June 26, 2009: Morning Call

June 26, 2009: Morning Call

Fair Value: SP500 – 916.59; NDX: 1475.37; DOW: 8419.88

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance

Events:

Pre-market EPS: KBH (-.72/337.6M)
08:30: Personal Income (May): 0.3%; Personal Spending: 0.3%
08:30: PCE Core MoM: 0.1%; PCE Core YoY: 1.8%
10:00: University of Michigan Confidence (June): 69.0
13:00: Fed’s Fisher speaks on the economy
13:00: Baker Hughes US Rig Count
11:30: KBH earnings call
14:00: Fed’s Bernanke gives brief remarks at BLS 125th Anniversary Celebration


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 2 points below fair value while the NASDAQ futures are trading 5 points below fair value at 7:30am ET. Asian markets closed higher following Wall Street’s sharp gains in Thursday’s session (Japan up 0.83%, Hong Kong up 1.78%, Australia up 1.24%, Shanghai up 0.34%, India up 2.92%). Qantas (QAN.AU) cancelled an order for 15 Boeing (BA) B787's and delayed delivery of a further 15 B787's for four years. Suzuki Motor (7269.JP) rose after the Manager Magazin reported yesterday Volkswagen (VOW.GR) was considering taking a stake of around 10%. Bridgestone (5108.JP), the world’s largest tiremaker, rallied 8.5% in Japan after it said it expected to break even on a net basis this year. European markets are flat to up 0.50% after opening up as much as 1.0% to 1.4%. Technology and consumer stocks are outperforming while healthcare and utilities are underperforming. SNY is down 8% in Paris on concerns that its Lantus diabetes drug has health risks; Lantus is Sanofi’s third biggest-selling drug.

Research Calls/Market Moving News:

POT (93.52): Potash guides Q2 EPS to ~$0.70 vs. prior $1.10-$1.50 and Reuters $0.97: Company says the change reflects substantially lower than forecasted potash sales volumes due to deferral of purchases by customers around the world and lower realized prices for phosphate fertilizers. Adds that any necessary revisions to annual guidance will be addressed in its Q2 release.

Dollar Falls on China Call for World Currency – Bloomberg: “The dollar weakened and stocks pared their advance after China’s central bank reiterated a call for a “super sovereign currency” and said the country’s financial institutions face a tougher environment this year. The Dollar Index that measures the currency’s performance against six trading partners fell as much as 0.7 percent at 11:25 a.m. in London after China’s central bank also said the International Monetary Fund should manage part of members’ foreign reserves. The Dow Jones Stoxx 600 Index of European shares added 0.2 percent, trimming an advance of as much as 1.3 percent. Russia’s Micex Index gained 2 percent. China, the biggest foreign owner of U.S. Treasuries, reduced its holdings of government notes and bonds by $4.4 billion to $763.5 billion in April, according to data released on June 15 in Washington. People’s Bank of China Governor Zhou Xiaochuan in March urged the IMF to expand the functions of its unit of account and move toward a “super- sovereign reserve currency.” “To prevent the deficiencies in the main reserve currency, there’s a need to create a new currency that’s delinked from the economies of the issuers,” the People’s Bank of China said in a review of the economy in 2008 released today.

UBS (12.97): UBS expects to incur net loss in Q2 and confirms Sfr3.8B equity placement: UBS provides the following update on its current trading performance: Based upon preliminary results for April and May and estimated results for June, UBS expects to incur a net loss for Q2. The majority of the expected loss is attributable to own credit and the restructuring charges that have already been announced. The operating result for the quarter is expected to represent an improvement compared with Q1, largely attributable to better market conditions affecting the Investment Bank and a reduction in losses and write downs on legacy risk positions. UBS also confirmed the FT report that it is offering 293,258,050 newly issued shares from authorized capital to a small number of institutional investors at a price of CHF 13.00 per share.

POT (93.52); MOS (43.79); AGU (41.39): Canaccord Adams lowers estimates on fertilizer producers following lowered guidance from Potash (POT): Potash (POT) estimates for Q2'09, FY'09, and FY'10 are lowered. Target is lowered to $135 from $150. Rating is buy. Mosaic (MOS) estimates FYQ4'09 and FY'10 are lowered. Target is lowered to $62 from $65. Rating is buy. Agrium (AGU) estimates for Q2'09, FY'09, and FY'10 are lowered. Target is lowered to $50 from $52. Rating is hold.

A.CN (31.64): Accenture (ACN) reports Q3 EPS $0.68 vs Reuters $0.65, guides full year EPS $2.67-$2.70 vs prior $2.60-$2.67 and Reuters $2.65.

FSLR (159.48): Morgan Stanley comments on First Solar, says Phoenix Solar announcement raises near term risk: The firm says yesterday's announcement by FSLR customer Phoenix Solar that it will not meet 2009 EPS guidance along with lack of near term catalysts, raises the risk that FSLR trades off in the coming weeks. Morgan Stanley sees roughly 10% downside from current levels though they remain overweight on the shares.

PALM (14.02): Palm says no details on Pre shipments in May quarter - conf. Call: While noting that the 351K in shipments during the quarter was aided by initial shipments of the Pre, as well as higher than expected Treo Pro sales, management declines to provide any specifics regarding the contribution from Pre. Sticking with new CEO Rubinstein's roots (formerly at Apple), a similar no comment was provided in response to a question on Pre gross margins. However, they did comment that consolidated adjusted gross margins over time are expected to return to levels above 30%. Opex is anticipated to increase from Q4 levels as they more aggressively market Pre going forward. Regarding cash use, management expects cash use to continue through at least the 1H of fiscal 2010 and believe there is potential for cash flow to be positive in the 2H. They do believe that existing cash is sufficient to carry out their launch plans and continue investing in the business. In response to analyst question on exclusivity agreement with Sprint (S), management says they "couldn't be happier" with their launch partner but they are not going to discuss any details on how long the exclusivity lasts. Stock continues to strengthen during the call and was last quoted +13.7% at $15.94 on 7.71M shares.

BHP (55.84): BHP Billiton (BLT.LN) downgraded to equal-weight at Barclays Capital.

JPMorgan upgrades Industrials and Materials sectors to overweight from neutral

MON (75.66): Monsanto maintained buy, target lowered to $95 from $115 at UBS: Firm lowers estimates following the company's lowered long-term gross profit target for Roundup. UBS continues to expect the Seed & Genomics business to grow 22+% per year through 2015.

FFIV (34.15): F5 Networks target raised to $38 from $32 at Oppenheimer: Firm's channel checks suggest the company's Jun-quarter sales are tracking in line with a slight upward bias. Oppenheimer thinks the company could surprise on guidance. FY'10 estimates are increased. Rating is outperform.