Mid-Morning Look: August 29, 2019

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Mid-Morning Look

Thursday, August 29, 2019

Index

Up/Down

%

Last

 

DJ Industrials

262.29

1.01%

26,298

S&P 500

30.60

1.06%

2,918

Nasdaq

108.45

1.38%

7,965

Russell 2000

20.75

1.41%

1,493

 

 

U.S. equities surging early on trade optimism given China commentary and general better than expected and well received earnings in a beaten up retail sector. The spike in futures came overnight, lifting markets in Europe as well after China Commerce Ministry spokesman Feng eased trade-war tensions by saying the country would not immediately respond to the latest tariffs imposed on it by the U.S. He also said that China remained in contact with Washington and that discussions should move toward removing tariffs to prevent escalation. Also help was an in-line reading for Q2 GDP, with personal consumption rising while inflation indicators steady to lower. Currently all eleven S&P sectors are trading higher, paced by gains in financials and trade sensitive sectors (chipmakers). Treasury prices pare recent gains as yields bounce off multi-year/all-time lows, with the dollar higher and commodities up. Volumes remain light into the holiday weekend coming up.

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar with an early boost along with stocks, as the Canadian dollar edges lower; the dollar rises against the safe-haven Japanese yen giving the “risk-on” stock market buying early; the euro extends slide vs. the dollar (now down -0.7% for the week) on political uncertainty in Europe, Brexit and ongoing weak German data

·     Commodity prices are modestly higher, given a small boost to oil prices (which rallied yesterday on bullish weekly inventory data), while gold steadily higher at $1,550 an ounce – holding near current 6-year highs; also early strength in industrial metals

·     Treasury market’s slip as yields rise following the bounce in US stocks overnight on easing trade tensions with China, better economic data and a small unwind after yields touched their lowest level in 3-years for the 10-year this week (1.44%) and the 30-year bounces off all-time lows around 1.9%; 2’s/10’s remain inverted, but inversion diminishing

 

Economic Data

·     Weekly Jobless Claims rise 4K to 214K (in-line) while continuing Claims at 1.698M vs. est. 1.687M

·     Gross Domestic Product (GDP) Annualized for Q2-S in-line with estimates at 2%, while Personal Consumption, jumps to 4.7% vs. est. 4.3% and the GDP Price Index for Q2-S steady at 2.4%; core PCE QoQ for Q2-S slips to 1.7% below est. and prior 1.8% – recap

·     Advance Goods Trade Balance for July deficit narrowed to (-$72.3B) from (-$74.2B last month and vs. est. (-$74.4B); Imports fell 0.4% in July to $209.681B from $210.613B in June and exports rose 0.7% in July to $137.341B from $136.452B in June

·     July Pending Home sales fell -2.5% vs. est. flat weaker than expected and largely offsets the 2.8% climb in June to 108.3 in June

 

 

Macro

Up/Down

Last

 

WTI Crude

0.50

56.28

Brent

0.11

60.60

Gold

0.80

1,549.90

EUR/USD

-0.0014

1.1064

JPY/USD

0.28

106.40

10-Year Note

0.033

1.513%

 

 

Sector Movers Today

·     Dollar stores a bright spot in retail with results from DG, DLTR while FIVE on mixed results; DLTR raises year EPS to $4.90-$5.11 from $4.77-$5.07 prior and narrows year sales view, though mixed Q2 results as EPS missed by 5c but sales of $5.74B beat; DG a beat and raise as Q2 adjusted EPS $1.74/$6.9B vs. est. $1.57/$6.89B while Q2 comp sales rose 4% above the 2.4% estimate and raises FY19 EPS, sales and comp outlooks; FIVE reported Q2 with a rare comp miss (up 1.4% vs. est. 2.6%) that was driven by unfavorable weather trends in May-June, but delivered on the bottom line with small EPS beat

·     Apparel retail mixed; GES shares jumped over 20% after Q2 profit rises and boosts its outlook (raises year EPS to $1.28-$1.36 from prior $1.19-$1.30 and ups year op margin to 5.3%-5.6% from 4.8%-5.2%); ANF shares fell after posting a Q2 loss and setting soft sales guidance as comp sales were flat during the quarter vs. +0.2% consensus. U.S. comparable sales rose 2%, while international comparable sales were down 3% (guided year sales growth flat to up 2% vs. +2% to +4% consensus and gross profit rate to be down in the range of 50-90 bps YoY); PVH lowers its full-year revenue forecast significantly (+1% vs. +3% prior) as it cites pressure from the Hong Kong protests and the U.S.-China trade war and says the two factors led to a more promotional environment in China; in research, MOV, TPR downgraded at Cowen and GIII downgraded to hold from buy at Stifel; BURL EPS beat and raised guidance; raises FY19 adjusted EPS view to $7.14-$7.22 from $6.93-$7.01 – ups FY19 revenue growth view to 8.8%-9.3% from 8.5%-9.2% and raises FY19 comparable store sales view; SCVL, TLYS also jumped on earnings

·     Insurance; potential impact from Hurricane Dorian: Credit Suisse said including estimates of losses up to $30B at this time based on current hurricane models, but says if the track moves south towards Miami/Ft. Lauderdale/West Palm and maintains category 2-3 strength, insured losses would likely climb. Wells Fargo said a major hurricane hitting Florida could result in insured losses ranging from $6-$10 billion (or economic losses in the $9-$15 billion range), a manageable level for the industry. However, if Dorian hits as a strong Category 3 storm, we think insured losses could be closer to $25 billion (CB, AIG, PGR, BRKnames to watch)

·     Bank movers; Raymond James downgraded BAC, CADE, BSFT, ONK, WTFC and TCBI while upgraded FHN, CARO, OCFC, EWBC and HTH but overall reduced EPS estimates for nearly all banks within coverage universe, which primarily reflects a reduction in our NIM projections where we have moved our previously modeled 25 bps Fed rate cut in October to September and added an additional 25 bps rate cut in December. In total, we reduced EPS estimates for our SE/SW bank universe by a median of ~0.5% in 2019 and ~2.0% in 2020

·     Consumer Staples; in the protein sector, SAFM missed quarterly earnings estimates due to lower prices for breast meat at the company’s plants; HAIN topped EBITDA and margin expectations, but came up short on revenue, while guided year EPS 59c-72 on adjusted EBITDA of $168M-$192M, below the est. 80c/$206M (but might not fully include the impact of the Tilda sale and currency swings); LMNR pre-announced Q3 results well below expectations as the same problems hurting Q2 accelerated in Q3, with an industry overabundance of large lemons leading to lower carton prices and margins

 

Stock GAINERS

·     BURL +11%; after EPS beat and raised guidance; raises FY19 adjusted EPS view to $7.14-$7.22 from $6.93-$7.01 – ups FY19 revenue growth view to 8.8%-9.3% from 8.5%-9.2% and raises FY19 comparable store sales view to 2.0%-2.5% from 1.3%-2.1%

·     GES +23%; after Q2 profit rises and boosts its outlook (raises year EPS to $1.28-$1.36 from prior $1.19-$1.30 and ups year op margin to 5.3%-5.6% from 4.8%-5.2%)

·     JBL +7%; after Citigroup double upgraded to buy saying the stock price is below their target price and believe the customer concentration risk has played out

·     NTNX +26%; after results headlined by a strong top-line beat ($299.9M vs. $293.7M est.); while revenue and earnings outlook was below consensus, the billings guidance for F1Q20 and for all of FY20 was above consensus

·     TECD +21%; big jump on earnings as Q2 adjusted EPS $2.69/$9.09B vs. est. $2.31/$8.71B; announces $200M share repurchase program

·     ZUO +8%; after quarterly results and slightly better guidance as Needham said better 2Q suggests revamped sales efforts have stabilized bookings & improved visibility into 2H oppty’s

 

Stock LAGGARDS

·     ANF -10%; after posting a Q2 loss and setting soft sales guidance as comp sales were flat during the quarter vs. +0.2% consensus (guided year sales growth flat to up 2% vs. +2% to +4% est.)

·     BBY -8%; overall okay quarter as EPS beat by 9c and guides Q3 EPS higher at $1.00-$1.05 vs. est. 94c and revs $9.65B-$9.75B vs. est. $9.78B but Q3 comp sales of 1.6% missed the 2.2%

·     BOX -2%; reported a roughly in-line Q2 but shares slipped amid declining net retention rates, below consensus deferred revenue, and guidance that bracketed consensus

·     HRB -7%; after mixed to weaker Q1 results (Q1 EPS loss (72c)/$150.4M vs. est. loss (75c)/$151.4M), while operating expenses advanced 5.6% YoY

·     MFGP -29%; warned full-year sales could drop 6-8% on last year’s, due to a deteriorating macro environment (which was more than the forecast of a 4-6% revenue drop previously)

·     OLLI -29%; reported adjusted 2Q EPS of 35c below the Street at 46c with -1.7% same-store-sales (first negative comp since 2014) and 194bps of gross margin contraction, and lowered outlook

·     RLGY -13%; after disclosing that the discontinuation of the USAA program at its Cartus affinity business will likely have a material impact at Cartus in 2020

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Content is provided by Hammerstone Inc., which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the Hammerstone content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.

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