Wednesday, October 15, 2008

October 15, 2008: Morning Call

October 15, 2008: Morning Call

Fair Value: SP500 – 1001.02; NDX: 1373.69; DOW – 9324

Technical Levels:

SPX: 848-850, 949-952 support/ 1098-1100, 1142, 1250 resistance

NASDAQ: 1640 support /1890 resistance:


Pre-market EPS: KO (.77/8.5B); DAL (.01/5.6B); JPM (-0.09/16.3B); STJ (.57/1.0B); WFC(.43/10.9B); NITE (.23/206.6M)
08:05: Fed’s Rosengren speaks on the economy
08:30: Producer Price Index (Sep): -0.4% MoM; 8.7% YoY
08:30: Producer Price Index Ex-Food/Energy (Sep): 0.2% MoM; 3.8% YoY
08:30: Retail Sales (Sep): -0.6%; Less Autos: -0.2%
08:30: Empire Manufacturing (Oct): -10.0
09:00: JPM earnings call
10:00: Business Inventories (August): 0.4%
12:15: Fed’s Bernanke speaks on the economy
14:00: Fed’s Beige Book
14:30: CHK Analyst Meeting
17:00: EBAY earnings call
Post-market EPS: EBAY (.41/2.1B); SOV (-1.28/-460.0M); STLD (1.12/2.6B)

Foreign Market Summary/Key Macro News/Commentary:

SP and NASDAQ futures are both trading 10 points below fair value at 7:40am ET. The overnight session range in the S&P 500 is a high of 1008.30 and a low of 978. Equity futures briefly moved to unchanged following a modest drop in LIBOR (3M Libor fixed at 4.55% vs. 4.63% yesterday). But, the move higher in the futures was brief, as market participants appear focused on weaker commodity prices and general concerns about a weaker earnings outlook. INTC and JPM both reported earnings that were in-line with consensus while KO and STT both beat expectations. Commodity and Financial stocks are indicated lower in the pre-market while Technology is showing relative strength. Asian markets declined overnight with shipping and commodity leveraged sectors weakening the most after the Baltic Dry tumbled 8.5%. Hong Kong dropped 5.0% and India fell nearly 6% (all 30 members of the Sensex declined with heavy construction and infrastructure companies pacing the decline). European markets are also trading sloppy this morning with declines of 2.5% to 3.0%. Metal & Mining shares led the declines following commodity prices down. European shares are trading close to the lows for the session. Decliners on the FTSE 100 lead advancers 9-1. Russian exchanges have been halted for periods due to stock declines (Russia is down 7.8%) and Iceland cut its key interest rate to 12% from 15.5.

Impact Research Calls/Market Moving News:

JPM (40.71): JPM’s quarter generally in-line but I continue to be alarmed by the rapid increases in NCO's and NPAs in both the mortgage business and credit card services. I would avoid all financial stocks at current levels. JPMorgan Chase reports Q3 results: The $0.29 cent headline figure excluded merger costs and included a $581M gain. Excluding the gain, JPM reports ($0.06). JPM also reported total net revenues of $14.74B on a GAAP basis. The company provided updated guidance for many of the divisions on 25-Sep along with the WaMu announcement; the update included charge-offs for the Retail and Card divisions and mardowns in the Investment Bank. Results by operating division, with all changes on a y/y basis: Investment Bank: net revenue 37% to $4.04B, provision for credit losses $234M vs year-ago $227M and net income $882M vs year-ago $296M. Markdowns during the quarter totaled $3.6B versus the $3.0-3.5B highlighted on 25-Sep. Retail Financial Services: net revenue 16% to $4.88B, provision for credit losses $1.68B vs year-ago $680M and net income $247M vs year-ago $639M. Card Services: net revenue 1% to $3.89B, provision for credit losses $2.23B vs year-ago $1.36B and net income $292M vs year-ago $786M. Commercial Banking: net revenue 11% to $1.13B, provision for credit losses $126M vs year-ago $112M and net income $312M vs year-ago $258M. Treasury & Securities Services: net revenue 12% to $1.95B and net income $406M vs year-ago $360M. Asset Management: net revenue (11%) to $1.96B and net income $351M vs year-ago ($44M). Corporate/Private Equity: net revenue ($1.75B) and net income ($1.96B) vs year-ago $513M. Tier 1 capital ratio 8.9% at 30-Sep vs. 9.2% at 30-Jun and 8.4% y/y

KO (43.73): Shares are up 3 points on the better earnings. Coca-Cola reports Q3 EPS $0.83 ex-items vs Reuters $0.77. Company reports revenues of $8.39B vs Reuters $8.58B/

STT (56.69): State Street reports Q3 EPS $1.24 vs Reuters $1.20: Company reports revenues of $2.54B vs Reuters $2.54B.

LLTC (25.89): LLTC issues a earnings warning. Linear Technology reports Q1 EPS $0.48 vs Reuters $0.45: Company reports revenues of $310.4M vs Reuters $310.5M. Guides Q2 revenues to down 10-20%, implying $248.3-279.4M vs Reuters $314.1M. The company believes it can maintain pretax profits above 40% of sales with the lower forecasted sales range

INTC (15.93): Intel reports Q3 EPS $0.35 vs Reuters $0.34: Company reports revenues of $10.22B vs Reuters $10.25B. Guides Q4 revenues to $10.1-10.9B vs Reuters $10.78B. Intel discusses the demand environment - conf. call: Management says that some corporate softness was seen in September, while the consumer was more seasonal; they expect corporate to continue to show softness due to an expected tightening in IT budgets for the remainder of the year. Inventories (company and channel) are believed to be reasonable at this time, with Taiwan and the channel noted to be cutting back while some OEMs are building. While consumer traffic is said to be muted, they continue to see healthy interest in notebook and net books. As a result of the high degree of uncertainty, Intel has decided to schedule a formal mid-quarter update for 4-Dec in order to provide an update on how the quarter is playing out.

AAPL (104.08); IBM (93.60); DELL (14.08): Apple (AAPL), IBM upgraded to overweight from neutral, DELL downgraded to neutral from overweight at JPMorgan.

Morgan Stanley upgrades the Software group to attractive :The firm is buyers of oversold stocks with SYMC, ORCL, MFE, and ADBE mentioned.

UTX (52.23): United Technologies estimates and target lowered at UBS: Firm lowers '09/'10 EPS estimates to reflect a reduced outlook for commercial construction and the aerospace aftermarket and the strengthening US dollar. Target is lowered to $73 from $77. Rating is buy.

C (18.62): Citi shares still look vulnerable - WSJ: In a "Heard on the Street" column, the Journal notes that shares of Citi still look vulnerable, even when considering the $25B in low-cost capital it is about to receive from Uncle Sam. According to the article, the stock is trading a significant premium to its estimated tangible book value of slightly more than $10 a share, particularly when considering that losses are are likely to remain higher for the next few quarters. The column goes on to highlight the strange divergence in the market as banks with hard-to-value assets and dampened earnings power such as Citi are outperforming, while nonfinancials with hard assets and earnings visibility are coming under pressure.

ELY (11.87): ELY warns. Callaway Golf guides Q3 EPS to ($0.08)-(0.10) ex- $0.04 charge vs Reuters ($0.00): The company guides Q3 revenue to $213M vs Reuters $229.5M. Guides full year EPS to $0.92-1.02 vs prior $1.08-1.18 and Reuters $1.08; guides revenue to $1.13-1.15B vs prior $1.15-1.17B and Reuters $1.16B.

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