Friday, January 30, 2009

Morning Call: January 30, 2009

January 30, 2009: Morning Call

Fair Value: SP500 – 842.13; NDX: 1203.57; DOW: 8106.95

Technical Levels:


SPX: 752-755, 800, 816 support/848-852, 899-908 resistance

Events:

Pre-market EPS: ACI (.40/709.4M); CVX (1.80/50.0B); HON (.97/8.95B); PG(1.06/20.63B); SPG (1.86/1.01B); XOM (1.59/62.05B)
05:00: Euro-zone CPI (Jan): 1.4% YoY
04:00: Euro-zone Unemployment Rate (Dec): 7.9%
08:30: US Q4 GDP (Annualized): -5.0%; Personal Consumption
08:30: GDP Price Index (Q4): 0.4%; Core PCE QoQ
08:30: Employment Cost Index (Q4): 0.7%
09:45: Chicago Purchasing Manager (Jan): 34.2
10:00: University of Michigan Confidence (Jan F): 61.9
11:00: SPG earnings call
11:00: CVX earnings call
11:00: XOM earnings call

Foreign Market Summary/Key Macro News/Commentary:

US equity futures have moved lower in the last 2 hours following weakness in European markets, disappointing guidance from PG, and anxiety ahead of the Q4 GDP number. The S&P and NASDAQ futures are both 8 points below fair value ahead at 7:50am ET. European markets have weakened 1.6% after the 5am release of Euro-zone unemployment (8% vs. 7.9% consensus and November was revised higher to 7.9% from 7.8%). Energy and Basic material sectors are leading the market lower. UK banks are positive but financials across the rest of the region are mixed. Gold is up another 13 dollars to 922 despite strength in the dollar as investors around the world are seeking a hedge against central bank intervention(Dollar is up 1% against the Euro to 1.28 and is testing a 2 month high). Citibank is advising clients to stay short the dollar against the Japanese yen given that US fiscal and monetary policy may be a “drag” on the USD. Asian markets: Markets ended the day mixed. Bad economic data, bad earnings forecasts, and overnight losses on Wall Street drove some down, but good results in other markets overshadowed economic concerns. Most shipping stocks followed the Baltic Dry Index up; banks and tech stocks went down. Toyota (7203.JP) declined 4% in Japan after the Nikkei reported its FY08-09 operating loss would expand and it was suspending operations at 11 of its 12 domestic plants. Toshiba (6502.JP) plunged 17% on news it might merge some operations with NEC (6701.JP), and an advancing yen hit exporters. Nintendo (7974.JP) and Kyocera (6971.JP) tumbled 12% and 6%, respectively, after cutting forecasts.

Impact Research Calls/Market Moving News:

AMZN (50.00): Amazon.com reports Q4 EPS $0.52 vs Reuters $0.39: Company reports revenues of $6.70B vs Reuters $6.43B. Guides Q1 revenues to $4.525-$4.925B vs Reuters $4.51B. Amazon.com reports Q4 GAAP operating income $272M vs StreetAccount consensus $231M: Guidance was for $145-305M, including $85M in sbc/amortization. Guides Q1 GAAP operating income $125-210M, including $75M in sbc/amortization, vs SA $172M. GAAP operating margin was 4.1% vs year-ago 4.8% and 3.6% in Q3. Gross margin reported 20.1% vs SA 20.5% and 23.4% in Q3

GS (82.75): Goldman Sachs target increased to $88 from $75 at UBS: Firm is positive on the company's $2B unsecured debt sale, which had strong demand despite the lack of FDIC backing. UBS thinks it could be a small positive toward the opening of unsecured debt markets to financial firms. Rating is neutral.

PG (58.22): Procter & Gamble reports Q2 EPS $1.58 vs 11-Dec guidance of $1.58-1.63: Company reports revenues of $20.4M vs Reuters $20.64B. EPS of $1.58 includes a $0.63 gain from the Folgers transaction completed during the quarter. Guides Q3 EPS to $0.78-0.86 vs Reuters $0.88. Procter & Gamble guides f09 EPS to $4.20-4.35 vs 11-Dec guidance of $4.28-4.38. First Call is $4.29. The company modified the guidance range due to the high level of market volatility and uncertainty. Operating margin, which includes the impact of incremental Folgers-related restructuring charges, is expected to be consistent with the prior fiscal year. For fQ3 (Mar), total sales are guided (2%)-(7%), which implies a range of $19.03-$20.05B. Reuters is $19.08B; First Call $19.2B. Q3 organic sales are expected to grow two to five percent.

New bank bailout plan could merge competing ideas – WSJ: People briefed on a meeting that included Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and FDIC Chairman Sheila Bair say they are talking about buying some of banks' bad assets and offering guarantees against future losses on some of the others. The idea is to both help banks and mitigate the cost to taxpayers. Sources say Bair wanted the government to buy more bad assets, but Treasury objected to the cost. The current plan, which is by no means set in stone as the final one, calls for the government bad bank to buy only assets banks have already marked down heavily, which would avoid crushing the value of other bank assets. As has been reported before, the guarantees would likely be set up the way they were for Citi (C) and Bank of America (BAC

SPWRA (28.68): SunPower reports Q4 EPS $0.70 vs Reuters $0.58
Company reports revenues of $401.0M vs Reuters $398.8M. Non-GAAP gross margin for the quarter was 29.9%. The company has named Dennis Arriola CFO. Guides next year EPS to $2.20-$2.80 vs Reuters $2.65; guides revenues to $1.6B-$2.0B vs Reuters $1.88B.

INTC (13.37): Intel Chairman Craig Barrett says there will be mergers in the technology sector because valuations are cheap. Barrett said,“Intel is always looking at acquisitions.”

ALL (23.50): Allstate downgraded to underweight from neutral at JPMorgan: Target is reduced to $25 from $38. The firm cites reduced operating EPS and needs more comfort with the company's capital position.

MA (129.09): MasterCard added to Conviction Buy List at Goldman Sachs: Price target is $180. The firm sees Q4 earnings (due 5-Feb) as a catalyst.

WYNN (32.82); LVS (5.65): Macau casino revenue (30%) in January, says TDM - South China Morning Post: The government-owned broadcaster says revenues plunged to MOP7.2B ($901M). A government source says casinos took in a mere MOP169M over the Lunar New Year holiday, while last year's casino revenues averaged almost MOP300M per day. The data excludes the final three days of the month and is only marginally below the MOP7.78B monthly average for September-December. January was also up against a difficult comparison, as Lunar New Year fell in February 2008, and the VIP segment had an influx of new gaming credit last January.

DELL (9.95): Dell preparing foray into cellphone market as early as next month – WSJ: Headline only. Additional headlines say that the computer maker has had a group of engineers working on the phones for over a year. Dell is said to have built a prototype with both Google Android and Microsoft Windows Mobile operating systems. Dell is reportedly focusing on the high-end, smartphone market.

X (32.89); NUE (43.03): Nucor (NUE), Olympic Steel (ZEUS), US Steel (X) downgraded, Reliance Steel (RS) upgraded at Goldman Sachs: NUE, ZEUS downgraded to neutral from buy, mainly due to valuation. X downgraded to sell from neutral and added to Conviction Sell List. Steel Dynamics (STLD) removed from Conviction Buy List; rating remains buy. RS upgraded to buy from neutral

CAT (31.85): Caterpillar added to Conviction Sell List at Goldman Sachs: Rating remains sell. Target is $28.

TRA (20.86): Terra Industries upgraded to buy from neutral at Goldman Sachs

Thursday, January 29, 2009

January 29, 2009: Morning Call

January 29, 2009: Morning Call

Fair Value: SP500 – 871.12; NDX: 1235.70; DOW: 8333.87

Technical Levels:


SPX: 752-755, 800, 816, 848 support/899-908 resistance

Events:

Pre-market EPS: AN (.11/3.12B); BDK (.72/1.39B); BLL (.60/1.72B); CL (.97/3.69B); AMB (.60/153.2M); EQT (.51/241.3M); ETH (.22/193.3M); FO (.87/1.87B); HOT(.37/1.40B); IP (.22/6.71B); ITW (.48/3.63B); MMM (.93/5.55B); OXY (1.02/5.02B); OXPS (.36/63.2M); SI (1.03/3.06B)
05:00: Euro-zone Business Climate Indicator (Jan): -3.5
05:00: Euro-zone Consumer Confidence (Jan): -31
05:00: Euro-zone Economic Confidence (Jan0: 65.4; Industrial: -34; Services: -18
08:30: Durable Goods Orders (Dec): -2.0%; Ex-Transportation: -2.5%
08:30: Initial Jobless Claims
08:30: DFS business update call
10:00: New Home Sales (Dec): 400,000; -1.7% MoM
10:30: EIA Natural Gas Storage Change
11:00: SHWB Investor Update Call
11:00: DHI Annual Meeting
16:30: SPWRA earnings call
17:00: AMZN earnings call
Post-market EPS: AMZN (.41/6.45B); BRCM (.26/1.07B); CB (1.52/2.98B); CX(.19/4.78B); EMN (.45/1.52B); JNPR (.32/937.7M); KLAC (-0.06/401.1M); MWW(.26/309.9M); PKI (.42/516.2M); SPWRA (.58/399.2M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points below fair value while the NASDAQ futures are trading 12 points below fair value at 7:30am ET. Futures are lower due to weakness in European markets, which are currently down 1.3%. The House passed the 819 billion dollar stimulus package without a single Republican vote. European markets are being lead lower by mining stocks and UK banks. Xstrata is down 9% after the company said they will raise capital. The major indices extended their declines with economic data providing little support. Decliners on the FTSE 100 lead advancers 9-1. Asian markets closed higher (Japan up 1.8%, Hong Kong up 4.58%, Australia up 0.88%, India down 0.25) due to strength in the European and US markets in Wednesday’s session.

Impact Research Calls/Market Moving News:

Next round of bank bailout could cost $1-2T – WSJ: People familiar with the matter say the Obama administration could announce plans within days but has not yet figured the exact shape of its new proposal, which will seek to fix banks without owning them. A national bad bank could be seeded with $100-200B of TARP money, with the balance coming from selling government-backed debt or borrowing from the Fed. The government is also considering purchasing banks' common rather than preferred stock, or buying convertible bonds. There is also discussion of insuring some assets against further losses, as the government did with Citi (C) and Bank of America (BAC).

Administration works on financial repair but details are elusive – NYT: New York Times article highlights all the open questions surrounding the bad bank aggregator plan that is being debated in Washington. “Federal officials are trying to find a delicate balance between stabilizing banks and keeping the nation’s finances steady. Mr. Summers privately expressed concern last week that spending too much to buy bad assets could cripple the dollar, according to a person who spoke with him. Administration officials are also worried that lawmakers might reject the high price tag. At the same time, spending too little may not provide enough to plug the deepening hole. “None of the solutions are very easy,” Mr. Schumer said. “All of these proposals sound very appealing until you start to examine them in detail. And then you find that all of them have problems. The good bank-bad bank idea — the problem, first and foremost, is how do you value the assets? No one knows how to do that.” One version of the plan being floated by bankers would have the F.D.I.C. take the lead in running the “bad bank” and buying the toxic assets for a combination of cash and notes backed by the bad bank. In return, the government would demand some sort of equity stake. The banks would still be responsible for collecting payments on the loans that they sold, according to bankers briefed on the situation. Other issues still need to be resolved, including how the government would determine what to pay for the toxic assets, which assets would qualify, and what conditions might be attached. Also under discussion was whether to require banks that dump their assets into the fund to separately raise private capital. That could put pressure on weaker banks”

WFC (21.19): Wells Fargo's Q4 disclosure leaves something to be desired – WSJ: In a "Heard on the Street" column, the Journal notes that Wells Fargo made no mention of its tangible common equity when it reported its Q4 earnings on Wednesday. The paper adds that the bank's TCE looks unsustainably low at an estimated 2.68% of its assets, after acquiring purchasing Wachovia last year. This figure is well below JPMorgan's 3.83% and nearly 5% at Goldman, and more in line with BofA's 2.6%. According to the article, Wells would need an extra $15B of common equity to get its TCE ratio to JPMorgan's ratio. The article goes on to express concern about the lack of disclosure surrounding the performance of Wells's pre-merger loans and whether the bank has adequately reserved for them.

QCOM (36.82): Qualcomm provides Q2 and fiscal 2009 guidance, lowers handset guidance: Guides Q2 revenues to $2.25-$2.45B vs Reuters $2.42B; First Call $2.41B. Guides f09 revenues to $9.3-$9.8B, below prior $10.2-$10.8B, vs Reuters $10.27B. Q2 operating income guided to $0.75-$0.85B. Q2 (March): MSM shipments targeted at 60-65M and CDMA/WCDMA (shipped in Dec qtr) expected 116-121M at an ASP of $207. Fiscal 2009 (Sep): CDMA/WCDMA ASP $202 versus previous $195. Calendar 2009: CDMA/WCDMA units 540-590M versus previous 580-620M, with CDMA at 230M, unchanged from prior and WCDMA at 353M from previous 370M (both CDMA and WCDMA are midpoints). QCOM is not providing an EPS forecast due to the volatility of the financial markets.

MUR (48.27): Murphy Oil reports Q4 EPS $0.83 vs Reuters $0.80: Company reports revenues of $4.43B vs a single estimate of $5.08B. Crude oil and liquids production averaged 129.3K bpd with sales volumes of 140.1K bpd. MUR sees total production in Q1 of 163K Boe/day and sales volume during the quarter of 156K/day. Guides Q1 EPS to $0.20-$0.40 vs Reuters $0.41.

BDK (38.74): BDK slashes Q1 and FY2009 guidance. Q1 guidance is between 5 and 15 cents versus consensus of .79 cents. Sees 2009 EPS of between 1.75-2.25 vs. street at 3.68.

MMM (55.42): MMM reports Q4 EPS that beat by 4 cents (97 cents vs. 93 cents). MMM sees 2009 EPS of 4.30 to 4.70 vs. prior guidance of 4.50 to 4.95. 2009 consensus is 4.36. MMM plans to cut capex by 30% and sees 2009 organic sales volume down 3-7%.

FO (37.96): Fortune Brands reports Q4 EPS $0.68 ex-items vs Reuters $0.86: Company reports revenues of $1.79B vs Reuters $1.90B. Q4 EPS was also adversely impacted by foreign exchange by $0.12/sh. Guides f09 EPS to $2.00-2.50 vs Reuters $3.60.

NYX (23.58): NYSE Euronext downgraded to neutral from buy at Piper Jaffray: Target is lowered to $25 from $39.

PII (23.40): Polaris Industries reports Q4 EPS $1.11 vs Reuters $1.09: Company reports revenues of $523.6M vs Reuters $548.8M. Guides Q1 EPS to $0.15-0.25 vs Reuters $0.47; guides revenues to decline 20-25%, implying sales of $291.6-311.0M vs Reuters $375.8M. Guides '09 EPS to $2.50-3.00 vs Reuters $3.12. Guides '09 revenues to decline 15-23%, implying sales of $1.50-1.66B vs Reuters $1.92B.

CHK (16.75): Chesapeake Energy sells $1B worth of senior notes: The offering was increased from an originally expected $500M. The senior notes, due 2015, were priced at 95.071% of par to yield 10.625%.

Wednesday, January 28, 2009

January 28, 2009: Morning Call

January 28, 2009: Morning Call

Fair Value: SP500 – 842.66; NDX: 1194.18; DOW: 8133.05

Technical Levels:


SPX: 752-755, 800, 816 support/848-852, 899-908 resistance

Events:

Pre-market EPS: BA (.79/13.42B); BDX (1.15/1.78B); BHI (1.28/3.04B); COP(1.62/60.75B); DOV (.86/1.78B); HES (.61/10.81B); LM (-4.01/827.4M); ROH(.62/2.28B); SAP (.97/4.62B); T (.66/31.42B); WFC (.30/10.96B)
07:00: MBA Mortgage Applications
08:00: T earnings call
08:30: WFC earnings call
09:45: MET presents at Citi Financial Services Conference
10:30: DOE Crude Oil and Gasoline Inventories
10:00: HES earnings call
11:15: NTRS presents at Citi Financial Services Conference
14:00: NYX presents at Citi Financial Services Conference
14:00: NYB presents at Citi Financial Services Conference
14:15: FOMC Interest Rate Decision: 0.25%
16:45: QCOM earnings call
19:00: COST Annual Meeting
Post-market EPS: ALL (1.34/6.64B); BEN (.85/1.05B); BXP (1.33/371.5M); DST(1.07/418.7M); MTW (.56/1.20B); MUR (.84/5.79B); PHM (-.66/1.45B); QCOM(.46/2.44B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both 20 points above fair value on speculation that the Obama Administration will form a bad bank that will be run by the FDIC. Although recent speculation has centered around a “bad bank” plan, CNBC reported last night at 5pm that details could be announced by the middle of next week. Index futures moved sharply higher with financial stocks outperforming. The key open questions are: what is the pricing mechanism? What assets will the bad bank acquire? What is the size of the purchasing pool? Will the bad bank model allow zombie institutions (C, BAC AIG, ect) to stay afloat or will they be seized and liquidated? The fact that FDIC’s Shelia Bair is lobbying to run the bad bank could imply that bad banks will ultimately be seized and liquidated. Although the seizure and liquidation of bad banks would likely trigger panic selling in the short-term, over the long-term this policy would likely create some stability as private capital (with government assistance) would be able to establish a floor on asset prices.

Impact Research Calls/Market Moving News:

Washington Post discusses Obama Administration's approach to bank bailout plans
CNBC reported last night that the Obama Administration is close to deciding on a plan to purchase bad/illiquid assets from banks, and may ultimately adopt a bad bank approach which prices illiquid assets generously
. The Post echoes this headline but does not indicate Obama has settled on just one approach, reporting that Obama's advisers are in the final stages of debating several options to right the financial system. Citing sources, the Post says that the administration is likely to try a combination of initiatives rather than a single, all-encompassing solution to help the financial system. This combination could include: Federal guarantees protecting banks against losses on assets that are backed by failing mortgages and other troubled loans, as used with Citi and BofA, though the cost of this approach is said to be very high. A new government institutions to buy toxic assets, the so-called "bad bank" approach. The Post notes that the pricing issue is said to be the most vexing for the Obama team, though they feel these assets must be dealt with directly. Officials are said to be likely to combine some funds approved by Congress with additional money from the Fed in establishing new government institutions to buy up distressed assets. The injection of more money into financial firms in exchange for ownership stakes. The Post notes that explicit nationalization has little support among key Obama officials, and these officials worry that by taking over a substantial portion of a bank's stock and wiping out shareholders, the government could precipitate a sell-off across the banking system. For this reason, Obama officials feel that the government may need to find a way to safeguard existing shareholders when it provides aid.

Financials trading sharply higher pre-open: As noted in our Overnight Summary and market updates last night, financials have led the market higher following the CNBC report last night suggesting that the Obama Administration is close to deciding on a plan to purchase bad/illiquid bank assets, and that the pricing mechanism might be favorable for banks. A Washington Post report, while also indicating that the Administration was in the final stages of planning, was less definitive about the eventual plan, saying that the bad bank approach could be used in combination with other strategies, and that the question of pricing illiquid assets remains the most vexing. The Post did, however, note that officials are wary of punishing shareholders given the risk that this might precipitate a sell-off across the banking system. Financials are trading sharply higher globally: AIB+22.1%, BCS+21.3%, C+21.1%, DB+18.2%, BAC+18%, WFC+16.6%, ABK +13.4%, GNW+10.6%, HIG+10%, HBC+10.4%.

WFC (16.19): Wells Fargo reports Q4 GAAP EPS ($0.79): Note the ($0.79) in earnings is for Wells Fargo only and includes the following items: $0.99 credit reserve build through Wells Fargo earnings, which includes $0.69 to conform reserve practices of both Wells and Wachovia; $0.08 in OTTI charges; $0.07 in write-downs on aged loans in mortgage warehouse and additions to the mortgage repurchase reserve; $0.05 net charge-offs related to Madoff fraud; and $0.01in merger-related integration and severance expenses. Excluding all of these items, adjusted EPS totals $0.41; however, it is unclear at this time whether any or all of the charges were unaccounted for in analysts' models. Reuters is $0.32 and First Call is $0.33. Wells Fargo reports Q4 results: Net charge-offs as a % of avg total loans were 2.69% versus 1.96% in Q3; allowance as a % of nonperforming loans was 319% versus 161% in Q3. Average loans increased 2.4% sequentially to $413.9B and average core deposits grew 7.7% to $345B. Net interest margin increased 11 bp to 4.90%. Tier 1 capital totaled $86.4B for a ratio of 7.9% at quarter end; this includes the impact of de-risking Wachovia's balance sheet, which reduced the Tier 1 ratio by 230 bp in aggregate. Company goes on to note that it has no plans to request additional TARP capital.

GE (13.06): Moody's reviews General Electric and GECC's 'Aaa' long-term ratings for possible downgrade: Moody's placed the long-term ratings of General Electric Company (Aaa senior unsecured) and General Electric Capital Corporation (GECC; Aaa senior unsecured) on review for possible downgrade. The firms' Prime-1 short-term ratings were affirmed.

GE (13.06): UBS maintains Short-Term Sell rating on General Electric: Firm has a higher conviction that credit losses will surpass the company's forecast following the Q4 release. UBS notes that the Capital Finance earnings run rate is well below guidance on an annualized basis and that non-performing loans are increasing. Target is $12.

LM (19.44): Legg Mason reports Q3 EPS ($10.55), unclear if comparable to Reuters ($4.01): Company reports revenues of $720.0M vs Reuters $827.4M. Assets Under Management were $698.2B, down 17% from $841.9B at September 30, 2008, reflecting net client outflows and market declines. AUM were down 30% from $998.5B at December 31, 2007.

X (31.49): U.S. Steel estimates lowered, reiterated sell at UBS: Firm lowers Q1 and '09 EPS further below consensus following the company's Q4 results and guidance for a Q1 loss. UBS now forecasts '09 EPS to be breakeven vs consensus $3.59. Firm is unconvinced that underlying demand will merit the company restarting capacity beyond its breakeven capacity utilization. Firm also thinks it is unlikely spot sheet prices will rise enough to see positive operating leverage. Target is $25.

X (31.49); AKS (8.64); NUE (39.80); STLD (11.78): Goldman Sachs reduces estimates and targets on steel stocks: AKS target reduced to $11 from $15; rating remains buy. X target reduced to $23 from $36; rating remains neutral. NUE target reduced to $44 from $50; rating remains buy. STLD target reduced to $13 from $15; rating remains buy

FCX (25.63): Freeport-McMoRan upgraded to hold from sell at Canaccord Adams: Price target increased to $26 from $22.50. Firm notes lower costs and does not see significant liquidity or debt covenant issues at current commodity prices.

DO (63.85): Diamond Offshore upgraded to buy from neutral at Goldman Sachs

Jumbo mortgages under pressure – WSJ: Citing data from LPS Applied Analytics, a mortgage-data research firm, the Journal reports that about 6.9% of prime, jumbo loans were at least 90 days delinquent in December, up sharply from 2.6% in the year earlier period. Of interest, delinquencies of non-jumbo prime loans that qualify for government backing increased to 2.1% from 0.8%. Defaults on jumbo mortgages tend to result in outsized losses for lenders given that expensive homes are much more difficult to sell when the real estate market sours. According to the article, three lenders accounted for nearly half of all jumbo loans made in the first nine months of 2008. The top two originators, Chase Home Finance and Washington Mutual, both of which are part of JPMorgan (JPM), made more than 25% of all jumbo loans. In addition, BofA (BAC) and Wells Fargo (WFC) each accounted for 11% of the jumbo market. The article goes on to discuss expectations for a more pronounced decline in jump mortgage originations this year, as well as research from Credit Suisse that estimates that 42% of prime jumbo mortgages will exceed the value of the homes they backed if prices decline another 15% over the next two years.

GSE capital calls suggest government has embraced off-balance-sheet vehicles – WSJ: In a "Heard on the Street" column, the Journal argues that the government seems perfectly content to use the balance sheets of Fannie and Freddie to intervene in the housing market. The paper adds that this dynamic has been evidenced by the lack of public response from the Treasury regarding recent comments from Fannie and Freddie that they may need $16B and $35B, respectively, in additional capital to stave off insolvency. The article goes on to concede that unlike most of the banks into which the government has pumped capital, at least the GSEs are lending

Tuesday, January 27, 2009

January 27, 2009: Morning Call

January 27, 2009: Morning Call

Fair Value: SP500 – 833.64; NDX: 1184.33; DOW: 8075.17

Technical Levels:


SPX: 752-755, 800, 816 support/848-852, 899-908 resistance

Events:

Pre-market EPS: AKS (.02/1.2B); AVY (.43/1.57B); BJS (.47/1.41B); BTU (.75/1.71B); CBE (.71/1.53B); CHKP (.47/216.4M); DD (-.24/6.09B); EMC (.23/3.99B); MHP (.38/1.49B); STJ (.58/1.11B); NUE (11/3.46B); SI (1.80/22.3B); VLO (.84/19.95B); X(1.16/4.46B)
09:00: S&P/CaseShiller Home Price Index (Nov)
10:00: Consumer Confidence (Jan): 38.9
10:00: Richmond Fed Manufacturing Index (Jan): -49
11:15: BLK presents at Citi Financial Services Conference
12:45: Citibank presents at Citi Financial Services Conference
14:00: COF presents at Citi Financial Services Conference
15:00: X earnings call
16:30: API Crude Oil and Gasoline Inventories
17:00: YHOO earnings call
17:00: ABC Consumer Confidence
Post-market EPS: CTX (-1.12/1.06B); NSC (1.19/2.62B); YHOO (.13/1.27B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 4 points above fair value while the NASDAQ futures are trading flat with fair value at 8am ET. European markets are down 1.1% just off the lows of the session. Weakest groups include Steel and Mining. Technology and Industrials are outperforming. German Solar stocks rallied 4.5%-7% after Q-cells, Phoenix Solar and Solarworld confirmed their earnings and sales forecasts. Asian markets closed higher (Japan up 4.9%, Hong Kong closed, Australia up 3%, India up 3.8%). Financials capitalized across the region on Barclays’s saying it will not need government funding. Japan rallied as the government said it would offer public funds to firms whose capital has been hurt by the financial crisis. Honda Motor (7267.JP) rose helped by a report it would expand production capacity in China by 20%. In India, Satyam Computer (SCS.IN) rose 20% on news that Larsen & Toubro (LT.IN) might raise its stake.


Impact Research Calls/Market Moving News:

AXP (15.20): American Express reports Q4 EPS $0.21 ex-items vs First Call $0.22: Company reports revenues of $6.51B vs Reuters $7.02B. First Call is $7.22B. Q4 results include $273M, after-tax, of reengineering costs, and a previously announced $66M, after-tax, increase in its Membership Rewards reserve. AXP remains cautious about the economic outlook through 2009, and expects cardmember spending to remain soft with past-due loans and write-offs rising from current levels. American Express says spending levels in Jan were "pretty consistent" with the trend in Dec -- conf call: Lower spending is having the most impact on lower loan growth. AXP also notes it is having fewer balance transfers that it historically has had, which is contributing to lower loan growth

AXP (15.20): Friedman Billing reiterates there underperform rating and lowers the price target to 12 from 15: “Key takeaways. Internal budgeting assumes peak unemployment of 8.5% in 2009, which, we believe, may prove too optimistic. Despite management indicating that USCS losses will increase for the next two consecutive quarters, reserves as a percentage of delinquent loans declined. Loan balances should decline, driven by lower customer spending and tighter line management. Valuation. We reduce our 2009 EPS estimate (which includes the benefit from the V/MA settlement) to $0.90 (from $1.25); we initiate a 2010 EPS estimate at $1.00. Our revised target assigns a 1.5x multiple to 4Q08 TBV of $7.55, a substantial premium to other card issuers and financial institutions, reflecting the inherent value of the network and superior global brand.”

AXP (15.20): American Express upgraded to outperform from underperform at Calyon Securities -- Dow Jones

DD (23.18): DuPont reports Q4 EPS ($0.28) vs preannounced range of ($0.20)-($0.30) and Reuters ($0.24): Company reports revenues of $5.82B vs Reuters $6.13B; First Call $6.17B. Guides Q1 EPS to $0.50-$0.70 vs Reuters $0.79. Guides f09 EPS to $2.00-$2.50, below prior $2.25-$2.75, vs Reuters $2.22. DD expects that global macroeconomic conditions for Q1 2009 will be similar to Q4 2008. DD expects the current global recession will continue in 2009, and says lower demand for non-agriculture products and the impact of currency is expected to limit the company's revenue growth.

TXN (14.77): Texas Instruments reports Q4 EPS $0.21 ex-items vs Reuters $0.12: The EPS figure includes a $67M tax benefit from the federal research tax credit and excludes restructuring charges. Company reports revenues of $2.49B vs Reuters $2.37B. Guides Q1 EPS to ($0.08)-$0.06 ex-restructuring charges vs Reuters $0.03; guides revenues to $1.62-2.12B vs Reuters $2.04B. Texas Instruments reports Q4 gross margin 44.0% vs Streetaccount consensus 40.1%

FSLR (139.05); SPWRA (28.80): First Solar (FSLR), SunPower (SPWRA) estimates reduced at Thomas Weisel: The estimates for FSLR are reduced to below consensus for both revenues and EPS for 2008 and 2009. The firm expects weaker shipments in 1H09. Target reduced to $185 from $220; rating remains overweight. SPWRA estimates for 2009 are reduced to below consensus for both revenues and EPS. Target is reduced to $30 from $45; rating is market weight. The firm cites concern about Spain, as well as tighter credit. “Following the results of the Taiwan solar complex, MEMC's negative outlook and our own channel checks with distributors and dealers, we are reducing our estimates well below consensus and management's guidance for 2009. We believe there is tremendous risk to the downside for numbers given the lack of credit (1.4% reduction in lending in 4Q as reported by the WSJ on Jan 26, 09), which directly impacts the bulk of SunPower's installation business. Though management had indicated on their last call that customers will shift from a levered method purchasing PV to a cash basis, we are in the midst of one of the worst global economic crisis in decades, we don't think this shift in purchasing patterns will shift as fast as management expects. In addition, it is becoming increasingly plausible that Spanish demand will go to zero in 2009 which was ~50% of SunPower's installation business in 2Q08. Non-Spain installations were trending at $75-$100 million per quarter in a solid credit environment, which leads us to believe systems revenue in 1H09 is well below $100 per quarter since credit isn't available.

IBM (91.60: IBM sent layoff notes to more than 2800 in sales – WSJ: The WSJ reports the cuts may be more significant than the company had said. Recall the Alliance for IBM speculated on job cuts at the company and that the organization has repeatedly commented on possible job cuts

CAT (32.67): Caterpillar upgraded to neutral from sell at UBS: Though upgraded, the price target is decreased to $34 from $35. The firm believes negative news is priced into the stock.

BJS (11.92): BJ Services reports Q1 EPS $0.56 ex-items vs Reuters $0.46: Company reports revenues of $1.43B vs Reuters $1.39B. BJS will reduce capital spending to a level that is 20%-25% below that of f08.

USB (13.01): US Bancorp downgraded to hold from buy at Argus Research: Shares are removed from Focus List. Firm lowers estimates and expects the company to cut its dividend.

Monday, January 26, 2009

January 26, 2009: Morning Call

January 26, 2009: Morning Call

Fair Value: SP500 – 829.03; NDX: 1175.68; DOW: 8036.89

Technical Levels:


SPX: 752-755, 800, 816 support/848-852, 899-908 resistance

Events:

Pre-market EPS: CAT (1.29/12.09B); DHR (1.03/3.07B); FCX (-1.11/2.94B); HAL(.74/4.78B); MCD (.83/5.70B); SEE (.33/1.17B); WFT (.53/2.58B)
10:00: Leading Indicators (Dec): -0.3%
10:0): Existing Home Sales (Dec): 4.4 million annual rate; -2.0% MoM
10:00: FCX earnings call
11:00: CAT earnings call
17:00: AXP earnings call
17:30: TXN earnings call
Post-market EPS: AMGN (1.05/3.79B); AXP (.09/7.02B); JEC (.90/3.12B); MCK(.86/27.17B); NFLX (.37/354.2M); PTV (.48/928.7M); TXN (.12/2.37B); ZION(-.32/68.7M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points below fair value while the NASDAQ futures are trading 8 points below fair value at 7:45 am ET. The S&P futures have recovered from 17 below fair value overnight following the Barclay’s trading update and a reversal in European markets. But, the market is currently weakening on the poor earnings guidance from CAT. European markets: shares reversed early declines and moved 1.5% higher with strong gains in financials, led by Barclays (BARC.LN) and ING (INGA.NA) after company updates and industrials shares, led by Philips Electronics (PHIA.NA). Asian markets: Most of Asia was closed. Thailand rose, New Zealand was flat, and Japan was down 0.81%.

Impact Research Calls/Market Moving News:

CAT (35.66): Caterpillar reports Q4 EPS $1.08 vs Reuters $1.28. Company reports revenues of $12.12B vs Reuters $11.97B. The company announced plans to reduce its workforce by 20,000. CAT sees 2009 EPS of 2.50 versus street consensus of 4.22. CAT shares are trading down 7%.

BKX Index (28.44): Goldman Sachs re-initiates US large bank sector with cautious rating: several individual changes: JPMorgan (JPM) re-initiated with buy, and added to Conviction Buy List. Bank of America (BAC) downgraded to neutral from buy. US Bancorp (USB) downgraded to sell from neutral, and added to Conviction Sell List. PNC Bank (PNC), Wells Fargo (WFC), Morgan Stanley (MS) reinitiated with neutral. Citi (C) reinitiated with sell.

BCS (3.07): BCS shares are up 50% after the company said they are not looking to raise additional capital.

WYE (43.74); PFE (17.45): PFE confirms to purchase Wyeth: Pfizer and Wyeth announced that they have entered into a definitive merger agreement under which Pfizer will acquire Wyeth in a cash-and-stock transaction currently valued at $50.19 per share, or a total of approximately $68B. The Boards of both companies have approved the combination. It is expected that no drug will account for more than 10% of the combined company's revenue in 2012.

PFE (17.45): Pfizer guides 2009 adjusted diluted EPS to $1.85-$1.95, which includes a reduction of $0.50 related to the purchase of Wyeth (WYE)
Reuters consensus is $2.50; First Call $2.49. F09 adjusted revenues guided to $44.0-$46.0B vs. Reuters $48.72B; First Call $48.81B.

GS (74.91); STT (19.40): UBS discusses a Goldman Sachs (GS)/State Street (STT:Firm notes that a potential sale of STT is one option the company may be considering, and thinks GS is likely taking a look at STT as well as other deals in order to improve its ability to tap the unsecured debt markets. UBS comments that while a deal would be strategically sound and would be accretive to GS, the deal would not be transformational enough to warrant the significant dilution to TCE

SLB (41.09): Schlumberger estimates reduced below consensus at Bernstein: The firm believes the bottom abroad is unlikely to be hit until 2010. F09 and f10 EPS estimates are reduced to $2.95 and $2.12 vs. Reuters $3.54. Bernstein says it is too early to anticipate a bottom and that the shares should trade sideways in the near term. SLB remains market perform rated.

Big US banks lending less despite TARP funds – WSJ: An analysis shows ten of 13 large beneficiaries of TARP funds saw outstanding loan balances decline by a total of about $46B, or 1.4%, between Q3 and Q4. US Bancorp (USB), SunTrust Banks (STI), and BB&T (BBT) were the only three to see their portfolios grow. Large TARP recipients like Wells Fargo (WFC), who have not yet reported Q4 results, were not included. Bankers say it takes time to make prudent loans, and demand for low-risk loans is declining. Peope familiar with the situation say Citi (C) is expected to announce a plan tomorrow to use some of its TARP money to finance tens of billions of dollars in new loans this year. Reporting requirement inadequacies make it difficult to tell how much new lending many banks did, or how the amounts compare to previous quarters

CVX (70.82); RIG (52.22): Chevron removed from Conviction Buy List at Goldman Sachs; Transocean (RIG) added to Conviction Buy List: CVX remains buy rated; target remains $80. RIG target raised to $68 from $58. The firm also raises targets on: Pride (PDE) to $19 from $16. Diamond Offshore (DO) to $72 from $62. Atwood (ATW) to $19 from $16. Noble Drilling (NE) to $30 from $26.

BRK/A (86,250): Berkshire Hathaway 's equity holdings being dragged down by financials says Barron's: Barron's estimates that Berkshire Hathaway's equity portfolio is down 14% in '09 through Thursday compared to a 8% drop in the S&P 500, based on Berkshire's 16 largest equity holdings. Historically these holdings account for over 85% of the portfolio. Barron's guesses that if any of these companies needs an equity investor, Berkshire is ready to help. The stock looks reasonable at an estimated 1.3x book and 14x projected earnings. The top holdings are: AXP, BNI, KO, COP, JNJ, KFT, MCO, PKX, PG, SNY, TSCO.LN, USB, WMT, WPO, WFC and WSC.

SEE (13.70): Sealed Air reports Q4 EPS $0.39 ex-items vs Reuters $0.33: EPS excludes restructuring and other charges. Company reports revenues of $1.17B vs Reuters $1.17B. Guides f09 EPS to $1.25-1.45 ex-items vs Reuters $1.47.


Barron's summary
Cover: Investors should still with Big Oil, especially XOM, TOT, BP and speculative bet PBR. Rountable Part III: Picks from Scott Black, Marc Faber, Mario Gabelli and Oscar Schafer. Lead Articles: Positive on Heinz (HNZ), might be food's most appealing stock; Berkshire Hathaway's (BRK.A) equity holdings being dragged down by financials but the stock looks reasonable; Questions about an aggregator plan for bad bank assets, at least Geithner is flatly against nationalization; Kyocera (KYO) will survive due to diverse product line and cash holdings, stock could go to $90; O'Reilly Auto (ORLY) may be the best positioned to benefit from keeping older cars on the road, stock could climb 50%; Editorial suggests that President Obama take some time to study the problems before rushing into a fiscal stimulus or bank rescue plan. Columns: The Trader is positive on Focus Media (FMCN); Euro Trader is cautious on the possibility of a deal between Fiat (F.IM) and Chrysler saying that the biggest risk is that no deal happens, plus neither has a good track record with deals; Asia Trader notes the doubts surrounding the potential 500% return from Bumi Resources (BUMI.IJ) stock buyback; Current Yield notes the potential for the government to have to borrow $2.5T at the same time the incoming Treasury Secretary is accusing the Chinese of currency manipulation, resulting in a steepening Treasury yield curve; Commodities Corner says natural gas prices will rise but not this winter; The Striking Price says that President Obama's first 100 days could impact the volatility of stocks; Preview says that many millionaires are looking at real estate as an alternative investment, specifically small apartment buildings or strip malls; Follow Up is mixed on a Pfizer (PFE) / Wyeth (WYE) deal; Up and Down Wall Street comments on the inauguration and the impact of a financial crisis; Streetwise is cautious on the private education sector including ESI, APOL, DV and COCO and cautiously positive on ADP; Economic Beat says the government may need to do more to lower interest rates in order to help the housing sector; Technology Trader says PC demand is suffering, mobile phone sales are in trouble, there is no consumer electronics demand, the chip business continues to weaken and even good earnings reports aren't so good; Plugged In says Microsoft's problems may go deeper than just the economy, sort of; Gadget of the Week: Adobe's Photoshop Lightroom 2

Friday, January 23, 2009

January 23, 2009: Morning Call

January 23, 2009: Morning Call

Fair Value: SP500 – 824.60; NDX: 1167.86; DOW: 8083.57

Technical Levels:


SPX: 752-755, 800, 816 support/848-852, 899-908 resistance

Events:

Pre-market EPS: GE (.43/48.8B); HOG (.58/1.3B); SLB (1.08/7.0B)
04:00: Euro-zone PMI Manufacturing (Jan): 33.1; Services: 41.5; Composite: 37.4 (slightly better: Manufacturing at 34.5, Services at 42.5, and Composite at 38.5)
04:30: UK GDP (Q4): -1.2% QoQ; -1.4% YoY (weaker: -1.5% QoQ, -1.8% YoY).
08:30: GE earnings call
09:00: SLB earnings call
10:30: EIA Natural Gas Storage Change


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 16 points below fair value and the NASDAQ futures are trading 17 points below fair value at 7:50 am ET. Weakness in Asian markets, a sharper than expected contraction in fourth quarter UK GDP, and weakness in the British Pound is pressuring the futures in early trading. Asian markets moved sharply lower overnight (Japan down 3.8%, Australia down 4.1%, Hong Kong down 0.60%, Shanghai down 0.50%, India down 1.6%). Technology stocks were hit hard on the MSFT earnings and a warning from Samsung Electronics. Sinopec (386.HK) and Chalco (2600.HK) both fell after profit warnings. Steelmakers fell after Nippon Steel (5401.JP) said it would more than double its planned output cuts for H2 ending 31-Mar. Australia saw the region's biggest declines led down by banks, after a former central bank governor predicted a long recession. Sims Metal Management (SGM.AU) plunged on a profit warning. European markets are down 2.0% with insurance and mining stocks leading the market lower. Decliners on the FTSE 100 lead advancers 9-1. Insurers fell following yesterdays steep sector declines in the US.

Impact Research Calls/Market Moving News:

GE (13.48): General Electric reports Q4 EPS $0.36, including charges, vs guidance of $0.36-$0.42, on same basis: Company reports revenues of $46.21B vs Reuters $50.14B. GE says it remains committed to the $1.24/share dividend for the year. StreetAccount notes that some had incorporated the preferred dividend, amounting to $0.01/share, into their estimates. First Call is $0.37. Orders - infrastructure (6%). Revenue and profits by segment: Technology Infrastructure: revenue 1% to $12.56B and profit 1% to $2.50B. Energy Infrastructure: revenue 21% to $11.41B and profit 11% to $2.01B. Capital Finance: revenue (17%) to $14.77B and profit (67%) to $1.03B.

GOOG (306.50): Google reports Q4 non-GAAP EPS $5.10 vs Reuters $4.95: First Call is $4.96. Company reports revenues of $5.70B, including TAC vs Reuters $5.64B, which includes TAC. Excluding TAC, GOOG reports revenues of $4.22B vs. First Call $4.12B. Google reports Q4 aggregate paid clicks +18% y/y vs StreetAccount consensus +16%. Key operating metrics: Google Sites gross revenue was $3.81B vs SA $3.77B, while Networks revenues were $1.69B vs SA $1.73B. Licensing/other revenues reported $196.3M vs SA $202M. Geographies: International revenues totaled $2.86B vs SA $2.75B, including the UK at $685M, and accounted for 50% of total company revenues compared to 51% in Q3; company notes that international revenues would have been $334M higher at constant currency rates. US revenue came in at $2.84B vs SA $2.91B. TAC was $1.48B during the quarter compared to $1.50B in Q3; TAC as a percentage of ad revenues was 27% compared to 28% in Q3. Cash flow: operating cash flow was $2.12B and capex was $368M, resulting in free cash flow of $1.75B. Headcount: total employees were 20.222K at quarter end versus 20.123K at the end of Q3; implies a net employee gain of 99 versus 519 in Q3. Google reports Q4 results; to offer one-for-one stock exchange program: Company reports that it will be offering employees a voluntary, one-for-one stock option exchange; the program will begin on 29-Jan and end on 3-Mar and is intended to create more incentives for employees to remain at the company.

SLB (37.27): Schlumberger reports Q4 EPS $1.03 ex-items vs Reuters $1.04: First Call is $1.06. Company reports revenues of $6.87B vs Reuters $6.84B. SLB expects 2009 activity to weaken across the board with the most significant declines occurring in North American gas drilling, Russian oil production enhancement and in mature offshore basins. SLB says it is adjusting its operating cost base and is taking action to reduce global workforce, taking a related charge in Q4 of $0.08. SLB repurchased 2.7M shares during Q4 and had $7.1B of its common stock remaining for repurchase under its current $8B repurchase program.

COF (21.94): Capital One reports Q4 EPS ($1.59) cont. operations, unclear if comparable to Reuters $0.28: The company added $1.0B to allowance for loan losses in anticipation of increasing charge-offs in 2009. Allowance as a percent of reported loans increased 90 basis points in Q4 of 2008 to 4.5%. The company recognized an $810.9M non-cash impairment of goodwill in conjunction with its revised outlook for its Auto Finance business. Total deposits at December 31, 2008 were $108.6B, up 31.2% from the prior year and up 9.8% from Q3 of 2008, with stable deposit margins.

COF (21.94): WSJ highlights the grim outlook at Capital One: The Journal notes that while the bank wrote off an additional $1B in bad loans and posted a larger-than-expected loss due to a rising default rate in Q4, it losses to worsen this year based on its expectations for an 8.7% unemployment rate and another 10% decline in home prices. The article also points out that the bank's outlook for loan losses in 2009 has risen 20% in just the last three months.

COF (21.94): Capital One downgraded to reduce from neutral at SunTrust Robinson Humphrey

HOG (12.40): Harley-Davidson reports Q4 EPS $0.34 vs. Reuters $0.57: Company reports revenues of $1.29B vs Reuters $1.30B. Q4 retail sales fell 13.1% y/y; US retail sales were down 19.6% y/y. Full year shipments were 303,479 units vs year-ago 330,619. Guides Q1 shipments to 74,000-78,000 motorcycles. Guides 2009 shipments to 264,000-273,000 motorcycles. Due to the current economic environment, the company did not provide 2009 EPS guidance

CME (168.37): CME Group downgraded to market perform from outperform at Bernstein: The firm has reduced EPS estimates for CME and ICE by 25%-30% for 09 with 2010 estimates reduced 30%-35%. Targets for the shares are reduced to $200 and $80. ICE shares, however, remain outperform rated.

PBR (24.29): Petrobras downgraded to equal-weight from overweight at Morgan Stanley: Price target decreased to $25 from $46.

Lawmakers propose eliminating tax break for merging banks - NYTA DealBook article says the new stimulus package now has a clause that would rescind the Treasury Department's amendment of a 1986 rule limiting a buyer's ability to use a target's net operating losses to shield taxable income in the future.

MSFT (17.11): Microsoft's cost-cutting efforts leave something to be desired – WSJ: In a "Heard on the Street" column, the Journal notes that while Microsoft said it accelerated a cost-reduction plan in the December quarter, the company was actually still hiring. The article notes that general and administrative headcount rose 6%, while sales and marketing rose 4%. The Journal also points out that given that the company plans to continue to hire in areas where it sees opportunity (such as search), it will employ more people after the cuts than at the end of F08 last June.

Wednesday, January 21, 2009

January 21, 2009: Morning Call

January 21, 2009: Morning Call

Fair Value: SP500 – 802.21; NDX: 1136.28; DOW: 7909.48

Technical Levels:


SPX: 752-755, 800 support/816-820, 852, 899-908 resistance

Events:
Pre-market EPS: APD (.97/2.2B); ATI (.89/1.1B); BLK (1.20/1.1B); CNI (1.77/4.4B); COH(.67/958.8M); FCX (-.92/3.0B); UAUA (-3.99/4.5B); UTX (1.22/14.8B); PGR(.35/3.1B); USB (.22/3.7B); NTRS (.94/977.04M)
04:30: Bank of England releases Minutes from Interest Rate Decision
04:45: BOE’s Tucker to testify to UK Treasury Committee
07:00: MBA Mortgage Applications
09:00: GM Q4 2008 Vehicle Sales Conference Call
09:00: USB earnings call
09:00: BLK earnings call
10:00: Treasury nominee Geithner’s Senate Confirmation Hearing
12:00: NTRS earnings call
13:00: NAHB Housing Market Index (January): 9
17:00: AAPL earnings call
Post-market EPS: AAPL (1.39/9.7B); BNI (1.75/4.4B); DOX (.55/792.9M); CNH (.69/4.7B); EBAY (.40/2.1B); FFIV(.40/166.3M); NE (1.48/917.8M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 9 points above fair value while the NASDAQ futures are trading 13 points above fair value at 7:30am ET. Futures are seeing a modest bounce back following the worst inauguration day performance in the Dow Industrials history. Asian markets closed lower (Japan down 2.04%, Hong Kong down 2.9%, India down 3.5%) following the sharp declines on Wall Street. BHP Billiton (BHP.AU) and Rio Tinto (RIO.AU) fell in Australia after saying they would close operations and cut production and David Jones (DJS.AU) dropped after cutting guidance. Hanjin Heavy Industries & Construction (097230.KS) plunged on profit worries. Hong Kong shares fell on profit warnings from China Life Insurance (2628.HK) and Angang Steel (347.HK) whilst HSBC Holdings (5.HK) continued to decline on worries it will need to raise capital. European markets are down 1.5% due to weakness in financial (down 2.5%) and energy stocks (down 2.9%). Societe Generale (GLE.FP) is trading up after saying it'll accept the second tranche of French government aid and sees 2008 net profit approx. €2B. Hypo Real Estate (HRX.GR) got an additional €12B in German Financial Markets Stabilization Fund guarantees. Most major global markets are now down approximately 10% YTD.

Impact Research Calls/Market Moving News:

WSJ Page One article examines the plunge in financial stocks: “Shares of the biggest names in American banking plunged Tuesday as some investors feared that the government would need to nationalize the most deeply wounded financial institutions, wiping out stockholders. The hours-old administration of President Barack Obama is expected to move swiftly to try to stabilize the financial system by pumping more capital into weakened banks and buying bad assets. Nationalization appears to be a last resort, but other options on the table move the U.S. in that direction. In one idea under consideration, the government could buy convertible securities from financial institutions, an approach that could ultimately leave the government owning large chunks of many firms' common shares. Obama administration officials are sorting through a menu of options as they prepare efforts to clean up bank balance sheets and put them in a better position to lend. Discussions have also advanced on creating a government-backed institution that would buy and hold banks' bad assets, as well as a plan to provide government guarantees on bank holdings. Analysts say that until the Obama plan is unveiled, investors appear to be bracing for the worst-case scenario. Among other plans under consideration, government officials are weighing the option of buying securities that pay interest like bonds but can be converted into common stock. Such "convertible" securities, typically issued by companies struggling to raise capital, often leave the buyer owning a big chunk of the company. When the securities are converted to common shares, other common stockholders' shares are diluted, cutting the value of the banks' shares. Current share prices appear to reflect that low value. Federal Reserve officials have proposed that the U.S. consider tying together public equity injections with private investments. That would ensure that the government doesn't take the dominant stake in the financial institutions it supports. It would also provide a way to sort out healthy banks from unhealthy ones, because only healthy banks would be able to raise private capital.”

President Obama has no quick fix for banking system – NYT: Timothy Geithner is not expected to have a detailed plan ready to present at his confirmation hearing tomorrow. Advisors say they are studiously going through a range of solutions and analyzing their respective risks and benefits. The various options have varying degrees of transparency about costs to taxpayers and whether banks will be required to reveal the size of their likely losses. (The article outlines three options being considered.) Help for banks are expected to be tied in with Obama's goal to provide up to $100B to reduce home foreclosures. Officials have made a primary goal of not repeating Hank Paulson's course of selling Congress on one strategy and shifting to a different one before the first was even tried.

AAPL (78.20): SEC reviewing Apple's disclosures about Steve Jobs's health – Bloomberg: A person familiar with the matter says the review does not mean investigators think investors were misled.

IBM (81.98): IBM reports Q4 EPS $3.28 vs Reuters $3.03: Company reports revenues of $27.01B vs Reuters $28.11B. Guides f09 EPS to at least $9.20 vs Reuters $8.77; First Call $8.75. IBM reports Q4 signed services contracts $15.6B, adjusted for currency: StreetAccount consensus is $13.1B. Signings were $17.2B at actual rates. Backlog at quarter end was $117B compared to $114B in Q3. Revenue and gross margin by business segment: Technology Services: revenue $9.623B vs SA $10.14B and gross margin 34.9% vs year-ago 30.1%. Business Services: revenue $4.709B vs SA $4.98B and gross margin 28.7% vs year-ago 23.1%. Systems and Technology: revenue $5.425B vs SA $5.80B and gross margin 39.9% vs year-ago 45.7%. Software: revenue $6.420B vs SA $6.44B and gross margin 87.7% vs year-ago 87.1%. Finance: revenue $660M vs SA $654M and gross margin 50.0% vs year-ago 45.5%.

BK (19.00): Bank of New York Mellon reports Q4 EPS $0.05; Reuters consensus $0.70: Company reports revenues of $2.90B, which includes pre-tax writedown charge of $1.24B. Unclear if comparable to Reuters estimate of $3.81B. Assets under management were $928B at quarter end, (17%) y/y Net asset inflows in Q4 totaled $5B but were more than offset by lower market values and the impact of a stronger U.S. dollar. Assets under custody and administration amounted to $20.2T, (13%) y/y

INTC (12.86): Intel CEO says in internal memo that Q1 may be a loss, "too close to call" – Bloomberg: CEO Paul Otellini reportedly said in the memo that the company is only filling selective vacant job positions, and says things are not going to be rosy for six months.

GE (12.93): UBS places Short-Term Sell rating on General Electric: Target lowered to $12 from $18. Firm believes GECS reserves are too low and sees credit losses exceeding guidance. UBS thinks the company's AAA rating is risk and that it might have to cut its dividend or raise additional capital. Estimates are lowered. Firm maintains 12-month neutral rating.

STT (14.89): Ladenburg Thalmann analyst Dick Bove says State Street has become a compelling takeover target: Bove lowers his F09 EPS estimate to $3.30 from $4.46, while taking his F10 estimate to $2.94 from $5.08 and cutting his price target to $25 from $50. However, he argues that the stock is a compelling acquisition target as the arguments concerning its earnings are not related to its cash flows, while its market capitalization is 1/3 less than its projected revenue for 2009 and only about 10% of the company's liquidity. Bove contends that Bank of New York Mellon (BK) should by State Street immediately in a deal that would see significant synergies.

Housing downturn expected to worsen – WSJ: Citing a consensus of building-industry economists, the Journal notes that the US housing downturn is expected to deepen further this year, with no broad recovery seen until at least 2010. The paper adds that according to the economic outlook of the National Association of Home Builders released Tuesday, single family housing starts, which fell 40% to 617K in 2007, are expected to drop to roughly 441K this year, the lowest since records have been maintained. The article notes particular concerns about the huge overhang of unsold homes, which now stands at 11.5 months, as well as tighter lending standards, which are likely to prevent many consumers from taking advantage of declining housing prices and mortgage rates.

WFR (13.43): MEMC Electronic Materials downgraded to hold from buy at Citi: Price target decreased to $15 from $30. The firm sees risk to pricing for WFR's largest solar contracts and believes it is less certain that WFR can make f09 consensus EPS estimates.

Tuesday, January 20, 2009

January 20, 2009: Morning Call

January 20, 2009: Morning Call

Fair Value: SP500 – 846.94; NDX: 1198.14; DOW: 8239.86

Technical Levels:


SPX: 752-755, 800, 816 support/852, 899-908 resistance

Events:

Pre-market EPS: FAST (.41/552.8M); JEF (-2.27/199.1M); JNJ (.92/15.9B); PH(.84/2.6B); STT (1.14/2.4B); SU (.32/7.04B); AMTD (.31/618.8M); RF(-.08/1.6B); PCP(1.70/1.7B)
05:00: Euro-zone ZEW Economic Survey
08:00: President Obama Inauguration
08:30: JNJ earnings call
09:30: STT earnings call
12:00: President Obama sworn into office/Inaugural Speech
15:20: BOE’s King to Make speech in the UK
16:30: IBM earnings call
17:00: ABC Consumer Confidence
Post-market EPS: CSX (.89/2.6B); IBM (3.03/28.2B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are 8.50 points below fair value while the NASDAQ futures are 12 points below fair value at 8:00am ET. European markets fell 1.0 to 1.5% during the Martin Luther King holiday after RBS reported a staggering quarterly loss and the UK government announced that it will spend an additional 142 billion to support financial institutions. The new 142 billion dollar UK bailout is the latest attempt to stabilize the UK financial sector following October’s 50-billion bank recapitalization program. Institutions that want to participate in the second UK bailout must agree to “have specific and quantified lending commitments that will be binding and externally audited.” The Euro and British Pound are sharply lower against the dollar and yen on concerns that the recession is deepening. Asian markets fell, led by banking stocks hit by renewed concerns about the financial sector. Techs dropped in South Korea, Taiwan, and Japan (Japan down 2.3%, Australia down 3.1%, Hong Kong down 2.8%, Shanghai up 0.60%, India down 2.4%).


Impact Research Calls/Market Moving News:

RBS (10.85): RBS shares are down almost 70% after the company reported a full year loss of nearly 12 billion dollars with an additional charge of between 15 to 20 billion pounds in goodwill linked to previous acquisitions. In exchange for government guarantees, RBS will sign a binding agreement with the UK Treasury on how much it will lend and on what terms. Auditors will examine the bank to make sure it is following government directive.

STT (36.35): STT shares are down 30% after reporting earnings of 15 cents versus consensus of 1.14 (unclear if this is comparable as the press release is confusing). STT also sees 2009 operating earnings and revenue below long-term targets.

Losses from the credit crisis may reach 3.6 trillion – Bloomberg, citing Nouriel Roubini. Roubini was quoted in Dubai overnight, “I’ve found that credit losses could peak at a level of 3.6 trillion for US institutions, half of them by banks and broker dealers. If that’s true, it means the US banking system is effectively insolvent because it starts with a capital of 1.4 trillion. This is a systemic banking crisis.”

US prepares next steps to address banking crisis – WSJ: Some headlines regarding US plans were reported Friday night. The WSJ reports that officials from the Treasury, Fed, FDIC, and incoming Obama Administration have been considering two options: a "bad bank" established by the government to acquire troubled bank assets or an extension of the loss-insuring plan used recently with Citi and BofA. The bad bank approach has the advantage of being capable of addressing the problem on a universal rather than ad hoc basis, with the disadvantage of having to price the assets acquired by the bad bank (too high and the government overpays, too low and banks must write down more assets). The loss-insurance approach avoids the pricing issue, but could be more of an ad hoc approach. . As noted previously, the UK is reportedly favoring the loss-insurance approach. The WSJ also reports that policymakers are considering an expansion of an existing Fed program by encouraging investors to buy newly issued, high-rated securities backed by consumer loans, and could also expand it by agreeing to guarantee other kinds of securities, including CMBS, or by purchasing lower-rated or previously issued securities.

C (3.50): Citi maintained underperform at Oppenheimer: Analyst, Meredith Whitney says that C's core problem is that it doesn't make money in any of its businesses except Smith Barney, which it is in the process of selling. Whitney notes that she fails to appreciate how the strategy of splitting the company into"core" and "non-core" will alter C's fundamental funding needs or that the bank will continue to lose money into 2010. Oppenheimer reduces estimates due to deteriorating credit and worsening economic outlook. with FY09E moving to ($4.00) (vs. consensus ($0.33)). Oppenheimer's FY2010E goes to a loss of ($2.15) (vs. consensus of +$1.14).

PH (39.77): PH guides full year EPS to between 3.85-4.25 vs. consensus of 4.45.

AAPL (82.33): Barron's Plugged In says Apple and Steve Jobs have a credibility problem: The company and its directors have a very poor record when it comes to transparency. They allowed questionable stock-option practices. They also kept Jobs' cancer diagnosis secret for about 9 months. One analyst says that the board either did not ask the questions it should have asked or they did ask those questions but kept the answers to themselves. Even now there is the suspicion that shareholders are not getting the complete story. It is time for the board to articulate a succession program and for full disclosure from the company because Steve Jobs is still an iconic manager. It is time to end the many layers of speculation surrounding the company.

AAPL (82.33): WSJ says that Apple is on sale: A 'Heard on the Street' column says that Apple had already lost its Steve Jobs premium before the announcement of his medical leave. On some measures the company is valued below HPQ and DELL. Even assuming that Mr. Jobs does not come back, the company should still trade at a premium given its unbeatable brand and diversified product lineup. Right now, Apple looks like a bargain.

INTC (13.74): Intel cuts prices of some processors up to 48% - Bloomberg: The company keeps the prices of its three most expensive desktop chips the same. Intel says the price cuts are not a reaction to AMD (AMD)'s new chips that retail for half the price of comparable Intel products.

WFR (14.76): MEMC Electronic Materials downgraded to neutral from buy at UBS: The firm also adds a short-term sell rating. Price target decreased to $14.50 from $20. UBS sees 2009 wafer sales to be much worse than expected.

Treasury asking biggest TARP recipients to show how they are using the money – Bloomberg: Documents the newswire obtained show that Neel Kashkari, who administers the Troubled Asset Relief Program, wrote to Citi (C), Bank of America (BAC), and 18 others 16-Jan seeking figures on business and consumer loans, as well as details on purchases of mortgage- and asset-backed securities. The article does not say how exactly the data will be used, other than to give a basis for a quarterly comparison between banks that got aided and banks that didn't.

Barron’s: Cover: Barron's argues for a smaller stimulus program primarily focused on an elimination of the payroll tax on the first $8K of earnings. Roundtable Part II: Thoughts and ideas from Bill Gross, Felix Zulauf, Archie MacAllaster and Abby Cohen. Lead Articles: Barron's considers carbon cap-and-trade possibilities under an Obama administration; Barron's admits the poor performance of its picks last year; KeyCorp (KEY) looks like a survivor long term and the stock could double or possibly triple; Barron's questions if electric grid upgrades will boost stocks, suggests waiting another budget cycle to see if the federal government keeps spending to upgrade equipment; Corporate earnings are likely to remain poor through the first half of the year and only improve in the second half on a relative basis; Cautious on Martin Marietta Materials (MLM) and Vulcan Materials (VMC); Editorial looks back at the successes and failures of the Bush presidency. Columns: The Trader is cautious on financials and truckers, positive on Nuance Communications (NUAN); Euro Trader is cautiously positive on car makers Peugeot-Citro├źn (12150.FP), Fiat (F.IM) and Porsche Automobil Holding (PAH3.GR) but cautious on Volkswagen (VOW.GR); Asia Trader is cautious on Australia given the practice of fully underwritten dividends at names like ANZ.AU, BBG.AU and WBC.AU, notes the caution of one investor on Geodesic Information Systems (GEOD.IN); Current Yield notes the progress and steps-backward in the credit markets; Commodities Corner says platinum could face a pullback but end the year gaining once more; The Striking Price says volatility is expected to remain high throughout the first half of the year; Follow Up is mixed on Citi (C) and negative on LDK Solar (LDK) and says the TARP program should no longer even pretend to try to make money; Up and Down Wall Street notes the end of the Bush presidency and the pounding the banking sector has taken and that the caution by investors will likely continue for some time to come; Streetwise notes that, contrary to the oft-repeated mantra, banks have actually been increasing lending, market reactions to recent news suggest that we may be past the worst of the crisis and into a more familiar trading pattern based on fundamentals and valuation, speculative names for a loosening of credit terms includes FIG, MCO, MHP and ASH; Technology Trader notes that investors have started to ignore bad news in tech though they may not have much good luck doing so; Plugged In says Apple (AAPL) and Steve Jobs have a credibility problem; Gadget of the Week: Solio Magnesium device battery recharger (solar-capable).

Friday, January 16, 2009

January 16, 2009: Morning Call

January 16, 2009: Morning Call

Fair Value: SP500 – 840.60; NDX: 1183.57; DOW: 8171.54

Technical Levels:


SPX: 752-755, 800, 816 support/852, 899-908 resistance

Events:

Pre-market EPS: FHN (-.30/471.6M); PPG (.40/3.29B); SNE (.43/30.05B)
08:30: US Consumer Price Index (Dec): -0.9% MoM; Ex-Food/Energy: 0.1%
08:30: US Consumer Price Index (Dec): -0.1% YoY; Ex-Food/Energy: 1.9% YoY
09:00: Net Long-term Foreign Purchase of US Assets
09:15: Industrial Production (December): -0.8%; Capacity Utilization: 74.7%
12:15: Fed’s Lacker speaks on the economic outlook


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are 15 points above fair value while the NASDAQ futures are 13 points above fair value at 7:30am ET. Futures moved up overnight after the Senate voted to release the second half of the TARP assets (350 billion) and strength in foreign markets. The US Treasury agreed to invest 20 billion more in BAC and to guarantee 118 billion of assets to help Bank of America absorb the Merrill Lynch deal. Citibank confirmed that the company is going to spin off its “non-core” businesses (CitiFinancial, Premerica, brokerage, retail assets management, and a “special asset pool” consisting of the assets the US government agreed in November to guarantee). Effectively, Citibank is being split into a good bank (branch banking, corporate lending, securities underwriting, transaction processing and private banking) and a bad bank. Asian markets closed higher on news that the Democrats are circulating an 825 billion dollar stimulus package and the Senate vote to release the second half of the TARP funds (Japan up 2.5%, Shanghai up 1.8%, Hong Kong flat, India up 3.0%). European markets are up between 2.5%-3.0% helped by the late turnaround in Thursday’s US trading and short covering on the bailout news. Mining and Energy shares were amongst the leading groups though energy shares trimmed gains as the oil price reacted negatively to the IEA's cut in its outlook for oil demand. Mining and Energy shares were amongst the leading groups though energy shares trimmed gains as the oil price reacted negatively to the IEA's cut in its outlook for oil demand.


Impact Research Calls/Market Moving News:

C (3.83): Citi confirms it will realign into two businesses: Citicorp and Citi Holdings: The moves confirm numerous media reports of such a split. Citi CEO Vikram Pandit said, “Given the economic and market environment, we have decided to accelerate the implementation of our strategy to focus on our core businesses. This will help in our ongoing efforts to reduce our balance sheet and simplify our organization, which will enable us to better serve our clients and customers in both businesses without disruption. In light of the opportunities we see in the market today, we believe this new structure will provide a wide range of options going forward to continue strengthening our core franchise.

BAC (8.32): US to invest $20B in Bank of America from TARP: The government will backstop a $118B asset pool for the bank, excluding foreign assets, assets originated on or after 14-Mar-2008, and equity securities. The pool has cash assets with a current book value of $37B and a derivatives portfolio with maximum potential future losses of $81B. The guarantee is in place for 10 years for residential assets and 5 years for non-residential ones. The bank can terminate the guarantee at any time, but would then need to prepay any outstanding Federal Reserve loan in full. Bank of America will absorb the first $10B of eligible losses; the government will cover 90% of the losses beyond that. BAC will issue the government $4B of preferred stock with an 8% dividend and warrants with an aggregate exercise value of 10% of the total amount of preferred issued. BAC is prohibited from paying common stock dividends of more than $0.01 per share per quarter for three years. BAC had to submit an executive compensation plan, including bonuses, "with appropriate limitations" to be approved by the government by yesterday.

C (3.83): BAC (8.32): Unintentional nationalization may be pending for US banks. New York Times article hints at a “shadow nationalization” of banks- NYT: Losses, particularly for Citi (C), have become so large that it will be almost mathematically impossible for the government to inject enough capital to save large banks without taking a majority stake or at least squeezing out existing shareholders. Recall that Fed Chairman Ben Bernanke warned earlier this week the government has no choice but to put more money into banks. Analysts say TARP gives too many ways for real problems at banks to be concealed from shareholders and taxpayers. (article link here: http://www.nytimes.com/2009/01/16/business/16banking.html?pagewanted=1&_r=1&ref=business

BAC (8.32): Bank of America reports Q4 EPS ($0.48), unclear if comparable to Reuters $0.21: Company reports revenues of $15.68B vs Reuters $20.59B. Merrill Lynch preliminary results indicate a Q4 net loss of $15.31B, or ($9.62) per diluted share. Provision for credit losses was $8.54B from $6.45B in Q3. Net charge-offs were $5.54B, or 2.36% of total average loans and leases compared with $4.36B and 1.84% in Q3. Nonperforming assets totaled $18.23B, or 1.96% of total loans compared with $13.58B and 1.42% in Q3. Allowance for loan and lease losses was $23.07B, or 2.49% of loans and leases measured at historical cost compared with $20.35B and 2.17% in Q3. Bank of America provides preliminary Q4 results for Merrill Lynch: As noted previously, Merrill's Q4 loss of $15.31B was not included in BAC's results. The company says that included in the Merrill results were the following: Credit valuation adjustments related to monoline financial guarantor exposures of $3.22B Goodwill impairments of $2.31B. Leveraged loan writedowns of $1.92B. Writedowns of $1.16B in the U.S. Bank Investment Securities Portfolio. Commercial real estate writedowns of $1.13B

FDIC may extend the loan-guarantee program for banks to 10 years - BloombergThe current bank loan-guarantee program is up to 3 years

TRA (16.29); CF (47.23): CF Industries (CF) offers to acquire Terra Industries for $2.1B: Under the terms of the deal, each common share of Terra would be entitled to receive 0.4235 shares of CF Industries. The proposal represents a premium of 34% based on the 30-day volume weighted average prices for the shares of the two companies, and a 29% premium based on the 10-day volume weighted average. The proposal also represents a 23% premium over the closing price of Terra shares on 15-Jan. On a pro-forma basis, the combined company will be the largest nitrogen producer in the world among publicly traded companies as measured by production capacity. The transaction is expected to generate more than $100M in annual cost synergies from reducing SG&A by combining overlapping corporate functions and optimizing transportation and distribution systems to improve efficiencies and reduce costs, and through greater economies of scale in procurement and purchasing. CF Industries expects the combined entity to realize these synergies within two years after the closing of the transaction. The transaction is expected to be accretive to current CF Industries stockholders in the second year following the close. The proposed transaction is subject to the negotiation of a definitive merger agreement; stockholder approvals from both companies; and the approvals. However, the deal is not subject to any financing contingency. Of interest, CF Industries notes that it was first approached by Terra about a deal several years ago.

INTC (13.29): Intel says Q1 gross margin currently expected to be trough - conf. call: While noting that their visibility is extremely limited, management says that even without a snapback in demand, they believe that the low 40s target for Q1 could be a trough. They are planning to take internal inventories down materially during the quarter and believe that will be a benefit over the remainder of the year even without a substantial pick-up in sales; they go on to note that gross margin should be at a relatively healthy level in the 2H. Regarding channel inventories, they believe that supplies fell dramatically during the fourth quarter and are probably a little low even in this environment. They expect the worldwide supply chain to continue to be aggressive about inventories and are anticipating a decline similar to that seen in Q4; they believe this trend will begin to slow and improve in the second quarter. In response to analyst question on slowing notebook trends, management says that they believe there has been very little cannibalization from net books

INTC (13.29): Intel target reduce to $12 from $14 at Goldman Sachs: The firm continues to rate the stock neutral, noting it is expensive, and would prefer Analog (ADI) and SanDisk (SNDK) in semis and Applied (AMAT) and Lam Research (LRCX) in the semi-equipment sector.

DELL (10.54); HPQ (35.75): UBS sees downside risk to consensus at Dell (DELL) and Hewlett-Packard (HPQ): Firm sees downside risks to consensus estimates following Intel's (INTC) quarter results, and expects shares to remain largely range-bound until visibility starts to improve.

MSFT (19.24): Microsoft maintained outperform at Oppenheimer ahead of earnings: Target is $22. The firm says MSFT is their top large-cap pick. Oppenheimer says a PC market slowdown is priced into the shares and says the Server & Tools and Business Productivity businesses should hold up relatively well in coming quarters due to annuity agreements and new products. The firm also notes the likelihood of expense reductions

Paul Volcker unveils plan to aggressively rethink global financial system - Washington Post: A report by the Group of 30 recommends measures that include limiting the size of banks, monitoring executive pay, and regulating hedge funds. Noting that Volcker, the lead author of the report, is a top economic adviser to the administration, the article suggests Barack Obama is likely to push for similar change. Volcker says that by keeping banks small, the failure of any one will not have systematic importance.

Thursday, January 15, 2009

January 15, 2009: Morning Call

January 15, 2009: Morning Call

Fair Value: SP500 – 839.36; NDX: 1263.36; DOW: 8158.04

Technical Levels:


SPX: 752-755, 800, 816 support/852, 899-908 resistance

Events:

Pre-market EPS: BLK (1.49/1.15B); APH (.50/728.3M); MI (.12/629.5M); JPM (0.01/18.0B)
00:00: Fed’s Yellen speaks on the economy in San Francisco
05:00: Euro-zone CPI (December): -0.1% MoM; 1.6% YoY; 1.8% Core
07:45: ECB Interest Rate Decision: 50 basis point cut to 2.00% expected
07:45: JPM Earnings Call
08:30: US Producer Price Index (Dec): -2.0% MoM; Ex-Food/Energy: 0.1% MoM
08:30: Initial Jobless Claims; Continuing Claims
08:30: Empire Manufacturing (Jan): -25.00
09:00: ATW, RIG, and DO present at Goldman Energy Conference
10:00: US Philly Fed (Jan): -35.0
10:00: CHK, EOG, XTO present at Goldman Energy Conference
11:00: MRO, SUN, TSO, HOC present at Goldman Energy Conference
13:30: NE presents at Goldman Sachs Energy Conference
13:40: Fed’s Evans speaks on the economy
13:40: Fed’s Lockhart speaks on the economy
16:45: DNA earnings call
17:30: INTC earnings call
Post-market EPS: INTC (.14/8.2B); DNA (.95/3.62B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are flat with fair value at 8:45 am ET. Continued concerns about widening losses in the banking sector, weakness in foreign markets, and news that Apple CEO Steve Jobs is taking a medical leave is weighing on sentiment. The futures have recovered following the producer price data, which may have temporarily eased fears of deflation. JPM shares have also rallied 3% during the earnings call. Keep your eye on BAC shares given the fears in the market that Bank of America is going to be the next Citibank following news reports that the US government is considering a loss sharing agreement for BAC’s toxic assets. Typically, these agreements are only put in place for deeply troubled institutions. In short, C has been quasi-nationalized and BAC does not appear far behind. Asian markets closed sharply lower led by resource and financial sectors (Japan down 4.92%, Hong Kong down 3.3%, Australia down 4.2%, South Korea down 6.1%, India down 3.4%). Disappointing economic news weighted on Japan. Banks in South Korea fell as the won weakened and the government said the country’s growth would be less than expected. Carmakers fell after Fitch Ratings cut their debt ratings to junk. HSBC Holdings (5.HK) continued to fall, on worries it will cut its dividend and raise capital. European markets are down 1% and barely reacted to the 50 basis point rate cut by the ECB. Financial stocks are leading the decline in Europe.


Impact Research Calls/Market Moving News:

JPM (25.91): JPM reports EPS of 7 cents vs. consensus of 1 cent. Write-downs were 2.9 billion vs. street expectations of 2.5B. Investment banking was much weaker than expected due to bigger leveraged loan losses (1.8B – street looking at 1.0B). The investment bank’s mortgage exposure at the end of Q4 was 14.7 billion vs. 18.6B at Q3. Equity revenues were negative 94 million. JPM also increased credit card service loss expectations to 7% in Q109 and 8% +/- at year-end 2009. Street was looking at 6% at Q1 and 7% at year-end. The provision for credit card losses is 4 billion up 122% and the delinquency rate rose 106 basis points to 4.97% vs. 2.91% in the prior quarter. On the positive side, actual charge offs in Q4 were not as bad as some had expected: Home Equity (770m vs. street at 725m-850m), Subprime (319m vs. street at 375-425m), and Prime (195M vs. street at 300m). But, JPM said they expect home equity losses to approach 1 billion over the next several quarters vs. Q4 losses of 770 million. Prime mortgage losses are expected to approach 400 million over the next several quarters vs. 195 million in Q4. Subprime is expected to be in-line with prior estimates. Also, total deposits are 339.8 billion (126.3B attributed to WaMu) with a deposit margin of 2.94% up from 2.67% a year ago. All in all, the report is a mixed bag versus expectations. Tough to call how the stock will react to this news given that the both the bulls and bears have some ammunition to support their view.

JPM (25.91): JPMorgan CEO Jamie Dimon says worst of economic crisis still to come – FT: In an interview with the paper, Dimon notes that consumer loans and credit card trends continue to worsen. While the bank is prepared for the expected deterioration in consumer-oriented businesses, Dimon concedes that it will be forced to cut costs again if conditions become worse than expected. Dimon goes on to note that it is clear that some of the markets for highly leveraged lending and securitization will never come back.

BAC (10.20): US negotiating extending more aid to Bank of America – WSJ: Any potential deal could protect Bank of America from additional losses on Merrill's bad assets, with a cap on the amount BAC would have to take and the government absorbing the remainder, according to a source close to the situation. It is not known exactly how much Merrill lost during Q4. The talks between BAC and the government were driven by Treasury Secretary Paulson, who was concerned that without help the deal wouldn't have been completed, and the deal did close on 1-Jan with the understanding that the bank and Treasury would complete a deal. The terms of the deal are still being finalized and details are expected to be provided when BAC reports Q4 on 20-Jan.

AAPL (85.33): Apple's Jobs to take medical leave of absence until the end of Jun: The entire text of the letter sent to employees: "I am sure all of you saw my letter last week sharing something very personal with the Apple community. Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought. In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June. I have asked Tim Cook to be responsible for Apple's day to day operations, and I know he and the rest of the executive management team will do a great job. As CEO, I plan to remain involved in major strategic decisions while I am out. Our board fully supports this plan. I look forward to seeing all of you this summer."

AAPL (85.33): FTN Midwest and RBC Capital downgrade the shares following the news that Steve Jobs is taking a medical leave of absence.

AAPL (85.33): Apple maintained outperform at Oppenheimer after Jobs' announcement: The shares remain rated outperform, however the firm reduces the price target to $120 from $135. Oppenheimer cites AAPL's valuation, the fact that the news on Jobs is out, and significant new product introductions that are likely still on tap for 1H09. Oppenheimer doesn't expect Jobs' leave to have a significant impact on AAPL's performance in 2009, since products slated for release this year must already be substantially complete. However, the firm notes that an extended period of muddled executive leadership would almost surely impact product releases in 2010 and beyond.

AAPL (85.33): Chunghwa Telecom says iPhone sales are worse than expected - Dow Jones: A CHT executive says sales are off by double digits. He says the company's targets were based on year-ago figures that are now unrealistic, given the economy. The company sold more than 2.2M handsets last year and aims to at least maintain that number this year.

DB (28.98): Deutsche Bank needs to raise capital – WSJ: In a "Heard on the Street" column, the Journal notes that shares of Deutsche Bank have fallen by two-thirds since September, suggesting that investors are skeptical about the firm's reluctance to raise additional capital. According to the article, such skepticism may be a function of concerns that losses are being incurred beyond risky areas such as leveraged lending and commercial property. The Journal also discusses the fact that while Deutsche has less exposure than rivals to consumer and corporate loans, it does have a ballooning stock of assets that are no longer marked to market.

C (4.53): Government needs to choose a plan to save Citi without killing other bank stocks – WSJ: A "Heard on the Street" column notes that finding an idea that does so without having the politically damaging quality of looking like a taxpayer giveaway may be even harder with Bank of America (BAC) set to receive more billions. If the government injects the $35B of common stock Citi needs to bring its leverage down to JPMorgan Chase's level, it will end up controlling the bank, and the market will start to assume the same step will be taken for other big banks. The column says Citi should use tomorrow's results announcement to explain which assets are covered by the government loss-sharing agreement, because investors will be heartened if it applies to almost anything. BAC is expected to receive a similar agreement, which will need to find a balance between being overly generous and therefore politically dangerous and under-generous and therefore just another stopgap.

C (4.53): Investors wonder if Citi is looking to sell things to buyers with no means to pay – NYT: An analyst notes that not many institutions might want to buy Citi's $600B worth of unprofitable businesses and troublesome assets, and those that do are unlikely to want to pay a lot. Citi insiders say there are no plans to seek additional capital from the government, though the article notes that without buyers, such a move might be necessary.

Wednesday, January 14, 2009

January 14, 2009: Morning Call

January 14, 2009: Morning Call

Fair Value: SP500 – 868.58; NDX: 1202.69; DOW: 8403.80

Technical Levels:


SPX: 685, 752-755, 848-852 support/899-908, 998-1002 resistance

Events:

Pre-market EPS: AMR (-.60/5.55B); NITE (.36/258.4M)
05:00: Euro-zone Industrial Production (November): -1.9% MoM; -5.8% YoY
07:00: MBA Mortgage Applications
08:30: US Import Price Index (December): -5.3% MoM
08:30: US Retail Sales (December): -1.2%; Less Autos: -1.4%
08:30: Fed’s Plosser speaks on the economic outlook
09:20: BZH presents at Credit Suisse Homebuilder Conference
10:00: US Business Inventories (November): -0.5%
10:00: OXY presents at Goldman Sachs Energy Conference
10:00: MUR presents at Goldman Sachs Energy Conference
10:00: PBR presents at Goldman Sachs Energy Conference
10:10: TOL presents at Credit Suisse Homebuilder Conference
10:30: DOE/API Crude Oil and Gasoline Inventories
11:00: NOV presents at Goldman Sachs Energy Conference
11:00: CAM presents at Goldman Sachs Energy Conference
11:40: DHI presents at Credit Suisse Homebuilder Conference
13:00: Fed’s Sterns speaks on Fed policy
13:30: APA, DVN, TLM CN present at Goldman Energy E&P panel
14:00: Fed’s Beige Book
14:30: BJS, HP, and NBR present at Goldman Energy Oil Service panel
15:20: HOV presents at Credit Suisse Homebuilder Conference
Post-market EPS: XLNX (.31/441.5M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 8 points below fair value in response to weakness in European banks after DB preannounced weaker Q4 earnings. European markets are down 1.5%-2.0% extending the losing streak to 6 sessions. Banks are leading the decline with a 6% sell-off. Mining stocks are also on the weak side. Decliners on the FTSE 100 lead advancers 9-1. Barclays (BARC.LN) fell after yesterdays news of job cuts in its investment mangagement and investment banking units with additional reports of job cuts in it's UK units. Euro-zone Industrial production also came in weaker than expected at –7.7% vs. street consensus of –6.1%. Asian markets closed higher (Japan up 0.29%, Hong Kong up 0.27%, Australia up 0.89%, India up 3.3%, Shanghai up 4.2%). Energy stocks followed oil higher. Shippers rose after the Baltic Dry Index registered a sixth consecutive rise. China was bouyed by speculation that the central bank will lower interest rates again.

Impact Research Calls/Market Moving News:

DB (31.90): Deutsche Bank pre-announced a loss of $6.3 billion in Q4. The shares are trading down about 10%. The company had been scheduled to report in early February and did not provide results for individual units. Bloomberg is reporting that people familiar with the earnings are saying DB lost about 1 billion in CDS and 500 million in equity trading during the quarter. European banks are down about 6% with BCS down 12% and HBC down 8.25%.

Geithner Nomination: SEC Chairman Arthur Levitt says the Geithner nomination could be jeopardy over the failure to pay taxes but that he will likely get through “wounded which is a shame.” Questions about the Geithner nomination seem to rising despite assurances by Senator Harry Reid and Hatch that he has the necessary support.

C (5.90): Citi (C) and Morgan Stanley (MS) confirm wealth management joint venture: Citi will exchange 100% of its Smith Barney, Smith Barney Australia and Quilter units for a 49% stake in the joint venture and an upfront cash payment of $2.7B. Morgan Stanley will exchange 100% of its Global Wealth Management business for a 51% stake in the joint venture. After year three, Morgan Stanley and Citi will have various purchase and sale rights for the joint venture, but Citi will continue to own a significant stake in the joint venture at least through year five. At closing, Citi will recognize a pre-tax gain of approximately $9.5B, or approximately $5.8B on an after-tax basis, and will create approximately $6.5B of tangible common equity. The joint venture is expected to achieve cost savings of approximately $1.1B - in part by rationalizing and consolidating key functions $1.1B - in part by rationalizing and consolidating key functions including technology, operations, sales support, product development and marketing.

C (5.90): Citi maintained underperform by Meredith Whitney at Oppenheimer after Morgan Stanley (MS) announcement: Whitney says there is no way to view the MS move other than as a way for C to raise cash prior to its Q4 earnings release. The firm also notes that they anticipate further advances toward asset monetization/unwind due to C's ongoing challenge of asset deflation.

C (5.90): CNBC's Charlie Gasparino reports Citigroup CEO Vikram Pandit may leave soon: Gasparino cites Wall Street executives who say that Citi board members are growing impatient with Pandit. He also notes that while Pandit cannot be blamed for Citi's downfall, he can be blamed for a lack of vision and in particular, failing to see that the supermarket model would likely never work.

OIH (76.81); RIG (52.01); SII (24.64); PDE (16.57): Oil services stocks downgraded at JPMorgan: SII, RIG, NOV, PDE: Smith Int'l (SII), Transocean (RIG) downgraded to neutral from overweight. National Oilwell (NOV), Pride International (PDE) downgraded to underweight from neutral. The firm notes relative valuation and also expectations that of a later earnings recovery.

BG (48.17): Bunge Ltd guides full year EPS to $7.70 vs Reuters $10.53 – the guidance implies a loss of 53 cents in Q4. Weak Q4 results were impacted by soft demand for soybean meal and oil due to challenging economic conditions in end markets and substitutions of other agricultural commodity products. Fertilizer segment performance was also impacted by foreign exchange losses of approximately $225M from the 18% devaluation of the Brazilian real on U.S. dollar-denominated financing of working capital during Q4. BG's preliminary expectation for 2009 earnings is in the range of $6.90 to $7.60 per share vs Reuters $8.00.

LLTC (22.60): Linear Technology guides Q3 revenues to $199.4M-$211.8M vs. Reuters $243.8M

WSJ discusses overseas cash constraints: In a "Heard on the Street" column, the Journal notes that a large chunk of the cash on corporate balance sheets (particularly in the pharma and tech sectors) cannot be brought home without paying an extra tax charge of as much as 30%. The article also points out that such constraints have forced cash-rich companies like Johnson & Johnson (JNJ) to issue debt to make dividend payments, while others may be disadvantaged in their efforts to pursue consolidation at depressed valuations. The Journal goes on to discuss the possibility of another tax amnesty like the one in 2005 that allowed companies to repatriate billions of dollars at a tax rate of just 5.25%.