Wednesday, July 18, 2018
Equities mixed early, with the Nasdaq Composite index pulling back slightly from its all-time record closing prices yesterday, while the Dow Industrials remain on track for its 5th straight advance as Fed Chairman Powell begins day-2 of his testimony on Capitol Hill, this time to the House Financial Services Committee. Transports outperform, led by gains in CSX (rails) and UAL (airlines) after better quarterly results and guidance from both. Financials get a boost after stronger MS earnings results and better trading figures. Holding stocks back is another broad drop for energy names with WTI pressing lower after a build in crude inventories in the API and DOE reports. Housing starts a negative data point this morning, plunging over 12% in June to 9-month lows and hitting homebuilders. The benchmark S&P 500 index little changed holding a few points above its 2,800 level.
Treasuries, Currencies and Commodities
· In currency markets, the dollar moving steadily higher, with the dollar index touching highs of 95.40 (near 2018 best levels) before paring gains after weak housing data; increasing Fed rate hike expectations has buoyed the dollar along with uncertainty over trade and political issues (UK Brexit); Bitcoin prices extend yesterday gains, up another 1.7% to $7,400
· Commodity prices continue to sink, as oil prices fall to 1-month lows (bearish inventory data this morning as well with EIA posting weekly crude oil build of over 5.8M barrels s. est. -4.1M barrel draw) and gold prices down at fresh 1-year lows, falling on the stronger dollar and improved economic outlook, and Fed rate hike expectations. Trade concerns have also taken a toll over the last month for commodity prices across the board (energy, copper, soybeans, lumber etc.)
· Treasury markets holding steady as investors weigh commentary from Fed Chairman Powell in day-2 testimony on monetary policy and softer housing data; 10-year yield 2.86%
· Housing starts for June fell to 9-month lows, falling -12.3% to 1,173M, well below the 1,320M estimate (after rising 4.8% the prior month); single family starts fell to 858K; multifamily starts fell to 315K in June. Building permits fell to 1,273M vs. 1,301M in May, also lowest level in nine months and well below the est. 1,330M; Permits fell 2.2% in June after falling 4.6% the prior month; Single family completions fell to 862k; multifamily completions rose to 399k in June
Sector Movers Today
· Auto sector; Wells Fargo upgraded BWA and downgrades ALV, VC in the supplier sector saying they expect a mixed quarter with f/x dampening earnings upside or driving misses in some cases and see the most upside potential for APTV, and BWA; TEN’s Q2/full year has risk while customer (VW) and trim mix could be a risk for GNTX in 2H. Auto retailers weak as SAH guides Q2 and year EPS below estimates saying 2Q earnings hurt by lower than anticipated new vehicle gross profit/unit in certain key brands (shares of GPI, LAD, PAG among movers in sympathy)
· Casino, Lodging & Leisure; Deutsche Bank said they remain largely bullish on slot equipment as we expect continued solid, though decelerating growth rates in domestic replacement activity as we move through 2018 (as reaffirm buys on value play IGT & growth play AGS); SEAS tgt raised to $27 at Stifel citing 4 catalysts: 1.) 2Q18 EBITDA beat, 2.) John Reilly named permanent CEO, 3.) Long-range EBITDA target established, and 4.) Refinancing of the Term B-2 Loans due May 2020; in cruise lines, NCLH announced that it expects to raise its full year 2018 Adjusted EPS guidance despite headwinds from higher fuel prices (positive for RCL, CCL)
· Large Cap banks active on earnings: MS reported better-than estimated Q2 results as FICC and equities sales and trading revenue, along with better-than-expected investment banking revenue all topped views – as net income rose 33% to $2.4B; FNF 4c EPS beat with strong title pretax margin (+90bps YOY); LTXB jumps as one analyst notes elevated LLP expense drove EPS miss (expected) 59c vs c/e 68c but strong NII/NIM (upgraded at Raymond James); USB Q2 beat driven by higher fee income, lower exp & loan provisions
· Large Cap Pharma; NVS has joined PFE in shelving price increases for medicines in the US after criticism from President Donald Trump over rising costs; NVS reported better than expected quarterly earnings; IRWD downgraded to MP at Cowen as believe fairly valued; CHRS rises after saying it expects the EU application for their biosimilar to AMGN’sNeulasta will be included in the July 2018 CHMP agenda next week; CRNX 6M share IPO priced at $17.00; generic drugmakers MYL, ENDP active after NVS cut its forecast for Sandoz
· Internet; GOOGL said it would appeal the $5B EU record-breaking antitrust fine and crackdown on business practices over Android mobile system; TWTR downgraded to neutral at Macquarie as awaits proof that its product improvements can attract new users and amid a rally this year that may limit upside potential; Macquarie also said increasingly frustrated with the lack of visibility into the core revenue drivers for GOOGL and does not expect much from EBAY this quarter; AMZN says Prime Day sales surpassed Cyber Monday, Black Friday and the previous Prime Day, when comparing 36-hour periods, making it the biggest shopping event in Amazon history.
· Semiconductors; TXN announced that President and Chief Executive Brian Crutcher is out because of code of conduct violations; MLNX Q2 EPS and revenue topped consensus and raised its FY revenue guidance; semi-equipment stocks (LRCX, AMAT) benefit after ASML reported better-than-expected results and said it expected a stronger second half. ” NVDA at Citi: says recent supply chain checks indicate discrete graphics gaming demand is expected to remain sluggish thru the Sep-Q
· BRK/B +4%; after the company announced it is changing the share repurchase policy as they can now repurchase stock when it views the price to be conservatively below Buffett and Munger’s estimate of intrinsic value (vs the prior policy where the price paid for buybacks could not exceed 1.2x book value).
· CHRS +16%; after saying it expects the EU application for their biosimilar to Amgen’s Neulasta will be included in the July 2018 CHMP agenda next week.
· CSX +4%; handily topped Q2 EPS by 14c on higher revs of $3.1B with continued progress on the adoption of its scheduled operating model delivering an operating ratio of 59.8%
· GWW +6%; lifts guidance on strong industrial parts demand after handily topping Q2 EPS estimates on better revs
· MRTN +2%; Q2 upside surprise, that was driven by strong pricing in all divisions and solid cost control as posted its highest quarterly operating revenue and operating income in its history
· MS +3%; reported better-than estimated 2Q FICC and equities sales and trading revenue, along with better-than-expected investment banking revenue
· UAL +6%; Q2 EPS and revs topped consensus and raises FY18 EPS view to $7.25-$8.75 from $7.00-$8.50 (lifts other airlines – JBLU, LUV, AAL)
· CLX -3%; cut to sell at Goldman Sachs and reduced estimates to reflect a combination of a lower volume forecast, lower gross margin expectation and renewed currency headwinds
· HCSG -10%; after Q2 EPS miss and Management said bad debt was $1M higher sequentially and costs related to health/wellness plans increased $1.6M (downgraded to sell at Stifel)
· NCS -10%; after news to acquire privately held Ply Gem in stock deal, issuing 58.7M shares to Ply Gem shareholders, and NCI shareholders will own 53% of equity upon closing of transaction
· SAH -5%; guides Q2 and year EPS below estimates saying 2Q earnings hurt by lower than anticipated new vehicle gross profit/unit in certain key brands
· TWTR -2%; downgraded to neutral at Macquarie as awaits proof that its product improvements can attract new users and amid a rally this year
· TXN -1%; announced that President and Chief Executive Brian Crutcher is out because of code of conduct violations
· WIN -10%; downgraded along with UNIT to sell at Citigroup as believe Windstream’s operating and financial performance pose substantial risk to the equities of both Windstream and Uniti.
· Coastal Financial (CCB) 2.85M share IPO priced at $14.50
· Crinetics (CRNX) 6M share IPO priced at $17.00
· Global Water Resources (GWRS) 1.5M share Spot Secondary priced at $9.25
· NanoString (NSTG) 4M share Secondary priced at $12.50
· Rubius Therapeutics (RUBY) 9.53M share IPO priced at $23.00
· RumbleON (RMBL) 2.025M share Spot Secondary priced at $6.05