Friday, November 7, 2008

November 7, 2008: Morning Call

November 7, 2008: Morning Call

Fair Value: SP500 – 903.77; NDX: 1243.77; DOW – 8677.49

Technical Levels:

SPX: 848-850, 908 support/ 998, 1098-1100 resistance


Pre-market EPS: F (-.93/27.67B); S (.03/8.86B)
08:30: Change in Nonfarm Payrolls (October): -180,000
08:30: Unemployment Rate (October): 6.3%
08:30: Change in Manufacturing Payrolls (October): -62,000
08:30: Average Hourly Earnings (October): 0.2%
10:00: Wholesale Inventories (Sep): 0.4%
10:00: Pending Home Sales (Sep): -3.5%
12:00: Fed’s Lockhart speaks on the US economic outlook
14:30: President-elect Obama holds press conference
15:00: Consumer Credit (Sep): 0.0 billion
Post-market EPS: BRK/A (1429.00/5.97B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 10 points above fair value while the NASDAQ futures are trading 18 points above fair value at 7:30 ahead of the key October employment data. European markets are currently trading up 0.20% off the highs of the session (+1.5%). Advancers on the FTSE 100 lead decliners 4-1. Munich Re (MUV2.GR) traded higher despite Q3 earnings missing estimates and cutting full year forecasts. The company said it would maintain its dividend. British Airways (BAY.LN) jumped after reporting its Q3 interim management statement and saying it's still on track to achieve a small profit in the financial year. Germany Sep Industrial production fell by a greater than expected (3.6%) m/m (2.1%) y/y. European leaders meet in Brussels today to decide on a common approach to fighting the credit crisis. Asian markets closed mixed with markets paring a sharp decline on the open. India, Hong Kong and South Korea closed higher by 2.3%-3.4%. Japan fell 3.5% after being down as much as 6.0%. Financials led a rebound in South Korea after the central bank cut interest rates by 25bps to 4.0%. Hong Kong reversed early declines after HSBC Holdings (5.HK) lowered its lending rate by 25bps. CNOOC (883.HK) went against the downward trend of energy stocks after assuring investors it had not been affected by the financial crisis. Japan pared early losses on bargain hunting in financials. Toyota Motor (7203.JP) tumbled after slashing its earnings forecast yesterday.

Impact Research Calls/Market Moving News:

WFC (28.77): Wells Fargo prices 407.5 million shares at 27 dollars.

DIS (22.81): Walt Disney says domestic bookings have fallen off considerably in the past month - conf. call: Management says they began to see the drop about the time of the Lehman bankruptcy. Domestic rooms reservations for quarters 1-2 are running a little under down 10%, with the decline in Q1 (Dec) less than that currently seen in Q2 (Mar); the bookings window is said to have contracted a bit, which is contributing further to uncertainty. Separately, management says they are not executing share repurchases at this time due to the macro environment; they do believe the shares offer a lot of value and will resume the buybacks when they once again decide to dispense capital to shareholders above the dividend.

GS (80.72); MS (15.39): JP Morgan cuts their numbers on GS and MS. Q4 EPS is cut to a loss of .58 cents from a prior estimate of 2.02. 2009 EPS are cut to 12.47. MS Q4 EPS is cut to .28 cents from a prior .77 cents.

JPM (38.26); C (11.52): Fox-Pitt Kelton cuts numbers on JPM and C: “JPM - We are cutting our 4Q08 est. from $0.90 to $0.65, due to: (a) -$0.18 from impact of weak equity mkts; (b) -$0.20 from the steeper credit reserve build offset by; (c) +$0.13 gain from sale of Paymentech. Our 2009 est. declines from $3.81 to $3.35 due to: (a) -$0.29 from lower activity levels in Wealth Mgmt. & Securities Svcs; (b) -$0.28 from credit reserve build offset by; and (c) +0.12 yield from CPP injection. We continue to believe that JPM will be a major mkt. share beneficiary (customer flight to quality), although weak equity markets and a tougher consumer credit environment will weigh on near-term results. C - We are cutting our 4Q08 est. from $0.00 to -$0.08 as follows: (a) -$0.06 for the impact of difficult equity mkts; and (b) -$0.02 from CPP-related dilution. Our 2009 est. drops from $1.61 to $0.69: (a) -$0.16 from lower Wealth Mgmt. & Secs Svcs; and (b) -$0.76 from higher credit costs. We are cutting our target from $25 to $20, which represents 2.2x TBV. Our 4Q08/2009 ests do not include write-downs as it is too early in the quarter for visibility on problem asset valuations, so there is downward bias. Any major incremental hits could require more business/property asset sales to regenerate equity capital without a dilutive raise. While the stock appears cheap, we are maintaining our In Line rating, given the wide range of risks including still-large problem asset exposures, big international consumer credit exposures, conditional off-balance sheet exposures, operational challenges, etc. We believe Citi will need a significant amount of time to work out these issues.”

DIS (22.81): Walt Disney reports Q4 EPS $0.43 ex-items vs Reuters $0.49: Company reports revenues of $9.45B vs Reuters $9.33B. Walt Disney reports Q4 consolidated segment operating income $1.744B vs StreetAccount $1.95B: Cash from operations was (21%) to $1.245B and free cash flow was (38%) to $616M. Revenue and segment operating income by division: Media Networks: revenue +4% to $4.212B and income flat at $1.058B. Includes - Cable revenue $2.927B vs SA $3.02B and income $1.208B vs SA $1.17B; and Broadcasting revenue $1.285B vs SA $1.23B and income ($150M) vs SA ($23M). Parks and Resorts: revenue $2.969B vs SA $2.88B and income $412M vs SA $430M. Studio: revenue $1.452B vs SA $1.53B and operating income $98M vs SA $168M. Consumer: revenue $812M vs SA $691M and operating income $176M vs SA $151M.

AIG (1.87): AIG: American Intl: U.S. weighs options to ease strain on AIG – WSJ: WSJ reports federal officials are considering ways to ease the financial pressure on American International Group, including changing the terms of the $85 billion loan extended to the insurer. Negotiations remain fluid, but one option under examination is to have the government backstop AIG's credit-default-swap contracts. It also may reduce the interest rate or extend the duration of the two-year loan facility, the people familiar with the matter said... AIG's role in the credit-default-swap market remains a sensitive issue for the government. AIG counterparties have demanded billions of dollars in collateral to ensure AIG stands behind its commitments to make payments in the event of defaults. If it were unable to meet those obligations, it would prove to be a systemic risk to the global economy, said people involved in the matter. This has become a concern for foreign governments, who are pressuring U.S. officials to find a solution... Those monitoring the sale of AIG's units are aware of the changed circumstances. The market upheaval has been "unfortunate timing," New York state Insurance Department Superintendent Eric Dinallo said in an interview. Natural potential buyers "are having a harder time getting the funding," Mr. Dinallo said. The scarcity is in turn giving potential buyers more pricing leverage, making it harder for AIG to raise the sums it needs. "Asset valuations are dropping and they're drawing down more money," said one person close to the insurer. "You don't need to be a rocket scientist to see that there could be some issues here."

EOG (77.17); SWN (32.90); KWK (9.47): EOG Resources (EOG), Southwestern Energy (SWN), Quicksilver (KWK) upgraded to buy from hold at Citi: The firm notes that US nat'l gas represents 80-95% of production exposure for the three. Despite the upgrade, the targets for EOG and KWK are reduced to $95 and $18, from $106 and $27, respectively. Target for SWN is unchanged at $41.

S (3.68): Sprint Nextel amends terms of credit agreements: The amended credit agreement provides a $4.5B revolving credit facility, replacing the $6B revolving credit facility. The company also paid down $1.0B of the outstanding loan amount under the amended credit agreement.

House Speaker Pelosi open to providing new support to beleaguered US auto industry – WSJ: The Journal cites an interview with Representative Pelosi, who says that fresh assistance could come as soon as this month. Of interest, Pelosi suggested that such assistance should be linked to continued efforts to improve the competitiveness of US automakers and the fuel efficiency of their vehicles

FSYS (26.71): Fuel Systems Solutions reports Q3 EPS $0.73 ex-items vs Reuters $0.26: Results exclude a $0.2M gain associated with the purchase of the 49% minority interest in the company's Netherlands subsidiary. Company reports revenues of $105.5M vs Reuters $85.5M. Guides full year revenues to $385M vs prior $350M and Reuters $369.1M.

PCLN (47.07): reports Q3 EPS $2.39 ex-items vs Reuters $2.10: Company reports revenues of $561.6M vs Reuters $544.9M. Q4 guidance: Gross bookings +7.5-17.5% vs +19%, including international +0-10% Revenue growth +12-14%. Gross profit growth +12.5-17.5. Pro forma EBITDA $60-66MM vs Reuters $72.9M. Pro forma net income of between $1.00 -$1.10 per diluted share vs Reuters $1.12.

QCOM (33.05): Qualcomm provides Q1, f09, updates calendar year: Guides Q1 EPS to $0.46-0.50 vs Reuters $0.60; guides revenues to $2.3-2.5B vs Reuters $2.92B. Q1 MSM shipments targeted at 60-65M and CDMA/WCDMA (shipped in Sept quarter) expected 121-126M at an ASP of $205. Guides f09 EPS to $2.00-2.10 vs Reuters $2.57; guides revenues to $10.2-10.8B vs Reuters $12.11B. Guides f09 CDMA/WCDMA ASP to $195 vs $219in f08.

LVS (7.85): Las Vegas Sands CEO Adelson held casino talks with Singapore – Bloomberg: Bloomberg reports that LVS and the Singapore government are committed to completing the Las Vegas Sands Singapore casino.

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