July 29, 2009: Morning Call

July 29, 2009: Morning Call

Fair Value: SP500 – 976.61; NDX: 1604.35; DOW: 9065.68

Technical Levels:

SPX: 832, 875-880, 910, 953 support/ 980, 1002, 1044 resistance

Events:

Pre-market EPS: AET (.78/8.6B); MT (-.21/15.2B); BWA (.07/970.4M); COP(.85/39.0B); HES (.03/7.4B); JNY (.07/776.8M); NYB (.25/230.0M); SAP(.51/3.6B); SEE (.34/1.0B); S (-.02/8.1B); TDW (1.80/334.0M); WLP (1.42/15.4B)
08:30: Durable Goods Orders (June): -0.6%; Ex-Trans: 0.0%
08:30: Fed’s Dudley speaks on the economy
08:30: AMT earnings call
09:30: MT earnings call
10:30: DOE Crude Oil and Gasoline Inventories: 1.5 million crude draw.
11:00: COP earnings call
13:00: Treasury auctions 39B in 5-year notes
14:00: Fed’s Beige Book
17:00: V earnings call
18:00: Bernanke Town Hall Meeting Part 3 on PBS
Post-market EPS: AFL (1.14/4.6B); AKAM (.41/211.0M); AVB (.59/216.3M); CBG(.04/952.6M); ESRX (.86/5.44B); EQR (.21/501.0M); FLS (1.79/1.1B); HIG (1.16/5.9B); LNC (.83/2.5B); ORLY (.55/1.2B); SYMC (.35/1.48B); TSO (-.24/4.6B); V(.64/1.6B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 6 points below fair value and the NASDAQ futures are trading 8 below fair value. Weakness in Chinese markets led Asia lower and pressured the S&P futures in the overnight session (At 2:30am ET, the futures were 12 below fair value at 964). Shanghai declined 5% and Hong Kong fell 2.4% on concerns that the government will tighten monetary policy in order to curb speculation; markets in Shanghai and Hong Kong were also short-term overbought heading into the session so some of the selling pressure was related to technical factors. Japan bucked the trend lower with a gain of 0.26% after Canon reported slightly higher full-year guidance. European markets are up 0.75% to 1.1% reversing most of the decline during Tuesday’s session. Better than expected earnings from the likes of Akzo Nobel (AKZO.NA) and Bayer (BAY.GR) outweighed disappointing results from ArcelorMittal (MT.NA).

Research Calls/Market Moving News:

HGSI (14.53): HGSI priced 23,215,000 million shares at 14 instead of the initial indication of 18 million shares. The underwriters (Citibank and Goldman) have an option to purchase 3.48 million additional shares. So, the increased size of the offering raises the dilution to 20% (if the underwriter's option is exercised) from the prior estimate of 15%. Shrewd move by the company to increase their common equity capital to a level that more than covers the convertible bonds that are due to be rolled in 2011 and 2012. I would be surprised if the 14 level broke in the near-term given the increased demand at that level. At the same time, the stock will encounter more solid resistance at the long-term relative highs of 15 to 16 (dating back to 2003) given the dilution. Additional data on Benlysta is due in November. I doubt the stock could break above 16 absent a takeover offering or additional positive clinical data on their pipeline of drugs prior to November.

AAPL (160.00): China Unicom Hong Kong unlikely to share phone-service revenues in iPhone deal - South China Morning Post: Sources say the company's guarantee it will sell at least 1M units in the first year has rendered Apple (AAPL) likely to give up its revenue-sharing model. Ironically, the revenue-sharing model was why Apple was unable to come to a deal with China Mobile (941.HK). An analyst says the idea that phone bills will increase after users buy an iPhone may not hold in China.

MT (36.58): ArcelorMittal reports Q2 EPS ($0.57) vs Reuters ($0.12): Company reports revenues of $15.17B vs Reuters $16.30B. Company reports EBITDA of $1.22B vs Reuters $1.34B. Company reports total steel shipments of 17.0M tonnes vs Q1 16.0M tonnes and year-ago 29.8M tonnes. Company guides Q3 EBITDA to exceed $8.5B. Company guides Q3 EBITDA to $1.4-1.8B, with slightly higher shipments than in Q2, at a stable or slightly lower selling price. MT shares are trading down 6.2%

ISRG (223.62): 3 insiders sell stock on Monday, according to SEC filings released last night. The CFO sells 3500 shares. The Chairman/CEO sells 15,000 shares and a director sells 3500 shares.

WLP (54.38): WLP shares are trading down 3% after the company lowered full year guidance below street consensus. WLP sees 2009 EPS of 5.60 to 5.66. Street consensus is at 5.74.

FTI (41.58): FMC Technologies (FTI) reports Q2 EPS $0.84 vs Reuters $0.62, guides FY EPS to $2.55-2.65 vs prior $2.40-2.50 and Reuters $2.38.

MCK (46.83): McKesson (MCK) reports Q1 EPS $1.06 vs Reuters $0.85, guides FY EPS to $4.15-$4.30 vs prior $3.90-$4.05 vs Reuters $4.00;

YHOO (17.22); MSFT (23.47): Yahoo and Microsoft finally announce a search deal after 2 years of speculation. Under the 10-year agreement, Microsoft will acquire an exclusive 10 year license to Yahoo's core search technologies. Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo sites, while Yahoo will continue to use its technology and data in other areas of its business such as enhancing display advertising technology. YHOO shares are trading down 7.5%. MSFT is up 0.70%, and GOOG is down 0.85%.

BHP (61.630: BHP Billiton provides update on iron ore price negotiations: BHP Billiton has settled 23% of total iron ore volumes at an agreed annual contract price. The price for iron ore fines will be approximately 33% lower than the contract prices agreed in the 2008 contract year. The price for iron ore lump will be approximately 44% lower than the contract prices agreed in the 2008 contract year. A further 30% of BHP Billiton's total iron ore volumes will be sold on a mix of quarterly negotiated pricing, market clearing price (spot market) and index-based pricing. Negotiations for the remaining 47% of iron ore volumes are ongoing.

BHP (61.63): Barron’s Weekday Trader is cautious on BHP Billiton: Barron's argues that investors' expectations seem to have got ahead of the stock, which is now trading at 24x 2009 and 2010 EPS estimates of $2.59 and $2.54, respectively. The article also points out that management is much more cautious, noting earlier this year that weakness, uncertainty and volatility in the outlook are issues not just for the short-term, but also for the medium-term

MS (27.43): Morgan Stanley downgraded to neutral from buy at Goldman Sachs: Target cut to $32 from $34.

KKR plans IPO for Dollar General – WSJ: People familiar with the matter say the firm is in advanced preparations for the IPO, on which KKR will also be one of the lead underwriters, along with Goldman Sachs, Citi, and others. For the quarter ended 1-May, the chain posted a profit of $83M vs year-ago $5.9M, and gross margin was 30.8% vs year-ago 28.8%. Dollar General plans to add 450 doors this year from 8,362 at the end of 2008.

MGM (7.48): MGM Mirage downgraded to neutral from buy at Bank of America Merrill Lynch: Price objective cut to $8 from $11.

COH (28.05): Coach upgraded to overweight from neutral at Piper Jaffray: Target price, $32.