Wednesday, July 22, 2009

July 22, 2009: Morning Call

July 22, 2009: Morning Call

Fair Value: SP500 – 951.53; NDX: 1552.02; DOW: 8873.61

Technical Levels:

SPX: 765, 788, 832, 875-880, 910 support/ 956, 1002 resistance


Pre-market EPS: APD (.98/2.1B); ATI (.06/818.5M); MO (.47/5.3B); BK (.43/3.2B); BA (1.20/17.1B); DAL (-.27/6.9B); NITE (.39/253.7M); MS (-.49/5.3B); NTRS (.72/983.0M); PEP (1.00/10.9B); PFE (.47/11.2B); SU (.29/3.7B); STI (-.54/2.1B); USB (.10/4.0B); WFC(.34/20.4B); WHR (.42/4.1B); LLY (1.02/5.2B)
04:30: Bank of England Releases Minutes from Interest Rate Decision
05:00: Euro-zone New Orders (May): 1.9% MoM; -28.0% YoY
07:00: MBA Mortgage Applications
08:00: WFC earnings call
08:00: BK earnings call
09:00: USB earnings call
10:00: House Price Index (May): -0.2%
10:00: Bernanke testifies on monetary policy for Senate Banking Committee
11:00: MS earnings call
10:30: DOE Crude Oil and Gasoline Inventories
16:45: QCOM earnings call
Post-market EPS: ACL (1.70/1.6B); BIDU (1.43/157.5M); CMG (.87/390.4M); EBAY (.36/1.98B); MOS (.11/1.5B); QCOM (.52/2.7B); TEX (-.28/1.5B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures moved 6 points below fair value after MS and WFC released earnings at 8am. The futures had been flat with fair value prior to the EPS. NASDAQ futures are trading flat with fair value due to strong earnings from AAPL. Although WFC EPS beat and revenues were in-line, the 700 million-reserve build looks light. MS reports a loss of 1.37 vs. street consensus of a loss of 0.47 cents. Revenues were light, particularly in fixed income sales and trading. European markets moved lower (down 0.25% to 0.50%) following the release of MS and WFC earnings. Asian markets closed mixed (Japan up 0.75%, Hong Kong down 1.3%, Australia up 0.44%, India down 1.46%). Solar energy stocks led China higher after Beijing announced subsidies for projects. Sinopec (600028.CH) rose on a broker estimate its H1 net may more than triple. Consumer finance firms were hit by profit-taking in Japan, exporters suffered from both profit-takers and a slightly stronger yen. Hon Hai Precision Industry (2317.TT) gained on Apple's (AAPL) better-than-expected results. Gains in mining shares outweighted declines in bank share in Australia.

Research Calls/Market Moving News:

AAPL (151.51): Apple upgraded to buy from hold at Canaccord Adams: Target increased to $200 from $150. Firm notes Q3 results and the company's entry into the low-end camcorder market. Estimates are raised.

AAPL (151.51): Apple reports Q3 EPS $1.35 vs Reuters $1.17: Company reports revenues of $8.34B vs Reuters $8.21B. Product shipments: Macs 2.6M vs StreetAccount consensus 2.36M, iPods 10.2M vs SA 10.70M and iPhones 5.2M vs SA 4.86M. Gross margin was 36.3% vs SA 34.4%. Guides Q4 EPS to $1.18-1.23 vs Reuters $1.30; guides revenues to $8.7-8.9B vs Reuters $9.07B. Apple guides Q4 (Sep) gross margin to be approximately 34% - conf. call: Management says that margins will be pressured sequentially by a full quarter of back-to-school promotions and new Macbook availability, as well as rising component prices. In response to analyst question on longer term margins, management declines to weigh in on the previously discussed 30% target but repeats their pledge to offer products at "ever increasing value".

Morgan Stanley equity strategist recommends that market participants “sell into” global stock rally- Bloomberg. Morgan Stanley also says sentiment behind rally may be transitory and that risks have not disappeared. Overall, the firm has a cautious stance on equities.

HGSI (13.84): Human Genome announces new order for raxibacumab (ABthrax) from US government: The US government exercises its option to purchase an additional 45,000 doses of raxibacumab for the Strategic National Stockpile. HGSI expects approximately $151M in revenue from delivery of 45,000 doses to U.S. Strategic National Stockpile over three-year period beginning in late 2009. In July 2009, the FDA notified HGS that the BLA for raxibacumab has been filed and will receive priority review. HGS will receive $10M from the U.S. Government upon FDA licensure of raxibacumab. The BLA was filed with the FDA in May

LLY (34.45): Eli Lilly reports Q2 EPS $1.12, ex-items, vs Reuters $1.02: Company reports revenues of $5.29B vs Reuters $5.29B. Guides full year EPS to $4.20-$4.30, ex-items, vs Reuters $4.23. Eli Lilly reports Q2 results: Drug sales: Zyprexa $1.20B vs StreetAccount consensus $1.19B. Gemzar $353.2M vs SA $380M. Cymbalta $744.4M vs SA $753M. Strattera $142.8M vs SA $140M. Forteo $203.3M vs SA $202M. Evista $251.3M vs SA $265M. Alimta $385.3M vs SA $345M. Humulin $248.1M vs SA $256M. Humalog $477.5M vs SA $462M. Cialis $363.6M vs SA $383M.

FCX (58.17): Freeport-McMoRan downgraded to hold from buy at Citi: Valuation cited. Though downgraded, the target is increased to $61 from $58.

BK (29.11): Bank of New York Mellon reports Q2 EPS $0.51 ex-items vs. Reuters $0.53: Company reports revenues of $2.96B vs Reuters $3.30B. Provision for loan loss was $61M. Assets under mgmt reported $926M with net asset outflows of $19B. Assets under custody reported $20.7T. Tier 1 capital ratio reported 12.5%.

CAT (39.46): Caterpillar maintained sell at UBS: Target is raised to $33 from $30. Firm raises '09 EPS to reflect the better than expected Q2 results, but lowers estimates for 2H'09 given further expected underproduction of demand. 2010 estimates are unchanged. UBS notes further potential demand deterioration and potential pricing headwinds.

WHR (56.34): Whirlpool reports Q2 EPS $1.04, including items: The figure includes an energy credit. Reuters is $0.67. Company reports revenues of $4.17B vs Reuters $4.20B. US industry unit shipments of major appliances (T7) (14%) Guides full year EPS to $3.50-$4.00, compared to prior $3.00-$4.00. Reuters is $3.52.

DDR (4.54): Developers Diversified Realty Corp. working on two CMBS deals that will be eligible for TALF: The Journal reports that Developers Diversified Realty Corp. is working on raising $600M through two deals (company hopes to close them this fall) that will be the first major offerings of CMBS to take advantage of the TALF. Recall that the Fed extended the TALF to include newly issued CMBS in June, but there have not been any deals thus far. According to the article, Developers Diversified is focused on two pools of assets, valued at $800M each, and consisting of roughly 60 shopping centers across the country. The properties feature stable cash flows given that they are occupied by discount retailers. By borrowing $600M against these pools, the loan-to-value ratio would be around 40%, down from the 70% that some borrowers were able to secure before the credit crisis destroyed the liquidity in the CMBS market. Sources tell the paper there are a couple of other CMBS deals also in the TALF pipeline.

CSCO (21.59): Cisco Systems upgraded to outperform from neutral at RW Baird: Target increased to $26 from $20. The firm cites preliminary results from a resellers survey noting an improvement in sentiment and recovery.

CSCO (21.59): Cisco Systems reiterated outperform at Oppenheimer after channel checks: Target is $25. Firm says July-quarter channel checks suggest that CSCO sales are tracking in line to slightly ahead of expectations as enterprise spending constraints ease, pipeline improves, and CSCO pushes for a strong finish to its fiscal year. Oppenheimer says ~2/3 of their interview respondents indicated CSCO's sales could grow sequentially next quarter.

NBR (17.16): Nabors Industries reports Q2 EPS $0.32 ex-items vs Reuters $0.28: Company reports revenues of $878.0M vs Reuters $945.3M. Company expects Q3 results to be flat, with a modest recovery beginning in Q4.

Jesup & Lamont downgrades HP, NBR, PTEN, others: Helmerich & Payne (HP) downgraded to sell from hold. Nabors Industries (NBR) downgraded to sell from hold .Patterson-UTI (PTEN) downgraded to sell from hold. Unit Corp (UNT) downgraded to sell from hold. Firm cites NBR's Q2 report as catalyst for the downgrades.

BTU (33.02): Peabody Energy downgraded to hold from buy at Citi: Target cut to $34 from $40. The firm cites valuation.

PFE (15.70): Pfizer reports Q2 EPS $0.48 vs Reuters $0.47: Company reports revenues of $10.98B vs Reuters $11.26B. Guides full year EPS to $1.90-$2.00 vs Reuters $1.94 and prior $1.85-$1.95; guides revenues to $45B-$46B vs Reuters $46.91B and prior $44B-$46B.

Credit-card disputes lose an option for resolution – WSJ: Two large arbitration firms have said they will stop resolving disputes between customers and their credit-card and cellphone companies until new guidelines are set out. Credit-card and cellphone companies prefer arbitration, saying it is less expensive and time-consuming than going to court to resolve disputes over whether or not customers owe them money. The new guidelines have been deemed necessary because a lawsuit last week revealed that one of the arbitrators has financial ties to the debt-collection industry, raising questions about whether it was violating consumer-protection laws.

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