Mid-Morning Look: February 06, 2019

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Mid-Morning Look

Wednesday, February 06, 2019

Index

Up/Down

%

Last

 

DJ Industrials

7.51

0.03%

25,419

S&P 500

-1.56

0.05%

2,736

Nasdaq

-7.76

0.10%

7,393

Russell 2000

-5.43

0.38%

1,514

 

 

U.S. equities slide for the first day in the last six, taking a breather after strong market returns over the last week following better earnings, economic data (jobs), and a more dovish Fed on rates. Gains this morning were led by semiconductors (after MCHP, SWKS comments/earnings), while video game names slammed (EA, TTWO) after weaker outlooks. Commodity prices slip further as the dollar extends its gains for a third session. The U.S. trade deficit narrowed more than forecast in November to $49.3 billion from a revised $55.7 billion. President Trump touched upon a variety of topics and priorities for the coming year during his State of the Union address, including immigration, trade, the economy, infrastructure, health care, and national security, while also called for unity and bipartisanship. More earnings tonight and tomorrow a focus with hopes on trade in the back of investors’ minds as the Trump administration is dispatching U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to Beijing early next week to continue trade talks as a March 1 deadline to reach an accord nears.

 

Economic Data

·     The U.S. trade deficit fell -11% and narrowed to $49.3B in Nov. vs. the est. $54.0B and from $55.7B in the prior month; Imports fell 2.9% in Nov. to $259.19b from $266.88b in Oct. while exports fell 0.6% in Nov. to $209.87b from $211.18b in Oct.

·     U.S. productivity in the final three months of 2018 showed a 1.3% increase in the manufacturing sector, up from 1.1% in the third quarter. Manufacturing output rose 2.3% and hours worked were up 1%. Hours worked for all U.S. workers rose 1.6%. The preliminary report lacks key figures on unit-labor costs

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.41

53.25

Brent

-0.24

61.74

Gold

-2.10

1,317.10

EUR/USD

-0.0024

1.1381

JPY/USD

-0.23

109.74

10-Year Note

-0.022

2.68%

 

 

Sector Movers Today

·     Heavy duty trucks (CMI, PCAR, NAV, ALSN); sector weak two-fold: 1) CMI reported lower than expected Q4 earnings and guiding full-year revenues below analyst estimates, raising concerns of slower truck sales this year; 2) separately, January Class 8 orders fell 68% y/y to 15,800, according to ACT Research data, marking the third consecutive month of y/y declines after orders significantly exceeded expectations throughout the seasonally weak 3Q

·     Autos; GM Q4 profit topped consensus as EBIT-adj of $2.8B, driven higher by a $3.0B EBIT-adj tally for the North America business/International EBIT-adj was flat; Daimler AG said that Q4 earnings slumped despite the company generating higher revenue and selling more cars, and declared a lower dividend for the year (after-tax profit plunged to EU1.64B vs. EUR3.22B YoY); TM slashed its profit forecast by 19% to 1.87 trillion yen ($17 billion) for the year through March, well below the 2.35 trillion consensus, after write-downs on equity holdings

·     Pharma movers; President Trump in his State of the Union address renewed his call to bring down drug prices even as the Street said his address revealed no new surprises; LLY falls early after missing Q4 EPS and lowered its 2019 outlook after the Loxo Oncology deal; GSK posted a top and bottom line quarterly beat; VRTX 4Q results that beat expectations, driven by strong sales of Orkambi and Symdeko; AXSM reached an agreement with the FDA under a Special Protocol Assessment for the Momentum Phase 3 trial design, endpoints and statistical approach of AXS-07 to treat acute migraine in adults with or without aura

·     Semiconductors; SWKS rises as posted in-line Q1 results with downside Q2 guidance that has revenue from $800M to $820M (est. $851.49M) while board approves a new $2B share repurchase program; MCHP reported a Q3 beat and lower Q4 guidance, but rebounded after the CEO predicted the current quarter would mark the bottom of the cycle for the chipmaker barring any new negative developments in the trade war between the U.S. and China; MTSI falls as misses Dec Q revenue/earnings expectations and guides substantially lower for the Mar Q, with revenue expected to be down 8.4% q/q at the revenue midpoint; SoftBank’s Vision Fund discloses selling its entire NVDA stake in January which was worth $3.6B at the end of December.

·     Software movers; ZEN shares rise after Q4 EPS beats and revenue up 41% Y/Y to $172.2M with upside guidance has Q1 revenue from $178M to $180M (est. $172.84M) and FY19 revenue from $795M to $805M ($779.31M), as analysts raise tgt prices; MODN reported a F1Q19 beat and reiterated guidance for FY19; TENB slipped despite better results as provided a better than expected outlook for both Q1 and 2019 and Q4, current billings and revs topped views

·     Video game sector under pressure after EA cut its forecasts for profit and revenue for the year saying it sees FY19 adjusted revenue about $4.875B vs. prior view of about $5.2 billion, with many analysts expressing surprise by the weak outlook; TTWO adds to sector weakness after reports a mixed Q3 with net bookings up 140% to $1.569B as both Digital Online revs $594.7M (est. $678.4M) and Physical Retail totaling $654M (est. $804.1M) missed while guidance disappoints

·     Chemical sector; DWDP, CE, EMN, MEOH, and ASIX were all downgraded at Cowen in sector call as the firm turns more cautious on industry fundamentals than consensus, which is calling for a 2h19 cyclical recovery in earnings. Firm says that the Street underappreciates the substantial, near-term headwinds from feedstocks, increased capacity and a weakening macro that will likely pressure margins and mute any potential earnings growth until at least 4Q19

 

Stock GAINERS

·     CPRI +10%; after providing longer-term forecasts that point to stability, guiding year profit slightly above prior views on better Q3 results (comp missed)

·     CSIQ +9% after raising Q4 guidance for revenues and shipments and reassuring investors on its exposure to the PG&E bankruptcy. CSIQ says it now expects Q4 shipments of 1.90-1.95 GW, compared to its previous guidance of 1.67-1.72 GW, on higher revs and margins

·     MGNX +147%; after the company announced that the Phase 3 trial of potential breast cancer treatment margetuximab met its primary endpoint

·     REGN ; opened just shy of 52-week highs after beating on both top and bottom line handily, then had shares pullback after beat

·     SNAP +22%; following stabilizing DAU trends (flat in 4Q vs. expected decline) and redesign of Android could drive an improvement in 2019 as well as continued solid ad growth driven by revenue/user up 37% y/y in 4Q and adoption of its self-serve ad platform

·     SWKS +11%; rises as posted in-line Q1 results with downside Q2 guidance that has revenue from $800M to $820M (est. $851.49M) while board approves a new $2B share repurchase program and MCHP CEO calls bottom in semi sector

·     ZEN +6%; Q4 EPS beats and revs up 41% Y/Y to $172.2M with upside guidance has Q1 revenue from $178M to $180M (est. $172.84M) and FY19 revenue from $795M to $805M ($779.31M)

 

Stock LAGGARDS

·     APC -4%; as Q4 results were weak across the board with capex above the high end of guidance and EBITDA -9% vs. the Street while Q1 oil production was guided -5% vs. consensus, although FY19 guidance was reiterated

·     ARLO -42%; as Q4 results were generally in line with the early December preannouncement, but forward guidance that significantly lowers 1Q and 2019 estimates (downgraded by analysts)

·     EA -15%; Q4 results were significantly below expectations, as net bookings were $1,609B below consensus of $1.75B, cut its forecasts for profit and revenue for the year saying it sees FY19 adjusted revenue about $4.875B vs. prior view of about $5.2 billion (TTWO shares also fall on weaker quarter and outlook)

·     LLY -2% after missing Q4 EPS and lowered its 2019 outlook after the Loxo Oncology deal

·     MTSI -14%; misses Dec Q revenue/earnings expectations and guides substantially lower for the Mar Q, with revenue expected to be down 8.4% q/q at the revenue midpoint

·     SFLY 10%; reports another disappointing quarterly result and FY19 outlook, while board undertakes of a strategic review amid incoming buy-out interest, and announces CEO departure

·     SPOT -2% Q4 narrowly missed on revenue with a reported $1.702B (est. $1.71B), grew subscribers and included two podcast acquisitions/Q1 guidance has in-line revenue of €1.35-1.55B (€1.47B) with MAUs from 215M to 220M

·     TCS -25%; shares drop after Q3 EPS and sales (7c/$221.6M vs. est. 12c/$230.5M) miss lowest ests while comp sales fall (-0.8%) and says sees sales at lower end of view

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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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