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

Events:

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.