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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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The Week In Review

10/22-26/12

October 26, 2012
Equities showed indecision in the early going after Apple (AAPL 604.00, -5.54) and Amazon (AMZN 238.24, +15.32) delivered disappointing results, while the first reading of the third quarter GDP was reported ahead of expectations. The S&P 500 followed the early choppiness with a late-morning slide into the red. After reaching session lows near 1,403, the index reversed and headed for fresh highs. However, the benchmark average could not hold its best level of the day and settled lower by 0.1%. The advance GDP reading for the third quarter suggested the economy grew at a 2.0% rate in the second quarter when an increase of 1.9% had been expected among economists polled by Briefing.com. The slight beat comes as government spending contributed 0.7% to the number. The third quarter chain deflator reportedly increased by 2.8%, which was ahead of the 2.0% increase that had been broadly anticipated. Technology stocks were in the spotlight as the market reacted to earnings from major sector components. Apple shed 0.9% after reporting mixed results. During the fourth quarter, the tech giant earned $8.67 which was $0.08 worse than the Capital IQ consensus estimate. Meanwhile, the company's revenue of $35.97 billion was in-line with expectations. The gross margin guidance, however, was a point of concern as the company expects the number to be near 36.0% in the first quarter, versus the 40.0% expected by analysts. Also note that the company lowered its earnings and revenue guidance below consensus. Amazon gained 6.9% after reporting its earnings. The online retailer lost $0.23 per share. However, the number may not be comparable to the Capital IQ consensus estimate which forecast a loss of $0.10. The company's revenue of $13.81 billion was largely in-line with expectations, but management issued downside fourth quarter guidance. Comcast (CMCSA 37.56, +1.20) advanced 3.3% after beating on earnings and revenues. The management commented on the reporting period by saying, "The third quarter continues our momentum. Cable's results show real strength in every part of the business, producing sustainable and profitable growth while we expand our product offerings, deliver more innovation and continue to transform the customer experience." NetSuite (N 65.40, +8.49) surged 14.9% after the maker of ERP software reported earnings of $0.08 on $79.8 million in revenue. Both numbers came in ahead of the Capital IQ consensus estimates. Coal stocks were broadly higher after Arch Coal (ACI 8.09, +0.78) and Cloud Peak Energy (CLD 21.20, +2.21) beat on earnings and revenues. During the third quarter, Arch Coal earned $0.20, which was $0.35 ahead of the Capital IQ consensus estimate. In addition, the company's revenue of $1.09 billion was also ahead of expectations. ACI settled higher by 10.7% in reaction to earnings. Meanwhile, Cloud Peak Energy reported earnings of $0.80, which was $0.32 ahead of the Capital IQ consensus estimate. The company's revenue of $425.9 million was well ahead of the $393.57 million expected by the Capital IQ consensus. Cloud Peak stock surged 11.6%. Arch Coal and Cloud Peak posted notable gains, and other coal stocks moved higher as well. Alpha Natural Resources (ANR 8.71, +0.28) and James River Coal (JRCC 5.09, +0.29) saw respective gains of 3.3% and 6.0%. The Dow Jones Transportation Average outperformed the broader market, and added 0.3%. Expeditors International of Washington (EXPD 36.43, +0.65) was the top performer among transportation stocks. The delivery service provider advanced 1.8% after Goldman upgraded the stock to 'conviction buy' from 'sell' with a $42 price target. Railroads also outperformed. Kansas City Southern (KSU 81.25, +1.22) rose by 1.5%, while Norfolk Southern (NSC 62.77, +0.20) and Union Pacific (UNP 123.61, +1.97) gained 0.3% and 1.6%, respectively. Meanwhile, Overseas Shipholding Group (OSG 1.23, -0.09) was the biggest laggard. The oil tanker shipper dipped 6.8% to continue its recent weakness.Homebuilder stocks saw general weakness and the SPDR S&P Homebuilders ETF (XHB 25.52, -0.10) settled lower by 0.4%. Among individual builders, Standard Pacific (SPF 6.90, -0.85) slid 11.0% after announcing disappointing quarterly results. During the third quarter, Standard Pacific earned $0.05, which was $0.03 worse than the Capital IQ consensus estimates. The company's revenue of $318.5 million also fell short of the $385.02 million expected by analysts. Peers DR Horton (DHI 20.76, -0.35), Lennar (LEN 37.02, -0.49), and Ryland Group (RYL 33.76, -0.30) all lost between 0.9% and 1.7% in sympathy. The University of Michigan's final Consumer Sentiment Survey for October rose to 82.6 from the 83.1 that was posted in the preliminary Survey. Many had expected the reading to go unrevised.

October 25, 2012
Equities began the session with a bullish bias which failed to hold past the opening minutes. After opening near session highs, the S&P 500 spent the first hour in a steady decline towards the flat line. Once that level was reached, the index spent the remainder of the day trapped in a narrow range before ending with a slim gain of 0.3%. Technology stocks lagged the broader market. The biggest tech component, Apple (AAPL 609.53, -7.29) slipped 1.2% as investors awaited the company's third quarter earnings report scheduled for this evening. Meanwhile, Microsoft (MSFT 27.88, -0.02) showed little change after the company unveiled its Windows 8 operating system, and launched the Surface tablet at an event in New York. Elsewhere, F5 Networks (FFIV 83.00, -10.32) fell 11.1% after reporting mixed quarterly results. The company reported fourth quarter earnings of $1.12, which was $0.06 worse than the Capital IQ consensus forecast. Meanwhile, the revenue of $362.5 million was in-line with expectations. The company provided a cloudy outlook on the next quarter as it expects earnings and revenue to fall below consensus. The disappointing earnings report was met with two analyst downgrades and four price target cuts. Symantec (SYMC 18.54, +1.16) advanced 6.7% after beating on earnings and revenues. The security software company announced second quarter earnings of $0.45 which was $0.07 better than the Capital IQ consensus forecast. Regarding future outlook, the company issued mixed guidance as it expects in-line revenues and earnings below consensus estimates. Zynga (ZNGA 2.39, +0.26) spiked 12.3% after beating on the top and the bottom line. The social media gaming site reported third quarter revenue of $316.6 million, which was ahead of the expected $307.53 million. In addition, the company issued downside full-year 2012 guidance and announced plans to repurchase up to $200 million of its outstanding Class A common stock. Following the earnings release, Needham upgraded the stock to 'buy' from 'hold' with a $4.00 price target. The Dow Jones Transportation Average outperformed the broader market and ended higher by 0.6%. United Continental (UAL 19.26, -1.01) was one of the weakest performers among the select transportation stocks. Earlier, the air carrier reported third quarter earnings of $1.35 which was $0.20 worse than the Capital IQ consensus estimate. Meanwhile, the airline's revenue was in-line with expectations. Following the earnings report, United Continental lost 5.0%. Peer Delta Air Lines (DAL 9.64, -0.40) slid 4.0% after announcing plans to withdraw older jets from its fleet. In addition, the company is looking to reduce its costs by about $1 billion. Freight carrier CH Robinson (CHRW 59.10, +1.54) was the top performer among transportation stocks. The company's shares settled higher by 2.7% as the stock rebounded from yesterday's earnings-driven decline of 5.6%. Homebuilders were under pressure today, and the SPDR Homebuilders ETF (XHB 25.62, -0.29) settled lower by 1.1%. Yesterday, after the close, Ryland Group (RYL 34.06, +1.27) reported third quarter earnings of $0.45, which was $0.24 better than the Capital IQ consensus estimate. The company's revenue of $358.7 million also exceeded expectations. Ryland was one of few advancers among homebuilders as it registered a gain of 3.9%. PulteGroup (PHM 17.01, -0.44) also announced its quarterly results. The homebuilder reported earnings of $0.27 which was $0.07 ahead of the Capital IQ consensus estimate. Meanwhile, the company's revenue fell short of expectations. As a result, the stock settled lower by 2.5%. Casino stocks saw broad strength after Wynn Resorts (WYNN 120.43, +8.14) delivered strong third quarter results. The casino operator reported in-line revenue and earnings of $1.48, which was better than the Capital IQ consensus estimate. In addition, the company declared a $7.50 special dividend, and announced plans to double the quarterly dividend to $1.00 during fiscal-year 2013. Shares of Wynn surged 7.3% while peers Las Vegas Sands (LVS 46.25, +1.96) and Melco Crown Entertainment (MPEL 14.76, +0.86) saw respective gains of 4.4% and 6.2%. The latest weekly initial jobless claims count totaled 369,000, which was lower than the 375,000 that had been expected by the Briefing.com consensus. The tally is below the revised prior week count of 392,000. As for continuing claims, they fell to 3.254 million from 3.256 million. Separately, durable goods orders increased in September by 9.9%, which was better than the 8.0% increase that had been expected among economists polled by Briefing.com. This comes after the prior month's reading was revised to -13.1%. Excluding transportation related items, durable goods orders increased in September by 2.0%, which was better than the 1.0% increase that had been broadly anticipated. Prior month's reading was revised from -1.6% to -2.1%. Pending home sales for September increased by 0.3%, which was worse than the 2.4% increase that had been expected among economists polled by Briefing.com. Today's reading follows last month's 2.6% decrease.

October 24, 2012
Stocks began the session on an upbeat note, but the bullish sentiment was dispelled in the opening minutes. The S&P 500 and Nasdaq marked their respective highs minutes into the trading day, before sliding back towards the unchanged level. The Dow, however, held its gains a bit longer before recoupling with the other two indices. This afternoon's statement from the Federal Open Market Committee was met with mostly muted reaction, and the S&P 500 finished lower by 0.3%. The Federal Open Market Committee said, "Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level."The policy statement indicated that the Committee will continue purchasing agency mortgage-backed securities at a pace of $40 billion per month, and Operation Twist will continue through the end of this year. Looking at technology earnings, Facebook (FB 23.22, +3.72) spiked 19.1% after reporting earnings of $0.12 on $1.26 billion in revenue. Investors welcomed the results as both numbers came in ahead of the Capital IQ consensus estimates. The company also pointed to improved results from its mobile advertising. Following the earnings report, Bank of America/Merrill Lynch, Citigroup, and Stifel Nicolaus all upgraded the stock to 'buy.' Netflix (NFLX 60.11, -8.10) slid 11.9% after reporting mixed earnings. The company announced earnings of $0.13 which was $0.09 better than the Capital IQ consensus estimate. Meanwhile, its revenue of $905 million was in-line with Capital IQ estimates. The management commented on their expansion into Latin America by saying, "The biggest issue holding back much stronger growth is payments."Juniper Networks (JNPR 15.99, -1.58) fell 9.0%. Yesterday, the company reported third quarter earnings of $0.22 on $1.12 billion in revenue. Both numbers were ahead of the Capital IQ consensus estimate. However, the company issued downside fourth quarter earnings and revenue guidance which gave investors cause for concern. Restaurant stocks were in focus after a handful of industry components reported their earnings. Brinker International (EAT 30.01, -3.44) lost 10.3% after reporting mixed results. During the past quarter, the restaurant operator earned $0.37, which was just short of the $0.38 forecast by the Capital IQ consensus. However, the company's revenue of $683.5 million was ahead of Capital IQ expectations. The management also made cautious comments regarding the current quarter and said beef prices are the biggest concern. Buffalo Wild Wings (BWLD 74.70, -8.76) fell 10.5% after missing on both earnings and revenues. The company's earnings of $0.57 fell short of the $0.61 expected by the Capital IQ consensus. Meanwhile, the restaurant operator reported revenue of $246.9 million, which was lower than the $254.57 million forecast by the Capital IQ consensus. The management cited rising input prices as the reason for disappointing earnings. Note that today's selling has dropped the stock to levels not seen since middle of August. Panera Bread (PNRA 168.43, +8.09) advanced 5.1% after exceeding top and bottom line expectations. In addition, the company raised its fourth quarter earnings forecast above the Capital IQ consensus. The Dow Jones Transportation Average underperformed the broader market, and ended with a loss of 2.0%. The weakness in the bellwether group was a result of disappointing earnings from three components. CH Robinson (CHRW 57.55, -3.42) shed 5.6% after its earnings of $0.72 missed Capital IQ consensus estimates by $0.01. The freight carrier's revenue of $2.88 billion also fell short of Capital IQ analyst expectations. Delta Air Lines (DAL 10.04, -0.11) also delivered a disappointing quarterly report as its top and bottom line results fell short of the Capital IQ consensus forecast. Shares of Delta settled lower by 1.1% following the release. Norfolk Southern (NSC 61.09, -4.92) dipped 7.5% after the rail operator's earnings of $1.24 exceeded Capital IQ consensus estimates, while its revenue of $2.69 billion was in-line with expectations. Note that the results are being compared to downside guidance which the company issued on September 19. The remaining railroads in the transportation average were mixed. Kansas City Southern (KSU 79.07, +0.51) added 0.7%, while CSX (CSX 20.59, -0.72) and Union Pacific (UNP 120.87, -2.35) shed 3.4% and 1.9%, respectively. New home sales in September hit an annualized rate of 389,000, which was up from August's revised rate of 368,000, and better than the rate of 385,000 that had been broadly expected by the Briefing.com consensus. Separately, the latest Housing Price Index from the FHFA was also released. For August, the Index increased by 0.7%, which follows a 0.1% increase in the prior month. The MBA Mortgage Index showed a 12.0% decrease in new mortgage applications during the past week. Today's number follows last week's 4.2% decline. Tomorrow, weekly initial and continuing claims, durable orders, and durable orders --ex transportation will all be reported at 8:30 ET. In addition, September pending home sales will be announced at 10:00 ET.

October 23, 2012
Equities began the session with an opening sell-off as disappointing earnings combined with Moody's downgrade of five Spanish regions fueled the bearish sentiment. Stocks reached session lows during the first hour before attempting to rebound. The tech-heavy Nasdaq showed intraday resilience, but the attempt to reclaim its early losses was cut short when late-day selling sent the index back near the middle of its range. As a result the Nasdaq ended lower by 0.9% while S&P 500 lost 1.4%. Stocks in the materials space saw the biggest weakness. Among steel producers, AK Steel (AKS 5.19, -0.32) fell 5.8% despite beating on earnings and reporting revenues in-line with Capital IQ consensus. However, based on current conditions, the company expects to incur a net loss during the fourth quarter. This includes an anticipated non-cash tax expense resulting from an expected change in the company's tax valuation allowance. Other steel producers also traded lower. ArcelorMittal (MT 15.64, -0.92) slid 5.6%, while Cliffs Natural Resources (CLF 43.55, -1.44), Nucor (NUE 40.37, -0.75), and United States Steel (X 21.90, -1.01) all lost between 1.8% and 4.4%. Chemical producer DuPont (DD 45.25, -4.51) plunged 9.1% after missing earnings and revenue expectations. In addition, the company lowered its full-year 2012 earnings guidance, and announced restructuring plans which aim to cut about 1,500 positions globally. The weak results weighed on other chemical producers. Dow Chemical (DOW 28.55, -1.19) settled lower by 4.0%, while Monsanto (MON 86.93, -1.94) and Mosaic (MOS 53.07, -1.16) both lost near 2.2%. The technology sector outperformed the broader market. The group's biggest component, Apple (AAPL 613.35, -20.67) dipped 3.3% after unveiling a smaller version of the iPad tablet with a $329 price tag. The company also announced a fourth generation iPad and a new desktop computer. Looking at technology earnings, Western Digital (WDC 34.43, -0.85) slipped 2.4% despite beating on earnings and revenues. The management remained upbeat about future prospects and said, "While the macroeconomic environment is dampening near term demand, we remain confident in the continued long-term growth in the creation, storage and management of digital content." Peer Seagate (STX 27.80, -0.51) shed 1.8% in sympathy. Texas Instruments (TXN 27.84, +0.05) tacked on 0.2% after reporting third quarter earnings of $0.52 on revenue of $3.39 billion. While the quarterly results beat expectations, it should be noted that the company issued downside fourth quarter earnings and revenue guidance. The management commented on the outlook by saying "TI revenue grew sequentially and operations were well executed even though the economy and semiconductor market remained weak and likely will get weaker in the fourth quarter." Xerox (XRX 6.67, -0.36) ended lower by 5.1% after announcing mixed earnings. The business equipment provider reported earnings of $0.25, which was in-line with Capital IQ consensus estimates. However, the revenue of $5.42 billion was short of the $5.5 billion forecast by the Capital IQ consensus. The management commented on the future outlook by saying, "We remain cautious, and we are focused on reducing costs to absorb the impact and improve margins while investing in key areas of growth and delivering strong cash flow." Elsewhere, Yahoo! (YHOO 16.67, +0.90) advanced 5.7% after its third quarter earnings of $0.35 exceeded Capital IQ consensus estimates by $0.09. The revenues, meanwhile, were reported in-line with Capital IQ analyst expectations. Following the earnings release, Susquehanna upgraded the stock to 'positive' from 'neutral.' Note that today's buying has lifted the stock to levels not seen since October of last year. The Dow Jones Transportation Average outperformed the remaining industrials, and added 0.9%. The strength within the bellwether complex was a result of positive reaction to earnings from a handful of names. Ryder System (R 45.82, +2.39) rose by 5.5% after announcing mixed earnings. The truck lessor reported earnings of $1.28 which was $0.10 better than the Capital IQ consensus estimate. However, the company's revenue of $1.57 billion was below the $1.62 billion Capital IQ forecast. Peer CH Robinson (CHRW 60.98, +1.13) added 1.9%. United Parcel Service (UPS 73.73, +2.17) advanced 3.0% after reporting mixed earnings. The economic bellwether announced third quarter earnings of $1.06, which was in-line with the Capital IQ consensus. Meanwhile, the company's revenue of $13.07 billion fell short of the $13.31 billion expected by the Capital IQ consensus. In addition, the company issued in-line guidance. Peers FedEx (FDX 91.79, +0.31) and Expeditors International (EXPD 36.28, +0.95) registered gains of 0.3% and 2.7%, respectively. Luxury retailer Coach (COH 58.15, +3.98) surged 7.4% after beating on earnings, and reporting in-line revenues. The company also announced the repurchase of up to $1.5 billion of its outstanding common stock by June 30, 2015. When commenting on the future outlook, the management said, "We are well positioned for the holiday season and remain confident in our ability to deliver double-digit growth during our planning horizon." Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET. In addition, September new home sales and the August FHFA Housing Price Index will be released at 10:00 ET. Lastly, the Federal Reserve will release a policy statement at 14:15 ET.

October 22, 2012
Stocks got off to a quiet start as mixed quarterly reports continued to pour in. Indecision was apparent in the early going as the major averages traded near their respective unchanged levels. As the day progressed, the S&P 500 and Dow headed lower. However, the final hour brought out bargain-hunters who lifted the major averages near their respective session highs. As a result, the S&P 500 ended unchanged. Meanwhile, the Nasdaq outperformed and settled higher by 0.4%. Caterpillar (CAT 85.08, +1.22) advanced 1.5% after reporting mixed earnings. The industrial bellwether announced earnings of $2.54 against the Capital IQ consensus estimate of $2.24. However, the company's revenue of $16.45 billion missed the Capital IQ consensus by $470 million. In addition, the company lowered its full-year 2012 earnings and revenue guidance below consensus. Management commented on its cautious outlook by saying "CAT dealers have lowered order rates well below end-user demand to reduce their inventories." The technology sector was the top performer after posting the largest loss during Friday's sell-off. Apple (AAPL 634.03, +24.19) gained 4.0% ahead of an event scheduled for 13:00 ET tomorrow. At the event, the company is expected to unveil a smaller version of the iPad tablet. The strong gains in Apple supported the Nasdaq throughout the day. Cirrus Logic (CRUS 39.66, +1.44) rose by 3.8% after Feltl & Co. upgraded the stock to 'strong buy' on an expectation of an earnings beat. Elsewhere in tech, Netflix (NFLX 67.88, +2.90) advanced 4.5% after reports indicated the company is considering moving into seven new markets, including Asia. Also of note, OpenTable (OPEN 46.36, +2.77) gained 6.4% after reports indicated Yahoo! (YHOO 15.77, -0.07) may be interested in purchasing the restaurant reservation service. Note that Yahoo! is scheduled to report its third quarter earnings after today's close. Philips Electronics (PHG 26.23, +1.63) surged 6.6% after the electronics manufacturer reported a 13.6% year-to-year rise in revenues. The revenue of EUR6.13 billion was ahead of the Capital IQ consensus estimate of EUR5.96. Today's buying has lifted the stock to levels not seen since June of last year. Utility stocks underperformed the broader market. Avista (AVA 25.54, -0.92), which specializes in generating and delivering electricity, lost 3.5% after the company lowered its third quarter and full-year 2012 earnings guidance below consensus. In addition, the company issued in-line guidance for full-year 2013 as it sees earnings between $1.62 and $1.76. Peer Public Service Enterprise (PEG 32.43, -0.28) slipped 0.9% after Credit Suisse downgraded the stock to 'underperform' from 'neutral.' Elsewhere in utilities, electricity provider The AES Corporation (AES 10.81, -0.23) slid 2.1%. The Dow Jones Transportation Average trailed the remaining industrials, and closed lower by 0.4%. Overseas Shipholding Group (OSG 1.23, -2.02) sank 62.2% after announcing it is evaluating its strategic options, including a potential filing of Chapter 11 bankruptcy. The company also said that its past financial statements are not to be relied upon, and restatements may be needed. The uncertainty regarding the company's future prompted Dahlman Rose to downgrade the stock to 'sell' from 'hold' with a $0.50 price target. Railroad stocks within the transportation average were mixed. Norfolk Southern (NSC 66.83, +1.19) advanced 1.8%, while CSX (CSX 21.29, +0.19) added 0.9%. Meanwhile, Kansas City Southern (KSU 78.36, -0.07) shed 0.1% after reporting mixed quarterly results. The company's earnings of $0.82 fell $0.03 short of the Capital IQ consensus estimates, while the revenue was reported in-line with Capital IQ analyst expectations. Following the earnings release, the stock received a pair of downgrades. BB&T downgraded the stock to 'hold' from 'buy' while BMO Capital lowered the rating on KSU to 'underperform' from 'market perform.'