Wednesday, November 22, 2006

11/23/06 Morning Market Comment

After another dull regular trading session yesterday some fireworks erupted after hours. The biggest development was Dell's "preliminary" profit coming in 6c ahead of expectations. Dell is up 9% this morning. DBAB raised its Dell target to $32 from $28 a share. FACT maintains a NEUTRAL rating, but has a positive bias; First Albany encouraged by pricing discipline and stronger server business. UBSW raised its estimates and price target to $27. BEST upgraded Dell to OUTPERFORM from PEER PERFORM with a target of $35. MP ups its target from $20 to $30 thanks to improved margins.

Another winner on the earnings gravy train: Brocade is trading over 6% higher at over $9/shr. PACS has raised its target to $12 from $10 and keeps BRCD as a "top pick". Brocade has been upgraded at NEED to BUY from HOLD with a $10.50 price target. Needham says it is more positive about the company's outlook and execution after yesterday's storng results.

J Crew (JCG) is up better than 8% on strong earnings; CWTR on the downside after earnings, lower by 4-1/2%

Google (GOOG) remains a market darling, up another $3 in pre market activity. JEFF notes that option implied volatility on GOOG is only 29, at the low end of its historical range. JEFF also notes that even above $500, GOOG is trading at 22x fiscal-07 EDITDA also within its historical range, though certainly not cheap.

The Heard On The Street column of the Wall Street Jounral devotes ink this morning to takeover speculation. It's not IF, but WHO? The column says Sprint-Nextel (S), Hilton (HLT), Lennar (LEN), Ryland (RYL), D.R. Horton (DHI) and ServiceMaster (SV) could be ripe for the picking. But the columns cautions, “But investors shouldn't get carried away betting on possible takeovers. Not only are they tough to predict, these deals also are somewhat less lucrative than they once were. The average premium paid over market prices for shares of companies subject to an acquisition bid this year is 17%, down from 25% in 2000, according to Thomson Financial.” Details here (subscription required):

Speaking of takeover talk, US Steel (X) remained strong yesterday… even Nabors (NBR) held on to a bid despite a spokesman, on Monday, saying takeover rumors were “unfounded”. There is also over the top speculation that BHP could be mulling a takeover of Freeport McMoRan (FCX), though Freeport has agreed to acquire Phelps Dodged (PD). It’s over the top, but nowadays you just never know.

Stock futures are higher across the board boosted by strong earnings and ongoing takeover speculation. As the equity only put to call ratio and volatility measures continue to slide there's certainly a whiff of an overbought and complacent condition in the market, but the picture still remains fairly bullish.

NYMEX floor trading is closed for the rest of the week. EIA data will be out later in the morning. Analysts are guessing crude stocks will rise by 700k/bbl and drops of 750k in mogas and by 1.1 mln/bbs in distillates. EIA nat gas inventory data will also be out a day early, and a withdrawal of 3 to 7 Bcf is expected. In electronic trading this morning, Jan WTI is down 24-cents. Cold is trying again, up $1.80 at the $630 mark.

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