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We reviewed earnings transcripts for companies in our coverage through the 2003 SARS and 2009 H1N1 outbreaks. Impacts cited related to these outbreaks were typically modest (up to 3% sales impact in a peak quarter), and we saw a mix of positives (demand for diagnostics, vaccines) and negatives (dental visit disruption, macro pressures). While the average exposure in our coverage to China is in the high-single digits, we expect the impact to our companies of the coronavirus outbreak to be limited unless the outbreak gets significantly worse. Increased sales of diagnostics products and medical supplies are likely to offset by sales challenges in China due to travel restrictions and other business challenges.
Due to realignment of resources, we are dropping coverage of 7 companies: California Resources Corp. (CRC), PDC Energy Inc. (PDCE), Oasis Petroleum Inc. (OAS), Whiting Petroleum Corp. (WLL), Antero Resources Corp. (AR), Chesapeake Energy Corp. (CHK), and Gulfport Energy Corp. (GPOR). Our estimates and price targets of these seven E&Ps should no longer be relied on.
We are updating A&D models ahead of 4Q19 earnings. The biggest changes come from our comm OE names since we pushed out our MAX RTS assumption to July 2020 and delivery resumption around Aug 2020.
As the coronavirus is spreading, the market has shifted to risk-off and our stocks with the most China exposure are lagging the most today. Generally, we believe this is more of a passenger issue than a freight issue, and don’t believe this should be a lasting overhang on our stocks. In today’s note, we review China exposure across our coverage universe, look at transport stock performance during the SARS outbreak in 2003, and look at historical freight volume/pricing trends during SARS.
Scheduled system seat capacity for the Jan-Apr four-month period shows seat growth of +3.8% y/y, flat w/w. Domestic growth was flat w/w at +3.9% y/y as additions by JBLU were offset by cuts from Frontier and ALK. Pacific capacity was flat w/w at +4.6% y/y, transatlantic was up 6bp w/w to +5.6% y/y on rounding, and Latin was flat w/w at +2.0% y/y. Int’l growth was flat w/w at +3.0% y/y. Domestic competitive capacity was down 17bp w/w to +4.4% 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 (+6.2% y/y), DAL (+6.3% y/y), UAL (+4.2% y/y). As news flow percolated over the weekend about the Coronavirus, we didn’t see any new cuts by U.S. airlines to China.
Wolfe Research Senior Biotech & Spec Pharma Analyst, Akash Tewari, hosted a webcast to discuss why the team is still cautious on MYL numbers going forward, whether the company should be modelled as a 'melting icecube,' an important point regarding MYL biosimilar profit share accounting, and more.
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).
Going into 2020 MYL has been the hottest name in our spec coverage and keeps coming up in conversations as investors debate whether or not this stock deserves multiple expansion.
We continue to believe that U.S. equity markets are vulnerable to a 5%-7% near-term drawdown. Our sense is that the downside catalyst could be Bernie Sanders’ recent momentum in polls, electronic markets, and fundraising. The Vermont Progressive could catch additional tailwinds if he wins in Iowa (2/3) and/or New Hampshire (2/11).
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