Closing Recap

Tuesday, December 08, 2020

Equity Market Recap

·     Major U.S. averages shook off early weakness (again), with the Nasdaq touching all-time record highs (again), and the S&P 500, Dow Jones Industrials, and SmallCap Russell 2000 touching an intraday record high (again) as vaccine rollouts get underway in the UK and the U.S. FDA released documents that did not raise any new safety or efficacy issues about PFE and partner BioNTech SE’s COVID-19 vaccine candidate. Also in vaccine news, the COVID-19 vaccine candidate being developed by drug maker AstraZeneca and the University of Oxford is safe and effective and protects against severe disease and hospitalization, according to a study showing the full data from a late-stage clinical trial.

·     The vaccine news offset overnight weakness following a combination of no fiscal stimulus breakthrough in the U.S. yet, lingering Brexit uncertainty, rising Covid cases and new restrictions (Hong Kong announced new measures) and extended positioning – but again dips are still being bought at every opportunity. The trading pattern has remained the same for weeks now, with stocks pulling back the first 30 minutes, only to find footing shortly after and rally throughout the remainder of the day as investor sentiment remains overwhelmingly positive heading into the holiday season, with vaccine news, relief bill hopes offsetting rising Covid fears.

·     Large caps have held up well since the election, while transports touched another intraday record high this morning, but it has been the underperforming sectors of the year such as value, Smallcaps, cyclical names that have been playing catch-up on hopes for an economic recovery in 2021. Hopes that a bipartisan COVID relief bill of $908B could bring both sides together, which were building Monday, faded on Tuesday with both sides sticking to what look like deal-breaking positions, but that wasn’t enough to spook markets; neither was further failure in Brexit talks. Treasury yields edged higher after sliding early while the dollar index was flat, and oil recovered. Congressional leaders said yesterday they plan to pass a one-week extension of the current funding to buy more time for negotiations on both bills – but nothing new today on the talks.

Commodities

·     Oil prices slipped on Tuesday, down 16c to $45.60 on demand concerns after California tightened its pandemic lockdown through Christmas and coronavirus cases surged in the United States and Europe. The price was only a modest decline in a day that saw massive buying interest throughout the day for most asset classes. A sharp rise in coronavirus cases globally has led to a string of renewed lockdowns, including strict measures in California, Europe and Asia. The U.S. Energy Information Administration (EIA) raised its 2020 and 2021 forecasts for U.S. and global benchmark oil prices, but also lowered its outlook for natural-gas prices. The EIA boosted its 2020 WTI crude price forecast to $38.96 a barrel, up 1.9% from the November forecast and expects 2021 prices to average $45.78, up 3.5% from the previous forecast. The EIA also said it expects domestic oil production to average 11.34 million barrels per day this year, down 0.5% from the previous view, but its 2021 forecast was unchanged at 11.1 million barrels per day.

·     Gold prices end higher as February gold gained $8.90 or 0.5% to settle at $1,874.90 an ounce as all asset classes again rising today (stocks, bonds, commodities – while the dollar index is flat. Natural gas prices fell to 10-wekk lows below $2.40 mln btus. Copper prices dipped -0.4% and silver dropped over -0.2% in other metals.

Currencies & Treasuries

·     The dollar index was flat most of the day, holding near over 2-year lows while the euro and yen were little changed as stocks soared. The U.S. Treasury sold $56B in 3-year notes at a yield of 0.211%, in-line with the when issued prior to auction as the bid-to-cover (demand) stood at 2.28 vs. 2.40 prior and indirect bidders awarded 49.3% and directs 15.9%. The yield on the 10-year fell below 0.9% to its lowest in over a week before rebounding as bonds fell and stocks rose.

Sector News Breakdown

Consumer

·     Retailers; SFIX tgt raised by analysts after reported better than expected F1Q21 results, while active client growth is accelerating, and Q2 sales guidance came in ahead of expectations (+12-14% Y/Y) and FY21 sales are expected to be +20-25% Y/Y (implying 29-40% in 2H); GIII posted Q3 EPS $1.29 on revs $826.6M, topping estimates of 77c on $768.2M, as selling and administrative expenses fell almost 28% in the quarter, and the company expects Q4 revenue to fall 30% (est. -26.9%); CASY Q2 EPS $3 on revs $2.22B vs ests. $2.80 on $2.21B, same-store sales +3.5%, and raised its quarterly dividend 6% to 34c; CONN Q3 EPS 25c (est. 23c) on revs $259.7M, retail same-store sales -10.9%, narrower than est. -12.5%, and credit revenue $74.2M (-22.5%) misses est. $83M; BNED Q2 EPS 15c on revs $595.5M (est. $522.5M), as the company was negatively affected by fewer students on college campuses due to the Covid-19 pandemic; BKE announces it will pay a 30c quarterly dividend in addition to a special $2 dividend on 12/29 to shareholders of record on 12/21; Cowen reiterated their Outperform rating on NKE and raised their earnings estimates above consensus and their price target to $165 from $150 ahead of the company’s 12/18 quarterly report, saying long-term consensus is conservative and the company is well-positioned for the consumer shift to digital; LULU was reiterated at Outperform with a $435 pt at RBC, who raised their sales estimates ahead of Thursday’s reports following the recent Black Friday-Cyber Monday period and strong online traffic trends; Jefferies raised their DECK pt to $346 from $315 and maintained their Buy rating despite warmer weather this winter as they view Ugg’s business as less correlated to weather and more fashion driven

·     Auto sector; TSLA entered into an equity distribution agreement to sell shares worth up to $5 bln in capital raise as shares closed at record highs; UBER is selling its autonomous driving unit, Uber Advanced Technologies Group (ATG), to self-driving car startup Aurora, the companies said as the equity deal valued the ATG at $4 billion; auto retailer AZO beat earnings estimates for its Q1 on mostly in-line sales $3.2B as margins fell 62 bps from a year ago to 53.1% of sales; The Chinese electric vehicle sector rises (NIO, LI, NIO, KNDI) after overall auto sales in China rose 8% Y/Y in November, with wholesale sales of new-energy vehicles soaring 128%; BLNK CEO says industry will need 13M-14M charging stations in U.S. in CNBC interview

·     Housing & Building Products; homebuilders were weaker (among top decliners in the S&P – LEN, PHM) after TOL EPS of $1.55 beat consensus of $1.23, driven largely by revenue on significantly greater delivery volume than we anticipated, while shares slipped amid lower than expected 1Q20 delivery and gross margin guidance

·     Leisure movers; NCLH rise for the 6th day in a row and 10 of last 11, outperforms comps CCL and RCL as travel related, lodging, and leisure sectors seeing some of the biggest moves on the day; no other specific news for space as lodging names (MAR, HLT) saw strength); in RV’s THO shares slipped despite a beat on the top and bottom line

·     Consumer Staples; Wells Fargo initiated HPC and Beverage stocks with overweight’s on CLX, PG, SPB, KO, MNST, STZ and underweight on CL, COTY, EPC, and NWL; NOMD raised Q4 organic revenue growth to increase in the high-single digit percent range; organic revenue growth increased 10% through the first two months of the fourth quarter and is expected to remain above historical levels during the month of December; GRWG filed a registration statement for a proposed $125M follow-on public offering; COTY downgraded to Underweight from Equal Weight at Wells Fargo

Energy

·     Energy stock movers; the sector was among the top gainers on the day (XOM, MRO, PXD, OXY), along with other “re-open” related sectors (travel, retail, REITs) following another day of upbeat vaccine related news. Oil swung between gains and losses as the market weighed the outlook for demand as coronavirus vaccines begin. The U.K. issued its first Covid-19 vaccinations on Tuesday and there are signs that European oil demand is recovering after a renewed wave of lockdowns.

Financials

·     Consumer Finance; ADS filed to sell 1.9M shares of common stock for holders; FISV provides preliminary 2021 outlook and expectations for medium-term financial performance at its investor conference as sees 7%-12% internal revenue growth and adjusted eps growth of 20%-25%, affirming guidance; Oppenheimer said they believe TREE shares are oversold (down 21% vs. S&P at +2%) since GCI Liberty announced it’s selling 3M shares to merge with Liberty Broadband

·     Services; EFX provided an upbeat business update that showed operating trends improving across the board, with a robust mortgage market and outsized growth in EWS leading the way, prompting Barclay’s to upgrade to overweight and several price tgt hikes by analysts; HRB reported Q2 losses that were wider than expected on better revs

Healthcare

·     Pharma movers; the U.S. FDA released documents that did not raise any new safety or efficacy issues about PFE and partner BNTX COVID-19 vaccine candidate, as the documents come ahead of Thursday’s meeting of outside advisers to FDA who will discuss whether the vaccine should be authorized for emergency use in the country. At the same time, the UK began rolling out the first doses of a widely tested and reviewed COVID-19 vaccine, starting a global immunization program today; RCKT downgraded to Perform at Oppenheimer saying shares already price in both likely approval of FA and potential for positive interim near-term update from Phase I RP-A501 study; AGIO shares down after co reports data from sickle cell disease therapy; Peer-reviewed data from late-stage human trials of a Covid-19 vaccine developed by the University of Oxford and AZN reaffirmed the shot’s strong safety results and provided some additional evidence that halving the first of two doses of the shot boosts its effectiveness.

·     Biotech movers; UTHR tgt raised to $175 from $155 at Jefferies as see significant opportunity in Tyvaso’s new indication/PH-ILD (FDA approval in April ’21); LXRX upgraded to buy with $6 tgt at Citigroup as adding sotagliflozin for heart failure (HF) in type 2 diabetes (T2D) to our model with a 75% probability of success following positive data from the SOLOIST and SCORED studies; TRIL shares slide as Ladenburg noted TTI-622 and TTI-621 ASH20 presentations reported largely incremental update vs Sept. data, with notable updates on safety, PK, PD but minimal on efficacy

·     Healthcare services and providers; HQY results better-than-expected driven by higher net HSA adds and strong cost control, but offered forward guidance that implies Q4 below consensus at the mid-points of both revenue and adjusted EBITDA; SDC upgraded to outperform at Wolfe saying while there are unknowns around the top line (COVID, consumer), our view remains that EBITDA is tracking to more than double the consensus figure in ’21

·     MedTech and Equipment; QGEN provided updated guidance, raising its 4Q revenue growth to at least 32% cc (vs. +28.7% est.) and EPS of $0.64 to $0.65 (vs. $0.61 est.) and expects ’21 full year net sales growth of 18-20% (vs 11.9% growth est.) and adjusted EPS of $2.42-$2.46 (est. $2.43); CMD rises as revenue of $297M (+15.5% Y/Y) topped consensus of $284.8M, mainly driven by the impact from acquisitions of 16.5% offset by an organic decline of 1.8%; PEN shares tumbled following a short-seller report from QCMFunds

Industrials & Materials

·     Industrials, Materials & Machinery; HOLI disclosed a preliminary non-binding proposal to acquire all shares for $15.47 per share in cash, a 24% premium to the stock’s Dec. 4 closing price https://bit.ly/2JB4aPW ; GE voluntarily pre-funded $2.5B of estimated minimum ERISA GE pension plan requirements to 2021, 2022 and into 2023, repaid $1.5B of its inter-company loan to GE Capital, sees at least $2.5B industrial free cash flow in 4Q and positive free cash flow in 2021; in metals, U.S. Steel (X) to acquire remaining equity of Big River Steel for about $774M, expects to be immediately accretive to earnings with potential for significant synergies; in copper, FM upgraded to buy at Goldman Sachs which reflects increased conviction in the bullish copper story as well as better socialized Zambia risks

·     Transports; Dow Transport index touches fresh intraday day highs as economic recovery trade still remains in play into 2021; FDX tgt raised to $380 from $320 at UBS as company is reporting their 2QF21 EPS (Nov. quarter) on Dec 17 and they expect a meaningful upside report relative to Consensus of $3.84/share; the Baltic dry index, which tracks rates for Capesize, Panamax and Supramax vessels, was down by 41 points or 3.5%, to 1,121, its lowest since Nov. 18.

·     Aerospace & Defense; GOL said it would resume flying BA’s 737 MAX planes on commercial routes in its domestic network from Dec. 9. Gol said it expects all seven 737 MAX aircraft in its fleet to be cleared to return fully to operation by the end of December; RTX authorizes to repurchase of up to $5B outstanding stock; NOC agrees to sell its federal IT and mission support services business to Veritas Capital for $3.4B in cash; expects to use the sale proceeds primarily for share repurchases, to offset dilution from the transaction and for debt retirement

Technology, Media & Telecom

·     Internet; ETSY record highs as tgt raised to $174 from $160 at BTIG as proprietary clickstream tracking indicates etsy.com GMV growth in November was broadly in-line with October when mgmt indicated on the 3Q call that October GMV grew in the high 90%; BIDU boosts share buyback program to $4.5B from $3B; NFLX tgt raised to $610 at Jefferies and remain positive as believe UCAN price hikes coupled with an improved pipeline can drive upside to #s in 2021

·     Semiconductors; ON upgraded to overweight at KeyBanc on new CEO announcement as believes El-Khoury’s prior success as CEO of Cypress Semiconductor makes him well suited to leading ON (notes ON is already in a favorable position poised to benefit from the broader macro recovery and with key exposure to secular growth in auto, industrials, 5G infra, and cloud); QRVO pt raise from $170 to $225, reit Outperform and Best Ideas for 2021 at Cowen as it is a large cap growth name at a reason price tied to 5G infrastructure and 5G smartphone adoption.

·     Software movers; COUP tgt raised by several analysts after reported a strong FQ3, exceeding consensus expectations across the board as billings beat by ~$26M as the company closed a few large deals, including Walmart; SMAR strong results led by large customers with record $50K and $100K ARR expansions of 106 and 36, respectively (+14% and 29%, respectively, vs. prior records), as enterprise demand remains robust into F4Q (+$7M F4Q billings guide vs. consensus) in addition to announcing the hiring of new CFO; MSTR downgraded to sell at Citigroup as see the recent stock rally overextended and see incremental risks to the story following an announced $400M convertible note to fund even more Bitcoin purchases; ZUO announced a strategic partnership with Stripe to accelerate the growth of the Subscription Economy

·     Media & Telecom movers; CHTR active as the FCC said it has awarded $9.2 billion to provide high-speed broadband internet service to 5.22 million unserved homes and businesses, boosting access in rural areas and CHTR won $1.22 billion to provide service to 1.06 million locations, while Elon Musk’s SpaceX won $885 million to serve 642,000 locations; SIRI said radio and television host Howard Stern extends partnership with the company; NLSN announces ONE platform for standardized cross-platform viewer measurements; AT CEO says will soon reach 12.6 million customer activations for HBO Max; VIAC to move all operations of its bundle of 425 television channels and 40 data and media centers to AMZN’s cloud service AWS

·     Hardware & Component news; AAPL unveils AirPods Max, its new wireless over-ear headphones priced at $549 while Apple Fitness+, its $10 per month fitness subscription service, will be launched on Dec. 14; SNX downgraded at Stifel following last week’s long-anticipated spin-off of its services business, Concentrix; Acer reports November revenues up 40.6% Y/Y and 12.5% M/M to NT$28.72B; YTD consolidated revenues up 17.9% to NT$248.72B; UMC reports November sales rose 6% to NT$14.73B; YTD sales grew 19.8% to NT$161.53B; ANET tgt raised to $308 from $260 at UBS after conference and highlighted the company’s confidence in a 400G ramp in ’21, its continued strong competitive position with the hyperscalers, and the substantial opportunity in adjacent and emerging market