GAS PRICES UP
Many investors have operated under the hope and belief that the worst has been seen at General Electric Co. (NYSE: GE). After all, its shares have been cut in half and then some, it’s already involved in a monumental restructuring and it has been booted out of the Dow Jones industrial average. Unfortunately for GE holders, there may be more bad times ahead, if a very negative analyst continues to be correct about the conglomerate.
JPMorgan has been negative on GE for some time, and long before it was cool to be negative about Jeff Immelt’s plans. The research report also is not saying “enough is enough” here at all. JPMorgan’s Stephen Tusa said that the data points he has seen continue to support a bearish view. In other words, Tusa thinks GE has even more downside ahead. His rating is Underweight, and the price target of $11 represents about 10% in implied downside. The term “Underweight” in ratings is effectively synonymous with “Sell.”
The bearish report notes that each company filing shows increased evidence that there is likely material downside to GE’s consensus earnings expectations for 2019. One issue mentioned was that GE Capital continues to shrink and each industrial business looks less impressive.
That’s bad news for those investors hoping for an outright breakup of GE. In other words, GE might not be worth more when you just add up the value of the standalone entities without the major corporation stature of today. Thomson Reuters has consensus earnings estimates of $0.94 per share in 2018 and $1.01 in 2020.
GE shares have a 52-week trading range of $11.94 to $25.21, and the 0.9% drop to $12.47 in midday trading on Friday doesn’t look good. To add insult to injury, GE was a $30 stock not that long ago.
Just because one analyst is negative does not necessarily mean that he has a crystal ball. The consensus analyst price target from Thomson Reuters currently is just under $17. That said, JPMorgan has had an Underweight rating on GE since May of 2016 (back when GE shares were just over $30) and the firm has lowered its target price more than once since that initial downgrade. That means this firm has been more accurate than the consensus estimate by a long shot.
US Gas Price Ticks Higher Again, but Lower Prices Seen Ahead
By Paul Ausick September 17, 2018 12:45 pm EDTPrintEmail
The average U.S. price for a gallon of regular gasoline rose by half a cent in the past week, to start this week off at a price of $2.84, according to the latest data from GasBuddy. The summer driving season (Memorial Day weekend through Labor Day weekend) posted an average price of $2.87 a gallon, the highest since 2014. Pump prices reached a year-to-date high of $2.97 at the Memorial Day holiday and have declined slowly ever since.
Month over month the price is up a mere tenth of a cent per gallon and remains about 24 cents a gallon higher year over year. Last month the national average was $2.843, while the year-ago average was $2.609.
Retail gasoline prices were 55 cents a gallon higher this year compared to the summer driving season of 2017, but 71 cents below the 2014 average.
Patrick DeHaan, head of petroleum analysis at GasBuddy, said:
With several areas of tropical weather moving away from the U.S. comes some breathing room for energy markets, with oil prices under pressure as the risk premium subsides, setting the stage for some relief at the gas pump as we progress through the week. Despite the tremendous blow and flooding of the Carolinas, Florence’s impact on oil delivery and refinery operations was next to nothing. … In addition, this week marks the first full week of cheaper winter gasoline across most of the country as EPA regulations see their seasonal ease. This, coupled with lower demand in the weeks ahead, will push retail gasoline prices lower.
Hurricane Florence has forced the closure of about 20% of North Carolina’s gas stations, and nearly 10% are closed due to lack of electricity. About 17% of the state’s diesel pumps are also out of fuel, according to GasBuddy. Outages were worst in Wilmington, where at least 70% of stations were reportedly out of gas. In Greenville/New Bern, 56% were without gas, but the number is an improvement over the 63% that were without gas on Sunday. In Raleigh/Durham, nearly 26% of stations were still without fuel.
There have been no reported fuel pipeline disruptions due to the storm. The issue in the Carolinas is a logistical one of getting fuel (and in some cases, electricity) into the flooded areas.
States with the lowest average prices last week included: Alabama ($2.51), Mississippi ($2.52), Louisiana ($2.55), Arkansas ($2.56), South Carolina ($2.57), Tennessee ($2.57), Texas ($2.59), Oklahoma ($2.60), Virginia ($2.62) and Missouri ($2.62)
The highest average prices per gallon last week were reported from Hawaii ($3.70), California ($3.62), Washington ($3.36), Alaska ($3.27), Oregon ($3.24), Idaho ($3.19), Nevada ($3.19), Utah ($3.11), Pennsylvania ($3.06) and Connecticut ($3.01).
Benchmark West Texas Intermediate crude oil for October delivery traded down about 0.2% in the noon hour Monday to $68.87, while Brent for November delivery traded at $78.08. The price differential (spread) between WTI and Brent crude decreased by $0.37 to $9.21 a barrel week over week.
MORE BAD NEWS
SEPTEMBER NEWSLETTER 1
Stocks were indicated to open marginally lower after news that President Trump is set to enact more tariffs against China. U.S. equity indexes remain very close to all-time highs, while most international markets are not close to theirs. One issue that must be considered is that investors have seen less upside from buying on market pullbacks than in prior years. Investors also need to be considering how they want to have their investments positioned for the rest of 2018.
24/7 Wall St. reviews dozens of analyst research reports each day of the week to find new ideas for investors and traders alike. Some analyst reports cover stocks to buy, but some of them cover stocks to sell or to avoid.
Additional commentary has been added on most of the daily analyst reports, along with trading history. The consensus analyst price targets and other valuation metrics are from the Thomson Reuters sell-side research service.
These are the top analyst upgrades, downgrades and initiations seen on Monday, September 17, 2018.
Alliance Data Systems Corp. (NYSE: ADS) was started with a Buy rating and assigned a $290 price objective at Merrill Lynch.
American Express Co. (NYSE: AXP) was raised to Overweight from Equal Weight at Stephens. Amex shares were indicated up 0.8% at $110.50 on Monday after a 0.8% gain on Friday. The consensus target price was $111.80, and the 52-week trading range is $86.95 to $110.01.
Anthem Inc. (NYSE: ANTM) was started as Outperform and the price target was set at $318 (versus a $270.78 prior close) at Cowen.
Aramark Corp. (NYSE: ARMK) was started as Outperform and assigned a $52 price target at Bernstein.
Bed Bath & Beyond Inc. (NASDAQ: BBBY) was raised to Market Perform from Underperform at Raymond James. Shares were up 3% at $18.07 on Friday’s close and indicated up another 1.6% at $18.35 on Monday. The prior consensus target price was $17.82.
Cigna Corp. (NYSE: CI) was started as Outperform and the target price was set at $240 (versus a $195.11 close) at Cowen. Cigna had a consensus target price of $223.06.
Costco Wholesale Corp. (NASDAQ: COST) was maintained as Overweight by JPMorgan, but Barclays downgraded it to Equal Weight from Overweight. Shares closed down 2.4% at $235.38 on Friday and were indicated down 0.8% more at $233.50 on Monday. The consensus target price was $232.41.
Dave & Buster’s Entertainment Inc. (NASDAQ: PLAY) was reiterated as Buy and the target price was raised to $72 from $65 (versus a $62.05 close) at Canaccord Genuity. BMO Capital Markets reiterated its Outperform rating and raised its target price to $70 from $64.
Federated Investors Inc. (NYSE: FII) was raised to Neutral from Underweight at JPMorgan.
Hormel Foods Corp. (NYSE: HRL) was downgraded to Market Perform from Outperform but the price target was raised to $44 from $38 (versus a $41.90 close) at BMO Capital Markets.
Kraft Heinz Co. (NASDAQ: KHC) was started as Underweight and assigned a $52 price target (versus a $58.97 close) at Morgan Stanley. The stock was indicated down almost 1% at $58.40 on Monday, within a 52-week range of $54.11 to $82.48 and with a consensus target price of $68.48.
LyondellBasell Industries N.V. (NYSE: LYB) was downgraded to Neutral from Buy at Citigroup.
Micron Technology Inc. (NASDAQ: MU) was maintained as Market Perform and the target price was cut to $45 from $63 at BMO Capital Markets. Deutsche Bank maintained its Buy rating on Micron but lowered its target to $60 from $80.
Redfin Corp. (NASDAQ: RDFN) was started with a Neutral rating and assigned a $20 price target at Macquarie.
Revance Therapeutics Inc. (NASDAQ: RVNC) was downgraded to Market Perform from Outperform at JMP Securities.
Southwest Airlines Co. (NYSE: LUV) was reiterated as Outperform and the price target was raised to $71 from $68 at Macquarie.
Sprout’s Farmers Market Inc. (NASDAQ: SFM) was downgraded to Equal Weight from Overweight with a $30 target (versus a $28.22 close) at Barclays.
Titan Medical Inc. (NASDAQ: TMDI) was started as Outperform and assigned a $6 price target (versus a $1.92 close) at Northland Securities. It has a 52-week range of $1.70 to $7.75 and a mere $41 million market cap.24/7 Wall St.
More Bad News Ahead for General Electric
Twitter Inc. (NYSE: TWTR) was maintained with a Sell rating but its price target was lowered to $21 from $23 at MoffattNathanson, citing the cost of growth set to rise in 2018 and into 2019 with lower margin expectations. Twitter was indicated down 2.8% at $29.25 on Monday, after closing down 0.9% at $30.12 on Friday. The consensus target price is $33.87, and the 52-week range is $16.57 to $47.79.
UnitedHealth Group Inc. (NYSE: UNH) was started as Outperform and assigned a $308 price target (versus a $265.31 close) at Cowen.
Vale S.A. (NYSE: VALE) was downgraded to Underperform from Sector Perform and the target price was cut to $11 from $12 at RBC Capital Markets.
Visa Inc. (NYSE: V) was maintained as Buy but was removed from the prized Conviction Buy list at Goldman Sachs. Visa was indicated down 0.5% at $147.10 on Monday, with a consensus target price of $160.10.
Friday’s top analyst calls were in Adobe, Corning, Costco, GrubHub, Kroger, Micron, Shopify, SLM, Walmart, Yelp and about a dozen more.
Perhaps it is a sign that Ford Motor Co. (NYSE: F) wants to clear inventory as it exits 2018. Perhaps it has vehicles it needs to sell because they have been on dealer lots too long. Whatever the reason, Ford currently offers 0% annual percentage rate (APR) for 72 months, among the most aggressive discounts available, for three of its mainstream models.
The deals are available on 2018 models for the Escape, Edge and Explorer.
The offers, which also include $1,000 credit bonuses, need to be financed via Ford Credit and are only available to people screened for good credit ratings. Presumably, Ford makes some money through the use of its “in-house” financial operation. However, the deals remain extraordinary, particularly in a period just ahead of what economists believe will be years of rising interest rates
Through July, Edge sales were down 5.1% to 78,198. Escape sales were off 10.5% to 165,257. Explorer sales were down 4.5% to 131,048. Each is among Ford’s best-selling models.
Each of the three vehicles falls into Ford’s crossover and sport utility vehicle category. The category, in general, has done well across the industry, which makes the discounts hard to understand. The vehicles are spread across Ford’s models in terms of base prices. The Escape has a base price of $23,940, while the Edge’s base price is $29,315 and the Explorer’s base price is $32,140. Base price models usually have small engines, which makes them attractive to buyers who want good fuel economy.
Ford continues to struggle in the United States, which is among the reasons it has become unpopular with many investors. Its stock is down 25% this year, compared with rival GM, which is down 14%. Ford’s credit rating was chopped recently by Moody’s from Baa3 from Baa2 with a negative outlook. The credit rating agency is not only concerned about Ford’s current situation. It also is skeptical about a turnaround that is in early stages.
No car company wants to offer 0% APR financing. The fact that it is spread over 72 months is even more telling.
Copyright © Daniel Cullinane CPA.
Shares of Nike Inc. (NYSE: NKE) vaulted into the top-performer’s slot among the Dow Jones industrial average stocks last week. The athletic gear maker’s stock added nearly 4% to its share price and set a new all-time high in the process. For the year to date, Nike stock is up 33.5%.The second-best performer in the index so far this year is Microsoft Corp. (NASDAQ: MSFT), which is up 32.5%. That is followed by Apple Inc. (NASDAQ: AAPL), up 32.3%, Visa Inc. (NYSE: V), up 29.7%, and Merck & Co. Inc. (NYSE: MRK), up 24.4%. Of the 30 Dow stocks, 16 have managed to post a gain to date in 2018.The blue-chip index added 38.28 points last week to close at 26,154.67, up about 0.9% compared to the previous Friday’s close. For the third quarter to date, the Dow is up 8.2%, better than the S&P 500 (up 7.1%) and the Nasdaq Composite (up 6.8%). For the year to date, the index is up 5.4%, trailing both the S&P 500 (up 7.8%) and the Nasdaq Composite (up 14.3%).
Nike’s run last week began with a lift of about 2.4% on Monday. The driving force was the company’s new ad campaign featuring NFL player Colin Kaepernick. After some initial backlash, the risky campaign paid off big for the company. Here’s just a sample of what analysts had to say:Wedbush called Nike an iconic American brand and raised its price target from $85 to $80. Analyst Christopher Svezia said, “Nike benefited bigly from France winning the World Cup, enhancing its EMEA growth.”Canaccord Genuity raised its rating on the stock from Hold to Buy and boosted its price target from $78 to $95 a share. Analyst Camilo Lyon said that Nike has “regained its footing and is solidly marching back to top form.”
Research firm Edison Trends noted that between the Sunday before Labor Day and last Tuesday, Nike’s online sales rose 31% and social media engagement numbers were off the charts. Nike’s social media mentions rose more than 1,600% over the first two days of last week, and Kaepernick mentions rose more than 360,000%, according to researchers at 4C Insights.
One last item. Nike struck a deal with Walmart-owned Jet.com to sell Nike products beginning next month. The agreement does not include Walmart.com but fits in well with the parent company’s efforts to position Jet.com as an e-commerce site aiming at a younger, more affluent market.Nike shares closed Friday at $83.49, in a 52-week range of $50.35 to $83.90, a new all-time high posted Thursday. The consensus price target is $82.53, and Nike’s forward price-to-earnings ratio is 26.67.
Starbucks Corp. (NASDAQ: SBUX) is planning to open 10,000 new “greener stores” by 2025 as part of its green initiative. The coffee giant announced earlier this summer that it was doing away with plastic straws.
The “Starbucks Greener Stores” framework will be built upon comprehensive performance criteria that help ensure the company’s approach to designing, building and operating its company-owned stores sets a new standard for green retail.
Over the next year, Starbucks will develop an accredited program to audit all existing company-operated stores in the United States and Canada against the framework criteria, culminating in 10,000 “greener stores” globally by 2025, encompassing existing stores, new builds and renovations. The Starbucks Greener Stores framework will also be open-sourced to benefit the broader retail industry.
While this idea sounds great on the environmental aspect, it also saves some green on the books as well. Overall, Starbucks Greener Stores framework is anticipated to save the company an incremental $50 million in utilities over the next 10 years. This builds on Starbucks’ 10-year legacy of utility cost savings attributable to greener store practices, which already equates to roughly $30 million in saved annual operating costs.
Erin Simon, Director of research and development at World Wildlife Fund, U.S., commented:
This framework represents the next step in how Starbucks is approaching environmental stewardship, looking holistically at stores and their role in helping to ensure the future health of our natural resources. When companies step up and demonstrate leadership, other businesses often follow with commitments of their own, driving further positive impacts.
Shares of Starbucks were last seen trading at $54.40, with a consensus analyst price target of $57.88 and a 52-week range of $47.37 to $61.94.
Daniel Cullinane CPA
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2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778