Google's (GOOG) Spending Increases Concerns Over New CEO Page

Unfortunately for Google (NASDAQ:GOOG), what would have been considered an extraordinary quarter under normal conditions, with net revenue increasing by 29 percent, it was overshadowed by the enormous surge in spending of 54 percent.

With new CEO Larry Page coming on board and concerns over his propensity to pursue dubious ideas, at best, this reinforces to many concerns over being mature enough and capable enough to profitably run Google.

While it's good to have a long-term outlook on a company, there are far too many generalizations at this time from Google management to generate concerns over whether or not they really have a specific plan and strategy in place other than shrinking the bureaucracy at the company and some undefined ideas from the incoming "visionary."

It reminds shareholders and investors of why Eric Schmidt had been brought on to run the company in the first place, which was to put an adult in charge.

Other than plans to hire over 6,000 new employees in 2011 and boosting the salaries of existing workers by close to 10 percent, there hasn't much concrete that the company has announced they're going to plow the money into.

As to clarity, the comment by Chief Financial Officer Patrick Pichette saying, "The discipline of the company has not changed; we're just really bullish on our prospects. I can tell you every element of the company (expenses from real estate to food) is scrubbed and scrutinized," means almost nothing.

They're bullish so they're spending, and they've allegedly thoroughly went over part of the company as far as expenses go.

To go over the expenses of any company is standard and responsible business practice. To announce it is largely irrelevant and meaningless. And the bullish comment is something every single CEO or CFO of a company would say.

As to specifics, there aren't any, and that, more than anything, is disconcerting to shareholders. To say the spending is for the purpose of pursuing multibillion business opportunities, as Google executives have asserted, again, says absolutely nothing.

There appears to be the increasing suspicion that Page isn't much interested in managing margins and earnings, but in expanding into new business areas and topline growth.

Net income for the quarter came in at $2.3 billion, or $7.04 a share. Excluding items, earnings were $8.08 a share, missing analysts expectations of $8.10 a share.

Page and Google now have a huge credibility problem, and the company could begin to be punished significantly if more details aren't released soon and what appears to be a cloud of secrecy surrounds the company.

Only performance will change this, and shareholders will be the final judges as to whether or not they have the patience to wait for Page, or if they feel they can trust him at all.

Google closed Thursday at $578.51, gaining $2.23, or 0.39 percent. After hours the company plunged $31.91 to $546.60, down 5.52 percent.

Nike's (NKE) and Others' Catch-22

Shoe and apparel companies are in a difficult situation, as revealed by Nike (NYSE:NKE) in its latest quarterly report.

They are still dealing with a weak economy while at the same time facing rising commodity prices.

That means those selling shoes, clothing and accessories will continue to struggle, as they have a choice of shrinking margins or raising prices which will result in lower sales.

Even though there is a temporary reprieve from the price of oil, it's very doubtful that will continue, and recent history as proven we're approaching levels where consumers take not of their spending at these gasoline price levels, especially as they close in on $4 a gallon.

Guidance from Nike into 2012 is they see gross margins falling 300 basis points year over year for the rest of this fiscal year.

The majority of other retailers in these segments will experience the same, especially in relationship to rising cotton and transportation costs.

Nike was trading at $77.46, falling $7.95, or 9.31 percent, as of 12:38 PM EDT.

Nike (NKE) Shares Plunge on Earnings Miss

Shares of Nike (NYSE:NKE) fell hard in after hours trading as the company missed analysts' estimates on higher costs of cotton and oil.

For its fiscal third quarter, net income increased 5.2 percent to $523 million, or $1.08 a share. That was up from the $497 million, or 1.01 a share generated last year in the same quarter, but down from the $1.12 analysts were looking for.

Revenue climbed to $5.08 billion for the quarter, an increase of 7.3 percent.

Minus currency exchange rates, future orders enjoyed an increase of 9 percent, level with what analysts were expecting.

The major negative was the gross margin numbers, which dropped to 45.8 percent, a decline of 1.1 percentage points.

Nike closed Thursday at $85.41, gaining $0.59, or 0.70 percent, In after hours trading, it fell to $79.98, down $5.36, or 6.28 percent.

Cisco (NASDAQ:CSCO) Pummeled After Gross Margin Miss

Shares of Cisco Systems (NASDAQ:CSCO) got hammered in after hours trading as the company missed on their gross margins for the quarter.

Costs related to research and development soared 19 percent in the quarter and sales and marketing expenses climbed 15 percent. That's in comparison to the 6 percent increase in sales.

The implication seems to be that Cisco is slashing prices and offering better terms to its customers, which works out to a longer period of time for customers to pay.

Most know demand is increasing, but it the question is whether or not Cisco can take advantage of that without sacrificing margins and earnings. At this time it appears they may be cutting prices to gain market share; at least that's how the market is interpreting the results.

Gross margins in the last quarter for Cisco dropped to 62.4 percent.

Cisco may have made themselves vulnerable to competitors in their older business because of moving into over 30 new businesses.

Mizuho Securities USA Inc. analyst Joanna Makris noted, “They’ve become the Procter & Gamble of networking. The stocks that have outperformed them have been the more focused, nimble companies.”

The company has the stated goal of growing revenue over the long term at a 12 percent to 17 percent rate.

Net income for the quarter dropped from $1.85 billion, or 32 cents a share last year in the same quarter, to $1.52 billion, or 27 cents a share.

Cisco closed Wednesday at $22.04, up $0.05, or 0.23 percent. In after hour trading, they dropped to $20.13, falling $1.91, or 8.67 percent.

Polypore International's (NYSE:PPO) Gross Margins Better Than Expected

Polypore International (NYSE:PPO) appears to have placed themselves in the position of producing another solid quarter, and it doesn't hurt that gross margins are better than believed.

Needham says, "We believe Polypore is positioned to deliver another solid year of financial performance. The major businesses are positioned to benefit from better demand and ongoing capacity expansion efforts. In our view, there 'ain't no dogs in the company's portfolio of businesses...We are increasing our 4Q10 operating EPS estimate to $0.35 (from $0.33) and our FY11 EPS estimate to $1.71 (from $1.54) to reflect a better gross margin profile than initially anticipated."

Needham & Company maintains a "Strong Buy" on Polypore International (PPO), which closed Wednesday at $47.49, up $2.62, or 5.84 percent. Needham raised their price target on Polypore from $38 to $50.

Juniper Networks (NYSE:JNPR) Could Break Out in Next 12-18 Months

Citing several catalysts, Canaccord says they could see Juniper Networks (NYSE:JNPR) breaking out some time in the next 12 to 18 months.

Canaccord says, "Acquisition-related dilution modestly impacts operating margin trends over -2 quarters. However, with solid SP demand catalysts, recent improvements to enterprise sales incentives/structure, and a compelling product pipeline, we think Juniper is in position for a potential break-out performance over the next 12-18 months...For 2011, we expect more defined commentary at the March 3 Analyst Meeting but adjust our revenue forecast +$35M to $4.88B (+19%) vs. $4.74B consensus. Our EPS estimate goes to $1.53 vs. $1.56 as we anticipate H1 dilution partially offset by H2 accretion. Our 2012 forecast assumes +17% growth to $5.7B with 25.5% operating margin, for $1.94 in EPS – up from our prior $5.6B/$1.91."

Canaccord Genuity reiterates a "Buy/Top Pick" on Juniper Networks (JNPR), which closed Wednesday at $37.05, up $2.33, or 6.40 percent. Canaccord has a price target on Juniper of $42.

CA (NASDAQ:CA) Hammered on Weak Cash Flow, Margins

Shares of CA Technologies (NASDAQ:CA) have been taking a beating today, as its q/q op margin is lower, as well as its estimated cash flow for the third quarter.

Also of note is a 1 percent increase in the backlog of the software company.

Even so, Jefferies finds them an interesting story, as the downside looks limited to them, and strong acquisitions could give them a revenue boost in the short term.

Jefferies lowered their full year 2011 and full year 2012 EPS estimates on CA from $1.97 and $2.04 to $1.95 and $2.16.

Interestingly, Jefferies maintains a "Buy" rating on CA, which was trading at $23.23, losing $2.13, or 8.40 percent, as of 2:22 PM EST. They also boosted their price target on CA from $24 to $28.

Halliburton (NYSE:HAL) Margins, Global Front Sales Improve

Halliburton (NYSE:HAL) has a number of levers it can pull to achieve its margin target of 24 percent, say Canaccord, once completion equipment adds reach the market.

Canaccord says, "Although NAM was negatively impacted by the GoM slowdown, it still managed to achieve 10% sequential growth and 24% margin. Management highlighted the numerous levers that it has at its disposal to maintain margins when anticipated completion equipment adds hit the market throughout 2011. On the International front sales, increased 11% q/q, and margins improved 60bps to 16.2%. Overall International outlook for Halliburton 2011/12 looks increasingly promising, and the company is taking initiatives for improving sales and returns once the global ramp-up is at full speed."

Canaccord Genuity maintains a 'Buy' rating on Halliburton (HAL), which closed Tuesday at $40.20, gaining $0.65, or 1.64 percent. Canaccord has a price target on Halliburton of $50.

Barclays Previews Potash (NYSE:POT), Earnings Below Consensus

In an earnings preview of Potash Corp. (NYSE:POT), Barclays (NYSE:BCS) sees them coming in significantly below consensus.

Barclays says, "Potash Corp will report Q4 2010 results before market open on January 27, 2011. We are forecasting earnings of $1.53/sh versus consensus of $1.64/sh...Potash: Price Increases Start Trickling In: We are expecting potash pricing to improve in Q4 over Q3 levels as December sales should reflect the $50/ton price increase announced in North America in September...Phosphates: Margin Expansion Hampered by Rising Costs: With rising finished phosphate and feed prices we expect POT will realize significantly better phosphate prices in Q4 over Q3 levels...Nitrogen: Strong Pricing in the Quarter: With nitrogen shortages driving higher prices, we expect POT to realize significantly better nitrogen pricing in Q4 over Q3 levels."

Barclays reiterates an "Overweight" rating on Potash Corp. (POT), which was trading at $162.76, down $2.36, or 1.43 percent, as of 2:14 PM EST. Barclays has a price target of $165 on Potash.

Verizon (NYSE:VZ) Finds Support in Wireless Margins, Postpaid Additions

In their fourth quarter report, Verizon Communications (NYSE:VZ) was found to have had support from their postpaid additions and wireless margins.

Nomura said, "Postpaid net additions and Wireless margins in 4Q were all better than both our and consensus expectations. Key to the initial read of investors will be 872K wireless net additions on stronger margins vs. our expectations for 724K and consensus of 634k. We expect the shares to react positively to the news today given outperformance virtually across the board. Nonetheless, we believe investors will be potentially more focused on the upcoming iPhone launch and the overall level of iPhone dilution in 2011 as well as the potential for a reversal of the dilution in 2012, a dynamic we are growing more skeptical on.

"The one area of softness was FiOS net additions and continued weakness in the DSL market. We continue to believe that Verizon manages FiOS net additions based on margin capacity, and is content to allow continued DSL defections...we expect the company will address network capacity issues, but leave financial and subscriber metric guidance largely untouched. Nonetheless, we hope to get some broad commentary on revenue and margin trends for 2011 and 2012."

Nomura Securities reiterates a "Neutral" rating on Verizon Communications (VZ), which was trading at $35.79, gaining $0.55, or 1.56 percent, as of 1:57 PM EST.

JPMorgan (NYSE:JPM) Weighs in on VMWare (NYSE:VMW) Margin Guidance

Concerns over the weak margin guidance from VMWare (NYSE:VMW) spooked investors today, putting downward pressure on the tech sector, and pushing the share price of VMWare down over 3 percent.

While VMWare had a good quarter, that was largely ignored on the margin guidance.

JPMorgan analyst John DiFucci said in a note to clients, “The significant fourth-quarter upside did not provide the economies of scale that we might have expected, and guidance for 2011 was for flat margins, as the company invests to capitalize on the opportunities before it.

“It’s difficult for us to ascertain whether this is the best path, other than to acknowledge the opportunity, but to also question whether margins should really be flat next year if revenue grows 21% to 24%.”

VMWare was trading at $84.92, falling $2.81, or 3.20 percent, as of 12:33 PM EST.

Baker Hughes (NYSE:BHI) International Margins Should Improve in 2011

Based on the expectation Baker Hughes (NYSE:BHI) is going to widen their international margins, Goldman Sachs (NYSE:GS) sees them moving EPS up in the near future.

Goldman said, "BHI has the lowest international margins relative to peers but we expect this gap to narrow. While the stock has done well recently, it is one of the worst performers from the 2008 highs, and higher international margins should drive EPS revisions. 4Q earnings is the next catalyst; we are 10% above consensus (11%/4% above in 2011/2012)."

Goldman Sachs upgraded Baker Hughes from "Neutral" to "Buy." Baker closed at $56.60 on Friday, gaining $1.77, or 3.23 percent. Goldman has a price target of $70 on them.

WMS Industries (NYSE:WMS) Margins to Increase Says Morgan Joseph

Saying they see WMS Industries (NYSE:WMS) increasing margin going forward, Morgan Joseph boosted their price target on the company.

Commenting on the increase of the price target, Morgan Joseph said it is "prudent to value the stock off FY12 earnings now given the margin expansion potential that we envision next fiscal year, the likely pick-up in replacements, and growth potential on the international front."

They also released their EPS estimate for 2012 on WMS, which they placed at $2.51.

Morgan Joseph reiterates their "Buy" rating on WMS Industries, which closed Wednesday at $44.13, down $0.77, or 1.71 percent. They raised their price target on them from $49 to $55.

Novellus (NASDAQ:NVLS) Spending in 2011 Should Increase

Novellus (NASDAQ:NVLS) is expected by Needham & Company to increase their spending in 2011, generating a positive short-term outlook from Needham on them.

Needham said, "We maintain our Buy on NVLS after the company tightened 4Q10 bookings, shipments and EPS guidance to the higher-end on its mid-quarter business update call. Management remains optimistic on the long-term growth drivers for the industry and painted a more positive picture on 1H11 given the stabilization in end market demand post October. The updated guidance gives us more confidence on our call that semi equipment spending will grow in 2011...We raise our 2010 and 2011 revenue/non-GAAP EPS estimates to $1,345B/$2.95 and $1,500/$3.47, respectively, based on improved order visibility and a higher gross margin assumption."

Needham & Company maintains a "Buy" rating on Novellus (NASDAQ:NVLS), which is trading at $32.42, up $0.65, or 2.05 percent, as of 2:51 PM EST. Needham raised their price target on them from $31 to $35.

Starbucks (NASDAQ:SBUX) Focusing on Margins, China

After falling from being one of the darlings of Wall Street, Starbucks (NASDAQ:SBUX) has quietly fought its way back over the last couple of years and looks poised for revenue and earnings growth as the focus on China and widening margins.

Deutsche (NYSE:DB) said, "A change in mindset can be a powerful enabler. Starbucks presented its domestic business with an eye toward enhancing margins, its International business focused on creating positive mix in China and a stable capex build, and finally its CPG business highlighted unique competitive advantages to drive high margin growth. Happily, we saw sparse evidence of the purely store-based growth metrics and simple demographic cases (i.e. low penetration) for growth. Return implications are bullish.

"Moving 2011 forecast $0.02 to $1.52, 2010 $$0.07 higher to $1.70 Changes are driven by slightly higher store growth more in line-with company targets, slightly higher comps, CPG growth and further gains on the cost side."

Deutsche Bank maintains a "Buy" rating on Starbucks, which closed Thursday at $32.76, gaining $1.06, or 3.34 percent. They have a price target of $35 on Starbucks, raising it from $33.

Advanced Battery (NASDAQ:ABAT) Margins Should Widen in Fourth Quarter

After figures from the third-quarter were released, it appears margins for Advanced Battery Technologies (NASDAQ:ABAT) are poised to rise in the fourth quarter and forward, as operating expenses were lowered at the company.

Olympia Capital Markets said, "We are lowering our operating expense expectations in light of the third quarter figures. On that basis, we are raising our EPS estimates for the fourth quarter from $0.12 to $0.16, for the full year 2010 from $0.44 to $0.53, and for full year 2011 from $0.52 to $0.60. We continue to believe the shares would be reasonably priced at 10 times estimated 2011 earnings plus its current cash position, now $1.06 per share."

A "Buy" rating is maintained on Advanced Battery by Olympia, which closed Tuesday at $4.02, falling $0.03, or 0.74 percent. Olympia has a price target of $7 on them raising it from $6 a share.

Pacific Sunwear (NASDAQ:PSUN) Needs Wider Margins, Stronger Sales

Noting Pacific Sunwear of California (NASDAQ:PSUN) has improved their product line and store environment, Needham still sees them as weak until they can generate sustainably wider margins and consistent sales.

Needham, which maintains a "Hold" rating on Pacific, said, "At -0.4x P/sales and -1.6x P/book, respectively PSUN is trading significantly below the sector averages of 1.1x and 2.7x. While we agree both store environment and merchandise assortment has begun to improve at PacSun, the Junior’s business continues to struggle. We would like to see more evidence that a margin recovery is underway or stronger sales momentum, before we become more positive on the stock. We no longer think that liquidity is a concern, given the availability of credit and ability to generate cash, even on depressed sales levels."

Pacific closed Tuesday at $5.95, dropping $0.32, or 5.10 percent. Trading volume was almost double the 3-month daily average.

Foot Locker (NYSE:FL) Should Continue Strong Sales and Margins

The third-quarter results of Foot Locker (NYSE:FL) should continue their momentum into the fourth quarter, says FBR Capital, driven by strong margins and sales.

FBR said, "Our FL thesis kicked into gear in 3Q, with solid execution against a strong athletic footwear cycle (now catalyzed by an emerging basketball trend) and easier compares that support material re-leveraging of the operating model driving a huge upside print. Better merchandising with greater differentiation between store concepts and superior flow of product, an emergence of a number of product catalysts in basketball (40%–50% of FL's mix), continued strength in running (as toning continues to evolve), and an apparel category that may be on the verge of sustaining positive comps (that is more profitable through mix shifts) are driving the top line, while strong inventory control, fewer and less aggressive promotional events, and a more-productive store base as a result of underperforming store closures/favorable lease negotiations bolster margins."

Foot Locker closed Monday at $18.37, gaining $0.02, or 0.11 percent. FBR has a price target of $21 on the company, along with an "Outperform" rating.

Telvent (Nasdaq:TLVT) Gross Margins Impressive

Telvent GIT (Nasdaq:TLVT) expansion of its gross margins has impressed
Canaccord Genuity, which reiterates a "Buy" rating on the company.

Canaccord said, "Our bull thesis remains intact as management’s SaaS strategy drives impressive gross margin expansion. Near term, we keep our LC & USD estimates deliberately conservative into 2011, as end-market demand firms, but remains variable (Energy up, Trans mixed & Spain resilient)."

Telvent closed Friday's trading at $23.42, gaining $0.08, or 0.34 percent. Canaccord has a price target of $32 on them. Trading volume was close to the 3-month daily average.

AnnTaylor Stores (NYSE:ANN) "Wows" Analysts

FBR Capital said they were "blown away" by the peformance of AnnTaylor Stores (NYSE:ANN) in the third quarter, with sales and margins surging above analysts' expectations. FBR said they're maintaining their 'Outperform/Top Pick' on the retailer as a result, seeing the trend as sustainable over a period of time.

"We were blown away by the strength of AnnTaylor’s 3Q report. Sales and gross margins were better than our well-above-consensus expectations, SG&A was well controlled, and the company bought stock. Sales trends remain positive, guidance looks conservative, and the company plans to buy more stock in 4Q. ANN is not typically a 4Q story, but we think its gift strategy, along with increased interest for self purchase heading into holiday party season, will continue to drive sales...We are raising our sales estimate for the fourth quarter to $500.8 million from $488.9 million...We are raising our CY10 EPS estimate to $1.28 from $1.25, our CY11 sales estimate to $2,125 million from $2,101 million, and our CY11 EPS estimate to $1.98 from $1.96" said FBR.

AnnTaylor soared Friday, closing at $25.77, gaining $2.02, or 8.51 percent. FBR raised their price target on them from $27 to $30.