As we highlighted in our previous note, Biden released a 2020 health plan, which aims to protect and build on the ACA. Importantly the Biden plan would create a public option similar to Medicare – see more on page 2. Key Questions From Here would include: (1) how many more people covered beyond the 4.9M estimate for Medicaid expansion eligible population (2) how competitive is the “public” option vs. existing commercial plans (and what will they pay providers – clearly looking to leverage gov’t purchasing scale) and could it potentially be offered by private plans similar to Med Adv (3) how many existing commercial insured would potentially move to “public” option – here we see greatest competitive threat to exchange based plans with employer dumping less likely. Most of the above would allow greater insight into the potential impact to plan membership and economics as well as providers from the potential benefits of greater coverage and offsetting potential headwinds of lower payments. See our high level estimates and discussion of public option impact to MCOs on page 21-27.
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Topics this weekend…
Hardline Happenings – 1) Hardline Retailers’ sales have likely been impacted by abnormally high levels of rainfall in 2Q19, 2) housing-related data could improve going forward, and 3) TSCO and SHW earnings previews
Quote of the Week – PPG Industries (PPG, Not Covered) CEO, Michael H. McGarry, on pricing actions
Opioid Litigation and Price Fixing Investigation Deep Dive PM Summary
Deep Dive on the DOJ Price Fixing Investigation, which includes our legal analysis and liability calculation for TEVA and MYL.
This week brings 8 stocks from our coverage universe to the stage. We reviewed some of the early reads last Friday (07/19/19), but the bottom line has been slightly weaker sales and margin pressure. UTX is the only stock reporting in this class, where we are tactically positive. We see less risk to estimates for ITW and FTV vs. GWW, MMM and ROK where we are tactically cautious.
Deep Dive on the opioid litigation, which includes our legal analysis and liability calculation for TEVA.
Our WR Transport index increased 0.2% and outperformed the 1.2% decline in the S&P 500. There were 2 big stories in the group last week: the big sell-off in CSX (-10.5% last week) following its 2Q report and the big rally in our TL index which was up 7% last week. This week, we’ll discuss our biggest takeaways from rail reports so far, the TL rally, and preview a busy week of reports ahead. Open the full report for more thoughts on each company reporting this week…
With various news outlets reporting channel outages and soon-to-be-channel outages, we want to provide our thoughts.
Admittedly, divergences are horrible timing tools, but they become a bit more alarming when they develop while stocks are in an overbought state. As equities consolidate near all-time highs, we continue to see deteriorating internals beneath the surface. First, New 52-Week Lows are starting to outnumber New Highs. Secondly, and more importantly in our view, the Wolfe Technical Scoring Model has continued to deteriorate over the past few weeks. Back in the first week of July 73% of S&P 500 constituents were bullishly ranked in our work (as a reminder, we want to buy 3s and 4s and sell/avoid 0s and 1s). Today, that number stands at 59.6%. On the flip side, 0s and 1s have more than doubled over this time frame from 12.3% to 26%. We want to see internal strength and broadening on new highs, not corrosion. To us, this suggests a tired market that is due for some back filling – in other words, fade strength. The first support for the S&P is 2940, and then 2860.
In spite of an upwelling of negative sell-side sentiment around Tools in the last 10 days, group multiples vs Healthcare (Exhibit 12) have hardly moved and remain at all-time highs +70% above; multiples vs the S&P are 1000bps lower in the last 10 days, at +55% vs historical norms at +10-40% (Exhibit 11). Datapoints from DHR and Sartorius (SRT) appear to be construed thus far by investors as an all-clear for 2Q and near term stock momentum.