The Fed released the March 17-18 meeting minutes and here is the most important passage: "Participants did not interpret the uptick in housing starts in February as the beginning of a new trend, but some noted that there was only limited scope for housing to fall further. Nonetheless, large inventories of unsold homes relative to sales and the prospect of a continued high level of distressed sales would continue to hold down residential investment in the near term."
Bullish market participants have concluded that the recent data on the housing market suggest THE BOTTOM has been put in. I don't have the slightest clue whether housing has bottomed but remain highly skeptical. Skepticism has been the only way to avoid losing your shirt in this market. At the very least, the Fed minutes may force some of the "housing has bottomed" buyers to second guess their investment thesis.
Wednesday, April 8, 2009
April 8, 2009: Morning Call
April 8, 2009: Morning Call
Fair Value: SP500 – 812.90; NDX: 1276.08; DOW: 7746.79
Technical Levels:
SPX: 676, 719, 765 support/ 845, 898 resistance
Events:
Pre-market EPS: FDO (.60/1.94B); STZ (.22/790.3M)
08:30: Pulte and Centex conference call to discuss merger
09:00: MOS earnings call
09:30: SLB Annual Meeting
10:00: Wholesale Inventories (February): -0.5%
10:30: DOE Crude Oil and Gasoline Inventories
14:00: PBR Shareholders Meeting
14:00: Fed releases Minutes from the March 17-18 FOMC Meeting
16:00: Select US Retailers Release March 2009 Same Store Sales
17:00: SGR earnings call
Post-market EPS: PBY (-.32/466.4M); SMSC (-.44/46.6M); SGR (.61/1.73B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 4 points above fair value. The S&P futures have rallied 7 points since 6am following news that the Treasury department has agreed to assist a number of life insurance companies with TARP funds. Merger news in the housing sector (PHM offers 10.50 for CTX) also helped the futures. Concerns about Q1 earnings and yesterday’s weak TALF auction results remain the primary headwinds in the near-term. European markets were down as much as 2% but have pared the losses to 0.30% as markets have recovered in the last two hours. Basic material and energy stocks are the weakest sectors. Market participants await the BOE interest rate decision tomorrow. Decliners on the FTSE 100 lead advancers 3-2. Irish banks fell as investors digested details of the Irish government rescue plan to remove toxic loans from their books. UK Mar Nationwide Cons Conf 41 vs. con 45. Bank of France Mar Business Sentiment index 73 vs. prior 71. Germany Feb Factory Orders (38.2%) y/y vs con (36.5%). Asian market closed sharply lower with India being the only major Asian market to post gains (Japan down 2.69%, Hong Kong down 3.04%, Australia down 2.34%, Shanghai down 3.8%, South Korea down 3.54%, India up 1.97%). Exporters were hit in Japan as the yen strengthened and trading companies fell on lower oil prices. Profit taking ahead of tomorrow’s start to the earnings season pushed the market down further. Banks led China down on a report that regulators may restrict lending.
Research Calls/Market Moving News:
US of Offer Aid to Life Insurers – WSJ: “The Treasury Department has decided to extend bailout funds to a number of struggling life-insurance companies, helping an industry that is a lynchpin of the U.S. financial system, people familiar with the matter said. The department is expected to announce the expansion of the Troubled Asset Relief Program to aid the ailing industry within the next several days, these people said. The life-insurance companies will have access to Treasury's Capital Purchase Program, which injects funds into banks. How much money would now be available to the insurers, and which particular insurers would be beneficiaries, remains unclear. The Treasury says it has about $130 billion remaining in TARP money.” HIG, LNC, and PRU have confirmed that they have applied to TARP for federal funds.
CTX (7.62): Pulte Homes agreed to buy Centex in a deal valued at 1.3 billion. PHM offers 0.975 shares of PHM for each share of CTX. The deal values CTX shares at 10.50 and represents a 38% premium over Tuesday’s closing price.
TALF Loan Demand fell to 1.7 billion from 4.7 billion last month – Bloomberg: The auction results were down 64% month over month as private investors expressed concern about the scope of potential government intervention and how that could impact TALF deals in the future. TALF investors are also subject to a provision in the stimulus package that makes it more difficult for recipients of federal bailout funds to hire skilled workers from abroad.
GS (116.08); MS (23.32); JPM (27.25); C (2.76): Oppenheimer lowers estimates for MS, JPM, and BAC, increases estimates for GS: The firm continues to believe that investment banking businesses are further through the cycle than commercial banking businesses, and that they will recover first. GS and MS are rated outperform and BAC, C, and JPM are rated perform. Oppenheimer lowers their estimates for MS, JPM, and BAC primarily due to write-downs, charge-offs, and provisions. The firm increases their GS 1Q09 EPS estimates, due to more robust trading and lowers their 2010 estimate for C primarily due to higher loan loss provisions.
Meredith Whitney remains bearish on banking stocks – Bloomberg: Bloomberg cites comments from Whitney in Toronto. She said that investors should avoid financial stocks, adding that banks will be selling a lot of assets and the credit-card industry is contracting as consumers have their credit limits cut. According to Whitney, US home prices are likely to be down 50% from peak levels. She does not expect the economy to reach a trough until the end of 2010 or 2011
BBBY (25.51): Bed Bath & Beyond reports Q4 EPS $0.55 vs Reuters $0.44. Company reports revenues of $1.92B vs Reuters $1.92B. Bed Bath & Beyond says comfortable with Q1 estimates in the range of $0.23-0.24 - conf. Call. Reuters and First Call consensuses are both at $0.23. Management also says that the full year consensus of $1.50 is reasonable. BBBY shares are up over 10% in the pre-market.
MOS (42.94): Mosaic reports Q3 EPS $0.13 including items: Earnings included an inventory valuation write-down of $28.3M, or $0.05 per share. Reuters consensus is $0.23. Company reports revenues of $1.38B vs Reuters $1.67B. Potash sales volumes in Q4 of fiscal 2009 are expected to be roughly comparable with Q3 levels. Phosphate sales volumes in Q4 of fiscal 2009 are expected to be above Q3 levels, but below the prior year level.
PLD (6.82): ProLogis (PLD) to offer 115M shares through Merrill. Citi and Deutsche Bank, expects secondary to have a $0.38 to $0.40/sh dilutive effect. PLD is going to use to the proceeds of the secondary to restructure debt.
WYNN (26.71); MGM (4.45): Citi reiterates sell rating on MGM, WYNN: Firm cites February Las Vegas strip revenue data, which indicated a 14th consecutive month of declines, and trends that indicate f09 levels will be below year ago levels. Firm also cited Feb convention attendance that was significantly lower y/y.
UBS comments on global steel market: Firm sees a severe looming export threat from Russia and its neighbors given the devaluation of the ruble, the fall in domestic demand, and that the region is among the lowest cost producers and is running at ~65% capacity utilization. UBS believes the worst-case scenario of a global market share battle is emerging. Firm maintains a cautious view on the sector. Top global picks are NLMK (NLMK.RU), China Steel (2002.TT), Steel Dynamics (STLD), SAIL, and Gerdau (GGB).
Politics hindering global accounting reconciliation – WSJ: In a "Heard on the Street" column, the Journal notes that calls out of the recent G20 meeting in London for a global set of accounting standards have already been dampened by FASB's recent decision to succumb to political pressure in the US. According to the article, FASB's move to water down its definition of an asset "other than temporarily impaired" - a designation that requires a bank to mark certain losses through income and not just shareholders' equity- gives US banks significantly more discretion than is allowed under IASB rules. The column goes on to argue that accounting rules on both sides of the Atlantic should be overhauled, simplified and reconciled.
STT (32.38): State Street downgraded to neutral from buy at Bank of America Merrill Lynch
BBBY (25.51): Bed Bath & Beyond upgraded to neutral from underweight at JPMorgan: Target is $28.
COP (39.69): ConocoPhillips downgraded to neutral from buy at UBS: Target is lowered to $42 from $56. Firm notes a lower crude price forecast and a below peer average growth outlook. Estimates are lowered.
Fair Value: SP500 – 812.90; NDX: 1276.08; DOW: 7746.79
Technical Levels:
SPX: 676, 719, 765 support/ 845, 898 resistance
Events:
Pre-market EPS: FDO (.60/1.94B); STZ (.22/790.3M)
08:30: Pulte and Centex conference call to discuss merger
09:00: MOS earnings call
09:30: SLB Annual Meeting
10:00: Wholesale Inventories (February): -0.5%
10:30: DOE Crude Oil and Gasoline Inventories
14:00: PBR Shareholders Meeting
14:00: Fed releases Minutes from the March 17-18 FOMC Meeting
16:00: Select US Retailers Release March 2009 Same Store Sales
17:00: SGR earnings call
Post-market EPS: PBY (-.32/466.4M); SMSC (-.44/46.6M); SGR (.61/1.73B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 4 points above fair value. The S&P futures have rallied 7 points since 6am following news that the Treasury department has agreed to assist a number of life insurance companies with TARP funds. Merger news in the housing sector (PHM offers 10.50 for CTX) also helped the futures. Concerns about Q1 earnings and yesterday’s weak TALF auction results remain the primary headwinds in the near-term. European markets were down as much as 2% but have pared the losses to 0.30% as markets have recovered in the last two hours. Basic material and energy stocks are the weakest sectors. Market participants await the BOE interest rate decision tomorrow. Decliners on the FTSE 100 lead advancers 3-2. Irish banks fell as investors digested details of the Irish government rescue plan to remove toxic loans from their books. UK Mar Nationwide Cons Conf 41 vs. con 45. Bank of France Mar Business Sentiment index 73 vs. prior 71. Germany Feb Factory Orders (38.2%) y/y vs con (36.5%). Asian market closed sharply lower with India being the only major Asian market to post gains (Japan down 2.69%, Hong Kong down 3.04%, Australia down 2.34%, Shanghai down 3.8%, South Korea down 3.54%, India up 1.97%). Exporters were hit in Japan as the yen strengthened and trading companies fell on lower oil prices. Profit taking ahead of tomorrow’s start to the earnings season pushed the market down further. Banks led China down on a report that regulators may restrict lending.
Research Calls/Market Moving News:
US of Offer Aid to Life Insurers – WSJ: “The Treasury Department has decided to extend bailout funds to a number of struggling life-insurance companies, helping an industry that is a lynchpin of the U.S. financial system, people familiar with the matter said. The department is expected to announce the expansion of the Troubled Asset Relief Program to aid the ailing industry within the next several days, these people said. The life-insurance companies will have access to Treasury's Capital Purchase Program, which injects funds into banks. How much money would now be available to the insurers, and which particular insurers would be beneficiaries, remains unclear. The Treasury says it has about $130 billion remaining in TARP money.” HIG, LNC, and PRU have confirmed that they have applied to TARP for federal funds.
CTX (7.62): Pulte Homes agreed to buy Centex in a deal valued at 1.3 billion. PHM offers 0.975 shares of PHM for each share of CTX. The deal values CTX shares at 10.50 and represents a 38% premium over Tuesday’s closing price.
TALF Loan Demand fell to 1.7 billion from 4.7 billion last month – Bloomberg: The auction results were down 64% month over month as private investors expressed concern about the scope of potential government intervention and how that could impact TALF deals in the future. TALF investors are also subject to a provision in the stimulus package that makes it more difficult for recipients of federal bailout funds to hire skilled workers from abroad.
GS (116.08); MS (23.32); JPM (27.25); C (2.76): Oppenheimer lowers estimates for MS, JPM, and BAC, increases estimates for GS: The firm continues to believe that investment banking businesses are further through the cycle than commercial banking businesses, and that they will recover first. GS and MS are rated outperform and BAC, C, and JPM are rated perform. Oppenheimer lowers their estimates for MS, JPM, and BAC primarily due to write-downs, charge-offs, and provisions. The firm increases their GS 1Q09 EPS estimates, due to more robust trading and lowers their 2010 estimate for C primarily due to higher loan loss provisions.
Meredith Whitney remains bearish on banking stocks – Bloomberg: Bloomberg cites comments from Whitney in Toronto. She said that investors should avoid financial stocks, adding that banks will be selling a lot of assets and the credit-card industry is contracting as consumers have their credit limits cut. According to Whitney, US home prices are likely to be down 50% from peak levels. She does not expect the economy to reach a trough until the end of 2010 or 2011
BBBY (25.51): Bed Bath & Beyond reports Q4 EPS $0.55 vs Reuters $0.44. Company reports revenues of $1.92B vs Reuters $1.92B. Bed Bath & Beyond says comfortable with Q1 estimates in the range of $0.23-0.24 - conf. Call. Reuters and First Call consensuses are both at $0.23. Management also says that the full year consensus of $1.50 is reasonable. BBBY shares are up over 10% in the pre-market.
MOS (42.94): Mosaic reports Q3 EPS $0.13 including items: Earnings included an inventory valuation write-down of $28.3M, or $0.05 per share. Reuters consensus is $0.23. Company reports revenues of $1.38B vs Reuters $1.67B. Potash sales volumes in Q4 of fiscal 2009 are expected to be roughly comparable with Q3 levels. Phosphate sales volumes in Q4 of fiscal 2009 are expected to be above Q3 levels, but below the prior year level.
PLD (6.82): ProLogis (PLD) to offer 115M shares through Merrill. Citi and Deutsche Bank, expects secondary to have a $0.38 to $0.40/sh dilutive effect. PLD is going to use to the proceeds of the secondary to restructure debt.
WYNN (26.71); MGM (4.45): Citi reiterates sell rating on MGM, WYNN: Firm cites February Las Vegas strip revenue data, which indicated a 14th consecutive month of declines, and trends that indicate f09 levels will be below year ago levels. Firm also cited Feb convention attendance that was significantly lower y/y.
UBS comments on global steel market: Firm sees a severe looming export threat from Russia and its neighbors given the devaluation of the ruble, the fall in domestic demand, and that the region is among the lowest cost producers and is running at ~65% capacity utilization. UBS believes the worst-case scenario of a global market share battle is emerging. Firm maintains a cautious view on the sector. Top global picks are NLMK (NLMK.RU), China Steel (2002.TT), Steel Dynamics (STLD), SAIL, and Gerdau (GGB).
Politics hindering global accounting reconciliation – WSJ: In a "Heard on the Street" column, the Journal notes that calls out of the recent G20 meeting in London for a global set of accounting standards have already been dampened by FASB's recent decision to succumb to political pressure in the US. According to the article, FASB's move to water down its definition of an asset "other than temporarily impaired" - a designation that requires a bank to mark certain losses through income and not just shareholders' equity- gives US banks significantly more discretion than is allowed under IASB rules. The column goes on to argue that accounting rules on both sides of the Atlantic should be overhauled, simplified and reconciled.
STT (32.38): State Street downgraded to neutral from buy at Bank of America Merrill Lynch
BBBY (25.51): Bed Bath & Beyond upgraded to neutral from underweight at JPMorgan: Target is $28.
COP (39.69): ConocoPhillips downgraded to neutral from buy at UBS: Target is lowered to $42 from $56. Firm notes a lower crude price forecast and a below peer average growth outlook. Estimates are lowered.
Tuesday, April 7, 2009
April 7, 2009: Morning Call
April 7, 2009: Morning Call
Fair Value: SP500 – 833.15; NDX: 1313.91; DOW: 7937.02
Technical Levels:
SPX: 676, 719, 765 support/ 845, 898 resistance
Events:
05:00 Euro-zone GDP (Q4 Final): -1.5% QoQ; -1.3% YoY (actual weaker: -1.6% QoQ; -1.5% YoY)
15:00: Consumer Credit (February): -3.0B
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: AA (-.45/3.99B); BBBY (.44/1.92B); MOS (.55/1.56B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 15 points below fair value while the NASDAQ futures are trading 18 points below fair value at 7:30am ET. European markets are down 1.0% to 1.5% reversing early gains following weaker economic data and general concerns about Q1 earnings. Banks, basic materials, and technology stocks are the weakest sectors. Consumer staples and health care are the strongest. Bloomberg is reporting that Rio Tinto Alcan (RIO.LN; RTP US) is going to slow construction of Yarwun alumina refinery expansion and cut bauxite production at Weipa mine. There are also reports that Rio is offering a 20% price cut on iron ore price to Asian steelmakers as annual talks stall. Euro-zone GDP came in a little weaker than expected. Asian markets closed lower (Japan down 0.28%, Hong Kong down 0.46%, Australia down 1.34%, South Korea down 0.30%, Shanghai up 0.25%). Banks and property shares declined, the latter on news that residential property sales dropped (5%) w/w in Shanghai. Japan’s market was quiet as the market awaits details of the $100B stimulus package to be announced Friday.
Research Calls/Market Moving News:
IMF to warn toxic debts could reach as high as high as $4 trillion - London Times: The Times reports that new forecasts from the IMF suggest that toxic debts incurred by banks and insurers could reach as high as $4 trillion. Recall that the IMF said back in January that it expected writedowns to hit $2.2 trillion by the end of next year. However, the paper notes that the agency is understood to be considering raising that figure to $3.1 trillion in its next assessment of the global economy, which will be published on 21-Apr. In addition, it is likely to boost that total by $900B to account for toxic assets originated in Europe and Asia. Banks and insurers have recorded nearly $1.3 trillion in writedowns thus far.
Rally in investment banks may have run its course - WSJ: In a "Heard on the Street" column, the Journal notes that it remains unclear whether banks will be able to earn returns above their cost of equity, which is now about 13%, while book value may fall further. The paper adds that while margins are expanding, that impact is likely to be partially offset by deleveraging. The article also points out that banks face significant regulatory risk as new capital and liquidity requirements take effect.
WSJ discusses recent developments in the REIT space: In a "Heard on the Street" column, the Journal notes that some semblance of hope seems to have returned to the REIT space, as evidenced by the ability of companies such as Kimco (KIM), Simon Property Group (SPG) and AMB Property (AMB) to raise money via equity offerings. While the offerings were priced at significant discounts to NAV, the article points out that all three of the stocks have rallied in the wake of the deals. The Journal also reports that Cohen & Steers, an influential REIT investor that bought significant positions in all three of the recent offerings, is willing to provide additional equity to 10 to 20 other leading real-estate companies that will be able to ride out the downturn. The article goes on to note that the companies that do survive will likely make attractive takeover targets for both strategic and financial buyers.
GOOG (368.24): Google estimates reduced at RBC: The firm has reduced its Q1 net revenue growth estimate to (4.3%) with EPS reduced to $4.73 from $4.84 vs. Reuters $4.97. Full year growth is reduced to 5.3% vs. prior 6.5%. Shares of GOOG remain.
GM (2.27): GM speeding up bankruptcy plans – Bloomberg: Bloomberg cites people familiar with the matter who say that GM is speeding up preparations for a possible bankruptcy filing even as its directors seek deeper savings in an effort to avoid such an outcome. According to the article, the company's preparations include looking at a 363 sale, which relates to a section of the Chapter 11 bankruptcy code that would create a new car company from the best assets and brands of GM. Recall that new GM CEO Fritz Anderson has said that bankruptcy is more probable given the resistance for concessions from bondholders and the UAW.
ADBE (23.19); MSFT (18.76); CRM (36.48): RBC Capital upgrades ADBE, MSFT, and CRM to outperform. ADBE target to 30 from 23. CRM target to 45 from 37. MSFT target to 27 from 20.
Fair Value: SP500 – 833.15; NDX: 1313.91; DOW: 7937.02
Technical Levels:
SPX: 676, 719, 765 support/ 845, 898 resistance
Events:
05:00 Euro-zone GDP (Q4 Final): -1.5% QoQ; -1.3% YoY (actual weaker: -1.6% QoQ; -1.5% YoY)
15:00: Consumer Credit (February): -3.0B
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: AA (-.45/3.99B); BBBY (.44/1.92B); MOS (.55/1.56B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 15 points below fair value while the NASDAQ futures are trading 18 points below fair value at 7:30am ET. European markets are down 1.0% to 1.5% reversing early gains following weaker economic data and general concerns about Q1 earnings. Banks, basic materials, and technology stocks are the weakest sectors. Consumer staples and health care are the strongest. Bloomberg is reporting that Rio Tinto Alcan (RIO.LN; RTP US) is going to slow construction of Yarwun alumina refinery expansion and cut bauxite production at Weipa mine. There are also reports that Rio is offering a 20% price cut on iron ore price to Asian steelmakers as annual talks stall. Euro-zone GDP came in a little weaker than expected. Asian markets closed lower (Japan down 0.28%, Hong Kong down 0.46%, Australia down 1.34%, South Korea down 0.30%, Shanghai up 0.25%). Banks and property shares declined, the latter on news that residential property sales dropped (5%) w/w in Shanghai. Japan’s market was quiet as the market awaits details of the $100B stimulus package to be announced Friday.
Research Calls/Market Moving News:
IMF to warn toxic debts could reach as high as high as $4 trillion - London Times: The Times reports that new forecasts from the IMF suggest that toxic debts incurred by banks and insurers could reach as high as $4 trillion. Recall that the IMF said back in January that it expected writedowns to hit $2.2 trillion by the end of next year. However, the paper notes that the agency is understood to be considering raising that figure to $3.1 trillion in its next assessment of the global economy, which will be published on 21-Apr. In addition, it is likely to boost that total by $900B to account for toxic assets originated in Europe and Asia. Banks and insurers have recorded nearly $1.3 trillion in writedowns thus far.
Rally in investment banks may have run its course - WSJ: In a "Heard on the Street" column, the Journal notes that it remains unclear whether banks will be able to earn returns above their cost of equity, which is now about 13%, while book value may fall further. The paper adds that while margins are expanding, that impact is likely to be partially offset by deleveraging. The article also points out that banks face significant regulatory risk as new capital and liquidity requirements take effect.
WSJ discusses recent developments in the REIT space: In a "Heard on the Street" column, the Journal notes that some semblance of hope seems to have returned to the REIT space, as evidenced by the ability of companies such as Kimco (KIM), Simon Property Group (SPG) and AMB Property (AMB) to raise money via equity offerings. While the offerings were priced at significant discounts to NAV, the article points out that all three of the stocks have rallied in the wake of the deals. The Journal also reports that Cohen & Steers, an influential REIT investor that bought significant positions in all three of the recent offerings, is willing to provide additional equity to 10 to 20 other leading real-estate companies that will be able to ride out the downturn. The article goes on to note that the companies that do survive will likely make attractive takeover targets for both strategic and financial buyers.
GOOG (368.24): Google estimates reduced at RBC: The firm has reduced its Q1 net revenue growth estimate to (4.3%) with EPS reduced to $4.73 from $4.84 vs. Reuters $4.97. Full year growth is reduced to 5.3% vs. prior 6.5%. Shares of GOOG remain.
GM (2.27): GM speeding up bankruptcy plans – Bloomberg: Bloomberg cites people familiar with the matter who say that GM is speeding up preparations for a possible bankruptcy filing even as its directors seek deeper savings in an effort to avoid such an outcome. According to the article, the company's preparations include looking at a 363 sale, which relates to a section of the Chapter 11 bankruptcy code that would create a new car company from the best assets and brands of GM. Recall that new GM CEO Fritz Anderson has said that bankruptcy is more probable given the resistance for concessions from bondholders and the UAW.
ADBE (23.19); MSFT (18.76); CRM (36.48): RBC Capital upgrades ADBE, MSFT, and CRM to outperform. ADBE target to 30 from 23. CRM target to 45 from 37. MSFT target to 27 from 20.
Monday, April 6, 2009
April 6, 2009: Morning Call
April 6, 2009: Morning Call
Fair Value: SP500 – 839.76; NDX: 1317.17; DOW: 7973.08
Technical Levels:
SPX: 676, 719, 765 support/ 845, 898 resistance
Events:
04:30: Euro-zone Sentix Investor Confidence (stronger: -35.3 vs. –40.7)
05:00: Euro-zone PPI (Feb): -0.50% MoM; -1.5% YoY
05:00: Euro-zone Retail Sales (Feb): -0.30% MoM; -2.5% YoY (weaker: -0.6% MoM; -4.0% YoY)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 6 points below fair value at 7:45 am ET. The futures have pulled back after Mike Mayo throws cold water on the recent rally in the bank stocks. European markets are up 0.50% well off the highs of the session. Technology and basic material stocks are the leading sectors in Europe. Asian markets closed higher despite North Korea’s launch of a long-range rocket yesterday (Japan up 1.24%, Hong Kong up 3.11%, Australia up 0.56%, India up 1.8%). Exporters gained in Japan as dollar/yen moved through 100. Carmakers extended their rally on a report the country is considering green-car subsidies.
Research Calls/Market Moving News:
CLSA's Mike Mayo bearish on banking industry: The former Deutsche analyst has initiated coverage on 11 traditional banks (not including brokers MS and GS), with either underperform or sell ratings. Mayo is not buying the recent rally and says the recent 'fixes' in the banking industry are window dressing. The sector is rated underweight. Mayo says new government actions might not help as much as expected and loan losses will be greater than those levels from the Great Depression. “While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class. New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”
AAPL (115.99): Apple estimates raised at Barclays Capital: Firm believes new products including new iPhones in June and an ultraportable later this year should boost shares. Q2'09 and FY'09 estimates are raised. Shares remain a top pick. Rating is overweight with a target of $143.
IBM (102.22): IBM downgraded to hold from buy at Canaccord Adams: Target remains $110. Firm cites valuation.
CSCO (18.16): Cisco Systems downgraded to neutral from Conviction Buy at Goldman Sachs: Target remains $18. The firm cites valuation
JAVA (8.49): Sun Microsystem shares are down 25% on news that the takeover talks with IBM have collapsed.
RIMM (59.29); AAPL (115.99): Barron's Technology Trader is positive on RIM and Apple: Research in Motion (RIMM) is showing considerable success during these troubled times because of several factors. The recent push into the consumer market has met with considerable success. And the announcement of a rebound in margins means Street concerns over the expense of moving into the consumer market may be unfounded. There may be a case for owning both RIMM and Apple (AAPL). RIMM isn't expansive even after the recent rally. And the strong RIMM results means that smartphone demand is flourishing, which is good for Apple. Apple may also get a boost from weaker material prices, including weak memory chip prices. The BlackBerry App World is a step in the right direction but still has far to go.
Cowen reduces estimates for the Solar group, says ASPs still falling: The firm reduces estimates across the group and says Street estimate reductions for Q1 could put some pressure on shares though they don't believe this will be much of a surprise. Shares best positioned for US stimulus and utility projects are FSLR, SPWRA, and ENER.
Secretary Geithner says government may remove top bank executives or board members if needed reports the WSJ: Speaking on 'Face the Nation', Secretary Geithner said the federal government might remove top bank executives or board members if exceptional assistance is required to keep the banks operating in the future. He said future money would come with conditions attached to make sure banks undertake the kind of restructuring necessary for them to emerge stronger. If that means a management change, the government will force that. Geithner pointed to the treatment of executives at Fannie, Freddie and AIG.
Fair Value: SP500 – 839.76; NDX: 1317.17; DOW: 7973.08
Technical Levels:
SPX: 676, 719, 765 support/ 845, 898 resistance
Events:
04:30: Euro-zone Sentix Investor Confidence (stronger: -35.3 vs. –40.7)
05:00: Euro-zone PPI (Feb): -0.50% MoM; -1.5% YoY
05:00: Euro-zone Retail Sales (Feb): -0.30% MoM; -2.5% YoY (weaker: -0.6% MoM; -4.0% YoY)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 6 points below fair value at 7:45 am ET. The futures have pulled back after Mike Mayo throws cold water on the recent rally in the bank stocks. European markets are up 0.50% well off the highs of the session. Technology and basic material stocks are the leading sectors in Europe. Asian markets closed higher despite North Korea’s launch of a long-range rocket yesterday (Japan up 1.24%, Hong Kong up 3.11%, Australia up 0.56%, India up 1.8%). Exporters gained in Japan as dollar/yen moved through 100. Carmakers extended their rally on a report the country is considering green-car subsidies.
Research Calls/Market Moving News:
CLSA's Mike Mayo bearish on banking industry: The former Deutsche analyst has initiated coverage on 11 traditional banks (not including brokers MS and GS), with either underperform or sell ratings. Mayo is not buying the recent rally and says the recent 'fixes' in the banking industry are window dressing. The sector is rated underweight. Mayo says new government actions might not help as much as expected and loan losses will be greater than those levels from the Great Depression. “While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class. New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”
AAPL (115.99): Apple estimates raised at Barclays Capital: Firm believes new products including new iPhones in June and an ultraportable later this year should boost shares. Q2'09 and FY'09 estimates are raised. Shares remain a top pick. Rating is overweight with a target of $143.
IBM (102.22): IBM downgraded to hold from buy at Canaccord Adams: Target remains $110. Firm cites valuation.
CSCO (18.16): Cisco Systems downgraded to neutral from Conviction Buy at Goldman Sachs: Target remains $18. The firm cites valuation
JAVA (8.49): Sun Microsystem shares are down 25% on news that the takeover talks with IBM have collapsed.
RIMM (59.29); AAPL (115.99): Barron's Technology Trader is positive on RIM and Apple: Research in Motion (RIMM) is showing considerable success during these troubled times because of several factors. The recent push into the consumer market has met with considerable success. And the announcement of a rebound in margins means Street concerns over the expense of moving into the consumer market may be unfounded. There may be a case for owning both RIMM and Apple (AAPL). RIMM isn't expansive even after the recent rally. And the strong RIMM results means that smartphone demand is flourishing, which is good for Apple. Apple may also get a boost from weaker material prices, including weak memory chip prices. The BlackBerry App World is a step in the right direction but still has far to go.
Cowen reduces estimates for the Solar group, says ASPs still falling: The firm reduces estimates across the group and says Street estimate reductions for Q1 could put some pressure on shares though they don't believe this will be much of a surprise. Shares best positioned for US stimulus and utility projects are FSLR, SPWRA, and ENER.
Secretary Geithner says government may remove top bank executives or board members if needed reports the WSJ: Speaking on 'Face the Nation', Secretary Geithner said the federal government might remove top bank executives or board members if exceptional assistance is required to keep the banks operating in the future. He said future money would come with conditions attached to make sure banks undertake the kind of restructuring necessary for them to emerge stronger. If that means a management change, the government will force that. Geithner pointed to the treatment of executives at Fannie, Freddie and AIG.
Friday, April 3, 2009
April 3, 2009: Morning Call
April 3, 2009: Morning Call
Fair Value: SP500 – 831.61; NDX: 1295.08; DOW: 7933.80
Technical Levels:
SPX: 676, 719, 765 support/ 845, 898 resistance
Events:
04:00: Euro-zone PMI Services (Mar. Final): 40.1; Composite: 37.6 (actual: Services – 40.9; Composite: 38.3)
08:30: US Change in Payrolls (March): -660,000; Unemployment Rate: 8.5%
08:30: Change in Manufacturing Payrolls (March): -162,000
08:30: Average Hourly Earnings (March): 0.2% MoM; 3.5% YoY
09:10: Fed’s Kohn speaks on the economic crisis
10:00: ISM Non-Manufacturing Index (March): 42.0
12:00: Fed Chief Bernanke speaks at Credit markets conference
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 6 points above fair value while the NASDAQ futures are trading 13 points above fair value at 8am ET. Technology stocks continue to outperform following a substantial upside earnings surprise from RIMM. Technology stocks have been benefitting all year due to their simple business models, high levels of cash, and low levels of debt. Performance anxiety appears to be playing a critical role in the recent gains as market participants that have missed the rally off the lows are likely chasing higher-beta technology stocks in an attempt to “catch up” with their benchmarks. European markets are flat to modestly higher ahead of the US labor report. Autos, chemicals, and basic materials are outperforming in Europe. Asian markets closed higher (Japan up 0.35%, Hong Kong up 0.16%, Australia up 1.5%, India closed). Banking shares gained on the US decision to allow more flexibility in valuing toxic assets. Australia advanced on (non-gold) miners and financial shares. Japanese exporters were boosted when the US dollar eclipsed the 100-yen mark. Toyota Motor (7203.JP) jumped 7% after it got loans to finance US car sales.
Research Calls/Market Moving News:
RIMM (49.09): Research In Motion reports Q4 EPS $0.90 vs Reuters $0.84: Company reports revenues of $3.46B vs Reuters $3.40B. Research In Motion guides Q1 EPS to $0.88-$0.97 vs. Reuters $0.81. Guides Q1 revenues to range $3.30-$3.50B vs. Reuters $3.35B. Net sub adds totaled 3.90M vs consensus of 3.48M and 11-Feb guidance for 20% higher than 2.9M (or 3.48M). Gross margin reported 40.0% vs SA 40.2% and 11-Feb guidance for the low end of 40-41%. Q1 guidance assumes: Net sub adds 3.7-3.9M vs SA 3.02M. Gross margin 43-44% vs SA 40.4%. RIMM shares are surging 25% and have been upgraded by at least 5 brokerage firms.
RIMM (49.09): Thomas Weisel Reiterates their buy rating and raises the price target to 74. The note out provides good insight into the bull case on RIMM: “We reiterate our Overweight rating on RIMM shares following strong results and guidance this evening. Going into the report, we were admittedly concerned with RIMM's ability to improve gross margin - something we have heard for a few quarters now - and to sustain a solid growth rate amid increased competition and weak enterprise and consumer spending. On the growth front, the guidance of 3.7mn-3.9mn net subscriber adds in the May quarter is a sign that RIMM continues to gain traction with consumers while defending its dominance in the enterprise space. More important, the GM guidance (43%-44%, up from 40% last quarter) demonstrates RIMM's ability to bring down supply costs as its platforms mature - despite a declining ASP due to mix. Looking ahead, GM will still be key metric, and we are conservatively modeling a modest decline in F2H10 as RIMM launches new products. But we also believe the company will have a steady flow of new products and carrier partnerships over the next few quarters to continue driving top and bottom line growth (the expected launch of the "Niagara" with Verizon being a prime example). We are increasing our estimates and raising our 12-month price target to $74 from $52.”
RIMM (49.09): Deutsche Bank upgrades the shares to hold from sell. Deutsche Bank raises the price target to 56 from 30. Even though Deutsche Bank upgraded the stock, the note provides insight into the bear case on RIMM. “We upgrade to Hold due to better near-term GM guidance. Sustainability of execution and increasing competition remain our concerns. Raising PT from $30 to $56.Post-holiday demand momentum and margin stabilization mark the quarter: Among the quarter's highlights were better than anticipated demand momentum for their smartphones, on the back of new phone launches and aggressive carrier promotions, worldwide, and improvements in cost-controls. Near-term, due to COGS reductions and mix, management expects RIM's GM's to improve 3-4% sequentially. We note that the entirety of our upward revision in earnings is due to the increase in our GM assumption from 40% to 43% for FY10. Competitive and execution concerns remain; basis for Hold rating : While RIM seems to be benefiting from the initial inventory builds for their new devices, we do not think they are well-positioned strategically. The company remains increasingly exposed to consumer demand, and also over-weight to North America (+70% of sales). Further, it will become increasingly hard for them to stand out from the competition with multiple new competing smart phones launching this year, including models targeting mid-range price points. To keep consumers upgrading they have to stay on the treadmill indefinitely, and that may prove beyond RIM's abilities. We see these issues creating margin pressure over time. We see these issues creating margin pressure over time. For now, we go to the sidelines and upgrade to Hold.”
RIMM (49.09): Piper Jaffray reiterates their neutral rating and raises the price target to 62 from 48. “Gross Margin Recovery Surprise: We believe the fall in gross margin during the February quarter was primarily driven by the quicker than anticipated adoption of newly launched lower margin products such as the Bold and Storm, as we believe Storm gross margins are in the high 20s. However, RIM has improved the yields and cost structure of these devices faster than we anticipated, and we also expect a more favorable mix shift during the May quarter. With the 2 for 1 promotion coming to an end at Verizon, this should lead in a lower mix of the lower margin Storm products. • Longer-Term Concerns: Longer term, we believe RIM's increasing mix of consumer products due in part to slowing enterprise sales will result in longer-term margin pressure. Further, we believe RIM will face increased competition from compelling products such as the Palm Pre (June launch), Nokia's E71 ($99 at AT&T), a potentially lower priced iPhone, and other devices in 2H09. Based on the resulting price competition combined with RIM's ongoing investment and increasing operating expense structure, we anticipate RIM's operating margins will likely decline longer term.”
DVN (48.40): Devon Energy upgraded to outperform from market perform at Friedman Billings Ramsey: Target is $60.
AMZN (76.34): Amazon.com estimates and target raised at JPMorgan: The firm sees room for additional market share gains internationally and has raised their Q1 international revenue estimate to $2.35B from $2.29B. Trends domestically remain positive with modest margin improvement. JPM raises Q1 revenue to $4.8B from $4.7B vs. Reuters $4.75B. F09 revenue and EPS estimates are raised to $22.7B and $1.37 from $22.5B and $1.32 vs. Reuters $21.97B and $1.47.
MON (81.41): Monsanto downgraded to neutral from overweight at JPMorgan: The firm sees shares as reasonably valued at current levels.
HPQ (33.69): Hewlett-Packard mentioned positively at UBS: Firm's checks confirm a report that the Navy plans to award an IT services deal to EDS, which would be for a transition period that could last several years. UBS sees the deal as incrementally positive for shares. Firm maintains buy rating. Target is $40.
AXP (14.98); MS (23.11): Goldman Sachs removes AXP from Conviction Sell List; removes MS from Conviction Buy List: American Express (AXP) rating remains sell; target remains $7.50. Morgan Stanley (MS) rating remains buy; target remains $27. The firm also reduces estimates for MS for Q1 and 2009 to $0.22 and $1.60, respectively, from $0.40 and $1.80. Reuters is $0.04 and $2.05, respectively. First Call is $0.21 and $1.95.
DIS (20.21): Walt Disney downgraded to neutral from overweight at JPMorgan: The firm sees limited upside from current levels. F09 estimates are reduced. Target is $21
Banks considering buying toxic assets to be sold by rivals – FT: The FT reports that US institutions that have received government aid, including Citi, Goldman, Morgan Stanley and JPMorgan, are considering buying toxic assets to be sold by rivals under the Treasury's financial rescue plan. The article notes that such moves could draw considerable scrutiny given that the goal of the PPIP is to help banks sell, rather than acquire, distressed assets. However, Wall Street executives argue that banks' asset purchases would help achieve the second goal of the plan, which is to establish prices and reinvigorate the market for illiquid assets. Recall that FDIC chairman Sheila Bair said late last month that she would be open to banks profiting from the disposal of problem loans.
Fair Value: SP500 – 831.61; NDX: 1295.08; DOW: 7933.80
Technical Levels:
SPX: 676, 719, 765 support/ 845, 898 resistance
Events:
04:00: Euro-zone PMI Services (Mar. Final): 40.1; Composite: 37.6 (actual: Services – 40.9; Composite: 38.3)
08:30: US Change in Payrolls (March): -660,000; Unemployment Rate: 8.5%
08:30: Change in Manufacturing Payrolls (March): -162,000
08:30: Average Hourly Earnings (March): 0.2% MoM; 3.5% YoY
09:10: Fed’s Kohn speaks on the economic crisis
10:00: ISM Non-Manufacturing Index (March): 42.0
12:00: Fed Chief Bernanke speaks at Credit markets conference
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 6 points above fair value while the NASDAQ futures are trading 13 points above fair value at 8am ET. Technology stocks continue to outperform following a substantial upside earnings surprise from RIMM. Technology stocks have been benefitting all year due to their simple business models, high levels of cash, and low levels of debt. Performance anxiety appears to be playing a critical role in the recent gains as market participants that have missed the rally off the lows are likely chasing higher-beta technology stocks in an attempt to “catch up” with their benchmarks. European markets are flat to modestly higher ahead of the US labor report. Autos, chemicals, and basic materials are outperforming in Europe. Asian markets closed higher (Japan up 0.35%, Hong Kong up 0.16%, Australia up 1.5%, India closed). Banking shares gained on the US decision to allow more flexibility in valuing toxic assets. Australia advanced on (non-gold) miners and financial shares. Japanese exporters were boosted when the US dollar eclipsed the 100-yen mark. Toyota Motor (7203.JP) jumped 7% after it got loans to finance US car sales.
Research Calls/Market Moving News:
RIMM (49.09): Research In Motion reports Q4 EPS $0.90 vs Reuters $0.84: Company reports revenues of $3.46B vs Reuters $3.40B. Research In Motion guides Q1 EPS to $0.88-$0.97 vs. Reuters $0.81. Guides Q1 revenues to range $3.30-$3.50B vs. Reuters $3.35B. Net sub adds totaled 3.90M vs consensus of 3.48M and 11-Feb guidance for 20% higher than 2.9M (or 3.48M). Gross margin reported 40.0% vs SA 40.2% and 11-Feb guidance for the low end of 40-41%. Q1 guidance assumes: Net sub adds 3.7-3.9M vs SA 3.02M. Gross margin 43-44% vs SA 40.4%. RIMM shares are surging 25% and have been upgraded by at least 5 brokerage firms.
RIMM (49.09): Thomas Weisel Reiterates their buy rating and raises the price target to 74. The note out provides good insight into the bull case on RIMM: “We reiterate our Overweight rating on RIMM shares following strong results and guidance this evening. Going into the report, we were admittedly concerned with RIMM's ability to improve gross margin - something we have heard for a few quarters now - and to sustain a solid growth rate amid increased competition and weak enterprise and consumer spending. On the growth front, the guidance of 3.7mn-3.9mn net subscriber adds in the May quarter is a sign that RIMM continues to gain traction with consumers while defending its dominance in the enterprise space. More important, the GM guidance (43%-44%, up from 40% last quarter) demonstrates RIMM's ability to bring down supply costs as its platforms mature - despite a declining ASP due to mix. Looking ahead, GM will still be key metric, and we are conservatively modeling a modest decline in F2H10 as RIMM launches new products. But we also believe the company will have a steady flow of new products and carrier partnerships over the next few quarters to continue driving top and bottom line growth (the expected launch of the "Niagara" with Verizon being a prime example). We are increasing our estimates and raising our 12-month price target to $74 from $52.”
RIMM (49.09): Deutsche Bank upgrades the shares to hold from sell. Deutsche Bank raises the price target to 56 from 30. Even though Deutsche Bank upgraded the stock, the note provides insight into the bear case on RIMM. “We upgrade to Hold due to better near-term GM guidance. Sustainability of execution and increasing competition remain our concerns. Raising PT from $30 to $56.Post-holiday demand momentum and margin stabilization mark the quarter: Among the quarter's highlights were better than anticipated demand momentum for their smartphones, on the back of new phone launches and aggressive carrier promotions, worldwide, and improvements in cost-controls. Near-term, due to COGS reductions and mix, management expects RIM's GM's to improve 3-4% sequentially. We note that the entirety of our upward revision in earnings is due to the increase in our GM assumption from 40% to 43% for FY10. Competitive and execution concerns remain; basis for Hold rating : While RIM seems to be benefiting from the initial inventory builds for their new devices, we do not think they are well-positioned strategically. The company remains increasingly exposed to consumer demand, and also over-weight to North America (+70% of sales). Further, it will become increasingly hard for them to stand out from the competition with multiple new competing smart phones launching this year, including models targeting mid-range price points. To keep consumers upgrading they have to stay on the treadmill indefinitely, and that may prove beyond RIM's abilities. We see these issues creating margin pressure over time. We see these issues creating margin pressure over time. For now, we go to the sidelines and upgrade to Hold.”
RIMM (49.09): Piper Jaffray reiterates their neutral rating and raises the price target to 62 from 48. “Gross Margin Recovery Surprise: We believe the fall in gross margin during the February quarter was primarily driven by the quicker than anticipated adoption of newly launched lower margin products such as the Bold and Storm, as we believe Storm gross margins are in the high 20s. However, RIM has improved the yields and cost structure of these devices faster than we anticipated, and we also expect a more favorable mix shift during the May quarter. With the 2 for 1 promotion coming to an end at Verizon, this should lead in a lower mix of the lower margin Storm products. • Longer-Term Concerns: Longer term, we believe RIM's increasing mix of consumer products due in part to slowing enterprise sales will result in longer-term margin pressure. Further, we believe RIM will face increased competition from compelling products such as the Palm Pre (June launch), Nokia's E71 ($99 at AT&T), a potentially lower priced iPhone, and other devices in 2H09. Based on the resulting price competition combined with RIM's ongoing investment and increasing operating expense structure, we anticipate RIM's operating margins will likely decline longer term.”
DVN (48.40): Devon Energy upgraded to outperform from market perform at Friedman Billings Ramsey: Target is $60.
AMZN (76.34): Amazon.com estimates and target raised at JPMorgan: The firm sees room for additional market share gains internationally and has raised their Q1 international revenue estimate to $2.35B from $2.29B. Trends domestically remain positive with modest margin improvement. JPM raises Q1 revenue to $4.8B from $4.7B vs. Reuters $4.75B. F09 revenue and EPS estimates are raised to $22.7B and $1.37 from $22.5B and $1.32 vs. Reuters $21.97B and $1.47.
MON (81.41): Monsanto downgraded to neutral from overweight at JPMorgan: The firm sees shares as reasonably valued at current levels.
HPQ (33.69): Hewlett-Packard mentioned positively at UBS: Firm's checks confirm a report that the Navy plans to award an IT services deal to EDS, which would be for a transition period that could last several years. UBS sees the deal as incrementally positive for shares. Firm maintains buy rating. Target is $40.
AXP (14.98); MS (23.11): Goldman Sachs removes AXP from Conviction Sell List; removes MS from Conviction Buy List: American Express (AXP) rating remains sell; target remains $7.50. Morgan Stanley (MS) rating remains buy; target remains $27. The firm also reduces estimates for MS for Q1 and 2009 to $0.22 and $1.60, respectively, from $0.40 and $1.80. Reuters is $0.04 and $2.05, respectively. First Call is $0.21 and $1.95.
DIS (20.21): Walt Disney downgraded to neutral from overweight at JPMorgan: The firm sees limited upside from current levels. F09 estimates are reduced. Target is $21
Banks considering buying toxic assets to be sold by rivals – FT: The FT reports that US institutions that have received government aid, including Citi, Goldman, Morgan Stanley and JPMorgan, are considering buying toxic assets to be sold by rivals under the Treasury's financial rescue plan. The article notes that such moves could draw considerable scrutiny given that the goal of the PPIP is to help banks sell, rather than acquire, distressed assets. However, Wall Street executives argue that banks' asset purchases would help achieve the second goal of the plan, which is to establish prices and reinvigorate the market for illiquid assets. Recall that FDIC chairman Sheila Bair said late last month that she would be open to banks profiting from the disposal of problem loans.
Thursday, April 2, 2009
April 2, 2009: Morning Call
April 2, 2009: Morning Call
Fair Value: SP500 – 808.27; NDX: 1253.24; DOW: 7717.11
Technical Levels:
SPX: 676, 719, 765 support/ 823, 898 resistance
Events:
G-20 Meeting in London
Pre-market EPS: MON (2.08/4.18B)
04:30: BOE releases Quarterly Credit Conditions Survey
07:45: ECB Interest Rate Decision
08:00: NYX Annual Meeting
08:00: FASB hearing on mark-to-market accounting
08:30: Initial Jobless Claims (w/e March 28): 653,000; Cont. Claims: 5.56M
09:30: MON earnings call
10:00: Factory Orders (Feb): -0.3%
10:30: EIA Natural Gas Storage Change
11:00: FASB resolution vote on mark-to-market accounting
17:00: RIMM earnings call
Post-market EPS: GPN (.42/375.4M); RIMM (.84/3.4B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 15 points above fair value to 824 due to substantial strength in Asian and European markets amid continued speculation that the FASB vote on mark to market accounting (today at 11am) will boost Q1 bank earnings. Short covering in the financials began mid-day on Tuesday due to chatter that Meredith Whitney was telling clients to cover shorts and wait for a better entry point after the sector releases earnings. In addition, Interfax is reporting that the G20 is set to approve a 500 billion IMF funding boost (widely expected) and Geithner said overnight that global economies are showing "traction" amid widening stimulus efforts. Although economic data has been weaker on balance in the last few weeks, global markets have been rallying because the pace of the global contraction appears to be decelerating and there have been a few glimmers of stabilization in housing and retail sales. Obviously, the key risk in the near term is the "green shoots" showing up in the economic data may be a mirage. Although the recent gains in financial stocks have garnered most of the attention in the press, I would note that cash-rich technology companies (AMZN, AAPL, IBM, CSCO, ADBE, INTC, GOOG) continue to outperform by a wide margin YTD. European markets are up 2.5% to 4.0%. Asian markets closed sharply higher (Japan up 4.4%, Hong Kong 7.4% - biggest gain since October 30, 2008, Australia up 2.8%, India up 4.5%, South Korea up 3.58%). Financial, energy, technology, and basic material stocks are the leading sectors around the world. Defensive sectors (Healthcare, Consumer Staples, Gold) are the lagging sectors.
Research Calls/Market Moving News:
Mark-to-market accounting changes could boost quarterly earnings by up to 20% at some large banks – FT: The FT cites Wall Street executives and auditors. Recall that FASB will vote on Thursday to change its mark-to-market accounting rules to allow hard-to-value assets to be marked down only by expected losses, rather than market prices. The article goes on to highlight some of the biggest concerns surrounding the proposed changes (most of which have already been widely reported), particularly when it comes to the possibility that investor confidence in the banking sector could be further undermined by heightened transparency issues.
BIDU (174.77): Baidu target raised at Bernstein: The firm says Baidu's share of search queries picked up significantly in February to 27% from 23% of total in the Asia Pacific region. Bernstein now sees revenue growth for 2009 of 33% vs. consensus 29% with 2010 growth of 28% vs. consensus 32%. Target is raised to $230 from $170. Shares remain outperform rated.
ADBE (21.96): Adobe Systems target increased to $25 from $21 at UBS: Firm notes stabilization in end market demand and a focus on costs. UBS sees a chance for an upside to May quarter expectations and to FY'09/'10 if current demand patterns hold. Estimates are raised. Buy rating is reiterated.
AMZN (73.50): Amazon.com downgraded to equal-weight from overweight at Barclays Capital: Target remains $70. The firm cites valuation
BLK (130.69): BlackRock removed from Conviction Buy List at Goldman Sachs: Rating remains buy; target is $135. The firm notes top buys ahead of earnings: WDR and IVZ. Top sells: FII, TROW, GBL and CNS.
MGM (2.63): Colony Capital discussing possible investment in MGM's CityCenter project – WSJ: A source close to Colony told the WSJ that the company is talking to both MGM Mirage and Dubai World about a possible investment. The source characterized the talks as "sporadic, but fairly recent wide-ranging discussions", and said that Colony is considering an investment "as well as just brokering a strained relationship" between MGM and Dubai World
China plans to extend lockup period on bank investments held by foreigners by at least two years – FT: The FT cites people familiar with the matter and state media reports that say that foreign investors in Chinese banks will in the future be forced to accept a lockup period of at least five years. According to Liu Mingkang, chairman of the China Banking Regulatory Commission, the new five-year minimum is designed to protect the safety of the country's banking system
NYX (18.39): NYSE Euronext executive believes Chinese companies have interest in listing on NYSE - South China Morning Post: At a briefing in Hong Kong, the executive does not specify companies or numbers, but says many would like to raise funds on the exchange. He also says that if they could get Chinese regulatory approval, about 10K small- and medium-sized companies would consider listing on NYSE Amex and NYSE Alternext.
Fair Value: SP500 – 808.27; NDX: 1253.24; DOW: 7717.11
Technical Levels:
SPX: 676, 719, 765 support/ 823, 898 resistance
Events:
G-20 Meeting in London
Pre-market EPS: MON (2.08/4.18B)
04:30: BOE releases Quarterly Credit Conditions Survey
07:45: ECB Interest Rate Decision
08:00: NYX Annual Meeting
08:00: FASB hearing on mark-to-market accounting
08:30: Initial Jobless Claims (w/e March 28): 653,000; Cont. Claims: 5.56M
09:30: MON earnings call
10:00: Factory Orders (Feb): -0.3%
10:30: EIA Natural Gas Storage Change
11:00: FASB resolution vote on mark-to-market accounting
17:00: RIMM earnings call
Post-market EPS: GPN (.42/375.4M); RIMM (.84/3.4B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 15 points above fair value to 824 due to substantial strength in Asian and European markets amid continued speculation that the FASB vote on mark to market accounting (today at 11am) will boost Q1 bank earnings. Short covering in the financials began mid-day on Tuesday due to chatter that Meredith Whitney was telling clients to cover shorts and wait for a better entry point after the sector releases earnings. In addition, Interfax is reporting that the G20 is set to approve a 500 billion IMF funding boost (widely expected) and Geithner said overnight that global economies are showing "traction" amid widening stimulus efforts. Although economic data has been weaker on balance in the last few weeks, global markets have been rallying because the pace of the global contraction appears to be decelerating and there have been a few glimmers of stabilization in housing and retail sales. Obviously, the key risk in the near term is the "green shoots" showing up in the economic data may be a mirage. Although the recent gains in financial stocks have garnered most of the attention in the press, I would note that cash-rich technology companies (AMZN, AAPL, IBM, CSCO, ADBE, INTC, GOOG) continue to outperform by a wide margin YTD. European markets are up 2.5% to 4.0%. Asian markets closed sharply higher (Japan up 4.4%, Hong Kong 7.4% - biggest gain since October 30, 2008, Australia up 2.8%, India up 4.5%, South Korea up 3.58%). Financial, energy, technology, and basic material stocks are the leading sectors around the world. Defensive sectors (Healthcare, Consumer Staples, Gold) are the lagging sectors.
Research Calls/Market Moving News:
Mark-to-market accounting changes could boost quarterly earnings by up to 20% at some large banks – FT: The FT cites Wall Street executives and auditors. Recall that FASB will vote on Thursday to change its mark-to-market accounting rules to allow hard-to-value assets to be marked down only by expected losses, rather than market prices. The article goes on to highlight some of the biggest concerns surrounding the proposed changes (most of which have already been widely reported), particularly when it comes to the possibility that investor confidence in the banking sector could be further undermined by heightened transparency issues.
BIDU (174.77): Baidu target raised at Bernstein: The firm says Baidu's share of search queries picked up significantly in February to 27% from 23% of total in the Asia Pacific region. Bernstein now sees revenue growth for 2009 of 33% vs. consensus 29% with 2010 growth of 28% vs. consensus 32%. Target is raised to $230 from $170. Shares remain outperform rated.
ADBE (21.96): Adobe Systems target increased to $25 from $21 at UBS: Firm notes stabilization in end market demand and a focus on costs. UBS sees a chance for an upside to May quarter expectations and to FY'09/'10 if current demand patterns hold. Estimates are raised. Buy rating is reiterated.
AMZN (73.50): Amazon.com downgraded to equal-weight from overweight at Barclays Capital: Target remains $70. The firm cites valuation
BLK (130.69): BlackRock removed from Conviction Buy List at Goldman Sachs: Rating remains buy; target is $135. The firm notes top buys ahead of earnings: WDR and IVZ. Top sells: FII, TROW, GBL and CNS.
MGM (2.63): Colony Capital discussing possible investment in MGM's CityCenter project – WSJ: A source close to Colony told the WSJ that the company is talking to both MGM Mirage and Dubai World about a possible investment. The source characterized the talks as "sporadic, but fairly recent wide-ranging discussions", and said that Colony is considering an investment "as well as just brokering a strained relationship" between MGM and Dubai World
China plans to extend lockup period on bank investments held by foreigners by at least two years – FT: The FT cites people familiar with the matter and state media reports that say that foreign investors in Chinese banks will in the future be forced to accept a lockup period of at least five years. According to Liu Mingkang, chairman of the China Banking Regulatory Commission, the new five-year minimum is designed to protect the safety of the country's banking system
NYX (18.39): NYSE Euronext executive believes Chinese companies have interest in listing on NYSE - South China Morning Post: At a briefing in Hong Kong, the executive does not specify companies or numbers, but says many would like to raise funds on the exchange. He also says that if they could get Chinese regulatory approval, about 10K small- and medium-sized companies would consider listing on NYSE Amex and NYSE Alternext.
Wednesday, April 1, 2009
April 1, 2009: Morning Call
April 1, 2009: Morning Call
Fair Value: SP500 – 795.03; NDX: 1237.77; DOW: 7564.07
Technical Levels:
SPX: 676, 719, 765 support/ 823, 898 resistance
Events:
Pre-market EPS: WOR (.05/583.8M)
04:00: Euro-zone PMI Manufacturing (March): 34.0 (actual: 33.9)
05:00: Euro-zone Unemployment Rate (Feb.): 8.3% (actual: 8.5%)
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (March): -648,000 (actual –742,000)
10:00: ISM Manufacturing (March): 36.0; Prices Paid: 33.0
10:00: Pending Home Sales (Feb): -2.0%
10:00: Construction Spending (Feb): -1.6%
10:30: DOE Crude Oil and Gasoline Inventories
13:00: Fed’s Pianalto speaks at Ohio’s Bankers Day - Topic to be determined
13:00: F March 2009 Sales and Revenue Call
14:00: GM March 2009 Vehicle Sales conference call
16:00: WMT presents at Morgan Stanley Conference
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 11 points below fair value while the NASDAQ futures are trading 16 points below fair value at 8:20am ET. The S&P futures have moved back toward the overnight session lows following the weaker ADP employment change number. Markets are also under pressure on concerns about the potential ramifications of a prepackaged bankruptcy at GM, general concerns about the global economy due to weaker economic data in Europe over the last three days, and sporadic violence at the G20 meeting in London. European markets are down 0.50% to 1.0% with energy and technology stocks leading the decline. Asian markets closed mostly higher (Japan up 3.0%, Hong Kong down 0.42%, Australia down 0.07%, Shanghai up 1.6%, India up 1.9%). Markets in Asia shrugged off a weaker Japanese Tankan Sentiment survey, which hit a record low of –58 compared to expectations of a decline of –54. China Unicom (762.HK) fell after earnings missed estimates.
Research Calls/Market Moving News:
Global Slump Seen Deepening – Page One – WSJ: The outlook for the global economy worsened on the eve of a summit of the world's 20 biggest economic powers, as two international agencies warned that global output will fall in 2009 for the first time since World War II. Fresh evidence of the deepening slowdown came from around the world. Euro-zone data Tuesday showed inflation at 0.6% in Europe's single-currency area for the year through March, the lowest level since official records began in 1996. In the U.S., home prices fell 19% in January compared with a year earlier. Japan's business-confidence fell to an all-time low in data released by its central bank early Wednesday, a day after the jobless rate there rose to a three-year high. All together, the world economy will shrink by 2.75% this year, the Organization for Economic Cooperation and Development said. The 30 industrialized countries it tracks now face a far bigger slump than it forecast just four months ago, the OECD said, at 4.3%. The World Bank issued a slightly smaller downgrade of the global economic outlook Tuesday, projecting a contraction of 1.7%. Both institutions forecast a steep and damaging plunge in 2009 world trade, the World Bank at 6.1% and the OECD more than double that.
Proposed mark-to-market accounting change may run counter to Treasury's efforts to clean up banks' balance sheets – WSJ: The Journal notes that the Financial Accounting Standards Board, or FASB, is proposing changes to its mark-to-market accounting rules that would allow hard-to-value assets to be marked down only by expected losses, rather than market prices as is now the case. However, the paper adds that there is a good deal of concern surrounding the proposal, which is scheduled for a vote this Thursday, as it seemingly incentivizes banks to keep assets on their balance sheets.
President Obama has determined that prepackaged bankruptcy best way for GM to restructure – Bloomberg: Bloomberg cites people familiar with the matter, including members of Congress briefed on the subject. The article notes that Obama is also prepared to let Chrysler go into bankruptcy and be sold off in pieces if it cannot form an alliance with Fiat. Of interest, Bloomberg also pointed that Obama personally signed off on asking GM CEO Rick Wagoner to step down. Recall that the WSJ reported on 30-Mar that the Obama administration is pushing bankruptcy as the lead option for GM and Chrysler.
Government may seek to split General Motors into good car company, bad car company – NYT: People briefed on the matter say the government could try to get at least some creditors to agree to the idea, which the potential of offering or withholding taxpayer funding would serve as a powerful carrot and stick for parties to fall in line for. Under its current format, the plan calls for GM to file for a prearranged bankruptcy and then sell its desirable assets like Cadillac and Chevrolet to a new, good car company financed by the government. Assets like Hummer and underperforming factories would be left for the old, bad car company. The UAW would need to give up some health care benefits, and its pension obligations would probably end up with the bad car company.
Missed mortgage payments adding another woe to Fannie Mae (FNM), Freddie Mac (FRE) performance – WSJ: Borrowers skipping payments are shooting up: Fannie said this week that 2.77% of the single-family loans held in its $785 billion investment portfolio were delinquent in January, up a record 35 basis points m/m, and more than twice the year-ago 1.06%. Freddie's delinquency rate is 2.13%. A research firm expects the rate to climb to 4%, meaning $28B in losses for Freddie.
APOL (78.33): Apollo Group reports Q2 EPS $0.77 vs Reuters $0.65: Company reports revenues of $876.1M vs Reuters $865.3M. Apollo Group downgraded to neutral from outperform at RW Baird. Target cut to $85 from $100. The firm sees tougher comps and the potential for higher bad debt.
CME (246.39): CME Group downgraded to market perform from outperform at Wachovia: Valuation cited. Valuation range, $270-290
CHU (10.41): CHU is trading down 6% after reporting profit that was slightly below expectations. Goldman downgrades the shares to neutral. Citigroup downgrades the shares to sell from buy.
DHR (54.22): Danaher downgraded to neutral from overweight at JPMorgan. JP Morgan believes the earnings expectations are too high.
Fair Value: SP500 – 795.03; NDX: 1237.77; DOW: 7564.07
Technical Levels:
SPX: 676, 719, 765 support/ 823, 898 resistance
Events:
Pre-market EPS: WOR (.05/583.8M)
04:00: Euro-zone PMI Manufacturing (March): 34.0 (actual: 33.9)
05:00: Euro-zone Unemployment Rate (Feb.): 8.3% (actual: 8.5%)
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (March): -648,000 (actual –742,000)
10:00: ISM Manufacturing (March): 36.0; Prices Paid: 33.0
10:00: Pending Home Sales (Feb): -2.0%
10:00: Construction Spending (Feb): -1.6%
10:30: DOE Crude Oil and Gasoline Inventories
13:00: Fed’s Pianalto speaks at Ohio’s Bankers Day - Topic to be determined
13:00: F March 2009 Sales and Revenue Call
14:00: GM March 2009 Vehicle Sales conference call
16:00: WMT presents at Morgan Stanley Conference
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 11 points below fair value while the NASDAQ futures are trading 16 points below fair value at 8:20am ET. The S&P futures have moved back toward the overnight session lows following the weaker ADP employment change number. Markets are also under pressure on concerns about the potential ramifications of a prepackaged bankruptcy at GM, general concerns about the global economy due to weaker economic data in Europe over the last three days, and sporadic violence at the G20 meeting in London. European markets are down 0.50% to 1.0% with energy and technology stocks leading the decline. Asian markets closed mostly higher (Japan up 3.0%, Hong Kong down 0.42%, Australia down 0.07%, Shanghai up 1.6%, India up 1.9%). Markets in Asia shrugged off a weaker Japanese Tankan Sentiment survey, which hit a record low of –58 compared to expectations of a decline of –54. China Unicom (762.HK) fell after earnings missed estimates.
Research Calls/Market Moving News:
Global Slump Seen Deepening – Page One – WSJ: The outlook for the global economy worsened on the eve of a summit of the world's 20 biggest economic powers, as two international agencies warned that global output will fall in 2009 for the first time since World War II. Fresh evidence of the deepening slowdown came from around the world. Euro-zone data Tuesday showed inflation at 0.6% in Europe's single-currency area for the year through March, the lowest level since official records began in 1996. In the U.S., home prices fell 19% in January compared with a year earlier. Japan's business-confidence fell to an all-time low in data released by its central bank early Wednesday, a day after the jobless rate there rose to a three-year high. All together, the world economy will shrink by 2.75% this year, the Organization for Economic Cooperation and Development said. The 30 industrialized countries it tracks now face a far bigger slump than it forecast just four months ago, the OECD said, at 4.3%. The World Bank issued a slightly smaller downgrade of the global economic outlook Tuesday, projecting a contraction of 1.7%. Both institutions forecast a steep and damaging plunge in 2009 world trade, the World Bank at 6.1% and the OECD more than double that.
Proposed mark-to-market accounting change may run counter to Treasury's efforts to clean up banks' balance sheets – WSJ: The Journal notes that the Financial Accounting Standards Board, or FASB, is proposing changes to its mark-to-market accounting rules that would allow hard-to-value assets to be marked down only by expected losses, rather than market prices as is now the case. However, the paper adds that there is a good deal of concern surrounding the proposal, which is scheduled for a vote this Thursday, as it seemingly incentivizes banks to keep assets on their balance sheets.
President Obama has determined that prepackaged bankruptcy best way for GM to restructure – Bloomberg: Bloomberg cites people familiar with the matter, including members of Congress briefed on the subject. The article notes that Obama is also prepared to let Chrysler go into bankruptcy and be sold off in pieces if it cannot form an alliance with Fiat. Of interest, Bloomberg also pointed that Obama personally signed off on asking GM CEO Rick Wagoner to step down. Recall that the WSJ reported on 30-Mar that the Obama administration is pushing bankruptcy as the lead option for GM and Chrysler.
Government may seek to split General Motors into good car company, bad car company – NYT: People briefed on the matter say the government could try to get at least some creditors to agree to the idea, which the potential of offering or withholding taxpayer funding would serve as a powerful carrot and stick for parties to fall in line for. Under its current format, the plan calls for GM to file for a prearranged bankruptcy and then sell its desirable assets like Cadillac and Chevrolet to a new, good car company financed by the government. Assets like Hummer and underperforming factories would be left for the old, bad car company. The UAW would need to give up some health care benefits, and its pension obligations would probably end up with the bad car company.
Missed mortgage payments adding another woe to Fannie Mae (FNM), Freddie Mac (FRE) performance – WSJ: Borrowers skipping payments are shooting up: Fannie said this week that 2.77% of the single-family loans held in its $785 billion investment portfolio were delinquent in January, up a record 35 basis points m/m, and more than twice the year-ago 1.06%. Freddie's delinquency rate is 2.13%. A research firm expects the rate to climb to 4%, meaning $28B in losses for Freddie.
APOL (78.33): Apollo Group reports Q2 EPS $0.77 vs Reuters $0.65: Company reports revenues of $876.1M vs Reuters $865.3M. Apollo Group downgraded to neutral from outperform at RW Baird. Target cut to $85 from $100. The firm sees tougher comps and the potential for higher bad debt.
CME (246.39): CME Group downgraded to market perform from outperform at Wachovia: Valuation cited. Valuation range, $270-290
CHU (10.41): CHU is trading down 6% after reporting profit that was slightly below expectations. Goldman downgrades the shares to neutral. Citigroup downgrades the shares to sell from buy.
DHR (54.22): Danaher downgraded to neutral from overweight at JPMorgan. JP Morgan believes the earnings expectations are too high.
Subscribe to:
Comments (Atom)