Research Takeaways, Week of August 1, 2011

Special Feature: The Obama Administration’s Assault on Freedom, Jobs, the Constitution, Capitalism, Business, Christians & Jews

Moody’s, Fitch: U.S. Must Do More To Avoid Rating Downgrades — MoneyNews.com, Aug. 3, 2011

Another Home Depot Co-Founder Blasts Obama: “Unpresidential” & “Willfully Dividing Us” — TheBlaze.com, July 29, 2011

Official: Obama Announces 54.5 MPG Gas Mileage Standard for 2025 — bizjournals.com, August 1, 2011

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Market Correction, Not Start of Cyclical Bear Market — Morgan Stanley Research, August 5, 2011

“Media: Remain Bullish on Group”

“We reiterate our Attractive industry view for Media, where we continue to see the combination of healthy secular trends (steady high single digit subscription revenue growth, international expansion opportunities, improved content monetization trends) coupled with above-market capital returns, driving equity outperformance over the next 12 months. Media trades at roughly 12.5x 2012e EPS vs 12x for the S&P 500, a modest premium reflecting a slightly higher organic growth outlook (EBIT CAGR of ~12% in 11-13’ for coverage group). On average, our 12-month price targets imply roughly 15-18% upside and we are Overweight CBS ($27.28), DIS (Disney, $38.44) and IPG (Interpublic, $9.57), with average upside of 20-25%.” — Morgan Stanley Research, August 2, 2011

Mid-Cap Banks: 2Q11 Earnings Recap

“Earnings for the midcap banks came in much better than expected this quarter, with 23 of the 31 banks we cover reporting earnings in line to better than expected. Materially lower credit costs (provisions were 20% below our estimate, and down 17% Q/Q) were the primary driver of the EPS beats, although we were also surprised by the strength in net interest margins (4 bps above MS estimates) as many banks were able to minimize asset yield compression and further reduce deposit costs. Despite margins holding up better than expected this quarter, we are reducing our NIM expectations in 2012 given our view of no rate hikes until 2013. However, this is largely offset by lower provision expense, given faster credit improvement, which drives EPS higher in 2011 and stable in 2012. Overall, our changes are minimal and do not affect our positive view on the midcap banks.” — Morgan Stanley Research, August 1, 2011

Oil Services, Drilling & Equipment: 2Q11 Analysis

“The Big 4, SLB, HAL, BHI and WFT, delivered an average 11.0% international sequential revenue growth and 6.4% North America sequential revenue growth. Latin America showed the strongest expansion, at an average 15.6%, while the Middle East showed the weakest sequential revenue expansion at a more “pedestrian” 8.4% sequential growth. We expect revenue momentum to be maintained for the next several quarters, although the robust growth rate of 2Q11 might be difficult to repeat as capacity continues to fill infrastructure utilization and headcount bottlenecks develop.” — Morgan Stanley Research, August 1, 2011

“Telecom Services: Valuation Chart Book – A Month to Forget, but Valuations Supportive”

“The Telecom sector has had a tough couple of weeks, and has now retraced all of the gains made in the wake of the AT&T/T-Mo merger announcement this Spring. The sector dropped 6.7% in July compared to 2.1% for the S&P 500, and is now in negative territory YTD. Wireless stocks led the sector lower, although ironically tower stocks were the only sub-sector in positive territory. While we have an In-Line industry view, we are coming into a period of traditional outperformance for the group, with yields providing good downside support.” — Morgan Stanley Research, August 1, 2011

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