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Market Wrap For February 11: Yellen Re-assures Markets & Wakes Up The Sleeping Bulls
U.S. stocks rose on Tuesday as the Federal Reserve's new Chief Janet Yellen reassured investors that she is the right person for the job.
In her congressional testimony, Yellen promised to stay the course in regards to the Federal Open Market Committee's approach to monetary policy. Yellen also promised to hold short rates near zero even when the headline unemployment rate falls below the 6.5 percent threshold.
In terms of the week job market data, Yellen said that "it is important to take our time to assess what the significance of this is" and that the Fed could pause tapering if there is a significant change in the job market outlook.
News of Note
NFIB Small Business Optimism Index read 94.1, higher than the consensus of 93.4 with a prior reading of 93.9.
ICSC Retail Store Sales declined 0.3 percent week over week compared to a gain of 0.3 percent last week.
Redbook Chain Store Sales rose 2.8 percent year over year compared to a 2.7 percent gain last week.
December Wholesale Trade Inventories rose 0.3 percent to $517.9 billion, lower than the expected 0.6 percent gain.
Same-store restaurant sales fell 0.9 percent in January according to the Black Box Intelligence. Of note, chains with a higher percentage of locations in warmer stares outperformed those with locations in states that were harder hit by cold weather.
The House will vote tomorrow on a bill to extend the government's borrowing authority which will be valid until March 2015 and restore cost-of-living increases for military veterans.
The Bank of England is examining allegations that two officials told currency traders there was nothing wrong with sharing impending customer orders with peers at competing companies.
Brevan Howard, Europe's largest (and most closely followed) hedge fund with over $40 billion in AUM, announced that it will close its emerging market fund following 2013's 15 percent loss.
Equities-Specific News of Note
Analysts at Goldman Sachs released a specialty report on steel. The analysts said that a growing demand from the automotive and aerospace industries will change the composition of the steel market. "We believe gradual conversion of automotive exposed body to aluminum (Body-in-White or BiW) will be a game changer for downstream aluminum use, with a growth rate higher than any other end market for specialty metals for the rest of this decade." The analysts maintained a Buy rating on Alcoa (NYSE: AA ) with a price target increased to $15 from a previous $12 and noted "We believe automotive aluminum will be the fastest growing market for metals over the next several years, where Alcoa has a leading position in the US." The analysts also increased their price target for Constellium (NASDAQ: CSTM ) to $35 from a previous $27 and re-affirmed a Buy rating. The analysts noted "With the announcement of the 2015 Ford F-150 moving to an all-aluminum body, and the announcement of Constellium's 2 aluminum sheet capacity expansions, we expect investors to place more value on this significant opportunity for Constellium." Shares of Alcoa gained 2.40 percent, closing at $11.32 while Constellium gained 2.06 percent, closing at $25.27.
Analysts at Nomura said that Macau's gaming market will nearly double in size to at least $80 billion from the current $45 billion over five years. The analysts noted that Macau is far from a "mature market" and noted "Our analysis suggests that a penetration rate of ~25%-plus indicates a mature market. If we assume each Mainland Chinese visitor makes ~2-3 trips to Macau per year, this implies unique visitors from China are actually ~6-9mn, which implies a penetration rate of just 1.4-2.1%. To put it another way, Mainland Chinese visitation to Macau needs to increase to ~217mn, or ~12x the 2013 level of ~19mn, before Macau approaches a mature market." The analysts recommend Las Vegas Sands and Melco Crown Entertainment. (NASDAQ: MPEL ) Shares of Las Vegas Sands gained 3.00 percent, closing at $78.32 while Melco gained 4.52 percent, closing at $42.51.
Analysts at Morgan Stanley downgraded Sohu.com (NASDAQ: SOHU ) to Underweight from Equal-Weight and lowered the price target to $57.60 from a previous $60.70. The analysts noted ""Despite solid performance from brand ads and Sogou, heavier investments in Changyou (online gaming) result in a softer 2014 margin outlook. Competition remains intense for its online video and search businesses." Shares lost 4.04 percent, closing at $68.66.
Analysts at Citi downgraded U.S. Steel (NYSE: X ) to Sell from Neutral with a price target lowered to $23 from a previous $28. The analysts noted that it the steel recovery is still in the early stages and that "the latest data shows HRC at $660/ton after reaching a high of $685/ton in early January. Average transaction prices per CRU topped $678/ton in early January and most recently stood at $670/ton. Our current forecast is that HRC pricing will average $630/ton for 2H14, driving our 2014 EBITDA estimate of $1,167 mln, 15% below consensus of $1,382 mln." Shares gained 2.07 percent, closing at $26.12.
Analysts at Bank of America maintained a Buy rating on FireEye (NASDAQ: FEYE ) with a price target raised to $85 from a previous $60. The analysts noted "We have performed detailed top-down and bottom-up analysis to assess the size of spending that could be allocated to solutions such as FireEye's in the long term. conclude that 1) FireEye has plenty of headroom left in terms of customer acquisition, growth in billings per customers, and 2) the size of the market, namely its applicability across a broader spectrum of customers and verticals, is in our view more significant than what is discounted by current valuation." Shares hit new 52 week highs of $79.92 before reporting its fourth quarter results after the bell where shares traded lower by 3.86 percent at $75.00.
Reuters reported that Boeing (NYSE: BA ) is struggling to cope with an increase in the production of its 787 airplane. The company is facing backlogs of unfinished work and is struggling to finalize ten completed jets a month. Shares gained 2.44 percent, closing at $130.26.
General Motors (NYSE: GM ) reported that sales rose 12 percent year over year in China to 348,601 units. Shares gained 1.00 percent, closing at $35.25.
Shares of Tesla (NASDAQ: TSLA ) traded above the $200 mark briefly before closing the day at $196.62, up 0.03 percent.
PetroChina (NYSE: PTR ) announced that its parent company, CNPC, found a natural gas reserve that can single-handily meet China's oil needs for two years. Shares gained 3.09 percent, closing at $101.84.
General Growth Properties (NYSE: GGP ) has repurchased all of Bill Ackman's Pershing Square 28 million share stake in the company at $20.12 per share. Ackman sold off 25 million shares in September for $500 million in what Ackman described as one of his most profitable investments. Shares gained 2.21 percent, closing at $21.29.
hhgregg (NYSE: HGG ) announced that its COO Gregg Throgmartin has resigned from the company to pursue other opportunities. Shares gained 1.72 percent, closing at $8.75.
Home Depot (NYSE: HD ) announced that opened the first of its three e-commerce fulfillment centers in Atlanta as part of its longer term strategy to improve its e-commerce business. Shares gained 0.37 percent, closing at $76.69.
Procter & Gamble (NYSE: PG ) opened its 20th Tide Dry Cleaner store as part of its concept to use a "franchise model" in its dry cleaning store push. Shares gained 1.33 percent, closing at $79.07.
Charter Communications (NASDAQ: CHTR ) confirmed that it has proposed a full slate of independent candidates for the Time Warner Cable (NYSE: TWC ) board. The New York Times published an article entitled "Get Ready for a Long Proxy Fight Over Time Warner Cable" and wrote "Charter is willing to push Time Warner Cable hard for a deal. Because of the way the company has put forth its defense, however, there may be little room for Time Warner Cable to negotiate with Charter. Get ready for a long, drawn-out proxy contest." Shares of Charter gained 0.20 percent, closing at $137.90 while Time Warner lost 0.59 percent, closing at $134.90.
Winners of Note
According to Forbes, TriQuint (NASDAQ: TQNT ) has hired Goldman Sachs to act as adviser as the company explores its strategic options. Activist hedge fund Starboard Value holds an eight percent stake in the company and called on the company to sell its mobile power amplifier business and to make changes to its manufacturing operations to become efficient. Shares hit new 52 week highs of $9.44 before closing the day at $9.39, up 11.39 percent.
This morning, Regeneron Pharmaceuticals (NASDAQ: REGN ) reported its fourth quarter results. The company announced an EPS of $2.24, beating the consensus estimate of $2.08. Revenue of $610 million beat the consensus estimate of $579.17 million. Net profit for the quarter fell 79 percent year over year to $97 million due to a non-cash tax benefit of $336 million in the fourth quarter 2012, an income tax provision in 2013 and higher operating costs. The company ended the year with $1.08 billion in cash, nearly double last year's $588 million. Shares hit new 52 week highs of $327.54 before closing the day at $326.52, up 7.41 percent.
Decliners of Note
Last night, Rackspace Hosting (NYSE: RAX ) reported its fourth quarter results which beat the consensus estimate and the company offered guidance that came ahead of expectation. Shares plunged when the company's CEO Lanham Napier announced his retirement from the company. Analysts at Credit Suisse maintained an Outperform rating and $49 price target and noted ""Although the CEO departure creates uncertainty in the short-term, our long-term thesis remains unchanged […] Cloud computing provides a significant long-term growth opportunity for Rackspace." Analysts at Wells Fargo, Piper Jaffray and Cowen shared similar bullish sentiments. Analysts at Nomura reiterated a Neutral rating and cut the price target to $42 from a previous $44 and noted "The departure of the CEO could be the result of mixed execution in the past year, as the transition to OpenStack has been anything but smooth. There were several management additions in mid-2013, notably in sales and marketing, but a change at the top may be needed to get consistently back on track." Analysts at Canacord,Jefferies and FBN Securities shared similar bearish sentiments on the CEO's departure. Shares lost 17.91 percent, closing at $33.13, trading near its 52 week lows of $32.62.
Groupon (NASDAQ: GRPN ) announced late yesterday that Jeff Holden, the company's product management chief will be leaving the company next month. Analysts at Deutsche Bank originally said that the firing raises a "red flag" but later retracted the bearish news and noted that the move is simply part of the company's evolution as it continues to grow. Shares lost 6.14 percent, closing at $10.40.
Some of Ocwen's (NYSE: OCN ) investors, including Pimco and BlackRock are considering filing suit against the company over its servicing practices and mortgage modifications which they claim could have damaged the performance of MBS' they own. Shares lost 8.94 percent, closing at $38.11.
According to Chinese media reports, Apple's iWatch will feature sapphire cover glass, but the iPhone 6 will not. Apple's sapphire manufacturing partner GT Advanced (NASDAQ: GTAT ) sold off following the news reports from China. Shares of GT Advanced lost 7.33 percent, closing at $10.88.
Analysts at Credit Suisse downgraded Annie's (NYSE: BNNY ) to Neutral from Outperform with a price target lowered to $36 from $54. The analysts noted "While we still view Annie's as a great brand in the organic foods space with many years of revenue growth ahead, the frequency of execution errors over the past two years casts a cloud over the prospects for operating leverage in the business model." Shares lost 8.69 percent, closing at $38.19.
This morning, Dean Foods Company (NYSE: DF ) reported its fourth quarter results. The company announced an EPS of $0.18, missing the consensus estimate of $0.19. Revenue of $2.30 billion beat the consensus estimate of $2.27 billion. The company said that it faced significant commodity inflation in the quarter and total volume across all products fell eight percent form a year ago. Shares lost 7.43 percent, closing at $14.07.
This morning, Canadian Solar (NASDAQ: CSIQ ) announced plans for a public offering of 2.6 million common shares as well as an offering of up to $100 million in convertible senior notes due 2019. Canadian Solar also said that it expects its fourth quarter revenues to rise 75 percent to $510 million to $520 million from $295 million a year ago. "For the fourth quarter of 2013, Canadian Solar expects solar module shipments to be in the range of approximately 605 MW to 620 MW, which exceeds the Company's original guidance of 480 MW to 500 MW provided on November 13, 2013," the company said in a press release. "For the fiscal year 2013 solar module shipments are expected to be in the range of 1,878 MW to 1,893 MW. The Company expects its revenue for the fourth quarter of 2013 to be in the range of $510 million to $520 million. The Company expects its gross margin for the fourth quarter of 2013 including the sale of the Mississippi Mills project in Ontario, Canada, to be in the range of 16% to 18%, compared to its original guidance of 13% to 15% which did not factor in the potential sales of projects from its Ontario, Canada pipeline." Shares lost 7.54 percent, closing at $36.17.
Earnings of Note
This morning, The Mosaic Company (NYSE: MOS ) reported its fourth quarter results. The company announced an EPS of $0.30, missing the consensus estimate of $0.42. Revenue of $2.2 billion beat the consensus estimate of $1.87 billion. Earnings fell by 79 percent in the quarter as prices of potash and phosphate fell sharply recently. The company said that it will buy back $1 billion worth of shares on top of a $2 billion repurchase program that the company had already announced in December. Shares gained 2.43 percent, closing at $47.96.
This morning, CVS Caremark (NYSE: CVS ) reported its fourth quarter results. The company announced an EPS of $0.39, beating the consensus estimate of $0.35. Revenue of $32.8 billion beat the consensus estimate of $32.67 billion. Pharmacy services revenue rose 5.2 percent from the previous quarter and Retail Pharmacy sales grew 5.6 percent. The company's gross profit rate fell 60 bps to 30.7 percent. Management issued guidance and expects its 2014 EPS to be $4.36 to $4.50 versus the consensus estimate of $4.47. During the earnings conference call the company said that its 2014 EPS guidance and five-year financial targets are unchanged despite its recent announcement to terminate sales of tobacco products. Shares gained 2.73 percent, closing at $68.77.
This morning, Sprint (NYSE: S ) reported its fourth quarter results. The company announced an EPS of -$0.26, beating the consensus estimate of -$0.33. Revenue of $9.14 million beat the consensus estimate of $7.75 million. It's loss for the quarter narrowed to $1.04 billion from $1.32 billion in the same quarter a year ago. During the quarter, Sprint added 58,000 net subscribers, lower than the Street's expectations for a net addition of 83,500 net additions. For 2014, the company has increased its capital expenditure budget to $8 billion, up from 2013's $7.5 billion capex budget. Shares gained 2.73 percent, closing at $7.89.
After the market closed, FireEye reported its fourth quarter results. The company announced an EPS of -$0.35, beating the consensus estimate of -$0.37. Revenue of $57.3 million beat the consensus estimate of $56.04 million. Shares traded lower by 3.86 percent at $75.00 following the earnings report.
Quote of the Day
"Let me emphasize that I expect a great deal of continuity in the Federal Open Market Committee's approach to monetary policy." - Janet Yellen in her prepared congressional testimony.
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