Market Wrap For February 5: Markets Unsure Of Which Direction To Take
U.S. stocks finished the day almost unchanged as investors and traders were presented with a mixed bag of data today.
A better than expected report on the service sector negated another report that showed that companies added fewer employees to their payrolls than anticipated in January.
- The Dow lost 0.03 percent, closing at 15,440.23.
- The S&P 500 lost 0.20 percent, closing at 1,751.64.
- The Nasdaq lost 0.50 percent, closing at 4,011.55.
- Gold gained 0.53 percent, trading at $1,257.80 an ounce.
- Oil gained 0.23 percent, closing at $97.41 a barrel.
- Silver gained 2.10 percent, trading at $19.83.
News of Note
MBA Mortgage Applications rose 0.4 percent on week, compared to a decline of 0.2 percent last week.
January ADP Jobs Report rose 175,000, higher than the consensus estimate of 170,000.
US January PMI Service Index read 56.7, higher than December's 55.7.
January ISM Non-Manufacturing Index came in at 54.0, above the 53.9 expectations.
The senate voted 68-32 to approve a five year farm bill that includes spending of close to $1 trillion over ten years and savings of $23 billion. The legislation included a provision that the U.S. won't revert back to a 1949 law that could double the price of milk.
The congressional Budget Office cut its forecast for the budget deficit from $560 billion to $514 billion.
The Eurozone composite PMI rose to 52.9 in January from 52.1 in December. Eurostat reported that retail eurozone retail sales fell 1.6 percent on month in December after rising 0.9 percent in November.
Equities-Specific News of Note
Analysts at Global Equities Research said that Tesla (NASDAQ: TSLA) is creating a new “Transport-as-a-Service” industry which could be valued at $100 billion. Tesla could capture as much as 60 percent of the market. Tesla will remain a leader due to its Mega-Battery-Factor. The analysts noted “Tesla will likely build a Mega Battery Factory, with a production capacity of about 30 Giga Watts per Year. The factory will likely be built in New Mexico. Tesla will likely partner with both Panasonic and Sanyo, in building this Mega Battery Factory. Tesla may also manufacture Hybrid Battery Pack, which includes both Metal-Air Battery as well as Non-Metal Air Battery. CY2015 Model S cars may get a 10% to 15% increase in driving range – driven primarily by innovations in Battery Packs – including Hybrid Battery Pack.” Shares lost 2.41 percent, closing at $174.43.
Analysts at Jefferies reiterated a Hold rating on shares of BlackBerry (NASDAQ: BBRY) while raising the price target to $9 from a previous $6. Under a “bull case” shares could be worth as much as $16. The analysts noted “"We conducted an in-depth scenario analysis for each of BBRY's six key segments" and that "While the stock has rallied on decreased near-term liquidity concerns, our analysis highlights that BBRY faces a difficult tightrope walk as it needs to balance quickly ramping its iOS/Android MDM business while drastically reducing costs.” Shares gained 0.83 percent, closing at $9.63.
Analysts at Wunderlich downgraded shares of Sirius XM Radio (NASDAQ: SIRI) to Hold from Buy with a price target lowered to $3.50 from a previous $4.20. The analysts noted “We now apply just a standalone value for SIRI as we are skeptical that there will be a material sweetening of the 0.076 exchange ratio (after a 2:1 C stock dividend) on the Liberty Media bid. Our standalone target had been $4.00 vs. $4.30 with a deal, but we are now allowing for a slightly lower 1900 S&P 500 assumption on our market-linked valuation, along with a $120 SPX earnings assumption that bumps up the cost of equity and constricts the "as is" target to $3.80. We also came away from the January CES show with a conviction that tech companies and OEMs are now regarding the car as the world's largest mobile device with a vast array of new apps in queue.” Shares lost 2.56 percent, closing at $3.43.
Analysts at Morgan Stanley upgraded shares of Vale (NYSE: VALE) to Buy from Hold with a $17.50 price target. The analysts noted “Vale's forward P/E looks excessively low relative to Rio Tinto at one standard deviation below the historical average and not far from the 2005 all–time low. Vale's shares have historically traded at a forward P/E of 8.6x, or at a 15% discount to Rio's average multiple of 10.2x. However, based on our 2014 estimate, Vale is currently trading at 6.7x EPS, or approximately 31% below Rio's valuation of 9.7x ― twice the historical discount. Further, VALE has underperformed iron ore by ~20 percentage points prices over the past year. We believe this poor performance is unlikely to continue, and we view the current valuation as an attractive entry point.” Shares gained 3.09 percent, closing at $14.03.
Analysts at ISI Group said that Gilead Sciences' (NASDAQ: GILD) lack of guidance on its Sovaldi hepatitis-C drug is worrisome. The analysts noted that they “ had written in our preview note that [Gilead] is extraordinarily conservative and that this was a possibility. However, Street is clearly worried that this was a “signal” by mgmt that sell side numbers are getting out of hand. Personally, I disagree as this company has a history of extreme conservatism… The critical point with stock is, in my opinion, that [Gilead] is virtually assured of earning at least $8, and probably closer to $10 by 2016. Thus, at around $80, the implied PE on that number is not high and downside seems pretty limited. And, if they crush Street numbers and investors can get incremental comfort that there is “tail value” here (this is the BIGGEST INVESTOR DEBATE RIGHT NOW!!), a PE of around 12x 2016 (i.e. $95-$100) seems doable when we are standing in January of 2015." Shares lost 4.69 percent, closing at $78.17.
Analysts at Wells Fargo upgraded shares of Gray Television (NYSE: GTN) to Outperform from Market Perform with a price target raised to $13-$15 from a previous $12-$14. The analysts noted “We like the potential for M&A, net retrans growth, and political exposure and see potential upside to estimates” and that “Gray will likely remain involved in M&A action over the year, both as a buyer and seller.. In the short term, management continues to focus on acquiring highly-rated stations in local domestic markets with exposure to above-average political spend. Most recently, the company acquired Hoak, a Dallas-based broadcaster, for $342.5 million. The transaction is expected to close in the second quarter.” Shares gained 4.52 percent, closing at $11.09.
Analysts at Imperial Capital said that United Continental's (NYSE: UAL) decision to reduce service out of its Cleveland hub is a positive as this would improve efficiency and profitability. The analysts noted “We view the reduction in service at Cleveland as an important step in closing [United Continental's] performance gap with industry leader Delta Air Lines. While there remains significant work to do, we believe the 4Q13 results highlighted the progress that United has already made." Shares lost 0.77 percent, closing at $43.63.
CVS Caremark (NYSE: CVS) will become the first retail pharmacy to remove tobacco products from its shelves. The company said that selling tobacco products does not fit in its with its objective of transitioning to a full-service healthcare provider. The company estimates it will lose $0.17 in profit per year. Dollar store stocks are expected to pick up the slack and are unlikely to exit the market themselves as they receive large margins from tobacco sales. Shares lost 1.03 percent, closing at $65.43.
Walgreen (NYSE: WAG) reported that its sales increased 3.7 percent in January to $6.39 billion. Store traffic in comparable stores fell 2.2 percent but the average transaction size rose 3.8 percent in the month. Separately, Walgreen said that it will continue selling tobacco products for the time being. Shares gained 3.40 percent, closing at $57.85.
Edwards Lifesciences (NYSE: EW) received EU approval for its Sapien XT transcatheter heart valve for mitral and aortic valve-in-valve procedures. Shares gained 1.20 percent, closing at $66.53.
NuStar Energy (NYSE: NS) signed a long-term agreement with Occidental Petroleum (NYSE: OXY) to ship natural gas liquids on NuStar's 200 mile pipeline in Texas. The pipeline has the capacity to move approximately 110,000 barrels per day. Shares of NuStar gained 5.39 percent, closing at $51.23 while Occidental gained 0.18 percent, closing at $87.30.
Goldcorp (NYSE: GG) agreed to freeze its hostile takeover for Canadian based Osisko Mining as a judge has set a March 3 date for a court trial. Osisko initiated a lawsuit to stop the hostile takeover, alleging Goldcorp misused confidential data. Shares of Goldcorp lost 1.19 percent, closing at $24.82.
Gambling revenue in Macau during January rose seven percent to $3.6 billion, short of the estimates hopes for double-digit-growth. January's growth was the slowest in the region since October 2012. Shares of Las Vegas Sands (NYSE: LVS) lost 1.39 percent, closing at $73.99, Wynn Resorts (NASDAQ: WYNN) lost 1.87 percent, closing at $209.55 and Melco Crown lost 1.74 percent, closing at $38.98.
After a three year investigation conducted by European Union officials over its dominance in the search market, Google (NASDAQ: GOOG) will escape any fines but agreed that when it displays search results, it will give equal treatment to the links of three rivals as it does to links for its own products and services. Separately, Google stated that it will make Susan Wojcicki, head of the company's ad/commerce product ops as CEO of YouTube. Shares gained 0.45 percent, closing at $1,143.24.
Winners of Note
This morning, Level 3 Communications (NASDAQ: LVLT) reported its fourth quarter results. The company announced an EPS of $0.06, missing the consensus estimate of $0.07. Revenue of $1.6 billion beat the consensus estimate of $1.59 billion. The company's adjusted EBITDA rose 14 percent to $466 million and its adjusted EBITDA margin rose 490 bps to 29.1 percent. The company estimates that its EBITDA will grow 11 percent to 14 percent from 2013 levels and that it will be cash flow positive with $225 million to $275 million compared to -$47 million in 2013. Shares hit new 52 week highs of $34.90 before closing the day at $34.55, up 10.00 percent.
According to Dealreporter, Sprint (NYSE: S) is close to obtaining the necessary $45 billion to finance a takeover of T-Mobile US (NYSE: TMUS) despite recent reports that FCC officials have expressed a skeptical view that such a deal would be finalized and approved. Shares of Sprint gained 8.29 percent, closing at $8.49 while T-Mobile gained 5.38 percent, closing at $31.75.
Last night, Tableau Software (NASDAQ: DATA) reported its fourth quarter results. The company announced an EPS of $0.20, beating the consensus estimate of $0.00. Revenue of $81.45 million beat the consensus estimate of $66.95 million. Tableau Software's revenue grew 95 percent year over year and 90 percent from the third quarter. Licenses revenue which represents 71 percent of total revenue grew 93 percent, up from the third quarter's 90 percent. Maintenance revenue which represents the remaining 29 percent of total revenue doubled to $23.4 million after growing 91 percent in the third quarter. This morning, analyst at JMP Securities increased their price target to $105 from a previous $80. The analysts thinks that the company's customer base is rapidly expanding translating to a very positive and upbeat outlook. Shares hit new 52 week highs of $95.75 before closing the day at $89.90, up 13.18 percent.
Decliners of Note
This morning, 3D Systems (NYSE: DDD) issued a profit warning and sees its full year 2013 EPS to be $0.83 to $0.87, below prior guidance of $0.93 to $1.03 and a consensus estimate of $0.96. The company said that it expects its 2014 EPS to be $0.73 to $0.85, well below the $1.27 consensus estimate. Analysts at Deutsche Bank commented that the company's revenue growth “remain solid” and the EPS weakness is a clear sign of management's strategy to “prioritize top-line growth over near-term profitability.” Comments coming from analysts at Bank of America share similar sentiments and said that the guidance accounts for steep investment costs. Whitney Tilson, a vocal bear said that he added to his 3D Systems short and that “3D printing is real, but the stock valuations aren't ... Coming into today, DDD was trading at 17x revenues. So now it's trading at 14x. So what?" Shares lost 15.41 percent, closing the day at $64.08 but traded as low as $54.63. Shares of other 3D printers declined today, Stratasys (NASDAQ: SSYS) lost 6.17 percent, closing at $110.75 and The ExOne Company (NASDAQ: XONE) lost 11.23 percent, closing at $39.70.
Last night, Buffalo Wild Wings (NASDAQ: BWLD) reported a quarterly result in which the company beat both the consensus estimate for revenue and EPS. Investors found plenty of reason to worry as they are focusing on potential headwinds the company faces on labor expenses and chicken wing costs. Shares lost 9.68 percent, closing at $127.12.
The Wall Street Journal confirmed that Radio Shack (NYSE: RSH) will close as many as 500 stores "within months." Shares lost 6.14 percent, closing at $2.21. Shares hit new 52 week lows of $2.02 before closing the day at $2.22, down 5.93 percent.
Analysts at Global Hunter Securities downgraded shares of Bill Barrett (NYSE: BBG) to Neutral from Accumulate with a price target lowered to $30 from a previous $35. The downgrade came as a result of the oil and gas explorer's lowered production guidance issued yesterday. The company said that it expects to produce 11 million to 12.2 million boe this year, below its previous estimates of 14.4 million boe. The company is forecasting a 30 percent growth rate in oil production in 2014, below analyst expectations of 50 percent. The analysts noted that the company's oil growth rate does not justify their previous valuation. Shares lost 16.94 percent, closing at $23.00.
Earnings of Note
This morning, Merck (NYSE: MRK) reported its fourth quarter results. The company announced an EPS of $0.88, missing the consensus estimate of $0.89. Revenue of $11.32 billion missed the consensus estimate of $11.39 billion. Net profits fell from $908 million a year ago to $781 million as earnings suffered from patent expiration and currency fluctuations. Shares gained 0.04 percent, closing at $53.53.
This morning, Ralph Lauren (NYSE: RL) reported its third quarter results. The company announced an EPS of $2.57, beating the consensus estimate of $2.51. Revenue of $2.02 billion was in-line with the consensus estimate. Retail sales grew six percent to $1.1 billion in the quarter while wholesales were up 14 percent to $840 million. Gross profit fell 110 bps to 58.2 percent. The company authorized another $500 million in share buybacks, bring its total allowance to $730 million. Shares lost 3.55 percent, closing at $148.71.
After the market closed, Twitter (NYSE: TWTR) reported its fourth quarter results. The company announced an EPS of $0.02, beating the consensus estimate of -$0.01. Revenue of $243 million beat the consensus estimate of $216.86 million. Shares were trading lower by 12.63 percent at $57.64 following the earnings report.
After the market closed, Pandora (NYSE: P) reported its fourth quarter results. The company announced an EPS of $0.11, beating the consensus estimate of $0.08. Revenue of $200.8 million was in-line with the consensus estimate. Shares were trading lower by 8.51 percent at $32.78.
Quote of the Day
"[Eddie Lampert] has caused a slow liquidation of the national retail chain. I mean, that is exactly what is happening in front of our eyes,” -Brian Sozzi, discussing Sears on today's Pre Market Benzinga show.
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