Tuesday, August 25, 2009

August 25, 2009: Morning Call

August 25, 2009: Morning Call

Fair Value: SP500 – 1024.34; NDX: 1634.51; DOW: 9496.84

Technical Levels:

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

Events:

Pre-market EPS: BIG (.30/1.0B; BKC (.33/633.4M); CHS (.10/414.3M); MDT(.78/3.8B); SAFM (1.76/475.6M); SPLS (.16/5.5B)
09:00: S&P/Case Shiller Home Price Index (June): -16.4% YoY
10:00: US Consumer Confidence (August): 48.0
10:00: Richmond Fed Manufacturing Index (August): 14.0
10:00: US House Price Index (June): 0.4%
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: BCSI (.22/116.3M); DY (.15/273.8M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 3 points above fair value at 7:45am ET. The futures are at the highs of the overnight session following news that President Obama will nominate Ben Bernanke for another term as Chairman of the Federal Reserve. Asian markets closed lower (Japan down 0.79%, Hong Kong down 0.49%, Australia down 0.46%, Shanghai down 2.6%, India up 0.38%). Bank stocks underperformed after Chinese Premier Wen said the economy faces “uncertainties.” European markets are down 0.20%, paring losses of nearly 1%. Germany Q2 final GDP (7.1%) y/y vs prelim (7.1%). UK British Bankers Assn reports UK Jul mortgage approvals 38,181 vs 35.564 in Jun and up +76.7% y/y. Q-Cells (QCE.GR) downgraded to neutral at Credit Suisse.

Research Calls/Market Moving News:

WCRX (20.41): WSJ discusses Monday's nearly 30% jump in shares of Warner Chilcott: In a "Heard on the Street" column, the Journal notes that shares of Warner Chilcott rallied nearly 30% on Monday after it announced that it will pay $3.1B for P&G's (PG) prescription-drug division. According to the article, there are a number of positive factors surrounding the deal, particularly Warner's ability to secure full-financing for the deal from a syndicate of banks, a dynamic which represents a significant change from earlier this year when financing conditions were difficult even for drug companies with strong credit ratings. The Journal also highlights how Warner benefits from lower tax rates in Ireland and Puerto Rick, and expects some of the P&G assets to receive the same treatment. The article goes on to point out that Warner has a favorable record when it comes to extending patents on drugs. While not mentioned in the column, StreetAccount notes that the $3.1B price tag also came in at the low end of Bernstein's $3B-$4B valuation range.

WCRX (20.41): Warner Chilcott upgraded to buy from hold at Jefferies: The firm believes the acquisition of P&G Pharma diversifies and strengthens the company's portfolio.

BLK (204.80): Pali Capital downgrades BLK to neutral. “We are downgrading BLK to Neutral from Buy. Since our upgrade on May 22, 2009, BLK is up 44% compared to 15% for the broader market and an average of 31% for the AUM group. We remain bullish on Company prospects but have a hard time generating estimates that can support 15-20% upside from current levels. Our revised 2010 estimate of $9.83 (consensus of $8.84) builds in solid growth for both BLK standalone and BGI. We note our estimates assume average qtrly inflow of $61bn for BGI through 2010 compared to a record actual first half pace of $54 billion in 2009. We assume BGI AUM increases 38% by the end of 2010, compared to a CAGR of 19% from 1995 to 2007. In a nutshell, BGI needs to do materially better than our already constructive outlook and the markets need to remain robust for several qtrs. That risk/reward dynamic warrants a Neutral rating. In accordance with an improvement in markets, we are raising our 2009 and 2010 EPS estimates to $6.56 and $9.83 from $6.53 and $9.10, previously.

AAPL (169.06): Apple mentioned positively at BMO Capital: The firm says demand for the iPhone remains strong following the 3GS launch with the 16GB model selling the best at 60% of mix with 8GB and 32GB at roughly 20% each. BMO believes their gross margin assumption of 34.8% for the Sept. quarter is reasonable if not conservative with upside to the mid 35% level. No change to estimates. Target remains $185.

AAPL (169.06): CEO Steve Jobs focusing on Apple's new tablet device – WSJ: Without giving details on the device or when it might be released, people familiar with the situation say Jobs is intensely scrutinizing the work the company is doing on the tablet, particularly with respect to its advertising and marketing strategy. In an email, Jobs denies what one source says, that employees who had grown used to a degree of freedom while he was on leave have been disturbed by the level of control he is asserting. People close to the company say Jobs remains thin since his liver transplant, but his health has improved significantly.

GS (162.58): Securities regulators examining Goldman Sachs's trading tips – WSJ: People familiar with the matter say examiners at the Financial Regulatory Authority and SEC intend to ask the bank for more information on its weekly trading huddles. Recall the Journal reported yesterday that Goldman uses the huddles to offer choice trading tips to clients it chooses to. The bank has not been accused of violating any securities laws.

GOOG (468.73): Google upgraded to buy from source of funds at ThinkEquity: Target increased to $550 from $400. We downgraded GOOG shares to Source of Funds on February 17, 2009, based on our view that consensus estimates were too high and that low single-digit revenue growth in 2Q and 3Q09 would cause significant multiple contraction. While we believe our fundamental thesis played out as we expected, we clearly got the stock wrong. Given that 2Q is behind us and that we expect an "in-line" 3Q, we upgrade GOOG shares and raise our price target to $550 due to our belief that Google is likely to outperform as the economic cycle turns. KEY POINTS: Several Projected Catalysts Lead To Our Upgrade: There are several reasons for our upgrade today: 1) Our estimates are now meaningfully above the consensus (see Exhibit 1), whereas, in February, they were significantly below the consensus. The Street estimates have come down materially over the past two quarters, and we now expect Google to meet or beat consensus estimates for the next several quarters. 2) We believe Google is the best-positioned company in our universe to outperform when the economy turns. Google has delivered incremental margins higher than 100% for two quarters in a row, but has done so against a decelerating revenue base, which we believe has muted the EPS impact. When revenue re-accelerates, the company's massive incremental margins should drive significant earnings (and FCF) outperformance for a few quarters until Google cranks up its investments to prepare for renewed growth. 3) We believe that there are a number of fundamental catalysts that could contribute to top-line outperformance, including rising revenue per click in the core search business, the launch of DoubleClick AdX 2.0 (which should improve eCPMs across the AFC network), and increasing demand for video advertising opportunities (where YouTube is the leading video destination in the world). 4) The significant foreign exchange headwind should be more muted in 2H09 and potentially benefit Google during 2010.”

GOOG (468.73): WSJ is cautious on Google: In a "Heard on the Street" column, the Journal wonders if Google is the next eBay (EBAY), highlighting some worrisome parallels between Google today and eBay in 2005-06, when the online auction company's growth was stalling. The article notes that like Skype, YouTube may not be able to monetize its high user traffic. In addition, Android's ability to help Google expand in the mobile advertising market remains unproven, while neither Apple (AAPL) nor Research in Motion (RIMM), which dominate the smartphone market, use the operating system. The Journal also notes that while investors are waiting for some of Google's new initiatives to gain traction, growth is slowing in the core paid-search advertising business. The article goes on to point out that the stock is fetching 25x 2009 consensus earnings (including the cost of stock options), despite the fact that Google's medium-term revenue growth is likely to fall toward the 10% level."

STP (14.79): Suntech Power selling solar panels in US for less than cost – NYT: In an interview, CEO Shi Zhengrong says the company is looking to build market share. Any antidumping case seems unlikely to succeed, because it would rely on showing that American companies were losing money as a result. Industry leader First Solar (FSLR) is profitable. The article as a whole looks at how Chinese companies are moving quickly to dominate green energy. Suntech has encouraged its US-based executives to take top positions in industry groups to prevent their acting to stir up opposition to imports. Backed by generous government support, low-interest loans, and substantially cheaper labor than is available in the US, they plan to build factories in the US to avoid the perils protectionist legislation might pose. A Suntech executive says the company will announce its plans to build an American plant in the next month or two.

WSJ warns about Indian banks: A "Heard on the Street" column says Indian banks are big buyers of government debt, which is expanding in quantity at pace. Rising interest rates will mean bond prices decline, and treasury gains made up more than 35% of pretax profits for the quarter ended in June at ICICI Bank (ICICIBC.IN) and others. The higher rates will also threaten loan growth and asset quality as customers may have trouble servicing the debt. In summary, though banks have been outperforming the Indian market recently, the column recommends avoiding the stocks for now.

MA (204.23); V (67.95): Jefferies initiates MA, V: MasterCard (MA) initiated buy with $240 target. Visa (V) initiated buy with $80 target.

Friday, August 21, 2009

Morning Call: August 21, 2009

August 21, 2009: Morning Call

Fair Value: SP500 – 1006.15; NDX: 1613.99; DOW: 9337.86

Technical Levels:

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

Events:
Pre-market EPS: ANN (.02/472.2M); SJM (.80/1.0B)
10:00: Existing Home Sales (July): 4.98M; 1.8% MoM
10:00: Fed’s Bernanke speaks on Financial Stability and Macroeconomic Policy
12:45: Fed’s Madigan speaks on Fed panel discussion

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 5 points above fair value reversing nearly 13 points off the overnight session lows, which occurred overnight due to Asian market weakness. European markets triggered the reversal in the futures following strong French, German, and Euro-zone PMI data. The German service sector came in much better than expected (54.1 vs. 48.6). French and Euro-zone manufacturing also showed modest expansion in August. European markets are up 1.1% to 1.6% near the session highs. Utility, industrial, consumer, and financial stocks are outperforming while Technology and basic material stocks are lagging. Asian markets closed mixed (Japan down 1.4%, Hong Kong down 0.65%, Australia down 1.99%, Shanghai up 1.88%, India up 1.53%). The Chinese market shook off a report that China is moving to tighten bank capital requirements and lending. Shippers were hit by a drop in the Baltic Dry Index. Industrial & Commercial Bank of China (601398.CH) and Shenzhen Bank (000001.CH) rose on results. China Mobile (941.HK) fell on downgrades following disappointing results.

Research Calls/Market Moving News:

FSLR: Jefferies downgrades Solar sector and First Solar on concerns that the downward spiral of pricing in the sector will continue due to a glut of capacity. Expects weaker 2010 estimates and believes that "liberal Chinese lending practices" have encouraged overproduction. The firm downgrades FSLR to hold from buy and cuts the price target to 130 from 200. This call seems very late given that these concerns have been driving the stock lower (from 170) for the last month. I would also note that German solar stocks have ripped higher in Europe (up 3-5%) after German solar companies called for protective tariffs to counter what they say is improper government support for the industry in China. FSLR should bounce today off the 129 pre-market level because most of their revenues come from Germany. But, longer-term, I would note that the momentum continues to be negative given the poor reaction to the news of two huge projects with SCE. It is pretty clear that FSLR holders have shifted their focus away from "revenue growth" and toward module pricing and potential margin erosion. JP Morgan thinks investors have shifted away from the long-term growth potential for FSLR and are "currently focused on the short-term impact the tough financing and oversupplied module market are having on the profitability of the industry. Signs of a stabilizing bottom in the products ASPs are needed to get investors refocused on the revenue and associated earnings growth potential."

AAPL (166.33): Apple estimates increased at Thomas Weisel: Following a meeting with management, the firm is more confident in AAPL's long-term outlook and raise f09 and f10 EPS estimates on higher gross margin assumptions. Above-consensus revenue estimates are unchanged. Thomas Weisel expects an iPhone distribution agreement for China with China Unicom (CHU) in c2H09. The rating remains overweight; target $180.

LVS (13.19): chatter that a Hong Kong IPO may come in late November or December for a minority stake in the Macau operations - LVS expected to target raising 1 to 2 billion dollars.

BRCD (8.05): Brocade reports Q3 EPS $0.12 ex-items vs Reuters $0.11: Company reports revenues of $493.3M vs Reuters $503.3M. Non-GAAP gross margin 58.2% vs. 56.2% seq. and 61.9% y/y; non-GAAP operating amrgin 20.3% vs. 18.8% seq. and 22.6% y/y

China plans to tighten banks' capital requirements – Bloomberg: People familiar with the matter say that 19-Aug, banks received draft rules requiring them to deduct all subordinated and hybrid debt from their supplementary capital. Banks have until 25-Aug to give feedback. Banks may need to restrict lending or sell shares to raise their capital adequacy ratios to the required 12%. The rules also limit a bank's holdings of subordinated or hybrid bonds to 20% of core capital.

Morgan Stanley comments on smartphone survey: Firm's survey indicated that the iPhone and Blackberry were both the top choices in consumers, while Palm's share of the smartphone sales fell.

Monday, August 17, 2009

August 17, 2009: Morning Call

August 17, 2009: Morning Call

Fair Value: SP500 – 1002.43; NDX: 1610.95; DOW: 9298.71

Technical Levels:

SPX: 875-880, 910, 953, 986 support/1010, 1044 resistance

Events:

Pre-market EPS: CIT (-1.83/412.2M); LOW (.54/14.3B)
08:30: Empire Manufacturing (August): 2.0
09:00: Net-Long Term TIC Flows (June)
09:00: LOW earnings call
13:00: NAHB Housing Market Index (August): 18
18:00: TSL earnings call
Post-market EPS: A (.11/1.0B); TSL (.31/149.4M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 20 points below fair value and the NASDAQ futures are trading almost 30 points below fair value. The financial press is citing the slight miss in Japanese GDP (up 0.9% QoQ vs. up 1.0%) as the primary cause of the weakness. But, the more important catalyst is the big technical break in Shanghai markets, which fell 6.1% overnight on concerns about tighter monetary policy and a bigger than expected drop in foreign direct investment (down 20.3% vs. down 16.8%). Hong Kong fell 3.6% and Japan declined 3.1%. India dropped 4.07%. Banks and basic material stocks fell as much as 8.5% across the region. Weakness in Chinese markets is weighing on commodity prices, which are down about 2.5%-4.0%. European markets are down 2.0% to 2.5% with basic material stocks leading the drop with losses of 4.0% to 5.0%. There is limited corporate news in Europe and the losses are broad-based with every group in the Bloomberg European 500 index currently trading lower. Autos pared declines as Volkswagen (VOW.GR) recovered slightly after releasing Jul vehicle sales. Decliners on the FTSE 100 lead advancers 19-1.


Research Calls/Market Moving News:

FSLR (141.78): Barron's is cautious on the earnings at First Solar, might be from aggressive accounting: The rise in operating income masked the falling cash flow. Receivables grew $166M but revenue only grew $108M and the company lent $25M to a customer outside those receivables. The recent quarter earnings beat estimates because of bookkeeping; the company recognized $84M in revenue as a "result of reclassifying its investment in a project as 'debt' rather than 'equity'." The company gave up the right to convert an investment in a solar farm in Germany into an equity stake. Additionally, the company booked $104M of its purchase of OptiSolar as an asset it will expense only if and when it sells the project even though regulators have required companies to book similar deals as an intangible asset that will be steadily amortized and expensed. FSLR is trading down 6%.

FSLR (141.78): Jefferies comments on Barron's article on First Solar: The firm takes issue with 3 points made in the article. With respect to working capital, Jefferies notes that the company had rising sales and made a change in customer payment terms to bring more in line with industry standards, and says the changes in payment terms have most impact to cash flow at the time they are put in place. In response to Barron's claim about bookkeeping in 2Q08, and the treatment of intangible assets with respect to the Optisolar acquisition, Jefferies believes both were accounted for appropriately. The rating remains buy; target $200.

COF (35.08): Capital One reports Jul managed trust charge-off and delinquency data: All comparisons are month/month: US Card: net principal charge-offs $524.9M vs $527.8M; annualized net charge-off rate 9.83% vs 9.73%. 30 days + delinquencies $3.07B vs $3.09B for a rate of 4.83% vs 4.77%. COF shares are trading down 4.5%.

Oppenheimer downgrades REITs: AVB, BMR, BXP: Biomed Realty Trust (BMR) downgraded to perform from outperform. Boston Properties (BXP) downgraded to perform from outperform. HCP (HCP) downgraded to perform from outperform. AvalonBay (AVB) downgraded to underperform from perform; target is $55. UDR Inc (UDR) downgraded to underperform from perform; target is $10. Washington REIT (WRE) downgraded to underperform from perform; target is $22.

LOW (22.83): Lowe's reports Q2 EPS $0.51, including charge: The figure includes a pre-tax charge of $48M related to a re-evaluation of future store sites. Reuters $0.54. Company reports revenues of $13.84B vs Reuters $14.35B. Guides Q3 EPS to $0.21-$0.25 vs Reuters $0.27. For 2010, expansion in North America will be below previously anticipated levels, and new store openings will likely be in the range of 35 to 45. LOW is trading down 11.5%.

Barron's Technology Trader Fall Preview considers Apple, smartphones and the solar industry: The column considers what may happen during autumn. Apple (AAPL) seems to be clearly up to something and the general consensus is that a tablet computer is coming in early September. In smartphones, there is the coming launch of Motorola's (MOT) new phones based on the Google (GOOG) Android operating system in a bet the company move. Notes some doubts emerging about the success of the Palm Pre (PALM). The Nokia (NOK) deal with Microsoft (MSFT) underscores the weakness of Nokia's smartphone lineup and Research in Motion (RIMM) is probably not worried too much over their position in the enterprise market. Barclays became cautious on the solar industry after poor results from 3 Chinese makers and questions over whether the German subsidy program is sustainable.

Barron's says many retail stocks may correct sharply in coming months: The rally in retail may be sending a false signal about the sector's prospects. Results, particularly for specialty stores and department stores, are likely to disappoint over the next few years, especially as consumer struggle to pay down debt loads. One investor says the consumer is going to be in a secular downturn for years. It has usually been dangerous to bet against the U.S. consumer but much of the recent improvement in earnings came from beating depressed estimates even as revenue fell. A combination of higher taxes, lower wages and high debt levels may keep many consumers home and away from the shops.

CAT (46.00): WSJ is cautious on industrial stocks: A 'Heard on the Street' column says that Caterpillar (CAT) exemplifies the sector perfectly in that the company beat estimates largely due to cost cuts, a lower tax rate, currency gains and accounting gains on shrinking inventory. Revenue fell 41%. Disappearing demand is what investors should be focused on. Morgan Stanley estimates revenue dropped 20% in Q2 industry-wide while order books dropped 30%.

WSJ suggests unloading home improvement stocks: The may be positive news on the housing front this week but there is already a lot of good news priced into the stocks of Lowe's (LOW) and Home Depot (HD), both trading for 18x estimates compared to 15x for the S&P 500. They are vulnerable to any disappointing housing news, something likely given the unemployment situation and continuing foreclosures. There will be better opportunities to buy the names.

Friday, August 14, 2009

August 14, 2009: Morning Call

August 14, 2009: Morning Call

Fair Value: SP500 – 1010.857; NDX: 1628.05; DOW: 9370.49

Technical Levels:

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

Events:

Pre-market EPS: ANF (-.04/637.9M); JCP (-.08/3.9B)
05:00: Euro-zone CPI (July): -0.6% MoM; -0.6% YoY; Core: 1.3% YoY
08:30: US Consumer Price Index (July): 0.0% MoM; Ex-Food/Energy: 0.2% MoM
08:30: US Consumer Price index (July): -2.1%; Ex-Food/Energy: 1.6% YoY
08:30: ANF earnings call
09:15: US Industrial Production (July): 0.1%; Capacity Utilization: 68.1%
09:30: JCP earnings all
10:00: University of Michigan Confidence (August): 68.5



Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value and the NASDAQ futures are flat with fair value at 8am ET. Asian markets closed mixed (Japan up 0.75%, Hong Kong up 0.15%, Australia up 0.57%, Shanghai down 2.8%, India down 0.70%, South Korea up 2%). Upbeat comments from Australia’s central bank governor boosted Australia and New Zealand. Technology and bank stocks allowed South Korea to lead the region. Shipping issues gained on a higher Baltic Dry Index. In Japan, insurers fell and real estate firms and trading houses rose but the market reversed early gains when China fell. New Zealand rose as retail sales advanced in Q2 for the first time in two years. European markets are up 0.27% to 0.50% in quiet but whippy trading. Mining shares are amongst the leading gainers while the auto sector was lower led by Volkswagen (VOW.GR) having confirmed reaching of agreement on formation of integrated car group with Porsche (PAH3.GR). Major indices gained around +0.8-1.0% before paring their advance. Advancers on the FTSE 100 lead decliners 3-2.

Research Calls/Market Moving News:

C (4.06): Citi upgraded to buy from underperform at Bank of America Merrill Lynch. C shares are up 3.2%.

BAC (17.00): Bank of America may expand metals and energy team by 25% in next 2-3 years to capitalize on rebound in commodity prices – Bloomberg: The wire cites interviews with the unit's heads. People familiar with the matter say the commodities group currently has 600 people.

Obama administration wants larger banks to pay more for oversight - Washington Post: The latest plan would see banks with more than $10B in assets pay higher fees from its existing regulator and the new consumer protection agency. Smaller banks might pay lower fees. Current rates for banks are determined by whether they are overseen by federal or state officials. Unregulated consumer financial firms, such as mortgage lenders, would have to pay for their oversight for the first time (My take: The Obama administration was expected to take a “carrot and stick” approach with the banking sector. Thus far, it has been almost exclusively carrot, which has been a big surprise particularly to the short-sellers. Clearly, the government has done a brilliant job at orchestrating the current “confidence” trade. But, the greatest longer-term risk for the banking stocks is that the “stick” approach becomes increasingly politically attractive as the mid-term election season begins next year. The fact that regulatory reform has stalled has led many market participants to conclude that the threat of the “stick” approach has diminished and the sector is back to business as usual. Right now, the timing for aggressive reforms is tricky given that the Administration is probably worried about quickly reversing the huge gains in capital markets. Rest assured, the stick will be used at some point and the negative impact on earnings will surprise bank stock bulls.)

WMT (51.88): Wal-Mart making stores around the world more and more local – WSJ: The company has grown to appreciate that what works in Bentonville won't necessarily increase sales in Beijing. The company now uses 60 names besides "Wal-Mart" outside the US. The article focuses on Brazil, where the company is using small discount stores rather than huge boxes resembling its US offerings, and where the company nonetheless remains in third place, behind Carrefour (CA.FP) and Pão de Açúcar Group (CBD). The company is now employing ideas developed in its far-flung countries, like the UK, India, China, and Japan, rather than forcing its American preconceived notions and SKU selections on all global markets.

JWN (29.76): Nordstrom (JWN) reports Q2 EPS $0.48 vs Reuters $0.48, guides f09 EPS to $ 1.50-1.65 vs prior $1.25-1.50 vs Reuters $1.48.

India may trigger INR1.9T ($39B) in stock sales with proposal to limit stakes of controlling shareholders – Bloomberg: The government is considering requiring a 25% minimum public float, which Bloomberg calculates would necessitate equity sales in 560 of Mumbai's 3,335 most-active stocks.

GPS (18.67): Gap upgraded to outperform from neutral at Wedbush Morgan: Checks show strengthening sales at Gap and Old Navy and says shares should show significant appreciation as the company delivers f09 and f10 earnings power above consensus

ETFC (1.40): Citadel Investment Group is cutting its E*TRADE stake reports the WSJ: Citadel has sold 13.9M shares of ETFC and has set up a 10b-5 plan that will allow the sale of up to 120M ETFC shares between 31-Aug and the end of October. One analyst said this announcement clears up any thoughts that Citadel might have wanted to be majority owner of the company.

Thursday, August 13, 2009

August 13, 2009: Morning Call

August 13, 2009: Morning Call

Fair Value: SP500 – 1003.96; NDX: 1618.98; DOW: 9334.10

Technical Levels:

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

Events:
Pre-market EPS: ABV (1.04/2.8B); GIL (.31/339.5M); KSS (.67/3.7B); URBN (.25/457M); WMT (.86/103.1B); WW (.69/390.6M)
08:00: WMT earnings call
08:30: US Import Price Index (July): -0.5% MoM; -19.1% YoY
08:30: US Retail Sales (July): 0.8%; Less Autos: 0.1%
08:30: Initial Jobless Claims: 545,000; Continuing Claims: 6.3 million
08:30: FASB Board Meeting discusses potential expansion of fair value rules to loans
10:00: Business Inventories (June): -0.9%
10:30: EIA Natural Gas Storage Change
13:00: Treasury auctions 15 billion in 30-year bonds
Post-market EPS: A (.11/1.1B); ADSK (.19/413.1M); DV (.51/376.9M); JWN (.43/2.1B);

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 9 points above fair value and the NASDAQ futures are trading 17 points above fair value at 8am ET. Futures rallied overnight following better than expected GDP news from Germany, France, and the Euro-zone. European markets are up 1.2% to 1.5% with basic resource and financial sectors leading the advance after copper rallied on the LME. Food & beverage space underperforms again, with AB Inbev dropping 3.8% after saying H2 earnings won’t rise at same pace as H1, dragging peer Heineken lower. Nestle drop another 1.5% after y’days disappointing figs. Asian markets closed higher with India leading the region with a gain of 3.3%. India rose when the government promised to cut corporate taxes from 30% to 25% and eliminate a levy on equities trading. Concerns about China’s bank lending tempered optimism in Hong Kong. Fushan International Energy (639.HK) and Hopson Development (754.HK) rose on being included in the MSCI Emerging Markets Index.

Research Calls/Market Moving News:

BAC (15.93): BAC trades 5% higher following reports that Paulson and Company acquired 168 million shares in the second quarter. The shares traded between 6.82 and 14.17 during Q2 so his average price is materially below the current price. Paulson does not need to update his position until 45 days after Q3 given that it represents about 2% of the BAC shares outstanding. He could have easily sold or pared back his stake substantially given the run in the shares. But, perception is reality and right now traders perceive that the “smart money” is long BAC. I am bearish on BAC shares at the 16-17 dollar level. Paulson also disclosed stakes in GS, FITB, and RF.

WMT (50.51): Wal-Mart reports Q2 EPS $0.88 vs Reuters $0.85: Company reports net sales of $100.08B vs Reuters $100.13B. Guides Q3 EPS to $0.78-0.82 vs Reuters $0.80. Guides full year EPS to $3.50-3.60 vs Reuters $3.53, tightened from previous $3.45-3.60. Wal-Mart reports US comps ex-fuel (1.2%) vs StreetAccount consensus +1.0%. Guidance was for flat to +3%. Total net sales for the quarter were down 1.4% and increased 2.7% ex-currency. Gross margin (% of total revenue) reported 25.5% vs SA 24.3%. Inventories ended the quarter at $33.86B compared to $34.39B in Q1 and $34.51B in Q4. Q3 guidance assumes comps flat to +2% at Walmart and flat plus/minus 1% at Sam's.

NTES (46.65): Netease.com reports Q2 EPADS $0.53 vs Reuters $0.45: Company reports revenues of $126.4M vs Reuters $120.4M. Pali Capital is saying that “organic results” missed and that one-time gains led to the bottom line beat. “2Q09 results beat on paper but organic growth is negative in game business – NTES reported 2Q09 revenue of $126.4M, $6M above the Street and our estimate however, the top line beat was driven by the recognition of $12.2M in game revenue from dormant accounts as a result of a change in the user agreement (outstanding points in accounts that are dormant for 540 days or more will be removed after 30 days). It is a one time non-recurring event. Excluding this recognition, game revenue would have been $102.0M, below our $111.0M estimate while total revenue would have been $114.2M, below consensus of $120.3M. The decline was largely due to the weakness in its main game FWWJ, as the ACU number dropped 8% Y/Y and 10% Q/Q from 1.92M in 1Q09 to 1.72M in 2Q09.”

AVB (66.61): AvalonBay (AVB) files to sell up to $400M in common stock through BNY Mellon, BoA Merrill and Deutsche Bank.

LDK (11.21): LDK is trading down 15% following weak Q3 guidance. Think Equity maintains their “source of funds” rating and 8 dollar target. “We believe that LDK's aggressive growth and financing strategy is coming to a critical turning point in its business. If the company can restructure its debt and reduce its near-term cash obligations, we see potential for the company to clean up its balance sheet and gain market share as the low-cost provider of crystalline wafers as a vertically integrated supplier. However, in the meantime, we believe that the company has an uphill climb facing firm polysilicon prices, difficult negotiations on restructuring debt, ongoing price pressure, and significant challenges in ramping its polysilicon manufacturing facility.”

Solar Energy sector downgraded to neutral at Barclays Capital: Investors should wait for better entry points. Sees downside risk from a lack of near term potential catalysts and relatively rich valuation as well as weak seasonality.

JASO (4.47): JA Solar downgraded to equal-weight from overweight at Barclays Capital: Cites concerns that limit upside to the name even though the $4 book value provides potential downside support.

Wednesday, August 12, 2009

Follow up on Cramer and the iPhone

This appears to be the source of Cramer's rumor that 5 million iPhones have been pre-ordered by CHU. Again, color me skeptical. But, here is the link:

http://idannyb.wordpress.com/2009/08/12/rumor-apples-1-4-billion-iphone-pre-sale-to-china-unicom/

CNBC's Chief Mascot on Apple's China deal

Jim Cramer just reported a "rumor" during his idiotic "Stop Trading" segment that CHU (China Unicom) has ordered 5 million iPhone units. I have been a long-time bull on Apple shares and follow the story closely. Color me skeptical on Cramer's rumor given that an Apple/China Unicom deal has not even been finalized. CHU has supposedly committed to selling 1 million iPhones per year as part of the rumored contract negotiations. Why would they pre-order 5 million units before they even close the deal with Apple? I think it's possible that Apple could sell 5 million units in China in the first year given the strength of the Apple brand in China. But, I think Cramer literally made this rumor up and would chalk it up to him being totally reckless. The Beijing Business Today newspaper quoted Apple CFO Tim Cook last week as saying he expected a deal to be finalized by the end of this autumn. Not surprisingly, Cramer's make believe rumor has moved AAPL shares 1.50 higher to 166.50 from 165 in the last 15 minutes. Efficient markets!

August 12, 2009: Morning Call

August 12, 2009: Morning Call

Fair Value: SP500 – 992.47; NDX: 1594.01; DOW: 9214.10

Technical Levels:

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

Events:

Pre-market EPS: ESLT (1.07/740.0M); JASO (-.06/77.7M); SLE (.24/3.2B)
05:00: Euro-zone Industrial Production (June): 0.3% MoM; (actual: weaker –0.60%)
05:30: BOE releases Quarterly Inflation Report
07:00: Bloomberg Global Confidence (August)
07:00: MBA Mortgage Applications
08:30: US Trade Balance (June): -28.5B
10:30: DOE Crude Oil and Gasoline Inventories
12:00: CSCO presents at Canaccord Adams Growth Conference
13:00: Treasury auctions 23 billion in 10-year notes
14:00: Monthly Budget Statement (July): -129.5 billion
14:15: FOMC Rate Decision: 0.25%
14:00: TOL Q3 Guidance Update
14:30: KLAC presents at Canaccord Adams Growth Conference
15:30: MSFT presents at Canaccord Adams Growth Conference
21:00: NTES earnings call
Post-market EPS: AAP (.83/1.3B); HRS (.82/1.2B); LDK (-.91/236.)M); SINA (.33/88.2M); NTES (.49/120.4)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 2 points above fair value and the NASDAQ futures are trading 7 points above fair value at 8:15am ET. The S&P futures hit an overnight low of 986 due to weakness in Asia and early in the European session. European markets are currently up 0.25% to 0.50% after opening down close to 1.0%. Euro-zone markets moved higher at 5:30am after the BOE inflation report said, “inflation is more likely to be below target in the media term than above.” Breadth is mixed with advancing issues only modestly ahead of declining issues. Asian markets closed lower with financial and resource sectors leading the decline (Japan down 1.4%, Hong Kong down 3.03%, Australia up 0.26%, Shanghai down 4.4%, South Korea down 1.2%, India down 0.36%). Shanghai was particularly weak with 17 issues declining for every advancing issue. Shanghai has pulled back 10.7% from the August 4 closing highs. Bloomberg is reporting that the Chinese commerce minister said overnight “that efforts to boost domestic demand can’t completely offset an export slump.” Chinese officials seem to be continuing a policy of “talking down” the market rather than officially tightening monetary policy.

Research Calls/Market Moving News:

AMAT (13.22): Applied Materials (AMAT) reports Q3 EPS ($0.02) ex-items vs Reuters ($0.08), reports Q3 new orders $1.07B vs StreetAccount consensus $862M, guides revenue to be up 10-20% q/q, implies a range of $1.24-1.36B vs Reuters $1.07B, guides EPS breakeven to $0.04 vs Reuters ($0.04).

TOL (20.48): Toll Brothers reports preliminary Q3 revenues of ~$461.3M vs. Reuters consensus $367.2M: First Call is $377.1M. Other Q3 metrics: backlog $930.7M and 1,626 units vs. $944.3M and 1,581 at end of Q2 and (37%) in units and (47%) in dollars y/y. net signed contracts $447.7M, 837 units, vs. $298.3M, 582 units seq., and +3% in units and (5%) in dollars y/y. gross signed contracts 915 totaling $502.6M vs. 743 totaling $418.5M seq. and (9%) and (15%), respectively y/y. cancellation rate 8.5%, 78 cancellations, vs. 21.7%, 161, seq. and 19.4% and 195 y/y; the 3Q09 cancellation rate was the lowest since f2Q06.

GS (159.22): Goldman Sachs maintained buy at UBS following meetings with CEO and CFO: Target is $180. Firm notes that management remains committed to Goldman's overall business model, but growing asset management is a priority given its stability. The company continues to have wide bid-ask spreads on liquid products and its market share gains have not slipped. In the near-term, UBS thinks the bias for consensus is to the upside and book growth should be strong. Firm adds that it does not expect a repeat of Q2's stellar results.

GRMN (32.45): Garmin added to Conviction Sell List at Goldman Sachs: The firm is concerned about 4Q09 and 2010 estimates. The target is $23.

Electricity prices fall sharply as demand drops reports the WSJ: A report due Friday is expected to show electricity demand down 4.4% in the first half which helped lead to a 40% drop in spot market prices. This is on top of a 2.7% drop in energy use in 2008 compared to 2007. Electricity demand has dropped in absolute terms in only 5 years since 1950. Wholesale prices have dropped significantly in many regions. Many consumers pay rates based on long term contracts but the lower prices will filter down over. Some utilities are reporting double digit drops in industrial usage. On top of the drop in demand, the fall in natural gas prices is another large contributing factor to the drop in electricity prices.

MSFT (23.13); NOK (13.08): NOK and MSFT to hold a conference call at 11am to discuss a partnership that will bring MSFT’s mobile office to NOK handsets.

SPWRA (30.11): SunPower downgraded to underperform from neutral at Bank of America Merrill Lynch: Price objective is reduced to $26 from $33.

Obama administration sends proposal to Congress for derivatives regulation reports the WSJ: The proposal from the Obama administration, which does not differ much from the plan outline by Treasury Secretary Geithner in May, would force many products onto regulated exchanges. There is an exemption that eases margin requirements for some hedging transactions in what the WSJ describes as a concession to small market players. The essential aim is to increase transparency with much of the power given to the SEC and CFTC but granting banking regulators the authority to oversee banks that deal in derivatives.

White House considering allowing consumers to use cash for clunkers vouchers - WSJ: The Journal reports that the Obama administration is reviewing a congressional request to allow consumers to use cash for clunkers vouchers toward future vehicle purchases. According to the article, vouchers would help address concerns surrounding the dwindling supply of many popular replacement vehicles.

Tuesday, August 11, 2009

August 11, 2009: Morning Call

August 11, 2009: Morning Call

Fair Value: SP500 – 1004.91; NDX: 1609.71; DOW: 9305.88

Technical Levels:

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

Events:

Pre-market EPS: FOSL (.20/321.8M); M (.15/5.2B)
08:00: T presents at Oppenheimer Communications/Tech Conference
08:30: US Productivity (Q2): 5.5%; Unit Labor Costs: -2.5%
10:00: MDR earnings call
10:30: MSFT presents at Pacific Crest Technology Conference
10:30: MSFT presents at Oppenheimer Communications/Tech Conference
10:30: M earnings call
13:00: QCOM presents at Pacific Crest Technology Conference
13:10: CSCO presents at Oppenheimer Communications/Tech Conference
16:30: API Crude Oil and Gasoline Inventories
18:00: FIRE presents at Pacific Crest Technology Conference


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are flat with fair value at 8am ET. The S&P futures have pulled back 7 points off the overnight highs following a modest downside reversal in European markets. European markets failed to hold onto gains of 0.50% to 1.0% and are currently trading down 0.10% to 0.50%. Cyclical related sectors (Banks, Basic Material, Energy, Industrials) are leading the decline in Europe. Asian markets closed higher despite some weaker data out of China; markets in Asia appears to take solace in the fact that July loan growth in China declined “on its own” and may not require government tightening (Japan up 0.58%, Hong Kong up 0.69%, Australia up 0.65%, Shanghai up 0.33%, India up 0.43%)

Research Calls/Market Moving News:

Chinese Economic Data: China July new loans CNY355.9B vs survey CNY500B, June CNY1.530T – Bloomberg. Chinese Industrial Production was weaker than expected (10.8% vs. 11.5%). Retail Sales came in slightly better at 15.2% vs. 15.0% YoY. Fixed Urban Investment was weaker at 32.9% vs. 34% YoY. Chinese Exports fell 23% YoY, in-line with expectations.

HGSI (14.87): Human Genome target raised to $30 at Leerink Swann : Leerink Swann raises their HGSI tgt to $30 from $16 saying their statistical power analysis confirms an ~85% likelihood of success for BLISS-76 data in November. They considered the major factors which could influence p-value via effect size and variability in the context of past results for Benlysta in BLISS-52 and Phase II. The firm says an 8% response rate delta between Benlysta and placebo on the primary endpoint would be statistically significant in BLISS-76 if the same standard deviation as seen in BLISS-52 occurs. Furthermore, a 9% delta would be sufficient at all standard deviations analyzed. Recall that Phase III (10mg/kg), Phase III (1mg/kg), and Phase II showed deltas of 14%, 8%, and 17%, respectively. At the lowest standard deviation analyzed, even a 6% delta in response rates would achieve a p=0.042.

BAC (16.68): Judge rejects Bank of America-SEC settlement – FT: Judge Jed Rakoff says the $33M settlement is too small if Bank of America's conduct was actually the way it was being described. Rakoff orders the parties to submit detailed statements about the case by 24-Aug and encourages the SEC to identify who was responsible for misleading shareholders.

TARP oversight panel says smaller banks may need $12-14B in additional capital to deal with troubled loans still on their books - Bloomberg:
In its monthly report, the Congressional Oversight Panel says the US's biggest banks appear ready to handle more loan losses, but banks with $600M-1B in assets will need to raise significantly more capital.

FLR (57.49): Fluor reports Q2 EPS $0.93 vs Reuters $0.91: Company reports revenues of $5.29B vs Reuters $5.80B. New project awards for Q2 were $6.8B, compared with $6.4B in new awards a year ago. Current quarter awards included a large mining project and a $1.3B oil sands project. Consolidated backlog rose to $30.9B, up from $29.1B last quarter, but down 6% from a year ago primarily due to cancellations and scope reductions of Oil & Gas projects during Q1. Reaffirms full year EPS guidance of $3.80-4.10 vs Reuters $3.82.

MDR (21.32): McDermott reports Q2 EPS $0.40 vs Reuters $0.37:
Company reports revenues of $1.56B vs Reuters $1.59B. At June 30, 2009, McDermott’s consolidated backlog was $9.5B, compared to $9.8B and $10.0B at June 30, 2008 and March 31, 2009, respectively.

MBI (6.17): MBIA downgraded to underweight from neutral at JPMorgan: The firm believes CDO, RMBS, and CMBS related losses would eventually overwhelm capital. JPMorgan says recent accounting to record a $1.1B recovery from a law suit that is uncertain, as well as the impact of FAS 157 has skewed GAAP earnings and book value to represent a company that appears to be stabilizing.

BPI (19.34): Bridgepoint Education reports Q2 non-GAAP EPS $0.34 vs Reuters $0.23 Company reports revenues of $110.9M vs Reuters $99.2M. Total student enrollment increased 101.3% y/y to 45,504 at the end of the quarter. Combined new student enrollments for Q2 at both of Bridgepoint Education's academic institutions were approximately 14,600, an increase of 80.2%, vs approximately 8,100 y/y. Guides f09 EPS to $1.00-1.02ex-items vs Reuters $0.88; guides GAAP revenues to $425-430M vs Reuters $406.5M. Total student enrollment is expected to be between 48,000 and 49,000 at December 31, 2009.

BTU (35.21); MEE (28.19): Massey Energy (MEE) removed from, Peabody Coal (BTU) added to Conviction Buy List at Goldman Sachs: Massey Energy remains buy rated; the target is increased to $33 from $30. BTU target is increased to $46 from $43. The firm also raises targets on: Alpha Natural (ANR) to $43 from $38. CONSOL Energy (CNX) to $42 from $40. Patriot Coal (PCX) to $9 from $8.

OPEC sees 2010 demand for OPEC crude (480K) bpd y/y vs prior forecast of (380K) bpd: The group estimates non-OPEC supplies increasing 430K bpd vs prior guidance of +330K bpd. Further, the body sees 2009 global oil demand (1.65M) bpd y/y, in line with prior guidance, and 2010 demand also in line at +500K bpd. Finally, OPEC member states met 68% of supply reductions in July vs 70% compliance in June.

CNS (19.30): REIT investment management company Cohen & Steers (CNS) files 22 million share shelf. The company says selling shareholders may offer up to 12 million shares of common stock. Watch what management does (selling stock), not what they say (that the REIT business has bottomed).

FT discusses concerns surrounding potential Lloyds' potential £15B capital raise: Recall that there have been recent reports that Lloyds would look to raise as much as £15B in new capital in an effort to strengthen its balance sheet and reduce its exposure to the government's asset protection scheme (APS), where it originally agreed to place £260B of troubled loans. According to the FT, Lloyds faces a difficult task in convincing Alistair Darling, the chancellor, to revisit the basic terms of the scheme following months of complex negotiations. The paper adds that even if the government did decide to amend the terms of the bank's participation in the APS, it would either have to participate in the rights issue at a cost of up to £9B, or see its 43% stake diluted.

Monday, August 10, 2009

August 10, 2009: Morning Call

August 10, 2009: Morning Call

Fair Value: SP500 – 1008.01; NDX: 1618.75; DOW: 9335.01

Technical Levels:

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

Events:

Pre-market EPS: ALD (.13/87.3M); DISH (.67/2.9B); HOC (.27/1.0B); SYY (.49/9.1B); PCLN (1.75/575.4M)
04:30: Euro-zone Sentix Investor Confidence (August): -25.8 (actual: -17.0)
08:30: PCLN earnings call
10:15: JNPR presents at Pacific Crest Technology Conference
11:00: INTC presents at Pacific Crest Technology Conference
12:30: CTSH presents at Pacific Crest Technology Conference
13:00: YHOO presents at Pacific Crest Technology Conference
13:30: BRCM presents at Pacific Crest Technology Conference
17:30: FLR earnings call
22:00: Chinese Fixed Urban Investment (July): 34.0%
22:00: Chinese Producer Price Index (July): -8.3% YoY
22:00: Chinese Consumer Price Index (July): -1.6% YoY
22:00: Chinese Retail Sales (July): +15.0% YoY
22:00: Chinese Industrial Production (July): 11.5% YoY; 7.7% YTD
Post-market EPS: FLR (.91/5.8B); MDR (.37/1.5B); SF (.46/224.8M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both 5 points below fair value in a quiet news morning. Asian markets closed higher (Japan up 1.08%, Hong Kong up 2.72%, Australia up 0.11%, Shanghai down 0.30%, India down 0.99%). Aluminum Corp (2600.HK) and China Mobile (941.HK) rose when China said it would maintain policies aimed at encouraging domestic spending and China Shenhua Energy (1088.HK) rose on better-than-expected preliminary results. Exporters were lifted by a weaker yen in Japan, which enjoyed a broad-based rally. Rio Tinto (RIO.AU) fell in Australia on accusations published over the weekend that it illegally used information about China’s steel sector for six years. European markets are down 0.50% to 0.75% with basic material, financial, and healthcare stocks leading the decline. Lloyds Banking Group (LLOY.LN) fell on talk it may seek to raise up to £15B through a share sale. WirtschaftsWoche reported that SAP (SAP.GR) considering bidding for TIBCO Software (TIBX).


Research Calls/Market Moving News:

RIMM (77.09): Research In Motion downgraded to neutral from buy at UBS: Target reduced to $88 from $90. Shares downgraded on valuation with the firm also noting the potential for a new data centric AAPL device at VZ.

PCLN (131.32): priceline.com reports Q2 pro forma EPS $2.02 vs Reuters $1.79: Company reports revenues of $603.7M vs Reuters $573.5M. Guides Q3 pro forma EPS to $2.70-2.85 vs Reuters $2.57.

AAPL (165.51): Apple added to short term buy list at UBS: Target raised to $170 from $160.

BBY (39.75): Best Buy downgraded to neutral from buy at Goldman Sachs .

AAPL (165.51): NY Times says it is far from clear how much revenue there will be from Apple iPhone apps: Media brands are jumping onto the iPhone but the firms acknowledge they are all trying to figure out the revenue side of the equation as they go. Some executives say they are more concerned with exposure through the iPhone than with revenue while others say they do not believe in running mobile applications as a loss leader.

China July car sales +64% y/y to 1.09M vehicles – WSJ: The semiofficial China Association of Automobile Manufacturers reports: passenger vehicle sales +71% to 832,600. Commercial vehicle sales +44% to 253,000.

Barron's says timberland may be one of the world's most overvalued asset classes: Noting the rise in value of timberland since the mid-1990's and only a 0.5% decline in the first half of 2009, Barron's notes that timber prices could be vulnerable to a 50% drop in the next few years. Such a drop would hurt timber REITs like Plum Creek Timber (PCL) and Potlatch (PCH) as well as Weyerhaeuser (WY) with its 2M acres of forest. Dividends at PCL and PCH are not generated from operations and thus could be vulnerable. Rayonier (RYN) could be better due to its more diversified business.

TIBX (8.47): TIBX shares are up 10% on rumors that SAP may buy the company.

Friday, August 7, 2009

August 7, 2009: Morning Call

August 7, 2009: Morning Call

Fair Value: SP500 – 994.59; NDX: 1599.57; DOW: 9221.29

Technical Levels:

SPX: 832, 875-880, 910, 953 support/ 1002, 1044 resistance

Events:

Pre-market EPS: EIX (.52/3.1B); MGA (-1.00/4.1B)
08:30: US Change in Nonfarm Payrolls (July): -325,000 (whisper: -200,000-250,000)
08:30: US Unemployment Rate (July): 9.6%
08:30: Change in Manufacturing Payrolls (July): -100,000
08:30: Average Hourly Earnings (July): 0.1% MoM; 2.5% YoY
08:30: Average Weekly Hours: 33.0
15:00: Consumer Credit (June): -3.7 billion


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading flat with fair value at 8am ET, ahead of the July payroll data. The July whisper number has improved with chatter going around that the economy may have lost between 200,000-250,000 jobs. Rumors have also been circulating that there could be a major benchmark revision to prior months, which would add substantial job losses since January. Asian markets closed lower excluding Japan (Japan up 0.25%, Hong Kong down 2.5%, Australia down 0.62%, Shanghai down 3.0%, India down 2.2%). Konica Minolta Holdings (4902.JP) and Kubota (6326.JP) fell on results. Elpida Memory (6665.JP) rose on a report it will get ¥ 30B in public funds. Australia fell on profit taking when the Reserve Bank of Australia warned interest rates would rise if the economic recovery lasts. Banks led Hong Kong down. European markets are down 0.50% to 1.0% following weak earnings from RBS (down 15%). Financial, mining and energy stocks are the weakest. The Russian Central Bank cut its benchmark interest rate by 25 bps to 10.75%. Decliners on the FTSE 100 lead advancers 3-1. NY University professor Nouriel Roubini says the rally in global markets will hit a snag in the next 2 months, according to the Australian Financial Review, which cited comments made at a Chartered Financial Analyst Forum in Sydney on Thursday. Roubini said the pullback would not take equities back down to the lows reached in March.

Research Calls/Market Moving News:

AAPL (163.91): Piper Jaffray’s Gene Munster expects Apple to launch a tablet in CY 2010. • We continue to expect Apple to release a tablet in early CY10. • We expect Apple to target the netbook market and focus on portability with web and media features (plus apps) at prices lower than the MacBook. • We believe the tablet would leverage the App Store platform, running current iPhone apps and a new category of larger apps simultaneously. • Assuming Apple sells about 2m tablets at a $600 ASP in CY10, it would add about $1.2b or ~3% to revenue in CY10. Continue To Expect Apple Tablet In Early CY10. As talk over a new tablet device from Apple grow, we are reiterating our thesis that in early CY10 Apple will introduce a touch-screen device similar to an iPod touch but larger. Last week we spoke with an Asian component supplier that has received orders from Apple for a touch-screen device to be fulfilled by late CY09. This data point underscores our thesis that a tablet will likely launch in early CY10. What Will Apple's Tablet Device Be Like? We expect the tablet hardware to be similar to an iPod touch but larger; we expect the key differentiator of the device to be its software. While there are several options ranging from a touch screen Mac OS X to an iPhone-like OS, we expect the tablet to be driven by a new version of Apple's iPhone OS that runs a new category of larger apps alongside all the current apps from the App Store. See pg. 2 for details and an image. Will Consumers Buy It? Without getting caught up in the buzz surrounding the device, we want to step back and analyze the addressable market for a tablet device priced between the iPod touch and the MacBook (likely about $500-$700). In most respects, we believe Apple will target the netbook market with its new device. In our estimate most netbook buyers are drawn to the portability for prices lower than a full laptop, and use netbooks primarily the web surfing, email, and media. We believe an Apple tablet would be priced 30%-50% below the $999 MacBook, and would offer best in class web, email, and media software. In other words, we believe Apple's tablet would compete well in the netbook category even though it would not be a netbook. Tablet Could Add ~3% To CY10 Revenue. The impact of a tablet device launching in early CY10 is not yet baked into street models. While at first glance this may appear to address a niche market, we believe the addressable market is larger than that of the Apple TV, of which Apple sold about 1.2m in its first year. We estimate that Apple could sell about 2m tablets at a $600 ASP in CY10, which would add about $1.2b or ~3% to revenue in CY10.”

AAPL (163.91): Apple (AAPL) to offer iPhone in China this fall through China Unicom, says Beijing Business Today – Bloomberg: Apple COO Tim Cook tells the paper the companies will reach a distribution agreement by the end of the summer.

CROX (4.27): Crocs upgraded to overweight from neutral at Piper Jaffray: The firm notes Q2 results outpaced estimates and share price appreciation should accompany consistent fundamental improvement and profitability potential in the next 12 months. Target is raised to $7.50 from $3.

FNM (.79): Fannie Mae reports Q1 EPS ($2.67) vs year-ago ($2.54): As a result of its $14.8B net loss for the quarter ended June 30, 2009, FNM had a net worth deficit of $10.6B as of that date. The Director of FHFA submitted a request on August 6 for $10.7B from Treasury. Company reports revenues of $5.60B vs year-ago $4.00B. FNM recorded a net loss of $14.8B and a diluted loss per share of $2.67 for Q2 of 2009. The net loss was driven by significant credit-related expenses, which totaled $18.8B in Q2, and more than offset net revenues of $5.6B generated from net interest income and guaranty fee income, and $823M in fair value gains.

AIG (22.35): American International Group reports Q2 diluted EPS $2.30: On an adjusted basis, excluding net realized losses and FAS 133 gains, AIG reports adjusted Q2 EPS $2.57. It is unclear if either figure is comparable to Reuters $1.31. Net premiums written $7.92B vs. $9.81B y/y; net premiums earned $8.02B vs. $9.67B. AIG says certain businesses stabilized and that it continues to engage in productive discussions with potential buyers for a number of its other businesses.

RIG (77.11): Transocean downgraded to outperform from buy at Calyon Securities

F (8.07): Ford and others considering production increases in response to cash for clunkers program reports the WSJ: Ford, General Motors and Chrysler are considering whether to increase production though are cautious because of the fact that big sales promotions are usually followed by a slump in sales. One source said Chrysler has increased its production estimate for October to 80K vehicles from 60K. Ford is considering increasing production of cars selling well under the clunkers program and is talking to suppliers to see what level production could be boosted too.

MOS (54.39): Soleil is positive on Mosaic after an upbeat management meeting: The firm believes the chances of a special dividend within 6-9 months or in H2 of 2010 are improving because of the $1.3B in net cash and the estimated $1B in free cash flow for F2010. The $1.3B in net cash implies a special dividend of up to $3 per share. Target increased to $65 from $60.

Thursday, August 6, 2009

August 6, 2009: Morning Call

August 6, 2009: Morning Call

Fair Value: SP500 – 1000.24; NDX: 1613.75; DOW: 9246.17

Technical Levels:

SPX: 832, 875-880, 910, 953 support/ 1002, 1044 resistance

Events:

Pre-market EPS: ATK (1.95/1.1B); BCE (.59/4.3B); BX (.09/341.9M); CNQ (1.09/1.7B); CMCSA (.26/8.8B); DTV (.43/5.1B); EP (.21/1.1B); HUN (-.13/1.9B); NDAQ (.47/368.5M)
07:00: US Retailers release July Same Store Sales
07:00: BOE Announces Interest Rate Decision: 0.50%
07:45: ECB Announces Interest Rate Decision: 1.0%
08:30: Initial Jobless Claims (August 1): 580,000; Continuing Claims: 6.25 million
08:30: CMCSA earnings call
10:30: EIA Natural Gas Storage Change
11:00: ICSC Chain Store Sales
11:00: BX earnings call
11:00: ATW earnings call
17:00: BZH earnings call
Post-market EPS: ACS (.97/1.6B); ASEI (.92/65.7M); BZH (-1.53/225.6M); CBS (.08/3.0B); EOG (.42/998.5M); PSA (1.21/395.4M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value and the NASDAQ futures are trading flat with fair value at 7:30am ET. Monthly retail sales and Initial Jobless Claims will likely set the tone in today’s session. Asian markets closed mixed (Japan up 1.3%, Hong Kong up 1.9%, Australia up 1.4%, Shanghai down 2.0%, India down 2.4%). Australia rallied after the unemployment rate was better than expected at 5.8% vs. expectations of 6%. China Mobile (941.HK) led Hong Kong reverse as people speculated a listing in Shanghai is forthcoming. Shanghai dropped led by Citic Securities (600030.CH), on concern the central bank may rein in lending. Commodity producers fell on lower metals and energy prices. European markets are up 1.0% to 1.2% as high levels of liquidity continue to fuel gains in risk assets. Gains are broad-based led by financial and consumer related sectors.


Research Calls/Market Moving News:

CSCO (22.17): Cisco Systems guides Q1 (Jul) revenue to be down 15-17% - conf. call: Note that Q4 revenue was down 17.6% versus guidance for a decline of 17-20%; recall guidance Q3 revenue was down 16.6% versus guidance for a decline of 15-20%. Most analysts on the street are modeled for Q1 revenues within the range of Cisco’s guidance.

PCLN (132.42): Piper Jaffray reiterates overweight rating and raises the price target to 150 ahead of the company’s earnings report on Monday. “We expect proforma EPS of $1.90 vs. the street's $1.75 and the company's $1.65-$1.75 guidance. • Competitor OTA results suggest Street bookings ests are overly conservative. • Over the last 8 quarters, Priceline has beaten the midpoint of its PF EPS guidance by 23% on average (see table on pg 2 for details). • Raising PT to $150 from $123, now based on 19x 2010E PF EPS of $7.75. We believe 19x PF EPS vs. 17x previously is justified given accelerating growth. Confident In Q2 Ests Based On OTA Competitor Results; Raising Q2 PF EPS To $1.90. Priceline is scheduled to report Q2 results on Monday (8/10), before market open; based on competitor OTA results, we expect material upside to Street consensus. Additionally, we believe Street estimates for the remainder of CY09 and CY10 are conservative and are raising our estimates above consensus.” Note: This research note hit First Call yesterday at 2:19pm and triggered a 3 point rally into the close. I point it out because the short-interest interest ratio in PCLN shares remains very high. As of July 15, 2009, short interest is 9.3 million shares compared to 10.6 million on June 30. PCLN float is 39 million shares.

COST (49.06): Costco reports Jul comps (7.0%) vs.First Call (7.0%): The company reports July revenues (5.1%) to $5.41B. US comps were (8%); international comps (5%). US comps (excluding the impact from gasoline deflation) were (2%); international (excluding the effects of foreign exchange) +6%; total comps (excluding aforementioned effects) (1%).

FCX (64.46): Freeport-McMoRan upgraded to buy from underperform at Bank of America Merrill Lynch: Price objective increased to $87 from $49.

MBI (5.53): MBIA reports Q2 diluted EPS $4.30 vs year-ago $7.14: Company reports revenues of $992.1M vs year-ago $3.35B. Total premiums earned $177.9M vs. $406.6M y/y. Book value/share $13.30 as of 30-Jun vs. $4.78 at 31-Dec. Shares are up 16%.

CSIQ (16.12): Shares are up 12% after in the pre-market after reporting EPS of 49 cents versus an expected loss of 9 cents. Revenues were 114.2 million vs. street at 95.3 million. The company boosts year view for shipments.

STEC (33.59): STEC increases the size of the secondary offering. According to Bloomberg, the company priced an additional 9 million shares at 31. Shares are trading down 3%.

JPM (41.78): JPMorgan Chase initiated buy at Deutsche Bank

GRMN (33.66): Garmin downgraded to underweight from neutral at JPMorgan
Downgraded based on price
.

ENER (14.34): Energy Conversion downgraded to underweight from neutral at Piper Jaffray: Target reduced to $9 from $21. Weak commercial end markets and SIT acquisition risk are cited

Wednesday, August 5, 2009

Blow-of Top in the Banks??

This move in the banks certainly feels like a blow-off top. The price action suggests flat out panic buying in JPM, BAC, and WFC. BAC (16.50) is up 32%, JPM (41.80)is up 11% and WFC (27.30)is up 17% since July 24. JPM is about 25% away from making a new all-time high, which is absurd given the long-term headwinds and structural issues related to the consumer de-leveraging that is still very much underway. Although it is too dangerous to be aggressively short these stocks, I would definitely look to purchase out of the money puts on JPM, WFC, and BAC. Volatility has come down to reasonable levels given the long-term headwinds the sector is still facing. The risk/reward no longer favors the bank bulls.

Tuesday, August 4, 2009

August 4, 2009: Morning Call

August 4, 2009: Morning Call

Fair Value: SP500 – 999.71; NDX: 1627.19; DOW: 9242.49

Technical Levels:

SPX: 832, 875-880, 910, 953 support/ 1002, 1044 resistance

Events:

Pre-market EPS: AYE (.43/867.0M); ADM (.44/15.2B); CAM (.47/1.2B); EMR (.57/5.3B); HCP (.51/249.2M); HNT (.52/3.9B); HSIC (.76/1.6B); ICE (1.13/242.9M); MLM (.77/471.0M); PTRY (.45/1.6B); SPG (1.37/878.5M); VNO (1.09/608.8M);DHI (-.23/774.5M): UBS(na/na)
03:00: UBS earnings call
05:00: Euro-zone PPI (June): -6.6% YoY; 0.2% MoM
08:30: Personal Income (June): -1.0%; Personal Spending: 0.2%
08:30: PCE Core (June): 0.2% MoM; 1.7% YoY
08:30: ICE earnings call
08:30: CAT analyst meeting
08:30: PHM earnings call
09:30: Fed’s Tarullo testifies on bank regulation
10:00: Pending Home Sales (June): 0.6%
11:00: DHI earnings call
11:00: SPG earnings call
16:30: API Crude Oil and Gasoline Inventories
17:00: CEPH earnings call
17:00: ABC Consumer Confidence
Post-market EPS: CEPH (1.30/540.2M); DVA (.95/1.4B); ERTS (-.14/727M); KFT (.54/10.3B); NWS (.18/7.6B); ONXX (.14/57.4M); BID (.28/153.2M); WFMI (.19/1.8B); AUY (.09/299.0M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points below fair value and the NASDAQ futures are trading 13 points below fair value at 7:30am ET. Asian markets closed mixed (Japan up 0.22%; Hong Kong down 0.05%, Australia up 1.08%, Shanghai down 0.01%, India down 0.59%). European markets are down 0.75% to 1.1% near the lows of the session. Basic material, financial, and energy stocks are leading the decline with losses of 1.5% to 3%. The dollar is modestly higher and commodity prices are down 1% across the board. Jun Personal Income and Spending will be reported at 8:30 ET. Jun Pending Home Sales at 10:00 ET. Fed Reserve Gov Tarullo testifies at Senate panel at 09:30 ET.


Research Calls/Market Moving News:

HGSI (14.25): Think Equity upgrades the shares to buy and raises the price target to 26 a share (price target is the highest among Wall Street analysts). “We spent the past few days evaluating our model for Benlysta and conclude that our estimates are just too conservative. We believe BLISS-76 will, more likely than not, confirm the results seen in BLISS-52. Based on a revised model, we raise our price target to $26 per share, which justifies a raise of our rating to Buy. The result of these changes triangulating an EPS, sum-of-the-parts, and FCFF model points to $26 per share. At first blush, we are surprised by the numbers, but what we must recognize is that Lupus is an unmet medical need and Benlysta is essentially a benign drug that has shown itself to be active, and therefore helps patients. Given the marketing power of Glaxo, we believe that patient awareness will grow rapidly and that physicians will prescribe it. Primary research conducted by the company points to a medical community that is very aware of and willing to use Benlysta. These assumptions point to Benlysta's potential to be a $2.7 billion dollar drug and may eventually prove to be conservative, in our view. We also factor into our model that Human Genome Sciences has raised $357 million with a stock offering, issuing approximately 26M shares at $14 per share. We believe this offering is prudent, and that it strengthens the company's balance sheet, where convertible debt has been an overhang. We have revised our model to reflect the higher share count.”

UBS (15.46): UBS reports Q2 EPS (CHF 0.39) vs Bloomberg (CHF 0.22) and previous quarter (CHF 0.57): Results include an own credit charge of CHF 1.21B, restructuring charges of CHF 582M and a goodwill impairment charge of CHF 492M related to the announced sale of UBS Pactual. Excluding the own credit, goodwill impairment and restructuring charges, operational profit before tax would have been CHF 971M. Company reports revenues CHF 5.77B vs Bloomberg CHF 6.47B and previous quarter CHF 4.97B. UBS shares are trading down 8%.

EMR (36.42): Emerson (EMR) reports Q3 EPS $0.56 vs Bloomberg $0.57, guides FY EPS to $2.20-2.30 vs prior $2.40-2.60 and Reuters $2.30. Q3 revenues were also light at 5.1 billion vs. street at 5.3 billion.

STEC (35.50): Company reports solid earnings and guides Q3 above consensus. But, insiders have filed to sell 7.5 million shares of stock via a secondary.

CAT (45.12): Bank of America raises their price target to 52 from 45.

ADM (30.39): Archer-Daniels reports Q4 EPS $0.10 vs Reuters $0.44: Company reports revenues of $16.53B vs Reuters $15.24B. ADM notes that it see signs of improving demand in the various food, feed and fuel markets its serves.

CVS (34.00): CVS Caremark reports Q2 EPS $0.65 ex-items vs Reuters $0.64: Company reports revenues of $24.87B vs Reuters $24.44B. Guides full year EPS to $2.59-2.64 vs prior $2.55-2.63 and vs Reuters $2.52.

Fed to strengthen examinations of banks' lending practices, financial health with teams of experts – Bloomberg: In testimony prepared for a Senate Banking Committee hearing tomorrow, Fed Governor Daniel Tarullo outlines the step, which builds on the stress tests carried out earlier this year. The teams will assess operations, risks, and risk-management activities; the experts will come from different disciplines. Tarullo says the Fed will soon release guidance on compensation practices that it approves of, and that General Electric (GE) and companies that already own finance arms or industrial-loan businesses should be able to keep them without the Fed's overseeing their non-bank operations. A person familiar with the matter says that on 31-Jul, Treasury Secretary Timothy Geithner used strong language to tell regulators including FDIC chairman Sheila Bair to stop campaigning against the administration's revamping rules for the industry.