Stock Market Predictions

AOL approves buyback after shares tumbled 32 percent

Stock Market Predictions

After the announcement, the shares rose as much 22 percent.

The drop had wiped out $518 million in value, since the company reported second-quarter results on Tuesday that missed profit expectations amid weak advertising growth.

AOL Chief Executive Tim Armstrong said during a call with analysts on Tuesday that a buyback was under consideration but that the company would likely concentrate on growth.

"I believe the stock is undervalued, and I think our operational results will be the fastest way for us to bring the value of the stock up."

AOL has been in a turnaround mode since it was spun off from Time Warner in December 2009 after one of the most disastrous mergers in recent times.

The company is attempting to reshape itself into an online media and entertainment powerhouse with a growing dependence on advertising revenue as its lucrative subscription dollars from its dial-up business melts away.

AOL has had several shake-ups over the course of Armstrong's leadership, including the July ouster of its top advertising executive, one-time Google executive Jeff Levick.

It reported that second-quarter advertising revenue rose 5 percent, but analysts were expecting bigger gains in display ad revenue. The slow growth suggested rivals like Google and Facebook are taking share.

AOL's board said the company plans to repurchase shares over the next 12 months.

Shares of AOL were up 13.6 percent at $11.61 in afternoon trade on Thursday on the New York Stock Exchange.

(Reporting by Jennifer Saba; Editing by Steve Orlofsky)

Cisco bulls may underestimate tough road ahead

Stock Market Predictions

Shares of Cisco surged over 16 percent on Thursday, a day after Chief Executive John Chambers delivered quarterly results suggesting that tough measures to return the company to health were paying off, impressing investors who had braced themselves for the worst.

"Cisco was left for dead," said Gleacher & Co analyst Brian Marshall.

"Investors felt like the earth was salted for Cisco's opportunity, that their core markets are mid-single digits businesses and ... that Cisco would forever be a one- to two-times GDP grower relegated to the status of an IBM (International Business Machines Corp or an HP (a Hewlett-Packard Co)," Marshall said. "That remains to be seen."

Chambers, who in April famously warned that the world's leader in Internet networking equipment had lost its way and a year ago spoke of "unusual uncertainty" in the economy, on Wednesday said he expects gradual improvement in the business.

He signaled that demand from governments and corporations for networking might not be as bad as had been feared.

The Street applauded the upbeat results and outlook, but some analysts questioned whether it was enough to justify such a large stock surge and said much of the jump was probably a reflection of recent broad market volatility.

Cisco's shares, which had lost a third of their value since the beginning of 2011, were trading at $15.99.

Those analysts warned investors not to underestimate how much public spending budgets could be cut next year and said Cisco might need to prune more product lines and perhaps exit some more unprofitable businesses.

The one-time Wall Street darling, which depends on government spending for about a fifth of its revenue, said in July it would cut 15 percent of its workforce and sell a set-top box factory in Mexico as part of an effort to slash annual expenses by $1 billion.

"Its great that they're tightening their belts and kind of taming the beast a bit, but there are some fundamental misalignments they still need to address." Mizuho Securities analyst Joanna Makris said.

She said a budget flush as the U.S. federal government wraps up its fiscal year in September would help Cisco in the current quarter, but government spending next year is less clear.

Brokerage Stifel Nicolaus raised its rating on the stock to "buy" from "hold," and said Cisco seemed to have left the worst behind, echoing many analysts' opinions.

"Although the macro environment and public sector spending could continue to put pressure on switching and overall sales, the company is starting to see some stability in orders," the brokerage said in a research note.

Cisco forecast current-quarter revenue up 1 to 4 percent, in line with expectations. Its fiscal fourth-quarter results were a bit above forecasts. Gross margins, though, came in at 62.7 percent, dipping from 63.9 percent in the fiscal third quarter.

"Gross margin is always a very important issue for a tech company and their gross margins continued to slide. Their topline growth is pretty anemic. And they just made major cost cuts, so we still don't know their full impact on the total business," said William Blair analyst Jason Ader.

(Editing by Gerald E. McCormick)

Molycorp shares surge on earnings and Hitachi deal

Stock Market Predictions

Hitachi Metals Ltd said in a release that it had entered into a master supply agreement with Molycorp to secure access to the raw materials for its neodymium magnets.

But the Japanese company backed away from a previously announced joint venture with Molycorp to produce alloys for neodymium magnets. Instead, Hitachi Metals said it is considering its own U.S. manufacturing project.

In a separate release, Molycorp said it is still committed to its "mine to magnets" strategy, which will allow the Colorado-based company to capture more value from its rare earths.

"We have been in advanced discussions with other companies regarding magnet joint venture opportunities for some time," said Molycorp Chief Executive Officer Mark Smith in the release.

Shares of Molycorp were up 9.5 percent at $59.31 by mid-afternoon on the New York Stock Exchange, after rising as high as $63.59.

Under the new three-year deal, Molycorp will supply Hitachi with didymium metal and alloy, as well as lanthanum oxide.

Rare earth oxide and metal prices have spiked as China, which produces some 95 percent of the world's supply, has repeatedly clamped down on exports.

This has left Japanese companies scrambling to secure reliable supplies of rare earths, which are used in a range of high-tech products from smartphones to hybrid cars.

After the market closed on Thursday, Molycorp reported second-quarter earnings of 52 cents a share, beating analyst expectations of 40 cents a share, according to Thomson Global Markets I/B/E/S.

(Reporting by Allison Martell; editing by Rob Wilson)

Emulex falls as outlook underlines growth worries

Stock Market Predictions

At least three brokerages slashed their target price on the company's stock on Friday, as the outlook underscored the weakness in the broader storage and networking market.

For the first quarter, the company said it expects to earn 10-12 cents a share on revenue of $114-$118 million. Analysts on average were looking for a 15 cent a share profit on $123.4 million in revenue, according to Thomson Global Markets I/B/E/S.

"The company is an important component maker for data center network connectivity, but we point out Emulex's revenue trends appear to be trailing broader server and storage trends," said J.P. Morgan analyst Mark Moskowitz, who cut his target price on the company's stock to $9.

Costa Mesa, California-based Emulex, whose main customer IBM (IBM.N) contributes a third of its sales, makes network infrastructure for storage and data center customers. The company competes with QLogic (QLGC.O) and Brocade communications (BRCD.O).

Shares of the company, fell as much as 9 percent in early trading. They were down 6 percent at $6.85 on Friday on the New York Stock Exchange.

(Reporting by Himank Sharma in Bangalore; Editing by Saumyadeb Chakrabarty)

China Mobile to set up finance unit with $780 million

Stock Market Predictions

The new unit would be called China Mobile Finance and would engage in financial services such as insurance agency business and inter-bank lending, China Mobile said in a statement posted on the Hong Kong stock exchange.

"It has become increasingly important to find a solution to further strengthen the internal funds management and better control liquidity risks," China Mobile Chairman Wang Jianzhou said in the statement.

China Mobile's wholly owned subsidiary Beijing Mobile will contribute 4.6 billion yuan to the new company, with China Mobile's parent company CMCC forking out the remaining 400 million yuan, the company said.

This is the second time China Mobile is associating with the financial services sector, having spent about $6 billion in March last year to buy a 20 percent stake in the mid-sized Pudong Development Bank (600000.SS).

Then, China Mobile had said the purchase was necessary to help it develop its electronic mobile payment system by making it easier to process the money it receives.

China Mobile is one of the world's most cash-rich companies with over $45 billion in cash sitting in its bank accounts at the end of 2010, prompting calls from some shareholders for it to raise its dividend payout ratio.

The company has so far refused to do so, saying it operates in a fast-growing market and needs the money to fund its future growth strategies. China is the world's biggest mobile phone market with over 900 million users at the end of June. [ID:nL3E7HL04W]

"The cash China Mobile has is probably enough to buy up some companies," said Bertram Lai, an analyst at CIMB Securities.

"There were calls for the company to raise its dividend payout, but that's cooled off as investors get used to the reality that China Mobile probably won't."

China Mobile shares have fallen about 10 percent in the past 12 months, worse than the 7 percent decline on the benchmark Hang Seng Index .HSI.

(Reporting by Kelvin Soh; Editing by Chris Lewis and Muralikumar Anantharaman)

TiVo approves shares buyback

Stock Market Predictions

The company plans to repurchase shares over the next two years with its existing cash.

In May, TiVo settled a long and costly patent infringement lawsuit involving its video recording technology with Dish Network (DISH.O) and EchoStar Corp (SATS.O).

As part of the settlement, Dish and EchoStar paid Tivo $300 million, and will pay $200 million over six equal annual installments between 2012 and 2017.

Shares were up 40 cents, or 5 percent, at $8.05 in premarket trading on Friday.

(Reporting by Liana Baker; Editing by Derek Caney)

Mannkind up on FDA nod for diabetes device trials

Stock Market Predictions

In January, the U.S. Food and Drug Administration rejected the inhaler and asked the company for two more trials to prove that a second-generation version of the device, known as the Dreamboat, is equivalent to a first-generation inhaler known as MedTone.

The FDA confirmed protocols for two studies in which the device will be tested on patients with type 1 and type 2 diabetes.

"We are especially encouraged by the regulatory progress of the Type 2 trial, which we believe now enables approval with a label to address a broader, earlier stage disease, patient population than we had previously anticipated," JMP Securities analysts said in a note to client.

JMP upgraded Mannkind's stock to "market outperform" and set a price target of $7.

Afrezza is administered at the start of a meal and dissolves immediately upon inhalation to deliver insulin to the blood stream.

The trials, called Study 171 and Study 174, will assess the effectiveness of Afrezza in bringing down glucose level in blood compared with MedTone. Mannkind had earlier said that they do not expect the trials to be completed by 2012.

"Ultimately this could be an excess of a billion dollar drug, but how quickly it gets to the market is a real question. It is not going to be in the market for two years," CRT Capital Group analyst Liah Hartman told Global Markets.

The company might be able to complete trials by the late fourth quarter of 2012 or first quarter of 2013, analyst Hartman added.

However, there are concerns over the company raising enough capital to fund the trials.

"It is very possible that they could partner globally for these trials ... Chief Executive Alfred Mann could personally increase the size of unsecured credit which he has been providing the company lately," Hartman said.

Shares of the Valencia, California-based company were up 23 percent at $2.91 on Friday on Nasdaq. They closed at $2.37 on Thursday on Nasdaq.

(Reporting by Kavyanjali Kaushik in Bangalore; Editing by Saumyadeb Chakrabarty, Roshni Menon)

Nvidia shares dip as investors eye mobile chips

Stock Market Predictions

Nvidia's shares were up 11 percent on Friday after the Santa Clara, California company's forecast beat expectations late the day before, but the stock later lost its gain and was down 5 percent.

Many investors have turned to Nvidia because of its Tegra mobile processors for tablets and smartphones unveiled this year. But the Tegra business will be "steady as she goes" while Nvidia's other business segments will grow in the current quarter, Chief Executive Jen-Hsun Huang told analysts on a conference call on Thursday.

Some expected Huang to be more upbeat about Tegra's pace of revenue growth. Tegra sales are small now, but are expected to become a big chunk of Nvidia's business.

"Investors just assumed the product was going to ramp of its own accord. In fact, Nvidia is really beholden to its (manufacturing) customers," said MKM Partners analyst Daniel Berenbaum. "Management has not been particularly helpful in providing realistic revenue ramp plans."

Nvidia, whose name is well known to a community of gamers, graphic designers and other high-end users, this year made a splash at the Consumer Electronics Show in Las Vegas, where it unveiled a series of "design wins" -- electronics manufacturers agreeing to use its mobile chips in phones and tablets.

On Wednesday, Nvidia said Samsung Electronics (005930.KS) is using the Tegra in the new Galaxy R smartphone, the first time Asia's biggest electronics firm has used that chip in one of its phones.

Nvidia expects third-quarter revenue to rise 4 to 6 percent from the second quarter, equivalent to $1.06 billion to $1.08 billion.

But Wall Street analysts responded to the quarterly results and outlook with notes with titles like "Show me the Tegra," "Show me the money" and "As many questions as answers."

"We wonder when Tegra finally catches a wave and delivers the robust growth investors had been waiting for -- particularly as the competitive environment intensifies," Evercore analyst Patrick Wang said in note to clients, cutting his price target on Nvidia's stock to $11 from $12.

The stock was at $12.75 on Friday afternoon.

Stifel Nicolaus cut its price target to $25 from $29, citing research and development spending that was higher than its estimates.

Stifel said it continues to view Nvidia as providing disruptive technology in both mobile computing and data centers, and maintained its "buy" rating on the stock.

(Reporting by Siddharth Cavale in Bangalore and Noel Randewich in San Francisco. Editing by Robert MacMillan)

Penney gross margin slips on price-cutting

Stock Market Predictions

The department store chain reported second-quarter profit in line with the average Wall Street estimate as merchandise available only at Penney stores boosted sales at its stores.

But early in the quarter, Penney found itself having to offer more discounts after sales were soft, lowering gross margin by 1.1 percentage points to 38.3 percent. The company said gross margin would also take a slight hit in the current quarter.

Penney CEO Myron Ullman, who is stepping down in November, said consumers are likely to remain stressed.

"The tumultuous last 10 days or so hasn't given our core customer, the middle income family, any reason to be more confident," Ullman said on a call with the investors.

U.S. consumer sentiment worsened sharply in early August, falling to the lowest index level since 1980, according to a survey released on Friday by Thomson Global Markets/University of Michigan.

Unemployment has been above 9 percent for about two years now while wages have stagnated, curbing middle class and less affluent consumers' ability to shop.

Penney reported that second-quarter net income was little changed from a year earlier at $14 million, or 7 cents per share. That was in line with Wall Street analysts' average forecast, according to Thomson Global Markets I/B/E/S.

Net sales were down 0.8 percent to $3.91 billion, largely because of its exit from its catalog business. Same-store sales were up 1.5 percent, a slower clip than Macy's, Dillard's and Kohl's Corp.

Penney forecast earnings per share in the current quarter will range between 15 cents and 20 cents, below analysts' average forecast of 23 cents.

Penney shares were down 1 percent at $26.56, while Kohl's (KSS.N) were up 1 percent, and Macy's (M.N) slipped 0.4 percent. The S&P 500 index .SPX was up 0.5 percent.

MARGINS UNDER PRESSURE

Penney, whose shoppers are more exposed to an economic slowdown than rival Macy's Inc or higher-end chain Nordstrom Inc (JWN.N), forecast sales at stores open at least a year, or same-store sales, to rise between 2 percent and 3 percent in the third quarter, helped by exclusive merchandise.

Penney in recent years has worked to remake itself into a fashionable destination with exclusive lines such as Liz Claiborne (LIZ.N) clothing and stores-within-its-stores for cosmetics seller Sephora and Spain's fast-fashion chain Mango.

Penney suffered dramatic sales declines during the recession. Sales are recovering, in part because of those higher end lines, but are still below 2008 levels.

Exclusive lines give shoppers a reason to choose one chain over another and lowers the risk of having to slash prices to stay competitive and take a hit to their gross margin.

But Wall Street Strategies analyst Brian Sozzi told Global Markets that Penney has further to go than Macy's or even Kohl's in offering merchandise to entice shoppers to pay up.

"Penney has more exposure to selling basic items," like white T-shirts, Sozzi said.

Macy's, Kohl's and Dillard's all reported steady or higher gross margin for the second quarter.

Earlier this week, department store peers Macy's, Nordstrom and Kohl's all raised their profit outlooks and forecast strong sales for the rest of the year. Late Thursday, Dillard's Inc (DDS.N) reported quarterly profit more than doubled.

U.S. retail sales in July posted their biggest gain since March, tempering fears that the world's largest economy might be slipping back into recession. Excluding autos, sales increased 0.5 percent, well above forecasts for a 0.2 percent gain.

Penney, which is in the process of selling its outlet business, said it was offering voluntary early retirement packages to certain employees. The chain will say next quarter how many employees are eligible and what the costs might be.

In June, Penney announced that Apple Inc's (AAPL.O) senior vice president of retail, Ron Johnson, will become CEO after Ullman steps down. Ullman will become executive chairman of the board.

(Reporting by Phil Wahba, editing by Gerald E. McCormick, John Wallace, Phil Berlowitz)