December 9, 2008: Morning Call

December 9, 2008: Morning Call

Fair Value: SP500 – 909.50; NDX: 1225.93; DOW – 8933.91


Technical Levels:

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


Events:

Pre-market EPS: AZO (2.19/1.49B); KR (.38/17.54B); MTN (-.78/154.0M)
05:00: Euro-zone ZEW Economic Sentiment (December0: -59 (better than expected at –46.1)
09:00: MOS presents at Canaccord Adams Ag Conference
09:30: MON presents at Canaccord Adams Ag Conference
09:30: BOE’s Sentence speaks in London
10:00: IBD/TIPP Economic Optimism (December): 45.0
11: 15: HPQ presents at Barclays Capital Tech Conference
17:00: ABC Consumer Confidence
21:00: Chinese Producer Price Index (November0: 4.5% YoY

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading flat with fair value while the NASDAQ future are trading 10 points below fair value despite EPS warnings from multiple companies across various sectors. Obviously, lower guidance is discounted in many stocks even though analysts have not lowered their official estimates. On the surface, the warnings look significant but that is primarily because most analysts have not adjusted their estimates despite the carnage in the financial markets and economy over the last 3 months. For example, consensus estimate on TXN has not changed since the company provided Q4 guidance 2 months ago. Traders need to focus on the magnitude of an EPS miss and the detail embedded in the press release because comparisons to consensus are kind of ridiculous since current estimates were predicated on a different business environment. Asian markets closed mixed (Nikkei up 0.80%; Hong Kong down 1.9%, Shanghai down 2.59%, India markets were closed). Commodity stocks advanced on substantial overnight gains in oil and metals prices, and shippers went up as the Baltic Dry Index broke a three-week losing streak. Sony (SNE) announced it would cut 8,000 jobs and aims to cut ¥100b in costs by end of 09/10-business year. Machinery shares continued yesterday’s surge on expectations of infrastructure spending in the US. Banks led Australia down after Westpac Banking Corp (WBC.AU) launched an A$2.5B institutional share placement. Commonwealth Bank of Australia (CBA.AU) and National Australia Bank (NAB.AU) slumped. China declined as it awaits economic data later this week. European markets have reversed an early 1% decline and are currently up 1.3%. Solar stocks are under pressure after Q-cells (QCE.GR) cut forecast. Solarworld (SWV.GR), Nordex (NDX1.GR) and Repower (RPW.GR) confirmed guidance. Better than expected Euro-zone economic sentiment helped reverse the market.

Impact Research Calls/Market Moving News:

FDX (74.43); TXN (14.82); NSM (10.29); ALTR (14.04); CNW (25.77); DHR (51.96): EPS Warnings Overnight: FedEx (FDX) guides Q2 EPS to $1.58 vs prior $1.40-1.60 and Reuters $1.51. Texas Instruments(TXN) lowers Q4 EPS to between .10-.16 cents vs. prior EPS of .30-.36 cents and expects Q4 gross margin to be in the 37-42% range. National Semi (NSM) and Altera (ALTR) also reduce guidance. Con-way (CNW) guides full year EPS to $2.20-2.35 vs. prior $2.60-2.80 and consensus of 2.78. Danaher (DHR) guides Q4 EPS to $1.03-1.10 vs. prior $1.17-1.25 and Reuters $1.19

GS (77.15); MS (16.30): Goldman Sachs (GS), Morgan Stanley (MS) estimates lowered ahead of Q4 results at Keefe Bruyette & Woods: Firm notes the worsening of the credit and equity markets in the last two weeks of November. Q4 estimates are lowered for both companies, with GS estimates lowered below consensus. Goldman estimate is decreased to a loss of 3.81 a share from a prior loss estimate of 2.10 a share. MS EPS is lowered to a loss of .19 cents from a prior estimate of .33- cent profit. Firm estimates writedowns of $3.05B at GS and $2.57B at MS. Both are rated outperform. GS target is lowered to $108 from $115. MS target is $32.

Putin Deputy to attend 17-Dec OPEC meeting – Bloomberg: Bloomberg reports that Putin deputy Igor Sechin is to attend an OPEC meeting scheduled for 17-Decin Algeria, citing an Interfax report, which cited an unidentified official in the Russian government. Energy Minister Sergei Shmatko will accompany Sechin, and will bring a delegation of Russian oil producers, and propose crude output coordination between OPEC nations and Russia.

UPS (58.62): UPS downgraded to neutral from overweight at JPMorgan

ITW (32.84): Illinois Tool downgraded to underweight from equal-weight at Barclays Capital: Firm says it may be too early to play a recovery in the name.

MMM (57.38): 3M downgraded to underweight from equal-weight at Barclays Capital: Firm sees margin compression continuing into 2009.

TROW (36.64): T. Rowe Price downgraded to sell from neutral at Goldman Sachs

NSM (10.29): National Semiconductor downgraded to equal-weight from overweight at Morgan Stanley

NOK (14.34): Nokia upgraded to neutral from sell at Goldman Sachs