Mid-Morning Look: August 08, 2018

Terrie AmengualDaily Market Insights

Mid-Morning Look

Wednesday, August 8, 2018

U.S. stock markets pullback from near record highs for both the S&P 500 and Nasdaq Composite, edging lower as both China and the U.S. announced a new wave of tariffs. The U.S. said it would impose 25% duties on added $16 billion in Chinese imports in two weeks. Healthcare names also slip on Trump’s comments that he’ll make an announcement next week that would slash drug prices “really, really substantially.” Note the S&P 500 comes into the day with a 4-day win streak and the Nasdaq Comp a 6-day win streak (longest since March), with each not far from record highs. Dow component Disney not helping matter overnight on its earnings miss, but a handful of better tech earnings propels the NASDAQ. Equities have remained mostly buoyant over recent sessions, supported by strong corporate quarterly results and economic data that underlined a healthy economy. No economic data today, while Richmond Fed President Thomas Barkin said solid growth, low unemployment and inflation around a 2% annual rate “calls for” moving interest rates back to normal levels. Commodity prices falling with oil down around 2%, gold slips and the dollar rises on another busy day of earnings.


Treasuries, Currencies and Commodities

· In currency markets, the dollar edging higher, as the dollar index (DXY) rises above 95.25, posting small gains vs. the euro (back around 1.16), but down vs. the yen; the Russian rouble fell to its lowest price against the dollar in nearly two years on fears of US sanctions; the US dollar rose to 2-week highs against the Canadian loonie after reports by the Financial Times that Saudi Arabia central bank and state pension funds have instructed their overseas asset managers to dispose of their Canadian equities, bonds and cash holdings; the Pound fell to the lowest level in almost a year against the dollar amid persistent worries over Brexit, dropping under the $1.29 level.

· Commodity prices slide as the dollar bounces; gold prices remain pressured, down under $1,220 an ounce as hold at more than 1-year lows, while mixed weekly inventory data (from EIA and API), as well as renewed trade tariff fears as the US and China set to implement shortly, are weighing on oil prices, with WTI crude down around $68 per barrel

· Treasury markets not moving too much as the yield on the 10-year steadily around 2.96%-2.97% this week so far amid no economic data. The market continues to see 2 more rate hikes this year from the Fed (Harkin comments this morning back that). Note later today, the U.S. will auction the most 10-year notes ever on a single day, in the amount of $26 billion.


Sector Movers Today

· Restaurants; PZZA shares decline as posted Q2 comparable sales decline of -6.1% in North America and cut its forecast for the coming months citing fallout from the company’s split with former Chairman John Schnatter; PBPB Q2 comparable sales fell 0.2% in Q2 to just miss the consensus mark for a 0.1% drop, while adjusted EBITDA fell 2.6% during the quarter to $11.5M, but guidance better; WEN Q2 comps of 1.9% beat but EBITDA missed for the second consecutive quarter

· Housing & Building Products; JELD was downgraded to underperform at Bank America saying mgmt changes should help JELD get back on track from an execution standpoint, but there will clearly be a ramp period; BECN downgraded to neutral at Citigroup as delivered a soft 3Q18 as weather was a drag on volumes causing EBITDA to come in at $188M, missing views; FND was upgraded to buy at Loop Capital saying it has a high growth ceiling

· E&P sector; XEC downgraded to neutral at JPMorgan after earnings to reflect reduced oil production outlook and margin pressure from weaker than expected realizations; WRD shares fall over 10% early after Q2 results; PXD shares active after Q2 EPS missed and announced an increase in capital budget spending; PE boosted 2018 capex guidance to $1.65B-$1.75B from $1.35B-$1.55B as a result of “shorter cycle times and higher working interest; CLR raised capex by 17% to pursue the acquisition of Mid-Con royalties in a new joint venture it announced recently, oil, but despite the capex increase, CLR leaves the FCF guidance unchanged

· Generic/Specialty Pharma; MYL falls as Q4 EPS missed by 15c and a miss on revenue as well while lowering its annual guidance; ENDP posts Q2 EPS of 76c, topping the 54c estimate and raises 2018 earnings and revenue forecast while also enters exclusive licensing deal with Nevakar Inc. for development of five injectable products; MNKdowngraded at Raymond James as no rational valuation framework supports further significant upside potential based on current relative peer multiple levels; AMPE plunges as FDA said that a single trial the “AP-003-A” study for Ampion does not appear to provide sufficient evidence of effectiveness to support a BLA following a meeting in July;ZGNX 6M share Secondary priced at $52.00

· Software mover; internet security firm CYBR posted strong beat-and-raise 2Q18 results driven by all-around solid execution as the company saw strength across new logo deals; HDP results and guidance ahead of expectations while deal metrics were strong, and announced HDP 3.0 adding containerization capabilities as well as partnership extensions with Google and Microsoft; NEWR strong quarter ahead of Street expectations, highlighted by steady enterprise gains, healthy large deal activity, and Infrastructure product traction; ALRM 2Q outperformed, benefitting from strong hardware demand and 20% y/y SaaS growth, which came in above and raised guidance; CSOD delivered strong 2Q18 results and increased full year expectations for all key metrics including ARR, Subscription Revenue and FCF

· Media & Telecom movers; Dow component DIS reported earnings miss on higher cost/lower margins at Studios and Cons Products partially offset by Media Networks margins, sending shares lower; MTCH shares jumped after 2Q EPS beat the highest estimates, driven by stronger than expected subscriber growth at Tinder; NYT shares dipped as added 109,000 digital subscribers in its latest quarter, although a slide in advertising sales weighed on profits


Stock GAINERS

· AAOI +16%; on beat and raise; Q2 EPS 64c/$87.8M vs. est. 44c/$77.82M; sees 3Q adjusted EPS 54c-75c on revs $82M-$92M vs. est. 64c/$90.5M

· ALB +6%; among top S&P 500 performers after they raise 2018 guidance for all three segments

· ALRM +16%; 2Q results that handily beat revenue and operating profit estimates

· BNCL +12%; to be acquired by WSFS in a deal valued at $1.5 billion, with shares valued at $19.61 (BNCL holders get 0.3013 WSFS shares and $2.93 in cash) https://on.mktw.net/2vQqbyW

· CYBR +13%; posted strong beat-and-raise 2Q18 results driven by all-around solid execution as the company saw strength across new logo deals

· HDP +18%; results and guidance ahead of expectations while deal metrics were strong, and announced HDP 3.0 adding containerization capabilities as well as partnership extensions with Google and Microsoft

· ICAD +9%; announced FDA clearance of its latest artificial intelligence software product/said its PowerLook Density Assessment Version 3.4 is compatible with its digital breast tomosynthesis platform.

· KORS +6%; more impressive performance than anticipated from Jimmy Choo footwear, and raised FY19 EPS guidance by 25c to $4.90-$5.00

· MTCH +18%; after 2Q EPS beat the highest estimates, driven by stronger than expected subscriber growth at Tinder


Stock LAGGARDS

· CAR -11%; after Q2 EPS missed by 2c and light rev miss, while mid-point of year EPS missed estimates (group rallied yesterday on HTZ results)

· EXTR -33%; on mixed Q4 results (EPS beat/revs miss) but guides Q1 EPS 0c-7c, well below the 21c estimate

· FTK -24%; following a 2Q earnings miss, while Seaport Global downgrades to neutral from buy saying 2Q missed badly and margins coming in much worse

· MYL -3%; Q4 EPS missed by 15c and a miss on revenue as well while lowering its annual guidance

· PZZA -8%; posted Q2 comparable sales decline of -6.1% in North America and cut its forecast for the coming months citing fallout from the company’s split with former Chairman John Schnatter

· REGN -5%; and AMGN declined after Leerink noted they are among the most exposed as the Trump administration moved forward on plans to curb the high cost of prescription medicines

· SNAP -5%; after mixed Q2 results and guidance as Morgan Stanley noted it continues to struggle to redesign its app in a user-friendly manner slowing user growth

· TWNK -15%; after an earnings miss driven by inventory reductions at Walmart and postponed synergies from the Cloverhill bakery acquisition (downgraded at RBC)

· XEC -6%; downgraded to neutral at JPMorgan after earnings to reflect reduced oil production outlook and margin pressure from weaker than expected realizations


Syndicate

· KKR Real Estate Finance (KREF) 5M share Spot Secondary priced at $20.00

· Kraft Heinz (KHC) 20.63M share Block Trade priced at $60.00

· Maxwell (MXWL) 6.6M share Spot Secondary priced at $3.25

· Medpace (MEDP) 4.5M share Spot Secondary priced at $55.00

· Progenics (PGNX) 9.091M share Spot Secondary priced at $8.25

· Sabre (SABR) 15M share Spot Secondary priced at $24.85

· TPG RE Finance (TRTX) 7M share Spot Secondary priced at $20.00

· WellCare (WCG) 4.528M share Secondary priced at $265.00

· Zogenix (ZGNX) 6M share Secondary priced at $52.00

 

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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