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.
Thursday, April 2, 2009
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.
Tuesday, March 31, 2009
March 31, 2009: Morning Call
March 31, 2009: Morning Call
Fair Value: SP500 – 784.61; NDX: 1221.69; DOW: 7476.51
Technical Levels:
SPX: 676, 719, 765 support/ 823, 898 resistance
Events:
Pre-market EPS: LEN (-0.69/544.3M)
05:00: Euro-zone CPI estimate (Mar): 0.9% YoY
09:00: BOE official testify to British House of Lords on the economy
09:00: S&P/Case Shiller Home Price Index (Jan): -18.50%
09:00: Fed’s Stern speaks on “Too Big to Fail.”
09:45: Chicago Purchasing Manager (March): 34.7
10:00: Consumer Confidence (March): 27.0
11:00: LEN earnings call
13:00: Fed’s Plosser speaks on regulatory reform
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
Post-market EPS: APOL (.65/866.9M); BGP (.95/1.15B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 7 points above fair value while the NASDAQ futures are trading 14 points above fair value at 7:30am ET. European markets are trading up 1.5% to 3.0% led higher by mining and steel companies; banks have also recouped some of the sharp losses from Monday’s session. Marks and Spencer (MKS LN), the largest UK retailer, is up 10.50% after Q4 same store sales were stronger than expected. Asian markets closed mixed (Japan down 1.54%, Hong Kong up 0.89%, Australia down 0.62%, India up 1.47%). The Asian Development Bank cut economic growth forecasts and Australia said its economy would contract this year and warned of “difficult times ahead.” Japanese stocks were weak after the Prime Minister told reporters the government has yet to complete a stimulus package and a new package may be ready by mid-April.
Research Calls/Market Moving News:
Federal Reserve taking primary role in carrying out banks' stress tests - BloombergBloomberg reports that the Federal Reserve has taken the primary role in determining how much new capital the nation’s biggest banks need. “Putting the Fed in charge may help ease concern that different assessments by different agencies would lead to some firms being judged less strictly than others.” The article goes onto note that the Fed examiners are “deployed alongside counterparts from three other agencies that oversee parts of the 19 banks that are involved in the so-called stress tests.”
MS (22.13): MS CEO John Mack said 2009 will b a “difficult year” and that “even though flows of business are good, is nowhere near what we need on a long-term basis.” It “will be a difficult year for all of our firms, mainly because of some of the legacy positions that we continue to have, and they drag on all of us.”
FCX (38.53): Freeport-McMoRan downgraded to sell from hold at Deutsche Bank. Deutsche Bank expects copper prices to weaken. Price target is increased to 30 from 24.
IR (13.98): Ingersoll-Rand cuts quarterly dividend by 61.1% to $0.07 from $0.18; expects Q1 adjusted EPS to be at the low end of its previously forecasted range of ($0.15) to breakeven vs Reuters consensus ($0.01), guides F09 EPS cont. ops to be approx $0.45 below the bottom end of its previous guidance range $1.85-$2.25 vs Reuters $1.73
GOOG (342.69): Google upgraded to buy from neutral at Merriman Curhan Ford
KLAC (20.09): KLA-Tencor announces that the company will reduce its workforce by 10%in response to depressed market conditions.
X (21.55): UBS comments on meeting with U.S. Steel's CEO: Company sees emerging markets recovering first, followed by the U.S., then Europe. UBS notes that despite the $1B in cash on the balance sheet, CEO Surma did not rule out an equity raise and commented that the company would look to be preemptive ahead of a potential covenant breach by Q3. Company saw no evidence of sustained improved demand and cautioned on new sheet capacity in 2010. UBS maintains sell rating and target of $16.
FT discusses financing constraints at GMAC and CIT: The FT reports that GMAC and CIT, two of the largest finance companies in the US, are still unable to issue government-backed debt almost three months after becoming bank-holding companies to take advantage of federal rescue schemes. The paper adds that both lenders confirmed that their applications are still pending, though the FDIC declined to comment on specific applications. Citing analysts, the article notes that the delay may force CIT to rely on asset sales to cover its funding needs if it is not able to secure access in the next few weeks. Recall that the banking charger also made the lenders eligible to apply to the FDIC's temporary liquidity guarantee program (TLGP), which allows banks to issue inexpensive debt backed by the FDIC’s guarantee, in an effort to encourage them to lend to consumers and businesses.
MSFT (17.48): Microsoft maintained outperform at Oppenheimer after meeting with management: Target is $22. The firm says their recent meeting with MSFT left them incrementally more confident in its expense management efforts over the short and longer term. Oppenheimer continues to believe the WIN7 release will be a far more successful product cycle than its predecessor, making it a likely near-term catalyst for the shares. In the coming years, the firm believes that Azure will be the company's Internet
Fair Value: SP500 – 784.61; NDX: 1221.69; DOW: 7476.51
Technical Levels:
SPX: 676, 719, 765 support/ 823, 898 resistance
Events:
Pre-market EPS: LEN (-0.69/544.3M)
05:00: Euro-zone CPI estimate (Mar): 0.9% YoY
09:00: BOE official testify to British House of Lords on the economy
09:00: S&P/Case Shiller Home Price Index (Jan): -18.50%
09:00: Fed’s Stern speaks on “Too Big to Fail.”
09:45: Chicago Purchasing Manager (March): 34.7
10:00: Consumer Confidence (March): 27.0
11:00: LEN earnings call
13:00: Fed’s Plosser speaks on regulatory reform
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
Post-market EPS: APOL (.65/866.9M); BGP (.95/1.15B)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 7 points above fair value while the NASDAQ futures are trading 14 points above fair value at 7:30am ET. European markets are trading up 1.5% to 3.0% led higher by mining and steel companies; banks have also recouped some of the sharp losses from Monday’s session. Marks and Spencer (MKS LN), the largest UK retailer, is up 10.50% after Q4 same store sales were stronger than expected. Asian markets closed mixed (Japan down 1.54%, Hong Kong up 0.89%, Australia down 0.62%, India up 1.47%). The Asian Development Bank cut economic growth forecasts and Australia said its economy would contract this year and warned of “difficult times ahead.” Japanese stocks were weak after the Prime Minister told reporters the government has yet to complete a stimulus package and a new package may be ready by mid-April.
Research Calls/Market Moving News:
Federal Reserve taking primary role in carrying out banks' stress tests - BloombergBloomberg reports that the Federal Reserve has taken the primary role in determining how much new capital the nation’s biggest banks need. “Putting the Fed in charge may help ease concern that different assessments by different agencies would lead to some firms being judged less strictly than others.” The article goes onto note that the Fed examiners are “deployed alongside counterparts from three other agencies that oversee parts of the 19 banks that are involved in the so-called stress tests.”
MS (22.13): MS CEO John Mack said 2009 will b a “difficult year” and that “even though flows of business are good, is nowhere near what we need on a long-term basis.” It “will be a difficult year for all of our firms, mainly because of some of the legacy positions that we continue to have, and they drag on all of us.”
FCX (38.53): Freeport-McMoRan downgraded to sell from hold at Deutsche Bank. Deutsche Bank expects copper prices to weaken. Price target is increased to 30 from 24.
IR (13.98): Ingersoll-Rand cuts quarterly dividend by 61.1% to $0.07 from $0.18; expects Q1 adjusted EPS to be at the low end of its previously forecasted range of ($0.15) to breakeven vs Reuters consensus ($0.01), guides F09 EPS cont. ops to be approx $0.45 below the bottom end of its previous guidance range $1.85-$2.25 vs Reuters $1.73
GOOG (342.69): Google upgraded to buy from neutral at Merriman Curhan Ford
KLAC (20.09): KLA-Tencor announces that the company will reduce its workforce by 10%in response to depressed market conditions.
X (21.55): UBS comments on meeting with U.S. Steel's CEO: Company sees emerging markets recovering first, followed by the U.S., then Europe. UBS notes that despite the $1B in cash on the balance sheet, CEO Surma did not rule out an equity raise and commented that the company would look to be preemptive ahead of a potential covenant breach by Q3. Company saw no evidence of sustained improved demand and cautioned on new sheet capacity in 2010. UBS maintains sell rating and target of $16.
FT discusses financing constraints at GMAC and CIT: The FT reports that GMAC and CIT, two of the largest finance companies in the US, are still unable to issue government-backed debt almost three months after becoming bank-holding companies to take advantage of federal rescue schemes. The paper adds that both lenders confirmed that their applications are still pending, though the FDIC declined to comment on specific applications. Citing analysts, the article notes that the delay may force CIT to rely on asset sales to cover its funding needs if it is not able to secure access in the next few weeks. Recall that the banking charger also made the lenders eligible to apply to the FDIC's temporary liquidity guarantee program (TLGP), which allows banks to issue inexpensive debt backed by the FDIC’s guarantee, in an effort to encourage them to lend to consumers and businesses.
MSFT (17.48): Microsoft maintained outperform at Oppenheimer after meeting with management: Target is $22. The firm says their recent meeting with MSFT left them incrementally more confident in its expense management efforts over the short and longer term. Oppenheimer continues to believe the WIN7 release will be a far more successful product cycle than its predecessor, making it a likely near-term catalyst for the shares. In the coming years, the firm believes that Azure will be the company's Internet
Friday, March 27, 2009
March 27, 2009: Morning Call
March 27, 2009: Morning Call
Fair Value: SP500 – 830.15; NDX: 1282.55; DOW: 7881.44
Technical Levels:
SPX: 676, 719, 765, 792 support/ 823, 898 resistance
Events:
Pre-market EPS: FINL (.34/361.4M); KBH (-.81/356.0M)
06:00: Euro-zone Industrial New Orders (Jan): -5.6% MoM; -28.4% YoY
08:30: Personal Income (Feb): -0.1%; Personal Spending: 0.2%
08:30: PCE Core (Feb): 0.2% MoM; 1.6% YoY
10:00: University of Michigan Confidence (March Final): 56.6
11:30: KBH earnings call
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 14 points below fair value while the NASDAQ futures are trading 23 points below fair value at 8am ET. Foreign markets are weaker despite the strong gains in US markets during Thursday’s session. Asian markets closed mixed (Japan down 0.11%, Hong Kong up 0.07%, Shanghai up 0.77%, South Korea down 0.25%, Australia up 0.70%, India up 0.45%). Rio Tinto (RIO.AU) jumped in Australia after CFO Guy Elliott said the company had a backup plan if Chinalco’s $19.5B investment is turned down. In Japan, real estate share and trusts gained on a report the government is considering establishing a fund to support REITs. European markets are down 0.80% snapping a 7-day winning streak for the Euro-stoxx 50. The major indexes moved to session lows following a weaker than expected UK GDP report. Decliners on the FTSE 100 lead decliners 3-2. Air France-KLM (AF.FP) fell 6% after saying it'll report a FY09 operating loss and that traffic in the initial weeks of March has shown a further decline.
Research Calls/Market Moving News:
FDIC's Bair says she would be open to banks profiting from disposal of problem loans – WSJ: The Journal reports that Bair's comments came in a conference call with bankers on Thursday. According to the article, Bair said that banks might be able to take equity stakes in funds set up to buy problem loans from banks, which would give them a payoff if the loans ultimately increased in value, as well as an additional incentive to get the assets off of their balance sheets. The article goes on to discuss the wide range of haircuts that have been applied to recent deals involving toxic assets
ACN (31.96): Accenture reports Q2 EPS $0.63 vs Reuters $0.62: Company reports revenues of $5.27B vs Reuters $5.54B. Guides Q3 revenues to $5.10-$5.30B vs Reuters $5.78B. Fiscal year revenue growth guided to 0-4% below prior 6-10%. Q3 revenue guidance assumes (12)% impact from forex vs.y/y. Fiscal year guidance assumes forex impact of (9%) vs. prior (10%)-(8%). IBM is trading down 2.50 points in reaction.
INTC (15.82): INTC files 1 billion dollar equity shelf registration for acquisition purposes.
FSLR (150.39): First Solar downgraded to hold from buy at Collins Stewart: “Despite the indication yesterday that China will allocate funds for solar installations, it remains a challenging environment for the solar industry. ASPs are declining, financing is difficult to obtain in many markets and businesses are reluctant to tie up funds in a solar project in the midst of a weak economy. With regard to China, we do not believe the program in China will meaningfully alter the demand for FSLR product or correct the polysilicon oversupply situation we forecast for CY09 and CY10. Based on polysilicon prices ($100/kg spot), we believe the price of polysilicon-based modules will fall to $2.00/watt by YE09, a price level vendors such as TSL and YGE can achieve with a 22% gross margin (assuming $100/kg polysilicon). As standard module prices trend below $2.20/watt, they start to impact FSLR's pricing. FSLR modules require a $0.25/watt discount to maintain an installation cost parity, and an additional discount to provide an incentive for buyers to use its modules.”
TSL (12.19:FBR Capital downgrades shares to undderperform. “Following the recent rally in the shares of Trina Solar Limited, especially the 40% from yesterday compared to a 2% strengthening of the S&P 500, combined with what we believe to be the fact that solar incentives in China will not be more than 180M watts (versus our expectations of a total installation of 100M watts in CY09) and that Europe has remained relatively weak, in our opinion, when compared to company management commentary from only a month ago, we are downgrading the shares of TSL from Market Perform to Underperform. Our estimates remain unchanged, though there remains downside risk. Our price target of $8.00 has also remained unchanged. We believe that the fundamentals for the solar industry remain relatively weak, with continued excess capacity (and, thus, more finished-goods inventory write-downs). Although there is an increased level of skepticism among investors regarding a significant acceleration in growth before mid 2010 (when the U.S. market could potentially take off), we believe that the company's management (and management throughout the industry) has remained too hopeful.”
Solar Power: Deutsche Bank cautious on solar stocks: “The China Ministry of Finance announced a new incentive program to stimulate the solar PV industry. The main point of this preliminary plan is to provide up to a 20 Yuan (US$2.93)/Wp subsidy for projects 50kW and larger. This new stimulus package is clearly a positive, but we believe stocks have over-reacted to the news. Our near-term outlook for the broader solar PV industry remains negatively biased as credit issues drive prices down and inventories up. The China Ministry of Finance press release (detailed in the body of this report) could be characterized as a general direction with some details, but is clearly not detailed enough for an accurate assessment of the potential impact to the solar PV industry. We believe the program is likely designed to lend support to local Chinese solar PV industry players, and not meant to serve as a blueprint for a solar PV industry recovery plan in China. The press release did not detail the budget, the applicable period, or installation goals, making it difficult to quantify the impact of the program. While the program is clearly an incremental positive for the Chinese market and global demand, we caution against euphoria when considering solar PV company stocks.
GS (111.99): FBR Capital initiates coverage of The Goldman Sachs Group, Inc. (GS) with an Outperform rating and a 12-month price target of $130.00 per share. We believe that the company will benefit from the inward focus of many of its once formidable competitors, significant progress toward de-leveraging the balance sheet, and recovering returns on equity. For these reasons, we view the shares as attractively valued. Despite the need to reduce leverage and the concern that doing so could harm returns on equity, we believe that the market is largely ignoring higher risk premiums across a variety of asset classes and their positive implications for returns. We argue that leverage did have a positive impact on ROE but that the conditions that necessitated the higher use of leverage (namely extremely low risk premiums fueled by years of historically low funding costs) have reversed, allowing for attractive returns on lower leverage. We believe that GS’s current valuation appropriately reflects expectations for a difficult capital markets environment in 2009 but offers attractive upside potential in more stable capital markets.”
MGM (3.09): MGM Mirage and investment partner Dubai World unlikely to make $220M debt payment due Friday on City Center – WSJ: The Journal cites people familiar with the matter. The paper adds that MGM has hired law firm Weil, Gotshal & Manges LLP to help prepare a possible Chapter 11 court filing for City Center, as well as to explore other options. A filing could come as early as this weekend, though the paper notes that it is not clear what kind of impact such a move would have on MGM Mirage's other finances.
CF (74.00): Agrium raises cash component of its offer for CF Industries Holdings to $35 from $31.7
AMZN (73.69): Amazon.com removed from Conviction Buy List at Goldman Sachs: Shares remain buy rated. Despite the move, the 6-month target is increased to $81 from $70.
AMZN (73.69): Amazon initiated hold at Kaufman Brothers:Target is $69. The firm cites uncertainty relative to consumer spending, declining gross margins and sales tax overhang, among the rationale.
COP (40.310): ConocoPhillips upgraded to buy from neutral at Goldman Sachs: Target decreased however to $47 from $50.
BBY (37.67): Best Buy removed from the Conviction Buy List at Goldman Sachs: Shares remain buy rated.
Goldman Sachs changes ratings in the E&P sector: upgrades APC, CHK, PXD; downgrades TLM, XTO: Upgrade: Chesapeake Energy (CHK) upgraded to Conviction Buy from buy. Pioneer Natural (PXD) upgraded to buy from sell. Downgrade: XTO Energy (XTO) downgraded to neutral from Conviction Buy. Talisman Energy (TLM) downgraded to sell from neutral.
BJS (10.94): BJ Services added to Conviction Sell List at Goldman Sachs: 6-month price target is $8.
Fair Value: SP500 – 830.15; NDX: 1282.55; DOW: 7881.44
Technical Levels:
SPX: 676, 719, 765, 792 support/ 823, 898 resistance
Events:
Pre-market EPS: FINL (.34/361.4M); KBH (-.81/356.0M)
06:00: Euro-zone Industrial New Orders (Jan): -5.6% MoM; -28.4% YoY
08:30: Personal Income (Feb): -0.1%; Personal Spending: 0.2%
08:30: PCE Core (Feb): 0.2% MoM; 1.6% YoY
10:00: University of Michigan Confidence (March Final): 56.6
11:30: KBH earnings call
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 14 points below fair value while the NASDAQ futures are trading 23 points below fair value at 8am ET. Foreign markets are weaker despite the strong gains in US markets during Thursday’s session. Asian markets closed mixed (Japan down 0.11%, Hong Kong up 0.07%, Shanghai up 0.77%, South Korea down 0.25%, Australia up 0.70%, India up 0.45%). Rio Tinto (RIO.AU) jumped in Australia after CFO Guy Elliott said the company had a backup plan if Chinalco’s $19.5B investment is turned down. In Japan, real estate share and trusts gained on a report the government is considering establishing a fund to support REITs. European markets are down 0.80% snapping a 7-day winning streak for the Euro-stoxx 50. The major indexes moved to session lows following a weaker than expected UK GDP report. Decliners on the FTSE 100 lead decliners 3-2. Air France-KLM (AF.FP) fell 6% after saying it'll report a FY09 operating loss and that traffic in the initial weeks of March has shown a further decline.
Research Calls/Market Moving News:
FDIC's Bair says she would be open to banks profiting from disposal of problem loans – WSJ: The Journal reports that Bair's comments came in a conference call with bankers on Thursday. According to the article, Bair said that banks might be able to take equity stakes in funds set up to buy problem loans from banks, which would give them a payoff if the loans ultimately increased in value, as well as an additional incentive to get the assets off of their balance sheets. The article goes on to discuss the wide range of haircuts that have been applied to recent deals involving toxic assets
ACN (31.96): Accenture reports Q2 EPS $0.63 vs Reuters $0.62: Company reports revenues of $5.27B vs Reuters $5.54B. Guides Q3 revenues to $5.10-$5.30B vs Reuters $5.78B. Fiscal year revenue growth guided to 0-4% below prior 6-10%. Q3 revenue guidance assumes (12)% impact from forex vs.y/y. Fiscal year guidance assumes forex impact of (9%) vs. prior (10%)-(8%). IBM is trading down 2.50 points in reaction.
INTC (15.82): INTC files 1 billion dollar equity shelf registration for acquisition purposes.
FSLR (150.39): First Solar downgraded to hold from buy at Collins Stewart: “Despite the indication yesterday that China will allocate funds for solar installations, it remains a challenging environment for the solar industry. ASPs are declining, financing is difficult to obtain in many markets and businesses are reluctant to tie up funds in a solar project in the midst of a weak economy. With regard to China, we do not believe the program in China will meaningfully alter the demand for FSLR product or correct the polysilicon oversupply situation we forecast for CY09 and CY10. Based on polysilicon prices ($100/kg spot), we believe the price of polysilicon-based modules will fall to $2.00/watt by YE09, a price level vendors such as TSL and YGE can achieve with a 22% gross margin (assuming $100/kg polysilicon). As standard module prices trend below $2.20/watt, they start to impact FSLR's pricing. FSLR modules require a $0.25/watt discount to maintain an installation cost parity, and an additional discount to provide an incentive for buyers to use its modules.”
TSL (12.19:FBR Capital downgrades shares to undderperform. “Following the recent rally in the shares of Trina Solar Limited, especially the 40% from yesterday compared to a 2% strengthening of the S&P 500, combined with what we believe to be the fact that solar incentives in China will not be more than 180M watts (versus our expectations of a total installation of 100M watts in CY09) and that Europe has remained relatively weak, in our opinion, when compared to company management commentary from only a month ago, we are downgrading the shares of TSL from Market Perform to Underperform. Our estimates remain unchanged, though there remains downside risk. Our price target of $8.00 has also remained unchanged. We believe that the fundamentals for the solar industry remain relatively weak, with continued excess capacity (and, thus, more finished-goods inventory write-downs). Although there is an increased level of skepticism among investors regarding a significant acceleration in growth before mid 2010 (when the U.S. market could potentially take off), we believe that the company's management (and management throughout the industry) has remained too hopeful.”
Solar Power: Deutsche Bank cautious on solar stocks: “The China Ministry of Finance announced a new incentive program to stimulate the solar PV industry. The main point of this preliminary plan is to provide up to a 20 Yuan (US$2.93)/Wp subsidy for projects 50kW and larger. This new stimulus package is clearly a positive, but we believe stocks have over-reacted to the news. Our near-term outlook for the broader solar PV industry remains negatively biased as credit issues drive prices down and inventories up. The China Ministry of Finance press release (detailed in the body of this report) could be characterized as a general direction with some details, but is clearly not detailed enough for an accurate assessment of the potential impact to the solar PV industry. We believe the program is likely designed to lend support to local Chinese solar PV industry players, and not meant to serve as a blueprint for a solar PV industry recovery plan in China. The press release did not detail the budget, the applicable period, or installation goals, making it difficult to quantify the impact of the program. While the program is clearly an incremental positive for the Chinese market and global demand, we caution against euphoria when considering solar PV company stocks.
GS (111.99): FBR Capital initiates coverage of The Goldman Sachs Group, Inc. (GS) with an Outperform rating and a 12-month price target of $130.00 per share. We believe that the company will benefit from the inward focus of many of its once formidable competitors, significant progress toward de-leveraging the balance sheet, and recovering returns on equity. For these reasons, we view the shares as attractively valued. Despite the need to reduce leverage and the concern that doing so could harm returns on equity, we believe that the market is largely ignoring higher risk premiums across a variety of asset classes and their positive implications for returns. We argue that leverage did have a positive impact on ROE but that the conditions that necessitated the higher use of leverage (namely extremely low risk premiums fueled by years of historically low funding costs) have reversed, allowing for attractive returns on lower leverage. We believe that GS’s current valuation appropriately reflects expectations for a difficult capital markets environment in 2009 but offers attractive upside potential in more stable capital markets.”
MGM (3.09): MGM Mirage and investment partner Dubai World unlikely to make $220M debt payment due Friday on City Center – WSJ: The Journal cites people familiar with the matter. The paper adds that MGM has hired law firm Weil, Gotshal & Manges LLP to help prepare a possible Chapter 11 court filing for City Center, as well as to explore other options. A filing could come as early as this weekend, though the paper notes that it is not clear what kind of impact such a move would have on MGM Mirage's other finances.
CF (74.00): Agrium raises cash component of its offer for CF Industries Holdings to $35 from $31.7
AMZN (73.69): Amazon.com removed from Conviction Buy List at Goldman Sachs: Shares remain buy rated. Despite the move, the 6-month target is increased to $81 from $70.
AMZN (73.69): Amazon initiated hold at Kaufman Brothers:Target is $69. The firm cites uncertainty relative to consumer spending, declining gross margins and sales tax overhang, among the rationale.
COP (40.310): ConocoPhillips upgraded to buy from neutral at Goldman Sachs: Target decreased however to $47 from $50.
BBY (37.67): Best Buy removed from the Conviction Buy List at Goldman Sachs: Shares remain buy rated.
Goldman Sachs changes ratings in the E&P sector: upgrades APC, CHK, PXD; downgrades TLM, XTO: Upgrade: Chesapeake Energy (CHK) upgraded to Conviction Buy from buy. Pioneer Natural (PXD) upgraded to buy from sell. Downgrade: XTO Energy (XTO) downgraded to neutral from Conviction Buy. Talisman Energy (TLM) downgraded to sell from neutral.
BJS (10.94): BJ Services added to Conviction Sell List at Goldman Sachs: 6-month price target is $8.
Thursday, March 26, 2009
March 26, 2009: Morning Call
March 26, 2009: Morning Call
Fair Value: SP500 – 810.99; NDX: 1237.81; DOW: 7706.28
Technical Levels:
SPX: 676, 719, 765 support/ 823, 898 resistance
Events:
Pre-market EPS: BBY (1.38/14.79B); CAG (.38/3.12B); CHU (.24/3.59B); GME(1.34/3.50B); LEN (-.69/544.3M); WTSLA (.08/157.4M)
05:00: Fed’s Lockhart speaks on monetary policy
08:30: US GDP QoQ (Q4): -6.6%; Personal Consumption: -4.4%
08:30: US GDP Price Index (Q4): 0.5%; Core PCE QoQ: 0.8%
08:30: Initial Jobless Claims (w/e March 21): 650k; Cont. Claims: 5.48M
09:00: LXK analyst day
10:00: Geithner testifies to house panel on regulation
12:00: Fed’s Fisher speaks on the current economic crisis
12:30: Fed’s Lacker speaks on the US economic outlook
13:00: Fed’s Stern speaks on “Too Big to Fail.”
Post-market EPS: ACN (.62/5.53B); ERJ (1.09/1.92B); TIBX (.09/142.1M)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 5 points above fair value while the NASDAQ futures are trading 10 points above fair value at 7:45am ET. European markets are down 0.25% in a quiet range bound trading session. The German DAX is up 0.50% due to strength in Volkswagen (VOW. GR). Trading higher after update is Man Group (EMG.LN) whilst retailers Next (NXT.LN), Kingfisher (KGF.LN) and H&M (HMB.SS) are all lower after results. Asian markets closed strong (Japan up 1.8%, Hong Kong up 3.57%, Australia up 1.03%, Shanghai up 3.27%, India up 3.47% - Sensex closes above 10,000). Asian markets rebounded after weak openings as technology shares rose on the back of overnight gains on the Nasdaq. Hong Kong was buoyed by positive earnings from Hutchison Whampoa (13.HK) and Industrial & Commercial Bank of China (1398.HK), which got several brokerage upgrades following the extension in the lock-up period for Goldman’s stake in the company.
Research Calls/Market Moving News:
China’s Zhou says Economy Recovers on Decisive Action – Bloomberg: “People’s Bank of China Governor Zhou Xiaochuan said the world’s third-largest economy is recovering and contrasted his government’s “decisive” action with delays in other countries. “Leading indicators are pointing to recovery of economic growth,” Zhou said in an article on the central bank’s Web site today. The government “has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions,” he said. Zhou called this week for the creation of a new international reserve currency, signaling concern at the dollar’s weakness and China’s ambitions for a leadership role at next week’s Group of 20 summit. Finance Minister Xie Xuren urged world leaders today to step up economic stimulus to restore market confidence and to fend off trade protectionism. “China has clearly been moving ahead of the rest of the G-20 in terms of thought leadership and laying the groundwork for what will be discussed,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “China responded extremely quickly and with great vigor to the slowdown.”
BBY (33.46): BBY reports Q4 profit of 1.61 vs. street consensus of 1.40. Guides 2010 EPS to between 2.50 to 2.90. 2010 consensus is 2.46. Shares are trading up 2 points in reaction to the headlines.
RIMM (42.92): Goldman recommends buying Research In Motion ahead of fQ4 (Feb) earnings: Following checks, the firm has more confidence in its estimates for fQ1 and expects company guidance to meet expectations. Rating remains buy; 6-month target is $57. RIMM reports Q4 on 2-Apr. JP Morgan downgraded RIMM shares yesterday.
RIMM (42.92): Research In Motion: Credit Suisse previews Q4; sees in-line qtr, risks in May: Credit Suisse notes while F4Q results should be in-line with the co's Feb 11 preannouncement, per which EPS is expected to come in at the low end of prior guidance of $0.83-0.91, firm sees risk to consensus estimates of $3.4 bln/$0.82 for the May quarter. Their May quarter revenue/EPS estimates of $2.9 bln/$0.75 are predicated on units/ASP of 6.6 mln/$352 vs consensus of 7.7 mln/$361. For F1Q, firm's device est of 6.6 mln (down 12% qoq but still up 22% yoy) is driven by i) moderating net add growth, ii) a lower quarterly replacement rate, and iii) only a moderate inventory build ahead of new product launches. Firm believes this view better reflects not only a slowing smartphone market, but also the level of carrier support that RIM is currently seeing from Vodafone for the Storm.
GOOG (344.07); IACI (14.88); VCLK (8.03): Canaccord Adams upgrades GOOG, IACI, VCLK: Google (GOOG) upgraded to buy from hold; target increased to $450 from $300. InterActiveCorp (IACI) upgraded to buy from hold; target increased to $19 from $15. ValueClick (VCLK) upgraded to buy from sell; target increased to $10 from $5
VLO (18.64): Barron's Weekday Trader is positive on Valero Energy: Barron's says that Valero has a distinct advantage as the largest refiner of petroleum products in the US. The company is one of the most profitable and lowest-cost producers of refined products, has $5B in available liquidity, and no major debt obligations for two years. The article also points out that down 65% over the last twelve months to near a five-year low, the stock is trading around historically low valuations at 0.6x book and 6.5x expected 2009 EPS. In addition, Barron's highlights the competitive edge in Valero's business model in that its plants are equipped to refine heavy, sour crude, which sells at a discount to the benchmark light, sweet crude oil quoted on the NYMEX.
AAPL (106.49): China Unicom Hong Kong denies reports it has agreement to bring 3G iPhone to China - China Knowledge: A CHU spokesman says the companies are still in talks, but he has not been told an agreement has been reached.
BHP (46.12): BHP Billiton downgraded to neutral from buy at Bank of America Merrill Lynch (Pre European Open)-- Bloomberg
President Obama's auto task force to recommend more loans for struggling car companies – WSJ: The Journal reports that President Obama's auto-industry task force is set to recommend additional loans for struggling US car companies, though not without additional strings attached. Recall that Bloomberg cited comments from Sen. Levin (D-MI) earlier today that the automakers can expect more aid. According to the article, the task force expects to make an announcement within the next few days. The group is expected to say that it sees viable futures for both GM and Chrysler, but only if there are sacrifices from management, unions and bondholders.
Fair Value: SP500 – 810.99; NDX: 1237.81; DOW: 7706.28
Technical Levels:
SPX: 676, 719, 765 support/ 823, 898 resistance
Events:
Pre-market EPS: BBY (1.38/14.79B); CAG (.38/3.12B); CHU (.24/3.59B); GME(1.34/3.50B); LEN (-.69/544.3M); WTSLA (.08/157.4M)
05:00: Fed’s Lockhart speaks on monetary policy
08:30: US GDP QoQ (Q4): -6.6%; Personal Consumption: -4.4%
08:30: US GDP Price Index (Q4): 0.5%; Core PCE QoQ: 0.8%
08:30: Initial Jobless Claims (w/e March 21): 650k; Cont. Claims: 5.48M
09:00: LXK analyst day
10:00: Geithner testifies to house panel on regulation
12:00: Fed’s Fisher speaks on the current economic crisis
12:30: Fed’s Lacker speaks on the US economic outlook
13:00: Fed’s Stern speaks on “Too Big to Fail.”
Post-market EPS: ACN (.62/5.53B); ERJ (1.09/1.92B); TIBX (.09/142.1M)
Foreign Market Summary/Key Macro News/Commentary:
The S&P futures are trading 5 points above fair value while the NASDAQ futures are trading 10 points above fair value at 7:45am ET. European markets are down 0.25% in a quiet range bound trading session. The German DAX is up 0.50% due to strength in Volkswagen (VOW. GR). Trading higher after update is Man Group (EMG.LN) whilst retailers Next (NXT.LN), Kingfisher (KGF.LN) and H&M (HMB.SS) are all lower after results. Asian markets closed strong (Japan up 1.8%, Hong Kong up 3.57%, Australia up 1.03%, Shanghai up 3.27%, India up 3.47% - Sensex closes above 10,000). Asian markets rebounded after weak openings as technology shares rose on the back of overnight gains on the Nasdaq. Hong Kong was buoyed by positive earnings from Hutchison Whampoa (13.HK) and Industrial & Commercial Bank of China (1398.HK), which got several brokerage upgrades following the extension in the lock-up period for Goldman’s stake in the company.
Research Calls/Market Moving News:
China’s Zhou says Economy Recovers on Decisive Action – Bloomberg: “People’s Bank of China Governor Zhou Xiaochuan said the world’s third-largest economy is recovering and contrasted his government’s “decisive” action with delays in other countries. “Leading indicators are pointing to recovery of economic growth,” Zhou said in an article on the central bank’s Web site today. The government “has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions,” he said. Zhou called this week for the creation of a new international reserve currency, signaling concern at the dollar’s weakness and China’s ambitions for a leadership role at next week’s Group of 20 summit. Finance Minister Xie Xuren urged world leaders today to step up economic stimulus to restore market confidence and to fend off trade protectionism. “China has clearly been moving ahead of the rest of the G-20 in terms of thought leadership and laying the groundwork for what will be discussed,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “China responded extremely quickly and with great vigor to the slowdown.”
BBY (33.46): BBY reports Q4 profit of 1.61 vs. street consensus of 1.40. Guides 2010 EPS to between 2.50 to 2.90. 2010 consensus is 2.46. Shares are trading up 2 points in reaction to the headlines.
RIMM (42.92): Goldman recommends buying Research In Motion ahead of fQ4 (Feb) earnings: Following checks, the firm has more confidence in its estimates for fQ1 and expects company guidance to meet expectations. Rating remains buy; 6-month target is $57. RIMM reports Q4 on 2-Apr. JP Morgan downgraded RIMM shares yesterday.
RIMM (42.92): Research In Motion: Credit Suisse previews Q4; sees in-line qtr, risks in May: Credit Suisse notes while F4Q results should be in-line with the co's Feb 11 preannouncement, per which EPS is expected to come in at the low end of prior guidance of $0.83-0.91, firm sees risk to consensus estimates of $3.4 bln/$0.82 for the May quarter. Their May quarter revenue/EPS estimates of $2.9 bln/$0.75 are predicated on units/ASP of 6.6 mln/$352 vs consensus of 7.7 mln/$361. For F1Q, firm's device est of 6.6 mln (down 12% qoq but still up 22% yoy) is driven by i) moderating net add growth, ii) a lower quarterly replacement rate, and iii) only a moderate inventory build ahead of new product launches. Firm believes this view better reflects not only a slowing smartphone market, but also the level of carrier support that RIM is currently seeing from Vodafone for the Storm.
GOOG (344.07); IACI (14.88); VCLK (8.03): Canaccord Adams upgrades GOOG, IACI, VCLK: Google (GOOG) upgraded to buy from hold; target increased to $450 from $300. InterActiveCorp (IACI) upgraded to buy from hold; target increased to $19 from $15. ValueClick (VCLK) upgraded to buy from sell; target increased to $10 from $5
VLO (18.64): Barron's Weekday Trader is positive on Valero Energy: Barron's says that Valero has a distinct advantage as the largest refiner of petroleum products in the US. The company is one of the most profitable and lowest-cost producers of refined products, has $5B in available liquidity, and no major debt obligations for two years. The article also points out that down 65% over the last twelve months to near a five-year low, the stock is trading around historically low valuations at 0.6x book and 6.5x expected 2009 EPS. In addition, Barron's highlights the competitive edge in Valero's business model in that its plants are equipped to refine heavy, sour crude, which sells at a discount to the benchmark light, sweet crude oil quoted on the NYMEX.
AAPL (106.49): China Unicom Hong Kong denies reports it has agreement to bring 3G iPhone to China - China Knowledge: A CHU spokesman says the companies are still in talks, but he has not been told an agreement has been reached.
BHP (46.12): BHP Billiton downgraded to neutral from buy at Bank of America Merrill Lynch (Pre European Open)-- Bloomberg
President Obama's auto task force to recommend more loans for struggling car companies – WSJ: The Journal reports that President Obama's auto-industry task force is set to recommend additional loans for struggling US car companies, though not without additional strings attached. Recall that Bloomberg cited comments from Sen. Levin (D-MI) earlier today that the automakers can expect more aid. According to the article, the task force expects to make an announcement within the next few days. The group is expected to say that it sees viable futures for both GM and Chrysler, but only if there are sacrifices from management, unions and bondholders.
Monday, March 23, 2009
The Key Question Remains!
The most important “principle” in the Geithner Public/Private Investment Program (PPIP) is the “private sector price discovery” mechanism. The Treasury Fact sheet says that in order to “reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.” Pundits on both the left and right are furiously arguing that the plan is going to be a huge giveaway to the banks at the taxpayer expense. But, this assumption is based on the PPIP overpaying for the toxic assets. Of course, the government could rig the PPIP auctions for the benefit of the banks but the pundits (and many traders long the financial stocks) are just speculating on this score.
Paul Krugman argues that the Geithner plan is “just an indirect, disguised way to subsidize purchases of bad assets” at inflated prices. But, Krugman’s statement is far too definitive without the benefit of the pricing data. The ultra-cheap financing and attractive terms will enable the public/private to “pay up” for the toxic assets. The key question is how much? Market participants will not know if the PPIP is a taxpayer giveaway until the asset auctions begin and the prices are disseminated.
Also, keep in mind that the “uniform stress test” results are expected by the end of the April and the PPIP is going to be launched within the next 45 days. Will any banks fail the stress test? And, if so, will banks that fail the stress test be forced to sell assets into the PPIP in order to receive additional capital? The uniform stress test may be the trigger that forces banks to recognize their true unrealized losses and the PPIP may be the venue where the unrealized losses are finally realized. The uniform stress test and the PPIP may be a way for the Obama Administration to force the point and provide political cover if a “too big to fail” institution needs to be nationalized and liquidated.
In terms of strategy, the rally appears extended here despite the solid move above the 50- day moving average and the 800-level on the S&P 500. Traders that are still aggressively long should be paring back exposure into this advance. The speculation that this program is going to be a windfall for the banking sector seems misplaced and overdone.
Paul Krugman argues that the Geithner plan is “just an indirect, disguised way to subsidize purchases of bad assets” at inflated prices. But, Krugman’s statement is far too definitive without the benefit of the pricing data. The ultra-cheap financing and attractive terms will enable the public/private to “pay up” for the toxic assets. The key question is how much? Market participants will not know if the PPIP is a taxpayer giveaway until the asset auctions begin and the prices are disseminated.
Also, keep in mind that the “uniform stress test” results are expected by the end of the April and the PPIP is going to be launched within the next 45 days. Will any banks fail the stress test? And, if so, will banks that fail the stress test be forced to sell assets into the PPIP in order to receive additional capital? The uniform stress test may be the trigger that forces banks to recognize their true unrealized losses and the PPIP may be the venue where the unrealized losses are finally realized. The uniform stress test and the PPIP may be a way for the Obama Administration to force the point and provide political cover if a “too big to fail” institution needs to be nationalized and liquidated.
In terms of strategy, the rally appears extended here despite the solid move above the 50- day moving average and the 800-level on the S&P 500. Traders that are still aggressively long should be paring back exposure into this advance. The speculation that this program is going to be a windfall for the banking sector seems misplaced and overdone.
Friday, March 20, 2009
March 20, 2009: Morning Call
March 20, 2009: Morning Call
Fair Value: SP500 – 781.02; NDX: 1205.44; DOW: 7356.32
Technical Levels:
SPX: 639, 676, 719 support/ 800, 823 resistance
Events:
06:00: Euro-zone Trade Balance
06:00: Euro-zone Construction Output
10:00: House hearing on investor protection laws
11:00: Goldman Sachs CFO discusses relationship with AIG
12:00: Bernanke speaks on panel with FDIC chair Shelia Bair about the financial crisis
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are trading flat with fair value at 8am ET. The futures have bounced 10 points off the morning lows (741) session following news that EU leaders agreed to double the crisis fund for non-Eurozone members to 50 billion euros. European markets are unchanged bouncing 1.5% off the early morning lows. The dollar immediately reversed higher on the news (USD up 0.80% against the Euro) alleviating some of the concerns about the pace of the dollar decline over the last two sessions following the Fed announcement. Asian markets closed lower (Japan down 0.33%, Hong Kong down 2.26%, Australia down 0.41%, India down 0.39%). Banks followed their Wall Street counterparts down as euphoria over the plan for the Federal Reserve to buy longer-dated US Treasuries subsided. Commodity prices rallied, bringing related stocks up with them. Hong Kong lost early gains as investors showed disappointment with China Mobile (941.HK)’s results and a report a large investor is trying to sell shares, sending it down 5%.
Research Calls/Market Moving News:
GE (10.13): UBS comments on General Electric's finance analyst day: Firm notes that the company's underlying economic assumptions tend to be overly optimistic and that it seems increasingly possible that '10 could be worse than '09. Rating is remains neutral with a target of $9.50.
GE (10.13): General Electric EPS estimates reduced at Citi: Firm says the company's earnings power and the quality of its earnings are declining, and includes tax credits, but that the company's capital and liquidity are likely adequate. Firm reduced Q1 EPS and f09 below consensus. Shares rated hold. Target price, $9.
GE (10.13): GE Capital likely needs to increase reserves – WSJ: In a "Heard on the Street" column, the Journal discusses some of the recently released details of GE Capital's $637B worth of assets. The paper notes that 81% of the $55B of equipment leased in the Americas is to borrowers with ratings below investment grade. In addition, when it comes to the $38B leveraged loan book, 76% is to borrowers rated below B+, with 28% to those below B-. According to the article, management is expecting $333M of credit losses on its leveraged loans in 2009, less than 1% of the total amount. The Journal goes on to highlight GE Capital's exposure to lower-grade consumer borrowers.
SPG (34.38): Simon Properties to offer 15M shares through Goldman Sachs, Deutsche and UBS: All shares are being offered by the company. If the 15% over-allotment is exercised in full, the newly issued shares increase the shares outstanding by 7.5%. SPG is also offering ~$500M in senior notes through Goldman Sachs and JPMorgan. The completion of either offering is not conditioned on the success of the other.
Eurozone Jan Industrial Production (17.3%) y/y vs consensus (15.5%) and prior revised (11.8%). Eurozone Jan Industrial Production (3.5%) m/m vs consensus (4.0%) and prior revised (2.7%)
MHP (19.64); MCO (19.06): Credit-rating companies set to hit jackpot with latest government effort to heal credit markets – WSJ: The latest round features bond issues, each of which needs to be blessed by at least two of Moody's Investors Service (MCO), Standard & Poor's Ratings Services (MHP), and Fitch Ratings (FIM.FP). So while the argument can be made that these companies' wildly bad ratings on mortgage securities caused this problem, the latest solution is set to reward them. Officials at all three companies say steps have been taken to avoid repeating past mistakes in assigning ratings. Given typical charges, if TALF goes to the planned $1T, the three companies' fees for rating the securities will be $400M-1.2B.
FSLR (124.80): First Solar repeats it will have the capacity to produce more than 1GW per year: FSLR also announced it has producted 1GW of its advanced solar modules since beginning commercial production in early 2002.
TGT (31.43): Target reports February net charge-offs 12.88% vs. Jan 12.28%: Delinquencies were 8.94% vs. 8.91% in Jan. Trust portfolio yield was 25.49% vs. 24.63% in Jan. The payment rate was 12.61% vs. 12.47% in Jan
XRX (5.34): Xerox guides Q1 EPS to $0.03-0.05 vs prior $0.16-0.20 and Reuters $0.17: The reduction includes a $0.06 impact from Xerox's share of Fuji Xerox's restructuring and a lower than expected Fuji Xerox profit contribution with the balance resulting from an industry-wide slowdown in technology spending, putting pressure on revenue and earnings. Xerox's total revenue in January and February declined 18% including a 5 point currency impact, largely due to lower sales of equipment and printer-based supplies.
Fair Value: SP500 – 781.02; NDX: 1205.44; DOW: 7356.32
Technical Levels:
SPX: 639, 676, 719 support/ 800, 823 resistance
Events:
06:00: Euro-zone Trade Balance
06:00: Euro-zone Construction Output
10:00: House hearing on investor protection laws
11:00: Goldman Sachs CFO discusses relationship with AIG
12:00: Bernanke speaks on panel with FDIC chair Shelia Bair about the financial crisis
Foreign Market Summary/Key Macro News/Commentary:
The S&P and NASDAQ futures are trading flat with fair value at 8am ET. The futures have bounced 10 points off the morning lows (741) session following news that EU leaders agreed to double the crisis fund for non-Eurozone members to 50 billion euros. European markets are unchanged bouncing 1.5% off the early morning lows. The dollar immediately reversed higher on the news (USD up 0.80% against the Euro) alleviating some of the concerns about the pace of the dollar decline over the last two sessions following the Fed announcement. Asian markets closed lower (Japan down 0.33%, Hong Kong down 2.26%, Australia down 0.41%, India down 0.39%). Banks followed their Wall Street counterparts down as euphoria over the plan for the Federal Reserve to buy longer-dated US Treasuries subsided. Commodity prices rallied, bringing related stocks up with them. Hong Kong lost early gains as investors showed disappointment with China Mobile (941.HK)’s results and a report a large investor is trying to sell shares, sending it down 5%.
Research Calls/Market Moving News:
GE (10.13): UBS comments on General Electric's finance analyst day: Firm notes that the company's underlying economic assumptions tend to be overly optimistic and that it seems increasingly possible that '10 could be worse than '09. Rating is remains neutral with a target of $9.50.
GE (10.13): General Electric EPS estimates reduced at Citi: Firm says the company's earnings power and the quality of its earnings are declining, and includes tax credits, but that the company's capital and liquidity are likely adequate. Firm reduced Q1 EPS and f09 below consensus. Shares rated hold. Target price, $9.
GE (10.13): GE Capital likely needs to increase reserves – WSJ: In a "Heard on the Street" column, the Journal discusses some of the recently released details of GE Capital's $637B worth of assets. The paper notes that 81% of the $55B of equipment leased in the Americas is to borrowers with ratings below investment grade. In addition, when it comes to the $38B leveraged loan book, 76% is to borrowers rated below B+, with 28% to those below B-. According to the article, management is expecting $333M of credit losses on its leveraged loans in 2009, less than 1% of the total amount. The Journal goes on to highlight GE Capital's exposure to lower-grade consumer borrowers.
SPG (34.38): Simon Properties to offer 15M shares through Goldman Sachs, Deutsche and UBS: All shares are being offered by the company. If the 15% over-allotment is exercised in full, the newly issued shares increase the shares outstanding by 7.5%. SPG is also offering ~$500M in senior notes through Goldman Sachs and JPMorgan. The completion of either offering is not conditioned on the success of the other.
Eurozone Jan Industrial Production (17.3%) y/y vs consensus (15.5%) and prior revised (11.8%). Eurozone Jan Industrial Production (3.5%) m/m vs consensus (4.0%) and prior revised (2.7%)
MHP (19.64); MCO (19.06): Credit-rating companies set to hit jackpot with latest government effort to heal credit markets – WSJ: The latest round features bond issues, each of which needs to be blessed by at least two of Moody's Investors Service (MCO), Standard & Poor's Ratings Services (MHP), and Fitch Ratings (FIM.FP). So while the argument can be made that these companies' wildly bad ratings on mortgage securities caused this problem, the latest solution is set to reward them. Officials at all three companies say steps have been taken to avoid repeating past mistakes in assigning ratings. Given typical charges, if TALF goes to the planned $1T, the three companies' fees for rating the securities will be $400M-1.2B.
FSLR (124.80): First Solar repeats it will have the capacity to produce more than 1GW per year: FSLR also announced it has producted 1GW of its advanced solar modules since beginning commercial production in early 2002.
TGT (31.43): Target reports February net charge-offs 12.88% vs. Jan 12.28%: Delinquencies were 8.94% vs. 8.91% in Jan. Trust portfolio yield was 25.49% vs. 24.63% in Jan. The payment rate was 12.61% vs. 12.47% in Jan
XRX (5.34): Xerox guides Q1 EPS to $0.03-0.05 vs prior $0.16-0.20 and Reuters $0.17: The reduction includes a $0.06 impact from Xerox's share of Fuji Xerox's restructuring and a lower than expected Fuji Xerox profit contribution with the balance resulting from an industry-wide slowdown in technology spending, putting pressure on revenue and earnings. Xerox's total revenue in January and February declined 18% including a 5 point currency impact, largely due to lower sales of equipment and printer-based supplies.
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