Tuesday, September 30, 2008

Apple (NASDAQ:AAPL): Pullback in Apple shares overdone – reiterate Buy - Goldman Sachs

Goldman Sachs is out defending Apple (NASDAQ:AAPL) noting broader Broader concerns about softer consumer demand will continue to cause Apple shares to be volatile in the near term. However, the recent sell off creates an opportunity as they think Apple will outperform the group through the end of the year, driven by iPhone unit upside and a strong product pipeline. Firm thinks yesterday’s -18% decline (underperforming S&P 500 by -910 bps) more than captures the concerns over Mac growth in a weakening spending environment, making Apple shares attractive at current levels. In the intermediate-term, they think Apple shares could move back to the $145 level, applying a 1x PEG multiple on calendar 2009 earnings estimate recognizing iPhone as current period revenue.

In the near term checks suggest that Apple will meet GSCO's 2.7M unit Mac estimate and probably show some upside to iPhone unit forecast of 4.26M. This, combined with favorable component prices, should drive solid gross margin and earnings at least in line with GAAP earnings estimate of $1.07. At the same time, they continue to expect Apple to roll out new products over the next several months, including a new line up of notebooks within the next few weeks. Valuation

Goldman's 12-month price target of $200 is based on target P/Es, growth-adjusted earnings multiples, cash flow metrics, and DCF.

Notablecalls: I suspect AAPL's due for a bounce here. It still has $6-$7 EPS power in the n-t and possibly $10 EPS power in the L-T.

TARP -- Putting Humpty Dumpty Back Together Again - Keefe

Keefe, Bruyette notes that on Monday, the House rejected legislation creating a Troubled Asset Relief Program, 205-228. In the wake of the vote, Congress is trying to pick up the pieces and pass the bill. Firm thinks it will take a few days to put a deal back together. In the end, they continue to believe that a bill will be passed.

Washington failed for several reasons to pass the TARP. However, Wall Street's reaction to the failure will, in Keefe's opinion, move Congress to finish the bill in several days.

Political leadership in both parties needs to do a better job of convincing voters of the need for the TARP and they think the market's reaction to the bill's failure will help them make that case.

Cooler heads will, in their opinion, prevail over the coming days. House members will need a few days to decompress but the firm continues to believe that a bill will pass in the coming week or two.

They think the biggest question is how Congress will pass a bill—what will it look like? Increased deposit insurance coverage could be part of a revised bill.

Notablecalls: Hence we are in green territory in the pre market.

Monday, September 29, 2008

My game plan for the open/pre mkt

I suspect we will get a nice bounce off the open:

- Wachovia (NYSE:WB) looks horrible but apart from that I see no real reason to be overly pessimistic here.

Whoever buys it will end up with a large mkt share. Bullish for the L-T. I wish it will be Wells buying WB. Citi has too many problems.

The only problematic area is tech with fin. exposure. So I'm not sure I will be buying Research in Motion (NASDAQ:RIMM) just yet. Although they have confessed already and got its beating.

Even Apple (NASDAQ:AAPL) is worth a nibble in the $115-$117 area. AAPL's not my call but coming from a heavy hitting tier-1 trader on NCN (Notable Calls Network).

Hope it helps,


Apple (NASDAQ:AAPL): Actionable Short Call

Apple (NASDAQ:AAPL) shareholders are going to bleed from their eyeballs today:

- Morgan Stanley is out with a downgrade to Equal Weight (from OW), lowering their tgt to $115 from $178 revising FY09 EPS growth to 6% (9% below the consensus forecast) on the back of several concerns. First, PC unit growth is decelerating and the remaining source of growth is increasingly in the sub-$1,000 market where AAPL does not play. Second, even in the best of scenarios AAPL’s EPS growth will decelerate meaningfully from June quarter levels. A combination of tough compares and investments in iPhone growth drive December quarter EPS to a decline of 8% YoY (down from +29% EPS growth June). Lastly, they believe multiples for high growth stocks will continue to compress in the current environment and in the context of 6% FY09 EPS growth assumption (and consensus estimate of 15.5%) they don’t believe AAPL is immune to this trend.

Firm continues to believe AAPL’s 2-3 year market share story is intact (but now more back-end loaded) and if the market is willing to look through near-term estimate reductions (and increasingly at cash flow), the stock could work from recently reduced levels.

- RBC Capital is downgrading AAPL to Sector Perform on: 1) reduced visibility to growth, margins; 2) elevated risks to valuation.

Sept RBC IQ/Changewave data (4,300) shows Mac purchase intentions suddenly moderating, with 29% intending to purchase a Mac laptop next 90 days, down from 34% Aug. 26% intend to purchase a Mac desktop, down from 30% Aug. These are the biggest declines in 2-1/2 years. In a separate survey, Sept RBC IQ/ Changewave data (4,100) shows 40% of consumers plan on spending less on electronics next 90 days, the weakest outlook ever seen.

While Mac momentum remains strong (16% Q/Q, 34% Y/Y) RBC Q4 Mac outlook becomes 2.9M (3M prior) and we see elevated risk for disappointing Q1 guidance, below street at $11B and $1.75. They still expect Apple's global PC share to rise to 4.1% CY09, from 2.9% CY07; F09/F10 iPod unit outlook drops to -3% Y/Y (prior 10-12%).

Notablecalls: I think AAPL could test the $120 level today and there could be risk to even lower levels. It's all about what RIMM had to say. Not to mention DELL's recent comments re: demand and pricing.

Actionable short anywhere above the $123 level.

These two were the biggest AAPL bulls.

Friday, September 26, 2008

Research in Motion (NASDAQ:RIMM): Colour on qtr

Research in Motion (NASDAQ:RIMM) in focus today.

Let's start with the downgrades:

- Deutsche Bank lowers their rating to Sell from Hold, lowering their tgt to $70 from $120. RIM has become more dependent on hardware sales with time. This means that they have to keep running to keep up with changes in consumer tastes and risk missing numbers if their products do not hit. The company stated they expect operating margins to improve as R&D spend decreases, but also seemed to indicate ad spending would continue to grow. The company guided Q3 gross margins to 47% and expect the margins to move into the mid 40s in FY10. This is well below DB's estimate of 50%. RIM pointed to a large number of new product lines for the cut. In part, the firm thinks this is indicative of their struggle with 3G technologies among other issues.

- RBC Capital is downgrading RIMM to Sector Perform from Outperform, lowering tgt to $90 from $165 for 2 reasons: 1) reduced visibility to recovering margins; 2) increased risks to growth from the macroeconomic environment.

RIM's strong fundamentals (great products, competitive advantages, execution) and momentum
from RIM's pending product cycle remains; However, RIM's thrust to invest in market share ('land grab') " pressuring GMs 370bps Q/Q and 670 bps F10 -- caught them/market by surprise, raising risks to valuation.

Reflecting a more conservative outlook, they are lowering F09/F10 outlook to $11.3B rev/$3.62 EPS ($11.4B, $3.84 prior) and F10 to $16.4B rev/$4.68 EPS ($17.5B, $6.00 prior).

The upgrades:

- Raymond James upgrades RIMM to Outperform from Mkt Perform while cutting their tgt to $110 from $140.

- CSFB is upgrading RIMM to Neutral from Underperform noting that following the company’s F2Q results, they are lowering their EPS estimates by 5%/2% for FY09/FY10 to $3.64/$4.58 and revising price target to $80; however, given that their margin concerns (now evident), are likely to force Street numbers toward their already below consensus estimates, they raise rating to Neutral.

Within a robust smartphone market (expect 2H08 and 2009 growth of 60%) they believe that RIM’s share will be flat globally at about 14%. This lack of share gains is in contrast to recent years and is driven by our expectations for share loss at AT&T in the U.S. (where they believe share is unsustainably high at around 70%) especially given the success of the 3G iPhone. Given this, the firm now projects FY09/FY10 volumes of 26.7mn/40.8mn and expect revenue growth to slow to 53% in FY10, structurally lower than the triple digit growth seen in recent times

On their new estimates, RIMM shares trade on a P/E of 17.5x which they believe is reasonable especially given that consensus expectations may now become more realistic.

The positives:

- UBS is keeping their Buy rating and $165 tgt unchanged noting gross margin pressure now make RIMM more of a top line conviction play.

- JP Morgan is keeping RIMM at Overweight saying that though they advised waiting until after the F2Q09 print before buying RIMM on potential weakness, they are disappointed that the weakness originates not in a temporary setback owing to a product transition but in a permanent step-down in gross margins. That said, they believe this pullback is an excellent entry point into a tremendous growth stock, with the multiple at a multiyear low, even using significantly lower FY10E EPS.

- TD Newcrest believes the company is making a bet on market share at the expense of gross margin. They understand the bet and think it is a smart move. But overall, the Street tends to be short sighted and this explains the slaughtering of the stock in after hours trading following the release of these results. Firm's updated forecast shows slightly lower EPS, but they think RIM could still grow faster than reflected in their estimates. At these prices, they are very bullish on the stock despite target price reduction to $140 from $170 previously.

Notablecalls: Well, RIMM's now below the $80 level I was talking about couple of days ago. Earnings power is still around $5-6 per share. I suggest you wait til Monday or even Tuesday to make some buys in the low $70's.

Thursday, September 25, 2008

Corrections Corporation of America (NYSE:CXW): Bounce candidate following BofA defense?

Bank of America is out with an interesting defense on Corrections Corporation of America (NYSE:CXW) noting that over the past week, they have not come across any negative news items or concerns that would justify the -11.6% move in CXW’s stock (versus +0.3% for the S&P500).

Actually, to the contrary, siance its presentation at their conference (Sep 16), there have been several positive data points from CA that they believe provide incremental visibility into earnings over the next several quarters while also eliminating the CA overhang concerns from last quarter’s earnings call in early Aug.

Positive CA data points: 1) inmate re-ramp at Tallahatchie facility in sight (incremental EPS visibility into 4Q while eliminating overhang concerns from 2Q earnings call); 2) inmate transfers since Aug 1 running at levels that are in-line with 1H08 levels (which they believe is above management’s expectations); and 3) CA budget signed with no material changes to CDCR’s operating budget (versus January’s proposal).

Firm would use recent weakness, which they believe to be unfounded, as a buying opportunity. They believe the recent string of positive data points from CA point to greater earnings visibility through 2009 and highlight a CA-based catalyst roadmap through year-end.

Reits Buy and $32 tgt, offering potential 37% return.

Notablecalls: May get a bounce out of this one.

Wednesday, September 24, 2008

MEMC Elec (NYSE:WFR): Bounce play on RBC upgrade and lowered bar

RBC Capital upgrades MEMC Elec (NYSE:WFR) to Outperform from Sector Perform with a $53 tgt based on a likely renewal of demand growth in the solar sector led by pending passage of an 8-year extension and expansion of the U.S. solar tax credit program and a compelling valuation which they believe indicates over-pessimism baked into current share prices. Firm notes their upgrade is in conjunction with their macro report upgrading the entire solar sector, as they believe sector stocks are near a bottom. Their caution on WFR this year has been predicated on silicon oversupply risks in 2009 exacerbated by the company's execution issues. But they believe the fundamental headwinds in semi pricing, deterioration of spot poly prices in 2009 and a limited upside to Q3 #s from hurricane Ike impact is more than baked into the shares - trading at ~6x FY09E of $4.84. While FY09 sensitivity analysis is difficult given minimal mgmt biz unit disclosure, the firm believes current multiples reflect no growth, an unlikely prospect given oversupply timeframe likely shifted to 2H09 or 2010 on U.S. subsidy action and potential additional catalysts from even more robust U.S. energy policy with a new administration.

RBC highlights the company's $1.4B cash position, no debt, and ~$150M cash flow per qtr. A 6x forward multiple represents an historically low mark, even looking back to previous semi cycle downturns and large discount below the 9-11x multiple of comps such as Wacker Chemi and Shin-Etsu.

Q3 Outlook: they believe the shutdown of the Pasadena plant for Hurricane Ike soaked up the remaining buffer in mgmt's Q3 guidance. Although the plant was not damaged, raw material deliveries were delayed and the firm believes some labor was impacted as they took care of their families. They are adjusting their Q3 estimates to Rev/EPS of $573M / $1.06 from $603M / $1.13.

Notablecalls: Senate passed alt energy extension 90-2... the house will vote with the senate most likely.. Spain ups susidy to 500MW from 300MW... finally some relief for the solar names.

I spoke to one Solar watcher this morning who noted the only other sector he can compare Solar to is the mobile sector that took off in the 90s... it had its downturn in early 2000s (most names being cut down to 1/3 of their value) but eventually rebounded due to fast growth and M&A.

With WFR guiding today..I think it represents a nice potential bounce play. The bar has been lowered.

Tuesday, September 23, 2008

Research in Motion (NASDAQ:RIMM): FQ2 preview - JPM

JP Morgan is previewing Research in Motion (NASDAQ:RIMM) noting that at the threshold of a new product cycle, they would remain buyers of RIMM but the possibility of conservative F3Q guidance (associated with uncertain product timing) could present investors with a more attractive entry point. Firm believes the uncertainty will be resolved by the Feb. quarter, by which time, they believe RIM will be poised to capture percentage points of market share from incumbent handset OEMs, and demonstrate earnings leverage off a new level of operating expense.

JPM expects F2Q09 results to meet or beat expectations, owing to continued strength in Pearl and Curve sales and strong early adoption of the Bold, internationally. Firm looks for RIMM to report $0.85 GAAP EPS on sales of $2.95bn, which puts them slightly below consensus (but without strong conviction). They acknowledge cyclical headwinds but believe enterprise adoption remains solid, and consumer adoption is accelerating. Channel and end-market results reveal massive share gains. JPM looks for RIMM to ship 6.2m units, at a blended ASP of $349 and for 2.63m net subscriber additions. A massive 28% q/q increase in operating expense was signaled in prior guidance. They see modest risk to gross margins, offset by potential unit shipment upside.

They expect RIMM’s new product cycle to propel the firm into a leadership position in the global handset industry. There is, however, near-term risk relating to the timing of product introductions – which could lead RIM to issue cautious F3Q guidance. However, the firm believes the uncertainty will be fully resolved by F4Q09. They are looking for F3Q guidance to align with their forecast of $0.98 GAAP EPS on sales of $3.0bn, 7.3m units, $346 ASPs, 2.94m net subscriber additions.

Maintains Overweight RIMM is trading at 18.6 times FY10 PF EPS estimate of $5.25, in line with the mean of coverage, but a 41% discount to its two-year historical average of 31.5 times.

Notablecalls: RIMM's a niche player but growth is surely slowing. While everyone is still talking about the growth potential outside of US, it's becoming clear Bberry will not be as successful there. Also, now we have HTC, NOK and even GOOG coming out with similar QWERTY handsets.

I have been talking to one savvy RIMM watcher who thinks RIMM will need to hit $80 for him to become more positive on the name. I tend to agree with him here.

RIMM's a great trading vechicle but n-t risk is to the downside.

Monday, September 22, 2008

Hansen Natural (NASDAQ:HANS): Expect a deal of some sort between HANS and KO to happen by tomorrow - UBS

UBS telling clients they expect a deal of some sort between HANS and KO to happen by tomorrow.....thinks most likely scenario is a distribution deal with an equity stake of 30-40% in which case stock trades to mid to high 30's....thinks outright acquisition is still a possibility (worth $50)

Notablecalls: Fyi. Could fly.

PS: I was pinged on HANS saying this call was actually a rehash of UBS' last week note. So the comment it ripped out of context. Disregard. Sorry.

Apple (NASDAQ:AAPL): Piper Jaffray raising Sept qtr ests - fyi

Piper Jaffray is out positive on Apple (NASDAQ:AAPL) raising estimates for September to EPS of $1.17 vs. Street at $1.11, and revenue of $8.37b vs. Street at $8.07b.

This quarter the iPhone will, for the first time, account for a meaningful percentage of booked revenue. Last quarter (June) it was 4%, and this quarter (Sept) they are modeling for it to be 21%. Given iPhone should account for 21% of booked revenue in this quarter, they are also publishing a metric that assumes the entire iPhone sale is accounted for in the quarter the phone is sold. Firm is calling this booked EPS and revenue. New booked EPS is $1.60 and booked revenue is $10.15b in the Sept. quarter.

How They Arrive At 2.8m Macs. Through the first two months of the Sept. quarter (July and Aug.), Mac NPD data is up 32% y/y. In the month of July, NPD data was 43% y/y and in Aug. units were up 23% y/y. However, they note that Aug. was a tough comp, as a redesigned iMac was released in Aug-07. But even if one assumes continued y/y growth of 23% in the month of Sept. (which they believe is conservative), the overall y/y growth rate for the full quarter would come in at 29%, implying 2.8m Macs in the Sept. quarter.

Piper's $250 price target is based on 27.4x (from 27x) CY09 booked EPS of $9.14.

Notablecalls: Note that JMP Securities was out with some cautious comments on the Macbook Pro demand. Just a fyi. No call here.

Friday, September 19, 2008

The Pakistani example of banning short sales:

A smart hedgie pinged me with the following:

An extreme example comes from Pakistan where the local SEC responded to a stock slump last month by banning short selling and limiting daily price declines to 1% while allowing them to rise by 10%. The initial reaction was a massive 8.6% one day rally followed by 15 straight days of slumping prices amid extremely low turnover, the worst such period for that market in several years. As rioting investors stormed the Karachi Stock Exchange last week, the rules were rescinded."

Notablecalls: fyi

Morgan Stanley is going from bearish to bullish equities

Morgan Stanley is going from bearish to bullish equities. Firm's upside for the S&P 500 is 1300 by end 08 at a minimum, with scope to trade higher depending on the strength of policy action to stabilize the financial system.

This is not a call that the bear market is over, or even that we have seen the lows in the current cycle, but for the rest of the year they believe the improvement in risk tolerance will outweigh the downgrade cycle in earnings. Morgan Stanley believes the risk/reward profile of the market has changed due to the following factors:

Global policy makers have woken up to the severity of the financial crisis and are expected to continue to respond aggressively as growth and systemic risks
dominate inflation concerns.

The last strands of complacency have disappeared with severe declines in emerging and non-US equities, representing a capitulation on the unrealistic decoupling theme. This has also been reflected in the change in loss leadership within the US market, with global cyclicals underperforming.

Risk tolerance is at extremely low levels as reflected in collapsed Treasury yields, elevated VIX, and considerable widening in corporate and LIBOR spreads. Aggressive and concerted global policy action, especially specific to financials, could provoke a sizeable improvement in risk tolerance.

On their fair P/E for the S&P 500 of 15.2, the implied earnings for 2009 is $79. They see this as realistic, with moderate rather than substantial downside risk.

The speed of global consolidation (i.e., BAC/MER) within the financial sector, together with regulatory intervention, will help put a floor under solvency risk even though asset quality deterioration and deleveraging will take time to work through. Firm is moving overweight Financials from neutral while reducing Healthcare overweight. They are buying NOK, COH, GS and HIG and selling SGP, DIS, MSFT and AIG.

Notablecalls: fyi

Raising Banking Sector to Overweight -RBC Capital

RBC Capital is moving their rating on Banking Sector to Overweight:

Gathering of Powerful People: Thursday night Congressional Leaders, The Treasury Secretary and The Federal Reserve Chairman jointly announced a cooperative effort to get ahead of the credit crisis. The plan is expected to be delivered to Congress in the next 24 hrs:

Expected Key Components of Plan: 1) Create a mechanism that would take bad assets off the balance sheets of all financial companies 2) create federal insurance for investors in money-market funds 3) ban short selling of financial stocks through year end.

Resolution Trust Corporation (RTC) II: RBC anticipates a key component of the Treasury plan will be the creation of a govt. entity that will buy bad assets similar to the RTC in the late 80s-early 90s.

The Devil is In Details: The headlines are very appealing to bank stock investors but the critical information about the plan will be in the detail. Important details include determination of sales prices of bad assets, capitalization and funding of RTC II, what assets will qualify to be sold to
RTC II, and length of the ban on shorting financial stocks.

Short Sellers Run Out of Town: A key component on our group weighting change is the proposed ban on shorting bank stocks through yr end. Heavily shorted stocks will be targeted by aggressive buyers to squeeze the shorts, in firm's view

The expected plan by the govt. will lead to higher bank stock prices through the end of the year. High equity prices will allow companies with rising credit problems to raise additional equity to handle the expected higher charge-off levels. The ability to dump assets to the govt. will
enable companies to return to normality quicker than earlier anticipated.

RBC believes the US govt's plan will lead to an acceleration of M&A activity. They also believe since the US Govt. is creating new rules to solve this crisis, temporarily suspending purchase accounting for acquisitions could be implemented. Pooling of interests deals will allow big problem banks to be acquired by healthier bank.

Notablecalls: Money center banks (JPM, WFC maybe even BAC) look like the safest bets. If you want more risk, try some GS. High octance bets include WB and MS.

Thursday, September 18, 2008

Constellation Energy (NYSE:CEG): Downgraded to Hold at Citi

- Citigroup's Greg Gordon deals a blow to Constellation Energy (NYSE:CEG) today after the co confirmed that its firm, underwritten $2Bn credit facility commitment announced on 8/27 remains in effect. However, S&P placed the company on CreditWatch, essentially giving CEG an ultimatum to raise $750mm-$1bn of cash through equity or asset sales, or sell the company outright. Absent action in the short term, S&P would lower CEG’s rating to subinvestment grade, which would put CEG out of business given the collateral requirements and lack of willing trading counterparties that would result.

What's Next — CEG has retained Morgan Stanley and UBS to evaluate strategic alternatives. CEG is in active discussions with potential strategic partners. The company is for sale either in part or in whole. Options range from issuing equity or convertible equity, selling off the more liquid positions in the trading book, selling merchant assets, or finding a merger partner for the entire company. They think CEG will choose its course of action in the next week or face the above-mentioned credit rating downgrade.

Conclusions — Firm's Buy rating was contingent on several factors, including CEG's navigating the ratings review process, avoiding a material ratings downgrade. CEG will now have to move to get the best deal available in a limited time frame, like Merrill Lynch did with BofA. They believe CEG’s assets are worth $50/share, but given the circumstances the company may dilute shareholders below our valuation, be sold at a discount to intrinsic value or not reach a deal at all. The firm is therefore lowering their rating from Buy to Hold with a $40 target.

Notablecalls: Well, Greg your clients must be thrilled. You downgrade the stock after sticking to your $95 tgt and Buy rating all the way down.

The best part?

Remember how CEG got murdered on Tuesday? The slide from $47 to $13 intraday. Greg wasn't in to answer customer inquiries. Gotta love it. Wonder how long you will be able to hold on to your job at Citi, really.

There is no question in my mind this downgrade will hurt the stock once more. The credit agencies have the power to put CEG out of business.

Wednesday, September 17, 2008

American Intl Group (NYSE:AIG): Colour on FED news - CSFB

CSFB comments on American Intl Group (NYSE:AIG) after the Federal Reserve announced that it was lending up to $85 billion to AIG, due mainly to the fact that the Federal Reserve Board determined that a disorderly failure of AIG would create too much turmoil to the global financial markets.

# This announcement raises several questions and/or observations specific to AIG:

# 1. The size of the credit facility suggests that the liquidity/capital needs at AIG may be substantially greater than we had estimated, implying that a considerable amount of the total value of AIG's businesses may not go to current debt or equity holders, but rather to repay the Fed's term loan.

# 2. The 11.3% interest rate of the term loan (if the entire facility is tapped), would shave about $2.00 per share off of EPS (before considering dilution from the Fed's new 80% stake), or about 50-60% of our prior EPS estimate. Combining the dilutive effects of the high cost debt plus the government's 80% stake in the equity would leave us with about 90% pro forma dilution for common shareholders (or about 30 to 40 cents in annual EPS).

# 3. The Fed's comment that AIG will pay off the $85 billion loan from proceeds from the sale of businesses, suggests that the majority of the company may be sold off in pieces. This is a staggering development, that the formerly largest global insurance company will potentially be unwound through a 1 to 2 year auction process.

# 4. What will the rating agency reaction be with the company operating with better liquidity but dramatically higher financial leverage assuming that it taps a large portion of the term facility? Both Moody's and S&P have the senior debt rated in the single A range, but there clearly is still risk that debt holders may not be made whole as the company sells businesses and pays down debt.

# 5. A fairly swift execution of sales of businesses will be important to avoid substantial erosion of franchise value, since customer lapse rates and withdrawals should remain elevated following the publicized difficulties at the company, and 6. Book value is likely to be hit hard by both bigger asset impairments and DAC charges associated with AIG likely moving to liquidation based valuation methodologies vs. the prior going concern asset valuations.

# With all of this in mind, CSFB's $3 price target for AIG common equity still seems reasonable though more of a best case scenario for the equity value in their view, if AIG does in fact look to sell off most or all of its businesses. With pro-forma EPS likely 30-40 cents, and pro-forma tangible book value in a $3 to $4 range, they would expect the stock to trade in a $1 to $4 range, toward the lower end if the debt fails to stage a significant rally, and toward the upper end if the debt and preferreds rally.

Notablecalls: Looks like my call to buy AIG in the $6's was only right for the first 60 mins of trading. This CSFB call gives a pretty good overview of the situation.

The FED did the only right thing they could do - bail out AIG. Otherwise it would have been pure exodus.

The stuff from LEH will hit the results of other players starting from Q3. I suspect we will continue to have wild swings in the fins until then. Goldman (NYSE:GS) continues to look like the best bet here. Risk is defined by book value, I think.

Monday, September 15, 2008

American Intl Group (NYSE:AIG): Reiterate Buy - UBS

UBS has some comments on American Intl Group (NYSE:AIG):

Press reports are that AIG is seeking $10-20B in equity from KKR, TPG, and JC Flowers, and plans to divest of ILFC and other holdings (estimates are worth$5B or >$20B including core assets). Assuming an equity raise at a depressed share price and more CDS and investment losses, they think AIG shares still seem to have upside potential. But near-term, AIG may trade down on this news and likely rating agency downgrades.

A liquidation of Lehman likely will put substantial pressure on MBS/CMBS/CDO other securities, resulting in sizable marks for AIG. Moody’s and S&P said earnings weakness could lead to a downgrade (1-to-3 notches) to AIG’s AA-minus holding company credit ratings. UBS now projects $(10)B in super-senior CDS losses (but, could be more) and $(5)B in realized inv portfolio losses in 3Q08.

Even post rating any agency downgrades, they think AIG has sufficient cash/collateral to meet
near-term liquidity/capital needs without raising equity. But, a reported $10-20B equity raise and $5-$20B in divestitures would offer a good cushion. Also, Hurricane Ike loss exposure seems manageable at $175-$475M.

Lowering 12-mo price target and EPS, but still rated Buy
a) Cutting ‘08 op and net EPS to $(2.63) and $(8.18), from $0.57 and $(2.96), largely to reflect further CDS and inv losses and an equity raise. Also reducing PT to a conservative $26 (from $41) per our P/B analysis, which assumes$10B equity raise and another $(30)B in CDS and inv losses through 1Q09.

Notablecalls: I continue to reiterate my view that AIG has ample value in the $6's.

Note that MLCO and Citi downgrade the stock to Neutral/Hold from Buy this morning.

Some early thoughts:

I don't think analyst calls will help you guys much this morning. So I'm going to tell you what I like this morning:

- Goldman Sachs (NYSE:GS) down 10+ pts, near the Bear Stearns low of $140 looks like a buy. GS's been the smartest operator around.

- American International Group (NYSE:AIG) may have some value here in the $6's and $7's. Tight stops.

- Wachovia (NYSE:WB) looks interesting as MSCO and GSCO are now hunting for a bank.



Friday, September 12, 2008

MEMC Elec (NYSE:WFR): Sell-Off offers entry, Reit Buy & $70 tgt - Merrill Lynch

Merrill Lynch is defending MEMC Elec (NYSE:WFR) this morning after the co announced they are anticipating a loss of 5 days of polysilicon production due to hurricane Ike. As management had already built in a 2 week buffer as part of their quarterly guidance, the disruption has not changed management’s outlook for the quarter.

On the mid-quarter update call management said if production in September was at the same level as August, they would be in the upper half of their guidance range. In August, hurricane Edouard plus maintenance on Unit 1 and Unit 2 resulted in 7 or more days of lost production by Merrill's estimate. If the estimate of 5 days of lost production due to Ike are correct, MEMC still has 2 or 3 more days of buffer to reach the high end of the forecast range for 3Q, making the overall range still reasonable.

Discount to peers, sell-off is a good entry point
The impact of the storm is a short term, risk from weakness in the semi wafer market is well known and MEMC is back to building in a buffer for normal execution risks. Firm's channel checks suggest solar demand and pricing should remain strong enough to make their 2009 estimates very achievable. MEMC now trades for 6x 2009 EPS estimate versus peers REC and Wacker Chemie at 10x and 16x consensus EPS estimates, with all three facing the same issues, excluding the hurricane, but with MEMC a lower cost, higher margin, pure play. As a result, MEMC should be bought for a recovery to a multiple at least at the average of its peers of 14x 2009 EPS estimate for a $70 price target.

Reiterates Buy.

Notablecalls: The decline in WFR stock has become ridiculous. Here you have a company that can't meet demand. Sure, they have had execution problems but it goes to show how difficult it is to produce poly meaning the chatter of more capacity coming online in the n-t is bollocks. If they have problems, the chinese will surely have even more problems.

Trading 6x 2009 EPS WFR looks like a springed coil ready to burst higher on ANYTHING positive.

Thursday, September 11, 2008

Potash (NYSE:POT): Actionable Call Alert - Merrill Lynch

Merrill Lynch is out with a bullish Fertilizer call noting the recent sharp fall in fertilizer sector valuation multiples is unprecedented, with share prices down 44% since peaking in mid-June. Firm attributes most of the decline to investor fears that the commodity boom is over as the dollar has weakened and energy prices have declined sharply. While corn prices have declined 31% since their flood-induced late-June peaks, fears of demand destruction from high fertilizer prices appear overblown. US corn growers would still be profitable with fertilizer costs twice current levels, by firm's calculations.

For the last month they have been saying that fertilizer valuations indicate that the market believes that earnings will peak in 2009 and decline rapidly thereafter. With little new supply set to come on line before 2011-12 depending on the nutrient and with a likely multi-year grain cycle sustaining high demand levels they believe that peak earnings are still several years away. One potential catalyst for the sector could come post this fall’s harvest as investors once again focus on the need for growers to raise global grain production to rebuild grain inventories which are hovering at 35-year lows relative to demand.

Potash supplies have tightened even further with the month-long strike affecting 30% of Potash Corp.’s production. Firm is trimming their Q3 EPS estimate for POT by $0.10 to $3.65 due to lower potash shipments. They believe Canadian producer supplies are now at all-time record lows, likely leading to further price increases this fall. Firm expects China to settle its 2009 contract with Canadian and Russian producers prior to year-end at $900/mt cfr, which could prove to be low.

Merrill is raising their 2009 EPS estimates for the potash producers.

Potash Corp (NYSE:POT) 2009 EPS goes to $23 from $22 with 2010 EPS going to $25 from $23.50.

Notablecalls: I'm putting my foot down here - I think the Ferts are going to bounce today. Plus, I suspect the bounce will have some more legs than first 30 mins of trading.

Potash (NYSE:POT) is my fav.

PS: MLCO is also out with a bullish Steel call saying the export price and domestic price have fallen approximately 15%, US HRC is down 7%, but steel stocks are down 50%. They believe this is overdone. Firm is Buying NUE, STLD, and X, but see upside to all of steel stocks.

Why have I gotten more bullish on the names?

I think most of the hedge-fund panic selling is done here. We saw a relatively high volume bounce yesterday which to me is a big tell.

I suggest you use the early morning weakness as a buying oppy.

Merrill Lynch on Lehman (NYSE:LEH): Going to No Opinion

Merrill Lynch on Lehman (NYSE:LEH):

Firm is changing their opinion on LEH to "No Opinion" because Moody’s has stated definitively that LEH will be downgraded to Baa absent a strategic partner within an unspecified, but very short, time. In their view, this puts LEH in play. While the number of potential acquirers at this point is, they believe, very few (they cannot really name any with any degree of comfort), Moody’s action certainly raises specter of takeout, potentially at a very low price.

“Take-under” threat makes analytical valuation difficult

Firm estimates EPS potential in weak environment with LEH at Baa at $1.33 in ‘09, ROE of 4 - 5%. MLCO estimates "worst case" Book Value at $15.10, assuming another large net loss ($2.4bn), sale of Neuberger for no gain, and another dilutive capital raise to regain 13% Tier 1 ($3.8bn at $6/share). However, with potential for “take-under” amid rapidly unfolding events, it is very difficult to determine a price objective with any degree of confidence. For this reason, they are taking this "No opinion" action.

Notablecalls: Note that both Citigroup and Goldman Sachs are downgrading Lehman this AM

PS: Today is 911. We can't close in red, guys.

Wednesday, September 10, 2008

Texas Instruments (NYSE:TXN): Increasingly Missing Out on 3G Baseband Cycle - Baird

Baird has some harsh words for Texas Instruments (NYSE:TXN) noting that while reiterating the midpoint of its 3Q revenue/EPS guidances, they expect TI to lose 30-40% market share in low-end Nokia phones against Infineon, which they believe starts ramping within the next few months. Also, TI acknowledged it no longer expects 3G baseband wins to ramp at EMP in 2H09. Net, the firm believes TI is increasingly missing out on the 3G baseband cycle, while OEMs increasingly migrate to merchant solutions. Neutral rating.

TI does not have yet a 3G merchant solution, per Baird's checks. TI highlighted on the call yesterday a shift by mobile phone OEMs to merchant baseband solutions as they emphasize spending on software, applications, and user interface. Firm believes the ongoing shift to 3G merchant solutions will lead TI to lose further market share in 3G in 2009.

Firm expects a continuation of below-seasonal trends in wireless in 4Q, as their checks indicate slight order reductions late 3Q from tier-one mobile phone OEMs primarily impacting high-end phones (versus weakness primarily in low-end phones this 3Q).

They view is that TI's under-investments in 3G architecture development two yearsago are now leading the company to increasingly miss on the 3G baseband cycle, while 3G-based mobile phones are now ramping aggressively. TI's 3G baseband footprint will be mostly limited to Nokia, and possibly to Motorola, in 2009.

Notablecalls: Note that most other firms are positive on TXN this morning following guidance reit last night.

Tuesday, September 09, 2008

Google (NASDAQ:GOOG): Added to Piper Jaffray Alpha List with a $785 tgt

Piper Jaffray's Gene Munster is adding Google (NASDAQ:GOOG) to their Alpha List with $785 tgt:

There are two specific potential catalysts for the back half that encouraged them to add Google to the Alpha List:

1. September Quarter Expectations. Firm does not think that the September quarter will be as bad investors think (shares are down 18% in the last three weeks). While they are slightly reducing numbers, we expect the company to meet Street estimates for September, based on their belief that concerns over slowing organic UK growth, are overblown. A 10% miss in estimated UK organic growth equates to a 0.7% revenue miss and a 1% EPS miss to Google's overall numbers.

2. Increased Search Ad Market Share. Google has stated it expects the Yahoo! search deal to begin in October. We estimate the Yahoo! deal should add 12% to Google U.S. search ad market share, which PJ believes would bring Google to over 80% U.S. search ad market share. They believe it to ultimately pass DOJ scrutiny.

Historic Q4 Stock Strength. Firm notes that over the last three years, Google has returned an average of 30% from September 9 to December 31 (a range of 22% to 45%). If the stock were to perform in line with this historical trend, it would mean a share price of around $550 by year end.

Notablecalls: I think GOOG will at least bounce on this call. Gene Munster has been and continues to be the Axe in the space.

Monday, September 08, 2008

Fannie Mae & Freddie Mac (NYSE:FNM/FRE): Colour on news - Piper Jaffray

Piper Jaffray comments on Fannie Mae & Freddie Mac (NYSE:FNM/FRE) after the U.S. Gov't, led by Treasury Secretary Paulson, took control of co's yesterday, in an aggressive and bold move.

In exchange for a commitment to 1. provide capital to the GSE's to insure positive net worth, 2. a credit facility and 3. an MBS purchase program, Treasury will receive a $1 billion senior preferred stock issuance with a 10% coupon with warrants to purchase 79.9% of the company for a nominal price. Treasury could provide up to $100 billion in each GSE, if needed

Most importantly, the U.S. government takeover of FNM and FRE will ensure the last remaining significant source of liquidity to the U.S. mortgage markets will continue flowing. While the firm believes the market had already largely reached the conclusion that the government would not let the GSEs fail, this historic government action ensures a steady flow of liquidity to the mortgage market. Going forward, it is vital that the GSE organizations function smoothly from an operational standpoint, as they continue to work through significant mortgage credit challenges.

Treasury's action may provide a shot of adrenaline into the housing market through lower mortgage interest rates. To be sure, they do not believe that the government takeover of the GSEs will by itself bring an end to the current housing downturn. However, they believe Treasury's action could narrow mortgage spreads and reduce mortgage interest rates.

There might not be much left for current GSE common shareholders. Whether or not the government puts additional capital into the GSEs should be key to the final outcome. The preferred shareholders appear to have much more hope of retaining significant value over the long run.

Piper believes FAF, FNF, and NLY are stocks within their mortgage coverage universe that may respond positively to this historic government action.

Notablecalls: Not sure how to play this one. I suspect NLY etc. will be gapped up hard giving us zero chance to buy at decent levels. Same goes for the rest of the market.

So, we're gonna get spike & retrace. Will be looking for an entry after that happens. Overall risk premiums will fall, making stocks more attractive.

Note that Merrill Lynch is out with a broad mkt call saying US stocks are once again poised to outperform over the next 6-12 months.

PS: Congrats to FNM/FRE shorts. You made a killing.

Friday, September 05, 2008

Mark this date on your calander Oct 1, 2008 - fyi

A smart hedgie pinged me with the following:

Finally this homebuilder rally (XHB up 6% YTD) is making sense.

A buddy I know who is a seasoned real estate veteran says the down payment assistance program is creating quite a sense of urgency. BUT it expires on 10/1/2008. Consumer awareness that this program is going away in less than 30 days is causing alot of buyers to get in and get in NOW... They are pulling out all the stops to get these deals done. But outside of that... there really isn't any other demand in the pipeline.

I read an article recently that talked about the fact that 75% of the new home buyers in the Phoenix area are using this down payment assistance.

This is causing alot of current demand that is being mistaken for the real turn in real estate. Beware, because after Oct 1st... this demand will evaporate and the real decline will start, and it will be sharp. It wouldn't be outside the realm of possibility to see sales fall off a cliff this fall.

As anecdotal home sales data is being released over the next 30days the news will be good and the builders will likely go higher, and cramer can declare victory... so don't try to fight this... YET.

The easy money will be made on the other side.


Potash (NYSE:POT): Very positive Fertilizer call from Morgan Stanley

Morgan Stanley is out with a very positive Fertilizer call saying they think the business model meltdown implied in fertilizer equities’ recent ~35% decline will prove unfounded. Firm believes that peak earnings are likely to come in 2011 (rather than in 2008, as implied by the equity market) and be substantially higher than the market discounts. Finally, they expect profits ultimately to trough above 2008 levels.

Fertilizer prices will stay higher for longer: i) A global economic slowdown is unlikely to affect fertilizer demand; ii) US farmers are still earning a ~60% ROIC on fertilizer purchases and are thus unlikely to reduce fertilizer application; iii) Emerging market farmers are very low on the yield response curve (i.e., increased application pays for itself); iv) NPK prices have yet to catch up to commodity prices (i.e., record US farmer profits despite higher NPK prices); and v) They believe capacity increases will simply meet underlying demand rather than flood the market and force lower prices.

Valuation extremely compelling: 2009e EV/EBITDA of 2-5x; FCF yields of 10% to 20%. Minimal balance sheet leverage (in some cases none) should allow for substantial share repurchases and dividend payments.

Potash (POT, $280) has the most leverage to potash, the nutrient with the greatest pricing power and barriers to entry. Mosaic (MOS, $155) is best positioned in phosphate and has not been properly credited for its potash assets. Agrium (AGU, $135) has exposure to all nutrients and a growing retail business. Monsanto (MON, $170 - NOT a fertilizer company) remains Morgan Stanley's top pick in Agriculture as they believe it is the best-positioned company in the value chain.

Notablecalls: We saw some bottoming action in several Fert names late yesterday, which may indicate the liquidation sellers are at least taking a break. Plus, we have CSFB out today upgrading MON.

Think the sector could be in for a bounce.

Thursday, September 04, 2008

Notable Calls Network (NCN): UST Inc (NYSE:UST)

We caught another beautiful mover at Notable Calls Network (NCN) today.

Around 10:00 AM I started getting questions regarding strength UST Inc (NYSE:UST) was showing, up 4% in early trade. While at first I assumed it had something to do with a positive Tobacco call Morgan Stanley had put out in the morning regarding the Engle ruling, none of the other usual suspects (PM, RAI etc) showed any action.

It had to be related to UST (NYSE:UST).

Some 15 minutes later a rumor of UST pulling out of a Lehman conference emerged.

The logic behind buying a stock of a co that has pulled out of a industry/broker /etc conference is quite simplistic - a takeover may be coming & and acquirer does not want the current management to give any new comments before the deal is done. A quiet period of a sort.

So, in these cases what ones needs to find out is the real reason behind the pull-out. If it's due to a scheduling conflict for example & the stock is still up on takeover chatter, there is money to be made on the short side.

Around 10:26 Briefing.com put out the following comment:

UST Inc: Hearing catalyst behind the move is that co pulled out of a Lehman conference today, spurring takeover chatter; we are checking on the validity of this now (56.28 +2.24).

So, the race was on to find out the real reason behind the pull-out.

Around 10:37 a NCN member pinged me with the following:

"...CEO got sick in UST. Pulled out of conf because of that not takeover - fyi..."

This was coming from a top5 NCN member. A pro with almost 20 yrs of experience on the Street. No bullshit type.

So I quickly distributed the call to other 50+ NCN members. As you can see, this pretty much represented the top in UST today as the stock gave back all of its gains. One could have shorted any size for up to a $2.5 pt gain depending on one's entry/exit. Not bad for an intraday trade.

Oh and Briefing.com got their confirm too (20 minutes later, though):

04-Sep-08 10:57 ET UST Inc Update -- We just spoke to representative of UST; confirms UST will not appear at the conference today; cites scheduling conflict (56.73 +2.69) -Update :

This is how Notable Calls Network (NCN) works - sharing the flow. We catch them every day.

Want to be part of NCN?

It's easy. Just shoot me a brief email that includes a short description of yourself and your AOL nickname.

Please do note that contacts via IM are limited to people with:

- 3+ years of trading experience

- Access to quality research/analyst commentary

- Ability to generate and share (intraday) trading calls

I will not accept contacts from purely technically oriented traders, penny stock fans or people who have less than 3 years of experience in the field.

Bunge (NYSE:BG): Slowing Growth in Emerging Markets Pose Risk to '09 Outlook; Reducing Price Target to $95 from $130 - Citigroup

Citigroup is out negative on Bunge (NYSE:BG) saying that given what their Cir Emerging Markets Economist teamviews as the possible beginnings of a potential slowdown within the emerging markets, they believe that the risk of moderating demand growth has increased and thus future earnings at Bunge could come under pressure. This translates into a reduction in price target to $95 (from $130) on a reduced target PE multiple of 9.5x as they are becoming more concerned with the viability of '09 numbers at Bunge

Currently, CIR economist team is forecasting a slowdown in emerging market GDP growth to 6.3% in '08, down from 7.4% in '07, with growth expected to moderate further in '09 at 6.0%. This ties in with USDA projections for global soy demand over the next 12 months at 3.0%, down from the previous 10-yr CAGR of 4.8%.

Adding to the risk profile surrounding 2009 earnings at Bunge is the recent decline in commodity prices which has been led by crude oil, which is down approximately -25% from its July peaks. At this point they don't know for sure that events will unfold to reduce commodity demand and thus prices, but the signs seem to be forming, as several of firm's fellow analysts have reduced their price forecast for different commodities such as their commodities strategy analyst who on Monday reduced his forecast on aluminium, copper, and nickel prices by -10% to - 27%, due to concerns of a slowdown in industrial activity.

Notablecalls: BG will be in the casualty list today. Citi has been one of the more bullish firms covering the name. On the bright side, this is the 1st step towards capitulation.

I suspect BG will be down 5% on this.

US Steel Sector downgraded to Neutral at Goldman Sachs

Goldman Sachs is downgrading their view on US Steel Sector to Neutral from Attractive this morning:

They are transferring coverage of the steel sector to Sal Tharani from Aldo Mazzaferro. Firm is also downgrading their coverage view for the sector to Neutral from Attractive due to the re-emergence of various risks-both perceived and real, such as rising dollar, "China fear", weak economic data out of the developed and emerging markets, and softness in steel and scrap prices. They believe that negative news flow in the near term would keep multiples compressed, and wait for a better opportunity to get more constructive on the sector.

Nucor and US Steel remain Buy rated stocks. However, they are removing US Steel from Conviction Buy List and also upgrading STLD to Buy, replacing CMC, which is now rated Neutral. In the near term, the firm see smore upside in mini-mills due to a sharper drop in scrap prices than steel, which should expand their metal margins. Worthington and Gibraltar remain Sell rated stocks.

A sharp correction in steel equities, primarily driven by the macro concerns and decline in oil prices, has created selective investment opportunities. Valuations of some of these stocks reflect a doomsday scenario, which the firm believes is not what longer-term fundamentals suggest.

Goldman has lowered their steel price estimates by an average of 6% for 2H-2008 and 2009. Earnings estimates are now 1% and 7% lower than earlier estimates for 2008 and 2009, respectively. The biggest change they have made is in multiples which they are lowering to reflect near-term risk aversion by investors. Firm's target prices have been cut by an average of 18% across coverage universe.

Notablecalls: This looks like bottoming action to me. The bids wanted situation we saw yesterday will reverse itself as I feel the shorts have gotten somewhat ahead of themselves.

Wednesday, September 03, 2008

Early Morning Tid-bits:

- CSFB is lowering Goldman (NYSE:GS) ests FQ3/FY2008 for the second time in couple of weeks.

- RBC Capital is positive on Potash (NYSE:POT) reiterating their $375 tgt telling to look for sig. potash price increases in China.

- RBC Capital is positive on Apple (NASDAQ:AAPL) saying 4MM iPod announcement coming soon.

- Oppenheimer out positive on RF Micro (NASDAQ:RFMD) saying qtr is tracking better than consensus. Reits Outperform and $7 tgt.

- Lehman (NYSE:LEH) looks interesting as KDB's $5 bln offer for 25% stake shows there may be a premium to the story after all. Especially with HSBC also looking into buying the co.

- CIBC is upgrading US Steel (NYSE:X) to Outperform.

- Citigroup is defending Dell (NASDAQ:DELL)

Notablecalls: Hope it helps - fyi

Tuesday, September 02, 2008

Apple (NASDAQ:AAPL): Added to Piper Jaffray Alpha List with $250 tgt

- Piper Jaffray is adding Apple (NASDAQ:AAPL) to their Alpha List with $250 tgt.

They are reiterating their Buy rating and adding shares of AAPL to the PJC Alpha List based on 2H08 catalysts in each of the three major businesses: Mac, iPod, and iPhone.

1) Back-To-School Promo Positive For Macs & iPods. Firm believes the Mac and iPod units driven by Apple's Back-to-School promotion will be a catalyst for the stock when Apple reports its Sept. quarter. The promotion is widely understood by the Street, and while Apple has communicated its impact on margins, they believe its impact on Sept. Mac and iPod units is generally underestimated.

2) Expect Sept. Event; Historically A Catalyst. Although it has not yet been announced, PJ expects Apple to host a special event in early Sept. to announce new iPods and redesigned Mac portables. They have analyzed stock action around the Sept. events over the last 3 years. On average shares of AAPL have risen +4% from the week before to the week after the Sept. event and +47% from the week before to four months after (through the holidays).

3) iPhone 3G Int'l Rollout In Sept. & Dec. Quarters Will Be Positive. In Aug. Apple increased the iPhone's addressable subscriber base from 370m to 660m (+78%) by adding 34 new carriers in 21 new countries. They expect this rollout to drive upside to Sept. est. of 4.1m units. The potential addition of Russia in CY08 increases firm's confidence in our Dec. iPhone number (6.4m). In general, they believe the iPhone's international rollout is underappreciated by the Street.

Notablecalls: I believe AAPL could hit $180 level on this call in the s-t. This is the call the stock needed to move higher.