Scheduled system seat capacity for the May-Aug four-month period shows seats +4.6% y/y, flat w/w. Domestic seat growth came up 2bp w/w to +4.7% y/y from +4.6% y/y due to rounding as additions by LUV and AAL were slightly offset by cuts from UAL. Pacific capacity was flat w/w at +0.2% y/y (technically down 7bp), transatlantic was flat w/w at +5.7% y/y, and Latin was flat w/w at +4.6% y/y (technically down 2bp w/w). Int’l capacity growth as a whole was flat w/w at +4.4% y/y (technically down 2bp w/w). Domestic competitive capacity was flat w/w at +4.4% y/y (technically up 3bp w/w).
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Over the near term, we see tailwinds in place for yield-focused investors as longer-term rates are likely to remain range bound, including the U.S. 10-year yield in a 2.4%-2.7% range, as the global economy works through the current ‘soft patch’ and the Fed remains on the sidelines. However, these tailwinds are likely to turn into headwinds as longer-term rates increase around the globe in the second half of the year on the back of a U.S.-China trade deal and as Chinese policymakers’ stimulus measures begin to take hold.
Our analysis suggests that the current version (v1.0) of Mobility on Demand (MOD) is more concentrated than investors think—8 cities account for more than 50% of all US revenue. Expanding beyond these areas requires the cost of MOD to become much more competitive (with private vehicle ownership) than it is today. We illustrate how difficult this will be… at least under the current, human operated model.
Non-ressie Construction is classic late cycle and likely benefits from supportive credit conditions in key US and China regions. Weak US ressie is a flashing amber and this is where we see earnings risk. IR remains favored play given its superior mix, while LII remains least favored given its heavy US residential exposure and premium multiple.
This week's topics include:
The Consumables Corner: General Mills (GIS, Not Covered) reported results that were well received last week.
Hardline Happenings: Hit Pause. Hit Refresh? Not Yet. A look at existing home sales and the housing market.
Walmart's World: Walmart thinks it has won the price war, we think differently.
A to Z - Amazon Roundup: (1) Amazon’s Prime Video continues its sports streaming binge; and (2) Prime Video movie rentals are being sponsored by CPG, combining two powerful revenue and profit streams for Amazon.
Transport stocks underperformed last week and are now underperforming the S&P 500 for the first time all year following continued weak freight data, FDX’s bad miss and guidance, and CVTI’s 1Q downside pre-report.
In this week’s Sunday Spotlight, we look at mobile banking adoption, including penetration rates, reasons behind the lack of adoption, and the revenue/attrition benefits of mobile users. Coming out of the recent Wolfe FinTech Forum, it has become more evident that digital adoption by consumers in the U.S. remains under penetrated (~35-45%), as evidenced by our fireside chat with CEO of FISV, Jeff Yabuki as well as some industry estimates. Our recent day of meetings with FIS and WP CEOs, CFOs and IRs also confirmed this. Despite retail mobile banking being ubiquitous, with ~90%+ of Federal Reserve FI respondents estimated to be offering mobile banking services, eMarketer’s analysis suggests that only ~45% of the U.S. population is estimated to use mobile phone banking services. Importantly a Federal Reserve analysis suggested that >80% of banks and credit unions rely on core deposit processors (FISV, FIS, JKHY, etc.) to deliver mobile banking services.
With many of you off to New Orleans this week and 1Q earnings season around the corner, our slide deck provides a fresh list of questions for management across our coverage universe. The topics hit on key industry issues and concerns, including spending thoughts, decline rates, parent-child well implications, development style, scale, M&A, balance sheet leverage, hedging, and Colorado risk.
Just a brutal week for our WR Banks & Brokers Index which meaningfully underperformed (-6% WoW), tracking well behind the S&P 500 (-1%) and the S&P Fins. (-5%). The biggest laggards this week were AMTD (-10%), ETFC (-8%), SCHW (-8%), BAC (-8%), and LPLA (-8%) as the Fed’s dovish remarks weighed disproportionately on more asset sensitive financials. Following this week’s selloff YTD performance for the WR Bank / Broker index (+8%) is now lagging the broader market (+12%), and while the leaderboard remains largely the same, including SF (+24%), EVR (+23%), and Citi (+17%), the bottom of the pack has changed somewhat and now includes some of the eBrokers (AMTD +2%, SCHW +1%), in addition to LAZ (-3%).
For the second straight year, FERC tried to steal the spotlight from the NCAA on the first day of March Madness, but this year the consequences were not nearly as drastic for midstream companies. FERC opened an NOI for the ROE rate setting process for oil and gas pipeline companies. Among other questions, FERC has asked for stakeholders’ opinions on the validity of the current two-stage DCF methodology and whether or not to incorporate CAPM, risk premium, and expected earnings models. As FERC awaits feedback, investors are contemplating the possible outcomes. Could the expanded approach impact ROEs significantly? When would the proposed changes come into effect?
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