GOAL IS SMOOTH
Stocks managed to squeeze out a small gain on Tuesday after a negative open, but Wednesday’s indications were a tad lower after disappointing earnings and ahead of what may be a disappointing Federal Reserve interest rate decision. Despite volatility, the S&P 500 is still very close to its all-time highs. Investors are having to grapple with a much lower growth economy at the same time the bull market is well over 10 years old. Now investors should be considering what changes to make to portfolios and assets heading into late 2019 and as 2020 approaches.
24/7 Wall St. reviews dozens of analyst research reports each day of the week to find new ideas for traders and long-term investors alike. Some of the daily analyst calls cover stocks to buy, while some calls cover stocks to sell or to avoid.
We have provided these calls in a quick-hit summary for easy reading, and additional comments and trading data have been added on some of the calls. The consensus analyst price targets and other valuation metrics are from the Refinitiv (Thomson Reuters) sell-side research service.
These are the top analyst upgrades, downgrades and initiations for Wednesday, September 18, 2019.
Abercrombie & Fitch Co. (NYSE: ANF) was started with a Neutral rating and assigned an $18 target price at D.A. Davidson. The stock closed at $16.24 ahead of the call, and it has a $17.67 consensus target price.[Sub Zero Wolf]
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Adobe Inc. (NASDAQ: ADBE) closed up 0.6% at $284.69 ahead of earnings, but the initial reaction to the report took its shares down 2.9% to $276.44, based on its outlook. Stifel maintained its positive outlook on Adobe, and Wedbush Securities maintained its Neutral rating with a $290 target price, noting concerns over the Marketo billings and analytics-cloud billings. JPMorgan maintained its Neutral rating and cut its target to $318 from $329. BMO maintained its Outperform rating and cut its target to $310 from $315, and Citigroup maintained it as Buy while cutting its target to $322 from $335. Nomura/Instinet maintained its Buy rating but lowered its target to $310 from $315. Adobe had a consensus target price of $312.92 ahead of the earnings, and its 52-week trading range is $204.95 to $313.11.
Apple Inc. (NASDAQ: AAPL) was reiterated as Outperform with the same $245 price target (versus a $220.70 prior close) at Wedbush, with the analyst noting that China could be the star of the show as the iPhone 11 launch hits.
AT&T Inc. (NYSE: T) was downgraded to Hold from Buy with a $38 target price at DZ Bank. AT&T closed down 0.4% at $37.16 ahead of this call, with a consensus target price of $35.88 and a 52-week trading range of $26.80 to $38.75.
Chewy Inc. (NYSE: CHWY) closed down 0.6% at $30.25 ahead of its first earnings as a public company, and it shares initially traded down 4.7% to $28.78 after the report. Wedbush maintained its Neutral rating with a $30 target, noting that, despite a beat and raise quarter, the rate of revenue growth is slowing while there are many other positives. Chewy had a consensus target price of $36.90 heading into earnings, and its post-IPO trading range was $29.03 to $41.34.
Corning Inc. (NYSE: GLW) was maintained as Overweight at Morgan Stanley, but the firm did lower its target to $34 from $37 after the company’s tempered guidance. UBS reiterated its Neutral rating but lowered its target to $30 from $33. Argus maintained its Buy rating and $42 long-term target price. Shares closed down 6% at $28.23, and the prior consensus target price was $32.02 ahead of the move and analyst reactions.
Crocs Inc. (NASDAQ: CROX) was named as the Bull of the Day at Zacks, which said that the Croc is cool again, propelling a Gen Z fashion statement into a fashionable trend. Shares closed most recently at $28.79, with a consensus price target of $32.00.
Dow Inc. (NYSE: DOW) was maintained as Buy at Nomura/Instinet, but the target price was lowered to $52 from $56 in that call. Dow closed down 2% at $48.00, and its consensus target price was $54.73.
Exelon Corp. (NYSE: EXC) was reiterated with a Buy rating and a $53 target price (versus a $47.29 close) at Argus. Shares closed down 0.2% ahead of the call, and the consensus target price is $52.91.
FedEx Corp. (NYSE: FDX) was already way off its highs, but the 27-cent drop to $173.30 was followed by a post-earnings drop of over 7% to $159.90 in Tuesday’s after-hours reaction to lower guidance. Robert W. Baird maintained its Outperform rating but lowered its target to $175 from $180. Morgan Stanley maintained its Equal Weight rating but cut its target to $120 from $130. JPMorgan maintained its Neutral rating but lowered its target to $318 from $329. Stifel downgraded FedEx to Hold from Buy and lowered its target to $171 from $185. The stock had a consensus target price of $187.19 ahead of the earnings, and its 52-week trading range was $147.82 to $250.95
Itron Inc. (NASDAQ: ITRI) was maintained as Outperform and the price target was raised to $80 from $70 (versus a $75.63 close) at Robert W. Baird.
NCR Corp. (NYSE: NCR) was started with a Market Perform rating and assigned a $45 target price (versus a $32.87 close) at Wells Fargo.
Square Inc. (NYSE: SQ) was upgraded to Hold from Sell and the target price was raised to $63 from $55 at Craig-Hallum. It closed up 0.6% at $59.60 and was indicated up 0.8% at $60.10, and its prior consensus target price was $81.53. The 52-week trading range is $49.82 to $101.15.
Stanley Black & Decker Inc. (NYSE: SWK) was downgraded to Sector Weight from Overweight at KeyBanc Capital Markets.
Tailored Brands Inc. (NYSE: TLRD) was named as the Zacks Bear of the Day stock. The firm said that this stock has been toxic for some time now and, unless significant systemic changes are made, its toxicity will continue. Shares closed at $4.54 and have a consensus price target of $6.97.
Taylor Morrison Home Corp. (NASDAQ: TMHC) was reiterated as Outperform with a $27 price target (versus a $24.87 close) at Wedbush, with the firm noting that third-quarter orders for new homes are tracking ahead of the firm’s forecasts and broad-based demand.
Tellurian Inc. (NASDAQ: TELL) was started with an Outperform rating and assigned a $14 target price (versus an $8.33 close) at Evercore ISI. It was indicated up 2% at $8.50, and its consensus target price was $11.47 ahead of this call.
TerraForm Power Inc. (NASDAQ: TERP) was downgraded to Neutral from Overweight with a $17 target price (versus a $17.58 close) at JPMorgan. Shares were indicated down 1.8% at $17.25 on Wednesday, and they have a $16.22 consensus target price.
Whirlpool Corp. (NYSE: WHR) was downgraded to Sector Weight from Overweight at KeyBanc Capital Markets.
Zimmer Biomet Holdings Inc. (NYSE: ZBH) was raised to Buy from Hold with a $167 target price (versus a $138.84 close) at Canaccord Genuity. It has a consensus target price of $148.40.
Zscaler Inc. (NASDAQ: ZS) was reiterated as Outperform with an $80 target price at Wedbush, with the firm talking up the cloud growth to the next level after a very positive reaction to the company’s user conference. Also, Credit Suisse reiterated its Outperform rating and $70 target price and said that it has a better appreciation of its expanded market opportunity after the conference. Shares closed up 6.3% at $50.64 on Tuesday, but they are still down handily from the high and since it reported earnings.
Zynga Inc. (NASDAQ: ZNGA) was started as Neutral with a $7 target price (versus a $6.04 close) at JPMorgan. It was indicated almost 1% on Wednesday and its consensus target price is $7.36.24/7 Wall St.
Why This Analyst Sees Massive Upside for Restaurant Brands International
This is FOMC Day, and it has suddenly become far less clear whether Federal Reserve Chair Jerome Powell and his Federal Open Market Committee members will cut interest rates in the Wednesday announcement, and that will mark the second day of repurchase activity to keep federal funds within the target range. Credit Suisse has previewed the Fed’s announcement and said:
While the market’s expectation is for 100 basis points of further easing, the Fed’s Dot Plot does not concur. Adjusting this guidance lower will be an important signal for equity investors. More important than the much anticipated 25 basis point cut, the Fed must convince investors that they are committed to steepening the curve through further accommodation. With both growth and inflation near 2%, a simple reiteration of data dependence would likely disappoint investors.
Record unemployment may generate a very solid holiday season sales surge to boost gross domestic product in the fourth quarter.
Tuesday’s top analyst upgrades and downgrades included Bank of America, CME, ConocoPhillips, CSX, EverQuote, Home Depot, IAC/InterActive, Snap, Splunk, Square, TJX Companies and many more.
As expected, the Federal Open Market Committee (FOMC) on Wednesday announced that the Federal Reserve will lower its policy interest rate from a prior range of 2% to 2.25% to a new range of 1.75% to 2%. The FOMC cited solid job gains, the low unemployment rate, strong household spending as indicators of “moderate” growth in economic activity.
Seven committee members, including Fed Chair Jerome Powell, voted to reduce the fed funds rate while three members voted against the change. James Bullard, president of the St. Louis Fed, wanted a cut to a new range of 1.5% to 1.75% while Esther George, president of the Kansas City Fed and Eric Rosengren, president of the Boston Fed, wanted the prior rate left unchanged.
The Fed also released its latest economic projections. The bank expects 2019 GDP growth of 2.1% to 2.4%, an increase of 0.1 points to the lower end of the June projection. The low-end of the 2020 GDP growth projection rose by 0.2 points to 1.7% while the high end remained unchanged at 2.3%. The projection for 2021 also rose by 0.2 points at the low end to 1.7% while the high end remained at 2.1%. The first projection for 2022 growth came in at 1.6% to 2.1% and the longer-term projection was unchanged at 1.7% to 2.1%.
Unemployment is expected to remain low, in a range of 3.5% to 3.8% for this year and 3.3% to 4% next year. Both estimates are unchanged from June. Core personal consumption expenditure (PCE) inflation is projected to fall in a range of 1.6% to 1.8% this year and 1.7% to 2.1% next year. The Fed funds rate range for this year is projected at 1.6% to 2.1%, a sharp drop from the June projection of 1.9% to 2.6%.[Sub Zero Wolf]
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Some analysts had been expecting (hoping for?) another round of quantitative easing, but the FOMC did not go down that road. The President was also among those disappointed by the Fed’s decision:
Donald J. Trump
Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!
2:25 PM - Sep 18, 2019
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Others, including former Treasury Secretary Lawrence Summers and co-author Anna Stansbury, have argued that central banks, including the Fed, have reached the limit of what they can accomplish by tweaking monetary policy with the goal of setting inflation rates:
There are strong reasons to believe that the capacity of lower interest rates to stimulate the economy has been attenuated – or even gone into reverse. … What is needed are admissions of impotence, in order to spur efforts by governments to promote demand through fiscal policies and other means.
Markets reacted badly to the FOMC announcement and to the implied decision to cut rates just once more this year. The Dow dropped about 0.6% to 26,94418 after making an initial move higher. The S&P 500 index is down about 0.7% for the day at 2,984.55 and Nasdaq Composite has dropped about a full point to 8,102.42.
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The U.S. Census Bureau and the Department of Housing and Urban Development reported Wednesday morning that new housing starts in August rose to a seasonally adjusted annual rate of 1.36 million, an increase of 12.3% from the upwardly revised July rate of 1.215 million and an increase of 6.6% compared with the August 2018 rate of 1.279 million.
The revision to the July rate added 24,000 new housing starts to the previously reported total. The consensus estimate from a survey of economists expected a January rate of around 1.25 million.
On a non-seasonally adjusted basis, housing starts fell by 1.8% year over year through August. Single-family starts were down 2.7%, and buildings with two to four units fell by 1%.
Single-family housing starts rose by 4.4% month over month in August to 919,000 units on a seasonally adjusted basis. New construction dipped by 1.7% in the Northeast and rose by 8.7% in the Midwest, 3.6% in the South and rose by 5.3% in the West.
The seasonally adjusted rate of new building permits rose to 1.419 million, up 7.7% from the revised July rate of 1.317 million and 12% higher than the August 2018 rate.[Sub Zero Wolf]
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Permits for new single-family homes rose by 4.5% month over month in August from a revised annual rate of 829,000 in July to a seasonally adjusted annual rate of 866,000. The rate also increased by 4.5% year over year.
Multifamily starts, for buildings with five or more units, increased by 14.9% year over year in August to 509,000 units. This number is more volatile than the single-family number and has been moving mostly sideways on an annual basis since 2013.
In 2018, 1.242 million housing units were started, up 3.2% compared with 2017. An estimated 1.311 million permits were issued in 2017, up about 3.7% year over year. These totals are subject to future revisions.
America’s Strategic Petroleum Reserve is the largest supply of emergency oil in the world. After drawing down several million barrels in two of the past four months, the amount has leveled off at 644.8 million barrels. That is enough for the facility to do its ongoing job of providing the United States with oil in the event of a long-term spike in prices, such as one that could be brought on by a major disruption of Saudi production due to drone attacks on its oil fields.
After the drawdown, the reserve has 250.3 million barrels of sweet crude and 394.5 million barrels of sour. Sweet crude is low in sulfur and is used primarily to be refined for gasoline. Sour crude has high amounts of sulfur, which adds to how much it needs to be refined and the length of time that takes. It also can be used to produce gasoline, but the price of that gas is much higher.
The most recent drawdowns were to exchange older oil held in the reserve for newer inventory. While that is an ongoing procedure done each governmental fiscal year, the quality of the oil is essential. The Atlantic hurricane season runs from June 1 to November 30. The reserve was tapped to provide crude after Hurricane Harvey in 2017 and Hurricane Isaac in 2012. In both cases, the drawdowns were replaced by private refiners who essentially “borrowed” supply. Hurricane Katrina in 2005 so severely damaged production that the drawdown needed to be replaced later. According to the U.S. Department of Energy, “The total U.S. response to Hurricane Katrina, considering both the emergency loans of 9.8 million barrels and the 11 million barrels of oil that was sold, was 20.8 million barrels.”
The last massive release of crude from the reserve was in 1991 during Desert Storm. Conflicts in the Middle East had disrupted the oil markets. That may happen again in the coming weeks if the situation in Saudi Arabia worsens.
The federal government’s interest in creating the reserve begun after the Arab Oil Embargo in 1973 to 1974, which pushed gas prices up sharply and threatened the U.S. economy. The first oil for the reserve was purchased in 1977. Today, the oil is stored in nearly 500 salt domes. Rock salt is impervious to liquid, gas and inert petroleum.
Beyond the Saudi oil field attacks, tensions in the Middle East have heightened recently as tankers have been seized in the Strait of Hormuz. Almost a quarter of the world’s crude passes through the narrow body of water. Also, political and social turmoil in Venezuela have cut production from a country that has among the largest proven oil reserves in the world. The Nigerian oil supply has been threatened by rebels. These are the 15 countries that control the world’s oil.
The average price of oil in the U.S. reserve is $29.70 a barrel. Brent crude traded near $70 a barrel after the attacks on Saudi Arabia. However, per-barrel prices have reached well above $100 in the past 11 years, and most economists believe that a prolonged period of very expensive oil could severely damage the U.S. economy. The price of gasoline, in particular, would be affected. An analysis of gas prices shows that they reached almost $3 a gallon a few months ago. The danger of that figure rising very sharply in an energy emergency is unlikely to a large extent because the United States has created a large buffer.
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