Closing Recap

Thursday, October 29, 2020

Equity Market Recap

·     It was another wild ride on Wall Street as just one day after posting the biggest daily declines since June on surging Covid-19 rising outbreak concerns, investors scooped up beaten up stocks, particularly in technology ahead of highly anticipated earnings results from bellwethers AAPL, AMZN, FB and GOOGL after the close (along with many other big moves ATVI, SBUX, TWTR). U.S. stocks also benefitted from upbeat economic data as Q3 GDP rose 33% and jobless claims declined on the week (though remain at elevated levels). The CBOE Volatility index (VIX) pulled back after touching 15-week highs yesterday as stocks rebounded, while commodity prices (gold and oil) ended lower as the dollar advanced.

·     All quiet in Washington heading into the election next week where Democratic challenger Joe Biden holds a lead over President Donald Trump in national polls, but the race in battleground states gets tighter. Major U.S. averages reclaimed key technical levels that had been breached Wednesday amid the dip buying. The Semiconductor index (SOX) outperforms broader tech, moving back above its 50-day MA resistance of 2,262 as more M&A in the space boosts interest (follows MRVL $10B buy of IPHI today and AMD $35B deal for XLNX earlier this week).

·     However, the situation in Europe worsens as ECB President Lagarde said the economy is losing momentum faster than expected and the European Central Bank left its ultra-easy policy unchanged on Thursday but hinted at more support in December for a euro zone economy struggling with a fresh wave of the coronavirus pandemic. But the ECB otherwise left unchanged the parameters of its hallmark Pandemic Emergency Purchase Program.

·     Covid cases updates: On a per-capita basis, deaths from Covid-19 in Europe are now rapidly approaching the U.S.’s level, after running significantly below U.S. fatalities since May. Europe’s daily new infections, which averaged 176,400 this past week, have outstripped the U.S.’s seven-day average of 72,300 daily cases, according to data from the European Center for Disease Prevention and Control. UK new virus cases rise by 23,065, vs 7-day average of 21,864 and new virus deaths rise by 280, vs 7-day average of 216.7; Italy reports record new daily coronavirus cases of 26,831 vs. 24,991 the prior day; France reports 47,636 new confirmed covid-19 cases in past 24 hours, from 36,437 on Wednesday and 235 new coronavirus deaths in past 24-hours.

Economic Data

·     U.S. Q3 GDP reported 33.1% annualized growth reading, topping consensus of 30.9% and better than the prior (-31.4%) decline as Q3 consumer spending jumped +40.7% vs. Q2 (-33.2%); reading reflects increases in personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment; PCE price index +3.7% vs. 2.8% consensus and -2.1% in previous quarter, while core PCE prices +3.5% vs. 4.00% est. and -0.80% in previous quarter.

·     Weekly jobless claims fell to 751,000 in latest week vs. est. 775K and from 791,000 prior week (previous 787,000); US continued claims fell to 7.756 mln vs. est. 7.700 mln from 8.465 mln prior week; the 4-week moving average fell to 787,750 oct 24 week from 812,250 prior week and U.S. insured unemployment rate fell to 5.3% from 5.8% prior week

·     Sept pending home sales index fell -2.2%, missing the +3.4% estimate to 130.0 while Sept pending home sales +20.5 pct from sept 2019

Commodities

·     Oil prices ended down, but well off the session lows as WTI crude slides -$1.22 or 3.3% (was down more than 6% earlier) to settle at $36.17 per barrel, rebounding along with the bounce in broader stock markets. Prices still weak overall as lockdowns in Europe clouded the demand outlook while stocks were in and out of losses globally. Germany and France, the EU’s two biggest economies, will clamp down on movement for at least a month to try and curb Covid-19’s spread. The news coupled with the large build in inventories this week weighed on prices. oil is down 8% for the week and lowest levels since June for WTI. Gold prices slipped along with oil in the commodity space, as December gold loses -$11.20 or 0.6% to settle at $1,868 an ounce, falling for a second session as the dollar rebounded.

Currencies & Treasuries

·     The U.S. dollar gained for a second session, as the euro extends losses, dipping below $1.17 to four-week lows after the European Central Bank president flagged further monetary easing in December during its monetary policy meeting (where they kept rates and current programs unchanged). In the U.S., the greenback was bolstered by a strong Q3 GDP reading with 33% growth and an improving trend in jobless claims. The euro was also hurt as Europe grapples with the surge in COVID-19 cases that forced national lockdowns in Germany and France. The dollar index (DXY) rose to a four-week high and was last up 0.4% at 93.81. Treasury yields rose initially as safe haven selling took place initially as stocks rebounded. U.S. Treasury sold $53B in 7-year notes at a yield of 0.60% vs. 0.588% when issued prior as the bid-to-cover (demand) was at 2.24 as indirect bidders awarded 60.9% of the auction, directs 14.3%.

Sector News Breakdown

Consumer

·     Retailers; TIF and LVMUY agreed to a revised deal price of $131.50/share for LVMH’s purchase of Tiffany, down from the original $135/share agreed to last November lowers the overall purchase price by about $430M; RL reported Q2 Adj EPS $1.44, topping est. 83c, on in-line $1.19B sales, though it sees Q3 and FY21 results negatively impacted by the ongoing pandemic and prolonged demand recovery; BOOT Q2 EPS 20c on sales $184.5M top estimates, though fall YoY; KTB reports Q3 Adj EPS $1.33 on sales $583, beating ests (58c, $547.1M) and sees Q4 revenue ‘flat to down modestly’ vs. Q3; TPR reported strong profit growth across its portfolio of brands in FQ1 as gross margin was reported at 70.8% of sales (est. 69.3%, 67.6% YoY) and operating margin rose to 19.5% of sales (est. 8.4%, 12.3% YoY), though sales fell 9% for the Coach brand, 21% for the Kate Spade business, and 35% for the Stuart Weitzman business; Gun maker RGR reported strong 3Q:20 results easily beating consensus on the top and bottom lines as orders grew at a rapid rate; OSTK reported Q3 EPS 50c, a surprise profit as consensus was for a (2c) loss, and net rev $731.7M (+114% YoY) and Q3 gross sales (+141% YoY) more than doubled from 2019

·     Auto sector; Ford (F) reported a better than expected results last night and raised 4Q guidance as North American EBIT came in much better than expected on both favorable volumes and pricing as auto margin for 3Q was 7.6%, +370bps YoY; auto retailer ORLY Q3 EPS $7.07 on sales $3.21B were better than estimates and comp sales +16.9% vs +5% YoY; SAH Q3 adj EPS $1.29 topped est. $1.10 on in-line sales $2.55B, which fell -5.7% YoY as new vehicle unit sales volume was -14.6% YoY; GPI reported record quarterly EPS in Q3 of $6.83 on $3B in sales, and it expects to reinstate its dividend after its board meeting next month;

·     Housing & Building Products; homebuilders generally weaker with TOL, BZH, MTH all slipping early after weaker housing data; MLM mixed as 3Q EPS $4.71 beat $3.76 but revs of $1.32B miss est. $1.4B, says remains confident favorable pricing trends are sustainable and durable; in home furnishing, BBBY upgraded at Morgan Stanley after the company hosted its first-ever investor day yesterday where it announced its plans for the next 3 years; in mattress names, TPX 3Q adj EPS $2.94 vs. est. $2.20 on sales $1.132B vs. est. $1.07B, and targets 4Q net sales to grow in the low double digits vs. est. +7.5%, and also announces intentions to initiate quarterly cash dividend beginning 2021 and a 4:1 stock split in 4Q

·     Consumer Staples; TAP reported Q3 net profit of $342.8M after reporting a ($402.8M) loss in Q3 2019, though net sales $2.75B fell -3.1% YoY but still beat est. $2.66B; Kellogg (K) Q3 Adj EPS 91c on sales $3.43B (up from Q3 2019 $3.37B) saying net sales growth was led by emerging markets and better-than-category consumption growth in key developed markets – also raises full-year outlook for net sales, comp sales, and EPS; KHC posted 3Q adj EPS $0.70 (vs. est. $0.62) on sales $6.4B (vs. est. $6.32B), saying pricing +3.7%, and raises FY organic sales growth to mid-single digits and sees constant currency adj EBITDA growth in the high-single digits range; KDP reported Q3 EPS 39c, ahead of 37c est. and 32c YoY, on sales $3.02B, also beating estimates and rising YoY, and the company reaffirmed FY adj EPS guidance; BUD reported organic rev +4% as supermarket and online sales drive growth and cushion lost revenue from bars/restaurants to surprise analysts who expected a -4.2% decline, though rev falls to $12.82B from Q3 2019 $13.17B and also halted paying its interim dividend given uncertainty and volatility; CHD Q3 Adj EPS 70c and sales $1.24B both slightly top estimates, and the company raises its FY20 guidance for sales growth to ~11% from 9-10%, organic sales growth to 9% from 7-8%; PPC Q3 Adj EPS 66c and net sales $3.08B both top the highest analyst estimate and rise YoY as company has shifted to selling more to supermarkets and China, where exports +14% YoY; SFM Q3 EPS 52C beats but revs miss; APRN falls as Q3 EPS (96c) loss was narrower than ($1.44) estimate and sales $112.3M matched consensus, though the company sees Q4 sales $108M-112M, lower than the est. $116M; Amid ongoing regulatory pressures, Juul Labs lowered its valuation to about $10B after being valued at around $38B just two years ago when MO took a 35% stake

·     Leisure and Gaming; in boating, BC 3Q profit and sales top consensus with better guidance saying its entire boat business contributed to earnings growth; LESL 40M share IPO priced at $17.00; in cruise lines; CCL said its Aida Cruises is pausing sailings for November after the German government has ordered a one-month partial lockdown starting Monday. The cancellation comes a few weeks after the cruise line restarted sailings this month; RCL reports massive ($5.62) EPS loss as Q3 revs turn negative ($33.69M) as it had paused sailings for about half a year due to the Covid-19 pandemic, sending it to a loss of more than $1.3 billion; in gaming, PENN posted a Q3 EPS beat of 40c on higher revs as continue to see solid results across the portfolio in October – said barstool app generated a handle of $78M in its first 37 days across 30K first-time depositors

Energy

·     Energy stock movers; RDSA with a surprise quarterly profit and unexpectedly resumes raising its dividend (had cut it in April for first time since WWII), leading a bounce in big-cap energy XOM ; XOM said it will slash its global workforce by 15% over the next two years; COP swung to a Q3 loss of 42c vs. year-earlier net profit of $2.74 as earnings fell due to the absence of a gain from the U.K. divestiture in 2019, as well as lower realized prices and lower volumes; CVE reported its third straight quarterly loss (C$194M), compared with a year-ago profit of C$187M, as EPS miss, revs beat and production rose; SU reported a larger than forecast adjusted Q3 loss and a 35% Y/Y decline in revenues to $6.5B, due to lower production and oil prices; in refiners, PBF post aQ3 loss from operations of $342.7M compared to income from operations of $151.9M a year earlier and says expects demand to remain depressed until there is a widely available medical solution for the COVID-19 virus

Financials

·     Bank movers; in exchanges, ICE Q3 adjusted EPS of $1.03 cents beats the average analyst estimate of 98 cents and vs. a year ago as reflects the firm’s acquisition of Ellie Mae, which closed in early September; CFR a beat on EPS but revs missed; in consumer Finance; Visa (V) reported a low-quality EPS beat with net revenue upside primarily driven by incentives according to Jefferies, but still better than the MA miss yesterday; ADS rises on top and bottom line beat while September net charge offs 3.9% vs. 6.5% last month though delinquency ratio 4.7% vs. 4.5% last month; banks overall rallied as Treasury yields popped higher again.

·     Asset managers; BX upgraded to OP at Oppenheimer saying with the combination of the strong underlying performance and the stock’s pullback, it is now also much more compelling near term; TROW reported higher Q3 earnings and revenue as advisory fees rose amid market uncertainty as ended the quarter with $1.31 trillion of assets under management, up 16% from $1.13 trillion a year earlier

·     REITs; AVB miss driven by NOI shortfall as Piper noted similar to Coastal Peer EQR AVB was hardest hit in NYC and San Francisco, but also saw deterioration across all markets, with the exception of Baltimore; EQIX reported a strong 3Q20 with 9% organic revenue growth a 100 bps beat and an acceleration from 7% in 1Q as EBITDA was strong but benefited from $15M of expenses being pushed into 4Q; WELL reported normalized FFO of $0.84 which beat consensus at $0.81 – Mizuho said while the senior housing operating portfolio same-store NOI deteriorated to -27.3% in 3Q20 vs. -24.5% in 2Q20, it actually beat our -35% to -45%; INVH reported an in-line 3Q20 Core FFO of $0.30 (+3.4% YOY), but Mizuho said below the surface, INVH continues to enjoy favorable pricing power, in contrast to its apartment cousins; DRE reported 3Q20 Core FFO of $0.40, a 1c beat and raised 2020 Core FFO guidance by 1c at the midpoint to $1.50-$1.54 vs. consensus $1.49

Healthcare

·     Pharma movers; ALXN beats Q3 earnings as sales of its rare blood disease drug, Ultomiris, more than tripled; while raises 2020 adj. EPS outlook to a range of $11.70-$12.00, from $10.65-$10.95; CCXI downgraded at JPMorgan on mixed results from mid-stage trial of its treatment, avacopan, for a type of skin disease which showed no statistical significance at either 10mg or 30mg, although a numerical improvement was noted in the latter; VNDA upgraded to buy at Citigroup; TCDA plunges after saying FDA will need evidence of its lead experimental drug, veverimer’s effect on chronic kidney disease (CKD) progression from a near-term interim analysis of the trial; FBRX 1.404M share secondary priced at $28.50; RCUS said it was in a collaboration with AZN to evaluate domvanalimab in combination with Imfinzi durvalumab in a registrational Phase 3 clinical trial in patients with unresectable Stage III non-small cell lung cancer.

·     Biotech movers; REGN said its coronavirus antibody cocktail, REGN-COV2, significantly reduced medical visits in a trial of nearly 800 patients with mild-to-moderate COVID-19; AMGN Q3 beat both top line and bottom line driven by volume growth in biosimilars and branded products while narrowed the 2020 sales guidance by $0.1B on both ends while it raised the non-GAAP EPS to $15.8-$16.15/share vs. $15.1-$15.75/share, previously; GILD comfortably beat sales and earnings expectation on the back of remdesivir (Veklury) sales of $873M, higher than estimates…but GILD has become slightly more equivocal on the remdesivir sales progression going forward, leading to 2021/22 estimates coming down; ALLK 3.05M share Secondary priced at $82.00; MRNA rises after saying it is on track to report early data from late-stage trial of its COVID-19 vaccine candidate next month/preparing to launch the experimental vaccine and has already received $1.1B in deposits for supply

·     Healthcare services and providers; TDOC beat estimates and raised guidance, with 90% organic y/y revenue growth and 100bp expansion in utilization sequentially, but shares slipped; EHC reported 3Q:20 adjusted EBITDA of $230.2mm in 3Q:20, +5.5% above consensus and reinstated guidance for the remainder of 2020; AMED a top/bottom line beat along with strong volume rebound in 3Q across both home health and hospice, stronger margins; EXAS upgraded to buy at UBS as like the Thrive Deal on many levels; INOV posted a 3Q revenue shortfall owing to Covid-19 related disruptions in its lower margin, non-subscription, legacy and services businesses; MOH strong 3Q results, with revenue of $5B (vs. $4.8B cons) and EPS of $3.37 (vs. $2.20 cons), with strong cost controls (MCR 85.9% vs. 87.4% cons) driving the significant EPS beat vs. consensus

·     MedTech and Equipment; BAX beats Q3 profit beat (83c vs. 73c) as demand for its medical devices picked up following a coronavirus-led slowdown and revs of $2.97B also topped views; GMED revenue of $216.1M beating consensus by $20M as core U.S. Spine drove the beat, growing 17% over the prior year on rebounding procedures and share gains; BSX launches study of Watchman FLX device in non-valvular atrial fibrillation patients; ABMD shares tumbled despite Q2 earnings beat and Worldwide Impella® heart pump revenue: $199.7M (+29% Y/Y); IDXX reported a 3Q beat, with revenue of $722M (vs. $673M cons) and EPS of $1.69 (vs. $1.43 cons), with strong results in its companion anima group (+18% organic growth) driving results

Industrials & Materials

·     Industrial & Machinery; SIEGY agrees to sell its Flender mechanical drives business to CG for $2.39B, confirming earlier speculation; PWR 3Q adj EPS and revenue top consensus and guides FY revs $11.1-11.3B vs. est. $11.2B; AOS Q3 EPS and revs top consensus and raised its year profit forecast to $1.95-$1.98 above the $1.87 estimate; MLM, USCR, EXP all lifting construction and building related stocks after better results from all three this morning – as housing market continued its strong rebound, and cement demand remained robust

·     Transports; nig rebound in airline sector today as investors look to scoop up shares of beaten up airlines (AAL, DAL, JBLU); UAL said it plans to offer free Covid tests to every passenger over age of 2 on select flights from Newark to London from Nov. 16 to Dec. 11 while passengers who do not want to be tested will be changed to a different flight

·     Aerospace & Defense; TXT Q3 adj EPS 53c on revs $2.74B vs. est. 35c and $2.8B as reported a 48% fall in quarterly profit as aircraft deliveries dropped during the coronavirus crisis; Reuters reported that the White House notifies congress it will move ahead with sale of 50 f-35 jets (LMT) to UAE

·     Metals & Materials; in chemicals, DD Q3 adj. EPS 88c on revs $5.1B vs. est. 75c and $5B; guides FY20 adj. EPS $3.17-$3.21 vs. est. $3.03 and sales FY20 $20.1B-$20.2B vs. est. $20.1B; gold miner NEM Q3 profit more than doubled amid rising gold prices as said average realized gold prices surged 30% to $1,913 per ounce in Q3; lithium names (ALB, LTHM) active as Goldman Sachs said demand for the three main natural resources used in lithium-ion batteries (LIBs) – lithium, nickel and cobalt – will likely increase considerably as electric vehicle (EV) sales accelerate

Technology, Media & Telecom

·     Internet; PINS the latest Internet related name to provide upbeat results and guidance given the stay at home situation due to Covid virus as Q3 adj EPS 13c on revs $443M vs. est. 2c and $387.6M; 3q monthly active users 442 million, +37% YoY; Q3 adjusted Ebitda $93M vs. $3.87M YoY; ETSY surprised few in beating Street estimates across the board as GMS came in at $2.63B, up 119% y/y (+117% in constant FX) and marketplace GMS grew 116%; next up FB and TWTR tonight with high expectations after SNAP last week; SHOP reported earnings that benefitted from online shopping during the pandemic, with Q3 EPS $1.13 profit beating 51c est. and coming in better than 2019’s (29c) loss on sales $767.4M, also beating $657.9M est. and improving from Q3 2019’s $390.6M sales; EBAY posted Q3 Adj EPS 85c, ahead of estimated 76c and 2019’s 53c as revenue increased YoY to $2.61B from $2.08B and guides Q4 rev to $2.64B-$2.71B and EPS to 78-84c (estimates were for $2.54B and 76c); SPOT slides as trims top end of Q4 rev guidance; NFLX shares spiked late day after the Verge reported its introducing price hikes for its us subscribers

·     Semiconductors; MRVL to buy IPHI in $10 bln cash-and-stock deal to bolster data center, 5G business as IPHI holders to get $66 in cash and 2.32 shares of stock https://bit.ly/2TGKZVX ; WDC relatively good F1Q results, but it offered mixed F2Q guidance as headwinds related to datacenter digestion, lower NAND pricing weighed

·     Software movers; CTXS upgraded to outperform at Cowen citing material progress on its restructuring reduces execution risk and its third consecutive quarter of bookings traction; FSLY sequential revenue declined 6% due to TikTok traffic shifting from FSLY as well as a slower ramp in some new video customers prompted weak guidance and margins were weak due to the lower revenue; NOW Q3 revenue up 30% y/y and adj. subscription billings up 27% y/y as beat was driven by expansion in the existing customer base; PI falls as Q3 beats were offset by the weak current quarter outlook (saw Q4 revs of $26.5-28.5M below the $28.3M consensus on a greater EPS loss); PTC delivered ARR in line with guidance (+11% Y/Y-CC), revenue and CFFO/FCF upside, and improving business traction (e.g., better-than-expected CAD/PLM and IoT/AR bookings), but guides downside FY21 profit

·     Media & Telecom movers; CMCSA Q3 earnings and high-speed internet customer net additions beat average analyst estimates (65c vs. est. 51c) on better revs of $25.53B – Q3 high-speed internet net additions were a quarterly record at 633,000 while NBCU revenues dropped 18.9%; EGHT reported a strong September quarter, with revenue beating forecasts and margins better than expected, driven by solid results across the board (prompting analyst upgrades); NOK shares plunge following a revenue decline and guidance reset alongside a new operating model and cut 2020 operating margin expectations to 9% from 9.5%; QNST Q2 revenue outlook was slightly ahead of expectations, EBITDA was slightly below

·     Hardware & Component news; AAPL earning after the close tonight; BHE reported better results and guided Q4 in-line; ALGM 25M share IPO priced at $14.00; CGNX a top gainer after better Q3 results and higher guidance ($190-210Mm vs. est. $178.9Mm)