Given the market’s impressive gains this year, why are so many investors miserable? Today’s mystery chart helps explains the cause of their frustrations.
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How is 4Q guidance impacted by the Oct Fed cut and recent steepening of the yield curve? How are deposit costs trending across client segments? How should investors frame the NII trajectory in 2020 assuming fewer rate cuts than prior guidance had contemplated / a Fed on pause? How quickly can deposits reprice lower, and are there any other offsets we should consider (e.g. reduction in LTD and other higher-cost funding sources)?
We recently obtained the KY Medicaid Award scoring – please e-mail us for a copy. The summary scoresheet of key sections – see Exhibit 2 on Page 2 – shows WCG had the highest total score at 1,548.5 vs. maximum of 1,650 followed by AET at 1,525.5. Passport had the lowest score of 1,315.5 followed by ANTM at 1,338.5. HUM, UNH, and MOH are in the middle of the pack with very close scores of 1,467.5 / 1,446.0 / 1,440.0 respectively. Overall the range of scores is relatively wide between winners and losers w/lowest scored winner MOH ~100 pts higher than runner-up ANTM – potentially making any appeal difficult. See Exhibit 1 on Page 2 and our previous note for estimated financial impact of the award where we see MOH (potentially adding ~3.1% to earnings power) as the biggest winner. We note both ANTM and Passport have protested these awards which were made under Governor Bevin’s administration.
We believe U.S. airline pricing has not benefited from the grounding of the 737 MAX. We do agree with most, however, that RASM has benefited as airlines drove higher load factors particularly during this year’s peak summer months. Following the grounding of the 737 MAX late in 1Q19, y/y load factor growth for U.S. airlines accelerated 124bp q/q in 2Q19, the most in at least 30 quarters. Meanwhile y/y yields accelerated 133bp q/q, below the average rate of acceleration (180bp) during the same 30-quarter period. This sets up for a difficult headwind to overcome in 2020 as airlines will struggle to repeat or even hold on to load factor gains without further stressing their operations.
The Wolfe Industrials team hosts a webcast on Fridays at 11:00AM ET to discuss industrials and transports news and themes for the week. Presenting analysts include Scott Group (Airfreight & Surface Transportation), Hunter Keay (Airlines and Aerospace & Defense), Nigel Coe (Electrical Equipment & Multi-Industry), and Rod Lache & Dan Galves (Autos, Auto Parts, & Auto Technology).
We raise our target price from $92 to $102, since ETN emerges as a much higher margin (19-20% EBITDA margin proforma) and ROIC company. This, along with the re-class of ETN's dividend to income for tax purposes (3.1% yield) should catalyze multiple expansion. Risk/reward is looking considerably more favorable entering 2020, although we need to see consensus estimates ($5.93 vs. $5.67 WRe) become more grounded in reality.
The Wolfe Healthcare team hosts a webcast on alternate Fridays at 10:30AM ET to discuss healthcare news and themes for the week. Presenting analysts include Justin Lake (Healthcare Services), Steve Baxter (Healthcare Technology & Distribution), Tim Anderson (Global Pharma), Akash Tewari (SMID Cap Biotech & Spec Pharma), and Steve Beuchaw (Life Science Tools & Dental).
US construction data for October were actually pretty positive for both core non-residential and residential segments. The magic of low rates is starting to take root; continued expansion in payroll and positive credit quality metrics likely support the outlook for modest growth into 2020.
The Wolfe Energy team hosts a webcast on Fridays at 10:00AM ET to discuss energy news and themes for the week. Presenting analysts include Josh Silverstein (E&P), Sam Margolin (Global Integrateds & Refiners), Blake Gendron (Oilfield Services), and Keith Stanley (Midstream).
We cite two factors which appear to set AXL up for favorable near term risk/reward: 1) We project very low GM truck inventories into year-end, supporting strong production. That alone may not be a reason for upside… But it’s potentially something that mitigates downside; 2) Many stocks in this sector are cheap. AXL is no exception. The main question that investors grapple with is whether there’s a bid for this type of business. Interestingly, we’ve been hearing about increased interest in Autos from Private Equity. Irrespective of whether AXL truly seeks to explore PE options, a transaction (with another company) could illustrate that there’s a bid for this type of business.