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.

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