Wednesday, June 24, 2009

June 24, 2009: Morning Call

June 24, 2009: Morning Call

Fair Value: SP500 – 891.24; NDX: 1423.99; DOW: 8268.40

Technical Levels:

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


Pre-market EPS: MON (1.17/3.46B); PTR (na/45.08B); RAD (-.12/6.53B)
04:00: ECB Euro-zone Current Account (April)
07:00: MBA Mortgage Applications
08:30: Durable Goods Orders (May): -0.8%; Ex-Transportation: -0.5%
09:30: Bank of England’s King, Bean, Fisher, Sentence, Barker testify to Parliaments Treasury Committee
09:30: MON earnings call
10:00: US New Home Sales (May): 360,000; 2.3% MoM
10:15: FDX presents at Wachovia Conference
10:30: DOE Crude Oil and Gasoline Inventories
13:30: FSLR Analyst/Investor meeting
14:15: FOMC Rate Decision: 0.25%
17:00: NKE earnings call
Post-market EPS: BBBY (.24/1.68B); CKR (.25/449.2M); NKE (.94/4.71B); PAYX(.33/507.1M)

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 8am ET. The Federal Reserve will announce their decision on interest rates at 2:15pm. The OECD modestly increased its economic forecast this morning. OECD expects the global economy to contract 4.1% this year and grow 0.7% in 2010. The March forecast estimated a contraction of 4.3% in 2009 and growth of 0.1% in 2010. Asian markets closed higher with energy and basic material sectors snapping back from the recent selling pressure (Japan up 0.43%, Hong Kong up 2.02%, Australia up 0.27%, Shanghai up 1.19%, Taiwan up 2.95%, India up 0.69%). Construction and property shares helped Taiwan rally on a report that various geographies would be upgraded into municipalities, potentially boosting their land values. Steelmakers rose in China and Hong Kong on a report that Asia’s largest iron-ore deposit had been discovered in the country. BHP Billiton (BHP.AU) slipped in Australia on the aforementioned report of a huge iron-ore discovery in China. European markets are up 0.25% to 1% after opening modestly lower. Technology related shares got a lift from Oracles results and mining shares bounced from the recent selling pressure.

Research Calls/Market Moving News:

ORCL (19.87): Oracle reports Q4 EPS $0.46 ex-items vs Reuters $0.44: Company reports revenues of $6.88B vs Reuters $6.48B. Oracle reports Q4 new licenses $2.744B vs. consensus $2.45B. Represents a 13% y/y decline versus guidance for down 17-27%. Non-GAAP operating margin reported 51.1% vs. 49.5%. Oracle guides Q1 (Aug) non-GAAP EPS $0.29-0.31 vs Reuters $0.30 - conf. Call: Currency neutral EPS targeted at $0.31-0.33. Guides non-GAAP revenue to decline 3-5% y/y on a reported basis, implying a range of $5.15-5.26B vs Reuters $5.15B. Oracle says customer "panic" has abated - conf. Call. Management highlights that its pipeline has been growing significantly and indicates that close rates were better than expected during the fourth quarter. They also went on to note that the Q1 outlook assumes "unusually conservative" close rates

FCX (47.18): FBR upgrades FCX to outperform. Target is 58. “The shares of Freeport-McMoRan Copper & Gold, Inc. continue to exhibit strong correlation with the underlying price of copper, which has corrected recently on (1) declining arbitrage between LME and SHME, (2) declining canceled warrants and (3) the speculation that China may have sold some copper recently. While we are cognizant about the near-term weakness, we continue to believe that copper and its largest consumer China do have long-term structural supply issues. In fact, according to the China Non-Ferrous Metal Association, at the current demand level, China might exhaust its copper reserves in 16 years. As such, we believe that China will continue to absorb worldwide supply surplus as strategic reserves. We further maintain our 2010 copper price forecast of $2.40/lb and believe that copper should be priced on cost plus return on a capital basis rather than the simple marginal cash cost. Given the recent pullback in equities, we are upgrading FCX to Outperform from Market Perform. We maintain our price target of $58/share based on 5.5x 2010E EV/EBITDA and we recommend investors take advantage of the market volatility to accumulate FCX shares. Currently, FCX trades at 4.6x our 2010E EV/EBITDA

GOOG (405.68): Piper Jaffray is positive on GOOG following their quarterly eCommerce survey. “We conducted our quarterly eCommerce survey of 315 online shoppers and the results suggest search is well positioned for a consumer increase in eCommerce activity. Since Google is the leader in search, and we do not believe this is likely to change long term, we believe Google is best positioned to benefit from these improving consumer trends. Our survey results suggest that 17% of consumers prefer search as their primary online shopping method, up from 8% in September 2008 and 14% in March 2009. Search is now the most preferred method to shop online for more consumers than online auction (eBay) or comparison shopping. We believe this is a result of search engines, and specifically Google, improving their shopping engines and offering better experiences than many other online offerings.

Iron ore deposit discovery reported in China - China News Agency:
The China News Agency said that a 3B MT iron ore deposit was discovered in the Chinese province of Liaoning, and could start production as early as next year. The report comes as Chinese steel makers are in iron ore price negotiations with producers, and shipping rates recently have been highly leveraged to such shipments, with elevated demand from China cited as a primary driver.

AXP (23.39): American Express looks overpriced – WSJ: A "Heard on the Street" column says AmEx's P-E ratio of 16.9 far exceeds JPMorgan Chase (JPM)'s 11.9. It's close to Visa (V)'s 18.6, but Visa does not have credit risk, and AmEx is dealing with new bank regulations. At 12.9 times earnings, MasterCard (MA) represents much cheaper exposure to payments than AmEx does.

AMT (29.83): American Tower upgraded to overweight from neutral at JPMorgan:
Target is $36

FSYS (20.82): Fuel Systems Solutions upgraded to buy from neutral at Janney Montgomery Scott: Target is $31

Oppenheimer downgrades refiners: Frontier Oil (FTO) downgraded to perform from outperform .Sunoco (SUN) downgraded to perform from outperform. Tesoro (TSO) downgraded to perform from outperform. Valero Energy (VLO) downgraded to perform from outperform. Firm cites a deteriorating industry outlook of low margins caused by high oil prices and weak demand. Oppenheimer believe sUS gasoline consumption may have peaked, while diesel demand will continue to reflect economic activity.

RIMM (69.60): China Telecom (CHA) is in talks with Research In Motion to offer BlackBerry in China -- Dow Jones, citing Caijing Magazine: The report, citing an unnamed China Telecom executive says the two companies are currently testing the devices and a launch schedule has not yet been determined. RIMM says it doesn't comment on market rumors, while a CHA spokesman couldn't be reached for comment. RIMM currently offers the BlackBerry in China through China Mobile (CHL).

AAPL (134.01): Tennessee hospital confirms reports that Apple's Steve Jobs underwent liver transplant: The Methodist University Hospital Transplant Institute confirmed, with the patient's permission, that Steve Jobs received a liver transplant. The hospital said that Jobs "received a liver transplant because he was the patient with the highest MELD score (Model for End-Stage Liver Disease) of his blood type and, therefore, the sickest patient on the waiting list at the time a donor organ became available. Mr. Jobs is now recovering well and has an excellent prognosis.

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