Tuesday, December 23, 2008

December 23, 2008: Morning Call

December 23, 2008: Morning Call

Fair Value: SP500 – 867.77; NDX: 1190.82; DOW – 8472.79

Technical Levels:

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


08:30: US Q3 GDP QoQ: -0.5%; Personal Consumption: -3.7%
08:30: GDP Price Index: 4.2%; Core PCE QoQ: 2.6%
09:30: PNC Shareholder’s Meeting
10:00: University of Michigan Confidence (Dec): 58.6
10:00: New Home Sales (November): 420,000; -3.0% MoM
10:00: Existing Home Sales (November): 4.93 million; -1.0% MoM
10:00: House Price Index (October): -1.3%
10:00: Richmond Fed Manufacturing Index (Dec): -40
17:00: ABC Consumer Confidence
Post-market EPS: MU (-.41/1.35B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 8 points above fair value at 7:45 am ET. Economic data will be a focus today with US Q3 GDP at 8:30 ET, University of Michigan Dec Consumer Confidence, Nov New Home Sales and Existing Home Sales at 10:00 ET. Asian markets closed mostly lower in thin trading (Hong Kong down 2.75%, Shanghai down 4.8%, India down 2.4%, Japan closed). European markets are up 0.25% in very light trading.

Impact Research Calls/Market Moving News:

GS (77.00): JP Morgan cuts their FY 2009 estimates on GS. The firm sees the 2009 outlook for almost every business as challenging putting pressure on core revenues at GS even though the writedowns should moderate. They continue to avoid the brokerage sector. The firm cuts their 09 GS EPS est to $6.25 from $7.00 (consensus is $7.88).

GOOG (297.11): Jefferies says acceleration of paid clicks in November bodes well for Q4 earnings. Jefferies notes that comScore released ad-coverage data for Nov after market close yesterday. Firm reiterates their Buy rating on GOOG following positive ad-coverage data for the month of Nov. which shows a record 460bps m/m increase in ad-coverage and a 22.4% y/y growth in searches with paid ads. Firm's proprietary regression points to a 16% y/y growth in Nov paid clicks.

CAT (41.78): Caterpillar estimates reduced at Wachovia following checks: Firm lowers Q4'08 and '08 estimates are lowered below consensus following negative channel check feedback. Wachovia notes that NAFTA and European construction equipment continues to decline and that pricing opportunities appear to be decreasing. '09 and '10 estimates are also lowered, with '09 below consensus, on continued demand weakness in NAFTA and EAME and lack of pricing power. Valuation range is $42-45. Rating is market perform.

EBAY (14.10): eBay having a rough holiday season – WSJ:The Journal reports that in its first holiday season under CEO John Donahoe, eBay is suffering a decline in visitor traffic and deteriorating sales. The paper adds that customers are fleeing for fixed-price sites, and remain concerned about shady sellers. Citing data from comScore, the Journal points out that eBay's traffic fell 16% between 3-Nov and 14-Dec from the year earlier period, while Amazon had 6% more unique visitors during the same period. According to the article, the changes implemented by Donahoe, which have focused on more fixed-price sales and higher selling fees, have failed to have a meaningful financial impact and have angered may of the site's loyalists.

Record number of M&A deals canceled in 2008 - FTCiting data from Dealogic, the FT reports that companies scrapped 1,309 transactions valued at a total of $911B in 2008. The paper adds that in 2007, there were 870 withdrawn deals valued at $1.16T. According to Dealogic, the total volume of global mergers and acquisitions hit $3.28T in the year to date, down 29% from the full year 2007.

MSFT (19.18): Microsoft maintained outperform at Oppenheimer: Target is $22. The firm notes market speculation that MSFT could initiate a 10% headcount reduction in early January. Oppenheimer says their analysis indicates such a move could generate ~$1.2B in annual savings. Oppenheimer believes this initiative would be utilized in the event management anticipated a meaningful reduction in revenue near term and these potential headcount cuts could offset a ~$3B decline in revenue. The firm believes such cuts would be viewed favorably by the market. Oppenheimer says MSFT is facing a difficult 2009, however the shares reflect this bad news, and they would be buyers at current levels.

WYNN (42.16): Wynn Resorts estimates reduced further below consensus at Thomas Weisel: The firm reduces estimates based on continued poor trends in Las Vegas as well as expectations for the Encore opening. Q4 EBITDA is reduced to $147M from $149M with f09 reduced to $756M from $785M. Shares of WYNN remain outperform rated, however. Target reduced to $60 from $65.

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