MarketView for October 24

 

 

Summary

 

Wall Street continued its upward on Thursday as economic data reinforced the increasingly agreed to opinion that the Fed’s monetary stimulus will be in place for the foreseeable future even as earnings offered some better than expected news.

 

Shares of PulteGroup were higher on the day after the Company reported results and said a slowdown in new home orders would be "short-lived." Its shares ended the day up 7 percent to close at $17.85 and were the largest percentage gainer on the S&P 500. D.R. Horton was also higher, closing up 2.1 percent at $19.87, while Beazer Homes added 1.5 percent to end the day at $19.41.

 

The day’s economic data indicated that initial claims for state unemployment benefits fell less than expected in the latest week. However, the Labor Department indicated that there was a backlog of applications in California due to new software glitches. On Tuesday, the data indicated that employers added fewer jobs than expected in September.

 

The day's data also included a preliminary look at Markit's October Manufacturing Purchasing Managers Index, which grew at its slowest pace in a year while factory output contracted for the first time since late 2009.

 

After the bell, Twitter said it intends to sell 70 million shares priced between $17 and $20 in an initial public offering that could value the company at as much as $10.9 billion.

 

Ford rose 1.4 percent to $17.76 after the Company raised its full-year global earnings and margin outlook, helped by an improved forecast in Europe and better-than-expected third quarter earnings.

 

Also on the rise were Apple, up 1.3 percent at $531.91, after Carl Icahn, in a public letter to Apple Chief Executive Tim Cook, called for Apple to buyback $150 billion of its shares or face a possible proxy action.

 

Third-quarter earnings overall has had its disappointments, including some weak outlooks and just 53 percent of companies so far beating analysts' revenue expectations, below the long-term average of 61 percent, according to Thomson Reuters data. Approximately 68 percent of companies are exceeding analysts' earnings expectations, above the 63 percent long-term average.

 

Among the day's decliners were Dow Chemical, Xerox and AT&T, all of which fell following their results or outlooks. AT&T ended the day down 1.8 percent to $34.63, while Dow Chemical lost 1 percent to $40.62 and Xerox fell 10.4 percent to end the day at $9.61 after a weak outlook.

 

Shares of Symantec were down 12.7 percent to $21.49 after it reported lower-than-expected second-quarter revenue and forecast current-quarter results below expectations.

 

After the bell, shares of both Amazon.com and Microsoft moved higher after posting results. Amazon.com gained 7.8 percent to $358.10 after it posted a narrower quarterly loss and stronger-than-expected sales. Shares of Microsoft rose 5.6 percent to $35.60 after its profit rose more than expected. DuPont was 3 percent to $63.20 after the bell. The company said it will spin off its titanium dioxide unit and related businesses.

 

Twitter Announces Plans for $11 Billion IPO

 

Seeking to avoid a repeat of Facebook's much-maligned public offering, Twitter announced more modest ambitions on Thursday, stating its initial public offering would raise up to $1.6 billion and value the company at up to $10.9 billion. The valuation was more conservative than the $15 billion that some analysts had expected for the social media phenomenon.

 

Twitter, which has signaled for weeks that it would price its IPO conservatively to avoid the stock drop that marred Facebook's offering, said that it intends to sell 70 million shares priced between $17 and $20. If the company's underwriters choose to sell an additional allotment of 10.5 million shares, Twitter could raise as much as $1.6 billion at the top of the price range, according to an amended version of its prospectus filed on Thursday.

 

Twitter is expected to set the price on November 6, meaning the stock could begin trading as early as November 7. Twitter said on Thursday that there will be 544,696,816 shares of its common stock outstanding after the offering.

 

Twitter's offering is the most high-profile Internet IPO since Facebook's rocky debut in May 2012, in which the company's shares fell below their offering price in the ensuing days.

 

The company and its underwriters will begin a two-week road show on October 28 in New York and will likely stop in Boston and the mid-Atlantic region before touching down in Chicago, San Francisco, Los Angeles and Denver.

 

The company could choose to raise the price of the offering during that period after gauging investor interest. In the case of Facebook, the Company initially priced its shares at a minimum of $28 before ultimately raising it to $38 shortly before listing. Aside from raising the share price, Facebook also increased the size of its float - something that one out of 20 companies chooses to do before their IPO, according to PrivCo's Hamadeh.

 

Twitter, which has roughly 230 million active users, has said it plans to list its stock under the "TWTR" symbol on the New York Stock Exchange. The eight-year-old company more than doubled its third-quarter revenue to $168.6 million, but net losses widened to $64.6 million in the September quarter, it disclosed in a filing earlier this month.

 

Microsoft Surprises Wall Street

 

Microsoft exceeded Wall Street's quarterly earnings and revenue forecasts on Thursday, the result of strong sales of its Office and server software to businesses, sending its shares up more than 5 percent after hours.

 

The Company is the latest tech firm to surprise investors with a powerful performance, coming the same day as Amazon.com exceeded average revenue forecasts. Technology is proving one of the most resilient sectors in an uncertain economy, with 84 percent of tech companies beating earnings estimates for the latest quarter.

 

The Street had trimmed profit targets for Microsoft over the past three months, concerned by the launch of an ambitious reorganization by retiring Chief Executive Steve Ballmer and the pricey acquisition of Nokia's handset business, even as the company's core personal computer market ebbs away.

 

As part of its reinvention as a "devices and services" company, Microsoft now reports under two main groups, one covering its devices and consumer business, and one its commercial business.

 

The commercial side was the stronger in the quarter, posting a 10 percent increase in revenue, chiefly from selling Office and server software to businesses. The consumer and hardware group's revenue rose a more modest 4 percent, held back by another poor quarter for the Windows system as sales of personal computers continue to decline.

 

According to industry research firm Gartner, PC shipments fell 8.6 percent last quarter, confirming a worldwide trend towards tablets that has benefited Apple and Google but hurt traditional PC stalwarts Microsoft and Intel.

 

PC sales have been sliding for the last 18 months, although Microsoft Chief Financial Officer Amy Hood said in an interview on Thursday that there were "signs of stabilization."

 

Sales of Windows software to PC makers, such as Hewlett-Packard Co, Lenovo Group and Dell to install on their machines fell 7 percent in the quarter. Microsoft said its Surface tablet posted a sharp increase to $400 million in sales, largely due to rising interest in the smaller, heavily discounted Surface RT model.

 

Overall for the fiscal first quarter, Microsoft posted a 17 percent increase in profit to $5.2 billion, or 62 cents per share, up from $4.5 billion, or 53 cents per share, in the year-ago quarter.

 

That exceeded Wall Street's average forecast of 54 cents, according to Thomson Reuters I/B/E/S, although analysts had been edging down estimates for the last three months.

 

Revenue rose 16 percent to $18.5 billion, helped by rising sales of its Office software. Analysts had expected $17.8 billion, on average.

 

Hood, who took over as CFO only in May, issued the most detailed financial guidance from the company in several years in a conference call with analysts. For the fiscal second quarter, which takes in the crucial holiday shopping season, Hood forecast revenue of $23.1 billion to $24.1 billion, ahead of Street estimates of $22.9 billion.

 

Microsoft shares rose to $35.60 after hours, after closing at $33.72 on Nasdaq. Before the profit figures were announced, the shares were up 21 percent over last 12 months, compared to a 24 percent gain in the Standard & Poor's 500.

 

Icahn Bullies Apple

 

Bill Gross, co-chief investment officer of PIMCO, butted heads on Thursday with billionaire investor Carl Icahn telling Icahn to leave Apple alone after he again urged the iPhone maker to initiate a tender offer to buy back $150 billion of its shares.

 

Icahn, meanwhile, revealed in a letter to Apple Chief Executive Tim Cook, made public on Thursday, that he had increased his stake by about 22 percent to just over 4.7 million shares since dining privately with Cook in September - underscoring his belief that the stock is undervalued.

 

Later on Thursday, he told CNBC that he is considering a proxy fight with Apple if the company rejects his proposal, which calls for the company to purchase the shares at $525 each. He added that he does not personally want a seat on Apple's board at this time.

 

Icahn, one of the best known managers in the $2.25 trillion hedge fund industry, said he would "test the waters" with other shareholders and "judge at that time" whether to pursue a proxy battle.

 

Icahn's demand for the $150 billion buy back, repeated several times publicly and privately to Apple's Cook since August, spurred a caustic Twitter comment from Gross: "Icahn should leave Apple alone & spend more time like Bill Gates. If Icahn's so smart, use it to help people not yourself." In response, Icahn told CNBC that Gross is entitled to his own opinion.