Mid-Morning Look: August 30, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, August 30, 2018

U.S. equities open lower, pulling back from record highs and threatening to snap a four-session winning streak for the S&P 500 and NASADAQ, though the tech heavy Nasdaq Composite bounces, supported by software and Internet stocks again (AMZN another record high, topping $2,000 for the first time). Macro factors putting modest downside pressure on U.S. markets early after Argentina’s central bank pumped up interest rates by 15% points to 60% after the peso resumed its plunge in early trading (falling as much as 11% vs. the dollar to record lows before rebounding after bank actions). Also, the Turkish Lira resumes its slide amid news reports the deputy governor of the nation’s central bank will step down. Contagion fears leveraged to Lira and Peso briefly hit markets. Trade the other big macro story as NAFTA negotiations remain in focus as the U.S. and Mexico try to bring Canada into the bilateral trade deal they reached this week, and both President Trump and Canadian Prime Minister Trudeau are expressing optimism that a deal could be reached by the end of this week. Earnings fairly busy in the consumer sector as retailers DG, DLTR, GES, ANF, BURL, PVH, TLYS, and BURL all reporting – details below. Economic data mostly in-line with estimates, but showing strong personal spending and income after the upwardly revised GDP report for Q2 yesterday (to 4.2%).

Treasuries, Currencies and Commodities

· In currency markets, all about emerging market currencies as the Argentine Peso plunges as much as 11% before paring losses due to central bank intervention (raising rates) after President Mauricio Macri announced he had requested the International Monetary Fund to speed up disbursements from a $50 billion credit line. The Turkish Lira also pressured vs. the dollar amid news reports the deputy governor of the nation’s central bank will step down. The British Pound holding above 1.30 after recent rally after the EU’s chief Brexit negotiator Michel Barnier indicated that he was close to offering the UK a deal. The euro moves lower while the yen rises

· Commodity prices are mixed as WTI crude oil prices moving near the $70 per barrel mark, extending last week gains on bullish inventory data and weaker supply as sanctions on Iran have dented inventories; gold prices erasing recent rally, falling another $5 today and $15 off recent highs on track for a 3rd day of losses as the dollar rebounds

· Treasury prices are higher, sending yields lower across the curve; the benchmark 10-year yield is 2 bps lower at 2.86%, while the 2-yr yield steady at 2.66% and 30-yr at 3.01%

Economic Data

· Weekly Jobless Claims rose 3K to 213K, mostly n-line with the 212K estimate (prior week claims unrevised at 210K), while the 4-week moving average dropped 1.5K to 212,250 in the week ending Aug. 25 (lowest since 1969); continuing claims fell 20K to 1.708M in the latest week

· Personal Income for July rose 0.3%, just missing the 0.4% estimate while personal consumption rose 0.4%, matching estimates (but up a 5th month in a row); real personal spending rose 0.2% (in-line) while PCE core inflation rose 0.2% (also in-line with estimates); the PCE prices rose 0.1%, matching estimate but rose 2.3% YoY, for the largest y/y increase since March 2012; the savings rate at 6.7% in July vs 6.8% last month

Sector Movers Today

· Dollar stores/discount stores active on earnings; DLTR shares fall after Q2 operating income of $382.5M missed estimates while operating income margin 6.9% vs 7.9% y/y, while Q2 EPS, sales and comps all just below and lower Q3 guidance; BURL Q2 EPS beat by 19c, but revenue and comp. sales matched estimates and the company’s 3Q EPS view fell short; DG Q2 EPS, net sales and comp. sales all above estimates but falls with DLTR miss; discount stores BIG (ahead of earnings tomorrow), FIVE fall in sympathy with DLTR earnings related weakness

· Healthcare services and suppliers; dialysis companies DVA and ARA shares declined after a bill to curb the use of dialysis reimbursement premium assistance from charitable organizations made it through the California Assembly late yesterday (the bill still has to face the state’s Senate, and could be vetoed or signed into law by governor Jerry Brown)

· Dental stocks weaker (HSIC, XRAY) after PDCO slashed its 2019 EPS view to $1.40-$1.50 from prior view $1.73-$1.83, while 1Q gross margins came in below Street expectations as its dental consumables unit continued to struggle as management pointed to pricing pressures; Separately, HSIC said it anticipates settling the proposed class-action litigation with a charge of $38.5M in 3Q

· Cannabis market very active of late, as Roth Capital downgraded TLRY to neutral, noting it reported a strong June quarter, with revenues well above our estimate but the stock is up almost 2.5x since going public last month and believe the stock is fully valued at current levels (seeing some profit taking in cannabis related movers CRON, MJ, WEED); CRON receives negative mention by Andrew Left of Citron Research with $2.50 price target

· Retailers; in apparel, ANF fell as 2Q sales trailed estimates $42.4M vs. est. $844.9M) while EPS beat though comps just miss (3.0% vs. est. 3.7%) below the comps from peers AEO and URBN; TLYS rises after topped estimates on both lines of its Q2 report while comparable sales were up 4.4% during the quarter, driven higher by an increase of 8% in e-commerce sales (was upgraded to outperform at William Blair after results); PVH posted Q2 beat and raise coupled with SG&A leverage but CEO warns of industry-wide price hikes if trade war escalates, as shares fell; GES shares jumped after better Q2 results and sales

       Stock GAINERS

· CIEN +14%; after Q3 revenue and earnings topped estimates, while gross margin showed a healthy uptick from 2Q to 43.45%;

· KTWO +25%; being acquired by SYK in an all cash transaction for $27.50 per share, or a total equity value of approximately $1.4 billion https://on.mktw.net/2PQFeCg

· PRGO +4%; as the company postponed its September investor event to discuss its long-term consumer growth strategies and key operational initiatives

· REIS +32%; after the commercial real estate data company agreed to be acquired by MCO in a cash deal valued at $278M, or $23 per share https://on.mktw.net/2onC4JJ

· SIG +25%; posted a 1.7% rise in total same-store sales last quarter, a surprise pickup compared to a forecast (-4.2%) drop, and marks its highest comparable-sales growth in more than two years; EPS guidance for year also above views after strong Q2 results

· SMTC +10%; reported its latest beat/raise quarter, led by core LoRa, DC CDR and Protection (combined ~2/3 of sales) and gross margins increased 30bps Y/Y to 61.5%

· TITN +5%; after raising its FY2019 EPS forecast to 45c-65c from 35c-55c and reported Q2 EPS, revenue and Ebitda above consensus views

· TLYS +9%; topped estimates on both lines of its Q2 report while comparable sales were up 4.4% during the quarter, driven higher by an increase of 8% in e-commerce sales

Stock LAGGARDS

· CPB -1%; announced plans to sell its international operations and refrigerated-foods unit, but fell short of activist investor Dan Loeb call to sell the entire company (mixed Q2 results as well as EPS beat, but revs missed and guidance for year below views)

· CRM -1%; analysts positive on shares after better quarterly earnings and sales, as targets raised on the Street, but shares slip after Q2 billings growth and posted mixed guidance (Q3 below but raised year outlook)

· DLTR -11%; after Q2 operating income of $382.5M missed estimates while operating income margin 6.9% vs 7.9% y/y, while Q2 EPS, sales and comps all just below and lower Q3 guidance

· DVA -9%; falls along with shares of comp dialysis company ARA after a bill to curb the use of dialysis reimbursement premium assistance from charitable organizations made it through the California Assembly late yesterday

· EA -8%; as cuts fiscal year 2019 net bookings guidance to $5.2B down from prior $5.55B view while reaffirms 2Q operating guidance, though moves Battlefield V launch date out by 4 weeks

· MIK -8%; as Q2 EPS beat on slightly miss in comp sales (-0.4%), while guides Q3 EPS 42c-45c, below est. 52c

· PDCO -8%; slashed its 2019 EPS view to $1.40-$1.50 from prior view $1.73-$1.83, while 1Q gross margins came in below Street expectations

· TECD -16%; Q2 EPS missed by 9c while net sales of $8.83B topped views/also guides Q3 EPS $2.00-$2.30, below the $2.36 estimate

 

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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