Tuesday, August 7, 2018
Equity Market Recap
· U.S. stocks extend their upward momentum, with the S&P 500 index coming within 9-points of its all-time best of 2,872.87 in January, while the Nasdaq Composite made it a 6th consecutive daily advance (longest such streak since March), as investors pour money into equities globally overnight. The Dow Industrial Average rose more than 100 points, but traded in a narrow 40 point range between 11:00-3:00 (highs 25,680 and lows just above 25,640) and remains away from all-time highs up at 26,616.71 in January. Gains in energy and technology, offset weakness in defensive sectors such as real estate and consumer-staples companies. There is no fear in the market place as indicative of the CBOE Volatility index (VIX) which moved to 6-month lows despite no deal with China or Nafta related partners regarding trade or tariffs. Transports were led by rental car companies after better HTZ results, while healthcare pushes higher (LLY, MRK, and PFE at 52-week bests). Lodging names were laggards after weak results in the space (MAR, IHG). Overseas, European and Asian markets both logged strong gains. It was quiet on the day related to trade and tariffs, with no Fed speakers as well. Treasury yields inched higher as the dollar pared losses late day and oil prices gained ahead of weekly inventory data.
· Oil prices end higher ahead of inventory data tonight (API) and tomorrow morning (EIA), extending its rise off last week 6-week lows around $67 per barrel (prices failed shy of $70 yesterday). WTI crude rises by 16c at $69.17 per barrel, off earlier highs of $69.83. Earlier, the EIA forecasts domestic oil output to average 11.7 million barrels a day next year, down from a previous estimate of 11.8 million a day. The agency also lowered its outlook for output this year.
· Gold futures ended little changed, rising 30c (paring earlier gains) to settle at $1,218an ounce, just bouncing off more than 1-year lows. Gold got a small bounce as the dollar pared its recent gains, while silver also added small gains. It remains “tough sledding” for gold prices amid an expected rising rate environment and a steady dollar.
· The US dollar pared recent gains, though did rally late afternoon along with a bounce in Treasury yields. The dollar index (DXY) came up just short of 2018 highs yesterday (95.65 high on 7/19), but still holding above the 95 level, as markets keep eyes on trade and FOMC policy. The Canadian dollar slumped to a 1-week low against the U.S. around 1.3071. The euro staged a modest rebound, though the dollar bounced off lows vs. the Japanese yen to move higher around 111.40 (off lows 110.99). The pound remained weak around 1.2935 after worries over a so-called hard Brexit yesterday sent the currency to an 11-month low Monday. The Turkish lira bounced off record lows against the dollar (fell 4.9% yesterday on US sanctions). Bitcoin prices rebounded more than 2%, back above the $7,000 mark.
· Treasury markets were quiet, as yields quietly advanced above 2.97% (up a few basis points), after falling from multi-month highs above 3% last week; no major economic data the last two days to move markets; 2-yr yield inches up slightly to 2.67%. The U.S. treasury sold $34B ion 3-year notes at a yield of 2.765% compared to 2.763% pre-sale, with a higher bid-to-cover of 2.65 vs. 2.51 Prior (demand) and indirect bidders awarded 42.7% of auction.
Sector News Breakdown
· Retailers; Piper said JWN Anniversary Sale had “a slower second half y/y and ended below that” of last year as cuts its comp sales estimates (also cuts views on LB, JCP); JPMorgan said recent fieldwork, satellite data, and management call takeaways point to solid 2Q prints across our Dollar/Discount coverage (DLTR, BIG, DG); in consumer electronics, HEAR Q2 beat and Q3 guide setting up an increase in FY guidance of $255M in revs (+71%), $45M in adj. EBITDA (+298%), and $1.95 (+457%), up from $205M, $26M, $0.95 previously; CROX posts Q2 EPS/revs beat but CFO departs and guides year revs below consensus; overseas, jeweler Pandora issued weak earnings and guidance, taking toll on some names in US (FOSL); ODP rises on earnings beat
· Consumer Staples; FRPT reported another strong quarter supported by solid underlying consumption trends and raised full-year sales guidance (expects FY18 revenue growth of >25%, up from >21% previously); in food space, DF shares slip after slashing year adj. EPS forecast to 32c-52c from 55c-80c citing significantly higher-than-expected non-dairy inflation; WTW shares slide after better results/financial guidance, as one analyst noted effective reiteration of year subscriber forecast, including end-of-year subscriber count likely viewed as a disappointment; CORE rises after its Q2 EPS and sales topped views
· Housing & Building Products; ZG shares fall as reported 2Q revs/EBITDA roughly in line with Street expectations, but meaningfully reduced its FY:18 revenue/ EBITDA outlook for 2018, primarily due to a slower-than-expected start in the Homes segment (aka Zillow Offers); Mizuho downgraded PHM in homebuilders reflecting what we see as an imbalanced risk / reward with a lack of near-term catalysts, richer valuation and slower ’19e EPS growth vs peers, as well as orders / margins headwinds into YE18 (though remain constructive on sector); LGIH shares advanced on strong Q2 EPS beat (26c) and lifts year guidance outlook
· Gaming & Lodging; sector weak after IHG lower after some first half results fall slightly short of estimates/reports 1H revenue of $900M vs. $899M consensus and adjusted operating profit of $398M. RevPAR grew 3.7% during the period; MAR 2Q results and guidance disappointed after net unit growth guidance was cut to 5% from 5.5%-6.0%; in gaming sector, WYNN was downgraded to hold at Argus, while equipment names IGT and SGMS shares fell midday
· E&P sector; Macquarie moves to the sidelines on PDCE and XOG (downgrade both to neutral) given the heightened Colorado risk/should events warrant, we would revisit our changes but we see limited ability to outperform peers until greater clarity is established and longer-term damage is repaired; in earnings; SM posting a 2Q loss hurt by a challenging operational quarter at Comanche according to the company; OAS trades up after beating expectations for both Q2 earnings and revenues and raising full-year production guidance/Q2 production rose 28% Y/Y to 79.4K boe/day; CDEV rises after topping expectations for Q2 earnings and saying it is on track to achieve full-year production targets with lower unit costs; CRZO shares fell despite strong Q2 EPS beat amid lack of an oil production boost for 2018; HCLP downgraded from Overweight to Neutral at Piper due largely to the stock’s impressive run since the company announced an increase to the distribution in late July (+22%)
· Utilities; SCG was downgraded to neutral from buy at Mizuho noting that a federal judge’s refusal to immediately block a rollback of electric rates signals that the utility is unlikely to wins its case on the merits; Utilities (UTY) moving back near highs of the day, paring losses to -0.25% around the 680 level (recently touched 2018 highs above 685)
· Banks made a move higher late afternoon (JPM, GS, BAC) as Treasury yields pushed higher; in lending and finance ONDK shares surge after reporting Q2 adjusted EPS that beat consensus by 8 cents and boosting year adjusted net income guidance to $30M-$36M from prior range of $18M-$28M (LC reports tonight); in services, BR trades to all-time highs after forecasting better-than-anticipated 2019 earnings growth of 9%-13%
· Pharma movers; in specialty pharma, BHC reported strong growth in its gastrointestinal business and raised its full-year earnings outlook, while revs from its stomach drugs segment rose 14%; also in specialty, MNK shares jump as Q2 top and bottom line beat estimates, raises FY18 guide to rev growth 4%-7% from prior 3%-6% view on higher earnings; GEMP drops over 30%, downgraded at Raymond James saying while they anticipated GEMP’s 2H18 would be a prelude to Phase 3 gemcabene trial initiations, FDA’s request for additional safety data appears to delay efforts until ~2020; LLY, PFE and MRK another 52-week high print; ENTA falls after AbbVie-partnered Mavyret was among excluded medications in ESRX 2019 formulary; ANIP drops more than 15% after Q2 EPS missed by 21c on lower than expected revs
· Healthcare services; DPLO shares slide after 2Q EPS missed expectations, hurt by a higher tax rate and interest expense; OMI shares drop double-digit percent after full-year profit forecast falls short of analysts’ estimate as expects FY18 adj EPS in the range of $1.40-$1.50 vs estimate $1.98 (Q2 revenue misses Street expectation for 7th time in past 8 quarters); in dental space, XRAY lowered revenue forecast, restructuring plans as sees year EPS of $2-$2.15, down from $2.55- $2.65 forecast and sees lower revenue for the rest of 2018 due to higher levels of inventory destocking at partner dealers
· Biotech movers; ONCE shares plunge as Hemophilia A patients treated with its gene therapy, SPK-8011, saw elevated Factor VIII (FVIII) expression that were stronger than prior results of lower doses though the improvement may miss some bullish expectations in the Phase 1/2 study (shares of MBRN advanced in reaction to negative news on rival ONCE); ARRY said the FDA has designated the combination of BRAFTOVI (encorafenib), MEKTOVI (binimetinib) and LLY’s ERBITUX (cetuximab) a Breakthrough Therapy for the treatment of patients with mCRC
· Medical equipment and devices; ILMN was upgraded to equal-weight at Morgan Stanley as the risks to long-term success on DNA-based diagnostics and biopharma investment in the space is lower; BLPH said its Phase 3 clinical trial, INOvation-1, evaluating INOpulse in patients with pulmonary arterial hypertension (PAH) failed to demonstrate a treatment effect; IART and MMSI both downgraded to underperform at Bank America; VCEL jumps as Q2 sales rise 12% topping views and raised guidance for the year to $80M-$83M from $73M-$78M; LMNX plunges on the heels of its Q2 report that included EPS miss
· Hospitals; group pressured after THC Q2 revenue was down 6% to ~$4.5B while EPS was up 146% and H1 cash flow up 15%/also disappointed with the 2.3% decline in hospital admissions, attributed to the discontinuation of certain services at selected facilities and volume declines in certain areas (CYH, LPNT, HCA movers in reaction)
· Other movers on earnings: AKAO, ARNA, AVNS, AXDX, CRY, DERM, EDIT, EVHC, HAE, KPTI, LGND, OFIX, SAGE, TCMD, ZGNX
Industrials & Materials
· Ag & Industrials; MTZ upgraded to outperform at Baird and named as a “Fresh Pick” against heightened investor concerns with the MVP project work stoppage and weak cash flows/AR increases, which appear well priced in and, indeed, offer potential catalyst; MDR was awarded a contract from RDS/A for subsea umbilical and flowline installation at the Silvertip field; AIN shares jump on Q2 EPS and rev beat; in chemicals, MOS rises as Q2 EPS beat and once again raised their EPS and EBITDA guidance; USCR shares jump around 10% after mixed Q2 (EPS miss/revs beat) while rev guidance for the year topped estimates
· Transports; in car rental, HTZ posted better-than-expected second-quarter results, amid pricing pressure and flagging demand; in marine shipping, A.P. Maersk cuts 2018 Ebitda view to $3.5B-$4.2B from $4B-$5B; in air freight, ATSG shares drop on revenue and Ebitda miss; EXPD the top decliner down after Q2 results beat but margins contract; CVGI jump on earnings beat and as sees strong construction equipment production in FY18; TSLA shares spiked on a report that Saudi Arabia’s sovereign wealth fund, which has more than $250 billion under management, has built an undisclosed stake – stock spiked further on tweet headline that CEO Musk said he is considering taking the company private at $420 per share
· Metals & Materials; opened the day higher across the board for steel, copper and iron ore names before pulling back midday; iron ore prices broke above $70 earlier; gold miners fail to get a lift after a weak earnings season for most names and gold prices at more than 1-year lows earlier (shares of ABX, AEM, GG, KCG, NEM have fallen)
Technology, Media & Telecom
· Internet; GOOGL sum-of-the-parts PT raised to $1,550 from $1,400 at Morgan Stanley saying that Waymo’s potential enterprise value could rise to $175b from $75b based on its potential impact to transportation, retail and REIT industries; ETSY rises as Q2 revenue beat, raised forecast; Q2 revenue rises 30% on higher marketplace, services revenues and also raises FY forecast for gross merchandise sales (GMS) and revs growth target to 33-35% from 32-34%; SNAP reports earnings after the close tonight
· Semiconductors and Opticals; NPTN shares rise as posted 2Q revenue beat highest estimate and loss per share was narrower than estimates, and positive commentary on favorable demand trends in China; IIVI also helping boost the sector after Q4 beat top/bottom line and guided Q1 54c-60c vs. the 43c est.; BRKS falls after 13% life sciences growth y/y in 3Q was one of the slowest organic growth rates reported; CEVA falls as Q2 profit and revenue both decline
· Software movers; in Internet security, RPD to all-time highs on strong 2Q revenue beat driven by strength across vulnerability management (VM), IDR (SIEM), and Application Security (AppSec); TWLO trades to record highs as Q3 rev forecast of $150M-$152M well above the $135M estimate on higher EPS as well; FIVN shares spiked after the company reported one of the strongest beats and raises in company history last night, with revenue accelerating to 28% y/y
· Media & Telecom movers; Dow component DIS to report earnings after the close tonight; DISCA shares fell after missed analyst estimates for quarterly profit as they took on more costs related to integration of the recently acquired Scripps network; CBS was downgraded to hold at Argus as see significant downside risks to CBS shares both from the sexual harassment allegations against CEO Les Moonves and the board’s legal battle to prevent a re-merger with Viacom; shares of TGNA and GTN active after results in the broadcasting sector
· Other movers on earnings: ASCMA, ALLT, BRKS, NCMI, QNST, RNG