Secondary plays: NKE, TBL, CROX, BOOT, PXG, WWW...
DECK is expected to report Q4 earnings after the close today followed by conference call at 4:30pm ET...
DECK Consensus: First Call consensus is Q4 EPS of $2.41 on revs of $183.99 mln; Q1 EPS of $0.92 on revs of $89.56 mln; FY07 EPS of $4.80 on revs of $438.68 mln; FY08 EPS of $5.82 on revs of $530.85 mln...
Guidance: Note the co may report guidance as %. After releasing last qtr results on 10/25, co issued upside Q4 guidance with EPS to ~15% YoY (calculates to ~$2.08) vs $2.06 consensus, before the restatement adjustment and impairment charge and revs to ~35% YoY (calculates to ~$167.9 mln) vs $165.4 mln consensus. This is up from its previous EPS growth tgt of 10% and revenue growth targets of 30%. In reaction to last qtr results and guidance, the stock gapped up 15% and closed up ~25%...
Expectations: Since becoming a publicly traded company, DECK has beaten earnings estimates every time. On average the co has beaten earnings by $0.13. As for Q4 specifically, co beats on average by $0.22. Revs growth YoY for Q4 has always been positive (>22%). Gross margin will be key issue as analysts believe DECK will report strong sales (at full price) despite the high promotional activity in the retail sector. The Teva turnaround is still in question and the expansion of its product line could be more susceptible to a slower economy...
Briefing note: Short interest is 24%, mkt cap is $1.65 bln, float is 12.51 mln and avg volume is 600k. Due to the high short interest, upside guidance could fuel a move higher...
Areas of Focus on the Call: 1) FY08 outlook (may give guidance as %) 2) Gross margin (gross margin estimates for Q4 is 45.95%, FY07 is 45.22% and FY08 is 45.08%) 3) Commentary on economic sensitivity of customers 4) Update on Teva turnaround...
Recent price movement: After reporting last qtr, co gapped up ~15% and closed up ~25%. Since reporting last qtr, stock is trading down ~11%, but trading up 8% over past month. Note the made a new 52-week high (~$166.50) on 12/27, but the stock has since retreated trading ~24% off this 52-week high...
Thursday, February 28, 2008
Deckers Outdoor (DECK) Q4 Earnings Preview
Sepracor (SEPR) Q4 Earnings Preview
Secondary plays: GSK, SNY, CRTX, PRX, MYL, WPI...
SEPR is expected to report Q4 earnings tomorrow before the mkt opens followed by a conference call at 8:30am ET (was delayed from 2/5 due to potential restatements for periods back to 2002)...
SEPR Consensus: First Call consensus is Q4 EPS of $0.53 on revs of $341.78 mln; Q1 EPS of $0.57 on revs of $324.27 mln; FY07 EPS of $1.44 on revs of $1.24 bln; FY08 EPS of $2.28 on revs of $1.34 bln...
Guidance: Co reaffirmed guidance at JPMorgan Healthcare conference on 1/9, co sees FY07 EPS of $1.33-1.43 (excluding $0.28 charge and including restructuring costs, may not be comparable to $1.46 First Call consensus) on revs $1.23-1.30 bln vs $1.24 bln First Call consensus. Co also reaffirmed FY08 EPS guidance of $2.35-2.45 vs $2.32 First Call consensus. Stock is trading down ~18% since reaffirming this guidance...
Expectations: Since 2000, co has beaten earnings estimates 26 times (missed only 4 times) and beat Q4 estimates for past 4 years by at least $0.21. Revs growth YoY for Q4 has been >14.8% for past 8 years, but growth has slowed over the past year (revs growth actually declined last qtr -1.9%). For the most part, slower Rx trends have dampened Q4 and 2008 expectations, but estimates still remain plausible with new deals in the pipeline (such as Ciclesonide franchise deal with Nycomed and Bial collaboration)...
As for particular drug numbers, Q4 estimates (based on single analyst estimates) are Lunesta $160 mln ($612 mln for the year), Xopenex/XopenexHFA $185 mln ($587 for the year) and Brovana $12 mln. In July, co stated on call it expects FY07 Lunesta sales of $595-615 mln and Xopenex sales of $495-515 mln...
Areas of Focus:
1) Drug numbers (especially Lunesta sales guidance, which accounts for ~50% revs)
2) FY08 outlook (co usually gives more detailed guidance on call)
3) Update on recently announced Nycomed agreement
4) Update on recently announced (1/28) internal review of government price reporting (co also disclosed statements for periods back to 2002 should no longer be relied upon)
5) competition such as market risk for Lunesta as Ambian goes generic and NBIX's Indiplon
6) takeover speculation that JNJ may place bid...
Briefing note: Short interest is 7%, mkt cap is $2.58 bln, float is 110.31 mln and avg volume is 2 mln...
Recent price movement: Since reporting last qtr, stock is trading down ~15% and is still barely trading off its 52 week lows (~$22.25)... The stock has made some notable moves after releasing earnings/guidance in the past. Last qtr the co gapped up ~14% after reporting (beat by $0.11 and issued mixed guidance) and on 7/27 the stock traded down ~25% after co missed estimates by $0.31 and revised guidance on conference call (in significant part due to the CMS changes on Xopenex inhalation solutions)...
Options volatility: Recently, SEPR Mar 25 calls have seen interest, pushing implied vol up to ~63%. Based on its options volatility, implied volatility is up ~54% vs its historical volatility (over 30 day period).
Monday, February 25, 2008
Genentech (DNA) accelerated approval
Millipore (MIL) - UBS notes that Friday Genentech (DNA) announced that the FDA had granted an accelerated approval of Avastin for the treatment of front-line advanced breast cancer. The firm says that sales of filtration and chromatography products used in Avastin biomanufacturing have been a key growth driver of MIL's Bioprocess division. They note that Avastin was already used off-label for this new indication. As such, the firm forecasts that the conditional approval could lead to incremental sales of ~$150 mln for DNA in '08 and ~$270 mln in '09. While it remains to be seen if this approval will spur a significant near-term increase in Avastin production, they say MIL shares could move up ~5% on the news.
Wednesday, February 20, 2008
American Railcar (ARII) Earnings Preview
Potential secondary plays: RAIL, WAB, GBX; customers KOP, DOW, GE
02/21 Update:
Wabtec misses by $0.01, beats on revs; guides FY08 roughly in-line, adds $100 mln to its share buyback program. Reports Q4 (Dec) earnings of $0.58 per share, $0.01 worse than the First Call consensus of $0.59; revenues rose 24.1% year/year to $365.3 mln vs the $344.3 mln consensus. Co issues in-line guidance for FY08, sees EPS of approx $2.50 vs. $2.53 consensus; sees FY08 rev growth in mid-single digits which we calculate to be about $1.43 bln vs. $1.44 bln consensus. Co also adds $100 mln to its share buyback program.
WAB next earning release 02/21 BMO
02/21 Update:
American Railcar Industries beats by $0.14, beats on revs (21.85 -0.15) : Reports Q4 (Dec) earnings of $0.37 per share, $0.14 better than the First Call consensus of $0.23; revenues fell 2.1% year/year to $161.9 mln vs the $143 mln consensus.
American Railcar Industries (ARII), a manufacturer of railroad cars, is set to report Q4 results tonight after the close. Consensus calls for revenue of $143 mln and EPS of $0.23.
Recent Results: The co does not have a good record of beating consensus estimates as it has missed the last two quarters. Last qtr, the co missed badly, as Q3 EPS of $0.23 was well short of the $0.43 consensus. Revenue was also very light. The stock dropped dropped by more than 20% that day (Nov 7)...
Recent Price Action: The stock has been making a nice comeback since selling off on Q3 results. The stock is up 45% since late Nov...
Recent Developments: Carl Icahn is ARII's chairman and majority shareholder (54%). Icahn says ARII is undervalued and he has been increasing his stake aggressively over the past few months even as the stock was falling. Just this month, Icahn said he was interested in a possible merger between ARII and railcar equipment supplier Greenbrier (GBX), another large Icahn holding...
About ARII, GBX, WAB, KOP
American Railcar Industries, Inc. is a leading North American manufacturer of covered hopper and tank railcars. ARI also repairs and refurbishes railcars, provides fleet management services and designs and manufactures railcar and industrial components used in the production of its railcars as well as railcars and non-railcar industrial products produced by others.
Greenbrier Companies Inc. is a leading supplier of transportation equipment and services to the railroad and related industries. The manufacturing segment produces double-stack intermodal railcars, conventional railcars and marine vessels, and performs repair and refurbishment activities for both intermodal and conventional railcars. In addition to manufacturing, they are engaged in complementary leasing and services activities.
Wabtec Corporation is one of North America's largest providers of value-added, technology-based products and services for the rail industry. Through its subsidiaries, the company manufactures a full range of products for locomotives, freight cars and passenger transit vehicles. The company also builds new locomotives up to 4,000 horsepower and provides aftermarket services, including locomotive and freight car fleet maintenance.
Koppers Holdings Inc. is a global integrated producer of carbon compounds and treated wood products. Including its joint ventures, Koppers operates facilities in the United States, United Kingdom, Denmark, Australia, China, the Pacific Rim and South Africa.
Koppers operates a fleet of over 900 railcars to provide transportation of raw materials to their production facilities and to provide delivery of products to customers. They have partnered with several motor carriers that meet their high standards for financial responsibility, adequate insurance coverage and personnel training to ensure responsible handling of their heavily regulated products.
02/20 KOP Reports Q4 (Dec) adjusted earnings of $0.44 per share, excluding non-recurring items, $0.06 better than the First Call consensus of $0.38; revenues rose 21.4% year/year to $326.8 mln vs the $310.9 mln consensus. Co issues in-line guidance for FY08, sees FY08 rev +5-8% which equates to ~$1.39-1.43 bln vs. $1.41 bln consensus.
02/20 KOP (41.27 +4.25)
JC Penney (JCP) Q4 Earnings Preview
Secondary plays: SHLD, M, SKS, KSS, DDS, JWN, ROST, TJX...
JCP is expected to report Q4 earnings 2/21 before the market opens followed by conference call at 9:30am ET...
JCP Consensus: First Call consensus for Q4 EPS of $1.77 on revs of $6.39 bln; Q1 EPS of $0.80 on revs of $4.30 bln; FY08 EPS of $4.60 on revs of $19.86 bln; FY09 EPS of $4.02 on revs of $20.10 bln...
Guidance: After reporting January same store sales on 2/7, co issued Q4 EPS guidance at high end of $1.65-1.80 vs $1.65 First Call consensus. The three days prior to this report, the stock traded down ~10%, only to surprise investors with relatively good news. The stock rebounded and closed up ~8% (currently trading nearly unchanged from this 8% upside reaction)...
Expectations: Since Q1 2001, co has never missed earnings estimates, reported in-line 3 times and beat on average by $0.03. Specifically for Q4, co has beat estimates every time and on average by ~$0.05 since 2001. Gross margin (estimates for Q4 is 37.02% and FY08 is 38.91%) will be key issue with increased holiday promotions to increase store traffic and sales. The stock was punished in 2007 (lost half of its value during 2007 and is still trading down ~37%) with co issuing downside guidance 2 times. These earnings revisions are expected to end as co will likely plan this year conservatively until economic environment improves...
Briefing note: Short interest is 8%, mkt cap is $10.55 bln, float is 198.9 mln and avg volume is 6.5 mln. Co has forward P/E of 12.3 (for comparison, some competitors' forward P/E values: SHLD 23.6, M 12.3, SKS 30.4, KSS 13.2, DDS 75, JWN 12.6, ROST 13.1, TJX 14.5)...
Areas of Focus on the Call:
1) FY09 outlook (guidance tends to steer the direction of the stock since co reports same store sales with EPS guidance giving a fairly accurate idea of current qtr)
2) Gross margin (gross margin estimates for Q4 is 37.02%, FY08 is 38.91% and FY09 is 38.25%) 3) Commentary on economic sensitivity of customers
4) Update on capital allocation (if co plans to refine capital allocation plan given current environment and return to positive free cash flow)...
Recent price movement: After reporting last qtr (beat by $0.02 but issued downside guidance), co gapped down ~4% and closed down ~5%. Since reporting last qtr on 11/15, stock is trading up ~7%; since reporting same store sales and issuing upside Q4 EPS guidance on 2/7, stock is trading up 8%. Note the stock made a new 52-week low (~$33.27) on 1/9, but has since rebounded trading ~43% higher off this 52-week low...
Tuesday, February 19, 2008
Hewlett-Packard (HPQ) Earnings Preview
Secondary Plays: DELL, IBM, EMC, NTAP, CAJ...
Hewlett-Packard is scheduled to report 1Q08 earnings after the close tonight with a conference call following at 5:00 ET. Current consensus is for EPS of $0.81 on revs of $27.6 bln...
Guidance: On 12/11, at its analyst day, HPQ reaffirmed FY08 EPS and revs of $3.74-$3.37 and $111.5 bln respectively. The company also issued in-line EPS and revenue guidance for FY09...
Recent Earnings History:
Q4 (11/19): HPQ beat by $0.04 and beat on revs. The company issued upside EPS and rev guidance for Q1. The stock closed slightly higher the following day;
Q3 (8/16): HPQ beats by $0.05 and beats on revs. The company guides Q4 EPS and revs above consensus. The stock closed higher by ~2% the next day;
Q2 (5/16): HPQ reports EPS and revs in-line. The company re-affirms guidance for Q3. The stock closed slightly higher the next day;
Q1 (2/20): HPQ beat by $0.03 and beats on revs. The company also issued in-line EPS guidance and upside rev guidance for Q2. The stock closed lower by almost 5% the next day...
Analyst Expectations: Analysts are generally expecting an in-line or slightly better quarter. UBS says that while revs decelerated somewhat in PCs and printers over the last two months, HPQ is experiencing a mix shift toward enterprise segments that could help gross margins. Also, the firm says HPQ has plenty of room to cut more costs and could even accelerate share repurchases if necessary...
Key Metric: Gross Margins: Current street expectations are for gross margins of 24.3%...
Areas of Focus on the Call:
1) PC and Notebook Demand: Other technology bellwethers, such as INTC and MSFT, have estimated PC growth between 10-12% for FY08. Whether HPQ shares approx the same outlook will be of significance. Also, HPQ has been taking share in PCs and notebooks over the past few quarters; market participants will be listening for a continuation of that trend;
2) Enterprise Spending Environment: Commentary regarding enterprise spending, particularly in US and Europe, will likely be a focus on the call. On the Q4 call, mgmt stated that they were not seeing a slowdown at that time. A strong uptake of MSFT's Vista may be the driver behind a more favorable outlook in commercial spending;
3) Gross Margins: Current analyst expectations for Q4 gross margins are 24.3%. Upside to this estimate could be driven by favorable component pricing;
4) Storage Segment: Last quarter, storage grew 7% y/y, and the company expressed optimism that they could improve in this segment. According to Caris, HPQ's Blade servers may have had a competitively strong quarter vs. IBM's servers...
Steven Madden (SHOO) Q407 Preview
Secondary plays: BWS, SHOE, BKRS, SHOO, PXG.
02/19/2008 Update
Steven Madden beats by $0.05, reports revs in-line; guides for FY08 (16.78 ) : Reports Q4 (Dec) earnings of $0.23 per share, $0.05 better than the First Call consensus of $0.18; revenues fell 10.0% year/year to $102.7 mln vs the $102.1 mln consensus. Co issues guidance for FY08, sees EPS of $1.45-1.55 vs. $1.37 consensus; sees FY08 revs flaat to +2% yr/yr or roughly $431-439.7 mln vs. $440.04 mln consensus. Due to easier comparisons in the back half, the Company expects sales and earnings to be more heavily weighted to the second half of 2008 relative to 2007.
On February 19, 2008, SHOO is scheduled to report 4Q07 results with a conference call at 10ET that same day.
For 4Q07, analysts expect EPS of $0.18 with revs of $102.12 mln...
Past Results: On November 1, 2007, SHOO reported 3Q07 earnings of $0.42 per share, excluding items, $0.02 better than the Reuters Estimates consensus of $0.40. Co issues in-line guidance for FY07 (Dec), sees EPS of 1.50-1.60 vs. $1.58 consensus. "As previously reported, we experienced challenges in both our wholesale and retail divisions due to a soft consumer spending environment and a lack of big fashion footwear trends. With that said, we are pleased with the consistently positive results from Madden Girl... Importantly, we effectively controlled our inventory which enabled us to maintain our overall gross margin on top of the significant increase we achieved in the same period last year." ...
Key Items: Look for updates on the SHOO's fashion trends, as that has been a weak point for the co. A strong fashion trend could help spur sales. AN update on the men's business will also be a key note. If SHOO is able to improve its men's product line, they might be able to drive growth. Do note that on October 19 SHOO announced strategic review process. Look for any updates on that review. Look at inventories as well, as an increase my pressure top line growth (Note inventory last quarter was $36.3 mln; also not inventory turns the last 12 months were 7.8 times, up from 7.3 times a year ago)....
Stock Action: Since reporting 3Q07 results on November 1, 2007, SHOO shares are down ~30%. Since January 2, 2008, shares are down ~15%. Today, SHOO shares are up ~1%...
Expectations: Look for SHOO to report inline with expectations. Co may have struggled to grow revs and a strong emergence of a fashion trends could change that expectation around. Also, with such a large amount of time taken on the strategic review, don't expect co to be announcing any acquisitions anytime soon...
Friday, February 15, 2008
Martha Stewart (MSO) Q4 Earnings Preview
Secondary plays: MDP, TWX, MAHI, MHP...
MSO is expected to report Q4 earnings 2/19 before the market opens followed by conference call at 10:00am ET...
MSO Consensus:
Q4 EPS of $0.65 on revs of $122.12 mln;
Q1 EPS of ($0.15) on revs of $71.89 mln;
FY07 EPS of $0.25 on revs of $331.56 mln;
FY08 EPS of $0.35 on revs of $340.09 mln...
Guidance: After reported Q3 on 11/2, co issued Q4 revs guidance of ~$120 mln vs $125.5 mln First Call consensus. The stock gapped up ~3% but closed down ~6% (currently trading down a huge 52% since reporting Q3)...
Expectations: Since 1999, co has reported earnings in-line or beat estimates 26 times (missed only 5 times). The co has beat earnings estimates the past 5 qtrs by an average of $0.04. Specifically for Q4, co has reported in-line or beat estimates every time except once sine 1999. Revs growth YoY has been positive since mid-2005...
Macy's (M) same store sales have recently been weak, which brings to question how many people are buying MSO products at the increasingly struggling retail outlet. Gross margin will be key issue with increased holiday promotions to increase store traffic and sales. It is important to note the somewhat limited downside risk in the fact that the co has $2.50/share cash on hand...
Briefing note: Short interest is 29%, mkt cap is $322.61 mln, float is 22.78 mln and avg volume is 500k. Due to the high short interest, any upside guidance could fuel a move higher... Areas of
Focus on the Call:
1) FY08 outlook (if co projects profitability for the year it would be first time in 3 years)
2) Gross margin (gross margin estimates for Q4 is 68.4%, FY07 is 74.2% and FY08 is 89.2%)
4) Commentary on economic sensitivity of customers
5) Update on Kmart royalties (expected to drop significantly by the end of the year)...
Recent price movement: After reporting last qtr, co gapped up ~3% but closed down ~6%. Since reporting last qtr, stock is trading down ~52%, but trading up 4% over past month. Note the stock made a new 52-week low (~$5.22) on 1/22, but has since rebounded trading ~15% higher off this 52-week low...
Thursday, February 14, 2008
Brocade Earnings (BRCD) Preview
BRCD update: 02/15/2008 and stockchart after the market close
Brocade beats by $0.01, misses on revs (6.80 -0.20) : Reports Q1 (Jan) earnings of $0.16 per share, excluding non-recurring items, $0.01 better than the First Call consensus of $0.15; revenues rose 55.1% year/year to $347.8 mln vs the $352.2 mln consensus.
On conference call, co sees Q2 sequential ASP declines in low single digits. Co sees Q2 revs of $340 - $355 vs consensus of $350.57 mln. Sees Q2 EPS of $0.13 - $0.15 vs consensus of $0.14.Expects Q2 gross margins of 58-60%.
14-Feb-08 15:40 ET
On 02/06 CSCO -7.3% on earnings/guidance
Brocade Communications (BRCD) is set to report 1Q08 earnings after the close 02/14/08 with a conference call following at 4:30 ET.
Current consensus is for EPS of $0.15 on revs of $352.23...
Recent Earnings History:
Q4 (11/29): BRCD beat by $0.04 with revs in-line. The stock closed lower by nearly 6% the following day;
Q3 (8/23): BRCD beat by $0.02, revs in-line. On the call, the company guided Q4 revs below consensus and EPS in-line. The stock closed up marginally higher the next day;
Q2 (5/31): BRCD beat by $0.02 with revs in-line. On the call, the company guided Q3 revs below consensus and EPS in-line:
Q1 (2/26): BRCD beat by $0.04 and beat on revs. On the call, the company guidedQ2 revs and EPS in-line...
Analyst Expectations:
Analysts are generally expecting the company to report an in-line quarter. UBS says their checks pointed to overall solid demand for BRCD products, however, the firm says BRCM experienced lighter revenues in areas believed to be discretionary and customers choose to delay purchases, particularly with FAN products. Analysts seem to be less positive for BRCD's guidance, given recent comments from Cisco (CSCO) and with general economic concerns...
Areas of Focus on the Call:
1) Guidance: BRCD historically issues EPS, revenue, and gross margin guidance for the next quarter. The key issue for guidance, and whether the company can guide in-line or better, is whether new product introductions will be enough to offset an overall moderation in demand;
2) Competition/CSCO: BRCD has recently been closing the gap on CSCO's growth premium over the company in storage related revenues. Of interest will be whether the company feels this trend is sustainable;
3) EMC/IBM: EMC appears close to launching 8Gbps Brocade products, into strong demand. Also, IBM may be selling these products by the end of March. The financial impact of the new product intros will likely be a focus on the call...
Weight Watchers (WTW) Earnings Preview
Secondary Plays: NTRI, MED...
NTRI next earnings release: Feb 19 after market
MED next earnings release: Mar 13 after market
Update: 02/15/2008
WTW +8.6%
Weight Watchers beats by $0.04, beats on revs; guides FY08 EPS in-line (45.92 -0.53) : Reports Q4 (Dec) earnings of $0.50 per share, $0.04 better than the First Call consensus of $0.46; revenues rose 20.5% year/year to $344 mln vs the $321.9 mln consensus. Co issues in-line guidance for FY08, sees EPS of $2.80-3.00 vs. $2.80 consensus.
On the call, the co says that during 2008, the co will continue to accrue revenue benefit from the introduction of its Monthly Pass plan but it will moderate throughout the year as its Monthly Pass Membership stabilizes. Also, its Q1 results will be depressed and Q2 results will be enhanced due to an early Easter. The co has concerns about the weakening US economy and without a new program innovation in NACO there will be weakness. Without a new program innovation, the co expects the softness in enrollment trends it has seen to continue as well, attendances will not be helped by Monthly Pass to the same extent in 2008 as they were 2007 now that it's lapping. The co plans to utilize promotional tools to hold volume up until it has new program at the end of 2008... the co's guidance is assuming mid-to high single digit declines in NACO. Fortunately, since the co will still have continuing financial benefit from Monthly Pass, its product sales per attendance and licensing revenue should continue to do well... NACO revenues should continue to grow in 2008. The co is very pleased with the results so far in Continental Europe with a significant new innovation being well received by members throughout Europe, attendances in the first six weeks of the year have trended back to our positive territory. Based on this early success, as well as other planned initiatives, WTW is forecasting mid single digit positive attendance growth in 2008, a double-digit swing from the trends last year. In addition, WeightWatchers.com is off to a strong start again in 2008.
14-Feb-08 15:38 ET
WTW is expected to report 4Q07 earnings after the mkt closes with a conf call to follow at 5:00PM ET...
WTW Consensus: First Call
4Q07 EPS of $0.46, revs of $321.9 mln;
1Q08 EPS of $0.77, revs of $446.5 mln;
FY07 EPS of $2.46, revs of $1.44 bln;
FY08 EPS of $2.80, revs of $1.57 bln...
Guidance: Co sees FY07 EPS of 2.43-2.48, excluding non-recurring expense associated with the early extinguishment of debt. The co meets or beats ests, it doesn't miss. Beats usually range in the 2 cent area. Revs have been growing in the teens after a brief period of single digit growth a few years back...
Expectations: Analysts are cautious on the co as the economic slowdown is obviously pressuring the co and this isn't expected to change in the near future. They say that consumer's discretionary spending will be pressured and that will in turn pressure WTW's performance. In addition, attendance trends aren't looking too positive either and this will further pressure the co since this is one of the key driver's of growth. Note, Paid Weeks is another metric the co reports and analysts will look closely at...
Areas of Focus on the Call:
1) Attendance trends (Q4 and 2008)
2) Color on 2008 outlook
3) Monthly Pass color...
BriefingTrader Note: The stock has been trending down from its Sept high of ~$58. The stock looks like it bottomed out recently at ~$42 and jumped to its current price of ~$46. It is running into earnings a little bit with that recent jump. It primarily trades on guidance following the earnings release so the 2008 outlook will be what investors will focus on. The near term economics for WTW do not looks exceptional so keep that in mind, but a bullish outlook, which we think is doubtful, will lift the stock.
Chipotle Mexican Grill (CMG) Q4 Earnings Preview
Secondary plays: RRGB, COSI, PNRA, RUBO, YUM, CKR...
CMG is expected to report Q4 earnings today after the market closes followed by conference call at 5:00Pm ET...
CMG Consensus: First Call Q4 EPS of $0.55 on revs of $288.97 mln and Q4 same store sales street consensus of 10.2%; Q1 EPS of $0.50 on revs of $298.17 mln; FY07 EPS of $2.15 on revs of $1.09 bln; FY08 EPS of $2.74 on revs of $1.34 bln...
Guidance: Co only guides for same store sales. On 1/15, co said for FY07 expect a slight fall-off in comps in Q4 but still remain in double digits (street consensus is for 10.2%) and co reiterated its FY08 guidance of comps low to mid single digit range and EPS of at least 25% long term growth...
Expectations: Since the co became publicly traded in early 2006, it has never missed earnings estimates (on average beat by at least $0.08) and reported revs growth YoY of at least 26%. Gross margin will be key issue with rising commodity prices. On its 10/30 conference call, the co said if it does not see any worsening of commodities they will need a mid single digit comp to hold margins; co believes if at the high end of their comps range would be able to hold margins (if food inflation progressed normally); if at the low end of Y08 comps range then margins would erode. There is ongoing concern regarding the co's valuation, it is valued at almost 3x the P/E of comparable cos...
Briefing note: Short interest is 41% (note this has increased from 27% last qtr), mkt cap is $3.3 bln, float is 14.18 mln and avg volume is 800k. Due to the high short interest, any upside guidance (especially if expects double digit comp growth to continue in FY08) could fuel a move higher...
Areas of Focus on the Call:
1) FY08 outlook (we believe this will be the key driving factor, if co still expects FY08 comps low to mid single digit range it would be first time ever with comps not in double digits)
2) Gross and operating margin (last qtr, gross margins were 23%, slightly down q/q but up 150 basis points YoY, operating margins were affected primarily due to efficiencies in labor and menu price increases)
3) Commentary on economic sensitivity of customers
4) Effects from cost of commodities (so far the co has been able to offset increases in food costs and preserve margins) and any hedging strategies...
Recent price movement: After reporting last qtr, co gapped up ~4% but since reporting last qtr stock is trading down ~18%. Note the stock is up ~80% from a year ago and made a new all time high (~$156) on 12/31 but is now ~28% off this all time high...
Microsoft (MSFT) seeing Xbox 360 shortages
Secondary plays: GME, TGT
GameStop is expected to report stellar results, when its reports fourth quarter results in March. Video game sales continue to be an island of strength amid a weak retail environment. Indeed, The NPD Group recently reported that sales of video game hardware, software, and accessories increased 43% to $18 billion in 2007. While that pace will decline over the next few years, the industry growth trends is expected to remain robust. GameStop will benefit a great deal from those strong industry trends.
GameStop is the largest specialty retailer focusing on video game software and hardware sales. The company caters to the hardcore gamer, as well as the casual video game buyer. The retailer has 5,123 stores, sells new and used software and hardware and should generate over $7 billion in sales this year. However, competition in this space is fierce and video game shoppers have many alternatives. Big-box retailers, such Best Buy, Wal-Mart (WMT), and Target (TGT) look at video games as high margin sales that can help drive store traffic. These companies focus on new hardware and software sales.
14/02/08 at 09:25
Microsoft seeing Xbox 360 shortages in U.S. - Red Herring (28.96 )
Red Herring reports the co is seeing shortages of its Xbox 360 video game console in the United States, as the co failed to anticipate strong post-holiday demand, an executive said. "We are really running short of product here in the United States," Jeff Bell, head of global marketing for Microsoft's games business, said in an interview. "You could say we misjudged demand." The comments came a day before NPD is expected to release video game sales data for January and Bell said Microsoft was hoping to "manage expectations." "We're literally out of stock in many stores. We think this will have an impact on our sales," Bell said. "It may cause the overall industry number to be down a little bit. "Retailers have been really upset, they are on allocation. It is a lag I think we're seeing in January and that may continue into February, then as spring ramps up, we'll be able to meet that demand."
Wednesday, February 13, 2008
NVIDIA (NVDA) 4Q07 Earnings Preview
Secondary Plays: AMD, BRCM, INTC, QCOM, MRCY*
NVDA 02/12 closed at $27.02 (+3.92%), aftermarket high $28.60
INTC 02/12 closed at $21.21 (+1,48%), aftermarket high $21.44
AMC, BRCM, QCOM no significant moves noticed
02/13/2008 Update
NVIDIA beats by $0.02, beats on revs (27.02 +1.02) : Reports Q4 (Jan) earnings of $0.49 per share, $0.02 better than the First Call consensus of $0.47; revenues rose 36.8% year/year to $1.2 bln vs the $1.19 bln consensus. Co also reports Q4 non-GAAP gross margins 45.9% vs the 46.4% street expectation.
About NVIDIA (NVDA)
As the only remaining major independent player in the market for Graphic Processing Units (GPUs) used in PCs, NVIDIA is well positioned to benefit from increased graphics requirements. However, indications of a slowing U.S. and potentially global economy are likely to dampen the outlook for IT spending. Under this environment, PC replacements are likely to be delayed.
Revenue segmentation for the first nine months of fiscal year 2008
1) GPUs accounted for 60.5% of total revenue
2) MCPs accounted for 17.5% of total revenue
3) PSBs accounted for 14.5% of total revenue
4) CPBs accounted for 6.8% of total revenue
4) while the remaining 0.7% came from its All Other segment
Geographical revenue segmentation during the first nine months of fiscal 2008:
1) 32.6% from Taiwan
2) 23.0% from China
3) 21.1% from Other Asia/Pacific
4) 8.9% of revenue from the United States
5) 4.6% from Other Americas
6) and the remaining 9.8% from Europe
02/12/2008 Earnings Preview
NVDA is expected to report 4Q07 earnings 02/12 after the close with a conference call to follow at 5:00 PM ET...
NVDA Consensus: 4Q07 EPS street expectation of $0.47, revs of $1.187 bln; 1Q08 EPS of $0.41, revs of $1.11 bln; FY08 EPS of $1.76, revs of $4.713 bln...
Guidance: Co guided on Q3 call (11/8) for Q4 revs to grow 5-7% which equates to $1.18-1.20 bln (vs $1.07 bln consensus at the time)...
Analyst Expectations: Heading into earnings, analysts are expecting the co to post in-line to above consensus EPS and revenue results. However, the predominantly cautious outlook on PC demand for FY08, especially within notebooks, has tempered analysts' view on NVDA's guidance. The Street will also be focusing on the co's gross margins in the earnings release. It will be interesting to see if the co was able to hold pricing power, continue to cut costs and be able to deliver a favorable mix. Analysts are split on NVDA's competition, whereas some see the co losing design wins to AMD's ATI while others see limited competitive pressures...
Areas of Focus on the Call:
1) Revenue Guidance - The co historically issues sequential rev guidance for the following qtr. Guidance should help offer some outlook to overall PC demand;
2) GPU adoption/growth -- Investors will be focusing on desktop GPU and notebook GPU. Also there are reports that the co is in early developmental stages of its first Mac-bound GPGPUs;
3) Competition -- AMD's recent purchase of ATI encroaches on NVDA's dominance in graphic chips. AMD recently touted the new ATI Radeon HD 3870 X2 card as the clear speed leader;
4) X 2500 applications processor -- Introduced on 2/12, the HD chip works on Windows Mobile. Co may give insight to the potential addressable market...
* About Mercury Computer Systems (MRCY)
On November 13, 2007, NVIDIA and Mercury Computer Systems, Inc. announced a collaboration toprovide exploration and production (E&P) application developers with a comprehensive solution forsimultaneous computation and visualization of huge 3D seismic data sets, or any highly demandingcomputing tasks in the interpretation and simulation workflows. Mercury will integrate NVIDIA's TeslaGPU compute power inside the Open Inventor 3D development toolkit for computing tasks in the dataanalysis, interpretation, and simulation E&P workflows. Mercury has facilitated the interoperability of Open Inventor with NVIDIA's CUDA language, to provide application developers with a unique, integratedsolution.
Network Appliance (NTAP) Earnings Preview
Secondary Plays: EMC, VMW, JAVA, HPQ...
02/13/08 Update:
Network Appliance beats by $0.03, reports revs in-line; guides Q4 EPS below consensus, revs below consensus (23.04 +1.51) : Reports Q3 (Jan) earnings of $0.37 per share, $0.03 better than the First Call consensus of $0.34; revenues rose 21.2% year/year to $884 mln vs the $877.8 mln consensus. Co issues downside guidance for Q4, sees EPS of $0.35-0.37 vs. $0.38 consensus; sees Q4 revs of $915-945 mln vs. $966.48 mln consensus.
On the call, the company sees Q4 gross margins to be just north of 61%, remaining stable. NTAP says the pricing environment is competitive, but it doesn't see anything dramatically different. Regarding its guidance, the company says their backlog is normal, pipeline is normal, but the question is whether they are going to close on the business, mostly due to the macro economic outlook. The company spoke about the economic downturn in 2001-2002, saying that they were able to gain market share by offering customers a lower risk alternative. This is one reason why the company has some confidence in this downturn. NTAP says they continue to gain balance on a geographic basis, with Asia-Pac accounting for 13% of revenue and Europe being consistently strong. Also, the company is diversifying its customer base, and says its V-Series product is at record highs. In terms of verticals, the company says financials continue to be weak, now at 13% of business, from a typical rate of 17-18%.
02/12/08 Earnings Preview:
Network Appliance (NTAP) is set to report Q3 earnings after the close 02/12 with a conference call following at 5:00 ET. Current consensus is for EPS of $0.34 on revs of $877.70 mln. In the company's Q2 earnings release, it issued upside EPS and revenue guidance, to $0.33-$0.34 and $872-$883 respectively...
Recent Earnings History:
Q2 (11/14): NTAP beat on EPS and revs, and issued upside guidance for Q3. The stock closed marginally lower the next day;
Q1 (8/15): NTAP beat by a penny and beat on revs, and guided Q2 EPS in-line with revs above consensus. The stock closed higher by 4.5% the next day;
Q4 (5/23): NTAP reports EPS and revs in-line, and guides Q1 EPS and revs below consensus. The stock was hit hard the next day, closing lower by 16...
Key Metric:
Gross Margin: Current consensus expectations are for gross margin of 61.1%... Areas of Focus on the Call:
1) Pricing/Gross Margin: NTAP guided for a possible 100-150 bps Q/Q decline due to aggressive pricing in Q3 and due to an increase in business with IBM. If NTAP was able to price more aggressively on hardware, but priced higher on software, the result could be essentially an offset;
2) VMWare Opportunity: NTAP has created a new unit focused on driving business with VMW. NTAP's progress on developing this segment, and the financial impact this collaboration will have for NTAP will be a focus of the call;
3) Geographies and Verticals: On the last call, the company stated that they were seeing strength in the Europe and Asia-Pacific regions, but softness in N.A.. Whether this North American softness has spread, or if NTAP continues to see strength in these areas, will likely be addressed on the call... NTAP's financial services vertical, with 7 of its top 22 accounts, has suffered the most. However, the company's federal business share has gone up significantly...
Tuesday, February 12, 2008
Agrium (AGU) Earnings Preview
AGU is set to report Q4 earnings before the market opens on Thursday with a conf call at 11:30am ET.
Segment revenues: Retail (47%), Wholesale (54%), Advanced Technologies (2%), (Other -3%).
Past Performance: The co has reported EPS results of $0.29 below to $0.12 above consensus expectations in the last four quarters. In the last quarter, the co missed by $0.08, and the stock was down 4.6% on the day.
Other fertilizer cos that have already reported include MOS, POT, TNH, TRA and BG (fertilizer is ~10% of revs). All cos beat on earnings, but BG reported a number, which included items that made the number possibly not comparable to the consensus number. POT guided Q1 and FY08 EPS above consensus. It's likely that AGU is going to continue the trend of posting an earnings surprise when considering that fertilizer cos have been enjoying major crop prices sitting at record high prices, which has allowed the farmer to spend more, and want to spend more money to help boost yields. In their wholesale group, the co has been benefiting from higher selling prices in nitrogen, potash, and phosphate. Additionally, it has seen an improvement in its international volumes in its potash segment. Overall, the co will continue to benefit from record high commodity prices, especially from corn since corn requires a greater amount of fertilizer use over other major crops such as wheat and soybeans.
Areas of focus on the call: The USDA today released their annual projections, which goes out 10 years for major crops. And in the release the USDA projects that corn plantings will be ~88 mln acres for the 2008/09 crop season, down from the ~93.6 mln acres for the 2007/08 season. One of the most important topics the co can discuss is how this is going to affect their business going forward; another important topic is selling prices for nitrogen, potash, and phosphate; international volumes; ability to pass along higher input costs. Stock Action: Since last quarter, the stock is up 4.8%. Since the beginning of 2008, the stock is down 12.1%.
Monday, February 11, 2008
Nordic American Tanker (NAT) Earnings Preview
Secondary Plays: TK, FRO, OSG
02/12/08 Update:
Nordic American Tanker misses by $0.05 (31.02 ) : Reports Q4 (Dec) earnings of $0.22 per share, excluding non-recurring items, $0.05 worse than the First Call consensus of $0.27. The average daily rate for our spot vessels was about $27,000 per day net to us during 4Q07 compared with $24,600 for 3Q07. Typically, when freight rates are increasing, as they did as from early December 2007 and towards the end of the year, a few weeks will elapse before this increase is translated into improved results for the Company as ships normally at any given point in time have employment a few weeks ahead. Conversely, in a decreasing spot market the freight income will be higher than the daily spot market rates for a while. Co expects that freight rates may continue to fluctuate significantly.
-- // --
Nordic American Tanker (NAT) is expected to report Q4 earnings 02/12 before the market opens, with a conference call at 12:00ET. NAT Consensus: First Call Q4 EPS of $0.27, revs of $30.7 mln.
Segment revenues: The co operates under one segment... The Co has only one type of vessel - Suezmax crude oil tankers - operating on time charter contracts at market related rates, in the spot market and on long-term bareboat contract. As of December 31, 2006, its fleet consisted of 12 double-hull suezmax tankers (11 of 12 of NAT's suezmax's tankers operate in the spot market), while the world's suezmax fleet stood at 352 vessels at the end of Q3. Note that spot chartering is common in the tanker industry. The co saw an improvement in the spot market during November, and, last quarter, the co said they were expecting freight rates to possibly continue to fluctuate significantly. In Q3, the co noted that The average spot market rate for modern suezmax tankers, according to the Imarex Tanker Index, was $17,645 per day for 3Q07 compared to $34,174 per day during 2Q07. The average rates for our spot vessels were about $24,600 per day net to us. This is important because, historically, the tanker markets have been volatile, and in the past, there have been periods when spot rates have declined below the operating cost of vessels.
Recent Earnings and Stock Action:
Q3 (11/5): NAT missed by $0.02, and missed on revs. The stock was down 2.6% on the results;
Q2 (8/9): NAT beat by $0.12, and beat on revs. The stock close slightly lower that day, declining three cents on those results;
Q1 (5/14): NAT beats by $0.02, and declared dividend. The stock closed higher by 1.5%;
Q4 (02/14/07): the co reported in-line, and beat on revs. On the results, shares fell 5.6%. In the last four quarters, the co's earnings results ranged from missing by $0.02 to beating by $0.12, but the co's stock has not seen large swings from reported results, excluding last year's Q4 move.
Three month average volume in the co's shares are ~358,000. And we'd like to note that, normally, tanker markets are stronger in the fall and winter months (the fourth and first quarters of the calendar year) in anticipation of higher oil consumption in the northern hemisphere during the winter months.
Areas of Focus on Call: The co's industry is really a supply and demand story. Listen for details on the industry's capacity situation; Listen for the co's Suezmax spot charter rates expectations going forward; co's expectations of shipyard deliveries vs crude tanker demand; single-hull vessels are expected to be phased out from the tanker trade by 2010 due to international legislation, which is expected to benefit the co, considering NAT owns double hull tankers. Listen for commentary on to what extent the co is benefiting from this development.
Stock Action: Since the co last reported on Nov 15, its stock is down 15.9%. Since the beginning of 2008, shares are down ~6.5%.
Teekay (TK) next earnings release Feb 20 after market, unconfirmed. Reuters Research estimate: 0.59. Frontline (FRO) next earnings release Feb 29 before market, confirmed. Reuters Research estimate: 0.35. Shipholding (OSG) next earnings release Feb 27 after market, unconfirmed. Reuters Research estimate: 0.61.
Definitions:
Spot voyages (vessels chartered on a dollars-per-day basis)
Time charters (vessels chartered for a fixed period)
Contracts of affreightment (COAs, where cargo is carried over aspecified trade route within a given time).
Suezmax is a naval architecture term for the largest ships capable of transiting the Suez Canal fully loaded, and is almost exclusively used in reference to tankers. Similar terms of Panamax, Malaccamax and Seawaymax are used for the largest ships capable of fitting through the Panama Canal, the Straits of Malacca and Saint Lawrence Seaway, respectively. Aframax tankers are those with a deadweight tonnage of 80,000 to 120,000.
Fording Coal (FDG ) Earnings Preview
Potential secondary plays: ACI, ANR, BTU, CNX, FCL, MEE, WLB...
Fording Coal (FDG) is set to report Q4 results 02/11 after the close. There is only one analyst estimate which expects revenue of $380 mln and EPS of $0.52. The co has a mixed record relative to expectations as the co beat last qtr, but missed twice before that. It can be tricky to get a handle on FDG because it's a trust. It is an open-ended mutual fund and does not carry on any active business. The Trust owns all of the interests of Fording LP, which holds a 60% interest in Elk Valley Coal Partnership. The Trust uses the cash it receives from its investments to make quarterly distributions to its unitholders. Each qtr, the co reports cash available for distribution. As such, it's a bit difficult to get a handle on the financials...
Recent Price Action: The stock has been surging over the past few weeks, up 40%. In fact, the entire coal sector has been making a strong move on due to healthy demand, driven in large part by demand from China which is facing a shortage of coal. Also, floods in Australia have squeezed an already-tight coal market.
Key Commentary: In its Q3 report, the co said that hard coking coal markets appear to be robust, however if the Canadian dollar remains at current levels, substantial increases in the US dollar coal price will be required to avoid significant reductions in its margins....
Friday, February 8, 2008
USDA February World Agricultural Supply and Demand Estimates
Watch for potential volatility in
Agriculture equipment manufacturers (DE, AG, CNH)
Ethanol (ADM, ANDE, PEIX, VSE, AVR, USBE, BIOF, XNL)
Secondary ethanol plays (VRNM, MGPI and OTD)
Fertilizer (TRA, CF, POT, AGU, SYT, MOS)
Livestock (TSN, SFD, HRL)
Seed (MON).
In its February report, the USDA narrowed their corn price forecast for the 2007/08 crop season to $3.75-4.25 per bushel from $3.70-4.30 in January. March corn futures closed yesterday at $4.99 1/2. Wheat price forecast was unchanged at $6.45-6.85. March futures closed yesterday at $10.63. Soybeans price forecast was narrowed to $10.00-10.80 from $9.90-10.90. March soybeans futures yesterday closed at $13.34 1/4.
Wednesday, February 6, 2008
Aetna (AET) Earnings Preview
Secondary plays:
WLP and UNH both reported on 1/22;
WLP fell 4%; UNH fell 6%.
HUM reported earnings this past Monday, stock fell 3.5%.
AET is down ~5% since UNH and WLP reported.
These stocks have been hit following earnings reports due to their medical-cost ratios...
AET is expected to report 4Q07 earnings 02/07/2008 before the mkt open with a conf call to follow at 8:30AM ET...
AET Consensus: First Call 4Q07 EPS of $0.88, revs of $7.17 bln; 1Q08 EPS of $0.94, revs of $7.49 bln; FY07 EPS of $3.49, revs of $27.4 bln; FY08 EPS of $4.03, revs of $30.6 bln...
Guidance: Co guided 4Q07 EPS $0.87; FY07 net medical membership growth of 600-650k (equates to 38k-88k in Q4); Q4 Commercial Medical Benefit Ratio of 79-79.5%. Co guided for FY08 EPS of $4.00; Net Medical Membership growth of at least 300k members in 1Q08; FY08 membership growth to be in excess of 650k. Co tends to report earnings within a nickel of consensus; AET always meats or beats earnings expectations. Revs have been growing in the 10% range...
Expectations: Analysts are skeptical on the fundamentals of the commercial mkt as pricing pressures persist due to competition from nonprofits and the lack of opportunities available to grow organically. There are also AET skeptics that have questioned its strength in its commercial business. On the costs front, numerous analysts have noted that AET has among the highest SG&A ratios in the industry, therefore, there is room for improvement. Note, co is a strong cash generator so analyst will be looking for any updates on the co pursuing acquisitions/share repurchases...
Cisco Systems (CSCO) Earnings Preview
Secondary Plays: JNPR, ALU, NT, IBM, HPQ...
CSCO -7.3% on earnings/guidance
On the call:
The company guides Q3 revenue growth rate of 10%, which equates to approx $9.79 vs consensus of $10.19 bln. CSCO says they remain comfortable with their long-term growth rate of 12-17%, and says while it is probable that they will remain in the 13-16% growth range for FY08, they will not provide guidance past that. CSCO also sees Q3 gross margins of 65%. The company's gross margin was 65.9% in Q2, which benefited from cost savings, but was offset by pricing and discounts.
CSCO says they see economic challenges in the US and Europe, and has a cautious near-term stance. The company says they saw a sharp drop-off from Dec to Jan, and is assuming January growth rates may continue over the next several months. However, the company expects growth rates to normalize in the relatively short-term. In terms of key trends, CSCO says service providers continue to look strong, and routing looks strong, but switching will probably be more challenging. CSCO says competition remains robust, but believes it is maintaining its leadership position and believes it is gaining market share in many of its 10 product categories. In its verticals, the company said it was most surprised by strength the financial sector, which was up 21% in the qtr. CSCO says retail and transportation were softer. Geographically, CSCO says emerging markets remain very strong, and would not be surprised if its growth rate is twice CSCO's normal growth rate. The US service provider market is the area where the company continues to feel the most comfortable. The Europe service provider market is expected to be weak. Overall, CSCO remains optimistic about a majority of global economies outside the US. CSCO also states that 60% of its business in now outside the US, compared to 50% a couple years ago. In terms of growth drivers, CSCO is most excited about Phase two of the internet, and believes it has achieved a clear number one position in terms of thought leadership and implementation.
Areas of Focus on the Call:
1) Guidance: CSCO historically gives revenue guidance for the next quarter, expressed in a Y/Y growth rate. To meet consensus estimates, CSCO needs to guide Q3 rev growth rate to approx 15%. Also, the company should give FY08 growth rate guidance, currently at 13-16%, and "long-term" growth rate guidance, currently at 12-17%. Barring a significant beat and blow-out guidance, share performance will be solely driven by Chamber's commentary;
2) Macro Outlook: Chambers' commentary regarding demand and the overall enterprise spending environment in both the U.S. and Europe will be largely scrutinized by the broader markets. The main question tonight is whether or not the U.S. business segment (50% of biz) got worse. Europe (20%) could be problematic due to a deteriorating economic environment. Recall that last quarter, Chambers' tone was tempered and cautious on the conference call, which routed both the stock and the markets the next day. However, expectations are likely not as high heading into this earnings report;
3) Competition: Another potential issue for CSCO is Juniper's (JNPR) entrance into the IP switching market. On the Q1 call, CSCO stated that competition was robust, but in their 10 product families, they believe they are gaining share in all of them. We would also note that the carrier segment is strong, underscored by JNPR's strong quarterly results, which indicate robust router demand;
4) Profitabilty: This will be key, due to concerns that CSCO reduced pricing to atone for slower growth. CSCO's annual profit range is 13-16%, and the current consensus Q2 EPS estimate of $0.38 equates to 15% growth. Shares would sell off if growth came in at the lower end of the targeted range...
About the Sympathy
Citation from Traders-Talk
"At first blush, “sympathy” is an oxymoron when applied to the market, a cutthroat institution that has little sympathy for anyone. But when it comes to trading, the term makes sense.
A perfect example occurred a week ago when OSI Pharmaceuticals (OSIP) announced before Monday’s open that it was getting very favorable results in late-stage testing of a cancer treatment. OSIP was up 40 points at the starting bell, doubling in price. The excitement quickly spread to other biotechnology stocks engaged in the fight against cancer. Genentech (DNA) and ImClone (IMCL) gained 10% in a flash, and there were many other winners.
All too often you cannot buy the stock announcing good news because it is going to open well above the previous day’s close. Savvy traders want to avoid a “gap trap” in which buyers miss most or all of the early move and are trapped in a declining stock when sellers emerge to take their quick profits.
The sympathy play is to pick up shares of other stocks in the sector as they begin to attract attention after the open. The same goes for short sales. When a sector leader takes a hit, look for others showing weakness in sympathy. Obviously, knowing the key companies in each sector is important.
Another approach is to grab some shares of an Exchange Traded Fund (ETF) that includes the stock making a move. Remember, ETFs are baskets of shares that mirror the action of a particular index or sector. They are organized like mutual funds but trade like stocks.
If Intel (INTC) is pushing up the chip sector, you can get into the Semiconductor HOLDR (SMH). If Home Depot (HD) is getting trounced, there may be profits via shorting the Retail HOLDR (RTH).
But don’t overstay your welcome in these trades because most sympathy plays are relatively short-term phenomena and the excitement leaves within a couple of days.
TIP:
If a stock is testing a resistance level, it will certainly help to have the "market" behind you when you are looking for the breakout. Remember that in day to day life, sector strength
and overall market "tone" is the most important aspect of trading. In other words
if the DOW is down 100 and the NASDAQ is down 50, what are the chances XYZ is
going to bust through that resistance level and run? Not much really. On the
other hand if the DOW is up 125 and the NASDAQ is flying, XYZ very well could
squirt through that old resistance and make a great move higher. So, paramount
in trading chart patterns is to try and align a great chart with an "up day".
This will greatly enhance your chances of scoring home runs! (IMO) . "
Biogen (BIIB) Idec Earnings Preview
Secondary Plays: ELN (Tysabri). BIIB and DNA collaborate on RITUXAN, DNA announced revs of $596 mln in Q4 ($622 mln consensus)...
BIIB is expected to report 4Q07 earnings before market open with a conf call to follow at 8:30 AM ET...
BIIB Consensus: First Call 4Q07 EPS of $0.80, revs of $835.4 mln; 1Q08 EPS of $0.79, revs of $865.5 mln; FY07 EPS of $2.66, revs of $3.11 bln; FY08 EPS of $3.30, revs of $3.59 bln... Drug Consensus: Avonex $465.0 mln, Rituaxan $246.1 mln, Tysabri share $83.2 mln...
Guidance: Co sees FY07 EPS to be above range of $2.60-2.70; revs of $2.95-3.11 bln. Co sees FY08 EPS of $3.20-3.35; revs of 15-20% over Y07 forecast. Revs have been growing on average of 15% over the past few years. There is no consistent pattern in EPS...
Expectations: Analysts are generally cautious on the co and very skeptical on the co being able to meet its long-term guidance and its pipeline. In addition, there are skeptics out there regarding its Avonex drug which had disappointing sales in Q3. There is general pessimism around following the co's failure to sell itself, but some analysts have changed their opinion a bit following the FDA approval of Tysabri for Chrohn's disease. Note, there is also the ongoing saga with Icahn where he is trying to spark interest in the co after its failure to sell itself...
Areas of Focus on the Call: 1) More color into outlook 2) Updates on BIIB's pipeline 3) Avonex strength and Tysabri (Tysabri is expected to drive Q4 strength) 4) FY08 outlook...
Tuesday, February 5, 2008
Sepracor (SEPR) Q4 Earnings Preview
Secondary plays: GSK, SNY, CRTX, PRX, MYL, WPI...
SEPR is expected to report Q4 earnings 2/5 before the mkt opens, the conference call has been temporarily delayed to ~2/29 (since co is in process of determining past restatements co may report only revs)...
Consensus: First Call consensus is Q4 EPS of $0.54 on revs of $343.43 mln; Q1 EPS of $0.58 on revs of $325.94 mln; FY07 EPS of $1.46 on revs of $1.24 bln; FY08 EPS of $2.32 on revs of $1.34 bln...
Guidance: Co reaffirmed guidance at JPMorgan Healthcare conference on 1/9, co sees FY07 EPS of $1.33-1.43 (excluding $0.28 charge and including restructuring costs, may not be comparable to $1.46 First Call consensus) on revs $1.23-1.30 bln vs $1.24 bln First Call consensus. Co also sees FY08 EPS of $2.35-2.45 vs $2.32 First Call consensus...
Expectations: Since 2000, co has beaten earnings estimates 26 times (missed only 4 times) and beat Q4 estimates for past 4 years by at least $0.21. Revs growth YoY for Q4 has been >14.8% for past 8 years, but growth has slowed over the past year (revs growth actually declined last qtr -1.9%). For the most part, slower Rx trends have dampened Q4 and 2008 expectations, but estimates still remain plausible with new deals in the pipeline (such as Ciclesonide franchise deal with Nycomed and Bial collaboration)...
As for particular drug numbers, Q4 estimates (based on single analyst estimates) are Lunesta $160 mln ($612 mln for the year), Xopenex/XopenexHFA $185 mln ($587 for the year) and Brovana $12 mln. In July, co stated on call it expects FY07 Lunesta sales of $595-615 mln and Xopenex sales of $495-515 mln...
Areas of Focus:
1) Drug numbers
2) FY08 outlook (co usually gives more detailed guidance on call which has been delayed until the end of the month)
3) update on recently announced Nycomed agreement
4) update on recently announced (1/28) internal review of government price reporting (co also disclosed statements for periods back to 2002 should no longer be relied upon)
5) competition such as market risk for Lunesta as Ambian goes generic and NBIX's Indiplon
6) takeover speculation that JNJ may place bid...
Recent price movement: Since reporting last qtr, stock is trading up 8%. Stock is up 2% over past 20 days, up 1% over past week. The stock has made some notable moves after releasing earnings/guidance in the past. Last qtr the co gapped up ~14% after reporting (beat by $0.11 and issued mixed guidance) and on 7/27 the stock traded down ~25% after co missed estimates by $0.31 and revised guidance on conference call (in significant part due to the CMS changes on Xopenex inhalation solutions)...
Based on its options volatility, implied volatility is up 72% vs its historical volatility (over 30 day period) and its implied 1-day % change move is ~4%...
Briefing note: Short interest is 9%, mkt cap is $3.24 bln, float is 110.48 mln and avg volume is 2.2 mln. Due to the high short interest and relatively modest float, any upside guidance could fuel a move higher...
Las Vegas Sands (LVS) Earnings Preview
Secondary plays in Macao and the Las Vegas Strip: MGM, MPEL, WYNN;
Other Nevada casino cos: ASCA, BYD, MCRI, RIV;
Other casino cos: CNTY, DDE, ISLE, LACO, MNTG, NYNY, PNK, TRMP, UWN.
Las Vegas Sands (LVS) is scheduled to report Q4 earnings today after the close, with a conference call to follow at 16:30ET. First Call expects non-GAAP EPS of $0.35 with revenue of $1.119 bln. The co typically does not provide guidance. It is attempting to get back on track after missing badly on the bottom line last quarter, its second straight miss, following ten quarters of in-line or better than expected results. While revenue grew in the high teens for the third straight time last quarter, expect that growth rate to accelerate this quarter as it will be the first full quarter of results from the co's Venetian Macao... Last quarter, LVS had problems in both Macao and Las Vegas, and investors expect the co to right the ship in Q4. We'll take a look by casino. 1) Venetian Macao -- This will be the first full quarter of results following the official opening on Aug 28, but investors are already looking for improvement following disappointing numbers for the 34 days in Q3. Non-rolling Chip table games win percentage was 16.7% in Q3 vs. the co's expectations of 18-20%, with Rolling Chip table games win percentage 2.44% vs. its expectations of 3.0%. The co will release both the results and its expectations in the earnings release, so these are key metrics. 2) Sands Macao -- Casino revenue and EBITDAR decreased last quarter due to lower table games win percentage on Rolling Chip play (2.85% vs. the co's expectations of 3.0%), as well as lower Non-Rolling Chip table games drop. The co attributed the lower drop to weaker mass-market revenues (VIP increased yr/yr) as mass customers "shared more of their gaming time with new entrants to the marketplace." The casino had even more entrants to the marketplace in Q4 as the MGM Grand Macau opened on Dec 18. As with the Venetian Macao, Non-Rolling and Rolling Chip table games drop for Sands Macao will be key metrics, but even more important will be mass-market revenues. Investors are hoping the co did not continue losing customers, and there is the question of Venetian Macao taking customers away from Sands Macao -- something the co denied on its Q3 call. 3) The Venetian Las Vegas -- The hold percentage came in at its lowest level since 1999 (14.7% vs. co's expectations of 20-22%). It attributed the lower than expected number to visitors having a lucky streak. While that metric will be important again this quarter, another issue will be the opening of the co's luxury resort, The Palazzo, on Jan 21. While not open during Q4, investors will pay attention to any color the co provides on the first days of the opening... Shares of LVS have not fared well over the last three months. The stock gapped 6.8% lower on Nov 2 following the disappointing Q3 results. Then after consolidating over the next month, shares briefly set a post-earnings high of $122.96 on Dec 10 before plummeting ~40% over the next six weeks (along with other casino names and the market as a whole), touching a 15-mo low of $70.70 on Jan 22. The stock rebounded into the $80 level over the next two trading days and has consolidated heading into this earnings release.
Monday, February 4, 2008
USDA releases January agriculture supply and demand data
Watch for potential volatility in:
Agriculture equipment manufacturers (DE, AG, CNH)
Ethanol (ADM, ANDE, PEIX, VSE, AVR, USBE, BIOF, XNL)
Secondary ethanol plays (VRNM, MGPI and OTD)
Fertilizer (TRA, CF, POT, AGU, SYT, MOS)
Livestock (TSN, SFD, HRL) Seed (MON)
11-Jan-08 08:48 ET Update:
USDA releases January agriculture supply and demand data; ending stocks in corn declines 20% -Update : USDA's World Ag Supply and Demand Estimates January report came out. Corn production expectations were lowered to 13.074 bln, down from 13.168 bln in December. Ending corn stocks (inventory) declined 359 mln bushels to 1.438 bln, down from 1.797 bln bu, and the yield was lowered to 151.1, down from 153.0. Corn use for ethanol production was unchanged at 3.2 bln, while the projected price of corn was raised $0.35 on each end to $3.70-4.30, up from $3.35-3.95. Wheat production expectations were unchanged at 2.067 bln bu. Ending wheat stocks were raised 12 mln bushels to 292, up from 280 mln, and yields were unchanged at 40.5 bu per acre. The projected price range for wheat increased $0.25 on each end to $6.45-6.85, up from $6.20-6.60. Soybeans production expectations were slightly lowered to 2.585 bln, down from 2.594 bln bu, ending soybean stocks were lowered 10 mln bu to 175 mln, down from 185 mln and the yield slightly lowered to 41.2, down from 41.3 bu per acre. The projected price range for soybeans was significantly raised to $9.90-10.90, up from $9.25-10.25. The changes in corn results were most likely not entirely anticipated, especially the decline in ending stocks, and this report is likely to create more volatility in corn trading than expected. Overall, this report is bullish for agriculture equipment manufacturers, fertilizer, and seed stocks, and bearish for ethanol stocks, and livestock stocks.
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10-Jan-08 16:57 ET
Agriculture sector watch: USDA’s January supply/demand preview : The USDA will release its January World Agricultural Supply and Demand (WASDE) report tomorrow for corn, wheat, soybeans, cotton, sugar and other crops at approx 8:30 EST. In last month's WASDE report, the USDA raised the price forecast for corn, wheat, and soybeans, which was positive for agriculture farm equipment makers such as DE, AG, CNH and ARTW, fertilizer stocks (TRA, CF, POT, AGU, SYT, MOS), and seed stocks (MON), while negative for livestock stocks (TSN, SFD, HRL). In tomorrow's report, ending stocks and yield are key. It's likely that lower inventory is expected, so a large decline in inventory is probably needed to really move prices, especially in corn. For corn, the important numbers to watch are the exports figure (currently 2.45 bln) and the amount of corn to be used for ethanol (currently at 3.2 bln). Overall, ending stocks for some major crops are still low, and exports are a key reason for this. Ending inventory for corn has increased from March through October, and then saw a decline in November and December of ~100 mln bushles, leaving its stocks-to-use ratio at 14.2%. The low in ending stocks for this crop season was in May with a stocks-to-use ratio at 7.6%, and if exports continue to knock down inventory levels, we could be headed right back to that level, which is more likely than not... As you can see in our chart, ending stocks in corn have been increasing since March and have peaked so far this season in October. And in the last three months, you can see that ending stocks have gone from 1,997 to 1,797, while the mid-point of corn has increased to $3.65 from $3.30. Currently the USDA's price forecast for corn, wheat and soybeans are $3.35-3.95, $6.20-6.60 and $9.25-10.25, respectively. And today's March futures prices for these three major crops are currently well above these price range forecasts, which is a key reason the USDA may look to increase its price forecast (positive for DE, AG and CNH) in it's supply/demand report tomorrow again... Any increase in crop prices in the USDA report will further help fertilizer companies performance, due to recent increases in sulfur prices, which was a cost mostly passed onto the farmer. (Last month's corn production was 13.168 bln, ending stocks were 1.797 bln; Soybeans production was 2.594 bln, with ending stocks at 185 mln, and wheat production was 2.067 bln, with ending stocks at 280 mln).
Gentex (GNTX)
29-Jan-08 08:08 ET
Gentex reports EPS in-line, beats on revs; guides Q1 revs below consensus (16.56 ) : Reports Q4 (Dec) earnings of $0.23 per share, excluding non-recurring items, in-line with the First Call consensus of $0.23; revenues rose 14.1% year/year to $170.7 mln vs the $168.6 mln consensus. Co issues downside guidance for Q1, sees Q1 yr/yr rev growth of +10% which computes to $173 mln vs. $177 mln consensus.
28-Jan-08 09:45 ET
1) solid 4Q07 earnings;
2) the realization that lower GMT900 will not prevent GNTX from achieving 2008 mirror growth of +10-15% and offers material upside to their 2008 earnings estimate;
3) encouraging updates on SmartBeam and Rear Camera Display (i.e., maybe GNTX is ready to tell them that the fact is that Toyota will soon become its largest RCD customer). The firm thinks the stock could increase 5-15% on Tuesday just like BorgWarner (BWA) and Tenneco (TEN) did recently.
Borg Warner issues in line Y08 EPS guidance (41.64 ) : Co sees Y08 EPS of $2.85-3.00 vs $2.85 consensus; co sees revs up 8-10% yr/yr, despite lower sales in the US market and moderate global vehicle production growth. North American industry vehicle production is expected to be down, European industry vehicle production is expected to be relatively flat, and solid growth is anticipated in Asia. The expectation of improved margins can be largely attributed to incremental income from net new business and an intensified focus on cost reductions, which is expected to more than offset the incremental margin lost on lower sales in North America, continued raw material cost pressures, and the costs related to global expansion.
Tenneco (TEN) reports EPS in-line, revs in-line (22.42 ) : Reports Q4 (Dec) earnings of $0.34 per share, in-line with the First Call consensus of $0.34. The co anticipates ongoing industry volatility in 2008. The co expects that North America industry OE production volumes will be lower, Europe OE volumes will remain relatively stable, and strong sales growth in expanding markets like China, India and Brazil will continue. In Q1, the co expects higher year-over-year revenues in North America given its market position and the anticipated benefit of incremental sales from new OE emission control business it launched in 2007, which will be at higher production levels compared to first quarter last year. In Europe, the co also expects to benefit from its strong position in Eastern Europe and Russia, where industry growth is predicted. The co estimates that its global original equipment revenues will be approx $5.5 bln in 2008 and $6.0 bln in 2009. Adjusted for substrate sales, original equipment value-added sales are estimated to be approx $3.7 bln in 2008 and $4.1 bln in 2009. The co expects the pricing environment for steel will increase gross steel costs year-over-year by up to $40 mln in 2008, which it anticipates fully offsetting through cost reductions, manufacturing efficiencies, material substitutions, low-cost country sourcing and customer recovery. As part of its five year strategic vision, the co projects it will achieve an average compounded annual OE revenue growth rate of 11% to 13% between 2008 and 2012, primarily driven by tightening emission control regulations globally.
Humana (HUM) Earnings Preview
Secondary Plays:
UNH, WCG, HS, CVH, WLP, CI, AET...
HUM is expected to report 4Q07 earnings Monday morning before the mkt open with a conf call to follow at 9:00AM ET... HUM Consensus: First Call 4Q07 EPS of $1.32, revs of $6.24 bln; 1Q08 EPS of $0.56, revs of $6.93 bln; FY07 EPS of $4.80, revs of $25.1 bln; FY08 EPS of $5.46, revs of $28.5 bln; Citi is expecting 211k Medical Advantage Enrollment growth...
Guidance: Co guided FY07 EPS of $4.75-4.80 (equates to $1.27-$1.32 for 4Q07); 130k Medicare Advantage net enrollment growth for '07; 4Q07 Medical Expense Ratio of 79% (3Q07 81.3%). Co guided for FY08, sees FY08 EPS of $5.30-5.50; Medicare Advantage net enrollment growth 200k-250k; Total Medicare medical costs 83-84% for FY08. There does not seem to be a pattern on EPS reporting; and rev growth is erratic...
Expectations: As HUM has got itself in better cash position and continues to be a cash generator, analysts are expecting an update of what the co plans to do with its cash. There is skepticism from analysts regarding the co's target of net Medicare Advantage membership growth for FY08 due to new competition. In addition, investors are a bit worried about the uptick in its Medical Expense Ratio due to higher than expected figures from WLP and UNH...
Areas of Focus on the Call:
1) Medicare Advantage Enrollment Color (Analysts are skeptical, inline guidance will be a positive)
2) Medical Cost Trends (Will be questions regarding if co saw same pressure as UNH & WLP)
3) Cash usage (HUM said that it is in better position than in the past 2 years in regards to its cash position; has more ability to do acquisitions or share repurchase)...
Earlier plays
Secondary plays: NSM, ADI, INTC, MXIM, TXN, BRCM, SMTC, ATML, ONNN...
29-Jan-08 15:53 ET Earnings Preview -Update : SLAB is expected to report Q4 earnings 1/30 before the mkt opens followed by a conference call at 8:30 ET... SLAB Consensus: First Call consensus is Q4 EPS of $0.38 on revs of $95.57 mln; Q1 EPS of $0.34 on revs of $90 mln; FY07 EPS of $1.24 on revs of $332.63 mln; FY08 EPS of $1.63 on revs of $393.46 mln... Guidance: Co guided in Q3 press release on 10/24, issued upside Q4 guidance of $93-97 mln vs $90 mln consensus. The stock closed up 6% that day, but has traded down 35% since reporting Q3... Expectations: Since 2000, co has never missed earnings estimates (beat every time and reported in-line twice) and no difference is expected this qtr. Revs growth YoY has been positive for past 8 qtrs, although last Q4 YoY growth was only 1.1%. Guidance tends to lead the way for the stock movement and just like others in the semiconductor sector, margin carries a lot of weight. The co has gross margin tgt of 60-62% and set a goal of 25% operating margins by the end of this year... On 12/11, Friedman Billings initiated with Mkt Perform and $38 tgt but remain neutral given their valuation metrics reflect the co's key growth opportunities and has some concerns that revs growth in 2008 could slow before other products pick up the slack in 2009. Kaufman initiated with Buy and $50 tgt on 10/30 saying co has diversified portfolio of high growth and high margin mixed-signal analog products and expect stream of new products that target new high volume opportunities through low-cost, integrated solutions... Briefing note: Short interest is 7%, mkt cap is $1.54 bln, float is 50.61 mln and avg volume is 1.1 mln... Areas of Focus on the Call:
1) recent takeover speculation such as IFX for SLAB rumors
2) FY08 outlook
3) Gross and operating margins... Recent price movement: Since reporting last qtr, stock is trading down 35% and made new multi-year lows. Stock is down 24% over past 20 days, but up 6% over past week (note this recent upward trend follows TXN beating estimates on 1/22 and BRCM beating estimates on 1/24)...
Welcome!
The return on investment depends strongly on the used strategy. There are lot of traders who are involved in technical analysis, but bunch of the guys out there are looking for fundamental relations between stocks. It is pointless to argue, is the technical trader better than fundamental... one thing is clear enough... one day we die anyway.
SO, LIVE FOR NOTHING OR TRADE FOR SOMETHING?
