Schaeffer's Midday Options Update Features Johnson & Johnson, Travelzoo, Merril Lynch, Philips Electronics, and Sun Microsystems

Business Wire, Oct 12, 2004

CINCINNATI -- Today's Schaeffer's Midday Options Update Features Johnson & Johnson (NYSE:JNJ), Travelzoo (Nasdaq:TZOO), Merril Lynch (NYSE:MER), Philips Electronics (NYSE:PHG), and Sun Microsystems (Nasdaq:SUNW). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. For additional information about this report or to have it delivered to you free via email every day click on the following link. http://www.schaeffersresearch.com/redirect.aspx?CODE=PROB1M&PAGE=1

Options Update: Sun Rise, or Sun Set?

Let's try something a little different today, and start off with... oil prices. I know that this comes as a great shock, but rising oil prices are having an effect on market activity today. Overnight, crude oil prices leapt above the $54 per barrel mark before backing off to the current $53.30-per-barrel mark. Driving the price jump was the most recent announcement from the International Energy Agency (IEA). The IEA elevated its 2004 forecast for the world's oil demand by 240,000 barrels per day; this lifts the demand to 82.4 million. A catalyst for the jump is strong demand in both Asia and Russia. Chinese demand has shown signs of slowing, August growth was six percent compared to 12 percent in July. Yukos is not giving any support from the Russian side of the equation. Monday, a Russian court ruled that the company, which produces 19 percent of Russia's oil, is liable for $1.34 billion in fines and penalties dating back to a back-tax claim in 2001. All of the news released by IEA was not bad, as the Agency cut its 2005 expectation to 83.9 million barrels per day. For more information on the oil news, read: "Oil Breaks Through $54."

Earnings, Earnings Everywhere

A flood of earnings reports was started this morning by Johnson & Johnson (NYSE:JNJ). This morning, the pharmaceutical manufacturer announced third-quarter earnings that came in ahead of the consensus estimate. JNJ reported a profit of 78 cents per share, which is two cents higher than the Street's expected 76 cents per share. According to CBS MarketWatch, domestic and international sales both jumped, sparking profits. On the domestic front, JNJ's sales increased 5.9 percent for the quarter; while internationally, the sales leapt 17.9 percent.

Another company reporting positive earnings news this morning was Travelzoo (Nasdaq:TZOO). Third-quarter income for the online travel company came in at 12 cents per share, a full 50 percent higher than the eight cents per share expected by analysts. The company's income jumped from $4.8 million to $9.5 million for the same quarter last year. TZOO's move bucked the downtrend in net stocks seen before Yahoo!'s (YHOO) earnings report after the close. Analysts expect YHOO to report earnings of nine cents per share.

The Weakest Lynk?

Merril Lynch (NYSE:MER) also reported third-quarter earnings today. Citing weak activity in global markets and investment banking, the company reported that earnings slipped seven cents per share compared to a year ago. This decline was expected, as MER beat the Street's estimate for earnings by a penny per share (forecast earnings were for 92 cents per share).

"Flat" Earnings

Philips Electronics (NYSE:PHG) issued a warning concerning its fourth-quarter earnings after third-quarter chip sales posted a slight two-percent increase. The consumer electronics interest announced that it sees flat sales in its semiconductor business while the quarter will be influenced by margin pressure in consumer electronics. Looking ahead, PHG believes that its chips division will outperform the rest of the industry next year. According to CBS MarketWatch, the company also sees profitable margins in its consumer electronics division, attributable to cost-cutting and license sales. Some of the negative news can be also be attributed to the fact that Intel (INTC) will report earnings after the close. While INTC is expected to report increases over the same quarter last year, this offers little consolation because the company cut its sales outlook for the quarter in September.

Down on State Street

State Street (STT) issued disappointing third-quarter earnings today, sending the company's shares down more than six percent. STT reported earnings of 52 cents per share, down from 60 cents per share last year, for the third quarter. This missed the consensus estimate of 65 cents per share. The company's chief executive officer attributes the losses to "...a sharp decline in foreign exchange, brokerage, and securities lending" along with market activity in the second quarter. The company also announced the necessity to cut 425 positions and exit or restructure several businesses, hoping to save nearly $50 million per year.

Most-Active Options Update

At 1:08 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,038.9) is down 0.43 percent and the S&P 500 Index (SPX - 1117.82) is lower by 0.58 percent. The Nasdaq Composite (COMP - 1914.3.0) is down 0.75 percent. At 1:09 p.m. in the options pits, 1,331,716 calls and 1,183,861 puts traded for a composite put/call ratio across all five exchanges of 0.88. The CBOE put/call ratio for equity options weighed in at 0.82.