Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778
Copyright © Daniel Cullinane CPA.
NEW VEHICLE SALES
tocks were expected to take a breather on Tuesday after Monday’s post-trade and post-OPEC gains. The S&P 500 and Nasdaq are right at all-time highs again, and there are warnings that earnings and guidance are likely to take a hit this summer after May and June weakness spread during the trade spat with China. Investors need to be considering how they want their portfolios and assets positioned for the second half of 2019 and beyond.
24/7 Wall St. reviews dozens of analyst research reports each day of the week. Our goal is to find new ideas for traders and long-term investors alike. Some of the daily analyst calls cover stocks to buy. Other calls cover stocks to sell or to avoid.
We have provided these calls in a quick-hit summary for easy reading, and additional comments and trading data have been added on some of the calls. The consensus analyst price targets and other valuation metrics are from the Refinitiv (Thomson Reuters) sell-side research service.
These are the top analyst upgrades, downgrades and initiations on Tuesday, July 2, 2019.
Arrow Electronics Inc. (NYSE: ARW) was downgraded to Outperform from Strong Buy and the target price was cut to $80 from $88 (versus a $72.02 prior close) at Raymond James.[Legacy Report]
SPONSORED BY LEGACY REPORT
New 5G Device Revealed To Public For First Time
A New Technology Is Expected To Be In Every Household In America
Bio-Techne Corp. (NASDAQ: TECH) was started as Buy and assigned a $270 target price (versus a $209.26 close) at Janney.
BlackLine Inc. (NYSE: BL) was downgraded to Sell from Buy with a $41 target price (versus a $53.24 close) at Goldman Sachs. It had a consensus target price of $55.00 and was trading down over 5% at $50.22 ahead of Tuesday’s opening bell.
Cars.com Inc. (NYSE: CARS) was raised to Buy from Neutral at Citigroup. After closing up 0.7% at $19.86, the stock was up almost 3% on Tuesday in early-bird indications, and it had a consensus target price of $27.31 and a 52-week trading range of $19.81 to $20.36.
Coty Inc. (NYSE: COTY) was downgraded to Sell from Neutral at Citigroup.
CenterPoint Energy Inc. (NYSE: CNP) was already rated as Buy at Goldman Sachs, but the firm added it to the prized Conviction Buy list with a $32 price target (versus a $28.49 close) at Goldman Sachs.
Comerica Inc. (NYSE: CMA) was downgraded to Sell from Neutral with a $70 target price (versus a $73.01 close) at Goldman Sachs.
Cummins Inc. (NYSE: CMI) was downgraded to Sell from Hold and the target price was lowered to $145 from $168 (versus a $172.86 close) at Loop Capital. The stock was indicated down 1.6% at $170.05 on Tuesday, and its consensus target price had been $168.14.
Enbridge Inc. (NYSE: ENB) was downgraded to Neutral from Buy at Merrill Lynch.
FTS International Inc. (NYSE: FTSI) was downgraded to Neutral from Buy and the price target was lowered to $6 from $8 (versus a $5.54 close) at Citigroup.
Genesee & Wyoming Inc. (NYSE: GWR) was up 8.85% at $108.85 on Monday after the announcement that it was being acquired. Credit Suisse raised it to Neutral from Underperform after the move.
Ingersoll-Rand PLC (NYSE: IR) was downgraded to Hold from Buy with a $140 price target (versus a $127.69 close) at Jefferies.
Lyft Inc. (NASDAQ: LYFT) was reiterated as Buy at Stifel, and the firm raised its target price to $76 from $70 as its $62.00 share price is $10 lower than the IPO price.
Paccar Inc. (NASDAQ: PCAR) was downgraded to Sell from Hold and the target price was lowered to $62 from $68 (versus a $72.24 close) at Loop Capital.
Roku Inc. (NASDAQ: ROKU) was downgraded to Sector Perform from Outperform at RBC Capital Markets. The call is after strong year-to-date gains of nearly 200%, and the firm believes the gain was justified based on continued robust growth and profitability. It is now more balanced on a risk/reward basis, but analyst Mark Mahaney would be more constructive again if Roku shares saw any major pullback.
Stryker Corp. (NYSE: SYK) was downgraded to In-Line from Outperform at Evercore ISI. It closed up 0.5% at $206.54 and was indicated down 1% at $204.50 after the call.
STMicroelectronics N.V. (NYSE: STM) was up 4.1% at $18.35 with other chip players with ties to China and Asia. Credit Suisse has reiterated its Outperform rating as its sector and company exposure (including Apple and Huawei) will help under the trade war ceasefire.
TJX Companies Inc. (NYSE: TJX) was reiterated as Buy with a $62 price target (versus a $52.96 close) at Argus. The independent research firm noted that TJX has exceptional financial strength, cost efficiencies and an ability to deliver value-priced merchandise in an increasingly competitive retail environment.
Uber Technologies Inc. (NYSE: UBER) was started with a Hold rating and a $50 target at Stifel, with the firm noting that it will be a long road to profitability.
Visa Inc. (NYSE: V) was reiterated as Outperform with a $187 target price at Wedbush Securities. Visa closed up 0.2% at $173.94 on Monday and has a consensus target price of $182.14. Wedbush believes that Facebook’s Libra is an unlikely disruptor.
Watts Water Technologies Inc. (NYSE: WTS) was downgraded to Neutral from Buy at Janney, with the firm noting it as a valuation call as its price target was achieved. Shares closed at $93.26, and the consensus target price was $89.67.
Western Digital Corp. (NASDAQ: WDC) was downgraded to Sell from Hold with a $40 price target at Benchmark. Shares closed up 4.4% at $49.65 on Monday, but they were indicated down almost 3% at $48.20 on Tuesday. The consensus target price was $51.94.24/7 Wall St.
Could Creative Rule-Bending Help Fix Deutsche Bank?
Zacks has released its Bull of the Day with Trade Desk Inc. (NASDAQ: TTD) as its top Buy-rated stock, noting that the next generation advertising platform gives marketers precision data to target billions of consumers on every channel and device. Its Bear of the Day, a strong sell pick, is Micron Technology Inc. (NASDAQ: MU), after seeing that even with top-line and bottom-line surprises analysts took down their 2020 estimates another 23% on weak global demand.
Goldman Sachs is very positive on four big energy stocks that could benefit from OPEC agreeing to continue with the production cuts that were in place.
Monday’s top analyst calls included Apple, Carnival, Generac, Lyft, Six Flags, Square, Tecnoglass, Yum! Brands, Western Digital, Zoetis and many more companies.
Automakers’ U.S. sales in June were down compared to sales in the same month a year ago, but it appears that the industry did just about manage to meet expectations. The seasonally adjusted annual rate of sales (SAAR) appears to be right around 17 million light vehicles (cars, sport utility vehicles and pickups) too, about where analysts expect it to close out the year. The U.S. Bureau of Economic Analysis posted a December 2018 SAAR of 17.49 million, which had declined to 17.31 million May 2019.
Compared to the first six months of last year, new vehicle sales were down 2.3%, not including Ford Motor Co. (NYSE: F), which did not report sales Tuesday but waited until Wednesday. Ford’s year-over-year quarterly sales decline of 4.1% will not pull the monthly higher, however.
General Motors Co. (NYSE: GM) reported second-quarter sales of 746,659 vehicles, a dip of 1.5% year over year, and year-to-date sales of 1.41 million, a decline of 4.2%. Both Ford and GM now report sales figures only on a quarterly basis, a practice that Fiat Chrysler Automobiles N.V. (NYSE: FCAU) will adopt going forward. Ford’s second-quarter sales totaled 650,336 vehicles.
FCA reported monthly sales up 2% year over year to 206,083 vehicles, including a 45% jump in Ram truck sales to 75,227 units and a year-over-year boost of 28%. Monthly U.S. sales of the company’s Alfa Romeo and Fiat brands dropped to 1,595 (down 29%) and 933 (down 35%), respectively. Why does FCA still think it’s worth the trouble to sell those carsin the United States?
Ford’s second-quarter truck sales jumped 7.5% to 324,243 units, and year-to-date sales are up 5.9% at 603,141 units. That’s the highest quarterly total in 15 years. But F-Series pickup sales sagged 1.3% for the quarter and are down 0.6% for the year. The all-new Ranger midsize pickup sold 20,880 units in the quarter, which brought total sales for the F-Series and Ranger to rough parity with second-quarter 2018 sales.
At GM, Silverado second-quarter sales were down 15.9% year over year for the company’s HD models and down 6.9% for the LD models. For the year to date, HD sales are down 20.2% and LD sales are down 9.4%. GMC Sierra HD sales were down 2.9% for the quarter and 14.2% for the year. Sierra LD sales fell 4.7% in the quarter and rose 0.5% for the year to date.
Jeep sales slipped 12% year over year in June and are down 8% for the year to date. FCA touted its all-new Jeep Gladiator midsize pickup, which posted June sales of 4,231 units and year-to-date sales of 7,252. Only the Jeep Grand Cherokee posted monthly and year-to-date sales gains, 11% and 13%, respectively.
Here are a few other year-to-date comparisons based on a report from Automotive News:
Toyota Motor Corp. (NYSE: TM) reported sales of 1.15 million units, down 3.1% year over year.
Honda Motor Co. Ltd. (NYSE: HMC) posted a drop of 1.4% with sales of 776,995.
Nissan brand sales tumbled 7.7% to 708,525.
Subaru sales rose 5.2% to 339,525.
Volkswagen brand sales rose 6.8% to 31,725 units and, including sales of Porsche, Audi, Bentley and Lamborghini brands, VW Group saw an increase of 2.2% to 318,711 units.
Mercedes-Benz brand sales dropped 7% to 29,201 units.
BMW sales rose 2% to 31,627 vehicles.
Since the Boeing Co. (NYSE: BA) 737 MAX was grounded worldwide in March, U.S. airlines have been canceling flights that had been scheduled on Boeing’s newest single-aisle jet. Those cancellations have been good news for some airlines, however.
According to a report Wednesday at Barron’s, Stifel analyst Joseph DeNardi reckons that the absence of the 737 MAX has cut about 2% from the airlines’ seat capacity in the second quarter. American Airlines Group Inc. (NASDAQ: AAL) has even dropped an entire route, its daily flight between Dallas-Fort Worth and Oakland, California. The airline said in a statement that it canceled the flight “to minimize the impact to the smallest number of customers. American has additional service from San Francisco and San Jose [to Dallas-Fort Worth], and we can connect passengers from Oakland via our Phoenix hub.”
The upside for at least one airline is that the 2% reduction in capacity is raising its revenues for the seats that remain available. On Tuesday, Delta Air Lines Co. (NYSE: DAL) reported that revenue miles rose by 8% year over year on domestic flights in June and capacity rose by 4.4%. For the first six months of this, revenue miles are up 7% and capacity is up 5.5%. The airline’s load factor rose 2.9 percentage points to 90.9% in June compared with a year-to-date average of 86.1%. Delta has no 737 MAX jets in its fleet, so has not had to cancel any flights due to the aircraft’s grounding.
Not one to miss an opportunity, Delta has raised its fares. And why not? The 737 MAX grounding has led to fewer seats, fewer flights and rising demand for the seats and flights that are available. Delta likes the current state of affairs so much that it raised its second-quarter earnings-per-share guidance from $2.18 to $2.30, and that’s based on an April revenue boost of 8.3%. Once the company does the math for May and June, that higher earnings estimate may be left behind too.
Southwest Airlines Co. (NYSE: LUV) flew 34 737 MAX jets prior to the March grounding, while American flew 24 and United Continental Holdings Inc. (NASDAQ: UAL) flew 14. Southwest is canceling around 115 flights a day, and United has said it expects 5,340 flight cancellations for the six months between April and September.
While these companies are canceling flights and presumably losing money due to the 737 MAX grounding, let’s wait until they report June passenger data. In the noon hour Wednesday, shares of all four carriers were trading higher thanks to Delta’s guidance boost.
Delta traded up about 1.5%, at $59.41 in a 52-week range of $45.08 to $61.32 with a price target of $67.00.
United traded up more than 2% to $90.77, in a 52-week range of $67.94 to $97.85. The consensus 12-month price target on the stock is $104.65.
Southwest traded up about 1.2% to $52.04, in a 52-week range of $44.28 to $64.02. The price target on the stock is $59.18.
American shares traded up 1.8%, at $32.77 in a 52-week range of $27.02 to $43.89, and the price target on the stock is $40.56.
In the first quarter of 2019, 1,002 renters and homeowners were surveyed by CoreLogic, together with RTi Research. This study acts as a quarterly pulse of U.S. housing market dynamics. Now CoreLogic has released its Home Price Index (HPI) and HPI Forecast for May 2019, and it shows that home prices rose both year over year and month over month.
Each quarter, the research focuses on a different issue related to current housing topics and analyzes home price trends.
According to the May report, home prices increased nationally by 3.6% from May 2018. On a month-over-month basis, prices increased by 0.9% in May 2019, even though April 2019 data was revised.
After several months of moderation earlier this year, the CoreLogic HPI Forecast indicates home prices will increase by 5.6% from May 2019 to May 2020. On a month-over-month basis, home prices are expected to increase by 0.8% from May 2019 to June 2019, bringing single-family home prices to an all-time high.
CoreLogic’s Market Condition Indicators, an analysis of housing values in the country’s 100 largest metropolitan areas based on housing stock, suggests that 38% of metropolitan areas have an overvalued housing market as of May 2019. Also as of May 2019, 24% of the top 100 metropolitan areas were undervalued and 38% were at value.
Frank Martell, president and CEO of CoreLogic, commented:
The recent and forecasted acceleration in home prices is a good and bad thing at the same time. Higher prices and a lack of affordable homes are two of the most challenging issues in housing today, and every buyer, seller and industry participant is being impacted. The long-term solution lies in expanding supply, which will require aggressive and effective collaboration between policy makers, state and local government entities and home builders.24/7 Wall St.
HOUSING RECESSION SIGNS
Forecasts for global economic growth for 2019 and 2020 have been shaved from last year’s 3.6% growth rate to 3.3% in 2019. That estimate came from the International Monetary Fund (IMF) World Economic Outlook published in April and may prove to be too optimistic.
In a report published last week by William Emmons, lead economist at the Federal Reserve Bank of St. Louis’s Center for Household Stability, warns that the housing signals are strengthening for a recession later this year or in the first half of next year.Need a Personal Loan? Apply for up to $35k in 3 Steps
Ad by Discover Personal Loans
A slowdown in the housing market has preceded every U.S. recession since World War II, says Emmons, and there are four indicators to keep an eye on: falling 30-year fixed mortgage rates, sales of existing homes, real (inflation-adjusted) home prices and the contribution of residential investment to growth of U.S. gross domestic product.
Mortgage loan interest rates that fall from their most recent cyclical peak have preceded each of the three most recent U.S. recessions by four to seven quarters. Emmons includes the following graph showing interest rate movements around the recessions of the early 1990s, 2001 and 2008. Precedent indicates the beginning of the next recession in the fourth quarter of this year.
Source: Federal Reserve Bank of St. Louis
The rate of sales of existing homes declined compared to the rate of the three-year period ending four quarters earlier. Current home sales have fallen in each of the past two quarters, a pattern consistent with the three most recent recessions. Emmons interprets the current sales pattern to indicate a recession beginning in the fourth quarter of this year.
While home prices continue to rise, the increases have moderated. This pattern, too, is consistent with the behavior of home prices in each of the past three recessions. Again, this signal points to a recession beginning in the fourth quarter of 2019.
Residential investment’s contribution to U.S. GDP growth has been modestly negative recently and is “very similar” to the periods preceding the 1991 and 2001 recessions. This indicator also points to a recession beginning in the fourth quarter of this year.
Emmons concludes: “Combined with movements in other indicators with good forecasting track records (such as the inversion in the slope of the Treasury yield curve), these housing measures suggest an above-average risk of a recession within the next few quarters.”
No one can know for sure when the next recession will begin, Emmons concedes, but the patterns in these signals from the housing market are “well within the range traced out in the run-up to the three most recent recessions.”
It’s not necessary to dig too hard to turn up other recession signals. The latest report on China’s manufacturing activity as measured by the purchasing manager index fell below 50 in May, its lowest level since January. Current patterns in U.S. equities markets generated a warning from analyst Masanari Takada at Nomura Securities that the S&P 500 index could plunge by 20% to 40%. A recent Merrill Lynch survey of money managers notes that equities are fully valued and that markets have reached the late stages of a 10-year bull run.
Apple Inc. (NASDAQ: AAPL) is perhaps the number-one technology company that will win if a trade truce between the United States and China comes to pass. The problem with this last weekend’s truce at the G-20 in Japan is that there is really nothing permanent, no agreement at the core of intellectual property transfers, and it may all come unglued without notice in the weeks or months ahead. In short, this is a ceasefire rather than an outright end of the conflict. Obviously, last weekend’s news may remove a near-term risk for Apple while leaving long-term risks in place.
24/7 Wall St. has tracked two differing opinions about just how good the weekend’s announcement really was for Apple. One is from Merrill Lynch and the other from Wedbush Securities. While both are implied “Buy” ratings, there are some key differences in the reports.
Wedbush’s Daniel Ives has an Outperform rating and the same $235 price target on Apple. He noted that Apple has become the “poster child” for the U.S./China trade battle: “it all came down to if the Trump-Xi meeting would result in not going forward with the $325 billion in additional China tariffs that would have struck at the core of the tech ecosystem with Cupertino front and center.”
Ives believes that this takes away the biggest risk on the Apple story, for now. It eliminates roughly $2.00 worth of earnings per share risk that likely would have vanished had it resulted in increased costs on the iPhone. Ives noted on Apple’s reliance on China:
We continue to believe that Apple does not look at diversifying production outside of China (e.g. Vietnam, India) going forward IF the current negotiations stay on track on the threat of the $325 billion tariffs staying pure noise and not becoming a reality. While demand issues continue to not be ideal for Apple in China (although we believe the company saw a rebound this quarter vs. the prior few quarters), with roughly 60 million to 70 million iPhones in China coming up for an upgrade opportunity over the next 12 to 18 months this region remains a linchpin of growth for the Apple story. From a scenario perspective, we believe a resolution to the China tariff situation could add between $20 to $25 per share to Apple’s stock over the coming months in our opinion, as this would take away the dark cloud currently shadowing the stock… we believe this weekend’s developments out of the G20 starts to remove the albatross around Cook’s neck which remains the China trade war situation. Taking a step back, there is still more wood to chop ahead for Apple and Cook around seeing a rebound in iPhone demand globally and continued strength in its services business which we believe is key to the overall valuation, however we are incrementally more positive on the stock following developments from the G20 meeting on the tariff front.
Merrill Lynch has a Buy rating on Apple with a $230 price objective. The firm’s Wamsi Mohan remains positive but trimmed Apple’s earnings expectations based on slower App store revenues. His earnings targets went down to $11.68 per share from $11.74 for 2019, to $13.20 from $13.28 in 2020 and to $16.15 from $16.24 in 2021. Mohan noted that while the growth in China App store revenue was 23% annualized in April, its growth declined to 19% in May and then to just 5% in June.
Mohan does view the G-20 trade truce as a positive development as it keeps Apple’s prices unchanged and also delays an immediate need to shift manufacturing and supply chain out of China. More on slowing App store sales was noted as follows:
Given the slowdown in global App store revenue growth during the quarter, and the incremental FX headwinds on non App Store China demand we lower our estimate for F3Q19 (June quarter) services growth to 16% y/y, from prior 18% y/y. We also lower our estimate for Apple Services revenue growth for the Sep quarter (F4Q19) to 17% y/y, from prior estimate of 21% y/y. We reiterate our Buy rating on a strong capital return program, long-term strong growth forecast for Apple services, and potential new products.
Apple shares opened up 2.65% at $203.17 on Monday, but the shares were last seen trading up about 2.2% at $202.22. That’s not bad news at all, but it means that the morning pop hasn’t yet been greeted by extra enthusiasm.
The stock has a 52-week trading range of $142.00 to $233.47, and the consensus target price from Refinitiv was $212.03.