Afternoon Review

Intel (INTC) +5.28%
Intel is not immune to the effects of an economic recession, which now appears to be dragging down microprocessor and PC demand. However, the magnitude of the change in Intel’s forecast seemed to catch the market by surprise. In fact, semiconductors have been among the more pessimistic over the last 30 days, lowering 2009 earnings estimates with an assertiveness that has not been matched by other parts of the market.

While some believe that companies have been too optimistic in earnings forecasts, this cannot be said of chip makers. A report from Citigroup notes that chip companies’ estimates reflect a decline in 2009 earnings of 20 percent or more, “significantly more conservative than other areas of technology or the broader S&P.” In addition, more than 90 percent of the earnings revisions are negative, which suggests “capitulation” among these companies. With those aspects in mind, this sector appears to be attractive.

Today, Nancy Pelosi said the U.S. House is likely to act next month on an economic-stimulus measure that would increase computer expenditures. This certainly will benefit Intel who absolutely dominates the computer processor market with over 80 percent of the market share. (Computer processors are like the brain or nervous system of a computer.)


First Cash Financial Services (FCFS) +6.47%
First Cash announced the acquisition of Presta Max, a privately-held chain of 16 pawn stores located in southern Mexico. The company believes the transaction will be accretive to its earnings in 2009.

CEO Rick Wessel stated, “The 16 Presta Max Stores will further expand our significant Mexican pawnshop operations. These new stores are profitable, provide us a valuable entry point into markets within Mexico and fit well into our long-term strategy for growth.”

First Cash also sold the operations of its Auto Master unit earlier this week, which the company had planned to exit since September. The cash flow and related tax benefits resulting from this transaction will support the continued expansion of First Cash’s pawn operation in Mexico and the U.S. as well as allow the company to reduce outstanding debt.


Harsco (HSC) +4.84%
Harsco said 2008 profit will be lower than it previously projected, but reiterated its 2009 profit forecast. Turmoil and uncertainty has led to Harsco aggressively reducing costs and exiting some underperforming contracts.

The company statement said the 2009 forecast “is based on the assumption that there will begin to be some relief from the current volatility and the beginning of a return of economic confidence by the second half of 2009.


Quick Hits

• Bailout Scorecard (the list keeps getting longer)
  
  

--

Peter Lazaroff, Junior Analyst