Early Look

Tuesday, February 18, 2020

Futures	Up/Down	%	Last
DJ Industrials	-167.00	0.57%	29,228
S&P 500	-15.50	0.46%	3,365
Nasdaq	-75.50	0.78%	9,557

 

 

Stock futures are lower across the board, led by a decline in technology names after Dow component and tech giant Apple (AAPL) warned that won’t meet its Q2 financial guidance because the viral outbreak in China has cut production of iPhones. The news overshadows moves by China’s government to limit the fallout of the deadly coronavirus after the People’s Bank of China cut its one-term lending rate by 10 basis points to 3.15% to its lowest since 2017 saying the government would roll out targeted tax cuts. Also watch retailers today after retailing giant and another Dow component Wal-Mart issued a weaker than expected holiday quarter, missing estimates on weaker guidance. In Asian markets, The Nikkei Index dropped -329 points to 23,193, the Shanghai Index was little changed at 2,984 and the Hang Seng Index declined -429 points to 27,530. In Europe, the German DAX is lower by about -100 points to 13,685, while the FTSE 100 is down about -60 points to 7,375. China reported 1,886 new virus cases and 98 more deaths in its update Tuesday and the update raised the number of deaths in mainland China to 1,868 and the total confirmed cases to 72,436.

Market Closing Prices Yesterday

·     The S&P 500 Index climbed 6.22 points, or 0.18%, to 3,380.16

·     The Dow Jones Industrial Average fell -25.22 points, or 0.09%, to 29,398.08

·     The Nasdaq Composite gained 19.21 points, or 0.20%, to 9,731.18

·     The Russell 2000 Index declined -6.16 points, or 0.36% to 1,687.58

 

Events Calendar for Today

·     7:45 AM EST      ICSC Weekly Retail Sales

·     8:30 AM EST      Empire Manufacturing Index, for February…est. 5.0

·     8:55 AM EST      Johnson/Redbook Weekly Sales

·     10:00 AM EST    NAHB Housing Market Index for February…est. 75

·     4:00 PM EST       Net Long-term TIC Flows for December…prior $22.9B

·     4:30 PM EST       API Weekly Inventory Data

 

Earnings Calendar:

·     Earnings Before the Open: AAP, AEIS, BLMN, CEQP, CEVA, CHH, ECL, EXPD, FELE, FLR, JELD, LDOS, NXRT, SITE, TRU, USAC, VG, VMC, WAB, WLK, WMT

·     Earnings After the Close: A, ACC, AMED, AWK, BKD, CHE, CXO, DOOR, DVN, ENPH, EXR, FANG, GRPN, HLF, HVT, ICCC, INVH, KAR, KNL, LC, LZB, NP, RPAI, SGMS, TIVO, TPH, VNO, VRSK, WIRE, XPER

 

Other Key Events:

·     Consumer Analyst Group of New York (CAGNY) Conference, 2/17-2/21, in Boca Raton, FL

·     NobleCon Investor Conference, 2/16-2/18, in Hollywood, FL

 

 

Macro	Up/Down	Last
WTI Crude	-0.87	51.18
Brent	-1.09	56.58
Gold	4.10	1,590.50
EUR/USD	-0.0003	1.0833
JPY/USD	-0.16	109.72
10-Year Note	-0.044	1.54%

 

 

World News

·     The People’s Bank of China cut its one-term lending rate by 10 basis points to 3.15% on Monday to its lowest since 2017, as its foreign minister said the government would roll out targeted tax cuts.

·     German economic expectations plunged in February as the measure of economic expectations declined to 8.7 points in February from 26.7 points in January, and worse than economists’ forecast of 21.0 points. The German ZEW’s assessment of the current situation also fell significantly, to minus 15.7 points in February from minus 9.5 points in January,

·     Berkshire Hathaway disclosed in an SEC filing it added new positions in KR, BIIB while increased its stake in four holdings (OXY, SU, RH GM), reduced its stake in WFC, GS, TRV, PSX and AAL

·     Elliott Management disclosed in an SEC filing five new buys during the fourth quarter (LQD, LOGM, HYG, NLOK, AXE), exited (DVN, HES, FOXA, COMM), boosted its stake in (DELL, T, MPC, NLSN, VNO) and reduced its stake in (OPB, CTXS, RILY, ESI).

·     Greenlight Capital disclosed in an SEC filing one new buy during the fourth quarter was DXC, exited two positions during the quarter (DDS, VOYA), increased its stake in two holdings (CC, SATS) and reduced its stake in (ATU, TPX, CEIX, SGMS AER).

·     Starboard Value disclosed in an SEC filing two new buys (SPY, MD), exited two positions during the quarter, namely Perrigo (PRGO, RPM), increased its stake in five holdings, (EBAY, ACM, CERN, SCOR, BOX), reduced its stake in four holdings, (NLOK, IWN, MGM IWS).

 

Sector News Breakdown

Consumer

·     Walmart (WMT) Q4 adjusted EPS $1.38/$141.7B vs. est. $1.43/$142.49B; 4Q Walmart-only U.S. stores comparable sales ex-gas +1.9%, vs. estimate +2.4%; 4Q total U.S. comparable sales ex-gas +1.8%, vs. estimate +2.2%; 4Q Sam’s Club U.S. comparable sales ex-gas +0.8%, vs. estimate +1.2%; sees FY21 EPS $5.00-$5.15 vs. est. $5.22; raises annual dividend to $2.16 per share

·     Advance Auto Parts (AAP) Q4 adjusted EPS $1.64/$2.1B vs. est. $1.35/$2.12B; sees 2020 net sales $9.88B-$10.1B vs. est. $9.93B; sees 2020 comparable sales 0% to +2% after 4Q comparable sales +0.1% vs. estimate +1%

·     Conagra (CAG) lowered its outlook Monday as it now anticipates FY organic sales to be flat or to grow only 0.5%, down from prior view for growth forecast of 1% to 1.5%; lowers year EPS view to $2.00-$2.07 a share, from prior $2.07-to-$2.17 (est. $2.11)

·     Pier 1 Imports Inc. (PIR) said it has commenced voluntary Chapter 11 proceedings as enters Plan Support Agreement with majority of term loan lenders and its pursuing a sale of the company

·     Boston Beer (SAM) mentioned positively in Barron’s saying Hard seltzer has grown from near zero a few years ago to 2.6% the size of beer today, which is excellent news for the company with its Truly Hard Seltzer, while noting that AB InBev (BUD), Molson Coors (TAP), and Constellation Brands (STZ) are among those in or joining the mix

·     The Chinese territory of Macao will allow casinos to reopen Friday January 21^st after a 15-day closure imposed to help block the spread of China’s virus outbreak (shares of WYNN, LVS, MLCO have been among the casinos affected by the closures)

·     A German court has temporarily halted the site preparation for Tesla Inc.’s (TSLA) first electric car factory in Europe. The Higher Administrative Court for Berlin-Brandenburg ordered Tesla to stop clearing trees on the wooded site until it considers an environmental group’s appeal

·     Allegiant Travel (ALGT) reported traffic for January of +12.6%, load factor 81.8% and capacity rose 13%

·     Service Corp. (SCI) Q4 adjusted EPS 60c/$850.76M vs. est. 60c/$847.6M; FY19 adjusted EPS of $1.90 on revs $3.23B vs. es.t $1.91/$3.23B

 

Energy, Industrials and Materials

·     BHP Group (BHP) announced a lower than expected half-year dividend as it waits to assess the impact of the coronavirus outbreak

·     Flowserve (FLS) Q4 adjusted EPS 66c/$1.07B vs. est. 65c/$1.06B; $4 total bookings $1.05B; FY19 adjusted EPS $2.20 vs. est. $2.19 and revs $3.94B vs. est. $3.93B and FY19 total bookings $4.24B

·     Transocean (RIG) Q4 EPS loss (43c) vs. est. loss (30c); 4Q backlog $10.2 billion, falling -16% YoY and operating expense grew 16% YoY to $575M; Q4 capital expenditure $128 million vs. $44 million YoY; 4Q contract drilling revenue $792M vs. est. $819.7M

·     French train maker Alstom SA agreed to acquire the rail business of embattled Canadian train and plane maker Bombardier Inc. for up to 6.2 billion euros ($6.7 billion),

·     Natural gas stocks mentioned cautiously in Barron’s, suggesting to avoid the sector given plunging gas prices (fell below $2 mln btu on Jan 21st) but makes an exception for exploration and production company Cabot Oil & Gas (COG) as well as Cheniere Energy (LNG), which transports LNG

·     Boeing (BA) told U.S regulators it didn’t see the need to undertake a potentially costly fix for a wiring issue on the company’s grounded 737 Max, according to Bloomberg reports this weekend

·     Westlake (WLK) reported Q4 net sales $1.88B, missing the $1.92B estimate; 4Q Ebitda $296 million, -21% YoY

 

Financials

·     Franklin Resources Inc. (BEN) is in talks to buy rival asset manager Legg Mason Inc. (LM) according to reports in a deal that could be announced as soon as Tuesday; report says while the exact price and other terms couldn’t be learned, it would be sizable given Legg Mason’s market value of more than $3.5B and assets under management of $800B https://on.mktw.net/2HBidA5

·     HSBC Holdings PLC (HSBC) said it would cut 35,000 jobs and $100 billion in assets in the next three years as it scales back operations in the U.S., mainland Europe and its investment bank; said that net profit fell 53% to $5.97 billion last year, hit by a goodwill impairment of $7.3 billion.

·     Alliance Data Systems (ADS) downgraded to market perform from market outperform at JMP Securities, as they have less conviction in the company’s near-term portfolio growth targets.

·     B. Riley Financial (RILY) files $350M mixed securities shelf

 

Healthcare

·     Medtronic (MDT) Q3 adjusted EPS $1.44 on revenue $7.7B vs. est. $1.38 and $7.81B; raises full-year guidance to $5.63-$5.65 from prior $5.57-$5.63

 

Technology, Media & Telecom

·     Apple (AAPL) warned that won’t meet its Q2 financial guidance because the viral outbreak in China has cut production of iPhones; said that all of its iPhone manufacturing facilities are outside Hubei province, and have been reopened…but the company said production is ramping up slowly. It also said demand for iPhones is also down in China because many of Apple’s 42 retail stores there are closed or operating with reduced hours

·     Dell (DELL) is nearing a deal to sell its RSA cybersecurity business to a private-equity firm for more than $2 billion, according to people familiar with the matter. https://on.mktw.net/2SV9Fti

·     Otter Tail (OTTR) Q4 EPS in-line at 51c on revs $215.7M vs. est. $235M; sees 2020 EPS $2.22-$2.37 vs. estimate $2.41