Morning Call: January 30, 2009

January 30, 2009: Morning Call

Fair Value: SP500 – 842.13; NDX: 1203.57; DOW: 8106.95

Technical Levels:


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

Events:

Pre-market EPS: ACI (.40/709.4M); CVX (1.80/50.0B); HON (.97/8.95B); PG(1.06/20.63B); SPG (1.86/1.01B); XOM (1.59/62.05B)
05:00: Euro-zone CPI (Jan): 1.4% YoY
04:00: Euro-zone Unemployment Rate (Dec): 7.9%
08:30: US Q4 GDP (Annualized): -5.0%; Personal Consumption
08:30: GDP Price Index (Q4): 0.4%; Core PCE QoQ
08:30: Employment Cost Index (Q4): 0.7%
09:45: Chicago Purchasing Manager (Jan): 34.2
10:00: University of Michigan Confidence (Jan F): 61.9
11:00: SPG earnings call
11:00: CVX earnings call
11:00: XOM earnings call

Foreign Market Summary/Key Macro News/Commentary:

US equity futures have moved lower in the last 2 hours following weakness in European markets, disappointing guidance from PG, and anxiety ahead of the Q4 GDP number. The S&P and NASDAQ futures are both 8 points below fair value ahead at 7:50am ET. European markets have weakened 1.6% after the 5am release of Euro-zone unemployment (8% vs. 7.9% consensus and November was revised higher to 7.9% from 7.8%). Energy and Basic material sectors are leading the market lower. UK banks are positive but financials across the rest of the region are mixed. Gold is up another 13 dollars to 922 despite strength in the dollar as investors around the world are seeking a hedge against central bank intervention(Dollar is up 1% against the Euro to 1.28 and is testing a 2 month high). Citibank is advising clients to stay short the dollar against the Japanese yen given that US fiscal and monetary policy may be a “drag” on the USD. Asian markets: Markets ended the day mixed. Bad economic data, bad earnings forecasts, and overnight losses on Wall Street drove some down, but good results in other markets overshadowed economic concerns. Most shipping stocks followed the Baltic Dry Index up; banks and tech stocks went down. Toyota (7203.JP) declined 4% in Japan after the Nikkei reported its FY08-09 operating loss would expand and it was suspending operations at 11 of its 12 domestic plants. Toshiba (6502.JP) plunged 17% on news it might merge some operations with NEC (6701.JP), and an advancing yen hit exporters. Nintendo (7974.JP) and Kyocera (6971.JP) tumbled 12% and 6%, respectively, after cutting forecasts.

Impact Research Calls/Market Moving News:

AMZN (50.00): Amazon.com reports Q4 EPS $0.52 vs Reuters $0.39: Company reports revenues of $6.70B vs Reuters $6.43B. Guides Q1 revenues to $4.525-$4.925B vs Reuters $4.51B. Amazon.com reports Q4 GAAP operating income $272M vs StreetAccount consensus $231M: Guidance was for $145-305M, including $85M in sbc/amortization. Guides Q1 GAAP operating income $125-210M, including $75M in sbc/amortization, vs SA $172M. GAAP operating margin was 4.1% vs year-ago 4.8% and 3.6% in Q3. Gross margin reported 20.1% vs SA 20.5% and 23.4% in Q3

GS (82.75): Goldman Sachs target increased to $88 from $75 at UBS: Firm is positive on the company's $2B unsecured debt sale, which had strong demand despite the lack of FDIC backing. UBS thinks it could be a small positive toward the opening of unsecured debt markets to financial firms. Rating is neutral.

PG (58.22): Procter & Gamble reports Q2 EPS $1.58 vs 11-Dec guidance of $1.58-1.63: Company reports revenues of $20.4M vs Reuters $20.64B. EPS of $1.58 includes a $0.63 gain from the Folgers transaction completed during the quarter. Guides Q3 EPS to $0.78-0.86 vs Reuters $0.88. Procter & Gamble guides f09 EPS to $4.20-4.35 vs 11-Dec guidance of $4.28-4.38. First Call is $4.29. The company modified the guidance range due to the high level of market volatility and uncertainty. Operating margin, which includes the impact of incremental Folgers-related restructuring charges, is expected to be consistent with the prior fiscal year. For fQ3 (Mar), total sales are guided (2%)-(7%), which implies a range of $19.03-$20.05B. Reuters is $19.08B; First Call $19.2B. Q3 organic sales are expected to grow two to five percent.

New bank bailout plan could merge competing ideas – WSJ: People briefed on a meeting that included Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and FDIC Chairman Sheila Bair say they are talking about buying some of banks' bad assets and offering guarantees against future losses on some of the others. The idea is to both help banks and mitigate the cost to taxpayers. Sources say Bair wanted the government to buy more bad assets, but Treasury objected to the cost. The current plan, which is by no means set in stone as the final one, calls for the government bad bank to buy only assets banks have already marked down heavily, which would avoid crushing the value of other bank assets. As has been reported before, the guarantees would likely be set up the way they were for Citi (C) and Bank of America (BAC

SPWRA (28.68): SunPower reports Q4 EPS $0.70 vs Reuters $0.58
Company reports revenues of $401.0M vs Reuters $398.8M. Non-GAAP gross margin for the quarter was 29.9%. The company has named Dennis Arriola CFO. Guides next year EPS to $2.20-$2.80 vs Reuters $2.65; guides revenues to $1.6B-$2.0B vs Reuters $1.88B.

INTC (13.37): Intel Chairman Craig Barrett says there will be mergers in the technology sector because valuations are cheap. Barrett said,“Intel is always looking at acquisitions.”

ALL (23.50): Allstate downgraded to underweight from neutral at JPMorgan: Target is reduced to $25 from $38. The firm cites reduced operating EPS and needs more comfort with the company's capital position.

MA (129.09): MasterCard added to Conviction Buy List at Goldman Sachs: Price target is $180. The firm sees Q4 earnings (due 5-Feb) as a catalyst.

WYNN (32.82); LVS (5.65): Macau casino revenue (30%) in January, says TDM - South China Morning Post: The government-owned broadcaster says revenues plunged to MOP7.2B ($901M). A government source says casinos took in a mere MOP169M over the Lunar New Year holiday, while last year's casino revenues averaged almost MOP300M per day. The data excludes the final three days of the month and is only marginally below the MOP7.78B monthly average for September-December. January was also up against a difficult comparison, as Lunar New Year fell in February 2008, and the VIP segment had an influx of new gaming credit last January.

DELL (9.95): Dell preparing foray into cellphone market as early as next month – WSJ: Headline only. Additional headlines say that the computer maker has had a group of engineers working on the phones for over a year. Dell is said to have built a prototype with both Google Android and Microsoft Windows Mobile operating systems. Dell is reportedly focusing on the high-end, smartphone market.

X (32.89); NUE (43.03): Nucor (NUE), Olympic Steel (ZEUS), US Steel (X) downgraded, Reliance Steel (RS) upgraded at Goldman Sachs: NUE, ZEUS downgraded to neutral from buy, mainly due to valuation. X downgraded to sell from neutral and added to Conviction Sell List. Steel Dynamics (STLD) removed from Conviction Buy List; rating remains buy. RS upgraded to buy from neutral

CAT (31.85): Caterpillar added to Conviction Sell List at Goldman Sachs: Rating remains sell. Target is $28.

TRA (20.86): Terra Industries upgraded to buy from neutral at Goldman Sachs