Market in Search of Direction

Elena
27 Sep, 2005
New York City

Pepsi Bottling Group posted 3Q 7% earnings rise of 82 cents a share vs. 73 cents a year ago on strong sales. Excluding special gains, the quarterly results met expectations of 78 cents a share on sales of $3.14 billion. Lennar, homebuilder, reported 3Q 50% income growth of $2.06 a share vs. $1.36 a year ago, beating estimates. The company raised its 2005 profit outlook to $8.10 a share. New home sales in August were 1,237,000, down 9.9% from July, but up 6.2% from August 2004.

U.S. MARKET AVERAGES

U.S. market averages edged up at the start of the trading session but find it difficult to rise higher. The main market drivers of the day are retreating oil prices which have recently fallen to $65.23 a barrel after a sharp rise on Monday and consumer spending report. Investors eagerly awaited the report from the Conference Board, concerned that high fuel costs could have hurt consumer spending in the period during which Katrina struck.
The Conference Board said that consumer confidence index fell to 86.6 in September from 105.5 in August, which is the lowest level since October 2003. Economists had expected a more modest decline of 98.0.

Gold and energy stocks are edging down early on Tuesday. The gold sector has fallen by 1.2%, while the oil sector is showing a 1% decline.

The HMO sector is a notable gainer in the early going on a New York Times report that WellChoice ((WC)) is in talks to be acquired by WellPoint ((WLP)). WellChoice is up more than 5.5%.

MOVERS AND SHAKERS

Taser International Inc. ((TASR)) fell 8.9% after the stun gun company said that a previously came out abuse by the Securities and Exchange Commission has now been viewed formal. The company also said that the examination has been expanded to include possible illegal receiving of material non-public information by some people outside of the company trying to manage the stock price.

WellChoice Inc. ((WC)) jumped 8% due to a media report that another insurer WellPoint ((WLP)) is planing to buy it for $6.5 billion in cash and stock

Pepsi Bottling Group Inc. ((PBG)) is expected to be in play, because the company reported third-quarter net income of $205 million, or 82 cents a share, as compared to $191 million, or 73 cents a share, for the same period in 2004. Analysts had been expecting earnings of 78 cents a share and the company planned record earnings per share for fiscal 2005.

J.P. Morgan rearranged its ratings on some oil companies today.

The broker upgraded Chevron Corp. ((CVX)) to overweight from underweight, pointing the company's more desirable direction following the aquicition of Unocal.

The broker also upgraded BP ((BP)) to overweight from neutral, citing the company's exposure to both U.S. refining and natural gas prices is allowing a benefit from the current product strength.

J.P. Morgan upgraded Royal Dutch Shell ((RDS)) to overweight from neutral, because it believes the stock could be a good protection advantage given the broker's forecast of crude weakness later this year.

The broker downgraded Exxon Mobil ((XOM)) to neutral from overweight, pointing the recent rise in the shares. Total ((TOT)) was downgraded to neutral from overweight to follow a non-impressive combination of valuation and potential catalysts in comparison to other stocks.

ECONOMIC NEWS

Consumer confidence plummeted in September, according to a report from the Conference Board, with concerns about Hurricane Katrina and soaring gasoline prices contributing to the decline.

The Conference Board said that its Consumer Confidence Index fell to 86.6 in September from 105.5 in August. With the decrease, the index hit its worst level since October of 2003. Economists had expected a somewhat more modest decline to about 98.0.

The Conference Board also said that the outlook for the next six months turned considerably pessimistic, with the Expectations Index falling to 71.7 in September from 93.3 in August.

Tuesday morning, the Department of Commerce released its report on new home sales in the month of August, showing that sales fell even more than economists had expected.

The report showed that new home sales fell 9.9 percent to a seasonally adjusted annual rate of 1.237 million units in August from the revised July rate of 1.373 million units. Economists had expected sales to fall to a 1.363 million unit rate.

The report also showed that the seasonally adjusted estimate of new houses for sale at the end of August was 479,000. The Commerce Dept. said that this represents a supply of 4.7 months at the current sales rate.

The Commerce Dept. also said that the median sales price of new houses sold in August was $220,300, while the average sales price was $283,400.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed broadly higher, led by all-time high indexes in South Korea and Australia. Seoul’s Kospi rose 0.3% to 1,209,63, adding to Monday’s gains of 2.6%, boosted by banking stocks. Sydney’s All Ordinaries climbed 0.3% to 4,629 with BHP Billiton and Macquire Bank among the gainers. Across the region, rising oil capped gains and The Nikkei lost 0.62%, while Hong Kong’s Hang Seng fell 0.55%. The dollar traded at 112.34 yen.

European markets traded lower at mid-day, pressured by renewed oil prices rise. The oil and gas sectors posted strong gains, boosted by oil majors like BP, Royal Dutch Shell, and France’s Total. The German DAX 30 shed 0.2%, the French CAC 40 lost 0.2%, while oil-heavy London’s FTSE 100 added 0.2%.

ENERGY, METALS, CURRENCIES

Oil prices retreated, following a broad rally session Monday but still causing concerns over oil supply as the damage to the refinery is still being assessed. Light sweet crude November delivery slipped 38 cents to $65.44 a barrel in electronic trading on the Nymex. Heating oil lost 2 cents to $2.0375a gallon, while gasoline was up almost a cent to $2.1374. London Brent declined 25 cents to trade at $63.80.

Gold advanced in European trading. In London the precious metal traded at the recommended price of $465.65 per troy ounce, up from $463.30. In Hong Kong gold rose $4.40 to close at $465.95. Silver traded at $7.29, up from $7.27..

The U.S. dollar advanced against the other major currencies in European trading. The euro was quoted at $1.2076, down from $1.2146. The dollar changed hands at 112.05 yen, up from 111.65. The British pound was trading at $1.7784, down from $1.7891.

EARNINGS NEWS

Pepsi Bottling Group Inc., ((PBG)) bottler of Pepsi-Cola beverages, reported 3Q net income increased to 82 cents per share, up from 73 cents per share in the a year ago period on strong sales of Aquafina, Tropicana and Lipton teas in the U.S., meeting analysts' forecasts for profit of 78 cents per share on sales of $3.14 billion. Excluding a 4-cent gain related to a high fructose corn syrup litigation settlement in the latest quarter, and a 2-cent increase from the settlement of certain international tax audits last year, Pepsi earned 78 cents per share against 71 cents for the same period last year. Revenue advanced to $3.21 billion from $2.93 billion last year.

Lennar, ((LEN)) homebuilder, reported 3Q net income advanced to $2.06 per share, up 50% vs. $1.36 per share in the same period last year, beating analyst estimate of earnings of $1.98 a share. The company lifted its target for full-year 2005 earnings per share to $8.10 from $7.80 and announced new orders in the 3Q advanced 24% from a year earlier.

Stride Rite Corp. ((SPR)) footwear marketer, reported 3Q profit earnings of 21 cents a share, up from 16 cents in the same time last year on sales growth, beating the analysts’ estimate of 17 cents a share.

Jabil Circuit, ((JBL)) electronic circuit board assemblies, subsystems and systems producer, reported 4Q earnings of 34 cents a share, up from 22 cents a share in the same period last year on 25% revenue growth. Excluding one-time items, Jabil posted earnings of 37 cents a share, up from 27 cents a year earlier. By that measure, the company tops analysts’ estimates of a profit of 36 cents a share.

CORPORATE NEWS

Audiovox ((VOXX)) announced an intention to take an inventory mark down of about $3.7 million. The step has been taken largely because of a competitor's unexpected sharp price cuts for satellite radios. The company now expects to lose from 16 to 18 cents per share in the third quarter on revenue of about $123 million, which is below previous revenue forecasts of $135 million.

Gene Logic ((GLGC)), drug discovery and development services provider announced an agreement with Pfizer ((PFE)), a pharmaceutical company, to reposition a number of drug candidates from Pfizer’s portfolio that are not currently in active development.