June 11, 2009: Morning Call

June 11, 2009: Morning Call

Fair Value: SP500 – 939.10; NDX: 1495.48; DOW: 8739.64

Technical Levels:

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

Events:

Pre-market EPS: DLM (0.26/950.7M)
04:00: ECB publishes June Monthly Report
08:30: US Retail Sales (May): 0.5%; Less Autos: 0.2%
08:30: Initial Jobless Claims: 615,000; Continuing Claims: 6,780,000
09:00: LDK presents at Deutsche Bank Alternative Energy Conference
09:10: BNI presents at Bank of America Transportation Conference
09:40: CSCO presents at William Blair Conference
09:40: CELG presents at Goldman Healthcare Conference
10:00: Business Inventories (April): -1.0%
10:00: BAC CEO Ken Lewis testifies on the purchase of Merrill
10:20: GILD presents at Goldman Healthcare Conference
10:30: EIA Natural Gas Storage Change: 110bcf
11:00: Fed’s Fisher speaks on the economy
11:05: NSC presents at Bank of America Transportation Conference
11:35: V presents at UBS Conference
13:05: Fed’s Lockhart speaks on the economy
22:00: Chinese Retail Sales (May): 15.0% YoY
22:00: Chinese Industrial Production (May): 7.7% YoY
Post-market EPS: NSM (-0.01/273.3M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value while the NASDAQ futures are trading 5 points above fair value at 7:45am ET. Trading is on the light side as commodities (modestly higher), treasury bonds (modestly lower), equity futures (modestly higher), and FOREX (dollar modestly lower) are all seeing modest price changes this morning. Crude oil is trading above 72 after the IEA raised its demand forecast for the first time in 10 months. Asian markets closed mixed with most staying close to unchanged (Japan down 0.10%, Hong Kong up 0.03%, Australia up 0.57%, Shanghai down 0.94%, Taiwan up 1.63%, India down 0.36%). Commodity stocks rose once again, while defensive stocks fell. Advancers led decliners by more than 2-to-1 in Taiwan. Taiwan Semiconductor Manufacturing (2330.TT) ended little changed after saying May sales fell (16%) y/y. Hong Kong reversed early declines. In Japan, the Nikkei hung around 10,000, exceeding the level for the first time since October. European markets are up 0.25% to 0.50% in a quiet range bound trading morning session. The ECB said it is expecting Euro-zone growth to resume in mid-2010.

Research Calls/Market Moving News:

DELL (12.94): Dell looking to acquire a "significant-sized company" in the coming months – WSJ: The Journal, which notes that Dell officials have already said publicly that they want to do more deals, cites comments from a source familiar with CEO Michael Dell's thinking. People familiar with the situation also tell the paper that CFO Brian Gladden recently indicated that Dell wants to expand its data-storage and tech-services businesses. The article goes on to discuss the company's recent $1B bond sale, the hiring of former IBM M&A chief David Johnson and the heightened competition for tech deals.

MA (173.60): MasterCard initiated buy at Piper Jaffray. Target is $222. “We believe the current valuation of MasterCard's shares offers investors a compelling entry point relative to its long-term earnings power potential. MasterCard's valuation is essentially in-line with the overall market multiple for the S&P 500 despite having a well above average long-term earnings growth profile and manageable risks to earnings, in our view. • Earnings upside potential, driven by pricing benefits and operating leverage. Our '09/'10/'11 EPS estimates of $10.86/$13.10/$16.92 are well above consensus of $10.47/$12.26/$13.53. We believe others are underestimating pricing benefits on access fees, expense leverage, and a rebound in spending/travel. • Revenue growth, a key to valuation, is poised to accelerate significantly by the 4Q09, in our view. We believe a key catalyst for the shares of MasterCard will be accelerating revenue growth, which we expect to hit 8% in the 4Q09. Our confidence is bolstered by easier comps, rebounding gas prices, the lapping of currency headwinds, and stabilizing retail sales and cross-border travel trends. • International debit and credit and global prepaid provide substantial long-term secular growth potential for MasterCard. We believe the attractive international secular growth opportunity has been overlooked amidst the global economic downturn and regulatory issues in the U.S. • MasterCard's valuation discount vs. Visa is near its widest ever. We expect MasterCard to trade at a discount to Visa over the long-term, largely because of MasterCard's smaller debit footprint and higher risk to common shareholders on any interchange litigation settlement. However, MasterCard's shares are currently trading at the high-end of their historical discount range vs. Visa's shares, suggesting to us that the valuation discount is unlikely to widen much further and could narrow as MasterCard continues to exceed expectations and its revenue growth accelerates.

Crude Oil (72.02): IEA raises global oil-demand forecast for the first time in 10 months. Estimate is increased 120,000 barrels a day to 83.3 million barrels a day, driven by consumption in the United States and China. Consumption worldwide will contract 2.9% versus last year, the biggest drop since 1981, according to Bloomberg.

Foreclosure Data: RealtyTrac says foreclosure filings down 6% month over month and up 18% year over year.

VMC (43.97): Vulcan Materials (VMC) cuts dividend to $0.25 from $0.49; announces 11.5M share secondary, guides Q2 EPS to $0.15-0.30 vs Reuters $0.44, guides full year EPS to $0.70-1.00 vs Reuters $1.03.

FDX (57.25): FedEx Q4, f10 estimates, target reduced at JPMorgan: The firm expects Q4 EPS to the lower end of guidance of $0.45-$0.70 as the firm does not believe FDX saw an uptick in transport demand during the quarter, and expects f10 guidance to be below consensus. Q4 EPS reduced to $0.48 from $0.56; f10 EPS to $2.60 from $2.85. Reuters consensus is $0.53 and $3.39, respectively. First Call is $3.37 for f10. The target is reduced to $60 from $66; rating remains neutral.

BAC (11.98): Bank of America upgraded to outperform from market perform at Keefe, Bruyette & Woods: Target increased to $16.50 from $12. The firm cites valuation and an improved balance sheet.

ATPG (9.27): ATP Oil & Gas (ATPG) announces 7.25M share secondary offering through JPMorgan.

GMGMQ (1.59): General Motors comments on stock price and volume: Company says that its management has noticed a recent elevation in the volume and price of its common stock. Adds that while it has no control over the market or its stock price, management strongly believes that any recovery for the common shareholders in the Chapter 11-bankruptcy process is highly unlikely, even in the most optimistic of scenarios. The stock has closed higher in each of the last six trading days, and is up more than 160% during that period.