Revised Guidance Repercussions
BOSTON SCIENTIFIC CORP [BSX] tumbled 9.2% closing at $14.85 following its release of revised guidance for the third quarter. The new guidance for net sales for the quarter ending September 30th is $1.970 to $2.035 billion. The consensus estimate based on previous guidance had been for $2.17 billion. Earnings excluding special charges for the Guidant acquisition were projected to be in the range of $0.06 to $0.10 per share versus a consensus estimate of $0.16 per share, excluding special charges associated with the acquisition. Downgrades by UBS, Prudential, Morgan Stanley and Banc of America Securities, on Friday have yet to be fully assimilated by the market so more downside is likely. It is likely there will be a strong opportunity here at some point in the near future, but I don’t think we’re quite there yet. Ideally the company would report financial results or other news that would justify the price paid for the Guidant acquisition, which was generally assumed to be too high.
ADVANCED ANALOGIC TECHNOLOGIES INC [AATI] retreated 21.3% closing at $5.59 after cutting third quarter guidance on Thursday, after the markets closed. The revenue guidance was cut from $22 to $24 million to a range of $19 to $20 million for a drop of about 20%. The consensus estimate has been for a loss of $0.01 per share, but the company now projects a loss of $0.04 to $0.06 per share. Ouch! Needham & Co downgraded the stock from “Buy” to “Hold.”
MICROSEMI CORP [MSCC] was hammered down 11.2% closing at $22.77 apparently following a downgrade by Caris & Co from “Buy” to “Above Average.” It is interesting to note that the other 8 analog semiconductor makers that Caris downgraded at the same time did not experience similar drops. The others downgraded were: ANALOG DEVICES INC [ADI], EXAR CORP [EXAR], INTERSIL CORP [ISIL], LINEAR TECH CORP [LLTC], MICREL INC [MCRL], MAXIM INTEGRATED PRODUCTS INC [MXIM], NATIONAL SEMICONDUCTOR [NSM] and SEMTECH CORP [SMTC]. Most of these had much lower P/E ratios than MSCC, but EXAR with a P/E ratio of about 63 could have been affected much more but only lost $0.07 on Friday. On the other hand, EXAR is into digital IC’s more than analog semiconductors, although they do make A/D (Analog to Digital) and D/A converters for video and imaging applications. Earlier in the week EXAR had introduced a new generation of UARTs (Universal Asynchronous Receiver Transmitters) that are critical elements of the communications infrastructure. It is also important to note that MSCC cut its guidance for the fourth quarter after the markets closed on Friday. Previously it had set expectations for earnings in the range of $0.29 to $0.31 per share and the consensus analyst estimate was $0.30. However, the new EPS guidance is $0.25 to $0.27 per share which is about 13% lower and consistent with the observed price drop. So we assume the Caris downgrade had relatively little impact and that the street knew the extent of the guidance cut earlier in the day.
TALK AMERICA HOLDINGS INC [TALK] rocketed up 24.8% closing at $8.20 on the announcement that it had agreed to be bought for $8.10 per share or $251 million by privately owned Cavalier Telephone & TV, located in Richmond, Va.
GENESCO INC [GCO], which runs various chains featuring shoes and accessories (e.g. Johnston & Murphy, Journeys, etc.), stepped up smartly 8.1% closing at $34.26 following an upgrade by Wachovia from “Market Perform” to “Outperform.”
KFX INC [KFX] felt the pinch of lower oil prices dropping 9.7% to close at $9.49.
INFORMATICA CORP [INFA] tumbled 10.8% closing at $12.93 following a downgrade by Goldman Sachs from “Neutral” to “Sell” based on the assessment that the stock was too expensive. Given the absence of significant growth in the top line lately, we tend to agree. The P/E ratio is still a bit high, so an acquisition strategy might make some sense here. Too bad it wasn’t done before the downgrade.
EPIX PHARMACEUTICALS INC [EPIX] was depressed on Friday, sinking 18.6% to close at $4.32 following the announcement of results from its Phase 3 trial of PRX-00023, a drug for anxiety disorder. The new drug failed to achieve a statistically significant improvement using the Hamilton Rating Scale for Anxiety over a placebo in the test. However, the new drug did show a statistically significant improvement over the placebo using the Montgomery Asberg Depression Rating Scale, so it appears there may be some hope for the new drug in treating some forms of depression.
The Daily Sector Performance Chart was pretty consistently negative with the exception of Construction, led by HOVANANIAN ENTERPRISES INC [HOV], BUILDING MATERIALS HOLDING CORP [BMHC], NVR INC [NVR], STANDARD PACIFIC CORP [SPF] and KB HOME [KBH]. This was in spite of a gloomy outlook from KB HOME, noting a 43% drop in net new home orders in the third quarter. But of course in this case the bad news is old news and already reflected in the prices. The most remarkable aspect of Fridays negatives is the concentration of the losses in the lower cap stocks as we approach the end of the quarter. Stay tuned for our next post on this topic.
