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.

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