4:19 PM, Aug 19, 2009 --

• NYSE up 42.2 (0.7%) to 6,479.28.
• DJIA up 61.6 (0.7%) to 9,280.
• S&P 500 up 6.8 (0.7%) to 996.46.
• Nasdaq up 12.2 (0.7%) to 1,969.24.

GLOBAL SENTIMENT

F3Q09 (Qtr End 08/02/09) Earnings Call

August 19, 2009 8:30 am ET

• AIG CEO changes restructuring plan. New AIG (AIG) CEO Robert Benmosche is already making his presence felt in the company, calling off a planned sale of the insurer's investment advisory unit in order to "continue to build a world-class financial advisory business." The scrapped sale is an early sign that more significant changes may be in store for AIG's restructuring plans as Benmosche conducts a "strategic review" of the company. Shares -1.8% premarket (7:00 ET).
• Regulators pressured Citi on management. According to a confidential June agreement between Citigroup (C), the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC, Citigroup said it would consider replacing then-CFO Ned Kelly by October. Kelly resigned in July after less than four months on the job once he learned of the agreement. The arrangement between Citigroup and regulators emphasizes just how large a role authorities have played in Citigroup's management shake-up and contradicts the official account of the episode that had been presented by both sides. Shares -2.2% premarket (7:00 ET).
• Tax probe nets other European banks. As wealthy U.S. citizens embroiled in the UBS (UBS) tax probe join a tax-evasion amnesty program, authorities have received information on ten other Swiss and European banks where Americans held accounts, potentially opening new fronts in the IRS's investigation of tax crimes. Banks named in the disclosures, including Credit Suisse (CS), Julius Baer Holding and Union Bancaire Privee, haven't necessarily engaged in any wrongdoing. Meanwhile, the U.S. is building criminal cases against more than 150 of UBS' American clients, and that number is expected to grow.
• MSFT fights to keep selling Word. Microsoft filed to stay an injunction that could prevent the company from selling its core Word software, arguing the injunction would cause "irreparable harm." The permanent injunction was issued last week and barred Microsoft from selling recent versions of Word because it infringes on a patent held by technology firm i4i Inc. If upheld, Microsoft will have to significantly change a major upgrade to the software due to launch next year and will have to stop selling versions of Word 2003 and Word 2007.
• IMF: Global recovery begins. Olivier Blanchard, the IMF's chief economist, said the global economic recovery has begun but a sustainable recovery will require fundamental changes, including a U.S. shift towards more exports and an Asian shift towards more imports. Potential economic output may also remain depressed as "the crisis has left deep scars, which will affect both supply and demand for many years to come."
• HP calls tech spending bottom. Hewlett-Packard (HPQ) narrowly beat earnings expectations in its most recent quarter (see details below), but saw sales fall sharply in several key business areas, including PCs and printers. Looking forward, the company said it sees a "stabilized market" and that technology spending has already hit bottom.
• Macquarie buys asset manager. Continuing an industry trend of consolidation, Australian investment bank Macquarie Group agreed to buy U.S. asset manager Delaware Investments from Lincoln National Corp. (LNC) for $428M. The deal will raise Macquarie's total assets under management to over $300B.
• Mortgage apps rise. Mortgage applications rose 5.6% from last week, MBA said. The average interest rate on 30-year fixed-rate mortgages fell to 5.15% from 5.38%.
• Retail sales. Chain store sales fell 0.7% in the first two weeks of August, Redbook said, slightly worse than the -0.6% expected. According to ICSC, weekly sales were down 0.6% Y/Y and down 0.9% from the previous week as heavy discounts failed to increase sales.
• Housing starts miss consensus (.pdf). July Housing Starts came in at 581K vs. consensus of 605K. Permits were 560K vs. 577K. Starts were 1% lower than June's 587K (revised) and 37.7% lower than last July.
• Prices fall. July's Producer Price Index was -0.9% vs. consensus of -0.3% and +1.8% in June. Core PPI fell 0.1% vs. consensus of +0.1% and +0.5% in June. Core producer prices were down 6.8% from a year ago.

Earnings: Wednesday Before Open

• BJ's Wholesale Club (BJ): Q2 EPS of $0.64 beats by $0.02. Revenue of $2.6B (-5%) in-line. (PR)
• Deere & Co. (DE): FQ3 EPS of $0.99 beats by $0.42. Revenue of $5.3B (-25%) in-line. (PR)
• Yingli Green Energy (YGE): Q2 EPS of -$0.44 vs. consensus of $0.04 (may not be comparable). Revenue of $219.5M (-24%) vs. $213.5M. Shares -5% premarket (8:00 ET). (PR)

Earnings: Tuesday After Close

• Analog Devices (ADI): FQ3 EPS of $0.22 beats by $0.02. Revenue of $492M (-25%) vs. $480M. Sees Q4 EPS of $0.24-0.26 vs. $0.24 and Q4 revenue of $510M-530M vs. $498M. (PR)
• Hewlett-Packard (HPQ): FQ3 EPS of $0.91 beats by $0.01. Revenue of $27.5B (-2%) vs. $27.3B. Sees Q4 EPS of $1.12 vs. $1.07. Sees Q4 revenue up 8% sequentially and affirms full-year revenue guidance. Q3 services revenue up 93% to $8.5B due to EDS merger; enterprise storage/servers sales down 23% to $3.7B; software sales down 22% to $847M. Cash flow $3.9B and inventory down 10 days, to $5.9B. (PR)
• La-Z-Boy (LZB): FQ1 EPS of $0.05 beats by $0.10. Revenue of $263M (-18%) vs. $255M. (PR)
• Photronics (PLAB): FQ3 EPS of -$0.55 misses by $0.36. Revenue of $95M (-10%) vs. $88M. (PR)

Today's Markets

Asian markets closed down, with a heavy drop in China spooking European markets and U.S. futures.

Photronics (Nasdaq: PLAB) has moved from 71 cents on March 25 to an interday high of $3.30 on May 28. In a May 21 upgrade by Merrill Lynch after Photronics reported its F2Q09:

“Merrill notes that although interest expense is increasing in the near term, revenue growth is starting to pick up again and expense cuts already in place increase cash available to service debt. In addition, the total debt level in F3Q drops $30mn when the new lease on the Nanofab takes affect. As PLAB’s financial flexibility increases, valuation multiples should climb toward ongoing concern peer levels. Half the peer P/TBV average would be 0.7x. At that level, PLAB would trade for $4, firm's new PO up from $2.”

Below, find a list of 14 stocks below $5, that have low price to book ratios, insider buying, and decent debt-to-EBITDA coverage. For the reader, this list could be a good starting point for further study as low priced stocks tend to be very risky and need to be examined closely before purchase. These stocks also have debt, that is why I also included the Debt / EBITDA coverage ratio. I used Yahoo Finance for this activity.

The following table contains the two cheapest companies in the Russell 2000 from each sector based on The Applied Finance Group’s Recommendation and Value Score (explained below). All of the companies listed below are the most attractive in their sector based on AFG Recommendation, which factors in each companies Economic Margin, Intrinsic Value, and Management Quality Score. All companies listed also had the highest Value Score (upside) relative to their sector peers. Also provided is a VE analysis of each company to identify implied sales growth expectations versus what the company has delivered historically in sales growth over the past 5 years. Measuring the spread between a company’s VE sales growth expectations and what it has historically delivered should give you a good idea of which companies have the best chance of meeting or exceeding those expectations, and thus are more likely to outperform.

Given that the stock market has lost a tremendous amount of value over the past year, it is important to point out the market cap for the companies in the table. The twenty-two companies shown below have returned -53% on average over the past year vs. -33% for the Russell 2000 Index as a whole. Specifically, a few companies now maintain a market cap that some investors may define as micro caps. If micro caps are within your universe of focus, then the following table can help identify some gems to invest in, especially since micro caps (as well as small caps) have outperformed large cap stocks by about 10% since the market bottomed on March 9, 2009. However, if the “bigger” small caps are more to your liking, the table provides a good snap shot for several companies with respectable size that may outperform the Russell 2000, based on Value Score and imbedded expectations.

The semiconductor photomask market extended its losing streak by dropping 12% in 2008 after a 2% drop in 2007, according to the report: Mask Making, Inspection, and Repair: Market Analysis and Strategic Issues, recently published by The Information Network, a New Tripoli, PA-based market research company.

The merchant semiconductor photomask market dropped 12% in 2008 to sales of $1.8 billion. The market will drop another 11% in 2009, with the high-end photomask market (less than 90 nanometers) dropping 18% while the low-end market will be flat. We see new field programmable gate array (FPGA) product designs as a core driver of photomask industry growth in this challenging market environment.

The semiconductor equipment market will continue to be on a downward slope at least through the end of May.

Our leading indicators, which determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales five months out, continue to point down, indicating that there will be no upturn through May 2009. (If you go here and click on the Contact Us button, and we will send you a gif file showing our correlation between semiconductor equipment purchases and our proprietary leading indicators.)

The following is excerpted from a recent note that Singular Research sent to clients:

Growth Play

Ebix, Inc. (EBIX) is an international provider of software and e-commerce solutions for the insurance industry. It focuses on the sale and support of its insurance carrier systems, broker/agency management systems and exchange family of products, which provide connectivity between consumers, agents, carriers, and third party providers. It also provides services for software development, delivery of software as an application service provider (ASP), software license, maintenance and business process outsourcing. EBIX trades 8x our 09 eps estimtate. We project 35%+ eps and revenue growth. The company beat estimates last quarter by 13%; eps estimates are revised higher for 09. All are extrememly rare events in this environment.

There seems to be a misconception between semiconductor revenues and other business sectors of the industry, namely equipment, chemicals, and photomasks. In reality, all four components are loosely related at best.

Semiconductor Revenues – Revenues are a comparative measure of performance that will determine market share. It's not the revenues that count, it's a company's profits that determine stock performance. A company's capital expenditures (capex) to purchase equipment and build new fabs are loosely based on revenues, but are more closely tied to capacity and technology nodal points. A company will need to spend if they can't meet demand because they are capacity limited. Likewise, companies will spend to move to a tighter technology note (i.e., to 45 nanometers from 60 nanometers) to maintain leading edge product introductions and market share.

Q3 2008 Earnings Call

August 14, 2008, 8:30 pm ET

F2Q08 Earnings Call

May 14, 2008 8:30 am ET

• Foreclosures soar. U.S. home foreclosure filings surged 65% in April vs. a year ago to more than 243K. One of every 519 U.S. households filed for foreclosure during the month. Nearly half of the filings were initial notices of default, suggesting many new properties entered the process. "What they've [the gov't] tried so far isn't working," RealtyTrac's Rick Sharga says. Economists think more than one million homes will be lost in 2008.
• Robust retail sales surprise. U.S. retail sales fell 0.2% in April, exactly offsetting March's rise. However, excluding auto sales, April sales were up 0.5% -- well ahead of economist estimates of 0.2%. Sales of building materials gained a robust 1.9%, more than reversing a 1.5% drop in March. Restaurants were up 0.9%. (Economist reactions)
• Sony trims PS3 losses. Sony (SNE) posted a ¥255B ($277M) net profit in Q1, reversing a year-ago loss. Sales were down 6.5% to $18.6B. Sony sold 9.24M PS3s during its fiscal year, and forecasts sales of another 10M during the coming fiscal year. Sony forecast a 21.5% drop in profits to $2.8B over the coming year. Sony sees a ¥100 dollar for the coming year, vs. an average of ¥114 over the past year.
• Can Icahn muscle merger? Shares of Yahoo! (YHOO) jumped 5.15% Tuesday on reports activist investor Carl Icahn may initiate a proxy war to replace Yahoo's board after its failure to come to terms with Microsoft (MSFT). Sources say Icahn has built a Yahoo stake over the last week, and would influence the board to try and get Microsoft back to the bargaining table.
• Freddie's loss less than expected. Freddie Mac (FRE) posted Q1 EPS of -$0.66, beating consensus estimates of -$0.93. "Market and credit conditions remained challenging during the first quarter of 2008," said Richard F. Syron. "However, Freddie Mac on the whole had a better first quarter than what we experienced in the third and fourth quarters of last year." Syron said FRE will raise $5.5B in new core capital, which it hopes to deploy in ways that take advantage of opportunistic market conditions. Freddie put aside $1.2B for credit losses. It said it does not anticiapte further dividend decreases. Shares are up 6.2% in early pre-market trading.
• All clear. The dispute over financing the Clear Channel Communications (CCU) LBO ended late Tuesday. The deal price was lowered to $17.9B from about $20B, or to $36/share from an original $39.20. Buyers THL Partners and Bain Capital are incidentally paying less than the $37.60/share a rival private-equity consortium of KKR, Blackstone Group (BX) and Providence bid. "It's a great company and the economics of the business are great," Clear Channel CEO said. The buyers and CCU agreed to drop their lawsuit against funding banks Citigroup (C), Morgan Stanley (MS), Credit Suisse Group (CS), Royal Bank of Scotland (RBS), Deutsche Bank (DB) and Wachovia (WB).
• BHP could raise bid; hits record high on talk of Chinese stake. BHP (BHP) CEO Marius Kloppers says he won't rule out boosting his $177B bid for Rio Tinto (RTP) with cash. He also noted soaring commodity prices have already enriched the bid: "Since we made our bid I think oil prices have moved up substantially, other commodity prices which we have in our portfolio moved up substantially and since we are paying with our scrip, this means that the value of our offer has effectively increased," he said. BHP shares were up as much as 5% in Australia on speculation Chinese interests may take a stake in the company.
• Arcelor posts strong quarter; Q2 looks even better. Global #1 steel-maker by volume ArcelorMittal (MT) said Q1 net profit grew 5.4% to $2.37B, short of expectations of $2.55B. Closely-watched Ebitda climbed 16.1% to $5.04B, slightly better than analyst estimates of $4.94B. Sales grew 21.8% to $29.81B amid rising steel prices. Looking ahead, MT expects Q2 Ebitda of more than $6.5B due to strong demand and supply constraints. Analysts said the earnings were solid, while Q2 expectations exceeded their forecasts.
• CEO-led group wants to take Usana private. A group of investors that controls 68% of Usana Health Sciences (USNA), including majority shareholder and CEO Myron Wentz, offered to pay $26/share to the remaining shareholders and take the firm private.
• Cash crunch at GM? General Motors (GM) CFO Ray Young now says the company may need additional financing to help it overcome the current economic crisis, worker strikes, problems with suppliers, and skyrocketing fuel prices. GM has $24B at its disposal, "But, if the current adverse economic conditions persist or deteriorate further we would consider a wide range of actions," inlcluding selling non-core assets, reprioritizing its capital spending, and tapping credit markets.
• Malone makes way for IAC splitup. Liberty Media (LCAPA) CEO John Malone, IAC/InterActiveCorp's (IACI) biggest shareholder, and IAC CEO Barry Diller came to terms yesterday. Diller largely got what he wanted: Malone dropped his appeal against an IAC splitup into five companies in exchange for board representation on each of the companies. IAC filed spinoff documents with the SEC yesterday.
• Recession in the cards: Greenspan. Alan Greenspan says U.S. economic data suggests a mild recession. "The risk is really on the housing side," he added. Housing market liquidation will come to an end in early 2009, but prices could stabilize before that, he said.
• eBay/Craigslist union on rocky grounds. Craigslist slashed back at eBay (EBAY) with a lawsuit of its own. After being accused by eBay of unfairly diluting its stake by more than 10%, Craigslist accuses eBay of, "Unlawful and unfair competition, misappropriation of proprietary information, deceptive passing-off, business interference, false advertising, phishing attacks, free-riding, trademark infringement, trademark dilution, and breaches of fiduciary duty." In a nutshell, Craigslist seems upset about eBay's promotion of Kijiji, a classified ads site that more-or-less goes head-to-head with Craigslist.
• Staples raised bid; Corporate Express rejects. Staples (SPLS) raised its offer to acquire Corporate Express to €8/share from €7.25, but got no more than a rebuff for its efforts. The Dutch Corporate Express said the revised bid still "significantly undervalues" the company. Staples CEO Ron Sargent said he will go directly to shareholders with his bid, due to a lack of responsiveness. He said he has received U.S. antitrust approval for the deal, and asked Dutch authorities to do likewise.

Earnings: Tuesday After Close

• Applied Materials (AMAT): FQ2 EPS of $0.26 beats consensus of $0.22. Revenue of $2.15B in-line. Sees FQ3 EPS of $0.10-0.14, short of consensus of $0.25. Sees Q3 orders down 15-25%. Shares: +0.15%.
• Electronic Arts (ERTS): FQ4 EPS of $0.09 beats consensus of $0.00. Revenue of $919M vs. consensus of $834.82M. Sees full-year 2009 EPS of $1.30-1.70, short of consensus of $1.73, and revenue of $4.9-5.15B vs. consensus of $4.59B. Shares: -2.8%.
• Phototronics (PLAB): FQ2 EPS of -$0.05 in-line. Revenue of $110M vs. consensus of $109M. Shares: +2.3%.
• Whole Foods (WFMI): FQ2 EPS of $0.29 just misses consensus of $0.30. Revenue of $1.9B in-line. Sees full-year total sales growth of 25-30%. Shares: -8.1%.

Earnings: Wednesday Before Open

• Arcelor Mittal (MT): Q1 EPS of $1.68 misses consensus of $1.82. Revenue of $29.81B in-line. Sees Q208 Ebitda to exceed $6.5B, up from $5.B0 this quarter and $5.3B Q207.
• Cellcom Israel (CEL): Q1 EPS of $0.78 beats consensus of $0.59. Revenue of $449M vs. $431M consensus.
• Dana Holding (DAN): Q1 EPS of -$0.29 misses consensus of $0.15. Revenue of $2.31B vs. consensus of $2.16B. Dana said its results were significantly impacted by vehicle production declines and high steel costs.
• Deere (DE): FQ2 EPS of $1.74 just misses consensus of $1.75. Revenue of $8.1B vs. consensus of $7.61B. Sees Q3 and full-year sales up about 20% Deere said soaring raw-material costs will impact operations for the balance of the year.
• Freddie Mac (FRE): Q1 EPS of -$0.66 beats consensus of -$0.93. Revenue of $1.53B vs. consensus of $1.44B.
• Goodrich (GR): Sees full-year EPS of $4.27-4.42, short of consensus of $4.50. Sees full-year revenue of $7.2-7.3B in-line.
• Jack in the Box (JBX): FQ2 EPS of $0.44 just beats consensus of $0.43. Revenue of $693.5M vs. consensus of $684M. Sees full-year EPS of $1.98-2.08, just short of consensus of $2.05.
• ING Group (ING): Q1 net profit fell 15.2% to €1.589B. EPS of €0.74.
• Sony Corp (SNE): Full-year EPS of $3.68 and revenue of $88.71B (at ¥100=$1). Q1 profit of $277M on sales of $18.6B. Sees full-year F2009 profit of $2.8B, down 21.5%.
• Telefonica (TEF): Revenues of €13.9B, up 1.1%. Organic revenue growth was 7%.

Today's Markets

• The Nikkei rose 1.18% Wednesday, closing at a four-month high of 14,119. Elsewhere in Asia, Hang Seng -0.08% to 25,533. Shanghai +2.73% to 3,657. BSE Sensex +1.35% to 16,978.
• In Europe, markets are mixed at midday. FTSE -0.05% to 6,209. CAC +0.3% to 5,014. DAX -0.22% to 7,045.
• U.S. futures are down at 7:10 AM. Dow -0.11% to 12,811. S&P -0.18% to 1,402. Nasdaq -0.14% to 2,003.
• Gold -0.71% to $863.30. Oil -0.45% to $125.23.

ACME Communications Inc. (ACME) - BMO
FQ2 2006 Revenue Estimate: $10.60M
FQ2 2006 EPS Estimate: $-0.06
FQ3 2006 Revenue Estimate: $10.10M
FQ3 2006 EPS Estimate: $-0.18

BuyBacks 101: Pepsi (PEP), Coke (KO), United Technologies (UTX), Wells Fargo (WFC), Bank of America (BAC)

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