January 27, 2009: Morning Call

January 27, 2009: Morning Call

Fair Value: SP500 – 833.64; NDX: 1184.33; DOW: 8075.17

Technical Levels:


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

Events:

Pre-market EPS: AKS (.02/1.2B); AVY (.43/1.57B); BJS (.47/1.41B); BTU (.75/1.71B); CBE (.71/1.53B); CHKP (.47/216.4M); DD (-.24/6.09B); EMC (.23/3.99B); MHP (.38/1.49B); STJ (.58/1.11B); NUE (11/3.46B); SI (1.80/22.3B); VLO (.84/19.95B); X(1.16/4.46B)
09:00: S&P/CaseShiller Home Price Index (Nov)
10:00: Consumer Confidence (Jan): 38.9
10:00: Richmond Fed Manufacturing Index (Jan): -49
11:15: BLK presents at Citi Financial Services Conference
12:45: Citibank presents at Citi Financial Services Conference
14:00: COF presents at Citi Financial Services Conference
15:00: X earnings call
16:30: API Crude Oil and Gasoline Inventories
17:00: YHOO earnings call
17:00: ABC Consumer Confidence
Post-market EPS: CTX (-1.12/1.06B); NSC (1.19/2.62B); YHOO (.13/1.27B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 4 points above fair value while the NASDAQ futures are trading flat with fair value at 8am ET. European markets are down 1.1% just off the lows of the session. Weakest groups include Steel and Mining. Technology and Industrials are outperforming. German Solar stocks rallied 4.5%-7% after Q-cells, Phoenix Solar and Solarworld confirmed their earnings and sales forecasts. Asian markets closed higher (Japan up 4.9%, Hong Kong closed, Australia up 3%, India up 3.8%). Financials capitalized across the region on Barclays’s saying it will not need government funding. Japan rallied as the government said it would offer public funds to firms whose capital has been hurt by the financial crisis. Honda Motor (7267.JP) rose helped by a report it would expand production capacity in China by 20%. In India, Satyam Computer (SCS.IN) rose 20% on news that Larsen & Toubro (LT.IN) might raise its stake.


Impact Research Calls/Market Moving News:

AXP (15.20): American Express reports Q4 EPS $0.21 ex-items vs First Call $0.22: Company reports revenues of $6.51B vs Reuters $7.02B. First Call is $7.22B. Q4 results include $273M, after-tax, of reengineering costs, and a previously announced $66M, after-tax, increase in its Membership Rewards reserve. AXP remains cautious about the economic outlook through 2009, and expects cardmember spending to remain soft with past-due loans and write-offs rising from current levels. American Express says spending levels in Jan were "pretty consistent" with the trend in Dec -- conf call: Lower spending is having the most impact on lower loan growth. AXP also notes it is having fewer balance transfers that it historically has had, which is contributing to lower loan growth

AXP (15.20): Friedman Billing reiterates there underperform rating and lowers the price target to 12 from 15: “Key takeaways. Internal budgeting assumes peak unemployment of 8.5% in 2009, which, we believe, may prove too optimistic. Despite management indicating that USCS losses will increase for the next two consecutive quarters, reserves as a percentage of delinquent loans declined. Loan balances should decline, driven by lower customer spending and tighter line management. Valuation. We reduce our 2009 EPS estimate (which includes the benefit from the V/MA settlement) to $0.90 (from $1.25); we initiate a 2010 EPS estimate at $1.00. Our revised target assigns a 1.5x multiple to 4Q08 TBV of $7.55, a substantial premium to other card issuers and financial institutions, reflecting the inherent value of the network and superior global brand.”

AXP (15.20): American Express upgraded to outperform from underperform at Calyon Securities -- Dow Jones

DD (23.18): DuPont reports Q4 EPS ($0.28) vs preannounced range of ($0.20)-($0.30) and Reuters ($0.24): Company reports revenues of $5.82B vs Reuters $6.13B; First Call $6.17B. Guides Q1 EPS to $0.50-$0.70 vs Reuters $0.79. Guides f09 EPS to $2.00-$2.50, below prior $2.25-$2.75, vs Reuters $2.22. DD expects that global macroeconomic conditions for Q1 2009 will be similar to Q4 2008. DD expects the current global recession will continue in 2009, and says lower demand for non-agriculture products and the impact of currency is expected to limit the company's revenue growth.

TXN (14.77): Texas Instruments reports Q4 EPS $0.21 ex-items vs Reuters $0.12: The EPS figure includes a $67M tax benefit from the federal research tax credit and excludes restructuring charges. Company reports revenues of $2.49B vs Reuters $2.37B. Guides Q1 EPS to ($0.08)-$0.06 ex-restructuring charges vs Reuters $0.03; guides revenues to $1.62-2.12B vs Reuters $2.04B. Texas Instruments reports Q4 gross margin 44.0% vs Streetaccount consensus 40.1%

FSLR (139.05); SPWRA (28.80): First Solar (FSLR), SunPower (SPWRA) estimates reduced at Thomas Weisel: The estimates for FSLR are reduced to below consensus for both revenues and EPS for 2008 and 2009. The firm expects weaker shipments in 1H09. Target reduced to $185 from $220; rating remains overweight. SPWRA estimates for 2009 are reduced to below consensus for both revenues and EPS. Target is reduced to $30 from $45; rating is market weight. The firm cites concern about Spain, as well as tighter credit. “Following the results of the Taiwan solar complex, MEMC's negative outlook and our own channel checks with distributors and dealers, we are reducing our estimates well below consensus and management's guidance for 2009. We believe there is tremendous risk to the downside for numbers given the lack of credit (1.4% reduction in lending in 4Q as reported by the WSJ on Jan 26, 09), which directly impacts the bulk of SunPower's installation business. Though management had indicated on their last call that customers will shift from a levered method purchasing PV to a cash basis, we are in the midst of one of the worst global economic crisis in decades, we don't think this shift in purchasing patterns will shift as fast as management expects. In addition, it is becoming increasingly plausible that Spanish demand will go to zero in 2009 which was ~50% of SunPower's installation business in 2Q08. Non-Spain installations were trending at $75-$100 million per quarter in a solid credit environment, which leads us to believe systems revenue in 1H09 is well below $100 per quarter since credit isn't available.

IBM (91.60: IBM sent layoff notes to more than 2800 in sales – WSJ: The WSJ reports the cuts may be more significant than the company had said. Recall the Alliance for IBM speculated on job cuts at the company and that the organization has repeatedly commented on possible job cuts

CAT (32.67): Caterpillar upgraded to neutral from sell at UBS: Though upgraded, the price target is decreased to $34 from $35. The firm believes negative news is priced into the stock.

BJS (11.92): BJ Services reports Q1 EPS $0.56 ex-items vs Reuters $0.46: Company reports revenues of $1.43B vs Reuters $1.39B. BJS will reduce capital spending to a level that is 20%-25% below that of f08.

USB (13.01): US Bancorp downgraded to hold from buy at Argus Research: Shares are removed from Focus List. Firm lowers estimates and expects the company to cut its dividend.