Mid-Morning Look: January 15, 2020

Darwin SarazaDaily Market Report

Mid-Morning Look

Wednesday, January 15, 2020

Index

Up/Down

%

Last

 

DJ Industrials

150.30

0.52%

29,089

S&P 500

12.82

0.39%

3,295

Nasdaq

44.24

0.48%

9,295

Russell 2000

12.05

0.72%

1,681

 

 

U.S. equities recover from early losses, with the Dow Jones Industrial Average topping the 29,100 level (to new intraday record highs), buoyed by better earnings from Dow component UNH in healthcare, while banking stocks rebound after mixed results this morning. Goldman Sachs (GS) erases early losses as large litigation costs led to the company missing earnings for a second straight quarter, while regional banks PNC and USB slide on results. Oil prices slide following bearish weekly inventory data, weighing on energy stocks, while retailers suffer at the hands of Target (TGT) which issued a weak comp sales outlook citing weakness in toy and electronic sales (hurting MAT, HAS, BBY). Stocks also rising ahead of the signing of the US-China trade accord though the news is likely priced in at this point, which could limit further gains. Economic data mixed this morning as inflation data (PPI) came in tamer than expected while manufacturing data was slightly above estimates/German data weaker overnight.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar giving up recent gains after mixed economic data, while commodity prices are mixed as gold prices rebound early, holding above the $1,550 an ounce level while oil prices dipped further following mixed inventory data (crude stockpiles unexpectedly fell but distillate and gasoline inventories posted big builds). Treasury market’s rally despite another jump in U.S. stock prices, as the 10-year yield slipped below 1.8%.

 

Economic Data

·     December producer price index (PPI) rises 0.1% for headline and core (ex: food and energy), both slightly below the 0.2% estimate while final demand PPI YoY was 1.3% (in-line with estimates) but core YoY rose a smaller 1.1% (est. 1.3%)

·     The Empire Manufacturing report for January rose 4.8, above the est 3.6 (prior month was 3.5) as new orders index 6.6 in Jan vs. revised 1.7 in Dec while prices paid index 31.5 in Jan vs. 15.2 in December; employment index at 9.0 in Jan vs. 10.4 in Dec

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.60

57.63

Brent

-0.67

63.82

Gold

6.10

1,550.70

EUR/USD

0.0028

1.1155

JPY/USD

-0.11

109.89

10-Year Note

-0.022

1.788%

 

 

Sector Movers Today

·     Bank movers; GS shares slipped early as a surge in litigation charges ($1.1B, up 100% YoY) and higher comp expense ($3B actual vs. $2.4B estimate) led Goldman Sachs to miss earning expectations ($4.69 vs. $5.47 est.) for the second quarter in a row – Piper noted every $500MM of incremental Litigation Reserve hurt EPS by $1.09 per share (overshadowed better investment banking revs up 10% and FICC trading which was up 50%); BAC reported Q4 eps that topped consensus while net interest yield of 2.35% was in line with estimates, and net interest income fell by 3% YoY, as lower interest rates were partly offset by loan and deposit growth/also said sees NII to decline in Q1 and Q2 but rising modestly in 2H; in regional banks, PNC core EPS beat by 15c as Net interest income eats by 2c and higher core fees and expenses; USB slips after top and bottom line results missed estimates with return on average common equity 11.8% vs 15.8% last year and qtrly provision for credit losses $395M vs. $367M reported in Q3; WFC was downgraded at Piper/Sandler after earnings miss, higher costs and company’s guide

·     Healthcare services and providers; Dow component UNH reported a 12C eps beat on mostly in-line revs with MLRs a touch better 82.5% vs. consensus 82.8% and reaffirms FY20 guidance; LHCG was named as new short call by SprucePoint Capital saying it sees 35%-65% downside to $60-$90 per share as management appears to be struggling to integrate the Almost Family transaction; in hospitals, CYH rises on guidance as sees adjusted EBITDA for full-year 2019 toward middle portion of guidance and expects to continue to execute on its previously-stated margin initiatives

·     Utilities & Solar; in solar, Barclay’s downgraded FSLR to underweight from overweight and slashed tgt to $49 from $66 after assessed industry data on ~5k projects, both operational and in the pipeline and said it looks like FSLR’s Systems business is in trouble; in utilities, RBC Capital upgraded AEP to outperform joining other high-growers like NEE and SRE while said would focus on two stocks that we believe could re-rate in 2020: DUK and EXC (downgraded AY); PCG was upgraded to buy with raised tgt to $15 at Citigroup saying the company’s potential agreement with bondholders is a big step forward

·     REITs; two analyst sector calls: 1) Mizuho upgraded AVB, HPP, and O while downgraded BDN, MAC, DEI, and MAA as firm said it remains constructive on REITs given its view of a 2.0% 10-year Treasury, 2.0% GDP growth and 2.0% inflation in 2020 (remain overweight Industrial, Healthcare, Multifamily, Single-Family Rental and Triple Net, neutral on Shopping Centers and Underweight Malls and Office; 2) Jefferies upgraded FRT and REG to buy as assumes coverage of the retail REITs and generally prefers strips to malls (SPG, TCO, FRT, REG, SITC, WRI, ROIC, RPAI, RPT) following consecutive years of underperformance; firm also downgraded MAC to underperform

 

Stock GAINERS

·     CLVS +14%; after the company’s Rubraca drug was granted FDA priority review for advanced prostate cancer

·     CYH +12%; as sees adjusted EBITDA for full-year 2019 toward middle portion of guidance and expects to continue to execute on its previously-stated margin initiatives

·     FLNT +59%; raises FY19 revenue view to $280.8M-$281.8M from $265M-$267M (est. $266.05M) which reflects Q4 revenue $79.1M-$80.1M (above est. $64.3M)

·     MNTA +17%; was upgraded to overweight at JPMorgan and had its tgt raised to $50 at SunTrust as confidence has increased in MNTA’s drug candidate M254 being a more potent drug than currently used to treat autoimmune diseases

·     PCG +8%; upgraded to buy and raised tgt to $15 at Citigroup saying the company’s potential agreement with bondholders is a big step forward

·     RMTI +12%; after announcing exclusive license and supply agreements with Sun Pharma to sell Triferic in India where it will receive and undisclosed upfront fee and will be eligible for milestone and royalties on sales

·     SHAK +10%; mentioned positively by Goldman Sachs saying sees 80% rally because of exclusive GrubHub deal as reiterate buy with $115 tgt

·     UNH +2%; reported a 12C eps beat on mostly in-line revs with MLRs a touch better 82.5% vs. consensus 82.8% and reaffirms FY20 guidance

 

Stock LAGGARDS

·     ALGN -3%; extends yesterday losses after SDC unveiled plans to enter the US in-office, doctor-directed channel in ’20 by offering its aligners to GPs/ortho’s

·     FSLR -8%; downgraded to underweight from overweight and slashed tgt to $49 from $66 at Barclay’s after assessed industry data on ~5k projects, both operational and in the pipeline and said it looks like FSLR’s Systems business is in trouble

·     MAT -6%; after TGT cites weak demand for toys, electronics in crucial shopping season after company lowered its Q4 comp sales view

·     NKTR -12%; after yesterday’s unanimous FDA advisory committee vote against approval of oxycodegol for chronic low back pain (27-0), leading the company to withdraw its marketing application and make no further investments in the program

·     TGT -6%; after guides Q4 comp sales 1.4%, below the 3.8% estimate and vs. prior view of 3%-4% as sales comps growth in-line with Nov/Dec levels

·     USB -2%; top and bottom line results missed estimates with return on average common equity 11.8% vs 15.8% last year and qtrly provision for credit losses $395M vs. $367M reported in Q3

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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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