Tuesday, December 2, 2008

December 2, 2008: Morning Call

December 2, 2008: Morning Call

Fair Value: SP500 – 815.52; NDX: 1091.93; DOW – 8141.94

Technical Levels:

SPX: 685, 752-755 support/848-852, 899-908, 998-1002 resistance


Pre-market EPS: BZH (-2.10/593.4M); SHLD (-.50/10.9B); SPLS (.41/7.03B)
05:00: Euro-zone PPI (October): 7% YoY; 0.3% MoM
08:55: CVX presents at Merrill Lynch Energy Large Cap Conference
09:45: EOG presents at Merrill Lynch Energy Large Cap Conference
10:00: DELL presents at Credit Suisse Tech Conference
11:00: BRCM presents at Credit Suisse Tech Conference
11:00: BZH earnings call
11:30: Paulson to speak on US-China Strategic Economic Dialogue
12:30: Fed’s Plosser speaks on the economy
12:30: XOM presents at Merrill Lynch Energy Large Cap Conference
12:55: MON presents at Citibank’s Chemicals Conference
14:00: AMAT presents at Credit Suisse Tech Conference
15:30: TXN presents at Credit Suisse Tech Conference
17:00: ABC Consumer Confidence
17:30: NVDA presents at Credit Suisse Tech Conference
Post-market EPS: MRVL (.21/793.8M); SIGM (.29/47.55M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 16 points above fair value while the NASDAQ futures are trading 22 points above fair value at 8:00am ET. The current bounce in the futures can be attributed to a reversal in European markets, which are currently trading 1.2% higher after opening down 2%.
Tesco, the largest UK supermarket company, is up 7% after reporting better than expected November comps (2% increase in same-store sales vs. consensus of 1.6%). Financials and mining shares are lagging in Europe while retailers and technology are outperforming. Most Asian markets closed sharply lower (3-6%) following the 9% sell-off in US markets. India’s Sensex index closed down 1.2% with mining and industrial stocks leading the move the lower. Shanghai was the region’s best performer, closing unchanged due to strength in consumer electronic and tech shares. The Reserve Bank of Australia cut its main interest rate more than expected, to 4.25% from 5.25%. Australia’s Oct retail sales trend rose 0.2% vs 0.1% m/m. The Bank of Japan unanimously left its target rate at 0.30%.

Impact Research Calls/Market Moving News:

GS (65.76): Goldman Faces Loss of 2 billion for Quarter – WSJ: “The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate. Though analysts and investors already were bracing for Goldman's first quarterly loss since it went public in 1999, the pessimism has grown sharply. "The last two weeks have been nothing short of horrible, with asset prices coming under ever more pressure than before," said Susan Katzke, an analyst at Credit Suisse Group, who on Monday reduced her Goldman estimate to a fiscal fourth-quarter loss of $4 a share. Previously, she projected a profit of $2.47 a share. Goldman is expected to report its financials in a few weeks. One area that is thought to have given Goldman particular problems in the just-ended quarter is its "book" of so-called distressed investments. Over the years, Goldman has invested in everything from troubled auto loans in Thailand to the debt of a liquor maker in South Korea to struggling golf courses in Japan. This business was once a big profit center. It isn't known whether these specific investments contributed to the write-downs in this portfolio, and Goldman doesn't disclose the size of its book of distressed investments, which is housed in its fixed-income department. But the business is substantial. In 2005, a blowout year for the group, Goldman bet $24 billion of its own money on this type of investing, according to people familiar with the matter.”

MOS (25.40): MOS cuts forecast: Due to soft market conditions, phosphate sales volumes for Q2 were approximately 1.3M tonnes, or about 800,000 tonnes lower than the volume sold during the company's Q1 in fiscal 2009. The average selling price for DAP during the quarter was within the company's estimated guidance range of $1,020 to $1,080 per tonne. However, phosphate gross margins are expected to be weaker due to high cost raw materials used to produce phosphates in Q2. The average MOP selling price was approximately $525 per tonne compared to the company's estimated guidance range of $560 to $620 per tonne during Q2, primarily due to the mix of products sold internationally. In addition, the company announced that it is prepared to further reduce phosphate production by up to an additional one million tonnes during the remainder of fiscal 2009 if market conditions continue slower than normal. Fertilizer stocks are indicated lower this morning in reaction to the MOS news.

MMM (62.35): MMM downgraded to sell from hold at Citibank. Price target is decreased to $57 from $66.

PRU (17.15): Fitch downgrades Prudential senior debt rating to 'A-' from 'A': Fitch also downgrades the insurer financial strength (IFS) ratings of PRU's life insurance subsidiaries to 'AA-' from 'AA'. The Rating Outlook is Negative. According to Fitch, the downgrades reflect higher than expected volatility in earnings and capital, as well as liquidity needs at the holding company level to both meet large debt maturities through year-end 2009, and address subsidiary capital needs, in an environment of capital markets volatility and diminished financial flexibility.

SHLD (31.84): Sears Holdings reports Q3 EPS ($0.90) ex-items vs Reuters ($0.49): Company reports revenues of $10.66B vs Reuters $10.93B. Domestic comps. (9.0%) vs. consensus (6.8%). Q3 adjusted EBITDA $148M vs. one estimate of $225M. SHLD says due to the economy its EBITDA forecast to generate higher EBITDA in H2 of this year is no longer relevant given its assumption of flat to modest comparable store sales declines in the third and Q4s.

SOX Index (183.24): Oppenheimer comments on semiconductors after Asia channel checks: The firm says their Q4 Asia channel checks indicate that already compromised visibility has deteriorated further. Oppenheimer says companies are tracking below Q4 guidance while rising inventories and DSOs are a growing concern. The firm notes that macro headwinds and a lack of obvious near-term catalysts continue to support avoiding the semi sector.

NOK (13.08); RIMM (39.80): Oppenheimer reduces handset forecasts following a round of checks at Nokia: The firm believes sell in trends in Q4 are underperforming NOK's recently reduced target of 330M units. Along with industry shipment cuts, Opco reduces estimates for NOK, MOT, SWKS, RFMD, RIMM, CELL, and ANAD below Street expectations.

BZH (1.50): Beazer Homes reports Q4 EPS cont. ops. ($12.32) vs Reuters ($2.30): Company reports revenues of $712.6M vs Reuters $590.7M. Home closings: 2,441 homes, a decrease of 38.2% from 3,949 in Q4 of the prior year. New orders: 1,083 homes, an increase of 10.3% from 982 in Q4 of the prior year. Cancellation rate: 45.7% vs. 68.1% y/y.

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