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The Zacks Analyst Blog Highlights: HP, DexCom and Western Digital

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For Immediate Release

Chicago, IL – March 17, 2020 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: HP Inc. HPQ, DexCom DXCM and Western Digital WDC.

Here are highlights from Monday’s Analyst Blog:

No Gatherings of 50 or More People: Global Week Ahead

This is going to be a whopper of a Global Week Ahead.

The United States Centers for Disease Control and Prevention has recommended –

No gatherings of 50 people or more be held in the U.S. for the next two months!

This is one of the U.S. federal government’s most sweeping efforts to slow the spread of the coronavirus pandemic.

“For a while, life is not going to be the way it used to be in the United States,” Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, said on Sunday to the New York Times. “We have to just accept that if we want to do what’s best for the American public.”

Case in point: U.S. movie theaters had their worst weekend in two decades. Domestic ticket sales totaled $55.3 million, a -44% drop from the previous weekend.

Italy, the hardest-hit country outside China, has reported 24,747 cases and a death toll of 1,809. That was a +25% increase over the day before (March 15th to 16th). Such data makes for a cumulative Italian death toll of 7.3%.

At 169,387 on March 16th, the world total number of coronavirus cases shown by Johns Hopkins CSSE website is now past the Rubicon: The number of cases outside of mainland China exceeds the number inside China.

Before U.S. trading opened on Monday, European stocks tumbled hard.

The Financial Timesshared that the FTSE 100 index fell as much as -9.0% in morning trading, taking the London blue-chip index to its lowest level in almost a decade and losses so far this year to more than -30%. The drop was widespread across Europe: Germany’s DAX slid as much as -8.0% and France’s CAC 40 lost nearly a tenth of its value.

Airline stocks were especially hard hit on Monday in response to an expansion of travel bans. British Airways parentIAG tumbled nearly -25%, while Air France-KLM dropped -17% and Germany’s Lufthansa shed -10%.

The Fed cut U.S. interest rates before markets opened on Sunday and joined forces with other central banks in a bid to prevent a more severe economic downturn and market dislocation caused by the coronavirus pandemic.

The Fed slashed its main policy rate by a full percentage point to between zero and 0.25% — a level last seen in 2015. It also unveiled at least $700 billion in asset purchases.

Sunday’s sweeping central bank intervention failed to prop up investors’ confidence or staunch the wave of volatility that has shaken global markets.

After much struggle, I re-ordered Reuters’ five world market themes in the following force-ranking. They are now set for equity traders.

The struggle arrived from solving this riddle: It is the Travel & Leisure industry buckling completely that is more important than the Fed’s surprise Sunday action.

As for the Fed, the ECB, and the other major central banks of the world?

In facing down the coronavirus pandemic, these institutions enacted just spare, marginal, and indirect improvements for risk markets like equities.

They are really focused on the banking and fixed income spaces. They will struggle to address the stunning credit spread blowouts there. But they are trying. Mightily.

(1) Look out below for the Travel & Leisure industry.

The coronavirus has propelled the travel and leisure industry into an existential crisis, which many firms will struggle to survive. Announcements on revenue losses are coming thick and fast; Cinema operator Cineworld summed up the mood, warning of a potential “total loss of revenue” for up to three months in a worst-case scenario.

Among others, Princess Cruises, two of whose ocean liners became coronavirus hotbeds, suspended all voyages for two months. Airports operator Fraport reported a 30% drop in passenger numbers at its Frankfurt hub in the first week of March. Disney has shuttered its U.S. and French amusement parks.

If the crisis lasts another two or three months, it could force airlines to collapse, the International Air Transport Association reckons. Revenue losses will be “probably above” the $113 billion it estimated a week ago. Air France has drawn down on 1.1 billion euros worth of its revolving credit facility to help its financial position. Others might be preparing to follow its example.

(2) The Fed’s Powell moved before Reuters. But they saw him coming…

Recent blowouts in dollar swap prices are a sign economic lockdowns across the world are starting to pressure business cashflows, forcing companies to look elsewhere for greenbacks to pay suppliers and creditors.

So, what the U.S. Federal Reserve does to keep those dollars flowing smoothly is crucial. Keep an eye on global central banks tapping the Fed for currency swaps. The Fed, which releases data on this every Thursday, has agreements with five major central banks — in Canada, the Eurozone, Britain, Japan and Switzerland — so they can get their hands on dollars easily when called on to provide liquidity to financial institutions at home.

As of now, the swap lines data shows little strain — foreign central banks tapped $58 million in swaps in the latest week, the most in four weeks but up only $10 million from the week before.

Meanwhile, interest rate cuts won’t cure the coronavirus, but markets are still banking on the Fed to do so, even after the recent 50 basis-point emergency cut. The target rate is priced to be slashed by another 75 to 100 basis points to near zero, the CME FedWatch website shows.

(3) All of the world’s central banks are under pressure.

With markets buckling under the toxic combo of COVID-19 and an oil price war, central banks are center stage — from the Fed Reserve to the Bank of Japan, they are all pump-priming, boosting liquidity and cutting interest rates.

In emerging markets, currency losses have forced central banks such as Chile, Brazil and Indonesia to intervene with dollar sales. In coming days we hear from central banks in South Africa, Turkey and Indonesia, countries whose domestic situations are only being exacerbated by the glum backdrop.

Russia, so far considered one of the better placed emerging economies due to its solid central banking credentials, has suddenly found itself grappling with a $30-per-barrel fall in oil prices. Its central bank meets on Friday.

(4) A Christine LaGarde gaffe: Not the central bank’s job to “close the spread”?

Amid the struggle to assess the coronavirus fallout came a curveball from ECB chief Christine Lagarde who told Thursday’s news conference that it was not the central bank’s job to “close the spread.”

It was a reference to the widening yield spread or premium over German bond yields that riskier southern European countries must pay investors when they borrow. The reaction from investors, long accustomed to the ECB backstopping these markets was severe to say the least: Italian 10-year bond yields soared 55 bps, the biggest one-day jump since 2011.

And the “spread” ballooned over 65 bps — one of its biggest daily moves ever. Spanish and Portuguese bonds were thrashed, too.

Other policymakers have jumped in since then to limit the damage, but fears have set in. Lagarde’s latest steps to contain the impact of coronavirus have real value, say investors, but their impact is lessened without effective communication. A lesson learned for the ECB’s new chief.

(5) “Crossing the River by Feeling for Stones” in China. No mega-stimulus needed.

China now has 80,000 confirmed cases. Shuttered businesses, quarantined towns, overflowing ports and a disrupted supply chain indicate a collapse in domestic demand and exports — upcoming data on retail sales, investment and industrial output for January and February should confirm that.

So, what of Beijing’s pledge to keep 2020 growth at 6%? So far, it’s taken only baby steps on monetary and fiscal policy, instead resorting to money market cash injections, loans to small businesses and tweaks to equity-raising rules. It cut bank reserve requirements again on Friday and benchmark prime loan rates may drop further next week. Talk is it might cut its main deposit rate for the first time since 2015.

But, having learned the lessons of unrestrained investment and borrowing, China may be doing what former leader Deng Xiaoping advised: crossing the river by feeling for stones. Even as authorities elsewhere announce hundreds of billions of dollars’ worth of stimulus, it is unlikely there will be a 2008-style multi-trillion yuan Chinese bazooka.

Top Zacks Rank Stocks

I chose three coastal California-based companies this week. At some point, the leading growth stocks come back. No. I don’t know when.

(1) HP Inc.: This is a $24.6B market cap stock at a price tag of $17 a share. I see a Zacks Value score of B, a Zacks Growth score of B, and a Zacks Momentum score of C.

Headquartered in Palo Alto, CA, HP Inc. was founded in 1939.

HP Inc. is the surviving entity following the November 2015 split of Hewlett-Packard Company into publicly traded entities -- Hewlett Packard Enterprise Company and HP Inc.

The company is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services to individual consumers, small and medium sized businesses and large enterprises, including customers in the government, health and education sectors.

(2) DexCom:This is a $22.4B market cap medical instrument stock with a price tag of $244 a share. I see a Zacks Value score of F, a Zacks Growth score of A, and a Zacks Momentum score of B.

San Diego, CA-based DexCom, Inc. is a medical device company focused on the design, development and commercialization of continuous glucose monitoring systems (CGM). These are for ambulatory use by people with diabetes and by healthcare providers for the treatment of diabetic and non-diabetic patients.

(3) Western Digital:This is a major computer storage device maker. There is a $12.5B market cap at $41.80 share prices. I see a Zacks Value score of B, a Zacks Growth score of F, and a Zacks Momentum score of B.

Western Digital, headquartered in Irvine, CA, is one of the largest hard disk drive (HDD) producers in the U.S.

The company designs, develops, manufactures and markets a broad range of HDDs used in desktop PCs, servers, network-attached storage devices, video game consoles, digital video recorders and a host of other consumer electronic devices.

The acquisition of SanDisk enabled the company to venture into the flash drive storage technology space.

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