Morning Preview: July 19, 2018

Terrie AmengualDaily Market Report

Early Look

Thursday, July 19, 2018

U.S. stock futures are pointing to a lower open as earnings season begins to heat up, while the Dow industrials appear on track to pull back from a five-day rally driven partly by optimism over the U.S. economy. Markets have been impacted by economic data, trade concerns and plunging oil over the last few weeks, but earnings begin to take center stage, with Dow components MSFT and TRV reporting later today after IBM reported results last night. Economic data coming up at 8:30 AM EST with weekly jobless claims and the Philly Fed survey. Investors also keeping an eye on Washington after President Donald Trump threatened “tremendous retribution” against the European Union on Wednesday, specifically mentioning auto tariffs. In currency markets, the Chinese yuan hit a one-year low while the British pound fell below the $1.30 level for the first time Since September 2017 following weaker UK retail sales data. In Asian markets, The Nikkei Index dipped -29 points to settle at 22,764 (snapping its 4-day win streak), the Shanghai Index fell -14 points to 2,772 and the Hang Seng Index fell -106 points to close at 28,010. In Europe, the German DAX is down about -40 points at 12,720, while the FTSE 100 is up a few points at 7,685.

Stocks moved steadily higher on Wednesday, as the Dow Jones Industrial Average advanced for its fifth consecutive session and the Nasdaq touched by didn’t close at a fresh all-time high. Markets were buoyed by financials (MS earnings) and Industrials (transports CSX, UAL jump on earnings) as well as measured tone from the Federal Reserve Chairman Jerome Powell during his two-day congressional testimony. Upbeat outlook for the economy from the Fed’s Beige Book also provided support for markets. Among the biggest gainers on the S&P 500, shares of Berkshire Hathaway rallied 5.3% after the company gave CEO and Chairman Warren Buffett more flexibility on when to buy back shares.

Market Closing Prices Yesterday

· The S&P 500 Index gained 6.07 points, or 0.22%, to 2,815.62

· The Dow Jones Industrial Average rose 79.40 points, or 0.32%, to 25,199.29

· The Nasdaq Composite slipped -0.67 points, or 0.01%, to 7,854.44

· The Russell 2000 Index advanced 4.61 points, or 0.27% to 1,691.87

Events Calendar for Today

· 8:30 AM EST Weekly Jobless Claims…est. 220K

· 8:30 AM EST Continuing Claims…est. 1.729M

· 8:30 AM EST Philly Fed Business Outlook for July…est. 21.5

· 9:45 AM EST Bloomberg Consumer Comfort Index…prior 56.0

· 10:00 AM EST Leading Index for June…est. 0.4%

· 10:30 AM EST Weekly EIA Natural Gas Inventory Data

Earnings Calendar:

· Earnings Before the Open: ABB, ADS, BBT, BK, BX, DHR, DPZ, FITB, GPC, KEY, NUE, PM, PPG, RPM, SAP, SON, TRV, TSM, UN, UNP, WBC, WBS

· Earnings After the Close: CE, COF, ETFC, ISRG, MSFT, PBCT, SWKS

World News

· U.K. retail sales fall 0.5% month-on-month in June, missing forecasts, and weighing on the British pound which fell below the $1.30 mark

· Japan’s trade surplus soared 67% to 721.4 billion yen ($6.4 billion) in June thanks to strong demand for semiconductor chips and chip-making equipment from China offset a drop in car sales

Sector News Breakdown

Consumer

· eBay (EBAY) shares are down -6%; Q2 EPS 53c/$2.64B vs. est. 51c/$2.66B; Q2 gross merchandise volume, or GMV, of $23.6B, up 10% on an as-reported basis and 7% on an FX-Neutral basis; grew active buyers by 4% across its platforms, for a total of 175M global active buyers; raises FY18 EPS view to $2.28-$2.32 from $2.25-$2.30 (est. $2.27); lowers FY18 revenue to $10.75B-$10.85B from $10.9B-$11.1B

· Tesla (TSLA) was downgraded to underperform at Needham citing slower sales assumption of Model S/X due to increased competition, potential cannibalization from Model 3 and expiration of credits

· Unilever (UN) reported net profit of 3.04 billion euros ($3.54 billion) for the six months to June 30, down from EUR3.11 billion a year earlier; revenue declined to EUR26.4 billion from EUR27.7B

· Noodles & Co (NDLS) Q2 EPS 1c/$117.4M vs. est. 2c/$114.3M; sees FY revenue $450M-$455M vs. est. $451M; Q2 comparable sales +5.4%, vs. estimate +1.9%; sees year systemwide comparable restaurant sales of 2.5% to 3.5%

· Flowers Foods, Inc. (FLO) says it’s recalling Swiss Rolls sold under brand names Mrs. Freshley’s, Food Lion, H-E-B, Baker’s Treat, Market Square, and Great Value, distributed nationwide. Also recalling Captain John Derst’s Old Fashioned Bread distributed in five states

Energy

· Devon Energy (DVN) announced it has completed the sale of its ownership interests in EnLink Midstream Partners (ENLK) and EnLink Midstream (ENLC) for $3.125B to affiliates of Global Infrastructure Partners GIP

· Kinder Morgan (KMI) Q2 adjusted EPS 21c/$3.43B vs. est. 19c/$3.43B; backs FY18 adjusted EBITDA view of roughly $7.5B; forecasts to invest $2.4B in growth projects during 2018, excluding growth capital expected to be funded by Kinder Morgan Canada Limited, up $200M from the budget

Financials

· American Express (AXP) Q2 EPS $1.84/$10.0B vs. est. $1.82/$10.05B; reaffirms FY18 EPS view at high-end of $6.90-$7.30 view (est. $7.24); sees FY18 revenues to be up at least 9% (up from at least up 8%) vs. est. $40.29B

· Bank of New York Mellon (BK) Q2 EPS $1.03 vs. est. $1.02; 2Q net interest margin 1.26%, estimate 1.24% and 2Q common equity Tier 1 ratio 11%

· Fifth Third (FITB) Q2 EPS 63c vs. est. 57c; Common equity Tier 1 ratio 10.9%; 2Q net interest margin 3.21%; 2Q provision for loan losses $33M

· KeyCorp (KEY) Q2 EPS 44c/$1.65B vs. est. 42c/$1.6B; 2Q NIM on taxable-equivalent basis 3.19%; 2Q provision for credit losses $64M

· Texas Capital (TCBI) Q2 EPS $1.38 vs. est. $1.39; 2Q net interest income $231.7M and 2Q provision for credit losses $27M

· BancorpSouth Bank (BXS) Q2 EPS 56c vs. est. 54c; 2Q net interest margin 3.71% vs. Bloomberg estimate 3.68%; 2Q provision for credit losses $2.5M

· Berkshire Hills (BHLB) Q2 EPS 74c vs. est. 69c; 2Q NIM on taxable-equivalent basis 3.50%; 2Q provision for loan losses $6.53M

· Cathay General (CATY) Q2 EPS 90c vs. est. 89c; 2Q return on average assets 1.88%, and 2Q return on average equity 14.5%; 2Q net interest margin 3.83% vs. estimate 3.75%

· Cohen & Steers (CNS) Q2 EPS 59c/$94.41M vs. est. 61c/$95.33M; reports ending AUM of $60.2B and average AUM of $58.7B

· Eagle Bancorp (EGBN) Q2 EPS $1.08 (in-line w/ests); Q2 non-interest income $5.55M and Q2 provision for credit losses $1.65M

· RLI Corp. (RLI) Q2 operating EPS 60c/$219.3M vs. est. 55c/$220.39M; reports Q2 gross premiums written $269.8M vs. $240.9M last year

· SL Green (SLG) Q2 FFO $1.69/$301.1M vs. est. $1.69/$298.0M; 2Q net operating income $132.0M

· Umpqua (UMPQ) Q2 EPS 31c vs. est. 35c; 2Q net interest margin 3.93%, 2Q book value per share $18.26, 2Q tangible book value per share $10.02; 2Q provision for loan losses $13.3 million

· Huntington Bancshares (HBAN) raises quarterly dividend 27% to 14c from 11c per share

Healthcare

· AC Immune (ACIU) 10M share Secondary priced at $11.75

· Allakos (ALLK) 7.2M share IPO priced at $18.00

· Cara Therapeutics (CARA) 4.5M share Secondary priced at $19.00

· Evolus (EOLS) 4M share Secondary priced at $20.00

Industrials & Materials

· Alcoa (AA) Q2 EPS $1.52/$3.6B vs. est. $1.34/$3.44B; cuts FY18 adjusted EBITDA view to $3B-$3.2B from $3.5B-$3.7B as new full-year forecast reflects current market prices, tariffs on imported aluminum, increased energy costs, and some operational impacts; sees FY global alumina deficit 200,000 to 1M metric tons, saw 300K-1.1M; sees FY global aluminum deficit 1.1M-1.5M metric tons, saw 600,000 to 1M

· Canadian Pacific (CP) Q2 adjusted EPS C$3.16/C$1.75B vs. est. C$3.08/C$1.74B; 2Q operating ratio 64.2% and said is well positioned for a strong second half of the year

· United Rental (URI) Q2 EPS $3.85/$1.891B vs. est. $3.44/$1.85B; said Q2 rental revenue increased 19.3% YoY and within rental revenue, owned equipment rental revenue increased 19.3%; raises FY18 revenue view to $7.5B-$7.7B from $7.3B-$7.6B (est. $7.62B) and raises FY18 adjusted EBITDA view to $3.675B-$3.775B from $3.6B-$3.75B

· Crown Holdings (CCK) Q2 EPS $1.55/$3.05B vs. est. $1.56/$2.98B; lowers FY18 EPS view to $5.15-$5.30 from $5.35-$5.55 (est. $5.39) primarily due, in equal parts, to continued elevated freight costs in N.A. and the impact of foreign currency translation from the strength of the U.S. dollar

· Badger Meter (BMI) Q2 EPS 42c/$113.6M vs. est. 39c/$111.11M; Q2 gross margin 36.5% vs. 39.4% last year

· Universal Forest (UFPI) Q2 EPS 71c/$1.29B vs. est. 73c/$1.19B

· Celanese (CE) announced that it has signed a Letter of Intent with Chengzhi Shareholding Co., Ltd., to further the development of acetic acid-based ethanol as a clean energy source in China

Technology, Media & Telecom

· IBM Inc. (IBM) Q2 EPS $3.08/$20B vs. est. $3.04/$19.88B; backs FY18 adjusted EPS view of ‘at least’ $13.80 and free cash flow of about $12 billion vs. consensus $13.78; Cognitive solutions revenue unchanged y/y at $4.6B, Global business services revenue up 2% y/y to $4.2B and Technology services & cloud platforms revenue up y/y to $8.6B

· Amazon.com Inc.’s (AMZN) top cloud-computing executive has officially denied that Amazon Web Services plans to start selling network switches to other businesses, after a report last week claiming that move was in the works – the reports hit shares of Cisco (CSCO), Juniper Networks (JNPR), and Arista Networks (ANET) https://on.mktw.net/2Nt150x

· PTC Inc. (PTC) Q3 EPS 36c/$314.8M vs. est. 32c/$312.91M; sees Q3 EPS 41c-46c on revs $318M-$323M vs. est. 41c/$326.5M; sees FY18 EPS $1.41-$1.46 on revs $1.248B-$1.253B vs. est. $1.39/$1.25B; 3Q license & subscription bookings $113M

· Plexus (PLXS) Q3 EPS 79c/$726M vs. est. 82c/$721.08M; sees Q4 EPS 82c-92c on revs $735M-$775M vs. est. 91c/$736.52M

 

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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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