September 23, 2009: Morning Call

September 23, 2009: Morning Call

Fair Value: SP500 – 1067.09; NDX: 1732.69; DOW: 9767.36

Technical Levels:

SPX: 875-880, 910, 953, 986, 1044 support/ 1110 resistance

Events:

Pre-market EPS: AZO (4.45/2.2B); GIS (1.03/3.48B)
07:00: MBA Mortgage Applications
09:30: GENZ presents at UBS Healthcare conference
09:30: Treasury Secretary Geithner testifies on regulatory reform
10:00: President Obama addresses UN General Assembly
10:30: DOE Crude Oil and Gasoline Inventories
13:00: DNDN presents at UBS Healthcare conference
13:00: Treasury Auctions 40 billion in 5-year notes
14:15: FOMC Interest Rate Decision: 0.25%
16:15: HPQ Analyst Meeting
Post-market EPS: NKE (.97/4.9B); BBBY (.47/1.9B); CTAS (.39/880.0M); PAYX (.34/504M); RHT(.15/179.0M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value and the NASDAQ futures are trading 7 points above fair value at 7:45am ET. European markets are up 0.50% led once again by basic material and technology stocks. Economic data in Europe was mixed (France Sep Business Conf Indicator 85 vs con 81. France Sep Prelim Manf PMI 52.5 vs con 51.4. France Sep Prelim Svcs PMI 52.2 vs con 50.2. Germany Sep adv Svcs PMI 52.2 vs con 54.0. Germany Sep adv Manf PMI 49.6 vs con 50.8. Eurozone Sep adv Manf PMI 49.0 vs con 49.7. Eurozone Sep adv Svcs PMI 50.6 vs con 50.5. BOE voted 9-0 to keep £175B purchase plan and said data suggests a likely upward revision to UK Q2 GDP. EuroZone Jul Ind New Orders -24.3% y/y vs consensus –25.9%). Asian markets closed lower with the exception of Australia (Hong Kong down 0.49%, Australia up 1.51%, Shanghai down 2.2%, Taiwan down 1.2%, South Korea down 0.07%, India down 1.0%). Weakness in Shanghai weighed on markets across the region. Gains in energy, materials, and financial stocks led Australia up. Hong Kong’s performance was restrained by China’s. Geely Auto (175.HK) surged 19% after raising HK$2.59B from Goldman Sachs (GS). Japan was closed for the Autumnal Equinox.

Research Calls/Market Moving News:

GIS (60.97): General Mills reports Q1 EPS $1.28 ex-items vs Reuters $1.03: Company reports revenues of $3.52B vs Reuters $3.50B. Pound volume matched year-ago levels, reflecting the loss of 2 points of growth from divested product lines. Raises f10 EPS guidance to $4.40-4.45 ex-items from $4.20-4.25 vs Reuters $4.27.

PALM (17.07): Jefferies comments on speculation of a Nokia acquisition of Palm: The firm says PALM would give a potential buyer a PC class OS and US centric high-end handset. Jefferies says investors fear a hefty bid premium, which could cloud the strategic rationale for such a deal. The firm says PC OEMs could create a bidding war for the company with a hefty premium to the company's current market cap but says for NOK strategic merits could outweigh the price as it would leave the company roughly 1 yr behind AAPL regarding software development vs 2-3.

PALM (17.07): Susquehanna initiates PALM with a neutral rating: "Palm is still a turnaround story with its financial success reliant on the newly released webOS operating system and new devices in an increasingly competitive smartphone market. While we anticipate Palm to expand its carrier partners both in the U.S. and internationally, and expect sell-in unit shipment growth to ramp accordingly, we believe the current valuation reflects an optimistic adoption rate of webOS devices. We initiate with a Neutral rating as Palm’s estimated earnings power is within the range of our Bull- Bear scenario. In our view, Palm’s new webOS platform is well developed and robust; however, its success will be limited in the near term due to Palm’s exclusive distribution through Sprint. We view the recent price decrease for the Pre to $149 (from $199 at launch) with caution as it may signal that it needed to be repositioned in order to achieve the price elasticity required to reinvigorate unit sales. Longer term, we are cautious regarding the webOS platform’s sustainable competitive advantage, especially compared to RIM in enterprise and Apple in retail with more than 75,000 applications in its App Store. Positively, we expect Palm to return to cash flow positive in 2HFY10 predicated on the successful sell-in of webOS products to an expanding base of wireless carriers, hitting operating profit inflection point volume targets, and a streamlined operating structure. Shares are trading at 1.1x FY11 EV/Sales, and 19x our $0.90 earnings power estimate."

ETFC (1.92): Company announces the completion of the ATM offering of 80.2 million shares of stock with net proceeds of 147 million, implying an average price of 1.83.

Life Insurance Sector Downgraded to in-line from attractive at Morgan Stanley. PRU cut to equal weight from overweight.

FDX (76.16): FedEx estimates raised at Morgan Stanley: The firm believes that even if there was a gradual macro recovery, the company's current run rate implies large EPS and volume gains in 2H f10. Morgan Stanley says consensus estimates are still underestimating the growth potential and operating leverage at FDX. Shares remain equal weight rated. F11 EPS estimates are raised to $4.85 with f12raised to $5.72.

AMZN (93.75): Amazon.com estimates and target raised at Bernstein: The firm notes questions regarding the company's longer term growth prospects given decelerating media revenues but says overall, they believe the category will begin to recover in late 2009. The video game segment is expected to benefit from lower console prices and a strong lineup of new titles. F10 EPS estimates are raised to $2.29 from $2.27 with the target for the shares raised to $95 from $90.

X (50.24); AKS (23.06); STLD (17.77): UBS comments on North American Steel: Firm notes that sudden 2H auto demand has driven near-term sheet forecast higher. UBS raises Q4 steel price forecast to reflect the higher value. Firm cautions that it sees downside risks for sheet prices amid capacity restarts and excess global supply signaled by China's recent shift to a net exporter. Firm sees a stronger Q4 for X and AKS. Firm sees a potential upside into 2010 for SCHN, RS. Top pick is STLD. Construction exposure likely pressures GNA, CMC.

U.S. and Europe differ over capital requirements for banks says the WSJ: This will be a topic for discussion at the G20 meeting and European leaders are saying the U.S. proposals will put European banks at a disadvantage. The U.S. wants to create stricter rules and force banks to hold more capital on hand. French and German regulators say the U.S. proposals would force their banks to raise much more capital than U.S. firms. U.S. banks were required to hold more capital than European institutions before the crisis, giving them more ground to make up. Another issue is the efforts of the banks to resist tighter regulation. Government officials will not try to reach an agreement at the G20 meeting but only to create some momentum behind talks on the issue.

Secondary’s: Goodrich Petroleum (GDP) announces $150M convertible offering through JP Morgan; ATP Oil & Gas (ATPG) announces 5.3M share secondary offering through JPMorgan and Credit Suisse, commenced $125M convertible pref offering, provides operations update; PennantPark Investment (PNNT) announces 8M share secondary offering through SunTrust and BMO; Qiagen (QGEN) to issue 27.5M shares in private placement through Deutsche, Goldman, JPMorgan; Incyte (INCY) announces 18M share secondary offering through Goldman, announces $250M convertible note offering; Gaylord Entertainment (GET) proposes $200M convertible private placement. RailAmerica (RA) increases IPO to $450M from $300M through JPM, Citi, Deutsche and Morgan Stanley; US Airways Group (LCC) annouces 26.3M share secondary offering through Citi; Calpine Corporation (CPN) announced a 20M share offering by holder Harbinger Capital through Morgan Stanley.