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.

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