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Brocade Communications Systems Inc. (NASDAQ: BRCD) has announced an agreement to acquire Foundry Networks, Inc. (NASDAQ: FDRY). Brocade will pay a combination of $18.50 of cash plus 0.0907 shares of Brocade common stock in exchange for each share of Foundry common stock, representing a total value of $19.25. The transaction value is about $3.0 Billion (prior to dilution) and Brocade sees it as accretive in its fiscal year 2009. It also sees non-GAAP earnings accretion to accelerate in fiscal year 2010.
Daily Archives: July 21, 2008
Brocade Spreads Its Wings With Foundry Buyout (BRCD, FDRY, CSCO, JNPR)
Merck Visits The Proctologist (MRK)
Merck & Co. (NYSE: MRK) posted earnings that look pretty good on the surface. The problem is that the surface is about the only thing that looked appealing for the drug giant today. Merck posted $0.86 EPS on a constant basis on $6.1 Billion in worldwide sales. First Call estimates were $0.83 EPS on $6.05 Billion in revenues.
To make matters worse, the company has opted not to give 2008 and long-term guidance on earnings and revenues to assess the effects of today’s Vytorin study data.
Texas Instruments (TXN): A Quarter To Forget
Wall St. expected Texas Instruments (TXN) to post earnings of 45 cents a share on revenue of $3.39 billion, according to a survey by FactSet Research.
But, TXN came in with secondquarter revenue of $3.35 billion, net income of $588 million and earnings per share of $0.44.
Apple Guidance Too Conservative For Bulls (AAPL)
Apple Inc. (NASDAQ: AAPL) just posted earnings of $1.19 EPS and $7.46 Billion in revenues.
First Call had estimates of $1.08 EPS and $7.37 Billion in revenues.
The company is guiding next quarter to $1.00 EPS on $7.8 Billion in revenues. First Call has estimates as $1.24 EPS on $8.32 Billion in revenues. Here are some other full data points ahead of the report.
The company shipped 717,000 iPhone unites, 2.5 million Mac’s, and 11 million iPods. Gross margins were 34.8% versus 36.9% prior.
American Express Internals Deteriorate Rapidly (AXP)
American Express (NYSE: AXP) just posted $0.56 EPS on $7.484 Billion in revenues, although we would note that there are items in these results from continuing operations.
First Call had estimates of $0.83 EPS on $7.6 Billion in revenues.
It does not expect to meet or exceed its its financial targets until the economy improves.
SanDisk Turns Earnings Into Sand (SNDK)
SanDisk Corp. (NASDAQ: SNDK) has posted poor earnings today. The flash memory leader posted -$0.10 EPS on a non-GAAP Basis on $816 million in revenues. Earnings estimates from First Call were $0.13 EPS on just over $906 million in revenues.
The 52-Week Low Club 7/21/2008 (ARTC)(SFI)(TXT)
Textron (TXT) Tough earnings and a downgrade from UBS. Falls to $39.77 from 52-week high of $74.40.
IStar Financial (SFI) Bad quarter, higher loan loss provisions. Tumbles to $7.30 from 52-week high of $42.40.
ArthroCare (ARTC) Company has to restate results, undermining buy-out possibility. Drops to $22.77 from 52-week high of $65.70.
Small Business Turns Against “Uncle Sam”
Small businesses think they are being abandoned by the federal government just when they really need something in exchange for their tax dollars.
A new poll from American Management Services reveals that almost no one in the small business sector thinks that it is getting any meaningful support during the present economic crisis.
BankAtlantic Sues Ladenburg Thalmann & Analyst Bove After Research Report (BBX, LTS)
BankAtlantic Bancorp (NYSE:BBX), the parent company of BankAtlantic, is doing something rather unique. It is suing brokerage firm Ladenburg Thalmann, part of Ladenburg Thalmann Financial Services Inc. (AMEX: LTS), and its bank analyst Richard Bove.
Many of you will know Bove as one of the more respected or at least as one of the more influential analysts in the financial services sector.
SanDisk Braces For Earnings (SNDK)
SanDisk Corp. (NASDAQ: SNDK) is set to report earnings today after the close. While the company will have to compete for headline and eyeball interest against Apple, this is a key stock that many traders use to garner interest into the overall Flash Memory market. It also competes by selling an MP3 player.
Earnings estimates from First Call are $0.13 EPS on just over $906 million in revenues. For next quarter estimates are $0.36 EPS on $1.09 Billion, and for fiscal Dec-2008 estimates are $1.31 EPS and $4.22 Billion in revenues.
After this stock has slid two-thirds from 52-week highs, the average analyst targets are still between $27.00 and $30.00. Options traders appear to be braced for a move of up to $1.50 on in the money calls and over $2.00 in either direction based upon current out of the money options. This does give us a decent range to use but the stock is between strikes and with last Friday being expiration we have an abnormal amount of time value put in with this event-risk.
At $17.99, shares are much closer to 52-week lows as we have a 52-week trading range of $16.02 to $59.75. Sadly, if this share price holds we’ll essentially be looking at 5-year lows.
You can guess the culprit. Sales keep growing as we all start using more and more consumer electronics that use flash memory, but margins continue to erode and erode. DRAM and SRAM makers always promise leveling out of margins but this tends to be a commodity business that doesn’t see the same norm in commodity prices where the commodity can actually rise in price.
Jon C. Ogg
July 21, 2008
Box Of Cereal Headed To $100 (KFT)(K)(SLE)(CAG)(TSN)
No one should be surprised that food companies are passing along tremendous increases in the prices of commodities. Consumers will be paying more for everything from hot dogs to corn flakes. Even the prices of Velveeta and Spam are going up.
According to the FT, "Kraft Foods (KFT), which has said it will push up its prices by 12-13 per cent this year, said some of its cheese categories could rise 25 per cent."
Sara Lee (SLE), Tyson (TSN), Kellogg’s (K), and ConAgra (CAG) are all planning similar increases.
Douglas A. McIntyre
Apple Violates 200-Day Moving Average Ahead of Earnings (AAPL)
Apple Inc. (NASDAQ: AAPL) is going to be the key earnings for tech stock investors and traders today. Last week we pointed out that the stock was using its 200-day moving average as support, but a new adjusted 200-day moving average of $164.80 has been breached this morning in the immediate hours before the earnings report. We would note that many technicians would claim this is not enough of a violation to draw a huge red flag with shares approaching $163.00 in late morning trading; but some purists would argue that violation is a critical juncture.
LG Earnings: A Bit Of Brightness For Cellphones (AAPL)(RIMM)(NOK)
The cellular handset business may not be as bad off as some analysts suppose. Result from Korean electronics company LG, which operates at the high end of the market, were fairly strong.
For the last quarter, the company shipped a record shipped a record 27.7 million handsets. According to the FT, "Profit from LG’s mobile phone business, which took up 38 per cent of its revenue last year, climbed 73 per cent."
Many Monday Pre-Market Downgrades (CEG, FIS, FISV, DNA, KBW, NKE, PSO, SHW, SWIR, SWK, WERN, WIT)
These are among the top analyst Downgrades or negative analyst calls affecting shares this Monday morning in pre-market trading:
- Constellation Energy (NYSE: CEG) Downgraded to Underperform at Jefferies.
- Fidelity National (NYSE: FIS) Cut to Perform at Oppenheimer.
- Fiserv (NASDAQ: FISV) Cut to Perform at Oppenheimer.
- Genentech (NYSE: DNA) Raised to Overweight at Lehman.
- KBW (NYSE: KBW) Cut to Market Perform at FBR.
- Nike (NYSE: NKE) Cut to Neutral at HSBC.
- Pearson plc (NYSE: PSO) Cut to Sell at Deutsche Bank.
- Satyam Computer Services (NYSE: SAY) Cut to Equal Weight at Morgan Stanley; Cut to Underperform at Credit Suisse.
- Sherwin Williams (NYSE: SHW) Cut to Sell at Goldman Sachs.
- Sierra Wireless (NASDAQ: SWIR) Target cut to $20 from $25 at CIBC.
- Stanley Works (NYSE: SWK) Cut to Hold at Deutsche Bank.
- Werner Enterprises (NASDAQ: WERN) Cut to Sell at UBS.
- WIPRO (NYSE: WIT) Cut to Underperform at Credit Suisse.
Jon C. Ogg
July 21, 2008
Banks Further Tighten Lending Rules For Businesses Large And Small
Just when the economy needs banks to be opening their doors for more lending, they are locking the safe down tight.
According to The Wall Street Journal, "The heavy losses banks have taken on mortgage-related securities are forcing them raise cash levels, leading to tighter lending."
Yahoo! Partially Capitulates to Icahn (YHOO)
Yahoo! Inc. (Nasdaq:YHOO) just took away any near-term embedded call option in its stock. The company has reached an agreement with Carl Icahn to settle their pending proxy contest related to the annual meeting, but this is really a partial settlement that looks muted rather than anything made of substantial shareholder benefits. While many of the proxy fight questions have just been answered, this is a "go it alone strategy" for Yahoo! and should take away any immediate likelihood that this company will be acquired in any meaningful way.
Eight members of Yahoo!’s current Board of Directors will stand for re-election at the 2008 annual meeting: Roy Bostock, Ronald Burkle, Eric Hippeau, Vyomesh Joshi, Arthur Kern, Mary Agnes Wilderotter, Gary Wilson and Jerry Yang. Robert Kotick will not stand for re-election to the Board at the 2008 annual meeting. The Yahoo! Board will be expanded to 11 members and Carl Icahn will be appointed to the Board, with two of the additional seats to be from Icahn’s panel of nominees previously offered and Jonathan Miller (partner in Velocity Interactive Group and former AOL Chairman/CEO).
Icahn owns an aggregate of 68,786,320 shares, or 4.98% of Yahoo! common stock and he has
agreed to withdraw his nominees for consideration at the annual meeting and to vote his Yahoo! shares in support of the Board’s nominees. Icahn also said he continues to believe that the sale of the whole company or the sale of its Search business in the right transaction must be given full consideration, but it also sounds like this is going to greatly mute Icahn in his public fight against the company. This capitulation is a likely sign that Icahn didn’t have the proper votes for a total coup and it also lets the company continue ahead on its current path.
Yahoo! stock is down marginally by almost 2% in pre-market trading at $22.00. The chances of anything coming close to $30.00 in the near-term seems farther and farther away.
Jon C. Ogg
July 21, 2008
Top 10 Early Bird Analyst Calls (AIG, CTAS, KBW, NTES, NKE, SAY, SHW, SWK, TEVA, WFMI)
These are only some of the early bird analyst calls that we have seen in early Monday pre-market trading, but these are some of the more active stock names:
- American International Group (NYSE: AIG) Raised to Buy at Banc of America.
- Cintas Corp. (NASDAQ: CTAS) Raised to Equal Weight at Morgan Stanley.
- KBW (NYSE: KBW) Cut to Market Perform at FBR.
- NetEase (NASDAQ: NTES) Raised to Outperform at Credit Suisse.
- Nike (NYSE: NKE) Cut to Neutral at HSBC.
- Satyam Computer Services (NYSE: SAY) Cut to Equal Weight at Morgan Stanley; Cut to Underperform at Credit Suisse.
- Sherwin Williams (NYSE: SHW) Cut to Sell at Goldman Sachs.
- Stanley Works (NYSE: SWK) Cut to Hold at Deutsche Bank.
- Teva Pharmaceutical Ind. (NASDAQ: TEVA) Raised to Buy at Deutsche bank.
- Whole Foods Markets (NASDAQ: WFMI) Raised to Equal Weight at Morgan Stanley.
Jon C. Ogg
July 21, 2008
Another Call To Break-Up Citigroup (C)
The idea of breaking Citigroup (C) into pieces is hardly new. From the day Sandy Weill threw the place together, many analysts could see no benefit to an umbrella company holding everything from a brokerage firm to commodities trading operations.
The stock market has proved the critics right. The creation of Citi has had little benefit.
Itty-Bitty PCs Attack Computer Company Margins (AAPL)(DELL)(HPQ)(INTC)(RIMM)(NOK)
The PC industry’s race to create smaller and smaller computers to stave off competition from smart phones has begun to backfire.
Intel (INTC) has started making tiny, energy-efficient chips to power the new machines which are meant to be mobile, using WiFi and 3G cellular networks to connect to the .
Earnings Police Go After McDonald’s (MCD) Premium Coffee
Probably the worst thing that ever happened to Starbucks (SBUX) was when McDonald’s (MCD) went into the premium coffee business. Consumer Reports even rated the fast food chain’s java ahead of the sludge that Starbucks is serving.
McDonald’s has 14,000 US stores, so it holds a natural advantage for product distribution.
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