Tuesday, August 11, 2009

August 11, 2009: Morning Call

August 11, 2009: Morning Call

Fair Value: SP500 – 1004.91; NDX: 1609.71; DOW: 9305.88

Technical Levels:

SPX: 875-880, 910, 953, 986 support/ 1044 resistance


Pre-market EPS: FOSL (.20/321.8M); M (.15/5.2B)
08:00: T presents at Oppenheimer Communications/Tech Conference
08:30: US Productivity (Q2): 5.5%; Unit Labor Costs: -2.5%
10:00: MDR earnings call
10:30: MSFT presents at Pacific Crest Technology Conference
10:30: MSFT presents at Oppenheimer Communications/Tech Conference
10:30: M earnings call
13:00: QCOM presents at Pacific Crest Technology Conference
13:10: CSCO presents at Oppenheimer Communications/Tech Conference
16:30: API Crude Oil and Gasoline Inventories
18:00: FIRE presents at Pacific Crest Technology Conference

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are flat with fair value at 8am ET. The S&P futures have pulled back 7 points off the overnight highs following a modest downside reversal in European markets. European markets failed to hold onto gains of 0.50% to 1.0% and are currently trading down 0.10% to 0.50%. Cyclical related sectors (Banks, Basic Material, Energy, Industrials) are leading the decline in Europe. Asian markets closed higher despite some weaker data out of China; markets in Asia appears to take solace in the fact that July loan growth in China declined “on its own” and may not require government tightening (Japan up 0.58%, Hong Kong up 0.69%, Australia up 0.65%, Shanghai up 0.33%, India up 0.43%)

Research Calls/Market Moving News:

Chinese Economic Data: China July new loans CNY355.9B vs survey CNY500B, June CNY1.530T – Bloomberg. Chinese Industrial Production was weaker than expected (10.8% vs. 11.5%). Retail Sales came in slightly better at 15.2% vs. 15.0% YoY. Fixed Urban Investment was weaker at 32.9% vs. 34% YoY. Chinese Exports fell 23% YoY, in-line with expectations.

HGSI (14.87): Human Genome target raised to $30 at Leerink Swann : Leerink Swann raises their HGSI tgt to $30 from $16 saying their statistical power analysis confirms an ~85% likelihood of success for BLISS-76 data in November. They considered the major factors which could influence p-value via effect size and variability in the context of past results for Benlysta in BLISS-52 and Phase II. The firm says an 8% response rate delta between Benlysta and placebo on the primary endpoint would be statistically significant in BLISS-76 if the same standard deviation as seen in BLISS-52 occurs. Furthermore, a 9% delta would be sufficient at all standard deviations analyzed. Recall that Phase III (10mg/kg), Phase III (1mg/kg), and Phase II showed deltas of 14%, 8%, and 17%, respectively. At the lowest standard deviation analyzed, even a 6% delta in response rates would achieve a p=0.042.

BAC (16.68): Judge rejects Bank of America-SEC settlement – FT: Judge Jed Rakoff says the $33M settlement is too small if Bank of America's conduct was actually the way it was being described. Rakoff orders the parties to submit detailed statements about the case by 24-Aug and encourages the SEC to identify who was responsible for misleading shareholders.

TARP oversight panel says smaller banks may need $12-14B in additional capital to deal with troubled loans still on their books - Bloomberg:
In its monthly report, the Congressional Oversight Panel says the US's biggest banks appear ready to handle more loan losses, but banks with $600M-1B in assets will need to raise significantly more capital.

FLR (57.49): Fluor reports Q2 EPS $0.93 vs Reuters $0.91: Company reports revenues of $5.29B vs Reuters $5.80B. New project awards for Q2 were $6.8B, compared with $6.4B in new awards a year ago. Current quarter awards included a large mining project and a $1.3B oil sands project. Consolidated backlog rose to $30.9B, up from $29.1B last quarter, but down 6% from a year ago primarily due to cancellations and scope reductions of Oil & Gas projects during Q1. Reaffirms full year EPS guidance of $3.80-4.10 vs Reuters $3.82.

MDR (21.32): McDermott reports Q2 EPS $0.40 vs Reuters $0.37:
Company reports revenues of $1.56B vs Reuters $1.59B. At June 30, 2009, McDermott’s consolidated backlog was $9.5B, compared to $9.8B and $10.0B at June 30, 2008 and March 31, 2009, respectively.

MBI (6.17): MBIA downgraded to underweight from neutral at JPMorgan: The firm believes CDO, RMBS, and CMBS related losses would eventually overwhelm capital. JPMorgan says recent accounting to record a $1.1B recovery from a law suit that is uncertain, as well as the impact of FAS 157 has skewed GAAP earnings and book value to represent a company that appears to be stabilizing.

BPI (19.34): Bridgepoint Education reports Q2 non-GAAP EPS $0.34 vs Reuters $0.23 Company reports revenues of $110.9M vs Reuters $99.2M. Total student enrollment increased 101.3% y/y to 45,504 at the end of the quarter. Combined new student enrollments for Q2 at both of Bridgepoint Education's academic institutions were approximately 14,600, an increase of 80.2%, vs approximately 8,100 y/y. Guides f09 EPS to $1.00-1.02ex-items vs Reuters $0.88; guides GAAP revenues to $425-430M vs Reuters $406.5M. Total student enrollment is expected to be between 48,000 and 49,000 at December 31, 2009.

BTU (35.21); MEE (28.19): Massey Energy (MEE) removed from, Peabody Coal (BTU) added to Conviction Buy List at Goldman Sachs: Massey Energy remains buy rated; the target is increased to $33 from $30. BTU target is increased to $46 from $43. The firm also raises targets on: Alpha Natural (ANR) to $43 from $38. CONSOL Energy (CNX) to $42 from $40. Patriot Coal (PCX) to $9 from $8.

OPEC sees 2010 demand for OPEC crude (480K) bpd y/y vs prior forecast of (380K) bpd: The group estimates non-OPEC supplies increasing 430K bpd vs prior guidance of +330K bpd. Further, the body sees 2009 global oil demand (1.65M) bpd y/y, in line with prior guidance, and 2010 demand also in line at +500K bpd. Finally, OPEC member states met 68% of supply reductions in July vs 70% compliance in June.

CNS (19.30): REIT investment management company Cohen & Steers (CNS) files 22 million share shelf. The company says selling shareholders may offer up to 12 million shares of common stock. Watch what management does (selling stock), not what they say (that the REIT business has bottomed).

FT discusses concerns surrounding potential Lloyds' potential £15B capital raise: Recall that there have been recent reports that Lloyds would look to raise as much as £15B in new capital in an effort to strengthen its balance sheet and reduce its exposure to the government's asset protection scheme (APS), where it originally agreed to place £260B of troubled loans. According to the FT, Lloyds faces a difficult task in convincing Alistair Darling, the chancellor, to revisit the basic terms of the scheme following months of complex negotiations. The paper adds that even if the government did decide to amend the terms of the bank's participation in the APS, it would either have to participate in the rights issue at a cost of up to £9B, or see its 43% stake diluted.

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