Weekly Comment

December 15, 2014

Overview

It appeared to be a case of too much good news last week as the sharp decline in oil prices unnerved investors.  The closing price of U.S. crude on Friday was $57.81/barrel, down $8.03 for the week to reach its lowest level since mid-2009.  The understandable weakness in energy stocks was not offset by strength elsewhere as concerns grew about the overall economy...despite the fact that November retail sales surged 0.7 percent, as compared to expectations of a 0.4 percent gain, as  consumer confidence readings rose to recovery highs.  The Dow Jones Industrial Average fell 677.96 points (3.78 percent), the S&P 500 Index declined 73.04 points (3.52 percent), and the Nasdaq Composite was off 127.16 points (2.66 percent).  While oil prices fell, gold rallied $31.90/ounce to $1222.  Elsewhere in the world, the Russian ruble remained under pressure and is now down more than 40 percent over the past year and China's exports rose only 4.7 percent year-over-year in November, a marked deceleration from October's 11 percent increase.

In the News

Conn's Inc. (CONN-17.44) Conned

          Conn's lost $3.1 million, or $0.08 per share in the third quarter versus EPS of $0.66 in the year-earlier period and the consensus estimate of $0.68. Conn's offers financing to customers, some with low incomes and sub-par credit scores, and that segment of the business has taken a turn for the worse with the Company taking a provision for bad debts of $72.0 million versus $22.6 million a year earlier. The Company announced the departure of CFO Brian Taylor and the creation of a new credit risk and compliance committee. Conn's also initiated a search for a chief risk officer who will supply reports to the credit risk and compliance committee. Revenue for  the Company company rose to $370.1 million from $310.9 million, but fell well short of the $382.5 million average analyst estimate. The plummeted 50.5 percent last week to reach its lowest level in over two years.

Oasis Petroleum (OAS-12.33) Out of Style

            Oasis Petroleum, an oil producer focused on properties in the Williston Basin in North Dakota (also known as the Bakken shale), announced that it cut its capital budget by nearly halve from $1.43 billion in 2014 to $750 million to $850 million in 2015 in response to lower global crude prices. Oasis had spent $1.1 billion of its planned 2014 expenditures as of as September 30.  The stock, which has been under pressure since hitting a high of $58.09 on July 24,  fell to as low as $10.64 early Friday morning, down 25 percent for the week before rebounding somewhat.  Oasis noted that it has a strong hedge position in 2015 with over 53 percent of 2015 oil volumes hedged with an average floor of $89.13 giving it $164 million of value if crude oil pricing at NYMEX West Texas Intermediate (WTI) is $70 per barrel and $249 million of value if WTI is $60 per barrel.  The Company forecast year over year production growth of 5 percent  to 10 percent in 2015.  The consensus EPS estimates for 2014 and 2015 fell to $2.45 and $1.99, respectively, from $2.47 and $2.39 a week earlier. Ninety days ago the estimates were $3.10 and $3.97.  


The Week Ahead

This week's economic statistics should be consistent with recent statistics that portray a rate of growth. Although it will be a quiet week for earnings announcements, releases by FedEx, NIKE and Oracle could affect overall investor sentiment. Importantly, the Federal Open Market Committee will make a policy statement on Wednesday following the conclusion of its two-day meeting and Federal Reserve Chair Janet Yellen will hold a press conference at that time. While no one anticipates a change in the federal funds rate at this time, there are growing expectations that the FOMC release will indicate that an increase by mid-2015 is likely.  The Treasury auctions scheduled for this week are on: Monday: $24 billion three-month bills and $26 billion six-month bills; and Thursday: $16 billion four-year, four-month TIPS.  



Economic Indicators       

  Expected

 Last Period

Mon., Dec. 15

Nov. Industrial Production

+0.7 percent

-0.1 percent

Nov. Capacity Utilization

79.3 percent

78.9 percent

Tues., Dec. 16

Nov. Housing Starts

1.03 million

1.01 million

Wed., Dec. 17

Nov. Consumer Price Index

-0.1 percent

0.0 percent

Thurs., Dec. 18

Dec. Philadelphia Fed. Survey

27.0

40.8

Nov. Leading Indicators

+0.5 percent

+0.9 percent

Source: Bloomberg/FactSet

Selected Corporate Earnings

Period

Estimate

Year Earlier

Mon., Dec. 15

Verifone Systems

4Q

$0.41

$0.27

Tues., Dec. 16

Darden Restaurants

2Q

$0.27

$0.20

Factset Research

1Q

$1.32

$1.22

Miller (Herman)

2Q

$0.51

$0.42

Wed., Dec. 17

Carnival

4Q

$0.20

$0.04

FedEx

2Q

$2.18

$1.57

General Mills

2Q

$0.77

$0.83

Jabil Circuit

1Q

$0.47

$0.51

Joy Global

4Q

$1.15

$1.11

Oracle Corp.

2Q

$0.68

$0.69

Thur., Dec. 18

Accenture

1Q

$1.20

$1.11

Bio Reference Labs

4Q

$0.63

$0.40

Cintas

2Q

$0.78

$0.70

ConAgra Foods

2Q

$0.60

$0.62

NIKE

2Q

$0.70

$0.59

Red Hat

3Q

$0.40

$0.42

Sanderson Farms

4Q

$3.98

$1.97

Scholastic

2Q

$2.22

$2.15

Winnebago

1Q

$0.45

$0.40

Fri., Dec. 19

CarMax

3Q

$0.54

$0.47

Finish Line

3Q

$0.02

$0.06

Paychex

2Q

$0.46

$0.43

Source: Thomson First Call










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