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): 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.

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