3 Big Sectors May Face Post-Sandy Downgrades: Moody's
NEW YORK (
) -- Just over a week after Hurricane Sandy made landfall, ratings agency
Moody's
sees the storm as a hit to the earnings of telecom's, casinos and utilities exposed to the still crippled region.
While Moody's analysis of the impact of Hurricane Sandy mirrors other projections from the likes of Goldman Sachs, Bank of America and Credit Suisse, the rating agency's calculation of the extent of the storm's damage to the earnings of some sectors may cause the agency to downgrade the bond ratings of already struggling companies and industries.
In particular, Moody's highlights that the ratings of Atlantic City casino's are most at risk as they suffer what may be a 25% drop in revenue through the first quarter of 2013, which could cut profits by as much as 50%. The agency highlights the recently opened Revel Atlantic City casino and the Marina District Finance Company as most at risk of a downgrade.
Moody's also sees an impact to regional utilities like
Con Ed
(ED) - Get Report
,
Public Service Electricity and Gas
and
FirstEnergy
(FE) - Get Report
, owner of
Jersey Central Power & Light
. For wireline telecom operators like
Verizon Communications
(VZ) - Get Report
, Hurricane Sandy may cut at overall quarterly revenue and earnings, but only marginally so.
If some businesses are hit by Sandy, others may find an opportunity as businesses and homeowners in states like New Jersey, New York and Connecticut begin rebuilding efforts. Moody's says
Building Materials Corporation of America
and
New Enterprise Stone and Lime
may see an earnings benefit in coming quarters that could translate to a ratings upgrade.
The ratings agency forecasts a negligible impact on the overall retail sector, but highlights home improvement stores
Home Depot
(HD) - Get Report
and
Lowe's
(LOW) - Get Report
, in addition to discount giants
Wal Mart
(WMT) - Get Report
and
Target
(TGT) - Get Report
as some companies that may benefit. Drug stores like
Walgreen
(WAG)
and
Rite Aid
(RAD) - Get Report
may also see an earnings boost.
While Moody's analysis closely mirrors other Sandy-related estimates, the agency's comments about the already-struggling Atlantic City casino industry breaks new ground in just how damaging the storm was.
"We expect Atlantic City revenues to be down 25% in both the fourth quarter of 2012 and the first quarter of 2013, excluding the effect of any insurance recoveries," writes credit analysts Keith Foley and Peggy Holloway, in a Tuesday ratings note. The analysts said the already junk rated Revel Atlantic City casino may be most at risk of a downgrade, while other low-rated casinos like
Caesars Entertainment
(CZR) - Get Report
and
Tropicana Entertainment
may also face the prospect of a cut.
Already, analysts have handicapped a wide-ranging earnings impact to a range of sectors spanning
. Meanwhile, regional insurers may
double the claims of Hurricane Irene
.
The storm may even prove to be a
for telecom giants like
Verizon
(VZ) - Get Report
,
AT&T
(T) - Get Report
,
Sprint
(S) - Get Report
and
T-Mobile
-
MetroPCS
(PCS)
.
After Sandy hit, late October analysis by Credit Suisse estimated fourth-quarter Hurricane Sandy-related insurance industry losses between $5 billion and $15 billion, and the bank cut its price targets for Allstate,
Arch Capital
(ACGL) - Get Report
,
Chubb
(CB) - Get Report
and
Travelers
(TRV) - Get Report
.
On Oct. 31, Goldman Sachs analysts said home-improvement giants like
Home Depot
(HD) - Get Report
,
Lowe's
(LOW) - Get Report
,
Lumber Liquidators
(LL) - Get Report
and
Owens Corning
(OC) - Get Report
would benefit from Sandy, as homeowners and businesses spend heavily to repair houses, offices and stores.
Within the retail sector, the Goldman analysts, led by Matthew Fassler, also forecast a hit to casinos, restaurants and discount stores, highlighting
Boyd Gaming
(BYD) - Get Report
,
The Cheesecake Factory
(CAKE) - Get Report
,
Dollar Tree
(DLTR) - Get Report
,
Dunkin' Brands
(DNKN) - Get Report
,
Five Below
(FIVE) - Get Report
and
Panera Bread
(PNRA)
.
Bank of America Merrill Lynch analysts suggested in late October that for refineries, a loss in demand for energy products may be greater than production shortfalls as some Eastern Seaboard refineries went off line.
Phillips 66
(PSX) - Get Report
and
Hess
(HES) - Get Report
shuttered large Northeast refineries for storm-related assessments, while regional Philadelphia Energy Solutions refineries remain open. Still, the analysts say Sandy won't help much.
Valero
(VLO) - Get Report
is the only "buy"-rated refinery, according to BAML.
In the airline sector, Bank of America Merrill Lynch analysts calculate U.S. airlines may have lost $500 million in revenue and $100 million in profits, and highlights
JetBlue
(JBLU) - Get Report
,
US Airways
(LCC)
and
Delta
(DAL) - Get Report
as carriers most exposed to the Northeast.
To be seen whether Hurricane Sandy's blow will cause Moody's to downgrade already struggling industries and sectors, notably Atlantic City casino's. As ratings agencies and investment banks put out projections of the storm's impact, investors should begin to position for fourth quarter 2012 earnings.
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-- Written by Antoine Gara in New York