Mid-Morning Look: January 14, 2020

Darwin SarazaDaily Market Report

Mid-Morning Look

Tuesday, January 14, 2020

Index

Up/Down

%

Last

 

DJ Industrials

24.88

0.09%

28,931

S&P 500

-3.97

0.12%

3,284

Nasdaq

-5.84

0.06%

9,268

Russell 2000

-4.84

0.29%

1,664

 

 

U.S. equities are little changed, with the Nasdaq Comp and S&P 500 holding near their record highs from yesterday as markets prepare for the onslaught of earnings coming in the next few weeks. This morning big banks JPM and Citigroup rally on earnings while WFC shares slipped on its results. Inflation data was a little light as December consumer prices fell just short of consensus estimates. Gold prices dip while the dollar rises and oil inches up as well. Transportation stocks get a boost behind better earnings results from Delta (DAL) and positive analyst comments on rails (UNP, CP). Tesla (TSLA) setting record highs again with another analyst putting a $600 tgt on shares today. Software and semi stocks showing modest weakness while healthcare names rebound from Monday losses. In trade news overnight, reports indicated China has pledged to buy almost $80 billion of additional manufactured goods from the United States over the next two years as part of a trade war truce.

 

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar rises above the 110 level against the Japanese yen for the first time since late-May 2019, while the euro slips to the 1.11 level with the broader dollar index trading up around the 97.50 level. Gold prices edge lower, with prices down $5 to move under $1,550 an ounce while oil prices are modestly higher. Treasury market’s move higher as yields sink with the 10-year yield down over 2 bps to 1.821%.

 

Economic Data

·     US consumer prices grew at the weakest pace in four months in December as prices of used cars and trucks slipped with headline CPI rising 0.2%, below the 0.3% estimate while core prices (ex: food and energy) rose 0.1%, missing the 0.2% estimate. Ex: food, energy YoY, prices rose 2.3%, in-line with estimates while CPI overall YoY rose 2.3% vs. est. 2.4%

 

 

Macro

Up/Down

Last

 

WTI Crude

0.21

58.29

Brent

0.55

64.75

Gold

-5.10

1,545.50

EUR/USD

-0.0018

1.1116

JPY/USD

0.07

110.01

10-Year Note

-0.021

1.824%

 

 

Sector Movers Today

·     Truckers & Rails; Bank America upgraded rails UNP and CP upgraded to buy from neutral citing expected benefits for carloads from the upside potential of the Phase 1 trade deal with China, signs of stabilizing in the “second derivative carload declines”, and continued gains from the Precision Scheduled Railroading overhaul while raised WERN and USX to buy in freight/trucking as truck spot rates have inflected over the past month as the more than 700 carrier bankruptcies in 2019 and net orders that remained well below replacement has improved; Wells Fargo downgraded railcars GBX to underweight as we expect the space to be a laggard for 2020

·     Chemicals; lithium producers (ALB, SQM) look to rally as investors bet on a rebound in electric car sales in China after government assurances its subsidies for buyers won’t be cut any further, the Financial Times reported; POL was upgraded at Wells Fargo; SunTrust with chemical preview as expect chemical companies to report in-line to slightly below consensus December quarter results driven by international trade headwinds, soft GDP in Europe and China, automotive holiday-related shutdowns, inventory destocking and FX headwinds (lowers estimates for CBT while favorite ideas into Q4 include DOW, HUN and NGVT)

·     Auto’s; the short squeeze in TSLA continues as sets another record high as analysts continue to raise price tgts as stocks surges to record highs (Oppenheimer upped tgt to $612 yesterday and Jefferies to $600 today); VC was upgraded to buy at Deutsche Bank as views Visteon and APTV as some of the best supplier stories in the group heading into 2020; UBS downgraded Italian tire-maker Pirelli to neutral and cuts target price to EUR 5.50 from EUR 6.20 citing lower price-mix contribution and weaker volume growth due to the warm winter

·     Industrial & Machinery; in diversified Industrials Wells Fargo downgraded BRC to underweight, and upgraded AIT to overweight; in heavy duty truckers CMI, PCAR and NAV all upgraded to Overweight at Wells Fargo (and raised tgts) on view industry indicators are turning positive for share accumulation and sell-side estimates are too high/specifically, Class 8 truck backlog to inventory likely remains beneath 2.0. Typically, this is a good buy point for longer-term investors; ACM shares active after Bloomberg reported that WSP Global, a Canada based professional services consulting firm approached ACM regarding a possible deal https://bit.ly/2tZnn5k

·     Healthcare services and providers; MCK raises FY20 EPS view to $14.60-$14.80 from $14.00-$14.60 (est. $14.37)/said businesses are well positioned to continue to deliver growth and based on the continued momentum and trends in our business; ABC, CAH, MCK sued by Oklahoma Attorney General Mike Hunter related to opioids after winning a lawsuit against one drug manufacturer and reaching pretrial settlements in other cases; MDRX prelim Q4 revs missed the lowest analyst estimate ($450M-$455M vs. est. $463.4M) while reaffirms year; SDC rises on news it will start selling its aligners to orthodontists

 

Stock GAINERS

·     ACM +4%; after Bloomberg reported that WSP Global, a Canada based professional services consulting firm approached ACM regarding a possible deal https://bit.ly/2tZnn5k

·     ADAP +24%; as the company enters a partnership with Japan’s second-largest drugmaker Astellas Pharma to co-develop and market T-cell therapies for cancer patients

·     BGFV +18%; raises Q4 EPS guidance to 2c-4c from loss of (16c)-(4c) saying pricing and promotions over the holiday period resulted in a 4.7% increase in same-store gross margin dollars

·     DAL +3%; posted a Q4 profit that topped forecasts ($1.70 vs. est. $1.40), boosted by customers gained from rival airlines’ 737 MAX cancellations

·     ICHR +17%; rises as announces Q4 revenue of $189M (+22% Q/Q) versus the $184.9M consensus and said it expects positive cash flow from operations

·     JPM +2%; reported Q4 earnings that topped consensus while provision for credit losses of $1.43B (down -7.8% YoY) beat the average analyst estimate of $1.53B while revenues rose 9% YoY to $29.21B

·     MMSI +8%; after activist investor Starboard Value disclosed a 9% stake in Merit Medical

·     MX +10%; raises Q4 revenue view to $198M-$200M from $181M-$191M (est. $186M); now sees Q4 gross profit margin 24%-26%

·     PINS +7%; after new eMarketer data shows the company surpassing SNAP to become the third-largest social media platform in the U.S. last year/Pinterest users grew 9% Y/Y in 2019 to 82.4M vs. Snapchat increased 6% to 80.2M

·     RTIX +90% after saying it was selling its OEM business to a European private equity firm Montagu for $490M/says transaction expected to close in H1 2020, after which RTIX will be debt-free

·     SDC +14%; on news it will start selling its aligners to orthodontists

·     TSLA +2%; extends recent spike as analysts continue to raise price tgts as stocks surges to record highs (Oppenheimer upped tgt to $612 yesterday and Jefferies to $600 today)

 

Stock LAGGARDS

·     ACIW -6%; after cuts FY19 revenue view to $1.255B-$1.265B from $1.315B-$1.345B (est. $1.32B) and cuts FY19 adjusted EBITDA view to $300M-$310M from $360M-$350M

·     APHA -7%; missed the lowest revenue estimate and cut its guidance for the current fiscal year as sees FY20 revenue view to C$575M-C$625M, down from C$650M-C$700 prior

·     BSX -7%; as announces preliminary Q4 2019 sales of $2.90B, representing ~13.4% growth, which is at the lower end of co’s forecast of 13% to 15% – Q4 sales below analysts’ estimate of $2.93B

·     ETH -4%; sees preliminary Q2 EPS 25c-27c below consensus 40c and reports preliminary Q2 revenue $175M vs. est. $181.73M/boosts share buyback authorization to 3M shares

·     GME -14%; as reported global sales from continuing operations for the holiday period were $1.83B, a 27.5% decrease compared to the 2018 nine-week holiday period YoY

·     STML -28%; as announces 2019 preliminary net revenue of $43.2M for its rare blood disease drug, Elzonris, below analysts’ estimate of $51.7M

·     WFC -3%; after posted weaker-than-expected profit and revenue for the fourth quarter

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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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