Morgan Stanley equity strategist Michael Wilson noted that year-to-date performance across assets shows large divergences in performance across the risk spectrum, arguing that it is "probably not too early" to start shifting out of some of the extreme cyclicals and picking up more defensively oriented names given the "ever tightening" financial conditions. He upgraded the Utilities sector to Overweight, citing expectations of peak 10 Year Treasury yields and improving relative earnings breadth. The firm has individual Overweight ratings on American Electric (AEP), FirstEnergy (FE), NextEra Energy (NEE), NextEra Energy Partners (NEP), PG&E (PCG), PSEG (PEG) and Xcel Energy (XEL).
News For AEP;FE;NEE;NEP;PCG;PEG;XEL From the Last 2 Days
Unusual total active option classes on open include: Jacobs Engineering (JEC), NextEra Energy (NEE), Viking Therapeutics (VKTX), Home Depot (HD), iShares DJ US Home Construction Index Fund (ITB), Johnson & Johnson (JNJ), Macy's (M), Salesforce (CRM), Twitter (TWTR), and Boeing (BA).
UP AFTER EARNINGS: Advanced Auto Parts (AAP), up 6%... Home Depot (HD), up 1%... YY (YY), up 2%... Huya (HUYA), up 7%. ALSO HIGHER: Viking Therapeutics (VKTX), up 15% after VK2809 study achieves primary, secondary endpoints... Chesapeake (CHK), up 2% after Citi analyst Robert Morris upgraded the stock to Neutral and raised his price target for the shares to $4.50 from $3.50. DOWN AFTER EARNINGS: Tyson Foods (TSN), down 4%. ALSO LOWER: PG&E (PCG), down 2% after California regulators said to launch an investigation into the company after reporting that its electrical infrastructure suffered malfunctions near ground zero of two deadly fires... Parateum (TEUM), down 5% after acquiring iPass (IPAS) in all-stock transaction.
Stocks opened in negative territory under the weight of Apple (AAPL) shares, which were lower following a profit warning from a supplier of iPhone sensors. The weakness spread... To see the rest of the story go to thefly.com. See Story Here
Shares of PG&E (PCG) and Edison International (EIX) are sliding amid California wildfires that began in the former's service territory. Morgan Stanley analyst Kai Pan argued that given the Incident Report issued by PG&E and other reports that firefighters saw tree branches on power lines in the area, the focus currently appears to be on PG&E equipment. CALIFORNIA WILDFIRES: In Northern California, 25 people have been reported dead in the Camp Fire, making this the second deadliest fire in California history, according to USA Today, citing authorities. According to the latest update on Cal Fire's website: "Strong northeat winds are expected to continue through Monday morning. The fire area is still under the influence of low relative humidity, dry fuel moistures. Moderate to extreme fire behavior are possible including; spotting, slope driven runs, torching and crowning. Firefighters will continue to conduct structure defense and perimeter control." PG&E has also issued a report regarding the Camp Fire, saying that on November 8, PG&E experienced an outage on the Caribou-Palermo 115 kV Transmission line in Butte County. "In the afternoon of November 8, PG&E observed by aerial patrol damage to a transmission tower on the Caribou-Palermo 115 kV Transmission line, approximately one mile north-east of the town of Pulga, in the area of the Camp Fire," the company stated, adding that "this information is preliminary." Meanwhile, in Southern California, officials confirmed that two people have died in the Woolsey Fire near Malibu, USA Today reported. FOCUS ON PG&E EQUIPMENT: In a research note assessing California wildfire risk for utilities and insurers, Morgan Stanley's Pan told investors that given the incident report issued by PG&E and other reports that firefighters saw tree branches on power lines in the area, focus currently appears to be on PG&E equipment. Under California Inverse Condemnation, PG&E would be responsible for all damages, regardless of whether the company is, or is not, negligent, he contended. Therefore, Pan believes it is "reasonably unlikely" that insurers will be required to cover the full extent of damages from this fire. Regarding Edison, the analyst estimates the stock currently reflects $5.5B in fire liability for 2017 and 2018 fires, plus a permanent 20% discount to peers. This level of liability likely exceeds the amount for which shareholders will be responsible, Pan argued. PRICE ACTION: In morning trading, shares of PG&E have plunged 20% to $31.96, while Edison's stock has dropped 10% to $54.65.
HIGHER: Apptio (APTI), up 52% after announcing it will be acquired by Vista Equity Partners for $38 per share... Athenahealth (ATHN), up 9% after confirming that Veritas and Elliott will acquire the company for $135 per share... Lannett (LCI), up 5% after entering into an exclusive agreement with Amneal Pharmaceuticals (AMRX) for Levothyroxine sodium tablets... L Brands (LB), up 3% after being upgraded to Outperform from Market Perform at Wells Fargo. DOWN AFTER EARNINGS: Qutoutiao (QTT), down 10%... Autohome (ATHM), down 2%. ALSO LOWER: PG&E (PCG), down 15% amid ongoing California wildfires... Altria Group (MO) and Brtish American Tobacco (BTI), down 4% and 7%, respectively, after the Wall Street Journal reported that the FDA plans to propose a ban on menthol cigarettes... SAP (SAP), down 5% after announcing a deal to acquire survey company Qualtrics for $8B in cash.
Morgan Stanley analysts Kai Pan and Stephen Byrd estimate $2B-$4B in insured losses from the Camp Fire, adding that total economic losses will be higher but insurance penetration is very high as fire losses are covered under standard homeowners polices. Given the incident report issued by PG&E (PCG) and other reports, the focus currently appears to be on PG&E equipment, the analysts added. In a bearish case, damage from the Camp Fire spreads and PG&E shareholders are fully liable for all damages, fully liable for 2017 wildfires, and there is a permanent 30% discount to peers, in which case Pan and Byrd believe PG&E stock would be valued at $37 per share. In a "moderate" case, they assign a 75% probability of full shareholder liability for Camp Fire damages, damages grow by 25% from the current level, and the stock trades at a permanent 15% discount to peers, in which case they believe PG&E would be valued at $59 per share. Pan and Byrd believe PG&E shares now reflect $17B for 2017-18 fires plus a permanent 25% discount to peers. In terms of Edison International (EIX), the analyst sees $5B for 2017-18 fires plus a permanent 20% discount to peers being reflected in the stock. In the bearish case, they see Edison being valued at $57 per share and in the moderate case they see it valued at $70 per share.