>>> US Gapping Up

Gapping up
In reaction to strong earnings/guidance:
  • DLTH +19.4%, WGO +6.7%, VKTX +5.6%, FDX +2.8%, SLW +2.8%, HQY +2.7%, AYA +1.6%, MDP +1.1%, PBR +0.9%
Select metals/mining names showing strength:
  • X +1.3%, AG +1.2%, AKS +1.1%, SBGL +0.8%, HMY +0.8%, ABX +0.7%, CLF+0.6%, AU +0.5%, RIO +0.5%
Other news:
  • UNXL +23.7% (enters into a long-term agreement w/ a 'major U.S.-based PC maker' to supply XTouch touch screen sensors on a multiple year basis)
  • IDXG +12.2% (continued strength after closing near highs)
  • MBRX +12.1% (granted orphan designation by the FDA for liposomal annamycin for the treatment of acute myeloid leukemia)
  • BEBE +8.7% (modestly rebounding)
  • ACHN +4.4% (announces that the U.S. Patent and Trademark Office has issued the first U.S. Patent to Achillion resulting from its complement factor D research program), CMCM +2.2% (continued strength)
  • OPK +1.4% (confirms orphan drug designation from the FDA for oligonucleotide-based AntagoNAT for the treatment of Dravet Syndrome)
  • SNAP +1.1% (initiated with a Buy at Drexel Hamilton; $30 tgt)
  • VRX +0.7% (closed its previously announced refinancing transactions; extends maturities of term loan debt to 2022 and provides increased operational flexibility)
  • SHPG +0.7% (granted Fast Track designation for recombinant ADAMTS13)
Analyst comments:
  • URBN +1.5% (upgraded to Overweight from Sector Weight at KeyBanc Capital Mkts)
  • SNAP +1.2% (initiated with a Buy at Drexel Hamilton)
  • BBVA +1% (upgraded to Overweight from Equal Weight at Barclays)
  • LC +0.8% (upgraded to Neutral from Underperform at Wedbush)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • COE -10.7%, IMMY -7.9%, NKE -5.5%, PERY -3.2%, QIWI -0.9%, SCS -0.6%
Select financial related names showing weakness:
  • ING -4.7% (media outlets run headlines tied to last week's annual report in which the company revealed that 'ING Bank is the subject of criminal investigations by Dutch authorities regarding various requirements related to the on-boarding of clients, money laundering and corrupt practices')
  • LYG -1.7%, BCS -1.5%, RBS -1.5%, PUK -1.4%, CS -1.1%, BAC -0.9%, HSBC-0.7%, JPM -0.7%
Select oil/gas related names showing early weakness:
  • SDRL -2.9%, RIG -1.3%, MRO -1.3%, APC -1.2%, STO -1.2%, CHK -0.7%, .
Other news:
  • SHLD -17.6% (discloses in 10-K that its operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern)
  • IMMY -7.9% (entered into agreements with two accredited investors for a registered direct placement of 1,312,000 shares of common stock at a price of $2.40 per share), RGNX -6.1% (prices offering of 3.7 mln shares of common stock at $20.50 per share)
  • ADAP -4% (Adaptimmune Therapeutics to offer and sell ADSs in underwritten public offering)
  • DEA -2.4% (prices 4.3 mln common stock offering, all offered in connection with the forward sales agreements, at $19.00/share)
  • WLL -1.9% (Moody's upgrades Whiting's CFR to B2, Positive Outlook)
  • CALA -0.5% (offering of 6,830,000 shares of its common stock priced at $10.25/share)
Analyst comments:
  • FTR -7.6% (downgraded to Sell from Neutral at Goldman)
  • AAL -1.9% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
  • TDG -1.9% (downgraded to Market Perform from Outperform at Cowen)

>>> NIKE: Color on Quarter --> -5.85 Pre-open : 1mil shares traded

NIKE: Color on Quarter (58.01)
  • Wedbush notes NKE reported mixed results with headwinds in North America (NA) and f/x still pressuring sales and margins. They still believe futures are an important directional indicator to the story and these declined 1% currency neutral (CN) or -4% reported. While the company is making progress on accelerating its innovation pipeline and engagement with consumers, this is more than offset in the medium-term by weakness in other areas of the business and the retail backdrop in NA (reflective of the 9% futures decline in the region). They still contend that other brands continue to be in the sweet spot of what consumers currently demand, particularly on a wholesale level, and they don't see that changing in the near future.
  • Stifel cuts tgt to $66 from $68. FY3Q results highlight Nike's global diversification and financial flexibility and the FY18 outlook points to largely sound fundamentals with revenue growth in all regions, operating margin expansion, and constant currency EPS growth in line with long-run objectives (mid-teens). Unfortunately, North America remains a challenge and FX pressures to earnings are projected to stiffen in FY18, masking expectations for constant currency progress in reported EPS. Their FY18 and FY19 estimates come in though they continue to view Nike as well-positioned to succeed long-term, and look beyond FX pressures in FY18 to FY19 earnings power as a basis for valuation.
  • TAG ntoes Nike's report was mixed. The quarter itself was fine with an in line sales result, while a weaker-than-expected gross margin was more than offset by well-managed SG&A. However, futures came in a little light (due in part to some timing-related issues for China futures) and the co noted that the promotional environment in North America is worse than they expected it to be relative to 90 days ago. In addition, F/X sounds like it will be a greater headwind in FY18. However, there are also several positives here that show that their thesis is playing out: 1) better results in basketball (Nike cited market share gains vs. losses LY); 2) actual results outpacing last quarter's futures by ~500 bps, up from ~100 bps last quarter; 3) progress in North America (CC sales accelerated on a two-year basis, margins were higher, and inventory was down 8%); and 4) a strong plan dubbed the "triple-double," that will essentially 2x innovation, speed, and direct. While the path continues to be choppy, they believe Nike is gaining traction and heading in the right direction, which should drive better operating results and stock price performance.
  • FBR & Co likes Nike's innovation pipeline, int'l runway, and LT margin catalysts, but they remain on the sidelines and look for improved rev growth, margin execution, and lower inventory growth.

FT : Strong SUV sales power Geely to 126% jump in profits

Strong SUV sales power Geely to 126% jump in profits
Chinese automaker has used Volvo acquisition to upgrade its offering

A big bet on sport utility vehicles paid off for Chinese automaker Geely in 2016, as strong sales led to a 126 per cent increase in full-year net profits, to Rmb5.1bn, the company announced on Wednesday. 

Geely shares closed up 5.8 per cent in Hong Kong following the announcement, which beat already high expectations. The median analyst estimate by Bloomberg had forecast profit growth of just above 100 per cent. 

The group rolled out a number of SUV models last year, including the Boyue, GS, and Vision, to capitalise on customer enthusiasm for the larger, higher-margin cars in secondary cities. Geely said the SUVs were the key drivers of 50 per cent sales volume growth year on year and helped offset a fall in exports. Full-year revenues rose 78 per cent to Rmb53.7bn. 

The overall proportion of SUVs in Geely’s total sales by volume jumped from 12 per cent in 2015 to 31 per cent in 2016, as it latched on to a trend across China that has seen SUV sales explode. 

“They have gotten on the bandwagon of SUV demand” said Janet Lewis who covers the Asian automobile market for Macquarie Capital Securities in Tokyo. She added that buyers in cities outside of Beijing, Shanghai and Shenzhen are less concerned with traffic congestion and like larger roomier vehicles. 

China‘s broader auto market has seen sales of SUVs as a percentage of total sales by volume rise to 39 per cent last year from 13 per cent in 2012. “SUVs have become a mainstream product in China” said Yale Zhang of Auto foresight in Shanghai, who added that women are the disproportionately high buyers of SUVs. 

Geely has also benefited from greater domestic acceptance of Chinese brands and improved technology, which have allowed it to push up prices. Average selling prices charged by the automaker rose 22 per cent last year, though they were still below foreign competitors.

“Geely does relatively well on a quality basis versus other domestic producers” said Ms Lewis, noting that the leaders in Chinese SUV sales have been better quality domestic brands such as Geely, Great Wall, and Trumpchi, rather than foreign brands. 

The company has used its 2010 acquisition of Volvo to upgrade its offering and buy parts from a more global array of suppliers.

Xing Lei, chief editor of China Automotive Review said “the acquisition of Volvo has helped Geely get more in line with consumers’ tastes.” Peter Horbury, formerly Volvo’s chief designer, now heads Geely’s design studios. 

Geely also proposed a final dividend of HK$0.12 per share and set its automobile sales target for the 2017 financial year at 1m units, up 31 per cent from 2016. 

(MS) Gemalto - 1st take: Profit warning on U.S.

1st take: Profit warning on U.S. chip card

The €60m downgrade to the 2017 PFO target (at the midpoint) is largely due to US chip card inventory build. We think
new guidance implies a 30%+ decline in U.S. Payments business. There may be some additional caution built in to this revision ahead of the next multi-year plan.

Gemalto has warned on its 2017 PFO target, largely citing U.S. chip card inventory build, as part of the migration to EMV. 
This has been an issue for several peers (CPI Card, Oberthur) during 2016 given a strong ramp in 2015, and
had also been cited by Infineon. Gemalto had until recently said that exposure to different customers - and strength in the debit card portfolio - meant they had not seen the same issues, though that situation now appears to have reversed.
According to our conversation with the company this morning, the vast majority of the €100m revenue downgrade is due to U.S. EMV.

Why such a big profit downgrade? 
Revised guidance for PFO in line with 2016 implies €450m vs previous guidance of €500-520m, or a €60m operating profit downgrade at the mid-point. Gemalto indicates a drop-through margin of 50-60% on incremental revenue, which is high but possible in our view. Total payments revenue in 2016 was ~€1bn, and we think Americas (including Latin
America and Canada) was ~40% of this. Gemalto indicates the U.S. is the only change to previous assumptions, and we think the implication is that the U.S. payments business will decline at least 30% y/y in 2017. Revised guidance for a 7-
9% revenue decline in 1Q is a ~€55m delta from our previous estimates, which could represent a halving of the U.S. business short-term.

Our main unanswered question is how management can have visibility on the U.S. at such an early stage in the year, given the volatility in the market. 
We think this should represent the last reset of guidance, following the downgrade of PFO targets from €660m to €500-520m in late 2016. Certainly the magnitude of the downgrade to the U.S. business suggests the company is taking a cautious view. We are also conscious that 2017 will for the basis for the next multi-year plan announced later this year, so management has an incentive to be cautious. However, visibility is extremely low for the time being given the situation in the U.S.