This week's consensus storage estimate is a +60Bcf injection, compared to a +77Bcf injection in 2016 and the 5-year average of a +78Bcf injection. At the consensus estimate, this week’s storage would be ~26Bcf below the 5-year average, and given the low/high range of injections for the next three weeks (based on 10-year average injections), total storage should stand between (~173)Bcf below and ~65Bcf above the 5-year avg. by the end of Oct.
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Atlas Copco (ATCO.A; Not Covered) reported 3Q17 results this morning (10/18/17) with 17% organic order growth and 10% organic revenue growth. While sales from its Compressor Technique segment missed consensus in the quarter (2% organic vs. 6% expectations), operating margins were in-line at a solid 23.3% and order growth was exceptionally strong at 14% (13% volume, 1% price) - its best order growth in the last five years.
The STB released Sept. headcount data for the U.S. rails this week. Total rail headcount declined 3.8% y/y in Sept. vs. -3.6% and -3.4% the prior 2 months. Total headcount declined 0.4% sequentially from August to September, the 6th straight month of sequential declines.
Following this morning’s PBM / CVS deal announcement ANTM hosted a conference call this morning (10/18/17). Mgmt addressed most of the uncertainty heading into the call, and the call was clearly positive from both a $ savings and timing perspective. In our mind Anthem couldn’t have been more bullish, indicating no friction to EPS growth from migration costs, upside potential from faster membership growth due to lower priced products and the timing of the migration (1 year) was as fast as anyone could have expected. Not surprisingly the stock is up solidly this morning as the 3-5 year outlook year improves w/focus shifting to 3Q call and discussion around forward exchange profitability, Iowa rates and 2018 headwinds/tailwinds.
This morning (10/18/17), before the market opened, SVU reported 2Q18 results. On a consolidated basis, net sales were roughly 2% below our forecast driven mainly by lower topline at Retail, in-line Wholesale revenue, and higher net sales in the Corporate segment. Consolidated Adj. EBITDA of $111mm exceeded our $102mm estimate (which was in-line with the Street) and driven largely by better-than-expected Wholesale EBITDA, with our estimates for Retail and Corporate EBITDA largely in-line on a $ basis. Retail ID sales of -3.5% were slightly better than our -3.75% forecast. The company maintained its full year Adj. EBITDA outlook of $475mm to $495mm. SVU also announced an agreement to purchase grocery wholesaler Associated Grocers of Florida for approximately $180mm, representing a purchase price of ~0.3x revenues, and anticipates closing at the end of this calendar year.
This morning (10/18/17) ANTM announced that it will create its own PBM named IngenioRx. IngenioRx will offer a “full suite of PBM solutions” starting in 2020, serving both ANTM health plans and external health plans. ANTM has entered into a 5 year agreement with CVS starting 1/1/20. CVS will provide prescription fulfillment, claims processing services and point-of-sale engagement (member messaging / Minute Clinic). ANTM will be responsible for member/provider engagement as well as “market-leading pricing” and the company now expects to save $4B per slides. ANTM previously discussed expectations for $3B of improved drug pricing, with $600M or 20% flowing through to ANTM’s operating income, driving about 10% upside to 2020 earnings power. We expect the news to be positively received given upside to previous saving target but note the trajectory of the stock will likely be determined by several factors including timing of migration / savings, bottom line impact, benefit to plan pricing, etc.
The momentum surge that developed out of the late summer oversold condition has helped to solidify the underlying trend for small caps, and positions them well into year-end. Historically, similar internal accelerations (1-month highs > 50%) have been met with a digestion of gains in the near-term (chart below), before posting healthy gains afterwards. This current consolidation ties in nicely with the seasonal October soft spot, after which performance tailwinds tend to build into year-end.
On Monday, 10/16/17, we met with Art Peck, President & CEO; Teri List-Stoll, EVP & CFO; Jennifer Fall, VP Corporate Finance and IR; and Tina Romani, Director of IR. Based on a strategic shift to GM dollars over rate, as well as our own proprietary promotional work (particularly with the warmer weather in late September and early October), we are marginally more cautious on opportunity for average unit retail and gross margin increases in 2H17. Old Navy and Athleta are the most valuable assets in the GPS portfolio, but growth in sales and margins is likely to be offset by weakness at Gap and BR in the near-term. As a result, we lower our GPS comp to flat vs. Cons +1.3%, as well our near-term GM and EPS expectations.
CP reported 3Q EPS of C$2.90 vs. Cons. of $2.88 and our estimate of $2.89. Relative to our expectations, yields and revenue were both 90bp light and margins were 10bp better, so the $0.01 beat to our model came from lower interest expense and a lower share count.
CSX reported 3Q EPS of $0.51, in line with our estimate and Cons. Yields and total revenue came in worse than we expected, but costs and margins were slightly better. Results were clean as higher Other revenue in 3Q should be ongoing. CSX reiterated its full-year guidance and didn’t talk down Street expectations for 4Q as some feared. Hunter Harrison also sounded very confident on the long-term plan ahead of the Analyst Day, and suggested on the call that he’s getting closer to announcing a succession plan. The stock rallied about 3%.
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