Mid-Morning Look: January 7, 2019

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, January 7, 2019

 

U.S. equities bouncing higher (off lows) after Friday’s strong gains following better jobs data and dovish Fed commentary. Today, markets turn their attention back to trade as the U.S. and China trade talks began this week, as well as the ongoing government shutdown (into 3rd week now – and now 2nd longest on record), and Brexit vote as the BBC reported British lawmakers will vote on Prime Minister Theresa May’s Brexit plan on Jan. 15. Stocks are very active, helped by a round of M&A news, including another large deal in the biotech sector as LLY buys LOXO in $8B deal (follows the BMY $70B deal for CELG last week that shook up the sector). The non-manufacturing ISM survey proved to be a little disappointing, dropping to 57.6 from the prior month’s 60.7 though new orders rose. Several healthcare related names active this morning as well as financial guidance provided by many ahead of the JPMorgan Healthcare conference the next few days. Tech in focus this week with the Consumer Electronics Show (CES) all week. Oil prices are higher, the dollar near lows and gold steadily higher as markets soon brace for the quarterly earnings onslaught that begins slowly next week.

 

Economic Data

· ISM Non-Manufacturing for December falls to 57.6 from 60.7 last month and below the 58.5 estimate as data in the U.S. (outside of jobs) coming in weaker than expected the last few weeks; Business activity fell to 59.9 vs 65.2 prior month while new orders rose to 62.7 vs 62.5 and employment fell to 56.3 vs 58.4; the services employment index declined for third straight month from historical high reached in Sept.; Prices paid fell to 57.6 vs 64.3

· Factory Orders and Durable Goods orders data postponed due to gov’t shutdown

 

Sector Movers Today

· E&P sector; in sand frac space, HCLP spends quarterly distribution due to market conditions; QEP rises after Elliott makes proposal to buy company for $8.75 per share in deal valued at just over $2B https://reut.rs/2VzcNLI ; in research, BMO Capital upgraded CLR, FANG, and PDCE to outperform from market perform, while OAS, CRZO and RRC were downgraded to market perform while saying CXO offers best risk/reward after sell-off, and is BMO’s preferred growth E&P; RBC Capital upgradedEOG to outperform, but downgrade EQT and DK ratings

· Housing & Building Products; in housing, KeyBanc upgraded LEN, PHM, MAS, and ROCK on positive macro sentiment after being cautious in FY18 on rate hikes – saying the inverse is now true near term. KeyBanc remain most negative on Home Furnishings from a competitive and cyclical perspective as stay underweight on BBBY, cautious on WSM, and downgrade KIRK and RH today; back to builders, LGIH was upgraded to outperform at Wells Fargo; SunTrust cuts 2019 estimates for names primarily selling to new residential and renovation markets, shifting view from growth to a mid-single-digit decline in new construction and flat remodel spend (lower targets on AFI, CBPX, LL, JELD, and FBHS)

· Hardline/Discount; KeyBanc said Hardlines investors need to be increasingly selective as dollar/discounters provide the best blend of defensiveness from the cycle and upside potential from tax rebates and lower gas prices: DLTR, OLLI, BIG, and newly-upgraded DG are favorites; BIG was downgraded at Morgan Stanley saying progress has yet to show more meaningfully in the numbers and a further earnings reset may be needed for 2019; FIVE upgraded at Morgan Stanley as view the company as a best-in-class retailer with a differentiated, defensible concept operating in our preferred discount retail subsector

· Packaging; Citigroup upgraded SLGN to buy, while downgraded WRK and OI to Neutral noting 2018 was a dismal year for Paper & Packaging, which sharply underperformed (- 24% vs. S&P -6%) on late cycle fears, surging cost inflation & trade/macro concerns. With multiple sources of uncertainty in 2019 (potentially slower global growth, flattening yield curve, continued trade tensions, they reducing est. (’19 est. go -5% lower for Paper, -1% for Packagers) and targets

· Medical equipment and devices; DXCM preliminary Q4 revenue of more than $331M exceeds the highest Street estimate of $301.2M; CUTR shares fell after CEO resignation and FY revenue forecast cut; EXAS rises after guiding FY18 revs between $454M and $455M vs. est. $438M/said completed Cologuard test volume during 2018 was ~934,000 tests, a 64% from 2017; MYGN shares fell after negative Southern Investigative Reporting Foundation (SIRF) mention

· Healthcare services and providers; DPLO slides after announcing that two executives are leaving amid warnings that 2018 revenue will be at the lower end of its $5.5B-$5.7B range and 2019 revenue may fall short of consensus (est. $5.56B); AXGN falls as 4Q prelim revs of at least $23.4M missed the average analyst estimate of $24.2M; SEM slides as its 2019 EPS forecast fell short of the average analyst estimate.

 

       Stock GAINERS

· AXSM +124%; in response to its announcement of positive results from a Phase 2 clinical trial, ASCEND, evaluating Fast Track-tagged AXS-05 in patients with major depressive disorder

· DLTR +3%; after Starboard Value LP announced its nominations for the retailer’s board/Starboard has taken a 1.7% stake, valued at about $370M, WSJ reportedhttps://on.mktw.net/2SHMHnW

· LOXO +65%; as LLY pays 68% premium to Friday’s closing price, buying LOXO for $235 per share in cash in a deal valued at about $8B https://on.mktw.net/2Qs8le3

· LXFT +81%; as agreed to be bought by DXC for $59 per share in deal about $2B to expand its digital offerings to the financial and automotive sectorshttps://reut.rs/2TwUVPO

· MU +4%; upgraded to outperform at BMO Capital and raised tgt to $50 from $32 saying while fundamentals will likely get worse before they get better, the stock had bottomed

· QEP +36%; as Elliott makes proposal to buy company for $8.75 per share, in deal valued at just over $2B https://reut.rs/2VzcNLI

· ROKU +14%; says active accounts crested the 27M mark, a rough 40% gain YoY/streaming hours are up 68% Y/Y to 7.3B (brings full 2018 streaming hours to about 24B, up some 61%

· SAGE +46%; following its announcement of successful results from a Phase 3 clinical trial, ROBIN, evaluating SAGE-217 in women with postpartum depression (PPD). After two weeks of treatment, patients receiving SAGE-217 experienced a statistically significant 17.8-point improvement in depression score as measured by a scale called HAMD-17 compared to 13.6 points for placebo

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Stock LAGGARDS

· AXGN -20%; falls as 4Q prelim revs of at least $23.4M missed the average analyst estimate of $24.2M

· DPLO -6%; as two executives are leaving amid warnings that 2018 revenue will be at the lower end of its $5.5B-$5.7B range and 2019 revenue may fall short of consensus (est. $5.56B)

· HCLP -17%; after suspending its distribution and 4Q sales volumes of 2m tons are weighing on frac sand peers (SLCA, EMES, SND)

· LJPC -33%; shares drop as Q4 sales of $4.2M missed the $7.6M view and expects FY19 sales in the range of $24M-$28M, widely below analysts’ expectations of $78.60M

· MAXR -12%; after saying its WorldView-4 satellite experienced a failure in its control moment gyros, preventing the satellite from collecting imagery due to the loss of an axis of stability

· MO -3%; tobacco weak after Cowen downgraded to a Market Perform rating from Outperform as points to accelerating declines in the U.S. cigarette market

· NDAQ -3%; slides after the WSJ reported Morgan Stanley, Fidelity and Citadel Securities are among backers of the “Members Exchange,” a new low-cost stock exchange to challenge Nasdaq and the New York Stock Exchange

· PCG -18%; as reports surfaced that the California utility is exploring bankruptcy to cope with massive liabilities from fatal wildfires blamed on its equipment related to fatal wildfires in 2018 and 2017

 

 

 

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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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