Good morning,

Markets are called flat this morning. This is what's happening today:

  • Fewer Americans filed for jobless claims last week than economists forecast, companies expanded payrolls in October by the most since February and the Institute for Supply Management’s U.S. factory index rose to a five-month high, reports showed yesterday;
  • Sony Corp. gained in Tokyo after maintaining its full-year profit forecast as losses on televisions narrowed, while Samsung Heavy Industries Co. rallied after earnings beat estimates;
  • ALL EYES ON PAYROLLS – The U.S. jobless rate probably increased to 7.9% in October from 7.8% in September, a Bloomberg survey showed before a Labor Department report today. It will be the last of the monthly employment reports before Barack Obama and Mitt Romney face off in the Nov. 6 presidential election;
  • 10-year Italian debt is yielding 4.922%, 10-year Spain is yielding 5.574% and 10-year Portuguese debt is yielding 8.081%;
  • Brent is trading at $107.85;
  • Apple closed the session at $596.54

The markets had a good session in the US yesterday. We saw the S&P up 1.09%, the NASDAQ up 1.44% amd the Dow up 1.04%. There were many factors which sustained the positive vibe in the markets. To start off with, there was good jobs data. Fewer Americans filed for jobless claims last week and companies increased the amount of wages they are giving out in October by the most since February of this year. Even the ISM number came in good as the US factory index rose to a five month high. ADP Research Institute data showed, and the ISM factory index reading of 51.7 exceeded the 51 predicted in a survey of economists.

But economic data was not the only positive data coming out of the US yesterday. We had good earnings from Starbucks which surprised the markets after the negative earnings posted by McDonald's. The main points from the Starbucks results are as follows:

  • Starbucks raises FY2013 adj. EPS forecast to $2.06-$2.15, saw $2.04-$2.14 in July, est. $2.13;
  • Boosts dividend to 21c, from 17c. Shrs up 5.9% post-mkt.
  • Still sees rev. growth 10%-13%, est. $14.86b implies growth 12% over FY2012 est. $13.32b
  • Sees opening 1,300 net new stores up from 1,200 in July; sees opening 600 stores in China, up from 500
  • Still sees 600 in Americas, 100 in EMEA
  • 4Q adj. EPS 46c incl 2c-shr charge on store closings in Europe vs July forecast 44c-45c, est. 45c
  • 4Q rev. $3.36b vs est. $3.39b; SBUX in July saw rev. up 10%-12% implying $3.34b-$3.40b
  • 4Q global comp. sales up 6%, est. up 5% (Consensus Metrix avg. of 25)
  • Americas comps. up 7%, est. up 5.1%
  • EMEA comps. down 1%, est. up 0.6%
  • China & Asia Pacific comps. up 10%, est. up 11%

Starbucks went up 7.5% after hours. Most analysts are bullish on this stock and have good reason to be. Deutsche Bank came out with a price target of $56, a 20% upside to yesterday's close.

In Europe yesterday, Lloyds had a good session closing 8.3% up. Some interesting facts on Lloyds are as follows:

  • Strong improvement in core return on risk-weighted assets and PPI monthly payout trends likely to drive shares, Liberum says in note (reiterates buy).
  • Shore Capital: Co. making excellent progress on improving underlying business; co. maintained or improved guidance; preferred play among domestic U.K. banks (buy)
  • Lloyds says restructuring well on track, significantly ahead of target on some measures
  • Lloyds 57% higher YTD; 15 buys, 9 holds, 8 sells; avg. PT 42.59p implies ~5% upside

Today the markets are expected to open flat is Europe. All eyes are on the US unemployment rate for October which is expected to come before the US market opens. Alot happening also next week with the elections in the US and the reshuffling of the Government in China. The polls are indicating that Obama will win the elections but everything can still happen. We have to just wait and see.

Stock to watch: Starbucks ($46.59, Price Target $56)

Deutsche Bank comments – SBUX makes most of its money today through its retail store base (~85%). However, the company believes it can leverage the Starbucks brand into a much higher market share of "at home" coffee consumption (both domestically and abroad). Recent developments, such as exiting the Kraft relationship and the Green Mountain/Keurig deal, should result in a "step function" increase in growth in the high-return CPG business in coming quarters, which should support multiple expansion. We also see room for attractive growth in the core retail business, as the US system benefits from throughput initiatives, a macro recovery, and incremental pricing while the EMEA segment works to close the margin gap with the US and China Asia/Pac. International unit growth should also step up in coming years particularly in China Asia/Pac. These key investment themes are further bolstered by a compelling cash flow story, most of which we expect to go toward growing the dividend and buying back shares. Buy.

For further information on Starbucks or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli