Tuesday, August 26, 2008

August26, 2008: Morning Call

August 26, 2008: Morning Call

Fair Value: SP500 – 1266.97; NDX- 1893.07; DOW – 11388

Technical Levels: SPX: 1205, 1235, 1250 support/1298-1300, 1337, 1365 resistance
NASDAQ: 2210, 2341, 2386 support / 2456, 2479, 2521, 2553 resistance


Pre-market EPS: BIG (.27/1.09B); BMO (1.21/2.70B); CHS (0.03/413.6M); DAKT(.17//140.0M); SAFM (-0.05/462.2M); RTP (No Bloomberg Estimates)
02:45: French Housing Starts (July): -28.2% 3M YoY Change - slightly better
04:00: German IFO Survey Business Climate - weaker than expected
04:00: RTP earnings call - 1H net in-line
09:00: S&P/CaseShiller Home Price Index (June): -16.4% - headline better at -15.9% vs. -16.2% /3-month annualized at -10.05% - indicates slightly improved housing market conditions: no major reaction in equity futures.
10:00: US August Consumer Confidence (Aug): 53.0
10:00: Richmond Fed Manufacturing Index
10:00: New Home Sales (July): 525,000; -0.9% MoM
14:00: FOMC Minutes from the August 5 Meeting
17:00: ABC Consumer Confidence
Post-market EPS: BGP (-.29/803.7M); JCG (.33/338.2M)

Foreign Market Summary/Key Macro News:

SP futures are trading 3 points above fair value while the NASDAQ futures are trading 5 points above fair value ahead of August Consumer Confidence and July New Home Sales at 1000ET. S&P/CaseShiller Home Price Index will be released at 0900ET with FOMC minutes released at 1400ET. Asian markets: Asian exchanges followed Wall Street lower. Banks paced losses on renewed worries about the health of the US economy as the overnight sell-off spread to the region. A stronger yen meant exporters led declines in Japan, though banks fared badly on downgrades and higher real-estate-related bankruptcies. Hong Kong closed off the day’s lows as Chinese insurers rose after China Life Insurance (2628.HK) announced better-than-expected H1 results. European markets are modestly lower but the UK is down 1.4% because it was closed yesterday for a bank holiday. The German IFO confidence index came in weaker than expected. Best performing sectors include technology and utilities. The weakest sectors in European trading are basic resources, energy, and insurance companies. Banks are also down 1.0%.

Impact Research Calls/Market Moving News:

BRCM (26.17): Broadcom downgraded to perform from outperform at Oppenheimer Firms cites potential of y/y decelerating revenue growth beginning 4Q08

BRCM (26.17): Broadcom maintained overweight at Thomas Weisel Partners after acquisition. Target is $36. The firm believes yesterday's announcement that BRCM will acquire the Digital TV business from AMD will enhance BRCM's current DTV product portfolio and position the company in the space. Thomas Weisel also views this acquisition as a strategic step toward BRCM possibly introducing an SoC addressing the converged internet and DTV market.

JPM (36.13): JPMorgan Chase says market value of investments in Fannie Mae (FNM), Freddie Mac (FRE) falls by half to $600M in Q3 to date (36.13)
In an 8-K, JPM says the decline could affect Q3 earnings.

RTP (379.65): Rio Tinto reports H1 net $5.47B ex-items vs Bloomberg $5.36B and year-ago $3.53B: Company reports revenues of $27.19B vs Bloomberg $20.71B and year-ago $12.06B. Company reports underlying Ebitda $11.41B vs Bloomberg $10.12B and year-ago $6.61B. Interim dividend increased 31% to $0.68. The Group continues to perform strongly, and the outlook remains positive.

LEH (13.45): Korea Development Bank told not to bid for Lehman Brothers - London Times: Sources close to the bank tell the paper government officials are insisting the financial commitment a purchase would entail constitutes “too great a risk at a difficult time."

V (73.32); MA (234.20): Visa (V) and Mastercard (MA) initiated with outperform ratings at William Blair.

EOG (102.21): EOG Resources (EOG) upgraded, Talisman Energy (TLM) downgraded at Bernstein: EOG upgraded to market perform from underperform, tp $127. TLM downgraded to market perform from outperform, tp $29.

Banks have $871B in bonds maturing thru 2009, face higher rates - Bloomberg
Bloomberg reports that domestic securities firms have $871B in bonds maturing through 2009. As the banks refinance their debts, according to the report, investors are seeking yields that are 4.14% higher than treasuries, vs +0.76% above treasuries last year. The difference will cost $23B in additional interest annually.

ENER (77.07): Cowen sees upside to the quarter for Energy Conversion:
The firm believes ENER can meet or beat their $0.20 estimate vs. First Call at $0.16 given revenue and margin upside. Cowen says Street estimates could rise, particularly on greater operating leverage and increased backlog. The firm sees upside of 50% vs. the market for the next 12 months.

Heard on the Street looks at the recent carnage in the mining stocks - WSJ
The Journal reports that the Dow Jones Basic Resources STOXX index, which includes some of the world's most prominent metals companies, is down 26% in the past three months. The paper adds that the decline has left commodities stocks trading at historically low multiples of expected earnings, a dynamic that suggests that the shares are either undervalued, or that investors have become skeptical with regards to a continued run of earnings growth. According to the article, such concern seems to be the overriding factor, as even if commodities prices do not decline further, surging input costs could still hamper margins and slow earnings growth. The column goes on to highlight the fact that consolidation, which has provided some insulation from price wars and over-investment, has yet to be tested in the face of a deteriorating global growth profile.

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