By Esha Dey and Janet Freund
(Bloomberg) --Equity investors are closely tracking Hurricane Florence as the worst storm to hit North Carolina in decades could also have a menacing effect on the insurance, retail, agriculture and restaurant industries. More than 1 million people are evacuating their homes as the Category 4 storm is expected to make landfall over the weekend. Analysts say the event could also be a boon for companies that specialize in roof repairs or disaster-related services, as well as transportation providers.
Here’s a recap of what Wall Street is watching:
- Insured losses will likely be in the $15 billion to $20 billion range, Wells Fargo analyst Elyse Greenspan wrote in a Sept. 11 note.
- The industry is over-capitalized and can “more than absorb” the loss, Greenspan said in a Sept. 9 note
- Stocks with the biggest exposure to the Southeast U.S. include Allstate Corp., Travelers Cos., Berkshire Hathaway Inc., Progressive Corp., CNA Financial Corp. and American International Group Inc.
- While the hurricane may be helpful for commercial-lines pricing momentum, reinsurance prices will likely drop in January absent a series of losses
- If the storm makes landfall as a Category 4 hurricane, losses would also accrue to the reinsurers -- including Aspen, Axis Capital, Everest Re, RenaissanceRe, and XL Group, Greenspan added.
- Credit Suisse analyst Michael Zaremski assumes that 20 percent of total industry insured losses will arise from commercial, 30 percent from private automobile and 50 percent from homeowner’s lines of business.
- “This is a higher than average loss rate for automobile losses given there is a heightened probability the storm lingers over land, causing massive flooding, which is covered by auto insurers.”
- Home-improvement retailers Lowe’s Cos. and Home Depot Inc. both saw their stocks advance over the past two days, likely in anticipation of a hurricane related bump to sales.
- Baird analyst Peter Benedict wrote in a note that Home Depot and Lowe’s often see at least a 50-basis point positive impact during the quarter when storms hit; he added that the “magnitude of benefit depends on how many stores are impacted, and what the severity of the damage is, but it tends to be a positive impact nonetheless.”
- Lowe’s has more exposure to areas currently projected to be in harms way than Home Depot; Tractor Supply stores could also be affected
- In the apparel-related retail space, Bloomberg Intelligence analyst Poonam Goyal said that while “Hurricane Florence will hurt sales in areas it hits,” the year-over-year impact on third-quarter earnings “is likely to be minimal following several storms during the period last year”
- Dollar General and Dollar Tree have more than 10 percent of their store base located in hurricane-exposed states; store closings will hurt retailers’ sales, but pre-hurricane purchases “could be partial offsets.”
- Dillard’s is the most-exposed department store at 9 percent of stores; J.C. Penney, Ross Stores, Kohl’s, Burlington Stores and TJX each have 6 percent to 7 percent of their total stores located in the Carolinas and Virginia
- Gildan Activewear, Ralph Lauren, Hanesbrands and VF Corp.’s operations also may be hurt by the storm “due to the high concentration of distribution and logistics centers in the affected areas,” according to Bloomberg Intelligence analyst Chen Grazutis
- J.C. Penney Co. closed four stores in South Carolina and three in North Carolina on Tuesday. Gildan closed its distribution center and offices in Charleston, South Carolina.
- Tobacco crops in North Carolina, the top U.S. producer, are in the projected path for Hurricane Florence.
- Crop losses could reach as high as $300 million, “assuming a 100 percent loss of what’s still in the field,” Matthew Vann, a tobacco extension specialist at North Carolina State University in Raleigh, said in an interview. “That would be a very sizable blow to the tobacco-grower base as a whole.”
- Turkey producers including Butterball LLC have stockpiled frozen birds, which may prevent a shortage for the holidays.
- Cargill Inc expects some of its operations to be impacted. Its Dayton, Virginia, and South Carolina protein facilities will be closed on Sept. 14
- Pork producer Smithfield Foods Inc will shut two North Carolina pork plants in Tar Heel and Clinton.
- Of the restaurants under SunTrust’s coverage, Bojangles’ Inc. is most exposed with 59 percent of its store base in the Carolinas, analyst Jake Bartlett wrote in a note.
- Carrols Restaurant has 23 percent of its store base in those states, and Zoe’s Kitchen has 12 percent; Wingstop, Cheesecake Factory, Denny’s, Noodles and Chipotle have the least exposure within SunTrust’s coverage.
- Jefferies highlighted Ruth’s Hospitality, Noodles & Co., Chipotle and Bloomin’ Brands as companies with exposure to the hurricane. “The restaurant industry is notably in the midst of lapping Hurricane Harvey and Irma, so easy year over year compares could lessen the optics.”
- Cement and building materials stocks Martin Marietta Materials Inc., Vulcan Materials Co., Eagle Materials Inc., Summit Materials Inc. fell on Monday amid concerns that sales would take a hit from the impending storm.“
- Our conclusion is that if Hurricane Florence significantly disrupts the mid-Atlantic, adverse weather will become a major disruptive factor to the entire sector in third quarter,” Deutsche Bank analyst Nishu Sood said.
- Other building stocks such as Beacon Roofing Supply Inc. and Owens Corning have gotten a boost this week from Hurricane Florence.
- Wells Fargo analyst Stephen East said that while direct benefit to Owens Corning may be limited, the indirect benefit through broader support of shingle pricing could be greater. “We believe Hurricane Florence and the incremental demand provides a more positive pricing scenario, all else equal.”
- East also said that Beacon Roofing’s shares may have already already captured the historical pre- and post-hurricane equity performance.
Autos and Auto Parts
- Volvo Car Group said it will temporarily idle its brand-new car factory in South Carolina.
- Daimler AG suspended operations at its new Mercedes-Benz van factory in South Carolina.
- Florence could impact more than 50 auto parts suppliers in the Carolinas and Virginia. Bloomberg Supply Chain data show 181 auto parts manufacturing facilities and distribution centers in the hurricane’s forecast path, including multiple properties owned by companies including Cooper-Standard Holdings Inc., BorgWarner Inc. and Goodyear Tire & Rubber Co.
- Hurricane Harvey last year provided a demand bump to car rental companies Hertz and Avis, as well as boosted overall demand for both new and used cars, helping automakers and car dealers.
- Watch General Motors, Ford, Fiat Chrysler, Carvana, CarMax, Lithia Motors, Asbury, AutoNation, Group 1, Penske and Sonic Automotive
- Truckers have outperformed the broader market as Florence is expected to boost trucking prices amid higher demand. The storm may spark upward rate pressure in the coming weeks, according to Bloomberg Intelligence.
- Stocks to watch include C.H. Robinson, Expeditors, Forward Air, Heartland Express, Hub Group, JB Hunt, Knight-Swift, Landstar System, Old Dominion, Ryder System, Schneider National and Werner
- “An increasingly active hurricane forecast in the Atlantic creates the potential for increased disruption to supply and incremental demand for capacity, creating a positive near-term catalyst for the group,” Baird analyst Benjamin Hartford said.
- Railroad companies may see volatility as services could face disruptions,while demand may also surge. Stocks to watch would include CSX, Norfolk Southern and Union Pacific.
- “We expect some volatility in volumes in the coming weeks due to the impact of hurricanes, which heavily affected the Southeastern United States during this time last year,” Deutsche Bank analyst Amit Mehrotra said.
- “Given the storm’s threat to the region, Norfolk Southern will be issuing embargoes for affected locations and staging resources to assist in recovery efforts,” Baird analyst Benjamin Hartford said.
- Airlines might be hit by cancellations. Of note, American Airlines has a hub in Charlotte, North Carolina. But cancellations can affect all carriers either directly or indirectly.
- United Airlines is offering travel waivers for customers ticketed on flights to, from or through impacted cities from Sept. 10 through Sept. 16.
- FlightAware Wednesday issued an update on cancellations, saying they should rise significantly over the next 24 hours. Hundreds have been cancelled thus far.
- Generac Holdings Inc. could be a beneficiary from increased demand for portable generators. Canaccord boosted its price target on the stock to a Street-high $62 on Tuesday as “looming” storm-related power outages should drive “continued healthy shipments of portables.”
- ServiceMaster’s ServiceMaster Restore also benefits from storms like Hurricane Florence, according to Nomura Instinet analyst Dan Dolev.
- “Healthcare facilities in the projected path of Hurricane Florence will likely see a short-term dip in volumes as patients and physicians reschedule elective procedures, office visits, and lab tests,” Jefferies analyst Brian Tanquilut said.
- Barring unusual circumstances, Tanquilut expects only one to two weeks worth of procedures to be delayed.
- Stocks in his coverage with exposure to the hurricane include HCA Healthcare, Tenet Healthcare Corp., Community Health Systems and LifePoint Health.
- Power companies have warned about outages.
- Charlotte-based Duke Energy Corp. plans to bring in utility-line crews from its Midwest and Florida units to augment local staff, while South Carolina Electric & Gas, the Scana Corp. unit that serves central and southern South Carolina, has advised customers to be ready for outages.
- Dominion Energy Inc., which operates the Surry nuclear plant in southeastern Virginia, has started notifying customers to be prepared for downed lines and blackouts.
- Hotels in the affected states may be hit by cancellations, but they could also see new bookings from displaced residents, along with insurance and construction workers.
- Stocks to watch include Marriott International and Hyatt Hotels.
- Cruise lines have had to change courses due to the hurricane.
- Carnival Corp. altered the itineraries for three ships -- with some stops in Puerto Rico and Bermuda getting canceled.
- Royal Caribbean Cruises Ltd.’s Sept. 8 sailing of the Grandeur of the Seas was diverted to Florida’s Port Canaveral from Bermuda for two days before a scheduled return to Baltimore on Sunday.
- Norwegian Cruise Line Holdings Ltd. changed schedules for two of its ships.
- Some banks exposed to Hurricane Florence may see higher provision and weakened credit quality later this year, Raymond James’s David Long wrote in a note.
- 19 of Raymond James’s covered banks have exposure to 10 coastal areas likely to be in the storm’s path. As a percentage of deposits, TowneBank has the most exposure, followed by Carolina Financial, Union Bankshares, United Community, First Bancorp, Synovus and BB&T
- Long sees consumer, residential mortgage segments as likely the most impacted. He notes many homes in the area don’t have flood insurance.
- Banks with commercial real estate exposure may see some material impacts, with the most affected likely being construction and land development loans, and farming and agriculture loans.
- Banks may see an influx in deposits from insurance claims, government assistance, grants and other fundraising efforts. Banks providing low-rate loans to those affected may stimulate local economy.
- Separately, Fig Partners analyst Kevin Fitzsimmons said public banks with significant operations in affected areas include BB&T, South State, Live Oak Bancshares and Towne Bank.
- Containerboard stocks modestly outperformed the S&P 500 Index in the 10 days after the landfall of the three most recent hurricanes - Irma, Harvey and Matthew, Citi analyst Anthony Pettinari said, adding that the negative impact of lost production was offset by tighter markets, which in some cases accelerated pricing efforts.
- International Paper Co and WestRock Co. have mills in coastal Virginia and the Carolinas that could be impacted, while there is no mill exposure for Packaging Corp of America.
- In addition to the above-mentioned sectors, investors may also want to keep an eye on companies with headquarters in the coastal Carolinas and Virginia, in case business is interrupted by the storm.
- Boeing Co. plans to shut its South Carolina operations, including a North Charleston plant where 787 Dreamliners are manufactured.
- S&P 500 companies with headquarters in North Carolina: BofA, BB&T, Brighthouse Financial, Duke Energy, Hanesbrands, Iqvia, LabCorp, Lowe’s, Martin Marietta, Nucor, Qorvo, Red Hat, VF Corp.
- In South Carolina: Scana
- In Virginia: Verisign, WestRock, Advance Auto Parts, AES, Altria, AvalonBay Communities, Capital One, Carmax, Dollar Tree, Dominion, DXC Tech, General Dynamics, Hilton Worldwide Holdings, Huntington Ingalls, Norfolk Southern, Northrop Grumman
--With assistance from Tom Lagerman, Shelly Hagan, Lily Katz, Brad Olesen, Felice Maranz, Michael Banas and Robert Gold.To contact the reporters on this story: Esha Dey in New York at [email protected] ;Janet Freund in New York at [email protected] To contact the editors responsible for this story: Catherine Larkin at [email protected] Brad Olesen