Last week, the four FERC commissioners (one vacancy) – Republicans Chatterjee (chair) and McNamee; Democrats LaFleur and Glick – testified at a House Committee Oversight hearing. Chair Chatterjee said PJM capacity market reform is “a vexing challenge,” while Comm LaFleur was “deeply, deeply troubled by the delay” in issuing a decision on PJM. We also met last week with industry reps who follow utility issues in DC. Our takeaway: a FERC decision on the contentious case depends on 1) when LaFleur departs, 2) who replaces her, and 3) when the nominee is confirmed. LaFleur, whose term expires this month, reiterated her “time is coming to an end later this year.” Some think that can be next month. President Trump can appoint someone to replace her, fill the vacancy, or both. Three commissioners can be of the president’s party; the Senate must confirm any appointment.
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For example, in our Technical Scoring System the index gets a 1 (scale 0 – 5; 0’s & 1’s = poor / weak, 2’s = neutral; 3’s & 4’s = firm / strong). Other Asian equity indexes with equally poor Technical Scores include the Hang Seng China Enterprises Index and the Shenzhen SE. The Nikkei and the Topix have Technical Scores of 1 and 0, respectively.
The STB released May headcount data for the rails (U.S. operations only) today. Total headcount declined 2.8% y/y, the largest decline in 14 months. Total headcount also fell 0.9% m/m, the 6th straight sequential reduction. So despite weak volumes in May (-1.4% y/y), rail labor productivity remained positive.
MPC continues to lag, but we continue to believe that headwinds are not structural nor the result of a bad combination of assets (i.e., the “takeoff”). Rather, MPC can correct “the landing” over the next six months as operations/reporting fall in line with previously more bullish expectations. A simplification of the corporate structure could help in this regard as well. Reiterate Outperform, $98 target.
Following the reported (explored) sale of PTEN’s frac business last Thursday (06/13/19), FRAC & CJ announced this morning an all-stock merger-of-equals, expected to close in 4Q19. The combined company represents the third largest USL frac company (2.3M HHP), with a diversified C&P footprint across cementing, wireline, coiled tubing, workover rigs, and fluid mgmt that represents the #4 NAM OFS provider by revenue (behind HAL, SLB & BHGE).
Our total Walmart basket continues its decline as the basket is down slightly from the prior week yet again. Indeed, our Walmart basket is off from its peak reached 8 weeks ago largely driven by price decreases in the Food basket over the last 2 months, but partially offset by higher HPC prices. Although there was not much movement on a sequential basis in any of our baskets this week, the two primary moves were the reversal of Weight Watchers Smart Ones prices which had been increased at the end of March and are now back to previous levels and the further rollout of lower Pepsi soda prices which began 3 weeks ago. On a y/y basis, Walmart’s National Basket remains up y/y (+0.8%), Food remains slightly deflationary (-0.5%), and HPC and Pet baskets are inflationary (+1.9% and +4.4%, respectively).
Before the market open (06/17/19), Pfizer (PFE) announced the acquisition of Array BioPharma (ARRY) for $48/share, for an enterprise value of ~$11.4B. The principal asset is a BRAFi/MEKi combination called BRAFTOVI and MEKTOVI, approved for BRAFmt melanoma but which is poised for filing in BRAFmt mCRC. BRAFTOVI and MEKTOVI are split with Pierre Fabre (EU) and Ono (Japan).
Actually, a number of semi makers already had estimated the hit from lower sales to Huawei. Although the WSJ highlighted Huawei as the primary problem, we would emphasize lower revenue with its other OEM customers. Broadcom had been the flag carrier for an anticipated second-half recovery for the chip industry. That optimism largely has been dashed. CEO Tan did blame the trade conflict for causing its customers to reduce inventory. He pointed out that the revenue miss “obviously extends beyond just one particular customer.”
Scheduled system seat capacity for the Sep-Dec four-month period shows seats +6.0% y/y, up 37bp w/w. Domestic seat growth was up 35bp w/w and is now +6.4% y/y, as SAVE loaded its schedule and is now set to grow +19.7% y/y vs. +5.9% y/y last week. SAVE adds were slightly offset by Frontier, ALK, and ALGT trims. Pacific capacity was flat w/w at +2.1% y/y, transatlantic was flat w/w at +6.9% y/y, and Latin was up 77bp w/w to +1.2% y/y on SAVE additions. Int’l capacity growth was up 47bp w/w to +2.7% y/y. Domestic competitive capacity came up 58bp w/w to +6.9% y/y from +6.3% y/y last week.