Tuesday, March 31, 2009

March 31, 2009: Morning Call

March 31, 2009: Morning Call

Fair Value: SP500 – 784.61; NDX: 1221.69; DOW: 7476.51

Technical Levels:

SPX: 676, 719, 765 support/ 823, 898 resistance


Pre-market EPS: LEN (-0.69/544.3M)
05:00: Euro-zone CPI estimate (Mar): 0.9% YoY
09:00: BOE official testify to British House of Lords on the economy
09:00: S&P/Case Shiller Home Price Index (Jan): -18.50%
09:00: Fed’s Stern speaks on “Too Big to Fail.”
09:45: Chicago Purchasing Manager (March): 34.7
10:00: Consumer Confidence (March): 27.0
11:00: LEN earnings call
13:00: Fed’s Plosser speaks on regulatory reform
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
Post-market EPS: APOL (.65/866.9M); BGP (.95/1.15B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points above fair value while the NASDAQ futures are trading 14 points above fair value at 7:30am ET. European markets are trading up 1.5% to 3.0% led higher by mining and steel companies; banks have also recouped some of the sharp losses from Monday’s session. Marks and Spencer (MKS LN), the largest UK retailer, is up 10.50% after Q4 same store sales were stronger than expected. Asian markets closed mixed (Japan down 1.54%, Hong Kong up 0.89%, Australia down 0.62%, India up 1.47%). The Asian Development Bank cut economic growth forecasts and Australia said its economy would contract this year and warned of “difficult times ahead.” Japanese stocks were weak after the Prime Minister told reporters the government has yet to complete a stimulus package and a new package may be ready by mid-April.

Research Calls/Market Moving News:

Federal Reserve taking primary role in carrying out banks' stress tests - BloombergBloomberg reports that the Federal Reserve has taken the primary role in determining how much new capital the nation’s biggest banks need. “Putting the Fed in charge may help ease concern that different assessments by different agencies would lead to some firms being judged less strictly than others.” The article goes onto note that the Fed examiners are “deployed alongside counterparts from three other agencies that oversee parts of the 19 banks that are involved in the so-called stress tests.”

MS (22.13): MS CEO John Mack said 2009 will b a “difficult year” and that “even though flows of business are good, is nowhere near what we need on a long-term basis.” It “will be a difficult year for all of our firms, mainly because of some of the legacy positions that we continue to have, and they drag on all of us.”

FCX (38.53): Freeport-McMoRan downgraded to sell from hold at Deutsche Bank. Deutsche Bank expects copper prices to weaken. Price target is increased to 30 from 24.

IR (13.98): Ingersoll-Rand cuts quarterly dividend by 61.1% to $0.07 from $0.18; expects Q1 adjusted EPS to be at the low end of its previously forecasted range of ($0.15) to breakeven vs Reuters consensus ($0.01), guides F09 EPS cont. ops to be approx $0.45 below the bottom end of its previous guidance range $1.85-$2.25 vs Reuters $1.73

GOOG (342.69): Google upgraded to buy from neutral at Merriman Curhan Ford

KLAC (20.09): KLA-Tencor announces that the company will reduce its workforce by 10%in response to depressed market conditions.

X (21.55): UBS comments on meeting with U.S. Steel's CEO: Company sees emerging markets recovering first, followed by the U.S., then Europe. UBS notes that despite the $1B in cash on the balance sheet, CEO Surma did not rule out an equity raise and commented that the company would look to be preemptive ahead of a potential covenant breach by Q3. Company saw no evidence of sustained improved demand and cautioned on new sheet capacity in 2010. UBS maintains sell rating and target of $16.

FT discusses financing constraints at GMAC and CIT: The FT reports that GMAC and CIT, two of the largest finance companies in the US, are still unable to issue government-backed debt almost three months after becoming bank-holding companies to take advantage of federal rescue schemes. The paper adds that both lenders confirmed that their applications are still pending, though the FDIC declined to comment on specific applications. Citing analysts, the article notes that the delay may force CIT to rely on asset sales to cover its funding needs if it is not able to secure access in the next few weeks. Recall that the banking charger also made the lenders eligible to apply to the FDIC's temporary liquidity guarantee program (TLGP), which allows banks to issue inexpensive debt backed by the FDIC’s guarantee, in an effort to encourage them to lend to consumers and businesses.

MSFT (17.48): Microsoft maintained outperform at Oppenheimer after meeting with management: Target is $22. The firm says their recent meeting with MSFT left them incrementally more confident in its expense management efforts over the short and longer term. Oppenheimer continues to believe the WIN7 release will be a far more successful product cycle than its predecessor, making it a likely near-term catalyst for the shares. In the coming years, the firm believes that Azure will be the company's Internet

Friday, March 27, 2009

March 27, 2009: Morning Call

March 27, 2009: Morning Call

Fair Value: SP500 – 830.15; NDX: 1282.55; DOW: 7881.44

Technical Levels:

SPX: 676, 719, 765, 792 support/ 823, 898 resistance


Pre-market EPS: FINL (.34/361.4M); KBH (-.81/356.0M)
06:00: Euro-zone Industrial New Orders (Jan): -5.6% MoM; -28.4% YoY
08:30: Personal Income (Feb): -0.1%; Personal Spending: 0.2%
08:30: PCE Core (Feb): 0.2% MoM; 1.6% YoY
10:00: University of Michigan Confidence (March Final): 56.6
11:30: KBH earnings call

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 14 points below fair value while the NASDAQ futures are trading 23 points below fair value at 8am ET. Foreign markets are weaker despite the strong gains in US markets during Thursday’s session. Asian markets closed mixed (Japan down 0.11%, Hong Kong up 0.07%, Shanghai up 0.77%, South Korea down 0.25%, Australia up 0.70%, India up 0.45%). Rio Tinto (RIO.AU) jumped in Australia after CFO Guy Elliott said the company had a backup plan if Chinalco’s $19.5B investment is turned down. In Japan, real estate share and trusts gained on a report the government is considering establishing a fund to support REITs. European markets are down 0.80% snapping a 7-day winning streak for the Euro-stoxx 50. The major indexes moved to session lows following a weaker than expected UK GDP report. Decliners on the FTSE 100 lead decliners 3-2. Air France-KLM (AF.FP) fell 6% after saying it'll report a FY09 operating loss and that traffic in the initial weeks of March has shown a further decline.

Research Calls/Market Moving News:

FDIC's Bair says she would be open to banks profiting from disposal of problem loans – WSJ: The Journal reports that Bair's comments came in a conference call with bankers on Thursday. According to the article, Bair said that banks might be able to take equity stakes in funds set up to buy problem loans from banks, which would give them a payoff if the loans ultimately increased in value, as well as an additional incentive to get the assets off of their balance sheets. The article goes on to discuss the wide range of haircuts that have been applied to recent deals involving toxic assets

ACN (31.96): Accenture reports Q2 EPS $0.63 vs Reuters $0.62: Company reports revenues of $5.27B vs Reuters $5.54B. Guides Q3 revenues to $5.10-$5.30B vs Reuters $5.78B. Fiscal year revenue growth guided to 0-4% below prior 6-10%. Q3 revenue guidance assumes (12)% impact from forex vs.y/y. Fiscal year guidance assumes forex impact of (9%) vs. prior (10%)-(8%). IBM is trading down 2.50 points in reaction.

INTC (15.82): INTC files 1 billion dollar equity shelf registration for acquisition purposes.

FSLR (150.39): First Solar downgraded to hold from buy at Collins Stewart: “Despite the indication yesterday that China will allocate funds for solar installations, it remains a challenging environment for the solar industry. ASPs are declining, financing is difficult to obtain in many markets and businesses are reluctant to tie up funds in a solar project in the midst of a weak economy. With regard to China, we do not believe the program in China will meaningfully alter the demand for FSLR product or correct the polysilicon oversupply situation we forecast for CY09 and CY10. Based on polysilicon prices ($100/kg spot), we believe the price of polysilicon-based modules will fall to $2.00/watt by YE09, a price level vendors such as TSL and YGE can achieve with a 22% gross margin (assuming $100/kg polysilicon). As standard module prices trend below $2.20/watt, they start to impact FSLR's pricing. FSLR modules require a $0.25/watt discount to maintain an installation cost parity, and an additional discount to provide an incentive for buyers to use its modules.”

TSL (12.19:FBR Capital downgrades shares to undderperform. “Following the recent rally in the shares of Trina Solar Limited, especially the 40% from yesterday compared to a 2% strengthening of the S&P 500, combined with what we believe to be the fact that solar incentives in China will not be more than 180M watts (versus our expectations of a total installation of 100M watts in CY09) and that Europe has remained relatively weak, in our opinion, when compared to company management commentary from only a month ago, we are downgrading the shares of TSL from Market Perform to Underperform. Our estimates remain unchanged, though there remains downside risk. Our price target of $8.00 has also remained unchanged. We believe that the fundamentals for the solar industry remain relatively weak, with continued excess capacity (and, thus, more finished-goods inventory write-downs). Although there is an increased level of skepticism among investors regarding a significant acceleration in growth before mid 2010 (when the U.S. market could potentially take off), we believe that the company's management (and management throughout the industry) has remained too hopeful.”

Solar Power: Deutsche Bank cautious on solar stocks: “The China Ministry of Finance announced a new incentive program to stimulate the solar PV industry. The main point of this preliminary plan is to provide up to a 20 Yuan (US$2.93)/Wp subsidy for projects 50kW and larger. This new stimulus package is clearly a positive, but we believe stocks have over-reacted to the news. Our near-term outlook for the broader solar PV industry remains negatively biased as credit issues drive prices down and inventories up. The China Ministry of Finance press release (detailed in the body of this report) could be characterized as a general direction with some details, but is clearly not detailed enough for an accurate assessment of the potential impact to the solar PV industry. We believe the program is likely designed to lend support to local Chinese solar PV industry players, and not meant to serve as a blueprint for a solar PV industry recovery plan in China. The press release did not detail the budget, the applicable period, or installation goals, making it difficult to quantify the impact of the program. While the program is clearly an incremental positive for the Chinese market and global demand, we caution against euphoria when considering solar PV company stocks.

GS (111.99): FBR Capital initiates coverage of The Goldman Sachs Group, Inc. (GS) with an Outperform rating and a 12-month price target of $130.00 per share. We believe that the company will benefit from the inward focus of many of its once formidable competitors, significant progress toward de-leveraging the balance sheet, and recovering returns on equity. For these reasons, we view the shares as attractively valued. Despite the need to reduce leverage and the concern that doing so could harm returns on equity, we believe that the market is largely ignoring higher risk premiums across a variety of asset classes and their positive implications for returns. We argue that leverage did have a positive impact on ROE but that the conditions that necessitated the higher use of leverage (namely extremely low risk premiums fueled by years of historically low funding costs) have reversed, allowing for attractive returns on lower leverage. We believe that GS’s current valuation appropriately reflects expectations for a difficult capital markets environment in 2009 but offers attractive upside potential in more stable capital markets.”

MGM (3.09): MGM Mirage and investment partner Dubai World unlikely to make $220M debt payment due Friday on City Center – WSJ: The Journal cites people familiar with the matter. The paper adds that MGM has hired law firm Weil, Gotshal & Manges LLP to help prepare a possible Chapter 11 court filing for City Center, as well as to explore other options. A filing could come as early as this weekend, though the paper notes that it is not clear what kind of impact such a move would have on MGM Mirage's other finances.

CF (74.00): Agrium raises cash component of its offer for CF Industries Holdings to $35 from $31.7

AMZN (73.69): Amazon.com removed from Conviction Buy List at Goldman Sachs: Shares remain buy rated. Despite the move, the 6-month target is increased to $81 from $70.

AMZN (73.69): Amazon initiated hold at Kaufman Brothers:Target is $69. The firm cites uncertainty relative to consumer spending, declining gross margins and sales tax overhang, among the rationale.

COP (40.310): ConocoPhillips upgraded to buy from neutral at Goldman Sachs: Target decreased however to $47 from $50.

BBY (37.67): Best Buy removed from the Conviction Buy List at Goldman Sachs: Shares remain buy rated.

Goldman Sachs changes ratings in the E&P sector: upgrades APC, CHK, PXD; downgrades TLM, XTO: Upgrade: Chesapeake Energy (CHK) upgraded to Conviction Buy from buy. Pioneer Natural (PXD) upgraded to buy from sell. Downgrade: XTO Energy (XTO) downgraded to neutral from Conviction Buy. Talisman Energy (TLM) downgraded to sell from neutral.

BJS (10.94): BJ Services added to Conviction Sell List at Goldman Sachs: 6-month price target is $8.

Thursday, March 26, 2009

March 26, 2009: Morning Call

March 26, 2009: Morning Call

Fair Value: SP500 – 810.99; NDX: 1237.81; DOW: 7706.28

Technical Levels:

SPX: 676, 719, 765 support/ 823, 898 resistance


Pre-market EPS: BBY (1.38/14.79B); CAG (.38/3.12B); CHU (.24/3.59B); GME(1.34/3.50B); LEN (-.69/544.3M); WTSLA (.08/157.4M)
05:00: Fed’s Lockhart speaks on monetary policy
08:30: US GDP QoQ (Q4): -6.6%; Personal Consumption: -4.4%
08:30: US GDP Price Index (Q4): 0.5%; Core PCE QoQ: 0.8%
08:30: Initial Jobless Claims (w/e March 21): 650k; Cont. Claims: 5.48M
09:00: LXK analyst day
10:00: Geithner testifies to house panel on regulation
12:00: Fed’s Fisher speaks on the current economic crisis
12:30: Fed’s Lacker speaks on the US economic outlook
13:00: Fed’s Stern speaks on “Too Big to Fail.”
Post-market EPS: ACN (.62/5.53B); ERJ (1.09/1.92B); TIBX (.09/142.1M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points above fair value while the NASDAQ futures are trading 10 points above fair value at 7:45am ET. European markets are down 0.25% in a quiet range bound trading session. The German DAX is up 0.50% due to strength in Volkswagen (VOW. GR). Trading higher after update is Man Group (EMG.LN) whilst retailers Next (NXT.LN), Kingfisher (KGF.LN) and H&M (HMB.SS) are all lower after results. Asian markets closed strong (Japan up 1.8%, Hong Kong up 3.57%, Australia up 1.03%, Shanghai up 3.27%, India up 3.47% - Sensex closes above 10,000). Asian markets rebounded after weak openings as technology shares rose on the back of overnight gains on the Nasdaq. Hong Kong was buoyed by positive earnings from Hutchison Whampoa (13.HK) and Industrial & Commercial Bank of China (1398.HK), which got several brokerage upgrades following the extension in the lock-up period for Goldman’s stake in the company.

Research Calls/Market Moving News:

China’s Zhou says Economy Recovers on Decisive Action – Bloomberg: “People’s Bank of China Governor Zhou Xiaochuan said the world’s third-largest economy is recovering and contrasted his government’s “decisive” action with delays in other countries. “Leading indicators are pointing to recovery of economic growth,” Zhou said in an article on the central bank’s Web site today. The government “has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions,” he said. Zhou called this week for the creation of a new international reserve currency, signaling concern at the dollar’s weakness and China’s ambitions for a leadership role at next week’s Group of 20 summit. Finance Minister Xie Xuren urged world leaders today to step up economic stimulus to restore market confidence and to fend off trade protectionism. “China has clearly been moving ahead of the rest of the G-20 in terms of thought leadership and laying the groundwork for what will be discussed,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “China responded extremely quickly and with great vigor to the slowdown.”

BBY (33.46): BBY reports Q4 profit of 1.61 vs. street consensus of 1.40. Guides 2010 EPS to between 2.50 to 2.90. 2010 consensus is 2.46. Shares are trading up 2 points in reaction to the headlines.

RIMM (42.92): Goldman recommends buying Research In Motion ahead of fQ4 (Feb) earnings: Following checks, the firm has more confidence in its estimates for fQ1 and expects company guidance to meet expectations. Rating remains buy; 6-month target is $57. RIMM reports Q4 on 2-Apr. JP Morgan downgraded RIMM shares yesterday.

RIMM (42.92): Research In Motion: Credit Suisse previews Q4; sees in-line qtr, risks in May: Credit Suisse notes while F4Q results should be in-line with the co's Feb 11 preannouncement, per which EPS is expected to come in at the low end of prior guidance of $0.83-0.91, firm sees risk to consensus estimates of $3.4 bln/$0.82 for the May quarter. Their May quarter revenue/EPS estimates of $2.9 bln/$0.75 are predicated on units/ASP of 6.6 mln/$352 vs consensus of 7.7 mln/$361. For F1Q, firm's device est of 6.6 mln (down 12% qoq but still up 22% yoy) is driven by i) moderating net add growth, ii) a lower quarterly replacement rate, and iii) only a moderate inventory build ahead of new product launches. Firm believes this view better reflects not only a slowing smartphone market, but also the level of carrier support that RIM is currently seeing from Vodafone for the Storm.

GOOG (344.07); IACI (14.88); VCLK (8.03): Canaccord Adams upgrades GOOG, IACI, VCLK: Google (GOOG) upgraded to buy from hold; target increased to $450 from $300. InterActiveCorp (IACI) upgraded to buy from hold; target increased to $19 from $15. ValueClick (VCLK) upgraded to buy from sell; target increased to $10 from $5

VLO (18.64): Barron's Weekday Trader is positive on Valero Energy: Barron's says that Valero has a distinct advantage as the largest refiner of petroleum products in the US. The company is one of the most profitable and lowest-cost producers of refined products, has $5B in available liquidity, and no major debt obligations for two years. The article also points out that down 65% over the last twelve months to near a five-year low, the stock is trading around historically low valuations at 0.6x book and 6.5x expected 2009 EPS. In addition, Barron's highlights the competitive edge in Valero's business model in that its plants are equipped to refine heavy, sour crude, which sells at a discount to the benchmark light, sweet crude oil quoted on the NYMEX.

AAPL (106.49): China Unicom Hong Kong denies reports it has agreement to bring 3G iPhone to China - China Knowledge: A CHU spokesman says the companies are still in talks, but he has not been told an agreement has been reached.

BHP (46.12): BHP Billiton downgraded to neutral from buy at Bank of America Merrill Lynch (Pre European Open)-- Bloomberg

President Obama's auto task force to recommend more loans for struggling car companies – WSJ: The Journal reports that President Obama's auto-industry task force is set to recommend additional loans for struggling US car companies, though not without additional strings attached. Recall that Bloomberg cited comments from Sen. Levin (D-MI) earlier today that the automakers can expect more aid. According to the article, the task force expects to make an announcement within the next few days. The group is expected to say that it sees viable futures for both GM and Chrysler, but only if there are sacrifices from management, unions and bondholders.

Monday, March 23, 2009

The Key Question Remains!

The most important “principle” in the Geithner Public/Private Investment Program (PPIP) is the “private sector price discovery” mechanism. The Treasury Fact sheet says that in order to “reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.” Pundits on both the left and right are furiously arguing that the plan is going to be a huge giveaway to the banks at the taxpayer expense. But, this assumption is based on the PPIP overpaying for the toxic assets. Of course, the government could rig the PPIP auctions for the benefit of the banks but the pundits (and many traders long the financial stocks) are just speculating on this score.

Paul Krugman argues that the Geithner plan is “just an indirect, disguised way to subsidize purchases of bad assets” at inflated prices. But, Krugman’s statement is far too definitive without the benefit of the pricing data. The ultra-cheap financing and attractive terms will enable the public/private to “pay up” for the toxic assets. The key question is how much? Market participants will not know if the PPIP is a taxpayer giveaway until the asset auctions begin and the prices are disseminated.

Also, keep in mind that the “uniform stress test” results are expected by the end of the April and the PPIP is going to be launched within the next 45 days. Will any banks fail the stress test? And, if so, will banks that fail the stress test be forced to sell assets into the PPIP in order to receive additional capital? The uniform stress test may be the trigger that forces banks to recognize their true unrealized losses and the PPIP may be the venue where the unrealized losses are finally realized. The uniform stress test and the PPIP may be a way for the Obama Administration to force the point and provide political cover if a “too big to fail” institution needs to be nationalized and liquidated.

In terms of strategy, the rally appears extended here despite the solid move above the 50- day moving average and the 800-level on the S&P 500. Traders that are still aggressively long should be paring back exposure into this advance. The speculation that this program is going to be a windfall for the banking sector seems misplaced and overdone.

Friday, March 20, 2009

March 20, 2009: Morning Call

March 20, 2009: Morning Call

Fair Value: SP500 – 781.02; NDX: 1205.44; DOW: 7356.32

Technical Levels:

SPX: 639, 676, 719 support/ 800, 823 resistance


06:00: Euro-zone Trade Balance
06:00: Euro-zone Construction Output
10:00: House hearing on investor protection laws
11:00: Goldman Sachs CFO discusses relationship with AIG
12:00: Bernanke speaks on panel with FDIC chair Shelia Bair about the financial crisis

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading flat with fair value at 8am ET. The futures have bounced 10 points off the morning lows (741) session following news that EU leaders agreed to double the crisis fund for non-Eurozone members to 50 billion euros. European markets are unchanged bouncing 1.5% off the early morning lows. The dollar immediately reversed higher on the news (USD up 0.80% against the Euro) alleviating some of the concerns about the pace of the dollar decline over the last two sessions following the Fed announcement. Asian markets closed lower (Japan down 0.33%, Hong Kong down 2.26%, Australia down 0.41%, India down 0.39%). Banks followed their Wall Street counterparts down as euphoria over the plan for the Federal Reserve to buy longer-dated US Treasuries subsided. Commodity prices rallied, bringing related stocks up with them. Hong Kong lost early gains as investors showed disappointment with China Mobile (941.HK)’s results and a report a large investor is trying to sell shares, sending it down 5%.

Research Calls/Market Moving News:

GE (10.13): UBS comments on General Electric's finance analyst day: Firm notes that the company's underlying economic assumptions tend to be overly optimistic and that it seems increasingly possible that '10 could be worse than '09. Rating is remains neutral with a target of $9.50.

GE (10.13): General Electric EPS estimates reduced at Citi: Firm says the company's earnings power and the quality of its earnings are declining, and includes tax credits, but that the company's capital and liquidity are likely adequate. Firm reduced Q1 EPS and f09 below consensus. Shares rated hold. Target price, $9.

GE (10.13): GE Capital likely needs to increase reserves – WSJ: In a "Heard on the Street" column, the Journal discusses some of the recently released details of GE Capital's $637B worth of assets. The paper notes that 81% of the $55B of equipment leased in the Americas is to borrowers with ratings below investment grade. In addition, when it comes to the $38B leveraged loan book, 76% is to borrowers rated below B+, with 28% to those below B-. According to the article, management is expecting $333M of credit losses on its leveraged loans in 2009, less than 1% of the total amount. The Journal goes on to highlight GE Capital's exposure to lower-grade consumer borrowers.

SPG (34.38): Simon Properties to offer 15M shares through Goldman Sachs, Deutsche and UBS: All shares are being offered by the company. If the 15% over-allotment is exercised in full, the newly issued shares increase the shares outstanding by 7.5%. SPG is also offering ~$500M in senior notes through Goldman Sachs and JPMorgan. The completion of either offering is not conditioned on the success of the other.

Eurozone Jan Industrial Production (17.3%) y/y vs consensus (15.5%) and prior revised (11.8%). Eurozone Jan Industrial Production (3.5%) m/m vs consensus (4.0%) and prior revised (2.7%)

MHP (19.64); MCO (19.06): Credit-rating companies set to hit jackpot with latest government effort to heal credit markets – WSJ: The latest round features bond issues, each of which needs to be blessed by at least two of Moody's Investors Service (MCO), Standard & Poor's Ratings Services (MHP), and Fitch Ratings (FIM.FP). So while the argument can be made that these companies' wildly bad ratings on mortgage securities caused this problem, the latest solution is set to reward them. Officials at all three companies say steps have been taken to avoid repeating past mistakes in assigning ratings. Given typical charges, if TALF goes to the planned $1T, the three companies' fees for rating the securities will be $400M-1.2B.

FSLR (124.80): First Solar repeats it will have the capacity to produce more than 1GW per year: FSLR also announced it has producted 1GW of its advanced solar modules since beginning commercial production in early 2002.

TGT (31.43): Target reports February net charge-offs 12.88% vs. Jan 12.28%: Delinquencies were 8.94% vs. 8.91% in Jan. Trust portfolio yield was 25.49% vs. 24.63% in Jan. The payment rate was 12.61% vs. 12.47% in Jan

XRX (5.34): Xerox guides Q1 EPS to $0.03-0.05 vs prior $0.16-0.20 and Reuters $0.17: The reduction includes a $0.06 impact from Xerox's share of Fuji Xerox's restructuring and a lower than expected Fuji Xerox profit contribution with the balance resulting from an industry-wide slowdown in technology spending, putting pressure on revenue and earnings. Xerox's total revenue in January and February declined 18% including a 5 point currency impact, largely due to lower sales of equipment and printer-based supplies.

Thursday, March 19, 2009

March 19, 2009: Morning Call

March 19, 2009: Morning Call

Fair Value: SP500 – 791.37; NDX: 1208.24; DOW: 7442.50

Technical Levels:

SPX: 639, 676, 719 support/800, 823 resistance


Pre-market EPS: BKS (1.48/1.75B); CCL (.19/2.86B);); ROST(.76/1.73B); PLCE (.69/444.9M); FDX (.46/8.7B)
06:00: Euro-zone Industrial Production (Jan): -1.5% MoM; -13.4% YoY
08:30: Initial Jobless Claims
08:30: FDX earnings call
09:00: GE Investor Meeting
10:00: US Leading Indicators (Feb): -0.60%
10:00: Philly Fed (March): -40.0
10:30: EIA Natural Gas Storage Change
Post-market EPS: BBI (-1.66/252.0M); PALM (-.60/110.6M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading flat with fair value while the NASDAQ futures are trading 4 points above fair value at 8:15am ET. The futures are moving in tandem with European markets, which are up 2% near the highs of the session. Crude oil is trading above 50 for the first time since January 7. The dollar is down 1% against the Euro (after dropping 3.5% following yesterday’s Fed announcement) after the Fed pledged to purchase 1 trillion of bonds (300b of Treasuries, 700b of agency MBS). Financial and mining shares were amongst the leading groups, with insurers helped by Prudential plc (PRU.LN) results. Markets in Europe have been volatile. Asian markets close mixed (Japan down 0.33%, Hong Kong up 0.10%, Australia up 0.98%, India up 0.28%, South Korea 0.94%). Financials were helped by the Federal Reserve’s plan to buy longer-dated US Treasuries, but exporters suffered from stronger local currencies. Commodities producers led China up on optimism the country’s stimulus plan is working. BHP Billiton (BHP.AU) edged higher after saying it would issue $3.25B in bonds for general corporate purposes. Hong Kong reversed early declines and ended the day flat. China Huiyuan Juice (1886.HK) plunged (42%) after Beijing rejected Coca-Cola (KO)’s bid.

Research Calls/Market Moving News:

C (3.08): Citi plans reverse stock split: Citi says it proposes to effect a reverse stock split at any time prior to 30-Jun-10 at one of seven reverse split ratios, 1-for-2, 1-for-5, 1-for-10, 1-for-15, 1-for-20, 1-for 25 or 1-for-30, as selected by its board. The disclosure was made in the aforementioned registration statement, related to its offer to issue common stock in exchange for preferred and trust preferred securities.

C (3.08): Citibank said to commit 10 million dollars for a new executive suite – Bloomberg. Bloomberg is citing affidavits filed with New York’s Department of Buildings and a person familiar with the project.

ORCL (15.83): Oracle reports Q3 EPS $0.35 ex-items vs. Reuters $0.32: Company reports revenues of $5.45B vs. Reuters $5.45B. ORCL declares its first-ever quarterly dividend of $0.05. Oracle reports Q3 new software licenses $1.516B vs. consensus $1.45B. Oracle says each month of quarter was on track - conf. Call. Management makes the comment in response to a question on how the quarter progressed. They go on to note that they didn't see any noticeable trend shift from January to February; the close of the quarter is also said to have not seen any unusual activity. In response to a question on whether the company can eventually exceed 50% operating margins, President Catz said long-term, "sure".

FDX (43.05): FedEx reports Q3 EPS $0.31 vs. Reuters $0.46: Company reports revenues of $8.14B vs. Reuters $8.68B. Guides Q4 EPS to $0.45-$0.70 vs. Bloomberg .70 cents. FDX is implementing additional cost-reduction initiatives.

NKE (45.92): Nike reports Q3 EPS $0.99 ex-items vs. Reuters $0.79. Company reports revenues of $4.44B vs. Reuters $4.48B. For the 1H F10 Nike expects reported revenue to be below prior year levels citing tough comparisons.

NOK (11.84): Nokia (NOK) upgraded to outperform from neutral at Credit Suisse.

AA (5.48): Alcoa upgraded to overweight from neutral at JPMorgan: Firm also adds shares to its Focus List. The firm notes the removal of the overhang through the dividend cut and secondary offering.

SOHU (44.53): Oppenheimer downgrades to neutral. The firm notes that SOHU has filed to spin off its gaming division, which Oppenheimer sees as meaningfully dilutive to shareholders. Pali Research downgrades to sell and a 35 target.

NITE (17.39): Knight Capital downgraded to neutral from buy at Goldman Sachs: 6-month target cut to $17 from $20. The firm expects a sharp decline in profitability

TEX (10.07): Terex downgraded to market perform from outperform at Wachovia: Valuation range is $10-12. Estimates for Q1'09 and full year '09 are lowered due to reduced revenue expectations. Firm cites valuation for the downgrade.

MDR (14.23): McDermott estimates and target raised at UBS: Target raised to $17 from $13. EPS estimates for '09 and '10 are raised to reflect new contracts and higher margin assumptions. Rating is buy.

AAPL (101.52): China Mobile chairman says still in talks with Apple (AAPL) over iPhone – wires: Recall China Unicom (CHU) CEO Chang Xiaobing said his company was having the same talks 3-Mar.

ORLY (35.00): O’Reilly Automotive will replace Noble Corp. (NE) in the S&P 500

MT (17.68): ArcelorMittal may halt production at two or three Russian coal mines until markets improve – Bloomberg

BRCD (2.94): Brocade upgraded to outperform from sector perform at RBC Capital: Target increased to $4 from $3.50. Firm notes dissipating concerns over debt covenants, ample cash flow to service debt, a strong position in the Fibre Channel market, OEM relationships, and longer-term opportunity in HBAs.

Tuesday, March 17, 2009

March 17, 2009: Morning Call

March 17, 2009: Morning Call

Fair Value: SP500 – 751.08; NDX: 1147.11; DOW: 7174.94

Technical Levels:

SPX: 639, 676 support/ 778, 800 resistance


Pre-market EPS: FDS (.69/156.4M)
06:00: ZEW Economic Survey
08:00: CELG presents at Cowen Healthcare Conference
08:30: US Producer Price Index (Feb): 0.4% MoM; Ex-Food/Energy: 0.1% MoM
08:30: US Producer Price Index (Feb): -1.4% YoY; Ex-Food/Energy: 3.8% YoY
08:30: Housing Starts (Feb): 453,000; Building Permits (Feb): 510,000
13:40: CEPH presents at Cowen Healthcare Conference
16:10: Bank of England Governor Mervyn King to make speech
16:30: API Crude Oil and Gasoline Inventories
17:00: ADBE earnings call
Post-market EPS: ADBE (.44/784.1M); DRI (.68/1.81B); GES (.52/529.0M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are flat with fair value at 8:15am ET. The S&P futures were 9 points above fair value at 6:15am ET. Asian markets closed mostly higher (Japan up 3.18%, Hong Kong down 0.76%, Shanghai up 3.6%, South Korea up 3.5%, Australia up 3%, India down 0.89%). Japan was boosted by reports that Prime Minister Taro Aso has convened a panel of experts to generate ideas for a new ¥20T economic stimulus package. Banks continued to rise on hopes for new policy steps by the Bank of Japan and Federal Reserve. In Australia, retailers advanced after the Reserve Bank of Australia said further interest-rate cuts were possible. European markets are down 1.5% near the lows of the session after a brief rally that took the markets to break-even following the better than expected Euro-zone economic sentiment survey (-6.5 vs. consensus of –12) at 6am ET. Energy and material sectors are down 2%. European financials are down 0.50%.

Research Calls/Market Moving News:

Fed Meeting speculation: the top Bloomberg story this morning notes the possibility that the Federal Reserve will announce a more aggressive monetary expansion to fight deflation. Speculation is primarily centered around the Fed expanding the size of the 600 billion dollar MBS re-purchase program and the outright buying of Treasuries and even corporate bonds. Once again, market participants appear to be raising “expectations” ahead of the meeting.

GS (93.90); MS (23.04): Goldman Sachs (GS) estimates raised, Morgan Stanley (MS) estimates lowered at UBS: Firm raises Q1'09 estimates on GS materially above consensus given expectations for principal investment losses on corporate and real estate investments to be partially offset by some gains. UBS is also positive on the company's equity trading, prop desk, and FICC. MS estimates for Q1'09 and FY'09 are lowered substantially below consensus. Firm attributes losses to write-downs on legacy assets.

AIG (.83): Populist rage (justifiable) is building on the 165 million dollar in bonuses that AIG paid to employees. The story is on the cover of most national and local newspapers this morning. Stories like this are extremely damaging to investor psychology. Although the markets gave up the gains yesterday primarily on the weak credit card trust data, the AIG bonus story also played a role as “looting” of this kind is extremely damaging to long-term investor psychology.

Meredith Whitney says the large banks in this country are “not investable”- CNBC: Whitney says the company’s legacy loans and existing lines of business were based on “bad math.”

Goldman Sachs offers loans to stretched employees – New York Times: The NYT is reporting that Goldman has provided loans ranging from 1,000 to several hundred thousand dollars so that employees can meet contractual commitments to the Whitehall investment funds run by Goldman. “At least one of the vehicles, in a group known as the Whitehall funds, sank more than 50 percent last year. Another let its investors withdraw their money this year — at a significant loss. But one former Goldman partner estimated that a quarter of the bank’s roughly 100 partners are now worth $5 million or less because of losses on their company stock and other investments.”

MS (23.04): Morgan Stanley downgraded to underperform from buy at Bank of America Merrill Lynch: Price objective reduced to $21 from $25

GS (93.90): Goldman Sachs downgraded to market perform from outperform at Keefe, Bruyette & Woods: The firm sees more upside potential for Morgan Stanley (MS), which remains rated outperform. MS target increased to $28 from $24.

CSCO (15.45): Cisco Systems added to Conviction Buy List at Goldman Sachs: Target increased to $18 from $16.50. The firm believes fQ3 (Apr) will modestly beat consensus expectations.

AA (6.12): AA shares are down 10% after the company cut its dividend 82% and announced a 1.1 billion dollar capital raise.

WYNN (19.65): Wynn Resorts announces 7M share secondary offering through Deutsche and Merrill Lynch: Over allotment is and additional 1.1M shares

UTX (41.12): United Technologies estimates reduced at Bernstein: F09 EPS is reduced to $4.19 from $4.63 vs. Reuters $4.32. A weaker economic outlook and large restructuring costs are cited for the reduction to EPS. Target reduced to $45 from $46

Jefferies upgrades select retailers: Best Buy (BBY) upgraded to buy from hold. Costco (COST) upgraded to buy from hold. Kohl's (KSS) upgraded to buy from hold. Lowe's (LOW) upgraded to buy from hold. Target (TGT) upgraded to buy from hold. Home Depot (HD) upgraded to buy from hold.

ENER (18.43): Energy Conversion says Q3 and full-year guidance is no longer applicable given the lack of visibility: ENER announced that it is slowing the pace of its "demand-driven" production and expansion plan to better reflect the present impact of credit availability on project flow in the global pipeline for photovoltaic’s. ENER also announced that, because of the lack of visibility caused by the current economic conditions, its prior Q3 and full fiscal year 2009 guidance is no longer applicable

ENER (18.43): Energy Conversion downgraded to neutral from buy at Merriman Curhan Ford: Firm cites reduced outlook.

Monday, March 16, 2009

March 16, 2009: Morning Call

March 16, 2009: Morning Call

Fair Value: SP500 – 753.81; NDX: 1170.37; DOW: 7182.85

Technical Levels:

SPX: 639, 676 support/ 778, 800 resistance


Pre-market EPS: PMI (-1.61/226.8M)
06:00: Euro-zone CPI (Feb): 0.4% MoM; 1.2% YoY (in-line with consensus)
07:00: Expect major credit card issuers to release trust data sometime today (AXP, COF, DFS, ect.)
08:30: Empire Manufacturing (March): -32
09:00: Net Long-term TIC Flows
09:15: Industrial Production (Feb): -1.2%; Capacity Utilization: 71.1%
13:00: NAHB Housing Market Index (March): 9
13:40: GILD presents at Cowen Healthcare conference
13:40: JNJ presents at Cowen Healthcare conference
Post-market EPS: IDT (-.32/450.0M); SINA (.45/99.2M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 10 points above fair value while the NASDAQ futures are trading 8 points above fair value at 7:53am ET. Strength in European markets, which are up 2.5%, is the primary reason for the strength in US futures. Bank and insurance shares are among the leading groups. Economic data and earnings news is on the light side. Although there was no reaction in the futures market during Bernanke’s 60 Minutes appearance, overall sentiment toward the current fiscal and monetary policies has improved. Crude oil is down 4% to 44.40 after OPEC left output quotas unchanged. Energy shares are among the worst performing sectors. Advancers on the FTSE 100 lead decliners 9-1. Asian markets closed higher (Japan up 1.78%, Hong Kong up 3.6%, Australia up 0.10%, Shanghai up 1.64%, India up 2.13%). In Japan the largest banks jumped 5-6% on easing fears over the health of US financial institutions, combined with a report the Bank of Japan might buy subordinated debt. Pioneer (6773.JP) soared on a report – even though it was denied – that it was in talks with Mitsubishi Electric (6503.JP) on a possible tie-up in car-equipment operations. Mazda (7261.JP) rose on a weekend report it would resume full production at two plants in July.

Research Calls/Market Moving News:

BCS (4.42): BCS shares are trading up 15% in London. Barclay’s is exploring the sale of its iShares exchange traded fund unit in order to bolster their capital position. The company confirms that they are in talks on an asset protection plan with the UK government. The iShare unit sale (price talk has ranged from 2-4 billion pounds) is an attempt to limit the dilution caused by joining the asset protection plan. BCS also says they had a “strong start to 2009.”

Bernanke says biggest risk to an economic recovery is the lack of political will – 60 Minutes: In an interview last night on 60 Minutes, the Fed Chairman repeated that “recovery is not going to happen until the financial markets and the banks are stabilized.” Bernanke also said that “we’ve averted” the risk of a depression.

US to implement stricter financial-market oversight – WSJ: The administration wants to unveil its proposals before the 2-Apr G-20 meeting. People familiar with the matter say the Fed will get broad, clearly defined new powers including authority to monitor and address risks across the economy. Big banks are going to se tougher capital requirements, and regulators are expected to get authority to take over large, failing financial firms. It is not clear if the changes will include letting state attorneys general prosecute national banks or restricting compensation for bank executives. Treasury Secretary Timothy Geithner is expected to seek comprehensive government authority over all financial products marketed to consumers. He wants to institute changes with a degree of global coordination, though it will probably need to be done piecemeal. Germany and France, for example, want much stricter government control of hedge funds than the US does.

AIG (0.50): American International Group publishes counterparty list reports the FT: The company has relented to political pressure and released a list of some of counterparties that benefited from the government bailout. The company has paid out $22.4B of collateral related to credit default swaps, $27.1B to help cancel swaps and $43.7B to satisfy the obligations of its securities lending operation, all between 16-Sept and the end of last year. Recipients include Goldman: $12.9B; SocGen: $11.9B; Deutsche $11.8B; Barclays $7.9B. Others include: UBS, JPM, STD, HBC, MS, BAC, RBS.LN and C.

OPEC decides to keep production at current levels reports the WSJ:
The cartel has decided instead to seek better compliance with existing production reductions as it fears any threat to global recovery that would be caused by higher energy prices. One analyst point out that while OPEN may wish for prices in the $50-$60 a barrel range, it knows that such prices in today's environment might damage the global economy.

GS (98.80); MS (25.43): Barron's Cover is positive on Goldman Sachs and Morgan Stanley: The shares have risen this year and both appear to be on track for a profitable Q1 and full year. Debt underwriting has surged and Goldman and Morgan Stanley both value virtually all their assets at market prices, making them less vulnerable to write-downs. Goldman noted that many of its competitors are no longer there and the others are inward focused. In a year the dozen or so heavyweights competing for the U.S. debt, equity and advisory business has been reduced to just three, Goldman, Morgan Stanley and JP Morgan. There are problem areas. Institutional and retail client activity is down. M&A and IPO deals are off sharply and asset management units are being hurt by market declines. There is also a brain drain as compensation is reduced. Further upside this year could have Morgan going over $30 and Goldman topping $110, and both could possibly go a lot higher if conditions and earnings rebound.

COF (12.56): Capital One reports Feb charge-off and delinquency data. Fox-Pitt notes that credit deterioration is “leveling off.” : All comparisons are month/month. US Card: net principal charge-offs $466.1M vs $459.2M; annualized net charge-off rate 8.06% vs. 7.82%; 30 days + delinquencies $3.51B vs. $3.51B for a rate of 5.10% vs. 5.02%. Auto finance: net principal charge-offs $78.2M vs. $108.5M; annualized net charge-off rate 4.44% vs. 6.09%; 30 days + delinquencies $1.58B vs. $1.95B for a rate of 7.52% vs. 9.18%. International: net principal charge-offs $50.6M vs. $43.9M; annualized net charge-off rate 7.20% vs. 6.10%; 30 days + delinquencies $505.5M vs. $496.2M for a rate of 6.16% vs. 5.81%. Fox-Pitt says the credit stats show “credit deterioration is leveling off for national lending. The actual weighted average net charge-off rate for National Lending (excludes local banking) for the month of February came in at 7.21% (down from 7.30% in 1/09 and 5.10% in 2/08), 69 bps below our estimate of 7.90%. With actual charge-offs for National Lending coming in 69 bps below our expectations, we believe our previous charge-off assumptions were too high. As a result, we are lowering our 1Q09 net charge-off rate assumption from 7.98% to 7.51% for National Lending (this is consistent with a March 2009 National Lending net charge-off rate of 8.0%). We are raising our 1Q09 EPS estimate to $0.09 (from $0.02). Our 2009 EPS estimate goes to a loss of $0.30 (from a loss of $0.40) and 2010 goes to $1.67 (from $1.24)”

GE (9.62): UBS removes Short-Term Sell rating on General Electric: Target lowered to $9.50 from $12. Rating is neutral. Firm believes the likelihood of further negative catalysts in the near-term is now much lower. Estimates for '09/'10 are lowered.

PCLN (78.34): priceline.com reiterated buy at Citi: The firm attributes the recent weakness to the new promotional activity from Expedia (EXPE), though reiterates its buy based on positive online traffic trends and new industry forecasts it says are positive for online travel agencies. Target is $105

Steelmakers anticipating increased orders from stimulus and are increasing production reports the WSJ: Some steelmakers, looking to cash in on stimulus spending in the U.S., China and Europe, are increasing production. But the move has caused some prices to drop again. The companies, and others in the construction trades, face the difficult task of wanting to have products to sell ready to go but not too early before they are needed. Prices in China for steel have started to drop after the recent increase in utilization rates at its mills. Some analysts point out that a few of the companies have failed to consider exactly what types of steel the infrastructure stimulus projects will be buying.

Barron's summary
Cover: Positive on Goldman Sachs (GS) and Morgan Stanley (MS). Interview: Kathleen Shanley, senior bond analyst / finance at Gimme Credit likes the debt at BAC, GE Capital, JPM and C, negative on AXP and KEY. Lead Articles: Each brokerage with a Focus List posted a loss, often worse than the market; Barron's rates the top 25 online brokers; positive on the bonds of General Electric's financial services arm, GE Capital; Avon Products (AVP) could double over the next year; CONSOL Energy (CNX) looks like a real bargain; DirecTV Group (DTV) may continue to outpace the market for the next 18 months; Editorial argues that financials should be able to buy their way out of a credit default swap for the original purchase price. Columns: The Trader is positive on Dolby Laboratories (DLB); Asia Trader is positive on Standard Chartered (STAN.LN); Euro Trader is positive on British American Tobacco (BTI); Current Yield says we are now in the middle of a global, real-time experiment in reflation; Commodities Corner comments on the growing global carbon cap and trade markets; The Striking Price says traders are using options to offset their lack of faith in financials; Follow Up is still positive on oil, Hartford Financial (HIG), cautious on New York Community Bancorp (NYB); Up and Down Wall Street notes some cautionary thoughts on China; Streetwise suggests resisting the urge to call a bottom in the market and points to suspicion of any financials rally; D.C. Current says President Obama is on the wrong side of the card-check labor legislation; Economic Beat notes the relatively strong retail sales numbers and their positive impact on GDP; Technology Trader says eBay (EBAY) is still not a buy; Plugged In says a break up of Nortel (NT) makes sense; Gadget of the Week gives its highest praise to the new Kindle 2 from Amazon (AMZN).

Friday, March 13, 2009

March 13, 2009: Morning Call

March 13, 2009: Morning Call

Fair Value: SP500 – 748.01; NDX: 1166.63; DOW: 7129.21

Technical Levels:

SPX: 639, 676 support/741, 752, 778, 800 resistance


06:00: Euro-zone Retail Sales (Jan): 0.2% MoM; -2.3% YoY
08:30: Trade Balance (Jan): -38.1B
08:30: Import Price Index (Feb): -0.8%
10:00: University of Michigan Confidence (March): 55.5
10:30: Lawrence Summers speaks on the US economy and financial crisis

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points above fair value while the NASDAQ futures are trading 4 points above fair value at 7:45am ET. Asian markets closed sharply higher (Japan up 5.15%, Hong Kong up 4.37%, Australia up 3.39%, India up 4.95%, South Korea down 0.57%, Shanghai down 0.46%). Exporters rose again in Japan on a weaker yen and Canon (7751.JP) jumped on a 2010-profit forecast while Sony (6758.JP) and Seiko Epson (6724.JP) moved up on plans to form an alliance. European markets are up 2.3% with financial and material stocks pacing the advance. Technology stocks are lagging with both SAP and NOK both trading down 2%.

In my March 5 morning call, I recommended that traders get long below 700 and especially between 650-680 in order to position for a 10% move higher. I would be booking gains (at 757 on the S&P) and adopting a neutral posture because the “easy money” has been made on this rally. I am also surprised by the strength in the futures despite some of the negative/bearish headlines this morning. Over the intermediate term, I continue to favor trading with a long bias especially if the market breaks below 700 again.

Research Calls/Market Moving News:

Chinese Premier Wen Jiabao expresses concern about the safety of US Treasuries – wires: Speaking earlier today, Jiabao said that China has "lent a massive amount of money to the U.S." and says he "request the US to maintain its good credit, to honor its promises and to guarantee the safety of China's assets." Jiabao says China is concerned about the security of its assets. Jiabao also reaffirmed China's commitment to keeping the yuan broadly steady and noted that the yuan had been rising in value. As reported earlier, Jiabao said that the country could come up with new stimulus packages when necessary. The comments have caused weakness in US Treasuries, which have been broadly lower during the overnight.

BRK/A (85,700): Fitch downgrades Berkshire Hathaway's IDR to 'AA+" from 'AAA'; senior unsecured debt to 'AA" from 'AAA': Fitch says that it has concurrently affirmed its 'AAA' Insurer Financial Strength (IFS) ratings on BRK's insurance and reinsurance subsidiaries. The Rating Outlook for all entities is Negative. Fitch notes that the actions are part of a broader review of insurance financial services company ratings, which includes taking a fresh look at various risk factors and criteria application in light of the current stressful economic environment. Fitch says that it does not believe that 'AAA' ratings are appropriate for financial-oriented enterprises given significant market volatility and correlation of risks under stress, recently observed throughout the global economy.

Goldman Sachs lowers growth forecast for the global economy: In the second time in eight days, Goldman Sachs lowers their 2009 Global economic forecast to minus 1% from a previous estimate of a 0.6% decline.

UK to call for radical powers for financial regulators to prevent banks from taking on too much risk - London Times: Alistair Darling will suggest 13-Mar that the Financial Services Authority and its counterparts should preempt irresponsible behavior, intervening to prevent overleveraging if banks' capital reserves are not large enough to balance the loans they have made. The plan, under which banks' overall positions are monitored rather than having different parts assessed by different regulators, is one of the UK's main proposals for the 2-Apr G20 summit, and Darling believes international agreement will be required to make it effective.

C (1.67): Citi Chairman Parsons says bank does does not need more capital injections from the government: Citi Chairman Richard Parsons said yesterday that the bank does not need any more capital injections from the government and expressed confidence that Citi would remain in private hands. Parsons also told Reuters that "Citi is actually one of the better capitalized banks in the world." Parsons went on to say that he did not think the administration is heading in the direction of the government nationalizing the bank and stated that he has a lot of confidence in the future viability and strength of a privately held Citi. Parsons made the comments on the sidelines of a Business Roundtable event where President Obama addressed business executives.

GE (9.57): GE likely to face further downgrades – WSJ: In a "Heard on the Street" column, the Journal notes that GE will have trouble staving off further downgrades if a deepening recession weighs on the cash flows of its industrial business at the same time as its finance unit continues to suffer from its lofty exposure to troubled assets such as commercial real estate. The article also expresses concern about the company's industrial balance sheet, with the bulk of its capital already supporting the finance business.

AAPL (96.35): Apple estimates reduced below consensus at BMO Capital, shares remain outperform rated: Weak CPU and iPhone demand is noted with f09 and f10 EPS estimates reduced to $5.05 and $5.30 from $5.13 and $5.47 vs. Reuters $5.14 and $5.89. Shares remain outperform rated, however, with the target maintained at $105.

FWLT (17.62): Foster Wheeler upgraded to Conviction Buy from neutral at Goldman Sachs: 6-month target increased to $23 from $18. The firm doesn't see any negative catalysts until the next round of earnings.

DVN (44.11): Devon Energy upgraded to overweight from equal-weight at Barclays Capital. The firm cites valuation.

SPWRA (23.10): SunPower downgraded to market perform from outperform at William Blair

WMT (48.94): Wal-Mart removed from Conviction Buy List at Goldman Sachs: The rating remains buy; target $55.

Thursday, March 12, 2009

March 12, 2009: Morning Call

March 12, 2009: Morning Call

Fair Value: SP500 – 721.43; NDX: 1126.28; DOW: 6930.39

Technical Levels:

SPX: 639, 676 support/741, 752, 778, 800 resistance


Pre-market EPS: SFD (-.27/3.40B)
06:00: Euro-zone PPI (Jan): -0.2% MoM; 0.5% YoY(declined 0.8% MoM; -0.5% yoy)
08:30: US Retail Sales (Feb): -0.5%; Less Autos: -0.2%
08:30: Initial Jobless Claims (w/e March 7): 640,000; Cont. Claims: 5.17m
10:00: House financial services committee holds hearing on mark to market accounting
10:00: Business Inventories (Jan): -1.1%
10:30: EIA Natural Gas Storage Change
14:30: BOE’s Barker to make speech
Post-market EPS: ARO (1.00/678.9M); PSUN (-.50/345.2M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 6 points below fair value while the NASDAQ futures are trading 11 points below fair value at 7:45am ET. European markets are down 1.8% following weak earnings from K+S and BMW (at 6:15am ET, European markets were down almost 3%). Mining, steel, and bank shares are among the weakest sectors. Decliners on the FTSE 100 lead advancers 4-1. Credit spreads are wider this morning unwinding yesterday’s tighter spreads, but not back to the worst levels seen on Monday’s close. Asian markets closed mostly lower (Japan down 2.4%, Hong Kong up 0.59%, Australia down 0.27%, South Korea up 0.22%, India up 2.25%) but losses were pared late in the session. Japan’s Q4 GDP shrank 12.1% versus consensus of a decline of 12.7%. In Japan, exporters slid on a stronger yen, and insurers dropped on news of a merger between Nipponkoa (8754.JP) and Sompo Japan (8755.JP) necessitated by waning demand. China’s year-to-date retail sales +15.2% y/y vs survey 17.0%, year-to-date industrial production +3.8% vs survey 6.0%.

Research Calls/Market Moving News:

SDF GY (34.02): German fertilizer company, K+S, is trading down 9% after reporting weaker than expected Q4 earnings. The company also said they “expect significantly lower sales in 2009 and sees 2009 revenue down markedly versus last year.” K+S previously said it saw an “opportunity” for profit growth this year. US Fertilizer stocks (POT, MOS, AGU, CF, TRA) are all indicated lower in sympathy.

Warren Buffett to resume potential domestic deals-Bloomberg: In an interview to be aired today and tomorrow on Bloomberg TV, Warren Buffett signaled that the “odds favor” a domestic deal but that “I could get a call tomorrow about some company in the UK or Germany.” Bloomberg notes that the statement is a reversal for Buffett who previously indicated that buyout opportunities in the US were “scarce.”

STLD (8.55): STLD guides Q1 to a loss of between 40 and 45 cents versus prior guidance of 5 to 10 cents. Bloomberg Q1 consensus is 9 cents. Steel stocks are trading down in sympathy.

BMW GY (22.93): BMW shares are trading down 4.3% after he reported a wider than expected loss in Q4 and 2008 net income of 330 million Euros – consensus was at 1.0 billion Euros. BMW shares were down as much as 12.5% but have bounced back.

Regulator opposes suspension of mark-to-market accounting rules - Reuters: Reuters reports that in prepared testimony for a Congressional hearing on Thursday, Kevin Bailey, deputy comptroller of the currency, said that "While additional steps can and should be taken to enhance existing standards, the OCC believes that it is inappropriate to suspend current fair value measurement." Recall that Fed Chairman Bernanke suggested earlier this week that regulators need to address accounting methods for periods when assets can be illiquid and difficult to value, though he added that he does not favor suspending mark-to-market rules.

Life insurers await word on TARP aid – WSJ: Mounting investment losses are eating into companies' capital, but the industry still doesn't know if it will be allowed to tap TARP funds. The reasons are myriad: Insurers have cash coming in from premiums; they hold substantially fewer risky assets than banks do; they generally do not need to recognize short-term dips in asset values on their bottom lines; few have sizable debts maturing this year; some states have afforded insurers relief from certain capital requirements; and there is no federal agency that's in charge of them. Nonetheless, an industry trade group says insurers hold 18% of outstanding corporate bonds, and they bought 63% less in Q4 than they did in Q3, choosing instead to park more money in safe havens. Capital markets may not recover if life insurers stop buying bonds altogether. And at the end of 2008, MetLife (MET) had $29.8B in unrealized losses, Hartford Financial (HIG) had $14.6B, and Prudential (PRU) had $11.3B.

SPWRA (24.05): JP Morgan downgrades Sunpower to underweight from overweight after the cautious comments at the Merrill Lynch conference yesterday.

Andrew Cuomo says Merrill Lynch misled Congress about timing of 2008 bonus plans – NYT: In a state court filing, the New York Attorney General disclosed portions of testimony witnesses have given thus far in his investigation. Former Merrill CEO John Thain's attempt to wangle himself a generous payout is detailed, and witnesses say bonuses were decided upon in early December. Cuomo says traders mismarked their books around that time to appear more profitable and therefore bonus-worthy, and Bank of America did little if anything to prevent the payouts.

FRE (0.42): Freddie Mac warns of increasingly negative cash flows – Bloomberg: The company's 10-K filed post-close yesterday notes that by adding $30.8B worth of preferred stock to the government's holding, FRE's annual dividend payment to Treasury will be $4.6B, an amount that exceeds its annual historical earnings in most periods. Failing to make good on dividends may force Treasury to raise the interest, write off the debt, or assume full control of Freddie. The company also says more capital may be needed.

Wednesday, March 11, 2009

March 11, 2009: Morning Call

March 11, 2009: Morning Call

Fair Value: SP500 – 719.56; NDX: 1112.81; DOW: 6926.73

Technical Levels:

SPX: 639, 676 support/741, 752, 778, 800 resistance


Pre-market EPS: AEO (.20/917.0M); BONT (2.12/1.02B); NSM(-.04/296.7M; SPLS (.43/6.82B)
07:00: MBA Mortgage Applications
07:00: Bloomberg Global Confidence
08:25: M presents at Bank of America Consumer Conf.
08:30: COP Annual General Meeting
09:00: CSX presents at JP Morgan Aviation and Transportation Conf.
10:30: DOE Crude Oil and Gasoline Inventories
11:00: HOV earnings call
11:15: UNP presents at JP Morgan Aviation and Transportation Conf
11:00: EBAY analyst day
13:00: NSC presents at JP Morgan Aviation and Transportation Conf
13:05: NVDA presents at Raymond James Institutional Investor Conf.
13:50: JWN presents at Bank of America Consumer Conf.
14:00: US Monthly Budget Statement (Feb): -205.3B
22:00: Chinese Retail Sales (Feb): 17.0%
22:00: Chinese Industrial Production (Feb): 6.0%
Post-market EPS: HOTT (.32/234.0M); PLL (.45/583.0M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points above fair value while the NASDAQ futures are trading 10 points above fair value at 8:30am ET. The futures reversed early losses (S&P futures were 7 below fair value at 4:30am ET) in response to a rebound in European markets. Most European markets are up around 1.0% with London lagging (down 0.40%) due to weakness in HBC. Advancing issues lead decliners in London by 3 to 2. Other financial stocks in the Euro-zone are up around 4.0% despite the sloppy action in HBC. Asian markets closed sharply higher following strong gains in US trading (Japan up 4.5%, Hong Kong up 2.02%, Australia up 1.88%, South Korea up 3.44%, Shanghai down 0.91%). Asian bank stocks paced the advance. HSBC Holdings (5.HK) opened higher but pared gains as its rights issue approaches. Financials and steel companies, on expectations of an export tax rebate, initially led China higher but news of a record slump in exports sent the market lower. India is closed for Holi.

Research Calls/Market Moving News:

Chinese Fixed Asset Investment surges 26.5% versus a year ago ahead of expectations of an increase of 21.5% increase. China has poured approximately 150 billion dollars into building new roads, railways, and power grids to counter a 25% plunge in Chinese exports. Railway investment tripled, agriculture spending doubled, and coal mining expenditures jumped nearly 60%.

TALF facing more problems – WSJ: “The government's $1 trillion program to spark consumer lending hit another roadblock when investors balked at signing an agreement required to participate in the program, arguing that it gave Wall Street dealers and the Federal Reserve too much power to look at their books and reject them from the program. Through the Term Asset-Backed Loan Facility, or TALF, program, an investor can put down $5 to $14 for every $100 it will put up, borrowing the remaining $95 to $86 cheaply from the Fed. They agree to buy eligible, highly rated securities issued by lenders making loans to businesses and consumers to buy cars, pay for their educations or use credit cards. The amount of money an investor must initially fork over varies depending upon the types of loans backing the security. The Fed-and-Treasury-backed program is set to begin next week, but it faces the tough task of getting potentially hundreds of financial firms to agree on the wording of the contracts…. Investors, particularly hedge funds, are bristling over language about how the Fed or dealers may decline their application, and that the Fed or any agency it deems appropriate may decide to comb through an investors' books or query any documents if and when it chooses…. TALF has been bogged down with delays for months, as investors and issuers negotiated with the Fed and the Treasury to adjust the terms of the loans. Now, with next Tuesday's deadline looming for investors to request their first loans, bankers and investors say they feel the initiative may be moving too fast.” (My comment: Obviously, the market will not view a delay in TALF launch favorably so this issue should be closely watched as a potential negative catalyst).

HBC (27.03): HBC shares are down 13% in extremely volatile trading ahead of the pricing of the rights offering. Hong Kong regulators are examining trading irregularities following a 13% price drop in Hong Kong markets on Monday.

GOOG (308.17): Needham lowering estimates on intra-quarter channel checks but is maintaining a buy rating. “Yesterday we hosted the latest installment of our Search Marketing Quarterly Update conference call (see our note titled Search Marketing Quarterly Update Call and dated 3/11/09). Speakers consisted of three leading experts in the online search-marketing field, including two from the U.S. and one from the UK/Europe. Our guests were nearly unanimous in saying that search spending has deteriorated further YTD, and will certainly decline sequentially and decelerate meaningfully YoY. Unlike past calls, our U.S. guests had slightly different views of 1Q09 spending, with the larger U.S. SEM seeing flat-to-slightly down YoY spending on a same-customer basis through mid-Feb, while the smaller U.S. SEM is seeing YoY growth in the 8-10% range. (The larger SEM's previous quarterly forecasts have shown some correlation to Google's previous actual results, which we have taken into account.) In general, our guests' commentary suggests our estimates for Google may be too high, and that negative 3-4% sequential gross revenue and negative 5-6% net revenue for 1Q09 might be more reasonable than our and the consensus projections of negative 2%. As such, we are lowering our estimates based on these and other intra-quarter datapoints. Our price target also declines to $450 based on this new lower estimates as well as a lower assumed target P/E multiple. We continue to expect Google to out-perform most other Internet and media companies and view Google’s stock as a safe place to hide in an otherwise uncertainty environment for consumer discretionary stocks. We also see the valuation as reasonable at 8x EV/EBITDA and believe mgmt has considerable opportunity to cut costs and achieve our EPS/FCF estimates. As such, we are maintaining our Buy rating.”

DE (27.84): Deere & Company comments on February retail sales: Utility tractors: Deere sales were down more than the 29% decrease for the industry; January inventories were lower than the industry's level of 47% of ttm sales. Row crop tractors: sales were down more than the industry's 14% decrease; January inventories were lower than the industry's level of 26% of ttm sales. 4WD tractors: sales were up double digits, but less than the industry's 34% increase; January inventories were slightly lower than the industry's level of 17% of ttm sales. Combines: sales were up more than the industry's 46% increase; January inventories were slightly lower than the industry's level of 10% of ttm sales. In Western Europe, retail tractor sales were down a single digit while combine retail sales saw a double-digit increase. Construction and forestry equipment sales were down double digits on both a first in the dirt and settlement basis. Commercial and consumer equipment sales were down double digits.

AXP (12.17): American Express downgraded to sell from neutral at Goldman Sachs: Target cut to $7.50 from $19. Shares are added to Conviction Sell List.

MS (20.84): Morgan Stanley upgraded to buy from neutral at Goldman Sachs: Target increased to $27 from $21. Shares are added to Conviction Buy List as well.

USB (11.40): US Bancorp upgraded to neutral from sell at Goldman Sachs: Target is $12. Shares are removed from Conviction Sell List as well.

UBS comments on semiconductors: Firm's inventory analysis indicates aggressive channel inventory de-stocking, which supports the firm's view of near term stabilization for the sector and potential recovery in 2H'09. UBS also notes checks that indicate several semi vendors are now seeing stabilization in order books. Firm believes the recent outperformance of semi stocks should continue. Top global picks are ATLR, ASML, MRVL, TSM.

LVS (1.66): Las Vegas Sands probability of default and corporate family ratings downgraded to 'B3' from 'B2' by Moody's: Moody's also lowered various ratings of Las Vegas Sands' subsidiaries, including Venetian Casino Resort, LLC (and its co-issuer Las Vegas Sands, LLC) and Venetian Macao Limited. The rating outlook is negative.

C (1.45): Investor caution still warranted when it comes to Citi – WSJ: In a "Heard on the Street" column, the Journal pokes some holes in Citi CEO Vikram Pandit's comments that the bank was profitable over the first two months of the year. The paper notes that banks often do not know their true expenses until the end of the quarter, while it is also possible that Citi's two-month net income received a boost from a low quality source, such as marking up the value of its own debt. The article also expresses some skepticism about the timing of the internal memo, as it came the day after Sen. Richard Shelby of Alabama, the ranking Republican on the Senate banking committee, called Citi a "problem child."

Tuesday, March 10, 2009

March 10, 2009: Morning Call

March 10, 2009: Morning Call

Fair Value: SP500 – 676.31; NDX: 1044.18; DOW: 6542.41

Technical Levels:

SPX: 639, 667 support/741, 752, 778, 800 resistance


Pre-market EPS: DKS (.52/1.23B); KR (.51/18.4B); JASO (-.03/121.0M)
05:50: AGU presents at Credit Suisse Global Ag Conf.
07:50: MOS presents at Credit Suisse Global Ag Conf
08:05: NYB presents at Raymond James Institutional Investor Conf
08:30: Bernanke speaks on Bank regulation
09:00: CVX Analyst Meeting
09:50: ALL presents at Raymond James Institutional Investor Conf
10:00: Wholesale Inventories (Jan): -1.0%
10:00: IBD/TIPP Economic Optimism
14:00: AMAT analyst meeting
16:00: NDAQ presents at Raymond James Institutional Investor Conf
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: HOV (-1.58/412.4M); JCG (-.27/370.9M); TTWO (-.73/208.4M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 13 points above fair value while the NASDAQ futures are trading 18 points above fair value. Stronger foreign markets and “positive” guidance from Citigroup is triggering a bounce in the futures. Asian markets closed mostly higher (Japan down 0.44%, Hong Kong up 3.08%, Australia up 0.95%, Shanghai up 1.74%, South Korea up 2.04%, India closed). HBC led financial shares higher in Asia with a gain of 12%. South Korea reversed early losses as banks rallied. Shipping lines and energy producers led China higher. China Eastern Airlines (600115.CH) rallied after its parent got an additional CNY2B in bailout aid from the government. European markets are up 1.5% reversing initial modest declines following the Citibank news (which hit the tape around 4:10am). European financial sectors are up 6-10%.

Impact Research Calls/Market Moving News:

C (1.05): Citigroup CEO says the company is having its best quarter since Q307. In an internal memo, Pandit said “we are profitable through the first two months of 2009.” At this point, it is unclear if Pandit is excluding certain write-downs or other charges. But, the vague news is having a significant impact in the financial sector, which is looking up about 5%. C shares are trading 20% higher. SKF is trading down 10% to 220.55.

C (1.05): Government already looking at next measures that could be necessary for Citi – WSJ: People familiar with the matter say the discussions are contingency plans to be taken if Citi suddenly needs more help, which they aren't expecting. The discussions include the Treasury Department, Office of the Comptroller of the Currency, Federal Reserve, and Federal Deposit Insurance Corp, but no new rescue is imminent. The talks are taking place partially because the government simply does not have a formula to use to wind down a huge, complicated company like Citi or American International Group (AIG).

Credit cards are the next credit crunch – WSJ: In an editorial in the WSJ, Meredith Whitney says the contraction in credit card debt availability is more severe than prior estimates: “Just six months ago, I estimated that at least $2 trillion of available credit-card lines would be expunged from the system by the end of 2010. However, today, that estimate now looks optimistic, as available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone. My revised estimates are that over $2 trillion of credit-card lines will be cut inside of 2009, and $2.7 trillion by the end of 2010. Inevitably, credit lines will continue to be reduced across the system, but the velocity at which it is already occurring and will continue to occur will result in unintended consequences for consumer confidence, spending and the overall economy. Lenders, regulators and politicians need to show thoughtful leadership now on this issue in order to derail what I believe will be at least a 57% contraction in credit-card lines.”

BIDU (155.08): Baidu's target increased at Goldman Sachs: The shares are rated buy and the target is increased to $185 from $153.

WMT (47.51): Wal-Mart downgraded to hold from buy at Citi: Target cut to $48 from $53. The firm notes EFCA/card check legislation as early as today, which could make it easier to form unions, and be an overhang for the stock

TXN (14.69): Texas Instruments provides mid-quarter update: The midpoint of the new revenue guidance is $1.92B, which is above the $1.87B of the initial outlook; $1.92B represents a sequential decline of 23% versus prior 25%. The earnings midpoint is unchanged at ($0.04). While noting several times that fourth quarter trends were very weak, he says that orders have trended up throughout the quarter; January was up from December and February was up from January. Book/bill should improve from Q4's 0.75, but no specific figure was provided. Lead times are said to be short and stable, and product availability is not an issue. Looking at the broader demand picture, he says that there has not been the level of broad-based strength that would normally be associated with the end of an inventory depletion cycle. They believe that demand continues to deteriorate and they do not see any signs of stabilization at this time.

AAPL (83.11): Apple plans to launch netbook, possibly as soon as H2 - Dow Jones: People close to the situation say Apple is working with Wintek (2384.TT) and Quanta Computer (2382.TT) to assemble the new netbooks. One says the mini laptop computers will likely have monitor screens that are between 9.7-inches and 10-inches, while another says specifications and functions are still under evaluation.

HPQ (25.53): Hewlett-Packard removed from the Conviction Buy List at Goldman: Shares remain buy rated

NUE (31.58): Nucor upgraded to buy from neutral at UBS: Target decreased however to $45 from $50. The firm reduces its f09 US hot-rolled coil forecast to $465/short ton and also reduces targets on: STLD to $16 from $20; X to $16 from $23; AKS to $6.50 from $10; GNA to $3.50 from $5.75; CMC to $20 from $24; RS to $25 from $28; SCHN to $28 from $42

SLB (36.67); NBR (8.77); HAL (15.72): HAL, NBR, SLB downgraded to sector perform from outperform. SLB target reduced to 42 from 58. NBR target reduced to 12. HAL price target reduced to 17.

Morgan Stanley downgrades the Aerospace and Defense group to cautious from in-line: The firm recommends reducing exposure to Defense given President Obama's intention to lower spending

Monday, March 9, 2009

March 9, 2009: Morning Call

March 9, 2009: Morning Call

Fair Value: SP500 – 683.13; NDX: 1065.05; DOW: 6620.73

Technical Levels:

SPX: 639, 685 support/741, 752, 778, 800 resistance


05:30: Euro-zone Sentix Investor Confidence (March): -38
06:00: Warren Buffett Interview on CNBC
08:40: TOL presents at Raymond James Institutional Investor Conf.
08:40: BHI presents at Raymond James Institutional Investor Conf
13:05: AFL presents at Raymond James Institutional Investor Conf
17:00: TXN Q1 guidance call
22:00: Chinese Producer Price Index (Feb): -4.4% YoY
22:00: Chinese Consumer Price Index (Feb): -1.0% YoY

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points below fair value while the NASDAQ futures are trading flat with fair value at 7:45am ET. Asian markets closed lower (Japan down 1.21%, Hong Kong down 4.8%, Shanghai down 3.68%, South Korea up 1.57%, India down 1.99%, Australia up 0.29%). Japan reversed early gains after watching Hong Kong slide as hopes for a greater stimulus from China fell by the wayside. Shinsei Bank (8303.JP) fell (9%) on plans to raise capital. HSBC Holdings (5.HK) (24%) decline weighted on Hong Kong, with some large investors shorting it in anticipation of a price fall after an upcoming rights issue. European markets are down 2.0% with bank stocks down 5%. Shares opened unchanged but moved lower right after the open, dropping as much as (2.5%) before recouping some of the declines, helped by the news of MRK's buy of SGP. Pharmaceuticals have subsequently becoming the best performing group.

Impact Research Calls/Market Moving News:

SGP (17.63): Merck (MRK) to purchase Schering-Plough: Under the terms of the agreement, Schering-Plough shareholders will receive 0.5767 shares and $10.50 in cash for each share of Schering-Plough. Based on the prior close the deal values SGP at $23.61, a premium of 33.9%. Merck anticipates that the transaction will be modestly accretive to non-GAAP EPS in the first full year following completion and significantly accretive thereafter. Post-transaction, the combined company will have a cash and investments balance of approximately $8B. Merck believes it will maintain its current credit ratings. MRK is committed to maintaining the annual dividend at the current $1.52 level following the closing of the transaction. MRK reaffirms f09 revenue guidance of $23.7-$24.2B and non-GAAP EPS of $3.15-$3.30. Reuters is $23.92B and $3.25, respectively. First Call is $24.00B and $3.27. The companies expect to complete the transaction in 4Q09.

LLOY LN (42): Lloyds joins the UK Asset protection program. In exchange for a guarantee on 260 billion pounds of assets, the government stake in Lloyds will increase to 75% from 43%. Lloyds is down almost 10% in London.

AAPL (85.30): Apple estimates and target reduced at Thomas Weisel: “Following recent checks, negative PC datapoints and negative economic datapoints that indicate incremental reduced demand for computers and handsets, we are lowering our F2Q09 (Mar Q), FY09 and FY10 revenue and EPS estimates. While our new EPS estimates for F2Q09 and FY09 of $1.05 and $5.10 are slightly below published FC estimates of $1.08 and $5.16, we are maintaining estimates above the average of estimates refreshed since March 5, 2009 of $1.03 and $5.08. Despite our reduction in estimates, we believe AAPL shares are undervalued given the company's strong cash generation capabilities, balance sheet, and clear mac market share gain momentum. With respect to mac market share in the 288mn unit worldwide PC market, we expect Mac market share to increase from 3.3% in CY08 to 3.7% in CY09. We expect that driving Mac market share gains in CY09 will be (1) lower priced all-in-one desktops released on March 3, 2009, (2) positive impact on mac unit sales of introduction of DRM free music on iTunes at Macworld on January 6, 2009, and (3) continued momentum from the company's refreshed macbook line released on October 14, 2008.” The analyst reiterates their outperform rating but lowers the price target to 120 from 130.

GE (7.06): General Electric target reduced to $7 from $13 at Goldman Sachs: The firm now feels that GE Capital losses could near 7-8% of total assets through 2010. The rating remains neutral

GOOG (308.57): Google revenue weakening markedly - Business Insider: Henry Blodget reports industry sources say the search business has deteriorated this quarter, and a source at Google says the company's revenue has done the same. The revenue weakness has gotten worse over the past month, meaning Q2 is likely to be more affected than Q1. Blodget expects Wall Street's estimates of 10% revenue growth for the next three quarters followed by an uptick to come down

PBR (26.72): Petrobras (PBR) reports Q4 profit of 7.36B reais +44% y/y; Q4 net sales were 63.26B reais vs 45.42B reais y/y.

PBR (26.72): Petrobras downgraded to neutral from overweight at JPMorgan: The firm cites lack of positive catalysts and valuation.

AMZN (61.69): Amazon.com upgraded to buy from neutral at Piper Jaffray: Target increased to $81 from $55.

GE (7.06): General Electric Capital Corp plans to sell benchmark FDIC-backed bond - Dow Jones: Dow Jones reports that General Electric Capital Corp is planning to sell a benchmark-sized bond under the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program. Citigroup Inc., Credit Suisse Group, Goldman Sachs Group Inc., JP Morgan Chase & Co., and Morgan Stanley are acting as joint bookrunners for the transaction while Deutsche Bank AG, HSBC Holdings PLC., and Royal Bank of Scotland Group PLC have been hired as joint lead managers. The transaction is expected to be launched and priced in the early part of this week, subject to market conditions.

BAC (3.14): If Bank of America avoids Citi's fate, it could be a home run says Barron's: Investors are concerned that the bank will be forced to dilute existing shareholders in a manner similar to Citi. But BofA has a chance of avoiding such a fate. CEO Lewis says the bank hopes to reach the 3% level for tangible equity through retained earnings, asset sales and shrinking its balance sheet. He says people are missing the bank's earnings power. The bank could generate more than $100B in revenue this year, after mark to market write downs. Mr, Lewis says the bank will be profitable this quarter and for all of 2009, unless things get a lot worse. The Tier 1 capital level is 10.6%, well above the preferred level of 6% regulators want. The stock looks like a decent speculation.

Barron's summary
Cover: Stocks are cheap for long-term investors. Interview: David Levy, chairman Jerome Levy Forecasting Center, says the balance sheet rebalancing will take years and is positive on Treasuries. Special Report: Investing For Retirement: 10 stocks for the next 5 years: KOF, MSFT, ACE, WYNN, EMC, CERN, WLP, GOOG, EBAY and CVS. Case closed: stocks perform better over 20 and 30 years periods. Lead Articles: If Bank of America (BAC) avoids Citi's fate of dilution, it could be a home run; Bristol-Myers (BMY) is healthier than investors give it credit for; Northrop Grumman (NOC) has a solid pipeline; One compliance officer says Wachovia officials doubted his warnings; Barron's comedy - how Madoff may have kept secrets from his family; Economic Beat says there are glimmers of hope in the small business jobs report and businesses may be cutting staff much quicker meaning it should end sooner; Editorial looks at one writers predictions for possible future troubles in the world and suggests that the new administration not become too concerned with today and stop thinking about tomorrow. Columns: The Trader says pressure could ease on Citi (C), positive on potash names; Commodities Corner says the global financial crisis may hinder copper consolidation even though assets can be had at low prices, potential deals may include AVM.AU and EQN.CA; Current Yield notes the jobs report and is positive on Treasuries; Asia Trader is positive on Chinese infrastructure names: 390.HK, 1766.HK, 3898.HK, 600312.CH, 600550.CH and 600089.CH; Euro Trader looks at the troubles at Northern Rock, owned by the British government; The Striking Price says the market may be overdoing the possibility of General Electric's (GE) demise; Follow Up says Felix Zulauf sees a near term bounce but says the market won't bottom until 2011; Up and Down Wall Street considers the jobs report; Streetwise notes the arguments for greater regulation of credit default swaps, might be time to bet on Lowe's (LOW) outperforming Home Depot (HD) for a while, positive on Alliance One International (AOI); D.C. Current wonders if President Barack 'Yes We Can' Obama has promised more than he can deliver with the economy and budget; Technology Trader looks at reader suggestions for what Apple (AAPL) might do with its cash with the most sensible one the suggestion to buy Adobe (ADBE) and the possibility of a buyback sometime down the road; Plugged In says any tech M&A resurgence is getting pushed out as uncertainty over the markets and funding and the economy remain.

Thursday, March 5, 2009

March 5, 2009: Morning Call

March 5, 2009: Morning Call

Fair Value: SP500 – 712.43; NDX: 1110.65; DOW: 6869.73

Technical Levels:

SPX: 685 support/741, 752, 778, 800 resistance


Pre-market EPS: ABV (.97/2.68B); CIEN (-0.06/172.7M); CNQ (.90/2.47B)
05:00: Euro-zone GDP (Q4): -1.5% QoQ; -1.2% YoY
07:00: Select Retail Companies report February Comps
07:00: Bank of England Interest rate decision
07:45: ECB announces interest rate decision: 1.5%
08:30: Non-farm Productivity (Q4): 1.6%; Unit Labor Costs: 3.4%
08:30: Initial Jobless Claims (Feb): 640,000; Cont. Claims: 5.15 million
10:00: Factory Orders (Jan): -3.5%
10:00: Treasury Secretary Geithner testifies at hearing on US Budget
10:00: Fed’s Kohn testifies on AIG before Senate Banking Committee
10:30: EIA Natural Gas Storage Change
12:45: Fed’s Lockhart speaks on US economy
Post-market EPS: FSYS (.42/89.8M);

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 15 points below fair value and the NASDAQ futures are trading 18 points below as markets in Europe are reeling (down 2.5%) following a big loss at the largest UK Life Insurance company (Aviva) and no detail from China’s Premier on an expanded stimulus package. Weaker corporate earnings, capital concerns at financial institutions (GECC, Insurance Sector) and weaker economic data continue to pressure stock prices. Bloomberg is reporting this morning that “earnings for 252 companies in the Stoxx 600 that have reported since January 12 have dropped 94%. That compares to a 58% contraction in the profit for the 465 companies that have reported results in the S&P 500 during the same period.” Although CNBC pundits with a political agenda have pointed to the Obama budget as the primary reason the market has dropped 13% in the last 10 trading sessions, the real trigger has been accelerating concerns about the global economy and decreased expectations for 2009 corporate profits. Prior to February, the consensus was expecting a very modest economic recovery in the 2H09. Currently, the consensus currently expects the recession to last into 2010. Along those lines, Goldman Sachs lowered their 2009 global GDP forecast this morning to minus –0.60% from –0.20% (note: Goldman lowered their US GDP forecast on Tuesday). The bottom line is that the markets have been pricing in a deeper and more protracted global recession.

In terms of strategy, I continue to favor a short-term trading strategy that avoids significant overnight risk especially in financial sector equities/derivatives. But, I am more constructive on the long-term outlook for stocks. Traders should cover short positions and adopt a long bias below S&P 700 and especially between S&P 650 and 680. Over the last year, my morning call commentary has been extremely cautious about the long-term outlook given the macroeconomic headwinds and the deleveraging in the banking sector. But, these headwinds now appear discounted in stock prices. The next 10% move in the S&P is most likely higher. But, as always, risk management trumps conviction.

Impact Research Calls/Market Moving News:

AV LN (285): Aviva, the largest UK Life Insurance company, is trading down 28% in London following news of a big loss (1.3 billion). Aviva also wrote down the value of its bond holdings by 8%. UK insurance stocks are down 10-20% and credit default swaps have blown out on capital reserve concerns. Aviva says they are currently seeing the “toughest markets in modern business history.”

GE (6.69): General Electric CFO Keith Sherin repeats that there is no need to put additional capital into GE Capital: GE says the week of 16-Mar, it will have a GE Capital update again, providing more information on real estate, US consumer and its global mortgage business and will attempt to be more transparent about GE Capital's book. GE says it has been working "really constructively" with the credit ratings agencies and Sherin says he met with S&P and Moody's yesterday. Sherin says he can't say what the ratings agencies are going to do with the ratings. Sherin says "it is possible that we could end up with a AA rating. General Electric's cash flow is likely $16B, or $14B in a stress scenario – CNBC: CFO Sherin says it would have to be a "disastrous economic situation" for GE to have to access TARP and would need to be a "very near last case scenario." GE says it can shrink GE Capital even more if it needs to do so, as an alternative to raising capital

ADBE (16.32): Adobe Systems guides Q1 EPS to $0.44-0.45 vs prior $0.43-0.47 and Reuters $0.41: The company guides Q1 revenue to $783-786M vs. prior $800-850M and Reuters $794.5M. Adobe Systems guides Q2 revenues to $675-725M vs. Reuters $778M: For Q2, the company is targeting an operating margin of 32-36% on a non-GAAP basis vs. an expected margin of 37.0-37.5% in Q1. The company cited weakness in its creative and knowledge worker businesses as the primary reason for the revenue shortfall in Q1

ADBE (16.32): Adobe Systems upgraded to buy from hold at Jefferies: The firm cites attractive risk/reward. Target raised to $21 from $18. Shares also upgraded at UBS and Friedman Billings this morning

BIDU (157.32): Baidu upgraded to buy from sell at Citi, we're told: Target is $181. Firm believes BIDU’s traffic rebound post-CNY in Feb has continued to improve weekly and has been stronger than expected, based on latest channel checks. Citi says BIDU will likely exceed Q1 expectations.

GOOG (318.92); YHOO (13.16): Google (GOOG), Yahoo! (YHOO) estimates reduced at Thomas Weisel: The firm cites potential sustained weakness in online advertising and reduces revenue, EBITDA and EPS estimates for 2009 for both stocks to below consensus. Estimates are also reduced for 2010. Rating remains overweight for GOOG, with $530t target; underweight for YHOO, with $13 target.

GM (2.20): General Motors files 10-K: The company says there is substantial doubt about its ability as a going concern. Note that GM reported last night it was delaying the filing and said that it anticipated receiving from its auditor an opinion expressing substantial doubt about its ability to continue as a going concern. Given the recent developments, the statement is not a surprise.

TRA (25.27): Terra Industries rejects unsolicited proposal by CF Industries (CF)