Mid-Morning Look: January 14, 2019

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, January 14, 2019

 

U.S. equities slide to start the week, with lots of moving parts and stories weighing on sentiment early. First, weaker-than-expected trade data out of China sparked fresh concerns over a global economic slowdown as monthly exports rose 7.1%, down from the 7.9% reported earlier for 2017, while import growth declined to 12.9% from the previous year’s 15.9%. Second, we move into day 24 of the partial government shutdown today with still no resolution in sight between the two sides. Third, Brexit concerns rise as U.K. lawmakers get ready to vote on Prime Minister Theresa May’s exit deal with the European Union Tuesday. Lastly, fears into earnings this week, with Citigroup (C) kicking off earnings this week in banking sector with revenue miss on lower fixed income/equity rev data, though shares did reverse higher amid better earnings. The S&P 500 slips after rising for three straight weeks when last week: the Dow rose 2.4%, the S&P 500 gained 2.5%, and the Nasdaq rallied 3.5%. Utility stocks lower, led by PCG as shares were cut in half after saying it plans to file for bankruptcy on or about Jan. 29th.

 

Treasuries, Currencies and Commodities

· In currency markets, the dollar mixed too little changed amid no economic data today and as government rolls into day 24 of the partial shutdown; Pound active ahead of expected Brexit vote tomorrow in the UK; gold prices modest gains, holding above $1,290 an ounce but still failing to move above $1,300 so far in 2019; Treasury yields inch lower with the 10-year below 2.70%; oil prices trying to build on last week gains, reversing earlier losses of more than 1.5% after prices for WTI crude rose over 7.5% last week.

 

Sector Movers Today

· Metals & Materials; M&A deal in gold mining space as NEM agreed to buy rival Canadian gold producer GG in an all-stock transaction the companies valued at $10B/NEM to acquire each Goldcorp share for 0.3280 of their own stock https://on.mktw.net/2FtLrlw ; Goldman Sachs upgraded AA, TECK, CMC and downgrade SCHN, STLC.TO saying a downturn in NA M&M stocks over 2H18 has left sentiment weak and multiples low, but across coverage they see fresh areas of opportunity; Morgan Stanley said they see an entry point emerging in AA post 4Q earnings, when the company will likely guide towards ~$2.0 bn in 2019 EBITDA vs. the Street at ~$2.6 bn, and reset expectations lower. On TECK and HCC, we are above the Street after MTM for higher met coal. Lowering our 4Qe for FCX on provisional pricing

· Aerospace & Defense; Credit Suisse said they remain broadly Neutral, and selectively bullish on names with strong micro stories and supportive valuations. Overall, they now prefer defense hardware to Federal IT (reversing our previous view), as valuations are generally comparable and defense hardware offers superior. CSFB Top Picks are HRS/ LLL and NOC, which we upgrade to outperform; the SEC and the Commerce Department are investigating Boeing’s (BA) relationship with China-backed satellite startup Global IP, WSJ says, citing a letter from the SEC sent to Global IPhttps://on.wsj.com/2ALxHhZ ; ARNC was downgraded to neutral at JPMorgan saying sees high likelihood that buyout occurs, though absent a deal, the stock likely trades to mid-teens

· Utilities; PCG shares plunge as much as 55% after saying it plans to file for bankruptcy on or about Jan. 29, given the potential liabilities resulting the 2017 and 2018 Northern California wildfires. The utility said it didn’t expect the bankruptcy to affect its electric or natural gas customers, and expects its employees to continue to be paid, https://on.mktw.net/2SOuC7T ; PNM was downgraded to underperform at Mizuho saying the stock is “expensive,” trading at a 13% premium to group average multiple; Dominion (D) defended at UBS saying weakness in Dominion is a buying opportunity as recent guidance from the company suggests a recent headwinds bias, but still believes his thesis of it being an execution story remains intact; PPL downgraded to underperform at Bank America citing recent outperformance, which believes was unwarranted against what will likely be a challenging year end call

· Semiconductors; Apple supplier Dialog Semiconductor (DLGNF) said its quarterly revenues will be at the bottom of the range it forecast in October in the latest sign of industry headwinds; AXTI lowers Q4 revenue view to $22M-$22.4M from $26.5M-$27.5M citing increasingly cautious climate; MU shares active after Morgan Stanley said shares still look risky despite falling more than 40% since May 2018; WDC falls on Evercore/ISI downgrade to underperform and cut tgt to $30 that while he maintains positive secular view for Semi demand long-term, believes the market is not fully appreciating the negative consequences to the company

· Retailers; several retailers, restaurant stocks issue guidance ahead of the 3-day ICR conference: SCVL said it expects FY2018 net sales to be ~$1.028B and expects comparable store sales to increase ~4% and EPS $2.41-$2.43; YETI raised guidance as 4Q results were strong, as the brand continues to gain credibility in non-core categories/territories and mix shifts favorably to DTC; LULU boosted guidance as sees total sales and adjusted profit coming in higher than its previous forecasts; BOOT guided Q3 adjusted EPS 66c on revs $254M vs. est. 61c/$251.07M and Q3 comp store sales increased 9.2%; ASNA sees Q2 EPS loss (23c-28c), worse than prior view of (15c-25c loss), sees 2Q comp sales in line with second quarter guide and holiday comp sales rose 3%; CROX raises revenue for FY18 up about 6%, as compared to its previous view of a 4%-5% increase and sees Q4 revs $211M-$214M vs. prior $195M-$205M

 

       Stock GAINERS

· BOOT +13%; guided Q3 adjusted EPS 66c on revs $254M vs. est. 61c/$251.07M and Q3 comp store sales increased 9.2%

· C +2%; EPS beat as Q4 revenue fell to a two-year low, as a sharp drop in fixed-income sales and trading earnings took a heavy toll/Q4 revs of $17.1B missed the $17.6B estimate as fixed income markets sank 39% compared with last quarter to $1.94B while equity revs also missed views

· GG +9%; NEM agreed to buy rival Canadian gold producer GG in an all-stock transaction the companies valued at $10B/NEM to acquire each Goldcorp share for 0.3280 of their own stock https://on.mktw.net/2FtLrlw

· GCI +16%; responded to MNG Enterprises unsolicited bid to buy the company, but saying it will “carefully” review the proposal and determine what is in the best interest of shareholders. Earlier, MNG proposed to buy the company for $12 per share https://on.mktw.net/2FubTuy

· LULU +8%; boosted guidance as sees total sales and adjusted profit coming in higher than its previous forecasts

· USAT +19%; as it laid out a series of measures it plans to take to strengthen its corporate governance, after an audit committee investigation uncovered accounting issues

· YETI +7%; after reporting preliminary Q4 revenue and raising FY18 guidance

 

Stock LAGGARDS

· ASNA -7%; sees Q2 EPS loss (23c-28c), worse than prior view of (15c-25c loss), sees 2Q comp sales in line with second quarter guide and holiday comp sales rose 3%

· AXTI -13%; lowers Q4 revenue view to $22M-$22.4M from $26.5M-$27.5M citing increasingly cautious climate

· DAL -3%; weakness in airlines again as Bank America downgraded DAL to neutral

· PBH –16%; lowers views as now sees FY19 revs $970M-$975M below prior view $985M-$995M (est. $988M) due to revised expected 3Q revenue and unfavorable foreign currency headwinds/also lowers year EPS view

· PCG -45%; said it plans to file for bankruptcy on or about Jan. 29, given the potential liabilities resulting the 2017 and 2018 Northern California wildfires. The utility said it didn’t expect the bankruptcy to affect its electric or natural gas customers, and expects its employees to continue to be paid, https://on.mktw.net/2SOuC7T

· WDC -6%; Evercore/ISI downgrade to underperform and cut tgt to $30 that while he maintains positive secular view for Semi demand long-term, believes the market is not fully appreciating the negative consequences to the company NAND weakness

 

 

 

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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