MOST NOTEWORTHY: The Refining Sector, International Game Tech and Gilead Sciences were today's noteworthy downgrades:
Bernstein downgraded the Refining Sector to Market Weight from Overweight based on the weakening earnings outlook for the group. The firm downgraded Sunoco (NYSE: SUN) and Tesoro (NYSE: TSO) to Market Perform from Outperform.
Citigroup downgraded shares of International Game Tech (NYSE: IGT) to Hold from Buy following the company's lower than expected guidance and removed the stock from their Top Picks Live List. The firm lowered their target to $25 from $45. Shares were also downgraded at Oppenheimer to Perform from Outperform following the company's lower-than-expected results.
Jefferies cut Gilead Sciences (NASDAQ: GILD) to Hold from Buy following the company's Q2 results as they see limited upside catalysts and a matured core HIV drug franchise. The firm maintains a $56 target. BMO Capital downgraded GILD to Market Perform from Outperform based on valuation, flattening HIV sales, Letairis growth below expectations, and increased R&D costs.
OTHER DOWNGRADES:
Best Buy (NYSE: BBY) was downgraded at RBC Capital to Outperform from Top Pick.
Goldman removed Coca-Cola (NYSE: KO) from the Conviction Buy List.
Progressive (NYSE: PGR) was lowered to Neutral from Outperform at Credit Suisse.
MOST NOTEWORTHY: Sunoco, Ryanair and HSBC Holdings were today's noteworthy downgrades:
JP Morgan downgraded Sunoco (NYSE: SUN) to Underweight from Neutral citing expected margin pressure due to high leverage to sweet crude. Goldman also downgraded shares of Sunoco to Neutral from Buy.
Deutsche Bank downgraded shares of Ryanair (NASDAQ: RYAAY) to Sell from Hold as they believe the European airlines sector will trade well below book value until the companies deal with higher oil prices.
UBS cut HSBC (NYSE: HBC) to Neutral from Buy to reflect the potential for higher losses at the company's household unit and weak performance at its U.S. bank.
OTHER DOWNGRADES:
Broadpoint lowered MTS Medication (NYSE: MPP) to Neutral from Strong Buy.
HSBC cut Southern Peru Copper (NYSE: PCU) to Neutral from Overweight.
Goldman downgraded CNH Global (NYSE: CNH) to Neutral from Buy and PetroChina (PTR) to Sell from Buy.
MOST NOTEWORTHY: Garmin, Thomson Reuters and Heritage-Crystal Clean were today's noteworthy initiations:
Garmin (NASDAQ: GRMN) was initiated with a Neutral rating at JP Morgan. The firm sees risk to 2008 Street estimates given the consumer slowdown in the U.S. and potential ASP and margin pressure as channel inventory is worked down.
Morgan Stanley assumed Thomson Reuters (NASDAQ: TRIN) with an Underweight rating and expects revenue growth in the company's financial business to slow sharply into 2009.
William Blair believes Heritage-Crystal Clean (NASDAQ: HCCI) has the opportunity to gain market share over the next several years as a result of its differentiated parts-cleaning programs, strong sales organization, and experienced management team. Shares were assumed with an Outperform rating.
OTHER INITIATIONS:
Lehman initiated Dell (NASDAQ: DELL) and Sun Microsystems (NASDAQ: JAVA) with Equal Weight ratings and targets of $20 and $17 and Apple (NASDAQ: AAPL), IBM Corp (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) with Overweight ratings and targets of $195, $144 and $59, respectively.
Pacific Growth started Spectranetics (NASDAQ: SPNC) with a Neutral rating.
Merrill reinstated Chevron (NYSE: CVX), ExxonMobil (NYSE: XOM) and Hess Corp (NYSE: HES) with Buy ratings and price targets of $110, $105 and $125, respectively.
Sunoco (NYSE: SUN), a petroleum refiner & marketer, is recently up 33 cents to $72.77.
WTI crude futures are up 3.51% to $99.35. Soleil says, "We maintain our positive outlook for the stock, expecting SUN to unlock some of value of the company via strategic actions in 2008. We reiterate our Buy rating and $94/share price target."
SUN overall option implied volatility of 36 is near its 26-week average of according to Track Data, suggesting non-directional price risks.
Sun Microsystems (NASDAQ: JAVAD) who provide network computing infrastructure solutions that include computer systems, software, storage, and services, announced that they have added Israel as the fifth country to join their Sun Startup Essentials program. The program helps eligible start-up companies by allowing them to purchase a range of discounted Sun products and services, including the award-winning Sun Fire x64 servers and Sun Fire servers with CoolThreads technology. Program members can also work with Sun worldwide hosting partners Layered Technologies and Navisite, plus regional hosting partner NTT Europe Online, to rent discounted Web-hosting infrastructure based on Sun technologies.
Sun is doing this to plant a seed for the future. As they work with start-ups, the more successful these companies get, the more they will end up using Sun's suite of products. It seems to me that this is a brilliant program. To date, outside the United States, they run the country in China, India, U.K., and now Israel. Speaking about the reasons for starting the program in Israel, Juan Carlos Soto, vice president of Market Development at Sun, said "We hope to sign up 500 companies to the program.This country is an obvious place for Sun to expand the program into because of its strong technology sector and the fact that behind the U.S., it is the largest venture capital market in the world. Plus it has more scientists and start-ups per capita than any other country."
Looks like Sun's move is their seal of approval as to the state of Israeli ingenuity. It seems like it is alive and well.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/8/07.
The markets have two additional oil industry data points to digest Friday, and through the weekend:
First the good news: OPEC (Organization of Petroleum Exporting Countries) has increased oil production in response to sustained +$90 per barrel prices.
OPEC's 10 members bound by output targets, all except Iraq and Angola, pumped 26.98 million barrels per day, up 180,000 barrels per day from September 2007, according to the survey of oil firms, traders, OPEC officials and analysts, Reuters reported Friday.
Among oil companies Sunoco Inc. (NYSE: SUN) represents a riskier play because SUN meets its crude oil requirement via purchases from third parties, as opposed to company owned operations.
A major strength is Sunoco's strong presence in the U.S.'s East Coast and Midwest markets, which provides considerable earnings stability. However, analysts' 2007-2008 projections for Sunoco's gasoline and petrochemical production are not outstanding. Further, look for refinery maintenance and repairs to hurt refinery production somewhat in 2007, but full refinery production should return in 2008. Sunoco has also been hindered by an emphasis on light sweet crude, which has restricted its ability to take advantage of larger refining margins for sour crude.
The big question is, why is Sunoco worth an investor's attention? Answer: Analysts could be a tad low regarding revenue growth for 2008, particularly given crude oil's persistently high price. Oil, which closed Friday around $89 per barrel, is likely to remain above $70 per barrel for the foreseeable future, and if $100 per barrel is in oil's near future, those 2008 revenue estimates for SUN will prove to be conservative. Further, SUN, which closed Friday at $71.10, has a PE ratio of about 8 -- which makes it a very cheap stock.
MOST NOTEWORTHY: Sunoco, Valero Energy, UBS AG, Lehman Brothers and Supertex were today's noteworthy upgrades:
Citigroup upgraded both Sunoco (NYSE: SUN) and Valero (NYSE: VLO) to Buy from Hold, as they believe both companies will benefit from the collapse of ethanol prices since refiners are mainly supplied under term contracts struck above current levels.
Merrill upgraded shares of UBS (NYSE: UBS) to Buy from Neutral to reflect the company's lack of exposure to fixed income.
Credit Suisse upgraded shares of Lehman Brothers (NYSE: LEH) to Outperform from Neutral citing improved performance prospects.
Supertex (NASDAQ: SUPX) was raised to Buy from Neutral at Oppenheimer. The firm expects a rebound in all business segments, Medical is entering a seasonally strong September quarter, and notes Motorola (NYSE: MOT) shipments are growing.
OTHER UPGRADES:
CIBC upgraded Novatel Wireless (NASDAQ: NVTL) to Sector Outperformer from Sector Performer.
Sun Microsystems, Inc. (NASDAQ: JAVA) wants to make yet another strategic change in its core business, according to CEO Jonathan Schwartz. Schwartz said yesterday that the open-source and server company plans to increase its focus on storage products and services using an internal reorganization to do so.
For this, Schwartz wants to merge the server and storage business units into a single unit focusing on storage and server convergence. In effect, Sun wants to sell and service more storage systems to make up for the lack of margin in its server business. At least, that's how many are reading this move. Since acquiring StorageTek years ago, this move was anticipated. It's now here.
In addition to making StorageTek's product lineup more profitable to the company, Schwartz also may be making the move to fall in line with "virtual server" trends in the information technology field. In a sense, customers don't care about buying servers or storage, but are interested in possibly "renting" a virtual server and storage system that acts as a single unit. This is precisely what Sun will try to push to customers as it slowly dumps aging mainframes.
According to Schwartz, Sun "wants to be in a position to innovate on its [customers'] behalf, at the system level, beyond the boxes -- across blades [servers], racks, disk and tape." Let's see if this recent internal reorg and change in customer philosophy will have a positive revenue effect for Sun -- something it desperately needs.
MOST NOTEWORTHY: The biotech sector, WESCO International, Wyndham and Century Casinos were today's noteworthy initiations:
BMO Capital initiated coverage on Arena Pharmaceuticals Inc. (NASDAQ: ARNA) and Gilead Sciences Inc. (NASDAQ: GILD) with Outperform ratings and a $16 target and $51 target and Celgene Corp. (NASDAQ: CELG) and Genentech Inc. (NYSE: DNA) with Market Perform ratings and a $69 target and $85 target.
CIBC initiated shares of WESCO International Inc. (NYSE: WCC) with a Sector Outperformer rating and $46 target. The firm believes lower estimates are already priced into shares and that the company's operating initiatives increase the chances for more stable margins in this environment.
Deutsche Bank started shares of Wyndham Worldwide Corp. (NYSE: WYN) with a Buy rating and $41 target. The firm believes stability of the timeshare industry, international expansion and improved transparency will serve as catalysts for shares.
Century Casinos Inc. (NASDAQ: CNTY) was initiated at Nollenberger with a Neutral rating, citing the underperformance of new properties and concerns from the smoking ban in Colorado; however, the firm believes the company is headed in the right direction.
OTHER INITIATIONS:
Soleil started shares of Sunoco Inc. (NYSE: SUN) and Valero Energy Corp. (NYSE: VLO) with Buy ratings and targets of $96 and $88, and initiated shares of Tesoro Corp. (NYSE: TSO) with a Hold rating and $55 target.
Rodman & Renshaw started shares of Labopharm Inc. (NASDAQ: DDSS) with a Market Perform rating.
UBS resumed coverage on Kroger Co. (NYSE: KR) with a Buy rating and $34 target.
MOST NOTEWORTHY: Sunoco, Primedia, WPP Group, Publicis and Newfield Exploration were today's noteworthy downgrades:
Sunco Inc (NYSE: SUN) was downgraded to Neutral from Buy at Banc of America, as the firm believes Sunoco's valuation discount is justified since its net margin/barrel is almost $2.50 below its closest peer due to inferior assets.
Deutsche Bank downgraded shares of Primedia Inc (NYSE: PRM) to Hold from Buy on valuation.
Citigroup downgraded shares of WPP Group (NASDAQ: WPPGY) to Hold from Buy and shares of Publicis Groupe (NYSE: PUB) to Sell from Hold to reflect their more cautious view of the advertising sector.
MasTec Incorporated (NYSE: MTZ) was upgraded to Buy from Accumulate at Think Equity and to Buy from Hold at SMH Capital on valuation following yesterday's sell-off.
JP Morgan upgraded shares of Cognos Incorporated (NASDAQ: COGN) to Overweight from Neutral citing solid end demand, expanded sales capacity, indications that C8 adoption should see an uptick, and the Applix Inc (NASDAQ: APLX) acquisition.
Forest Laboratories Inc (NYSE: FRX) was upgraded to Buy from Hold at Jefferies, as the firm believes Forest's victory in the Lexapro patent case eliminates a major overhang and returns the focus to the company's pipeline.
Lehman upgraded shares of Reuters Group (NASDAQ: RTRSY) to Overweight from Equal Weight to reflect benefits from the company's merger with Thomson Corporation (NYSE: TOC).
Thornburg Mortgage (NYSE: TMA) was upgraded to Sector Perform from Underperform at RBC Capital Markets.
CIBC World Markets upgraded EDO Corporation (NYSE: EDO) to Sector Outperformer from Sector Performer.
Bernstein upgraded shares of Rio Tinto (NYSE: RTP) to Outperform from Market Perform and shares of Anglo American (NASDAQ: AAUK) to Market Perform from Underperform.
The theory goes that Linux, the open-source operating system, will replace Windows as the preferred software to run servers. Over time, the cost advantage of software created by a community of developers would overwhelm the pricey Microsoft (NASDAQ: MSFT) product.
So much for theory. Windows is actually taking share from Linux in the server market. According to TheStreet.com "Microsoft picked up 2 percentage points, bringing its market share to 67.1% of servers shipped during the second quarter." Windows server revenue hit $5 billion in the second quarter compared to $1.8 billion for Linux.
The one operating system that did not do well in the last quarter was Unix, which is marketed by Sun (NASDAQ: JAVA) among others.
In some ways the figures are not a surprise, despite the cost advantage of Linux. The large enterprise marketers of the software, Novell (NASDAQ: NOVL) and Redhat (NASDAQ: RHT) have never become large companies.
Linux still operates under the threat of patent litigation. Microsoft has claimed that the open-source software violates several hundred of its patents.
Big enterprises shy away from products with potential IP problems, and that may be Microsoft's biggest weapon.
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