Friedman Billings upgraded Synovus (NYSE: SNV) to Market Perform from Underperform on valuation following the recent weakness. BASF (OTC: BASFY) and Akzo Nobel (OTC: AKZOY) were upgraded to Buy from Neutral at UBS on valuation and believes cash flows can cover the company's dividend.
JP Morgan upgraded H.B. Fuller (NYSE: FUL) to Overweight from Neutral citing benefits from lower raw material costs.
CA, Inc (NASDAQ: CA) was added to Goldman's Conviction Buy List.
Goldman removed Boeing (NYSE: BA) from the Conviction Sell List.
WABCO Holdings (NYSE: WBC) was upgraded to Buy from Hold at KeyBanc.
Analyst downgrades:
Oppenheimer downgraded Giant Interactive (NYSE: GA) to Perform from Outperform following the company's Q3 results as they believe a recovery of revenue from ZT Online will take longer than expected.
Friedman Billings cut Walter Industries (NYSE: WLT) to Market Perform from Outperform as they believe the decline in steel demand will pressure met coal prices. The company's target was lowered to $30 from $53.
Citigroup downgraded shares of Atlas Pipeline (NYSE: AHD) Holdings to Sell from Hold as they believe the company could potentially be in violation of its debt covenants as early as Q1. The company's target was lowered to $4 from $31.
Oracle (NASDAQ: ORCL) was removed from Goldman's Conviction Buy List.
Dover (NYSE: DOV) and Emerson Electric (NYSE: EMR) were downgraded to Underweight from Neutral at JP Morgan.
Shares of VMware Inc. (NYSE: VMW) are headed lower today following a downgrade from Merrill Lynch. The brokerage firm cut its rating on the equity from Buy to Neutral due to valuation concerns; VMW has added more than 60% since its October 21 earnings report. Merrill maintains a $31 price target on VMware, which represents a premium of just 1.4% to the stock's closing price on Tuesday.
It's shaping up to be a rough week for VMW. Yesterday, the tech stock sat out a broad-based rally in the equities market, and slumped to a daily loss of nearly 4% as word hit the Street that Intel (NASDAQ: INTC) chopped its VMware stake in half. Specifically, Intel unloaded about 4.75 million of the 9.5 million VMW shares it purchased in July 2007. According to a regulatory filing, half a million shares each were sold to Cisco Systems (NASDAQ: CSCO) and EMC Corp. (NYSE: EMC) -- the latter of which already owns a majority stake in VMW.
With VMW shedding nearly 6% out of the gate this morning, it seems likely that the shares will add on to their year-to-date slump of more than 64%. The stock continues to find resistance from its 10-week and 20-week moving averages, and a reversal of optimism among option traders could accelerate the equity's decline. During the past 10 days, investors on the International Securities Exchange have bought to open nearly two times more calls than puts on VMW.
VMWare (NYSE: VMW) became one of the worst IPOs of recent memory after being one of the best. Then it fired its founder and CEO. In August 2007, the stock started trading at $55. It hit $125 two months later as analysts thought revenue would double every year for the next two or three. When it appeared that would not happen, the stock dropped to under $20.
The case for VMWare as a great tech company is its lead in the virtualization software business. It allows one server to do the work of several by running more than one operating task. The number of servers needed to run multiple functions at a company can be cut sharply, saving hardware costs.
VWWare has a large lead over competition in the breadth of its products. Microsoft (NASDAQ: MSFT) has come into the market but by many estimates is a year or two behind.
For the third quarter, sales at VMWare rose 32%, year over year, to $472 million. The company's $.24 EPS was four cents better than expected by analysts. VMW also affirmed its full-year outlook. The market could not have been more happy. The stock was up over 20% after hours.
Doubting the company's prospects has turned out to be a major mistake. It is nearly impossible to find a software product that can add so much efficiency to the operations of its corporate customers and allow them to drive down IT capital expense.
VMWare's promise was there all along. Investor who ignored it just missed out on a big gain.
Douglas A. McIntyre is an editor at 247wallst.com.
Wall Street's optimism in last week's preview about the earnings of tech stocks wasn't misplaced, as there were many more positive surprises than negative ones among the stocks we looked at. This week will bring plenty more data for investors in and watchers of the sector to mull over. Apple Inc. (NASDAQ: AAPL), AT&T Inc. (NYSE: T), and Microsoft Corp. (NASDAQ: MSFT), for example, are expected by analysts surveyed by Thomson Financial to post modest earnings gains from a year ago, to $1.11 per share (on $8.1 billion in sales), $0.72 per share (on $31.3 billion in sales), and $0.47 per share (on $14.8 billion in sales) respectively. All three of these companies ended the week closer to their 52-week lows than highs, and analysts on average consider them each a buy.
Here's a look at some of the week's biggest expected earnings gainers and decliners in the sector:
Baidu.com Inc. (NASDAQ: BIDU): $1.25 per share (+44.0%) on revenues of $134.7 million (+103.2%)
Broadcom Corp. (NASDAQ: BRCM): $0.44 per share (+38.6%) on revenues of $1.3 billion (+33.8%)
QLogic Corp. (NASDAQ: QLGC): $0.31 per share (+29.0%) on revenues of $170.0 million (+21.2%)
FLIR Systems Inc. (NASDAQ: FLIR): $0.32 per share (+28.1%) on revenues of $275.2 million (+44.0%)
Juniper Networks Inc. (NASDAQ: JNPR): $0.30 per share (+26.7%) on revenues of $927.4 million (+26.2%)
Waters Corp. (NYSE: WAT): $0.75 per share (+17.3%) on revenues of $391.6 million (+11.1%)
No that long ago, VMware (NYSE: VMW) was a high-flier tech company. But since reaching $124 in late December, the company's shares have been on the descent. In today's trading, the stock price is off 11.51% to $33.60.
True, based on its Q2 report, things look pretty rosy. Revenues surged 54% to $456.1 million and net income was up 53% to $52.3million, or $0.13 per share.
Then again, VMware is a leader in so-called virtualization technologies, which help bolster data centers and complex corporate networks. Unfortunately, it looks like the deteriorating macroeconomic environment is taking a toll. For example, VMware is seeing slippage in close rates for software licenses.
Something else that's jarring: two weeks ago, VMware's CEO and co-founder, Diane Greene, left the company.
EMC Corp.'s (NYSE: EMC) once-high flying VMware, Inc. (NYSE: VMW) finally found the wherewithal to replace its CEO, Diane Greene. The company replaced her yesterday with former Microsoft executive Paul Maritz. Microsoft is shaping up to be VMware's main competitor as computing environments in many business circles would like to jump on the virtualized bandwagon instead of dedicated hardware platforms for specific purposes.
Although VMWare was a hot IPO back in August of last year -- touching the $125 mark in October -- the stock started a downward slump right before Christmas and has been on a see-saw ever since. VMW shares are sitting less than four points from all-time lows this morning after a 25% drop Wednesday. In fact, this month has seen a 39% share price slump on the back of an overall 52% drop in 2008. Those numbers are sure to get any CEO in hot water. Although Greene reportedly constantly clashed with EMC management (EMC owns a large majority of VMware), the final axe swing surely came on the back of the share price depression currently underway. EMC management, in other words, bowed to the needs of the market in canning Greene.
Greene has been referenced as inadequate to lead a company into the world of a $2 billion annual business (its projection for 2008). I don't buy it -- she has a Master's Degree in Computer Science from UCal Berkeley along with another advanced degree. At heart, she's a brilliant computer nerd. As the head of a leading software virtualization company, her credentials and investment in VMware sound like a perfect fit. At the end of the day, though, financial performance in the eyes of a public share price is the driving force in executive retainer decisions. Greene helped co-found VMware and is heavily invested in it, but the market is not investing in her any longer. Let's hope Maritz can do a better job.
Oil was down another $5.00 per barrel today, yet that failed to cause a major rally despite a $9.00 in just two days. Today's end of day rally was led by financials after an FDIC conference which led to excitement about the sector. If you were looking for any brightness in home sales, May's pending home sales came in at -4.7% year over year. We also saw wholesale inventories in May rise by +0.8%. Perhaps more interesting is that the MAY Consumer Credit rose more than expected to $7.8 Billion. Below are the unofficial closing bell levels for today: DJIA 11,384.21 (+152.25) S&P500 1,273.68 (+21.37) NASDAQ 2,294.42 (+51.10) 10YR T-Note 3.88% (-0.05%) 52-WEEK LOWS TOP 10 ANALYST CALLS
Hank Paulson's speech gave some support after his speech didn't ring of the "Death of GSE's" and shares of Fannie Mae (NYSE: FNM) were up over 10% at $17.40 in today's final minutes.
MOST NOTEWORTHY: Today's noteworthy initiations were Monolithic Power, Emergency Medical Services, Amsurg and EnergySolutions.
Monolithic Power (NASDAQ: MPWR) was initiated with a Buy at Am Tech, which predicted that Monolithic Power will have significant design win momentum that should result in stronger than expected revenue growth. The firm thinks the company will be able to grow 20% in its 2008, thanks to its new products and competitive prices.
Emergency Medical Services (NYSE: EMS) was initiated with a Sell, target $15 at Citigroup. Citigroup believes EMS's earnings contribution from insurance releases and prior period adjustments is not sustainable.
AMSurg (NASDAQ: AMSG) was initiated with a Buy, target $32 at Citigroup. Citigroup said it is positive on AMSurg given its history of FCF per share growth, low out of network exposure, little debt risk, and acquisition pipeline.
EnergySolutions (NYSE: ES) was initiated with a Market Perform, target $26 at FBRC. Friedman Billings expects EnergySolutions to trade at a slight discount to peers given its leverage balance sheet and perceived slower growth.
OTHER INITIATION:
VMWare (NYSE: VMW) initiated with a Market Weight at Thomas Weisel, based on valuation. Thomas Weisel believes VMWare is uniquely positioned to benefit from trends toward centralized IT resources, on-demand delivery and greater efficiency.
Citrix Systems (NASDAQ: CTXS) was initiated with an Overweight, target $37 at Thomas Weisel. Thomas Weisel believes Citrix Systems is uniquely positioned to benefit from trends toward centralized IT resources and on-demand delivery given its product line that targets the data center.
MOST NOTEWORTHY: Smith International, Cerner and Coach were today's noteworthy upgrades:
JP Morgan upgraded Smith International (NYSE: SII) to Overweight from Neutral citing better risk/reward vs. group, and upside to estimates from Latin America drilling and its deepwater rig fleet. Note that Oppenheimer downgraded shares of SII based on valuation.
Jefferies believes Cerner Corp. (NASDAQ: CERN) in-line results and solid domestic bookings could alleviate the pressure on shares. Shares were raised to Buy from Hold.
Shares of Coach Inc. (NYSE: COH) were raised to Buy from Hold at Citigroup, citing sales stabilization and compelling valuation.
OTHER UPGRADES:
Medco Health (NYSE: MHS) was upgraded at Oppenheimer to Outperform from Perform.
ThinkPanmure raised VMware Inc. (NYSE: VMW) to Buy from Accumulate.
SunTrust Banks (NYSE: STI) was upgraded to Market Perform from Underperform at Keefe Bruyette.
On its face, it looks like the tech M&A market is holding up nicely -- despite the credit crunch and slowing economy. For example, in Q1, tech M&A came to $92 billion, which was down from last year's $100 billion (this is according to the 451 Group).
Good, huh? Well, as usual, statistics can be deceiving. Keep in mind that Microsoft's (NASDAQ: MSFT) $45 billion bid for Yahoo! (NASDAQ: YHOO) was a huge factor (interestingly enough, there are signs that the deal may not go through).
In fact, there was a 50% reduction in deals in excess of $1 billion (only 11). For the most part, larger transactions need debt financing -- which is in short supply nowadays. After all, last year we saw a rush by private equity firms into the tech sector.
According to the 451 Group, it also looks like strategic buyers are getting skittish. Simply put, they are concerned about the macroeconomy. And something else: with lower stock prices -- with companies like Microsoft, Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG) and VMware (NYSE: VMW) -- it is more dilutive to do deals.
"VMware is a market leader in software virtualization. Companies typically do not use the full computing power of their servers, and when not in use, that server sits idle.
"Virtualization technology allows IT managers to use that underutilized capacity -- running software across the organization's entire base of servers. Thus, virtualization is a key cost-cutting technology.
"VMware has a short interest ratio of 11.7 and a freely traded float of just 50 million shares. If all those shorts try to cover, the stock looks likely to be in short supply. Meanwhile, trading at 36 times 2009 earnings estimates with a long-term growth rate of 45%, VMW doesn't look overpriced.
"Under Armour (NYSE: UA) makes clothing (along with sports equipment) targeting the athletic and outdoor-oriented market. Specifically, the company makes clothes designed to wick moisture away from the skin and keep the wearer at a comfortable temperature, regardless of weather conditions.
"Meanwhile, the stock has seen strong earnings growth despite the slowdown in consumer spending -- earnings surged 42% in the fourth quarter. And management recently announced its looking for revenues to reach $765-775 million in 2008, representing around a 27% increase over 2007 levels.
"With a forward P/E of 23 and a long-term growth rate of 25%, UA looks inexpensive. With a float of less than 32 million shares and a short interest ratio approaching 12, Under Armour looks like a prime short-squeeze candidate."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
The server virtualization business is the next big thing in corporate computing as it allows servers to run several programs where before they might have been able to run only one. That allows enterprises to save on hardware costs. The leader in the industry has been VMware (NYSE: VMW), which had its IPO less than a year ago. The company has had red-hot growth rates and is very profitable.
As is true in all things involving software, though, Microsoft (NASDAQ: MSFT) wants a piece of the action [subscription required]. It is about to launch software to compete with VMware. The name of the new product line is Hyper-V.
As VMware gets ready for the challenge from Microsoft, it is forming alliances with IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL) to ship its software pre-installed on some of their servers.
According to The Wall Street Journal, "VMware customers aren't ready to say they will switch, but seem to welcome the competition." Microsoft's new product is bad for VMware no matter how Wall Street wants to slice it. After hitting $125.25 post-IPO, VMW share are now below $59. The company has operating margins of 20% and is still growing at a rapid pace.
Microsoft knows how to enter a market: come in with a good product, tie it to Windows and price the new software to squeeze competitor margins. VMware is in for the fight of its life.
"This is still a psychologically damaged market; take for example, what happened with VMware (NYSE: VMW) after its latest earnings announcement," notes Toby Smith in ChangeWave Investing.
"VMware recently reported that its fourth-quarter net income more than doubled on an 80% increase in revenue. Despite these excellent results, after-hours selling has plunged the shares lower by 25% to around $61.
"The culprit appears to be analysts' forecasts for an 82% increase in revenues. The buzz on the Street is that this miss signals stiffer competition in the virtualization space from Microsoft (NASDAQ: MSFT) and Oracle (NASDAQ: ORCL).
"However, during the conference call VMW management said customers have tried some competitors' products and told them that they see no reason to switch.
"This sell-off is similar to what recently happened to Apple (NASDAQ: AAPL) -- blowout performance followed by a hatchet job on the shares. As with Apple, we see this price drop in VMW as a great opportunity to establish a low cost-basis in the stock.
.gif){kind=logo}
Analyst upgrades: 
Shares of 
Wall Street's optimism in 
No that long ago, 
.gif){kind=logo}
Here are some highlights from this past week's 
On its face, it looks like the tech M&A market is holding up nicely -- despite the credit crunch and slowing economy. For example, in Q1, tech M&A came to $92 billion, which was down from last year's $100 billion (this is according to the 
and 
. He also operates 
Best & Worst in Money 2008: Most shocking financial collapse
Closing Bell: Stocks slump as AMD, AT&T, GM and Merck decline
Global Q&A: A rocky road, but profits ahead
