Closing Recap

Thursday, December 10, 2020

Equity Market Recap

·     U.S. stocks were mixed as the Nasdaq partially recovered following yesterday’s sharp profit taking decline, while the Dow and S&P posted modest losses amid the lack of a stimulus deal and investors eagerly awaiting the FDA panel decision for the PFE/BNTX vaccine, which is weighing the risks and benefits and could lead to full approval for emergency authorization from the FDA shortly (already approved in UK and Canada for rollout). It was the same old news out of Washington as Pelosi and Mnuchin said progress is being made on a relief package (with no details and two sides still far apart). Comments from McConnell suggested disagreement with the Democrats, while the House did pass a week-long stop gap bill to keep government open through 12/18. Stocks in the U.S. opened lower initially, but the weakness was very-short lived, surging the first hour of trading off the lows only to hold those levels the remainder of the day. There was also more IPO hype with AirBnB (ABNB) pricing its 51.3M share offering (IPO) at $68.00, but opened at $146, just a day after DoorDash (DASH) and C3.ai (AI) surged on their debuts.

·     In other news, the ECB left its key rates unchanged and announced it will increase the envelope of the pandemic emergency purchase program by EUR 500 billion to a total of EUR 1.85 trillion (both were widely expected). Fear remains nonexistent with the CBOE Volatility index (VIX) trading near its lowest levels since February. Oil prices jump over 2% despite a big jump in inventories yesterday, as vaccine news overshadows all and drives recovery hope. Dow Transports underperform, pulling back further from record highs earlier in the week; SBUX rises to record levels after several analysts raise their estimates and targets following the company’s guidance at its Investor Day yesterday and energy leaders in the S&P on the oil jump.

Economic Data

·     Weekly jobless claims jump +137K to 853K vs. 730K consensus, 716K prior (revised from 712K); the 4-week moving average rose to 776,000 from 740,500 prior week (previous 739,500); continued claims rose to 5.757M from 5.527M (and above est. 5.335M); U.S. insured unemployment rate rose to 3.9% from 3.8% prior week

·     Consumer Price Index (CPI) for November rose a slightly “hotter” 0.2% vs. estimate rise of 0.1% and the flat level prior; core CPI (ex: food & energy) rises +0.2% vs. est. 0.1%; Nov CPI YOY up 1.2% vs. est. 1.1% and core CPI YoY rises an in-line 1.6%

·     The U.S. government posted a $145 billion budget deficit for November, down from $209 billion a year ago, the Treasury Department said, but the decline was largely due to calendar shifts of federal benefit payments. Without these adjustments, Treasury said November receipts would have fallen 6% from November 2019, while outlays would have increased 11%, which would have led to a $207 billion November deficit.

Commodities

·     Oil prices rose sharply as more countries approved Covid-19 vaccines, boosting the demand outlook for the sector, and shrugging off a huge increase in U.S. crude inventories the day prior. WTI crude rose $1.26 or 2.8% to settle at $46.78 per barrel (off highs $47.74) while Brent gained $1.39 or 2.84% to settle at $50.25 per barrel (off highs $51.06). Brent crude exceeds $50 per barrel for the first time in nine months (topped $51), as hopes of a faster demand recovery after the release of COVID-19 vaccines gives the sector a boost, while WTI also best levels since March – clearly overlooking the massive 15.2M-barrel build in U.S. crude inventories reported yesterday by the EIA (vs. expected draw).

·     Gold prices slip -$1.10 to settle at $1,837.40 an ounce as investors rotated back into risker assets such as stocks and oil on rising expectations the FDA will soon authorize the emergency use of a COVID-19 vaccine. Focus for the gold market could shift to the Federal Open Market Committee meeting next week and news on additional stimulus.

Currencies & Treasuries

·     The U.S. dollar index gives back yesterday gains, sliding as risk appetite back on after just one day of selling pressure (modest at that) for stocks, as the dollar index (DXY) drops back below the 91 level. The euro climbed as the European Central Bank disappointed some investors hoping for a bigger stimulus boost, while uncertainty over fresh U.S. economic stimulus remains. The ECB increased the overall size of its PEPP stimulus program by 500 billion euros ($605.7 bln) to 1.85 trillion euros ($2.2 trillion), in line with market expectations. It also extended the program by 9 months to March 2022. The British pound dropped early afternoon as UK PM Johnson says no deal Brexit now strong possibility. Treasury prices were little changed, as the 10-year remains above the 0.9% level, down 1 bps at 0.92% for most of the day.

Sector News Breakdown

Consumer

·     Consumer; rising vaccine hopes continue to buoy this sector (market overall) into the holiday season; OXM Q3 EPS loss better at ($0.44) vs consensus ($1.10) and revenue $175.1M vs consensus $164.4M (Tommy Bahama better, Lily Pulitzer) and GM above consensus; Goldman Sachs several changes in retail space today as they upgraded shares of LEVI, RL to Buy from Sell, FIVE and CPRI to Buy from Neutral, and PVH to neutral from sell and downgraded BBY, GOOS to Sell from Neutral and KTB to Neutral from Buy; JILL reports sales fell 29.4% to $117.2M in Q3; ASO big Q3 EPS and rev beat (91c/$1.35B vs. est. 36c/$1.26B) on 16.5% jump in comp sales; in leisure, ABNB priced its 51.3M share initial public offering (IPO) at $68.00, which was above the prior range of $56-$60, but opened at $146 per share (a valuation of around $100M – which compares to BKNG has $87B mkt cap, MAR $43B, HLT $29B, EXPE $19B and H $7B)

·     Auto sector; UBER price target was raised to $63 from $50 at Mizuho on increased valuation of food delivery and the potential recovery of the mobility business; CARG acquired a 51% interest in CarOffer, an automatic instant vehicle trade platform, at an enterprise valuation of $275M, with the ability to buy the remaining equity interest in the company over the next three years; Jefferies downgraded REVG to hold as shares are up over 140% since the March lows and have achieved their $10 pt on strength in RV demand; Wedbush forecasts China’s demand for EVs accelerating over the next 12-18 months, and can add at least $100 per share to TSLA in a bull case given strong Model 3 demand, as well as boosting Chinese EV stocks NIO, XPEV, and LI

·     Housing, Furnishing & Building Products; RH price tgt raised by several analysts ($560 at Bofa, $520 at Loop and Wedbush) after revenues, profit margins, and earnings were well ahead of expectations as majority of the upside was driven by better SG&A as well as gross margin (a record 48.4%); FND was upgraded to buy from neutral at Goldman Sachs saying its building cash balance can be used to accelerate investments as it faces continued home improvement tailwinds; HOFT mixed Q3 with EPS beat and sales miss

·     Consumer Staples; SJM LT targets not changed much at its analysts day with 2% sales, 5% operating income, 8% EPS growth, and 10% TSR; SFM was downgraded to sell at Goldman Sachs based on a less favorable outlook for food at home (as prefer ACI and BJ for other reasons), and a more promotional grocery environment in 2021

·     Restaurants; SBUX record highs as they tightened underlying EPS growth at investor day to 10-12% starting in FY23 and guided to outsized FY22 EPS growth of >20% as sales & margins are expected to gradually recover while increased its global & US SSS outlook to 4-5% (from 3-4%); Piper said domestic checks for November restaurants suggest a pause in many cases, with early indications of December slowing as MCD sales trends are positive, CMG comps are positive and SBUX trends are negative (slowing momentum)

Energy

·     Energy stock movers; APA, OXY, FANG, HES, DVN among leaders in the S&P 500 as energy stocks extend recent rebound along with oil price recovery (despite very bearish inventory the day prior) – energy names among top gainers in the S&P; JPMorgan said 2021 could be more positive for oil stocks; potentially 15% to 20% total return based on long-term Brent forecast of $55 per barrel of oil as they maintain OW rating on CVX (tgt to $111 from $89), neutral on XOM (tgt to $47 from $37) and underweight on OXY (tgt to $20 from $13); XEC downgraded to hold $40 tgt on valuation in excess of peer group at Truist

·     Utilities & Solar; Dominion (D) upgraded to Neutral from Underperform at Mizuho as believe the stock is fairly valued at these levels, accurately pricing in the company’s business mix of 85-90% regulated utility and 10-15% contracted assets/LNG; EIX and PCG both resumed with Buy ratings at Guggenheim as reflect new regulatory constructs, valuation rationale/disconnects and analyze a path to more "normalcy" for CA utilities

Financials

·     Consumer Finance; FISV upgraded to buy from neutral at Rosenblatt as have increased confidence in FISV’s ability to execute on accretive capital allocation and sustainable >15% EPS growth; FISV 17.5M share Secondary priced at $112.00; Barclay’s upgraded shares of SC to equal-weight and both OMF and SYF to overweight as incrementally positive on credit levered stock citing the combination of effective vaccines, healthy consumers who’ve benefitted from income replacement and loan forbearance, along with "still cheap valuations

·     Asset managers; AB announced that preliminary assets under management increased 7.4% to $668 billion during November 2020 from $622 billion at the end of October; BEN preliminary month-end assets under management of $1,466.7 billion at November 30, 2020, compared to $1,391.6 billion at October 31, 2020; IVZ preliminary month-end assets under management of $1,294.0 billion, an increase of 7.3% versus previous month-end; LAZ preliminary assets under management as of November 30, 2020 totaled approximately $247.6 billion; TROW preliminary month-end assets under management of $1.42 trillion as of end of Nov; VRTS preliminary total long-term AUM of $124.5B at Nov. 30, 2020 increase from $115.2B at Oct. 31, 2020

·     Services; ASAN delivered a strong first public quarter, beating revenue by $5M, billings by $19M, and free cash flow by $13M, driven by better than expected demand from large customers (>$50K customers up 104% y/y vs. >$5K up 58%); ARCC downgraded to Neutral from Overweight, at JPMorgan citing valuation

·     REITs; a massive ratings adjustment in REITs at Wells Fargo: in Net Lease REITs, upgrading LXP to Overweight and downgrading NNN; for tower REITs, remain bullish on the tower sector heading into 2021, although acknowledge that accelerating growth looks more like a 2022+ story in terms of financial contribution (top pick SBAC, but also recommend AMT); in data center REITs, remain positive on fundamentals and believe recent underperformance creates a more attractive entry point, with top picks CONE and QTS; in healthcare, OHI upgraded and cut PEAK and DHC; in office REITs, reit Overweight ratings on HIW, CUZ, BXP, KRC, and HPP and upgrade OFC to Overweight, while downgrade PGRE to underweight; in lodging, upgraded PEB, DRH, PK and XHR to overweight and HT to EW while downgraded HST and SHO

Healthcare

·     Pharma movers; PFE and BNTX as an FDA committee met today to weigh the risks and benefits of Pfizer and BioNTech’s experimental vaccine – ahead of hopeful full FDA approval; ALXO 2.38M share Secondary priced at $76.00; RCKT 4.643M share Secondary priced at $56.00; TGTX rises over 30% after announces positive topline results from the ultimate I & II phase 3 studies evaluating ublituximab monotherapy for the treatment of patients with multiple sclerosis; ALKS said plans to achieve: FY 2023 non-GAAP net income equal to 25% of total revenues and EBITDA margin rate of 20% in strategic value enhancement

·     Biotech movers; EDIT said it had submitted an application with the U.S. FDA to start an early-to-mid-stage clinical trial of its cell therapy, EDIT-301, to treat sickle cell disease (upgraded to Overweight and $69 tgt at Wells Fargo); PBYIs neratinib meaningful reduces risk of recurrence and improves survival in early-stage breast cancer patients after results from the Phase III ExteNET trial; BIIB submitted a Japanese New Drug Application to the Ministry of Health, Labor and Welfare (MHLW) for Alzheimer’s drug aducanumab (BIIB037); ICPT CEO Mark Pruzanski stepping down, replaced by current COO Jerry Durso; IMMP surges after Chinese partner EOC Pharma will start a phase II clinical trial in up to 152 metastatic breast cancer patients in China

·     Healthcare services and providers; EHC tgt raised by a few analysts as co announced plans to explore strategic alternatives for the home health and hospice business; LH said Pixel by LabCorp COVID-19 Test Home Collection Kit granted Emergency Use Authorization by the FDA to become the first to be available over the counter without requiring a prescription; CDMO 3.3M share Spot Secondary priced at $9.00; THC surges to 5-year highs as expands USPI ambulatory business in line with Tenet’s stated strategy

·     MedTech and Equipment; DXCM provided a five-year outlook at its investor day and updated investors on its new market opportunities; QTNT slips after saying received FDA request for additional testing data regarding the 510(k) application for the Initial Serological Disease Screening Microarray and MosaiQ instrument

Industrials & Materials

·     Industrial & Machinery; FLR suspends 2020 forecast after Q3 EPS and revs fell short of consensus saying Covid continues to impact its business as clients are deferring capital investment decisions and the pandemic has slowed down their ability to fully staff and execute projects; industrials as a whole quiet in terms of news, but continue to be market leaders on economic recovery hopes, with machinery, HVAC, construction higher

·     Transports; index overall underperformed broader markets, led by declines in rails, package delivery and truckers; CSX downgraded to Underweight from Equal-weight at Morgan Stanley and assigns a price target of $60, which represents 35% downside for shares while firm upgraded ARCB to Overweight as remains bullish on trucking stocks as believes the cycle is far from over; Raymond James downgraded Brazilian airlines AZUL and GOL from Outperform to Market Perform and reiterate Outperform rating on CPA, as see more balanced risk-reward

·     Metals & Materials; SCCO downgraded to Neutral from Buy at UBS after 39% year-to-date rally; HUN said it sees Q4 adjusted EBITDA above prior guidance and 20%-25% above the prior year; Goldman Sachs updated models for BHP and RIO to reflect the latest commodity price forecasts as commodities team have recently lifted their iron ore and copper forecasts – GS iron ore forecasts increase to US$124/t for 4Q20 (vs. spot of $145/t), to US$120 (from US$90) for 2021, and to US$95 (from US$75) for 2022.

Technology, Media & Telecom

·     Internet; FB active again after 46 U.S. states and U.S. FTC filed lawsuits that could force social media giant to sell messaging app WhatsApp and photo-sharing app Instagram; in online travel, Citigroup downgraded BKNG and EXPE to neutral from buy (but up tgts to $2,250 and $140 respectively from $2,050 and $125) saying business travel could be permanently impaired as part of its rationale – but shares surged in anticipation of positive vaccine news; SNAP shares jumped after TWTR says its users can now share tweets to snapchat

·     Software movers; ADBE authorizes $15B stock buyback program after posting Q4 EPS that topped views ($2.81 vs. est. $2.66) and said it expects FY2021 adj. EPS of $11.20 compared with est. of $11.17 and revs of about $15.15B above consensus view of $14.78B; AI surges again to highs around $130 per share – adding to its more than +100% IPO debut surge Wednesday – after its IPO priced @ $42 (not getting as much as attention as DASH, ABNB – but outperforms)

·     Media & Telecom movers; IAC reported 14% Y/Y growth in total ANGI HomeServices revenue vs. 10% Y/Y growth in October. Vimeo total revenue Y/Y growth of 54%, DotDash and Search revenue Y/Y growth of 34% and 12% respectively; FWONA initiated buy and $47 tgt and FWONK $50 tgt at Guggenheim as sees Formula One’s unique intrinsic asset value (live sports, motor racing) as well positioned to drive shares higher; EGHT rises after new CEO, reaffirms outlook

·     Hardware & Component news; CIEN Q4 EPS of 60 cents misses analysts’ est. of 63 cents, with revs slightly better at $828.5M vs. est. $825.4M and said to reintroduce share repurchase program in Q1 2021; KODK announces expanded collaboration with Microsoft to provide advanced business solutions for the printing industry