Wednesday, August 8, 2018
Equity Market Recap
· U.S. stock markets traded in a narrow range and finish the day mixed/little changed with both the S&P 500 and Nasdaq Comp holding just shy of record highs. Markets were pressured early as both China and the U.S. announced a new wave of tariffs after the U.S. said it would impose 25% duties on added $16 billion in Chinese imports in two weeks, while China retaliated with similar actions. Some healthcare names dipped after President Trump said that he’ll make an announcement next week that would slash drug prices “really, really substantially.” Energy stocks slumped as oil declined over 3% on the day, falling below the $67 per barrel level, a fresh 7-week low amid bearish inventory data. With today’s gains, the Nasdaq Comp made it a 7th straight day of gains, led by strength in software and Internet (AMZN record highs). Equities have remained strong in recent weeks, supported by strong corporate quarterly results and economic data that underlined a healthy economy. Richmond Fed President Thomas Barkin said earlier that solid growth, low unemployment and inflation around a 2% annual rate “calls for” moving interest rates back to normal levels. Still no fear in markets as the CBOE Volatility index (VIX) declined to its lowest level in about 7-months, down over 3% to around 10.50 as most recently, the S&P 500 was less than 1% from its Jan. 26 record, with the Nasdaq Composite Index was within shouting distance of its recent all-time peak.
· Oil prices plunge as the sell-off gained momentum following the latest escalation in US-China trade tensions as well as data showing a smaller-than-expected weekly decline in US crude inventories. WTI crude oil finished down $2.23, or 3.2%, at $66.94 per barrel, as oil registers its steepest daily fall in more than 3 weeks and ends near 7-week low.
· Gold managed a small back-to-back session win, rising $2.70 or 0.2% to settle at $1,221 an ounce as the U.S. dollar and U.S. government bond yields both retreated. It was the first back to back win for gold since July 25th. Still, the commodity has mostly traded within a narrow band and is hovering around the lows of the year amid fears of a trade war and rising rates. September silver advanced by 5.9c, or 0.4%, to settle at $15.432 an ounce.
· The U.S. dollar slumped late day, erasing earlier gains as the dollar index (DXY) pulled back to the 95 level (off earlier highs 95.41). The euro recovered, rising back above 1.16), while the greenback slumped vs. the Japanese yen. The Russian rouble fell to its lowest price against the dollar in nearly two years as the US imposed new sanctions on the country over chemical agent use on fears of US sanctions. The US dollar rose to 2-week highs against the Canadian loonie after reports by the Financial Times that Saudi Arabia central bank and state pension funds have instructed their overseas asset managers to dispose of their Canadian equities, bonds and cash holdings. The Pound fell to the lowest level in almost a year against the dollar amid persistent worries over Brexit, dropping under the $1.29 level. Bitcoin prices fall more than 9% to around $6,200 after the SEC delayed its decision on the proposed bitcoin-related exchange-traded-fund submitted by VanEck and SolidX.
· Treasury markets were steady most of the day, as the yield on the 10-year held around the 2.96%-2.97% today (and week so far) amid a quiet economic data calendar. The U.S. Treasury sold $26B in 10-year notes (most 10-year notes ever on a single day) at a yield of 2.96%, in-line with the when issued prior, with the bid-to-cover (demand) at 2.55 vs. 2.57 in prior auction and indirect bidders awarded 61.3% of notes.
Sector News Breakdown
· Retailers; KORS rises on more impressive performance than anticipated from Jimmy Choo footwear, and raised FY19 EPS guidance by 25c to $4.90-$5.00; BOOT shares strong after posting double-digit same-store sales growth in Q2 and seeing merchandise margins widen, as beat top/bottom line; FOSL reversed overnight gains after earnings, sliding more than 10% on mixed guidance; DDS initiated outperform and added to best ideas list at Wedbush as viewed an attractive story backed by growth strategies including store remodels, unique product and inventory management; WWW edges higher after earnings/guidance
· Consumer Staples; KHC 20.63M share Block Trade priced at $60.00; TWNK shares fall after an earnings miss driven by inventory reductions at Walmart and postponed synergies from the Cloverhill bakery acquisition (downgraded at RBC); DF was upgraded at Deutsche Bank after recent earnings related sell-off
· Auto’s; TSLA a top story again after the company’s board of directors said” last week, Elon opened a discussion with the board about taking the company private,” six directors on Tesla’s nine-member board said in a statement. “The board has met several times over the last week and is taking the appropriate next steps to evaluate this.” MGA dropped along with other auto suppliers amid the ongoing trade tariff fears and its Q2 sales missing views
· Restaurants; PZZA shares decline as posted Q2 comparable sales decline of -6.1% in North America and cut its forecast for the coming months citing fallout from the company’s split with former Chairman John Schnatter; PBPB Q2 comparable sales fell 0.2% in Q2 to just miss the consensus mark for a 0.1% drop, while adjusted EBITDA fell 2.6% during the quarter to $11.5M, but guidance better; WEN Q2 comps of 1.9% beat but EBITDA missed for 2nd consecutive quarter
· Housing & Building Products; JELD was downgraded to underperform at Bank America saying mgmt changes should help JELD get back on track from an execution standpoint, but there will clearly be a ramp period; BECN downgraded to neutral at Citigroup as delivered a soft 3Q18 as weather was a drag on volumes causing EBITDA to come in at $188M, missing views; FND was upgraded to buy at Loop Capital saying it has a high growth ceiling; BLDR Q2 EPS and sales just above consensus views while saying lumber costs are abating
· Casino & Leisure movers; in campers/leisure, CWH shares fall as Q2 EPS, revs and Ebitda all fall short of consensus views (WGO, THO also active on miss); in lodging space, group another negative report from CHH as Q2 EPS beat by 7c but revs $295M missed the $308M est. (group fell yesterday after IHG and MAR miss)
· Energy prices fall on mixed inventory data: the EIA showed weekly stockpiles fell -1.35M barrels, less than the estimate of -3M barrels, while Cushing inventories fell -590K barrels; also gasoline inventories rose +2,900M vs. est. -1,900M and distillates rose 1.2M barrels vs. est. +800K. Overnight the API said that U.S. crude supplies declined by -6 M barrels for the week, while also showed supplies of gasoline gained 3.1M barrels, while distillate stockpiles added 1.8M barrels
· E&P sector; XEC downgraded to neutral at JPMorgan after earnings to reflect reduced oil production outlook and margin pressure from weaker than expected realizations; WRD shares fall over 10% early after Q2 results; PXD shares active after Q2 EPS missed and announced an increase in capital budget spending; PE boosted 2018 capex guidance to $1.65B-$1.75B from $1.35B-$1.55B as a result of “shorter cycle times and higher working interest; CLR raised capex by 17% to pursue the acquisition of Mid-Con royalties in a new joint venture it announced recently, oil, but despite the capex increase, CLR leaves the FCF guidance unchanged; XOG Q2 production was 2% below consensus and capex ran ~15% hot; CRK in line Q2 EPS loss
· Utilities & Solar; PPL was downgraded to hold at Deutsche Bank; SO was downgraded to sell at Citigroup following earnings results saying after assurances that construction risk was under control, it is disappointing to see the additional cost overrun of $1.1B; VSLR reported a wider than expected Q2 loss, as the company raises $327M in commitments for 95 MW of new installations/says it installed 47 MW in Q2, near the upper end of its guidance of 45-48 MW, while booking 64 MW in the quarter (upgraded at JMP Sec)
· Equipment and Services; FTK shares drop following a 2Q earnings miss, while Seaport Global downgrades to neutral from buy saying 2Q missed badly and margins coming in much worse; PUMP handily beat expectations due to annualized pumping EBITDA per fleet coming in above our estimate largely a function of annualized revenue per fleet improving by 9% sequentially; FI Q2 results showed improved sales due to improved rig activities and services pricing.
· MLPs and Pipelines; PAA rose to 52-week highs after Q2 earnings fell from the previous quarter but easily topped analyst expectations, as revenue jumped by a third to $8.1B; overall strength in the Alerian MLP Index, rising nearly 1% and topping the 287 level to trade near its best levels since February despite the drop in oil, getting a boost from PAA on earnings and EGM after Goldman Sachs reinstated with a buy and $64 tgt; GEL among top decliners in the index after its earnings miss
· Bank news; BOFI shares fall as reported weaker results as bank accelerated investments in systems/personnel to improve LT franchise value; BNCL to be acquired by WSFS in a deal valued at $1.5 billion, with shares valued at $19.61 (BNCL holders get 0.3013 WSFS shares and $2.93 in cash)
· Consumer finance and lending; LC results were strong, with record revenue on a significant step-up in originations, but its full year outlook remained largely unchanged, weighing on shares; ITG volume was lower 18.2% in July saying U.S. trading volumes of 2.7B shares, average daily volume of 127M shares for 21 trading days in July against trading volume of 3.3B shares YoY
· Pharma and Biotech movers; shares of REGN and AMGN declined after Leerink noted they are among the most exposed as the Trump administration moved forward on plans to curb the high cost of prescription medicines; JAZZ raised its 2018 sales guidance for Xyrem, but lowered its sales guidance for leukemia agent Vyxeos; DEPO shares dropped on mixed Q2 results; as FDA advisory committee voted 17-1 that PRTK provided substantial evidence of the safety and effectiveness of omadacycline for the treatment of acute bacterial skin and skin structure infections
· Generic/Specialty Pharma; MYL fell as much as 10% after Q4 EPS missed by 15c and a miss on revenue as well while lowering its annual guidance (though shares rallied to turn positive late day); ENDP posts Q2 EPS of 76c, topping the 54c estimate and raises 2018 earnings and revenue forecast while also enters exclusive licensing deal with Nevakar Inc. for development of five injectable products; MNK downgraded at Raymond James as no rational valuation framework supports further significant upside potential based on current relative peer multiple levels; AMPE plunges as FDA said that a single trial the “AP-003-A” study for Ampion does not appear to provide sufficient evidence of effectiveness to support a BLA following a meeting in July; ZGNX 6M share Secondary priced at $52.00
· Medical equipment and devices; ICAD announced FDA clearance of its latest artificial intelligence software product/said its PowerLook Density Assessment Version 3.4 is compatible with its digital breast tomosynthesis platform; QDEL reported in-line revenues and an EPS beat; CUTR shares slumped as Q2 EPS missed by 6c on rev beat and cash flow down 54%
· Healthcare services and providers; WCG 4.528M share Secondary priced at $265.00; INGN shares jump over 10% after better Q2 results as revs rise 52% and net income up 75%; CVS helps pharmacy retail after its earnings results; ARA shares rise on Q2 EPS beat and better Ebitda outlook of $105M-$111M
· Other movers after earnings: ALDR, ARDX, ARTX, ARWR, ATRI, BIO, CALA, CUTR, EGLT, ENTA, EVH, FGEN, GEN, HALO, INFI, INGN, INO, INSM, IVC, NSTG, OCUL, OPK, SUPN, TRHC, XOMA
Industrials & Materials
· Industrial & Machinery; TKR was upgraded to neutral at Bank America and raise 2018-19 EPS by 6-9% following a solid Q2, improving mix, & recent acquisitions., while firm downgraded KMT to underperform post a solid FQ4 print as the stock has exceeded tgt and don’t see upside; in building materials, GVA shares dropped as missed quarterly earnings by a wide margin and revenue also short of consensus; MIDD Q2 EPS beat by 8c on higher sales of $668M
· Aerospace & Defense; AAXN shares dropped after earnings results and downgrade at Craig Hallum saying that the risk/reward is now balanced following the stock’s heroic run
· Transports; LUV shares active after Morgan Stanley said potential airline acquisitions by BRK/A suggests LUV would be a good strategic fit and based on history, there could be 20-40% upside in LUV shares; after run-up in shares yesterday, Morgan Stanley reiterated underweight on HTZ saying view the fleet cost improvement as unsustainable, see risks to rising leverage, and anticipate secular top line pressures; CAR shares slide after Q2 EPS missed by 2c and light rev miss, while mid-point of year EPS missed estimates (group rallied yesterday on HTZ results)
· Chemicals; in lithium space, ALB shares among top S&P 500 performers after they raise 2018 guidance for all three segments as lithium FY adj. Ebitda seen rising low-to-mid 20s percent on “strong” volume and price improvements, primarily battery grade products; saw “greater than 20%” gain in prior guidance
Technology, Media & Telecom
· Internet; SNAP 2Q revenue, margins and cash burn better than the Street, though DAUs soft q/q, but in line with expectations; CARS with mixed Q2 results (revenue miss, in-line EBITDA), dealer count continues to erode while meaningfully lowered its 2018 outlook noting weakness in its subscription and ad businesses; AMZN shares jump to record highs
· Software mover; internet security firm CYBR posted strong beat-and-raise 2Q18 results driven by all-around solid execution as the company saw strength across new logo deals; HDP results and guidance ahead of expectations while deal metrics were strong, and announced HDP 3.0 adding containerization capabilities as well as partnership extensions with Google and Microsoft; NEWR strong quarter ahead of Street expectations, highlighted by steady enterprise gains, healthy large deal activity, and Infrastructure product traction; ALRM 2Q outperformed, benefitting from strong hardware demand and 20% y/y SaaS growth, which came in above and raised guidance; CSOD delivered strong 2Q18 results and increased full year expectations for all key metrics including ARR, Subscription Revenue and FCF; WK shares jump on earnings
· Media & Telecom movers; Dow component DIS reported earnings miss on higher cost/lower margins at Studios and Cons Products partially offset by Media Networks margins, sending shares lower; MTCH shares jumped after 2Q EPS beat the highest estimates, driven by stronger than expected subscriber growth at Tinder; NYT shares dipped as added 109,000 digital subscribers in its latest quarter, although a slide in advertising sales weighed on profits; FWONA falls despite Q2 results topped estimates; other movers include LAMR, CNK, NXST, SBGI; in telco, CBB shares posted larger-than-expected Q2 EPS miss and lower revs, though boosted year outlook
· Hardware & Component news; EXTR shares drop on mixed Q4 results (EPS beat/revs miss) but guides Q1 EPS 0c-7c, well below the 21c estimate; in 3D-space, DDD shares jump following its earnings results; INFN mixed results as EPS beat by 3c though revs missed
· Optical sector advances again; group got positive results from IIVI and NPTN yesterday, sending the sector higher; today, AAOI shares jumped over 20% early after its beat and raise quarter while LITE Q4 results beat EPS and revenue estimates with revenue up 35% Y/Y and EPS coming in at $0.95 (Q1 rev view $340M-$360M above consensus: $337.25M