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MARKET FOCUS
Futures Higher
• This morning, S&P 500 index futures are pointing to a positive market opening
OVERNIGHT UPDATES when trading begins today.
• Equity markets in the U.S. were lower during yesterday's trading session. Stocks
Europe mixed. Tokyo fell ended the day with the S&P 500 index losing some ground and pulling back to
0.2%. Hong Kong rose 2,701.58, posting a loss of 0.76 percent.
1.75%. Shanghai rose
1.36%. • CFRA is anticipating that Walmart Inc (WMT 102 ****) will report earnings per
share of $1.06 for its fiscal third-quarter. The company reported earnings of $0.58
for last year's third-quarter. Capital IQ Consensus is looking for earnings of $1.02
BONDS: 10-year notes at
per share. Net sales in FY 19 (Jan.) will likely rise 3.2%, with an estimated 3.0%
3.09%, 30-year bonds at
Walmart U.S. comparable store sales gain and about 40% growth in e-commerce
3.337%.
sales. Key drivers of comparable store sales growth include improved in-stock
levels, a more aggressive pricing strategy, better customer service and increased
FOREIGN EXCHANGE: customer convenience on growth in e-commerce offerings, including grocery pick-
Euro at $1.1285, Sterling at up capability. We expect global e-commerce sales to rise significantly to over $22
$1.2794, Dollar at 113.36 billion in FY 19 ($16.0 billion in the U.S.) and become a key source for long-term
yen. growth, excluding about $2.3 billion in sales ($4.5 billion annually) from the
acquisition of FlipKart.
PRECIOUS METALS: Gold
at $1,212.70. • Nordstrom, Inc (JWN 61 ***) is due to release third-quarter results, with CFRA
looking for per-share earnings of $0.75, vs. earnings of $0.67 per share for the
ENERGY: WTI crude at same quarter one year ago and Capital IQ Consensus estimates of earnings per
$56.28, London Brent crude share of $0.65.
at $66.35. • CFRA expects that for the third-quarter, NVIDIA Corp (NVDA 197 ***) will post
earnings per share of $1.96 vs. $1.33 for the same period last year. Capital IQ
Consensus analysts are looking for $1.92 per share.
U.S.
11/14/2018
Europe
11/15/2018
• CFRA MAINTAINS HOLD VIEW ON SHARES OF MERCK KGAA (MRK GY, EUR98.00 ***):
We adjust our 12-month target price for Merck KGaA's (MRK) to EUR99 (EUR89) as we roll
forward our valuation, reflecting a 2019 P/E of 17x, largely in-line with its 5-year mean. 3Q
2018 net sales grew 6.6% as organic growth (+8.8%) was offset by currency headwinds,
while core EBITDA fell 5.9% again impacted by currency headwinds as well as the weaker
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Performance Materials. We adjust our 2018 and 2019 EPS forecasts to EUR5.20 (EUR5.40)
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and EUR5.70 (EUR5.76) respectively as MRK updated its 2018 guidance: (i) organic net
sales growth guidance raised to 4%-6% from 3%-5%, (ii) kept guidance of a decline in
organic core EBITDA of -1% to -3%, but it now expects a larger currency headwinds of -8%
to -10% (-5% to -7% previously) due to the worse-than-expected decline in value of Latin
American currencies against euro, and (iii) expects core EPS of EUR5.00-EUR5.30
(EUR5.00-EUR5.40 previously). All in, we find the stock to be fairly valued at its current level.
/W. Nurhayati
• Investors are not waiting three years before buying an ETF, but rather looking to the
exposure a fund provides and its cost structure to determine if it makes sense. CFRA’s
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forward-looking rating process helps put the hundreds of new funds that come to market each
year in perspective and enables a comparison to what already exists.
• As part of new educational video content on Asset TV, CFRA discussed how our unique
research approach helps clients gain an investment edge and avoid risk with stocks, ETFs
and mutual funds. We typically begin rating ETFs that are only a few months old, leveraging
our experienced equity analyst team to offer valuation and risk consideration analysis from a
bottom-up perspective. This holdings-level approach is combined with some fund-specific
characteristics focused on costs and liquidity.
This is an excerpt of the story, for the rest please visit the Trends & Ideas page on MarketScope
Advisor at http://advisor.marketscope.com.
INVESTMENT POLICY
Economic and Stock Market Outlooks
11/14/2018
• The S&P 500 has lost 4% since the post-election mid-term pop on November 7th. The usual
worries have resurfaced with the growth prospect concern being exacerbated by Apple as its
suppliers cut guidance on slowing demand early this week. That brought into question the
divergence that the U.S. markets have enjoyed versus most major global equity markets
year-to-date. Enhancing that fear was the Germany Q3 GDP flash report which declined
0.2% on a quarter-over-quarter basis, the first decline from the European heavyweight since
2015. The year-over-year rate slowed to 1.1%, down from 2.3% in Q2. The worry is that as
the rest of the world, and especially exporting countries like China and Germany begin to
slow, so too with the U.S. economy.
This is an excerpt of the story, for the rest please visit the Investment Strategy page on
MarketScope Advisor at http://advisor.marketscope.com.
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analyst judgment, and the extent to which some types of data
Glossary is disclosed by companies.
STARS
Since January 1, 1987, CFRA Equity and Fund Research 12-Month Target Price
Services, and its predecessor S&P Capital IQ Equity Research The equity analyst's projection of the market price a given
has ranked a universe of U.S. common stocks, ADRs security will command 12 months hence, based on a
(American Depositary Receipts), and ADSs (American combination of intrinsic, relative, and private market
Depositary Shares) based on a given equity's potential for valuation metrics, including Fair Value.
future performance. Similarly, we have ranked Asian and
European equities since June 30, 2002. Under proprietary CFRA Equity Research
STARS (STock Appreciation Ranking System), equity CFRA Equity Research is produced and distributed by
analysts rank equities according to their individual forecast of Accounting Research & Analytics, LLC d/b/a CFRA ("CFRA
an equity's future total return potential versus the expected US"). Certain research is distributed by CFRA UK Limited
total return of a relevant benchmark (e.g., a regional index (together with CFRA US, "CFRA"). Certain research is
(S&P Asia 50 Index, S&P Europe 350® Index or S&P 500® produced by Standard & Poor's Malaysia Sdn. Bhd ("CFRA
Index)), based on a 12-month time horizon. STARS was Malaysia") under contract to CFRA US.
designed to meet the needs of investors looking to put their
investment decisions in perspective. Data used to assist in Abbreviations Used in Equity Research Reports
determining the STARS ranking may be the result of the CAGR - Compound Annual Growth Rate
analyst's own models as well as internal proprietary models CAPEX - Capital Expenditures
resulting from dynamic data inputs. CY - Calendar Year
DCF - Discounted Cash Flow
S&P Global Market Intelligence's Quality Rank DDM - Dividend Discount Model
(also known as S&P Capital IQ Earnings & Dividend EBIT - Earnings Before Interest and Taxes
Rankings) - Growth and stability of earnings and dividends EBITDA - Earnings Before Interest, Taxes, Depreciation and
are deemed key elements in establishing S&P Global Market Amortization
Intelligence's earnings and dividend rankings for common EPS - Earnings Per Share
stocks, which are designed to capsulize the nature of this EV - Enterprise Value
record in a single symbol. It should be noted, however, that FCF - Free Cash Flow
the process also takes into consideration certain adjustments FFO - Funds From Operations
and modifications deemed desirable in establishing such FY - Fiscal Year
rankings. The final score for each stock is measured against a P/E - Price/Earnings
scoring matrix determined by analysis of the scores of a large P/NAV - Price to Net Asset Value PEG Ratio - P/E-to-
and representative sample of stocks. The range of scores in Growth Ratio PV - Present Value
the array of this sample has been aligned with the following R&D - Research & Development ROCE - Return on Capital
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STARS Ranking system and definition:
★★★★★ 5-STARS (Strong Buy):
Total return is expected to outperform the total return of a
relevant benchmark, by a wide margin over the coming 12
months, with shares rising in price on an absolute basis.
★★★★★ 4-STARS (Buy):
Total return is expected to outperform the total return of a
relevant benchmark over the coming 12 months, with shares
rising in price on an absolute basis.
★★★★★ 3-STARS (Hold):
Total return is expected to closely approximate the total
return of a relevant benchmark over the coming 12 months,
with shares generally rising in price on an absolute basis.
★★★★★ 2-STARS (Sell):
Total return is expected to underperform the total return of a
relevant benchmark over the coming 12 months, and the share
price not anticipated to show a gain.
★★★★★ 1-STAR (Strong Sell):
Total return is expected to underperform the total return of a
relevant benchmark by a wide margin over the coming 12
months, with shares falling in price on an absolute basis.
Relevant benchmarks:
In North America, the relevant benchmark is the S&P 500
Index, in Europe and in Asia, the relevant benchmarks are
the S&P Europe 350 Index and the S&P Asia 50 Index,
respectively.
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NOVEMBER 15, 2018
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Disclosures About CFRA Equity Research's Distributors:
S&P GLOBAL™ is used under license. The owner of this This Research Report is published and originally distributed
trademark is S&P Global Inc. or its affiliate, which are not by Accounting Research & Analytics, LLC d/b/a CFRA
affiliated with CFRA Research or the author of this content. (“CFRA US”), with the following exceptions: In the
UK/EU/EEA, it is published and originally distributed by
Stocks are ranked in accordance with the following ranking CFRA UK Limited, which is regulated by the Financial
methodologies: Conduct Authority (No. 775151), and in Malaysia by
Standard & Poor’s Malaysia Sdn. Bhd., which is regulated by
STARS Stock Reports: Securities Commission Malaysia, (No. CMSL/A0181/2007)
Qualitative STARS recommendations are determined and under license from CFRA US. These parties and their
assigned by equity analysts. For reports containing STARS subsidiaries maintain no responsibility for reports
recommendations refer to the Glossary section of the report redistributed by third parties such as brokers or financial
for detailed methodology and the definition of STARS advisors.
rankings.
General Disclosure
Quantitative Stock Reports:
Quantitative recommendations are determined by ranking a Notice to all jurisdictions:
universe of common stocks based on 5 measures or model
categories: Valuation, Quality, Growth, Street Sentiment, and Where Research Reports are made available in a language
Price Momentum. In the U.S., a sixth sub-category for other than English and in the case of inconsistencies
Financial Health will also be displayed. Percentile scores are between the English and translated versions of a Research
used to compare each company to all other companies in the Report, the English version will control and supersede any
same universe for each model category. The five (six) model ambiguities associated with any part or section of a
category scores are then weighted and rolled up into a single Research Report that has been issued in a foreign
percentile ranking for that company. For reports containing language. Neither CFRA nor its affiliates guarantee the
quantitative recommendations refer to the Glossary section of accuracy of the translation. The content of this report and the
the report for detailed methodology and the definition of opinions expressed herein are those of CFRA based upon
Quantitative rankings. publicly-available information that CFRA believes to be
reliable and the opinions are subject to change without notice.
STARS Stock Reports and Quantitative Stock Reports: This analysis has not been submitted to, nor received approval
The methodologies used in STARS Stock Reports and from, the United States Securities and Exchange Commission
Quantitative Stock Reports (collectively, the "Research or any other regulatory body. While CFRA exercised due care
Reports") reflect different criteria, assumptions and analytical in compiling this analysis, CFRA AND ALL RELATED
methods and may have differing recommendations. The ENTITIES SPECIFICALLY DISCLAIM ALL
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methodologies and data used to generate the different types of WARRANTIES, EXPRESS OR IMPLIED, to the full extent
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reasonable and appropriate. Generally, CFRA does not usefulness of this information and assumes no liability with
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same issuer. However, in the event that different investment or other purposes. No content (including ratings,
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STARS Stock Reports are prepared by the equity timeliness or availability of the Content.
research analysts of CFRA and its affiliates and
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