Closing Market Summary: Stocks Rebound; S&P 500 Recrosses 200-Day MAStocks cruised considerably higher on Tuesday, ignited by strong earnings at the open and then fueled by a resurgence in the heavily-weighted information technology sector (3.0%) throughout the day. The S&P 500 rocketed through its 200-day moving average, closing 2.2% higher and reducing its October loss to 3.6%.
As for the other major averages, the Dow Jones Industrial Average jumped 2.2%, the Nasdaq Composite surged 2.9%, and the Russell 2000 advanced 2.8%. The Dow and the Nasdaq both closed above their 200-day moving averages, but the Russell 2000 did not.
Investor sentiment was buoyed after several financial and health care giants reported upbeat earnings.
Investment banks Goldman Sachs (GS 221.70, +6.48, +3.0%) and Morgan Stanley (MS 45.94, +2.47, +5.7%) helped boost the financial sector (+1.6%) after reporting better-than-expected top and bottom lines. Asset management firm BlackRock (BLK 408.00, -18.94, -4.4%) weighed on the sector, though, after missing revenue expectations. BlackRock's pain worsened when CEO Larry Fink said that the company saw more than $30 billion of institutional non-ETF index equity outflows that were driven by client de-risking. Mr. Fink added that he thinks clients will continue to de-risk.
Health care sector (+2.9%) components Johnson & Johnson (JNJ 136.56, +2.61, +2.0%) and UnitedHealth (UNH 272.57, +12.32, +4.7%) contributed to the group's strong performance after better-than expected results. The health care sector is the second-best performing group this year with a 2018 gain of 12.5%; tech leads with a gain of 13.9%.
The tech sector "returned to form" on Tuesday when investors flocked to the high-growth assets that some considered to be oversold on a short term basis. Adobe Systems (ADBE 260.67, +22.66) had a very strong performance after it reaffirmed fourth quarter guidance and said it expects FY19 revenues to be up 20%. The software company led the S&P 500 with a gain of 9.5%.
Likewise, chip stocks outperformed, as the Philadelphia Semiconductor Index climbed 3.3%. Notable gainers included Intel (INTC 45.94, +1.41, +3.2%), Qualcomm (QCOM 66.12, +1.95, +3.0%), and NVIDIA (NVDA 245.83, +10.45, +4.4%). However, today's impressive performance brings the PHLX Index's yearly gain to just 2.4%.
Adding to Tuesday's gains was the communication services (+2.3%) sector, led by FANG members Alphabet (GOOG 1121.28, +29.03, +2.7%), Facebook (FB 158.78, +5.26, +3.4%), and Netflix (NFLX 346.40, +13.27, +4.0%). Conversely, laggards in the all-green sector standings were energy (+0.9%), consumer staples (+1.1), and utilities (+1.2%). The defensive-oriented utilities sector remains the only sector in October with monthly gains (+2.1%).
Separately, other markets remained mostly dormant on Tuesday. Treasuries barely moved, subduing current fears of rising interest rates for now. The Fed-sensitive 2-yr yield added one basis point to 2.86%, while the benchmark 10-yr yield declined one basis point to 3.16%. The U.S. Dollar Index traded near its flat line (94.77), and WTI crude settled 0.1% higher at $71.91/bbl with investors keeping an eye on U.S.-Saudi-Arabia tensions. The CBOE Volatility Index (VIX) fell 16.1% to 17.87, retreating from last week's seven-month high.
Reviewing Tuesday's economic data, which included Industrial Production and Capacity Utilization for September, Jobs Openings for August, and the NAHB Housing Market Index for October:
- Industrial Production rose 0.3% in September (consensus +0.3%), while the August increase was unrevised at 0.4%. Meanwhile, Capacity Utilization came in at 78.1% (consensus 78.2%), unchanged from unrevised reading of 78.1% in August.
- The key takeaway from the report is that it revealed the strongest year-over-year growth rate in industrial production (+5.1%) since December 2010.
- The NAHB Housing Market Index for October came in at 68 (consensus 67), up from 67 in September.
- The August Job Openings and Labor Turnover Survey showed that job openings increased to 7.136 million from a revised 7.077 million (from 6.939 million) in July.
On Wednesday, investors will receive the weekly Mortgage Applications Index, Housing Starts and Building Permits for September, and the minutes from the September FOMC meeting.
- Nasdaq Composite +10.8% YTD
- S&P 500 +5.1% YTD
- Dow Jones Industrial Average +4.4% YTD
- Russell 2000 +4.0% YTD
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Grainger (-13%) at five-month low after slight top-line miss, lack of operating margin in US; mgmt sees FY18 at high end of prior guidance -- call notes
- Sales up 7% (missed by 0.4%); volume up 7%; price up 1%; FX and hurricanes each had -40 bps impact; Normalized gross margin of 38.6%, flat Y/Y.
- Expects volume stabilization in coming quarters and in FY19
- EPS growth of 44% driven by both operating performance and below-the-line items
-
Tracking toward high end of all metrics for FY18 guidance
- Wants pto get away from giving guidance on a quarterly basis -- will likely give annual guidance but not update it quarterly next year
-
Tariff exposure -- Directly sourced from China: 20% of US segment COGS; 50% of that is China product subject to tariffs; incremental tariffs of 25% -> increase in US cost of ~2%
- Will pass on higher costs to customers; mitigate via alternate sourcing or higher prices
- Causing weakness: Lack of operating leverage in the US (margin +20 bps to 15.1%); outlook is much better when sales will be growing 2x op-ex
- Stable gross margin in FY19? Shooting for as close to flat as possible but will give guidance in January.
Trump administration is formulating a new plan to drive Iran out of Syria, emphasizing political and diplomatic levers that could pressure Syria financially - NBC
- new strategy would focus more heavily on pushing Iran's military and its proxy forces out of Syria
- Plan would include withholding reconstruction aid from areas where Iranian and Russian forces are present, and sanctions on Russian and Iranian companies working on reconstruction in Syria
- Would not involve the U.S. military directly targeting Iranian soldiers, as that would violate the current authorization for using force
MELI US +3.2%
Casino +2.26%
Casino +2.26%
Uber Proposals Value Company at $120 Billion in a Possible IPO
Eye-popping offering, which could take place early next year, is nearly double the ride-hailing company’s valuation in a fundraising round two months ago
That eye-popping figure is nearly double Uber’s valuation in a fundraising round just two months ago and more than General Motors Co. , Ford Motor Co. and Fiat Chrysler Automobiles NV are worth combined.
Goldman Sachs Group Inc. and Morgan Stanley MS +4.67% last month delivered the valuation proposals to Uber, the people said. These documents, which typically advise on how to position shares to potential investors, are a common step before banks are formally hired to underwrite IPOs.
The bank presentations show Uber gathering momentum toward an IPO that is among the most hotly anticipated on Wall Street and Silicon Valley and could come sooner than expected as the new-issue market sizzles. Founded in 2009 and sustained by an ample supply of private capital, Uber is seen as a bellwether for a crop of highly valued startups that have delayed tapping the public markets.
Over the past year, Uber has labored through a series of scandals, from claims of workplace sexual harassment to the alleged theft of trade secrets from rival Alphabet Inc., and the ouster of co-founder Travis Kalanick. Its new chief executive, Dara Khosrowshahi, has sought to win back investors, drivers and riders who can now choose from a growing group of taxi smartphone apps.
Mr. Khosrowshahi has said the company is aiming for an IPO in the second half of 2019; at what valuation has been unclear. Uber last raised money, from Toyota Motor Co. in August, at a roughly $72 billion valuation.
There is no guarantee Uber will go public on the time frame or with the valuation envisioned by investment bankers hungry for fees. The IPO market runs notoriously hot and cold, and though 2018 has been a strong year for technology and other issues, conditions could be less favorable when Uber is ready to list its shares. Indeed, one source said the banks are pitching the earlier listing in large part because of fears the IPO market will cool.
And any IPO process could also be complicated by factions among Uber backers, who received their shares over seven years at valuations ranging from $50 million to $72 billion.
In documents distributed in recent days related to a potential bond offering—led by Morgan Stanley—Uber indicated it won’t be profitable for at least three years, according to people familiar with the matter. It expects to generate between $10 billion and $11 billion in revenue this year, according to the documents, compared with $7.78 billion last year.
As part of an agreement with investor SoftBank Group Corp. 9984 3.62% , Uber must go public by the end of next year, according to people familiar with the matter. If it fails to do so, Uber would have to allow certain investors—those who have put in at least $100 million or held shares for at least five years—to sell their stakes on the secondary market, these people said. That could damage Uber’s ability to control the price at which an IPO is ultimately set.
Competition in ride-hailing has also stiffened, which could make Uber shares a tougher sell with public investors. Lyft Inc., Uber’s most formidable rival, recently raised money at a $15 billion valuation and put out calls for banks to pitch for an IPO that also could come in early 2019, according to people familiar with the company’s plans.
And newer rivals, including Via Transportation Inc. and Gett Inc., have raised cash from investors including Daimler AG and Volkswagen AG and are using offers of steep discounts to lure new riders.
Morgan Stanley’s proposal valued Uber at up to about $120 billion, while Goldman set a slightly lower ceiling, according to one of the people. The valuations hinge in part on highlighting the potential of Uber’s businesses outside its ride-hailing app, some of the people said, and also take into account its stakes in other transportation startups including China’s Didi Chuxing Technology Co. and India’s GrabTaxi Holdings Pte.
The bankers have valued the company’s food-delivery service, UberEats, at as much as $20 billion, according to one person. That is twice what Grubhub Inc., the leading U.S. food-delivery service, trades at today on the public markets.
UberEats operates in nearly 500 cities globally and is expected to reach $6 billion in orders this year, from which the company takes a commission. While still a money-loser, it is expected to become profitable much sooner than Uber’s ride-hailing business and so could help subsidize losses.
Calving off Uber’s self-driving car unit could free it to license its technology to a wider array of car makers and transportation companies. Such a move could also insulate Uber from negative headlines like after one of its vehicles struck and killed a pedestrian in Arizona earlier this year.
It announced a $500 million investment from Toyota and an agreement to jointly develop self-driving vehicles. The deal will allow Uber to pass some of its development costs along to Toyota after pouring some $750 million into robot cars last year, according to people familiar with the matter.
General Motors and Ford have both moved to spin off their self-driving car operations over the past year. GM’s business, called Cruise, attracted a $2.25 billion investment from SoftBank.
Tullow Oil seeks M&A opportunities across Africa - exec
16 OCT 2018
Tullow Oil [TLW: LSE], a London-headquartered, Africa-focused oil and gas group, is scouting targets across Africa, New Ventures Africa General Manager Robin Sutherland said.
It is looking for growth opportunities in the continent, with West Africa as its key target region, Sutherland said on the sidelines of the Future Energy Africa conference in Cape Town.
Tullow Oil is keen to acquire anywhere between a minority stake upwards to entire companies, public or private, he said.
It is seeking oil and gas companies operating either in the upstream, midstream or downstream, production assets, exploration acreage and projects among other industrial players aligned to its business, Sutherland said.
The company does not have a set amount to back new acquisitions, but it has a USD 150m budget to fund frontier and greenfield exploration deals next year, Sutherland said. It will use its own balance sheet, shareholder funding and, if necessary, “very” minimum debt to fund M&A transactions, he added.
Neither does it have a specific timeframe to close an acquisition, but aims to complete some transactions between now and beyond 2020, Sutherland said.
Management is conducting the process starting with scouting targets, Sutherland said. It welcomes advances from prospective targets, third parties and advisers with target suggestions, he added.
While its in-house team has the capacity to handle the entire process, Tullow Oil could consider mandating external advisers once executives have concluded their due diligence exercises, he said.
Tullow is well placed to build on this strong financial platform in 2018, according to company reports. Its balance sheet was stronger at the start of 2018 following the USD 0.75bn rights issue, strong free cash flow generation of USD 543m and delivery of key objectives, including the successful USD 2.5bn refinancing, according to company reports.
In the 2017 financial year, Tullow Oil posted USD 1.7bn in revenues, while gross profit was USD 815m, the company said in a results statement. Additionally, the company had free cash of USD 1.1bn and a gearing ratio of 2.6x, the company said.
In 2004, it acquired Energy Africa, a South Africa-based oil and gas exploration company, for USD 500m, Sutherland said.
Tullow Oil’s New Ventures division is responsible for frontier exploration activity across Africa and South America. Its key activities include acquiring new acreage. Besides South Africa, in Africa it has interest in offshore Namibia, Côte d’Ivoire, Zambia, Mauritania, Ghana Kenya, Uganda and Tanzania.
Tullow Oil has interest in more than 120 exploration and production licences across 22 countries within in Africa, Europe, South Asia and South America. It produces 60,000 barrels of oil per day, according to company reports.
Additional to M&A, its strategy includes entering into farm-in-agreements, strategic alliances and other structures that can be tailor-made, Sutherland said. The company is pursuing new opportunities to bolster its assets base, diversify risk and complement its organic growth, he added.
Tullow Oil was founded in 1985 by Aidan Heavey. It has offices in Ireland, Ghana, Kenya, Uganda and South Africa.
It has a workforce of 2,000 plus.