Morning Preview: July 17, 2018

Terrie AmengualDaily Market Report

Early Look

Tuesday, July 17, 2018

U.S. stock futures are down slightly, with the Nasdaq futures lower after NFLX posted a weaker Q3 revenue and subscriber outlook, pressing high flying Internet names, while healthcare space in focus after earnings from Dow components JNJ and UNH this morning. Markets await a few other earnings results later this morning, including Dow component GS, as well as testimony from Fed Chairman Powell later today. Federal Reserve Chairman Jerome Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee at 10:00 AM EST, his first congressional testimony for any clues on the pace of U.S. interest rate rises. The testimony will be followed at the same time on Wednesday to the House of Representatives Financial Services Committee.

Stocks ended mixed on Monday as the Dow Jones Industrial Average marked its third consecutive gain, but the broader market finished slightly lower as the sell-off in the energy sector weighed on the market, offsetting the gains in the financial sector after better Bank America (BAC) earnings and as Treasury yields climbed. Outside of earnings, the summit between President Donald Trump and Russian Vladimir Putin grabbed headlines with Democrats and Republicans upset after Trump appeared soft on Putin refusing to blame the Russian leader for meddling in the 2016 elections. Overnight, Netflix Inc. (NFLX) shares dropped 13% after Q2 revenue and Q3 revs and subscriber figures came in below consensus estimates.

In Asian markets, The Nikkei Index advanced 100 points to settle at 22,697, the Shanghai Index fell -15 points to settle at 2,798 and the Hang Seng Index lost -357 points to close at 28,181. In Europe, the German DAX is little changed at 12,560, while the FTSE 100 is flat around the 7,600 level.

Market Closing Prices Yesterday

· The S&P 500 Index dropped -2.88 points, or 0.10%, to 2,798.43

· The Dow Jones Industrial Average rose 44.95 points, or 0.18%, to 25,064.36

· The Nasdaq Composite dropped -20.26 points, or 0.26%, to 7,805.72

· The Russell 2000 Index declined -8.54 points, or 0.51% to 1,678.54

Events Calendar for Today

· 7:45 AM EST ICSC Weekly Retail Sales

· 8:55 AM EST Johnson/Redbook Weekly Sales

· 9:15 AM EST Industrial Production MoM for June…est. 0.5%

· 9:15 AM EST Capacity Utilization for June…est. 78.2%

· 10:00 AM EST Fed Chairman Powell delivers Semi-Annual Testimony before Senate Panel

· 10:00 AM EST NAHB Housing Market Index for July…est. 68

· 4:00 PM EST Total Net TIC Flows for May…prior $138.7B

· 4:30 PM EST API Weekly Inventory Data

Earnings Calendar:

· Earnings Before the Open: CMA, FHN, GS, JNJ, PGR, PLD, SCHW, UNH

· Earnings After the Close: ADTN, BHP, CSX, FNF, FULT, IBKR, MLNX, UAL

World News

· PepsiCo (PEP) will become a component of the Nasdaq-100 Index and the Nasdaq-100 Equal Weighted Index prior to market open on July 23, replacing Dish Network (DISH)

· Walmart Inc. (WMT) agreed to use Microsoft Corp.’s (MSFT) cloud technology to power functions that could include algorithms for purchasing and sales-data sharing with vendors, the two companies said extending their partnership

· B&G Foods (BGS) announced that effective today it has acquired the McCann’s brand of premium Irish oatmeal from TreeHouse Foods (THS) for approximately $32.0M in cash, subject to customary closing and post-closing adjustments

· La-Z-Boy (LZB) announced it has entered into a definitive agreement to acquire Joybird, an e-commerce retailer and manufacturer of upholstered furniture. The deal is expected to close early in Q2 of FY19

· Papa John’s International Inc. (PZZA) founder said it was a “mistake” to step down as chairman last week.


· Gulfport Energy (GPOR) says 2Q net production was up 3% vs 1Q, and up 28% vs year ago; 2Q net daily production mix includes about 89% natural gas, 7% NGL, and 4% oil; realized prices for 2Q were $1.86/Mcf of natural gas, $33.46/barrel of oil, and 45c/gallon of NGL, resulting in total equivalent price of $2.09/Mcfe

· The U.S. Commerce Department issued a ruling denying Plains All American Pipeline LP’s (PAA) a bid for 25% steel tariff exclusion on exported steel from Greece for its $1.1B shale pipeline project because domestic steel is available to the company, Reuters reports


· Comerica (CMA) Q2 EPS $1.90 vs. est. $1.66; 2Q NIM on taxable-equivalent basis 3.62%; Common equity Tier 1 ratio 11.9%; 2Q recovery of credit losses $29M

· First Horizon (FHN) Q2 EPS 36c/$438.46M vs. est. 35c/$447.63M; Q2 net interest margin expanded to 3.53% from 3.07%

· Redfin (RDFN) files to sell common stock (3.5M shares) and convertible senior notes

· Encore Capital (ECPG) sees Q2 adjusted EPS $1.28-$1.33 on revs $348.0M-$354.4M vs. est. $1.12/$329.17M; files automatic mixed securities shelf


· Johnson & Johnson (JNJ) Q2 EPS $2.10/$20.8B vs. est. $2.07/$20.4B; sees year EPS $8.07-$8.17 vs. est. $8.13 but cuts year sales view to $80.5B-$81.3B, below the $81.4B estimate

· UnitedHealth (UNH) Q2 EPS $3.14/$56.09B vs. est. $3.04/$56.09B; Q2 consolidated medical care ratio of 81.9% decreased 30 basis points year-over-year; boosts FY18 adjusted EPS view to $12.50-$12.75 from prior $12.40-$12.65 vs est. $12.62 and now expects cash flows from operations to approach $15.5B

· J&J’s (JNJ) Janssen unit stops Phase 3 trial of Invokana, a treatment for chronic kidney disease in patients with type 2 diabetes, based on achievement of pre-specified efficacy criteria. Trial achieved pre-specified criteria for primary composite endpoint of end-stage kidney disease

· Avid Bioservices (CDMO) Q4 EPS 3c/$6.94M vs. esgt. Loss (15c)/%6.14M; sees revenue guidance for the full FY 2019 of $51.0M-$55.0M vs. est. $56.5M

· Aveo Pharmaceuticals (AVEO) disclosed in a regulatory filing that as previously reported, its expects to report topline data from the Tivo-3 trial, its Phase 3 trial of tivozanib as a third-line treatment for advanced renal cell carcinoma, approximately 6-8 weeks after the trial records 255 progression-free survival events

· NanoString (NSTG) announces $50M common stock offering; guides prelim Q2 revs to $20.4M vs. prior guidance $18.5M-$19.5M

Industrials & Materials

· Goldman Sachs said while valuations remain attractive for buy-rated Caterpillar (CAT) and Deere (DE), they remove both stocks from the Conviction List citing weaker crop prices, the risk of further input cost inflation, Japan’s NTN Corp. reported slowing bearing orders and. risk of further trade war escalation. Goldman also downgrades Manitowoc (MTW)and Generac (GNRC) to sell from neutral and reiterates sell ratings on Terex (TEX) and Herc Holdings

· Canada’s Lundin Mining Corp said it plans to make an offer to buy base metals company Nevsun Resources Ltd for about C$1.4 billion ($1.07 billion), its second proposal in three months; Lundin offered C$4.75 per share, a premium of 12.8% from yesterday

· Rio Tinto (RIO) and Vale (VALE) have reported big increases in iron ore shipments in the second quarter of 2018, FT reports

Technology, Media & Telecom

· Netflix (NFLX) shares fell -13% as Q2 EPS 85c/$3.91B vs. est. 79c/$3.94B; 2Q total net subscriber additions 5.15M vs. Bloomberg estimate 6.27M, while International net subscriber additions 4.47M vs. estimate 5.06M; sees Q3 EPS 68c on revs $3.99B below est. 73c/$4.13B; also sees 3Q total net subscriber additions 5.0M vs. est. 5.925M and int’l Q3 sub adds 4.35M vs. est. 5.05M; continue to anticipate FCF of -$3B-$4B for the full year 2018, which implies that our content cash spending will be weighted to the second half of 2018; stated that its free cash flow in Q2 totaled -$559M vs. -$608M in the year ago quarter

· Carbonite (CARB) raises Q2 EPS view to 41c-44c from prior 34c-38c (est. 36c) and raises Q2 GAAP revenue view to $77.3M-$78M from prior $75.8M-$77.8M (est. $78.93M); raises FY18 EPS view to $1.62-$1.68 (est. $1.54) and sees FY18 revenue $296.9M- $306.9M (est. $308.63M); but Carbonite also files to sell 4M shares, co-founder files to sell 520k shares

· Omnicom (OMC) Q2 EPS $1.60/$3.86B vs. est. $3.89B; Q2 operating profit $582.3M vs. est. $586.2M

· Sinclair Broadcast Group Inc. (SBGI) rejected allegations that it has been deceitful in its effort to buy Tribune Media Co. (TRCO) and expressed disappointment over the leak of Federal Communications Commission documents

· CalAmp (CAMP) files to sell $200M of convertible senior notes due 2025


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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