We are downgrading POR to Underperform from Peer Perform. Despite Friday’s underperformance, the stock has been on a strong relative run for the last year and expectations for rate base opportunities in the ongoing IRP/RFP process appear to have gotten ahead of themselves. We see risk to winning RFPs to own both a potential new gas plant and wind farm(s) that would total roughly $1.5B in capex. Even if POR is successful, equity needs would be considerable and the stock’s earnings volatility/sensitivity do not warrant a premium multiple.
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Before the market opened this morning, WMT reported 4Q17 EPS of $1.30 (ex-items) which exceeded our $1.29 estimate and the Street’s $1.28, although we would note that Street expectations for 4Q17 are down about $0.05 since October. Comp sales in Walmart U.S. were +1.8% y/y in 4Q17, which was ahead of our +1.3% y/y estimate. Street expectations for fiscal 2018 EPS of $4.32 look to be near the mid-point of Wal-Mart’s $4.20-$4.40 EPS guidance.
For the summer schedule (May-Aug) system seat capacity rounded down 10bp this week to +3.1% y/y from slight trims in both domestic and Latin markets. Despite tiny tweaks, domestic U.S. capacity growth was unchanged w/w at +3.0% but system international capacity declined -10bp to +4.9%. U.S. airlines mostly cut back in Latin and Caribbean markets (-20bp w/w) where capacity will be up 7.4%. Transpacific and Transatlantic, which are growing +3.3% and +0.3%, respectively, were basically unchanged.
The merger of Columbia Pipeline Group (CPPL) with Columbia Pipeline Group, Inc. (CPG), an entity fully owned by TransCanada, closed on February 17. As such, we are withdrawing coverage of CPPL.
Investors should no longer rely on previously published research, opinions, estimates, or price targets.
Before the open this morning, HD reported 4Q16 EPS of $1.44 versus our estimate of $1.31 and the Street $1.33. Comps were 5.8%, with U.S. only comps of 6.3%, versus our estimate for total comps of 3.3% and the Street’s 3.7%. The significant sales beat generated 103bps of operating margin leverage versus our expectations of 66bps. Slightly worse than expected gross margin rate was more than offset by strong expense leverage. The company also provided FY17 guidance, which calls for comps of 4.6%, slight operating leverage, and EPS of $7.13. This is slightly below current Street numbers, albeit the company tends to guide conservatively.
SEP continues to have one of the lowest risk sets of assets in the group - largely demand-pull pipelines under long term contracts with minimal commodity risk. Moreover, there is good visibility on growth projects into 2019, and we expect that Enbridge will keep SEP as its primary US natural gas platform. That said, we don’t expect specific EBITDA guidance and a long term update on SEP from Enbridge at least until ENB’s Q1 call, if not at the ENB analyst day in June. We will be interested in how ENB looks at the integration of Spectra overall, as well as SEP. Valuation looks reasonable at current levels; reiterate Peer Perform.
Sector Sentiment 1 (worst) out of 5. Proprietary checks show clean inventory, but weak start to 1Q17. NRF data showed that holiday was actually better than expected for non-apparel sectors, as apparel was an exception with weak results. The same recurring issues continue to drag the sector with anemic mall traffic, the shift to online from brick-and-mortar, jockeying for consumers’ share of wallet via promos, and a paucity of demand drivers. We expect these issues to continue to be a drag on brick-and-mortar comps with the Off-Price channel favored over Specialty Retailers.
Many Midwestern Wal-Mart stores have now reduced prices. Indeed, our research shows that prices in the states of Kentucky, Michigan and parts of Indiana have been reduced to levels we saw in North Carolina this past summer, ground zero for Wal-Mart’s price reduction activities last year which eventually spread over much of the Mid-Atlantic/Southeast. We have concluded that Wal-Mart’s efforts are fairly broad-based and likely mark the second phase of price reduction activity which started in earnest over the summer of 2016. Wal-Mart reports 4Q17 earnings tomorrow morning before the market open and we hope to hear an update on the company’s price investment activities. We continue to anticipate Wal-Mart’s price cutting activities to weigh on its own results, as well as weigh on the industry climate, especially in light on Lidl’s entrance into the U.S. in mid-calendar 2017.
Last week AEE reported in line 2016 EPS of $2.68 and gave 2017 guidance of $2.65-2.85, close to consensus of $2.77 but shy of our $2.80e. AEE kept its EPS growth target of 5-8% through 2020. Importantly, the target does not assume any incremental investments from pending MO legislation that would reduce regulatory lag. SB 190 passed out of a senate committee 8-1 earlier this month and was recently placed on the formal calendar; currently it is #21 on the calendar, implying it could come up for debate as soon as this month. This will be the key investor focus, as past efforts have been killed in the senate, with last year’s being filibustered late in the session by a small group. We see less opposition this year but no guarantee it passes.
Including $3.2mm of provisions for uncertain collections of receivables, Adjusted EBITDA of $27mm was in-line with WR, Consensus and the implied 4Q EBITDA when mgmt updated ’16 guidance back in Dec. EPS of -5c (ex 41c in charges) vs WR/Cons of -9c/-8c. Well Intervention utilization was 62%, not bad considering N Sea seasonality and the previously announced Q5000 unplanned downtime. Robotics revs fell 17% q/q while EBIT margins remained negative at -13.4%.
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