This is Product Pulse, our Refining monthly note. Our Refining weekly, Capture Trackers, deals with Refining esoterica and trending topics, whereas Product Pulse is a broader view summarizing regional margins, refined product supply snapshots, and, most importantly, a monthly sector EPS mark to market.
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ARCB, ODFL and SAIA provided mid-quarter updates over the past 2 days, with each seeing improved trends in May relative to April. Revenue/day trends relatively improved for ARCB and ODFL by 2%-3% in May vs. April, while tonnage trends at SAIA improved 400bp in May vs. April. We’re raising our EPS estimates for SAIA and ODFL and lowering our 2Q EPS for ARCB, and we’re now above 2Q Cons. for all 3 carriers.
As the NASDAQ 100 probes the February highs, a few of the index’s biggest constituents are exhibiting signs of fatigue.
Wolfe Research Senior Payments, Processors, & IT Services Analyst, Darrin Peller, hosted a Fireside Chat with Global Payments CEO Jeff Sloan – Omnichannel Differentiation
Wolfe Senior Life Science Tools & Diagnostics Analyst Steve Beuchaw hosted a life science webcast.
While the E&Ps have rallied off early April lows on back of a rising forward curve and narrowing credit spreads, we believe sector valuation remains a challenge and downside risks are being overlooked, particularly with producers that still need to address balance sheet leverage. We believe this is the case at OXY, where the stock is 60% above lows and trades at a 14% to premium to peers despite its $38.5Bn debt burden. OXY’s restructured management and board are focused (almost singularly) on reducing balance sheet risk and they have the tools and a high-quality asset base to help them do this, but the effort is clouding the forward outlook of the equity, the quarterly dividend cut to $0.01/sh provides no return of capital support during the recovery, and upside from rising crude will flow to the credit. We downgrade OXY to Underperform and view the 2024 Senior Notes, currently trading at 80-90 and yielding 8-9% as offering the best risk/adjusted upside in the cap structure.
Ahold announced another bolt-on M&A deal where it will be acquiring 62 stores from Southeastern Grocers. The deal will allow it to infill some rural areas in Georgia and the Carolinas while capitalizing on the strength of the Food Lion banner. We think this deal fits well with its strategy of consolidating the fragmented food retail industry through thoughtful M&A (we discuss this in detail in our May 28th initiation) and should draw on its solid track record of successful integration (e.g. Delhaize acquisition in 2016).
Wolfe Research Vice Chairman and Head of QES Research, Yin Luo, hosted a webcast to discuss, the economic environment for global dividend/income investinhe GRID – Dividend Growth Investing, the DISC and the PADS – Predicting Dividend Cuts and Identifying Turnaround Storie. The FIND – A Quantamental Model for Dividend-Paying Stocks
Our latest checks across the home improvement space suggest spending on DIY projects has not slowed and pro activity continues to improve. This is consistent with our prior checks (through May 15th) and initial Q2 commentary from both Home Depot (HD) and Lowe’s (LOW). Top-line trends are expected to remain elevated for some time as consumers remain in a stay-at-home mindset.
We’re concerned about the Muni market for several reasons, including (1) rising yields can make it even more expensive for states and cities experiencing significant revenue losses and higher expenses (including unemployment benefits & related assistance) to finance growing deficits; (2) many pension and money market mutual funds are invested in Munis that could experience significant losses; and (3) individual investors (especially retirees) could also be negatively impacted.
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