Morning Preview: October 19, 2018

Terrie AmengualDaily Market Report

Early Look

Friday, October 19, 2018


U.S. futures are edging higher, getting a lift after yesterday’s broad market sell-off saw investor interest peak in safe haven assets, while technology prices dropped sharply. Macro fears may intensify over the weekend as the Saudis have two days to explain what happened to Jamal Khashoggi, who did it and what consequences they’ll face, a U.S. official said, while President Trump warned of “severe consequences.” Treasuries, the dollar and U.S. stock futures were steady, as European stocks struggled as investors weighed the outlook for corporate profits against the positive mood from China. Speaking of Asian markets, the Nikkei Index dropped -126 points to end the day and week at 22,532, the Shanghai Index jumped 64 points to 2,550 after Q3 GDP grew at 6.5% (though was slightly below the 6.6% estimate) and the Hang Seng Index gained 106 points to close at 25,561. In Europe, the German DAX is lower by over -30 points, holding above 11,560, while the FTSE 100 is higher at 7,040. For the moment, the bounce back in Chinese stock markets are helping ease concerns and may give a boost to beaten up material and industrial stocks after a bout of lower guidance has weighed on the sector.

U.S. stocks fell sharply on Thursday as markets showed concern over the U.S.-China trade war’s impact on economic growth, the Italian debt crisis and rising interest rates (2-year hit 2.9% – highest in ten-years) before pulling back. The Nasdaq was the worst performing of the major indexes, losing more than 2% on the day, while nine of the eleven S&P sectors declined on the day, led by technology and consumer discretionary, each down more than 2%. Volatility had surged this week as the CBOE Volatility index (VIX) rises above 20.2.

Market Closing Prices Yesterday

· The S&P 500 Index dropped -40.43 points, or 1.44%, to 2,768.78

· The Dow Jones Industrial Average fell -327.23 points, or 1.27%, to 25,379.45

· The Nasdaq Composite sunk -157.56 points, or 2.06%, to 7,485.14

· The Russell 2000 Index declined -28.85 points, or 1.82% to 1,560.75

Events Calendar for Today

· 9:00 AM EST Fed’s Kaplan speaks in New York

· 10:00 AM EST Existing Home Sales MoM for September…est. 5.29M

· 12:00 PM EST Fed’s Bostic speaks on Economic Outlook

· 1:00 PM EST Baker Hughes Weekly Rig Count

Earnings Calendar:

· Earnings Before the Open: CFG, CLF, EEFT, GNTX, HON, IPG, KSU, LSE, MAN, PG, RCI, SLB, STI, STT, SYF, VFC

World News

· China’s gross domestic product grew 6.5% from a year earlier in the third quarter, down slightly from 6.7% growth in the third quarter, and slightly lower than a median 6.6% gain forecast

· Housing sales by value in China for the January-September period rose 15.6% from a year earlier, according to data released Friday by the National Bureau of Statistics. That compared with a 16.4% gain in the first eight months of the year.

· The sell-off in Italy’s bond markets rippled through to other eurozone debt on Friday, as fears grew that a stand-off between Rome and Brussels could pose a serious political challenge to the single currency

Sector News Breakdown


· Skechers (SKX) Q3 EPS 58c/$1.176B vs. est. 51c/$1.22B; international wholesale sales increased 11.8% and company-owned global retail sales increased 10.6%; sees Q4 EPS 20c-25c on revs $1.1B-$1.125B vs. est. 18c/$1.08B; Q3 comp sales rose 1.9% vs. est. 3.6%

· Caleres (CAL) announced it has acquired Vionic Group for $360M, subject to certain adjustments

· WD-40 (WDFC) Q4 EPS $1.54/$102.6M vs. est. 99c/$104.55M

· Akoustis (AKTS) files to sell common stock and $10M in convertible senior notes


· U.S. crude prices slid to five-week lows yesterday, while natural gas headed for a fifth week of gains, the longest streak in more than four years, as cold weather heads to the U.S. northwest

· Valero (VLO) will acquire, for cash, all of the outstanding publicly held common units of the partnership Valero Energy Partners (VLP) at a price of $42.25 per common unit, for an aggregate value of approximately $950 million.

· Gulfport Energy (GPOR) provided an update for the quarter and nine-months ended September 30, 2018. Net production during the third quarter of 2018 averaged 1,427.5 MMcfe per day, a 7% increase over the second quarter of 2018 and 19% increase versus the third quarter of 2017

· Extraction Oil & Gas (XOG) sees Q3 average net sales volume of 75.7K BOE/d; sees FY18 production of 74.0-75.0MBoe/d, including 39.0 – 40.0 MMbbl/d of crude oil, which represents 44% total equivalent production growth and 50% crude oil production growth year-over-year; maintains its previously disclosed FY18 capital expenditure guidance range of $890M-$990M


· American Express (AXP) Q3 EPS $1.88/$10.14B vs. est. $1.77/$10.05B; raises FY18 EPS view to $7.30-$7.40 from $6.90-$7.30 (est. $7.27) and raises FY18 revenue up to 9%-10% from up at least 9% (est. $40.3B); 3Q provision for loan losses $817 million

· PayPal (PYPL) Q3 EPS 58c/$3.68B vs. est. 54c/$3.67B; sees FY18 EPS $2.38-$2.40 up from prior $2.32-$2.35 (est. $2.34) and sees FY18 revenue of $15.42B-$15.5B up from prior $15.3B-$15.5B (est. $15.43B); 3Q payments volume growth +6%, 3Q Venmo total payment volume +78%, 3Q active customer accounts added 9.1 million and 3Q active customer accounts 254 million

· E-Trade (ETFC) Q3 EPS 88c excluding 12c benefit vs. est. 82c; reports Q3 revenue $720M vs. est. $711.15M; reports Q3 DARTs 266.3K vs. 258.8K last year; reports Q3 Average interest-earning assets of $60B and net interest margin of 310 basis points

· Associated Banc (ASB) Q3 EPS in-line at 49c; 3Q net interest margin 2.92%, 3Q non-interest income $88 million, 3Q net charge-offs $12 million

· Bank OZK (OZK) -19% as Q3 EPS 65c (including charges) vs. est. 91c; 3Q provision for loan losses $41.9M vs. $7.8M YoY; said incurred combined charge-offs of $45.5M on two real estate specialties group credits in 3Q; combined balance of credits after charge-offs is $20.6M

· Independent Bank (INDB) Q3 EPS $1.27 vs. est. $1.2; total assets of $8.4 billion at September 30, 2018 remained consistent with the prior quarter, and increased by $322.6 million, or 4.0%, as compared to the year ago period

· People’s United (PBCT) Q3 EPS 33c, in-line; Q3 net interest margin 3.15%; Q3 provision for loan losses totaled $8.2M vs. $7.0M a year ago; Q3 net loan charge-offs totaled $7.0M vs. $5.2M YoY

· EastGroup Properties (EGP) Q3 FFO $1.17/$75.33M vs. est. $1.14/$74.25M; sees FY EPS view $4.66-$4.68 vs. est. $4.61

· Flagstar Bancorp (FBC) will replace SUPERVALU (SVU) in the S&P SmallCap 600 – United Natural Foods (UNFI) is acquiring SUPERVALU


· American International (AIG) said it sees 3Q pretax catastrophe losses about $1.5B-$1.7B as the losses are largely associated with multiple events in Japan, including Typhoons Jebi and Trami, as well as Hurricane Florence and revisions to our loss estimates on the California mudslides

· Everest Re (RE) said it estimates 3Q catastrophe losses of $240M which include losses from Hurricane Florence, California wildfires, Typhoon Jebi, Typhoon Trami and the Japan floods; expects to report breakeven underwriting result and operating profit for 3Q due to diversified Reinsurance and Insurance portfolios

· Horace Mann (MHN) sees catastrophe losses $31M-$34M pretax basis; says the catastrophe loss estimate would represent approximately 18 to 20% on its 3Q 2018 combined ratio, or approximately 59c-64c/share.


· Intuitive Surgical (ISRG) Q3 EPS $2.83/$921M vs. est. $2.66/$917.09M; said worldwide da Vinci procedures grew approximately 20% YoY, driven primarily by growth in U.S. general surgery procedures and worldwide urologic procedures; raises FY18 procedure growth view to 17%-18% from 14.5%-16.5%; sees FY18 gross profit margin 70.5%

· Clovis’ (CLVS) Rubraca generated a 44 percent confirmed response rate in a target subset of patients with prostate cancer who have a genetic mutation known as BRCA, preliminary data from a mid-stage study show

· The U.S. FDA’s Gastrointestinal Drugs Advisory Committee voted unanimously to recommend approval of Shire’s (SHPG) constipation drug, prucalopride.

· Krystal Biotech (KRYS) 3M share Secondary priced at $20.00 per share

· LogicBio Therapeutics (LOGC) 7M share IPO priced at $10.00

· Natera (NTRA) and Neon Therapeutics (NTGN) announced a research collaboration using Natera’s Signatera circulating tumor DNA, or ctDNA, assay as a biomarker to assess treatment response to NEO-PV-01 in Neon Therapeutics’ NT-002 clinical trial

· Corbus Pharmaceuticals (CRBP) announced that it presented new data demonstrating lenabasum’s effect on airway macrophages harvested from human cystic fibrosis lungs at the North American Cystic Fibrosis Conference

· The European Society for Medical Oncology’s annual congress begins today in Munich and runs through Tuesday

Industrials & Materials

· DowDuPont (DWDP) announced a $4.6 billion charge related to goodwill and other assets of its agriculture reporting unit; said decreases in commodity prices and higher-than-anticipated industry grain inventories are expected to impact farmers’ income

· Celanese (CE) Q3 EPS $2.96/$1.8B vs. est. $2.74/$1.81B; raises FY18 adjusted EPS view to $10.90-$11.10 from $10.50-$10.75; 2018 operating cash flow should exceed $1.5B and free cash flow should be closer to $1.2B

· Canadian Pacific (CP) Q3 EPS C$4.12/C$1.9B vs. prelim EPS ~C$4.10/C$1.9B; sees 2018 adjusted EPS growth in excess of 20%, saw low-double digit growth for 2018 adj EPS; 3Q operating ratio 58.3%

· Honeywell (HON) Q3 EPS $2.03 vs. est. $1.99; sees FY EPS $7.95-$8.00, down from prior view $8.10-$8.20 and sees sales $41.7B-$41.8B vs. prior $43.1B-$43.6B

· Volvo expects said it another leg up in North American truck demand next year, offsetting a forecast for the market to drop in Europe. Deliveries may rise 3.3% to 310,000 units. Third-quarter operating profit of 10.2 billion kronor beat expectations

· China produced a record 2.695 million metric tons of steel a day in September ahead of winter curbs. Output for the month rose 7.5% to 80.85 million tons, versus the year earlier, and climbed 6.1% to an all-time high of 699.42 million from January to September – Bloomberg

· Werner (WERN) Q3 EPS 66c/$629.74M vs. est. 60c/$628.35M; sees FY capital expenditure $350M-$375M; sees effective income tax rate to be in the range of 25% to 26% going forward

Technology, Media & Telecom

· Micron Technology Inc (MU) said it would buy Intel Corp’s (INTC) non-controlling interest in their IM Flash Technologies joint venture for about $1.5 billion in cash.

· SolarWinds (SWI) 25M share IPO priced at $15.00

· Niu Technologies (NIU) 7M share IPO priced at $9.00

· Atlassian (TEAM) Q1 EPS 20c/$267.3M vs. est. 19c/$259.67M; sees Q2 EPS 21c on revs $287M-$289M vs. est. 20c/$281.35M; sees FY19 EPS 78c on revs $1.175B-$1.183B vs. est. 77c/$1.16BB; FY18 Gross margin is expected to be in the range of 82% to 83%

· Exponent (EXPO) Q3 EPS 32c/$95.3M vs. est. 29c/$92.98M; sees FY18 revenue growth in high-single digits

· Limelight Networks (LLNW) Q3 EPS 3c/$49.3M vs. est. 3c/$49.01M; narrows FY18 adjusted EPS view to 14c-17c from 13c-17c and backs FY18 revenue view $200M-$203M

· TechTarget (TTGT) will replace Perry Ellis International (PERY) in the S&P SmallCap 600. Perry Ellis International is being taken private


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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