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Old 12-19-2003, 10:13 AM
jjgold jjgold is offline
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Default Tech Report Friday

Tech shares were buoyed on Thursday by positive economic data as well as bullish Q1 results and outlook from Jabil Circuit (JBL 29.21 +2.41). First, Initial Claims for unemployment for the week ended December 13 fell 22K W/W to 353K. Second, the December Philadelphia Fed Index came it at 32.1, above consensus of 25.0 and the 25.9 in November, suggesting the manufacturing sector continues on a strong upward trend. Lastly, Jabil Circuit indicated the company is seeing improving demand across all industries and geographies.

The Briefing.com Tech Index gained 1.5% after three losing sessions. Advancers led decliners 2.7:1 with advancers rising 3.2% and decliners falling 2.5%. Communications equipment was among the best performing sectors, aided by JBL management comments that telecom equipment is seeing its first increase in orders in over two years. The Philadelphia Semiconductor Index (SOXX 493.72 +18.93) snapped back 4% after four consecutive losing sessions. There were no decliners among the 18 share index.

Thursday's economic data is positive and points to a strong recovery but does not indicate an acceleration in growth above the rates already priced into many tech shares. The market gains are more technical rebounds rather than incremental gains supported by improving/accelerating fundamentals. As a result, we would continue to selectively sell tech shares into strength. Please visit the Story Stocks page for the latest thinking on investment opportunities across market sectors, including tech.

After the close, the SEMI (Semiconductor Equipment & Materials International) trade group reported that for the second month in a row the book-to-bill ratio came in above 1.0. The November book-to-bill ratio of 1:04 indicates that $104 of new orders were received for every $100 of product billed for the month. As with the October book-to-bill which came in at 1.1 (General Commentary, Nov 19, 2003), the SEMI survey data confirms demand is improving for semiconductor capital equipment but the rate of increase is below what the market has already priced into equipment shares. As a result, do not expect equipment shares to trade up on this news. Intervoice (INTV 9.66 -0.09) printed Q3 results ahead of consensus. Management indicated sales backlog and long-term outlook continues to improve. Solectron (SLR 6.02) published Q1 results. Company is experiencing improving demand across a number of market segments. Management guided Q2 essentially in-line with consensus and reiterated commitment to returning to profitability by Q4
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Old 12-19-2003, 10:13 AM
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Computer Systems & Peripherals
Mobility Elec (MOBE) 9.95 +0.10: Co entered global distribution agreement that will enable Mobility to sell RadioShack manufactured power products -- products that utilize Mobility's patented "smart tip" technology -- worldwide to non-RadioShack outlets. This distribution agreement follows the two companies' earlier announcement of a strategic alliance to develop and market power products for a broad range of consumer electronic products. Under the terms of the new, supplemental agreement, Mobility Electronics will have the exclusive right to sell a variety of AC, DC and combo AC/DC power adapters manufactured by RadioShack to original equipment manufacturers, worldwide resellers, and wireless phone carriers. In addition, RadioShack will also carry these products in their 7,000 plus retail stores.

Opsware (OPSW) 6.45 +0.56: American Tech Research initiated Opsware (OPSW) with a Buy, and naming it the firm's top software pick. The co is the only pure play on the trend towards Virtual Computing. The firm views Opsware as the key and highest growth vendor in the data center automation market, which the firm estimates to be $11 bln by 2006. Although the valuation looks stretched at 12x revenues, the firm estimates sustainable near triple digit revenue growth over the next 3 years. The stock is currently under-followed by the street and has had nearly a 40% pullback from its high. Also, the firm believes it would be an attractive acquisition candidate for a large systems vendor such as Hewlett-Packard or IBM.
Unisys (UIS 14.82 +0.22). SG Cowen downgraded Unisys to Underperform from Mkt Perform based on their belief that the positive dynamics in Services will be undercut by declining profits from hardware and the associated maintenance; firm expects this, coupled with the negative pension accounting impact, to lead to lower than expected EPS in 2004-05. Also, firm notes that the stock trades at a 20-25% P/E premium to peer IBM.


palmOne (PLMO) 10.74 -3.11: Before the open, reported Q2 (Nov) earnings of $0.07 per share, which includes ex items. Excluding ex items, company reports "non-GAAP" earnings of $0.14, $0.15 better than the Reuters Research consensus of ($0.01); revenues rose 5.2% year/year to $271.2 mln vs the $271.2 mln consensus. On Sept 18, PLMO guided to a slight non-GAAP profit, so $0.14 is likely the most comparable actual. Consensus contains outlier estimate at a loss of $0.08, which appears to be skewing consensus lower.

Research In Motion (RIMM) 45.35 +0.70: PalmSource and Research In Motion have formalized their development relationship and have begun efforts to jointly develop a software client that enables BlackBerry connectivity to Palm OS.

Networking
3Com (COMS) 7.93 +0.23: Morgan Stanley upgraded Equal-weight to OVERWEIGHT. Target $11. Cited recovery in enterprise spending, restructuring benefits, and value creation potential offered by joint venture with Huawei.

Extreme Networks (EXTR) 6.85 +0.28: CIBC Wrld Mkts upgraded Sector Underperform to SECTOR PERFORM. Cited valuation and potential for margin expansion as well as steady revenue and EPS growth for the next four qtrs.

Foundry Ntwks (FDRY) 25.83 +0.86: Co announced a contract lasting up to five years with BBC Technology, provider of products and services to both the BBC and other global media-driven organizations, to purchase and install Foundry Networks networking solutions, including Internet routers, Layer 2/3 and Layer 4-7 switch technology and associated services.

UTStarcom (UTSI) 37.17 +0.81: ThinkEquity highlighted concerns over margins, competition (OPENX) 36.36: ThinkEquity trimmed their target to $38 from $40 on UTStarcom (UTSI) given reduced infrastructure orders and increasing handset competition in PAS networks; while firm expects that the Dec qtr will show upside to their ests, they are increasingly concerned about gross margins and top-line growth as costs associated with GSM and CDMA continue to decline, making the more standard technologies more competitive; also, new entrants in the PAS handset mkt will likely erode UTSI's mkt share toward the end of 2004, and will likely result in greater margin pressure.

Internet
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Old 12-19-2003, 10:13 AM
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Internet
Amazon (AMZN) 48.75 -1.17: The Wall Street Journal reported Google has quietly been testing a service that allows users to search excerpts of books. According to the article, Google is steering users who read the book excerpts from AMZN and other online stores. This development could signal a longer term escalation of its growing rivalry with AMZN. Amazon.com introduced a long-awaited "search inside the book" function that lets consumers browse for words in the complete text of electronic copies of books in October.

Drugstore.com (DSCM) 5.19 -0.18: Announced new e-commerce pact with Amazon.com. Under the new agreement, drugstore.com, inc. will be a non-exclusive wholesaler and fulfillment provider for certain products sold by Amazon.com at the new Amazon.com Health & Personal Care store. The new agreement replaces the company's existing marketing agreement with Amazon.

Loudeye (LOUD) 1.89 +0.09: Co announced a multi-year music samples agreement with Amazon.com. The agreement provides Amazon.com with the most current and comprehensive music samples catalog in the industry.

Modem Media (MMPT) 7.07 1.12: Prices 9.7 mln share offering at $5.75

United Online (UNTD) 16.95 +1.09: Kaufman said the recent selloff in UNTD due to concerns about rising subscriber acquisition costs (SAC) is a buying opportunity; firm explains that at the current SAC level of $52, the co already generates a 200% ROI on its $9.95 service; however, excluding continued margin improvement, further HiSpeed migration/upgrades, and rev upside from ad growth and/or premium services, the co could still generate over 100% returns from its $9.95 access biz even at a $75 SAC. Moreover, the co's success with the $14.95 HiSpeed dial-up service is changing the economics of the business, since they estimate that ROI on the HiSpeed service is 1.9x greater than the $9.95 service, and as such rising SAC is being more than offset by the rising mix of new HiSpeed customers. Firm says that longer-term, growth in high-margin advertising and premium services like e-mail could provide even further upside. Maintains Buy rating and $23 target.

Univ of Phoenix (UOPX) 68.96 3.77: Before the open, reported Q1 (Nov) earnings of $0.34 per share, $0.07 better than the Reuters Research consensus of $0.27; revenues rose 61.3% year/year to $177.8 mln vs the $167.3 mln consensus. Co expects Q2 (Feb) revs and EPS of $174-$175 mln and $0.28 vs R.R. consensus of $178.4 mln and $0.28.

ValueClick (VCLK) 8.68 +0.03: After the close, guided Y04 revs above consensus. Company now sees Y04 EPS of $0.20-0.25 vs consensus of $0.23 on revs of $142-146 mln vs consensus of $135.5.

Semiconductor
Broadcom (BRCM) 34.04 +1.711: Banc of America Securities initiated coverage of BRCM with a Neutral rating. The firm believes that Broadcom continues to be one of the leading suppliers of semiconductors and solutions to the Communications market but cites concerns over valuations being high compared to their peer group. The firm notes its cautious stance with its Neutral rating is due primarily to concerns regarding price pressure and market share losses in the WLAN market in 2004 as well as concerns about the impact of INTC's competing server I/O product offering which will launch by mid 2004. BofA has a price target of $34, which reflects a 49x multiple (12% premium to its peer group) on preliminary CY04 EPS of $0.69.

Cypress Semi (CY) 20.80 +1.06: Company raised Q4 guidance, now sees pro forma EPS of $0.14, vs the Reuters Research consensus of $0.12 and prior guidance of $0.12, and revenues of $235 mln, vs an estimate of $230.7 mln and previously guided revs of $230 mln. Co attributes improved outlook to increase in demand for memory in networking equipment and wireless handsets as well as higher-than-expected USB sales in consumer and computation systems.

Silicon Storage (SSTI) 10.51 +1.14: After the close, raised Q4 guidance. Co sees Q4 (Dec) EPS of $0.05-0.07, previous guidance is between $0.01-0.03, Reuters Research consensus is $0.01 and sees revenues increasing 22-25% over Q3 level ($73.9 mln), previous guidance was an increase of 15-20%, Reuters estimate is $79 mln. The better than previously expected revenue is the result of average selling price improvement, increased product shipment and licensing income.

Transmeta (TMTA) 3.27 -0.05: Priced 25 mln share offering at $2.90. Needham & Company, Inc., A.G. Edwards & Sons, Inc. and U.S. Bancorp Piper Jaffray Inc. acted as managing underwriters for the offering
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Old 12-19-2003, 10:14 AM
jjgold jjgold is offline
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Semi Equipment
Entegris (ENTG) 12.91 +0.53: Before the open, reported Q1 (Nov) earnings of $0.02 per share, in line with the Reuters Research consensus of $0.02; revenues rose 26.8% year/year to $68.7 mln vs the $69.2 mln consensus. Company calls for Q2 sales to grow 5-10% over Q1, or $72.14-75.57 mln, consensus is $74.28 mln.

FSI Intl (FSII) 7.20 +0.17: After the close, reported Q1 (Nov) loss of $0.03 per diluted share, $0.12 better than the Reuters Research consensus of ($0.15); revenues fell 13.1% year/year to $22.5 mln vs the $21.9 mln consensus. Co also guides Q2, sees revenues of $20-23 mln vs an estimate $23.9 mln.

Therma-Wave (TWAV) 5.10 +0.45: Co announced that it has won a multi-system, multi-million dollar order from Tokyo Electron. Under the terms of the order, TWAV's advanced INTEGRA CD metrology products will be used with TEL's CLEAN TRACK ACT and CLEAN TRACK LITHIUS series of coater/developer products.

Ultratech Stepper (UTEK) 27.53 +1.43: Co announced it has received a multiple-system order for 200 mm bump tools from the world's largest merchant gold-bump foundry. Co plans to use the steppers to perform gold-bump processing on display driver IC's utilized in flat panel display applications.

Software
Borland (BORL) 8.55 +0.25: After the close, reaffirmed Q4 guidance.

Citrix Systems (CTXS) 22.00 +0.05: After the close, co announced it has signed a definitive agreement to acquire Expertcity, Inc. The transaction is valued at apprx $225 mln in cash and stock, with an additional $12 mln in stock to be paid to Expertcity stockholders, contingent on achieving certain financial milestones.

Cognos (COGN) 29.98 -1.48: Piper Jaffray downgraded Cognos, after reporting earnings last night, to Market Perform from Outperform as estimates have little upside for FY2005, the stock is at a premium valuation to peers, and less-than-expected organic growth.

Computer Sciences (CSC) 41.54 +0.12: Company inked deal with S.A.S. Group to provide Scandinavian airline IT consulting, systems integration, application development and maintenance, and IT infrastructure services. Contract has base period of 5-years with a two-year option two additional one-year options. As part of deal, CSC will acquire Scandinavian IT Group, a subsidiary of S.A.S. Group with 1,200 employees.

Eclipsys (ECLP) 11.30 +0.46: ECLP and Microsoft announced a multiyear strategic alliance to advance ECLP's SunriseXA enterprise products based on the Microsoft platform and .NET technologies.

Manugistics (MANU) 6.02 +0.06: After the close, reported Q3 (Nov) adjusted, non-GAAP earnings of $0.02 per diluted share, $0.03 better than the Reuters Research consensus of ($0.01); revenues fell 4% year/year to $59.9 mln vs the $62.3 mln consensus and the $62.3 mln First Call consensus.

NCR Corp (NCR) 36.19 +0.68: China Mobile announced it is partnering with NCR unit Teradata to develop its Business Analyst Support System, which will integrate customer information from 31 provinces in China and its headquarters in Beijing. In addition, China Mobile is partnering with Teradata to develop an extract, transform, and load model, which helps the co to extract useful information from various data sources, transform it, and load it into the centralized warehouse.

RealNetworks (RNWK) 5.34 +0.43: Co announced it has sued the MSFT for violations of federal and state antitrust laws. The complaint was filed in federal court in San Jose, CA and alleges that MSFT has illegally used its monopoly power to restrict competition, limit consumer choice and attempt to monopolize the growing field of digital media. Co sees Q4 (Dec) EPS as a loss of $0.02-0.03, Reuters Research consesnsus is a loss of $0.02 and revenues in the range of $52-56 mln, estimate is $55 mln.

Red Hat (RHAT) 14.28 +1.11: After the close, company reported Q3 (Nov) earnings of $0.02 per share, in line with the Reuters Research consensus of $0.02; revenues rose 36.2% year/year to $33.1 mln vs the $31.4 mln consensus.

Take-Two (TTWO) 27.84 -2.55: Before the open, reported Q4 (Oct) earnings of $0.59 per share, in line with the Reuters Research consensus of $0.59; revenues rose 27.5% year/year to $278.5 mln vs the $257.6 mln consensus. Company reiterates Q1 sales guidance of $412 mln, consensus $414.5 mln, but cuts EPS view from $1.21 to $1.10, consensus is $1.20. Company also receives Wells Notice, which contends SEC staff's "intention to recommend that the SEC bring a civil action seeking an injunction and monetary damages against the Company alleging that the Company violated certain provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934".

Telecom Equip
Agere Systems (AGRA) 3.15 +0.14: BofA Sec initiated coverage of Agere Systems (AGR.A) with Buy rating and a $4.00 price target. Firm feels that AGR.A management has largely completed the restructuring process to reposition co for more profitable growth as well as the implementation of a "fab-light" model for reducing operating expenses. Firm believes the outlook for Y04 is positive as AGR.A leverages its strong market position in the Wireline Semiconductors, Datacom and Telecom markets.
Corning (GLW 10.55 +0.55). Goldman Sachs upgraded Corning to Outperform from In-Line following the recent pullback; firm continues to be bullish about LCD glass due to 2004 price stability, LCD-TV acceleration 2H04, and expectations for additional growth from the likely plasma-TV glass entry with Samsung; also, firm thinks that sentiment in late 2004 will likely improve due to fiber-to-the-home and the co's diesel opportunity. Firm sees the stock at $9-$12 over the next 3-6 months and at $11-$14 over the next 12-18 months (mid-point is +25%).

UTStarcom (UTSI 37.17 +0.81). ThinkEquity highlighted concerns over margins, competition (OPENX) 36.36: ThinkEquity trimmed their target to $38 from $40 on UTStarcom given reduced infrastructure orders and increasing handset competition in PAS networks; while firm expects that the Dec qtr will show upside to their ests, they are increasingly concerned about gross margins and top-line growth as costs associated with GSM and CDMA continue to decline, making the more standard technologies more competitive; also, new entrants in the PAS handset mkt will likely erode UTSI's mkt share toward the end of 2004, and will likely result in greater margin pressure. Piper makes case for multiple expansion in 2004 (OPENX) 36.82 +0.46: Piper Jaffray increased 2003/2004 P.A.S. subscriber estimates, raised 2003 to 35m users from 30m, 2004 to 65m users from 50m; firm sees 2005 of 99m users. Firm believes investors face a positive news flow horizon regarding further Latin American opportunities as UTStarcom's (UTSI) opportunity approaches $100m in 2004.


Qualcomm (QCOM) 51.48 +2.16: China Unicom's CDMA service added 1.1 mln users in China -- Reuters (QCOM) 49.32: Reuters reports that China Unicom added 1.88 mln subscribers in November, bringing its total to 78.86 mln. The Nov additions compare with 2.1 mln users added in Oct and 1.89 mln in Sept. The firm's much-watched CDMA service, developed by Qualcomm, added 1.1 mln users, bringing its total to 15.75 mln, still well short of its target of winning 20 mln users by the year-end.

Telecom Services
Qwest (Q) 3.78 +0.24: Qwest announced it has signed a deal to purchase network assets from Allegiance Telecom for $300 mln in cash. In addition, Qwest will issue about $90 mln of convertible debt with a conversion price of $6.10. The assets are in 36 metro markets, 31 of which are outside the Qwest local service region, and will increase Qwest's points of presence by nearly 700 and provide additional network facilities to support the delivery of end-to-end voice and data communications to business customers across the U.S.

Telus Corp (TU) 18.22 +0.03: Company reaffirmed Y03 guidance of $0.85-0.95, Reuters consensus is $0.90 on revenues of $7.1-7.2 bln vs consensus of $7.146 bln, sets targets for Y04 of $1.05-1.25, Reuters consensus is $1.35 on revenues of $7.45-7.55 bln, consensus is $7.39.

Vodafone PLC (VOD) 24.57 +0.57: JP Morgan upgraded Vodafone to Overweight from Neutral; firm believes that there is upside risk to the consensus EPS compound annual growth rate forecast (through 2006) of 15-16%, due to : 1) higher rev owing to subscriber and data growth, 2) stronger than expected margins in Japan due to a provision in the first half of the year, and 3) low visibility on tax.
@Road (ARDI 12.66 +0.87). Piper Jaffray upgraded @Road to Outperform from Mkt Perform, saying they have increasing confidence in their 2004 earnings est because they believe the Waste Mgmt account (which represents 20,000 potential subscribers) continues to add users at a healthy clip and may accelerate in 2004; also, firm believes that ARDI will make incremental strategic account announcements in Q1, and believes that Verizon appears ready to implement ARDI's service within its construction division. Target is $14

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