Sandy spending hopes drive rally for recovery companies

(Reuters) - Hurricane Sandy has caused tens of billions of dollars in damage up and down the U.S. East Coast, but the recovery and reconstruction spending that will follow could pump an almost equal amount right back into the economy, driving a rally for some stocks as markets reopened on Wednesday.

Companies like environmental cleanup specialist Clean Harbors , building supply chains Home Depot and Lowe's , building products makers Owens Corning and Beacon Roofing and generator manufacturer Generac Holdings surged in early trading on the assumption that the recovery from Sandy will take years and boost sales.

Lumber futures also soared, hitting daily limits and shutting trading.

Economists and insurers call the phenomenon "demand surge," or the increased cost to repair or replace damaged property after a disaster, when people are competing for a limited supply of resources in a way that boosts prices.

University of Maryland professor Peter Morici estimated this week that reconstruction spending might equal 80 percent of the total economic losses caused by Sandy.

Others suggested the effects will trickle all the way down to mass-market retailers.

"I'm looking for a pronounced paycheck cycle from Wal-Mart in the next couple of the weeks," said NBG Productions chief equities analyst Brian Sozzi, speaking of the phenomenon in which shoppers at the discounter are living paycheck-to-paycheck and sales spike at the beginning of the month.

EARLY WINNERS

At last count nearly 6 million customers were still without power due to Sandy, which took dozens of lives and left many waterfront communities in ruins.

"(It's) very hard to predict how (the storm's effect) will play out, but it generally leads to a little increase in business ... this is going to be a very big project in terms of the size of the storm," Sandy Cutler, chief executive of manufacturer Eaton Corp , said on a conference call on Wednesday.

One early winner, if such a thing is possible at a time like this, is the freight industry. Airport and rail closures have forced companies like drug manufacturers to seek alternative methods of transport to get products to market.

"This is probably close to a $2 billion revenue opportunity for truckers," said Noel Perry, principal of Transport Fundamentals in Cornwall, Pennsylvania. "It's a pricing opportunity because there are shortages and because products need to be expedited."

Solar system installers with big businesses on the East Coast could also benefit from rebuilding efforts, according to Raymond James analyst Pavel Molchanov. He named Real Goods Solar Inc and privately held SolarCity and Astrum Solar, specifically, as potential winners.

American Superconductor Corp , whose products support the power grid infrastructure, and energy services company Ameresco Inc could also see an uptick in business, Molchanov added.

EARLY COSTS BITE

Though it is far too early to know precisely what damage Sandy has done, early estimates suggest insured losses of from $5 billion to $15 billion and total economic losses from $20 billion to as much as $45 billion.

U.S. airlines, which have canceled nearly 20,000 flights from Sunday through Wednesday, will lose millions in revenue because of the travel shutdown, analysts estimated.

Ray Neidl, an analyst with Maxim Group, said effects from Sandy will be worse than other storms that have slowed air travel, given the ground damage at key hubs like LaGuardia.

The airlines with the most exposure to the U.S. Northeast include New York-based JetBlue Airways , which has a big hub at JFK; Delta , which recently expanded flights at LaGuardia and has a JFK hub; and United Continental , which has a major hub at Newark.

Major rail companies are also still struggling to get operations up to speed.

CSX said it had completed inspections and was restoring some service in the region, but not between Philadelphia and Albany, N.Y. It said shipments will be delayed three days or more. Norfolk Southern is telling customers to expect delays through the end of the week.

Shares of insurers came under some pressure as trading reopened, with Travelers Cos Inc , Chubb Corp and Allstate Corp all down early on fears they could be among the most exposed to losses.

But analysts said there was so much extra capacity in the insurance industry that the losses were unlikely to do much more than slash fourth-quarter earnings. Morgan Stanley analyst Gregory Locraft cut earnings estimates for property insurers an average of 26 percent based on the expected cost of Sandy.

"(Property and casualty) carrier stocks initially fare worse as the impact of losses is digested but then outperform as higher P&C pricing power becomes a focus," Locraft said in a note to clients on Wednesday.

INDUSTRIALS, RETAILERS HURT

Industrial companies with New Jersey outposts continued to have power problems on Wednesday. Dow Chemical Co said a research and development site in Bound Brook, N.J., remains without electricity, and a Styrofoam plant in Pennsauken, N.J., is operating at reduced rates following Hurricane Sandy.

Some retailers were also struggling on Wednesday to get all of their stores reopened, in some cases because of physical damage and in others because they simply could not get staff in place.

Sears Holdings said it still had 66 stores closed as of Wednesday morning, with plans to hook some stores up to generators to get them open.

Similarly, Wal-Mart Stores Inc still had 44 closures in six states, though it was hoping to have most of them open by the end of the day.

"We've discovered electricity is one of the most needed commodities right now, and we want to open our doors so our members and guests can recharge necessary items and communicate with loved ones," said Greg Cathey, vice president of the northeast region for the company's Sam's Club unit.

(Additional reporting by Dhanya Skariachan and Ernest Scheyder in New York, Karen Jacobs in Atlanta, Jessica Wohl and Bradley Dorfman in Chicago and Nichola Groom in Los Angeles; Writing By Ben Berkowitz; Editing by Tim Dobbyn and Dan Grebler)

Source: http://news.yahoo.com/sandy-spending-hopes-drive-rally-recovery-companies-163259751--sector.html

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