-year net income growth rate forecast to 22% from 27%. In addition, firm is revising 4Q05 estimate downward toward the low end of management guidance, which is for earnings in a range of $0.11-0.14 per share on revenue of $40-44 mln, Reuters consensus is $0.13 and $42 mln. Firm notes, at their annual analyst meeting, Cisco mgmt indicated that there would be approximately zero increase in engineering headcount during FY06 (July). In firm's view this increases the likelihood of tough comparisons for Ixia for a few quarters. Other checks indicate that capital spending continues to be under pressure at Cisco in efforts to offset the P&L effects of overstaffing in R&D.
8:59AM Cephalon (CEPH) Am Tech/JSA Research upgrades Hold to BUY. Target $45 to $60. Upgrade is based largely on the belief that while the co's impending generic erosion to its current product portfolio is well understood, its pipeline of attractive products is not. Moreover, they believe that CEPH has options that are also not well understood in the marketplace to mitigate risks from generic threats, particularly for Provigil.
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