Monday, June 29, 2009

June 29, 2009: Morning Call

Fair Value: SP500 – 915.24; NDX: 1479.73; DOW: 8385.67

Technical Levels:

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


04:00: Euro-zone Consumer Confidence (June): -30; Economic Conf: 71.0
04:00: Euro-zone Industrial Confidence (June): -32
08:30: Chicago Fed. National Activity Index (May): 33.10
17:00: APOL earnings call
Post-market EPS: APOL (1.12/1.04B); HRB (2.05/2.5B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 2 points above fair value at 7:30am ET. The futures are trading 10 points above the overnight session low (907.40) in very light volume. Asian markets closed lower (Japan down 0.95%, Hong Kong down 0.39%, Australia down 0.43%, Shanghai up 1.65%, Taiwan down 1.1%, India up 0.14%). Japanese Industrial production came in weaker than expected (5.9% vs. consensus 7.0%). Daiwa Securities (8601.JP) fell after announcing a $2.5B share sale and Mizuho Financials (8411.JP) also traded lower on talk of share sale. European markets quickly reversed small opening declines and are currently trading up between 0.50% and 1.2%. Euro-zone confidence numbers came in stronger than expected. Deutsche Telecom is up 2.5% on chatter that VOD is considering a bid for DT’s UK wireless division. ELN traded up as much as 8% before pulling back on chatter that NVS is in talks to buy part of the Elan. Reports are saying that an agreement is “some way off.”

Research Calls/Market Moving News:

AAPL (142.44): Collins Stewart says iPhone shipments are well ahead of consensus, according to their channel checks. “ Final June Production Well Above Our Prior Estimate Our AAPL supply chain checks indicate that total iPhone production (3G/GS) for the June quarter will come in close to 7 million or well above our earlier near consensus expectations of 4.6 million. The late ramp was attributed to production bottlenecks. Legacy 3G iPhone shipments would have increased over 15% sequentially to 4.4 million and the residual 2.4 million representing 3GS shipments. Overall shipments are almost 2x the levels in the June quarter. Conservative Production Forecast: AAPL current iPhone production forecast for the September quarter calls for total unit shipments to modestly exceed 6 million units. This would be a high single digit decline both sequentially and year-on-year. If these production levels hold, it would represent modest sequential increase for the 3GS phones and a 15% decline for the 3G platform. It appears that AAPL will sunset the legacy platform by year end. n Model iPhone contributes to about a fifth of top-line revenues. An incremental 2+ million iPhone shipments translates to an additional $150 million based on subscription accounting, or a 2% upside, to our revenue estimate of $8.1billion.

WSJ says PPIP has lost momentum and shows the difficulty of getting the bad debt off the banks' balance sheets: Cites the well known causes: "Big banks worried about having to sell at fire-sale prices while small banks feared they would be shut out. Potential buyers balked at the risk of doing business with the government, concerned that politicians might demonize them for making big profits." Some officials say the banking environment has improved and there is not as much of a need for the program, as demonstrated by the recent capital raisings. The FDIC effectively ended the prong that would buy bad bank loans earlier this month while investors are reluctant to participate in the effort to buy troubled securities. Some claim that the announcement of the program generated the confidence to allow the bank to raise private capital.

AAPL (142.44): Barron's Follow Up is still positive on Apple: The shares are trading for 25x forward earnings compared to a 5 year average of 30x. Bernstein Research's Toni Sacconaghi has a target of $155 and believes the near term performance will be good enough to merit a higher stock price. COO Cook has performed ably while CEO Jobs was absent for medical reasons.

AAPL (142.44): NY Times notes the popularity of gaming on the Apple iPhone: Games are the largest section of the App Store and the largest number of downloads. The gaming industry is starting to pay attention to the casual gamers who use the iPhone to play, about 79% of iPhone users have downloaded games vs 31% for smartphone users in general. Electronic Arts is now bringing titles to the iPhone, including some of the bigger franchises. Some developers say the sophisticated level of play possible is starting to cut into the market of devices like the PSP and DS.

GOOG (425.32): Google argues size shouldn't matter because it is a click away from obsolescence reports the NY Times: Google is waging a public relations campaign to convince regulators and lawmakers that despite its size, Google is still vulnerable to competition and industry disruptive technologies. Google has not been accused of anticompetitive practices but is involved in three separate governmental investigations and some analysts say government opposition is the biggest threat to the company's continued success.

DELL (13.68): Bernstein comments on Dell, acquisition strategy: The firm believes DELL is focused on acquiring small to medium sized enterprise related companies with strong margin profiles and higher levels of recurring revenues and says a PC or consumer/handset related acquisition appears unlikely. Bernstein does believe DELL should consider a deal to acquire another PC company with Acer mentioned as a possibility. A large acquisition in the services area such as CSC or ACN is seen as highly unlikely though Perot (PER) could make sense. With regard to the storage area, Compellent (CML) and CommVault (CVLT) are both seen as appropriate targets.

STT (48.33): State Street receives Wells notice from SEC: On 25-Jun, the staff of the SEC provided State Street Bank and Trust Company, State Street's principal subsidiary, with a “Wells” notice. The notice relates to an ongoing SEC investigation into disclosures and management by State Street Global Advisors of certain active fixed-income strategies during 2007 and prior periods. The Wells notice informs State Street that the SEC staff intends to ask the SEC Commissioners for permission to bring a civil enforcement action for possible violations of the securities laws.

Barron's summaryCover: Examination of the asset allocation of the large university endowments. Interview: Joe Dear, chief investment officer of Calpers, is counting on a 7.75% rate of return long term. Lead Articles: Wendy’s/Arby’s Group (WEN) looks worth buying after a recent selloff; Henry Schein (HSIC) and Patterson (PDCO) look overextended; cautious near term on Asia; Other Voices is a contribution from Joe Queenan; Editorial questions the wisdom of the proposals for increased regulating of the financial markets. Columns: The Trader is cautious on the markets and dollar, looks at potential commodity M&A and is positive on Accenture (ACN); Commodities Corner says corn bulls may suffer if not as much farmland is left fallow as originally planned and the shift away from corn does not materialize; Current Yield notes the backing away from risk lately and the risk to the larger market if California starts paying obligations with IOUs on 1-July; Asia Trader notes the strength of the Indonesian market; Euro Trader is positive on Allianz (AZ) and AXA Group (AXA); The Striking Price notes the time it takes for a calming of volatility to be priced into longer term options and that some traders are seeking to profit from that; Follow Up is still positive on Apple (AAPL) and packaging stocks; Up and Down Wall Street considers the latest economic and political news; Streetwise notes that if the credit markets are correct, then conditions should remain supportive of stocks generally; D.C. Current notes the secretiveness surrounding the Obama administration's auto task force; Technology Trader criticizes Apple (AAPL) and Palm (PALM) for their lack of candor, Apple about CEO Jobs' health and Palm about sales of the Pre; Plugged In notes the attack of NetSuite (N) against SAP (SAP) on SAP's home territory with the coming release of NetSuite's applications for German companies and others doing business in that country.

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