Thursday, January 8, 2009

January 8, 2009: Morning Call

January 8, 2009: Morning Call

Fair Value: SP500 – 903.84; NDX: 1239.57; DOW – 8730.12

Technical Levels:

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


05:00: Euro-zone Unemployment Rate (November): 7.8% (in-line at 7.8%)
05:00: Euro-zone GDP (Q3 Final): -0.2% QoQ; 0.6% YoY (in-line at –0.2%)
05:00: Euro-zone Business Climate Indicator (Dec): -2.80 (weaker at –3.17)
05:00: Euro-zone Consumer Confidence (December): -26 (weaker at –30)
05:00: Euro-zone Economic Confidence (December): 72 (weaker at 67.1)
05:00: Euro-zone Industrial Confidence (December): -30 (weaker at –33)
05:00: Euro-zone Services Confidence (December): -13 (weaker at –17)
07:00: BOE Announces Interest Rate Decision (50 basis points as expected)
07:00: US Retailers release December Store Comps
07:45: ECB Rate Decision
08:30: Initial Jobless Claims (January 3): 540,000; Continuing Claims
08:30: MTW Analyst Day
10:30: EIA Natural Gas Storage Change
11:00: President-elect Obama delivers speech on the economy
11:30: MON R&D Pipeline Update Call
13:30: Treasury’s Kashkari speaks on TARP implementation
15:00: Consumer Credit (November): 0.5B
15:00: MSFT Analyst and Investor Meeting
16:00: Fed’s Hoenig speaks on Infrastructure Spending
17:00: CVX Q4 2008 Guidance Call
18:00: MSFT presents at the CES Conference
Post-market EPS: APOL (.98/913.0M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both 9 points below fair value following an earnings warning from WMT. European markets extended their losses to 2.0% following the WMT warning. European economic data also came in weaker across the board. Mining, Industrial, and Retail sectors are among the weakest sectors. Asian markets closed lower (Japan down 3.9%, Hong Kong down 3.8%, Australia down 2.2%, Indian markets closed). There were a number of profit warnings across the region. Thailand was the lone exception in the region reversing early losses. Macquarie Group (MQG.AU) and Telstra (TLS.AU) weighted on Australia. Hong Kong fell on resource shares. Bank of China (3988.HK) fell after Li Ka Shing sold $511M of shares yesterday. Lenovo (992.HK) plummeted on a profits warning. Cathay Pacific Airways (293.HK) dropped after revealing it had incurred fuel-hedging losses.

Impact Research Calls/Market Moving News:

WMT (55.54): Wal-Mart reports Dec comps +1.7% vs First Call +2.8%; cuts Q4 guidance: The company reports December revenues (0.1%) to $46.51B. Guides Q4 EPS to $0.91-$0.94 vs prior $1.03-$1.07 and Reuters $1.07. Dec. comps, with fuel, +1.2%. The company reports December revenues (0.1%) to $46.51B. Guides Jan comps. to flat to +2%. WMT says the current economy remains challenging and that retailers have already seen customers pull back on discretionary spending. WMT says Dec traffic was positive, though weather conditions slowed sales in several areas of the country the week before Christmas, forcing the closure of 40 stores for periods ranging from two hours to nine days. Electronics sales were solid, while apparel and jewelry were soft. WMT shares are trading down 7.5% in the pre-market.

JCG (11.69): J. Crew Group guides Q4 EPS to ($0.24)-($0.29) vs prior $0.05-0.10 and Reuters $0.07: The company's Q4 outlook currently reflects comparable store sales in the negative mid teen range and direct sales in the negative mid-to-high single digit range. This revised guidance reflects the aggressive inventory actions taken to clear fall and holiday inventory during Q4. JCG expects to end the year with cash of approximately $135M versus $132M last year, $100M of long-term debt versus $125M last year and no borrowings under its $200M working capital facility.

COST (50.12): Costco reports Dec comps (4.0%) vs consensus (4.0%), First Call (4.2%): The company reports December revenues (2.0%) to $7.4M. US December comps were (2%); int'l (11%). US December comps (excluding the impact from gasoline deflation and foreign exchange) were +2%; int'l +9%.

Retailers cutting prices early, often – WSJ: The newest trend is for retailers including J Crew (JCG) and Bebe Stores (BEBE) to cut prices on early spring merchandise before it hits store shelves. Some deals, like those offered at Old Navy (GPS) and Ann Taylor (ANN), require shoppers to purchase more than one item to get discounts of roughly 50%. Wal-Mart (WMT) announced earlier today it was cutting prices on health-related items like exercise machines.

GPS (13.56): Gap Inc reports Dec comps (14.0%) vs consensus (9.8%), reduces full year guidance: The company reports December revenues (12.3%) to $1.93B. Comps by division: Gap North America: (12%), Banana Republic North America (15%), Old Navy North America: (16%), International: (5%). Guides full year EPS to $1.27-1.30 vs prior $1.30-1.35 and Reuters $1.33.

ANF (23.74): December comps weaker at –24.0% vs. street at –22.9%. ANF also says Q4 earnings will be significantly below the previous 1.00 to 1.05 guidance range. The company does not provide new guidance in the press release.

SAY (1.00): Satyam Computer scandal casts doubt on India as whole – WSJ: The news of fraudulent books at a company whose name in Sanskrit ironically means "truth" raises questions about corporate governance and accounting standards in the country. Bankers and analysts agree that in many cases companies' rapid evolution from small operations keeping multiple sets of books to avoid taxes to international ones may have outpaced their abilities to develop internationally acceptable corporate governance.

INTC (14.44): Intel downgraded to hold from buy at Argus Research: The firm expects 2009 to be a very difficult year for the company. However, their long-term rating remains buy as they anticipate a rebound towards the end of the year and into 2010.

ICE (64.08); GFIG (4.81): Deutsche Bank downgrades GFIG and ICE: Shares are downgraded to hold from buy. Target for GFIG is reduced to $5 from $6. ICE target reduced to $65 from $88.

ICE (64.08); CME (198.69): IntercontinentalExchange (ICE), CME Group (CME) Q4 estimates reduced below at Wachovia: Firm cites weaker trading trends as catalyst

MTW (9.50): MTW sees 2009 EPS of 1.35 to 1.60 versus street consensus of 2.71. For full year 2009, the company anticipates a revenue reduction of approximately 20% for its Crane segment, which will be offset by an approximate 200% revenue increase by its Foodservice segment.

M (11.31): Macy's to close 10 locations – WSJ: Citing a source familiar with the matter, the Journal reports that Macy's is expected to announce as soon as Thursday that it will close 10 locations. The article notes that Macy's has 860 department stores. M comps decline 4% vs. street consensus of a 5.8% decline.

EMC (11.18): EMC guides Q4 revenue to $4B vs Reuters $3.96B: EMC announced that it expects Q4 revenues of approximately $4B and also that, excluding the restructuring charge of $0.10, it reaffirms non-GAAP earnings per diluted share of $0.23 to $0.24 vs Reuters $0.23. EMC shares are trading up 4% in the pre-market.

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