Tuesday, July 26, 2011
o Economics today:
o 7:45 a.m./8:55 a.m.: Retail weekly sales from ICSC/Redbook
o 9 a.m.: S&P/CaseShiller 20 City MoM% est. 0.0%, prior 0.09%
o 10 a.m.: Consumer Confidence, est. 56.0, prior 58.5
o 10 a.m.: Richmond Fed Manufacturing, Jul, est. 5, prior 3
o 10 a.m.: New Home Sales, Jun, est. 320k (up 0.3%) from 319k
o 11:30 a.m.: U.S. to sell $18b 4-wk, $20b 52-wk bills
o 1 p.m.: U.S. to auction $35b 2-yr notes
o 2 p.m.: Fed?s Hoenig testifies on monetary policy
Analyst Research: UPGRADES: Sprint (S) upgraded to Outperform from Sector Perform at RBC Capital...Valueclick (VCLK) upgraded to Overweight from Underweight at Piper Jaffray...Volterra (VLTR) upgraded to Overweight from Neutral at Piper Jaffray...Navios Maritime Partners (NMM) upgraded to Buy from Hold at Deutsche Bank...Associated Estates (AEC) upgraded to Outperform from Neutral at RW Baird...Salient MLP & Energy (SMF) upgraded to Outperform from Neutral at RW Baird...Anadys Pharma (ANDS) upgraded to Outperform from Neutral at Wedbush...Mentor Graphics (MENT) upgraded to Buy from Neutral at BofA/Merrill...Finisar (FNSR) upgraded to Buy from Hold at Citigroup...Eagle Materials (EXP) upgraded to Overweight from Equal Weight at Stephens...BancorpSouth (BXS) upgraded to Overweight from Equal Weight at Stephens...DOWNGRADES: ITT Educational (ESI) downgraded to Sell from Neutral at UBS...Eagle Bulk Shipping (EGLE) downgraded to Sell from Hold at Deutsche Bank...Genco Shipping (GNK) downgraded to Sell from Hold at Deutsche Bank...Excel Maritime (EXM) downgraded to Hold from Buy at Deutsche Bank...HCA Holdings (HCA) downgraded to Neutral from Buy at Goldman...Harmonic (HLIT) downgraded to Neutral from Buy at BofA/Merrill...Computer Programs (CPSI) downgraded to Neutral from Overweight at Piper Jaffray...Idenix (IDIX) downgraded to Neutral from Outperform at Wedbush...INITIATIONS: Meredith (MDP) initiated with an Overweight at Piper Jaffray...comScore (SCOR) initiated with a Neutral at Piper Jaffray...interclick (ICLK) initiated with a Neutral at Piper Jaffray...Vistaprint (VPRT) initiated with a Neutral at Piper Jaffray...Inhibitex (INHX) initiated with an Outperform at Wedbush...NuPathe (PATH) initiated with an Outperform at Wedbush...Herbalife (HLF) initiated with a Buy at SunTrust...Google (GOOG) initiated with a Buy at CLSA...PetSmart (PETM) initiated with an Outperform at RBC Capital...TJX (TJX) initiated with a Buy at BofA/Merrill...Derma Sciences (DSCI) initiated with a Buy at Canaccord.
? CIT Group (CIT) 6 a.m., $(0.32)
? Covidien (COV) 6 a.m., $0.95
? Cenovus Energy (CVE CN) 6 a.m., $0.45
? CGI Group (GIB/A CN) 6:30 a.m., $0.38
? Rogers Communications (RCI/B CN) 6:40 a.m., C$0.81
? Eastman Kodak (EK) 6:52 a.m., $(0.67)
? Energizer Holdings (ENR) 7 a.m., $1.25
? Ford Motor (F) 7 a.m., $0.61
? Hershey (HSY) 7 a.m., $0.55
? National Oilwell Varco (NOV) 7 a.m., $1.01
? Regions Financial (RF) 7 a.m., $(0.00)
? Simon Property Group (SPG) 7 a.m., $1.58
? Tellabs (TLAB) 7 a.m., $(0.02)
? Waters (WAT) 7 a.m., $1.14
? Watson Pharmaceuticals (WPI) 7 a.m., $1.00
? Western Union (WU) 7 a.m., $0.38
? Biogen Idec (BIIB) 7:15 a.m., $1.37
? Cummins (CMI) 7:30 a.m., $2.02
? Invesco (IVZ) 7:30 a.m., $0.43
? JetBlue Airways (JBLU) 7:30 a.m., $0.09
? Lockheed Martin (LMT) 7:30 a.m., $1.94
? 3M Co (MMM) 7:30 a.m., $1.59
? Omnicare (OCR) 7:30 a.m., $0.49
? Occidental Petroleum (OXY) 7:30 a.m., $2.18
? *T Rowe Price Group (TROW) 7:32 a.m., $0.77
? Valero Energy (VLO) 7:44 a.m., $1.45
? United Parcel Service (UPS) 7:45 a.m., $1.05
? Chrysler (F IM), 8 a.m., N/A
? Illinois Tool Works (ITW) 8 a.m., $1.02
? Paccar (PCAR) 8 a.m., $0.69
? Sigma-Aldrich (SIAL) 8 a.m., $0.92
? Supervalu (SVU) 8 a.m., $0.33
? AK Steel Holding (AKS) 8:30 a.m., $0.50
? Avery Dennison (AVY) 8:30 a.m., $0.77
WHAT TO WATCH: The dollar weakened to a record low versus the Swiss franc and the cost of insuring U.S. debt rose to a 17-month high as Obama warned of a �deep economic crisis� without a compromise to avert an Aug. 2 U.S. default. Sales of new homes in the U.S. probably rose 0.3 percent in June, economists said, 10 a.m. Hungary�s central bank will likely keep the benchmark interest rate unchanged for a sixth month, 8 a.m. George Soros is ending his career as a money manager and returning funds to clients.
ECONOMICS: S&P/Case-Shiller Home Price Index, 9 a.m. Consumer confidence, 10 a.m. Richmond Fed Manufacturing Index, 10 a.m. Fed�s Hoenig testifies on monetary policy, 2 p.m. The U.K. economy barely grew in the second quarter. The Reserve Bank of India raised its key interest rate more than forecast.
Americas: Banks: Closer to a turning point? 1
Eaton Corp. (ETN): Reiterate CL-Buy as later cycle drivers primed to accelerate 2
Americas: Healthcare Services: Hospitals: Tough trends for the hospitals;
Downgrade HCA to Neutral 3
Texas Instruments Inc. (TXN): We see tepid guidance as representative of
broader industry trends 4
Americas: Technology: Semiconductors: Mercury data shows AMD gained 20 bp
of revenue share in 2Q11 5
Broadcom Corporation (BRCM): Strong guidance should improve sentiment;
Street too low for 2012 6
Netflix, Inc. (NFLX): 2Q subs below expectations, but estimates up on pricing
increase 7 @ gs
Google: Initiate with BUY and $750 target (James Lee)
We initiate coverage of Google at BUY with a US$750 target price. We like the company�s strategy of moving up the marketing funnel, capturing larger opportunities outside search, such as display, mobile, local and social. Google is going through a heavy investment period as it builds the infrastructure and ecosystem to support its growth initiatives. We are particularly excited about display and mobile and believe that once these investments start to bear fruit, the growth story will play out @ clsa
Everybody Needs Money. That�s Why They Call it Money.
Summary: As bullish as we � and a host of others � are on precious metals, there�s no doubting that money flows are still positive for a few global currencies. In fact, for
the year-to-date more money has gone into currency-tracking Exchange Traded Funds (ETFs) than into commodity ETFs - $2.2 billion of new capital versus $1.99 billion
through last Friday. The big winners YTD in the world of currency ETFs in terms of asset growth: Swiss Franc ETF symbol FXF (+$541 million), the Canadian Dollar ETF
symbol FXC (+$339 million) and the Brazilian Real ETF symbol BZF (+$308 million). Over the last month, however, asset growth in commodity ETFs has spiked by $2.44
billion, led by precious metals-based funds with $3 billion of new capital. Currency funds have only gathered $60.6 million of new money over the same period. The
Greek crisis and U.S. Debt Limit Debate seem to have sucked capital away from almost all currencies and into hard assets for the moment. A reversal of these trends �
likely when the U.S. debate is finally resolved � will be a good sign that risk appetites are on the rise again. To paraphrase St. Augustine, �Give me risk, but not yet�� @ comverge
Baidu�s 2Q results were impressive and beat consensus in all aspects.
Earning was up 95%YoY to Rmb1.6bm, 9% above consensus. Big
customers have made a larger shift of ad budget to search. It is a key
beneficiary of the boom in e-Commerce. Baidu continues to upgrade
Phoenix Nest to improve monetization. Cost remains under control.
Margin hit record 58%. 3Q11 should be another strong quarter with 75-
80%YoY revenue growth. We revise up earning by 8-16% for 2011-13
and upgrade target to US$215 based on DCF valuation. Maintain BUY.
An excellent quarter
Baidu 2Q earning almost doubled to Rmb1.6bn. Revenue exceeded guidance
(+78%YoY) driven by strong ARPU expansion (+52%YoY). Big advertisers
have shifted more budget online given the high ROI and boom in ecommerce.
Baidu has been a key beneficiary of the jump in marketing
expense by e-Commerce companies especially group buying sites. Big
advertisers have also increased search adspend as they start selling products
online. Ad revenue from e-Commerce continues to grow at triple digits.
Further improvement on monetization
Baidu has upgraded its Phoenix Nest with new user friendly interface. It has
streamlined the process needed for users to manage their accounts. SMEs
which don�t have an internal marketing team will still be able to use the
platform. Company believes there is still room for improvement in the bidding
process and tools of managing marketing campaign on Phoenix Nest. This
should continue to improve monetization and growth of the company.
Margin reached record high
Operating margin hit record 58% in 2Q11 as TAC and marketing expense
remained under control. TAC stayed low given the strong organic growth on
Baidu�s own websites. TAC as a percentage of revenue was down 1.9%YoY to
8.5% in 2Q11. Marketing expense was also contained at 11.9% of revenue
despite its big marketing campaign in 157 cities last quarter.
Upgrade target to US$215
We revise up earning by 8-9% for 2011-2012 to reflect strong ARPU
expansion. We upgrade DCF based target to US$220 given earning revision
and rolling DCF valuation by six months to June 2012. Our target implies
52.5x 12CL PE against 33% 3-year EPS CAGR or 1.6x PEG. Baidu�s high PE
multiple should be sustainable given the strong growth opportunity.
1. The dollar weakened to a record low versus the Swiss franc and the cost of insuring U.S. debt rose to a 17-month high.
2. The U.S. Treasury Department may have enough cash to pay the government�s bills for days or even weeks if Congress fails to raise the debt limit before an Aug. 2 deadline.
3. GS, JPM & BAC said the economy will expand at a 2.5% pace, down from earlier projections of as much as 3.25%. A more-muted rebound from a slow first half would keep pressure on the FED to hold interest rates near zero.
4. BOVE HAS STATED FOR MONTHS THAT IN THE 2H, THE ECONOMY WILL ONLY GROW 2-2.5% !!
5. In the last decade, as a wave of baby boomers began retiring, America�s biggest state pension systems earned less than half what they needed to keep up with promises made to millions of graying civil servants.
6. Obama Says He�s �Confident� Both Sides Can Reach Debt Compromise
7. Boehner Says He Made �Sincere Effort� to Work With Obama on Debt
1. U.K. Growth Slows to 0.2%, Reinforcing Case for Record-Low Rates
2. The U.K. economy barely grew in the 2Q, suggesting the BOE will continue to keep rates at a record low.
? CHINA� Costlier Cigarettes May Help China Fight Cancer
1. Japan to Recall Tainted Beef as Cesium Contamination Widens
2. Japan Scientists Say Sea Radiation Tests May Miss Seafood Threat
? SPAIN� Spain Sells 2.89 Billion Euros of Bills at Auction
? INDIA-- India Raises Key Rate More Than Analysts Forecast on Inflation
? KOREA� Korea Unveils Plan to Expand Investment Banking Industry
? TAIWAN� Taiwan Says Chinese Fighter Jets Entered Its Airspace in June
Seeking Alpha Notes:
S&P 500 technicals – update from JPMorgan’s M Krauss – no change to our view: the "Summer of Ranging" is decidedly intact. The upper-part of the range is 1340-1360, which remains a selling area. We still expect another foray into the high 1200s in either Aug or Sept. That would be for buying. So, in the next 4-8 weeks, we see twice as much downside from 1338 as upside. In '4Q we expect a surge which targets to 1420-1440 by year-end
*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!
No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.