Closing Recap

Thursday, October 15, 2020

Equity Market Recap

·     U.S. stocks roared back from morning lows, but still finished lower on the day as the S&P 500 posted its first 3-day losing streak in about a month as the combination of tightening coronavirus lockdowns in Europe, a weakening jobs picture in the U.S. and stalled talks in Washington on additional fiscal stimulus all weighed on the minds of investors. With that all being said, stocks still ended the day near their best levels, well off the sharp morning lows. Europe was pressured given surging coronavirus cases and several countries stepping up restrictions to contain the outbreak from worsening after UK, Germany, Italy cases surge. The Stoxx 600 was down 2.1% at near two-week low, the FTSE 100 was down 1.8% at its lowest in nearly three weeks and France’s CAC 40 fell 2.2%. In stocks news, Smallcaps outperformed as the Russell 2000 was boosted by energy names on an oil recovery, banks found solid footing after MS and SCHW better results and apparel names generally outperformed (CPRI, KTB, UAA, VFC). Dow Transports again back near record highs. Still, uncertainty surrounding the coming elections and the on-again, off-again stimulus talks remain a concern heading into the heart of earnings season next week.

Economic Data

·     Seventh week in a row with jobless claims in the +800K as claims rose to 898,000 oct 10 week above consensus 825,000 while last week revised to 845K from 840K; continued claims fell to 10.018 mln vs. est. 10.700 mln and down from upwardly revised 11.183M (from 10.97M); the US insured unemployment rate fell to 6.8% from 7.7%; the 4-wk claims avg rose to 866,250

·     Philly Fed survey showed growth of manufacturing activity surged in October after three months slowing down, as the general activity stood at 32.3 in October, sharply up from 15.0 in September and above ests of 14.0 reading; index for new orders rose 17 points to a reading of 42.6, while the shipments index also increased 10 points to 46.5

·     Export prices for September rose +0.6%, topping the 0.4% estimate while import prices rose +0.3%, in-line with consensus

·     Empire Fed manufacturing business conditions index was +10.5 in October below the consensus 15.0 and also down from the 17.0 in September; new orders index +12.3 in October vs +7.1 in September; prices paid index +27.8 in October vs +25.2 in September; and the employment index at +7.2 in October vs +2.6 in September

Commodities

·     Oil prices recovered as WTI crude slipped 8c to $40.96 per barrel, well off morning lows of $39.22 as bullish inventory data, a recovery for risk assets midday helped lift prices. Inventory data from the EIA was bullish as crude inventories fell -3.8M barrels vs. -2.8M consensus, +0.5M last week, gasoline stockpiles fell -1.6M barrels vs. -1.6M consensus, -1.4M last week and distillates fell -7.2M barrels vs. -2.1M consensus -1.0M last week. The BSEE said 24% U.S. gulf offshore crude oil production shut and 12% of U.S. gulf offshore natural gas output shut following Hurricane Delta. Gold prices bounced on the day to finish higher by $1.60 at $1,908.90 an ounce, well off earlier lows below $1,894 an ounce despite the stronger dollar.

Currencies & Treasuries

·     The U.S. dollar advanced vs. most major currencies (along with a bounce in the safe-haven Japanese yen) on mixed economic data and growing signs fiscal stimulus out of Washington appeared unlikely before the U.S. presidential election. Economic data disappointed as jobless claims remained stubbornly high, moving back near the 900K level on the week. In other currencies, the Aussie dollar slimmed after tis central bank head hinted at possible monetary easing, the British Pound dropped on more Brexit related concerns and headlines, down around 1% below $1.29 and the euro hit 2-week lows below $1.17 vs. the buck as the region remains plagued by tighter Covid-19 restrictions. The dollar index (DXY) touched a one-week high. Treasury yields reversed higher late day as the 10-year yield turned positive around 0.73%.

Sector News Breakdown

Consumer

·     Retailers; TIF said Aug and Sep “declined slightly” YoY and positive trends continued in Oct (US –LDD%), E-commerce sales nearly doubled and represents 13% of sales YTD through Sep and for Q4 expects –MSD in sales and +MSD in operating earnings; SNBR Q3 EPS handily beat ($1.79 vs consensus $1.06) and revenue $531.2M vs. consensus $523.5M as EBITDA $93.2M above consensus $55.6M on better comps +11% (good for mattress retailers TPX, PRPL); Guggenheim reiterated its favorable outerwear outlook ahead of VFC earnings tomorrow, raising tgts on COLM to $105, VFC to $85 and highlight KTB with increased interest in the denim category this fall; NKE tgt to $150 from $125 and LULU to $405 from $400 at Oppenheimer as reiterate Outperform ratings on both and are among our favorite larger-cap ideas through 2021; PTON tgt raised to $150 at Bank America saying delivery times are holding at 4-8 weeks suggesting strong demand and app downloads are up 241% in Oct so far (from 129%/197% in Aug/Sep)

·     Auto sector; LEA and VC upgraded to buy from neutral at Guggenheim as adopting a more bullish stance on the auto suppliers and see potential for the group to outperform over the next 6-12 months (says LEA offer the most significant earnings and multiple rerating potential, as well as attractive company-specific factors – while maintain buy on GNTX); TSLA cut the price of the company’s Model S for the second time in a week on Wednesday, as Model S price changes to $69,420; CARS shares rise after guiding Q3 revenue ~$142 -144M vs consensus $137.M, EBITDA margin between 33% and 34%, and net profit ($10M)-($12M); Fisker Inc said auto supplier MGA will supply the vehicle platform and build the electric carmaker’s Ocean SUV

·     Consumer Staples; MDLZ downgraded to Neutral from Buy at Guggenheim given view that the current valuation reflects the expected future top-line growth potential (constrained to 3-4%) and represents a fair discount to higher-growth food & beverage peers; Bank America notes retail sales for hard seltzers (SAM, TAP) grew +152% YoY during this past summer and we expect the category’s resiliency to be tested this upcoming fall & winter

·     Restaurants; EAT was upgraded to Outperform from Market Perform, price target $65 from $45 at BMO Capital saying post-pandemic earnings per share could reach $5 or above based on a channel-level analysis across the business; QSR downgraded to Perform from Outperform at Oppenheimer as shares approach their price target and lack catalysts for upside

·     Leisure and Gaming; IGT announces betting partnership with the NBA becoming first b2b sports betting platform provider in U.S. to bring NBA official data, marks and logos to regional casinos and sportsbooks; DKNG agreed to another media partnership with Turner Sports. Under the arrangement, DraftKings will provide sports betting information and daily fantasy content across Turner Sports telecasts and Bleacher Report digital channels including the B/R app

Energy

·     Energy stock movers; in pipelines, Goldman Sachs upgraded TRP to Buy from Neutral, KMI to Neutral/$13 pt from Sell and downgraded WMB to Neutral/$21 pt from Buy and OKE to Sell/$26 pt from Neutral; Barclays upgraded SHLX, HEP, BPMP, GEL, NS to OW and DCP, MIC to EW on recovering gasoline and distillates volumes. U.S. natural gas futures extend gains after EIA reports smaller-than-expected storage build; services stocks jumped midday (SLB, HAL)

·     Utilities & Solar; DUK was downgraded to Neutral on valuation at Credit Suisse as recent outperformance has pushed the stock price near its new $93 target, which was upped from $88; Wells Fargo upgraded recent laggards EVRG, OGE to Overweight from Equal Weight as they see an attractive risk/reward opportunity in both stocks as expectations appear relatively muted and we believe they both have an attractive long-term capex runway with regulatory treatment representing a key gating factor; ED was downgraded to Neutral with an $82 pt from Buy at Bofa on valuation and limited upside following its outperformance since early September

·     Solar; FSLR was started at Neutral with a $90 target at Susquehanna; SPI’s subsidiary EdisonFuture entered into an agreement with Shaanxi Tongjia to design and manufacture electric vehicles; ARRY opened its first day of trading at $29.50, up 34% from its $22 pricing

Financials

·     Bank movers; banks were among leaders today (for a change) as MS posts a top and bottom line Q3 beat as EPS $1.66 topped $1.28 estimate on better revs $11.66B, consensus $10.64B as the 26% jump in Q3 profit was driven by strong quarter at its trading business as the COVID-19 pandemic drove up volatility in financial markets; SCHW reports Q3 adj. EPS of 51c, topping estimates of 46c as Q3 revenue of $2.45B topped the $2.43B view as active brokerage accounts jumped to 14.4 mln from 12.1 mln a year earlier; TFC Q3 adj. EPS 97c/$5.57B vs. est. 89c/$5.44B, Q3 net charge-offs 0.42% (NTRS, FITB, MTB, ZION among top gainers in the S&P)

·     Monthly Credit card data; BAC September net charge-offs 1.94% vs. 2.11% last month and reports 30-plus day delinquency rate 1.20% vs. 1.08% last month; JPM said Sept net charge-offs 1.92.% vs. 2.18% last month and 30-plus day delinquencies 0.98% vs. 0.95% last month; DFS said Sept net charge-offs 1.98% vs. 2.27% end of August and delinquency rate 1.28% for Sept vs. 1.29% end of Aug; AXP Sept net charge offs 2% vs. 2.5% last month and delinquencies 1.1% vs. est. 1.2%; Citi (C) September credit loss rate 2.53% vs. 2.75% last month

·     Services; RDFN guides 3Q higher and announcing a convert of $525M (preliminary Q3 revenue of $235M vs. a consensus of $221.31M); Susquehanna said businesses that use Visa (V) to process some types of transactions may be facing new fees and estimates that the new fees could lift Visa’s revenue 2% to 4% above current estimates, starting in 2022 = notes that Mastercard (MA) charges similar fees. Firm trimmed 2020 and 2021 earnings estimates to reflect ongoing weakness in consumer and cross-border transactions.

Healthcare

·     Pharma movers; VRTX shares fell after disclosed they have stopped the VX-814 Ph2 proof-of-concept study for alpha-1 antitrypsin deficiency (AATD) due to inability to achieve high enough exposure levels, but also due to seeing liver toxicity at the low exposure levels – shares of ARWR rise in reaction as RBC noted clears the bear argument that VRTX had a better approach and strengthens the bull argument that correctors may not achieve enough exposure to impact highly expressed A1AT; ALKS upgraded to Buy from Neutral at Mizuho and increasing our price target to $24 from $19 based on what we see as an attractive risk/reward following last week’s FDA Advisory Committee Meeting for ALKS 3831 and ahead of additional data from ALKS 4230

·     Biotech movers; TBIO and partner SNY will begin human trials of experimental COVID-19 vaccine in Q4 after positive results from animal trials; EIGR announces positive results of investigator sponsored randomized controlled trial at university of Toronto with peginterferon lambda in outpatients with mild to moderate covid-19; ORGO guides Q3 revs $99-$100M vs. est. $72M and forecasts 2020 revenue to be between $311M-$314M vs. est. $275.1m

·     Cannabis sector weak after APHA reported a narrower-than-expected fiscal first-quarter loss but revenue that rose less than forecast despite. Revenue grew 15.5% to C$145.7 million ($110.2 million), but missed consensus of C$159.6 million while cannabis revenue more than doubled (up 134.4%) to C$82.2 million, but distribution revenue fell 13.8% to $82.2 million

·     Healthcare services and providers; Dow component WBA Q4 profit beat $1.02 vs. est. 96c) and says it expects single-digit growth in adj EPS for FY 2021 as COVID-19 effects subside and recovery plans take hold in key markets

·     MedTech and Equipment; at its investor Day with new CEO Geoff Martha, MDT presented an aggressive message on driving top-line growth through a new decentralized operating model, re-investment in core markets and inorganic (M&A) activity. Long-term EPS growth goal remains 8%-plus and mgmt reiterated FCF conversion target at >80% and >50% cash; SIBN 3.19M share Spot Secondary priced at $22.00; GH shares slipped after Aetna deems its Guardant360CDx testing panel not medically necessary in lung cancer treatment

Industrials & Materials

·     Industrial & Machinery; RSG to $100 (from $97), WCN to $113 (from $110), WM to $123 (from $121) at Oppenheimer in waste sector as believe RSG has a favorable setup into earnings as consensus topline growth/EBITDA margin expectations for FY21 are conservative.

·     Transports; Dow Transports slide after touching record all-time highs on Wednesday; airlines active as UAL reported an adjusted 3Q:20 EPS loss of $8.16 on revenue that was down 78% YoY due to the ongoing impacts of COVID – both worse than estimates and follows weak results from DAL earlier this week – a positive, is liquidity noting inclusive of undrawn revolvers and the undrawn but approved CARE Loan, UAL ended the quarter with access to $19.4B of potential liquidity; in trucking sector, Stifel upgraded shares of truckers and logistics names WERN, USX, and KNX to buy noting the truckload market remains quite tight in terms of capacity presently, which has been good for carriers that play the spot market

·     Metals & Materials; AA shares tumble as posts smaller Q3 loss than expected on better revs of $2.37B topping the $2.25B est. (but down -7.9% YoY), but warned that its aluminum business is expected to face challenges on the cost side during Q4 as aluminum unit are expected to decline, on a quarter-over-quarter basis; in steels, CMC 4Q adj EPS $0.79 from continuing ops vs. est. $0.60, reduces debt sequentially and improves cash balance to $542.1Mm end of qtr and says demand appears solid driven by construction sector and rebounding European production

Technology, Media & Telecom

·     Semiconductors; STM shares weak despite reporting a solid beat for this Q and raise for next Q as well as the FY which is now expected to grow 30% over 20% previous guide; VSH guiding 3Q revs higher on a familiar theme of Auto strength which we have heard from STM, NXPI, MPWR

·     Internet; CARS reported preliminary Q3 rev of $142-144M and adj EBITDA margin $49-49M, above the consensus $137M and $40M, drawing upgrades at FBR and Craig Hallum; Morgan Stanley raised its price targets on PINS, LYFT, UBER, TWTR, Z and lowered its pt on YELP; TWTR, FB in crosshairs of Rep Senator Hawley after the social media giants took the unusual step of limiting the sharing of New York Post articles that made new allegations about Democratic presidential nominee Joe Biden that the Biden campaign denied; ZM tgt was raised to street-high $611 at Bernstein, as well as raises to $600 at DA Davidson and RBC, as well as additional raises at Needham, Wells, Bofa, BTIG, Rosenblatt

·     Networking, delivery; FSLY shares tumble as surprises with weaker Q3 revenue guidance (now expects F3Q20 revenue of $70M-$71M, below guidance of $73.5M-$75.5M and withdrew all prior F3Q and FY20 guidance saying its largest customer (TikTok) did not grow as fast as expected, given geopolitical dynamics (shares of CDN peers AKAM, NET as well as other companies with small TikTok exposure – as per Opco – COUP, BIGC, DDOG, TTD were weak)

·     Media & Telecom movers; broadcasters advanced after TGNA better guidance saying full year subscription revenue growth is now expected to be up in the high-twenties percentage- an improvement from our prior outlook of up mid-twenties reaffirmed in August; VIAC was upgraded to overweight and raise tgt to $36 saying recent trends point to a potentially more stable earnings and cash flow environment,

·     Hardware & Component news; ROKU was downgraded to Sector Weight from Overweight ahead of earnings on prices at KeyBanc though notes data suggest 2%+ upside on 3Q20 & potential 4Q acceleration, street rev appears too low 2020E & 2021E, we are above consensus by 4% % 10%; SONO was upgraded to buy at Bank America saying while revs lagged in prior two fiscal qtrs given inventory rebalancing, retail store closures and supply chain restraints, it expects "solid" Q4 results with home-related categories