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

Events:

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.