Closing Recap

Thursday, October 22, 2020

Equity Market Recap

·     Stocks turned high late morning only to finish near the highs, getting a boost (again) after House Speaker Nancy Pelosi said House Democrats and the Trump administration were on the verge of a deal, helping markets erase early losses. It marked the third straight day that a statement from Pelosi helped bounce markets late morning, saying each day that a deal is getting close, but no follow through out of Washington each time. While market eagerly await any signs of a deal, attention turns to round two of the Presidential debate as Trump and Biden square off for the final time ahead of the election in less than 2-weeks. Economic data was strong following a better than expected weekly jobless claims report (first time below 800K claims in several months), and record existing home sales data, helping bounce the buck as gold fell for the first time in four days. Sector movers included airlines which outperformed the broader stock market on hopes for a fiscal stimulus package and a smaller than expected loss from LUV. Banking stocks got another boost, helped by better earnings in the regional bank space this week along with Treasury yields touching 4-month highs. Consumer staples mixed with KO topping views, but KMB slipping on mixed results. Rail stocks mixed on earnings (UNP miss and CSX beat), TSLA with record revenue beat, casinos get a bump after LVS results and CMG dips as operating margins narrowed as deliveries increased. All three major U.S. stock indexes were last solidly green and long-dated Treasury yields rose to fresh four-month highs as the 10-year topped 0.84%.

Economic Data

·     Weekly jobless claims data stronger than expected, falling out of the 800k-900k for the first time in about 2-months at 787K vs. est. 860K as the 4-week moving avg falls to 811,250 oct 17 week from 832,750 prior week and continued claims big decline to 8.37M from 10.018B prior (and estimate 9.5M); U.S. insured unemployment rate fell to 5.7% from 6.4%

·     U.S. sept existing home sales jump 9.4% to 6.54 mln unit rate beating the consensus 6.30 mln) and above the 5.98 mln in August; U.S. sept inventory of homes for sale 1.47 mln units, 2.7 months’ worth; national median home price for existing homes $311,800, +14.8% YoY

·     Leading economic indicators for September reports at 0.7%, in-line with estimates

Commodities

·     Oil prices rise 61c or 1.5% to $40.64 a barrel after a mid-morning push higher following reports that House Speaker Nancy Pelosi said lawmakers are "just about there," on efforts to pass a stimulus bill for coronavirus. Prices also gained support on continued improving data, just a day after mixed inventory reports sunk oil 4%, dropping it from prior 7-week highs. Front-month gas futures fell 1.6cs, or 0.5%, to settle at $3.007 per million Btus, pulling back slightly from 20-month highs on a slightly smaller than expected weekly storage build and as liquefied natural gas (LNG) exports keep rising. Gold prices snapped their 3-day win streak, falling -$24.90 or 1.3% to settle at $1,904.60 an ounce, but bouncing off earlier lows of $1,894.20 an ounce after U.S. House Speaker Nancy Pelosi stated that lawmakers are ‘just about there on a stimulus deal and a small recovery in the dollar after days of selling pressure.

Currencies & Treasuries

·     The dollar index (DXY) posted modest gains vs. other currencies after recent selling pressure, as the buck bounced against the safe-haven yen after falling nearly 1% the day prior and the British Pound moved back below the $1.31 level. Better economic data in the form of jobless claims and existing home sales buoyed the buck early. Treasury yields touched fresh 4-month highs, as the 10-year yield hit above 0.84% as stimulus remains in focus.

Sector News Breakdown

Consumer

·     Retailers; GPS shares jumped midday after saying it sees return to profitable growth in 2021, sales growth in low to single digits annually, old Navy+Athleta representing 70% sales; up from 55%; targets Ebit margin of 10% or above by 2023; PTON downgraded to neutral from buy at Goldman Sachs as shares are +458% vs. the S&P 500 +14% and also see some risk to December guidance when the company reports Sept. quarter earnings given shipping delays; RGS downgraded to hold from buy at Loop Capital and cutting our price target from $15 to $ given what we see as near-term risks of weak demand trends and potential for the new CEO to reset investor expectations; POOL raises FY20 adj EPS to $8.20-$8.50 from $7.05-$7.45 after Q3 earnings and sales topped views; DECK tgt raised to $291 at BTIG following latest round of checks, and raising FQ2 estimates on both UGG and Hoka as we believe both brands are poised to report strong revenue/EPS upside this quarter (tgt raised to $300 at Bofa); COLM mentioned as short call by Glasshouse Research; TSCO Q3 beats estimates, boosted by strong demand for consumables and summer seasonal items and sees Q4 profit and net sales above Street ests, but analysts remains concerned same-store sales are apt to slow significantly over next several qtrs

·     Auto sector; TSLA reported record revenue of $8.77B in Q3, rising 39% YoY and topping ests of $8.36B on better earnings as operating income improved to record level of $809M, resulting in 9.2% operating margin; KNDI files $300M mixed securities shelf; auto parts dealer BWA was downgraded at Barclays noting a heightened risk around a pull forward in battery electric vehicle penetration; GPC misses estimates for sales in Q3, hurt by weakness in its industrial parts group unit, which distributes hoses, belts, bearings and pumps, among other items

·     Housing & Building Products; housing data remains strong as Sept Existing Home Sales +9.4% from Aug to a new record 6.54M (est. 6.3M), as inventory fell -19.2% YoY to represent a 2.7-month supply, the lowest since Realtors began tracking the metric in 1982, and the short supply pushed prices +14.8% YoY to a median price of $311,800 (record high adjusted for inflation); PHM reported 3Q adj EPS $1.34 on revs $2.95B (vs est. $1.12, $2.73B), unit backlog +29% to 14,962, net new orders +36% to 8,202, net new order value +43% to $3.6B; MTH Q3 EPS $2.84 vs. est. $2.42 and raised FY home sales gross margin 21% to 21.5% from ~21%, FY home closing rev. to $4.2B-4.4B from $4B-4.3B, and Q3 home orders 3,851 vs. 2,258 units; WHR reported organic sales increased 7% in Q3, ongoing EPS $6.91 on net sales $5.29B (est. $4.20, $4.76B) and now sees ongoing FY EPS $17.50-18.00 (est. $13.71), FY net sales -5-7% (est. -10.6%)

·     Consumer Staples; KO Q3 EPS and sales beat (55c vs. est. 46c and sales $8.7B vs. est. $8.36B) while 3q unit case volume -4% vs. +2% YoY and Q3 organic revenue -6% vs. +5% YoY – says revenue trends improved in Q3 although pressure in the away-from-home channel remained in place due to the pandemic; KMB shares slide as EPS misses by 2c on slightly better sales of $4.7B and raises year EPS and sales view to $7.50-$7.65 from $7.40-$7.60 but below est. midpoint

·     Restaurants; CMG posted a Q3 EPS and sales beat as qtrly digital sales grew 202.5% and accounted for 48.8% of sales for quarter, but shares fell as profit was hurt by higher beef prices, delivery and other coronavirus-related costs and also failed to provide a yearly forecast

·     Leisure and Gaming; in gaming, LVS Q3 results were in line to better across the board as Q3 hold-adjusted EBITDA -$240m in Macau (in line), +$59m Marina Bay (better), and -$3m Vegas (better);

Energy

·     Energy stock movers; VLO reported a Q3 eps loss of ($1.16), which beat estimated ($1.30) loss on revs $15.81B, also beating estimated $15.79B (Q3 2019 EPS $1.55 on revs $27.25B); KMI reported Q3 EPS 21c on revs $2.92B (in-line with est 20c eps on $2.91B) and the company maintains their quarterly 26.25c/share dividend and lowered its 2020 distributed cash flow by more than 10% off its previous $5.1B est while its FY20 adj EBITDA guidance remains unchanged; FTI reported Q3 EPS 16c on revs $3.335B vs est. 22c and $3.29B, and the company generated $321M of adjusted EBITDA, besting the Street expectation of $271M, while FCF of $95M improved from Q2’s (-$188M); EQT reported Q3 EPS loss of (15c) vs est (24c) loss on total operating rev $171.13M, a decrease from Q3 2019’s $951.57M; PTEN posts Q3 results that beat expectations, as (60c) EPS loss is narrower than est (62c) loss and $207M rev beats $196.1M est; Reuters reports that XOM CEO sent an email saying the company is very close to disclosing job cuts in the US and Canada as part of a strategic redesign even though the company has exceeded its goals of reducing operating expenses by $1B and capital budget spending by $10B as Covid-19 has created further headwinds and caused oil demand to drop about 20%; GTLS reported mixed 3Q results (rev miss, EPS beat), 2020 guidance reiterated (implied 4Q rev and EPS above estimates), and 2021 EPS guide raised; HLX rises on earnings and raised guidance; CNX shares jumped late day after Bloomberg reported EQT recently made takeover proposal for the co

·     Energy research; Piper upgraded WPX to OW and CDEV to Neutral, while maintaining MGY and BRY at N, in addition to reiterating PE at OW and assuming coverage on WLL at N; HLX reported a surprise Q3 net income of 16c per share vs the expected (1c) loss per share, and $193.5M quarterly revenue also beat expected $175.8M; Mizuho cut its near-term estimates and price targets on refiners PSX, HFC, MPC, PBF, VLOand DK ahead of earnings given weaker crack spreads and slower demand recovery than previously estimated, although it maintains its bullish thesis on group (each stock keeps its Buy rating except HFC which stays at Neutral) as continued underperformance has led to better risk/reward and MPC remains their top pick

·     Utilities, Coal & Solar; AEP reported Q3 eps $1.47, slightly increasing from 2019 Q3’s $1.46 EPS, though revenue falls to $4.1B from 2019’s $4.3B, and the company reiterated its FY20 EPS guidance of $4.25-4.45; NWE reported adj Q3 EPS 59c, topping 58c est, on $280.6M rev, which missed the $289M est; ARCH posted a Q3 EPS loss of ($1.87), wider than estimated ($1.04) loss and $382.26M rev was higher than est $376.55M; PNM was downgraded to Neutral at Mizuho and Barclays, after the company was sold yesterday to AGR for $4.3B

Financials

·     Bank movers; FITB posts adjusted EPS of 85c, well above the 60c estimate as regional bank results continue to impress while allowance for credit loss stood at $2.76B, down 3.8% from previous quarter; in consumer Finance; DFS topped estimates due to wider spreads, more resilient loan balances, and a lower provision on the back of a decline in credit losses; SLM Q3 core EPS 47c vs. est. 8c and initiated restructuring program focused on improving operational efficiencies; recorded a $24 mln restructuring charge in qtr; NAVI upgrade from Neutral to Outperform at saying yesterday’s sell-off in the face of a solid quarter creates an attractive entry point for the stock

·     Services; NCR and FHN launched NCR D3 platform to provide consumers and businesses with a digital banking experience; EFX reported a very strong quarter, with a strong beat almost across the board – revenue, Adjusted EBITDA, Adjusted EPS and FCF said Stifel; GHLD 6.5M share IPO priced at $15.00

Healthcare

·     Pharma movers; AGIO was upgraded to overweight at Barclays citing attractive valuation, a positive outlook on the upcoming Phase 3 data in pyruvate kinase deficiency and other hemolytic anemias expansion opportunities in oncology; AMRS signs collaboration and license agreement with the Infectious Disease Research Institute to advance a novel ribonucleic acid vaccine platform and speeding up the development of a COVID-19 vaccine; WST boosted its full-year outlook following Q3 EPS and sales beat; APTX 14M share Secondary priced at $3.00

·     Healthcare services and providers; ALGN shares surged over 20% as adjusted earnings, revenues, gross margin and operating margin all topped expectations as Q3 revenue rose 21% Y/Y as shipments of Invisalign teeth straighteners beat consensus projections by more than 40%; ACCD 5M share Secondary priced at $38.50; XRAY upgraded to buy from hold at Guggenheim as the mosaic seems to suggest that 3Q consensus expectations may be overly conservative; ICLR exceeded 3Q20 estimates on revenue ($702M vs. $660M) and EPS ($1.72 vs. $1.53), and management increased its 2020 guidance, suggesting better-than-expected 4Q20 results as well.

·     MedTech and Equipment; EW reported better-than-expected 3Q20 sales and EPS, highlighted by solid TAVR procedure recovery/growth and sales outperformance across all geographies, but shares dipped as Q4 revenue guidance was unchanged despite the Q3 beat; DGX posts better-than-expected Q3 profit and revs saying it saw an uptick in U.S. testing volumes in June as state and local governments gradually began lifting COVID-19 curbs (raises year outlook); DHR revenue of $5.88B (vs. $5.55B cons), with 9% core growth (v. 6% cons) and 14% growth pro forma with Cytiva.

Industrials & Materials

·     Industrial & Machinery; PCAR was upgraded to buy at Argus as view it a well-run company that produces a highly regarded line of trucks; GWW a top and bottom-line quarterly beat; FLR reported a Q1 EPS loss of ($1.22), which reflects non-cash impairments and charges related to weak commodity prices and Covid-19, on sales $4.1B, rising from Q1 2019’s $3.94B;

·     Transports; AAL reports a third straight quarterly loss, hurt by a slump in travel globally due to the COVID-19 pandemic (Q3 net loss of $2.40 bln, or $4.71 vs. profit of $425M/96c a year ago); LUV 3Q loss smaller at ($1.99) vs. est. ($2.35), and ended the quarter with liquidity of $15.6B saying encouraged by modest improvements in leisure traffic trends since slowdown in July, says will resume selling all available seats beginning December 1; in railroads; mixed results as UNP posted a Q3 miss on the top and bottom line ($2.01/$49B vs. est. $2.05/$4.96B) while 58.7% operating ratio, an all-time quarterly record; CSX rises on its results as Q3 EPS of 96c beat by 4c though on revs miss $2.65B vs. 42.68) and announced a $500M buyback; truckers active after earnings results from LSTR and KNX overnight

·     Metals & Materials; FCX reported a quarterly profit (beating ests) compared to a loss a year earlier, benefiting from higher gold prices as uncertainty fueled by the COVID-19 pandemic pushed investors toward safe-haven assets; in steel space, SCHN with a 10c EPS beat on better revs of $464M; RS with mixed results as EPS beat by over 30c but sales of $2.09B missed the $2.13B view and anticipates overall demand to continue its slow improvement in Q4 as sees EPS $1.30-$1.40 vs. est. $1.68; NUE with a top and bottom line beat for Q3 while saying it sees higher earnings in Q4 vs. Q3 (63c on Q3 vs. est. 62c) and said had total of 6.4 mln tons shipped to outside customers in q3, 16% increase from q2

·     Chemicals & Packaging; AXTA reported 3Q adjusted EBITDA of $273M, a record for the Company, compared to consensus of $194M while top line also beat consensus by 8% and guidance implies 12% EBIT upside vs. consensus in 4Q; DOW Q3 EPS of 50c beat by 17c as profit beat helped by cost cuts and demand rebound from consumer durables, construction and automotive businesses; SLGN continued strong results in 3Q and again raised FY guidance thanks to elevated at-home consumption and expects its 2021 earnings to remain at current elevated levels (shares were downgraded to neutral at Bank America on the heels of 3Q’s good performance versus our models, the in-line guide for 4Q, and the solid outperformance this year)

Technology, Media & Telecom

·     Semiconductors; XLNX Q2 revenue of $767M topped the $755.1M estimate and forecasts Q3 revenue between $750M-$800M, the midpoint of which is above est. of $772.3M, as results were driven by strong sales in its data center and aerospace & defense businesses, as well as improvement in its automotive end market; LRCX shares fell despite reporting record Q1 sales and EPS of $3.18B and $5.67, respectively, with better rev guidance for Q2 but margin guidance of 45%-47% disappointed; STM reported results in-line with preliminary guidance and guided Q4/FY20 above estimates on a V-shaped recovery in auto and content growth with Apple; ENTG reported better than expected results ($481M and $0.67 vs. Street at $462M and $0.63) and guided Q4 ahead of expectations ($480M-$495M and $0.62-$0.67 vs. Street at $458M)

·     Software movers; PLTR is helping the federal government set up a system that will track the manufacture, distribution and administration of Covid-19 vaccines, state and local health officials briefed on the effort said, DJ reported; MCFE 37M share IPO priced at $20.00; CHKP shares dropped following its earnings and guidance results

·     Media & Telecom movers; AT snaps its 10-day losing streak (longest since 2002) after in-line earnings and slightly better revs of $42.3B as mobility post-paid churn of 0.69% vs. 1.09% consensus, said total domestic HBO and HBO Max subscribers topping 38 million, reports Q3 record high 357,000 AT&T Fiber net adds, total domestic wireless net adds of more than 5M

·     Hardware & Component news; VIAV raised its F1Q21 guidance to the high-end of prior guidance, with much of its upside coming from OSP (both anti-counterfeiting and 3DS); BCOV rises as solidly beat 3Q consensus and guidance, and guided 4Q above consensus citing broad-based demand across regions, and highlighted Beacon OTT and Virtual Experience deals; DDD shares rose, benefitting from ALGN results which is a 10+% customer (11% of $DDD sales in 2019, 13% of sales in 2018, according to recent Berenberg initiation).