June 3, 2009: Morning Call

June 3, 2009: Morning Call

Fair Value: SP500 – 944.06; NDX: 1480.56; DOW: 8730.00

Technical Levels:

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

Events:

Pre-market EPS: JOYG (.89/873.5M); TOL (-.44/386.4M); WSM (-.21/609.0M)
04:00: Euro-zone PMI Services (May Final): 44.7 (actual: 44.8)
05:00: Euro-zone PPI (April):-0.9% MoM; -4.6%YoY(actual: -1.0% MoM; -4.6%MoM)
05:00: Euro-zone GDP (Q1): -2.5% QoQ; -4.6% YoY (actual: -2.5% QoQ; -4.8% YoY)
08:00: NSC Analyst Day
08:00: COF presents at KBW Financial Conference
08:00: BRCM presents at Bank of America Tech conference
08:15: ADP Employment Change (May): -525,000
09:00: MSFT presents at Bank of America Tech conference
10:00: ISM Non-Manufacturing (May): 45.0
10:00: Factory Orders (April): 0.9%
10:00: Fed Chairman Bernanke testifies on the economy before the House Budget Committee
10:30: DOE Crude Oil and Gasoline Inventories: -1.5M Crude Draw; 650k Gas Build
10:30: AMAT presents at Bank of America Tech Conference
11:00: HOV earnings call
11:00: JOYG earnings call
12:15: AXP presents at KBW Financial Conference
14:00: TOL earnings call
14:20: AGU presents at Goldman Sachs Basic Materials Conference
14:30: Fed’s Hoenig speaks on the economy
15:45: CF presents at Goldman Sachs Basic Materials Conference
17:00: Select Retailers release May Same Store Sales
Post-market EPS: DCP (.30/776.4M); SAI (.27/2.51B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 6 points below fair value at 8am ET. Weakness in European markets (down 1.0%-2.0%) is weighing on index futures, commodities, the Euro and British pound. Euro-zone GDP came in a little weaker than expected and markets in London are the weakest on concerns about political instability following reports of tension between Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling. European banks (down 3.5%) remain under pressure on concerns about an overhang on the sector due to all the equity issuance (BCS is down another 6% after falling 11% on Tuesday following the Abu Dhabi sales). Basic material and technology stocks are also weak. Asian markets closed higher (Japan up 0.38%, Hong Kong up 1.08%, Australia up 1.56%, Shanghai up 2.56%, India down 0.03%). GDP numbers. Basic Materials stocks continued to rally with Nippon Mining (5016.JP) and Zijin Mining Group (2899.HK) both gaining. Shippers were also higher again as the Baltic Dry Index reached an eight-month high. In Korea, financials were lower after a report in the Mail Business Newspaper that KB Financial (105560.KS) and Woori Finance Holdings (053000.KS) were working on rights offers. In Japan, automakers were mostly higher despite having posted steeper declines in U.S. sales in May than most of their American counterparts.


Research Calls/Market Moving News:

Pre-market Trading Summary: Trading higher: JOYG +5.3% (earnings), BUCY +4.8% (JOYG sympathy), AAPL +0.50% (outperforms big cap tech on an upgrade at Collins Stewart and positive comments and price target bump at BMO Capital), TIVO +35.8% (Favorable US District Court ruling against DISH networks), TSRA +13.7% (license agreement with MOT), APSG +11.7% (earnings), FE +6.5% (guidance), SGY +6.2% (deepwater discovery), AGEN +5.8% (follow-through from kidney cancer study), NFX +4.4% (deepwater discovery), BOBE +1.7% (earnings). Trading lower: VLO -10.2% (guidance), STLD -9.1% (27M share secondary; $150M convertible; dividend cut by 25%), AET -7% (guidance), DISH -6.9% (found contempt in TIVO case), BVF -6.6% ($200M convertible), BCSI -5.6% (earnings), WLP -4.2% (AET sympathy), JBLU -3.7% (20M share secondary; May traffic), HUM -3.6% (AET sympathy), HOV -3.6% (earnings), PAY -3.5% (earnings), CI -2.6%, SNDA -1.5% (earnings), FIF -1.1% (earnings).

Fed officials have surprised banks saying that specific amounts of new capital must be raised before repaying TARP – Bloomberg: Fed officials have told banks that they needed to raise specific amounts of new capital prior to repaying taxpayer funds, with more stringent assessments applied compared to the results of the stress tests in May. JPMorgan (JPM) and American Express (AXP) were told they needed to increase common equity, after having been told they had enough capital in case of a further economic downturn. Morgan Stanley (MS) was also told to raise more funds (note that all 3 companies announced capital raises this week). Goldman Sachs (GS) hasn't been required to seek any more funds since its $5.75B capital raise in Apr. The article notes the caution from the Fed stems from a concern of the Fed that the banks repay TARP funds and then claim they have no capital to make loans.

AAPL (139.49): Apple upgraded to buy from hold at Collins Stewart: The firm believes the AAPL OS with new product launches and lower prices is positioned to gain share at the expense of RIMM and Windows Mobile. Target for the shares is $170.

AAPL (139.49): Apple estimates and target raised at BMO Capital: The firm raises their f10 EPS estimate to $6.00 from $5.78 vs. Reuters $6.26 based on higher iPhone units and gross margins. Target raised to $150 from $135. Shares remain outperform rated

DDUP (31.58): NetAPP (NTAP) raises offer for Data Domain: NTAP now proposes to pay $16.45/share cash and $13.55/share in stock, based on NTAP's 2-Jun close of $19.34. The terms of the agreement, as with the existing agreement, include a 10% symmetrical collar, using a range of 0.6370-0.7783 shares of NTAP stock. NTAP says it believes its revised offer is superior to EMC's unsolicited $30/share cash proposal.

JOYG (35.60): Joy Global reports Q2 EPS $1.17 vs Reuters $0.89: Company reports revenues of $924.0M vs Reuters $872.1M. Guides Q3 EPS to $0.89 vs Reuters $0.87. Guides full year EPS to $3.80-4.00 vs Reuters $3.55; guides revenues to $3.5-3.6B vs Reuters $3.48B.

TOL (19.53): Toll Brothers reports Q2 EPS ($0.52): Net loss includes a pre-tax writedown of $119.6M or $0.48. Company reports revenues of $398.3M vs Reuters $399.3M. Backlog, net signed contracts, and cash levels at end Q2 were reported on 20-May. Given the uncertainties, CEO says company will not provide earnings guidance. Nevertheless, based on FY 2009's deliveries to-date, Q2 end backlog and the pace of activity at its communities, Toll Brothers currently estimates that it will deliver between 2,200 and 2,800 homes in FY 2009 vs previous estimate to deliver between 2K-3K homes in f09. Company now projects an average delivered price for these homes of between $590k and $620k per home vs previous guidance of between $600-$625K per home. Still expects lower f09 projected revenues.

Financial firms spent $27.6M in Q1 lobbying Washington about the need for changes in mark-to-market accounting and other issues – WSJ: The Journal cites its own analysis of public filings. The paper adds that these 31 firms and trade groups that formed a coalition to lobby on the changes, also directed campaign contributions totaling $286,000 to legislators on a key committee, many of whom pushed for the rule change.

Banks that were subjected to government stress tests have raised $85B or more since 7-May – WSJ: At least $65B has come sales of common stock, while roughly another $20B has come from nonguaranteed debt sales and the conversion of preferred shares. The paper adds that the robust investor appetite for bank shares has surprised many industry executives. According to the article, mutual funds and institutional investors have been aggressive buyers in the recent offerings, as underexposure to the group amid the recent recovery in the markets has weighed on their performance. The Journal goes on to highlight concerns about the quality of the recovery in the banking sector, as well as the lack of insider buying.

MOS (55.97): Mosaic estimates lowered at UBS: Q4 EPS estimates are materially lowered to reflect unfavorable currency translation and reduced expectations for Phosphate and Offshore segments. FY'10 EPS estimates are lowered to reflect weaker shipment and margin assumptions for Phosphate. Rating is buy. Target remains $63

RW Baird initiates BJ, COST, HD, others: Home Depot (HD) initiated outperform with $28 target. Lowe's (LOW) initiated outperform with $24 target. Target (TGT) initiated outperform with $50 target. Tractor Supply (TSCO) initiated outperform with $48 target. Wal-Mart (WMT) initiated outperform with $60 target. BJ's Wholesale (BJ) initiated neutral with $40 target. Costco (COST) initiated neutral with $53 target. PetSmart (PETM) initiated neutral with $22 target.