After multiple attempts over the past year, Health Care has finally been able to accelerate through stiff resistance, as longer-term laggards Biotech and Providers & Services (Managed Care in particular), exhibited impressive reversals. Catching many offsides, ourselves included, we would expect a period of digestion as deeply overbought conditions meet resistance. Can momentum persist? As always, how they handle this overhead supply will be particularly telling. While the turn in Managed Care was violent as political concerns eased, the turn in Distributors has been more measured, but nonetheless compelling. We’ve discussed the improving action in CAH, MCK AND ABC before, but we remain intrigued with their potential following 4-year downtrends.
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Underlying figures and additional commentary inside. Takeaways are mixed but slightly positive overall. On the bearish side, our crude build forecast is above consensus and AG-OPEC exports to the US have been revised upward. However, those points are offset by overall AG-OPEC export data being revised downward, November MTD exports falling back towards October levels and Other Swing Supply also down vs the week before.
In a recent 451 Research survey, 38% of respondents flagged information security as suffering from an acute skills shortage. As IT infrastructure becomes more complex, 89% say it is difficult to recruit information security professionals, while 82% find it difficult to retain them. Staff turnover is most prevalent in SMBs where a firm’s senior management described the issue: “We’re constantly having to refresh the staff because the talent that we get is B-grade. We train them up to A-grade, and then they get cherry picked.” We think that favors public cloud vendors.
In our view, both NRG and VST made compelling cases on Q3 calls when discussing future EBITDA and Free Cash Flow growth based on real capital allocation flexibility.
DVA announced 3Q19 OI of $462M which beat WR / Consensus $430M/$404M as did adj. EPS of $1.52 vs. WR / Cons of $1.34/$1.24. The co. raised FY19 OI guidance to $1.74B-$1.77B (vs. $1.64B-$1.70B prior) driven almost entirely by increased calcimimetics benefit of $220M (vs. $125M-$150M prior). Op Cash Flow now expected at $1.525B-$1.625B (vs. $1.450B-$1.625B prior) and CapEx of $740M-$780M (vs. $800M-$840M). We est. core US Dialysis OI growth at (1%) in 3Q and leave our 4Q est. of (1%) unchanged as updated FY guidance appears to imply ~flat to slightly negative core growth for FY2019 – see our 2019 OI bridge on page 3. For 2020 DVA raised EPS guidance to $5.25-$5.75 (+$0.25 at midpoint) which contemplates two new developments since their capital markets day: (1) $0.75 tailwind from ~10%-15% lower share count; and (2) $0.50 headwind from elevated advocacy spend to combat the new SEIU ballot measure in CA.
SAGE’s upcoming (data in Q419) phIII readout in MDD remains one of the biggest catalysts in all of biotech with positive data potentially sending the stock to $200+ and a negative readout sending SAGE to sub $100.
What does the TEN CFO departure signal?
Early yesterday morning TEN announced that their CFO will be leaving the company to become CFO at TI Automotive. We suspect that this signals a somewhat different strategy vs what we had been expecting. But this could still result in upside.
Volkswagen conference call a mixed bag for Suppliers
Volkswagen held a conference call Monday morning, trimming 2020/2025 targets. While VW does expect challenging markets in 2020 and is facing significant CO2 compliance costs, the company has opportunities to offset those through several initiatives, including greater platform consolidation and material costs savings. Implications to Suppliers would be mixed. .
Ford’s first foray into long-range BEV’s is impressive
Specs and pricing on the Ford Mustang Mach-E were impressive. But we don’t see this as stock-moving for Ford (volume targets are relatively low at 50k units and “contribution margin accretive” likely means not profitable at first).
We’re updated estimates post 3Q results, see below with more detail inside.
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