NVIDIA (NASDAQ: NVDA) earned $0.19 per share in the third quarter of fiscal 2010, which ended on 25 October 2009, up from $0.11 in the same quarter of last year.

On a non-GAAP ("pro forma" or "ex-items") basis, earnings fell from $0.20 to $0.19 per share. The net difference between GAAP and non-GAAP Net Income in the latest quarter was only $2.75 million. However, this small figure masks a couple of substantial items that nearly canceled each other.

NVIDIA Corp. (NVDA) reported third-quarter 2010 EPS of 19 cents, exceeding the Zacks Consensus Estimate of 6 cents per share.

Revenue

Bullish Calls:

Caterpillar (CAT): "This is the ideal recovery stock. I can't tell you not to buy it right here."

It’s been an ugly transition. The company has the core market of multimedia system-on-a-chip products and that has left it at a much lower revenue run rate ($40 million-50 million/year) then it has enjoyed in the past. However, the company has taken steps to dramatically reduce costs, and yet invests a staggering portion of revenue in R&D and has massively increased its capabilities in other areas like higher end multimedia and also new markets like automobiles.

• House dissects the bailout. The government's guarantee of $300B in corporate bonds saved a handful of giant companies up to $25B in borrowing costs, and put taxpayers at great risk, the Congressional panel charged with overseeing TARP says. In one of the first systematic efforts to analyze TARP, the panel, headed by Elizabeth Warren, found seven companies (GE, GS, C, BAC, JPM, MS, WFC) received 82% of the benefits of lower borrowing costs. The good news for taxpayers is that the bet has worked out: feds so far have collected a total of $17B in fees for all their emergency guarantees, while losing a paltry $2M. (read the COP's latest TARP report)
Attention Wall Street Breakfast readers: We're looking for a freelance financial journalist to produce WSB and help with our Market Currents blog in Rachael's absence. More details here.
• Insider probe grows tentacles. Authorities filed criminal charges against 14 people, including lawyers and an ex-Moody's (MCO) analyst, widening their crackdown on insider trading. At the center of yesterday's arrests, Zvi Goffer, a trader nicknamed "Octopussy" because his tentacles gripped so many confidential sources. Unlike the Galleon scheme, which was built on corporate insiders passing on early earnings estimates to fund operators, the newer ploy involves investors obtaining advanced information about pending deals - including Bain Capital's 2007 attempt to buy 3Com (COMS) - from people involved in them. Dow Jones has details of the 14 people arrested so far.
• Fannie wants another $15B. Fannie Mae (FNM) plans to tap emergency funds for a fourth time this year, bringing its draws of taxpayer money to $60B. According to an SEC filing late yesterday, Fannie Mae will seek $15B in Treasury financing after posting an $18.9B Q3 net loss. Analysts say the government-sponsored lender will likely tap its entire $200B lifeline, and may still need more.
• FHFA approves tax credit sale. Also buried in Fannie Mae's (FNM) SEC filing yesterday was that it agreed to sell $2.6B in unused tax credits to unnamed buyers, and received approval for the deal from its regulator, the FHFA. But the Treasury is thought to be leery of signing off on the sale, reportedly to Goldman Sachs (GS) and Berkshire Hathaway (BRK.A). In a statement (.pdf) Thursday, the FHFA said the sale "is consistent with FHFA's ongoing efforts to conserve Enterprise assets and with the Enterprise's multifamily housing mission."
• Bursting the next bubble. U.K. Chancellor of the Exchequer Alistair Darling set the agenda ahead of the G20 meetings in St. Andrews today, saying leaders needed to develop a technique to deflate asset bubbles before they explode: "We have got to make sure we don't get ourselves into a situation where some pressure starts to rise and then it becomes bigger and bigger and when the whole thing comes to an end it has catastrophic consequences," he said in an interview. Russian Finance Minister Alexei Kudrin noted Darling's concerns weren't out in the ether: "We need to be very careful with this huge amount of injected liquidity." A recent survey of investment managers by Goldman Sachs found 75% think low rates are already triggering "too-strong" climbs in assets.
• OECD registers global uptick. Signs of improvement have emerged in most major economies, with a marked recovery in the U.S. and Japan, and strong indications of growth in several European economies and China, the OECD said Friday. However the OECD warned that signals of expansion should be interpreted with caution, because it's still unclear how much of the measured increase of economic activity is due to a true improvement, and how much is due to a drop in long-term expectations, against which current activity is measured.
• Moynihan to address Congress on Merrill merger. Sources say Brian Moynihan, head of Bank of America's (BAC) consumer banking unit and a contender to succeed CEO Ken Lewis, has agreed to testify before Congress about his role in the Merrill Lynch takeover. He’ll be joined by Timothy Mayopoulos, whom Moynihan replaced as general counsel in December as the Merrill deal almost unraveled. Mayopoulos, who is now is general counsel at Fannie Mae (see above), has said he was given no reason for his dismissal. Moynihan's testimony could center on why Mayopoulos was given the boot, and what legal advice Moynihan gave to Ken Lewis prior to his meeting with the board.
• Retail sales climb for second month. U.S. retailers had their best month in more than a year, with major chains reporting a combined 1.8% year-on-year gain. In a promising note, upscale chains Nordstrom (JWN) and Saks (SKS) beat expectations, the first signs of recovery in among high-end shoppers. The big question is whether shoppers - many who are in the throes of joblessness - will turn out in force for the holidays.
• New rule cripples injured banks. A new rule that will cap the interest rates paid to depositors by banks deemed "not well capitalized" will likely accelerate the rate of bank failures. The cap - 0.75% above the U.S. average - is meant to prevent weaker banks from driving up costs for the rest of the industry.

Earnings: Fri. Before Open

• AIG (AIG): Q3 EPS of $2.85 beats by $0.87. Total equity $76.5B, up $14.4B from Q2. "Our results reflect continued stabilization in performance and market trends." Shares -4.8% premarket. (PR)
• Fortress Investment Group LLC (FIG): Q3 EPS of $0.11 beats by $0.02. Revenue of $144M (-22.4%) vs. $123M. (PR)
• Mirant (MIR): Q3 EPS of $0.38 misses by $0.78. Revenue of $454M (-79.1%) vs. $734M. (PR)
• Scripps Networks (SNI): Q3 EPS of $0.39 beats by $0.03. Revenue of $364.5M (+0.1%) in line. (PR)
• Suncor Energy (SU): Q3 EPS of C$0.23 misses by C$0.06. (PR)

Earnings: Thur. After Close

• Activision Blizzard (ATVI): Q3 EPS of $0.04 in-line. Revenue of $755M vs. $724M. Sees Q4 EPS of $0.43 vs. $0.44, on revenues of $2.22B vs. $2.3B. Sees full-year EPS of $0.63 vs. $0.64. Shares +2.8% AH. (PR)
• Atmel (ATML): Q3 EPS of -$0.01 beats by $0.01. Revenue of $318M (-21%) vs. $304M. Sees Q4 revenue up 3-7%. Shares -0.3% AH. (PR)
• CBS (CBS): Q3 EPS of $0.39 beats by $0.17. Revenue of $3.35B (flat) vs. $3.19B. Operating income before depreciation and amortization of $566M compared with year-ago loss of $13.48B. Sees full-year OIBDA of $1.725B-1.925B. Shares -1.4% AH. (PR)
• Crocs (CROX): Q3 EPS of $0.01 beats by $0.09. Revenue of $177M (+2%) vs. $156M. Shares -6.3% AH. (PR)
• EOG Resources (EOG): Q3 EPS of $0.81 beats by $0.15. Revenue of $1B (-69%) vs. $1.1B. Raises full-year production growth targets to 6% from 5.5%. Shares +0.1% AH. (PR)
• Hansen Natural (HANS): Q3 EPS of $0.60 misses by $0.03. Revenue of $308M (+8%) vs. $309M. Shares -8.2% AH. (PR)
• International Game Technology (IGT): FQ4 EPS of -$0.07 may not be comparable to estimate of $0.17. Revenue of $231M (-23%) vs. $498M. Unfavorable items affecting comparability reduce income by $0.30/share. Shares -0.3% AH. (PR)
• Intrepid Potash (IPI): Q3 EPS of $0.13 misses by $0.01. Revenue of $66M (-55%) vs. $64M. Shares -1.3% AH. (PR)
• JDS Uniphase (JDSU): FQ1 EPS of $0.04 beats by $0.02. Revenue of $298M (-21%) vs. $292M. Sees Q2 sales of $320M-345M vs. $306M. Shares +4.9% AH. (PR)
• Leap Wireless International (LEAP): Q3 EPS of -$0.85 misses by $0.33. Revenue of $600M (+21%) vs. $620M. Shares +0.5% AH. (PR)
• Nvidia (NVDA): Q3 EPS of $0.19 beats by $0.09. Revenue of $903M (+1%) vs. $838M. Sees Q4 sales up 2%. Shares +5.9% AH. (PR)
• Public Storage (PSA): Q3 FFO of $1.44 beats by $0.19. Revenue of $352M (-5%) vs. $405M. Shares -0.9% AH.(PR)
• SandRidge Energy (SD): Q3 EPS of $0.16 in-line. Operating cash flow of $85.6M (-38%). Shares -5.8% AH. (PR)
• Skyworks Solutions (SWKS): FQ4 EPS of $0.24 beats by $0.02. Revenue of $228M (-2%) vs. $222M. Shares +3.5% AH. (PR)
• Sotheby's (BID): Q3 EPS of -$0.89 misses by $0.58. Revenue of $45M (-41%) vs. $60M. Shares -3.8% AH. (PR)
• Starbucks (SBUX): FQ4 EPS of $0.24 beats by $0.03. Revenue of $2.4B (-4%) in-line. Expects full-year EPS growth of 15-20% from $0.80, and sees little net impact from commodities, with favorable coffee prices offsetting higher dairy prices. Expected capex of $500M-$550M. Shares +3.9% AH. (PR)
• Sunoco (SUN): Q3 EPS of -$0.29 misses by $0.19. Revenue of $8.7B (-43%) vs. $7.8B. Shares -0.6% AH. (PR)
• Tenaris (TS): Q3 EPS of $0.19 misses by $0.18. Revenue of $1.8B (-42%) vs. $1.9B. Shares -1.1% AH. (PR)
• VeriSign (VRSN): Q3 EPS of $0.33 beats by $0.01. Revenue of $258M (+5%) vs. $259M. Shares -4.8% AH. (PR)

Today's Markets

Asia markets headed higher Friday. Europe stocks are flat at midday, and futures are flat heading into the nonfarm payroll data on deck at 8:30.

F3Q10 Earnings Call

November 5, 2009 5:00 pm ET

NVIDIA

Guidance

The consensus estimate is 10c for EPS and $838.09M for revenue, according to First Call. Management's guidance from the last earnings call was for Q3 revenue to be up 5%-7% over Q2's reported $776.5M. That implies a range of $815.33M-$830.86M. Some analysts would not be surprised to see a little upside to consensus estimates as Apple's (AAPL) MacBook, an NVIDIA customer, sales were pretty strong during the quarter, and the overall inventory levels remain in balance.

Equity Markets De-Risking

The mid-point of September 2009 marked the one year anniversary since the fall of Lehman Brothers. Interestingly enough, since that period many stocks that experienced strong performance since March 2009 have started to experience substantial corrections. The market appears to be de-risking as many small and mid-cap stocks have taken major haircuts, while a number of larger capitalization stocks appear to have held steady, if not improved, illustrated by Exhibits I and II.

According to the recent TIM (Trade Ideas Monitor) report for the week of October 23-29, 2009, the TIM Sentiment Index (TSI) is borderline bearish at 49.83, after the North American index fell 1.17 points (see last week's post and the youDevise website for additional information on the TIM report, a reading above 50 is bullish). The TSI Worldwide Index actually increased 1.76 points, but was also still just below the break-even point at 49.79 points. Four sectors were in bearish territory, four were neutral, and two were bullish. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM increased 2.15 points to 67.56%.

As for individual securities in the U.S. and North America, VF Corp (VFC), O'Reilly Automotive (ORLY), and First Solar (FSLR) were stocks with long broker sentiment, while Las Vegas Sands (LVS), Micron Technology (MU), and NVIDIA Corp (NVDA) had short broker sentiment. In general, the consumer staples and consumer discretionary sectors had long broker sentiment, while the energy, utility, and telecommunication sectors had short broker sentiment.

Engaget is running a story about Intel (INTC) dragging its feet on USB 3.0 which implies some antitrust issue. I am not sure whether it is an antitrust issue or not, but I think enforcement has been a bit too lax in the last decade. More pointedly, I'd like to have USB 3.0 now as a feature on my computer.

Also, looking at the new laptop chips from Intel, I find myself a tad perplexed. First, the chips generate a lot of heat at 35w and 45w, respectively. I'd rather have 32nm architecture with less cores at 35w max on the high end. Second, a lot of applications don't really take advantage of multiple cores. Third, what the hell is going on with NVIDIA (NVDA) and Intel? NVIDIA has raised the stakes by stopping development while the case between the two is worked out. My gut here is telling me that Intel is using advantages in one side of its business to keep competition from NVIDIA out of the market.

The founders of the Galleon Group, a hedge fund started in 1997 and which has a technology and healthcare focus, have been charged with insider trading. Galleon is one of the 250 hedge and institutional investment funds that are available on AlphaClone. The fund's Top 10 Holding Clone, which invests quarterly in the the fund's ten largest holdings at the time they are disclosed, is up 48.2% so far this year but has not performed very well over time returning a negative 3.9% annualized over five years and a dismal negative 18% annualized since 2000 (all returns as of 10/15/09 close). We thought we'd list the fund's 50 largest holdings below (as of 6/30/09). Now that the fund will almost certainly wind down, perhaps there are some good short opportunities.

Bullish Calls:

NVIDIA (NVDA): "The stock is only down a dollar from where we recommended it and I want to buy more… NVIDIA is at the cusp of a major new cycle… people tell me that the chart is bad… oh please… it is one of the few semis that is still not expensive… let’s do some buy, buy, buy."

Monday NVIDIA Corporation (NVDA) in partnership with Adobe Systems Incorporated (ADBE) announced GPU video and graphics acceleration for the Flash player, bringing Internet video to a new class of low-power and high-end PCs and Internet devices.

Together, NVIDIA GPUs including NVIDIA’s GeForce, ION and Tegra products and Adobe Flash Player 10.1 will help device manufacturers deliver Web browsing of rich applications, interactive content and HD video to netbooks, smartbooks and mobile devices such as smartphones to consumers. This will also help lower power consumption.

NVIDIA's (NVDA) stock has been quite a roller coaster this year since we published our original research report on January 29th. (See our February 10 Seeking Alpha article here). At the time we noted that the growth in

1. mobile computing,
2. visualization and
3. higher end processing all fed directly into the growth prospects for NVIDIA.

Since then we have seen the company continually expand their market share in these segments though design wins, product launches and new offerings. As we noted, Intel (INTC) has yet to show up at the party and when they do, they will have the wrong product. AMD/ATI has done well and some niche firms like Imagination Technologies [LSE: IMG] are in a very good position. However NVIDIA remains the company best positioned in these three markets.

Nvidia (NVDA) unveiled its next-generation graphics processing unit (GPU) architecture, dubbed Fermi, and announced a key supercomputing win with the Oak Ridge National Laboratory.

The takeaway: Graphics and visualization are becoming key to scientific discoveries. And Nvidia could be a major player. Oak Ridge’s supercomputer will be used for research in energy and climate change and is expected to be 10 times more powerful than today’s fastest supercomputer (statement).

Nvidia (NVDA), Hewlett Packard (HPQ), AMD (AMD), Microsoft (MSFT)

Bullish Calls:

Spectra Energy (SE): "Why would you sell? It's got a 5% yield. The balance sheet's good. I'm a buyer, buyer, buyer... SE?... Not hold, not sell, but buy..."

The average year to date change of stocks in the S&P 500 is 33.27%, even though the index itself is up just 16.54% YTD. The average estimated P/E ratio for next year for stocks that actually have earnings in the index is 19.47. Twenty-six stocks in the S&P 500 are expected to lose money over the next year.

Below we provide a list of S&P 500 stocks that are up more than 100% year to date along with their estimated P/E ratios. As shown, there is a pretty wide variation in valuations of the best performing stocks year to date, with some having low P/Es and some having high or negative P/Es. Micron (MU), Advanced Micro (AMD), Sun Micro (JAVA), Sprint (S), and Office Depot (ODP) are the five stocks up more than 100% in 2009 with negative estimated P/Es. Other strong performing stocks with high valuations include THC, F, SNDK, MOT, and MWV. XL Capital has the lowest P/E estimate of the stocks listed below at 7.40. It is up 370% year to date. Genworth (GNW) is up 325% with a P/E estimate of 11.06, and WDC is up 218% with a P/E estimate of 9.76. Other stocks on the list with a ratio below 20 include FCX, GT, EXPE, WYN, MEE, JWN, GS, CTSH, and LIFE.