Mid-Morning Look: February 19, 2019

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Mid-Morning Look

Tuesday, February 19, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-34.59

0.13%

25,848

S&P 500

-1.57

0.06%

2,774

Nasdaq

4.11

0.07%

7,477

Russell 2000

0.92

0.06%

1,570

 

 

U.S. equities rebound from overnight declines to trade flat, as the S&P 500 index touches its best level since early December, erasing early losses, while better WMT earnings and comps helps propel the Dow higher. Today’s focus was on earnings, but trade still a market driver as talks between China and the U.S. restart in Washington today, with Vice Premier Liu He scheduled to meet U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Feb. 21-22. News of a possible American tariff on imported vehicles over the weekend also weighed on market sentiment early. European shares retreated after two days of gains, while the dollar slumps and precious metals surge to 10-month highs. The latest minutes from both the Federal Reserve and European Central Bank due this week among this week top stories as well as reports that U.S. President Donald Trump weighing an extension of the deadline for a trade deal with China (news last week after positive trade talks).

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index (DXY) with a sharp reversal lower, off overnight highs of 97.08 to fresh lows down -0.2% at 96.68, led by a drop vs. the British Pound which moves back to around the 1.30 level, 2-week highs as the March 29 deadline is fast approaching, with negotiators looking to clinch a deal for the U.K.’s exit from the European Union. Commodity prices jump led by gold, rising over 1.2% or $16 to highs around $1,340 an ounce, 10-month highs amid ongoing political uncertainty which has supported investor appetite for the haven metal. Oil prices are posting modest gains early. Treasury market’s rally, sending yields slightly lower (10-year at 2.65%)

 

Economic Data

·     U.S. Home Builders’ Confidence index (NAHB) in February rises to 62 vs 58 last month, and topping the 59.0 reading estimate; the present single family sales rise to 67 vs 64 last month; future single family sales rise to 68 vs 63 last month and prospective buyers traffic rises to 48 vs 44 last month

 

 

Macro

Up/Down

Last

 

WTI Crude

0.42

56.01

Brent

0.11

66.36

Gold

16.00

1,338.10

EUR/USD

0.0015

1.1326

JPY/USD

0.05

110.67

10-Year Note

-0.017

2.65%

 

 

Sector Movers Today

·     Auto sector; The U.S. Commerce Department sent a report to President Trump that could unleash steep tariffs on imported cars and auto parts, provoking a sharp backlash from the industry even before it is unveiled, the agency confirmed to Reuters; CTB Q4 profit topped consensus estimates as sales rose 1.8% during the quarter, despite a 1.8% decrease in tire unit volume/operating margin was 3.2% of sales vs. 7.4% a year ago; SAH said it sees Q4 preliminary EPS from continuing operations 74c-78c, below the 89c est. citing incentives and performance of its two largest brands — BMW and Honda; AAP said that it expects same-store sales to rise between 1% and 2.5% in 2019, the midpoint missing analysts’ estimates of 2% comp growth. In research, JPM initiated the US Auto Dealership sector with a balanced view on the industry but a more constructive view on the stocks (overweight on LAD, GPI)

·     Retailers; WMT helped boost markets as the Dow component reiterated its fiscal 2020 forecasts and reported Q4 EPS and comparable sales that topped estimates/Q4 comparable sales rose 4.2% beating the +3.3% estimate while total revenue was up 3.1% to $140.5B on a constant currency basis, U.S. traffic was up 0.9% Y/Y; Nomura downgraded LULU and ULTA to neutral from buy on valuation noting ULTA shares have risen 25% so far this year, LULU shares are up 24%, both outperforming/continue to think more highly of brands that have already ‘shrunk to grow’ (CPRI, RL) & remain wary of those we believe are pushing beyond industry (& historical) revenue peaks (UAA, PVH); IRBT was downgraded to hold at Canaccord citing valuation

·     Housing & Building Products; NCS was downgraded to underperform at DA Davidson saying that slowing demand could prevent the company from meeting forecasts; TTS shares dropped as reported slightly larger Q4 EPS loss and miss on revs though comps rose 5%; JELD shares jump after Q4 results as revs growth of 11.8% Y/Y to $1.09B, driven by a 14% contribution from acquisitions, and partially offset by a 2% forex headwind.

·     Restaurants; MCD was upgraded at Stephens to overweight and raised tgt to $200 from $180 saying that the company’s core U.S. business is accelerating and set to show upside to consensus estimates in both the first quarter and 2019; PZZA was downgraded to sell at Stifel as see further downside to EPS estimates and believe the current valuation reflects an expectation for a faster than likely recovery of EBITDA and cash flows

·     E&P sector; CLR falls as Q4 EPS missed by 8c and Capex was 7% above Consensus/JPMorgan notes results “eerily reminiscent” of PXD last week which included a 4Q18 cash flow miss on weaker realizations, higher 4Q18 capex, though a much more capital efficient 2019 guidance; NBL in-line Q4 earnings and revenues and forecasting higher production on lower organic capex for 2019/sees capital spending in the $2.4B-$2.6B range, 17% lower at the midpoint compared to 2018, but it expects its sales volumes to rise by ~5%; earnings tonight from CXO, FANG, DVN; SLCA rises after results, helping frac sand names (HCLP, SND, EMES early)

 

Stock GAINERS

·     FCX +5%; receives 2nd analyst upgrade in a week as Citigroup raised rating on copper producers (FCX and SCCO) citing a more constructive market backdrop

·     ICPT +15%; as its Obeticholic Acid Phase 3 study achieves the primary endpoint demonstrating statistically significant improvement in liver fibrosis without worsening of NASH at 18 months, in what is the first positive late-stage data for a treatment in fatty liver disease.

·     MDT +2%; after Q3 EPS and sales beat and slightly raised its year EPS view to $5.14-$5.16, which is above consensus of $5.12 and raises low end of FY organic revs to 5.25%-5.5%

·     NBL +3%; in-line Q4 earnings and revenues and forecasting higher production on lower organic capex for 2019/sees capital spending in the $2.4B-$2.6B range, 17% lower at the midpoint compared to 2018, but it expects its sales volumes to rise by ~5%;

·     PCG +6%; upgraded to buy at Citigroup with Street high $33 tgt saying pending California legislation to limit future wildfire risk would unlock “significant upside” and cap risk in the struggling utility company

·     NAVI +6%; rejected a $3.2 billion takeover bid from two investors Reuters reported. Navient’s board voted on Monday to reject the $12.50 per share offer from hedge fund Canyon Capital Advisors LLC and private-equity firm Platinum Equity Advisors LLC, believing it undervalues the company, according to the source https://reut.rs/2EguGZ7

·     WMT +3%; after Q4 comparable sales rose 4.2% beating the +3.3% estimate while total revenue was up 3.1% to $140.5B on a constant currency basis, U.S. traffic was up 0.9% Y/Y; reaffirms view

 

Stock LAGGARDS

·     CLR -5%; Q4 EPS missed by 8c and Capex was 7% above Consensus/JPMorgan notes results “eerily reminiscent” of PXD last week which included a 4Q18 cash flow miss on weaker realizations, higher 4Q18 capex

·     SAH -12%; said it sees Q4 preliminary EPS from continuing operations 74c-78c, below the 89c est. citing incentives and performance of its two largest brands — BMW and Honda

·     SCI -8%; after Q4 EPS and revenue missed estimates and year EPS guidance of $1.84-$2.02 missed the analysts midpoint of guidance ($1.99)

·     TTS -11%; reported slightly larger Q4 EPS loss and miss on revs though comps rose 5%

·     WIN -68% and UNIT -36% after market close it was announced that a federal judge of NY had ruled against WIN regarding the 2015 spinoff of certain telecommunications network assets into a REIT and its agreements with bondholders to UNIT

·     WTW -5%; after JPMorgan downgrades to Underweight saying they have become more negative on WTW’s revenue trajectory, noting a combination of app users declining and technical issues

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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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