Afternoon Review

Hologic (HOLX) +13.12%
Hologic – a leading developer, manufacturer and supplier of premium diagnostics, medical imaging systems and surgical products dedicated to serving the healthcare needs of women – announced preliminary first quarter fiscal 2009 earnings that exceeded the company’s initial guidance. The company’s revenues, however, are now expected to be three percent below their previously issued guidance.

Hologic lost nearly 62 percent in 2008, 32 percent of that decline coming in the fourth quarter. Companies within the medical equipment industry saw an unprecedented decline in hospital spending due to the severe and rapid economic downturn. Hospital systems across the country have responded to tightening access to capital by restricting capital expenditures, implementing tight spending controls and reducing personnel.


Bank of America -12.01%
A Citigroup analyst issued a report today suggesting that Bank of America may post a loss of $0.75/share, compared with his earlier estimate of a $0.02/share profit, and they may reduce its dividend to $0.05/share from $0.32/share.

Bank of America raised $10 billion in October in a share sale, received $25 billion from TARP and halved its dividend to prepare for a slower economy. However, the analyst report estimates that Bank of America may have cumulative losses of $165 billion between 2008 and 2011. “So far about 33 percent have been taken either through loan loss provision or purchase accounting marks.” About a third of the expected losses, or $57 billion, are likely from credit-card lending, with about $29 billion from home loans made by Countrywide Financial Corp.

Also hurting financial shares was a statement from President-elect Obama that companies who receive TARP money should face restrictions with their dividend payments and share repurchases.


Principal Financial Group (PFG) -11.41%
Principal, as well as other life insurers tumbled on news that the National Association of Insurance Commissioners rejected an industry plea to loosen reserve standards after investment losses depleted capital across the industry.

Financial stocks were battered after news reports that Obama would limit dividend payments and share repurchases for institutions that receive TARP funds.


Seagate Technology (STX) -15.60%
Seagate, the world’s biggest maker of hard-disk drives, replaced CEO William Watkins and said it will cut 10 percent of its U.S. workforce as sales and profit drop amid the recession. The new CEO will be Chairman Stephen Luczo, who ran the company for six years before Watkins was in the position.


Earnings Season
The big market declines today is evidence that investors are bracing for a grim earnings season, which began this afternoon after the close with Alcoa posting disappointing results.

Analysts are expecting to see a decline of more than 15 percent in aggregate fourth-quarter earnings at S&P 500 companies, once all the reports are in hand. Such a decline would represent the sixth straight quarter of falling S&P profits. However, there is increasing sentiment that earnings expectations are still too high.

Two of the more interesting companies set to report earnings this week are JPMorgan (JPM) and Intel (INTC). The market will be paying close attention to their comments on the outlook for future quarters, looking for hints about when the long-running U.S. recession will wind down as well as the general health of the financial and technology sectors.


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Peter Lazaroff, Junior Analyst