Toll Bros Weighs on Sentiment

Elena
08 Dec, 2005
New York City

Stocks extended their losses Thursday after a cautious outlook from homebuilder Toll Brothers which posted Q4 70% profit jump on 40% revenue growth, but cut 2006 outlook. Costco Wholesale Corp. announced Q1 12% earnings rise to 45 cents a share, from 40 cents a year ago, in line with analyst expectations. Intel is expected to raise the low end of its Q4 sales range when it updates investors after market close.

U.S. MARKET AVERAGES

U.S. stock markets opened mixed on Thursday, continuing a downtrend that began late in Tuesday''s trading and lasted through much of Wednesday''s session. Today’s investors’ concerns are connected with the outlook for U.S. interest rates and consumer spending on continuously rising oil prices. Homebuilders are in the focus after luxury home builder Toll Brothers Inc. cut its fiscal 2006 forecast. The tech sector is expected to soften the decline with an upbeat outlook released by Texas Instruments Wednesday and ahead of mid-quarter update by chipmaker Intel Corp.

Housing stocks moved further lower at the start of trading, hurt by Toll Brothers ((TOL)) reported Q4 earnings above expectations but cut 2006 outlook. Auto stocks were also weak in early going, as GM ((GM)) retraced a portion of the rally it staged late in Wednesday''s session.

The semiconductor sector posted modest gains in the early going. While it rallied after the closing bell on its mid-quarter update, Texas Instruments ((TXN)) fell about 1%. National Semiconductor ((NSM)) stood near the flat line ahead of earnings report and Intel ((INTC)) is down about 1.1% before its mid-quarter update.

After falling yesterday following disappointing guidance from WellPoint ((WLP)), HMO stocks edged back to the upside on Thursday. Utility stocks were also ticking higher.

Of companies in focus, luxury home builder Toll Brothers Inc. reported a 72% Q4 increase in net profit on a 40% revenue rise, but lowered its fiscal 2006 earnings outlook, and said fiscal 2007 earnings may beat or miss a previous estimate of 20 percent growth.

Texas Instruments Inc., the world''s largest supplier of mobile-phone chips, lifted the low end of its Q4 earnings and sales forecast, but it also narrowed the top end of its sales forecast.

Intel, the world''s biggest chipmaker, is expected to raise the low end of its Q4 sales range when it updates investors after the market closes Thursday.

Costco Wholesale Corp., discount retailer, reported that Q3 earnings and sales rose 12% to $215.8 million, or 45 cents a share, from $193.2 million, or 40 cents last year, meeting estimates. Sales climbed to $12.66 billion from $11.34 billion with comparable-store sales 9% higher.

The Dow Jones industrial average is down 1.92 points while the S&P 500 is up 0.35 of a point and the Nasdaq 100 is ahead 2.45 points.

MOVERS AND SHAKERS

British biotech Protherics PLC surged more than 50% in London after AstraZeneca PLC agreed to pay up to $338 million for the rights to a drug to treat a potentially lethal blood infection.

Merrill Lynch cut British Airways PLC ((BAB)) to neutral from buy, citing valuation. The broker said shares have appreciated 49% in the last 12 months, outperforming the FTSE 100 by 26% and the European airline sector by 32%. Merrill also said the airline is in good shape, with favorable traffic growth and mix trends. The stock rose 1.8%.

Credit Suisse First Boston upgraded railroad operator RailAmerica, Inc. ((BRA)) to outperform from neutral to buy, citing valuation. The broker said there's more potential upside than downside risk. Company’s shares climbed 7.3%.

ECONOMIC NEWS

Before the start of trading on Thursday, the Department of Labor released its report on initial jobless claims in the week ended December 3. The report showed that jobless claims rose unexpectedly.

The report said jobless claims rose to 327,000 from the previous week''s revised figure of 321,000. Economists had been expecting jobless claims to fall to about 315,000 from the 320,000 originally reported for the previous week.

At the same time, the 4-week moving average fell to 322,500 from the previous week''s revised average of 322,750. This marks the second consecutive weekly decline by the less volatile moving average.

The report also showed that continuing claims for the ended November 26 came in a 2.603 million, down from the preceding week''s revised level of 2.740 million.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks lost ground Thursday on profit taking, mangled IPO of J-Com, and cautiousness ahead of Japanese revised GDP figures. Regional markets also saw two interest-rate hikes. The Nikkei dropped 1.95% and Hong Kong’s Hang Seng slid 1.7%.

European markets traded lower at mid-day, dragged down by weaker U.S. trading overnight and insurers like Munich Re and AXA which led decliners. The German DAX 30 slipped 0.6%, the French CAC 40 tumbled 0.6%, and London’s FTSE 100 declined 0.3%.

OIL, METALS, CURRENCIES

Crude oil rebounded on cold weather worries, ignoring data showing oil inventories increase. Light sweet crude for January delivery climbed 16 cents to $59.37 a barrel on the Nymex. London Brent advanced 33 cents to $57.31.

European gold hit a fresh 24-and-a-half-year high on heavy fund buying as the precious metal outperformed traditional assets like stocks and bonds. In London the precious metal was fixed at $514.85 per troy ounce, up from $514.20. In Zurich gold traded at $515.85, up from $515.25. In Hong Kong gold rose $2.70 to close at $515.95. Silver traded unchanged at $8.79.

The U.S. dollar slipped against other major counterparts. The euro was quoted at $1.1764, up from $1.1720. The dollar bought 120.37yen, down from 120.93. The British pound traded at $1.7435, up from $1.7344.

EARNINGS NEWS

Costco Wholesale Corp. ((COST)), discount retailer, announced that Q1 earnings advanced 12% to 45 cents a share, from 40 cents in the year-ago period, in line with the analyst expectations of 45 cents a share. Both periods included 1-cent charges due to damage from Florida hurricanes. Sales went up and comparable-store sales increased 9%.

Ciena Corporation ((CIEN)), optical networking technology company, reported narrower fiscal Q4 loss to 44 cents a share, down from 87 cents a share in the same quarter last year on 44% revenue growth. Adjusted loss came to 2 cents a share, a penny more than analysts’ estimates.

Hovnanian Enterprises Inc ((HOV)) homebuilder, reported Q4 net earnings of $2.53 a share, up 26% from $2.06 a share in the year-earlier period on revenue growth, beating analyst estimate of $2.42 a share.

Net2Phone ((NTOP)), provider of Internet protocol-based telecommunications products and services, reported a Q1 net loss of 9 cents a share, down vs. a net loss of 11 cents a share in the same period last year.