Micro & Small-Cap Stock Report
WEDNESDAY - OCTOBER 31, 2007.....
Wall Street pulled back Tuesday as investors uneasy after a drop in consumer confidence traded cautiously ahead of the Federal Reserve's rate decision. After the Fed's half-point reduction in September, most investors expect the central bank to deliver a quarter-point cut at the conclusion of its two-day meeting on Wednesday. But inflation remains a threat. Crude oil prices fell Tuesday, but only after hitting a record a day earlier, and meanwhile, the dollar has been tumbling. So a rate cut -- much less additional decreases in the coming months -- is not a given. Some on Wall Street fear economic growth could halt if rates aren't lowered, given the troubles in housing and credit. The statement the Fed issues alongside its rate decision will be closely read for clues about future moves. "We don't think the economy's about to slip into recession. The corporate portion of the economy is still in pretty good shape," said Phil Orlando, chief equity market strategist at Federated Investors. "However, should the Fed choose not to cut anymore, and the economy continue to slip, that potentially could raise some concerns for us." Most earnings have been coming in better than expected over the past few weeks, particularly in the technology sector. But consumers, the key drivers of the economy, appear to be flagging. Following last week's news of a significant decline in existing home sales and Standard & Poor's report Tuesday of home prices sinking further, the Conference Board said its index of consumer confidence fell to its lowest level in two years in October. The index came in at 95.6, below the consensus estimate of 99.5 and down from a revised reading of 99.5 in September. The Dow Jones industrial average fell 77.79, or 0.56 percent, to 13,792.47. Broader stock indicators were mixed. The S&P 500 index fell 9.96, or 0.65 percent, to 1,531.02, while the Nasdaq composite index fell 0.73, or 0.03 percent, to 2,816.71. Treasury bond prices were little changed ahead of the Fed decision. The yield on the 10-year Treasury note, which moves inversely to its price, was at 4.38 percent, flat with late Monday.The market remains nervous that even if the Fed decreases the target fed funds rate by a quarter-point or half-point, the move may not end up helping the credit and housing markets. It's not the price of borrowing that's deterring investors, many say; demand has waned because of worries about the quality of the underlying assets. Furthermore, the central bank must walk a narrow line between keeping investors calm and acknowledging the problems out there -- particularly for the banks and brokerages that could see more big losses if portions of the credit market, like asset-backed commercial paper, don't improve. "Providing the superficial image of stability when everybody realizes things aren't normal just doesn't work," said Axel Merk, manager of the Merk Hard Currency Fund. Some disappointing financial reports from Procter & Gamble Co. and Qwest Communications International Inc., as well as a management shake-up at Merrill Lynch & Co., gave the market little reason to buy ahead of the Fed meeting.
Merrill Lynch's chairman and chief executive, Stan O'Neal, retired Tuesday as expected after the brokerage last week posted the biggest quarterly loss in its 93-year history. But no replacement was named. Alberto Cribiore, a director since 2003, was named interim non-executive chairman. Merrill Lynch fell $1.86, or 2.8 percent, to $65.56. Procter & Gamble was the biggest loser among the 30 Dow components after cautioning that higher commodity costs will squeeze second-quarter margins. P&G fell $2.88, or 4 percent, to $68.95. Although Qwest reported a third-quarter profit jump, its shares tumbled $1.12, or 13.7 percent, to $7.06. Overall revenue dipped, and the telecommunications company provided few details about its outlook. The technology-dominated Nasdaq performed better than the other indexes, helped by ongoing strength in such bellwethers as Apple Inc., Microsoft Corp., and Google Inc. Apple rose $1.91 to $187; Microsoft rose $1, or 2.9 percent, to $35.57; and Google rose $15.54, or 2.3 percent, to $694.77. Crude oil prices retreated $3.15 to settle at $90.13 a barrel, after hitting a record on Monday above $93 a barrel. Gold also fell.
Top Stories
Amerigon Reports Solid Earnings
on Strong CCS Demand
On the eve of one of the most important Fed Reserve decisions in recent memory, the markets were mixed with the Nasdaq gaining slightly while the Dow and S&P saw small declines. Causing the mixed move was the notion that the Fed decision would have a greater impact on the Dow’s blue chip stocks and the broader overall market rather than the technology driven Nasdaq.
Earnings were still being reported in the midst of the uncertain environment, and for the most part, haven’t been as stellar as in past quarters. One name bucked that trend though, and because of the numbers, broke out to new all time highs on some fairly heavy volume.
Amerigon Inc (ARGN) develops products based on its advanced, proprietary, efficient thermoelectric (TE) technologies for a wide range of global markets and heating and cooling applications. The Company’s current principal product is its proprietary Climate Control Seat system, a solid-state, TE-based system that permits drivers and passengers of vehicles to individually and actively control the heating and cooling of their respective seats to ensure maximum year-round comfort. CCS, which is the only system of its type on the market today, uses no CFCs or other environmentally sensitive coolants. Amerigon maintains sales and technical support centers in Southern California, Detroit, Japan, Germany and England.
Before the market opened on Tuesday, the Company reported their third quarter 2007 results. Strong demand for the Company’s proprietary Climate Control Seat system drove revenues for this the third quarter and first nine months to $15.9 million and $47.2 million, respectively, up from $12.7 million and $35.6 million in last year’s third quarter and first nine months. The jump was a 25% increase from Q306 to Q307.
Net income for the third quarter was $3.1 million, or 14c per basic and 13c per diluted share, compared with net income in last year’s third quarter of $900,000, or 4c per basic and diluted share. The Company did, however, enjoy a deferred research and development (R&D) tax benefit of approximately $1.7 million following a study of its research and development activities and related expenses for the period from 1999 through 2006. They did note that they would expect to qualify for further R&D credits, but without the tax benefit during the recent quarter, net income for the third quarter was $1.3 million or 6c per adjusted basic and diluted share.
Following the announcement, shares broke out to all time highs, hitting intraday records of $22.35 before settling in the $20.00 range, up only 5.5%.
The interest could have been sparked by the GAAP numbers, which displayed the benefit and a subsequent year over year EPS increase of over 200%, but also of note was the upbeat feeling towards 2008.
President and Chief Executive Officer Daniel R. Coker noted in the press release, "We had another very good quarter, and we are continuing to have a very good year in 2007. We are achieving the goals we set out for our CCS business in 2007 and are making progress on new applications for our TE technology. As a result, our revenues are growing and expanding as we have predicted, and our bottom line is following along the same path."
Coker noted that the "take rates," which are the rates that a feature like CCS are chosen by the car buying customers, continue to reflect high acceptance, and are solid and promising. He also added that the Company is getting better penetration in Asia and Europe, a trend that should continue through at least 2008. Coker also said that the Company expects CCS revenue growth in 2008 of 30% to 40% with continued strong increases in profitability.
While the domestic economy could see a pullback causing demand for luxury items to dip, internationally, China is seeing a rising middle class which has begun to demonstrate an excess of disposable income. With a historical derived revenue mix of approximately 65% North American and 35% Asian, the Company could escape any domestic slowdown unscathed with a continuation of traction in the region.
In any event, shares have spiked extremely hard on the earnings report causing extended valuations which could limit upside for the time being. Following the close of the bell on Tuesday, the reaction of the stock even caused Roth Capital Partners to cut their rating from Buy to Hold on valuation concerns. While the name remains a solid play in the luxury area, 2008 forward price to earnings ratios of 87 are hard to justify. Investors would be wise to keep the name on the radar and look for less risky entries or names.
E-Z-EM Announces Merger with Bracco
After Revenues Curtailed by Operational Costs
Radyne Revenues Get $13.6M
Boost by Several Orders in October
Radyne Corporation’s (
Bradley Pharmaceuticals Shareholders
Offered $346M from Nycomed at $20 Per Share
Nycomed announced the entry into a definitive agreement to acquire Bradley Pharmaceuticals, Inc. (
Today's Headlines
SIGNS AS POINT-OF-SALE PROVIDER:
Radiant Systems, Inc. (RADS) has announced an agreement with Texas Roadhouse, Inc. (TXRH) to be its exclusive point of sale provider. Radiant will provide P1220 and P1520 point-of-sale terminals to the chain’s 274 restaurants. Operating in 44 states nationwide, Texas Roadhouse currently uses Radiant’s Aloha TableService point of sale and MenuLink labor and inventory solutions. Radiant will also provide a comprehensive hardware field maintenance program that is designed to provide faster return to service and valuable long-term benefits resulting in unsurpassed system uptime.INITIATES CLINICAL STUDY: Enzon Pharmaceuticals, Inc. (
ENZN) announced the initiation of clinical study of the HIF-1 alpha antagonist (EZN-2968) evaluating an additional dosing schedule. The open-label, non-randomized Phase 1 study is designed to evaluate the safety, tolerability, and pharmacokinetics of the HIF-1 alpha antagonist in a daily for 5 days schedule in approximately 30 patients with advanced solid tumors or lymphoma. Hypoxia-inducible factor-1 alpha (HIF-1 alpha) is a key regulator of a large number of genes important in cancer biology. High expression of HIF-1 alpha is strongly correlated with poor prognosis and resistance to therapy. Therefore, drugs that inhibit HIF-1 alpha are expected to block multiple mechanisms that control cancer progression.SELECTS CONVERTERS PRODUCTS AND PROCESSING ENGINE: DataDirect Technologies and an operating company of Progress Software Corporation (
PRGS) announced that Document Sciences Corporation (DOCX) has embedded DataDirect XML Converters products and DataDirect XQuery processing engine into its next-generation xPression 3 software suite. More than 600 organizations worldwide use Document Sciences’ technologies to optimize the customer experience, reduce costs and increase competitiveness.FORMS STRATEGIC AGREEMENT: NYFIX, Inc. (
NYFX) and Citi (C) announced a strategic agreement under which NYFIX and Citi will jointly offer NYFIX Fusion Order Management System clients a transition arrangement to the Lava ColorPalette(R) OMS. All of the transitioned clients, as well as existing Lava ColorPalette OMS clients, will have access to NYFIX’s full suite of electronic trading services, including the NYFIX Marketplace(TM), NEXAS(R) algorithms and the NYFIX Millennium ATS, through an integrated solution with Lava ColorPalette. ColorPalette clients will continue to have access to the Citi Electronic Execution Service products. The decision to exit its Fusion OMS business enables NYFIX to devote more resources to clients of its FIXTrader(R) desktop trading solution and its Marketplace and Transactions businesses, which are more closely aligned with NYFIX’s strategy to facilitate the trading process by providing robust electronic trading tools and access to multiple liquidity sources.SIGNS DEFINITIVE AGREEMENT FOR ACQUISITION: Crdentia Corp. (
CRDT) announced that it has signed a definitive agreement to acquire Medical People Healthcare Services Inc. Approximately 65% of MPHS’s revenues are from healthcare staffing in the nursing home segment, with the remaining revenues from services to local hospitals and other healthcare facilities. Terms of the acquisition include $750,000 in cash and $500,000 in a 3-year note payable. Crdentia expects this acquisition to close in the next two weeks.IMPLEMENTS A NUMBER OF COST-REDUCTION MEASURES: In an 8k filing dated October 30, 2007, it was reported by Maritech Inc. (
MZT) that Matritech had implemented a number of cost-reduction measures including selective curtailment of expenditures and decrease of staff in regulatory affairs, marketing and administration. Matritech has also terminated most of its research and development staff and is no longer pursuing further development or submission on any of its research and development programs.ENTERS $16M AGREEMENT: Secured Digital Applications, Inc. (
SDGL) have entered into an agreement with Collier Consulting Inc. for the sale, marketing and administration of its EyStar GPS Personal and Vehicle Tracker to automotive dealers across the United States through National Automotive Experts. The anticipated revenue from the contract is $16M with the first delivery of the product expected in the first quarter of 2008. Ron Collier, Vice President of Collier Consulting stated, "We believe that this is a major step in introducing Secured Digital’s technology and products to this industry and are very excited about the revenue potential that these products possess."ANNOUNCES INTEGRATION FOR FIRST HARDWARE ENCODING APPLIANCE: On2 Technologies Inc. (
ONT) and RipCode, Inc. announced that RipCode has integrated the On2 VP6 codec used in Adobe Flash Player 8 and 9, for the industry’s first hardware accelerated 2-pass encoding appliance for VP6 recently launched by RipCode. As a result of this agreement, On2 VP6 based services will be able to deliver transcoding for video on demand, enabling broadcasters, syndicators, or user generated video sites to eliminate storage of multiple file formats and deliver files from their entire video library for any application.
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