Monday, April 27, 2009

April 27, 2009: Morning Call

April 27, 2009: Morning Call

Fair Value: SP500 – 863.76; NDX: 1373.31; DOW: 8039.30

Technical Levels:

SPX: 676, 719, 765, 788 support/869, 898 resistance


Pre-market EPS: CHKP (.43/199.9M); GLW (.06/968.1M); HUM (1.14/7.67B); IMA (.57/453.1M); SII (.58/2.45B); SOHU (.99/113.1M); VZ (.59/26.2B); WHR (-.06/3.94B);
04:30: Bank of England to release quarterly Asset Purchase Facility (APF) report
06:45: ECB’s Trichet speaks on “Strategic Trends in Global Finance”
08:30: VZ earnings call
10:00: AXP Annual Meeting
10:30: Dallas Fed Manufacturing Activity
Post-market EPS: BIDU (.84/115.8M); DVA (.91/1.45B); FNF (.14/1.44B); JEC (.89/3.14B); MTW (.13/1.05B); PCL (.94/506.4M); QCOM (.41/2.35B); SWN (.31/407.0M); XL (.64/1.78B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 11 points below fair value while the NASDAQ futures are trading 18 points below fair value after Larry Summers said the US economy will continue to “shrink for some time” and swine flu was declared a public health emergency on Sunday. European markets are trading down 1.4% with travel related sectors leading the decline on concerns about a potential swine flu pandemic. Financial and material sectors are down 2.0%-2.5%. Asian markets closed mostly lower (Hong Kong down 2.8%, Japan up 0.21%, Australia up 0.52%, Shanghai down 2.3%, India up 0.40%). Tourism and airline stocks tumbled while pharmaceutical and healthcare-related stocks outperformed.

Research Calls/Market Moving News:

AAPL (123.90); VZ (31.00): Apple (AAPL), Verizon (VZ) discuss iPhone deal - USA Today: People familiar with the situation say the companies are in "high-level" discussions about possibly developing an iPhone for a CDMA wireless network, as opposed to AT&T (T)'s GSM network. The goal would be to introduce the new model next year. The specifics on AT&T's exclusive US distribution rights to the iPhone through 2010 are not known.

VZ (31.00): Verizon reports Q1 adjusted EPS $0.63 ex-items vs Reuters $0.59: Company reports revenues of $26.59B vs Reuters $26.37B.

Fed officials are pushing several banks to bolster capital reserves - WSJ, citing people familiar with the matter: Three people familiar with the matter say at least three banks out of the nineteen subjected to the stress tests were told to raise reserves

WFC (21.40): Wells Fargo downgraded to hold from buy at Rochdale Research: Target remains $25. Analyst Dick Bove believes the balance sheet may be over extended and that credit income may decline over the next few quarters

QCOM (41.36): Qualcomm reports Q2 EPS ($0.03) ex-items: QCOM reported an effective tax rate of 131% for Q2, primarily due to the impact of the discrete tax benefit related to the litigation settlement charge associated with the settlement and patent agreement with Broadcom at a rate less than the United States. Unclear if comparable to Reuters $0.40. Company reports revenues of $2.46B vs Reuters $2.35B. federal rate. Q3 guidance: Guides Q3 revenues to $2.40-$2.60B vs Reuters $2.36B.

Pakistan Intelligence believes bin Laden is dead: Bloomberg: “Pakistan’s President Zardari said his country’s intelligence agencies believe al-Qaeda leader Osama bin Laden is dead. Zardari told members of the foreign media that the agencies acknowledged they do not have evidence of bin Laden’s death.”

BIDU (217.34): Piper Jaffray’s Gene Munster previews BIDU’s earnings tonight:Conclusion. While BIDU has traded up significantly in the past few weeks, we expect investor confidence in the story will increase following March quarter results, which should move shares higher. While it's difficult to predict the stock action the day after Baidu reports, we believe shares will move higher into the summer. 3-4% Upside In Revenue. We believe Baidu will report March quarter revenue of $118m, above Street's estimate of $115M. Baidu's business in the first six weeks of March quarter was slow, but business improved significantly in the back half of the quarter. Keep in mind, Baidu gave muted Q1 guidance on February 18th, which was three weeks after the Chinese New Year (January 26th). However, business appears to have turned positive in early March, which increases our confidence in slight upside to the March quarter. Margin Likely To Be Historically Low. We expect Baidu to report in line earnings with Street estimate of $0.75 EPS. During the week of the Chinese New Year, Baidu spent a reported $40 RMB million (~$5.7m USD) to advertise with CCTV's New Year Gala. This marketing spend appears to have been effective as both traffic growth and customer spending improved post Chinese New Year. Because of the $40M RMB incremental marketing spend, we expect Baidu's operating margin to be 22%, lower than 34% in Q408 and 26% in Q108. We do not see margins as critical to the Baidu story, rather top line revenue growth is the focus. June Guidance. We believe the Street's June quarter estimate of $145M in revenue is achievable. This represents a 23% sequential growth in June (assuming our $118m in March is accurate), which compares to a 43% sequential growth in June quarter in CY08.”

NY Times profiles Treasury Secretary Geithner: Says the government has in many ways endorsed an idea that seemed way out there when proposed by Geithner as head of the NY Fed in June, that the government should guarantee all of the debt in the banking system. An alphabet soup of programs has gradually brought the government to an unprecedented level of involvement in the banking system. Reviews his time at the head of the NY Fed, when he "forged unusually close relationships with executives of Wall Street’s giant financial institutions." Interviews say his actions as bailout chief often aligned with the interests and desires of Wall Street. Critical of his time at the Fed for missing the signs of the coming problems at the banks under his supervision. Joseph E. Stiglitz at Columbia says the actions show Geithner shares Wall Street's philosophy and world view. Chairman Bernanke says Mr. Geithner''s relationships and contacts have been invaluable during the crisis.

STT (37.18): State Street downgraded to equal-weight from overweight at Morgan Stanley: Target raised to $36 from $26. Downgraded based on valuation

Barron's summary
Cover: The Spring 2009 Big Money Poll. Favorite Stocks: GE, AAPL, BRK.A, CHK, L, MON, WFC. Most overvalued Stocks: AMZN, GOOG, NFLX, AIG, AAPL, C, WMT, BAC, XOM, PG, CRM. Interview: Jason DeSena Trennert, chief investment strategist at Strategas Research Partners likes SLB, GLD, LAZ and MO. Lead Articles: General Mills (GIS) isn't getting credit for its expansion, stock could rise 25-35%; Presidential history suggests the current bear market will end this year or next as new presidents work to make sure the economy is revived when the next election comes around; Discussion of stock fraud charges against Mark Tompkins and others and their link to GTE; Suncor Energy (SU) is a smart bet on rebounding energy prices, stock could go to the mid to high $30s; Editorial suggests that politicians should let the markets figure out green initiatives rather than trying to mandate them. Columns: The Trader is cautious on Bank of America (BAC), mixed to long-term positive on Amazon (AMZN); Asia Trader says Toyota Motor (TM) is overheated after its rapid rise; Euro Trader is positive on Fortis (FORB.BB) on the upcoming deal with BNP Paribas (BNP.FP); Commodities Corner comments on the recent rise in commodity prices; Current Yield notes the 10 year's return to a 3% yield for its return to the year high and the reversal of the drop after the 17-March announcement from the Fed; The Striking Price says that the options, credit and commodities markets all point to energy stocks being the next to rally, moves seem most bullish for HES, MUR, XTO and SUN; Follow Up says Oracle's (ORCL) deal is a sign of mergers ahead; Up and Down Wall Street wonders why there is so much insider selling into this rally if things are really better; Streetwise says the conclusion that things are due for a retrenchment still remains, suggests buying Ford (F) on any pullbacks; D.C. Current says it will be almost impossible to tell when credit starts flowing again because of the trouble in measuring the shadow financing activity; Technology Trader is positive on Apple (AAPL) but says the margin warnings may be true this time, cautious near term on types like CSCO, ORCL, HPQ and DELL, still cautious on solar; Plugged In notes the selling by the CEO of NTAP, he has sold more than 10% of his holdings in the company.

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