Closing Market Summary: Stock Market Opens the Week Modestly LowerEquity indices closed Monday's session mixed. The Nasdaq (+0.2%) posted a modest gain, while the S&P 500 finished lower by 0.4%.
With news and economic data limited, the benchmark index remained within reach of its flat line throughout the session, only to dip a bit further in the final stretch.
There was a batch of earnings reports this morning, with Acuity Brands (AYI 202.51, -34.85), Commercial Metals (CMC 20.81, -1.79), and Global Payments (GPN 79.79, +5.34) all reporting before the opening bell. Acuity Brands and Commercial Metals lost 14.7% and 7.9%, respectively, after missing top and bottom line estimates while Global Payments added 7.2% after beating expectations and issuing positive guidance. The fourth-quarter earnings season will heat up this week with several banks set to report their results on Friday.
Eight out of eleven sectors finished the trading day in negative territory, with the energy sector (-1.5%) closing at the bottom of the leaderboard. The sector faced an uphill climb from the start as crude oil opened the day deep in negative territory amid growing concerns that the OPEC, non-OPEC supply cap has been implemented at slower-than-expected pace. In addition, reports indicated that the recent growth in U.S. production was also ruffling some investors' feathers. The commodity closed its trading day 3.8% lower at $51.94/bbl. Financials (-0.8%), industrials (-0.7%), and consumer discretionary (-0.1%) rounded out the cyclical underachievers.
On the countercyclical side, four out of five spaces finished in the red. Utilities (-1.3%) retreated the furthest, as telecom services (-1.1%), consumer staples (-0.7%), and real estate (-0.6%) performed slightly better. Heath care (+0.4%) was the lone non-cyclical representative in green territory, bucking the trend on the back of a solid showing from the biotechnology industry. The iShares Biotechnology ETF (IBB 284.07, +3.72) increased 1.4% on big gains from names like Amgen (AMGN 158.84, +2.06), Biogen (BIIB 299.02, +4.02), and Vertex Pharmaceuticals (VRTX 82.86, +3.47). The three names posted gains between 1.3% and 4.3%.
The top-weighted technology sector (+0.3%) also finished in positive territory after a solid showing from the sector's heaviest component, Apple (AAPL 118.99, +1.08), which closed higher by 0.9%. Chipmakers also aided the tech sector, evidenced by the 1.1% gain in the PHLX Semiconductor Index. The materials (unch) and consumer discretionary (-0.1%) sectors rounded out the day's outperformers.
U.S. Treasuries ended the day near their session high that was achieved early in the morning. The 10-yr yield closed five basis points lower at 2.37%. Also of note, the U.S. Dollar Index (101.95, -0.22) fell 0.2% while gold increased by 0.8%. The precious metal finished at $1,183.00/ozt.
Reviewing today's economic data:
- Consumer Credit report for November
- Showed an increase of $24.5 billion while the consensus expected growth of $18.0 billion.
- The prior month's credit growth was revised to $16.2 billion from $16.0 billion.
- The key takeaway from the report is that consumer credit -- both revolving and non revolving -- continues to expand, providing fuel for a potential increase in economic activity.
Tomorrow's economic data will include November Job Openings (JOLTS) and November Wholesale Inventories (consensus 0.9%). Both reports will be released at 10:00 am E.T.
- Russell 2000 UNCH YTD
- Dow Jones Industrial Average +0.6% YTD
- S&P 500 +1.3% YTD
- Nasdaq Composite +2.8% YTD
Eon urged to spin-off power distribution business
Activist investor Knight Vinke says standalone network would achieve higher valuation
An activist investor has renewed calls for German utility Eon to spin off its power distribution business, just months after the company floated its fossil fuel assets in one of Germany’s biggest corporate restructurings.
Eric Knight, chief executive of Knight Vinke, said Eon’s regional electricity and natural gas grids would be highly attractive if hived off into a standalone company.
“There is huge institutional [investor] demand for a pure network business, and the value of that would be substantially greater than that of [Eon] as a whole,” he added. “For investors looking for [dividend] yield, it’s exactly the kind of asset they’d want to own.”
Knight Vinke, which owns about 1 per cent of Eon’s shares, first demanded such a spin-off in a letter to its investors ahead of Eon’s annual shareholders’ meeting last June, but this is the first time Mr Knight has spoken publicly about his proposal.
He said he had first approached Eon’s management and supervisory board with the idea last year but it gained little traction. He is now “looking forward” to raising it with them again in the coming months.
Eon has already split it itself into two, pooling its coal and gas-fired power stations, energy trading and gas production into a separate company, called Uniper, which debuted on the Frankfurt stock exchange in September.
Eon itself retained the cleaner parts of the business: renewables, energy distribution — which comprises more than 1m km of networks in Europe — and retail.
The restructuring was a response to Germany’s green revolution, which has resulted in solar and wind power squeezing energy generated from coal and gas out of the market and depressing wholesale electricity prices, hurting the profitability of conventional power stations.
Eon has also been hit by a big bill for Germany’s nuclear clean-up. In October, the government ordered the country’s nuclear power plant operators to pay €23.6bn into a new state-run fund to cover the final storage of radioactive waste — about €6bn more than they had provisioned for.
Eon said it would have to raise capital to cover a €2bn shortfall. Its share price has fallen about 16 per cent since the start of 2016.
Eon, which sees the power grids as critical to its new, more streamlined business, has given Knight Vinke’s proposal a cool reception.
A spokesman said almost 97 per cent of votes cast at the annual meeting in June backed the company’s strategy to focus on all three of its business areas, and Eon was now implementing it. “A disposal of the networks would conflict with that,” he added.
However, he said Eon could sell some of its renewable assets “if value can be generated in that way”.
Mr Vinke said spinning off the regulated grid assets “would result in a standalone business with far stronger credit metrics and investment capacity”. He added the idea would benefit not only investors but “creditors, energy consumers and the employees of both Eon and its network subsidiaries”.
He pointed to Finnish utility Fortum’s sale of its Swedish electricity grid business in 2015 for €6.6bn to a group of Swedish pension funds and Canada’s Borealis.
“They sold their regulated assets in Scandinavia for 18 times ebitda [earnings before interest, tax, depreciation and amortisation],” he said. “Eon is valued at six to seven times ebitda. So their prime asset is worth more than the entire group.”
Knight Vinke’s activism has had mixed results over the years. It long demanded that Italian oil producer Eni sell its Snam natural gas distribution business — which the company eventually did. But the fund was publicly rebuked by UBS for urging it to sell its investment bank.
Gapping down
In reaction to disappointing earnings/guidance:
In reaction to disappointing earnings/guidance:
-
BABY -7.7%, LULU -1.9%, CMC -1.5%
Select financial related names showing weakness:
- RBS -3.3%, DB -2.1%, PUK -1.6%, BCS -1.5%
Select oil/gas related names showing early weakness:
- WLL -1.7%, SDRL -1.5%, RDS.A -1.3%, CHK -1.3%, STO -1.3%
Other news:
- ADHD -23.8% (receives official minutes from its meeting with the Division of Psychiatry Products of the FDA held in early December)
- ETRM -2.1% (after filing amended S-1)
Analyst comments:
- RIG -2% (downgraded to Underperform at BofA/Merrill)
- KO -1.1% (downgraded to Sell from Neutral at Goldman)
- VMW -0.6% (downgraded to Neutral from Buy at UBS )
Gapping up
In reaction to strong earnings/guidance:
In reaction to strong earnings/guidance:
- EXAS +15.9%, (sees Q4 revs above consensus) TTOO +7.5%, GPN +5.1%, PTCT +4.2%, VNDA +3.9%, FRAN +3.2%,SPNE +2%, PME +1.7%, NUVA +1.4%, VLRS +1.1%
M&A news:
- MSTX +122.5% (signs merger agreement with privately held Savara Inc )
- MACK +35.8% (concludes strategic review; Ipsen (IPSEY) to Acquire Oncology Assets from Merrimack for $575 mln cash; up to $450 mln in additional regulatory approval-based milestone payments
Select metals/mining stocks trading higher: KGC +5.4%, VALE +4%, AUY +3.2%, GFI +2.8%, MUX +2.3%, GG +2.3%,AG +2.3%, GDX +2.2%, SLW +2%, ABX +1.9%, NEM +1.8%, AKS +1.1%
Other news:
- ADMS +7.2% (prepares for potential approval and launch of ADS-5102 for the treatment of levodopa-induced dyskinesia in patients with Parkinson's disease in 2017)
- ARWR +7.1% (issues response to new minority shareholder announcement by Silence Therapeutics plc; no discussions about any potential transaction)
- KERX +6.3% (provides business update; sees Q4 revs above consensus)
- EBIO +5.2% (provides upcoming milestones in slide presentation)
- CTIC +4.8% (provides 2017 key objectives)
- MDCO +4.2% (presents compelling safety and efficacy data from Day 180 interim analysis for ORION-1 Phase 2 Study of Inclisiran )
- EXEL +3.1% (announced today that Genentech (RHHBY) has withdrawn its counterclaim against Exelixis in the ongoing JAMS arbitration )
- ARLZ +1.8% (enters into a rebate agreement with Express Scripts (ESRX))
Analyst comments:
- JD +2.6% (upgraded to Overweight from Neutral at JP Morgan)
- BIDU +0.7% (upgraded to Neutral from Underweight at JP Morgan)
Early premarket gappers
Gapping up: MACK +36.1%, BIOC +13.7%, ARWR +11.7%, ZFGN +4.1%, DRYS +4%, LC +3.6%, KGC +3%, JD +2.6%, VALE +2.6%, MUX +2.6%, CTIC +2.5%, LVS+1.7%, SLW +1.7%, GDX +1.7%, AUY +1.6%, AKS +1.6%, GFI +1.5%, ABX +1.5%, AG +1.3%, F +1%, GG +1%, NEM +1%
Gapping down: ETRM -7.5%, AGRX -6.7%, OREX -4.7%, RBS -3.3%, HIMX -3.3%, WLL -2.4%, RIG -2.2%, SDRL -2%, SHPG -1.8%, DB -1.7%, PUK -1.5%, RDS.A-1.4%, KO -1.3%, CHK -1.3%, STO -1.3%, BCS -1.2%
Gapping down: ETRM -7.5%, AGRX -6.7%, OREX -4.7%, RBS -3.3%, HIMX -3.3%, WLL -2.4%, RIG -2.2%, SDRL -2%, SHPG -1.8%, DB -1.7%, PUK -1.5%, RDS.A-1.4%, KO -1.3%, CHK -1.3%, STO -1.3%, BCS -1.2%
ARIA/WOOF quotes resume 8:25am et, trading resumes 8:30am
31% Premium $93 vs 70.77
Election rally: What’s priced in?
Since the election, our coverage is up 23% vs. the S&P 500 +6%. We believe that the rally reflects higher interest rates, a steeper yield curve and some probability of changes to regulatory and tax policies. Overall, we believe about 42% of a “blue sky” scenario is currently priced in. Our top picks remain Buy-rated BAC (on CL) and WFC.
Earnings: Building an upside case
The most important drivers to our upside earnings scenario are changes in rate expectations (~17% vs cons.), potential for corporate tax reform (14%) and increased probability of greater capital returns (13%). Normalization of credit costs could reduce earnings estimates by 9%.