Friday, August 7, 2009

August 7, 2009: Morning Call

August 7, 2009: Morning Call

Fair Value: SP500 – 994.59; NDX: 1599.57; DOW: 9221.29

Technical Levels:

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


Pre-market EPS: EIX (.52/3.1B); MGA (-1.00/4.1B)
08:30: US Change in Nonfarm Payrolls (July): -325,000 (whisper: -200,000-250,000)
08:30: US Unemployment Rate (July): 9.6%
08:30: Change in Manufacturing Payrolls (July): -100,000
08:30: Average Hourly Earnings (July): 0.1% MoM; 2.5% YoY
08:30: Average Weekly Hours: 33.0
15:00: Consumer Credit (June): -3.7 billion

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading flat with fair value at 8am ET, ahead of the July payroll data. The July whisper number has improved with chatter going around that the economy may have lost between 200,000-250,000 jobs. Rumors have also been circulating that there could be a major benchmark revision to prior months, which would add substantial job losses since January. Asian markets closed lower excluding Japan (Japan up 0.25%, Hong Kong down 2.5%, Australia down 0.62%, Shanghai down 3.0%, India down 2.2%). Konica Minolta Holdings (4902.JP) and Kubota (6326.JP) fell on results. Elpida Memory (6665.JP) rose on a report it will get ¥ 30B in public funds. Australia fell on profit taking when the Reserve Bank of Australia warned interest rates would rise if the economic recovery lasts. Banks led Hong Kong down. European markets are down 0.50% to 1.0% following weak earnings from RBS (down 15%). Financial, mining and energy stocks are the weakest. The Russian Central Bank cut its benchmark interest rate by 25 bps to 10.75%. Decliners on the FTSE 100 lead advancers 3-1. NY University professor Nouriel Roubini says the rally in global markets will hit a snag in the next 2 months, according to the Australian Financial Review, which cited comments made at a Chartered Financial Analyst Forum in Sydney on Thursday. Roubini said the pullback would not take equities back down to the lows reached in March.

Research Calls/Market Moving News:

AAPL (163.91): Piper Jaffray’s Gene Munster expects Apple to launch a tablet in CY 2010. • We continue to expect Apple to release a tablet in early CY10. • We expect Apple to target the netbook market and focus on portability with web and media features (plus apps) at prices lower than the MacBook. • We believe the tablet would leverage the App Store platform, running current iPhone apps and a new category of larger apps simultaneously. • Assuming Apple sells about 2m tablets at a $600 ASP in CY10, it would add about $1.2b or ~3% to revenue in CY10. Continue To Expect Apple Tablet In Early CY10. As talk over a new tablet device from Apple grow, we are reiterating our thesis that in early CY10 Apple will introduce a touch-screen device similar to an iPod touch but larger. Last week we spoke with an Asian component supplier that has received orders from Apple for a touch-screen device to be fulfilled by late CY09. This data point underscores our thesis that a tablet will likely launch in early CY10. What Will Apple's Tablet Device Be Like? We expect the tablet hardware to be similar to an iPod touch but larger; we expect the key differentiator of the device to be its software. While there are several options ranging from a touch screen Mac OS X to an iPhone-like OS, we expect the tablet to be driven by a new version of Apple's iPhone OS that runs a new category of larger apps alongside all the current apps from the App Store. See pg. 2 for details and an image. Will Consumers Buy It? Without getting caught up in the buzz surrounding the device, we want to step back and analyze the addressable market for a tablet device priced between the iPod touch and the MacBook (likely about $500-$700). In most respects, we believe Apple will target the netbook market with its new device. In our estimate most netbook buyers are drawn to the portability for prices lower than a full laptop, and use netbooks primarily the web surfing, email, and media. We believe an Apple tablet would be priced 30%-50% below the $999 MacBook, and would offer best in class web, email, and media software. In other words, we believe Apple's tablet would compete well in the netbook category even though it would not be a netbook. Tablet Could Add ~3% To CY10 Revenue. The impact of a tablet device launching in early CY10 is not yet baked into street models. While at first glance this may appear to address a niche market, we believe the addressable market is larger than that of the Apple TV, of which Apple sold about 1.2m in its first year. We estimate that Apple could sell about 2m tablets at a $600 ASP in CY10, which would add about $1.2b or ~3% to revenue in CY10.”

AAPL (163.91): Apple (AAPL) to offer iPhone in China this fall through China Unicom, says Beijing Business Today – Bloomberg: Apple COO Tim Cook tells the paper the companies will reach a distribution agreement by the end of the summer.

CROX (4.27): Crocs upgraded to overweight from neutral at Piper Jaffray: The firm notes Q2 results outpaced estimates and share price appreciation should accompany consistent fundamental improvement and profitability potential in the next 12 months. Target is raised to $7.50 from $3.

FNM (.79): Fannie Mae reports Q1 EPS ($2.67) vs year-ago ($2.54): As a result of its $14.8B net loss for the quarter ended June 30, 2009, FNM had a net worth deficit of $10.6B as of that date. The Director of FHFA submitted a request on August 6 for $10.7B from Treasury. Company reports revenues of $5.60B vs year-ago $4.00B. FNM recorded a net loss of $14.8B and a diluted loss per share of $2.67 for Q2 of 2009. The net loss was driven by significant credit-related expenses, which totaled $18.8B in Q2, and more than offset net revenues of $5.6B generated from net interest income and guaranty fee income, and $823M in fair value gains.

AIG (22.35): American International Group reports Q2 diluted EPS $2.30: On an adjusted basis, excluding net realized losses and FAS 133 gains, AIG reports adjusted Q2 EPS $2.57. It is unclear if either figure is comparable to Reuters $1.31. Net premiums written $7.92B vs. $9.81B y/y; net premiums earned $8.02B vs. $9.67B. AIG says certain businesses stabilized and that it continues to engage in productive discussions with potential buyers for a number of its other businesses.

RIG (77.11): Transocean downgraded to outperform from buy at Calyon Securities

F (8.07): Ford and others considering production increases in response to cash for clunkers program reports the WSJ: Ford, General Motors and Chrysler are considering whether to increase production though are cautious because of the fact that big sales promotions are usually followed by a slump in sales. One source said Chrysler has increased its production estimate for October to 80K vehicles from 60K. Ford is considering increasing production of cars selling well under the clunkers program and is talking to suppliers to see what level production could be boosted too.

MOS (54.39): Soleil is positive on Mosaic after an upbeat management meeting: The firm believes the chances of a special dividend within 6-9 months or in H2 of 2010 are improving because of the $1.3B in net cash and the estimated $1B in free cash flow for F2010. The $1.3B in net cash implies a special dividend of up to $3 per share. Target increased to $65 from $60.

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