Wednesday, April 29, 2009

DNDN - Why did erroneous trades stand?

DNDN: The fact that NASDAQ did not cancel the erroneous trades that occurred yesterday is borderline criminal. The calculus on the part of the exchanges is simple: the exchanges would rather fight an arbitration with the individual that committed the keypunch error than the counterparties that benefitted even though the executions were clearly erroneous based on exchange rules (Note that the exchanges are constantly changing their definition of clearly erroneous executions in order to protect against litigation). More than 30 million dollars was transferred from the seller that committed the initial error (and, presumably, other sellers that got shook out due to stop loss orders or program trades) to the counterparties. The bottom line is traders should never expect the exchanges to bust, resolve, cancel or amend erroneous trades. You’re on your own. Although I did not get hurt or benefit from the DNDN situation, I have committed two keypunch errors in my career that lead to clearly erroneous transactions (and, cost several hundred thousand dollars). What did the exchange do? Nothing. They let the trades stand. The exchanges have a responsibility to maintain a fair and orderly market. Trading in DNDN shares between 1:25 and 1:27 was unfair and disorderly.
April 29, 2009: Morning Call

Fair Value: SP500 – 852.68; NDX: 1361.84; DOW: 7978.46

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: AMT (.15/408.8M); BHI (.77/2.56B); AET (.93/8.47B); CNP(.31/3.17B); GD (1.46/7.83B); GT (-1.38/4.07B); HES (-.24/6.58B); MCO (.34/393.3M); MHS (.62/13.7B); MWV (-.24/1.44B); PX (.92/2.38B); ROK (.29/1.07B); SEE (.28/1.03B); SI (1.54/24.49B); RD (1.07/56.01B); NYB (.26/227.5M); TWI(.23/256.6M); TXT (.01/2.78B); WYE (.89/5.53B); MT (-.36/15.5B)
04:00: Euro-zone M3 (March): 5.8% YoY
04:00: Bloomberg Eurozone Retail PMI
05:00: Euro-zone Consumer Confidence (April): -34
05:00: Euro-zone Economic Confidence (April): 65.0; Industrial Confidence: -37
07:00: MBA Mortgage Applications
08:30: GDP QoQ (Q1): -4.7%; GDP Price Index (Q1): 1.7%
08:30: Personal Consumption (Q1): 0.9%; Core PCE QoQ: 0.9%
10:00: BAC Annual Meeting
10:30: DOE Crude Oil and Gasoline Inventories
12:30: WMT presents at Barclay’s Retail Conference
14:15: FOMC Decision on Interest Rates
16:30: FSLR earnings call
17:00: V earnings call
Post-market EPS: AFL (1.16/4.76B); AKAM (.40/208.4M); AVB (1.19/217.4M); BXP(1.25/367.3M); CBG (.02/982.8M); CLF (-.05/497.2M); DST (.94/404.0M); EQR(.55/499.3M); ESRX (.82/5.41B); FLS (1.58/1.04B); FSLR (1.52/403.0M); OI(.36/1.66B); PLD (.71/254.3M); SBUX (.15/2.37B); STR (.80/965.0M); V (.64/1.6B)

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. Bloomberg is reporting that the stress tests results signal that “at least” six of the nations largest banks require additional capital. The change in the market’s character is worth noting given that the Bloomberg story would have likely caused a sharp sell-off just a month or two ago. The fact that the capital markets have absorbed a broad range of secondary issuance (REITs, casinos, steel, banks) is alleviating concerns that government capital will be needed. Although the market has been in a trading range over the last 3 weeks, the underlying bid is far more resilient than I anticipated, particularly in reaction to bad news. The stock market has adopted the thesis that the recent stabilization in some economic data presages a stronger economy in the second half. Although I doubt the thesis, I don’t have the conviction to fight it. I would also caution that many market participants appear to be leaning long simply because the stock market “acts well.” This group of market participants will be extremely quick to sell if sentiment shifts even modestly.

European markets: initially rose bouyed earnings from the likes of Allianz (ALV.GR), Siemens (SIE.GR), Banco Santander (SAN.SM) and Royal Dutch Shell (RDSA.LN), which outweighted disappointments from SAP (SAP.GR) and ArcelorMittal (MT.NA). Major indices extended gains to trade and are trading at session highs. Advancers on the FTSE 100 lead decliners 9-1. Asian markets: mainly rose led by commodity and consumer-related stocks. Samsung SDI (006400.KS) led South Korea higher, rising on a brokerage upgrade despite reporting a Q1 loss. Shanghai Pudong Development Bank (600000.CH) rose in anticipation of a government announcement about plans to bolster Shanghai’s status as a financial and transportation center. Sinopec (386.HK) rose after saying H1 profit will rise. Bank of China (3988.HK) and Bank of Communications (3328.HK) rose when H1 results beat estimates

Research Calls/Market Moving News:

Bloomberg reported earlier that at least 6 of the 19 largest US banks will require additional capital: Citing people briefed on the matter, Bloomberg reported at 12:01 ET that "at least" six of the 19 largest U.S. banks require additional capital based on preliminary results of government stress tests. The report said that while some of the banks may need additional cash injections from the government, most of the capital is likely to come from converting preferred shares to common equity. The 19 banks subject to the stress test are: JPM, C, BAC, WFC, GS, MS, MET, PNC, USB, BNY, GMAC LLC, STI, STT, COF, BBT, RF, AXP, FITB, and KEY.

Banks increasingly bristling at government prescriptions - NYT: The article amalgamates objections large banks are raising with more and more volume. People briefed on the exams say Citigroup (C), Bank of America (BAC), PNC Financial (PNC), and Wells Fargo (WFC) are disputing some stress-test conclusions.

TWX (21.77): Time Warner reports Q1 EPS $0.45 ex-items vs Reuters $0.39: First Call is $0.38. Company reports revenues of $6.95B vs Reuters $6.75B. TWX reaffirms its f09 outlook.

Fox-Pitt Kelton upgrades US bank stocks to market weight from underweight: The firm believes the upcoming stress test results will not be as bad as expected and believes the risk of dilution is already priced into shares.

C (2.89): Citi seeking approval from Treasury to pay special bonuses; also looking to loosen restrictions on Phibro unit – WSJ: The Journal cites people familiar with the matter who say that CEO Vikram Pandit made the case for the stock-based bonuses. Executives at the firm are describing the bonuses as "retention" awards designed to bolster morale and help stave off rivals' poaching efforts. A source tells the paper that Treasury Secretary Geithner has not made a decision on whether to allow the bonuses.

TXT (11.20): Textron (TXT) reports Q1 EPS $0.26 ex-items vs Reuters $0.01, announces 19M share secondary offering and $300M convertible note offering through Goldman and JPMorgan

SPWRA (22.61): SunPower 9M share secondary offering priced at $22 a share through Deutsche Bank - Dow Jones.

X (26.16): U.S. Steel 23.6M share secondary offering priced at $25.50 per share through JPMorgan, Morgan Stanley and Merrill Lynch - Dow Jones:
The size of the offering was increased from an originally expected 18M shares.

M (12.58): Macy's downgraded to neutral from overweight at JPMorgan : The firm notes valuation and says the catalyst for further stock appreciation is better-than-expected top-line and earnings results.

Tuesday, April 28, 2009

April 28, 2009: Morning Call

April 28, 2009: Morning Call

Fair Value: SP500 – 855.02; NDX: 1369.89; DOW: 7987.52

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: AG (.24/1.56B); AVY (.22/1.42B); BDX (1.16/1.76B); BEN(.62/905.1M); FPL (.77/3.56B); MHP (.18/1.15B); PCAR (.05/1.89B); VLO(.51/15.91B); X (-1.62/3.19B); DB (na/na)
03:00: Deutsche Bank earnings call
05:40: BOE’s Haldane to speak on financial stability
09:00: S&P/Case Shiller Home Price Index (Feb): -18.80%
10:00: Consumer Confidence (April): 28.8
10:00: Richmond Fed Manufacturing Index
10:30: MET Annual Meeting
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: ACE (1.97/3.43B); BEC (.59/705.6M); CERN (.48/417.7M); MEE (.61/716.8M); DWA (.46/219.3M); PNRA (.56/318.1M); SRCL (.46/277.7M); TSS (.30/476.4M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 14 points below fair value due primarily to a report that the US Government is going to require BAC and C to raise additional capital after the stress test results are released. Concerns about the spread of swine flu continues to have an impact as well after the WHO raised the pandemic flu alert to 4 from 3. European markets fell from the open on the aforementioned swine flu concerns and the WSJ article on BAC and C. Major indices fell between (2.4%) and (3.0%) before paring declines. Daimler's (DAI.GR) Q1 results that missed estimates, highlighted earning worries, capping the modest improvement and indices which have remained range bound close to session lows. There are 6 advancers on the FTSE 100. Asian markets closed lower (Japan down 2.6%, Hong Kong down 1.9%, Australia down 0.62%, South Korea down 2.8%, India down 3.25%). Travel and tourism sectors remain under pressure on fears about swine flu. Exporters fell in Japan on a stronger yen. Shippers were hurt by weak earnings forecasts and South Korea bulk carriers fell on a falling Baltic Dry Index.

The only reason the WSJ story is a “surprise” is most market participants have concluded that the stress tests results would endorse the banks current capital levels. Just yesterday, FDIC chairwoman Shelia Bair indicated that the results would be disseminated in such a way as to “instill confidence” in the banking sector. Financial stocks are indicated down 3% so the reaction to the WSJ story is not particularly significant given the magnitude of the upside move off the lows and resilient trading in bank and REIT stocks over the last two weeks. Skeptical traders have attributed the strength in the “toxic sectors” to mechanical rather than fundamental factors. The REIT sector, in particular, has certainly benefitted from dislocations at hedge funds focused on quantitative strategies and hyperbolic trading in ultra-ETF products. Since April 8, the most shorted sectors have been more resilient (up 5-10%) than the broader S&P, which has been in a tight trading range (835-865). On the surface, the market appears to have entered a more tranquil trading phase. But, substantial gyrations continue underneath the surface as the REIT and financial sectors have averaged daily moves of 6.9% while the S&P has averaged a daily move of 1.6% since April 8.

In terms of strategy, traders should maintain a large cash position or stay completely on the sidelines. The path of least resistance is lower but it is extremely easy to get whipsawed and chewed up in this market particularly when shorting the toxic sectors. Emerging markets look particularly susceptible to a pullback given the outperformance versus developed markets – many are up 40-50% off the lows. I would not be chasing longs here because I believe S&P 500 fair value is around 750-775. When the S&P 500 was below 700, market participants were not expecting positive GDP until 2010. Currently, market participants expect a modest economic recovery in the 2H: Q3 median growth forecast is 0.3%; Q4 median growth forecast is 1.5%. I remain skeptical that growth can rebound in 2H given the ongoing deleveraging of both consumer and corporate balance sheets.

Research Calls/Market Moving News:

BAC (8.92); C (3.07): Bank of America (BAC), Citi (C) told they have capital shortfalls – WSJ: People familiar with the situation say regulators have warned the banks they may need more capital based on early results from their stress tests. People familiar with BAC say its shortfall is billions of dollars; Citi's deficit is unclear. Both banks are objecting to the preliminary findings. Sources say Citi wants credit for trying to shrink its balance sheet recently by selling Smith Barney and its Japanese brokerage arm.

UK banks may need billions of pounds of extra capital – FT: Alistair Darling is expected to announce next month that the country's banks considered too big to fail will need to hold more capital than the sector average. The higher capital ratio is seen as the penalty the institutions have to pay for relying on taxpayer bailouts if they find themselves in trouble

X (27.71): U.S. Steel (X) announces 18M share secondary offering and $300M convertible note offering through JPMorgan, Morgan Stanley and Merrill, reports Q1 EPS ($3.60) ex-items vs Reuters ($1.62), reduces dividend to $0.05 from $0.30. X shares are trading down 9% in the pre-market.

BIDU (224.86): Baidu target increased at Goldman Sachs: Following earnings, the 6-month target is increased to $273 from $212. The firm believes BIDU could see y/y revenue growth pick up in Q3 or 4Q09. Rating remains Conviction Buy.

JEC (45.55): Jacobs Engineering (JEC) reports Q2 EPS $0.88 vs Reuters $0.88, cuts full year guidance to between 3.10 and 3.50 versus street consensus at 3.59.

NTRS (55.01): Northern Trust (NTRS) files for secondary offering of common stock and notes through Goldman, Morgan Stanley. Company is going to offer 750 million in stock and 500 million in senior notes in order to repay TARP.

SPWRA (24.04): SunPower (SPWRA) announces intent to offer 9M common shares in secondary offering, $175M in senior convertible notes through Credit Suisse and Deutsche Bank.

PCL (34.90): Plum Creek reports Q1 EPS $0.95 ex-items vs Reuters $0.94: Note earnings includes impairment and severance charges that amounted to $0.05 as well as a tax benefit of $0.05. Company reports revenues of $470.0M vs Reuters $506.4M. Guides Q2 EPS breakeven vs Reuters $0.14; guides full year EPS $1.20-1.45 vs prior $1.38-1.63 and Reuters $1.46, First Call $1.45.

Monday, April 27, 2009

April 27, 2009: Morning Call

April 27, 2009: Morning Call

Fair Value: SP500 – 863.76; NDX: 1373.31; DOW: 8039.30

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: CHKP (.43/199.9M); GLW (.06/968.1M); HUM (1.14/7.67B); IMA (.57/453.1M); SII (.58/2.45B); SOHU (.99/113.1M); VZ (.59/26.2B); WHR (-.06/3.94B);
04:30: Bank of England to release quarterly Asset Purchase Facility (APF) report
06:45: ECB’s Trichet speaks on “Strategic Trends in Global Finance”
08:30: VZ earnings call
10:00: AXP Annual Meeting
10:30: Dallas Fed Manufacturing Activity
Post-market EPS: BIDU (.84/115.8M); DVA (.91/1.45B); FNF (.14/1.44B); JEC (.89/3.14B); MTW (.13/1.05B); PCL (.94/506.4M); QCOM (.41/2.35B); SWN (.31/407.0M); XL (.64/1.78B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 11 points below fair value while the NASDAQ futures are trading 18 points below fair value after Larry Summers said the US economy will continue to “shrink for some time” and swine flu was declared a public health emergency on Sunday. European markets are trading down 1.4% with travel related sectors leading the decline on concerns about a potential swine flu pandemic. Financial and material sectors are down 2.0%-2.5%. Asian markets closed mostly lower (Hong Kong down 2.8%, Japan up 0.21%, Australia up 0.52%, Shanghai down 2.3%, India up 0.40%). Tourism and airline stocks tumbled while pharmaceutical and healthcare-related stocks outperformed.

Research Calls/Market Moving News:

AAPL (123.90); VZ (31.00): Apple (AAPL), Verizon (VZ) discuss iPhone deal - USA Today: People familiar with the situation say the companies are in "high-level" discussions about possibly developing an iPhone for a CDMA wireless network, as opposed to AT&T (T)'s GSM network. The goal would be to introduce the new model next year. The specifics on AT&T's exclusive US distribution rights to the iPhone through 2010 are not known.

VZ (31.00): Verizon reports Q1 adjusted EPS $0.63 ex-items vs Reuters $0.59: Company reports revenues of $26.59B vs Reuters $26.37B.

Fed officials are pushing several banks to bolster capital reserves - WSJ, citing people familiar with the matter: Three people familiar with the matter say at least three banks out of the nineteen subjected to the stress tests were told to raise reserves

WFC (21.40): Wells Fargo downgraded to hold from buy at Rochdale Research: Target remains $25. Analyst Dick Bove believes the balance sheet may be over extended and that credit income may decline over the next few quarters

QCOM (41.36): Qualcomm reports Q2 EPS ($0.03) ex-items: QCOM reported an effective tax rate of 131% for Q2, primarily due to the impact of the discrete tax benefit related to the litigation settlement charge associated with the settlement and patent agreement with Broadcom at a rate less than the United States. Unclear if comparable to Reuters $0.40. Company reports revenues of $2.46B vs Reuters $2.35B. federal rate. Q3 guidance: Guides Q3 revenues to $2.40-$2.60B vs Reuters $2.36B.

Pakistan Intelligence believes bin Laden is dead: Bloomberg: “Pakistan’s President Zardari said his country’s intelligence agencies believe al-Qaeda leader Osama bin Laden is dead. Zardari told members of the foreign media that the agencies acknowledged they do not have evidence of bin Laden’s death.”

BIDU (217.34): Piper Jaffray’s Gene Munster previews BIDU’s earnings tonight:Conclusion. While BIDU has traded up significantly in the past few weeks, we expect investor confidence in the story will increase following March quarter results, which should move shares higher. While it's difficult to predict the stock action the day after Baidu reports, we believe shares will move higher into the summer. 3-4% Upside In Revenue. We believe Baidu will report March quarter revenue of $118m, above Street's estimate of $115M. Baidu's business in the first six weeks of March quarter was slow, but business improved significantly in the back half of the quarter. Keep in mind, Baidu gave muted Q1 guidance on February 18th, which was three weeks after the Chinese New Year (January 26th). However, business appears to have turned positive in early March, which increases our confidence in slight upside to the March quarter. Margin Likely To Be Historically Low. We expect Baidu to report in line earnings with Street estimate of $0.75 EPS. During the week of the Chinese New Year, Baidu spent a reported $40 RMB million (~$5.7m USD) to advertise with CCTV's New Year Gala. This marketing spend appears to have been effective as both traffic growth and customer spending improved post Chinese New Year. Because of the $40M RMB incremental marketing spend, we expect Baidu's operating margin to be 22%, lower than 34% in Q408 and 26% in Q108. We do not see margins as critical to the Baidu story, rather top line revenue growth is the focus. June Guidance. We believe the Street's June quarter estimate of $145M in revenue is achievable. This represents a 23% sequential growth in June (assuming our $118m in March is accurate), which compares to a 43% sequential growth in June quarter in CY08.”

NY Times profiles Treasury Secretary Geithner: Says the government has in many ways endorsed an idea that seemed way out there when proposed by Geithner as head of the NY Fed in June, that the government should guarantee all of the debt in the banking system. An alphabet soup of programs has gradually brought the government to an unprecedented level of involvement in the banking system. Reviews his time at the head of the NY Fed, when he "forged unusually close relationships with executives of Wall Street’s giant financial institutions." Interviews say his actions as bailout chief often aligned with the interests and desires of Wall Street. Critical of his time at the Fed for missing the signs of the coming problems at the banks under his supervision. Joseph E. Stiglitz at Columbia says the actions show Geithner shares Wall Street's philosophy and world view. Chairman Bernanke says Mr. Geithner''s relationships and contacts have been invaluable during the crisis.

STT (37.18): State Street downgraded to equal-weight from overweight at Morgan Stanley: Target raised to $36 from $26. Downgraded based on valuation

Barron's summary
Cover: The Spring 2009 Big Money Poll. Favorite Stocks: GE, AAPL, BRK.A, CHK, L, MON, WFC. Most overvalued Stocks: AMZN, GOOG, NFLX, AIG, AAPL, C, WMT, BAC, XOM, PG, CRM. Interview: Jason DeSena Trennert, chief investment strategist at Strategas Research Partners likes SLB, GLD, LAZ and MO. Lead Articles: General Mills (GIS) isn't getting credit for its expansion, stock could rise 25-35%; Presidential history suggests the current bear market will end this year or next as new presidents work to make sure the economy is revived when the next election comes around; Discussion of stock fraud charges against Mark Tompkins and others and their link to GTE; Suncor Energy (SU) is a smart bet on rebounding energy prices, stock could go to the mid to high $30s; Editorial suggests that politicians should let the markets figure out green initiatives rather than trying to mandate them. Columns: The Trader is cautious on Bank of America (BAC), mixed to long-term positive on Amazon (AMZN); Asia Trader says Toyota Motor (TM) is overheated after its rapid rise; Euro Trader is positive on Fortis (FORB.BB) on the upcoming deal with BNP Paribas (BNP.FP); Commodities Corner comments on the recent rise in commodity prices; Current Yield notes the 10 year's return to a 3% yield for its return to the year high and the reversal of the drop after the 17-March announcement from the Fed; The Striking Price says that the options, credit and commodities markets all point to energy stocks being the next to rally, moves seem most bullish for HES, MUR, XTO and SUN; Follow Up says Oracle's (ORCL) deal is a sign of mergers ahead; Up and Down Wall Street wonders why there is so much insider selling into this rally if things are really better; Streetwise says the conclusion that things are due for a retrenchment still remains, suggests buying Ford (F) on any pullbacks; D.C. Current says it will be almost impossible to tell when credit starts flowing again because of the trouble in measuring the shadow financing activity; Technology Trader is positive on Apple (AAPL) but says the margin warnings may be true this time, cautious near term on types like CSCO, ORCL, HPQ and DELL, still cautious on solar; Plugged In notes the selling by the CEO of NTAP, he has sold more than 10% of his holdings in the company.

Friday, April 24, 2009

April 24, 2009: Morning Call

April 24, 2009: Morning Call

Fair Value: SP500 – 849.48; NDX: 1344.47; DOW: 7920.35

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: ACI (.36/688.1M); AEP (.91/3.77B); HON (.54/7.5B); MMM(.85/5.18B); SLB (.74/5.9B); TROW (.21/388.4M)
08:30: Durable Goods Orders (March): -1.5%; Ex-Transportation: -1.2%
09:00: SLB earnings call
10:00: New Home Sales (March): 340,000; 0.9% MoM
14:00: US to release stress test assumptions

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 4 points above fair value while the NASDAQ futures are trading 10 points above fair value at 8am ET. European markets have extended modest gains at the open and are currently 1.5% higher due to strength in energy and basic material shares. The German IFO business climate survey came in better than expected (83.7 vs. 82.3). Markets in London shrugged off a weaker Q1 UK GDP figure (-4.1% vs. –3.8% consensus). Asian markets closed mixed (Japan down 1.6%, Hong Kong up 0.29%, Australia down 0.82%, South Korea down 1.2%, India up 1.75%). South Korean markets closed weak due to a 6% drop in Samsung Electronics; India closed up 1.7% due to strength in bank stocks (IBN).

Research Calls/Market Moving News:

F (4.49): Ford reports Q1 EPS ($0.75) ex-items vs Reuters ($1.23): Ford shares are up 20% in the pre-market are a smaller than expected loss. The futures moved up 5 points in reaction. Ford forecasts Q2 N. American production of 435K vehicles, up 25% seq. Company reports revenues of $24.80B vs Reuters $21.08B. Q1 pre-tax operating loss, excluding special items, was approximately $2B. Special items improved pre-tax profits by $362M in Q1, or $0.15 per share, which largely reflected gains from the debt restructuring completed in Q1 partly offset by the effect of "held for sale" accounting for Volvo assets and global personnel reduction programs. At the end of Q1, based on the status of Ford's strategic review of Volvo, the company concluded that the criteria for "held for sale" status had been met, triggering an impairment test that resulted in an impairment charge of appx $700M.

MSFT (18.92): Microsoft upgraded to overweight from equal-weight at Morgan Stanley: Target increased to $24 from $21. Microsoft reports Q3 EPS $0.39 ex-items vs Reuters $0.39: Company reports revenues of $13.65B vs Reuters $14.10B

HES (52.57); PBR (32.99): Goldman Sachs upgrades HES; downgrades PBR: Upgrade: Hess Corporation (HES) upgraded to Conviction Buy from buy; 6-month target is $75. Downgrade: Petrobras (PBR) downgraded to buy from Conviction Buy; 6-month target is $40.

AMZN (80.61): reports Q1 EPS $0.41 vs Reuters $0.31: Company reports revenues of $4.89B vs Reuters $4.75B. Guides Q2 revenues to $4.30-4.75B vs Reuters $4.61B. Operating income is expected to be between $110M and $190M. reports Q1 GAAP operating income $244M vs consensus $186M: Guidance was for $125-210M. Guides Q2 GAAP operating income $110-190M, including $90M in sbc/amortization, vs consensus $178M.

SPWRA (25.93): SunPower reports Q1 EPS $0.05 ex-items vs Reuters $0.23: Company reports revenues of $214.0M vs Reuters $257.9M. Non-GAAP gross margin was 24.3%. Guides full year EPS to $1.25-$1.75 vs Reuters $1.82; guides revenues to $1.3B-$1.7B vs Reuters $1.56B.

SLB (46.61): Schlumberger reports Q1 EPS $0.78 ex-items vs Reuters $0.73 : Company reports revenues of $6.00B vs Reuters $5.90B. SLB says its visibility on 2009 has not materially changed from the end of Q4, and it does not see any significant recovery in North American gas drilling before 2010.

EMC (12.17): EMC downgraded to hold from buy at Argus Research

RIMM (68.27): Research In Motion upgraded to buy from hold at Citi: Target increased to $100 from $65. The stock is also added to Top Picks Live. The firm believes gross margins have stabilized around 42-44

005930 KS – Samsung Electronics: Samsung fell almost 6% in South Korean due to concerns about the profit outlook and cautious comments on the earnings call.

Global steel industry may not look same at end of year – WSJ: "Virtually nonexistent" demand for steel means losses are probably going to increase, and the industry now expects consolidation, the loss of marginal players, and lower prices. Copper and nickel prices are firming, but they're much lower than they were a year ago, and steel is still oversupplied for current demand. The article does not give any predictions for consolidation or fallout possibilities. (I would note that NUE management made extremely cautious comments during their earnings call yesterday).

MS (21.96): Morgan Stanley considers spinning out biggest proprietary-trading desk into hedge fund – WSJ: People familiar with the discussions, which also include the possibility of opening the unit to outside investors, say no decision appears imminent, and there may ultimately be no change to the operation. Some of the desk's top traders are concerned about potential government-mandated restrictions to their pay and on hiring non-Americans, which has caused ongoing restructuring discussions to speed up recently. A source says if the operation is spun out into a hedge fund, MS will likely keep its current investment and a significant ownership in the group that would manage the new fund; a full spinoff would preclude the bank's staying in the business.

C (3.20): Citi CEO Vikram Pandit may serve as sacrificial lamb to make Washington's hard line with banks clear - NY Post

WFR (14.68): MEMC Electronic Materials downgraded to sector perform from outperform at RBC Capital: Target remains $15. Firm cites valuation for the downgrade.

YHOO (14.55): Microsoft (MSFT) CEO Steve Ballmer says company still sees potential in Yahoo! partnership, though it doesn't want to buy it -- Reuters: Speaking in Cologne, Germany, Ballmer repeats that MSFT is no longer interested in buying YHOO, though sees the potential to add value through a partnership.

Thursday, April 23, 2009

April 23, 2009: Morning Call

April 23, 2009: Morning Call

Fair Value: SP500 – 841.15; NDX: 1335.85; DOW: 7850.26

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: ABC (.89/17.5B); AN (.16/2.82B); BDK (.08/1.16B); BLL (.77/1.72B); CME (3.24/663.1M); COP (.42/32.83B); DHR (.74/2.69B); DO (2.23/877.5M); FITB(-.24/1.53B); GR (1.07/1.69B); HSY (.34/1.19B); MAR (.14/2.56B); NOV (1.06/3.31B); NUE(-.57/2.93B); OCY (.41/3.31B); PNC (.42/3.51B); STI (-.58/2.07B); RTN (1.00/5.61B); UPS(.57/11.52B); UNP (.66/3.48B); POT (.83/1.0B)
04:00: ECB Euro-zone Current Account (Feb): -10.7B
04:00: Euro-zone PMI Manufacturing (April): 34.7; Services: 41.2; Composite: 38.9
05:00: Euro-zone Industrial New Orders (April): -2.2% MoM; -34.8% YoY
08:30: Initial Jobless Claims (w/e April 18): 630,000; Continuing Claims: 6.13M
10:00: Existing Home Sales (March): 4.65M; 1.5% MoM
10:30: EIA Natural Gas Storage Change
10:30: PNC earnings call
13:00: POT earnings call
17:30: AXP earnings call
17:30: MSFT earnings call
Post-market EPS: AXP (.12/6.6B), AMZN (.30/4.75B); BIDU (.84/115.9M); BNI (.97/3.66B); CB(1.38/2.90B); CF (1.56/435.1M); EMN (.14/1.34B); FII (.48/303.4M); JNPR (.16/765.1M); KLAC(-.27/300.8M); MSFT (.39/14.18B); WFR (-.02/216.9M); SPWRA (.23/268.57M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 2 points above fair value while the NASDAQ futures are trading 7 points above fair value at 7:30am ET. The futures have sold off a few points after weak earnings from UPS. Aside from earnings, Jobless claims data takes center stage at 8:30. European markets have reversed initial declines of 1.5% and are currently unchanged. Mixed earning reports/trading updates saw Credit Suisse (CGSN.VX), Novartis (NOVN.VX) and Stora Enso (STERV.FH) traded higher while ABB Ltd (ABBN.VX), Akzo Nobel (AKZA.NA), Software AG (SOW.GR) and Schroders (SDR.LN) fell. Deutsche Börse (DB1.GR) is trading up 5% in Germany on reports of a new merger attempt with NYSE Euronext (NYX). France, Germany and EuroZone Apr Preliminary/Advance PMI data was all better than expected. EuroZone Feb Industrial New Orders (34.5%) y/y vs con (34.8%). The pound and euro are higher against the dollar on the better economic data. Asian markets closed higher (Japan up 1.4%, Hong Kong up 2.2%, Australia up 2.04%, India up 2.93%). Technology stocks were strong across the region following strong earnings from AAPL and EBAY. India’s Sensex rallied the most in three weeks on short covering and strength in technology. Japan reversed early losses due to strength in automakers following an upgrade by Goldman Sachs.

Research Calls/Market Moving News:

AAPL (121.51): Piper Jaffray’s Gene Munster reiterates buy rating and 180 target. “Solid Mar. Qtr Results Despite Economic Headwinds. GAAP results of $1.33 on $8.16b vs. Street estimates of $1.09 on $7.9b were driven by outperformance in all three core business: Mac, iPhone, and iPod. Significant margin expansion was driven by favorable commodity costs and inventory management. iPhone, Mac & iPod Units Exceeded Street Expectations. March quarter Mac units of 2.22m were slightly above Street at 2.1m. iPhones were also strong with 3.79m units vs. the Street at 3.3m. Apple sold 11.01m iPhones in the March quarter, above Street consensus (10.0m). The key takeaway is that the challenging consumer spending environment is not impacting Apple to the degree that the Street expected it to. Our Thoughts On iPhone In CY09. Our confidence in the iPhone platform is unchanged. We see the strong outperformance of iPhone as an indicator that consumers are still attracted by the value proposition of the iPhone: a robust app ecosystem adding many new features and games, an enjoyable mobile web experience, and a core strength of mobile media. Significant growth of iPod touch units also confirms the strength of the app ecosystem, and Apple's mobile software. We continue to expect a family of iPhones this summer, as early as June. Moreover, Apple indicated that the iPhone would launch in China in the next 12 months, but we believe it could be as soon as the end of the summer. An Update On Steve Jobs' Return To Apple. Apple continues to expect the return of Steve Jobs by the end of June. Until then, it appears that day-to-day operations at Apple are running smoothly. We believe Jobs may return to Apple with a reduced role, possibly as Chairman, with COO Tim Cook assuming the CEO position. Regardless, we think the transition of leadership during and after Jobs' leave of absence will not negatively impact Apple's business. Gross Margin Exceeds Expectations, Seen Declining. Gross margin of 36.4% in March exceeded guidance of 32.5% by 390bps. The company guided to 33% margin for June. Apple also reiterated its expectation of "about 30%" in the Sept. quarter, in-line with previous comments indicating a GM of "about 30%" in 2HFY09. While some investors believe this decline in GM may be due to a low-cost portable in the Sept. quarter, we believe Apple was simply reiterating the original guidance.”

AAPL (121.51): Apple upgraded to outperform from underperform at RBC Capital: Target increased to $165 from $95.

UPS (54.75): UPS reports Q1 earnings of 52 cents vs. street of 56 cents. UPS guides Q2 EPS to between .45-.55 cents vs. street of .66 cents. Company cites the weak economy. The S&P futures have sold off 4 points on the UPS headlines.

EMC (12.70): EMC reports Q1 EPS $0.16 ex-items vs Reuters $0.16
Company reports revenues of $3.15B vs Reuters $3.25B. Due to the current macro-economic conditions and limited visibility, EMC is not offering revenue, EPS or other financial outlook at this time.

Banks to get preliminary stress-test results tomorrow at their local Federal Reserve Banks – NYT: By calling all the banks in, officials are taking steps to eliminate the stigma that would be attached to recipients if only a few were given results early. People briefed on the sessions say the banks will have until 28-Apr to dispute any findings. The final results are still planned to be announced 4-May; officials expect the banks to release their own results. The preliminary findings are unlikely to be disclosed, because federal law makes bank exams confidential

NYX (20.56): Deutsche Börse trading higher on reports of new merger attempt with NYSE Euronext (NYX) – Reuters: Deutsche Boerse has no immediate comment on Nyse Euronext merger talks report

BG (54.50): Bunge Ltd reports Q1 EPS ($1.76): Unclear if EPS is comparable to Reuters $0.69. Company reports revenues of $9.20B vs Reuters $10.43B. Volumes totaled 32.3 metric tons vs year-ago 31.8. Guides full year EPS to $4.90-5.40 vs prior $6.90-7.60 and Reuters $6.48

POT (80.99): Potash reports Q1 EPS $1.02 vs Reuters $0.82: Company reports revenues of $922.5M vs Reuters $857.8M. Guides Q2 EPS to $1.10-1.50 vs Reuters $1.92. Guides full year EPS to $7.00-8.00 vs Reuters $9.33. Given the lower sales volumes POT anticipates through at least H1 of 2009, which led the company to announce potash production curtailments to date in 2009 of 3.5M tonnes, POT now estimates full-year potash gross margin to be in the range of $2.5B-$3.0B and total shipments to be around 6M tones.

VMW (32.50): VMware reports Q1 results; says Q2 revenue may be "flat, or even down" y/y: Management says they expect customers will continue to keep a very tight rein on IT spending; they also note the vSphere 4 transition and say that as a result of these factors: "we expect our second quarter revenues will be flat, or even down, compared to the second quarter of 2008. VMW shares are trading down 17% in the pre-market.

BRCD (4.97): Brocade upgraded to buy from hold at Jefferies: Target is $6

DO (71.12): Diamond Offshore reports Q1 EPS $2.51 vs Reuters $2.21: Company reports revenues of $885.7M vs Reuters $878.3M. Dayrates were as follows: High Specification Floaters $360 with 80% utilization. Intermediate Semis $283 with 85% utilization. Jack-ups $131 with 73% utilization.

BIDU (208.33): Baidu estimates raised above consensus at RBC: The firm has raised their Q1 revenue estimate to $119M from $115M vs. Reuters $115.78. RBC believes estimates will move higher following the quarter. Target is raised to $252 from $186. Shares remain outperform rated. BIDU reports tonight.

Wednesday, April 22, 2009

April 22, 2009 Equals September 19, 2008

The price action today reminds me of September 19, 2008, the day the SEC banned risk management/short selling bank stocks. September 19, 2008 was the first time in my life that I did not trust the quotes on my screen because the forced buying clearly created artificial demand( Same thing applies today.

Tuesday, April 21, 2009

April 21, 2009: Morning Call

The S&P and NASDAQ futures are both 5 points below fair value at 8:15am ET, reversing earlier gains (S&P futures were 8 points above fair value at 5am ET). In Monday’s session, the financial sector finally reversed the powerful short-squeeze that was triggered by WFC’s detail-free preannouncement of “record” earnings. Although CNBC emphasized a New York Times article about additional preferred equity conversions in the banking sector as the primary cause for weakness in bank stocks, the group closed lower because the quality of earnings released thus far has been very poor. Market participants finally called bullshit after the BAC earnings report; BAC’s earnings included a big one-time gain from the sale of their China Construction Bank stake and a 2.0 billion dollar mark-up of Merrill Lynch assets (CNBC repeatedly called BAC's earnings phenomenal ahead of Maria Bartiromo's soft-ball interview with Ken Lewis). With the benefit of hindsight, it is pretty clear the financial sector benefitted last week from dislocations at "quant" hedge funds and an option expiration fueled short squeeze. European markets are down 1.5% at the lows of the session. Copper is down 3.6% and nickel is down 5.2% in London. The euro is trading flat with the dollar giving up solid gains following stronger than expected German confidence data (13.0 vs. street at 2.0). Asian markets closed lower on concerns about the economy and the quality of corporate earnings (Japan down 2.4%, Hong Kong down 2.95%, Australia down 2.3%, India down 0.74%).

In terms of strategy, traders should maintain a large cash position or stay completely on the sidelines. The path of least resistance is lower but it is extremely easy to get whipsawed and chewed up in this market given the illiquidity and increased gap risk due to a number of escalating cross currents: Commodities have come under significant pressure, FOREX volatility has increased, the VIX has jumped 15%, and rumors are circulating that several large hedge funds that engage in high-frequency trading have lost 15-25% of their capital in the last 2 months. Trade small and maintain a tight stop-loss discipline given the factors I cited above will increase slippage due to decreased intra-day liquidity.

Friday, April 17, 2009

April 17, 2009: Morning Call

April 17, 2009: Morning Call

Fair Value: SP500 – 862.91; NDX: 1353.43; DOW: 8087.74

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: C (-.30/20.04B); BBT (.33/1.91B); FHN (-.26/501.2M); MAT (-.13/795.3M); GE (.22/39.5B)
05:00: Euro-zone Trade Balance (February): -5.3B
08:30: Fed’s Hoenig speaks at Fed Conference
08:30: C earnings call
08:30: GE earnings call
10:00: University of Michigan Confidence (April): 58.5
12:00: Bernanke speaks at Fed Conference
11:00: BBT earnings call

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading flat with fair value while the NASDAQ futures are trading 6 points below fair value. Performance anxiety, high levels of skepticism about the quality of financial sector earnings (yet, the stocks are climbing a wall of worry and rallying sharply), and chatter about dislocations at quant funds continue to drive global markets higher, escalating a vicious short-squeeze in the most distressed and leveraged sectors (banks, REITs, casinos, department stores). Asian markets closed mixed (Japan +1.74%, Hong Kong + 0.12%, Shanghai –1.3%, Taiwan –4.03%, India +0.69%, Australia flat). Developers climbed in Hong Kong on a sector upgrade from Goldman Sachs, though the market gave up most of its gains later in the session. Woolworths (WOW.AU) better-than-expected sales pushed retailers up in Australia, but Gold miners followed the bullion price lower. China fell when Premier Wen Jiabao said the foundation for an economic recovery is not solid. Tiawan's tourism stocks rallied in anticipation of cross-strait trade negotiations, but profit taking in financials sent the market lower. European markets are up 1.3% at the highs of the session following GE’s earnings release. Industrial and Financial stocks are up 2.0%-3.0% while Consumer staples and health care lag.

Research Calls/Market Moving News:

GE (12.27): General Electric reports Q1 EPS $0.26 vs Reuters $0.21: Company reports revenues of $38.41B vs Reuters $39.30B. GE is on track to meet its full-year cash flow plan. Technology Infrastructure revenue relatively flat to $10.44B and profit 6% to $1.80B. Energy Infrastructure revenue 7% to $8.24B and profit 19% to $1.27B. Capital Finance revenue (23%) to $13.09B and profit (58%) to $1.12B. NBC Universal revenue (2%) to $3.52B and profit (45%) to $391M. Consumer & Industrial revenue (22%) to $2.22B and profit (75%) to $36M. GE shares are up 3.9% in the pre-market to 12.75

C (4.01): Citi reports Q1 EPS ($0.18) vs Reuters ($0.30): Company reports revenues of $24.80B vs Reuters $21.73B. Results include $7.3B in net credit losses and a $2.7B net loan loss reserve build. Revenue and net income by segment (changes on a y/y basis):
· Global Cards: revenue (10%) to $5.77B and income $417M vs year-ago $1.23B; global cards managed revenues were 3%.
· Consumer Banking: revenue (18%) to $6.40B and income ($1.23B) vs year-ago $52M.
· Institutional Clients: revenue increased to $9.51B vs year-ago ($4.96B) and income $2.83B vs year-ago ($6.36B).
· Global Wealth Management: revenue (20%) to $2.62B and income $261M vs year-ago $291M.
· Corporate: revenue $496M and income ($50M).
Tier 1 capital ratio ended the quarter at 11.8% compared to 11.8% in Q4 and year-ago 7.7% Headcount was reduced by approximately 13,000 since Q4'08 to 309,000 and approximately 65,000 since peak levels.

GOOG (388.74): Google reports Q1 non-GAAP EPS $5.16 vs Reuters $4.92 First Call is $4.93. Company reports revenues of $5.51B, including TAC, vs Reuters $5.47B, which includes TAC. Excluding TAC, GOOG reports revenues of $4.07B vs. First Call $4.12B. Aggregate paid clicks was up 17% in Q1 vs. consensus of up 14%. GOOG shares traded to 410 after hours but gave up all the gains during the conference call. Management was pretty cautious on the call and talked up seasonality in Q2 and Q3.

JPM (33.24): JPM- Fox-Pitt Kelton downgrades “JPM from Outperform to In Line, given the combination of: (a) the recent strong performance (having doubled from earlier lows of a few weeks ago); and (b) our somewhat reduced near-term earnings expectations. Cutting: After a detailed review of 1Q09 results, we are cutting our 2009 and 2010 ests. to reflect steeper-than-expected credit deterioration, particularly in credit cards and consumer lending.”

IBM (101.43): IBM target raised to $120 from $105 at Thomas Weisel: The firm believes it is possible IBM could hit $9.20 for the year even if revenue growth slows and is positive heading into the Q1 earnings report (Reuters consensus for 2009 is $9.04). Shares of IBM remain overweight rated

S&P cuts ratings on Dillard's (DDS), JC Penney (JCP), Macy's (M), Neiman Marcus and Nordstrom (JWN): S&P says that the rating action reflects its deepening concern about the impact of the US recession on the increasingly troubled department store sector. It also says that it believes that lower consumer spending and declining mall traffic will affect the sales and profits of the department store operators this year, while a recovery will be slow and dependent on an improvement in the macro-environment.

FDX (52.24): FedEx downgraded to hold from buy at Jesup & Lamont: Firm cites valuation

PH (38.91); ITW (33.14): Wachovia upgrades PH; downgrades ITW: Upgrade: Parker-Hannifin (PH) upgraded to outperform from market perform; target is increased to $52-55 from $34-36. Downgrade: Illinois Tool (ITW) downgraded to market perform from outperform; target is $30-33. Estimates are lowered.

Government will continue to hold warrants if banks sell shares back - BloombergTreasury officials say the government will only give up the warrants after agreeing on a price with banks and appraisers, and the warrants will mean the government maintains a degree of control over the institutions. Banks whose warrants are held will still face restrictions on things including hiring non-Americans, though they will be free of restrictions on executive pay and dividends.

Thursday, April 16, 2009

April 16, 2009: Morning Call

April 16, 2009: Morning Call

Fair Value: SP500 – 849.66; NDX: 1316.91; DOW: 7992.06

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: BLK (.91/991.6M); BAX (.81/2.87B); GCI (.25/1.46B); HOG (.54/1.29B); ITW(.13/2.92B); JPM (.32/23.0B); LUV (.03/2.43B); PH (.51/2.43B); PII (.20/299.2M); NOK (.14/12.7B)
08:00: JPM earnings call
08:30: Housing Starts (March): 550,000; Building Permits: 550,000
08:30: Initial Jobless Claims (April 11): 665,000; Cont. Claims: 5.85million
10:00: Philly Fed (April): -32.0
10:30: EIA Natural Gas Storage Change
11:30: LUV earnings call
13:00: Fed’s Lockhart to speak on the financial crisis
18:00: GOOG earnings call
20:00: Fed’s Yellen speaks on the economic crisis
Post-market EPS: BIIB (1.01/1.08B); GOOG (4.96/5.53B); ISRG (1.05/206.9M); SNDK(-.76/529.6M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 4 points below fair value while the NASDAQ futures are trading 3 points above fair value. Early trading is on the light side as market participants digest earnings from JPM and NOK. Asian markets closed mixed. Japan gave up 2% gains on the opening after the release of data showing China’s economy had grown by its slowest ever rate in Q1. In Hong Kong, investors locked in gains after a three-day rally, leaving the index down 0.55%. European markets are up 1.0% led by financial and resource stocks. Major indices pare initial gains, briefly turning negative before rebounding. Advancers on the FTSE 100 lead decliners 7-3. Trading higher after Q1 sales reports are Roche Holding, Nokia (NOK1V.FH), Atos Origin (ATO.FP), Safran (SAF.FP) and Groupe Danone.

Research Calls/Market Moving News:

JPM (32.56): JPMorgan Chase reports Q1 EPS $0.40 vs First Call is $0.32. Company reports total net revenues of $25.03B vs Reuters $22.52B. Like Goldman Sachs, strength in Fixed Income revenue drove earnings. Fixed income revenue was 4.9 billion versus 466 million in the prior year. JPMorgan Chase reports Q1 results: Results by operating division, with all changes on a y/y basis:
· Investment Bank: net revenue $8.34B vs year-ago $3.01B, provision for credit losses $1.21B vs year-ago $618M and net income $1.61B vs year-ago ($87M).
· Retail Financial Services: net revenue 85% to $8.84B, provision for credit losses $3.88B vs year-ago $2.69B and net income $474M vs year-ago ($311M).
· Card Services: net revenue 31% to $5.13B, provision for credit losses $4.65B vs year-ago $1.67B and net income ($547M) vs year-ago $609M.
· Commercial Banking: net revenue 31% to $1.40B, provision for credit losses $293M vs year-ago $101M and net income $338M vs year-ago $292M.
· Treasury & Securities Services: net revenue (5%) to $1.82B and net income $308M vs year-ago $403M.
· Asset Management: net revenue (10%) to $1.70B and net income $224M vs year-ago $356M.
· Corporate/Private Equity: net revenue ($309M) and net income ($262M) vs year-ago $$1.11B.
Tier 1 capital ratio reported 11.3%, or 9.2% excluding TARP, compared to 10.8% at the end of Q4. Guidance: JPM says for the rest of 2009, it is reasonable to expect additional increases to credit reserves if the economic environment worsens.

NOK (13.36): Nokia reports Q1 EPS €0.10 ex-items vs Bloomberg consensus €0.09 and year ago €0.39: Company reports revenues of €9.28B vs Bloomberg €9.72B and year-ago €12.66B. Nokia expects industry mobile device volumes in the second quarter 2009 to be at approximately the same level or up slightly sequentially. Nokia CFO says it is too early to call a market bottom, though there are some signs of stability in the market. NOK says that it is gaining some predictability in earnings and seeing some signs of stabilization in China. NOK shares are trading up 6%.

Chinese GDP: In China, Q1 GDP grew 6.1% y/y vs. the survey 6.2%, March industrial output rose 8.3% y/y vs the survey 6.3%, the March CPI declined (1.2%) vs the survey (1.3%), and the March PPI went down (6.0%) vs the survey (5.8%).

GGP (1.05): General Growth Properties files for Chapter 11: The company has been granted a $375M debtor-in-possession financing facility by Pershing Square Capital Management.

PH (36.30): Parker-Hannifin reports Q3 EPS $0.33 vs Reuters $0.43. Company reports revenues of $2.34B vs Reuters $2.39B. Guides full year EPS to $2.95-$3.15 vs Reuters $3.70 and prior guidance of $3.85-$4.25. Total orders were (34%) vs. the prior year. Industrial/North America segment orders were (35%) with an Industrial/Intl. segment orders (41%). Aerospace segment orders were (12%). Climate and Industrial controls orders were (36%). PH shares are down 6.5%.

AXP (20.62); COF (17.32): FBR comments on the Credit Card Trust Data released yesterday: “On April 15, six of the largest credit card issuers (AXP, BAC, C, COF, DFS, and JPM) released their trust data metrics for the month of March. Capital One Financial and American Express also released key metrics on a managed basis. March data did little to change our pessimistic outlook for consumer credit for the industry given the recent unabated increases in the unemployment rate, which is a primary determinant of losses. We anticipate as the seasonal improvements wear off, net charge-offs for the industry could reach double digits at year-end. The effect of seasonality was fairly evident in the March data as early stage delinquencies and roll-rates moderated, as most of the issuers and payment rates improved compared to the prior month, as tax refunds were likely increasingly used to reduce debt in this new age of consumer thrift. However, late stage roll-rates, defaults, and loss levels remain elevated and greater than those reflected in Street estimates. Within our coverage, we believe that respective 1Q09 Street estimates for AXP and COF of $0.15 and $0.02, respectively, are rather optimistic. Principally on valuation, we reiterate our Market Perform rating on COF and our Underperform investment rating on AXP share. COF managed data. COF and AXP are the only issuers that report managed data in addition to off-balance sheet trust metrics. In March, managed losses at COF's U.S. card segment jumped 127 bps month over month to 9.33%, 33 bps of which can be attributed to charge-off activity on February 28. For 1Q09, U.S. card losses averaged 8.4%, greater than the 8.1% guidance that management provided. Credit deterioration at COF's international segment was also elevated; these were partially offset by lower losses at its auto finance segment, likely reflecting higher used car values and typical seasonality. Early stage DQs declined 2 bps month over month to 5.08%, while 30-day delinquency dollar volumes declined 3%, reflecting typical seasonal improvement driven by tax refunds. • AXP managed data. At AXP, managed losses at the U.S. card segment increased 20 bps to 8.8%, while 30-day DQs decreased 20 bps to 5.1%. For 1Q09, losses averaged 8.5% and reflected the benefit of recoveries generated by the sale of certain previously charged-off, owned cardmember loans. On page two of this report, we provide our analysis that attempts to isolate the benefit derived from such recoveries this past month (first time in a decade AXP has sold previously charged-off receivables) and backs into a core run-rate loss rate. Based on our analysis, we estimate that AXP's core losses on an owned basis that excludes the recoveries from sold loans was in the vicinity of 9.2%.”

AIG (1.60): American International Group close to selling US auto business to Zurich Finanical (ZURN.VX) for more than $1.5B – Bloomberg: New headlines on Bloomberg report that people familiar with the matter say the sale may happen for about $2B, mostly in cash.

GOOG (379.50): Deutsche Bank previews GOOG’s earnings: “With Google reporting 1Q 2009 earnings tonight, we believe that market expectations have perhaps become overly bearish at -4% to -5% Q/Q, as US trends have been applied broadly to the company's international business segments. We anticipate Google to post 1Q revenues of at least $4.1bn (-2% Q/Q) and EPS of at least $5.00, which is slightly lower than our estimates but higher than Street consensus. As such, we continue to rate shares of Google BUY. Despite some concern on 2Q commentary, we are buyers on weakness. All too often, US trends are often applied to Google's international operations to arrive at perhaps an overly bearish view. However, we think that international looks healthy (and likely grows 40% Y/Y and 5% Q/Q on a constant currency basis). This strength, coupled with potential TAC improvements, could help net revenues in 1Q and may continue throughout 2009 (even despite retail ad spending weakness).”

DRE (8.44): DRE announces 64M common share secondary through Merrill, JP Morgan and Morgan Stanley, guides Q1 FFO to $0.49-0.51 ex-items vs Reuters $0.51, maintains its full-year 2009 FFO guidance

CME (253.14): CME Group downgraded to market perform from outperform at William Blair

Credit Suisse upgrades the steel sector to overweight from market weight in global equity strategy call

IDC announces Q1 worldwide PC shipments (7.1%) y/y. The figure is slightly better than a projected decline of 8.2%, according to IDC’s Worldwide Quarterly PC Tracker. Shipments in the US were (3.1%) y/y with HPQ's share increasing to 27.6% from 23.8% and Dell slipping to 26.3% from 30.4%.

Wednesday, April 15, 2009

April 15, 2009: Morning Call

April 15, 2009: Morning Call

Fair Value: SP500 – 839.08; NDX: 1322.78; DOW: 8879.38

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: ACGY (.17/539.6M); AMR (-1.48/4.79B); BTU (1.01/1.71B); PGR(.41/3.47B); PJC (-.18/81.01M); SCHW (.15/1.07B)
05:00: UBS Annual General Meeting
06:00: RTP Annual General Meeting
07:00: MBA Mortgage Applications
07:00: Bloomberg Global Confidence Index
08:30: US Consumer Price Index (March): 0.2% MoM; Ex-Food/Energy: 0.0% YoY
08:30: US Consumer Price Index (March): 0.0% YoY; Ex-Food/Energy: 1.7% YoY
08:30: Empire Manufacturing Index (April): -35
08:30: CSX earnings call
09:00: Net Long-term TIC Flows (February)
09:15: Industrial Production (March): -0.9%; Capacity Utilization: 69.7%
10:30: DOE Crude Oil and Gasoline Inventories
11:00: BTU earnings call
13:00: NAHB Housing Market Index (April): 10
14:00: Fed’s Beige Book
22:00: Chinese Q1 GDP: 5.9% YoY
22:00: Chinese Producer Price Index (March): -5.6% YoY
22:00: Chinese Consumer Price Index (March): -1.3% YoY
22:00: Chinese Retail Sales (March): 14.5%
22:00: Chinese Industrial Production (March): 26%
Post-market EPS: CCK (.21/1.91B); PLCM (.26/233.9B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 4.50 points below fair value while the NASDAQ futures are trading 12 points below fair value at 8:08 am ET. INTC is trading down 4.0% after reporting earnings last night. Asian markets recovered from initial declines, with many closing higher on the day (Japan down 1.1%, Hong Kong up 0.57%, Shanghai up 0.38%, Australia down 0.14%, India up 2.9%). Financials gave back some recent gains, and (INTC)’s weak gross margin outlook weighed on technology stocks around the region. European markets are down 0.45% with technology and financial stocks underperforming (down 1.5%-2%). Consumer staples and healthcare outperform (up 1.5-1.75%). Decliners on the FTSE 100 lead advancers 3-2. UBS trades slightly lower. It sees Q1 net loss of almost (€2B) incl items and will cut approx 8,700 jobs by 2010, planning cost savings by the end of 2010 of approx CHF 3.5-4B vs 2008 levels. Rio Tinto (RIO.LN) reported Q1 global production (15%) y/y with global ore guidance for 2009 remaining around 200M tonnes. RTP shares are down 2.5%.

Research Calls/Market Moving News:

US plans to release at least some data from stress tests – NYT: Senior administration officials say plans are being drawn up to disclose some of the details of the stress tests. The administration has decided that keeping results secret could lead to investors' fleeing on the basis of rumor. But it is not clear how much will be revealed, which leaves the possibility that investors will still run away from banks perceived to be most vulnerable. The article restates that all 19 banks are expected to pass the tests and goes on to discuss some of the problems being posed by Goldman Sachs (GS)'s decision to repay its TARP funds -- the government needs to decide if Goldman, or any other bank that returns funds, will continue to be allowed to benefit from an indirect subsidy effectively worth billions of dollars from a federal government guarantee on its debt.

Banks step up foreclosures – WSJ: The Journal reports that JPMorgan (JPM), Wells Fargo (WFC), Fannie Mae (FNM) and Freddie Mac (FRE) all say they have increased foreclosure activity in recent weeks after lifting internal moratoriums that temporarily halted foreclosures. The paper adds that the resulting increase in the supply of foreclosed homes could further weigh on the beleaguered housing market and put additional pressure on bank earnings as problem loans are written off.

GS (115.11): Goldman Sachs downgraded to neutral from overweight at JPMorgan: Target remains $120. The firm cites sum-of-the-parts valuation and says its favorites are, in order: Credit Suisse (CS), UBS, GS, Morgan Stanley (MS), and Deutsche Bank (DB).

OPEC revises f09 world oil demand lower – Reuters: Sees 2009 world oil demand (1.37) Mbpd vs prior guidance of (1.01) Mbpd. Sees 2009 demand for OPEC crude (2.1) Mbpd vs prior guidance of (1.8) Mbpd. Reports 83% compliance with pledged output reductions vs 79% in Feb.

GOOG (368.91): Google price target raised to $425 from $400 at JMP Securities. JMP Securities said checks in Europe show a significant rebound in Q2 and that CPC and conversion rate trends were mixed, and not down as expected. However, the firm lowered its 2009 EPS estimate to $19.41, below consensus of $20.73, and 2010 EPS estimate to $22.38 vs. consensus of $23.85 due to lower growth forecasts and dilution from repriced options. The analyst raised its price target to $425 from $400 citing increasing market share and operating leverage. Shares are Outperform rated.

GOOG (368.91): comScore data released last night. Piper Jaffray’s Gene Munster has a note out with a positive note on the data: Bottom line is that the query data leads us to believe that search volume is not being impacted by the economy, which could be positive for paid clicks. • We continue to expect Google to report revenue essentially in line with published estimates of down 3-4%, but better than Street thinking of down 5%. • Google controlled 63.7% U.S. search market share in March, up from 63.3% in February. • Google's total U.S. queries were up 9% q/q in Q1, while U.S. paid click data had been tracking down 4% q/q. • We continue to view Google as a relative winner in the current economy and maintain our Buy rating on the stock.

AAPL (118.31): Piper Jaffray’s Gene Munster channel checks at Apple stores suggest that Mac demand “appears to be healthy.” iPhone. Based on our store checks we believe iPhone units will be flat to down 15% on a sequential basis in the Mar-09 quarter; the Street is at about -24% q/q (3.3m units). We are currently modeling for iPhone units to be flat in March (4.4m units). While the drop in iPhone units per day per store (from 28 in Nov. to 22 in March, -21% q/q) suggests a more significant sequential drop in sales, we note expanded international availability in recent months takes some pressure off of domestic Apple stores (the location of our checks). Mac. We believe Mac units will likely be in-line or slightly above our unit estimate of 2.2m (vs. the Street at 2.1m). On a q/q basis, our checks show Mac units down slightly and we are modeling for a sequential decline. However, in our Sep-07 checks Apple retail stores were selling 20 Macs/day on average, and the company sold 2.2m Macs in the Sep-07 quarter. We are looking for 2.2m Macs in the Mar-09 quarter, but Apple is selling 28 Macs/day on average, indicating slight upside. We note the month of March, which is when we did our checks, benefited from new Macs that shipped on 3/3. We captured the impact of these new Macs in our checks, but they did not impact the entire quarter, so our checks may only slightly overstate their impact. iPod. For the first time during our Apple store checks we counted iPods. Therefore we do not have historical comps, but relative to iPhone units our checks show slightly more than twice as many iPods, which is in-line with our model. This provides a rough guide for iPod units in the quarter, and we believe the iPod number should be in-line with Street estimates of ~10m units, helped by the 3/11 launch of the iPod shuffle.

New York Times lead business story examines the “stealth bailout” that is providing banks with an “infinite subsidy.” – NYT: Adopted last fall, the program has allowed banks to issue more than $300B in debt cheaply with FDIC backing so far, and the program runs through at least the middle of 2012. One economist calls it an "infinite subsidy." Listed debt totals are $28B for Goldman Sachs (GS), $23B for Morgan Stanley (MS), and more than $40B for both Bank of America (BAC) and JPMorgan (JPM). The program charges a small fee, but is otherwise free of conditions such as those attached to TARP. Regulators need to decide what, if any, conditions should be imposed upon banks in the program that pay back their TARP funds.

RJF (19.060: Raymond James expects fiscal Q2 EPS (Mar) to be well below current consensus analysts’ estimate of $0.37; still expects to be “nominally profitable” for quarter. Earnings will be released on 22-Apr. Company notes that the dramatic deterioration of commercial real estate values during the March quarter, as well as credit exposures related to corporate borrowers whose business is highly dependent on consumer spending, led to an abnormally high level of provision for loan losses and charge-offs at Raymond James Bank. Adds that it added to loan reserves against its residential loan portfolio given an increase in delinquencies and continued declining residential property values.

INTC (16.01): Intel reports Q1 EPS $0.11: Reuters is $0.03. First Call is $0.02. The effective tax rate was 1%, below expectations of appx 27%. Company reports revenues of $7.15B vs Reuters $6.98B. Guides Q2 revenues to flat to Q1 vs Reuters $6.98B. Intel reports Q1 gross margin 45.6% vs consensus 42.5%. Guidance was for the low 40s vs. street expectations of the high 40’s.

LLTC (23.25): Linear Technology (LLTC) reports Q3 EPS $0.25 vs Reuters $0.21, guides Q4 revs to be down (2%) to up +4%, implying $196.9-208.9M vs Reuters $205.8M.

Goldman Sachs makes changes to REITS, SPG, ESS, TCO: SPG added to Conviction Buy List and target increased to $46 from $43. ESS added to Conviction Sell List. TCO removed from Conviction Buy List, however target is increased to $20from $22. PPS removed from Conviction Buy List. SLG upgraded to buy from neutral and target increased to $16 from $12. CBL upgraded to neutral from sell and target increased to $4 from $2.50. CUZ upgraded to neutral from sell, target is $6. GGP reinstated sell, target is $0.50. Note that the firm says their top buy ideas are SPG, BXP and TCO. Top sell idea is ESS.

Tuesday, April 14, 2009

Citibank Market Cap

The Citibank pro-forma market cap has crossed 100 billion (approximately 25 billion shares will be outstanding following preferred converstion). Not bad for an insolvent company. C shares are up another 15% to 4.35 as the vicious squeeze continues.

Monday, April 13, 2009

April 13, 2009: Morning Call

April 13, 2009: Morning Call

Fair Value: SP500 – 854.27; NDX: 1340.98; DOW: 8043.73

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Post-market EPS: JBHT (.22/786.9); TLB (-.66/378.8M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 8 points below fair value while the NASDAQ futures are trading 10 points below fair value in very quiet trading. Most European markets are closed for Easter Monday. Most Asian markets that were open closed higher (India up 1.5%, Shanghai up 2.35%, South Korea down 0.19%, Japan down 0.44%).

Research Calls/Market Moving News:

GS (124.33): Goldman Sachs considering multibillion-dollar share offering – WSJ: People familiar with the matter say the move, which would help the bank repay its $10B government loan, could be announced as early as next week. The sources say details are undetermined, and a final decision has not been made yet. The London Telegraph is also reporting on a potential capital raise. These rumors have been circulating for the past week.

WFC (19.61): Wells Fargo downgraded to underperform from market perform at Keefe, Bruyette & Woods: Target remains $12. Firm cites valuation. Estimates are unchanged.

CVX (69.23): Chevron sees Q1 earnings sharply lower: Upstream earnings are expected to decline substantially, in part due to lower prices for crude oil and natural gas. Downstream earnings are also anticipated to be much lower than in the previous period, with average margins on the sale of refined products off significantly.

WFR (18.94): MEMC Electronic Materials guides Q1 revenues to $214M vs Reuters $224: The company says guidance is consistent with its previous outlook that revenue could decline by as much as 50% from Q4. As a result of lower pricing and additional underutilization charges, gross margin for the quarter is now expected to be approximately 9% of sales, compared to the company's previous outlook of gross margins declining to the 20% range. MEMC Electronic Materials downgraded to neutral from buy at Piper Jaffray. Target increased however to $17 from $16. Firm notes the Q1 preannouncement, valuation, and weakness in the semiconductor industry.

AAPL (119.57): WSJ says Steve Jobs is maintaining his grip at Apple: Sources say CEO Jobs remains closely involved with key aspects of running the company three months into his medical leave. He continues to work on the most important strategies and products from home, such as the new iPhone operating system introduced last month, while Tim Cook runs day to day operations. Sources close to the company's strategy say it is working on new iPhone models and some form of netbook type device. The company said Mr. Jobs continues to look forward to returning at the end of June. Business partners and customers say their interactions with the company have not changed during Mr. Jobs' leave

RIMM (64.18); NOK (13.80): Barron's Plugged In offers some caution on RIM and some limited positive comments on Nokia: Some long-term caution on Research in Motion (RIMM) noting the competitive landscape. Once email is a commodity feature, other elements will be decisive and not all are RIMM's strengths. Skeptics also are concerned over the weak cash flow. This all raises concerns in the face of increasing competition. Nokia (NOK) will introduce the E71x smartphone that some call the iPhone nemesis since it excels where the iPhone lacks, in tasks like typing documents and taking photos and videos. Nokia may also introduce three new smartphone technologies over the next 12-18 months. But this week the company has to update investors on global-handset sales, early results from cost-cutting and potential plans to buy part of Nortel's carrier network unit.

RIMM (64.18): Research In Motion squeezing BlackBerry suppliers in economic slowdown – Bloomberg: In an interview, co-CEO Jim Balsillie says the company is reducing supply costs as its growth provides it additional leverage to press for bargains. The article lists Elcoteq (ELQAV.FH), Jabil Circuit (JBL), Marvell Technology (MRVL), Multi-Fineline Electronix (MFLX), and Qualcom (QCOM) as RIMM's five biggest suppliers.

CSCO (17.82): Barron's Technology Trader says Cisco Systems is a steal at current prices: There is abundant value in the shares which could trade up to $26-$27. The shares trade for only 16.7x the next 4 quarters' estimates. It has $4B in cash and $25B in investments vs only $6B in debt. It trades for only 4.6x cash on the books compared to 9.6x for MSFT and 9x for INTC. There are concerns over the Pure Digital purchase and the announcement to start making servers. But both decisions diversify beyond routers and switches and have the company moving in the direction that corporate computing is headed. Plus, the company wanted Pure Digital's design and marketing talent. Goldman thinks sales will probably trough in the July quarter.

WYNN (30.27): Wynn Resorts downgraded to underperform from perform at Oppenheimer

BRCD (4.61): Brocade upgraded to buy from neutral at Piper Jaffray: Target increased to $6 from $4. Firm believes an expanded OEM announcement with IBM is in the works. FY'09 estimates are maintained, but FY'10 estimates are raised

AKS (9.69): AK Steel upgraded to buy from neutral at Goldman Sachs: Target increased to $12 from $6.50. Firm recommends a pair trade in which AKS is bought and US Steel (X) is sold on iron ore costs

PH (39.13): Parker-Hannifin downgraded to Conviction Sell from neutral at Goldman Sachs: Target is $30

TOL (18.28): WSJ is cautious on Toll Brothers: A 'Heard on the Street' column notes the risks Toll faces with its concentration on the higher end of the housing market. There is the risk that buyers will shun the high end, even after the economy stabilizes. THey have less equity in their houses, which means less money for large down payments for the costlier homes. Plus the idea of homes as good investments has taken a beating. And the recent share sale by CEO Robert Toll does not inspire confidence.

Wednesday, April 8, 2009

What happened to Ben's Green Shoots?

The Fed released the March 17-18 meeting minutes and here is the most important passage: "Participants did not interpret the uptick in housing starts in February as the beginning of a new trend, but some noted that there was only limited scope for housing to fall further. Nonetheless, large inventories of unsold homes relative to sales and the prospect of a continued high level of distressed sales would continue to hold down residential investment in the near term."

Bullish market participants have concluded that the recent data on the housing market suggest THE BOTTOM has been put in. I don't have the slightest clue whether housing has bottomed but remain highly skeptical. Skepticism has been the only way to avoid losing your shirt in this market. At the very least, the Fed minutes may force some of the "housing has bottomed" buyers to second guess their investment thesis.

April 8, 2009: Morning Call

April 8, 2009: Morning Call

Fair Value: SP500 – 812.90; NDX: 1276.08; DOW: 7746.79

Technical Levels:

SPX: 676, 719, 765 support/ 845, 898 resistance


Pre-market EPS: FDO (.60/1.94B); STZ (.22/790.3M)
08:30: Pulte and Centex conference call to discuss merger
09:00: MOS earnings call
09:30: SLB Annual Meeting
10:00: Wholesale Inventories (February): -0.5%
10:30: DOE Crude Oil and Gasoline Inventories
14:00: PBR Shareholders Meeting
14:00: Fed releases Minutes from the March 17-18 FOMC Meeting
16:00: Select US Retailers Release March 2009 Same Store Sales
17:00: SGR earnings call
Post-market EPS: PBY (-.32/466.4M); SMSC (-.44/46.6M); SGR (.61/1.73B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 4 points above fair value. The S&P futures have rallied 7 points since 6am following news that the Treasury department has agreed to assist a number of life insurance companies with TARP funds. Merger news in the housing sector (PHM offers 10.50 for CTX) also helped the futures. Concerns about Q1 earnings and yesterday’s weak TALF auction results remain the primary headwinds in the near-term. European markets were down as much as 2% but have pared the losses to 0.30% as markets have recovered in the last two hours. Basic material and energy stocks are the weakest sectors. Market participants await the BOE interest rate decision tomorrow. Decliners on the FTSE 100 lead advancers 3-2. Irish banks fell as investors digested details of the Irish government rescue plan to remove toxic loans from their books. UK Mar Nationwide Cons Conf 41 vs. con 45. Bank of France Mar Business Sentiment index 73 vs. prior 71. Germany Feb Factory Orders (38.2%) y/y vs con (36.5%). Asian market closed sharply lower with India being the only major Asian market to post gains (Japan down 2.69%, Hong Kong down 3.04%, Australia down 2.34%, Shanghai down 3.8%, South Korea down 3.54%, India up 1.97%). Exporters were hit in Japan as the yen strengthened and trading companies fell on lower oil prices. Profit taking ahead of tomorrow’s start to the earnings season pushed the market down further. Banks led China down on a report that regulators may restrict lending.

Research Calls/Market Moving News:

US of Offer Aid to Life Insurers – WSJ: “The Treasury Department has decided to extend bailout funds to a number of struggling life-insurance companies, helping an industry that is a lynchpin of the U.S. financial system, people familiar with the matter said. The department is expected to announce the expansion of the Troubled Asset Relief Program to aid the ailing industry within the next several days, these people said. The life-insurance companies will have access to Treasury's Capital Purchase Program, which injects funds into banks. How much money would now be available to the insurers, and which particular insurers would be beneficiaries, remains unclear. The Treasury says it has about $130 billion remaining in TARP money.” HIG, LNC, and PRU have confirmed that they have applied to TARP for federal funds.

CTX (7.62): Pulte Homes agreed to buy Centex in a deal valued at 1.3 billion. PHM offers 0.975 shares of PHM for each share of CTX. The deal values CTX shares at 10.50 and represents a 38% premium over Tuesday’s closing price.

TALF Loan Demand fell to 1.7 billion from 4.7 billion last month – Bloomberg: The auction results were down 64% month over month as private investors expressed concern about the scope of potential government intervention and how that could impact TALF deals in the future. TALF investors are also subject to a provision in the stimulus package that makes it more difficult for recipients of federal bailout funds to hire skilled workers from abroad.

GS (116.08); MS (23.32); JPM (27.25); C (2.76): Oppenheimer lowers estimates for MS, JPM, and BAC, increases estimates for GS: The firm continues to believe that investment banking businesses are further through the cycle than commercial banking businesses, and that they will recover first. GS and MS are rated outperform and BAC, C, and JPM are rated perform. Oppenheimer lowers their estimates for MS, JPM, and BAC primarily due to write-downs, charge-offs, and provisions. The firm increases their GS 1Q09 EPS estimates, due to more robust trading and lowers their 2010 estimate for C primarily due to higher loan loss provisions.

Meredith Whitney remains bearish on banking stocks – Bloomberg: Bloomberg cites comments from Whitney in Toronto. She said that investors should avoid financial stocks, adding that banks will be selling a lot of assets and the credit-card industry is contracting as consumers have their credit limits cut. According to Whitney, US home prices are likely to be down 50% from peak levels. She does not expect the economy to reach a trough until the end of 2010 or 2011

BBBY (25.51): Bed Bath & Beyond reports Q4 EPS $0.55 vs Reuters $0.44. Company reports revenues of $1.92B vs Reuters $1.92B. Bed Bath & Beyond says comfortable with Q1 estimates in the range of $0.23-0.24 - conf. Call. Reuters and First Call consensuses are both at $0.23. Management also says that the full year consensus of $1.50 is reasonable. BBBY shares are up over 10% in the pre-market.

MOS (42.94): Mosaic reports Q3 EPS $0.13 including items: Earnings included an inventory valuation write-down of $28.3M, or $0.05 per share. Reuters consensus is $0.23. Company reports revenues of $1.38B vs Reuters $1.67B. Potash sales volumes in Q4 of fiscal 2009 are expected to be roughly comparable with Q3 levels. Phosphate sales volumes in Q4 of fiscal 2009 are expected to be above Q3 levels, but below the prior year level.

PLD (6.82): ProLogis (PLD) to offer 115M shares through Merrill. Citi and Deutsche Bank, expects secondary to have a $0.38 to $0.40/sh dilutive effect. PLD is going to use to the proceeds of the secondary to restructure debt.

WYNN (26.71); MGM (4.45): Citi reiterates sell rating on MGM, WYNN: Firm cites February Las Vegas strip revenue data, which indicated a 14th consecutive month of declines, and trends that indicate f09 levels will be below year ago levels. Firm also cited Feb convention attendance that was significantly lower y/y.

UBS comments on global steel market: Firm sees a severe looming export threat from Russia and its neighbors given the devaluation of the ruble, the fall in domestic demand, and that the region is among the lowest cost producers and is running at ~65% capacity utilization. UBS believes the worst-case scenario of a global market share battle is emerging. Firm maintains a cautious view on the sector. Top global picks are NLMK (NLMK.RU), China Steel (2002.TT), Steel Dynamics (STLD), SAIL, and Gerdau (GGB).

Politics hindering global accounting reconciliation – WSJ: In a "Heard on the Street" column, the Journal notes that calls out of the recent G20 meeting in London for a global set of accounting standards have already been dampened by FASB's recent decision to succumb to political pressure in the US. According to the article, FASB's move to water down its definition of an asset "other than temporarily impaired" - a designation that requires a bank to mark certain losses through income and not just shareholders' equity- gives US banks significantly more discretion than is allowed under IASB rules. The column goes on to argue that accounting rules on both sides of the Atlantic should be overhauled, simplified and reconciled.

STT (32.38): State Street downgraded to neutral from buy at Bank of America Merrill Lynch

BBBY (25.51): Bed Bath & Beyond upgraded to neutral from underweight at JPMorgan: Target is $28.

COP (39.69): ConocoPhillips downgraded to neutral from buy at UBS: Target is lowered to $42 from $56. Firm notes a lower crude price forecast and a below peer average growth outlook. Estimates are lowered.

Tuesday, April 7, 2009

April 7, 2009: Morning Call

April 7, 2009: Morning Call

Fair Value: SP500 – 833.15; NDX: 1313.91; DOW: 7937.02

Technical Levels:

SPX: 676, 719, 765 support/ 845, 898 resistance


05:00 Euro-zone GDP (Q4 Final): -1.5% QoQ; -1.3% YoY (actual weaker: -1.6% QoQ; -1.5% YoY)
15:00: Consumer Credit (February): -3.0B
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: AA (-.45/3.99B); BBBY (.44/1.92B); MOS (.55/1.56B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 15 points below fair value while the NASDAQ futures are trading 18 points below fair value at 7:30am ET. European markets are down 1.0% to 1.5% reversing early gains following weaker economic data and general concerns about Q1 earnings. Banks, basic materials, and technology stocks are the weakest sectors. Consumer staples and health care are the strongest. Bloomberg is reporting that Rio Tinto Alcan (RIO.LN; RTP US) is going to slow construction of Yarwun alumina refinery expansion and cut bauxite production at Weipa mine. There are also reports that Rio is offering a 20% price cut on iron ore price to Asian steelmakers as annual talks stall. Euro-zone GDP came in a little weaker than expected. Asian markets closed lower (Japan down 0.28%, Hong Kong down 0.46%, Australia down 1.34%, South Korea down 0.30%, Shanghai up 0.25%). Banks and property shares declined, the latter on news that residential property sales dropped (5%) w/w in Shanghai. Japan’s market was quiet as the market awaits details of the $100B stimulus package to be announced Friday.

Research Calls/Market Moving News:

IMF to warn toxic debts could reach as high as high as $4 trillion - London Times: The Times reports that new forecasts from the IMF suggest that toxic debts incurred by banks and insurers could reach as high as $4 trillion. Recall that the IMF said back in January that it expected writedowns to hit $2.2 trillion by the end of next year. However, the paper notes that the agency is understood to be considering raising that figure to $3.1 trillion in its next assessment of the global economy, which will be published on 21-Apr. In addition, it is likely to boost that total by $900B to account for toxic assets originated in Europe and Asia. Banks and insurers have recorded nearly $1.3 trillion in writedowns thus far.

Rally in investment banks may have run its course - WSJ: In a "Heard on the Street" column, the Journal notes that it remains unclear whether banks will be able to earn returns above their cost of equity, which is now about 13%, while book value may fall further. The paper adds that while margins are expanding, that impact is likely to be partially offset by deleveraging. The article also points out that banks face significant regulatory risk as new capital and liquidity requirements take effect.

WSJ discusses recent developments in the REIT space: In a "Heard on the Street" column, the Journal notes that some semblance of hope seems to have returned to the REIT space, as evidenced by the ability of companies such as Kimco (KIM), Simon Property Group (SPG) and AMB Property (AMB) to raise money via equity offerings. While the offerings were priced at significant discounts to NAV, the article points out that all three of the stocks have rallied in the wake of the deals. The Journal also reports that Cohen & Steers, an influential REIT investor that bought significant positions in all three of the recent offerings, is willing to provide additional equity to 10 to 20 other leading real-estate companies that will be able to ride out the downturn. The article goes on to note that the companies that do survive will likely make attractive takeover targets for both strategic and financial buyers.

GOOG (368.24): Google estimates reduced at RBC: The firm has reduced its Q1 net revenue growth estimate to (4.3%) with EPS reduced to $4.73 from $4.84 vs. Reuters $4.97. Full year growth is reduced to 5.3% vs. prior 6.5%. Shares of GOOG remain.

GM (2.27): GM speeding up bankruptcy plans – Bloomberg: Bloomberg cites people familiar with the matter who say that GM is speeding up preparations for a possible bankruptcy filing even as its directors seek deeper savings in an effort to avoid such an outcome. According to the article, the company's preparations include looking at a 363 sale, which relates to a section of the Chapter 11 bankruptcy code that would create a new car company from the best assets and brands of GM. Recall that new GM CEO Fritz Anderson has said that bankruptcy is more probable given the resistance for concessions from bondholders and the UAW.

ADBE (23.19); MSFT (18.76); CRM (36.48): RBC Capital upgrades ADBE, MSFT, and CRM to outperform. ADBE target to 30 from 23. CRM target to 45 from 37. MSFT target to 27 from 20.

Monday, April 6, 2009

April 6, 2009: Morning Call

April 6, 2009: Morning Call

Fair Value: SP500 – 839.76; NDX: 1317.17; DOW: 7973.08

Technical Levels:

SPX: 676, 719, 765 support/ 845, 898 resistance


04:30: Euro-zone Sentix Investor Confidence (stronger: -35.3 vs. –40.7)
05:00: Euro-zone PPI (Feb): -0.50% MoM; -1.5% YoY
05:00: Euro-zone Retail Sales (Feb): -0.30% MoM; -2.5% YoY (weaker: -0.6% MoM; -4.0% YoY)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 6 points below fair value at 7:45 am ET. The futures have pulled back after Mike Mayo throws cold water on the recent rally in the bank stocks. European markets are up 0.50% well off the highs of the session. Technology and basic material stocks are the leading sectors in Europe. Asian markets closed higher despite North Korea’s launch of a long-range rocket yesterday (Japan up 1.24%, Hong Kong up 3.11%, Australia up 0.56%, India up 1.8%). Exporters gained in Japan as dollar/yen moved through 100. Carmakers extended their rally on a report the country is considering green-car subsidies.

Research Calls/Market Moving News:

CLSA's Mike Mayo bearish on banking industry: The former Deutsche analyst has initiated coverage on 11 traditional banks (not including brokers MS and GS), with either underperform or sell ratings. Mayo is not buying the recent rally and says the recent 'fixes' in the banking industry are window dressing. The sector is rated underweight. Mayo says new government actions might not help as much as expected and loan losses will be greater than those levels from the Great Depression. “While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class. New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”

AAPL (115.99): Apple estimates raised at Barclays Capital: Firm believes new products including new iPhones in June and an ultraportable later this year should boost shares. Q2'09 and FY'09 estimates are raised. Shares remain a top pick. Rating is overweight with a target of $143.

IBM (102.22): IBM downgraded to hold from buy at Canaccord Adams: Target remains $110. Firm cites valuation.

CSCO (18.16): Cisco Systems downgraded to neutral from Conviction Buy at Goldman Sachs: Target remains $18. The firm cites valuation

JAVA (8.49): Sun Microsystem shares are down 25% on news that the takeover talks with IBM have collapsed.

RIMM (59.29); AAPL (115.99): Barron's Technology Trader is positive on RIM and Apple: Research in Motion (RIMM) is showing considerable success during these troubled times because of several factors. The recent push into the consumer market has met with considerable success. And the announcement of a rebound in margins means Street concerns over the expense of moving into the consumer market may be unfounded. There may be a case for owning both RIMM and Apple (AAPL). RIMM isn't expansive even after the recent rally. And the strong RIMM results means that smartphone demand is flourishing, which is good for Apple. Apple may also get a boost from weaker material prices, including weak memory chip prices. The BlackBerry App World is a step in the right direction but still has far to go.

Cowen reduces estimates for the Solar group, says ASPs still falling: The firm reduces estimates across the group and says Street estimate reductions for Q1 could put some pressure on shares though they don't believe this will be much of a surprise. Shares best positioned for US stimulus and utility projects are FSLR, SPWRA, and ENER.

Secretary Geithner says government may remove top bank executives or board members if needed reports the WSJ: Speaking on 'Face the Nation', Secretary Geithner said the federal government might remove top bank executives or board members if exceptional assistance is required to keep the banks operating in the future. He said future money would come with conditions attached to make sure banks undertake the kind of restructuring necessary for them to emerge stronger. If that means a management change, the government will force that. Geithner pointed to the treatment of executives at Fannie, Freddie and AIG.

Friday, April 3, 2009

April 3, 2009: Morning Call

April 3, 2009: Morning Call

Fair Value: SP500 – 831.61; NDX: 1295.08; DOW: 7933.80

Technical Levels:

SPX: 676, 719, 765 support/ 845, 898 resistance


04:00: Euro-zone PMI Services (Mar. Final): 40.1; Composite: 37.6 (actual: Services – 40.9; Composite: 38.3)
08:30: US Change in Payrolls (March): -660,000; Unemployment Rate: 8.5%
08:30: Change in Manufacturing Payrolls (March): -162,000
08:30: Average Hourly Earnings (March): 0.2% MoM; 3.5% YoY
09:10: Fed’s Kohn speaks on the economic crisis
10:00: ISM Non-Manufacturing Index (March): 42.0
12:00: Fed Chief Bernanke speaks at Credit markets conference

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 6 points above fair value while the NASDAQ futures are trading 13 points above fair value at 8am ET. Technology stocks continue to outperform following a substantial upside earnings surprise from RIMM. Technology stocks have been benefitting all year due to their simple business models, high levels of cash, and low levels of debt. Performance anxiety appears to be playing a critical role in the recent gains as market participants that have missed the rally off the lows are likely chasing higher-beta technology stocks in an attempt to “catch up” with their benchmarks. European markets are flat to modestly higher ahead of the US labor report. Autos, chemicals, and basic materials are outperforming in Europe. Asian markets closed higher (Japan up 0.35%, Hong Kong up 0.16%, Australia up 1.5%, India closed). Banking shares gained on the US decision to allow more flexibility in valuing toxic assets. Australia advanced on (non-gold) miners and financial shares. Japanese exporters were boosted when the US dollar eclipsed the 100-yen mark. Toyota Motor (7203.JP) jumped 7% after it got loans to finance US car sales.

Research Calls/Market Moving News:

RIMM (49.09): Research In Motion reports Q4 EPS $0.90 vs Reuters $0.84: Company reports revenues of $3.46B vs Reuters $3.40B. Research In Motion guides Q1 EPS to $0.88-$0.97 vs. Reuters $0.81. Guides Q1 revenues to range $3.30-$3.50B vs. Reuters $3.35B. Net sub adds totaled 3.90M vs consensus of 3.48M and 11-Feb guidance for 20% higher than 2.9M (or 3.48M). Gross margin reported 40.0% vs SA 40.2% and 11-Feb guidance for the low end of 40-41%. Q1 guidance assumes: Net sub adds 3.7-3.9M vs SA 3.02M. Gross margin 43-44% vs SA 40.4%. RIMM shares are surging 25% and have been upgraded by at least 5 brokerage firms.

RIMM (49.09): Thomas Weisel Reiterates their buy rating and raises the price target to 74. The note out provides good insight into the bull case on RIMM: “We reiterate our Overweight rating on RIMM shares following strong results and guidance this evening. Going into the report, we were admittedly concerned with RIMM's ability to improve gross margin - something we have heard for a few quarters now - and to sustain a solid growth rate amid increased competition and weak enterprise and consumer spending. On the growth front, the guidance of 3.7mn-3.9mn net subscriber adds in the May quarter is a sign that RIMM continues to gain traction with consumers while defending its dominance in the enterprise space. More important, the GM guidance (43%-44%, up from 40% last quarter) demonstrates RIMM's ability to bring down supply costs as its platforms mature - despite a declining ASP due to mix. Looking ahead, GM will still be key metric, and we are conservatively modeling a modest decline in F2H10 as RIMM launches new products. But we also believe the company will have a steady flow of new products and carrier partnerships over the next few quarters to continue driving top and bottom line growth (the expected launch of the "Niagara" with Verizon being a prime example). We are increasing our estimates and raising our 12-month price target to $74 from $52.”

RIMM (49.09): Deutsche Bank upgrades the shares to hold from sell. Deutsche Bank raises the price target to 56 from 30. Even though Deutsche Bank upgraded the stock, the note provides insight into the bear case on RIMM. “We upgrade to Hold due to better near-term GM guidance. Sustainability of execution and increasing competition remain our concerns. Raising PT from $30 to $56.Post-holiday demand momentum and margin stabilization mark the quarter: Among the quarter's highlights were better than anticipated demand momentum for their smartphones, on the back of new phone launches and aggressive carrier promotions, worldwide, and improvements in cost-controls. Near-term, due to COGS reductions and mix, management expects RIM's GM's to improve 3-4% sequentially. We note that the entirety of our upward revision in earnings is due to the increase in our GM assumption from 40% to 43% for FY10. Competitive and execution concerns remain; basis for Hold rating : While RIM seems to be benefiting from the initial inventory builds for their new devices, we do not think they are well-positioned strategically. The company remains increasingly exposed to consumer demand, and also over-weight to North America (+70% of sales). Further, it will become increasingly hard for them to stand out from the competition with multiple new competing smart phones launching this year, including models targeting mid-range price points. To keep consumers upgrading they have to stay on the treadmill indefinitely, and that may prove beyond RIM's abilities. We see these issues creating margin pressure over time. We see these issues creating margin pressure over time. For now, we go to the sidelines and upgrade to Hold.”

RIMM (49.09): Piper Jaffray reiterates their neutral rating and raises the price target to 62 from 48. “Gross Margin Recovery Surprise: We believe the fall in gross margin during the February quarter was primarily driven by the quicker than anticipated adoption of newly launched lower margin products such as the Bold and Storm, as we believe Storm gross margins are in the high 20s. However, RIM has improved the yields and cost structure of these devices faster than we anticipated, and we also expect a more favorable mix shift during the May quarter. With the 2 for 1 promotion coming to an end at Verizon, this should lead in a lower mix of the lower margin Storm products. • Longer-Term Concerns: Longer term, we believe RIM's increasing mix of consumer products due in part to slowing enterprise sales will result in longer-term margin pressure. Further, we believe RIM will face increased competition from compelling products such as the Palm Pre (June launch), Nokia's E71 ($99 at AT&T), a potentially lower priced iPhone, and other devices in 2H09. Based on the resulting price competition combined with RIM's ongoing investment and increasing operating expense structure, we anticipate RIM's operating margins will likely decline longer term.”

DVN (48.40): Devon Energy upgraded to outperform from market perform at Friedman Billings Ramsey: Target is $60.

AMZN (76.34): estimates and target raised at JPMorgan: The firm sees room for additional market share gains internationally and has raised their Q1 international revenue estimate to $2.35B from $2.29B. Trends domestically remain positive with modest margin improvement. JPM raises Q1 revenue to $4.8B from $4.7B vs. Reuters $4.75B. F09 revenue and EPS estimates are raised to $22.7B and $1.37 from $22.5B and $1.32 vs. Reuters $21.97B and $1.47.

MON (81.41): Monsanto downgraded to neutral from overweight at JPMorgan: The firm sees shares as reasonably valued at current levels.

HPQ (33.69): Hewlett-Packard mentioned positively at UBS: Firm's checks confirm a report that the Navy plans to award an IT services deal to EDS, which would be for a transition period that could last several years. UBS sees the deal as incrementally positive for shares. Firm maintains buy rating. Target is $40.

AXP (14.98); MS (23.11): Goldman Sachs removes AXP from Conviction Sell List; removes MS from Conviction Buy List: American Express (AXP) rating remains sell; target remains $7.50. Morgan Stanley (MS) rating remains buy; target remains $27. The firm also reduces estimates for MS for Q1 and 2009 to $0.22 and $1.60, respectively, from $0.40 and $1.80. Reuters is $0.04 and $2.05, respectively. First Call is $0.21 and $1.95.

DIS (20.21): Walt Disney downgraded to neutral from overweight at JPMorgan: The firm sees limited upside from current levels. F09 estimates are reduced. Target is $21

Banks considering buying toxic assets to be sold by rivals – FT: The FT reports that US institutions that have received government aid, including Citi, Goldman, Morgan Stanley and JPMorgan, are considering buying toxic assets to be sold by rivals under the Treasury's financial rescue plan. The article notes that such moves could draw considerable scrutiny given that the goal of the PPIP is to help banks sell, rather than acquire, distressed assets. However, Wall Street executives argue that banks' asset purchases would help achieve the second goal of the plan, which is to establish prices and reinvigorate the market for illiquid assets. Recall that FDIC chairman Sheila Bair said late last month that she would be open to banks profiting from the disposal of problem loans.