July 31, 2009: Morning Call
Fair Value: SP500 – 983.83; NDX: 1608.81; DOW: 9110.66
Technical Levels:
SPX: 832, 875-880, 910, 953 support/ 980, 1002, 1044 resistance
Events:
Pre-market EPS: AN (.24/2.8B); CVX (.95/32.4B); PEG (.62/3.4B); TOT (1.00/72.0B)
05:00: Euro-zone CPI (July): -0.4% YoY (actual: -0.6%)
05:00: Euro-zone Unemployment Rate (June): 9.7% (actual: 9.4%)
08:30: US GDP (Q2): -1.5%; Personal Consumption (Q2): -0.5%
08:30: GDP Price Index (Q2): 1.0%; Core PCE (Q2): 2.3%
08:30: Employment Cost Index (Q2): 0.3%
09:45: Chicago Purchasing Manager (July): 43.0
21:00: Chinese PMI Manufacturing (July)
22:30: Chinese CLSA PMI Manufacturing
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 2 points above fair value and the NASDAQ futures are trading 4 points above fair value at 7:30am ET. Asian markets closed higher (Japan up 1.89%, Hong Kong up 1.68%, Australia up 1.28%, Shanghai up 2.75%, South Korea up 1.6%, India up 1.8%). Technology stocks outperformed. European markets are unchanged ahead of the US GDP report at 8:30am ET. Consumer product stocks were amongst the leading gainers led by L'Oreal (OR.FP) with computer service shares showing strong gains for a second day following broker upgrades for Logica (LOG.LN) and Cap Gemini (CAP.FP). Energy shares were the weakest group led by Eni (ENI.IM) dividend cut and Total (FP.FP) results.
Research Calls/Market Moving News:
FSLR (173.55): First Solar reports Q2 EPS $2.11 vs Reuters $1.67: Company reports revenues of $525.9M vs Reuters $459.5M. First Solar maintains 2009 revenue guidance of $1.9-2.0B vs Reuters $1.94B - earnings presentation. The conference call went very poorly. The company effectively acknowledged significant pricing pressure by announcing a price rebate program based on silicon module benchmark prices. The company also announced that its receivables in Q2 increased 166 million.
FSLR (173.55): First Solar downgraded to neutral from outperform at Credit Suisse: Target cut to $135 from $200. Firm says the company's earnings momentum may be peaking, though the firm notes that the company has a capable management team and compelling technology.
LVS (11.15): Las Vegas Sands reports Q2 EPS adjusted $0.01 vs Reuters ($0.01): Company reports revenues of $1.06B vs Reuters $1.09B. Las Vegas: Net revenue $291.0M vs StreetAccount consensus $310M. Adjusted property EBITDAR $78.1M vs SA $90M. LVS was light; Sands Macao was in-line; Venetian Macao better: Net revenue $443.2M vs SA $477M. Adjusted property EBITDAR $110.0M vs SA $122M. During the conference call, Sheldon Adelson repeatedly put his foot in his mouth by being arrogant and idiotic. The transcript is a must read.
SYNA (35.85): Synaptics reports Q4 EPS $0.47 vs Reuters $0.44: Company reports revenues of $115.3M vs Reuters $112.1M, and a backlog of $62.8M. Guides Q1 revenues to $113-$119 vs Reuters $127.4M. Guides f10 revenues to $495-$525M vs Reuters $522.5M. Synaptics guides Q1 non-GAAP EPS to $0.37-0.43 vs Reuters consensus of $0.55. Calyon and Jefferies downgrade the shares.
DIS (26.22): Walt Disney reports Q3 EPS $0.52 ex-items vs Reuters $0.51: Company reports revenues of $8.60B vs Reuters $8.86B. Media Networks: Revenue $3.96B vs SA $4.03B. Operating income $1.32B vs SA $1.37B. Parks and Resorts: Revenue $2.75B vs SA $2.72B. Operating income $521M vs SA $469M. Studio: Revenue $1.26B vs SA $1.32B. Operating income ($12M) vs SA $42M. Consumer: Revenue $510M vs SA $547M. Operating income $96M vs SA $103M. Interactive: Revenue $113M vs SA $152M. Operating income ($75M) vs SA ($82M).
X (38.61): U.S. Steel mentioned positively at Morgan Stanley: The firm believes the market is discounting extended weakness in the company's tubular business, underestimating recovery potential and its effect on flat rolled profits. Improving data points on rig counts, OCTG pricing, inventories, and imports could all serve as catalysts in the 2H. Shares remain overweight rated with upside to the firm's $45 target.
Federal regulators getting tougher with banks, putting more on probation - WSJ: The Fed, the FDIC, and the Office of the Comptroller of the Currency are on pace to issue almost 600 secret memorandums of understanding this year, vs 399 last year. The article discloses that Fidelity Southern Corp (LION), Berkshire Bancorp (BERK), and Mercantile Bancorp (MBR) have received them. Recall that the WSJ reported 16-Jul that Bank of America (BAC) and Citi (C) had gotten them, and that Colonial BancGroup (CNB) and Riverview Bancorp (RVSB) had disclosed they were operating under memorandums of understanding. The sanctions are typically not made public to avoid alarming depositors and investors.
Trading Higher: EGLE +2.2% (charters for four vessels). On earnings: NVTL +19.1%, ABAX +11%, GXDX +9.4%, SGY +8.7%, RST +5.6%, VSEA +3.9%, CPHD +3.7%, DRYS +2.2%, AMCC +2.2%, MET +2%. Trading Lower: VPHM -5.1% (FDA Letter). On earnings: SYNA -18.9%, LVS -10.7%, ESLR -9.6%, MPWR -9.6%, GPRO -8.9%, GERN -5.5%, VPRT -5%, ADPT -4.8%, GNW -4.2%, EXEL -3.8%, VLCM -3.8%, FSLR –6.4%, DIS -3.5%, ARRS -2.7%, TSYS -2.2%. Solar stocks lower (ESLR and FSLR earnings): SPWRA -3.2%, SOLF -3.2%, CSIQ -2.9%, ENER -2.1%, YGE -1.9%.
Friday, July 31, 2009
Wednesday, July 29, 2009
July 29, 2009: Morning Call
July 29, 2009: Morning Call
Fair Value: SP500 – 976.61; NDX: 1604.35; DOW: 9065.68
Technical Levels:
SPX: 832, 875-880, 910, 953 support/ 980, 1002, 1044 resistance
Events:
Pre-market EPS: AET (.78/8.6B); MT (-.21/15.2B); BWA (.07/970.4M); COP(.85/39.0B); HES (.03/7.4B); JNY (.07/776.8M); NYB (.25/230.0M); SAP(.51/3.6B); SEE (.34/1.0B); S (-.02/8.1B); TDW (1.80/334.0M); WLP (1.42/15.4B)
08:30: Durable Goods Orders (June): -0.6%; Ex-Trans: 0.0%
08:30: Fed’s Dudley speaks on the economy
08:30: AMT earnings call
09:30: MT earnings call
10:30: DOE Crude Oil and Gasoline Inventories: 1.5 million crude draw.
11:00: COP earnings call
13:00: Treasury auctions 39B in 5-year notes
14:00: Fed’s Beige Book
17:00: V earnings call
18:00: Bernanke Town Hall Meeting Part 3 on PBS
Post-market EPS: AFL (1.14/4.6B); AKAM (.41/211.0M); AVB (.59/216.3M); CBG(.04/952.6M); ESRX (.86/5.44B); EQR (.21/501.0M); FLS (1.79/1.1B); HIG (1.16/5.9B); LNC (.83/2.5B); ORLY (.55/1.2B); SYMC (.35/1.48B); TSO (-.24/4.6B); V(.64/1.6B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 6 points below fair value and the NASDAQ futures are trading 8 below fair value. Weakness in Chinese markets led Asia lower and pressured the S&P futures in the overnight session (At 2:30am ET, the futures were 12 below fair value at 964). Shanghai declined 5% and Hong Kong fell 2.4% on concerns that the government will tighten monetary policy in order to curb speculation; markets in Shanghai and Hong Kong were also short-term overbought heading into the session so some of the selling pressure was related to technical factors. Japan bucked the trend lower with a gain of 0.26% after Canon reported slightly higher full-year guidance. European markets are up 0.75% to 1.1% reversing most of the decline during Tuesday’s session. Better than expected earnings from the likes of Akzo Nobel (AKZO.NA) and Bayer (BAY.GR) outweighed disappointing results from ArcelorMittal (MT.NA).
Research Calls/Market Moving News:
HGSI (14.53): HGSI priced 23,215,000 million shares at 14 instead of the initial indication of 18 million shares. The underwriters (Citibank and Goldman) have an option to purchase 3.48 million additional shares. So, the increased size of the offering raises the dilution to 20% (if the underwriter's option is exercised) from the prior estimate of 15%. Shrewd move by the company to increase their common equity capital to a level that more than covers the convertible bonds that are due to be rolled in 2011 and 2012. I would be surprised if the 14 level broke in the near-term given the increased demand at that level. At the same time, the stock will encounter more solid resistance at the long-term relative highs of 15 to 16 (dating back to 2003) given the dilution. Additional data on Benlysta is due in November. I doubt the stock could break above 16 absent a takeover offering or additional positive clinical data on their pipeline of drugs prior to November.
AAPL (160.00): China Unicom Hong Kong unlikely to share phone-service revenues in iPhone deal - South China Morning Post: Sources say the company's guarantee it will sell at least 1M units in the first year has rendered Apple (AAPL) likely to give up its revenue-sharing model. Ironically, the revenue-sharing model was why Apple was unable to come to a deal with China Mobile (941.HK). An analyst says the idea that phone bills will increase after users buy an iPhone may not hold in China.
MT (36.58): ArcelorMittal reports Q2 EPS ($0.57) vs Reuters ($0.12): Company reports revenues of $15.17B vs Reuters $16.30B. Company reports EBITDA of $1.22B vs Reuters $1.34B. Company reports total steel shipments of 17.0M tonnes vs Q1 16.0M tonnes and year-ago 29.8M tonnes. Company guides Q3 EBITDA to exceed $8.5B. Company guides Q3 EBITDA to $1.4-1.8B, with slightly higher shipments than in Q2, at a stable or slightly lower selling price. MT shares are trading down 6.2%
ISRG (223.62): 3 insiders sell stock on Monday, according to SEC filings released last night. The CFO sells 3500 shares. The Chairman/CEO sells 15,000 shares and a director sells 3500 shares.
WLP (54.38): WLP shares are trading down 3% after the company lowered full year guidance below street consensus. WLP sees 2009 EPS of 5.60 to 5.66. Street consensus is at 5.74.
FTI (41.58): FMC Technologies (FTI) reports Q2 EPS $0.84 vs Reuters $0.62, guides FY EPS to $2.55-2.65 vs prior $2.40-2.50 and Reuters $2.38.
MCK (46.83): McKesson (MCK) reports Q1 EPS $1.06 vs Reuters $0.85, guides FY EPS to $4.15-$4.30 vs prior $3.90-$4.05 vs Reuters $4.00;
YHOO (17.22); MSFT (23.47): Yahoo and Microsoft finally announce a search deal after 2 years of speculation. Under the 10-year agreement, Microsoft will acquire an exclusive 10 year license to Yahoo's core search technologies. Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo sites, while Yahoo will continue to use its technology and data in other areas of its business such as enhancing display advertising technology. YHOO shares are trading down 7.5%. MSFT is up 0.70%, and GOOG is down 0.85%.
BHP (61.630: BHP Billiton provides update on iron ore price negotiations: BHP Billiton has settled 23% of total iron ore volumes at an agreed annual contract price. The price for iron ore fines will be approximately 33% lower than the contract prices agreed in the 2008 contract year. The price for iron ore lump will be approximately 44% lower than the contract prices agreed in the 2008 contract year. A further 30% of BHP Billiton's total iron ore volumes will be sold on a mix of quarterly negotiated pricing, market clearing price (spot market) and index-based pricing. Negotiations for the remaining 47% of iron ore volumes are ongoing.
BHP (61.63): Barron’s Weekday Trader is cautious on BHP Billiton: Barron's argues that investors' expectations seem to have got ahead of the stock, which is now trading at 24x 2009 and 2010 EPS estimates of $2.59 and $2.54, respectively. The article also points out that management is much more cautious, noting earlier this year that weakness, uncertainty and volatility in the outlook are issues not just for the short-term, but also for the medium-term
MS (27.43): Morgan Stanley downgraded to neutral from buy at Goldman Sachs: Target cut to $32 from $34.
KKR plans IPO for Dollar General – WSJ: People familiar with the matter say the firm is in advanced preparations for the IPO, on which KKR will also be one of the lead underwriters, along with Goldman Sachs, Citi, and others. For the quarter ended 1-May, the chain posted a profit of $83M vs year-ago $5.9M, and gross margin was 30.8% vs year-ago 28.8%. Dollar General plans to add 450 doors this year from 8,362 at the end of 2008.
MGM (7.48): MGM Mirage downgraded to neutral from buy at Bank of America Merrill Lynch: Price objective cut to $8 from $11.
COH (28.05): Coach upgraded to overweight from neutral at Piper Jaffray: Target price, $32.
Fair Value: SP500 – 976.61; NDX: 1604.35; DOW: 9065.68
Technical Levels:
SPX: 832, 875-880, 910, 953 support/ 980, 1002, 1044 resistance
Events:
Pre-market EPS: AET (.78/8.6B); MT (-.21/15.2B); BWA (.07/970.4M); COP(.85/39.0B); HES (.03/7.4B); JNY (.07/776.8M); NYB (.25/230.0M); SAP(.51/3.6B); SEE (.34/1.0B); S (-.02/8.1B); TDW (1.80/334.0M); WLP (1.42/15.4B)
08:30: Durable Goods Orders (June): -0.6%; Ex-Trans: 0.0%
08:30: Fed’s Dudley speaks on the economy
08:30: AMT earnings call
09:30: MT earnings call
10:30: DOE Crude Oil and Gasoline Inventories: 1.5 million crude draw.
11:00: COP earnings call
13:00: Treasury auctions 39B in 5-year notes
14:00: Fed’s Beige Book
17:00: V earnings call
18:00: Bernanke Town Hall Meeting Part 3 on PBS
Post-market EPS: AFL (1.14/4.6B); AKAM (.41/211.0M); AVB (.59/216.3M); CBG(.04/952.6M); ESRX (.86/5.44B); EQR (.21/501.0M); FLS (1.79/1.1B); HIG (1.16/5.9B); LNC (.83/2.5B); ORLY (.55/1.2B); SYMC (.35/1.48B); TSO (-.24/4.6B); V(.64/1.6B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 6 points below fair value and the NASDAQ futures are trading 8 below fair value. Weakness in Chinese markets led Asia lower and pressured the S&P futures in the overnight session (At 2:30am ET, the futures were 12 below fair value at 964). Shanghai declined 5% and Hong Kong fell 2.4% on concerns that the government will tighten monetary policy in order to curb speculation; markets in Shanghai and Hong Kong were also short-term overbought heading into the session so some of the selling pressure was related to technical factors. Japan bucked the trend lower with a gain of 0.26% after Canon reported slightly higher full-year guidance. European markets are up 0.75% to 1.1% reversing most of the decline during Tuesday’s session. Better than expected earnings from the likes of Akzo Nobel (AKZO.NA) and Bayer (BAY.GR) outweighed disappointing results from ArcelorMittal (MT.NA).
Research Calls/Market Moving News:
HGSI (14.53): HGSI priced 23,215,000 million shares at 14 instead of the initial indication of 18 million shares. The underwriters (Citibank and Goldman) have an option to purchase 3.48 million additional shares. So, the increased size of the offering raises the dilution to 20% (if the underwriter's option is exercised) from the prior estimate of 15%. Shrewd move by the company to increase their common equity capital to a level that more than covers the convertible bonds that are due to be rolled in 2011 and 2012. I would be surprised if the 14 level broke in the near-term given the increased demand at that level. At the same time, the stock will encounter more solid resistance at the long-term relative highs of 15 to 16 (dating back to 2003) given the dilution. Additional data on Benlysta is due in November. I doubt the stock could break above 16 absent a takeover offering or additional positive clinical data on their pipeline of drugs prior to November.
AAPL (160.00): China Unicom Hong Kong unlikely to share phone-service revenues in iPhone deal - South China Morning Post: Sources say the company's guarantee it will sell at least 1M units in the first year has rendered Apple (AAPL) likely to give up its revenue-sharing model. Ironically, the revenue-sharing model was why Apple was unable to come to a deal with China Mobile (941.HK). An analyst says the idea that phone bills will increase after users buy an iPhone may not hold in China.
MT (36.58): ArcelorMittal reports Q2 EPS ($0.57) vs Reuters ($0.12): Company reports revenues of $15.17B vs Reuters $16.30B. Company reports EBITDA of $1.22B vs Reuters $1.34B. Company reports total steel shipments of 17.0M tonnes vs Q1 16.0M tonnes and year-ago 29.8M tonnes. Company guides Q3 EBITDA to exceed $8.5B. Company guides Q3 EBITDA to $1.4-1.8B, with slightly higher shipments than in Q2, at a stable or slightly lower selling price. MT shares are trading down 6.2%
ISRG (223.62): 3 insiders sell stock on Monday, according to SEC filings released last night. The CFO sells 3500 shares. The Chairman/CEO sells 15,000 shares and a director sells 3500 shares.
WLP (54.38): WLP shares are trading down 3% after the company lowered full year guidance below street consensus. WLP sees 2009 EPS of 5.60 to 5.66. Street consensus is at 5.74.
FTI (41.58): FMC Technologies (FTI) reports Q2 EPS $0.84 vs Reuters $0.62, guides FY EPS to $2.55-2.65 vs prior $2.40-2.50 and Reuters $2.38.
MCK (46.83): McKesson (MCK) reports Q1 EPS $1.06 vs Reuters $0.85, guides FY EPS to $4.15-$4.30 vs prior $3.90-$4.05 vs Reuters $4.00;
YHOO (17.22); MSFT (23.47): Yahoo and Microsoft finally announce a search deal after 2 years of speculation. Under the 10-year agreement, Microsoft will acquire an exclusive 10 year license to Yahoo's core search technologies. Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo sites, while Yahoo will continue to use its technology and data in other areas of its business such as enhancing display advertising technology. YHOO shares are trading down 7.5%. MSFT is up 0.70%, and GOOG is down 0.85%.
BHP (61.630: BHP Billiton provides update on iron ore price negotiations: BHP Billiton has settled 23% of total iron ore volumes at an agreed annual contract price. The price for iron ore fines will be approximately 33% lower than the contract prices agreed in the 2008 contract year. The price for iron ore lump will be approximately 44% lower than the contract prices agreed in the 2008 contract year. A further 30% of BHP Billiton's total iron ore volumes will be sold on a mix of quarterly negotiated pricing, market clearing price (spot market) and index-based pricing. Negotiations for the remaining 47% of iron ore volumes are ongoing.
BHP (61.63): Barron’s Weekday Trader is cautious on BHP Billiton: Barron's argues that investors' expectations seem to have got ahead of the stock, which is now trading at 24x 2009 and 2010 EPS estimates of $2.59 and $2.54, respectively. The article also points out that management is much more cautious, noting earlier this year that weakness, uncertainty and volatility in the outlook are issues not just for the short-term, but also for the medium-term
MS (27.43): Morgan Stanley downgraded to neutral from buy at Goldman Sachs: Target cut to $32 from $34.
KKR plans IPO for Dollar General – WSJ: People familiar with the matter say the firm is in advanced preparations for the IPO, on which KKR will also be one of the lead underwriters, along with Goldman Sachs, Citi, and others. For the quarter ended 1-May, the chain posted a profit of $83M vs year-ago $5.9M, and gross margin was 30.8% vs year-ago 28.8%. Dollar General plans to add 450 doors this year from 8,362 at the end of 2008.
MGM (7.48): MGM Mirage downgraded to neutral from buy at Bank of America Merrill Lynch: Price objective cut to $8 from $11.
COH (28.05): Coach upgraded to overweight from neutral at Piper Jaffray: Target price, $32.
Thursday, July 23, 2009
Larry Kudlow predicts S&P will rise another 20% by year-end!
After predicting the market will ramp another 20%, Larry Kudlow just said, "I could be wrong and I have been wrong before." Without question, this is one of the greatest understatements of all time. Larry Kudlow has been consistently wrong about the financial markets, politics, and the economy for at least 10 years running.
Wednesday, July 22, 2009
July 22, 2009: Morning Call
July 22, 2009: Morning Call
Fair Value: SP500 – 951.53; NDX: 1552.02; DOW: 8873.61
Technical Levels:
SPX: 765, 788, 832, 875-880, 910 support/ 956, 1002 resistance
Events:
Pre-market EPS: APD (.98/2.1B); ATI (.06/818.5M); MO (.47/5.3B); BK (.43/3.2B); BA (1.20/17.1B); DAL (-.27/6.9B); NITE (.39/253.7M); MS (-.49/5.3B); NTRS (.72/983.0M); PEP (1.00/10.9B); PFE (.47/11.2B); SU (.29/3.7B); STI (-.54/2.1B); USB (.10/4.0B); WFC(.34/20.4B); WHR (.42/4.1B); LLY (1.02/5.2B)
04:30: Bank of England Releases Minutes from Interest Rate Decision
05:00: Euro-zone New Orders (May): 1.9% MoM; -28.0% YoY
07:00: MBA Mortgage Applications
08:00: WFC earnings call
08:00: BK earnings call
09:00: USB earnings call
10:00: House Price Index (May): -0.2%
10:00: Bernanke testifies on monetary policy for Senate Banking Committee
11:00: MS earnings call
10:30: DOE Crude Oil and Gasoline Inventories
16:45: QCOM earnings call
Post-market EPS: ACL (1.70/1.6B); BIDU (1.43/157.5M); CMG (.87/390.4M); EBAY (.36/1.98B); MOS (.11/1.5B); QCOM (.52/2.7B); TEX (-.28/1.5B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures moved 6 points below fair value after MS and WFC released earnings at 8am. The futures had been flat with fair value prior to the EPS. NASDAQ futures are trading flat with fair value due to strong earnings from AAPL. Although WFC EPS beat and revenues were in-line, the 700 million-reserve build looks light. MS reports a loss of 1.37 vs. street consensus of a loss of 0.47 cents. Revenues were light, particularly in fixed income sales and trading. European markets moved lower (down 0.25% to 0.50%) following the release of MS and WFC earnings. Asian markets closed mixed (Japan up 0.75%, Hong Kong down 1.3%, Australia up 0.44%, India down 1.46%). Solar energy stocks led China higher after Beijing announced subsidies for projects. Sinopec (600028.CH) rose on a broker estimate its H1 net may more than triple. Consumer finance firms were hit by profit-taking in Japan, exporters suffered from both profit-takers and a slightly stronger yen. Hon Hai Precision Industry (2317.TT) gained on Apple's (AAPL) better-than-expected results. Gains in mining shares outweighted declines in bank share in Australia.
Research Calls/Market Moving News:
AAPL (151.51): Apple upgraded to buy from hold at Canaccord Adams: Target increased to $200 from $150. Firm notes Q3 results and the company's entry into the low-end camcorder market. Estimates are raised.
AAPL (151.51): Apple reports Q3 EPS $1.35 vs Reuters $1.17: Company reports revenues of $8.34B vs Reuters $8.21B. Product shipments: Macs 2.6M vs StreetAccount consensus 2.36M, iPods 10.2M vs SA 10.70M and iPhones 5.2M vs SA 4.86M. Gross margin was 36.3% vs SA 34.4%. Guides Q4 EPS to $1.18-1.23 vs Reuters $1.30; guides revenues to $8.7-8.9B vs Reuters $9.07B. Apple guides Q4 (Sep) gross margin to be approximately 34% - conf. call: Management says that margins will be pressured sequentially by a full quarter of back-to-school promotions and new Macbook availability, as well as rising component prices. In response to analyst question on longer term margins, management declines to weigh in on the previously discussed 30% target but repeats their pledge to offer products at "ever increasing value".
Morgan Stanley equity strategist recommends that market participants “sell into” global stock rally- Bloomberg. Morgan Stanley also says sentiment behind rally may be transitory and that risks have not disappeared. Overall, the firm has a cautious stance on equities.
HGSI (13.84): Human Genome announces new order for raxibacumab (ABthrax) from US government: The US government exercises its option to purchase an additional 45,000 doses of raxibacumab for the Strategic National Stockpile. HGSI expects approximately $151M in revenue from delivery of 45,000 doses to U.S. Strategic National Stockpile over three-year period beginning in late 2009. In July 2009, the FDA notified HGS that the BLA for raxibacumab has been filed and will receive priority review. HGS will receive $10M from the U.S. Government upon FDA licensure of raxibacumab. The BLA was filed with the FDA in May
LLY (34.45): Eli Lilly reports Q2 EPS $1.12, ex-items, vs Reuters $1.02: Company reports revenues of $5.29B vs Reuters $5.29B. Guides full year EPS to $4.20-$4.30, ex-items, vs Reuters $4.23. Eli Lilly reports Q2 results: Drug sales: Zyprexa $1.20B vs StreetAccount consensus $1.19B. Gemzar $353.2M vs SA $380M. Cymbalta $744.4M vs SA $753M. Strattera $142.8M vs SA $140M. Forteo $203.3M vs SA $202M. Evista $251.3M vs SA $265M. Alimta $385.3M vs SA $345M. Humulin $248.1M vs SA $256M. Humalog $477.5M vs SA $462M. Cialis $363.6M vs SA $383M.
FCX (58.17): Freeport-McMoRan downgraded to hold from buy at Citi: Valuation cited. Though downgraded, the target is increased to $61 from $58.
BK (29.11): Bank of New York Mellon reports Q2 EPS $0.51 ex-items vs. Reuters $0.53: Company reports revenues of $2.96B vs Reuters $3.30B. Provision for loan loss was $61M. Assets under mgmt reported $926M with net asset outflows of $19B. Assets under custody reported $20.7T. Tier 1 capital ratio reported 12.5%.
CAT (39.46): Caterpillar maintained sell at UBS: Target is raised to $33 from $30. Firm raises '09 EPS to reflect the better than expected Q2 results, but lowers estimates for 2H'09 given further expected underproduction of demand. 2010 estimates are unchanged. UBS notes further potential demand deterioration and potential pricing headwinds.
WHR (56.34): Whirlpool reports Q2 EPS $1.04, including items: The figure includes an energy credit. Reuters is $0.67. Company reports revenues of $4.17B vs Reuters $4.20B. US industry unit shipments of major appliances (T7) (14%) Guides full year EPS to $3.50-$4.00, compared to prior $3.00-$4.00. Reuters is $3.52.
DDR (4.54): Developers Diversified Realty Corp. working on two CMBS deals that will be eligible for TALF: The Journal reports that Developers Diversified Realty Corp. is working on raising $600M through two deals (company hopes to close them this fall) that will be the first major offerings of CMBS to take advantage of the TALF. Recall that the Fed extended the TALF to include newly issued CMBS in June, but there have not been any deals thus far. According to the article, Developers Diversified is focused on two pools of assets, valued at $800M each, and consisting of roughly 60 shopping centers across the country. The properties feature stable cash flows given that they are occupied by discount retailers. By borrowing $600M against these pools, the loan-to-value ratio would be around 40%, down from the 70% that some borrowers were able to secure before the credit crisis destroyed the liquidity in the CMBS market. Sources tell the paper there are a couple of other CMBS deals also in the TALF pipeline.
CSCO (21.59): Cisco Systems upgraded to outperform from neutral at RW Baird: Target increased to $26 from $20. The firm cites preliminary results from a resellers survey noting an improvement in sentiment and recovery.
CSCO (21.59): Cisco Systems reiterated outperform at Oppenheimer after channel checks: Target is $25. Firm says July-quarter channel checks suggest that CSCO sales are tracking in line to slightly ahead of expectations as enterprise spending constraints ease, pipeline improves, and CSCO pushes for a strong finish to its fiscal year. Oppenheimer says ~2/3 of their interview respondents indicated CSCO's sales could grow sequentially next quarter.
NBR (17.16): Nabors Industries reports Q2 EPS $0.32 ex-items vs Reuters $0.28: Company reports revenues of $878.0M vs Reuters $945.3M. Company expects Q3 results to be flat, with a modest recovery beginning in Q4.
Jesup & Lamont downgrades HP, NBR, PTEN, others: Helmerich & Payne (HP) downgraded to sell from hold. Nabors Industries (NBR) downgraded to sell from hold .Patterson-UTI (PTEN) downgraded to sell from hold. Unit Corp (UNT) downgraded to sell from hold. Firm cites NBR's Q2 report as catalyst for the downgrades.
BTU (33.02): Peabody Energy downgraded to hold from buy at Citi: Target cut to $34 from $40. The firm cites valuation.
PFE (15.70): Pfizer reports Q2 EPS $0.48 vs Reuters $0.47: Company reports revenues of $10.98B vs Reuters $11.26B. Guides full year EPS to $1.90-$2.00 vs Reuters $1.94 and prior $1.85-$1.95; guides revenues to $45B-$46B vs Reuters $46.91B and prior $44B-$46B.
Credit-card disputes lose an option for resolution – WSJ: Two large arbitration firms have said they will stop resolving disputes between customers and their credit-card and cellphone companies until new guidelines are set out. Credit-card and cellphone companies prefer arbitration, saying it is less expensive and time-consuming than going to court to resolve disputes over whether or not customers owe them money. The new guidelines have been deemed necessary because a lawsuit last week revealed that one of the arbitrators has financial ties to the debt-collection industry, raising questions about whether it was violating consumer-protection laws.
Fair Value: SP500 – 951.53; NDX: 1552.02; DOW: 8873.61
Technical Levels:
SPX: 765, 788, 832, 875-880, 910 support/ 956, 1002 resistance
Events:
Pre-market EPS: APD (.98/2.1B); ATI (.06/818.5M); MO (.47/5.3B); BK (.43/3.2B); BA (1.20/17.1B); DAL (-.27/6.9B); NITE (.39/253.7M); MS (-.49/5.3B); NTRS (.72/983.0M); PEP (1.00/10.9B); PFE (.47/11.2B); SU (.29/3.7B); STI (-.54/2.1B); USB (.10/4.0B); WFC(.34/20.4B); WHR (.42/4.1B); LLY (1.02/5.2B)
04:30: Bank of England Releases Minutes from Interest Rate Decision
05:00: Euro-zone New Orders (May): 1.9% MoM; -28.0% YoY
07:00: MBA Mortgage Applications
08:00: WFC earnings call
08:00: BK earnings call
09:00: USB earnings call
10:00: House Price Index (May): -0.2%
10:00: Bernanke testifies on monetary policy for Senate Banking Committee
11:00: MS earnings call
10:30: DOE Crude Oil and Gasoline Inventories
16:45: QCOM earnings call
Post-market EPS: ACL (1.70/1.6B); BIDU (1.43/157.5M); CMG (.87/390.4M); EBAY (.36/1.98B); MOS (.11/1.5B); QCOM (.52/2.7B); TEX (-.28/1.5B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures moved 6 points below fair value after MS and WFC released earnings at 8am. The futures had been flat with fair value prior to the EPS. NASDAQ futures are trading flat with fair value due to strong earnings from AAPL. Although WFC EPS beat and revenues were in-line, the 700 million-reserve build looks light. MS reports a loss of 1.37 vs. street consensus of a loss of 0.47 cents. Revenues were light, particularly in fixed income sales and trading. European markets moved lower (down 0.25% to 0.50%) following the release of MS and WFC earnings. Asian markets closed mixed (Japan up 0.75%, Hong Kong down 1.3%, Australia up 0.44%, India down 1.46%). Solar energy stocks led China higher after Beijing announced subsidies for projects. Sinopec (600028.CH) rose on a broker estimate its H1 net may more than triple. Consumer finance firms were hit by profit-taking in Japan, exporters suffered from both profit-takers and a slightly stronger yen. Hon Hai Precision Industry (2317.TT) gained on Apple's (AAPL) better-than-expected results. Gains in mining shares outweighted declines in bank share in Australia.
Research Calls/Market Moving News:
AAPL (151.51): Apple upgraded to buy from hold at Canaccord Adams: Target increased to $200 from $150. Firm notes Q3 results and the company's entry into the low-end camcorder market. Estimates are raised.
AAPL (151.51): Apple reports Q3 EPS $1.35 vs Reuters $1.17: Company reports revenues of $8.34B vs Reuters $8.21B. Product shipments: Macs 2.6M vs StreetAccount consensus 2.36M, iPods 10.2M vs SA 10.70M and iPhones 5.2M vs SA 4.86M. Gross margin was 36.3% vs SA 34.4%. Guides Q4 EPS to $1.18-1.23 vs Reuters $1.30; guides revenues to $8.7-8.9B vs Reuters $9.07B. Apple guides Q4 (Sep) gross margin to be approximately 34% - conf. call: Management says that margins will be pressured sequentially by a full quarter of back-to-school promotions and new Macbook availability, as well as rising component prices. In response to analyst question on longer term margins, management declines to weigh in on the previously discussed 30% target but repeats their pledge to offer products at "ever increasing value".
Morgan Stanley equity strategist recommends that market participants “sell into” global stock rally- Bloomberg. Morgan Stanley also says sentiment behind rally may be transitory and that risks have not disappeared. Overall, the firm has a cautious stance on equities.
HGSI (13.84): Human Genome announces new order for raxibacumab (ABthrax) from US government: The US government exercises its option to purchase an additional 45,000 doses of raxibacumab for the Strategic National Stockpile. HGSI expects approximately $151M in revenue from delivery of 45,000 doses to U.S. Strategic National Stockpile over three-year period beginning in late 2009. In July 2009, the FDA notified HGS that the BLA for raxibacumab has been filed and will receive priority review. HGS will receive $10M from the U.S. Government upon FDA licensure of raxibacumab. The BLA was filed with the FDA in May
LLY (34.45): Eli Lilly reports Q2 EPS $1.12, ex-items, vs Reuters $1.02: Company reports revenues of $5.29B vs Reuters $5.29B. Guides full year EPS to $4.20-$4.30, ex-items, vs Reuters $4.23. Eli Lilly reports Q2 results: Drug sales: Zyprexa $1.20B vs StreetAccount consensus $1.19B. Gemzar $353.2M vs SA $380M. Cymbalta $744.4M vs SA $753M. Strattera $142.8M vs SA $140M. Forteo $203.3M vs SA $202M. Evista $251.3M vs SA $265M. Alimta $385.3M vs SA $345M. Humulin $248.1M vs SA $256M. Humalog $477.5M vs SA $462M. Cialis $363.6M vs SA $383M.
FCX (58.17): Freeport-McMoRan downgraded to hold from buy at Citi: Valuation cited. Though downgraded, the target is increased to $61 from $58.
BK (29.11): Bank of New York Mellon reports Q2 EPS $0.51 ex-items vs. Reuters $0.53: Company reports revenues of $2.96B vs Reuters $3.30B. Provision for loan loss was $61M. Assets under mgmt reported $926M with net asset outflows of $19B. Assets under custody reported $20.7T. Tier 1 capital ratio reported 12.5%.
CAT (39.46): Caterpillar maintained sell at UBS: Target is raised to $33 from $30. Firm raises '09 EPS to reflect the better than expected Q2 results, but lowers estimates for 2H'09 given further expected underproduction of demand. 2010 estimates are unchanged. UBS notes further potential demand deterioration and potential pricing headwinds.
WHR (56.34): Whirlpool reports Q2 EPS $1.04, including items: The figure includes an energy credit. Reuters is $0.67. Company reports revenues of $4.17B vs Reuters $4.20B. US industry unit shipments of major appliances (T7) (14%) Guides full year EPS to $3.50-$4.00, compared to prior $3.00-$4.00. Reuters is $3.52.
DDR (4.54): Developers Diversified Realty Corp. working on two CMBS deals that will be eligible for TALF: The Journal reports that Developers Diversified Realty Corp. is working on raising $600M through two deals (company hopes to close them this fall) that will be the first major offerings of CMBS to take advantage of the TALF. Recall that the Fed extended the TALF to include newly issued CMBS in June, but there have not been any deals thus far. According to the article, Developers Diversified is focused on two pools of assets, valued at $800M each, and consisting of roughly 60 shopping centers across the country. The properties feature stable cash flows given that they are occupied by discount retailers. By borrowing $600M against these pools, the loan-to-value ratio would be around 40%, down from the 70% that some borrowers were able to secure before the credit crisis destroyed the liquidity in the CMBS market. Sources tell the paper there are a couple of other CMBS deals also in the TALF pipeline.
CSCO (21.59): Cisco Systems upgraded to outperform from neutral at RW Baird: Target increased to $26 from $20. The firm cites preliminary results from a resellers survey noting an improvement in sentiment and recovery.
CSCO (21.59): Cisco Systems reiterated outperform at Oppenheimer after channel checks: Target is $25. Firm says July-quarter channel checks suggest that CSCO sales are tracking in line to slightly ahead of expectations as enterprise spending constraints ease, pipeline improves, and CSCO pushes for a strong finish to its fiscal year. Oppenheimer says ~2/3 of their interview respondents indicated CSCO's sales could grow sequentially next quarter.
NBR (17.16): Nabors Industries reports Q2 EPS $0.32 ex-items vs Reuters $0.28: Company reports revenues of $878.0M vs Reuters $945.3M. Company expects Q3 results to be flat, with a modest recovery beginning in Q4.
Jesup & Lamont downgrades HP, NBR, PTEN, others: Helmerich & Payne (HP) downgraded to sell from hold. Nabors Industries (NBR) downgraded to sell from hold .Patterson-UTI (PTEN) downgraded to sell from hold. Unit Corp (UNT) downgraded to sell from hold. Firm cites NBR's Q2 report as catalyst for the downgrades.
BTU (33.02): Peabody Energy downgraded to hold from buy at Citi: Target cut to $34 from $40. The firm cites valuation.
PFE (15.70): Pfizer reports Q2 EPS $0.48 vs Reuters $0.47: Company reports revenues of $10.98B vs Reuters $11.26B. Guides full year EPS to $1.90-$2.00 vs Reuters $1.94 and prior $1.85-$1.95; guides revenues to $45B-$46B vs Reuters $46.91B and prior $44B-$46B.
Credit-card disputes lose an option for resolution – WSJ: Two large arbitration firms have said they will stop resolving disputes between customers and their credit-card and cellphone companies until new guidelines are set out. Credit-card and cellphone companies prefer arbitration, saying it is less expensive and time-consuming than going to court to resolve disputes over whether or not customers owe them money. The new guidelines have been deemed necessary because a lawsuit last week revealed that one of the arbitrators has financial ties to the debt-collection industry, raising questions about whether it was violating consumer-protection laws.
Friday, July 17, 2009
July 17, 2009: Morning Call
July 17, 2009: Morning Call
Fair Value: SP500 – 937.56; NDX: 1517.96; DOW: 8666.63
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
Pre-market EPS: BBT (.22/2.01B); C (-.34/20.7B); GE (.24/42.05B); MAT (.01/965.4M); BAC (.18/34.0B)
05:00: Euro-zone Trade Balance (May):
05:00: Euro-zone Construction Output
08:00: C earnings call
08:30: US Housing Starts (June): 530,000; Building Permits: 520,000
09:30: BAC earnings call
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading 5 points below fair value at 7:30am ET. GE, IBM, BAC, and GOOG all reported revenues that were slightly below either consensus estimates or the whisper number. Asian markets closed higher (Japan 0.55%, Hong Kong up 2.42%, Australia up 0.13%, Shanghai up 0.53%, India up 3.47). Technology stocks received mixed messages from IBM (IBM) and Google (GOOG)’s post-close performances. Shippers followed the Baltic Dry Index up once again. Indonesia was the only market in the region not to join in the rise, as terrorism concerns resurfaced when bombs went off in Jakarta. Brokerage upgrades on Chinese shares fueled Hong Kong's rise. European markets are up 0.50% to 1% but are pulling back off the highs of the session following the release of GE and BAC earnings.
Research Calls/Market Moving News:
BAC (13.17): Bank of America reports Q2 EPS $0.33: The figure excludes the deduction of $805M in preferred dividends. Reuters is $0.29; First Call $0.28. Note the disparity in the consensus estimate seems to be related to the number of one-time items. Company reports revenues of $32.77B vs Reuters $33.26B. BAC says the figure compares to $0.72 y/y. NPA’s rose to 30.9B vs. 25.6B in the prior quarter, a pretty sharp sequential increase in non-performing assets. The provision for credit losses came in at 13.4B, flat with the first quarter. The company increased the allowance for loan losses by 4.7 billion to 33.7 billion from 29.0 billion.
GE (12.40): General Electric reports Q2 EPS $0.26: The figure includes $0.02 in gains, $0.03 in charges and $0.04 in marks and impairments. Reuters is $0.24. Company reports revenues of $39.08B vs Reuters $42.09B. Revenue and profits by segment: Technology Infrastructure: Revenue (11%) to $10.56B and profit (11%) to $1.83B. Energy Infrastructure: Revenue (1%) to $9.58B and profit 13% to $1.79B. Capital Finance: Revenue (29%) to $12.80B and profit (80%) to $590M. NBC Universal: Revenue (8%) to $3.57B and profit (41%) to $539M. Consumer & Industrial: Revenue (20%) to $2.51B and profit (20%) to $111M.
GOOG (442.60): Google reports Q2 EPS $5.36 vs Reuters $5.08: First Call is $5.09. Company reports revenues of $5.52B, including TAC, vs Reuters $5.49B, which includes TAC. Excluding TAC, GOOG reports revenues of $4.07B vs. First Call $4.06B. Segment revenues (gross): Google Sites $3.65B vs SA $3.71B. Networks $1.68B vs SA $1.60B. Licensing/other $186.8M vs SA $196M. Google says business appeared to stabilized during the quarter - conf. call: In response to analyst question on the stabilization, Schmidt says that they had no idea where the bottom was a quarter ago. However since that time, most of the preferred metrics have stabilized or slowly begun to improve. RPMs have not fully recovered, but most other metrics have begun to come back. Providing some color on ad trends, he says that large advertisers have been coming back to the table and are becoming a little more aggressive with their purchases. Nearly all verticals outside of financials are said to have begun to look better versus last quarter. Taking all of these things, Schmidt says they are comfortable using the term "stabilized" but would not want to go beyond that. He says they are no longer looking at a downward spiral as they were six months ago.
IBM (110.64): IBM reports Q2 EPS $2.32 vs Reuters $2.01: Company reports revenues of $23.25B vs Reuters $23.48B. Guides full year EPS to at least $9.70, up from at least $9.20 vs Reuters $9.12
CIT (.41): CIT Group, clients move rapidly to secure their futures – WSJ: People familiar with the matter say CIT executives are working on lining up $2-3B in private-sector financing. One says bondholders are discussing a $5B debt-for-equity swap, which would be dependent on regulators' approving the company to transfer some assets to its banking unit. Clients, worried CIT's payments to them could be frozen by a bankruptcy court, are taking varying steps to protect themselves. Sources say some vendors are asking large retailers to pay them directly rather than via CIT.
NOK (13.46): Nokia downgraded to neutral from buy at UBS – Bloomberg. Natixis also downgraded the shares in Europe.
GS (156.84); JPM (36.13): NYT deems Goldman Sachs (GS), JPMorgan Chase (JPM) "giants" coming from Wall Street ruins: The article does not actually cover any new ground. It notes that the banks have done very well, while Citi (C) and Bank of America (BAC) are struggling, and even the giants stand to be losers if the economy does not recover. One banking executive says that all banks benefited from government aid, even if JPM, GS, and Morgan Stanley (MS) were anxious to pay TARP funds back as soon as possible.
Miners, countries in tug-of-war over plans – WSJ: The economic downturn has set miners, who no longer feel pressed to come up with resources to feed to China, against resource-rich countries, who want production to be maintained to generate revenues. Rio Tinto (RIO.LN) faces troubles in Guinea as well as its diplomatic battle in China. Russia threatened to revoke Arcelor Mittal (MT.NA)'s coal licenses. Zimbabwe, South Africa, and Zambia are talking about renegotiating agreements to claim greater ownership of mining ventures. In a vicious circle, doing so makes miners less likely to want to invest in countries they see as risky, which makes the countries want greater ownership, and so on, and so on.
Fair Value: SP500 – 937.56; NDX: 1517.96; DOW: 8666.63
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
Pre-market EPS: BBT (.22/2.01B); C (-.34/20.7B); GE (.24/42.05B); MAT (.01/965.4M); BAC (.18/34.0B)
05:00: Euro-zone Trade Balance (May):
05:00: Euro-zone Construction Output
08:00: C earnings call
08:30: US Housing Starts (June): 530,000; Building Permits: 520,000
09:30: BAC earnings call
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading 5 points below fair value at 7:30am ET. GE, IBM, BAC, and GOOG all reported revenues that were slightly below either consensus estimates or the whisper number. Asian markets closed higher (Japan 0.55%, Hong Kong up 2.42%, Australia up 0.13%, Shanghai up 0.53%, India up 3.47). Technology stocks received mixed messages from IBM (IBM) and Google (GOOG)’s post-close performances. Shippers followed the Baltic Dry Index up once again. Indonesia was the only market in the region not to join in the rise, as terrorism concerns resurfaced when bombs went off in Jakarta. Brokerage upgrades on Chinese shares fueled Hong Kong's rise. European markets are up 0.50% to 1% but are pulling back off the highs of the session following the release of GE and BAC earnings.
Research Calls/Market Moving News:
BAC (13.17): Bank of America reports Q2 EPS $0.33: The figure excludes the deduction of $805M in preferred dividends. Reuters is $0.29; First Call $0.28. Note the disparity in the consensus estimate seems to be related to the number of one-time items. Company reports revenues of $32.77B vs Reuters $33.26B. BAC says the figure compares to $0.72 y/y. NPA’s rose to 30.9B vs. 25.6B in the prior quarter, a pretty sharp sequential increase in non-performing assets. The provision for credit losses came in at 13.4B, flat with the first quarter. The company increased the allowance for loan losses by 4.7 billion to 33.7 billion from 29.0 billion.
GE (12.40): General Electric reports Q2 EPS $0.26: The figure includes $0.02 in gains, $0.03 in charges and $0.04 in marks and impairments. Reuters is $0.24. Company reports revenues of $39.08B vs Reuters $42.09B. Revenue and profits by segment: Technology Infrastructure: Revenue (11%) to $10.56B and profit (11%) to $1.83B. Energy Infrastructure: Revenue (1%) to $9.58B and profit 13% to $1.79B. Capital Finance: Revenue (29%) to $12.80B and profit (80%) to $590M. NBC Universal: Revenue (8%) to $3.57B and profit (41%) to $539M. Consumer & Industrial: Revenue (20%) to $2.51B and profit (20%) to $111M.
GOOG (442.60): Google reports Q2 EPS $5.36 vs Reuters $5.08: First Call is $5.09. Company reports revenues of $5.52B, including TAC, vs Reuters $5.49B, which includes TAC. Excluding TAC, GOOG reports revenues of $4.07B vs. First Call $4.06B. Segment revenues (gross): Google Sites $3.65B vs SA $3.71B. Networks $1.68B vs SA $1.60B. Licensing/other $186.8M vs SA $196M. Google says business appeared to stabilized during the quarter - conf. call: In response to analyst question on the stabilization, Schmidt says that they had no idea where the bottom was a quarter ago. However since that time, most of the preferred metrics have stabilized or slowly begun to improve. RPMs have not fully recovered, but most other metrics have begun to come back. Providing some color on ad trends, he says that large advertisers have been coming back to the table and are becoming a little more aggressive with their purchases. Nearly all verticals outside of financials are said to have begun to look better versus last quarter. Taking all of these things, Schmidt says they are comfortable using the term "stabilized" but would not want to go beyond that. He says they are no longer looking at a downward spiral as they were six months ago.
IBM (110.64): IBM reports Q2 EPS $2.32 vs Reuters $2.01: Company reports revenues of $23.25B vs Reuters $23.48B. Guides full year EPS to at least $9.70, up from at least $9.20 vs Reuters $9.12
CIT (.41): CIT Group, clients move rapidly to secure their futures – WSJ: People familiar with the matter say CIT executives are working on lining up $2-3B in private-sector financing. One says bondholders are discussing a $5B debt-for-equity swap, which would be dependent on regulators' approving the company to transfer some assets to its banking unit. Clients, worried CIT's payments to them could be frozen by a bankruptcy court, are taking varying steps to protect themselves. Sources say some vendors are asking large retailers to pay them directly rather than via CIT.
NOK (13.46): Nokia downgraded to neutral from buy at UBS – Bloomberg. Natixis also downgraded the shares in Europe.
GS (156.84); JPM (36.13): NYT deems Goldman Sachs (GS), JPMorgan Chase (JPM) "giants" coming from Wall Street ruins: The article does not actually cover any new ground. It notes that the banks have done very well, while Citi (C) and Bank of America (BAC) are struggling, and even the giants stand to be losers if the economy does not recover. One banking executive says that all banks benefited from government aid, even if JPM, GS, and Morgan Stanley (MS) were anxious to pay TARP funds back as soon as possible.
Miners, countries in tug-of-war over plans – WSJ: The economic downturn has set miners, who no longer feel pressed to come up with resources to feed to China, against resource-rich countries, who want production to be maintained to generate revenues. Rio Tinto (RIO.LN) faces troubles in Guinea as well as its diplomatic battle in China. Russia threatened to revoke Arcelor Mittal (MT.NA)'s coal licenses. Zimbabwe, South Africa, and Zambia are talking about renegotiating agreements to claim greater ownership of mining ventures. In a vicious circle, doing so makes miners less likely to want to invest in countries they see as risky, which makes the countries want greater ownership, and so on, and so on.
Tuesday, July 14, 2009
July 14, 2009: Morning Call
July 14, 2009: Morning Call
Fair Value: SP500 – 897.85; NDX: 1446.86; DOW: 8283.71
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
Pre-market EPS: GS (3.47/11.16B); JNJ (1.11/14.9B)
05:00: Euro-zone ZEW Economic Sentiment Survey (July): 44 (actual: 39.5)
05:00: Euro-zone Industrial Production (May): 1.5% MoM; (actual: 0.5%)
05:00: Euro-zone Industrial Production (May): -17.5% YoY (actual: -17.0%)
08:30: US Producer Price Index (June): 0.9% MoM; Ex-Food/Energy: 0.1% MoM
08:30: US Producer Price Index (June): -5.2% YoY; Ex-Food/Energy: 2.9% YoY
08:30: US Retail Sales (June): 0.5%; Less Autos: 0.5%
08:30: CSX earnings call
09:00: DELL analyst meeting
10:00: Business Inventories (May): -1.0%
11:00: GS earnings call
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
17:30: INTC earnings call
18:30: RIMM Annual Meeting
Post-market EPS: ALTR (.16/277.5M); YUM (.43/2.5B); INTC (.07/7.24B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 2 points above fair value and the NASDAQ futures are trading flat with fair value ahead of Goldman’s earnings this morning. Asian markets closed sharply higher following the strong Monday session on Wall Street (Japan up 2.34%, Hong Kong up 3.66%, Australia up 3.47%, India up 3.38%). Mining, industrial, and financial stocks outperformed. Automakers rallied in Japan on a report they were raising capacity in China. Brokerages rose and Komatsu (6301.JP) rallied on a report it probably posted an operating profit in the Apr-Jun quarter. China rose across the board, with gainers leading losers in Shanghai, 745-65. Singapore benefited when the government issued an advance reading on Q2 GDP 20.4% q/q vs cons 13.4%, and raised its forecast for the year. Former Morgan Stanley strategist Barton Biggs also said that Asian economies were emerging from the financial crisis faster than any other regions. European markets are up 0.50% to 0.75% led by mining and bank stocks. Advancers on the FTSE 100 lead decliners 7-3. Q-Cells (QCE.GR) fell after says Q2 results fall short of expectations and withdraws FY guidance.
Research Calls/Market Moving News:
GOOG (424.30): Bernstein previews the quarter for Google, sees consensus as low: The firm sees net revenue of $4.22B vs. consensus $4.05B. EPS for the quarter is seen $5.22 vs. Reuters consensus $5.08. Bernstein sees GOOG as well positioned to benefit from a recovery. Shares remain outperform rated with a $600 target.
GOOG (424.30): Oppenheimer expects Google to report lackluster results: Shares are maintained outperform and the target is increased to $490 from $440 on a higher market multiple. Firm expects GOOG to report lackluster 2Q results Thursday after the close, in-line with recently reduced expectations. Oppenheimer is lowering their revenue, EBITDA and EPS estimates by 2%, 1% and 2%, respectively.
Potash price war looming - Globe and Mail: The article relies largely on analysts and does not cite any inside sources, but says the months of cooperation among producers to cut production rather than lower prices appears to be set to end. The development comes thanks to Silvinit (SILV.RU)'s 10-Jul $460/tonne deal with India on the heels of Canpotex's $700/tonne deals announced 9-Jul. The Silvinit deal means other large companies are likely to be less willing to sign longer-term contracts.
Credit-default swaps probed by Justice Department, says Markit Group – Bloomberg: A spokeswoman declines to comment on the nature of the investigation the data provider has been informed of. People familiar with the matter say the antitrust division sent civil investigative notices this month to banks that own Markit to determine if they have unfair access to price information.
RTP (128.80): China expands steel-industry corruption investigation beyond Rio Tinto (RIO.LN) – NYT: Chinese media reported last night (13-Jul in China) that authorities have detained or questioned at least seven industry executives. An analyst says the industry is shocked and fearful of what may come next. There are reports of widespread bribery; one industry official points out that his or her company entertains officials all the time, and it is unclear if that will be considered bribery.
DELL (13.02): Dell expects "slight sequential revenue growth", "modest margin pressure" in Q2 (Jul): Company notes that y/y demand for its IT products appears to have stabilized and as a result expects to report a slight sequential revenue increase in Q2. However, gross margin is anticipated to be down modestly, with the company citing higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand for the decline. Providing some color on the revenue stabilization, management says that the results "vary significantly" by customer segment and geography. Management continues to believe that customers are deferring IT purchases and expects demand to return to more typical levels "at some point.” Dell’s analyst meeting is today at 9am ET.
CIT (1.35): US officials in advanced talks to aid CIT Group -- WSJ, citing sources: Citing sources familiar with the matter, the Journal reports that government officials are in advanced talks about providing support for CIT Group. According to the article, the discussions are fluid and it remains unclear if a deal can be secured. While support on Capital Hill appears to be fairly tepid, the Journal does point out that government officials are worried about unforeseen consequences that a collapse of the commercial lender could trigger. CIT shares are trading up 22%.
CAT (31.80): Caterpillar EPS reduced at Credit Suisse: The firm says sentiment across the US remains bearish with continued deterioration in conditions overseas. Excess inventories are noted to remain an issue globally. EPS estimates for 2009 and 2010 are reduced to $0.25 and $1.00 vs. Reuters $1.13 and $1.59 respectively. Target for the shares remains $34. CAT is neutral rated.
MLM (77.10): Martin Marietta Materials (MLM) guides full year EPS to $2.70-$3.30 (incl effect of stimulus plan) vs Reuters $3.57.
Fair Value: SP500 – 897.85; NDX: 1446.86; DOW: 8283.71
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
Pre-market EPS: GS (3.47/11.16B); JNJ (1.11/14.9B)
05:00: Euro-zone ZEW Economic Sentiment Survey (July): 44 (actual: 39.5)
05:00: Euro-zone Industrial Production (May): 1.5% MoM; (actual: 0.5%)
05:00: Euro-zone Industrial Production (May): -17.5% YoY (actual: -17.0%)
08:30: US Producer Price Index (June): 0.9% MoM; Ex-Food/Energy: 0.1% MoM
08:30: US Producer Price Index (June): -5.2% YoY; Ex-Food/Energy: 2.9% YoY
08:30: US Retail Sales (June): 0.5%; Less Autos: 0.5%
08:30: CSX earnings call
09:00: DELL analyst meeting
10:00: Business Inventories (May): -1.0%
11:00: GS earnings call
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
17:30: INTC earnings call
18:30: RIMM Annual Meeting
Post-market EPS: ALTR (.16/277.5M); YUM (.43/2.5B); INTC (.07/7.24B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 2 points above fair value and the NASDAQ futures are trading flat with fair value ahead of Goldman’s earnings this morning. Asian markets closed sharply higher following the strong Monday session on Wall Street (Japan up 2.34%, Hong Kong up 3.66%, Australia up 3.47%, India up 3.38%). Mining, industrial, and financial stocks outperformed. Automakers rallied in Japan on a report they were raising capacity in China. Brokerages rose and Komatsu (6301.JP) rallied on a report it probably posted an operating profit in the Apr-Jun quarter. China rose across the board, with gainers leading losers in Shanghai, 745-65. Singapore benefited when the government issued an advance reading on Q2 GDP 20.4% q/q vs cons 13.4%, and raised its forecast for the year. Former Morgan Stanley strategist Barton Biggs also said that Asian economies were emerging from the financial crisis faster than any other regions. European markets are up 0.50% to 0.75% led by mining and bank stocks. Advancers on the FTSE 100 lead decliners 7-3. Q-Cells (QCE.GR) fell after says Q2 results fall short of expectations and withdraws FY guidance.
Research Calls/Market Moving News:
GOOG (424.30): Bernstein previews the quarter for Google, sees consensus as low: The firm sees net revenue of $4.22B vs. consensus $4.05B. EPS for the quarter is seen $5.22 vs. Reuters consensus $5.08. Bernstein sees GOOG as well positioned to benefit from a recovery. Shares remain outperform rated with a $600 target.
GOOG (424.30): Oppenheimer expects Google to report lackluster results: Shares are maintained outperform and the target is increased to $490 from $440 on a higher market multiple. Firm expects GOOG to report lackluster 2Q results Thursday after the close, in-line with recently reduced expectations. Oppenheimer is lowering their revenue, EBITDA and EPS estimates by 2%, 1% and 2%, respectively.
Potash price war looming - Globe and Mail: The article relies largely on analysts and does not cite any inside sources, but says the months of cooperation among producers to cut production rather than lower prices appears to be set to end. The development comes thanks to Silvinit (SILV.RU)'s 10-Jul $460/tonne deal with India on the heels of Canpotex's $700/tonne deals announced 9-Jul. The Silvinit deal means other large companies are likely to be less willing to sign longer-term contracts.
Credit-default swaps probed by Justice Department, says Markit Group – Bloomberg: A spokeswoman declines to comment on the nature of the investigation the data provider has been informed of. People familiar with the matter say the antitrust division sent civil investigative notices this month to banks that own Markit to determine if they have unfair access to price information.
RTP (128.80): China expands steel-industry corruption investigation beyond Rio Tinto (RIO.LN) – NYT: Chinese media reported last night (13-Jul in China) that authorities have detained or questioned at least seven industry executives. An analyst says the industry is shocked and fearful of what may come next. There are reports of widespread bribery; one industry official points out that his or her company entertains officials all the time, and it is unclear if that will be considered bribery.
DELL (13.02): Dell expects "slight sequential revenue growth", "modest margin pressure" in Q2 (Jul): Company notes that y/y demand for its IT products appears to have stabilized and as a result expects to report a slight sequential revenue increase in Q2. However, gross margin is anticipated to be down modestly, with the company citing higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand for the decline. Providing some color on the revenue stabilization, management says that the results "vary significantly" by customer segment and geography. Management continues to believe that customers are deferring IT purchases and expects demand to return to more typical levels "at some point.” Dell’s analyst meeting is today at 9am ET.
CIT (1.35): US officials in advanced talks to aid CIT Group -- WSJ, citing sources: Citing sources familiar with the matter, the Journal reports that government officials are in advanced talks about providing support for CIT Group. According to the article, the discussions are fluid and it remains unclear if a deal can be secured. While support on Capital Hill appears to be fairly tepid, the Journal does point out that government officials are worried about unforeseen consequences that a collapse of the commercial lender could trigger. CIT shares are trading up 22%.
CAT (31.80): Caterpillar EPS reduced at Credit Suisse: The firm says sentiment across the US remains bearish with continued deterioration in conditions overseas. Excess inventories are noted to remain an issue globally. EPS estimates for 2009 and 2010 are reduced to $0.25 and $1.00 vs. Reuters $1.13 and $1.59 respectively. Target for the shares remains $34. CAT is neutral rated.
MLM (77.10): Martin Marietta Materials (MLM) guides full year EPS to $2.70-$3.30 (incl effect of stimulus plan) vs Reuters $3.57.
Monday, July 13, 2009
July 13, 2009: Morning Call
July 13, 2009: Morning Call
Fair Value: SP500 – 875.91; NDX: 1418.98; DOW: 8098.42
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
Pre-market EPS: FAST (.33/485.7M)
*Treasury Secretary Geithner travels to UK, France, Saudi Arabia this week
08:00: Meredith Whitney interviewed on CNBC
14:00: US Monthly Budget Statement (June): -70B
14:30: White House Council of Economic Advisors releases labor market report
18:30: NVLS earnings call
Post-market EPS: NVLS (-.38/117.2M); CSX (.62/2.22B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading flat with fair value at 8am, rallying 10 points off the overnight session lows on light volume. Asian markets closed sharply lower on political concerns in Japan, growing doubts about the pace of the recovery, and concerns about relative valuations in emerging markets (Japan down 2.5%, Hong Kong down 2.56%, Australia down 1.49%, Shanghai down 1.1%, Taiwan down 3.5%, South Korea down 3.4%, India down 0.77%). Stocks in Japan fell for a 9th straight session after Prime Minister Aso’s plan to dissolve parliament sparked concern that political turmoil will hurt the economy. Fears about the fallout from a potential failure at CIT also weighed on sentiment. China Eastern Airlines (600115.CH) and Shanghai Airlines (600591.CH) both rallied as they resumed trading after announcing terms of their proposed merger. Fortescue Metals (FMG.AU) gained when it reported higher Q4 production, but Rio Tinto (RIO.AU) fell on lower metals prices. European markets have reversed opening declines of 1.0% and are currently trading up between 0.25%-0.50%. Mining and banking stocks are leading the gains. Philips Electronics (PHIA.NA) gained on Q2 net €44M topping estimates. Getinge (GETIB.SS) also traded higher after reports Q2. Friends Provident (FP.LN) traded higher after Resolution (RSL.LN) confirmed its made an initial offer for the company.
Research Calls/Market Moving News:
Goldman Sachs upgraded to buy from neutral at Meredith Whitney Advisory Group LLC: The price target is $186. Whitney will be appearing on CNBC at 8am ET.
Bank of America trying to avoid paying government billions for guarantees against losses at Merrill Lynch – Bloomberg: People familiar with the matter say regulators want BAC to pay at least part of a $4B fee it agreed to in January, because the company subsequently enjoyed implied US backing of $118B of Merrill assets. But the bank argues that since the rescue agreement was never signed and the funding never used, it shouldn't have to pay. One source says the government is probably asking for less than the $4B in the unsigned agreement. Another source says an update may be provided with Q2 results.
GS (141.87): Front-page NYT story profiles Goldman Sachs’s “Swift Return to Lofty Profits.” “Up and down Wall Street, analysts and traders are buzzing that Goldman, which only recently paid back its government bailout money, will report blowout profits from trading on Tuesday. Analysts predict the bank earned a profit of more than $2 billion in the March-June period, because of its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so drastically only months after the nation’s financial industry was shaken to its foundations. The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall. “They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships. Startling, too, is how much of its revenue Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions.”
POT (85.07): Potash downgraded to neutral from buy at Sterne, Agee
GE (10.78): General Electric may have upside to Q2 EPS, says Goldman Sachs: The firm believes that GE may post upside Q2 EPS to First Call consensus of $0.23 (Reuters is $0.24) based on results from Industrial and GE Capital. Goldman Sachs maintains its neutral rating, noting that a potential for short covering around earnings is offset by the potential uncertainty regarding US financial regulatory reform. The target remains $16.
AAPL (138.52): Apple to release netbook in October, says Commercial Times – Bloomberg: Without citing sources, the paper says Wintek (2384.TT) will supply the touch panel and Hon Hai Precision (2317.TT) will assemble it.
GOOG (414.40): Think Equity previews GOOG’s Q2 earnings: “We expect GOOG to report an in-line Q2—revenue trends during the quarter were mixed, according to our SEM checks (April-May showed signs of improvement, but June slowed), but we believe GOOG could continue to produce upside to EPS/FCF forecasts, given cost controls and moderate CapEx. While we are expecting a better-than-L-shaped recovery, June jobs data suggested the path out of the recession could be bumpy. Considering MSFT is putting forward more competition in search and projected next-leg growth opportunities, such as display and mobile, still on the horizon, we remain cautious and reiterate our SoF (source of funds) rating and $325 price target. Consensus Revenue Expectations Have Declined But Still Too High, In Our View: As we noted above, we are expecting a better-than-L-shaped macroeconomic recovery, but questions remain as to the timing of the recovery and the ultimate strength of the recovery. Given disappointing June jobs data and our checks with large paid search buyers, which suggested potential consumer weakness in June, the path ahead could be a bumpy one. Consensus estimates for FY09 and FY10 have steadily decreased over the past several quarters, but we believe that they may still be too aggressive. For FY09, the consensus implies 6.3% net revenue growth (versus our estimate of 4.1%); for FY10, the consensus implies 14.4% net revenue growth (versus our estimate of 13.3%). While we find the consensus estimates to be more reasonable than in the recent past, we still believe downward estimate revisions are likely, and we expect those revisions to weigh on GOOG shares.”
INTC (16.04): Needham previews Intel’s Q2 earnings report. “We reiterate our Buy ahead of INTC's 2Q09 earnings on July 14. We expect 2Q09 results to beat consensus based on a strong Nehalem ramp and positive notebook orders at key ODMs. While the shares appear to already discount strong results and higher guidance, we believe upside to margins could still surprise the Street. Despite macro concerns, we believe improved visibility supports seasonal growth in 2H09. Looking into 2010, we believe Windows 7 will drive the much-needed corporate refresh, leading to further revenue growth and the return of normalized earnings. Upside to consensus revenue estimate largely expected; Intel may report a GAAP loss on EU fine. Most Asian OEM/ODMs reported MoM growth in June, suggesting the start of the typical seasonal build. We expect Intel's 1Q09 results to reflect strong order rates for server and mobile products. Intel may report a GAAP loss if it records the $1.45B EU antitrust fine, which is not factored in the Street's (or ours) estimates. 3Q09 revenue guidance should show seasonal growth. We expect guidance to reflect seasonal growth for 3Q09, or roughly inline with 15-yr average of 8.7% Q/Q. We believe the impact of component shortages in PC supply chain could be the biggest risks for 3Q09. The stock could rally on stronger margin guidance. We believe consensus underestimate margin leverage in Intel's model. The Street is modeling 3Q09 margin of 49.6% vs. our 51.8%. While the Bears are worried about mix shifting towards low-end netbooks, we believe Intel continues to limit price cuts to protect its margins. We believe margin outlook could beat expectation. Windows 7 to drive corporate refresh in 2010. As our IT Hardware Analyst, Rich Kugele, wrote on his July 7 piece, we believe Windows 7 will drive a corporate refresh cycle in 2010. The combination of a compelling OS offering, the aging corporate PCs, and weak IT spending this year, we believe there is pent-up demand for corporate PCs that could drive growth in 2010. Since corporate PCs typically use higher-end MPUs, we believe Intel will see further margin expansion.
GOOG (414.40): Barron's Technology Trader is skeptical of Google's plans to develop Chrome OS: While making many of the same observations made by others over the past week, Barron's says Google misunderstands the nature of netbooks in that people do use them to connect to the Web, but they use them for other things, including running standard software. Barron's also notes the overlapping markets for Chrome OS and Android.
BBY (32.77): Best Buy upgraded to outperform from perform at Oppenheimer: Target is increased to $42 from $40. Firm says recent concerns for the shares are largely overblown and the market has been too quick to dismiss the potential benefits for BBY from Circuit City's demise.
WSJ notes companies that may face problems if antitrust scrutiny increases
A "Heard on the Street" column surmises that industries that have not been looked at could be subject to scrutiny if exclusive agreements turn out to be the trigger for Justice Department concern. Best Buy (BBY) and Wal-Mart (WMT) sell a lot of things no one else does, and DirectTV (DTV) has exclusive rights to broadcast every Sunday NFL game. The behavior of companies that offer credit cards and are planning to raise fees before the new rate-limiting law comes into effect may be considered collusive. While not every antitrust case is lost by the company it is filed against, the column suggests avoiding any large targets the Justic Department may choose to make a statement.
Fair Value: SP500 – 875.91; NDX: 1418.98; DOW: 8098.42
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
Pre-market EPS: FAST (.33/485.7M)
*Treasury Secretary Geithner travels to UK, France, Saudi Arabia this week
08:00: Meredith Whitney interviewed on CNBC
14:00: US Monthly Budget Statement (June): -70B
14:30: White House Council of Economic Advisors releases labor market report
18:30: NVLS earnings call
Post-market EPS: NVLS (-.38/117.2M); CSX (.62/2.22B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are both trading flat with fair value at 8am, rallying 10 points off the overnight session lows on light volume. Asian markets closed sharply lower on political concerns in Japan, growing doubts about the pace of the recovery, and concerns about relative valuations in emerging markets (Japan down 2.5%, Hong Kong down 2.56%, Australia down 1.49%, Shanghai down 1.1%, Taiwan down 3.5%, South Korea down 3.4%, India down 0.77%). Stocks in Japan fell for a 9th straight session after Prime Minister Aso’s plan to dissolve parliament sparked concern that political turmoil will hurt the economy. Fears about the fallout from a potential failure at CIT also weighed on sentiment. China Eastern Airlines (600115.CH) and Shanghai Airlines (600591.CH) both rallied as they resumed trading after announcing terms of their proposed merger. Fortescue Metals (FMG.AU) gained when it reported higher Q4 production, but Rio Tinto (RIO.AU) fell on lower metals prices. European markets have reversed opening declines of 1.0% and are currently trading up between 0.25%-0.50%. Mining and banking stocks are leading the gains. Philips Electronics (PHIA.NA) gained on Q2 net €44M topping estimates. Getinge (GETIB.SS) also traded higher after reports Q2. Friends Provident (FP.LN) traded higher after Resolution (RSL.LN) confirmed its made an initial offer for the company.
Research Calls/Market Moving News:
Goldman Sachs upgraded to buy from neutral at Meredith Whitney Advisory Group LLC: The price target is $186. Whitney will be appearing on CNBC at 8am ET.
Bank of America trying to avoid paying government billions for guarantees against losses at Merrill Lynch – Bloomberg: People familiar with the matter say regulators want BAC to pay at least part of a $4B fee it agreed to in January, because the company subsequently enjoyed implied US backing of $118B of Merrill assets. But the bank argues that since the rescue agreement was never signed and the funding never used, it shouldn't have to pay. One source says the government is probably asking for less than the $4B in the unsigned agreement. Another source says an update may be provided with Q2 results.
GS (141.87): Front-page NYT story profiles Goldman Sachs’s “Swift Return to Lofty Profits.” “Up and down Wall Street, analysts and traders are buzzing that Goldman, which only recently paid back its government bailout money, will report blowout profits from trading on Tuesday. Analysts predict the bank earned a profit of more than $2 billion in the March-June period, because of its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so drastically only months after the nation’s financial industry was shaken to its foundations. The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall. “They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships. Startling, too, is how much of its revenue Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions.”
POT (85.07): Potash downgraded to neutral from buy at Sterne, Agee
GE (10.78): General Electric may have upside to Q2 EPS, says Goldman Sachs: The firm believes that GE may post upside Q2 EPS to First Call consensus of $0.23 (Reuters is $0.24) based on results from Industrial and GE Capital. Goldman Sachs maintains its neutral rating, noting that a potential for short covering around earnings is offset by the potential uncertainty regarding US financial regulatory reform. The target remains $16.
AAPL (138.52): Apple to release netbook in October, says Commercial Times – Bloomberg: Without citing sources, the paper says Wintek (2384.TT) will supply the touch panel and Hon Hai Precision (2317.TT) will assemble it.
GOOG (414.40): Think Equity previews GOOG’s Q2 earnings: “We expect GOOG to report an in-line Q2—revenue trends during the quarter were mixed, according to our SEM checks (April-May showed signs of improvement, but June slowed), but we believe GOOG could continue to produce upside to EPS/FCF forecasts, given cost controls and moderate CapEx. While we are expecting a better-than-L-shaped recovery, June jobs data suggested the path out of the recession could be bumpy. Considering MSFT is putting forward more competition in search and projected next-leg growth opportunities, such as display and mobile, still on the horizon, we remain cautious and reiterate our SoF (source of funds) rating and $325 price target. Consensus Revenue Expectations Have Declined But Still Too High, In Our View: As we noted above, we are expecting a better-than-L-shaped macroeconomic recovery, but questions remain as to the timing of the recovery and the ultimate strength of the recovery. Given disappointing June jobs data and our checks with large paid search buyers, which suggested potential consumer weakness in June, the path ahead could be a bumpy one. Consensus estimates for FY09 and FY10 have steadily decreased over the past several quarters, but we believe that they may still be too aggressive. For FY09, the consensus implies 6.3% net revenue growth (versus our estimate of 4.1%); for FY10, the consensus implies 14.4% net revenue growth (versus our estimate of 13.3%). While we find the consensus estimates to be more reasonable than in the recent past, we still believe downward estimate revisions are likely, and we expect those revisions to weigh on GOOG shares.”
INTC (16.04): Needham previews Intel’s Q2 earnings report. “We reiterate our Buy ahead of INTC's 2Q09 earnings on July 14. We expect 2Q09 results to beat consensus based on a strong Nehalem ramp and positive notebook orders at key ODMs. While the shares appear to already discount strong results and higher guidance, we believe upside to margins could still surprise the Street. Despite macro concerns, we believe improved visibility supports seasonal growth in 2H09. Looking into 2010, we believe Windows 7 will drive the much-needed corporate refresh, leading to further revenue growth and the return of normalized earnings. Upside to consensus revenue estimate largely expected; Intel may report a GAAP loss on EU fine. Most Asian OEM/ODMs reported MoM growth in June, suggesting the start of the typical seasonal build. We expect Intel's 1Q09 results to reflect strong order rates for server and mobile products. Intel may report a GAAP loss if it records the $1.45B EU antitrust fine, which is not factored in the Street's (or ours) estimates. 3Q09 revenue guidance should show seasonal growth. We expect guidance to reflect seasonal growth for 3Q09, or roughly inline with 15-yr average of 8.7% Q/Q. We believe the impact of component shortages in PC supply chain could be the biggest risks for 3Q09. The stock could rally on stronger margin guidance. We believe consensus underestimate margin leverage in Intel's model. The Street is modeling 3Q09 margin of 49.6% vs. our 51.8%. While the Bears are worried about mix shifting towards low-end netbooks, we believe Intel continues to limit price cuts to protect its margins. We believe margin outlook could beat expectation. Windows 7 to drive corporate refresh in 2010. As our IT Hardware Analyst, Rich Kugele, wrote on his July 7 piece, we believe Windows 7 will drive a corporate refresh cycle in 2010. The combination of a compelling OS offering, the aging corporate PCs, and weak IT spending this year, we believe there is pent-up demand for corporate PCs that could drive growth in 2010. Since corporate PCs typically use higher-end MPUs, we believe Intel will see further margin expansion.
GOOG (414.40): Barron's Technology Trader is skeptical of Google's plans to develop Chrome OS: While making many of the same observations made by others over the past week, Barron's says Google misunderstands the nature of netbooks in that people do use them to connect to the Web, but they use them for other things, including running standard software. Barron's also notes the overlapping markets for Chrome OS and Android.
BBY (32.77): Best Buy upgraded to outperform from perform at Oppenheimer: Target is increased to $42 from $40. Firm says recent concerns for the shares are largely overblown and the market has been too quick to dismiss the potential benefits for BBY from Circuit City's demise.
WSJ notes companies that may face problems if antitrust scrutiny increases
A "Heard on the Street" column surmises that industries that have not been looked at could be subject to scrutiny if exclusive agreements turn out to be the trigger for Justice Department concern. Best Buy (BBY) and Wal-Mart (WMT) sell a lot of things no one else does, and DirectTV (DTV) has exclusive rights to broadcast every Sunday NFL game. The behavior of companies that offer credit cards and are planning to raise fees before the new rate-limiting law comes into effect may be considered collusive. While not every antitrust case is lost by the company it is filed against, the column suggests avoiding any large targets the Justic Department may choose to make a statement.
Friday, July 10, 2009
AIG - Short-term trading opportunity.
AIG is down 72% since the 1 for 20 reverse split. It is apparent that short sellers have used the reverse split as a catalyst to aggressively attack the shares. AIG's long-term fundamentals are terrible and there is the real likelihood that the common equity is worth zero once the liquidation of the assets is completed (probably years out) and the government is paid back the loans. That said, mechanical and technical factors are favoring a substantial bounce back above the 10 dollar level. The stock is extremely oversold in the short-term (Stochastics/MACD) and the negative rebate rate on short sales is btwn 50-60% annually depending on the prime broker you call (getting too expensive to hold shorts). I bought a small block of stock representing just 4% of the equity in my trading account because a larger position would be somewhat reckless given the concerns I have about the fundamentals of the company. I caught a nice bounce off the pre-market sell-off on Monday and moved to the sidelines. But, the move to 8.75 appears overdone. Long for a move to above 10.
Wednesday, July 8, 2009
July 8, 2009: Morning Call
July 8, 2009: Morning Call
Fair Value: SP500 – 877.79; NDX: 1403.89; DOW: 8116.12
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
G-8 Meeting Starts today
Pre-market EPS: FDO (.59/1.8B)
05:00: Euro-zone GDP (Q1): -2.5% QoQ; -4.9% YoY
05:00: Euro-zone Household Consumption (Q1): -0.5%
07:00: MBA Mortgage Applications
09:00: NYX presents at Virtual Investor Forum
10:00: FMC presents at Morgan Stanley Energy Conference
10:00: FDO earnings call
10:30: DOE Crude Oil and Gasoline Inventories: -2.8m Crude draw; +900k Gas Build
12:55: Fed’s Evans speaks on a subject TBA
13:00: Treasury auctions 19 billion in 10 year notes
13:00: APC presents at Morgan Stanley Energy Conference
15:00: Consumer Credit (May): -7.8B
17:00: AA earnings call
17:00: Select US Retailers release June Same-Store Sales
Post-market EPS: AA (-.34/3.9B); RT (.19/303.9M)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 3 points above fair value and the NASDAQ futures are trading 7 points above fair value at 8am ET. The MSCI World index fell for a fifth straight day, commodities are down 1%, the USD is modestly higher against the Euro, and Treasury bonds are up a few ticks ahead of the 10-year note auction. Asian markets closed lower (Japan down 2.3%, Hong Kong down 0.79%, Taiwan down 0.70%, Shanghai up 0.35%, India down 2.3%). Financials dropped as the cost of protecting regional corporate and sovereign bonds from default jumped. Australia reversed declines as miners jumped on a report China agreed to a 33% iron-ore price cut. Doubts about the pace of economic recovery sent Hong Kong and Indian markets lower. European markets are flat to down 0.50% in a listless trading session. The final revision to Euro-zone Q1 GDP was in-line with expectations (-4.9% YoY vs. –4.8% consensus).
In the May 20th morning call, I noted that the S&P 500 would settle into a trading range between 875-950 for the next few months and that opportunistic traders should trade around these broad market levels. On June 23rd, the S&P had the first real test of the bottom end of the range and I noted that, “opportunistic traders should buy the bottom end of the range.” I am no longer advocating this "trade the range" strategy because the underlying bid is appreciably weaker than I expected. On balance, economic data has been disappointing over the last few weeks and market participants are clearly beginning to question the long-term sustainability of any economic recovery. Thus far, the massive monetary and fiscal of stimulus (and trillions in additional financial backstops/guarantees) have only appeared to trigger a modest improvement in the data. As TCW’s Jeffrey Gundlach noted in a letter to investors on June 15: “Well, given the government’s massive intervention in our economy, a few blips in the econ stats would be the least we should expect! If we’re to indulge in horticultural metaphors, I suspect these green shoots owe more to Miracle-Gro than properly fertilized soil and the natural change in the seasons. Like perennials overdosed with Miracle-Gro, the economy may manage a year or two of real growth under the goad of Treasury-issued debt and Fed-engineered inflation—before burning out.” In terms of strategy, traders should be focused on short-term trading strategies rather than aggressively buying the bottom end of this range (875-880). I would look to buy more aggressively on a technical break below the trading range – say around 855-860.
Research Calls/Market Moving News:
GOOG (396.63): Google introduces Google Chrome operating system on website: The open-source OS will initially be targeted at netbooks; the company will open-source the code later this year. Google is working with multiple OEMs to make netbooks running Google Chrome OS available for purchase in H2/10. While there are areas where Google Chrome OS and Android overlap, the projects are different.
AAPL (135.40): Apple disclosures about Steve Jobs's health remain under SEC scrutiny – Bloomberg: A person familiar with the matter says investigators want to make sure investors weren't misled by January statements that moved Jobs's condition from "relatively simple" to "more complex" in nine days. The source says the review does not mean Jobs or Apple will be accused of wrongdoing. Regulators are particularly interested in exactly what the company's board knew when it made the 5-Jan and 14-Jan statements. Another source says Apple's lead directors were being briefed by Jobs's doctors about his condition at the time.
FSLR (144.70): First Solar upgraded to buy from accumulate at ThinkEquity (144.70): “Conclusion: Given the recent sell-off of solar stocks and FSLR's 29% move lower from its May high, we believe investors can begin to get constructive on the stock in anticipation that the company meets 2Q09 estimates, reiterates 2009 guidance, and the potential for consensus 2010 estimates to increase on higher systems sales. We believe FSLR has the only unquestionably sustainable business model in the solar industry and is actively taking market share despite the weak business environment. We believe shares are oversold at current levels and are upgrading the stock to Buy (from Accumulate) based on valuation and raising our price target, which offers 24% upside from current prices. Additional Key Points Include: • We expect FSLR to meet consensus estimates and reiterate guidance based on our most recent round of channel checks. • We believe that the 2Q09 sell-through is still a concern and modest inventory build is a possibility, but we have not found significant volumes of inventory in the channel. • Euro-denominated pricing appears to be moving lower, but USD/Euro exchange rate is offsetting declines, in our view. We expect module ASPs at approximately $1.97/W for the quarter. 2Q09 sell-through is a concern, but we have not found significant volumes of inventory in the channel. While reports of large volumes of FSLR modules have been widely disseminated for the past two quarters, we have not found
confirmation of those volumes. However, our checks indicate that inventory of FSLR modules has increased modestly at the installer level and that the secondary market for FSLR product has seen some volume that has taken several weeks to clear. While we view slower moving inventory as a concern and would not be surprised to see a small inventory build at the OEM level, we believe the company is focusing on removing barriers to sell-through and will likely not see a large inventory build anywhere in the channel despite increasing production volume. We also believe the company is using its North American systems business, which we believe has a much larger backlog than the company has indicated, as a safety valve for volumes allocated to Europe, which the company is not able to sell. Given our channel checks and management's history of guiding very conservatively, we believe FSLR is likely to at least meet consensus estimates of $460M in revenue and $1.61 in EPS and has a significant chance to meet our expectation of $484M in revenue and $1.69 in EPS.”
RIMM (66.46): Piper Jaffray is cautious on RIMM citing increased smartphone competition and “slightly weaker” June sales: “Slightly Weak June Sales: Our checks indicated BlackBerry sales declined in June at AT&T and Sprint due to increasing smartphone competition, as BlackBerry sales appeared to lose share to the Palm Pre at Sprint and the new 3GS iPhone and older $99 iPhone at AT&T. BlackBerry sales at T-Mobile remained solid, but Verizon sales were slightly weaker following the termination of the BOGO promotion. Maintain Neutral: Due to our longer term concern of increasing smartphone competition and RIM's increasing mix of sales to consumers combined with RIM's ongoing investments to grow its global brand and market share, we anticipate declining margin trends. As such, we maintain our Neutral rating. • Pre Launch Impacts Blackberry Sales At Sprint: Our checks indicated Curve sales slightly declined in June at Sprint due to solid sales of the Palm Pre. Despite initial stock-out issues of the Pre, our June checks indicate adequate Pre stock at most Sprint channels, and we anticipate solid sell-through of the Pre over the next several months could potentially lead to softer Curve sales. • iPhone Launch Impacts Blackberry Sales At AT&T: Our checks indicated the new 3GS iPhone and older 3G iPhone's new $99 price impacted BlackBerry and other competitor sales. At AT&T, our checks indicate the Bold remains the top selling BlackBerry device with the 8900 a distant second and limited sales for the older Curve and Pearl products. Overall, our checks indicated the new iPhone impacted BlackBerry sales, as June sales appeared lower than May levels.”
FCX (45.00): Citibank upgrades FCX to buy from hold. Price target is 58 a share.
FDO (27.75): Family Dollar reports Q3 EPS $0.62 vs guidance $0.54-0.58 and Reuters $0.59: Company previously reported revenues of $1.84B. Guides Q4 EPS to $0.39-0.43 vs Reuters $0.39. Guides full year EPS to $2.03-2.07 vs Reuters $2.00. FDO noted the quarter is off to a good start, with sales in comparable stores increasing an estimated 2% in June. For Q4, the company expects that net sales will increase between 4%-6% and expects comparable store sales will increase 2%-4%.
Federal regulators consider restrictions on speculative traders in oil, natural gas, and other energy products – NYT: The Commodity Futures Trading Commission says it will consider using its existing powers to impose volume limits on such trading by purely financial investors. Trading by businesses such as airlines or oil companies would not be restricted. The CTFC also intends to reveal more about exactly who the traders are. The article notes the ideas, borne of recent chaotic movements in the price of oil, could be fiercely opposed by big banks, which are large traders in commodities. The government already limits speculative trading in agricultural commodities. Bloomberg had a high profile article on this topic yesterday and concerns about the trading limits caused sharp sell-offs in CME and ICE shares.
AMGN (52.23): Amgen's Denosumab demonstrates superiority over Zometa in head-to-head phase 3 trial – shares are trading up 7 in the pre-market: AMGN announced that a pivotal, Phase 3, head-to-head trial evaluating denosumab versus NVS's Zometa (zoledronic acid) in the treatment of bone metastases in 2,049 patients with advanced breast cancer met its primary and secondary endpoints and demonstrated superior efficacy compared to Zometa.
AMGN (52.23): Amgen target raised to $60 from $54 at Deutsche Bank following Denosumab data: The firm sees the results as the best possible scenario for AMGN after the company announced Dmab showed superiority vs. Zometa in breast cancer with both primary and secondary endpoints being met. Superiority in breast cancer is seen increasingly the likelihood of superiority in other indications.
FDIC chief Sheila Bair not anxious to have private-equity firms buy banks - NY Post: A participant in a five-hour 6-Jul meeting between Bair, banking figures, and private-equity figures provides the assessment of her attitude. The source, which says the meeting was friendly, suggests Bair may feel there are too many banks, making consolidation preferable to new ownership. Wilbur Ross says, "I left the meeting feeling the FDIC was nervous about private equity, but not that they did not want to work with us."
Fair Value: SP500 – 877.79; NDX: 1403.89; DOW: 8116.12
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
G-8 Meeting Starts today
Pre-market EPS: FDO (.59/1.8B)
05:00: Euro-zone GDP (Q1): -2.5% QoQ; -4.9% YoY
05:00: Euro-zone Household Consumption (Q1): -0.5%
07:00: MBA Mortgage Applications
09:00: NYX presents at Virtual Investor Forum
10:00: FMC presents at Morgan Stanley Energy Conference
10:00: FDO earnings call
10:30: DOE Crude Oil and Gasoline Inventories: -2.8m Crude draw; +900k Gas Build
12:55: Fed’s Evans speaks on a subject TBA
13:00: Treasury auctions 19 billion in 10 year notes
13:00: APC presents at Morgan Stanley Energy Conference
15:00: Consumer Credit (May): -7.8B
17:00: AA earnings call
17:00: Select US Retailers release June Same-Store Sales
Post-market EPS: AA (-.34/3.9B); RT (.19/303.9M)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 3 points above fair value and the NASDAQ futures are trading 7 points above fair value at 8am ET. The MSCI World index fell for a fifth straight day, commodities are down 1%, the USD is modestly higher against the Euro, and Treasury bonds are up a few ticks ahead of the 10-year note auction. Asian markets closed lower (Japan down 2.3%, Hong Kong down 0.79%, Taiwan down 0.70%, Shanghai up 0.35%, India down 2.3%). Financials dropped as the cost of protecting regional corporate and sovereign bonds from default jumped. Australia reversed declines as miners jumped on a report China agreed to a 33% iron-ore price cut. Doubts about the pace of economic recovery sent Hong Kong and Indian markets lower. European markets are flat to down 0.50% in a listless trading session. The final revision to Euro-zone Q1 GDP was in-line with expectations (-4.9% YoY vs. –4.8% consensus).
In the May 20th morning call, I noted that the S&P 500 would settle into a trading range between 875-950 for the next few months and that opportunistic traders should trade around these broad market levels. On June 23rd, the S&P had the first real test of the bottom end of the range and I noted that, “opportunistic traders should buy the bottom end of the range.” I am no longer advocating this "trade the range" strategy because the underlying bid is appreciably weaker than I expected. On balance, economic data has been disappointing over the last few weeks and market participants are clearly beginning to question the long-term sustainability of any economic recovery. Thus far, the massive monetary and fiscal of stimulus (and trillions in additional financial backstops/guarantees) have only appeared to trigger a modest improvement in the data. As TCW’s Jeffrey Gundlach noted in a letter to investors on June 15: “Well, given the government’s massive intervention in our economy, a few blips in the econ stats would be the least we should expect! If we’re to indulge in horticultural metaphors, I suspect these green shoots owe more to Miracle-Gro than properly fertilized soil and the natural change in the seasons. Like perennials overdosed with Miracle-Gro, the economy may manage a year or two of real growth under the goad of Treasury-issued debt and Fed-engineered inflation—before burning out.” In terms of strategy, traders should be focused on short-term trading strategies rather than aggressively buying the bottom end of this range (875-880). I would look to buy more aggressively on a technical break below the trading range – say around 855-860.
Research Calls/Market Moving News:
GOOG (396.63): Google introduces Google Chrome operating system on website: The open-source OS will initially be targeted at netbooks; the company will open-source the code later this year. Google is working with multiple OEMs to make netbooks running Google Chrome OS available for purchase in H2/10. While there are areas where Google Chrome OS and Android overlap, the projects are different.
AAPL (135.40): Apple disclosures about Steve Jobs's health remain under SEC scrutiny – Bloomberg: A person familiar with the matter says investigators want to make sure investors weren't misled by January statements that moved Jobs's condition from "relatively simple" to "more complex" in nine days. The source says the review does not mean Jobs or Apple will be accused of wrongdoing. Regulators are particularly interested in exactly what the company's board knew when it made the 5-Jan and 14-Jan statements. Another source says Apple's lead directors were being briefed by Jobs's doctors about his condition at the time.
FSLR (144.70): First Solar upgraded to buy from accumulate at ThinkEquity (144.70): “Conclusion: Given the recent sell-off of solar stocks and FSLR's 29% move lower from its May high, we believe investors can begin to get constructive on the stock in anticipation that the company meets 2Q09 estimates, reiterates 2009 guidance, and the potential for consensus 2010 estimates to increase on higher systems sales. We believe FSLR has the only unquestionably sustainable business model in the solar industry and is actively taking market share despite the weak business environment. We believe shares are oversold at current levels and are upgrading the stock to Buy (from Accumulate) based on valuation and raising our price target, which offers 24% upside from current prices. Additional Key Points Include: • We expect FSLR to meet consensus estimates and reiterate guidance based on our most recent round of channel checks. • We believe that the 2Q09 sell-through is still a concern and modest inventory build is a possibility, but we have not found significant volumes of inventory in the channel. • Euro-denominated pricing appears to be moving lower, but USD/Euro exchange rate is offsetting declines, in our view. We expect module ASPs at approximately $1.97/W for the quarter. 2Q09 sell-through is a concern, but we have not found significant volumes of inventory in the channel. While reports of large volumes of FSLR modules have been widely disseminated for the past two quarters, we have not found
confirmation of those volumes. However, our checks indicate that inventory of FSLR modules has increased modestly at the installer level and that the secondary market for FSLR product has seen some volume that has taken several weeks to clear. While we view slower moving inventory as a concern and would not be surprised to see a small inventory build at the OEM level, we believe the company is focusing on removing barriers to sell-through and will likely not see a large inventory build anywhere in the channel despite increasing production volume. We also believe the company is using its North American systems business, which we believe has a much larger backlog than the company has indicated, as a safety valve for volumes allocated to Europe, which the company is not able to sell. Given our channel checks and management's history of guiding very conservatively, we believe FSLR is likely to at least meet consensus estimates of $460M in revenue and $1.61 in EPS and has a significant chance to meet our expectation of $484M in revenue and $1.69 in EPS.”
RIMM (66.46): Piper Jaffray is cautious on RIMM citing increased smartphone competition and “slightly weaker” June sales: “Slightly Weak June Sales: Our checks indicated BlackBerry sales declined in June at AT&T and Sprint due to increasing smartphone competition, as BlackBerry sales appeared to lose share to the Palm Pre at Sprint and the new 3GS iPhone and older $99 iPhone at AT&T. BlackBerry sales at T-Mobile remained solid, but Verizon sales were slightly weaker following the termination of the BOGO promotion. Maintain Neutral: Due to our longer term concern of increasing smartphone competition and RIM's increasing mix of sales to consumers combined with RIM's ongoing investments to grow its global brand and market share, we anticipate declining margin trends. As such, we maintain our Neutral rating. • Pre Launch Impacts Blackberry Sales At Sprint: Our checks indicated Curve sales slightly declined in June at Sprint due to solid sales of the Palm Pre. Despite initial stock-out issues of the Pre, our June checks indicate adequate Pre stock at most Sprint channels, and we anticipate solid sell-through of the Pre over the next several months could potentially lead to softer Curve sales. • iPhone Launch Impacts Blackberry Sales At AT&T: Our checks indicated the new 3GS iPhone and older 3G iPhone's new $99 price impacted BlackBerry and other competitor sales. At AT&T, our checks indicate the Bold remains the top selling BlackBerry device with the 8900 a distant second and limited sales for the older Curve and Pearl products. Overall, our checks indicated the new iPhone impacted BlackBerry sales, as June sales appeared lower than May levels.”
FCX (45.00): Citibank upgrades FCX to buy from hold. Price target is 58 a share.
FDO (27.75): Family Dollar reports Q3 EPS $0.62 vs guidance $0.54-0.58 and Reuters $0.59: Company previously reported revenues of $1.84B. Guides Q4 EPS to $0.39-0.43 vs Reuters $0.39. Guides full year EPS to $2.03-2.07 vs Reuters $2.00. FDO noted the quarter is off to a good start, with sales in comparable stores increasing an estimated 2% in June. For Q4, the company expects that net sales will increase between 4%-6% and expects comparable store sales will increase 2%-4%.
Federal regulators consider restrictions on speculative traders in oil, natural gas, and other energy products – NYT: The Commodity Futures Trading Commission says it will consider using its existing powers to impose volume limits on such trading by purely financial investors. Trading by businesses such as airlines or oil companies would not be restricted. The CTFC also intends to reveal more about exactly who the traders are. The article notes the ideas, borne of recent chaotic movements in the price of oil, could be fiercely opposed by big banks, which are large traders in commodities. The government already limits speculative trading in agricultural commodities. Bloomberg had a high profile article on this topic yesterday and concerns about the trading limits caused sharp sell-offs in CME and ICE shares.
AMGN (52.23): Amgen's Denosumab demonstrates superiority over Zometa in head-to-head phase 3 trial – shares are trading up 7 in the pre-market: AMGN announced that a pivotal, Phase 3, head-to-head trial evaluating denosumab versus NVS's Zometa (zoledronic acid) in the treatment of bone metastases in 2,049 patients with advanced breast cancer met its primary and secondary endpoints and demonstrated superior efficacy compared to Zometa.
AMGN (52.23): Amgen target raised to $60 from $54 at Deutsche Bank following Denosumab data: The firm sees the results as the best possible scenario for AMGN after the company announced Dmab showed superiority vs. Zometa in breast cancer with both primary and secondary endpoints being met. Superiority in breast cancer is seen increasingly the likelihood of superiority in other indications.
FDIC chief Sheila Bair not anxious to have private-equity firms buy banks - NY Post: A participant in a five-hour 6-Jul meeting between Bair, banking figures, and private-equity figures provides the assessment of her attitude. The source, which says the meeting was friendly, suggests Bair may feel there are too many banks, making consolidation preferable to new ownership. Wilbur Ross says, "I left the meeting feeling the FDIC was nervous about private equity, but not that they did not want to work with us."
Tuesday, July 7, 2009
July 7, 2009: Morning Call
July 7, 2009: Morning Call
Fair Value: SP500 – 895.02; NDX: 1440.22; DOW: 8271.58
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
13:00: Treasury auctions 35 billion in 3-year notes
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence (July 5): -50
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 2 points above fair value and the NASDAQ futures are trading 4 points above fair value at 7:45am ET. Asian markets closed mixed (Japan down 0.34%, Hong Kong down 0.65%, Shanghai down 1.1%, Taiwan up 0.98%, South Korea up 0.27%, India up 0.90%). Construction stocks rose in Taiwan after Ting Shin International Group bought a 20% stake in Taipei 101 from China Development (2883.TT), which jumped 6%. Tech stocks in South Korea continued to be supported by Samsung Electronics (005930.KS)’s guidance yesterday. Samsung itself benefited from a broker upgrade and added another 3%. LG Electronics (066570.KS) jumped 5% after announcing it would reorganize its manufacturing plants and expand its investments in Mexico. Japan extended its losing streak on persistent concerns over the likely strength of any economic recovery, while exporters were dragged lower by worries over a strengthening yen. European markets have reversed modest losses on the open and are currently trading up 0.50% to 1.0%. British industrial production and manufacturing production numbers came in weaker than expected while German factory orders came in better than consensus. Basic material, financial, and industrial sectors are outperforming while the health care and telecom sectors are lagging.
Research Calls/Market Moving News:
AAPL (138.61): Piper Jaffray’s Gene Munster reiterates a buy rating and 180 price target and is “increasingly confident in June Mac and iPhone estimates.” “We are increasingly confident in our 2.2m Mac and 5m iPhone unit estimates for the June quarter given the following data points: • New lower-priced 13" MacBook Pros have a 7-10 day lead-time at Apple's online store (we have not seen similar delays on 13" models in over 2 years at 5-7 days). • 7 of 10 Apple retail stores we called are in short supply of 13" MacBook Pros. • NPD (April & May) tracking down 3%, vs. our model of down 10% for the June quarter. We expect NPD for the June quarter to be tracking up 1% once the month of June data is factored in. • Media sources are reporting that AT&T had its best retail sales day ever at the launch of the iPhone 3GS (i.e. an improvement from the iPhone 3G). Shortages Indicate Strong Mac Sales In June Quarter. Apple's online store is currently showing a 7-10 day delay in shipments of some models of the 13" MacBook Pro. Recall that Apple re-branded the popular 13" aluminum MacBook as the MacBook Pro and lowered the price on 6/8. We track product lead-times and our records show that Apple has never had a 7-10 day delay on its most popular 13" model, with the most recent significant delay being 5-7 days over 2 years ago in 9/08. We see this as a sign that demand is outpacing the company's build expectations, and it may take several weeks to reach a supply demand equilibrium. delays at its online store, Apple retail stores are experiencing shortages in some 13" MacBook Pro models. Of the 10 Apple stores we contacted, 7 are short of at least one 13" MacBook Pro model. Again, we see this as a sign of strong demand for Apple's most popular computer, which gives us increasing confidence in our 2.2m Mac unit estimate for the June quarter. AT&T Indicates Recent iPhone 3GS Launch Better Than Previous Launches. Several media sources are reporting that AT&T had its best retail sales day ever at the launch of the iPhone 3GS. While Apple has indicated the 3GS launch was as good as the 3G launch a year earlier (both reached 1m units), AT&T has indicated that the Jun-09 launch was its best-ever retail sales day and the largest order day in att.com history and (i.e. an improvement from the iPhone 3G). We are modeling for 5m iPhones in the Jun-09 quarter, a reduction from the 6.9m units the company sold in the launch quarter of the iPhone 3G. However, these datapoints suggest domestic sales of the new 3GS are tracking ahead of Apple's internal expectations. That said, the 3GS was launched in just 8 countries this year (vs. the 3G in 21 countries last year), so the international units will likely be weaker. The Bottom Line On Our iPhone Estimates. While we could be raising our June quarter unit numbers from 5m, we are maintaining estimates given a successful 3GS launch was built into our numbers and we remain significantly above the Street for June quarter iPhone unit estimates."
AAPL (138.61): BMO Capital reiterates their overweight rating and raises the price target to 152 from 150. “In this note, we take a look at Apple’s guidance for the September quarter, focusing on the introduction of the new iPhone and MacBook models with lower price points, and the impact to Apple’s gross margin. At the product level, we believe gross margins for both iPhones and MacBooks in the September quarter will decline owing to higher cost of goods sold (COGS) and lower pricing. However, factoring in mix, we believe overall gross margins should remain at healthy levels of 34%-35%, owing largely to increasing iPhone contribution. Further, we believe that Apple has been aggressive about reducing supply costs, to help offset the cost of
richer configurations and lower consumer ASPs. We offer a few main points:
1. iPhone impact, like for like. Given the $100 price cut and higher COGS, we believe gross margins for the new 16GB iPhone 3G S is currently around 53% versus 63% for the
previous 16GB 3G during the March quarter, or approximately a 940 bp decline.
2. iPhone, net of mix. We estimate total iPhone gross margins decline to 52% in the
September quarter from 59% in March, or approximately a 690 bp decline. We believe that mix within the iPhone family will help offset the like-for-like pricing pressure. Moreover, we note that profit margins on the 32GB iPhone are greater than the 16GB iPhone, given that the increase in price is greater than the increased cost of flash.
3. MacBook impact. For MacBooks, we assume a $50 price cut in ASPs lowers gross
margins to 25% in the September quarter from 30% in March, or approximately a 510 bp
decline.
4. Despite the price cuts, we believe Apple’s overall gross margins in the September quarter should be in the 34%-35% range, helped by higher mix of iPhones. Given Apple’s conservative guidance posturing, we would not be surprised if Apple provided gross margin guidance in the 32% range.
5. Estimate changes – higher. We are modestly raising our CPU and iPhone unit estimates as well as raising our gross margin assumption. We are raising our June CPU forecast to 2.4 million units from 2.2 million, and raising our iPhone forecast to 4.5 million units from 4.2 million. Net, we are raising our EPS estimate to $1.17 from $1.04, which compares with the Street $1.15. For FY2010, we are raising our GAAP EPS estimate to $6.10 from $6.00, and our non-GAAP EPS estimate to $7.00 from $6.75.
6. Raising target. Given our estimate changes, we are raising our target price to $152 from $150, based on 20x-22x our GAAP EPS plus cash, or 20x-22x our non-GAAP estimate. We note that June quarter results will be impacted by the release of iPhone OS 3.0, in which Apple did not recognize new iPhone sales until June 17, or only two weeks of revenue recognition. We believe the iPhone accounting treatment will impact June quarter revenues by approximately $200 million and EPS by $0.05. Still, we believe Apple will be able to at least meet Street estimates of $1.15. If Apple were to report June quarter EPS of $1.20-$1.30, we believe Apple will guide September quarter EPS in the range of $1.05- $1.15, or a 10%-15% q/q decline."
Information Technology Spending to Drop 6 Percent, Gartner says- Bloomberg: “Spending on information technology will drop 6 percent to $3.15 trillion this year, more than previously forecast, as the economic crisis forces companies and consumers to cut back, researcher Gartner Inc. said. “While the global economic downturn shows signs of easing, this year IT budgets are still being cut and consumers will need a lot more persuading before they can feel confident enough to loosen their purse strings,” Gartner said in an e-mailed statement. In March, the Stamford, Connecticut-based researcher had predicted a 3.8 percent decline for 2009. The drop is worse than the slowdown after the Internet bubble burst in 2001, when technology spending fell 2.1 percent. The “full impact of the global recession on the IT services and telecommunications sectors is still emerging, and forecast growth in these areas has been further reduced significantly,” Gartner said today. The researcher also changed its forecast because the U.S. dollar rose against most currencies in recent months. Computer-hardware sales will fall the most, with spending on equipment declining 16 percent, Gartner said. That compares with a 2.5 percent gain in 2008. Spending on services, software and telecommunications gear will also drop. For 2010, Gartner predicts spending on information technology products and services will increase by 2.3 percent."
INTC (16.54): Bank of America Merrill Lynch upgrades INTC and other semiconductor stocks: Intel (INTC) upgraded to buy from neutral; target is $19. LSI Corp (LSI) upgraded to buy from underperform; target is $7. Marvell (MRVL) upgraded to buy from neutral; target is $17. Maxim Integrated (MXIM) upgraded to neutral from underperform; target is $15. National Semiconductor (NSM) upgraded to neutral from underperform; target is $13.
Goldman Sachs upgrades DKS, JNY, KSS; downgrades BJ: Dick's Sporting Goods (DKS) upgraded to buy from neutral, tp $20. Jones Apparel (JNY) upgraded to buy from neutral, $12. Kohl's (KSS) upgraded to buy from neutral, tp $50. Downgrade: BJ's Wholesale (BJ) downgraded to sell from neutral.
APC (41.79): Anadarko Petroleum upgraded to buy from neutral at Bank of America Merrill Lynch
HES (48.62): Hess Corporation upgraded to overweight from equal-weight at Barclays Capital: Valuation cited. Target is $75.
Fair Value: SP500 – 895.02; NDX: 1440.22; DOW: 8271.58
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
13:00: Treasury auctions 35 billion in 3-year notes
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence (July 5): -50
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 2 points above fair value and the NASDAQ futures are trading 4 points above fair value at 7:45am ET. Asian markets closed mixed (Japan down 0.34%, Hong Kong down 0.65%, Shanghai down 1.1%, Taiwan up 0.98%, South Korea up 0.27%, India up 0.90%). Construction stocks rose in Taiwan after Ting Shin International Group bought a 20% stake in Taipei 101 from China Development (2883.TT), which jumped 6%. Tech stocks in South Korea continued to be supported by Samsung Electronics (005930.KS)’s guidance yesterday. Samsung itself benefited from a broker upgrade and added another 3%. LG Electronics (066570.KS) jumped 5% after announcing it would reorganize its manufacturing plants and expand its investments in Mexico. Japan extended its losing streak on persistent concerns over the likely strength of any economic recovery, while exporters were dragged lower by worries over a strengthening yen. European markets have reversed modest losses on the open and are currently trading up 0.50% to 1.0%. British industrial production and manufacturing production numbers came in weaker than expected while German factory orders came in better than consensus. Basic material, financial, and industrial sectors are outperforming while the health care and telecom sectors are lagging.
Research Calls/Market Moving News:
AAPL (138.61): Piper Jaffray’s Gene Munster reiterates a buy rating and 180 price target and is “increasingly confident in June Mac and iPhone estimates.” “We are increasingly confident in our 2.2m Mac and 5m iPhone unit estimates for the June quarter given the following data points: • New lower-priced 13" MacBook Pros have a 7-10 day lead-time at Apple's online store (we have not seen similar delays on 13" models in over 2 years at 5-7 days). • 7 of 10 Apple retail stores we called are in short supply of 13" MacBook Pros. • NPD (April & May) tracking down 3%, vs. our model of down 10% for the June quarter. We expect NPD for the June quarter to be tracking up 1% once the month of June data is factored in. • Media sources are reporting that AT&T had its best retail sales day ever at the launch of the iPhone 3GS (i.e. an improvement from the iPhone 3G). Shortages Indicate Strong Mac Sales In June Quarter. Apple's online store is currently showing a 7-10 day delay in shipments of some models of the 13" MacBook Pro. Recall that Apple re-branded the popular 13" aluminum MacBook as the MacBook Pro and lowered the price on 6/8. We track product lead-times and our records show that Apple has never had a 7-10 day delay on its most popular 13" model, with the most recent significant delay being 5-7 days over 2 years ago in 9/08. We see this as a sign that demand is outpacing the company's build expectations, and it may take several weeks to reach a supply demand equilibrium. delays at its online store, Apple retail stores are experiencing shortages in some 13" MacBook Pro models. Of the 10 Apple stores we contacted, 7 are short of at least one 13" MacBook Pro model. Again, we see this as a sign of strong demand for Apple's most popular computer, which gives us increasing confidence in our 2.2m Mac unit estimate for the June quarter. AT&T Indicates Recent iPhone 3GS Launch Better Than Previous Launches. Several media sources are reporting that AT&T had its best retail sales day ever at the launch of the iPhone 3GS. While Apple has indicated the 3GS launch was as good as the 3G launch a year earlier (both reached 1m units), AT&T has indicated that the Jun-09 launch was its best-ever retail sales day and the largest order day in att.com history and (i.e. an improvement from the iPhone 3G). We are modeling for 5m iPhones in the Jun-09 quarter, a reduction from the 6.9m units the company sold in the launch quarter of the iPhone 3G. However, these datapoints suggest domestic sales of the new 3GS are tracking ahead of Apple's internal expectations. That said, the 3GS was launched in just 8 countries this year (vs. the 3G in 21 countries last year), so the international units will likely be weaker. The Bottom Line On Our iPhone Estimates. While we could be raising our June quarter unit numbers from 5m, we are maintaining estimates given a successful 3GS launch was built into our numbers and we remain significantly above the Street for June quarter iPhone unit estimates."
AAPL (138.61): BMO Capital reiterates their overweight rating and raises the price target to 152 from 150. “In this note, we take a look at Apple’s guidance for the September quarter, focusing on the introduction of the new iPhone and MacBook models with lower price points, and the impact to Apple’s gross margin. At the product level, we believe gross margins for both iPhones and MacBooks in the September quarter will decline owing to higher cost of goods sold (COGS) and lower pricing. However, factoring in mix, we believe overall gross margins should remain at healthy levels of 34%-35%, owing largely to increasing iPhone contribution. Further, we believe that Apple has been aggressive about reducing supply costs, to help offset the cost of
richer configurations and lower consumer ASPs. We offer a few main points:
1. iPhone impact, like for like. Given the $100 price cut and higher COGS, we believe gross margins for the new 16GB iPhone 3G S is currently around 53% versus 63% for the
previous 16GB 3G during the March quarter, or approximately a 940 bp decline.
2. iPhone, net of mix. We estimate total iPhone gross margins decline to 52% in the
September quarter from 59% in March, or approximately a 690 bp decline. We believe that mix within the iPhone family will help offset the like-for-like pricing pressure. Moreover, we note that profit margins on the 32GB iPhone are greater than the 16GB iPhone, given that the increase in price is greater than the increased cost of flash.
3. MacBook impact. For MacBooks, we assume a $50 price cut in ASPs lowers gross
margins to 25% in the September quarter from 30% in March, or approximately a 510 bp
decline.
4. Despite the price cuts, we believe Apple’s overall gross margins in the September quarter should be in the 34%-35% range, helped by higher mix of iPhones. Given Apple’s conservative guidance posturing, we would not be surprised if Apple provided gross margin guidance in the 32% range.
5. Estimate changes – higher. We are modestly raising our CPU and iPhone unit estimates as well as raising our gross margin assumption. We are raising our June CPU forecast to 2.4 million units from 2.2 million, and raising our iPhone forecast to 4.5 million units from 4.2 million. Net, we are raising our EPS estimate to $1.17 from $1.04, which compares with the Street $1.15. For FY2010, we are raising our GAAP EPS estimate to $6.10 from $6.00, and our non-GAAP EPS estimate to $7.00 from $6.75.
6. Raising target. Given our estimate changes, we are raising our target price to $152 from $150, based on 20x-22x our GAAP EPS plus cash, or 20x-22x our non-GAAP estimate. We note that June quarter results will be impacted by the release of iPhone OS 3.0, in which Apple did not recognize new iPhone sales until June 17, or only two weeks of revenue recognition. We believe the iPhone accounting treatment will impact June quarter revenues by approximately $200 million and EPS by $0.05. Still, we believe Apple will be able to at least meet Street estimates of $1.15. If Apple were to report June quarter EPS of $1.20-$1.30, we believe Apple will guide September quarter EPS in the range of $1.05- $1.15, or a 10%-15% q/q decline."
Information Technology Spending to Drop 6 Percent, Gartner says- Bloomberg: “Spending on information technology will drop 6 percent to $3.15 trillion this year, more than previously forecast, as the economic crisis forces companies and consumers to cut back, researcher Gartner Inc. said. “While the global economic downturn shows signs of easing, this year IT budgets are still being cut and consumers will need a lot more persuading before they can feel confident enough to loosen their purse strings,” Gartner said in an e-mailed statement. In March, the Stamford, Connecticut-based researcher had predicted a 3.8 percent decline for 2009. The drop is worse than the slowdown after the Internet bubble burst in 2001, when technology spending fell 2.1 percent. The “full impact of the global recession on the IT services and telecommunications sectors is still emerging, and forecast growth in these areas has been further reduced significantly,” Gartner said today. The researcher also changed its forecast because the U.S. dollar rose against most currencies in recent months. Computer-hardware sales will fall the most, with spending on equipment declining 16 percent, Gartner said. That compares with a 2.5 percent gain in 2008. Spending on services, software and telecommunications gear will also drop. For 2010, Gartner predicts spending on information technology products and services will increase by 2.3 percent."
INTC (16.54): Bank of America Merrill Lynch upgrades INTC and other semiconductor stocks: Intel (INTC) upgraded to buy from neutral; target is $19. LSI Corp (LSI) upgraded to buy from underperform; target is $7. Marvell (MRVL) upgraded to buy from neutral; target is $17. Maxim Integrated (MXIM) upgraded to neutral from underperform; target is $15. National Semiconductor (NSM) upgraded to neutral from underperform; target is $13.
Goldman Sachs upgrades DKS, JNY, KSS; downgrades BJ: Dick's Sporting Goods (DKS) upgraded to buy from neutral, tp $20. Jones Apparel (JNY) upgraded to buy from neutral, $12. Kohl's (KSS) upgraded to buy from neutral, tp $50. Downgrade: BJ's Wholesale (BJ) downgraded to sell from neutral.
APC (41.79): Anadarko Petroleum upgraded to buy from neutral at Bank of America Merrill Lynch
HES (48.62): Hess Corporation upgraded to overweight from equal-weight at Barclays Capital: Valuation cited. Target is $75.
Wednesday, July 1, 2009
July 1, 2009: Morning Call
July 1, 2009: Morning Call
Fair Value: SP500 – 915.74; NDX: 1476.62; DOW: 8395.15
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
Pre-market EPS: GIS (.80/3.7B); STZ (.32/777.2M)
04:00: Euro-zone PMI Manufacturing (June): 42.4 (actual: 42.6)
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (June): -395,000 (actual: -473,000)
10:00: ISM Manufacturing (June): 44.9 ; Prices Paid: 47.0
10:00: Construction Spending (May): -0.6% MoM
10:00: Pending Home Sales (May): 0.0% MoM
10:00: GIS earnings call
10:30: DOE Crude Oil and Gasoline Inventories: -2m Crude draw; +2m Gas Build
11:15: Fed’s Evans speaks on credit crunch, policy actions
14:00: GM June 2009 Sales and Revenue Call
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 6 points above fair value while the NASDAQ futures are trading 10 points above fair value at 8am ET. Chinese manufacturing expanded for the fourth straight month (PMI 53.2 vs. prior 53.1; CLSA PMI 51.8 vs. prior 51.2). Euro-zone manufacturing was in-line with expectations. Asian markets closed mostly higher with markets in Shanghai outperforming, closing above 3000 for the first time in 12 months (Shanghai up 2.26%, Taiwan 2.2%, Hong Kong closed, Japan down 0.19%, Australia down 2.05%, India up 1.0%, South Korea up 1.8%). Construction and property shares advanced in Taiwan after the government lifted a ban on Chinese investment yesterday. Telecoms climbed after the Korea Communications Commission asked the country’s wireless carriers to refrain from overheating marketing competition. A weaker-than-expected tankan had minimal impact on Japan. Chalco (601600.CH), All Nippon Airways (9202.JP) and Orix (8591.JP) fell on reports the companies plan to offer new shares. All sectors in Australia fell in the first day of trading in the new FY. Hong Kong was closed for SAR Day. European markets are up 1.3% and have been trading in a tight trading range all morning. Mining shares were amongst the leading groups and retailers are strong following positive comments by UK retailer Marks and Spencer (MKS LN). Advancers on the FTSE 100 lead decliners 4-1.
Research Calls/Market Moving News:
BAC (13.20): Bids for Bank of America's Columbia Management Advisors LLC coming below expectations – FT: The FT cites people close to the matter who say that bids for the asset management business have come in at about $2B, below the $3B that BofA had targeted. The article notes that BofA may separate Columbia's money market assets to make the business more attractive, though the move may prove unnecessary if the pricing gap narrows. People close to the situation say that BlackRock (BLK) will not be buying the business, and that buyout firms remain interested in First Republic, BofA's private bank and mortgage lender, for perhaps $600-800M.
AIG (23.20): AIG is trading down 25% following the execution of a 1 for 20 stock split. There is no clear news to account for the decline. I would note that NITE securities is the number 1 broker based on advertised volume in the pre-market. Although AIG equity is likely worth zero over the long-term, I am not seeing any new fundamental news to account for the sell-off this morning. AIG shares fell 13% yesterday on concerns about European CDS exposure. Either the shares are continuing to fall on that story or retail investors are selling the shares in a very sloppy fashion (as I said, NITE is the largest advertised broker and they typically see a big chunk of discount/online broker's order flow). Hard to believe but AIG could be worth a fade (buy) here at the 17.50 level for a quick trade.
FDIC expected to propose tough new guidelines for private-equity firms looking to invest in failed banks – WSJ: The Journal cites people familiar with the matter, though it also points out that the proposal is not final and could still change before it is issued for public comment. According to the article, the proposal is expected to focus on deterring private-equity firms from flipping failed banks and may include a mandatory investment period. The proposal is also likely to impose higher capital reserves on private-equity firms than traditional banks, and may even require firms that own several banks to offer some form of cross-guarantee.
GIS (56.02): General Mills (GIS) reports Q4 EPS $0.86 ex-items vs Reuters $0.80, guides f10 EPS to $4.20-4.25 vs Reuters $4.17; FC $4.18.
Fair Value: SP500 – 915.74; NDX: 1476.62; DOW: 8395.15
Technical Levels:
SPX: 765, 788, 832, 875-880 support/ 935-943 resistance
Events:
Pre-market EPS: GIS (.80/3.7B); STZ (.32/777.2M)
04:00: Euro-zone PMI Manufacturing (June): 42.4 (actual: 42.6)
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (June): -395,000 (actual: -473,000)
10:00: ISM Manufacturing (June): 44.9 ; Prices Paid: 47.0
10:00: Construction Spending (May): -0.6% MoM
10:00: Pending Home Sales (May): 0.0% MoM
10:00: GIS earnings call
10:30: DOE Crude Oil and Gasoline Inventories: -2m Crude draw; +2m Gas Build
11:15: Fed’s Evans speaks on credit crunch, policy actions
14:00: GM June 2009 Sales and Revenue Call
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 6 points above fair value while the NASDAQ futures are trading 10 points above fair value at 8am ET. Chinese manufacturing expanded for the fourth straight month (PMI 53.2 vs. prior 53.1; CLSA PMI 51.8 vs. prior 51.2). Euro-zone manufacturing was in-line with expectations. Asian markets closed mostly higher with markets in Shanghai outperforming, closing above 3000 for the first time in 12 months (Shanghai up 2.26%, Taiwan 2.2%, Hong Kong closed, Japan down 0.19%, Australia down 2.05%, India up 1.0%, South Korea up 1.8%). Construction and property shares advanced in Taiwan after the government lifted a ban on Chinese investment yesterday. Telecoms climbed after the Korea Communications Commission asked the country’s wireless carriers to refrain from overheating marketing competition. A weaker-than-expected tankan had minimal impact on Japan. Chalco (601600.CH), All Nippon Airways (9202.JP) and Orix (8591.JP) fell on reports the companies plan to offer new shares. All sectors in Australia fell in the first day of trading in the new FY. Hong Kong was closed for SAR Day. European markets are up 1.3% and have been trading in a tight trading range all morning. Mining shares were amongst the leading groups and retailers are strong following positive comments by UK retailer Marks and Spencer (MKS LN). Advancers on the FTSE 100 lead decliners 4-1.
Research Calls/Market Moving News:
BAC (13.20): Bids for Bank of America's Columbia Management Advisors LLC coming below expectations – FT: The FT cites people close to the matter who say that bids for the asset management business have come in at about $2B, below the $3B that BofA had targeted. The article notes that BofA may separate Columbia's money market assets to make the business more attractive, though the move may prove unnecessary if the pricing gap narrows. People close to the situation say that BlackRock (BLK) will not be buying the business, and that buyout firms remain interested in First Republic, BofA's private bank and mortgage lender, for perhaps $600-800M.
AIG (23.20): AIG is trading down 25% following the execution of a 1 for 20 stock split. There is no clear news to account for the decline. I would note that NITE securities is the number 1 broker based on advertised volume in the pre-market. Although AIG equity is likely worth zero over the long-term, I am not seeing any new fundamental news to account for the sell-off this morning. AIG shares fell 13% yesterday on concerns about European CDS exposure. Either the shares are continuing to fall on that story or retail investors are selling the shares in a very sloppy fashion (as I said, NITE is the largest advertised broker and they typically see a big chunk of discount/online broker's order flow). Hard to believe but AIG could be worth a fade (buy) here at the 17.50 level for a quick trade.
FDIC expected to propose tough new guidelines for private-equity firms looking to invest in failed banks – WSJ: The Journal cites people familiar with the matter, though it also points out that the proposal is not final and could still change before it is issued for public comment. According to the article, the proposal is expected to focus on deterring private-equity firms from flipping failed banks and may include a mandatory investment period. The proposal is also likely to impose higher capital reserves on private-equity firms than traditional banks, and may even require firms that own several banks to offer some form of cross-guarantee.
GIS (56.02): General Mills (GIS) reports Q4 EPS $0.86 ex-items vs Reuters $0.80, guides f10 EPS to $4.20-4.25 vs Reuters $4.17; FC $4.18.
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