wall street nuggets

VOLT INFORMATION SCIENCES INC [VOL] up 13.8% closing at $54.17 on 62% increase in net income, $0.86 per share compared to $0.54 per share for the fourth quarter last year. However, net sales were only up 3%. Rather high P/E ratio at 33 based on trailing 12 months.

STAGE STORES INC [SSI] jumped 11.5% closing at $33.05 following (1) updated guidance on 2007 earnings that projects a 20% increase over previous guidance, (2) approval of a $50 million Stock Repurchase Program, and (3) a 3-for-2 stock split to be paid as a stock dividend on January 31, 2007 to all holders of record of the company’s common stock at the close of business on January 18, 2007.

INCYTE CORP [INCY] up 11% closing at $7.06 following the announcement of positive clinical results from its HIV and Diabetes programs at the 25^th JPMorgan Healthcare Conference. This was followed by upgrades by UBS from “Neutral” to “Buy” and by Piper Jaffray from “Market Perform” to “Outperform.”

Long standing White Rabbit, CHEESECAKE FACTORY INC [CAKE] jumped 9.9% closing at $26.99 following an announcement that fourth quarter sales had come in at $360.4 million, representing an 18% increase over a comparable 13-week period in 2005. However, earnings continue to be veiled and there is very little visibility into recent operations given the tardiness of the reporting. Comparable restaurant sales were rather unimpressive, increasing only 0.8%.

ALNYLAM PHARMACEUTICALS [ALNY], a leading RNAi therapeutics company, jumped 8.9% closing at $22.22, following the announcement that it had obtained an exclusive worldwide license to a liposomal delivery formulation technology for the discovery, development and commercialization of RNAi therapeutics from a Canadian pharmaceuticals company, INEX PHARMACEUTICALS CORP [TSX: IEX]. RNAi or RNA Interference is a naturally occurring mechanism within cells for selectively silencing and regulating specific genes, and was recognized as a major break through with the award of the 2006 Nobel Prize for Physiology or Medicine. INEX PHARMACEUTICALS has obtained key patents for the development and commercialization of liposomal and/or lipid nanoparticle formulations that are required for systemic delivery of RNAi therapeutics.

APPLE COMPUTER INC [AAPL] soared 8.3% closing at an all time high of $92.57 on extraordinary volume of almost 120 million shares following the announcement of the revolutionary iPhone device due for release in the summer. While we are find the memory options somewhat disappointing, the carrier option (Cingular) disappointing and the price point on the high side, there is much that is compelling and little doubt that it will sell like hot cakes.

SPRINT NEXTEL CORP [S] dropped 11.2% closing at $17.45 on a huge volume of almost 150 million shares. The drop was probably due primarily to the announced decline of 306,000 post-paid subscribers, despite a slight improvement in the post-paid churn rate at 2.3% for the quarter (high compared to other wireless carriers). The planned headcount reduction of about 5,000 in the first quarter may finally reflect some post-merger synergies as the company transitions to a unified customer care, financial systems, device activation, and billing systems. Downgrades by CIBC World Markets, Deutsche Securities, Credit Suisse and HSBC Securities did not help. There is probably an interesting buying opportunity close to this level. The key is probably whether the iDEN network problems are finally solved. Hopefully, they will start to refine the bizarre content of some of the TV ad campaigns based on feedback.

MILLS CORP [MLS] slid 21.8% closing at $14.82 following the announcement that it had completed its investigation into its historical accounting policies and practices. As a result of the adjustments arising in part from the investigation, the company will be restating its financial statements for 2001-2004 and the first 3 quarters of 2005. The expected impact of the corrections is projected to be between $347 and $352 million. It is also noted that the company could be forced to seek protection under Chapter 11 if the company is unsuccessful in its efforts to pay-off the Senior Term Loan by March 31, 2007. See our earlier post:

“And all should cry, Beware! Beware!”

…

And close your eyes with holy dread,

For he on honey-dew hath fed,

And drunk the milk of Paradise.”

From Kubla Khan, by Samuel Taylor Coleridge.

ESCALA GROUP INC [ESCL] tumbled 41.3% closing at $4.54 on the announcement that the company would be delisted by Nasdaq for failure to file financial statements in a timely fashion. There are now about 22 other Nasdaq White Rabbits for which the gap between the last reported period and today is 284 days! (Look at our White Rabbit list for December and focus on the companies for which the Gap value matches that of ESCALA GROUP [ESCL] and the ticker symbol has 4 characters.)

By the way, yesterday’s comments on DYNAVAX TECHNOLOGIES CORP [DVAX] failed to make an important observation. While the failed test of TOLAMBA™ due to the absence of the disease certainly did not provide any evidence that the treatment was not effective, the wasted year of testing probably delayed the final commercialization of the product by that much and probably provided an opportunity for competitors to bring other treatments to market and gain market share – so of course some negative impact on the stock price should be expected. However, the 30% drop still seems a bit excessive for a non-test.

It was a mixed bag on Tuesday but no really strong moves on the part of any one sector. Overall, the average member of the SigmaInverse Universe was up 0.09% with 51.3% of the members posting positive returns for the day. The extremes were Mining, down 1.3% on average. and Restaurants, up 1.5% on average.

Some coolness in the brick and mortar retail world this holiday season has been attributed to expected growth in the online retail world. However, the early evidence of holiday online traffic is not that encouraging with a few execeptions. In most cases we see a significant erosion in online reach (unique shoppers per million online users) with the exception of BUY.COM (unfortunately went private in November 2001). We suspect BUY.COM is succeeding thanks to effective email based marketing campaign and online video product reviews (especially user videos).

A sampling (TARGET CORP [TGT], OVERSTOCK.COM [OSTK], BUY.COM, and AMAZON.COM INC [AMZN]) of the online traffic patterns using a “Reach” metric for the past 3 years, as available through Alexa, follows.

Note that increasing transaction prices will soften the impact, but on balance, the holiday season does not seem to be encouraging for the online retail world.

Dallas based, HOME SOLUTIONS OF AMERICA INC [HSOA], a provider of restoration and rebuilding services for commercial and residential properties in the U.S., plummeted 14.8% closing at $5.18 after announcing its third quarter results. The company reported revenues from continuing operations for the quarter ended September 30^th, were $49.1 million, up 159% from the revenues from the same period last year. Third quarter earnings increased to a record $8.1 million, or $0.18 per diluted share, compared to $0.08 per diluted share for the same period in 2005. However, this was two cents below the “street” estimate of $0.20 per share (based on only one analyst!). While Accounts Receivable is up sharply for the quarter (2x), it is proportional to the increase in Revenue. The only significant negative in the announcement was the revision of the projected full-year revenue from $160 to $165 million down to $155 to $160 million. The company’s projection for revenue growth in 2007 is 30% over 2006, so with a P/E ratio of about 15, this looks like a great buying opportunity.

ISIS PHARMACEUTICALS INC [ISIS] dropped 8.9% closing at $11.32 with heavy insider selling taking place. Not a good sign! Some concerns regarding long term safety issues with ISIS 301012 have been raised by Marc Lichtenfeld. To be frank, the sample sizes so far are not very convincing when it comes to safety issues in either direction. The slide show from the conference call can be found here.

Daily Sector Performance Chart

It was another strong day thanks to some good quarterly reports (WAL-MART [WMT] reporting better than expected earnings, and INTEL CORP. [INTC] being ahead of schedule with the new quad-core processors, pushing the DJIA to a new record), the Producer Price Index being down more than expected (PPI ex food and energy had the biggest drop in 13 years!) and the continued decline in oil (December light sweet crude settling at $58.28 per barrel), prompted a very broad rally.

The average gain in the SI universe of 3,549 stocks was 1.22% with 76.5% of the members posting positive gains for the day. The outlier sectors were Construction (up an incredibly strong 3.9%), Railroads (down 1.2%) and Tobacco (down 1.1%).

DISCOVERY LABORATORIES INC [DSCO] climbed an impressive 23.9% closing at $2.64 on a volume that was almost 13 times the average daily volume over the past 90 days. This was in response to a press release indicating a very positive Phase 2 Clinical trial results for its new Surfaxin® for the prevention and treatment of Bronchopulmonary Dysplasia (BPD), a lung disease typically affecting premature infants.

DELUXE CORP [DLX] jumped up 16.9% closing at $21.29, pretty much recovering from the big hit taken at the end of June, when it canceled a project to automate some of its operations and took a pretax charge of $45 million. The company announced before the markets opened on Thursday that it now expected earnings for the quarter ended September 30^th to be in the range of $0.59 to $0.61 per diluted share, compared to its previous guidance of $0.41 to $0.45 per share, due primarily to lower manufacturing costs and lower SG&A expenses. That undoubtedly generated the pop.

TUESDAY MORNING CORP [TUES] rose a remarkable 12% closing at $16.33, with a press release announcing comparable store sales decreased 4.6% for the third quarter, and expected earnings for the third quarter in the range of $0.07 to $0.08 per diluted share. Given the rather low P/E ratio and healthy dividend, this one does look like a reasonably safe investment, although we don’t see much evidence of growth, with only a 1.1% increase in net sales over the same period last year.

BE AEROSPACE INC [BEAV] rocketed up 10.4% closing at $23.75 on no apparent news. Price movements here are somewhat suspicious. BE CAERfull.

SIGMATEL INC [SGTL] was up 9.3% closing at $5.51 with an upgrade by Am Tech/JSA Research from “Sell” to “Neutral.”

YUM BRANDS INC [YUM] was up a tasty 8.3% closing at $59.08 after reporting very positive third quarter results, including strong double-digit operating growth from China (26%) and a 7% reduction in shares outstanding for the quarter. The company raised its earnings outlook from $2.83 per share to $2.89 per share, which represents 14% growth before special items.

There was a huge focus on COSTCO WHOLESALE CORP [COST] which rose 7.6% closing at $53.90 with over 18 million shares traded. The company reported a very healthy 19% increase in net sales for the 17-week fourth fiscal quarter ended September 3^rd, although it should be noted that the comparable period in 2005 only had 16 weeks and therefore the actual increase in net sales was probably closer to 12%. Net income for the 17-week period was $0.75 per diluted share ($355.6 million), compared with $0.73 per diluted share during the 16-week fourth quarter last year. The consensus estimate for earnings for the quarter had been $0.73 per share.

SIRF TECHNOLOGY HOLDINGS INC [SIRF] rode the waves higher 7.3% closing at $21.68. The P/E ratio seems a bit out of whack. Probably a good idea to wait until the third quarter conference call scheduled for October 19, 2006 at 4:30 PM Eastern time.

CB RICHARD ELLIS GROUP [CBG] surged 7.3% closing at $25.99 on the news that it would be added to the S&P 500 index, replacing BellSouth, which is being acquired by AT&T.

FIVE STAR QUALITY CARE INC [FVE], an operator of senior living communities, was down 7.3% closing at $10.34, after announcing that it intended to offer $80 million of Convertible Senior Notes due 2026. Proceeds from the offering will be used for general business purposes, including possible future acquisitions. It is our opinion that the next 10-Q is critical in evaluating whether the termination of the management contracts with SLS have improved the margins as expected. While the demographics argue that the company is well positioned, the rental fees and management challenges in the near term could be a problem.

INTERNAP NETWORK SERVICES CORP [INAP] dropped 9.6% closing at $15.41 on the news that it was buying VITALSTREAM HOLDINGS INC [VSTH] for $217 million. VITALSTREAM provides products and services for storing and delivering streaming digital media over the Internet and would compete against AKAMAI. According to one analyst quoted by Reuters, the “acquisition will be dilutive from an earnings per share perspective probably for a couple of quarters.” While the exchange ratio of 0.5132 implies VSTH shares are being valued an unusually high premium of 36.7% based on Wednesday’s closing prices, which probably explains the unusually large drop for INAP, it does appear that the savings INAP will realize by switching from AKAMAI to VITALSTREAM fully justifies the acquisition.

SYSTEMAX INC [SYX] tumbled another 21.5% closing at $11.80 for a combined two day loss of 37%. Yesterday’s press release at 3:55 pm, apparently did not allow enough time for the full public reaction to the announced delay in the 10-Q filing. Those who sold yesterday morning should perhaps be congratulated for their extraordinary good luck. :-)

It reminded us of the “Perfect Storm.” Except in this case everything came together to send the market higher. The latest Beige Book struck the perfect balance between slowing growth and inflation. Quarterly earnings from COSTCO were encouraging (although probably not read closely enough). Oil prices were up only slightly, with the November futures contract for light, sweet crude oil settling at $57.86 per barrel, up only $0.39 for the day. Despite the pathetically small sample and lack of consistency in what it really represents, the Dow Jones Industrial Average continues to have an amazing psychological impact on the markets that is hard to discount. When it gets into new territory, the herds are likely to stampede on the slightest provocation.

The average gain for the day in the SI Universe of 3,567 stocks was 1.69%, with 83.7% of the members posting positive returns for the day. Rather remarkably, all sectors showed very respectable gains. So forget about using sector rotation to explain some of the gains.

It may be true that same store sales and profits for some retailers were pleasant surprises on Thursday, but, despite all the retail hoopla heard elsewhere, this hardly resulted in a rush to buy stocks in the Retail sector. Overall, the Retail and Airlines SigmaInverse sectors were the only sectors down for the day. Retail Apparel was also weak, albeit slightly positive. Airlines were obviously down because of the oil prices hung in at about $60 per barrel, apparently anticipating OPEC production cuts, although this would seem unnecessary at this point. The following table of retailers in the SigmaInverse retail sector indicates the actual performance of individual stocks in the sector. Basically the sector showed very little change, although the market as a whole did quite well for the day.

The Daily Sector Performance Chart (below) shows broad strength for the day, although the strength was more concentrated in the small and micro cap segments than has been true of late. The bulls were definitely loose in the Mining sector.  The average gain for the day was 1.11% across 3,573 members, with a healthy 72.7% posting positive returns for the day.

BALLY TOTAL FITNESS HOLDING CORP [BFT] appeared totally out of shape sinking 17.5% to close at $2.22 after reporting a second-quarter net loss from continuing operations of $0.7 million ($0.02 per share) and a decline in net revenues of 2% from the same period last year to $254.6 million, driven by a 3% decline in the average number of members over the past year. The company also advised that as of August 31^st, borrowings had increased to $48.5 million and letters of credit in the amount of $14.1 million. At current burn rates, and without an agreement to extend the maturity of the Credit Agreement, the company will default on Credit Agreement obligations next April.

HYPERCOM CORP [HYC] mysteriously down 10.7% closing at $7.23, despite the press release regarding the sale to IRN Payment Systems. Possible arbitrage opportunity with PAY and HYC.

STRATAGENE CORP [STGN] soared 28.1% closing at $5.52 with the publication of press release highlighting the FDA’s publication of results from its MicroArray Quality Control (MAQC) project. The project’s goal was to develop standards and quality measures for the microarray community so that these devices could be used reliably in clinical practice and regulatory environments. Microarrays are basically glass chips about 1.5 cm square containing thousands of known gene sequences called probes. When a patient’s genetic material mixed with a fluorescent dye is placed on the chip, it will bind with complementary probe sequences and show up when the dye is scanned with a laser beam. Other public companies involved with microarrays are AFFYMETRIX INC [AFFX], AGILENT TECHNOLOGIES [A], GE HEALTHCARE unit of GENERAL ELECTRIC [GE], and ILLUMINA INC [ILMN].

HAYES LEMMERZ INTERNATIONAL INC [HAYZ] up again 21.1% defying gravity to close at $2.99. The slide show that was attached to the 8-K on Monday was slick, but I still think the wheels are about to come off on the next turn.

W R GRACE & CO [GRA] up 15.4% closing at $12.62 with no specific news of note. There may be some sense that the litigation downside may not be as bad as originally expected on the asbestos front, but we don’t see any real cause for celebration yet.

Sunnyvale based OPSWARE INC [OPSW], which provides server software, shot up 15% closing at $8.27 with a press release pointing out that a recent IDC Report identified OPSWARE as the “fastest growing provider of server provisioning software.” The server provisioning software market is based on the “deployment, configuration, and management of server system and application software.”

PSYCHIATRIC SOLUTIONS INC [PSYS] spiked up 11.5% closing at $35.98 on the news that it would be replacing RSA SECURITY INC (being acquired by EMC) in the S&P MidCap 400.

CONTINENTAL AIRLINES INC [CAL] took off with a strong gain of 10.3% closing at $28.16 as the impact of the drop in crude oil prices finally hit the airlines. Other beneficiaries included: US AIRWAYS GROUP INC [LCC] up 10.2% closing at $44.60 and AMR CORP [AMR] up 9.7% closing at $22.20.

BEST BUY CO INC [BBY] was up 9.1% closing at $52.14 after reporting 22% year over year growth in second quarter earnings - $0.47 per share versus a consensus estimate of $0.44 per share.

The Daily Sector Performance Chart was very strong in almost all sectors.

AUTOBYTEL INC [ABTL], a major online automotive marketing services company, shot up 25.4% closing at $3.20 probably due to a 13D/A filing with the SEC containing a letter from Liberate Technologies (LT) (one of the largest shareholders), recommending either a restructuring and streamlining of the company, or a sale of the company, with a preference for the first option. Observing no real growth in the online reach of the autobytel.com site since the end of 2005, we see a real need for more effective demand creation. The video reviews are a step in the right direction, but being forced to watch a competitive video before the one you actually want is totally obnoxious (not to mention really stupid, since you will never be able to effectively measure ad effectiveness). The “My Autobytel” page is also a step in the right direction, but the full potential of collaboration on the consumer side fails to be communicated. We find LT’s recommendation interesting, but are not sanguine regarding the possible sale of the CRM software component given the current environment in the auto dealer world, and would like to see ABTL’s response.

COOPER TIRE & RUBBER CO [CTB] up 15.1% closing at $11.20 following the release of an 8-K filing describing a recovery plan involving cost cuttings of $70 million and inventory reductions of $100 million.

EQUIFAX INC [EFX] was up 12.1% closing at $36.34 following a press release in which it revised its guidance for calendar year 2006, from a range of $1.90 to $1.99 per share to something in excess of $2.00 per share. It also lowered its expenditure target for capital expenditures and reaffirmed its previous guidance for revenue growth of 7% to 10%.

BORDERS GROUP INC [BGP] shot up 7.2% closing at $20.60 with an upgrade by Credit Suisse from “Neutral” to “Outperform.” However, Credit Suisse also downgraded BARNES & NOBLE INC [BKS] on Friday from “Neutral” to “Underperform.” While BKS took a big hit at the open, it had almost fully recovered by the end of the day, whereas BGP’s response exhibited considerable hysteresis. The likely explanation is that the reasons given for the BGP upgrade (confidence in new CEO, conservative accounting, etc.) may have been relatively new factors, while the BKS downgrade factors (options related legal issues, competition, etc.) may have already been priced in.

QUICKSILVER INC [ZQK] slid down 10.8% closing at $12.17 after meeting earnings expectations for the third quarter which came in at $0.04 per share compared with $0.20 per share for the same period last year. However, the company revised its fourth quarter earnings guidance to $0.51 per share, including stock compensation expenses. The consensus estimate had been $0.54 per share for the quarter. WR Hambrecht initiated coverage Thursday with a “Buy” rating, but on Friday Morgan Keegan downgraded the stock from “Outperform” to “Market Perform.” Mercurial markets!

AIRTRAN HOLDINGS INC [AAI] lost altitude on Friday, slipping 11.1% to close at $9.49 following an 8-K filing in which it lowered guidance for the third quarter citing a softening in demand which became apparent by the end of August. The softening was attributed to the threat of terrorist attacks, tropical storm Ernesto and increased competition on the east coast. The company expects the trend to continue and projects third quarter revenue per available seat mile (RASM) to be “in a range of the low single digits year over year,” compared to previous guidance in the high single digits. It also had some good news indicating that non-fuel cost per available seat mile (CASM) was expected to decline 3% to 5% in the quarter and that the all-in fuel costs should be within a range of $2.28 to $2.33 per gallon (obviously on the high side given the drop in oil prices over the course of the last two days). But of course, as the market is prone to do lately, the good news apparently was filtered out and only the drop in demand was heard. The company does plan to reduce growth in the 2007 to 2008 time frame to get RASM higher, apparently anticipating continued pricing pressure from competitors. Given the relatively high P/E ratio, we do not see a significant opportunity at this time.

VOLT INFORMATION SCIENCES INC [VOL], a provider of both staffing and telecommunications and information systems, was down a shocking 15.1% closing at $34.66, after announcing financial results for the quarter ended July 30^th. While the company reported earnings of $0.53 per share compared to $0.32 per share for the same period last year, the consensus estimate had been for earnings of $0.62 per share. Revenue for the quarter was $584.9 million which also fell considerably shy of the consensus estimate of $605 million.

The Daily Sector Performance Chart provides clear evidence that we generally ended the week on an upbeat except in Mining (down on average 2.5%) and Oil & Gas Production (down on average 2.3%).  The decline in oil prices with crude settling at $66.25 per barrel, the lowest level in the past 5 months.  The average return for all 3,588 members of the SigmaInverse Universe was 0.27% with 58.1% posting a positive return for the day.