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%.

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