Monday, January 26, 2009

January 26, 2009: Morning Call

January 26, 2009: Morning Call

Fair Value: SP500 – 829.03; NDX: 1175.68; DOW: 8036.89

Technical Levels:

SPX: 752-755, 800, 816 support/848-852, 899-908 resistance


Pre-market EPS: CAT (1.29/12.09B); DHR (1.03/3.07B); FCX (-1.11/2.94B); HAL(.74/4.78B); MCD (.83/5.70B); SEE (.33/1.17B); WFT (.53/2.58B)
10:00: Leading Indicators (Dec): -0.3%
10:0): Existing Home Sales (Dec): 4.4 million annual rate; -2.0% MoM
10:00: FCX earnings call
11:00: CAT earnings call
17:00: AXP earnings call
17:30: TXN earnings call
Post-market EPS: AMGN (1.05/3.79B); AXP (.09/7.02B); JEC (.90/3.12B); MCK(.86/27.17B); NFLX (.37/354.2M); PTV (.48/928.7M); TXN (.12/2.37B); ZION(-.32/68.7M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points below fair value while the NASDAQ futures are trading 8 points below fair value at 7:45 am ET. The S&P futures have recovered from 17 below fair value overnight following the Barclay’s trading update and a reversal in European markets. But, the market is currently weakening on the poor earnings guidance from CAT. European markets: shares reversed early declines and moved 1.5% higher with strong gains in financials, led by Barclays (BARC.LN) and ING (INGA.NA) after company updates and industrials shares, led by Philips Electronics (PHIA.NA). Asian markets: Most of Asia was closed. Thailand rose, New Zealand was flat, and Japan was down 0.81%.

Impact Research Calls/Market Moving News:

CAT (35.66): Caterpillar reports Q4 EPS $1.08 vs Reuters $1.28. Company reports revenues of $12.12B vs Reuters $11.97B. The company announced plans to reduce its workforce by 20,000. CAT sees 2009 EPS of 2.50 versus street consensus of 4.22. CAT shares are trading down 7%.

BKX Index (28.44): Goldman Sachs re-initiates US large bank sector with cautious rating: several individual changes: JPMorgan (JPM) re-initiated with buy, and added to Conviction Buy List. Bank of America (BAC) downgraded to neutral from buy. US Bancorp (USB) downgraded to sell from neutral, and added to Conviction Sell List. PNC Bank (PNC), Wells Fargo (WFC), Morgan Stanley (MS) reinitiated with neutral. Citi (C) reinitiated with sell.

BCS (3.07): BCS shares are up 50% after the company said they are not looking to raise additional capital.

WYE (43.74); PFE (17.45): PFE confirms to purchase Wyeth: Pfizer and Wyeth announced that they have entered into a definitive merger agreement under which Pfizer will acquire Wyeth in a cash-and-stock transaction currently valued at $50.19 per share, or a total of approximately $68B. The Boards of both companies have approved the combination. It is expected that no drug will account for more than 10% of the combined company's revenue in 2012.

PFE (17.45): Pfizer guides 2009 adjusted diluted EPS to $1.85-$1.95, which includes a reduction of $0.50 related to the purchase of Wyeth (WYE)
Reuters consensus is $2.50; First Call $2.49. F09 adjusted revenues guided to $44.0-$46.0B vs. Reuters $48.72B; First Call $48.81B.

GS (74.91); STT (19.40): UBS discusses a Goldman Sachs (GS)/State Street (STT:Firm notes that a potential sale of STT is one option the company may be considering, and thinks GS is likely taking a look at STT as well as other deals in order to improve its ability to tap the unsecured debt markets. UBS comments that while a deal would be strategically sound and would be accretive to GS, the deal would not be transformational enough to warrant the significant dilution to TCE

SLB (41.09): Schlumberger estimates reduced below consensus at Bernstein: The firm believes the bottom abroad is unlikely to be hit until 2010. F09 and f10 EPS estimates are reduced to $2.95 and $2.12 vs. Reuters $3.54. Bernstein says it is too early to anticipate a bottom and that the shares should trade sideways in the near term. SLB remains market perform rated.

Big US banks lending less despite TARP funds – WSJ: An analysis shows ten of 13 large beneficiaries of TARP funds saw outstanding loan balances decline by a total of about $46B, or 1.4%, between Q3 and Q4. US Bancorp (USB), SunTrust Banks (STI), and BB&T (BBT) were the only three to see their portfolios grow. Large TARP recipients like Wells Fargo (WFC), who have not yet reported Q4 results, were not included. Bankers say it takes time to make prudent loans, and demand for low-risk loans is declining. Peope familiar with the situation say Citi (C) is expected to announce a plan tomorrow to use some of its TARP money to finance tens of billions of dollars in new loans this year. Reporting requirement inadequacies make it difficult to tell how much new lending many banks did, or how the amounts compare to previous quarters

CVX (70.82); RIG (52.22): Chevron removed from Conviction Buy List at Goldman Sachs; Transocean (RIG) added to Conviction Buy List: CVX remains buy rated; target remains $80. RIG target raised to $68 from $58. The firm also raises targets on: Pride (PDE) to $19 from $16. Diamond Offshore (DO) to $72 from $62. Atwood (ATW) to $19 from $16. Noble Drilling (NE) to $30 from $26.

BRK/A (86,250): Berkshire Hathaway 's equity holdings being dragged down by financials says Barron's: Barron's estimates that Berkshire Hathaway's equity portfolio is down 14% in '09 through Thursday compared to a 8% drop in the S&P 500, based on Berkshire's 16 largest equity holdings. Historically these holdings account for over 85% of the portfolio. Barron's guesses that if any of these companies needs an equity investor, Berkshire is ready to help. The stock looks reasonable at an estimated 1.3x book and 14x projected earnings. The top holdings are: AXP, BNI, KO, COP, JNJ, KFT, MCO, PKX, PG, SNY, TSCO.LN, USB, WMT, WPO, WFC and WSC.

SEE (13.70): Sealed Air reports Q4 EPS $0.39 ex-items vs Reuters $0.33: EPS excludes restructuring and other charges. Company reports revenues of $1.17B vs Reuters $1.17B. Guides f09 EPS to $1.25-1.45 ex-items vs Reuters $1.47.

Barron's summary
Cover: Investors should still with Big Oil, especially XOM, TOT, BP and speculative bet PBR. Rountable Part III: Picks from Scott Black, Marc Faber, Mario Gabelli and Oscar Schafer. Lead Articles: Positive on Heinz (HNZ), might be food's most appealing stock; Berkshire Hathaway's (BRK.A) equity holdings being dragged down by financials but the stock looks reasonable; Questions about an aggregator plan for bad bank assets, at least Geithner is flatly against nationalization; Kyocera (KYO) will survive due to diverse product line and cash holdings, stock could go to $90; O'Reilly Auto (ORLY) may be the best positioned to benefit from keeping older cars on the road, stock could climb 50%; Editorial suggests that President Obama take some time to study the problems before rushing into a fiscal stimulus or bank rescue plan. Columns: The Trader is positive on Focus Media (FMCN); Euro Trader is cautious on the possibility of a deal between Fiat (F.IM) and Chrysler saying that the biggest risk is that no deal happens, plus neither has a good track record with deals; Asia Trader notes the doubts surrounding the potential 500% return from Bumi Resources (BUMI.IJ) stock buyback; Current Yield notes the potential for the government to have to borrow $2.5T at the same time the incoming Treasury Secretary is accusing the Chinese of currency manipulation, resulting in a steepening Treasury yield curve; Commodities Corner says natural gas prices will rise but not this winter; The Striking Price says that President Obama's first 100 days could impact the volatility of stocks; Preview says that many millionaires are looking at real estate as an alternative investment, specifically small apartment buildings or strip malls; Follow Up is mixed on a Pfizer (PFE) / Wyeth (WYE) deal; Up and Down Wall Street comments on the inauguration and the impact of a financial crisis; Streetwise is cautious on the private education sector including ESI, APOL, DV and COCO and cautiously positive on ADP; Economic Beat says the government may need to do more to lower interest rates in order to help the housing sector; Technology Trader says PC demand is suffering, mobile phone sales are in trouble, there is no consumer electronics demand, the chip business continues to weaken and even good earnings reports aren't so good; Plugged In says Microsoft's problems may go deeper than just the economy, sort of; Gadget of the Week: Adobe's Photoshop Lightroom 2

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