Here's the calls of the day that we're watching:
"HPQ remains a leader in PC and Print and despite appropriate steps taken by management to address structural issues (will take time), we are downgrading shares of HPQ to Underperform from Buy. Our prior thesis was predicated on stability in high margin print supplies which we have lower confidence in post this qtr. Key reasons for our downgrade include (1) Too much volatility in supplies growth driven by different factors leading to lower confidence in predictability, (2) A guidance bar (unchanged) that looks high given the shortfall in supplies, (3) The omni-channel purchasing dynamic that takes significant time and investments to recoup share, (4) Cash flow headwinds from higher restructuring, investments and future non repeat of F19 working capital benefits, (5) Risk of incremental PC slowdown given weaker macro outlook (also negative to FCF), (6) a longer term downshift in high margin print supplies from other regions and (7) Lower confidence in longer term targets especially print margins of at least 16%..."
"Reiterate Outperform rating and designating Fresh Pick... We think investor pessimism on Model 3 demand is overblown and weak Q1 deliveries (due to timing) are priced into the stock at current levels... While it is unclear what TSLA may announce today ($35k Model 3 introduction, autonomy update, or something entirely different), we think it could serve as a catalyst to improve sentiment and drive shares higher... Regardless, we believe demand concerns are overblown and expect the stock to trade higher into the Q1 delivery release..."
"Very simply, BBY reported a much better than expected quarter with stronger results on all product categories, a solid gross margin (helped in part by a change in services revenue recognition), strong SG&A leverage and minimal help from tax and buybacks, relative to our ests. BBY also put out solid guidance for this year, with margins looking particularly better than we had previously forecast. We are raising our estimates as BBY's comps and ability to sustain margins appear to be in much stronger shape than we had anticipated. We now see greater potential upside (albeit fairly limited after the positive stock move today) versus downside risk from comp misses, guide downs, etc. As such, we are upgrading BBY to Neutral. Two items in 4Q that keep us cautious: 1) a 30bp boost to comps/GM due to an accounting change; and 2) BBY's decision to expand a lease-to-own program, which we think increases comp risk if a downturn occurs. See pgs. 3-5 for more detail on 4Q results and breakout of product category trends..."
"Since fall 2017, DG's stock has risen 44% (from 11/15/17) vs. the S&P 500 up 9% over the same time frame... We commend management for executing well and gaining market share in a competitive environment, as reflected in our forecasted 2.9% comp in 2018 while the company drives fill-in trips through initiatives gaining traction (e.g. remodels, perishables, health & beauty, housewares)... Notably, stock appreciation over the past 12 months has been multiple driven, with valuation now sitting two turns above the 3- and 5-year averages and near the high-end of its historical range.. Meanwhile, we have concurrently seen guidance revised downward.. We expect management to introduce 2019 plans in line with the long-term growth algorithm – i.e. EPS up at least 10% (DB 10.6%, or $6.67, vs. Street $6.65) – but likely leaving little to no upside ahead... We call out SG&A growth as a notable risk against upside to numbers, as our $6.67 for next year's EPS incorporates 7.0% growth, abating somewhat from our forecasted 9.5% in 2018 and 10.6% in 2017 (despite lapping the extra week in 2016). Continued increases in pressure from wages and labor could keep this line item elevated..."
"We are downgrading BKNG shares from Outperform to Perform and removing our $2,200 price target. We agree with management's strategy to accelerate share-gains under softer European macro by investing in alternative accommodations, payments, branding, and loyalty programs. However, challenges stabilizing room-night deceleration supports bears' view that generating profitable growth is becoming increasingly difficult as online travel matures, and a tougher macro back-drop further limits visibility on inflecting to a sustainable near-term reacceleration. While buybacks likely limit downside, we see the multiple capped on muted top-line trends, and too many near-term headwinds to garner GARP investor interest. We'd become more constructive on evidence of higher direct traffic generating substantial operating leverage or non-Core investments becoming more incremental to growth..."
"Bottom line – Nearly all metrics remain in positive territory, though less elevated compared to recent levels... We remain fundamentally positive given the broader/deeper product portfolio with ~5 products at or near $1B bookings run-rate... However, we remove VMW from our U.S. Analyst Focus List based on 1) Valuation: shares are synthetically trading >$200 as adjusted for the $27/sh special dividend issued in Dec, up massively from $115 last March; and 2) A likelihood that the Street will have to reduce Interest Income, FCF, and Net Cash balances to reflect the impact of the $11B special dividend, thus producing a FCF multiple >20x. Longer-term, we think VMware is benefitting from a strong and broadening product portfolio and hybrid cloud demand from technology buyers..."
"The GE 10K and the related disclosure is a negative in our view, with a myriad of specific data points that
support our well below consensus view on earnings and FCF, as filings indicate that fundamentals continue to deteriorate... In fact, using a more robust definition of FCF, that includes other investing CF, which is consistently a $1.5B drag, we can construe an "industrial FCF" number that is zero including Healthcare... Our PT remains $6..."
"We see continued upward momentum in BA shares, thus are comfortable with our OW and raise our PT to $500. The combination of a healthy FCF yield (~8%on our 2020), a stable commercial aerospace backdrop, and positive upcoming data points, which we discuss in further detail below, support continued upward momentum in Boeing shares, in our opinion. And though we acknowledge the risk-reward is approaching more balanced levels following the upward move up in shares, the combination of expanding market multiples and on-going management execution raise our comfort with the upside case. Accordingly, we reiterate our Overweight-rating and take up our PT to $500 (vs. $450 prior), premised on an in-line 2020 FCF multiple of ~15x (vs. ~13x prior)..."