Morning Preview: February 20, 2018

Scott GreenDaily Market Report

Early Look
Tuesday, February 20, 18
Stock futures are pointing to a lower open, with futures down roughly -0.70% across the board as a resurgent U.S. dollar provides the backdrop for selling pressure to start the week. The dollar limped back from a three-year low late Friday against a basket of currencies. but still marked its fifth weekly loss out of seven weeks this year, driving the euro up to its highest level since December 2014. However, a renewed push higher for U.S. bond yields (10-year is back above 2.90%), with the dollar also higher, is likely weighing on sentiment early. Despite the pullback this morning, major averages posted strong gains last week, with the S&P 500 up 4.3%, the Dow 4.25% and the Nasdaq 5.3%. The Dow and S&P 500 logged modest gains on Friday to manage a sixth-straight advance; the Nasdaq slipped slightly. Busy morning thus far, with Dow components and retail giants Wal-Mart and Home Depot both reporting quarterly earnings results, while M&A heats up with two stories out of the WSJ (more below). Oil prices active after UAE Energy Minister Suhail bin Mohammed al-Mazroui said at the International Petroleum Week conference, that the oil industry collectively needs at least $10 trillion in fresh investments by 2040 to replace declining fields and ensure adequate supply to meet demand from the world’s growing population. There is no data is on the calendar for Tuesday. In Asian markets, The Nikkei Index fell -224 points to settle at 21,925, the Shanghai Index remains closed for holiday and the Hang Seng Index dropped -241 points to close at 30,873. In Europe, the German DAX is flat around 12,380, while the FTSE 100 is down a few points around 7,230
Market Closing Prices Yesterday
·      The S&P 500 Index gained 1.02 points, or 0.04%, to 2,732.22
·      The Dow Jones Industrial Average rose 19.01 points, or 0.08%, to 25,219.38
·      The Nasdaq Composite dropped -16.96 points, or 0.23%, to 7,239.47
·      The Russell 2000 Index advanced 6.35 points, or 0.41% to 1,543.55
Events Calendar for Today
·      7:45 AM EST       ICSC Weekly Retail Sales
·      8:55 AM EST       Johnson/Redbook Weekly Sales
Earnings Calendar
·      Earnings Before the Open: ALLE, CHH, DIN, DUK, ECL, GCI, GPC, HD, HSIC, MDT, MGM, NBL, NI, SIX, WMT
·      Earnings After the Close: AWK, BYD, CATM, CXO, DVN, EXR, FLR, LHO, LZB, NFX, RGR, VRSK  
World News
·      German economic sentiment eased in February, as the ZEW think tank said its measure of economic expectations fell to 17.8 points from 20.4 points in January compared to estimates for a decline to 16.0 points
·      Pennsylvania’s top court on Monday unveiled a new map carving out the state’s U.S. congressional voting districts, imposing a plan it said was based on “traditional criteria” after rejecting a proposal drawn up by Republican lawmakers as unconstitutional – Reuters
Sector News Breakdown
·      Walmart (WMT) Q4 EPS $1.33/$136.3B vs. est. $1.37/$134.91B; 4Q total U.S. comps. ex-fuel up 2.6%, vs. est. up 2.0% and Walmart U.S. comps. ex-fuel up 2.6%, vs. est. up 2.0%; sees year EPS $4.75-$5.00 (reflects effective tax rate 24%-26%, excluding benefit of ~5c from currency), vs. est. $5.13; sees FY19 Walmart U.S. comp. sales growth ex-fuel of at least 2%, Sam’s Club up 3%-4%; raises dividend; sees year net sales growth in constant currency of 1.5%-2.0%
·      Home Depot (HD) Q4 EPS $1.52/$23.88B vs. est. $1.63/$23.66B; 4Q comparable sales +7.5%, estimate +6.5%; Q4 U.S. comparable sales +7.2%, estimate +6.2%; sees FY comparable sales +5% and sees FY revenue +6.5% and FY gross margin +34%; raises quarterly dividend by over 15%
·      Albertsons Companies Inc plans to buy the part of Rite Aid Corp (RAD) that is not being bought by Walgreens Boots Alliance Inc (WBA), the Wall Street Journal reported. The drug store operator and Albertsons together are valued at around $24 billion, including debt, WSJ said.
·      General Motors (GM) has offered to convert debt of around $2.2 billion owed by its ailing South Korean operation into equity in exchange for financial support and tax benefits from Seoul, four sources with direct knowledge of the matter said.
·      Reckitt Benckiser Group PLC (RBGLY) reported sluggish sales growth and falling margins in 2017, sending shares lower on Monday; said comp sales were flat for the year; its hygiene business grew 2% in Q4 and the home division contracted 3%, both on a like-for-like basis
·      Barron’s says that Under Armour (UAA) reported Q4 revenue that beat Wall Street’s estimate, but is difficult to tell whether the revenue upside represents a turning point for the business
·      Hovnanian Enterprises (HOV) mentioned positively in Barron’s saying it offers an interesting speculative bet, because more than a decade’s worth of problems are reflected in the price
·      Brent crude oil prices fell, pulled down by a stronger dollar and a bout of profit-taking, while U.S. futures gained, bringing the discount between the two key futures contracts to a six-month low
·      Superior Energy (SPN) Q4 EPS loss (33)/$497M vs. est. (32c)/$508.6M
·      Total SA FP Borealis AG (TOT) and NOVA Chemicals Corporation said their affiliates have signed definitive agreements to form a petrochemical joint venture on the U.S. Gulf Coast. Total will own 50% of the joint venture, with the other 50% held by Novealis Holdings LLC
·      Deutsche Bank (DB) has begun eliminating at least 250 jobs across its corporate and investment banking units worldwide as it grapples to keep expenses down Bloomberg reports
·      HSBC Holdings PLC’s (HSBC) full-year profit missed analyst expectations after the bank was hit by the high-profile collapses of two borrowers in the U.K. and South Africa. Debt related to South African retailer Steinhoff International Holdings NV and U.K. services and construction company Carillion PLC helped push the bank’s bad loan charges to $1.77B for the year, more than expected
·      A federal judge in Delaware has overturned a jury’s verdict requiring Gilead Sciences (GILD) to pay $2.54B because its hepatitis C drugs Sovaldi and Harvoni infringed a patent held by Merck (MRK), according to Reuters
·      Dermira (DERM) says data showed when applied topically, the investigational therapy improved disease severity, reduced sweat production and was associated with improved quality of life outcomes for pediatric patients with primary axillary hyperhidrosis, compared to vehicle-treated patients.
Industrials & Materials
·      General Electric (GE) mentioned cautiously in Barron’s saying the stock could drop another 10%; notes GE lost $6B in 2017 after a series of charges and impairments, cut its dividend by 50%, and its accounting is under investigation by the Securities and Exchange Commission, but lately it has been attracting fresh attention from value-oriented investors
·      Mosaic (MOS) Q4 adjusted EPS 34c/$2.09B vs. est. 28c/$1.9B; sees 1Q phosphates sales volumes 1.9 to 2.2 tonnes; sees 1Q potash sales volume 1.7 to 2.0 tonnes and sees FY capital expenditure $900M-$1.1B
·      Trinseo (TSE) Q4 adjusted EPS $2.14/$1.102B vs. est. $2.06/$1.02B; sees Q1 adjusted EPS $2.34-$2.52 vs. est. $2.17
·      Westlake Chemical (WLK) Q4 EPS $1.62/$2.01B vs. est. $1.68/$2.05B
Technology, Media & Telecom
·      Samsung Electronics will significantly lower the facility utilization rate at its OLED panel plant in response to customer Apple’s (AAPL) decision to cut production of the iPhone X amid weak demand, the Nikkei reported. Samsung Display now plans to manufacture organic light-emitting diode panels for 20 million iPhones or less vs. prior goal to supply panels for 45-50 million iPhones
·      Qualcomm Inc. (QCOM) is ready to sweeten its bid for NXP Semiconductors (NXPI) to around $44 billion, as it tries to win shareholder support for the acquisition, The Wall Street Journal reported; QCOM initially offered $110 a share, valuing NXP at $39 billion. Qualcomm is expected to lift its bid to around $127.50 a share
·      Barron’s said technology companies are attractive because of their high exposure to accelerating global growth, while their strong balance sheet means limited need to borrow as rates rise; Alphabet (GOOGL) is expected to grow annual revenues at a high-teens rate over the next few years; Lam Research (LRCX) is estimated to be worth 15x estimated earnings for 2018 according to RBC, and his target price of $245 suggests a 32% upside for the stock


Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P.  Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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