Thursday, November 5, 2009

November 5, 2009: Morning Call

Fair Value: SP500 – 1043.70; NDX: 1679.44; DOW: 9758.71

Technical Levels:

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

5-Day Outlook:

Today: Jobless Claims, Productivity, October Same Store comps
Friday: Change in US Payrolls (-175k), Unemployment Rate: 9.9%. Consumer Credit
Next Week: Multiple Fed speakers address the economic outlook, Chinese Retail Sales and Industrial Production.

Notable Earnings: Thursday Post-close: EOG, PSA, CROX, SUN. Friday Pre-market: AIG. Monday Pre-market: DISH, WCRX. Monday Post-Close: FLR. Tuesday Pre-market: BZH, JASO. Tuesday Post-Close: AONE

Key Macro Trends: Will the highly accommodative/dovish Fed statement reinforce the “risk/reflation trade?” Or will investors “sell the news” and take profits in the near-term given the substantial relative outperformance vs. the S&P 500? Key proxies are Crude Oil, Gold, Euro, high beta technology/commodity stocks, and commodity currencies (Real, Australian Dollar, Canadian Dollar). Financial sector underperformance is another important trend. Fears about government intervention and persistently high credit costs are weighing on the sector, particularly the weaker balance sheet companies. M&A and other corporate actions: Is the BRK for BNI a one-off blockbuster deal or does this signal more mega-deals? RIMM announces a 1.2 billion dollar share buyback this morning. CSCO added 10 billion dollars to its share repurchase authorization last night. Key Short term resistance stands at 1060. Short-term support stands at 1039-1044. Intermediate/Long-term support at 998-1003. Resistance at 1098-1103.

Daily Calendar of Events:

Pre-market EPS: ALD (.07/79M); CAH (.42/24.04B); CI (1.03/4.64B); CNQ(1.23/2.51B); CVS (.64/24.57B); DTV (.40/5.42B); FSYS (.42/104.3M); HOC(.45/1.48B); KIM (.31/194.2M); NDAQ (.42/653.8M); OCR (.60/1.55B); SLE(.15/3.17B); TRI (.40/3.26B)
05:00: Euro-zone Retail Sales (Sep): 0.4% MoM; -2.1% YoY
07:00: Bank of England Announces Interest Rate Decision
07:00: Select Retailers release October Same Store Sales
07:45: ECB Announces Interest Rate Decision
08:00: GE presents at Goldman Sachs Industrials Conference
08:30: US Productivity (Q3): 6.0%; Unit Labor Costs: -3.5%
08:30: Initial Jobless Claims: 519,000; Cont. Claims: 5.8 million
10:00: CNO earnings call
10:00: JPM presents at BancAnalysts Association of Boston
10:30: EIA Natural Gas Storage Change
11:00: ICSC Chain Store Sales
18:00: G20 Finance Ministers and Central Bankers meet in Scotland
Post-market EPS: CBS (.23/3.18B); CHH (.52/168.6M); CROX (-0.08/156.4M); CSTR(.59/326.3M); EOG (.66/1.11B); NVDA (.10/834.1M); PSA (1.25/370.7M); SBUX(.21/2.39B); SUN (.03/7.83B); VRSN (.32/258.8M);

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 4 points above fair value and the NASDAQ futures are trading 8 points above fair value at 8:00am ET. Asian markets fell led by consumer companies and banks (Japan down 1.3%, Hong Kong down 0.63%, South Korea down 1.7%, Shanghai up 0.30%, India up 0.95%). South Korea said it was unlikely that the economic recovery will be sustained. India reversed early losses on a report saying the government may lower telecom license fees. China fluctuated before ending higher with transportation stocks up after China Eastern (600115.CH) got approval for a share sale, and commodity producers fell on speculation stimulus measures may be withdrawn. Hong Kong saw profit taking. New Zealand reported its highest quarterly unemployment rate in nine years. Retailers fell in Australia after David Jones (DJS.AU) reported Q1 sales growth that missed forecasts. European markets are down 0.35% but have pared opening losses of nearly 1%. Decliners on the FTSE 100 lead advancers 7-3. Technology and basic material stocks are lagging.

Research Calls/Market Moving News:

RIMM (57.61): Research In Motion announces common share repurchase program: RIMM announced that its board has authorized a share repurchase program to purchase for common shares having an aggregate purchase price of up to $ 1.2B, or approximately 21M common shares based on current trading prices (representing approximately 3.6% of the currently outstanding common shares of RIM). The share repurchase program may commence on 9-Nov and will remain in place for up to 12 months or until the purchases are completed or the program is terminated by RIM. RIM has not repurchased any shares within the past twelve months.

CSCO (23.29): Cisco Systems reports Q1 EPS $0.36 ex-items vs Reuters $0.31: Company reports revenues of $9.02B vs Reuters $8.75B. Cisco Systems increases share repurchase program by $10B. stock. Cisco's board had previously authorized up to $62B in stock repurchases. There is no fixed termination date for the repurchase program. The remaining authorized amount for stock repurchases under this program, including the additional authorization, is approximately $13.1B. Cisco Systems guides Q2 (Jan) revenue to be up 1-4% y/y - conf. call: Implies a range of $9.18-9.45B vs Reuters $8.98B.

GS (169.50): Goldman Sachs has benefited more than most from low interest rates says the WSJ: A 'Heard on the Street' column notes that Goldman's interest rate on its long term borrowings was only 0.92% in Q3 compared to 3.53% a year ago. This is lower than many competitors but costs may be computed differently. Most of the Street uses interest-rate derivatives to effectively convert long term debt to floating rate. If the Fed keeps rates low for as long as it says, this advantage should accrue to Goldman's benefit for some time to come.

RIMM (57.61): Research In Motion is the company at risk from the Droid says the WSJ: A 'Heard on the Street' column says that the Motorola Droid from Verizon Wireless appears to be a strong competitor to the iPhone but the real loser in this fight might be RIMM and its BlackBerry phones. As long as the iPhone was the only phone with a good web browser, the BlackBerry's lack of a solid web experience was not an issue. But now there are several phones offering a robust browsing experience including the Palm Pre and the Droid. RIMM could see some defections in coming months with consumers now representing the majority of new subscribers and satisfaction with BlackBerry's dropping among both consumers and IT departments. Even if it turns things around, margins have been dropping as devices become more complex and the increased competition may lead to price competition. Even after the recent selloff, the shares may still be pricey.

COST (58.81): Costco reports Oct comps +5% vs StreetAccount +4.2: Company reports October net revenues +7% to $5.68B. US comps were +2%; international comps +17%. US comps (excluding the impact from gasoline deflation) were +3%; international (excluding the effects of foreign exchange) +7%; total comps (excluding aforementioned effects) +4%.

FSYS (33.80): Fuel Systems Solutions reports Q3 EPS $0.77 ex-$0.11 gain vs Reuters $0.43: Shares are up 10% in the pre-market. Company reports revenues of $116.2M vs Reuters $104.3M. Gross profit for Q3 2009 was $39.4M, or 34% of revenue, compared to $30.7M, or 29% of revenue a year ago, reflecting increased operating efficiencies. Operating income for the period totaled $23.1M, or 20% of revenue, compared to $18.2M, or 17% of revenue, in Q3 of 2008. Guides full year revenues to $415-425M vs Reuters $379.7M. The company is targeting 2009 gross margin between 30% and 32% and 2009 operating margin to be between 14% and 16%.

GG (39.88): Goldcorp reports Q3 adj. EPS $0.19 vs Reuters $0.16; increases full-year production guidance: Company reports revenues of $691.9M vs Reuters $614.5M . Q3 gold production was 621,100 ounces, +11% y/y. Total cash cost was $295 was $295 an ounce on a by-product basis and $297 per ounce year to date. Total cash costs on a co-product basis were $384 an ounce compared to $380 an ounce year to date. Company increases F09 gold production guidance to ~2.4M ounces from 2.3M ounces. Adds that guidance on total cash costs has also changed in light of its stronger operating performance. Total cash costs for 2009 are now expected to be ~$300 per ounce on a by-product basis compared with previous guidance of $365 per ounce. On a co-product basis, total cash costs are now expected to be less than $400 per ounce compared to previous guidance of $400 per ounce.

CF (86.38): Agrium (AGU) makes "best and final offer" for CF Industries Holdings of $45/share in cash plus 1 share AGU: The cash and stock offer totals $92.99 at yesterday's AGU close of $47.99. The offer was consistent with the report form the WSJ this morning. Also as noted by the WSJ, AGU said that it has received a "No-Action" letter from Canadian Competition Bureau and has re-filed notification under Hart-Scott-Rodino. AGU has extended the expiration of the offer to midnight on 18-Nov. CF is trading down 6 points as AGU appears willing to walk on November 18 if CF does not come to the table.

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