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

Events:

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.