Wednesday, October 14, 2009

October 14, 2009: Morning Call

October 14, 2009: Morning Call

Fair Value: SP500 – 1069.66; NDX: 1728.25; DOW: 9817.54

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1041 support/ 1110 resistance

Pre-market EPS: ABT (.90/7.74B); ACGY (.12/552.0M); GWW (1.34/1.60B); LUFK(.20/119.0M); JPM (.52/25.05B)
08:30: Import Price Index (Sep): 0.2% MoM; -11.7% YoY
08:30: US Retail Sales (Sep): -2.1% MoM; Less Autos: 0.1%
08:30: CSX earnings call
09:00: CHK Investor Meeting
09:00: JPM earnings call
10:00: US Business Inventories (Aug): -0.8%
14:00: Minutes from the Sep 23 FOMC Meeting
14:30: Fed’s Tarullo testifies on bank industry at Senate panel
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: CCK (.79/2.33B); LSTR (.39/524.3M); STLD (.23/1.1B); XLNX(.24/414.1M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 14 points above fair value and the NASDAQ futures are trading 22 points above fair value at 7:45am ET. INTC’s earnings and forward guidance were well above street consensus. JPM also beat consensus but the magnitude and quality of the upside surprise was not on the same level as INTC. European markets are up 2.0% to 2.3% on the strong earnings. Stronger earnings from INTC, ASML Holdings (ASML.NA), Burberry (BRBY.LN), BASF (BAS.GR) and Rio Tinto (RIO.LN are setting the tone in Europe. Asian markets closed higher ex-Japan, which sat out the rally (Japan down 0.16%, Hong Kong up 1.95%, Australia up 0.95%, Shanghai up 0.90%, South Korea up 1.3%, India up 1.2%). China’s export decline slowed (-15.2% vs. street at –21%) and Australian consumer sentiment continued to rise. Tech stocks were bolstered by INTC’s upbeat outlook, though some fell on profit-taking after a run-up yesterday in expectation of Intel’s results. Chip equipment makers fell when the company trimmed its capex plan for next year.

Research Calls/Market Moving News:

INTC (20.49): Intel reports Q3 EPS $0.33 vs Reuters $0.28: Company reports revenues of $9.39B vs Reuters $9.06B. Guides Q4 revenues to $10.1B, +/- $400M vs Reuters $9.53B. The effective tax rate was 27%, versus the company’s expectation of 23%. Intel reports Q3 gross margin 57.6% vs StreetAccount consensus 54.6%. Intel does not expect an enterprise rebound during Q4 - conf. call: Management notes that consumer demand has led throughout 2009, a trend that is expected to continue through the fourth quarter. In response to analyst question on the Windows 7 cycle, management highlights what they believe is a lot of enthusiasm for the release but indicates that there has been little impact on enterprise demand thus far. Notebooks and netbooks continue to drive growth. INTC is up 4.2% in the pre-market.

JPM (45.66): Shares are up 3% after reporting EPS of 82 cents. Street consensus was at .52 cents. Buyside whisper number was around .65 cents. Revenues were very strong (28.8 billion vs. street at 25.1 billion). Credit losses came in higher than street views but investors are shrugging off the credit costs as higher revenues offset the increase in credit costs (9.8 billion vs. street at around 8-8.5 billion). JPM shares are trading up 3.5% in the pre-market.

LLTC (28.49): Linear Technology (LLTC) reports Q1 EPS $0.29 ex-items vs Reuters $0.25, guides Q2 rev +2-5% seq. implying a range $240.8-247.9M vs Reuters $221.0M. Shares are up 2% in the pre-market.

EMC (17.92): upgraded to overweight from market weight at Thomas Weisel Partners: Target raised to $24 from $15. Checks by the firm show improving demand trends with a recovery in storage spending. Weisel sees EMC as gaining further share following the launch of V-Max

Macau's hotel occupancy rate rises 3.7-percentage points y/y in August to 80.4%
The data is from the Macau Statistics and Census Service

LVS (17.74): Las Vegas Sands to launch $2.5B Hong Kong IPO next month - South China Morning Post: Sources familiar with the plans say Sands expects to complete the offering within four weeks of receiving regulatory approval, which it hopes to receive by the end of October

VLO (19.18): Valero Energy downgraded to sell from buy at Soleil Securities:
Target cut to $17 from $25.. Cites the firm's reduced refining margin forecast and the concerns of a major asset write-down along with Q3 earnings. Firm is also lowering estimates on FTO, HOC, SUN and TSO.

GG (42.88): Goldcorp upgraded to overweight from neutral at JPMorgan: The firm cites valuation and believes the dollar could experience weakness over the next one to two years. Target raised to $47 from $34.

Rising land prices may weigh on builders' margins – WSJ: In a "Heard on the Street" column, the Journal notes that signs of a recovery in housing prices suggest that some builders may soon return to profitability. However, the paper adds that with desirable land plots increasingly difficult to find, margins may not see a meaningful recovery. The article points out that while many publicly-traded builders expected to be able to restock at low prices, that dynamic has not played out even though many of their private competitors have been forced to file for bankruptcy. According to the Journal, lenders who have taken possession of land are wary about selling while the market is depressed, forcing prices higher in locations that builders are most interested in investing. Citing estimates from Jeff Spindler of land brokerage Park Place Land Advisors, the paper notes that prices for finished lots have risen 10-30% in the last four months in prime locations in California.

Some Securities Moving in early pre-market trading: Trading higher: CNO +14.2% (share sale agreement with Pauslon), AMD +6% (INTC sympathy), MYRX +5.9% (indentification of IND candidate), GPI +5.7% (guidance), INTC +5.5% (earnings), NVDA +4.2% (INTC sympathy), ALTR +3.5% (earnings), SMH +3.4% (INTC sympathy), CSX +3% (earnings), CSIQ +2% (guidance). Trading lower: Short and leveraged short ETF’s (SDS, SH, SKF, FAZ, EDZ, QID) are all on the point decliner list lower due to strength in broader markets.

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