Weekly Market Report 02-11-2005

Dell and Cisco disappoint analyst
By Rick Paler


This week was a slower week for earnings releases. Only 46 companies that make up the S&P 500 index reported. The two big earnings reports of the week were Dell and Cisco, unfortunately both disappointed. Also in the Technology sector, Hewlett-Packard’s CEO unexpectedly resigned. There was little to report this week on economic news which left bond traders looking to next week for direction.

As the fourth quarter earnings season comes to a close it looks like the S&P 500 posted some great numbers, once again exceeding the streets estimates. Now Wall Street is digesting corporate guidance for the first quarter. Currently the street is projecting profit growth of 6.9% up from 6.6%. While this number is substantially lower than last years earnings numbers, 7% year over year earnings growth is respectable and inline with historical levels.

Technology bellwether Cisco Systems (CSCO) reported that their fiscal second quarter earnings came in at $0.22 per share matching the streets estimates. Sale rose 12% to $6.06 billion which was near the company’s lower end of guidance. The company also announced their guidance for next quarter and disappointed the market. Looking at the next quarter the company expects that their fiscal third quarter revenue would be flat to up only 2%.

Dell (DELL) reported that their fiscal fourth quarter earnings came in at $0.37 per share beating expectations by a penny as revenues grew to $13.46 billion up 17%. The company also announced that their U.S. market share of PC’s had grown to 33%. Looking forward the company disappointed the market when they released their fiscal first quarter guidance. The company expects their first quarter revenues to come in at $13.4 billion and earnings of $0.37 per share. The street had expected revenues of $13.5 billion and earnings of $0.36 per share.

Cognizant Technology Solutions (CTSH) announced that their fourth quarter profits rocketed up 73%. The company earned $30.6 million or $0.21 per share, up from only $17.7 million or $0.13 per share for the same period a year ago. Revenues at the company also surged up 60% to $172.8 million. The IT service company also released first quarter guidance that was inline with analyst estimates. Full year guidance was ahead of current estimates. The company expects to earn $0.96 per share, on revenues of $845 million. Shares rose sharply on the news.

Clorox (CLX) reported fiscal second quarter earnings of $0.59 per share beating Wall Streets estimates of $0.52 per share. Sales at the company rose 8.7% to $1.0 billion. Guidance released by the company for their fiscal third quarter was inline with analyst estimates. The company expects earnings between $0.62 and $0.68 per share.

Hewlett-Packard’s (HPQ) CEO Carly Fiorina unexpectedly resigned after being forced out by the company’s board of directors. The company’s shares rose initially on the news. The company continues to lose market share to competitors even after the much publicized purchase of Compaq. The board of director will begin looking for a new CEO immediately to replace her.

Pfizer (PFE) announced that the company would implement a reorganization plan that would save the company $2 billion. The plan would change the way the company markets drugs to physicians and would not include layoffs, but would lower the company’s employee head count through normal attrition.

Black & Decker Corp. (BDK) will increase their dividend 33% to $0.28 per share from the prior $0.21 per share. The company also announced that they would repurchase an additional 2.5 million shares of the company’s stock.

In economic news there were two reports released this week that were of interest. Initial jobless claims fell unexpectedly to 303,000 versus economist estimates of 325,000. This was the lowest level in for years. The four week moving average also fell to a four year low of 315,500. This was interrupted by the market that the job market is continuing to improve.

The trade deficit for December fell to $56.4 billion from the prior months $59.3 billion. Economist had expected the deficit to come in at $57.0 billion. For the full 2004 year the trade deficit increased 24.4% to a record $617.7 billion as demand and higher prices for oil pushed the deficit higher.

The 5 year Treasury note closed the week yielding 3.68%. The 10 year note closed at 4.08% and the 30 year Treasury bond closed yielding 4.47%.

Next week there will be more economic news released. Traders will be digesting the release of retail sale, industrial production, housing starts and the PPI. The market will also watch Federal Reserve Chairman Alan Greenspan as he testifies before the Senate Banking Committee. Next week the following companies will be releasing earnings; Deere & Company (DE), HCC Insurance Holdings (HCC), Nordstrom (JWN), Hewlett-Packard (HPQ), Intuit (INTU), Target Corp (TGT), and Wal-Mart (WMT).