Mihai Nechita

Fri, Nov 16

Stocks Watch - 16/11/2018

US Equities

With the major US equities indices ending last week with a modest gain. Towards the end of the week, the market surrendered some of the earlier gains, as the focus move back to the global growth and FED policy following a higher than expected producer price index.  At the start of this week, we have seen the down trend continuing.

At the end of the trading session on Friday, 90% of the S&P 500 companies have reported earnings. Based on the third quarter reports, earnings per share have shown an annual increase of 25.2% and sales reported showed a year over year increase of 9.4%. The earnings growth figure has been impacted by the US tax reforms.  Market expectations for the next quarter based on the future guidance provided by the companies is for an 14.2% annual increase of earnings with 6.7% revenue growth. If the quarterly figures are met, the full 2018-year earnings growth will be 20.6% with a revenue growth of 8.9%.  For 2019 the expectation at this point are lower with only 9.2% earnings growth and revenues of 10%.

Disney has reported better than expected earnings and revenues that were positively received by the markets upon release. They have also revealed the new service, Disney + that will enhance the Disney franchise and compete with Netflix.

Wynn Resorts have reported earnings matching the market expectation but with a positive surprise to the revenue side, however like Amazon and Apple they did disappoint with the future guidance, as they are expecting lower revenues from the operation in Macau. This caused the stock to decline following the immediate result only to stabilise in the next session.

Activision Blizzard, the video games creator reported below expectation earnings which pushed the stock to the downside. This proved a continuation of their current trajectory where in the last quarter the company has lost 25% of the value.

Berkshire Hathaway, Warren Buffet’s investment arm disclosed last week that for the first time since December 2012 they have bought $928 million worth of their own stock. This has been positively received by the investors and comes about after a better than expected third quarter earnings and revenue.

The UK

The FTSE 100 closed the week almost flat as the pound sterling and the Brexit news weighted on stock movement. The mid capitalisation index FTSE 250 closed the week in negative territory regardless of the mid-week rally. Both indices have had a negative start to the week Monday but regained part of the losses on Tuesday as more positive news on the global trade and Brexit negotiations emerged.

Vodafone’s stock had a positive reaction following their second quarter earnings report, which showed 3% organic adjusted earnings before index and taxes. The dividend will be frozen for the time being, whilst new cost reduction measures are put in place in order to reduce the amount of debt accumulated after the acquisition of Liberty Global’s cable assets. The markets were expecting to see a decrease in dividend.

Morrisons, Britain’s fourth largest supermarket reported a 5.6% rise in quarterly underlying sales, excluding fuel. The result was slightly below the market expectation and they forecasted lower revenue projection for the following quarter. This guidance came to confirm that the increase in comparable sales over the summer quarters would not be sustained over the next quarters.

Direct Line the largest UK motor insurer has reported a 5.8% drop in quarterly gross written premiums but confirmed 2018’s financial targets.

British tobacco firm Imperial Brands reported higher full-year revenue and better-than-expected adjusted profit, helped by market share gains. But their earnings have dropped relative to last year’s return, due to bankruptcy of the distributor Palmer & Harvey and foreign exchange exposure.

Continental Europe

Continental Europe’s major equity indices flowed a similar trajectory as the UK counterparty. Italian Government had to respond by Tuesday to the European Commission demands for a revised budget that would generate a lower deficit. The Italian Government has defied the European Commission by sticking with its current spending budget plan. The European Commission could impose a fine following the Italian position. The developments regarding this situation would influence the evaluation of the risk in the region. 

German insurer Allianz has reported their third quarter net profit surged 24% year on year and confirmed they are poised to meet 2018 profit targets. Naturally investors reactive positively to these results.

Hugo Boss reported a drop of currently adjusted sales by 11% in third quarter. However, if we exclude currency impact, sales have grown by 3%. Their earnings also showing a decrease of 12%. The company’s performance has been influenced by the abnormally hot weather over the last quarter. In order to strengthen their online presence, they announced a partnership with the online retailer Zalando. Regardless of the potential increase in revenue based on the latest partnership the company’s stock price is still fell the preannouncement levels. 

Siemens AG reported earnings above market expectation with improvements in the gross margin and healthier growth on the revenue side. The management team also announced an increased dividend.  Naturally, the stock price had a positive reaction following the announcement.