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.

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