Wednesday, July 16, 2014

Jun '14 Industrial Production Guesstimate ...

The industrial production numbers for Jun '14 are due out this Wednesday (7/16) at 9:15am (ET).  With slight sequential decline in ISM-manufacturing, we expect a 0.3% increase in industrial production versus the latest consensus of 0.4%.  Regarding capacity utilization, we think most of the data including ISM-manufacturing's employment sub-index, and the increasing work week hours from regional surveys, point to an increase in June.  We estimate capacity utilization of 80.8%, a 150bps sequential increase, and higher than the 79.2% consensus.  In our opinion, if capacity utilization goes above 80%, it may be indicate a slowdown in future hiring.  

Lastly, we will post what we believe to be our CY '15 valuation of the S&P 500, before next Monday (7/21).  We publish our valuation of this index basically every six months. 

Thursday, July 3, 2014

Our NFP guesstimate was off again ...

For the second month in a row, our NFP forecast was not accurate at all as BLS reported net change of +288K in NFP for June.  This easily beat the 211K consensus and blew away our mere 190K estimate.  Official unemployment rate declined 20bps to 6.1% while participation rate remained at 62.8%.  The U-6 unemployment rate declined to 12.1% from 12.2%.      

While most figures in the report were positive, we note the 275K increase in part-time jobs due to economic reasons (or basically involuntary part-time jobs) is concerning, especially after seeing a 196K decline in May.   

Another not-so-great-news was that average hourly wages went up by 6c from the prior month, which represents a mere 1.96% wage growth Y/Y.  Let's hope wage growth picks up a bit especially given that the recent increase in oil and gasoline prices will increase overall CPI and may push against growth in consumption.  Average weekly hours remained at 34.5 hours.

We won't go through every industry, but a few things stood out.  
  • Hiring of only 6K in construction, after a disappointing 9K during May, was surprising.  The hiring of 36K people in the construction space during April, thanks to 'pent-up demand' due to the weather factor in prior months, may have been the reason behind less hiring in May and June.
  • Based on the employment sub-indexes of regional surveys and the official ISM manufacturing report, we did not expect additional hiring in manufacturing in June; but 16K people were hired.
  • While jobs in retail trade increased m/m pretty much across the board, the overall 40.2K increase (compared with only 10.5K in May) was driven mainly by huge growth in auto sales.  
  • Professional and business services added 67K jobs but they were mostly low-paying jobs in administrative and support services areas.  Jobs in temp help services grew by 10.1K.  
  • This has become the norm: jobs in health care and social assistance went up by 33.7K.
  • Leisure and hospitality added another 39K jobs, which was surprising as we thought the summer seasonal hiring would slow down a bit, but of course that was not the case.  
  • And we should not forget to mention that those great government jobs added another 26K to the NFP count.

ISM services was also released this morning.  It came in slightly below expectations, 56.0 vs 56.2 and lower than May's 56.3.  The employment sub-index increased nicely, which was also shown in the BLS employment report.  

Initial jobless claims of 315K was higher than the 314K consensus.  Not much volatility is seen in initial jobless claims during the last three months as the figure has been pretty much the same as the 4-week moving average.  

Lastly, the ISM manufacturing number was released on Tuesday morning.  The 55.3 figure was above our 55.0 projection but below the Street's 55.6 expectation.  In addition to the overall index declining slightly from the prior month, its employment sub-index was unchanged; although it remained above 50.0.  

Tuesday, July 1, 2014

Jun '14 ISM manufacturing and NFP guesstimates ...

June ISM manufacturing will be released in approx. 8 hours at 10am (ET).  Based on mixed results of the regional surveys, we expect the overall index to come in at 55.0, a slight decline from May's 55.4 and below the 55.6 consensus.  The number of employees sub-index may disappoint.  

Given the short week due to the 4th of July holiday on Friday, BLS will release the June employment report on Thursday, 7/3.  Based on our model, we think change in NFP will disappoint by approximately 21K.  We estimate an increase of 190K, compared with the Street's estimate of 211K.  Initial claims (both seasonally adjusted and non-adjusted) actually increased slightly in June.  In addition, as mentioned before, growth in jobs on the manufacturing front has been mixed.  Lastly, given that summer has already begun, we don't expect the same spike in hospitality type jobs that we saw the last couple of months.

Wednesday, June 25, 2014

GCI, IACI: The Supreme Court rules against Aereo ...

The Supreme Court ruled against Aereo and in favor of ABC this morning.  We expected such a ruling and we also agree with it.  In terms of how some stocks are reacting, GCI, which we have been viewing as a 'buy' and value at approx. $40/sh, is up 4%+.  IACI, one of the biggest investors in Aereo and a stock that we value at only $60/sh, is down approx. 1%.  Other stocks impacted by this ruling include: MEG (+10%), SBGI (+14%), and CBS (+5%). 

The Court's ruling was based on a few things that we have discussed before: 1) Aereo is actually distributing content and not merely storing the content, nor just providing the hardware, as it claimed; 2) based on (1), Aereo is transmitting "a performance ... of the work ... to the public" (as stated in the Copyright Act of 1976; and 3) given (1) and (2) and the fact that it has not attained nor paid for any right to distribute (or "transmit") the content, Aereo is committing copyright infringement.  Simply put: content remains king and any distribution of it must be paid for.  

What does this ruling mean for GCI?

The Supremem Court's decision means GCI will continue to receive retransmission fees from distributors; whether the distribution is in real-time or delayed, or via cable, satellite or OTT.  The retrans fees basically go straight to the bottom-line, and based on some industry studies such as one conducted by SNL Kagan, we think those revenues could grow at a 16% 5-year CAGR through 2019, possibly expanding GCI's Broadcast segment EBITDA margin to 54%+.  

What does this ruling mean for Aereo?

The CEO of Aereo has been quoted saying that the company does not have a "plan B" if the Court rules against it.  After this morning's news, we will see if Aereo, along with the $90MM+ invested in it, will disappear.  The other option may be that Aereo begins paying broadcasters.    

Other news ...

In other news, the latest Q1 GDP figure was released by the BEA which showed real GDP declined at a 2.9% annualized rate compared with a 1.9% decline expected by those expert economists.  Durable goods orders for the month of May also came in below expectations, -1% compared with the 0% consensus.  PMI services for June beat expectations, 61.2 vs 58.0 consensus.  But we note that deceleration in the outstanding business, business expectations, and prices charged (or revenues) sub-indexes, combined with acceleration in employment and input price sub-indexes, do not sound that great.  But who cares, the equity market continues to go up and up; S&P500 is up 0.23% at 1954.  

Lastly, we are a bit relieved as the Supreme Court also ruled that law enforcement officials need warrants to have access to any data on cell-phones.  Then again, as we have seen in the past, no laws are really applicable to the NSA.  But we continue to hope for change.  

Friday, June 6, 2014

May '14 NFP increased by 217K; our guesstimate was off significantly ...

Well, our accuracy trend of estimating monthly net change in NFP ended abruptly today as May NFP increased 217K, slightly higher than the 213K estimate, and significantly above our 129K guesstimate.  Official unemployment rate remained at 6.3% with no change in labor force participation rate.  The U-6 rate dipped to 12.2% from 12.3% in April.  In terms of revisions, April NFP change was lowered by 6K to 282K while the March figure was unchanged at 203K.  Overall, the numbers were pretty much in-line with what the market expected, but we will see what happens next month, in terms of revisions.  We must say thank Goodness for those ever-increasing health services jobs as they increased by nearly 55K!  
  • Private NFP increased by 216K
  • On the production side (goods-producing), the biggest gainers were manufacturing (+10K) and construction (+6K)
  • Within manufacturing, strength in durable goods was offset partially by decline in non-durable goods, especially in food manufacturing
  • On the services side (private service-producing), led by education and health services (+63K), professional and business services (+55K), and leisure and hospitality (+39K). 
  • Health-services jobs jumped by 54.9K.  We are guessing that Americans aren't getting any healthier as jobs in this space continue to increase.  Or the Obamacare is actually creating the jobs, for good and bad reasons.
  • Professional and business services increased due to strength in technical services and those administrative employment services jobs.  Temp-help jobs continue to grow; whether that is good news or not, remains to be seen.
  • Wholesale trade jobs increased by 9.9K with strength in durable goods trade jobs partially offset by decline in nondurable goods.
  • Increase in retail trade jobs was helped by a 6.8K increase in car dealer related jobs but jobs in electronics and appliance stores declined by 5.1K
  • Information related jobs declined mainly due to another decline in motion picture and sound recording industries jobs.  
  • Average weekly hours remained unchanged while hourly earnings went up by a nickel or 0.2% from April; and by 2.05% from last year.   

S&P 500 futures are up 0.2% indicating possibly another record close for the equity market today.  Gold is up 0.14%, which is a bit surprising given the solid jobs report.  Front-month oil futures up 0.44%, maybe a bit more due to the good durables-related jobs numbers rather than the usual geopolitical factors. 

Wednesday, June 4, 2014

May '14 NFP guesstimate of only 129K ...

BLS employment report will be released this Friday, 6/6.  Our model spit out an NFP increase of approx. 129K, significantly below the 213K Street consensus.  While initial jobless claims have been declining consistently, we note that such trend does not necessarily indicate acceleration of job growth, but rather a deceleration of job loss.  In addition, the ISM manufacturing and services employment sub-indexes were mixed in May, while the ADP report missed big.  Lastly, the latest online job postings, both total and new ones for May, declined slightly.  For these reasons we think the NFP net change in May employment report may turn out to be a big miss.

Monday, June 2, 2014

Disappointing May ISM manufacturing ... or not?!? (part II)

This is amazing!  ISM appears to have corrected its mistake TWICE, and only on its homepage and on a correction *.pdf report , not within the published report on its website .  So the 'final' May ISM manufacturing index stands at 55.4, slightly below our estimate and the consensus.  By now, we think the overall consensus is that ISM may have needed a 3-day weekend to get this right. 

The main differences between the original report and the double-revised one are: growth in new orders and production accelerated, while deceleration in employment was a bit lower. 

We're wondering if Vegas is taking any bets on whether or not ISM will revise the revised version of the first revised version!

Disappointing May ISM manufacturing ... or not!?!

May ISM manufacturing may not have been as bad as initially reported by ... yes, by ISM!  There are some reports out there saying that ISM used the wrong seasonal factor to adjust its results, and because of that it spit out the disappointing 53.2 that we discussed earlier today.

Some reports have said the number is actually 56.0, which, if true, is closer to our 55.8 estimate and above the 55.5 consensus.  It remains to be seen, as the last time that we checked the ISM website, no changes were made to the report.  We called ISM's Kristina Cahill and left a message.  We also emailed her.  Hopefully we will get a response.  Below are links to various reports stating the correction (or no correction ... or too many corrections) associated with ISM's May manufacturing data.  

GCI: Positive article on Gannett in Barron's

We wanted to highlight a positive piece on Gannett (GCI) published in Barron's last weekend (5/31).  Pretty much everything we said about GCI in Jan. '14 was supported in that Barron's article.  Most of the buy-side guys that Barron's quoted also value GCI around $40/sh.  Link to the article: Gannett Could Rise 40%.  

GCI has reacted well to the story as it is up 3% on high volume; it is up only 4.2% since we published our opinion on it in late Jan. '14, compared to a 7.5% increase in the S&P 500 during the same period.    

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Disappointing May ISM manufacturing ...

ISM manufacturing for May came in at 53.2, below our 55.8 estimate and the Street's 55.5.  Data show that growth slowed across most sub-indexes.  In our opinion, deceleration in new orders, production, employment, backlog, exports, and imports, accompanied by no change in inventories, continuing weakness in customer inventories, and overall prices surging higher, isn't a very good sign.  

Construction spending for April came in below expectations, but the miss was mostly due to an upward revision of the March data.  

Equity market's reaction to all of this has been pretty modest, with S&P500 down only 0.08%, as many await release of the May employment report this Friday.

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