US & World Daily Markets Financial Briefing 26-04-2010

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Stocks Mixed In Mid-Morning Trading

Stocks are on opposite sides of the unchanged mark in mid-morning trading on Monday, as a mix of strong corporate earnings and profit taking is contributing to a split market amid the lack of significant economic news.

On the earnings front, construction and mining equipment manufacturer Caterpillar Inc. reported first-quarter profit of $0.36 per share, compared to a loss of $0.19 per share recorded in the same period last year. Adjusted profits, excluding items, were $0.50 per share, up from $0.39 per share in the year-ago quarter. Wall Street analysts forecast the company to report earnings of $0.39 per share for the quarter.

Quarterly revenues declined to $8.24 billion, from $9.23 billion in the year ago quarter and fell short of estimates which called for $8.84 billion for the period.

Humana Inc.'s (HUM) first-quarter net income came in at $1.52 per share, firmly beating estimates for $1.14 for the quarter. Revenues for the first quarter rose 9.5 percent to $8.44 billion from $7.71 billion in the comparable period, topping projections for $8.27 billion for the quarter.

Whirlpool Corp. (WHR) saw a first-quarter income of $2.13 per share, exceeding expectations for $1.33 per share. Net sales grew to $4.27 billion, comfortably besting consensus estimates for $3.79 billion.

In other corporate news this morning, Emerson Electric (EMR) announced a purchase offer for UK firm Chloride Group PLC in the amount of $1.1 billion.

The Dow is up by 31.06 points or 0.3 percent at 11,235.34, the Nasdaq is down by 2.79 points or 0.1 percent at 2,527.38 and the S&P 500 is down by 0.78 points or 0.1 percent at 1,216.50.

Sector News

Banking stocks are under pressure in the early going, pulling down the KBW Bank Index down by 0.9 percent. With the pullback, the index is coming off of the nearly eighteen-month closing high set in the previous session.

Health insurance stocks are also lower, resulting in a 0.9 percent loss in the Morgan Stanley Healthcare Payor Index. Despite the downside, the index remains rangebound.

Wireless, natural gas and electronic storage stocks are also down, while steel and housing stocks are showing strong gains, helping to offset weakness in other market segments.

Notably, the Philadelphia Housing Sector Index is up by 0.8 percent, rising for a sixth straight session to its best intraday level in nearly nineteen months.

Stocks Driven By Analyst Comments

Tractor Supply (TSCO) is on the rise after being upgraded at JP Morgan Chase from Underweight to Neutral. The stock has gained 2 percent, setting an historic intraday high.

Essex Property (ESS) is also moving higher after being upgraded by analysts at BMO Capital Markets from Underperform to Market Perform. Shares are currently up by 2.2 percent, seeing its best intraday price in nearly nineteen months.

On the other hand, ITT Educational (ESI) is down after being downgraded at Credit Suisse from Outperform to Neutral. The stock has fallen by 3.4 percent, sinking to a six-week intraday low.

TSX May Hold On To Gains Monday On Earnings Optimism

Canadian stocks may hold on to gains Monday morning amid a recovery in the commodities prices and global equity markets on optimism over the global economic growth. Stock specific action may not be ruled out as a host of big names scheduled to release their earnings reports this week, including CN Rail, Inmet Mining and Barrick Gold.

Encouraging earnings reports from Whirlpool and Caterpillar may also help lift sentiment. However, uncertainty over the Greek fund disbursement may weigh on the sentiment. Last Friday, Greece said it will opt for bailout loans to from the euro zone and the IMF.

On Friday, the S&P/TSX Composite Index gained 78.77 points or 0.65% to 12,239.64, its fresh 18-month high. The main index rose for a fifth straight session, adding nearly 1.5% last week.

The price of oil edged up $0.34 to $85.46 a barrel and the price of gold rose $3.0 to $1,156.40 an ounce hovering near its 2-week high.

In corporates news, Research In Motion announced that it introduced the new Blackberry Pearl 3G Smartphone. It also said that it introduced the BlackBerry Bold 9650 smartphone, which is expected to be available from carriers in the U.S.beginning in May. The company also hosts its 2010 Capital market day today.

Integrated wood products company West Fraser Timber posted first-quarter earnings after discontinued operations of $0.45 per share, compared with a loss of $1.94 per share in the prior year period. Analysts expected the company to record $0.27 per share in the quarter.

Harris N.A., a part of BMO Financial Group, said that it has acquired certain assets and liabilities of Amcore Bank N.A. from the FDIC, effective Friday.

Investment dealer Canaccord Financial said it has completed its acquisition of Genuity Capital Markets, by issuing 26.5 million shares and C$30 million of cash.

Mineral explorer International PBX Ventures said it completed its second tranche private placement of 2.41 million units for total proceeds of $483,500.

Property database service provider Zaio Corporation announces non-brokered private placement of 19,230,770 units at C$0.13 per Unit for gross proceeds of approximately C$2.5 million.

In economic news, rating agency Standard & Poor's affirmed Canada's ratings on Friday. The agency affirmed the country's 'AAA' long-term and 'A-1+' short-term sovereign credit ratings with a stable outlook. "Canada has what we view as strong public finances, a relatively diversified economy, stable public policy, and a sound financial sector," the agency said in a statement.

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Asian Markets Rise On Optimism About Economic Recovery

The markets in Asia, except Australia and China, ended in the positive territory on Monday, taking cues from the Wall Street where the major averages ended with modest gains on Friday lifted by better-than-expected new home sales data and buoyant corporate earnings. Speculation that the crisis in Greece will be effectively tackled after the country approached the IMF for assistance also lifted market sentiment. The Australian market is closed for holiday, while the Chinese market ended in negative territory with marginal losses.

In Japan, the benchmark Nikkei-225 Index rose 251.33 points, or 2.3%, to 11,166, while the broader Topix index of all First Section issues advanced 18.51 points, or 1.9%, to 997.

On the economic front, a report released by the Bank of Japan revealed that the country's corporate service price index declined 1.1% year-over-year in March. The decline was slightly lesser than the revised 1.2% drop seen in the previous month and also tamer than the 1.4% decline expected by economists.

Almost all the stocks in the index ended in positive territory on increasing optimism about global economic recovery.

Exporters led the gains on optimism that a weaker local currency will boost bottom lines as export proceeds realized in local currency will boost revenues. Canon Inc. surged up 3.53%, Fanuc Ltd climbed 3.77%, Sharp Corp. rose 3.10%, Panasonic Corp. gained 2.52% and Sony Corp. advanced 1.54%.

Among other major stocks, Kyocera Corp. soared 5.11%, Tokyo Electron rose 2.71%, Advantest Corp. gained 3.00%, TDK Corp., advanced 1.98% and Casio Computers climbed 4.07%.

Automotive stocks also ended higher. Toyota Motor surged up 4.09% following reports in the press that the company might report a group operating profit of 50 billion yen for the last fiscal year compared to loss last year. Among other automakers, Honda Motor climbed 2.95%, Suzuki Motor Corp. soared 4.19%, Nissan Motor rose 2.90%, Mitsubishi Motor advanced 1.54% and Isuzu Motors gained 3.50%.

Banks also ended in positive territory. Sumitomo Mitsui Financial Group gained 1.86%, Resona Holdings climbed 2.30%, Mitsubishi UFJ Financial rose 1.80% and Mizuho Financial added 0.54%.

Trading companies also ended in positive territory. Toyota Tsusho Corp. advanced 1.39%, Itochu Corp. gained 2.40%, Sumitomo Corp. rose 1.49%, Marubeni Corp. added 0.88% and Mitsui & Co., edged up 0.47%.

The market in Australia was closed for a public holiday.

In Hong Kong, the benchmark Hang Sang Index ended in positive territory with a modest gain of 342.57 points, or 1.6%, at 21,587, taking cues from Wall Street where the major averages ended the last trading session of the previous week in positive territory, lifted by better-than-expected new home sales data and earnings. Increasing optimism about global economic recovery, easing debt concerns in Greece and positive trading across other markets in the region also lifted market sentiment. As many as 41 of the 42 components in the index ended in positive territory.

Positive sentiment in global markets and a near-normal monsoon forecast by the Indian Meteorological Department helped the Indian market end a lackluster session on a positive note. Trading was a little bit volatile ahead of the expiry of April month derivative contracts on Thursday. Metals, PSU, banking and IT stocks led the gainers, while realty, oil & gas,healthcare and auto stocks closed on a subdued note. After moving choppily in a narrow range, the 30-share Sensex average finally ended near the day's low at 17,745, up 51 points or 0.29%, while the 50-share Nifty ended up 18 points or 0.35% at 5,322.

Among the other major markets open for trading, China's Shanghai Composite Index ended in negative territory with a loss of 14.03 points, or 0.47%, at 2,969. However, Taiwan's Weighted Index surged up 153.25 points, or 1.91%, to close at 8,158, Indonesia's Jakarta Composite advanced 19.98 points or 0.68% to close at 2,945, and Singapore's Strait Times Index added 14.13 points, or 0.47%, to close at 3,003.

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The major European markets are also moving notably higher. The U.K.'s FTSE 100 is up by 0.7 percent, while the French CAC 40 Index and the German DAX Index are up by 0.9 percent and 1.1 percent, respectively.

Sentiment seems to have turned for the better after the odds of finding a resolution to the Greek debt crisis strengthened following the Mediterranean nation’s decision to tap the aid extended by the IMF/European Union combine.

Meanwhile, the results of a survey by Hometrack showed that U.K. house prices continued to rise in April. House prices climbed 1.8% on an annual basis, faster than the 1.3% increase in the previous year. However, on a monthly basis, house prices rose at a slower rate of 0.2% on a seasonally unadjusted basis.

U.S. Economic Reports

The Federal Open Market Committee meeting, consumer confidence readings, the first read of first quarter GDP and a housing report are likely to headline the economic events of the unfolding week. Apart from that, traders may also stay focused on the weekly jobless claims report, the results of the ISM-Chicago's manufacturing survey and the results of the Treasury auctions of 2-year, 5-year and 7-year notes.

The FOMC meeting is unlikely to produce any surprise, with economists expecting the Fed's policy setting arm to maintain interest rates unchanged at near zero levels. The central bank is likely to be guided by the core inflation rate, which is continuing to remain below its target, and the staggering level of the unemployment rate. The phrase outlining the Fed's resolve to keep interest rates at exceptionally low levels is likely to be retained.

The Conference Board's consumer confidence index is likely to remain flat or rise slightly, as labor market conditions haven't improved significantly. Although retrenchments have reduced, the hiring environment is still weak. That said, equity market conditions remained supportive.

Surprisingly resilient consumer spending is likely to have supported first quarter GDP growth, with the U.S. economy expected to have slowed only moderately from the above-trend 5.6% growth in the fourth quarter of 2009. BMO Capital Markets expects exports, business inventories and spending to show solid gains, while residential construction and business capital spending are likely to show modest increases. However, contribution by the inventory cycle could show a reduction.

Earnings

Caterpillar (CAT) reported a profit, excluding a charge related to the recently signed healthcare legislation, of 50 cents per share compared to a loss of 19 cents per share in the year-ago period. Excluding redundancy costs, the year-ago earnings were 39 cents per share. Sales and revenues fell to $8.24 billion from the year-ago’s $9.23 billion. The consensus estimates called for earnings of 39 cents per share on revenues of $8.84 billion. The company raised its 2010 sales and revenue and earnings guidance, with the revised outlook at $2.50-$3.25 per share in earnings and $38 billion to $42 billion in revenues. Analysts estimate earnings of $2.69 per share on revenues of $37 billion.

Humana (HUM) said its first quarter revenues rose 9.5% to $8.44 billion and earnings improved to $1.52 per share from the year-ago’s $1.22 per share. Analysts estimated earnings of $1.14 per share on revenues of $8.27 billion. The company raised its earnings per share guidance for 2010 to $5.55-$5.65 per share from its earlier estimate of $5.15-$5.35 per share, mainly due to the favorable prior-period reserve development, while analysts estimate earnings of $5.53 per share.

Sohu.com (SOHU) reported first quarter revenues of $129.5 million, up 12% year-over-year. The company reported non-GAAP bet income of 86 cents per share. The Street estimated earnings of 72 cents per share on revenues of $128.21 million. For the second quarter, the company expects revenues of $139 million to $144 million and non-GAAP earnings of 87-92 cents per share. The consensus estimates call for earnings of 84 cents per share on revenues of $140.36 million.

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PMI Group (PMI) is likely to be in focus after it said it would offer $400 million worth of common stock and $200 million worth of convertible senior notes die 2020. Separately, the company also reported a loss from continuing operations of $1.90 per share for its first quarter, with the loss including a 32 cents per share pre-tax loss due to the increase in their value of certain corporate debt obligations. In the year-ago period, the company reported a loss from continuing g operations of $1.41 per share. The consensus estimate called for a loss of 94 cents per share.

CKE Restaurants (CKR) is likely to see some activity after it snapped a deal it had with affiliates of Thomas Lee Partners to be bought by the latter in favor of an agreement with an affiliate of Apollo Management. Under the recently negotiated, CKE Restaurants will be acquired for $12.55 per share in cash.

Northrop Grumman (NOC) is likely to gain ground after it said it has been awarded a contract modification by the U.S. Navy for providing lead materials for the company’s 30th DDG 51 class Aegis guided missile destroyer. The contract modification is valued at $114 million.

Hertz (HTZ) could also be in focus after it announced that it has agreed to buy Dollar Thrifty Automotive (DTG) for $41 per share in cash and stock. Hertz expects the deal to be immediately accretive to annual adjusted earnings per share. Separately, the company reported that its first quarter worldwide revenues rose 6.1% year-over-year to $1.7 billion. The company’s adjusted loss was 12 cents per share compared to a loss of 25 cents per share in the year-ago period. Analysts estimated a loss of 13 cents per share on revenues of $1.62 billion. The company raised its full year revenue and earnings guidance, now expecting adjusted earnings of 43-45 cents per share on revenues of $7.5 billion-$7.7 billion.

Charles River Labs (CRL) may also see some activity after it reported net sales of $297.3 million, down 1.4% year-over-year. On a non-GAAP basis, the company reported earnings of 45 cents per share, lower than 58 cents per share in the year-ago period. Separately, the company announced a deal to buy China-based WuXi in a cash and stock transaction valued at about $1.6 billion.

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