CVS announced this morning (01/18/19) that WMT will continue to participate in the CVS Caremark networks. Recall that on Tuesday (1/15), CVS announced the termination of contract (Medicaid & Commercial only) with WMT due to a dispute over pricing/reimbursement. We expected the potential disruption to be manageable even if WMT were to opt out from the networks. The companies stated that they “have reached a mutually agreeable solution” on “fair and equitable terms” without disclosing the financial terms of the new contract. We believe less than 4% of CVS’s scripts are filled in Walmart, given higher Caremark member penetration in CVS’s own retail pharmacies and WMT’s skew to cash customers.
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RASM is outpacing peers, they are clearly taking share, and management sounds as optimistic as ever. Part of what UAL is doing is improving the utility of its hubs. Roughly two years in, we now have some decent data available to evaluate a few things: (1) which airlines are in the crosshairs of UAL’s growth, (2) if those airlines have responded to UAL’s growth, at least in those markets, (3) the impact to competitor airline load factors in those markets, and (4) UAL’s success rate.
WIW #577: This week, we dive into the HVAC market where we are turning more bearish on the outlook for replacement volumes. We also see risk to industry pricing disciple in 2H19 and are now more skeptical on the outlook for industry consolidation. We continue to see downside to 2020 estimates for UP-rated LII; we maintain PP on JCI and OP on UTX and IR.
IBM’s plan is to move to higher value with a focus on hybrid cloud hosting and services. Investors remain skeptical of Big Blue’s ability to be an “incumbent disruptor.” The company rarely misses consensus EPS, which is $4.84 for 4Q—we are at $4.88 on revenue of $21.8bn and a tax rate of 14.7% as expansion in services margins counteracts headwinds in product mix and currency. Guidance is tricky given divestitures and the Red Hat acquisition. We look for “at least $13.75” with variability to the downside and a required low tax rate.
JBHT reported noisy 4Q EPS with a large charge related to the BNSF arbitration and a low tax rate. Including the estimated 4Q impact of the BNSF charge but excluding the retroactive amounts and normalizing for the tax rate, we view underlying 4Q EPS of $1.63, well above our estimate and Cons. of $1.48. On this basis, Intermodal beat our model by $0.03, Dedicated beat by $0.06 and TL beat by $0.02.
With CMCSA earnings coming up next week (1/23), we provide our thoughts on the numbers, sentiment and what to do with the stocks into the print. Please see the Full PDF link below for our detailed 30 page slide deck. OK
Following UNH’s earnings report and conference call this week, we are revising our outyears estimates upwards to reflect UNH’s ability to manage through potential HIF headwinds in 2020+, driven by partially the multi-year medical cost / G&A savings noted at the 2018 Investor Day and continued improving performance across Optum. Our ‘19/’20/’21 est. are now $14.60 / $16.50 / $18.70 vs. previous $14.57 / $16.10 / $17.96 – generally in-line w/consensus. PT is now $276 off new 2020 EPS of $16.50 assuming a 10% premium to S&P multiple of ~15x / target relative multiple of 16.7x.
Wolfe Research Senior Payments, Processors, & IT Services Analyst, Darrin Peller, hosted a webcast to discuss the FISV/FDC deal rationale, accretion and merger model overview, a look into revenue and cost synergies and potential upside, and valuation and broader coverage implications.
We see yesterday (01/16/19) morning’s announced FDC acquisition by FISV as strategically sound for numerous reasons, including: (1) merchant bank referral with FISV banks now being able to refer FDC’s acquiring services (both FISV’s customer banks and FISV should see revenue opportunity), (2) issuer processing and bill-pay cross-sell, (3) STAR network scale, and (4) digital distribution, with FISV’s banks acting as a digital onboarding network for Clover. Under the agreement, FDC shareholders will receive .303 FISV shares for each share of FDC stock, which values the company at ~$22bn or $22.74/sh based on 1/15/19’s closing price (14x 2019 P/E, ~11-11.5x NTM EV/EBITDA pre-synergies). The transaction is expected to close 2H19 (FISV shareholders will own 57.5% of the combined company).