While nascent, 4Q19 OFS earnings have yielded additional clarity on a USL market that should benefit from ‘real’ frac attrition and the ongoing SLB pivot. HAL, above all, should realize earnings upside from a ‘steadier state’ E&P spending cadence and more balanced OFS supply. If HAL can continue to outpace on the int’l front (leveraging a more competitive D&E portfolio and mix tailwinds for C&P) we see better EPS power upside and a lower capex threshold as supportive of sustainably higher FCF moving forward. If anything (besides the oil tape), pessimism came from the 1Q20 guide vs. a solid 4Q19 result, although this was to be expected seasonally (and didn't impact prior street EPS).
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We are withdrawing our coverage of ARQL + MDCO following the completion of their acquisitions by MRK + NVS.
Wolfe Research Tech Strategist, Steve Milunovich, hosted a webcast with Mark Anderson, CEO of Strategic News Service. Anderson is an out-of-the-box predictions expert who writes the widely-read SNS Global Report on Technology and the Economy. He was among the first to document Huawei's IP theft. He presented his predictions for 2020 and discused the trade war with China, artificial intelligence, and other findings from his application of pattern-finding.
Biden’s national polling aggregate is basically unchanged since our last update and he remains the favorite both in polling and RCP betting average at 35% odds to win vs. Sanders at 31%. From here it is clear that Iowa will be a significant catalyst. From a polling perspective, as we discuss below, after last weekend saw Sanders with strong polling results in IA this weekend Biden bounced back leading in 2 separate IA polls. With no less an authority than Nate Silver’s 538 Politics indicating that a IA win would catapult Sanders / Warren in front of the Dem field from a probability perspective and a Biden win here could make him a near lock to win (again more below), we see Feb 3 as a meaningful marker for the HC sector in general and MCOs in particular as the fundamental backdrop remains fairly benign in the NT after a solid UNH print last week and shaping up strongly for 2021 on the back of accelerating earnings growth post HIF repeal as outlined in our 2020 Outlook.
Underlying figures and additional commentary inside. Takeaways are neutral. Our inventory build is larger than consensus and Asia-bound AG-OPEC exports have risen, but US-bound volumes and overall January MTD AG-OPEC exports have remained subdued. Other Swing supply was also essentially unchanged vs the prior week.
A status conference for the opioid MDL Track 2 bellwether cases in West Virginia (Huntington & Cabell County) will be held Monday 1/27/20. Statements from the parties ahead of the status conference are due Thursday 1/23/20. Key questions include: 1) are the cases ready for trial, 2) are any unresolved motions pending in MDL court, 3) are additional pre-trial motions forthcoming, 4) are any discovery issues outstanding, and 5) what does forthcoming trial look like – jury vs. bench trial, length of trial. Following the briefs and status conference, we will likely have a better idea of when the Track 2 trial could reasonably start. Recall that before being remanded to WV, the Track 2 cases were streamlined to only include distributors and retail pharmacies. MDL attorney Paul Farrell is the primary attorney for Cabell County and has previously discussed targeting a $500M settlement from the 3 distributors here if a trial is to be avoided.
According to Politico, the Supreme Court has rejected Democrats’ request submitted earlier this month to fast track the ongoing ACA lawsuit to the high court before election. For background, recall the 5th Circuit Court of Appeals ruled on Dec 18th, 2019 that the individual mandate was unconstitutional, but sent back the case to the lower district court to assess how much the rest of the law can stand. If correct, the process of briefing, argument, and ruling will restart at the lower court which took 291 days from the start to finish when the lawsuit was first filed. From there the Court of Appeals will have to rule again which will likely delay any Supreme Court decision until 2021 / 2022. See Exhibits 1 and 2 for more on timeline of the case & plans’ exposure to the Medicaid expansion and exchange earnings by MCO with MOH/CNC/ANTM most impacted.
Scheduled system seat capacity for the Jan-Apr four-month period shows seat growth of +3.8% y/y, down 32bp w/w. Domestic growth was down 37bp w/w to +3.9% y/y on cuts by LUV, AAL (both MAX), and HA slightly offset by adds from SAVE. Pacific capacity was down 32bp w/w to +4.6% y/y on cuts by UAL and DAL, transatlantic was flat w/w at +5.5% y/y, and Latin was up 9bp w/w to +2.0% y/y. Int’l growth was flat w/w at +3.0% y/y. Domestic competitive capacity was down 43bp w/w to +4.6% y/y. We continue to look at Block I capacity growth (Jan-Apr) since Block II (May-Aug) schedules are incomplete and possibly misleading. Early domestic Block II growth rates for the network carriers: AAL (+5.9% y/y), DAL (+6.3% y/y), UAL (+2.9% y/y).
If you’re of a certain age you’ll likely agree that one of the things that offered a much-needed dose of humor to the economic doldrums of the 1970s – and the ho-hum to harmful nature of the market which included two bear markets and one near-bear market – was “streaking.” Much different than the 56-game hitting streak authored by DiMaggio in 1941, the Celtics eight straight NBA titles (1958-1959 to 1965-1966), or Ripken’s 2,632 consecutive games started (1982 – 1998), the 1970s version had its genesis on college campuses whereby college students would strip naked and then make a public sprint often with police or security personnel in hot pursuit. The sensation even made a surprise appearance on the stage during the 1974 Academy Awards!
In this week’s piece we discuss several topics from the week with charts, including 1) our near-term view on MGM following recent monetization, which we think will allow them to return 17% of the market cap to shareholders in 2020; 2) PENN’s rumored acquisition of Barstool Sports; 3) updates on the ERI/CZR merger; 4) read-throughs from airline earnings; and 5) leading indicators for Macau GGR.
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