Jennifer Dowty
Jennifer Dowty, Chartered Financial Analyst, writes exclusively for Globe Unlimited subscribers. The Before the Bell report is updated throughout the premarket to reflect latest developments.
Good Thursday morning to you.
Today, U.S. futures have turned negative this morning, suggesting that the markets will open lower but the S&P/TSX 60 Index Futures remain relatively flat, but positive. Markets rallyied strongly yesterday, and it will be earnings reports that drive the direction of the market and stocks. Crude oil is stabilizing and the price of gold is under some pressure this morning.
U.S. second quarter GDP came in at 2.3 per cent below expectations of 2.5 per cent. Personal consumption was slightly better-than-expected at 2.9 per cent versus expectations of 2.7 per cent.
The S&P/TSX 60 Index Futures are up, suggesting a slightly positive open. On Wednesday, the S&P/TSX composite index increased 1.6 per cent. The rally was broad based, with 214 stocks in the index closing in positive territory, which represents 87 per cent of the index. The rally was helped by strength from the energy sector. The price of oil bounced back after the U.S. Energy Information Administration reported a large decline in oil inventory levels. This morning the price of crude has bounced back above the $49 (U.S.) level.
Now, here is your earnings scorecard for the S&P/TSX composite index so far this earnings season. Bloomberg is reporting that beginning July 20, 49 per cent of companies have reported better-than-expected sales and 50 per cent of companies have reported better-than-expected earnings. In terms of growth, sales growth is negative, down 8 per cent year-over-year, while earnings are down 22 per cent year-over-year, unsurprisingly, the earnings decline is led by energy stocks.
Today, is the busiest day of the week with 27 companies in the S&P/TSX composite index confirming that they will be reporting earnings. Sixteen companies are set to report before the bell, among them are Quebecor, Bombardier, Goldcorp, Cameco, Baytex Energy, and Penn West Petroleum. This leaves 11 companies reporting after the close, among them are Interfor, Canadian Oil Sands, and Eldorado Gold.
Last night after the close, Suncor, Open Text, Home Capital Group, and Methanex were among the 11 companies reporting.
Suncor handily topped the Street's expectations on an earnings per share and cash flow per share basis. The company reported earnings per share of 63 cents exceeding the Street's expectations of 35 cents. Management raised its 2015 production guidance and also its quarterly dividend to 29 cents per share from 28 cents per share.
Open Text reported better-than-expected results after the closing bell on Wednesday. Revenue was $483-million, above previous guidance of $440 to $455-million, and above the Street's expectations of $448-million. License revenue was strong. Adjusted earnings per share was better-than-expected at 87 cents, above previous guidance of 64 cents to 72 cents and above the Street's expectation of 69 cents. Guidance was positive as management raised it target margins to between 30 per cent and 34 per cent, from a range of 28 per cent to 32 per cent. On Tuesday, the stock price closed at a 52-week low. These positive results may provide the stock price with support this morning, as the stock price looks to open higher, bouncing off of its 52-week low from Tuesday.
Home Capital Group reported earnings of $1.03 per share, in-line with its prior guidance. Shares look to open higher this morning, bouncing off of its 52-week low from Tuesday. On Monday, James Baillie resigned from the company's board of directors and on Wednesday, management disclosed additional insights surrounding the suspension of 53 brokers.
Methanex missed the Street's expectations, reporting adjusted earnings per share of 56 cents, far below the consensus estimate of 75 cents.
On Wednesday, the U.S. Federal Reserve statement did not reveal any clues to investors as to when the Fed would be raising interest rates come September. The statement said, "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
Major European markets are all in the green today. The German, French, London, and Italian market are all up by under 1 per cent.
In corporate news, shares of Royal Dutch Shell are up today after the company announced that it is cutting 6,500 jobs, reducing capital spending, but maintaining its dividend.
In Asian markets, it was mixed scene. Volatility continues to be seen in the Chinese markets. The Shanghai Stock Exchange composite index closed down 2.2 per cent and the Shenzhen Stock Exchange composite index closed down 3.2 per cent.
In Japan, a positive economic release helped boost the Nikkei Index higher. June Industrial Output increased 0.8 per cent month-over-month, ahead of expectations of 0.3 per cent. The Nikkei closed up 1.1 per cent.
In corporate news, Nissan reported very strong first quarter results and the stock was up strongly. The company reported strong sales into the U.S. market. This is an important insight into the North American automotive industry.
Samsung Electronics reported disappointing second quarter earnings with weakness from the company's mobile division. What was interesting, however, were reports that the company is aiming to increase smartphone sales next quarter with new product launches coming earlier than expected.
The Bottom Line: It is a return to fundamentals with investors resifting their focus to earnings.
Now, here is a look at major markets and news.
MARKET DATA:
Futures
S&P 500 -0.36 per cent; Dow -0.29 per cent; Nasdaq: -0.18 per cent
Equities
Hong Kong's Hang Seng -0.49 per cent
Shanghai composite index -2.19 per cent
Japan's Nikkei +1.08 per cent
London's FTSE 100 +0.74 per cent
Germany's DAX +0.08 per cent
France's CAC 40 +0.43 per cent
Stoxx 600 +0.51 per cent
Commodities
WTI crude oil (Nymex Sep) +0.76 per cent at $49.16 (U.S.) a barrel
Gold (Comex Dec.) -0.65 per cent at $1,086.20 (U.S.) an ounce
Copper (Comex Sep) -0.77 per cent at $2.39 (U.S.) a pound
Currencies
Canadian dollar at 77.08 (U.S.), -0.13
U.S. dollar index +0.35 at 97.32
Bonds
U.S. 10-year Treasury yield 2.279 per cent, +0.0290
ECONOMIC INDICATORS:
Japan industrial production. Plus, Euro area economic confidence.
(8:30 a.m.) U.S. initial jobless claims for week of July 25. Estimate is an increase of 16,000 claims from week of July 18
(8:30 a.m.) U.S. real GDP (with revisions) for the second quarter. Consensus is an annualized rate increase of 2.5 per cent.
STOCKS TO WATCH:
Cenovus Energy Inc. says it's looking to cut between 300 to 400 jobs in the second half of this year, and is chopping its quarterly dividend by 40 per cent. The energy company says it will now pay a quarterly dividend of 16 cents per share, down from its earlier rate of 26.62 cents. Cenovus also ended the three per cent discount shareholders received if they participated in the company's dividend reinvestment plan. The company has been slashing costs as it deals with the drop in oil pries. Cenovus said it expects to reduce expenses by about $280-million this year compared with its earlier target of $200-million. The cuts come as Cenovus reported a second-quarter profit of $126-million or 15 cents per share, down from $615-million or 81 cents per share a year ago. Revenue, net of royalties, fell to $3.73-billion, down from $5.42-billion.
Canadian oil producer Penn West Petroleum Ltd. cut its 2015 capital budget for the second time as it looks to contain costs amid a steep fall in crude oil prices. The company also reported a smaller-than-expected quarterly loss, helped by a 21 per cent fall in total expenses. Penn West cut its capital budget to $575-million from $625-million on Thursday, after lowering its price assumption for Canadian crude oil to $60 from $65. In December, it cut its full-year budget by about 26 per cent.
Canada's most-watched high tech company, Shopify Inc., blew past expectations as it posted its first quarterly results as a public company early Thursday. The ecommerce platform company said it earned revenue of $44.9-million (U.S.) in the quarter ended June 30, up 90 per cent year over year, and lost 3 cents per share. Analysts on average were expecting the company to post $38.1-million in revenue and lose nine cents per share.
Goldcorp Inc. reaped the rewards of its Tahoe Resources share sale, doubling its profit for the second quarter. But the miner slashed its dividend by 60 per cent to 2 cents per shares to give it a financial buffer amid the deep slump in gold prices. The company earned $392-million (U.S.), or 47 cents per share in the three months ended in June, compared to a profit of $181-million, or 22 cents per share, a year ago.
Bombardier Inc. announced a formal cost-control program and the delay of its Global 7000 business jet by two years as it battles to get its flagship C Series jet to market and reassure investors. The moves came as the Montreal-based company reported adjusted earnings of $0.06 per share during the quarter on revenue of $4.6-billion, slightly beating analyst estimates.
Potash Corp of Saskatchewan Inc. reported a 12 per cent drop in quarterly profit, missing Wall Street estimates, hurt mainly by weak nitrogen earnings and lower phosphate sales. The company, the world's biggest fertilizer company by market capitalization, lowered the top end of its full-year profit forecast to $1.95 per share from $2.05. The low end of the guidance remained unchanged at $1.75.Analysts on average were expecting earnings of $1.81 per share, according to Thomson Reuters I/B/E/S.
ANALYST ACTIONS:
Mogo Finance Technology Inc. (GO-T) was rated new "Speculative Buy" at Cormark Securities with a 12-month target price of $11.25 (Canadian) per share. The stock was rated a new "Buy" at Canaccord Genuity with a target price of $10 per share.
Thomson Reuters Corp. (TRI-T;TRI-N) was raised to "Buy" from "Hold" at TD Securities. The 12-month target price is $57 (Canadian) per share.
Tamarack Valley Energy Ltd. (TVE-X) was raised to "Buy" from "Hold" at Desjardins Securities. The 12-month target price is $5 (Canadian) per share.
Yelp Inc. (YELP-N) was downgraded to "Neutral" from "Neutral" at MKM Partners. The 12-month target price is $25 (U.S.) per share.
Quote of the Day: "Why fit in when you were born to stand out." Dr. Seuss
Jennifer Dowty