Thursday, May 28, 2009

May 28, 2009: Morning Call

May 28, 2009: Morning Call

Fair Value: SP500 – 892.23; NDX: 1402.19; DOW: 8289.98

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance

Pre-market EPS: BIG (.40/1.13B); COST (.54/16.23B); HNZ (.54/2.54B); SHLD (-.88/10.1B); TD (1.13/4.4B)
08:00: APC presents at Deutsche Bank Energy Conference
08:30: S Durable Goods Orders (April): 0.5%; Ex-Transports: -0.3%
08:30: Initial Jobless Claims (w/e May 23): 628,000; Cont. Claims: 6.745 million
09:00: ALL presents at Sanford Bernstein Conference
09:00: HPQ presents at Sanford Bernstein Conference
10:00: T presents at Sanford Bernstein Conference
10:00: US New Home Sales (April): 360,000; 1.1% MoM
10:30: DOE Crude Oil (-150,000) and Gasoline Inventories (-1.3M)
11:00: COST earnings call
13:00: Treasury to auction 26 billion in 7-year notes
14:00: APC presents at Sanford Bernstein Conference
14:00: TGT Annual Meeting
15:00: MRO presents at Sanford Bernstein Conference
15:00: COF presents at Sanford Bernstein Conference
15:40: MSFT presents at Sanford Bernstein Conference
16:30: NVLS Q2 2009 Guidance Call
17:00: DELL earnings call
Post-market EPS: DELL (.24/12.83B); ESL (.96/372.1M); MRVL (.04/512.5M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading flat with fair value at 8am ET. Asian markets closed mixed with markets in Hong Kong, China, and Taiwan closed for a holiday (Japan up 0.20%, South Korea up 2.7%, Australia down 1.2%, India up 1.3%). Australian stocks were down the most with miners leading the way down following the sell-off on Wall Street. Shipping companies were among the best performers after the Baltic Dry Index rose over 7%. Technology stocks in Korea traded higher, helped by LG Electronics (066570.KS), on analyst comments that handset shipments are estimated to be strong, and its household appliances unit is also doing well. European markets are down 1.0% due to weakness in bond prices amid concerns about the magnitude of future debt issuance. In Europe defensives telecoms (SXKP) and healthcare (SXDP) were the most resilient sectors while cyclical industrial goods (SXNP) and construction (SX0P) led markets lower along with financial services (SX7P). Oil and gas (SXEP) was also resilient as the crude price (CL1) held above $63 ahead of today’s OPEC meeting

Research Calls/Market Moving News:

CAT (35.05); ETN (44.01): ITW (32.41); PH (43.40): UBS downgrades CAT, ETN, ITW, others: Illinois Tool (ITW) downgraded to neutral from buy; target remains $34. Caterpillar (CAT) downgraded to sell from neutral; target remains $30. Eaton (ETN) downgraded to sell from neutral; target remains $42. Parker-Hannifin (PH) downgraded to sell from neutral; target remains $39. (Note: the UBS analyst, Henry Kirn, has made a number of excellent money making calls so this downgrade could have a high impact on the downgraded stocks.)

COST (48.83): Costco reports Q3 EPS $0.48 vs Reuters $0.53: Company reports revenues of $15.81B vs Reuters $16.13B. US comps were (5%); international comps (12%). US comps (excluding the impact from gasoline deflation) were 0%; international (excluding the effects of foreign exchange) +8%. Q3 results were negatively impacted by several factors, including: a pretax charge of $34M (mostly non-cash) related to a litigation settlement concerning membership renewal policy; higher employee benefits costs, lower international profits; and lastly, ongoing weakness in sales, particularly sales of higher-ticket, discretionary items.

Fed to limit how much banks can use future revenue projections to fill capital holes – WSJ: Citing sources, the WSJ reports that the Fed began notifying banks last week that projected revenue can be used for no more than 5% of the additional equity being demanded from the 10 banks previously required to raise capital. The WSJ notes that the move is not causing a desperate scramble as the stock market rally and renewed investor interest is helping them address their capital needs by selling shares or converting preferred stock to common.

Legacy Loans Program may be put on hold – WSJ: Citing people familiar with the matter, the Journal reports that the Legacy Loans program may soon be put on hold. Recall that the program is part of the $1T Public Private Investment Program (PPIP) the Obama administration announced in March as a way to encourage banks to get rid of the toxic assets clogging up their balance sheets. Under Legacy Loans Program, the Treasury was expected to provide half the capital used to purchase a pool of loans from banks, with private investors putting up the rest. The FDIC would then guarantee financing, up to a maximum of 6x the capital provided. According to the Journal, prospective buyers and sellers have expressed concern to the FDIC about participating in the program given the potential political backlash. In addition, some banks that might have sold troubled loans into the program earlier this year have become less willing with the recent signs of stability in the market. The article notes that the Treasury is still expected to push forward with its part of the plan - which focuses on securities - though while purchases could begin this summer, the size of the program could be smaller than initially anticipated.

XOM (68.30): Exxon Mobil CEO Rex Tillerson says it is "too early to call" whether the economy has turned a corner – WSJ: The Journal cites comments from Tillerson to reporters after the Exxon annual shareholder meeting. Tillerson also said that the fundamentals of the oil market have not changed much since the beginning of the year, adding that there has been no significant change in demand and there is still a significant overhang of oil inventories. According to Tillerson, foreign-exchange volatility and market momentum have been the more influential drivers of the recent increase in oil prices

TEX (15.39): Terex seeking $600M in new financing through Credit Suisse, UBS, and Citi: The company intends to offer $300M in senior notes, $150M in senior subordinated convertible notes and 11M shares of Terex common stock.

X (31.78): U.S. Steel reiterated sell at UBS: Firm sees US Steel lagging when market conditions improve due to sheet and pipe capacity additions. UBS adds that projects may be delayed or possibly cancelled, and mills will still be reluctant to cut capacity. Firm estimates average industry utilization in '09/'10 will be below US Steel's breakeven. Rating is sell with a target of $16.

DVN (60.29): Devon Energy downgraded to hold from buy at Argus Research: Firm cites valuation.

Tuesday, May 26, 2009

May 26, 2009: Morning Call

May 26, 2009: Morning Call

Fair Value: SP500 – 885.92; NDX: 1363.10; DOW: 8267.86

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance


Pre-market EPS: BMO (.86/2.67B); CSIQ (-.26/53.8M)
09:00: S&P/CaseShiller Home Price Index (March): -18.4%
10:00: US Consumer Confidence (May): 42.6
10:00: Richmond Fed Manufacturing Index (May): -6
10:30: Dallas Fed Manufacturing Index (May): -22.1%
11:30: Treasury Auctions 31 billion in 3-Month and 31 billion in 6-Month Bills
13:00: Treasury Auctions 40 billion in 2-Year Notes
17:00: ABC Consumer Confidence
Post-market EPS: BGP (-.50/637.3M); DCI (.31/440.9M); TTWO (-.14/214.8M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points below fair value while the NASDAQ futures are trading 15 points below fair value. Global markets are under pressure after North Korea conducted an underground nuclear test and fired two short-range missiles overnight. Asian markets closed lower with South Korea down 2% following the North Korea’s nuclear test (Japan down 0.40%, Hong Kong down 0.76%, Australia up 1.35%, Shanghai down 1.2%, South Korea down 2.08%, India down 2.3%). The Australian Securities & Investments Commission lifted a ban on covered short-selling of financial stocks Monday, ahead of a previously scheduled expiration on 31-May. South Korean authorities also recently said their ban on shorting non-financial stocks would be lifted on 1-June, although the ban on short-selling financials will still be in place. In Taiwan, PC brands Acer (2353.TT) and Asustek (2357.TT) climbed after the companies were included in a Chinese stimulus package that allows them to sell computers in China. European markets are down 1.0% to 1.5% with Material, Banks, and Insurance sectors among the weakest. Retail and Telecom sectors are outperforming.

Research Calls/Market Moving News:

FSLR (191.72): Friedman Billings downgrades FSLR to underperform due to inexpensive poly prices relative to solar wafers. FSLR shares are trading down nearly 9 dollars in the pre-market and are the leading point decliner in early trading. “We are lowering our estimates and are downgrading FSLR from Market Perform to Underperform. Recent checks suggest that with poly currently priced at $65/kg in the spot market (and accordingly, solar wafers are priced at $3.5 and below/piece, resulting in si-based modules as low as US$2.10/watt), some customers in Germany are already considering switching from FSLR’s to si-based. We believe we have learned of one top customer of FSLR that has already switched to a si-based module vendor for one of its projects currently under construction. Additionally, our meeting with KfW yesterday indicated that although 80%-plus of projects in CY08 were based on FSLR’s TF modules, the current mix of the backlog at KfW is only 55% FSLR's TF and 45% si-based. We therefore find increased risk to ASP assumptions, a possible shortfall to shipment assumptions, and increased possibilities that FSLR could take ownership of more projects as a means to drive demand (which consequently could complicate revenue recognition like the already announced 50MW projects in Germany). Thus, as much as we wanted to become more constructive by now, realities in the field, combined with inflated expectations/consensus estimates, have led us to change our rating again and become incrementally more “bearish” on the name. Despite the company's CY09 revenue guidance of $1.9B to $2.0B, we are lowering our revenue/EPS from $1,900M/$6.31 to $1,851M/$6.11. Our CY10 estimates have also changed from $2,029M/$5.08 to $2,002M/$5.04. Our price target of $110.00 remains unchanged, which is based on 5x EV/sales and 12x EV/EBITDA. Such multiples compare to the current peer group (SPWRA, STP, TSL, YGE) average of 1.5x EV/sales and 8x EV/EBITDA.”

FSLR (191.72): Barron's Follow Up says First Solar (FSLR) could see pressure this week: The Intersolar Trade Show is this week in Munich. Contracts will be negotiated and some have said they will stop using First Solar's thin film panels if the falling cost of refined silicon keeps bringing down the price of rivals' products. FSLR could see its shares fall by 50% as a result. The estate of John T. Walton, who bankrolled the company, has been a big seller during the run up in the share price, selling about 10% of its holdings

AAPL (122.50): Apple upgraded to overweight from equal-weight at Morgan Stanley: Target increased to $180 from $105. The firm expects to see upside to earnings fueled by the iPhone.

RIMM (72.03): BMO capital raises estimates based on higher device unit shipments and lower operating expenses. Price target is increased to 82 from 72. “We believe the May quarter is tracking well with upside tension to our 7.8 million device shipment. Moreover, we are raising our FY2010 and FY2011 device unit shipment forecasts, as we believe our assumptions were too conservative. We have assumed ~250 basis points (bp) gross margin (GM) decline over the next few quarters to account for mix and potential pricing pressure, including Apple. Our target price increases to $82 from $72 based on our estimate change and a higher earnings multiple. We are raising our target multiple range to 18x- 20x from 16x-17x, reflecting both higher growth rates and greater conviction in our estimates.”

PBR (40.58): Petrobras added to Conviction Buy List at Goldman Sachs

CSIQ (10.01): Canadian Solar reports Q1 EPS ($0.10) vs Reuters ($0.25): First Call ($0.26). Company reports revenues of $49.5M vs Reuters $54.1M. Shipments for Q1 were appx 18M; adjusted gross margin 16.54% Q2 shipments guided to be significantly higher than Q1. F09 shipments guided to range 200-220 MW, below prior guidance of 300-350 MW, with previously issued net revenue outlook adjusted accordingly. CSIQ says recent inventory clearance efforts by some of its competitors have resulted in declining module ASPs, which may cause delays in project purchase decisions by customers, and that these issues may ultimately lead to some order reductions or push-outs into 2010.

ANR (25.85); PCX (8.82): Morgan Stanley downgrades ANR, PCX: Alpha Natural Resources (ANR) downgraded to equal-weight from overweight; target is $30. Patriot Coal (PCX) downgraded to underweight from equal-weight.

BAC (11.07): BAC upgraded to market perform from underperform at Friedman Billings Ramsey: "We are upgrading Bank of America to Market Perform (from Underperform) given that the first half of its capital plan has been successfully completed and its shares trade below our $12 price target. We see less risk of near-term dilution given the new capital and apparent strong demand for BAC's new shares. We remain very cautious on the company longer term, given rapidly rising credit losses, which totaled $6.9 billion in 1Q09 ($9.1 billion on a managed basis). If losses continue to grow at a 25% sequential pace, they could exceed the company's "core" pre-provision, pretax earnings power within a few quarters. Further, we expect that asset sales, dilution, higher regulation (including FDIC insurance assessments and new credit card regulations) will all reduce BAC's "normalized" earnings power. We reiterate our $12 price target, equal to 1.1x 1Q09 tangible book value. The recent capital raise and CCB sale are neutral to tangible book, but further asset sales and/or earnings above PPNR may be slightly

TGT (40.74): Barron's says Bill Ackman's Target campaign is off-target; Mr. Ackman responds: The belief is that Target will be able to fend off Ackman because of the company's strong standing in the investor community and Ackman's limited stake. The company calls the plan to separate the real estate holdings risky and speculative. Barron's says his plan could be one of the worst conceived efforts by an activist investor in recent years. One analyst called the company the best alternative out there to shopping at Walmart. Positive mentions of the earnings and revenue growth and bulls say the shares could hit $50 next year. Ackman is seeking to replace the board, not management, saying the board is cozy and insular. Two real estate experts doubted the benefits of Ackman's plans to create a single tenant REIT. This seems to be a time to buy Target shares and the company remains one of the best-run retailers in the U.S. Mr. Ackman responded to this article with a press release saying the article was riddled with materially false and misleading statements. He notes the lack of willingness by the nominating committee to meet with the candidates he proposed for the board or to explain its rejection of those candidates. The board has extended the term limits from the founding family's 12 years to the current 20 years. The company has adopted a staggered board and combined the roles of CEO and chairman. He points out that the REIT proposal is for the land only and not the Target stores, allowing the company to make any and all renovations it desires, one of the objections to the plan in the article.

Wednesday, May 20, 2009

May 20, 2009: Morning Call

May 20, 2009: Morning Call

Fair Value: SP500 – 906.86; NDX: 1398.13; DOW: 8462.43

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance


Pre-market EPS: ANN (-.19/468.5M); BJ (.42/2.30B); DE (1.06/6.65B); TGT(.60/14.83B)
07:00: MBA Mortgage Applications
08:00: MSFT presents at the JP Morgan TMT Conference
08:30: BJ earnings call
08:40: JNPR presents at the JP Morgan TMT Conference
09:00: NDAQ Annual Meeting
09:20: MA presents at the JP Morgan TMT Conference
09:30: Treasury Secretary Geithner at Senate hearing on TARP
10:00: AXP presents on a conference call with Calyon’s Mike Mayo
10:00: DE earnings call
10:30: DOE Crude Oil and Gasoline Inventories
10:30: TGT earnings call
11:30: INTC Annual Meeting
14:00: TOL Q2 2009 Guidance Call
14:00: FOMC Minutes from the April 29 meeting
17:30: QCOM presents at the JP Morgan TMT Conference
Post-market EPS: CSC (1.47/4.17B); GYMB (.67/228.3M); LTD (-.04/1.77B); NTAP(.23/858.5M); SNPS (.40/335.7M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 3 points above fair value at 7:30am ET. Asian markets closed mixed (Japan up 0.60%, Hong Kong down 0.39%, India down 1.69%, Shanghai down 0.96%, Australia 0.19%). Sentiment in Japan was helped by economic data that was not quite as bad as expected. Japan’s Q1 GDP shrank (4.0%) sequentially vs. survey (4.3%). European markets are flat. Advancers just edge decliners on the FTSE 100. Experian Group (EXPN.LN) gained as full year results topped expectations. Julius Baer Holdings (BAER.VX) rose after saying it's to separate its Private Banking and Asset Management businesses into two independently listed companies.

The S&P 500 will likely settle into a trading range between 875-950 for the next few months or until incoming information alters the consensus view of modest economic recovery in the second half. Even a modest economic recovery in the 2H could propel the S&P toward the 1000 level, which would likely be an interesting level to establish some core longer-term oriented short positions based on the thesis that a 2010 recovery will be less robust given that the US government would need to scale back the massive monetary and fiscal stimulus. The S&P would likely pull back 10-15% (775-820) if the economy fails to recovery in the 2H or if expectations for 2010 growth are revised lower. Current consensus is for growth of 0.50% in Q3 and 1.75% in Q4 and the recent revisions have been heavily skewed to the upside. Consensus for 2010 growth is 1.9%.

Research Calls/Market Moving News:

HPQ (36.58): Hewlett-Packard reports Q2 EPS $0.86 vs. Reuters $0.86: Company reports revenues of $27.35B vs. Reuters $27.46B. Guides Q3 EPS to $0.88-0.90 vs. Reuters $0.89. Reaffirms full year EPS to $3.76-3.88 vs. Reuters $3.72. Q3 (Jul) flat to down 2% sequentially; implies a range of $26.80-27.35B vs. Reuters $27.47B; heading into today, consensus was calling for flat sequential growth. Fiscal 2009 (Oct) down 4-5% versus prior down 2-5%; implies a range of $112.48-$113.63B vs. Reuters $113.60B. Hewlett-Packard not ready to call entire market "better" - conf. Call: Management highlights some areas of improvement, specifically highlighting China and the US consumer as better than expected, and says that there are many more stories they could tell of potential signs of a turnaround. However, they caution that there is still too much uncertainty around the globe to make a blanket statement that things are better than they were in February. They went on to highlight that the quarter played out largely as expected; there is no story or news on linearity, as April did not look much better or worse than March or February.

BAC (11.25): Bank of America concludes At-the-Market (ATM) stock offering; raises ~$13.47B: In a press release, BofA confirms that it has concluded its previously announced sale of common stock through an ATM issuance program. The company issued 1.25B shares since beginning the program on Friday, 8-May at an average price of $10.77, representing gross proceeds of approximately $13.47B.

MSFT (20.31): Microsoft is expected to show a new search engine next week – WSJ: Additional headlines say the search engine is a counter to Google and it will focus on simplifying searches.

DE (43.82): Deere & Company reports Q2 EPS $1.11 vs. Reuters $1.07: DE says company equipment sales are projected to be down about 19% for the full year and about 26% for Q3, including a negative currency translation impact of about 5% for the year and about 6% for the quarter. Net income for 2009 is expected to be about $1.1B with more risk to the downside.

TOL (19.51): Toll Brothers reports preliminary Q2 home building revenues of ~$398.3M vs. Reuters $392.4M: First Call is $386.7M. Chairman and CEO Robert Toll says it is not comfortable offering earnings guidance at this time, though says per-community (same-store) deposits have exceeded FY 2008's same-store deposits in seven of the past nine weeks. Conference call at 14 ET.

Treasury to announce additional $7.5B investment in GMAC - Detroit News: A person familiar with the matter says the deal, which could be announced today, could allow the federal government to hold a majority of the company if it chooses to

MGM (8.34): MGM Mirage may drop sales of casinos - NY Post: A source says that now that the company has raised $2.5B from stock and debt, the auctions of casinos in Mississippi and Michigan will probably be pulled. First-round bids did not meet targets, and no deadline for second-round bids has been set

COST (47.21): Costco upgraded to outperform from neutral at Credit Suisse: Valuation cited.

RF (5.24): Regions Financial announces $1.25B capital raise: Regions announced that it has commenced public offerings of $1B of its common shares and $250M of new mandatory convertible preferred shares. Goldman, Sachs and J.P. Morgan Securities will serve as joint bookrunning managers for the Offers and Morgan Keegan & Co. Inc., will be lead manager

Friday, May 15, 2009

May 15, 2009: Morning Call

May 15, 2009: Morning Call

Fair Value: SP500 – 891.68; NDX: 1359.47; DOW: 8315.62

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance


May Options Expire
Pre-market EPS: ANF (-.09/631.5M); AU (.53/na); JCP (.02/3.86B)
08:30: US Consumer Price Index (April): 0.0% Mom; Ex-Food/Energy: 0.1%
08:30: US Consumer Price Index (April): -0.6% YoY; Ex-Food/Energy: 1.8%
08:30: Empire Manufacturing (May): -15.00
09:00: US Net-Long Term TIC Flows: 32.5B
09:15: Industrial Production (April): -0.6%; Capacity Utilization: 68.8%
09:15: Fed’s Fisher speaks at Texas Bankers Association
10:00: University of Michigan Confidence (May Preliminary): 67.0

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 6 points below fair value while the NASDAQ futures are trading 17 points below fair value at 8am ET. Weakness in consumer discretionary stocks (ANF, JCP) is trumping gains in insurance stocks (HIG, LNC, PRU, ALL), which are up after the US Treasury reached an agreement to provide TARP funds to insurance companies. Asian markets closed higher rebounding from Thursday’s losses (Japan up 1.8%, Hong Kong up 1.5%, Australia up 1.3%, South Korea up 0.96%, India up 2.5%). Hong Kong financials followed their Wall Street peers up, whilst technology shares led Japan higher. Sony (6758.JP) advanced despite reporting a loss and forecasting another. Tokyo Electron (8035.JP) soared after saying orders for semiconductor chip gears will rise 30-50% in Q1. China year-to-date foreign direct investment (21.0%) y/y. Japan Mar Machine orders (1.3%) m/m vs survey (4.6%). The corporate goods price index in April dropped (3.8%) y/y vs survey (3.0%). European markets are down 0.25%- 0.50% at the lows of the session. Barclays (BARC.LN) led financials higher following reports that the firm is in talks to sell its asset management business Barclays Global Investors. Solar shares were mixed following a number of company updates. On balance, economic data came in weaker than expected: Germany Q1 prelim GDP (3.8%) q/q vs con (3.0%). France Q1 prelim GDP (1.2%) q/q vs con (1.3%). France Q1 prelim non-farm payrolls (0.9%) q/q vs con (0.8%). EuroZone Apr CPI +0.4% m/m vs con +0.4%. EuroZone advance Q1 GDP (4.6%) y/y vs con (4.1%).

Research Calls/Market Moving News:

GOOG (387.50): comScore query search data out last night and the key takeaway is GOOG continues to take share. Here are comments from Piper Jaffray’s Gene Munster: “Google Increasing Lead In U.S. We continue to expect Google to report revenue slightly below Q2 consensus of down 1% q/q and like shares of GOOG. The highlights from the U.S. query data are as follows: • Google's total U.S. queries were up 3.8% m/m and 45.5% y/y (strongest since October 2007) in April. Queries showed a better-than-usual uptick m/m as April has only been up 1% for the prior two years. • Google controlled 64.2% U.S. search market share in April, up from 63.7% in March, also the highest U.S. market share the company has yet enjoyed. We expect Google to continue to post gains in market share for the foreseeable future given their constant innovation as demonstrated at their recent Searchology event. • We note that while Google emphasized the seasonality of their business, our checks with search engine marketers in April suggested strength at the end of March carrying into Q2. The first meaningful data point for the quarter, paid click data, should be out next week.” I would also note that YouTube searches saw a pretty remarkable month over month surge in April; Thomas Weisel comments on YouTube this morning: “YouTube continues to be a standout contributor for Google generating 3.17bn searches in the U.S., up 10.1% from 2.88bn last month and up 82% from 1.74bn in April 2008. YouTube currently represents 24.3% of U.S. Google site searches compared with 20.5% in April 2008 and is as large as all of Yahoo based on total U.S. queries in April.” Although YouTube monetization is not a near-term catalyst for earnings, longer-term analyst projections will increase if GOOG begins to demonstrate the ability to monetize the growth in YouTube clicks. Most analysts on the street are skeptical about YouTube monetization so this remains an area where GOOG could potentially deliver an upside surprise in 2010.

JPM (35.54): JP Morgan reports Apr master trust data: Net charge-offs 8.07% vs 7.13% in Mar and 6.35% in Feb. Delinquencies 4.91% vs 4.89% in Mar and 4.61% in Feb. Payment rate 17.16% vs 18.43% in Mar and 16.01% in Feb. Yield 14.56% vs 15.47% in Mar and 14.56% in Feb. Excess spread 3.31% vs 5.07% in Mar and 5.09% in Feb. 3-month average is now 4.49% from 4.92% last month. Keep in mind that credit card companies will be releasing their April Credit Card Trust data during the day.

ALL (24.24); PRU (39.37); HIG (14.75); LNC (16.24); PFG (18.86): WSJ reports that Allstate (ALL), Prudential Financial (PRU), Principal Financial (PFG) and Ameriprise (AMP), Hartford (HIG, and Lincoln National (LNC) have also received preliminary approval for TARP funds

BCS (14.90): FT provides color on potential sale of BGI asset management division: Investors: Recall that the FT's sister publication, FTD, reported earlier this evening that BlackRock was in talks to acquire BGI for at least €6B. Citing people familiar with the matter, the FT says that talks on the potential sale of BGI for about $10B are the outcome of an initial auction for iShares, which Barclays agreed to sell to private-equity firm CVC Capital for $4.2B in April. Recall that under a "go-shop" provision in the merger agreement, Barclays is allowed to seek alternative bids for iShares until 18-Jun. As has been previously reported, the paper notes that private-equity firms BC Partners and Hellman & Friedman are both considering counter-bids for iShares. According to the article, analysts have valued BGI at 12-15x its estimated pre-tax profits of €500M next year (more than half of which is expected to come from iShares), which would value the business at $8.2B-$10.3B

JWN (20.95): Nordstrom (JWN) reports Q1 EPS $0.31, ex-items vs Reuters $0.25, guides full year EPS $1.25-1.50 vs prior guidance $1.10-1.40. Nordstrom upgraded to buy from neutral at Piper Jaffray.

ANF (27.25): Abercrombie & Fitch reports Q1 EPS ($0.31): The results do not include a charge for the review of the Ruehl business, the amount of which is currently being determined. Reuters is ($0.12). Company reports revenues of $612.1M. We note revenues had previously been reported by month. Reuters is $623.8M. Domestically, ANF now expects to open ten mall-based stores in fiscal 2009, including two abercrombie stores, four Hollister Co. stores, two Gilly Hicks stores and two outlet stores.ANF now expects f09 capex to be appx $200M, including $155M related to new stores, up from prior guidance of $165-$175M, including $120-$125M for new stores.

JCP (26.65): JCP guides Q2 loss per share to between 15-25 cents vs. street consensus of a loss of 9 cents. JCP full-year profit will be between 50-65 cents vs. street at 76 cents.

LVS (9.43): Las Vegas Sands not exploring sale of Sands Macao – Bloomberg: In an interview, CEO Sheldon Adelson calls the recent report of a potential sale-and-leaseback "completely false."

CSCO (18.09): Bernstein comments on the Networking group, says CSCO share losses continue: The firm notes Dell'Oro released Q1 router and switch market surveys with routers (23.3%) y/y. Bernstein says CSCO lost share in multiple categories with COMS gaining share in enterprise routers and switches. The firm sees incremental upside for BRCD with a slightly smaller than expected sequential decline for FDRY. Berstein believes CSCO plans to address several areas with new marketing programs and says costs are already in company' guidance and their estimates.

NPD reports videogame sales fell 23% in April to $510M - wires: Sales of the Nintendo Wii (NTDOY) fell to 340K units in April from 714K units in the year-earlier period. Sales of Microsoft's (MSFT) Xbox 360 console fell 7% to 175K, while sales of Sony's (SNE) PlayStation 3 fell 32% to 127K

AMG Data reports equity fund inflows of $7.1B in w/e 13-May vs inflows $2.4B in w/e 6-May.

Thursday, May 14, 2009

May 14, 2009: Morning Call

May 14, 2009: Morning Call

Fair Value: SP500 – 882.41; NDX: 1339.60; DOW: 8264.41

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance


Pre-market EPS: GIL (.11/226.5M); LEA (-1.51/2.42B);URBN (.17/400.7M);WMT(.77/96.2B)
02:00: EU New Car registrations
04:00: ECB publishes May Monthly Report
08:30: US Producer Price Index (April): 0.1% MoM; Ex-Food/Energy: 0.1% MoM
08:30: US Producer Price Index (April): -3.9% YoY; Ex-Food/Energy: 3.4% YoY
08:30: Initial Jobless Claims (w/e May 9): 610,000; Continuing Claims: 6.4mm
08:30: ICE Annual Meeting
09:00: MOS presents at BMO Capital Agriculture conference
09:20: CAH presents at Robert Baird Growth Conference
10:00: DOW Annual Meeting
10:30: EIA Natural Gas Storage Change
10:45: POT presents at BMO Capital Agriculture conference
13:00: MSFT Annual Meeting
16:00: CF presents at BMO Capital Agriculture conference
Post-market EPS: A (.14/1.09B); CPWR (.19/268.0M); JWN (.23/1.66B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading flat with fair value near the lows of the overnight session. US futures are moving in tandem with European markets, which are down 0.50% to 1.0%. Energy, Financial, and Consumer discretionary stocks are the weakest sectors, down 1.5%; consumer staples outperform and are trading unchanged. Asian markets closed lower following the pullback on Wall Street (Japan down 2.64%, Hong Kong down 3.04%, Australia down 3.4%, Shanghai down 0.76%, Taiwan down 1.8%, South Korea down 2.8%, India down 1.2%). Financial stocks were weak in South Korea, Posco (005490.KS) declined on news it will cut prices tomorrow and disappointing US retail sales data hurt exporters. Exporter shares also fell in Japan and Hong Kong. Panasonic (6752.JP) fell on a report it will post a net loss of more than $1.1B for FY09-10. Rio Tinto (RIO.AU) fell on continuing about its outlook and a potential rights issue. Hong Kong was led lower by HSBC Holdings (5.HK) and China Mobile (941.HK).

Research Calls/Market Moving News:

WMT (50.03): Wal-Mart reports Q1 EPS $0.77 vs Reuters $0.77: Company reports revenues of $93.47B vs Reuters $95.61B. Guides Q2 EPS to $0.83-$0.88 vs Reuters $0.85. Wal-Mart reports Q1 comps for Walmart US of +3.6% and comps. for Sam's Club +4.2%, both ex-fuel. In addition to the statement made last week that they will no longer report monthly comp. sales, the company says, effective with fQ2, it will provide 13-week comparable store sales guidance separately for Walmart U.S. and Sam’s Club. WMT guides Q2 comps. for both Walmart US and Sam's Club each to be in a range of flat to +3%.

IBM (102.26): Deutsche Bank is positive on IBM following the analyst day: At its A-day, IBM emphasized the resilience of its model & reiterated $9.20+ in EPS in '09 and $10-11 in '10. Key components of IBM's strategy include the mix shift to higher return/margin SW (to ~46% of earnings in 2010), margin expansion in services, EM growth & virtualization. With doubts of a V-shaped macro recovery growing, we believe IBM's high recurring profit model & resulting EPS visibility will become incrementally attractive. At 10x a conservative FY10 EPS estimate and credible roadmap to sustain EPS growth, we believe there is upside to IBM. IBM emphasized how resource constraints (energy, healthcare, transportation etc) coupled with urbanization and demographic trends are making governments and private enterprises evaluate Smart IT. Solutions to solve these challenges. In particular, IBM estimates global fiscal stimulus will total $2.8T, a sizable portion of which will be used to fund Smart Energy grids, personalized/centralized health records and intercity rail/airport improvement etc. We believe IBM is the best-positioned ITHW vendor to monetize this trend due to its past investments in integrated solutions (S/W, services & HW) and long-standing gvt relationships. Estimates are unchanged; maintain Buy and $125 PT: Our estimates are unchanged and PT remains $125, which assumes IBM trades at 12x our FY10 EPS estimate, in line with IBM's historical multiples (average of 16x, range of 7x-33x). Risks to our thesis include a dramatically slower IT spending environment, integration risk & potential product transition issues in hardware.

MGM (8.70): MGM Mirage prices 143M share secondary offering at $7 through Merrill Lynch, Deutsche Bank, JPMorgan, Morgan Stanley and UBS – Bloomberg. The size of the offering was increased from the previously announced 81M because the price ended up being 43% in the hole from Tuesday’s close.

CLF (23.18): Cliffs Natural Resources 15M share secondary priced at $21 a share through JPMorgan and Merrill Lynch - Dow Jones: The size of the offering was increased from 12M shares.

UBS global equity strategy upgrades energy and industrials, downgrades consumer discretionary: Energy sector upgraded to overweight from neutral. Industrials sector upgraded to neutral from underweight. Consumer discretionary downgraded to neutral from overweight.

FIG (5.38): Fortress Investment (FIG) announces $125M offering of class A shares through Citi, JPMorgan, Merrill and Nomura.

EXM (8.21): Excel Maritime Carriers (EXM) files to register $150M in convertible notes for holders and the shares issuable upon conversion, registers 2.6M shares for holders

KSS (41.95): Kohl's reports Q1 EPS $0.45 vs guidance $0.43-0.44 and Reuters $0.44: Company reports revenues of $3.64B vs Reuters $3.58B. Guides Q2 EPS to $0.56-0.64 vs Reuters $0.62. Guides full year EPS to $2.19-2.42 vs prior $2.00-2.30 vs Reuters $2.55.

Treasury Secretary Geithner confirms update regarding OTC derivative initiatives -- wires, CNBC: In a conference call that confirms an earlier report regarding an update on OTC derivatives, Geithner says all standardized derivatives will be centrally cleared. Geithner says OTC derivatives should not be able to cause systemic risk, says the changes require amendments to laws and regulations, and that OTC derivatives dealers would be subject to cap requirements. Geithner says the new rules will prevent sales to unsophisticated buyers and will work with international regulators for similar changes.

Obama administration seeks authority from Congress to oversee derivatives - NYT: Saying the financial crisis was in large part brought about by a lack of oversight, Treasury Secretary Timothy Geithner asks that credit-default swaps and other standardized derivatives be required to be traded on exchanges or clearinghouses and backed by capital reserves. He also says the administration will offer a proposal to comprehensively overhaul the regulation of the financial system.

GIL (10.85): Gildan Activewear reports Q2 EPS $0.06 vs Reuters $0.10: Company reports revenues of $244.8M vs Reuters $219.8M. Unit shipments of activewear (13.9%); unit sales of Gildan socks from its major retail customers to consumers were higher y/y. GIL says net selling prices for activewear were slightly higher Gross margin 15.8% vs. 28.8% y/y. GIL expects gross margin improvement in H2, though continuation of weak demand. GIL expects to be FCF positive for the full fiscal year.

URS (43.14): URS Corporation reports Q1 EPS $0.92 vs Reuters $0.63, reaffirms full year EPS guidance of $2.80-$2.95 vs Reuters $2.92

JBX (21.96): Jack In The Box reports Q2 EPS $0.51 vs Reuters $0.44: Company reports revenues of $578.4M vs Reuters $587.5M. Same-store sales at Jack in the Box company restaurants were + 0.4% vs. SA consensus +1.2% and guidance of flat to 2% increase. System same-store sales at Qdoba Mexican Grill were (2.3%) vs. SA Consensus (1.9%) and guidance of flat to 2% decrease. Company guides Q3 flat to 2% same-store sales increase at Jack in the Box company restaurants versus a 0.4% decrease in the year-ago quarter

ASEI (62.48): American Science & Engineering reports Q4 EPS $0.92 vs Reuters $1.04: Company reports revenues of $57.3M vs Reuters $65.0M. Backlog: $155.3M vs $99M y/y.

Wednesday, May 13, 2009

Cohen and Steers CEO says "stop worrying".

CNBC just interviewed CNS CEO, Martin Cohen, to discuss whether commercial real estate will be the "next shoe to drop." Not surprisingly, Mr. Cohen's advise is to "stop worrying about all the issues everyone knows about and look to the future." It is time to start worrying when somebody as conflicted as Mr. Cohen says "stop worrying."

May 13, 2009: Morning Call

May 13, 2009: Morning Call

Fair Value: SP500 – 906.80; NDX: 1377.28; DOW: 8449.25

Technical Levels:

SPX: 765, 788, 875-880 support/ 935-943 resistance


Pre-market EPS: DPS (.28/1.25B); TDW (1.95/348.5M)
05:00: Euro-zone Industrial Production (March): -1.0% MoM; -17% YoY (weaker: -2.0% MoM; -20.2% YoY; February revised lower-European markets moved lower after the report hit the tape)
05:30: Bank of England Quarterly Inflation Report
08:30: US Import Price Index (April): 0.4% MoM; -14.9% YoY
08:30: US Retail Sales (April): -0.1% MoM; Less Autos: 0.0%
08:50: MET presents at UBS Financial Services Conference
09:00: MA Investor Meeting
09:00: COP Shareholders Meeting
09:00: Treasury Secretary Geithner speaks to Independent Community bankers.
09:45: TDW presents at Calyon Energy Forum
10:00: Business Inventories (March): -1.1%
10:30: DOE Crude Oil and Gasoline Inventories
12:00: Fed’s Lockhart delivers closing remarks at Atlanta Fed’s Financial Markets Conference.
12:15: MON presents at BMO Capital Agriculture conference
15:00: CPO presents at BMO Capital Agriculture conference
Post-market EPS: CA (.29/1.03B); JACK (.44/587.5M); WFMI (.18/1.87B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 9 points below fair value due to weakness in European markets (down 1.0%-1.5%), which declined after weaker than expected Euro-zone industrial production was released at 5am ET. Financial and material stocks are down 4.5%. Decliners on the FTSE 100 lead advancers 7-3. Trading lower post results or updates are ING Group and Allianz whilst Sainsbury reversed declines. E.ON (EOAN.GR) and K+S (SDF.GR) rose after results. Asian markets closed mixed to lower (Japan up 0.45%, Hong Kong down 0.55%, Australia down 0.54%, Shanghai up 0.91%, India down 1.1%). Forecasts from Olympus (7733.JP) and Nissan (7201.JP) boosted confidence in Japan, but Hitachi (6501.JP) fell having reported a record loss. Australia declined, with Rio Tinto (RIO.AU) lower on a report it may initiate a £5B rights issue. Hong Kong finished down led by banks. Hong Kong Exchanges & Clearing (388.HK) reported Q1 net HKD$834.2M vs a consensus of HK$848.5M (2 est) and vs. HK$1.65B y/y.

Research Calls/Market Moving News:

April foreclosures rise 32 percent-RealtyTrac reports: The number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year, with Nevada, Florida and California showing the highest rates, according to data released Wednesday. More than 342,000 households received at least one foreclosure-related notice in April, RealtyTrac Inc. said. That means one in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since the Irvine, Calif.-based foreclosure listing firm began its report in January 2005. April was the second straight month with more than 300,000 households receiving a foreclosure filing, as the number of borrowers with mortgage troubles failed to abate. The April number, however, was less than one percent above that posted in March, when more than 340,000 properties were affected. The March data was up 17 percent from February and 46 percent from a year earlier. "We've never seen two consecutive months like this," said Rick Sharga, RealtyTrac's senior vice president for marketing. "It's the volume that's surprising." While total foreclosure activity was up, the number of repossessions by banks was down on a monthly and annual basis to their lowest level since March of last year, RealtyTrac said. But that's far from positive news. Because much of the foreclosure activity in April was in the default and auction stages -- the first parts of the foreclosure process -- it's likely that repossessions will increase in coming months, RealtyTrac said.

Capital Raises/Secondary pricing (CLF, MGM, F, KRG, NAT, BBT): Cliffs Natural Resources (CLF) announces 12M share offering through JPMorgan and Merrill Lynch, cuts quarterly dividend by 54.3% to $0.04 from $0.0875. MGM Mirage announces 81M-share stock offering through Merrill Lynch, Deutsche Bank, JPMorgan, Morgan Stanley, and UBS. Tracinda Corp has indicated it will purchase 8.1M shares in the offering. Company expects the offering to have gross proceeds of $1B. Ford 300M share secondary priced at $4.75 a share through Citi, Goldman Sachs, JPMorgan and Morgan Stanley. Kite Realty (KRG) announces 25M common share secondary through Merrill Lynch, KayBanc and Wachovia, cuts quarterly cash distribution by 60.7% to $0.06 from $0.1525. NAT prices 4 million shares at 32. BBT prices 75 million shares at 20.

POT (100.87); AGU (46.05); TRA (26.54); MOS (47.67): Goldman reduces current year estimates for POT, AGU, TRA, and MOS: The firm continues to see anemic demand for potash given high prices and cautious reordering. Goldman believes short term results will be weak for NA producers such as POT, MOS, AGU, and IPI. Current year POT and AGU EPS estimates have been reduced below Reuters consensus $7.37 and $5.00, respectively. TRA and MOS EPS estimates have also been reduced in the current year and next.

POT (100.87): Potash upgraded to outperform from sector perform at Scotia Capital: Target is C$150. Valuation as well as better corn and soybean pricing are cited.

POT (100.87): Potash target raised to $150 from $110 at RBC Capital: The firm cites the outlook for potash prices going forward and says improving economic conditions and increased risk tolerance should positively impact multiples. Shares remain outperform rated.

GOOG (399.01): Google target increased to $471 from $424 at Piper Jaffray: Rating is buy. Firm notes a higher target multiple due to the multiple expansion in the group over the last two months

M (12.35): Macy's reports Q1 EPS ($0.16) ex-items vs guidance ($0.19-0.21) and Reuters ($0.20): Reaffirms full year sales to be down 6-8% y/y; reaffirms full year EPS guidance of $0.40-$0.55, ex-costs, vs Reuters $0.62

SOLR (7.22): GT Solar (SOLR) reports Q4 EPS $0.13 ex-items vs Reuters $0.18, sees f10 EPS of $0.45-0.60 vs Reuters $0.82.

TDW (46.26): Tidewater reports Q4 EPS $2.13 vs Reuters $1.96: Company reports revenues of $341.6M vs Reuters $348.0M. Total worldwide fleet utilization on Q4 was 72.1%, with an average dayrate of $12,626.

INTC (15.21): EU fines Intel $1.45B in antitrust case for using rebates to thwart competition: Intel will appeal the decision. Separately, INTC CEO said last night that Q2 orders were better than expected and that the quarter was ahead of plan so far.

Bank of China not interested in US banks for now, says CNBC - Dow Jones: In an interview, an executive says Chinese lenders do not want to invest in their American peers partly because US banks still have too many toxic assets. He adds that until details on the Public-Private Partnership Investment Program are disclosed, Chinese banks will be unlikely to buy stock in US ones.

Obama administration in serious talks to change financial-services industry compensation practices – WSJ: People familiar with the matter say the effort will include aligning pay with long-term performance, and the administration would like to include companies that did not receive bailout money in its revamp. Officials are looking at what might be accomplished both through regulation and legislatively. The effort may go beyond banks into the mortgage industry.

Treasury expected to notify firms selected to oversee PPIP funds on Wednesday – WSJ: Citing a Treasury official, the Journal reports that the Treasury is expected to notify a group of asset managers on Wednesday that they have been selected from the 104 that applied to oversee the initial wave of PPIP funds. According to the article, the firms will then negotiate with the Treasury over the structure of their proposed funds before they are formally qualified. Once they are formally qualified, which is expected in early June, the fund managers will have up to three months to raise $500M or more to purchase the legacy assets clogging banks' balance sheets.

C (3.66): Citi Primerica Financial Services unit executives said to be seeking bids for unit – Bloomberg: Executives have approached JC Flowers, Blackstone (BX) and TPG to test interest in purchasing the Primerica division, according to 4 people with knowledge of the situation. The discussions began after C failed to locate a buyer for the entire life insurance company during the last year, and Citi has not endorsed the plan, according to the report. According to one plan being discussed, Primerica's marketing arm would be split from Citi and begin selling policies backed by a new insurer, while Citi would keep assets and liabilities from existing Primerica policies.

Friday, May 8, 2009

May 8, 2009: Morning Call

May 8, 2009: Morning Call

Fair Value: SP500 – 905.28; NDX: 1389.71; DOW: 8379.67

Technical Levels:

SPX: 676, 719, 765, 788 support/ 898, 943 resistance


Pre-market EPS: EP (.28/1.29B); HUN (-.21/342.7M); MIR (.57/494.2M)
08:30: Change in Nonfarm Payrolls (April): -610,000; Unemployment Rate: 8.9%
08:30: Change in Manufacturing Payrolls: -159,000
08:30: Avg. Hourly Earnings: 0.2% MoM; 3.3% YoY
09:30: GS Annual Meeting
10:00; Wholesale Inventories (March): -1.0%
13:00: Fed’s Lacker speaks on the economy
Post-market EPS: PCLN (.91/442.5M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P future are trading 14 points above fair value while the NASDAQ futures are trading 17 points above fair value with the financial stocks surging higher on optimism that US banks have adequate capital to absorb future losses. Adding fuel to the rally is the perception that many long-only mutual fund managers are scrambling to add bank equity to increase their exposure to the sector. European markets are at the highs of the session with gains of 2.0%-2.5%. Banks and financials were amongst the leading sectors following the results of the US's stress tests on financial institutions. Advancers on the FTSE 100 lead decliners 7-3. Trading higher after results are Commerzbank (CBK.GR), Royal Bank of Scotland (RBS.LN), Repsol (REP.SM) and Luxottica Group (LUX.IM). Trading lower on results was Puma (PUM.GR) and Taylor Wimpey (TW.LN) fell after announcing a rights issue. Asian markets: mostly rose led by financials following their US peers up in after-hours trade, and energy shares on higher oil prices. Mining shares retreated as metal prices fell. In Hong Kong, aluminum-extraction products maker China Zhongwang Holdings (1333.HK) fell (5%) on its IPO and Geely Automobile Holdings (175.HK) retreated after saying it would not bid for Volvo or Saab. Financials gained when the Hong Kong Monetary Authority chairman said the banking system is healthy. Toyota (7203.JP) fell on a report it would post a larger-than-expected loss for the FY.

Research Calls/Market Moving News:

Stress tests predict $599B in cumulative losses at 19 tested banks through 2010 if economy goes south – WSJ: The Federal Reserve's figure was smaller than some had feared. The article summarizes the presentation of the results yesterday, with a lot of information that has already been reported about the various options different banks now have or the plans some banks announced after the results were revealed.

Bank of America discusses some of the ways it plans to raise capital - conf. Call: BofA is targeting a $17B increase in Tier 1 common equity. It is planning to generate this equity from a combination of an ATM offering (sale of common stock through normal trading), as well as a possible tender offer to convert non-government preferred stock held by institutional investors into common stock. Tomorrow morning, the bank will launch an offering to sell up to 1.25B shares of common stock through an ATM program. Later this month, it will look to launch an exchange offer targeted at some of its institutionally-held perpetual preferred and convertible preferred stock. The bank is only looking to exchange a portion of the total, and expects that the exchange pricing would reflect a discount to par value of the preferred securities. The bank has not decided on a form for the exchange, but it could include privately-negotiated transactions or a Dutch auction. BofA adds that it is also looking to raise about $10B through asset sales (says Columbia and First Republic may be sold, also looking at two joint ventures....notes that asset sales have multiple bidders). BofA also expects to generate $7B in PPNR over the next two quarters to help plug the shortfall. Also of interest, BofA says that it is in talks to end the asset wrap offered by the government in January. This would mean that the bank would not have to issue the government the $4B in additional preferred securities.

FBR's bank analyst Paul Miller comments on the stress test results: The most important result of the government's stress test is stronger tangible common equity ratios for the group, and given recent share price strength, it comes with less dilution than we feared. The lower dilution risk should limit the downside for financials, at least in the near term. Our negative thesis on U.S. banks has been based on (1) the risk of failure or significant dilution given the lack of tangible common equity in the financial system; and (2) the prospect of unprecedented losses given 30%+ national home price declines, rapidly growing unemployment, and weak underwriting in recent years. The first of our concerns is clearly mitigated by the government's requirement that 10 of the biggest U.S. banks boost their tangible common equity by $75 billion, in addition to the government's commitment not to let these institutions fail. Further, we have to acknowledge the recent market strength. We note that the stress-tested banks now trade at an average of 52% above their "cap price," which suggests substantially less dilution and less risk of government ownership than we previously feared. Despite these positives on the capital front, our concern over industry losses persists. If we are correct and unemployment exceeds the government's 10.3% stress test level, these companies may still need more capital. We believe that many market participants remain overly optimistic about the near-term earnings prospects of these companies given that real estate cycles typically take five to six years to work through. Over time, the macro picture will become more clear, but today we find some comfort in the prospects of stronger tangible common equity levels. Recent events – the banks are getting common equity! On May 7, the Federal Reserve published the results of its long-anticipated stress test, requiring 10 bank holding companies to fortify their common equity by $75 billion. While the banks don't all fully agree with the Federal Reserve's assessment, they will have to boost their capital anyway. We consider a stronger common equity base to be a positive for the space, particularly as the dilution could be less today than we previously feared.
FBR takeaway. Capital markets can be fickle, which is why we would encourage companies to raise or convert preferreds as soon as possible. To wait is to gamble, and while that bet has paid off handsomely over the past two months, historically it has not. Further, there could be difficulties convincing preferred holders to convert to common. While dilution risk appears quantifiable and less than feared, the capital raise is not a done deal yet. We again encourage companies to take advantage of recent share price strength and the market's apparent appetite for capital offerings to solidify their tangible common equity quickly. • Value add: sufficient capital up to 10.3% unemployment. We feared that the government's stress test would be too lenient or would attempt to build confidence in banks without real substance; we now acknowledge that the loan loss expectations and earnings power assumptions in the test are credible if the unemployment rate peaks at 10.3%. While we are still concerned that unemployment and losses will exceed this level, the government's test goes a long way to improve these companies' capital structures now. Further, even if we expect more capital will be needed down the road, the market will generally value these companies as if this is the last capital raise (at least in the near term).

MRO (31.66); MUR (53.56): Goldman Sachs downgrades MRO, MUR: Murphy Oil (MUR) downgraded to neutral from buy, target increased to $64 from $55. Marathon Oil (MRO) downgraded to sell from neutral, however target increased to $35 from $31.

MS (27.14): Morgan Stanley announces $2B secondary offering, $3B in non-FDIC backed notes: Morgan Stanley also announced that it intends to offer approximately $3B in aggregate principal amount of senior notes in a registered public offering. The notes will not be guaranteed by the FDIC

WFC (24.76): Wells Fargo announces $6B secondary offering through JPMorgan, Wachovia

IPI (26.14): Intrepid Potash (IPI) reports Q1 EPS $0.33 vs Reuters $0.27.

STT (37.83): State Street upgraded to buy from neutral at Bank of America Merrill Lynch: Target increased to $50 from $40.

Thursday, May 7, 2009

The Great Stabilization Con Job

Fed officials, the Treasury, the White House, foreign central banks, economists, Wall Street analysts, and corporate CEO's have all supported the notion that the economy is "stabilizing." And, as you would suspect, the mainstream media has bought the “stabilization” theme hook, line, and sinker. Google the word "stabilization" and the search results will generate thousands of articles written by journalists in the last few days that push the "stabilization" theme. You will hear the word “stabilization” thousands of times on CNBC today and in the coming weeks. Be skeptical. The “stabilization” crowd also thought the housing debacle was “contained” to sub-prime mortgages.

Wednesday, May 6, 2009

May 6, 2009: Morning Call

May 6, 2009: Morning Call

Fair Value: SP500 – 901.73; NDX: 1421.86; DOW: 8381.29

Technical Levels:

SPX: 676, 719, 765, 788 support/ 898, 943 resistance

Pre-market EPS: ANR (.70/513.1M); DVN (.30/1.85B); GRMN (.41/530.7M); HK(.02/241.5M); MMC (.51/2.95B); PCG (.71/3.46B); RRD (.37/2.47B); VNO (1.58/605.1M); XTO(.77/2.11B); RIG (3.47/3.09B)
04:00: Euro-zone PMI Services (April): 42.1; Composite: 40.5 (actual better: Services-43.8; Composite-41.1)
05:00: Euro-zone Retail sales (March): 0.1% MoM; -2.6% YoY (actual weaker: -0.6% MoM; -4.2% YoY)
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (April): -645,000
08:30: PHM earnings call
09:30: Fed’s Stern speaks to Senate on “Too Big To Fail.”
10:00: CSX Annual Meeting
10:30: DOE Crude Oil and Gasoline Inventories
16:30: CSCO earnings call
17:00: Select US Retailers release April Same-Store Sales
17:30: Fed’s Yellen speaks on a topic to be announced
Post-market EPS: APC (-.59/1.61B); ATW (.83/138.1M); CECO (.36/445.8M); CSCO(.24/8.07B); MUR (.26/469.0M); PRU (.96/6.48B); SUN (.40/10.3B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 9 points above fair value at 8:45am ET following a better than expected ADP Employment Change number. A WSJ report that the US will require Bank of America to raise an additional 34 billion in common equity had weighed on the futures earlier in the session. The Bank of America news is not a big surprise given that BAC shares were pricing in a large preferred equity conversion. Most sell-side analysts that have a “buy rating” on BAC shares were expecting a preferred conversion of between 25-45 billion. That said, BAC investor expectations regarding future dilution improved in recent days due to rumors that the company would not be required to convert anywhere near the 25-45 billion. The CNBC spin this morning that this news is “better than expected” because analysts “were expecting 65-70 billion in capital” is non-sense. The bear case on BAC expects 65-70 billion in capital needs by the end of 2010. I would not be surprised to see some near-term profit taking to the 875-880 level on the S&P 500 despite the better than expected ADP Employment change number.

European markets are up 0.25% but have pared stronger gains earlier in the session. Advancers on the FTSE 100 lead decliners 13-7. Trading lower after results are Total (FP.FP) and BAE Systems (BA.LN). BNP Paribas, Deutsche Post (DPW.GR) and BMW Group all traded higher after results. Asian markets closed mixed but Chinese markets continued higher (Hong Kong up 2.4%, Shanghai up 1.4%, Australia down 0.60%, South Korea down 0.50%, India down 1.4%). Financial stocks were strong due to two strong earnings reports from 2 banks based in Singapore (United Overseas and Overseas Chinese Banking Corp). Resource stocks fell.

Research Calls/Market Moving News:

Bank of America May Need About $34 Billion of Capital-Bloomberg: “Regulators have determined that Bank of America Corp. requires about $34 billion in new capital, the largest need among the 19 biggest U.S. banks subjected to stress tests, according to a person with knowledge of the matter. Citigroup Inc.’s shortfall is more limited because the company already plans to convert government preferred shares to common stock, people familiar with the results said. JPMorgan Chase & Co. doesn’t need a deeper reserve against losses, according to people familiar with that company’s result. The banks may outline their strategies to add capital, or in other cases buy out government stakes, after the Federal Reserve publishes the stress tests results tomorrow. Companies requiring more capital could raise all the funds through conversions of preferred shares if they choose, the people said.”

Citi pushing to speed up brokerage venture with Morgan Stanley (MS) – Bloomberg: People familiar with the matter say Citi wants to close the deal by 1-Jun, rather than in Q3. The sooner the deal is closed, the sooner Citi can book a $5.8B gain, which would reduce its perceived need for additional capital

RIG (72.97): Transocean reports Q1 EPS $3.75 ex-items vs Reuters $3.50: Company reports revenues of $3.12B vs Reuters $3.09B. Average total drilling fleet dayrate $256.5K vs year-ago $228.4K; Utilization 91% vs year-ago 91%

RIMM (75.40): Research In Motion's target increased at Oppenheimer after channel checks: The shares are rated outperform and the target is increased to $85 from $70. The firm cites greater confidence in near-term demand and the possibility of some inventory restocking. Oppenheimer feels trends have stabilized with upside potential as volume ramps and product mix improves.

China solar-power rollout to smash target - South China Morning Post
Speaking at a solar energy conference, a researcher at the National Development and Reform Commission says the country may have 10,000 MW of installed solar energy capacity by 2020, vs the target of 1,800 MW. The researcher stresses that the forecast is his personal opinion, and adds that the idea of meeting the international goal of getting 1% of electricity from solar power by 2020 is an unrealistically high target (40,000 MW) for China. The country had less than 100 MW of solar power capacity attached to the grid at the end of 2008

MOS (46.27): Globe and Mail Mosaic (MOS) is latest rumored target of BHP Billiton

Capital Raises: Dow Chemical (DOW) to offer approximately $1.65B in common stock with $625M from selling shareholders. DR Horton (DHI) announces $400M convertible note offering through Citi. Delta Petroleum (DPTR) announces 70M share secondary through JPMorgan, BMO and Deutsche Bank

Private equity tries to buy banks – NYT: The Federal Reserve, however, limits private equity firms to a minority interest. The firms are lobbying regulators to change their position, because they could then purchase what they think will be money-printers once the recession is over. Laws prohibit mixing banking and commerce, and the government also wants to be able to use a parent company's funds to stabilize a bank that needs it. The structure of private equity firms would make such funding problematic. Private equity firms have, as in the case of IndyMac, squeaked around the rules by arranging to buy banks in a way that no one of them has a majority interest. JC Flowers has purchased a bank using his own money -- which is perfectly legal, though he still can't use his firm's billions -- and is now hoping for the rules to change

WYNN (49.98): Wynn Resorts downgraded to market perform from outperform at Bernstein: Target increased however to $40 from $30. Firm cites valuation.

DVN (54.48): Devon Energy reports Q1 EPS $0.48 vs Reuters $0.29: EPS excludes a $4.2B non-cash, after-tax reduction in the carrying value of oil and gas properties. Company reports revenues of $2.03B vs Reuters $1.84B. Combined oil, gas and natural gas liquids production averaged 685K oil- equivalent barrels (Boe) per day in Q. This was a seven percent increase in production compared with Q1 of 2008. The production growth was concentrated in onshore fields within the United States and Canada.

Some REITs buying back their bonds at steep discounts – WSJ: The Journal reports that in an effort to deleverage, in the past six months, 16 large REITs have repurchased an aggregate $3.9B in face value of bonds at discounted price of $2.5B

FWLT (24.04): Foster Wheeler reports Q1 EPS $0.59 ex-items vs Reuters $0.69: Company reports revenues of $1.26B vs Reuters $1.47B. Consolidated backlog in future revenues $4.91B vs year-ago $8.95B New orders booked in future revenues $906M vs year-ago $1.24B

CHK (20.40): Chesapeake Energy removed from Conviction Buy List at Goldman Sachs: The shares are maintained buy with a $25 target.

Study says nearly 30% of US homeowners underwater – WSJ: The Journal reports that Web site said that overall, the number of borrowers who are underwater climbed to 26.9M at the end of Q1 from 16.3M at the end of Q4. The latest figure represents 28.9% of all homeowners, up from 17.6% in Q4 and 14.3% in Q2. According to the Journal, there is some dispute over just how many borrowers are underwater, as the answer depends on several assumptions, including home values and mortgage debt outstanding. In addition, underwater estimates can be overstated if they use price data that includes large numbers of foreclosures. Moody's estimates that of 78.2M owner-occupied single-family homes, 14.8M borrowers, or 19%, owed more than their homes were worth at the end of Q1, up from 13.6M at the end of last year. The article notes that given that with the surge in underwater borrowers, fewer homeowners will qualify to take advantage of a critical component of the Obama administration's plan to stabilize the housing market. Under that plan, as many as 5M homeowners whose loans are owned or guaranteed by Fannie and Freddie, can refinance their mortgage if it is a maximum of 105% of the loan's value. FHFA director James Lockhart says that the government may increase that limit.

Banks will have to show ability to sell debt without FDIC guarantee as a condition of exiting TARP – WSJ: The Journal cites senior government officials who say that banks that want to return TARP funds will have to demonstrate their ability to raise debt without an FDIC guarantee. Banks have issued more than $322.5B under the TLGP since the program began last fall. According to the article, regulators could detail the complete set of guidelines outlining how banks can repay TARP funds as early as Wednesday. Note that JPMorgan (JPM), Goldman Sachs (GS), BB&T (BBT) and BNY Mellon (BK) are some of the banks that have recently been able to issue debt without the FDIC wrap.

Freddie Mac receives favorable accounting ruling – WSJ: In an interview with the Journal, acting CEO John Koskinen says that Freddie Mac has received a favorable ruling from the SEC that will allow it to avoid what the company had feared might be a $30B charge against earnings. The article notes that the company sought guidance from the SEC earlier this year after the Obama administration announced a plan in February under which the GSEs will lower mortgage payments for millions of Americans in an attempt to prevent foreclosures. The plan will require the companies to give up income and reduce the value of many mortgage securities they hold. Koskinen also says that the company hopes to announce the hiring of a new CFO this month, and a new CEO by mid-July.

Tuesday, May 5, 2009

May 5, 2009: Morning Call

May 5, 2009: Morning Call

Fair Value: SP500 – 904.94; NDX: 1428.02; DOW: 8388.98

Technical Levels:

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


Pre-market EPS: ADM (.49/17.19B); ADP (.80/2.38B); AVP (.32/2.13B); AYE(.69/1.13B); CVS (.51/23.58B); DUK (.32/3.41B); EMR (.53/5.08B); FE(.89/3.68B); LM (-2.33/611.5M); PCP (1.87/1.76B); PGN (.61/2.13B); WYNN (0.00/745.3M); UBS (na/na)
05:00: Euro-zone PPI (March): -2.9% YoY; -0.5% MoM
06:45: Fed’s Rosengren speaks in Hong Kong- Topic TBD
09:00: UBS earnings call
10:00: ISM Non-Manufacturing (April): 42.0
10:00: Bernanke testifies before Joint Economic Committee- Economic Outlook
10:00: DHI earnings call
12:00: Fed’s Hilton speaks on “Monetary Policy and the New Fed Tools.”
12:30: JPM CEO Dimon speaks at Business Council Event
16:30: API Crude Oil and Gasoline Inventories
22:30: Fed’s Yellen speaks on US Recession
Post-market EPS: AUY (.08/250.6M); CEPH (1.26/535.4M); CTX (-1.34/911.5M); DIS(.40/8.15B); HRS (1.00/1.21B); LNC (.76/2.54B); PBI (.63/1.47B); PHM(-.61/632M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points below fair value while the NASDAQ futures are trading 8 points below fair value at 7:30am ET. Asian markets closed modestly higher (Hong Kong up 0.30%, Australia up 0.19%, Shanghai up 0.47%, Taiwan up 0.78%, India down 0.03%, Japan is closed). Cyclical stocks continued to outperform with coal miners rallying on positive comments from Goldman Sachs. Taiwan continued up on optimism about cross-straits trade and auto stocks got a lift from a report that companies have started adding weekend shifts to boost output. HSBC Holdings (5.HK) edged up on a report it wants to be in the first group of foreign companies to list in Shanghai. European markets are up 0.20% (London is up 2.8% because it was closed for a holiday yesterday). Earnings related weakness was led by the likes of Adidas (ADS.GR), Alcatel-Lucent (ALU.FP), Alstom (ALO.FP) and Metro (MEO.GR). UBS reported Q1 net inline with its preannouncement, though the company remains cautious on the immediate outlook.

Research Calls/Market Moving News:

Government expected to direct about 10 of the 19 banks that underwent stress tests to boost capital – WSJ: The Journal cites several people familiar with the matter. The paper adds that the exact number of banks affected remains under discussion. As has been widely reported already, the article notes that the list of banks could include Wells Fargo (WFC), BofA (BAC), Citi (C) and several regional banks. Of interest, the Journal says that at one point, officials believed that as many as 14 banks would need to raise additional capital.

UBS (20.335): UBS reports Q1 net (CHF 1.98B) vs preannounced loss of almost (CHF2B) incl items: Results include a CHF 0.6B goodwill impairment charge related to the announced sale of UBS Pactual. Losses are driven primarily by risk positions in businesses now exited or in the process of being exited by the Investment Bank. Shares are currently flat after trading up 4% in Europe.

MGM (9.44): MGM Mirage says "extremely high" interest in properties - conf. Call: Not surprisingly, details of their asset plans have been few; they note that everything is on the table. Speaking specifically to asset sales, management says that potential sales will not be the driver of their restructuring going forward. They go on to note that they are not holding a firesale on their properties and will only accept full value of what can be expected in this environment.

MGM (9.44): MGM Mirage says April Las Vegas RevPar was down around 30% - conf. Call: Represents modest improvement from the 34% decline seen for all of Q1. Management says that nearly all of the improvement versus the first quarter was in rate, as occupancy was flat y/y; they also highlight this flat occupancy though, as it is the first month in some time that has seen flat y/y occupancy. Expounding a bit on their comments in the release, management says that they continue to see improvements in transient and leisure activity. Promotions are said to have driven much of the improvement, though they have lately seen some easing on this front; they do expect room rates to remain lower for the near term but anticipated margins to improve going forward. Management says they do not want to outline false hopes for a recovery, but do note that they believe the worst is behind them.

HCP (23.08): HCP to offer 12.5 million share secondary. The price talk is between 20.80 and 21.90.

AAPL (132.07); GOOG (401.97): FTC investigating links between boards of Apple and Google - NY Times: Citing people briefed on the matter, the Times reports that FTC has begun an inquiry into whether the close ties among the boards of Apple and Google amounts to a violation of antitrust laws. Recall that Apple and Google share two directors, Google CEO Eric Schmidt and Arthur Levinson, the former CEO of Genentech. The paper notes that the Clayton Antitrust Act of 1914 prohibits a person’s presence on the board of two rival companies when it would reduce competition between them. According to the Times, antitrust experts say that the "interlocking directorates" provision of the act is rarely enforced

CHK (22.81): Chesapeake Energy reports Q1 EPS $0.46 ex-items vs Reuters $0.48: Company reports revenues of $2.00B vs Reuters $2.12B, and Q1 Production of 2.367Bcfe/day, +2% y/y. Proved reserves are 11.9Tcfe, and the company notes that it has reduced it 2009 and 2010 drilling capital expenditure budget by $500M.

RBC Upgrades Oil Service Stocks: Baker Hughes (BHI) upgraded to outperform from sector perform; target increased to $51 from $48. BJ Services (BJS) upgraded to outperform from sector perform; target increased to $18 from $15. Halliburton (HAL) upgraded to outperform from sector perform; target increased to $27 from $22. Smith International (SII) upgraded to outperform from sector perform; target remains $35. Schlumberger (SLB) upgraded to outperform from sector perform; target increased to $70 from $55. Weatherford International (WFT) upgraded to outperform from sector perform; target increased to $23 from $12. Nabors Industries (NBR) upgraded to sector perform from underperform. Patterson-UTI (PTEN) upgraded to sector perform from underperform; target increased to $20 from $15. Union Drilling (UDRL) upgraded to sector perform from underperform; target increased to $10 from $4.

EOG (72.04): EOG Resources reports Q1 EPS $0.53 vs Reuters $0.60: Company reports revenues of $1.16B vs Reuters $1.03B. Company reports natural gas equivalent volume of 2,146MMcfed vs year ago 1,875Mmcfed

WFC (24.25): Oppenheimer initiates an outperform rating and a 30 dollar price target.

AAPL (132.07): TechCrunch is reporting rumors that Apple is in late stage negotiations to buy Twitter and is hoping to announce it at WWDC in June. TechCrunch also suggests that Twitter rebuffed an offer from GOOG.

YHOO (14.18); MSFT (20.19): Yahoo (YHOO), Microsoft (MSFT) show "meaningful" progress toward search-and-advertising partnership - All Things Digital: Some sources think a deal could be struck in the next few weeks. It is not clear if an investment in Yahoo by Microsoft is also under consideration.