Wednesday, November 4, 2009

November 4, 2009: Morning Call

November 4, 2009: Morning Call

Fair Value: SP500 – 1042.50; NDX: 1677.99; DOW: 9728.58

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/1066, 1110 resistance


Pre-market EPS: ADP (.50/2.05B); BDX (1.25/1.84B); BHI (.35/2.23B); CMCSA(.25/8.83B); DVN (.89/2.01B); FWLT (.66/1.29B); GRMN (.69/706.6M); MMC(.27/2.59B); PHM (-.61/1.1B); RDN (-1.25/263.4M); RIG (2.63/2.83B); TWX(.53/7.11B)
04:00: Euro-zone PMI Services (Oct): 52.3; Composite: 53.0
05:00: Euro-zone PPI (Sep): -0.4% MoM; -7.7% YoY
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (October): -190,000
08:30: PHM earnings call
08:45: JOYG presents at Goldman Sachs Industrials Conference
09:00: Treasury Announces Quarterly Refunding
09:30: PCAR presents at Goldman Sachs Industrials Conference
10:00: RIG earnings call
10:00: FWLT presents at Goldman Sachs Industrials Conference
10:30: GRMN earnings call
10:30: DOE Crude Oil and Gasoline Inventories
13:30: BNI presents at Goldman Sachs Industrials Conference
14:15: FOMC Rate Decision: 0.25%
14:15: CSX presents at Goldman Sachs Industrials Conference
15:00: UNP presents at Goldman Sachs Industrials Conference
16:00: KLAC Annual Meeting
16:30: CSCO earnings call
17:00: Select Retailers release October Same Store Sales
Post-market EPS: ALL (1.01/6.51B); CSCO (.30/8.74B); CNO (.22/1.12B); MUR(.97/4.74B); NWS (.18/7.15B); PRU (1.34/6.66B); QCOM (.52/2.72B); WFMI(.18/1.84B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points above fair value and the NASDAQ futures are trading 2 points above fair value at 7:45am ET. The ADP Employment Change and the FOMC statement will be a key focus today. European markets are up 0.70% to 1.4% led by a 5% gain in Marks and Spencer (MKS LN) after the company’s earnings exceeded expectations. Basic material stocks are also stronger in Europe led by continued momentum in gold. The US dollar is slightly lower on expectations that the Fed will repeat the key phrase in the policy statement that rates will say on hold for an “extended period.” France and Germany Oct Final Services PMI were revised below prelim readings at 57.7 and 50.7 respectively, whilst Eurozone Oct Final Services PMI 52.6 topped prelim estimate. UK Oct Services PMI 56.9 vs con 55.5. Eurozone Sep PPI (7.7%) y/y vs con (7.7%). Advancers on the FTSE 100 lead decliners 4-1. Asian markets closed higher led by India, which reversed 3.3% higher, snapping a 6-day losing streak. India’s finance minister said the government would maintain the stimulus measures propelling basic material and energy stocks 4.5% to 9% higher. Financials led South Korea higher following strong earnings reports. Hong Kong rebounded on bargain hunting with property developers and commodity stocks leading the way. Westpac Bank (WBC.AU) led banks up in Australia after releasing FY results. Property shares fell on a report that banks have tightened their mortgage lending on expectations Beijing may raise interest rates. Australia Sep retail sales (0.2%) m/m vs survey +0.5%.

Research Calls/Market Moving News:

WFC (27.74): Wells Fargo bets on a recovery when helping mortgage holders reports the WSJ: The bank has about $107B in debt tied to option adjustable rate mortgages. Many borrowers own homes worth less than the balances and can't afford to pay an amount that would reduce their loan principal. In response, the bank is gambling on a recovery by issuing thousands of interest only loans that defer borrowers' balances for as long as 6-19 years. It is wagering that a housing recovery and consumer income recovery will eventually cover their underwater debt. As a result, the bank is avoiding large write-downs from foreclosures but it holds billions in debt tied to distressed properties in battered markets.

MA (219.20): MasterCard target increased to $275 from $240 at Deutsche Bank: The firm recommends purchase on the weakness following Q3 earnings, which it attributes to the relative lack of visibility into 2010. F10 estimates are increased to $13.80 and $5.51B; Reuters is $13.12 and $5.55B, respectively. The rating remains buy.

GRMN (31.41): Garmin reports Q3 EPS $1.02 ex-items vs Reuters $0.69; Company reports revenues of $781.3M vs Reuters $706.6M. Net sales: Auto/Mobile $546M vs StreetAccount consensus $489M Outdoor/Fitness $132M vs SA $113M. Aviation $58M vs SA $62M. Marine $45M vs SA $42M. GRMN is trading up 5.6% in the pre-market.

STEC (23.15): STEC reports Q3 EPS $0.50 ex-items vs Reuters $0.47: Company reports revenues of $98.3M vs Reuters $94.1M; reports non-GAAP gross profit margin of 49.8% vs 34.1% y/y. Guides Q4 EPS to $0.51-0.53 ex-items vs Reuters $0.52; guides revenues to $101-103M vs Reuters $106.0M. Shares are down 30%.

STEC (23.15): Think Equity downgrades STEC to hold from buy. “STEC reported September-quarter results ahead of the Street. But, revenue guidance for F4Q09(Dec) at $102M is below the consensus of $106M. STEC attributed weak guidance to Zeus Inventory at EMC. Also, STEC said it will probably take through 1Q10 to clear out inventory. We believe new competing solutions in 1Q/1H10 could make ZeusIOPs a tougher sell, with solutions at SAS, PCIe from Seagate, Micron, SMOD, Pliant, FusionIO, Samsung, and Intel and alternative solutions from the storage OEMs Sun, NetApp. We got this one wrong, and lower our rating from Buy to Hold. STEC guiding December quarter to $101-103M versus consensus of $106M. Company saying weaker guidance due to inventory of ZeusIOPS storage solutions at EMC as it has not been able to sell through all the solutions. STEC saying the slower sell through on the ZeusIOPS has been due to customer perception of a longer payback period on the more expensive SSD investment. STEC is therefore setting up a sales team to jointly market the SSD solutions with EMC and other storage OEMs to potential customers. We believe 1) the fact that the ZeusIOPs SSD has not been able to sell through on its lower cost of ownership merits could imply more pricing pressure on the Zeus solutions, which combined with higher marketing expense make for a less profitable enterprise opportunity. 2) STEC also saying could take through 1Q10 to clear out the ZeusIOPs SSD at EMC, which could enable the competition to close the technology gap. 3) By 1Q/1H10, we believe there would be multiple solutions in the market from Seagate, Micron, SMOD, Intel, Pliant, FusionIO and Samsung for both the Server and storage markets in SAS and PCIe to compete with ZeusIOPS FC SSDs. 4) We believe the competitive offerings could imply market share and pricing risk for STEC, also 5) other Storage OEMs not as keen on SSDs. Given the increasing competitive pressures and risk of pricing, market share, inventory risk, continuous pressures on lowering cost of ownership from competing solutions the risk to the downside.”

RIG (85.91): Transocean reports Q3 EPS $2.65 ex-items vs Reuters $2.65: First Call is $2.67. Company reports revenues of $2.82B vs Reuters $2.84B. Total drilling fleet dayrate $283,800 vs. $255,900 seq. and $242,200 y/y Total drilling fleet utilization 75% vs. 84% seq. and 89% y/y.

WYNN (56.13); LVS (15.14): Macau casino revenue rises 42% y/y in October to MOP12.6B ($1.58B), says Macao Daily News – Bloomberg: The paper cites the news agency Lusa.

BAC (14.80): Bernstein comments on Bank of America, continues to rate the shares outperform: The firm believes the market's fear of an imminent capital raise ahead of an announcement regarding the CEO position is premature and notes most reasonable capital raise scenarios are not EPS dilutive given the extinguishing of TARP dividends.

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