February 17, 2009: Morning Call

February 17, 2009: Morning Call

Fair Value: SP500 – 825.40; NDX: 1237.46; DOW: 7829.27

Technical Levels:


SPX: 752-755, 800 support/ 848-852, 874, 899-908 resistance

Events:

Pre-market EPS: GPC (.56/2.55B); HSP (.76/989.1M); MDT (.70/3.53B); STO (.61/25.9B); RIG (3.70/3.29B); RAIL (.34/195.7M); TCK (.38/1.72B); VCI (.26/615M); WMT (.97/106.95B); ZBRA (.30/220.7M
08:30: Empire Manufacturing (Feb): -24.00
09:00: Net Long-Term TIC Flows (Dec): 20.0B
10:00: RIG earnings call
11:00: INTC Shareholders Meeting
13:00: NAHB Housing Market Index (Feb): 8
13:00: Fed’s Bullard speaks on the economy
17:00: ABC Consumer Confidence (Feb 15): -53
Post-market EPS: A (.28/1.26B); CHK (.75/2.45B); WYNN (.42/701.0M-date not confirmed); UPL (.48/244.8M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 23 points below fair value while the NASDAQ futures are trading 37 points below fair value following sharp declines in European markets. European markets are down 4% in the last two sessions (US markets were closed Monday for President’s Day). Financial stocks are among the hardest hit after Moody’s put banks with units in eastern Europe on review for possible downgrade. Mining, steel, and technology names are also underperforming with 9 issues declining for every advancing issue in London. Asian stocks closed sharply lower last night (Hong Kong down 3.8%, Japan down 1.3%, Australia down 1.5%, Shanghai down 3.1%, South Korea down 3.9%, India down 2.9%). In Japan, Finance Minister Shoichi Nakagawa announced he would resign amid widespread accusations that he was drunk at a G7 press conference. Banks led Hong Kong lower, though Bank of East Asia (23.HK) went against the trend. Oil-related stocks fell on lower crude-oil futures. A slumping won hurt shares in South Korea.

Impact Research Calls/Market Moving News:

WMT (46.53): Wal-Mart reports Q4 EPS $0.96 vs guidance of $0.91-$0.94: Excluding items, WMT reports EPS from cont. ops of $1.03 vs. Reuters $0.99. Company reports revenues of $108.0B vs Reuters $106.95B. Guides Q1 EPS to $0.72-$0.77 vs Reuters $0.77. Guides full year EPS to $3.45-$3.60 vs Reuters $3.57; First Call $3.59

GOOG (357.68): Google downgraded to source of funds from accumulate at ThinkEquity: Target reduced to $300 from $350. “GOOG shares are up 27% in the past three weeks (versus S&P up 3%) and are currently reflecting a 2H09 recovery that we believe is unlikely to materialize. Our research suggests that paid clicks and CPCs have continued to deteriorate in the first half of Q1. We are now expecting 3.8% Y/Y growth in net revenue (0.6% for gross) versus the Street consensus at 10.3%. Our PF EPS estimate is now $19.85 versus consensus at $21.20. As investors come around to our point of view, we expect to see multiples contract and the stock to fall into the $300 range.”

Wall Street to lobby for reconsideration of rescue plan – FT: People close to the situation say banks wanted detailed talks before the $2T financial rescue plan was announced. They hope to throw off the yoke of stringent financial health reviews and aren't crazy about the capital injections that could make the government a large shareholder, either. They would like the government to make clear that its "stress test" is not a pass-fail exercise

BIDU (128.20): RBC reduces f09 Baidu estimates below consensus: The firm notes the economic backdrop and limited visibility and reduces f09 EPS and revenue estimates to $596M and $5.69 vs. Reuters $629.73M and $6.12. Target for the shares is reduced to $182 from $242. Shares remain outperform rated. You may recall that Pali Capital took numbers below consensus on Thursday of last week.

GE (11.44): UBS remains cautious on General Electric: Firm believes expectations for finance remain too high and expects some combination of a dividend cut, credit rating downgrade and/or capital raise over the next several months. UBS maintains short-term sell rating.

NY Times columnist argues in favor of nationalizing the banking system: Columnist Joe Nocera says some industry observers have begun arguing that the government should just go ahead and nationalize bad banks already. He argues that government can successfully manage banks, as it supposedly did during the S&L crisis by finding qualified bankers to run them. Quotes a former member of the IMF as saying government taking over failing banks is best practices. He concludes with, "As we run out of possibilities, nationalization is looking more and more like the right thing."

NY Times says new car council to be led by Geithner and Summers: The panel, The Presidential Task Force on Autos, will replace the idea of a car czar and will also be composed of restructuring expert Ron Bloom, an advisor to the industry's labor unions. The paper says a task force instead of a czar will retain for President Obama the final word on the viability of GM and Chrysler

GM (2.50): General Motors bondholders propose debt-swap deal – Reuters: A person with knowledge of the talks says representatives have outlined specific proposals on how to carry out the plan to swap debt for equity in a restructured company. The source says the idea encourages high participation among bondholders and addresses a key concern about fairness in the parallel debt-reduction deal that GM has been negotiating with the UAW. GM has not yet accepted the proposals, specific terms of which were not disclosed.

RIG (60.15): Transocean reports Q4 EPS $3.69 ex-items vs Reuters $3.69: Revenues of 3.27 billion versus 3.29 billion. Average total drilling fleet dayrate $251.5K vs year-ago $224.0K.

DE (36.11): Deere & Company downgraded to sell from neutral at Goldman Sachs: The firm reduces target to $32 from $39 and expects the weakness in agriculture equipment to persists through 2010.

DO (63.41): Diamond Offshore Drilling Inc. (DO) will replace Weatherford International Ltd. (WFT) in the S&P 500 on a date TBA

SIRI (.10): Liberty Media to invest 530 million dollars in Sirius/XM radio via preferred stock. John Malone and Greg Maffei are going to join the SIRI board.


Barron's summary

Cover: Most Respected Companies: Top Ten are: JNJ, BRK.A, PG, AAPL, WMT, XOM, MCD, TM, KO and CSCO. Interview: Robert Albertson, principal and chief strategist of Sandler O'Neill & Partners, sees the financial crisis lasting for another 2-3 years. Lead Articles: Editorial suggests using $200B in TARP funds to reduce the balances of subprime mortgages by about 25%; Abbott Labs (ABT) could do even better over the next few years; Considers the 20 best dividend plays for 2009 and 10 that look iffy; A look at companies vulnerable to goodwill impairments; Activist investors are likely to find more support in this tough market environment; A discussion of the pros and cons of mark to market accounting, maybe a solution is to re-evaluate what banks are allowed to hold and how to calculate reserves; Cemig (CIG) may be the hottest play on a Brazilian recovery, stock could go to $18; Editorial says economics is not a hard science and that Keynesians won the election and now have to prove their theory works. Columns: The Trader is cautiously positive on tech, cautious on Hershey's (HSY) and American Italian Pasta (AIPC); Euro Trader is positive on Munich Re, cautious on Swiss Re; Asia Trader discusses Hyundai's (005380.KS) coming recapitalization of its auto-financing unit, notes some positive sentiment towards China Yuchai (CYD) though there are still plenty of concerns; The Striking Price discussions option strategies for General Electric (GE); Current Yield notes the reactions of Treasuries to recent events and sale efforts; Commodities Corner says the normal moves in heating oil futures compared to gasoline may not occur again this year, last year the lack of the trade was called the widow maker; Follow Up says a recovery could start in Q3, cautious on Abercrombie & Fitch (ANF); Up and Down Wall Street discusses the bailout and stimulus efforts in Washington; Streetwise says HSBC has a new international list of Nifty Fifty names including WMT, DIS, KO, JNJ, SLB, NTDOY, NSRGY, RR.LN and CAJ; D.C. Current wonders if Treasury Secretary Geithner will remain in his post for very long; Technology Trader is positive on IAC (IACI) on the potential to return cash to shareholders sometime this year, cautious outlook for solar names due to falling demand and polysilicon prices; Plugged In says Dell and Acer will have a tough time in the smartphone market and notes that NetApp (NTAP) missed revenue targets but still looks positive long term