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.

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