Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Base metal prices have been weak, but CIBC analyst Bryce Adams likes Teck Resources Ltd. (TECK.B-T) and First Quantum Minerals Ltd. (FM-T) as earnings season heats up,
“Beats And Misses. We forecast positive variances to consensus for First Quantum and Teck Resources. For Q2, our FM EBITDA forecast of $787-million is 11 per cent ahead of consensus of $710-million, and our TECK estimate of $1.669-billion is 10 per cent ahead of Street expectations of $1.521-billion. Our EBITDA forecasts are below consensus for Capstone (by 30 per cent), Hudbay (by 11 per cent) and Ero (by 8 per cent). Guidance In Focus. We expect Capstone and First Quantum production and cost guidance potentially to be at risk for negative revisions. We forecast Capstone production at the low end of guidance, but we now model full-year costs above the original guidance ranges. At First Quantum, Cobre Panama’s interruption in Q1/23, coupled with weaker Q1 production at Sentinel and our expectation for a weak Q2, lead us to believe there is potential for negative production and cost guidance revisions … With large producers continuing to be active in copper M&A for producers that move the needle for them, and mid-tiers consolidating to have meaningful scale, we continue to expect speculation surrounding M&A bids to support equity prices”
***
Goldman Sachs U.S. equity strategist David Kostin details an important rebalancing of the Nasdaq 100,
“On July 24, the Nasdaq-100 will undergo its second ever ‘Special Rebalance’ to address the index’s high level of concentration among a handful of stocks. The weight of the largest 7 stocks in the index will be reduced by 12 percentage points (56 per cent to 44 per cent). AAPL and MSFT will remain the largest constituents but their index weights will be reduced by roughly 4 percentage points to 12 per cent and 10 per cent, respectively. AVGO’s index weight will increase the most (0.6 percentage points to 3 per cent). $261 billion in mutual fund and ETF AUM is benchmarked to the NDX while hedge funds have an estimated $20 billion of net short exposure. Passive funds that track NDX will rebalance their portfolios but the 2011 special rebalance experience suggests the stock-level impact will be limited”
***
So far, so good, for U.S. earnings, as BofA Securities U.S. quantitative strategist Savita Subramanian notes,
“Following a light Week 1, 30 S&P 500 companies (including early reporters) contributing 11 per cent of S&P 500 earnings are in. The earnings beat rate is above average at 77 per cent but is weaker than last quarter’s 90 per cent ... Last month’s guidance ratio jumped to a post-COVID high and July tracks a similarly strong guidance ratio - 50 per cent more positive than negative guides, a 1.5 ratio vs. the post-Reg FD average of 0.8. Margins have held in better than consensus (and our) expectations; from here sales and demand are critical. 60 per cent of companies beat on sales so far, weaker than 1Q’s 73 per cent and also below the post-reg FD average ratio of 64 per cent ... Up next: 13 per cent of EPS from broad array of sectors Results broaden to all sectors but Utilities. Financials will be the biggest sector reporting for the second week, with more regionals, with 60% of Financials earnings in by Friday”
***
Diversion: “Aspartame and cancer: Why you shouldn’t really worry about this” – Ars Technical
Tweet of the Day: