Revenue Tripled But Investors Weren't Ecstatic: Taking Stock

(Bloomberg) -- Screens are green before the bell as gains in the U.S. track a rally in Europe. S&P 500 futures are up 10 handles as the benchmark looks to extend gains for a third day. Dow futures are up 0.4%, while the 10-year yield was little changed at 2.6%.

Investors are entering a holding pattern ahead of tomorrow’s rate decision, but a couple of events are worth paying attention to today. Nvidia’s investor day should provide more details about last week’s Mellanox acquisition. And when FedEx reports after the bell, overseas demand will be a focus after the company slashed its forecast last quarter, citing a global slowdown.

After the close yesterday, cosmetics manufacturer Revlon warned that its delayed 10-K may reveal a “material weakness” in its financial reporting controls, triggering an 18% rout in the stock. Syneos Health rallied as much as 11% post-market after resolving its accounting troubles. Monday’s post-market session was also the busiest day for new secondary offerings so far this year, after activity accelerated toward the end of last week. Hard to pinpoint the exact reason, but the market’s steady grind higher since last Monday should be given partial credit.

‘That Don’t Impress Me Much’

Then there was Tilray’s results. In a sign of just how high expectations have gotten in the pot sector, sales tripled in the fourth quarter to $15.5 million from the same time a year ago, topping analyst estimates. Trader reaction was muted, sending the volatile stock up just 2% in extending trading. To be sure, Foot Locker, with a market cap similar to Tilray, clocked $2.3 billion in its fourth-quarter sales. Of course, investors are paying for future growth, and as my colleague Kristine Owram pointed out, analysts estimate that revenue will jump to almost $200 million this year and double again in 2020.

The stock is up 2.4% this year, compared with a 54% rally in the largest pot exchange-traded fund, ETFMG Alternative Harvest ETF. Tilray was a summer sensation after its July initial public offering and a one-day rally in September when the stock doubled in value on an intraday basis. This year, the stock on average moves 3.2% each day, compared to 8.2% in 2018.

Sectors in Focus Today

• Bank shares keep climbing ahead of Wednesday’s wild-card-loaded Fed meeting, with BofA, JPMorgan, Citigroup and Wells Fargo rising in pre-market trading. My colleague Felice Maranz explains: KBW’s bank index closed higher for a seventh day on Monday, its longest winning streak since October 2016, at the highest since Dec. 3. The index may have more room to run, as it’s still down 9.7 percent in the past year, while the S&P 500 has gained 4.4 percent.
  Banks may be getting a boost from positive thinking about U.S. domestic growth. Even serial pessimist Nouriel Roubini on Monday wrote that the U.S. may be “spared serious domestic political and policy shocks in the months ahead.” He flagged easier global financial conditions, with the Fed and other central banks turning dovish. At the same time, Citi analyst Keith Horowitz is cutting his EPS estimates for banks, as he stripped out all rate hikes.
• Watch chipmakers (including AMD, INTC, AVGO, MCHP, CY, QCOM, XLNX, as well as the SOXX ETF more broadly) ahead of Nvidia’s investor day. The event “should start the process for investors to move beyond the year of pain inflicted by crypto related GPU inventories,” according to Rosenblatt Securities’ Hans Mosesmann. The stock has been struggling to catch a momentum this year after tumbling 52% in the fourth quarter.
• Shipping companies UPS, ZTO Express, Landstar System and C.H. Robinson Worldwide may move on FedEx’s earnings this afternoon.

Notes From the Sell Side

• JPMorgan raised its view on Domino’s Pizza to outperform, writing that the chain’s plan to achieve system-wide sales growth between 8%-12% was intact. The firm also praised Domino’s international strategy and its status as one of the lowest-cost delivery options. At the same time, JPMorgan cut Yum Brands to neutral, writing that Domino’s deserved the higher rating more, as Yum is only posed to grow in the mid-to-high single digits.
• Booking Holdings was cut to market perform at the Telsey Advisory Group, which cited looming competition from both Alphabet’s Google and Airbnb. Google recently launched "what appears to be a hotel booking platform that is quite similar to a standard OTA/metasearch site," analyst Brian McGill wrote, a move he compared to the company’s entry into flights booking in 2011. "If we analogize the success that Google Flights has seen, this could be very successful," he wrote, adding that Google’s travel business "now likely does close to the same revenue as BKNG does." This threat is seen as compounded by Airbnb’s recent acquisition of Hotel Tonight, which means it is now "encroaching on BKNG’s core hotel offering," making it "another full-fledged OTA competitor."

Tick-By-Tick to Today’s Actionable Events

• Ameren investor meeting, day 2
• 8:30am -- HUM investor day
• 10:00am -- Jan Factory Orders
• 10:00am -- Jan Durable Goods Orders
• 11:30am -- NVDA investor day
• 4:05pm -- SMAR to report earnings
• 4:15pm -- FedEx earnings
• 5:30pm -- FedEx conference call
• 8:00pm -- Tencent Music earnings conference call
• March 18-22: Game Developers Conference (GDC) runs in San Francisco
• FDA deadline for decision on SAGE’s postpartum depression drug
• Money 20/20 Asia conference; attendees include GOOGL, IBM, MSFT, PVTL
• Roth conference; attendees include SIMO, MOBL
• Elanco lock-up expires

--With assistance from Felice Maranz and Ryan Vlastelica.

To contact the reporter on this story: Elena Popina in New York at epopina@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Catherine Larkin

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