Closing Recap

Tuesday, October 27, 2020

Index	Up/Down	%	Last
DJ Industrials	-221.37	0.80%	27,464
S&P 500	-10.23	0.30%	3,390
Nasdaq	72.41	0.64%	11,431
Russell 2000	-14.49	0.90%	1,590

 

Equity Market Recap

·     U.S. stocks finished mixed on Tuesday as the Nasdaq Composite outperformed behind technology and biotech stocks, while the Dow Jones slipped ahead of MSFT earnings tonight and the S&P 500 flipped between gains and losses most of the day as investors brace for several potential market moving catalysts over the next week. The onslaught of earnings continued (over 170 S&P companies this week alone) as stocks were dragged down by a string of earnings disappointments (LLY, BEN) and lack of guidance (CAT, MMM) as well as doubts about a coronavirus stimulus package before Election Day. Sectors sensitive to economic growth took a hit as banks and energy each tumbled a second day. Major averages end mixed as investors fretted about record number of new coronavirus infections in the U.S. and some European countries as the VIX hovered at its highest level in nearly two months ahead of the election.

·     Economic data mixed as Durable Goods orders rise a 5th straight month, up 1.9% in September compared with August while new orders for nondefense capital goods excluding aircraft increased by 1% last month. However, consumer confidence data for dipped slightly to 100.9 in October, undershooting expectations, after jumping 15.0 points to 101.3 the prior month.

·     Re-open names such as hotels, travel, cruise, casinos partially recover today after leading declines yesterday. Healthcare in focus with earnings from LLY, PFE and MRK this morning as well as industrial giants CAT and MMM. Treasury yields dip as the dollar slips and oil rebounds. Solar stocks continue recent underperformance (following period of strong outperformance) as UBS downgrades Sell on unattractive risk/reward at these levels. Asset managers decline as BEN operating revenue increased in its Q4, but expenses climbed, sending profit and operating income down. Semi’s rise after AMD buys XLNX in $35B deal raising industry speculation.

·     European markets dropped as Europe’s Stoxx 600 was down 0.80% at one-month low, Britain’s FTE 100 down 0.94%, Germany’s Dax down 0.85% at four-month low, France’s CAC 40 down 1.58%, and Spain’s Ibex down 2.20% as rising COVID cases threaten their economic recovery. Italy posts daily record of 21,994 new coronavirus cases on Tuesday, the UK reports 22,885 new Covid cases, Spain 8,304 new Covid cases vs 5,217 yesterday and France 33,417 new Covid cases (several EU nations taking stricter actions to prevent the spread). Markets also cautious ahead of central bank decisions later this week.

Economic Data

·     Durables Goods for Sept rose 1.9% vs. est. 0.5% with August up 0.4%. Durable Goods ex-defense orders +3.4% vs. August +0.9%; and Sept durables ex-transportation orders +0.8% vs. est. 0.4% and August up 1%; nondefense cap orders ex-aircraft +1.0% vs. est. 0.5%

·     Consumer confidence index 100.9 (consensus 102.0) vs. september revised 101.3 (previous 101.8) as the present situation index 104.6 in oct vs sept revised 98.9 (previous 98.5) and expectations index 98.4 in oct vs sept revised 102.9 (previous 104.0)

·     October Richmond Federal Reserve Manufacturing Survey: +29 vs. +21 prior as shipments +30 vs. +13 prior, capacity utilization +26 vs. +21 prior and volume of new orders +32 vs. +27 prior.

 

Commodities

·     WTI crude futures rise $1.01 or 2.6% to settle at $39.57 per barrel following the pullback in the dollar, rotation back into riskier assets and as Tropical Storm Zeta shut in production in the Gulf of Mexico (last count was 49% of gulf offshore crude oil output ahead of hurricane). Storm Zeta made landfall in Mexico, where it slowed below hurricane strength. Natural gas prices slip from 21-month highs on colder weather views and fears of further production disruption from Storm Zeta in Mexico. Gold prices ended higher as December gold rises $6.20 or 0.3% to settle at $1,911.90 an ounce, getting a boost as the dollar slipped and U.S. stocks were mixed as investors positions themselves ahead of possible turbulent mkts ahead with the election

 

Currencies & Treasuries

·     The U.S. dollar dropped today, as traders booked profits after Monday’s advance as markets remain in uncertain times as worries about a second coronavirus wave and the U.S. election outcome persist. The buck fell vs. the euro, and British Pound while commodity linked currencies like the Canadian dollar climbed given a bounce in oil. After initially falling, the euro was up 0.2% at $1.1825 while the dollar fell 0.3% versus the yen to 104.53. Treasury yields dipped, falling from 4-month highs reached last week as the 10-year yield moved back under 0.8% as investors bought safe-haven assets amid political uncertainty. The U.S. Treasury sold $54B in 2-year notes at a yield of 0.151% vs. 0.15% when issued, with the bid-to-cover (demand) at 2.41 as indirect bidders awarded 52.38%, directs 15.6% and primary dealers 32.02%.

 

 

Macro	Up/Down	Last
WTI Crude	1.01	39.75
Brent	0.74	41.20
Gold	6.20	1,911.90
EUR/USD	0.0017	1.1826
JPY/USD	-0.39	104.44
10-Year Note	-0.027	0.776%

 

 

Sector News Breakdown

Consumer

·     Retailers; CROX beats estimates for Q3 revenue, boosted by a 36% increase in digital sales and strength in its Americas and EMEA markets and guides Q4 revenue to grow between 20% and 30%, ex: potential impact of any future COVID-19-related shutdowns vs. est. 8.75%; SHOO beats estimates for Q3 revenue as growth in its e-commerce business cushioned the blow from declines in brick-and-mortar business and wholesale unit and said adjusted profit per share came in at 39c for Q3 topping the 22c estimate; for TIF CNBC reported the company and French luxury goods giant LVMH are in indirect talks to settle their dispute over a $16B takeover deal; WSJ reported that ELY is nearing a deal to buy the rest of driving-range operator Topgolf it doesn’t own in a deal that would value closely held Topgolf at more than $2B https://on.wsj.com/34zj7JP

·     Auto sector; ABG reported Q3 EPS at the high end of its preliminary guidance, and a modest revenue miss/profit was an all-time quarterly record on strong vehicle margins and reduced costs in the face of declining auto sales; TTM reported Q2 revenue that fell less than expected, with its Jaguar Land Rover division returning to profit in the quarter; UBER and LYFT fell ahead of next week’s Prop 22 vote

·     Consumer Staples; SJM entered into a definitive agreement to sell its Crisco oils and shortening business to BGS in a cash transaction valued at approximately $550M; KR says 3q comparable sales trending in double digits, sees stronger 2021 performance due to covid-19 and also confirms 2020 guidance on adj. eps and adj. FCF; TPB Q3 EPS 75c on $104.1M revs (ests. 58c, $91.8M) and FY20 guidance was upped, as they now see net sales $395-401M (est. $378M) vs prior $370-382M range, and adjusted EBITDA was raised to $87-90M from $78-83M range

·     Casino and Gaming; LVS shares rose after Bloomberg reported the co is looking into the sale of its flagship casinos in Las Vegas, and working to solicit interest from possible buyers, and may fetch $6B or more for its Las Vegas properties https://bloom.bg/31M4X6b ; BYD reports adjusted EBITDAR rose 12% in Q3 to $238.8M vs. $173M consensus, prompting several analyst tgt hikes (JPM to $49, MSCO to $45) and easily topped Q3 EPS and revenue; in European gaming space, RBC Capital reiterated its Outperform rating on GVC, downgrading FLTR to Sector Perform given its strong run, and retaining our Sector Perform on WMH in light of the proposed acquisition by Caesars while expect the US sports betting & online gaming markets to grow at a ~40% CAGR through 2025, reaching a total market size of $11B ($7.3B sports & $3.7B iGaming).

·     Leisure sector; HOG shares jump as 3Q adj EPS easily topped views at $1.05 vs. est. $0.21 on revs $1.17B vs. est. $844Mm, qtrly motorcycle shipments 43,000 (-6%) and $4.7B liquidity end of qtr., though not providing FY20 guidance; PII reported better-than-expected 3Q results beating on both top and bottom lines as saw strength across all businesses, with outperforming sales and margin while mgmt raised full-year guidance for sales and EPS; in boating space, MCFT rises after The Donerail Group LP, an investment firm led by former activist hedge fund Starboard Value LP executive William Wyatt, is pushing them to explore a sale, Reuters reported

·     Services; in online education, CHGG shares fell despite reporting 3Q results ahead of consensus expectations, driven by upside in both Chegg Services as well as Required Materials, and also increased its 2020 revenue and EBITDA guidance and provided strong initial 2021; also in learning, LRN shares jump after posted $0.30 profit vs. estimates of a loss of $0.31 on better revs of $371M (est. $362.5M); in security, ADT was upgraded to buy from neutral at Citigroup following the recent selloff offer a more favorable risk/reward, but cuts tgt to $10 from $13.50

 

Energy

·     Energy stock movers; BP reported an underlying replacement cost profit of $86M, beating a consensus estimate of a ($120M) loss, which narrowed from last year’s $2.25B underlying RC profit, and Cash flow from operations was $5.20B, beating a market consensus of $3.53B; NOV reported Q3 EPS loss of (14c), wider than the expected (10c) loss on in-line revs of $1.38B and said execution on cost reduction and working capital initiatives continues to exceed expectations, resulting in $323 million in cash flow from operations and a reduction in net debt to $339 million; ET shares fall after the company cut its dividend yield in half, to 10% from 20% (qtrly div falls to 15.25c from 30.25c); CVE was upgraded to Buy at Stifel with a $6.50 price target as they see yesterday’s acquisition of Husky Energy (HSE) as a win-win for both companies; REI prices underwritten follow-on and concurrent registered direct offering for gross raise of $20 mln – both offerings price at $0.70, ~6% premium to stock’s last close

·     Utilities & Solar; SEDG, RUN, SPWR, and JKS were all downgraded from to Sell from Neutral in the solar sector at UBS, who views the current levels as broadly good exit points on a 12-month basis and offering an unattractive risk/reward opportunity given election uncertainty and the likelihood that even a Blue Wave election would result in less-than-priced-in policy support over the next year; DTE announces intent to spin-off Midstream business, and the company also reported Q3 earnings that beat estimates (Q3 net income per share of $2.46 vs $2.13 est and up from 3Q2019’s $1.73), raised its FY20 operating EPS guidance to $6.90-$7.10 from $6.47-$6.75 and forecasted 2021 guidance 7% above its original 2020 guidance, and raised its quarterly dividend by 7% to $1.085/shr; SPI board approves plan to spin off its Solar Juice Co., Ltd unit via an initial public offering, and will retain majority ownership of Solar Juice after the spin-off; Mizuho maintained its Buy rating on CNP and raised its price target to a street-high $25 from $20, and also raised its target on XCEL to $72 from $68 and maintained its Neutral rating

 

Financials

·     Banks; in asset managers, BEN tumbles after operating revenue increased in its Q4 but expenses climbed, sending profit and operating income down (hitting shares of other asset managers TROW, STT, AB on the day); UMPQ was downgraded at JPMorgan to Underweight saying Q3 beat on a reserve release and surge in mortgage lending aren’t likely sustainable at those levels

·     Insurance; AIG shares jumped after saying it plans to spin off the life and retirement unit from the parent company but has yet decide on how to execute the spin-off; says the board has plans to establish two independent companies; PFG shares sunk after Q3 EPS of 85c was well below the consensus of $1.39

·     REITs; in lodging REITs, Morgan Stanley upgraded DRH and XHR to equal-weight from underweight saying the lack of liquidity concerns and potential upside catalysts lead them to upgrade; SITC reports improved rent collection rates, collecting 90% of its October and September rent as of Oct. 23 which compares with 82% of August rent collected and 80% of July rent collected

 

Healthcare

·     Large cap Pharma movers; Federal health researchers have halted testing a combination of LLY’s Covid-19 antibody drug and remdesivir in hospitalized Covid-19 patients, after an independent committee found a lack of a benefit – separately, LLY reported a top and bottom line quarterly miss while reaffirmed its guidance for the year; Dow components MRK and PFE also with earnings as PFE small EPS beat on revs miss and reaffirmed year guidance while said its Covid vaccine interim efficacy analyses not done yet; MRK Q3 EPS and sales topped consensus and raised its adjusted-earnings outlook and narrowed its revenue guidance for the full year, as it continues to see strength in its underlying business, but it lowered its earnings guidance as the company expects the pandemic to weigh on some of its results.

·     Other Pharma; CATB shares plunge, downgraded at Oppenheimer after reported results from its Phase 3 PolarisDMD study with edasalonexent in patients with Duchenne muscular dystrophy (DMD). The study did not meet primary or secondary endpoints; LGND customer CStone announced an agreement to out-license ex-Greater China rights for two immuno-oncology assets to EQRx for $150M in up-front payments and $1.15B in potential milestones

·     Biotech movers; ANAB was upgraded to outperform from neutral with $35 tgt at Wedbush, recommending shares as believe the amended licensing deal around dostarlimab and Zejula provides significant downside protection, and with near-term clinical catalysts around the corner, inexpensive upside exists for new investors; RGNX receives $80M milestone payment from NVS based upon the achievement of $1B in net sales of Zolgensma; UK medicines and healthcare products regulatory agency begins rolling review of MRNA’s vaccine against covid-19 (MRNA-1273) – Moderna completed enrollment of its phase 3 cove study of MRNA-1273 on October 22; ONCY announces new early-to-mid stage trial testing its experimental drug, pelareorep, in combination with Roche cancer treatment Atezolizumab in patients with gastrointestinal cancer; MRTX filed to sell $700M of stock; NVAX said it expects to launch a Phase 3 trial for its COVID-19 vaccine candidate in Mexico and the U.S. by the end of next month. It already started a late-stage trial for its vaccine in the U.K. in September; SRRK announces positive proof-of- concept data from topaz phase 2 trial interim analysis of srk-015

·     Healthcare services and providers; CNC posted a beat on the top and bottom line for Q3; lab company LH 3Q adj EPS $8.41 vs. est. $5.31 on revs $3.9B vs. est. $3.65B; no guidance, reinstates share repurchase program; says due to improved current and expected performance, will return all money received from Cares Act; QGEN raised FY net sales about +20%, had previously saw about +15% to +18%

·     MedTech and Equipment; DXCM pre-announced 3Q20 sales of $500.9M (+26% y/y) that beat Street’s $480.1M estimates while pre-announced the sales results in conjunction with a 8k announcing the retirement of EVP and Chief Commercial Officer, Rick Doubleday; EXAS to sell $869M of common stock in registered direct offering – EXAS also agreed to acquire Thrive Earlier Detection Corp. in a cash and stock deal worth up to $2.15B https://on.mktw.net/3dYkWmK

 

Industrials & Materials

·     Industrial & Machinery; CAT reported Q3 EPS $1.34 on $9.9B in sales, beating estimates of $1.17 and $9.7B, and the company generated $900M in FCF, also beating estimates $300-400M, and the company expects sales and demand to improve in Q4, and its share buyback plan will be on hold through year-end and the CEO anticipates raising its dividend next year; MMM posted Q3 adjusted EPS $2.43 on revs $8.4B (est. $2.26 and $8.29B), but they do not provide guidance as it is not able to estimate the full duration, magnitude and pace of recovery across its diverse end markets with reasonable accuracy; ROP reported 3Q adj EPS $3.17 on revs $1.37B (vs est $3.05, $1.36B), and guides 4Q adj EPS $3.39-3.49 vs est $3.52, and sees FY adj EPS $12.55-12.65 vs est $12.52; CMI reported Q3 EPS $3.36 on revs $5.12B, both topping estimates ($2.35, $4.46B), and the company also reported record quarterly operating cash flow of $1.2B; LECO Q3 earnings beat estimates, as Q3 adj EPS $1.10 comes in ahead of 81c consensus and sales of $668.9M beat $612.9M expectation; FELE Q3 EPS 83c was greater than the highest analyst estimate (70c) and was above 2019’s 73c, and net sales $351.2M was also greater than highest estimate ($347M) and 2019’s $348.4M; AWI Q3 EPS $1.07 on revs $246.3M both beat estimates and the company guides FY20 sales to $920-935M, above est. $905.92M; CR Q3 results also beat estimates (EPS $1.05 on revs $735M) and issues FY20 guidance above estimates ($3.75-$4.00 EPS range vs $3.75 est, sales to decline 17-19% from previous 17-21% expected decline); SSD Q3 EPS $1.54 on revs $364.3M both above consensus of 95c and $312.4M and raises FY20 revenue growth view to 9%-10% from 1.5%-4% and gross margin is estimated to be in the range of 45-46%; LXFR and KNL also report EPS and revenue that beats estimates

·     E&C sector; KeyBanc downgrades PRIM after the stock reaches its previous target, and raises its price target on PWR and MTZ, two stocks that Citi also says could have continued near-term resiliency and long-term tailwinds as project0related activity should continue to improve as economies reopen (also name ACM, J, KBR, FLR)

·     Transports; UPS was upgraded to buy from neutral at UBS and raise tgt to $214 from $162 as believe that rising visibility to pricing and cost gains and increasing EPS expectations can support further attractive upside for the stock; JBLU reported a smaller than expected quarterly loss on slightly better revs as avg daily cash burn $6.1Mm, qtrly load factor 42.6% (airlines still trying to recover from the sharp pullback Monday on rising coronavirus global cases); in truckers, ODFL reported a 18c EPS beat for Q3 while revs of $1.06B was mostly in-line

·     Aerospace & Defense; for BA the U.S. State Department approves the potential sale of 100 BA Harpoon Coastal Defense Systems to Taiwan in a deal valued at as much as $2.37B; RTX said it expects $1.5 billion in proceeds from Forcepoint unit sale and said plans to reduce 20% of commercial aerospace workforce or about 15,000 jobs

·     Metals & Materials; TECK reports a 66% fall in Q3 adjusted net profit to C$130M, as production of steelmaking coal decreased as said copper sales fell to 69,000 tonnes from 75,000 tonnes/cuts H2 2020 copper production guidance by 5,000 tonnes; steel names were mostly higher paced by gains in U.S. Steel (X)

 

Technology, Media & Telecom

·     Semiconductors; AMD agreed to buy XLNX in a $35B deal, confirming recent reports; Under the deal, Xilinx shareholders are to receive around 1.7234 AMD shares for each of their Xilinx shares, representing a premium of almost 25% https://on.mktw.net/3kz4dZE ; NXPI shares topped views for Q3 revs with $2.27B and guided Q4 revs expects $2.375-2.525B in revenue vs. est. $2.27B; gross margin of 50.9-51.6%, and operating margin of 17.9-19.8%

·     Software movers; sector bounces back after weakness Monday on SAP warning as investors look to market leader MSFT earnings tonight; TWLO reports solid Q3 beat-and-raise results, accelerating revenue growth above 50%, on the record beat; VRNS upgraded to buy and tgt to $150 at Craig Hallum (several analysts upped tgts) amid strong beat and raise driven by Subscription revs (+89% Y/Y) and ARR (+46% Y/Y)

·     Internet; SSTK beats EPS est. for third straight qtr., while rev est. for second consecutive qtr., helped by 7% YoY rise in e-commerce sales channel and lower operating expenses; SHOP said it will partner with TikTok to help its one million-plus merchants more easily advertise their products on the video-sharing app, as it looks to grow its customer base; TWTR tgt raised to $58 at Bank America and $52 at JPM ahead of earnings Thursday, FB also rises ahead of results

·     Media & Telecom movers; SIRI upgraded to Outperform at RBC Capital & raises tgt to $7 following beat-and-raise 3Q20 results that continued to underscore the resiliency of the core business model, consistent execution, and a strong balance sheet; LYV downgrade from Buy to Hold at Jefferies as believe visibility is very low into what a new normal and earnings power are, which tempers our constructiveness and aggressiveness in valuing the shares; in advertising, OMC Q3 EPS beat by 14c while saying it cut operating expenses in Q3 by ~14%, primarily due to lower salary and service costs and posts a smaller-than-expected Q3 rev. decline of 11.5% to $3.21B topping the $3.05B view; WIFI upgraded at Oppenheimer saying they believe there’s a high probability WIFI sells part or all of its business to tower companies or an infrastructure-focused private equity firm in the next year

·     Hardware & Component news; FFIV headline revenue/EPS at $617M/$2.43 were ahead vs. consensus at $607M/$2.37 and represented 4.5% total revenue growth to close out the FY on a strong note as product revenue again drove the upside at $280M (+5.8%); XRX posts Q3 adjusted profit of 48c beating the 22c estimate and revs $1.77B dell -19% YoY but above $1.58B est.; IBM slides to lowest levels since March – extends last week losses after revenue decline; GLW reports Q3 beats with $3B in revenue ($70M above consensus) and $0.43 non-GAAP EPS ($0.05 above consensus), driven by the company’s new durable screen material in the newest iPhones