Equities Sector Coverage: Debt Ceiling Deal Hammers Healthcare Stocks

Construction Spending for June rose by 0.2%. The national ISM manufacturing Index fell to 50.9 in July, the lowest level in two years. The Dow Jones Industrial Average opened higher on the pending Debt Ceiling deal trading as high as 12,282, then fell to a day’s low of 11,998.08 on the weak ISM. The Dow moved above 12,125 in the final half hour of trading. The NASDAQ traded up to 2796 on the Debt Deal prospect, then declined to 2716 on the ISM report. The NASDAQ rebounded above 2340 into the final half hour of trading.

Asian stocks rose on Monday on the news of the pending Debt Ceiling deal in the US. The Nikkei 225 picked up 1.3% to 9,965. The Hang Seng popped 1.0% to 22,663. European stocks followed Asia higher until weak U.S. economic data caused a stock price reversal. The FTSE 100 declined 0.7% to 5,774. The DAX tumbled 2.8% to 6,956. The CAC 40 plunged 2.3% to 3,588. The yield on the 10-Year US Treasury note traded between 2.856 and 2.780 following the pending Debt Ceiling deal. The weaker than expected ISM report pushed this yield down to 2.715 which is a new low for the year. Gold traded quickly down from $1623.0 the Troy ounce to $1607.0 in reaction to the Debt Ceiling deal, then rose to $1631.8 on the weak ISM before consolidating the day’s range. Crude oil rebounded from $96.18 per barrel to $98.60, then plunged to $93.42 on the weak ISM then consolidated the day’s range. The euro versus the US dollar rallied from 1.4349 to 1.4452 then fell to 1.4189 then consolidated the day’s range.

Energy

Peabody Energy (BTU) and ArcelorMittal (MT) have taken their A$4.7B ($5.2B) bid for Macarthur Coal (MACDF) directly to the Australian firm’s shareholders after it turned down what it termed an “opportunistic” offer and said it was working on a rival proposal. Amyris (AMRS) is moved to Overweight from Equalweight at Morgan Stanley. Oceaneering International (OII) is now Neutral from Outperform at Credit Suisse.  In afternoon trading: Actives: Shares of Exxon Mobil (XOM) are down about 0.9%. Shares of Sandridge Energy (SD) are up about 1%. Shares of Chesapeake Energy (CHK) are down about 1.3%. Shares of Petrohawk Energy (PBR) are relatively unchanged.

Energy Select Sector SPDR (XLE) was trading at $76.34 at 4:00 PM on Monday, down slightly on the day – up 11.85% year-to-date.

Materials

Peabody Energy (BTU) and ArcelorMittal (MT) have taken their A$4.7B ($5.2B) bid for Macarthur Coal (MACDF) directly to the Australian firm’s shareholders after it turned down what it termed an “opportunistic” offer and said it was working on a rival proposal. In afternoon trading: Actives: Shares of Alcoa (AA) are down about 0.8%. Shares of Vale (VALE) are down about 0.6%. Shares of Cemex (CX) are down about 2.8%. Shares of Freeport-McMoran (FCX) are down about 0.4%.

The Materials Select Sector SPDR (XLB) traded at $37.88 at 4:00 PM on Monday, down 0.34% on the day – down 1.38% year-to-date.

Industrials

EADS (EADSY) will buy satellite communications service provider Vizada for $960M from private equity owner Apax France. Gol Linhas (GOL) reported that it expects 2011 EBIT growth of 1-4%, compared with a prior forecast of 6.5-20%. Dahlman Rose gives a Hold from Sell boost to Jetblue Airways (JBLU), and takes United Continental (UAL), Alaska Air (ALK), and Delta Air Lines (DAL) to Buy from Hold. Rockwell Automation (ROK) is raised to Outperform from Neutral at Robert W. Baird. Raytheon (RTN) is upgraded to Outperform from Market Perform at Bernstein. In afternoon trading: Actives: Shares of General Electric (GE) are down about 1%. Shares of Xerox (XRX) are down about 1.8%. Shares of Corning (GLW) are down about 2.8%. Shares of Delta Air Lines are down about 1.3%.

The Industrial Select Sector SPDR (XLI) traded at $34.46 at 4:00 PM on Monday, down 0.63% on the day – down 1.18% year-to-date.

Consumer Discretionary

Loews Corp (L) missed estimates by 22 cents on revenue of $3.55B. Honda Motor (HMC) beat estimates by ¥24.2B on revevue of ¥1,714.5B, and raised FY profit guidance to ¥230B from ¥195B. Starbucks (SBUX) posted solid FQ3 results and raised guidance. True Religion (TRLG) reported that Q2 earnings beat expectations. Nutrisystem (NTRI) reported Q2 revenue and EPS of $116.1M (-18% Y/Y) and $0.38, compared with a consensus of $118.3M and $0.29, and increased its 2011 EPS guidance to $0.65-$0.70, above a consensus of $0.60. Apollo Group (APOL) gets added to the Conviction Buy List at Goldman. RadioShack (RSH) is raised to Buy from Neutral at Goldman, which also adds the stock to its Conviction Buy List. Michelin (MGDDY) is now Neutral from Sell at UBS. Standard Pacific (SPF) is upgraded to Buy from Neutral at UBS. In afternoon trading: Shares of O Charleys (CHUX) are up about 19.2%. Shares of The Talbots (TLB) are up about 15%. Shares of Spartan Motors (SPAR) are up about 10%.

The Consumer Discretionary Select Sector SPDR (XLY) traded at $39.44 at 4:00 PM on Monday, down 0.53% on the day – up 5.43% year-to-date.

Consumer Staples

Elizabeth Arden (RDEN) is taken to Neutral from Buy at Suntrust. In afternoon trading: Shares of China-Biotics (CHBT) are up about 15.25%. Actives: Shares of Altria Group (MO) are down about 1.1%. Shares of CVS Caremark (CVS) are up about a quarter of a percent. Shares of Wal-Mart (WMT) are down about a half of a percent. Shares of Procter & Gamble (PG) are down about a quarter of a percent. Shares of Rite Aid (RAD) are up about 0.75%.

The Consumer Staples Select Sector SPDR (XLP) traded at $30.72 at 4:00 PM on Monday, down 0.36% on the day – up 4.81% year-to-date.

Healthcare

Humana (HUM) beat estimates by 45 cents, but missed revenue by $40M, and sees FY’11 EPS of $7.50-7.60, up from previous guidance of $6.70-6.90. Abaxis (ABAX) reported FQ1 earnings that missed expectations. Vanguard Health Systems (VHS) is initiated with an Outperform rating and $22 price target at Robert W. Baird. Eli Lilly (LLY) is lifted to Market Perform from Underperform at Leerink Swann. Jazz Pharma (JAZZ) is now Buy from Hold at Jefferies with a new target of $52. AmerisourceBergen (ABC) is cut to Hold from Buy at Citigroup. Skilled Healthcare (SKH) is cut to Sector Perform from Outperform at RBC Capital. Planned Medicare cuts, and worries that more are on the way, sent nursing homes, hospitals and health care REITs plunging on Monday. In afternoon trading: Shares of Sun Healthcare (SUNH) are down about 52%. Shares of Skilled Healthcare are down about 42.5%. Shares of Kindred Healthcare (KND) are down about 30%. Shares of Sabra Healthcare (SBRA) are down about 25%.

The Health Care Select Sector SPDR (XLV) traded at $33.54 at 4:00 PM on Monday, down 1.70% on the day – up 6.48% year-to-date.

Financials

HSBC (HBC) is to axe 30,000 jobs between now and 2013 as it looks to save $2.5B-$3.5B, although hiring in some countries may limit the net headcount reduction. HSBC has also agreed to sell 195 branches, mostly in New York, to First Niagara Bank (FNFG) for $1B. Lansdowne Partners, one of Europe’s largest hedge funds, has reportedly sold its entire $850M stake in Goldman Sachs (GS), underlining investor concerns about prospects for the global banking sector due to regulatory changes. UDR Inc. (UDR) reported Q2 EPS of $0.32 (in-line), while beating revenue by $4.2M. CNA Financial (CNA) missed estimates by 2 cents. Allstate (ALL) beat estimates by 36 cents and revenue by $1.5B. HSBC (HBC) reported H1 pretax profit +3% Y/Y to $11.5B, net profit +35% to $8.93B and EPS of $0.51. Green Dot (GDOT) is a new Neutral at Susquehanna. Realty Income (O) is upgraded to Neutral from Underperform at Credit Suisse. Amtrust Financial (AFSI) is moved to Market Perform from Outperform at Keefe Bruyette. 1st United Bancorp (FUBC) gets cut to Neutral from Buy at Sterne Agee. In afternoon trading: Shares of Sabra Healthcare (SBRA) are down about 25%.

The Financial Select Sector SPDR (XLF) traded at $14.75 at 4:00 PM on Monday, down 0.30% on the day – down 7.52% year-to-date.

Information Technology

The Justice Department is intensifying a probe into whether the six companies that recently bought $4.5B in patents from Nortel could use the IP to unfairly hinder smartphones that operate Android (GOOG). Sohu.com (SOHU) beat estimates by 9 cents and revenue by $8.2M, and guides for Q3 revenue and non-GAAP EPS of $225M-$230M and $1.20-$1.25(beating a consensus of $206.4M and $1.19). Allot Communications (ALLT) reported Q2 revenue and non-GAAP EPS of $18.5M and $0.10, beating a consensus of $17.6M and $0.09. Power-One (PWER) reported Q2 revenue and EPS of $260.3M (+21% Y/Y) and $0.21, compared with a consensus of $253.9M and $0.22. Ariba (ARBA) reported strong subscription software (+74% Y/Y) and e-commerce network (+249% Y/Y) revenue growth, and Q4 revenue guidance of $118M-$120M (above a $116.8M consensus). Microsemi (MSCC) reported FQ3 revenue and non-GAAP EPS of $216.7M (+59% Y/Y) and $0.49, beating a consensus of $216.1M and $0.48. QLogic (QLGC) reported that FQ1 topped estimates, but follow-on guidance for Q2 was weak. Applied Micro Circuits (AMCC) reported FQ1 sales were in line, but its bottom line missed due to higher operating expenses. Motorola’s (MMI) reported weak 2H guidance. RealNetworks (RNWK) reported a wider-than-expected Q2 loss late yesterday, but reaffirmed Q3 guidance. Digital River (DRIV) reported revenue and non-GAAP EPS of $92.5M (+13% Y/Y) and $0.17 beat a consensus of $92.3M and $0.15, but 2011 guidance of $393M in revenue and $1.12 in non-GAAP EPS falls short of a consensus of $406.2M at $1.14. EMC Corp (EMC) is upgraded to Outperform from Perform with a $32 price objective at Oppenheimer. International Rectifier (IRF) is reduced to Market Perform from Outperform at JMP Securities. Blue Coat (BCSI) gets lowered to Neutral from Buy at Lazard. In afternoon trading: Shares of CyberDefender (CYDE) are down about 12.75%. Shares of Changyou.com (CYOU) are down about 12.25%. Shares of Sohu.com are down about 11%. Shares of Limelight Networks (LLNW) are UP about 10.5%.

The Technology Select Sector SPDR (XLK) traded at $25.79 at 4:00 PM on Monday, down slightly on the day – up 2.38% year-to-date.

Telecommunications Services

Vodafone Group PLC (VOD) is boosted to Buy from Neutral at UBS. In afternoon trading: Shares of PAETEC Holding (PAET) are up about 19% on news that local-phone company Windstream Corp. (WIN) has agreed to buy Paetec Holding Corp for about $891 million in stock ($5.62 / share – a 27% premium). Shares of Surewest Communications (SURW) are down about 8.1%. Actives: Shares of Sprint Nextel (S) are down about a half of a percent, while shares of AT&T (T) are up about a half of a percent and shares of Verizon (VZ) are up about 1.1%.

The NASDAQ Telecommunications Index (IXTC) traded at $201.45 at 4:00 PM on Monday, down 0.84% on the day – down 10.61% year-to-date.

Utilities

NV Energy (NVE) missed estimates by 11 cents and revenue by $86M. Veolia Environment (VE) is now Neutral from Buy at Goldman Sachs. In afternoon trading: Actives: Shares of Genon Energy (GEN) are up about a quarter of a percent. Shares of Duke Energy (DUK) are up about a quarter of a percent. Shares of Exelon (EXC) are up about a quarter of a percent. Shares of AES Corp (AES) are down about 1.7%. Shares of CenterPoint Energy (CNP) are down about a half of a percent. Shares of NV Energy are down about 2.2%.

The Utilities Select Sector SPDR (XLU) traded at $33.27 at 4:00 PM on Monday, up 0.30% on the day – up 6.16% year-to-date.

STOCKS: BTU, MT, MACDF, AMRS, OII, XOM, SD, CHK, PBR, AA, VALE, CX, FCX, EADSY, GOL, JBLU, UAL, ALK, DAL, ROK, RTN, GE, XRX, GLW, L, HMC, SBUX, TRLG, NTRI, APOL, RSH, MGDDY, SPF, CHUX, TLB, SPAR, RDEN, CHBT, MO, CVS, WMT, PG, RAD, HUM, ABAX, VHS, LLY, JAZZ, ABC, SKH, SUNH, KND, SBRA, HBC, FNFG, GS, UDR, CNA, ALL, GDOT, O, AFSI, FUBC, GOOG, SOHU, ALLT, PWER, ARBA, MSCC, QLGC, AMCC, MMI, RNWK, DRIV, EMC, IRF, BCSI, CYDE, CYOU, LLNW, VOD, PAET, WIN, SURW, S, T, VZ, NVE, VE, GEN, DUK, EXC, AES, CNP