Neoen (NEOP.FR, NEOEN FP) – $3.5B market cap -France’s largest independent renewable energy producer (3.6GW in operation).
We recommend that investors exit positions in Neoen, mainly based on technical deterioration. The stock broke below all its key moving
averages, notably below its 200-DMA last Friday. Within several months of consolidation, it also failed to hold support near €35, or the lows from
March, May, and June 2022. The breakout from late July held for a while but has now completely failed.
Mixed H1 results: In H1 2022, revenue was up 36% y/y to €224M (beat consensus by 14%), driven by an increased portfolio size to 3,584MW
(+3% y/y).
Author: Kenley Scott
Kenley Scott is a senior equity analyst and sector strategist covering the APAC region and the Energy sector. He is a member of the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets. Kenley also writes the Global Sector Summary, part of the Sector Strategy service, which identifies emerging sector strength and weakness across 46 countries every week. After working as a commodities broker, Kenley joined the firm in July 2006. He has a B.S. in Statistics from the University of California, Riverside and also holds a Series 65 securities license.
Global Sector Strategy
Key Points:
- The median for the 10 prior bear markets shown below is a drop of -38% over 70 weeks (490 days).
- The median for 173 days (current # of days) into the bear is a drop of -17%. The Dow has so far dropped ~20% to this week’s low.
O’Neil Energy/Material Weekly
Cathay Pacific Airways (CATH.HK, 293:HK; -1.9%) – $7.2B market cap – Technicals: The stock is forming the right side of a stage-one six-week
flat base and approaching its pivot (+2%). RS line is at its 52-week high with an RS Rating of 93. It has the best possible A/D Rating of A+ and its
Up/Down Volume ratio has improved to 2 from 1.4 last week. Company description: Cathay Pacific is mainly engaged in the provision of international
passenger and cargo air transportation
Global Sector Strategy
Key Points:
- Across ~2,500 stocks above $1B market cap, for Q3 2022 and over the trailing 60 days:
- The average and median consensus Q3 EPS estimates for Q4 have dropped by 6.7% and 1.6%.
- 55% of companies have had earnings downgraded, by a median of 9%.
- 35% have seen estimates upgraded, by a median of 6%.
- 10% have seen no change.
- By sector, only Energy and Transports have seen more positive revisions vs. negative over 30, 60, 90 days.
O’Neil Energy/Material Weekly
Flex LNG (FLNG; FLNG:US; +6%) – $1.9B market cap – Technicals: The stock broke out of a stage-one nine-week cup-with-handle base five
weeks ago. It again bounced off its 50-DMA this week after some consolidation in the last four weeks. RS line is at its all-time high with an RS Rating
of 98. Up/Down Volume ratio has remained above one in the last nine weeks while A/D Rating is healthy at B-. Industry Group Rank has improved to 3
from 17 five weeks ago.
Global Sector Strategy
Key Points:
- US Dollar (DXY, 0USDR) broke into fresh 20-yr highs this week.
- It has now gained >22% in the past 15 months vs the major global currencies (Euro, Yen, Pound, Canadian dollar, Swiss Franc, Swedish krona).
- Next resistance slightly higher at downtrend line of past 37 years.
- Of global currencies, only the Canadian dollar, Brazil real, Mexican peso, and Saudi dinar (pegged) have not lost much ground since 2021. Many are down 10%+, Euro is down 18%, and the yen is down over 25%.
- Not only pressuring profits of export-heavy U.S. companies, but causing major pressure to USD-traded country ETFs.
- Among worst-off currently include Germany (EWG), Italy (EWI), Spain (EWP), U.K. (EWU), Switzerland (EWL), Japan (EWJ), Korea (EWY), Taiwan (EWT), and South Africa (EZA). Most were testing new 52-week lows in dollar-terms this week.
- On other hand, a few markets have held in very well, mostly thanks to stable currencies and strong commodity prices. This includes Canada, Brazil, Mexico, and Indonesia. In addition, India remains a clear global standout despite a weak rupee/dollar.
- See attachment for some ideas from these countries. Emphasis on chemicals, machinery, autos, food/beverage, oil/coal, and banks.
- A reversal of dollar strength, which would benefit those laggard countries as well as U.S. areas like large-cap Tech (semis, instruments, IP), Consumer Cyclical (autos), Industrial (aircraft and machinery), Transportation (travel), and Health Care (pharmaceuticals).
- Look for breach of 50-DMA as early signal…more concrete would be a break of the 100-DMA ($104.8), which it has remained above since June 2021.
O’Neil Energy/Material Weekly
Shoals Tech (SHLS; SHLS:US; +3%) – $3B market cap – Technicals: The stock retook its 200-DMA in the last week of July and has traded
constructively since then, accompanied by an improvement in its Up/Down Volume ratio to 1 from 0.8 three weeks ago. Also, RS and A/D Ratings
have remained strong at 97 and A-, respectively.
O’Neil Capital Equipment Sector Weekly
Paychex (PAYX; $48B market cap; $226M ADV) provides human capital management (HCM) software and HR, payroll, and insurance management services. It is a competitor of our Focus List stock Automatic Data Processing (ADP). Revenue by segment: management solutions, 76%; PEO and insurance, 24%.
Paychex focuses on small-to-medium-sized businesses and has a target market of over 8M firms in the U.S. It offers personalized solutions to clients on a SaaS model, ensuring high client retention. It may benefit from increased investment in its proprietary Paychex Flex platform and growing client base through the expansion of its direct and indirect sales network. It has a strong financial profile with ROE of 45% in the past year and good free cash flow. In FY22, the company generated FCF of close to $1.3B. It has no net debt and is a consistent dividend payer with a dividend yield of 2.3%. Management has guided for total revenue growth of 7–8% y/y in FY23 with management solutions growth of 5–7% and PEO and insurance growth of 8–10% y/y. It has also maintained its guidance for a full-year adjusted EBITDA margin of close to 44%, with an adjusted EPS growth of 9–10%.
O’Neil Capital Equipment Sector Weekly
Golar LNG (GLNG; GLNG:US) – $3.1B market cap – Technicals: This week, the stock broke out of a stage-one 10- week cup base and is actionable. Technical ratings have seen substantial improvement in the last two weeks. It has an RS Rating of 99, an A/D Rating of A+, and Up/Down Volume ratio of 1.2. Industry Group Rank (at 20) has remained strong in the last nine weeks. Company description: GLNG provides marine transportation services for Liquefied Natural Gas (LNG) with a fleet of 13 vessels consisting of 9 LNG carriers, 1 LNG floating storage and regasification (FSRU) vessel, and three floating Liquefaction Natural Gas vessels.
Global Sector Strategy
Key Points:
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