We are raising our estimates across the board on better Macau GGR data. It seems to us that Macau GGR will grow 22% y/y in 2Q, accelerated from 13% y/y in 1Q. It also seems mass market is accelerating, too, as overnight visitors to Macau have accelerated sequentially QTD.
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While comp sheets and ratings are nice to look at, it's providing corporate updates and figuring out what is changing on the margin that is of most interest to our clients, particularly in this currently challenging commodity environment. With that in mind, we introduce a new series called “Conversation Of The Week” that aims to bring you updates on producers, themes, and topics of interest that impact the E&P sector. We're starting with Outperform-rated Continental Resources (CLR), not just because they're at the top of our alphabetically listed comp sheet, but rather as CLR has been a hotly debated stock in our investor conversations due to a combination of financial and operational leverage relative to peers and growing concerns over STACK well spacing. Below we provide updates on key topics from our conversation with CLR IR last week:
At first glance last week’s Paris Air Show resembled prior years with a flurry of order activity. Together, Boeing and Airbus booked 902 new orders and commitments (571 for Boeing; 331 for Airbus) compared to 474 in 2016 and 796 in 2015. Solid. But firm orders were lower. Boeing recorded 134 orders and Airbus took in 144. This declined from a combined 292 orders at Farnborough in 2016 and 282 at Paris in 2015, and below our target of ~400 orders
FE’s stock is the worst performing utility in the sector YTD and has significantly lagged the UTY over 1/3/5-year time horizons as well (see Exhibit 7). At this point it finally seems overdone. We have pointed to several of the obligations that tie FES to FE, but right now the risk / reward skew seems balanced. Thus we have updated our valuation work (see Exhibit 6), using a two-turn discount on core utility EPS net-parent drag to get $37/sh. Put another way, the stock trades at a five-turn discount on this basis. However, we also conservatively attribute $2.7B of FES obligations to FE. This results in a new Price Target of $32 (from $30). There appears modest upside right now, so we are upgrading to Peer Perform from Underperform.
For post Labor Day (Sept-Dec), aggregate system seat capacity edged +20bp higher this week to +4.6% y/y. This increase was mostly driven by additions to the U.S. domestic network, which is also up 20bp this week to +4.6% y/y. LUV was the principal driver behind this week’s domestic seat increase, though AAL, ALK, and DAL added too. International seat capacity came down 20bp w/w to +4.7% as U.S. airlines cut back in the transatlantic and Latin markets.
Last week our WR Transport Index fell 0.8% last week, underperforming the 0.1% rise in the S&P 500. It was the first time in a month that transport stocks underperformed the market. The non-asset Forwarders (-4%) and the LTLs (-3%) were the worst performers last week, while the Integrators (+1%) performed best after FDX’s report. The LTL weakness makes sense to us given lower oil prices and a lackluster report from FDX Freight which was the only segment that missed our expectations last week.
Last week, the biggest news across global markets was oil’s continued slide, with Brent now down roughly 20% from its April high. While crude’s descent is concerning, we believe the drop has been driven by supply concerns. Importantly, industrial commodity prices have maintained post-election gains, while risk metrics have remained subdued.
This week in the Sankey ramble we reflect on Boris Becker and Mohammed bin Salman. There is a link to the ongoing stumbling and wandering story at the bottom of the email.
The oil price hit 2017 lows in the middle of summer at 94% refining utilization in the USA - not a good sign. The scale of the negative surprise here is really significant relative to oil specialist expectations. Generalists have long since assumed that the price is going to be set by the marginal cost of US production growth.
The question now is how the rig count reacts, and what happens with the surging DUC inventory. We need to temper US production growth at the margin to help OPEC tighten the market. Global demand has disappointed so far in 2017, but seasonality and low oil prices should drive stronger consumption going forward. Meaningful global stock draws will still be in the offing if demand improves as expected.
We spoke with a large food products shipper about current TL pricing and capacity trends. This shipper has seen the TL market tighten since Memorial Day but has seen it get a little looser again since Roadside inspection two weeks ago. This shipper’s tender acceptance rates fell to around 70% during Christmas last year, increased to around 90% the first few months of the year and are currently around 85%. So overall, the market still feels pretty balanced, outside of Atlanta and Chicago which feel tight right now. Our contact expects the market to stay balanced until July 4 and then start to loosen again until peak season late this year. He doesn’t expect much of an impact from ELDs until mid-2018 as there will be normal seasonal looseness in the beginning of 2018. From a pricing standpoint, this shipper noted that since Memorial Day, spot rates have increased above contractual rates for the first time all year. He believes spot rates will remain elevated until the market starts loosening after July 4, but should then fall back below contractual rates. Looking out into 2018, this shipper expects rates to be up mid-single digits.
Brookfield Asset Management (BAM) completed the spinoff of Trisura Group (TSU.CN) on June 22, 2017. Trisura is an international specialty insurance provider operating through the following four business lines: (i) surety premiums, (ii) risk solutions, (iii) corporate insurance, (iv) reinsurance. A link to the latest investor presentation can be found here.
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