Daily Archives: May 8, 2007

Cisco’s Misplaced Video Bet

Cisco’s (CSCO) message with the release of its earnings was video, video, video. The company’s set-top box operation, formerly Scientific Atlanta, contributed net sales of $752 million during the third quarter of fiscal 2007, compared with $407 million during the third quarter of fiscal 2006.

Cisco’s overall revenue rose 21% to $8.9 billion. Net income was up 34% to $1.9 billion.

The investment bet on Cisco over the next two or three years is that router and other network gear sales will rise as cable and telecom companies build out their broadband networks. As MarketWatch wrote: Chief Executive John Chambers said rising demand for equipment that allows companies and network operators to deliver video shows no signs of slowing. "Video continues to drive network demand,"  Chambers said in a conference call with analysts. "Momentum remains very strong." 

That is all true now, but it may not be in a couple of years. The big build-outs are investments like the one Verizon (VZ) is making on fiber-to-the-home. That’s a $23 billion initiative. But, it has to be done soon, in a matter of a few quarters, or VZ’s ability to compete with cable for TV customers will begin to fade.The same is true for AT&T (T). Its plan to build a system to allow bundled voice, broadband, and TV is a $6 billion plus investment. But, that money has to be spent by the end of 2008. Otherwise it will watch cable take its voice customers and have nothing to fight back with.

DItto cable. It is still an open question how much cable companies have to upgrade their networks to offer competitive broadband. What they have is faster than DSL. And, fiber-to-the-home is super-fast, but consumers may not be able to take advantage of all that big pipe. If the telecom companies are not taking a lot of customers from cable, it is hard to imagine companies like Comcast (CMCSA) spending a huge sum to upgrade their networks just for the hell of it.

Video is nice. It is an explosion. YouTube is a big deal. So is internet VOD. But, most of what has to be in the ground to make all of this work needs to be buried in the next dozen quarters. Maybe less. Then what does Cisco do?

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: May 8, 2007 – 6:51 pm in Hardware

Disney: Wall St. Misses The Theme Park Point

Wall St. did not think much of Disney’s (DIS) earnings. The stock moved down over 2% to about $35.90 after the company announced its latest quarter. The company still trades near its 52-week high.

But, the news was better than it seemed. Investors were unhappy that revenue was flat $8.1 billion. Net income did rise 27% to $931 million. But, the immediately previous quarter had a much stronger net income gain.

The news reporting about earnings focused on the networks, both cable, mostly ESPN, and ABC. Revenue in the segment was flat, but operating income was up 21% to just under $1.2 billion. The studio segment, where the company has done heavy cost cutting, had a drop in revenue but net rose 60% to $235 million.

But, the portion of the business that has become the steady performer is the theme park segment. It may be overlooked, but it is the operation that differentiates Disney from it direct competiors: Time Warner (TWX), New Corp (NWS), Viacom (VIA), and CBS (CBS). They rely on media, studio, and internet business. Not one of them has a similar bricks-and-mortar arm.

Revenue at the theme parks rose 9% to $2.5 billion. Operating income was up 19% to $254 million, making it the second largest contributor after networks.

When old Walt Disney decided to build a theme park based on cartoon characters someone must have considered locking him up. But, it turned out better than most would have imagined.

Revenue from TV networks and studios can be fickle. But, the theme parks did well last quarter. They did well the quarter before.

And, no other media company has a similar business as an anchor.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: May 8, 2007 – 6:30 pm in Media

After-Hours Movers & Shakers (May 8, 2007)

Stock Tickers: MDRX, CSCO, CCRT, ERTS, LMIA, PAL, PZZA, FACE, SIRI, SONS, TRLG, DIS

Allscripst Healthcare Solutions (MDRX) is trading down over 6% to $25.25 after eraffirming targets after earnings.  Its shares are still up 70% in 18 months, so reaffirming may not be enough.

Cisco Systems (CSCO) trading down 5.5% to $26.75 after estimates and guidance failed on a "wow-factor" like in prior quarters.

CompuCredit (CCRT) is getting shelled 8% in after-hours to $35.00 after posting a loss in the quarter.  It still sees $4.00 or higher EPS for 2007, but you have to trust them, and their customers are the "undesireables" compared to most financial institutions.

Electronic Arts (ERTS) trading down close to 3% at $51.50 after next quarter guidance is not up to snuff.  The full year for fiscal March-2008 looks ahead, but you have to trust they will deliver in the same two quarters that Halo 3 and Grand Theft Auto releases will be coming.

LMI Aerospace (LMIA) fell 9% on thin volume after posting lower earnings.

North American Palladium (PAL) rose 9% to $11.11 after Cramer touted it as a stealthy way to speculate on a nickel play with 22% of its revenues coming from nickel.

Papa John’s International (PZZA) traded up 2.2% to $32.50 in after-hours. Earnings wer elower than last year but guidance had been brought in enough that they were able to raise their outlook.

Physicians Formula (FACE) fell nearly 10% after beating guidance but guiding lower for the coming quarter.

Sirius Satellite Radio (SIRI) traded up 1.7% after Cramer noted it in the lightning round as a positive if the governemnt will approve the merger.

Sonus Networks (SONS) traded up 5.7% in normal trading and went up another 2% in after-hours to $7.95.  Revenues looked a bit light, so this one is worth a look.

True Religion Apparel (TRLG) traded up almost 4% to $16.27 after closing up 3.5% in normal trading.  The company did reiterate 20% sales growth for 2007 and put EPS at $1.24 to $1.27 for 2007.

Walt Disney (DIS) fell 2% after meeting expectations, but that’s after trading up almost 1.4% in regular trading.  Shares were close to recent highs.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 6:15 pm in After-Hours Activity, , , , , , , , , , , ,

Cramer’s Stealthy Nickel Play (PAL)

On tonight’s Mad Money on CNBC, Jim Cramer said the bull market is stronger in nickel than in the US stock market and he wants you to look at a new nickel pick.  The nickel markets are nearing shortages and Cramer wants to look at what is next to get bought in the sector.  The right nickel company to look at is CVRD (RIO) as the largest player in the world, but he wants a speculative play.

Cramer thinks the next one to be consolidated in the sector is speculative, but he wants you to look at it: North American Palladium (PAL-NYSE).  It is a thin volume $10 stock but they do have 22% of their revenues from nickel.  No analysts follow it.  He thinks this could jump massively if it became valued as a nickel operator.  This is the second best speculative play in nickel according to him.  Cramer doesn’t think this one is imminent at all and he thinks you need to take your time to do this over the next few weeks.  They also do not hedge metals production anymore so all the benefit of the metals markets will go to the bottom line.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 5:09 pm in Cramer, Metals,

First Look at Cisco After the Conference Call (May 8, 2007)

Cisco Systems (CSCO-NASDAQ) shares are trading lower after the company’s post-earnings conference call.  The company has guided revenues in the $9.2 to $9.3 Billion range with gross margins still at 64%.  The First Call estimates ahead are already $9.23 Billion.  The sad thing is that the company was saying this was above their prior guidance, but that’s what happens when the street already makes assumptions of an ongoing bullish story.  The initial verdict is that Wall Street just got ahead of the stock.

It is hard not to take a side here when there is an obvious.  Chambers is a sharp CEO and the company basically knows its financials within a 3-day picture with a fairly high degree of accuracy.  CEO’s now have the job of being conservative in guidance as to avoid being reckless and to avoid personal liability. 

The new revenue growth of 15% to 16% should not really be an ‘oh-well’ or a disappointment to Wall street.  That may be the initial reaction, but all forward quarters from here on out are no longer to be skewed by the huge gains from a non-Scientific Atlanta comparable basis.  The book-to-bill ratio was also above 1.0.   Cisco is still apparently winning new business and winning back old business, some on price and some on the full spectrum of offerings it has.

Traders may be calling the quarter a disappointment with a 5.5% drop in after-hours trading.  The truth is that this really only represents a 3.5% drop if you back out the 2% gains to $28.36.  The stock needed to back off a bit, but as long as the business spending environment doesn’t really dry up then I would give Chambers the benefit of the doubt and accuse him of being conservative.  That’s my take on this developing situation and we’ll address it later in the morning on Wednesday after the bulge-bracket analysts have mostly gotten out of the way. 

If this stock wasn’t back within 2% of a multi-year high right ahead of earnings then this would have been been chalked up as more of a win.  Besides that, isn’t the market closing up and higher almost every day right now?

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 4:43 pm in Earnings, Technology Companies, Telecom, Wireless,

Dendreon Option Premiums Remain Astronomical (DNDN)

Dendreon (DNDN-NASDAQ) has only up to 4 full trading before that May 15 FDA review date.  The funny thing here is that the options have actually become more expensive since reporting on this last week.  The current $17.50 straddle would run $12.90 for the May expiration on the Put and Call strike prices. 

Even going way out on the strikes is far from a bargain: The May $25.00 Calls went out at $3.80 premium today; and the May $10.00 Puts went out at $2.10.  Neither of those are cheap at a $17.74 close for Dendreon today.  The funniest thing is that the time value portion of the premiums will not compress drastically each day ahead of the FDA event as more and more traders have little to no choice but to put on certain hedging transactions after the last move that Dendreon made on receipt of the panel backing for provenge.  If this was a normal option with no event risk it would theoretically lose up to 1/8 of the value each day from here, but the event risk going into next Wednesday will keep these premiums high until after the formal FDA decision.

There is still a ways to go before (5 trading days) this one is a known verdict.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 4:04 pm in Biotech, FDA, Options

Electronic Arts Earnings & Guidance

Electronic Arts (ERTS-NASDAQ) reported non-GAAP EPS of $0.06 on $613 million in revenues versus estimates of $0.02 & $587M.   The company gave guidance of non-GAAP EPS -$0.34 to -$0.40 and $350 to $400 million in non-GAAP revenues next quarter versus estimates of  -$0.08 and $467M.  It guided 2008 (Fiscal March 2008 end) at $0.90 to $1.20 and revenues of $3.1 to $3.4 Billion versus $0.73 and $3.07 Billion estimates.

Shares are down 1.5% in after-hours trading at $52.13 after closing up 3% at $52.94 on the day.  The next quarter is a tru throw away quarter for video games anyhow, but the guidance ahead means you have to trust that sales will do this well during the quarters that the Halo 3 release and the new Grand Theft Auto release will suck up much of the available video game spending.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 3:24 pm in Earnings, Video Games

Cisco Beats, But Not By Enough

Cisco Systems (CSCO-NASDAQ) reported earnings of $0.34 non-GAAP EPS on revenues of $8.9 Billion versus estimates of $0.33 & $8.76B. Margins were approximately 64.5% versus 65% estimates.

Scientific-Atlanta, Inc. contributed net sales of $752 million during the third quarter, compared with $407 million during the third quarter of fiscal 2006.  Cash flows from operations were $2.4 billion for the third quarter of fiscal 2007.  Cash and cash equivalents and investments were $22.3 billion.  Cisco repurchased 56 million shares of common stock at an average price of $26.85 per share for an aggregate purchase price of $1.5 billion.  Days sales outstanding 33 days.

Since Cisco shares were up 2% today ahead of strong earnings hopes, shares are down roughly 4% in after-hours trading.  Until guidance is out in the conference call this should be considered an open ticket item.  The results were solid but some traders apparently were demanding more.  We’ll check out the reaction to the conference call later before holding up a win or lose sign.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 3:15 pm in Earnings

CVS/Caremark – The merger paid off but moves the stock less than 2 percent

CVS/Caremark Corporation (CVS) reported earnings today rose 24% on strong revenue in the first quarter. Net income after paying preferred dividends grew to $405.4 million, or 43 cents per share, from $326.1 million, or 39 cents per share, a year ago. The merger of CVS and Caremark is a success and result - the stock is up 1.8%.

For those of you playing today’s earnings call and making your bets yesterday did you expect a big jump if they pulled it off? For those playing the shorts, did you think the share price was going to tank? Now that CVS/Caremark Corporation is mammoth drug corporation the stock is going to tread water. Yesterday I called them the "Wal-Mart (WMT) of the drug world" and the reaction that Wall Street is showing to today’s earnings call is justifying that labeling.

Despite same-store sales increasing 6.6%, driven by health and beauty, digital photo and private label and proprietary brands, it feels like we got another Starbucks (SBUX) on our hands. CVS/Caremark Corporation plans to open 100 stores this year and continues to expand its presence in the high-growth areas of Florida, California, Texas and Arizona. They also are planning to open an additional 300 MinuteClinics, walk-in clinics that provide care for about 20 common ailments. All they need to do is merge with Starbucks or Panera Breads (PNRA) and they can start selling more than drugs, lift the same-store sales numbers and make some real money. "I’ll take a double-tall mocha, some Prozac, that blueberry muffin, and don’t forget my azithromycin."

If you’re looking for a safe bet in what could become a Bear market in the coming weeks, CVS may be your pick. CVS/Caremark Corporation is here to stay, they pulled if off, now for investors the concern becomes the stock price – will it start to move?

Frank Lara Jr.

Frank Lara Jr. can be reached at franklara@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 8, 2007 – 2:37 pm in Uncategorized

Delta and US Airways hit new 52-week lows but they will win back their Freedom

Delta Air Lines, Inc. (DAL) emerges from bankruptcy and a few weeks later their common shares fall flat on their face. US Airways (LCC) has been falling these past few months and after losing 38% of it’s share value since late February, hello new 52-week low today due to declining revenue. Remember what happened to JetBlue (JBLU) last week? How about $9 a share and just missing their 52-week low by a few pennies. The airline sector is not where you want to be putting your money. Period.

So that $10 fare increase you’ve been hearing about? Delta, Northwest Airlines and US Airways said they withdrew a $10 round- trip fare increase adopted because of higher fuel prices. Continental initiated the $10 increase May 4th, as jet-fuel prices have climbed 14% since the start of this year. With jet fuel prices on the rise and with no relief in sight, tack on all the major carriers whining about the slowdown in domestic fare growth - how can you expect to be profitable and why would you invest in the airlines?

Bargain airline stock hunters beware, it’s going to get worse before it gets better. It’s as if all the airlines have been thrown into a coffin and Wall Street is taking enjoyment in pounding in the nails to ensure the coffin is sealed air-tight (to ensure cabin pressurization is secure).

Yesterday (5/7) Forbes ran this headline:
Sector Snap: Airline Stocks Rise
Airline stocks rose Monday, boosted by easing crude oil prices and a Credit Suisse upgrade of United Airlines’ parent.

Today (5/8) Forbes ran this story:
Sector Snap: Airline Stocks Slip
Airline stocks slipped modestly in mixed midday Tuesday trading, as crude prices ticked up and Frontier Airlines Holdings Inc. became the latest carrier to report weaker unit-revenue trends.

This isn’t an intentional slam on Forbes, it’s just the nature of the beast – airlines stocks are as easy to judge as anticpating your lovely mother-in-law’s mood. Just keep in mind, if the hate for the airline sector grows, that’s probably the time when you want to be thinking about playing one of these stocks. So let the hate build and then let the airline CEO’s band together against Wall Street just as the 13th Century Scots did versus the English under the leadership of one William Wallace. They’ll all be standing there, faces painted blue, wind blowing in the breeze, and ready to open the NYSE one fine morning in the near future. Just as they will band together to open the market, I could imagine William Wallace arriving on horse back, tWilliam Wallace - Mel Gibsonhen making a grand speech for all of Wall Street to hear:

William Wallace: Aye, fight and you may die, run, and you’ll live… at least for a while. And dying in your beds, many years from now, would you be willin’ to trade ALL the days, from this day to that, for one chance, just one chance, to come back here and tell our enemies that they may take our lives, but they’ll never take… OUR FREEDOM!
[crowd cheers]

That’s right, they will win back their Freedom and believe me, the airline sector will have it’s day in the shinning sun, but not for a few months. Until then, Wallace and his band will plan their attack quietly, and wait for the perfect moment to strike – you’ve been warned.

Frank Lara Jr.

Frank Lara Jr. can be reached at franklara@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 8, 2007 – 1:34 pm in Airlines

Cramer Goes Discovery

On today’s STOP TRADING segment on CNBC, Jim Cramer said he loves Discovery Holding Co. (DISCA) and thinks it should go private.  He was very positive on this name before on one of his MAD MONEY episodes.

The problem is that the company is not at a price any "fiscally responsible buyer" would want to look at the company.  It loses money and has negative cash flows at this point because of one-time items.  The good news is that it is expected to make money this year and grow earnings next year.  But it is essentially still on the cusp.  The main reason for losses was because of one quarter last year, but the net earnings from operations probably price this out.  A buyer at this point would mainly be a vanity buyer or a buyer that thinks he/she can run it leaner and meaner.  It’s a good company and it has great assets, but at the end of the day a buyout is too expensive for a rational financial statement reader.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 1:34 pm in Cramer,

Cramer Talks Agflation

On TheStreet.com videos today, Jim Cramer noted that a recent term from Merrill Lynch on ‘Ag-Flation’ is a real risk just like China related inflation.  The ethanol mandates recently have driven up costs around the entire grain and farming complex and presidential mandates are driving prices up across the board.  Now the government even allows the companies to get together on pricing.  He noted the comments out of Buffalo Wild Wings (BWLD) talking about the cost of chicken wings. 

You can decide this for yourself whether you think he is right or even timely on this, but what he noted here does actually have a serious trail ahead across many sectors that will translate to higher prices you and I pay at the register.  If grain and corn costs are higher at the same time that gasoline and other energy is higher, then it drives prices considerably higher all the way up and down the food supply and distribution chains.  At least the Labor Department’s "core CPI" hides the ex-food and energy (and healthcare and anything else the public spends more and more money on).   This is normally too "macro-economic" of a call for us to note, but it is something that after two years of higher prices is starting to show itself more and more on the consumer end.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 11:17 am in Cramer

The Next Home Equity Boom

Just when you thought consumer home equity induced spending was dead due to a slowing market and tightened credit standards, a new product promises to put some juice into it.  REX & Co, backed by a subsidiary of AIG  has a new product that lets homeowners tap the value of their homes without taking out a loan.  The novel product gives homeowners cash for their equity in return for a portion of the proceeds from the eventual sale of the home.  For instance, a homeowner who has a $500,000 home can extract $100,000 of that by giving  REX 50% of the change in the home value.  So, if the home is sold in 5 years for $750,000, REX receives half the increase, or, $125,000.  If it sells for $600,000, they receive $50,000. 
It is a break from the traditional debt based equity extraction option homeowners currently have and is available in California, New Jersey, Virginia, Florida, Washington, Colorado, New York and North Carolina.  Founder Thomas Spoonholtz expects it to be available nationwide within a couple of years.
He aims to have it sold through mortgage brokers with up to a 2% of proceeds fee and homeowners will have to commit to hold the home for a set number of years or face "early exit" fees or 5% to 25%.  This approach will appeal to retirees looking to maximize the extraction of equity from their homes without incurring interest payments.  Younger borrowers will like the fact that their debt ratios will not increase and the effect on their credit scores will be non existent.  It will also allow for higher borrowing limits since the home will be held for a minimum time frame, increasing the equity available.
What this product essentially does is allow current homeowners to borrow "future equity" in their homes and not pay interest charges.
Todd Sullivan
Posted on: May 8, 2007 – 11:09 am in Housing

CSX Rolling Full Speed Ahead

CSX (CSX) provides rail, intermodal and rail-to-truck transload services that are among the nation’s leading transportation companies, connecting more than 70 river, ocean and lake ports, as well as more than 200 short line railroads.

Its principal operating company, CSX Transportation Inc., operates the largest railroad in the eastern United States with a 37,170-mile rail network linking commercial markets in 23 states, the District of Columbia, and two Canadian provinces. Headquartered in Jacksonville, Florida, CSX is the gateway to the west for goods coming into eastern ports and the main hauler of products coming from the Midwest to be exported.

Earnings in 2006 grew 64% and CSX increased it’s dividend 50%. Management predicts record revenues cash flow and profits through 2010.  The key drivers? Gas and ethanol.  Diesel fuel price increases disproportionately affect trucking vs railroads.  It has become increasingly cost ineffective to ship goods long distance by truck as prices have risen.  This has pushed more users to go the the railroad who, due to this increased demand volume have been able to add fuel surcharges to offset their increased fuel costs.  In ethanol, CSX experienced 24% volume growth in 2006 shipping the corn based fuel.  CSX is the main shipper of ethanol from the Midwest to the east coast.  It passes through it’s Chicago hub and from there to points east.  This market will only continue to grow as mandates and demand do.  When Archer Daniel’s (ADM) reports "strong ethanol demand", this is good for CSX.   
These factors lead to CSX producing cash from operations of $2.1 billion, $1` billion higher than 2005.  To return this to shareholders, at the end of 2006 the board approved another $2 billion to be completed by then end of 2008.  Today’s announcement of another $1 billion means that a total of  15% of the company’s outstanding shares will be off the market by the end of next year. This is a huge win for shareholders.
The rail business is booming and CSX is doing its best to reward its shareholders.
I hold no position in CSX
Todd Sullivan
5/8/2007
Posted on: May 8, 2007 – 10:07 am in Transports

Goldman Sachs Boosts Market Targets, A Bit Late…..

Goldman Sachs’ strategist Abbey Joseph Cohen has boosted her targets on both the S&P 500 Index and the DJIA for 2007.  She raised the S&P target from 1550 to 1600, versus 1,504-ish today.  Her DJIA target was hiked from 13,500 to 14,000, versus 13,270-ish today.

Ms. Cohen is also looking for continued mid to high-single digit earnings growth for 2007 to continue through 2008.  This is a moderation of gains, but based on continued corporate gains and the duration of the Federal Reserve and strength of the international economies.

After all the mergers and earnings running up the market day after day you have to wonder if this marks an opportunity for profit taking.  This feels like the first day out of many where the red "39 points above prior high" ticker hasn’t been lit up on CNBC and all over the Internet. 

We don’t mean this as a total slam against Goldman nor against Ms. Cohen.  She’s smart and more influential than most, but after more than a 1,000 point rally in 2 montsh in the DJIA you just can’t help but think the call is late.  The market may very well go higher, but that doesn’t mean there won’t be days (or even weeks) of profit taking here and there.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 9:04 am in Analyst Calls

McDonald’s: Some One Is Gettin Fat

McDonald’s (MCD) same store sales rose almost 5% worldwide in April.

The population is not growing at that fast a rate, so, either McDonald’s is getting the revenue from other retailer outlets, or people who used to eat at home.

Otherwise, there a a few very fat people going to MCD four or five times a day

Douglas A. McIntyre

Posted on: May 8, 2007 – 8:12 am in Uncategorized

Hewlett Packard Raised Guidance (HPQ, DELL)

Hewlett Packard (HPQ-NYSE) has raised guidance this morning for fiscal Q2.  The company "accidentally" sent an email last night and determined that it would be best to release the data this morning.  The company will give formal earnings on May 16.  Revenues were put at $25.0 to $25.55 billion versus $24.6 Billion estimates.  The EPS guidance was also hiked to $0.69-0.70 vs $0.65 estimates.

The company stated previously that it anticipated revenue of approximately $24.5 billion, non-GAAP diluted EPS in the range of $0.63 to $0.64  The increase in second quarter revenue and EPS guidance was driven by strong operational results in the Personal Systems Group and in industry-standard servers. In addition, EPS benefited from higher levels of share repurchases during the quarter.

HP estimates third quarter 2007 revenue of approximately $23.7 billion to $23.9 billion, non-GAAP EPS in the range of $0.63 to $0.65; estimates are $23.6B & $0.61.

This is almost exactly in-line with what Jim Cramer had telegraphed just last week.  Even shares of Dell (DELL) are indicated up almost 1% pre-market on this news.  If these levels hold on HPQ, this will be new 5-year highs.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 7:57 am in Cramer, Earnings, PC Companies, ,

Cisco Systems Earnings Preview Q3 2007 (CSCO)

Cisco Systems Inc. (CSCO-NASDAQ) will grace tech traders with its earnings report after the close today.  First Call estimates are $0.33 EPS and $8.76 Billion revenues.  Its last revenue range was $8.7 billion to $8.8 billion.  We’ll also get to see if the mid-April comments out of the company were just noise or if there is some real meat behind it.

The stock is within 5% of its yearly high, and the company is just in a far different place now than it was in the past.  Our own Doug McIntyre laid out the scenario where Cisco could see $34.00 per share by mid-year.  The average analyst target on Wall Street is roughly $31.00 to $32.00, so based on a hybrid model you could expect to see “valuation” downgrades start to come in just north of $30.00.

Options traders are braced for a move of $0.75 to $0.85 in either direction, but that number may be different tomorrow.  That would actually put it at up to a 3.5% stock move at the higher-end of the range.  As a reminder, this was Jim Cramer’s #3 pick for his Top Growth Stocks for 2007 back at the start of January.

The latest WebEx (WEBX) deal will be one to watch for the company as yet another platform for the company.  Sure, Cisco had a video platform.  This gave it more customer depth.  This was the latest ploy for the company to basically own the Internet from the wires leaving the servers to the wires (or equivalent) all the way up to your computer or web connecting device.  This should also be the last of the full pre-integrated Scientific-Atlanta comparison quarters that helped generate such a solid boost to sales.

Maybe John Chambers will comment on John McCain’s commenting about how he would want to have him on a technology committee.  Probably not.  McCain must have been reading what we wrote on Chambers back in January, because we noted the likelihood that Chambers would be swept up for a key advisory position or even much higher in the world.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 7:16 am in Earnings, Internet, Technology Companies, Telecom,

Goldman Sachs Research Summary (MAY 8, 2007)

Goldman Sachs raised estimates on AngloGold (AU), Guitar Center (GTRC), Dolby (DLB), Darden Restaurants (DRI), Assured Guaranty (AGO), Fortress Investment Group LLC (FIG), Assurant (AIZ), McKesson (MCK), Emergency Medical Services (EMS), Warner Chilcott (WCRX), American Tower (AMT).

Goldman Sachs cut estimates on Johnson & Johnson (JNJ), Scientific Games (SGMS), Campanhia Vale do Rio Doce (RIO), Entercom (ETM), Hansen Natural (HANS), Encore Acquisition Company (EAC), SBA Communications (SBAC).

Goldman Sachs analyzed Limited Brands (LTD) on talk of its apparel division being up for sale and determined that it could fetch $1.1 Billion, although it maintains its $28 price target.

Goldman sets 2009 targets on Harlkey Davidson at $5.08 EPS on revenues of $6.8 Billion based on 413,000 motorcycle sales.

Fortress (FIG) estimate hike is based on launch of new $5 Billion fund announced.

J&J (JNJ) estimate cuts were based on COSTAR II result shortfall.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 7:12 am in Analyst Calls

Dynegy Reports; Is It Good Enough?

Dynegy Inc. (DYN-NYSE) reported EPS of $0.03 on stronger-than-expected weather-driven demand and higher power prices; up from -$0.01 last year and compares to $0.03 to $0.04 estimates (Reuters $0.03e and First Call $0.04e).  Revenues were $573M vs. $600M last year (no estimates seen for this quarter).

Earnings before interest, taxes and depreciation and amortization (EBITDA) from the power generation business was $190 million for the first quarter 2007, compared to EBITDA of $167 million for the first quarter 2006.

Dynegy’s liquidity was $863 million. This consisted of $369 million in cash on hand and $494 million in unused availability under the company’s letter of credit facility.

CONJECTURE: Before looking further at this situation, the stock is within 2% of its $10.53 highs which is also back to 5-year highs.  This stock is also up more than 100% from the lows in 2006.  These results may be good compared to last year but are fairly in-line and on lower revenues year over year.  It would make one wonder if this one needs a breather before making any massive moves.  The hardest bet on Dynegy is that the stock often reacts differently than the news.  Last months short interest was 7.946 million shares, down from more than 10.3 million shares in March.

GUIDANCE: The new 2007 estimates include a range of operating cash flow between $485 million and $585 million and a range of free cash flow between $135 million and $235 million. Previously, the range of 2007 operating cash flow was between $500 million and $600 million and the range of free cash flow was between $315 million and $415 million. The $180 million reduction primarily related to a legal and settlement charge of approximately $20 million and the refinancing of certain project debt. The company’s new 2007 EBITDA estimates include an anticipated range of $1.01 billion to $1.12 billion compared to the previous estimated range of $1.02 billion to $1.13 billion. The new estimates reflect purchase accounting adjustments, which have no corresponding impact to cash flow, and a legal and settlement charge of approximately $20 million.

INITIATIVES: As a result of the combination with LS Power, the company’s portfolio now includes 30 power generation facilities totaling approximately 20,000 megawatts of baseload, intermediate and peaking capacity in key regions of the U.S. The company previously announced an initiative to rationalize its operating asset portfolio to focus on regions and markets where Dynegy has a significant asset position. As a result of this evaluation, Dynegy is considering the divestiture of the Bluegrass peaking facility in Kentucky, the Heard County peaking facility in Georgia and the Cogen Lyondell facility in Texas. In addition, the company previously announced an agreement to sell the Calcasieu peaking facility in Louisiana to an Entergy subsidiary, which is expected to be completed in early 2008.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in any of the companies he covers.

Posted on: May 8, 2007 – 6:54 am in Earnings,