Closing Recap

Friday, October 30, 2020

Equity Market Recap

·     U.S. stock futures fell sharply Friday, posting its worse weekly loss for the Dow and S&P since the March tumble as big tech earnings, rising Covid-19 cases threatening the economic recovery and uncertainty heading into the Presidential election next Tuesday was too much to overcome on the day. Following the Friday plunge, the S&P, Dow, and Nasdaq all fell below key technical levels (dropping below their 100-day MA support after breaching the 50-day earlier this week). Market concerns have centered around resurgent coronavirus cases in U.S. and Europe, hospital pressures, stricter mitigation measures and risk of vaccine delay. The dollar rose on the week vs. major currencies while Treasury yields advanced to weekly highs, with the 10-year above 0.85% late day. Commodity prices mixed as gold gains, but oil prices dropped (down 10% for month).

·     Big tech led markets lower as Dow component AAPL slides despite eps/rev beats as iPhone sales -20% YoY, social media names drop as FB and TWTR plunge despite eps/rev beats as DAUs miss estimates and Facebook loses users from last quarter, disappointing investors with lofty expectations after SNAP PINS growth in their reports; AMZN slips despite beats as Q4 operating profit margin guidance $1-$4.5B widely misses $5.8B estimate as Covid-19 costs dampens outlook; while GOOGL only big tech name to rise on last night’s earnings as they report growth in search, cloud, and YouTube, with the latter topping $5B in ad rev for the first time ever

·     Europe’s Stoxx 600 dropped -5.6% on the week, its worst 5-day return since the March sell-off, Britain’s FTSE 100 fell -4.8% this week (worst week since June) and Germany’s Dax plunged -8.6% this week, biggest weekly decline since March all amid the surging Covid cases in Europe. Today, the UK reported 24,405 new cases of the novel coronavirus, Italy with a record 31,084 new Covid cases in a week that saw several countries enforce stricter restrictions to curb the spread.

Economic Data

·     University of Michigan surveys of consumers sentiment final oct 81.8 (consensus 81.2) vs preliminary oct 81.2 and final sept 80.4; current conditions index final oct 85.9 vs prelim oct 84.9 and final sept 87.8 and consumers expectations index final oct 79.2 vs prelim oct 78.8

·     September Personal Income and Outlays: Income +0.9% M/M vs. +0.3% consensus and -2.5% prior; consumer spending: +1.4% M/M vs. +1.0% consensus and +1.0% prior; the PCE Price Index: +0.2% in-line with consensus and +0.3% prior and core PCE Price Index: +0.2% in-line with consensus and +0.3% prior.

·     October Chicago PMI above ests at 61.1 vs. 58.0 consensus, 62.4 prior, marking the fourth consecutive month above 50 (i.e. expansion territory); new Orders was the only category to show a monthly uptick, rising a hair to its highest level since November 2018 while production saw the largest decline, sliding 5.9 points

Commodities

·     WTI crude oil fell 38c or 1.1% to settle at 5-month lows of $35.79 per barrel, posting a weekly decline of 10% (biggest since mid-April). Renewed lockdowns in several European countries this week (raising slowing demand concerns) along with rising crude oil inventories pressured prices. Natural gas prices edge higher 1.6% back to 21-month highs $3.354 mln btu on rebounding demand on cold weather and production issues. Weekly Baker Hughes rig count bearish as U.S. oil/natural gas rig count up nine to 296 in week to Oct 30 – add rigs for a 7^th straight week.

·     Gold prices rose $11.90 or 0.6% to settle at $1,879.90 an ounce following two straight sessions of sharp declines as a rally in the dollar stalled but ended the month lower by a little less than 1%. Prices were volatile on the month as investors looked to safe-haven assets after rising COVID-19 cases and the upcoming U.S. elections kept markets on edge, but a bounce in the dollar late month pressured prices.

Sector News Breakdown

Consumer

·     Retailers; AMZN earnings handily beat on both the top and bottom lines for Q3 as operating income jumped 94% YoY to $6.2B, while AWS sales of $11.6B was just in-line with consensus – the negative was sees Q4 operating income of $1.0B to $4.5B below the $5.81B consensus; in apparel, COLM shares tumble as Q3 EPS 94c on revs $701.1M below est. $1.16 and $767.13M on weaker sales outlook for Q4 of $850M-$880M vs. $914M; SKX another retailer weak after Q3 operating profit missed views and issued no guidance; DECK reported blowout FQ2 EPS results of $3.58 vs. consensus estimate of $2.68 driven by robust sales growth (+15%), solid gross margin expansion (+80bps); UAA blasts past Q3 estimates, posting better guidance as Q3 wholesale revenue was flat in Q3 at $1.4B and apparel revenue fell 6% to $927M vs. $801M consensus; SWBI and RGR lower after WMT removed firearms and ammunition from U.S. store floors this week amid rising tensions across the country

·     Housing & Building Products; OC was upgraded to Neutral from Underweight at JPM following the company’s 3Q20 results and conference call; MDC upgraded to Equal Weight from Underweight at Wells Fargo in builders and raise tgt to $46 noting shares fell despite a strong 3Q conference call and outlook; FND reported adj 3Q20 EPS of $0.56, well above consensus of $0.40 on stronger comps and margins and noted that same-store sales growth accelerated throughout the quarter, with a strong exit rate that continued in Oct; MHK Q3 EPS $3.26 vs. est. $2.14 on better revs as N.A. flooring drove the beat with Q3 EBITDA $441M vs. est$353M on better margins; USCR rises following strong Q3 margins and aggregate products segment

·     Consumer Staples; MO reported Q3 EPS $1.19 vs. est. $1.16 on better revs while volumes flat vs. est. -4%, smokeless volumes -1.1% vs. est. -0.7%. and guided FY EPS $4.30-$4.38 vs prior guidance $4.21-$4.38; CL reported Q3 EPS 79c vs. est. 70c on better revs as organic revs 7.5% vs. est. 4% and margins 61.2% vs. 60.1% while expect FY20 net sales and organic sales to be up MSD w organic sales at the high end of the range vs est. 2.1%

·     Restaurants; SBUX reported F4Q20 earnings, with EPS of $0.51, US SSS -9%, International SSS -10% and China SSS -3% (including 4% VAT benefit). US SSS improved sequentially each month, including July -14%, August -11% & September -4%; PZZA was upgraded to outperform and $96 tgt at Oppenheimer as believe the market overly discounts the potential loss of COVID-19-era financial gains, discredits new mgmt’s operational playbook and underappreciates catalysts; SHAK reported 3Q comp sales (-31.7%), including traffic of (-42%) and price/mix of 10.3%, and a restaurant margin of 14.8% while digital represented 60% of sales in 3Q and ~58% in October; CAKE 3Q EPS of ($0.33) vs. est. ($0.40), with sales of $518M vs Consensus $490M and comps better at -23% vs -28%; LOCO slides after Q3 sales miss estimates

·     Casino, Leisure and travel; SIX was upgraded to buy from hold at Jefferies and tgt raised to $30 saying Six Flags’ management team has just provided detail for its strategies for retooling the business model for the first time; MGM reported a Q3 adj. EBITDAR loss of -$49M vs. Street expectations of -$55M as Las Vegas Strip Resorts net revenue fell 68% y/y to $481M, Regional net revenue fell 40% y/y to $557m/has temporarily reduced its dividend to an annual dividend of $0.01; GLPI 8M share Secondary priced at $36.25; BYD upgraded to buy from hold at Argus with $36 tgt as see the company’s partnership with FanDuel and the expansion of its online betting platform as future growth drivers; Cruise lines spiked (CCL, RCL, NCLH) in the afternoon as CDC to let no sail order expire tomorrow

Energy

·     Energy stock movers; CVX reported a Q3 EPS loss of (12c) and adj EPS of an 11c profit, besting estimated (26c) loss, though $24.45B revenue missed the $25.84B consensus as oil demand and crude prices remained weak throughout the quarter; XOM reported Q3 EPS loss (15c), the first time the company has ever posted three straight quarterly losses, and $46.2B revenue missed the est. $48.36B and was down from $65.05B YoY. The company also announced it plans to cut up to 15% of its workforce, including 1.9K jobs in the US; PSX Q3 adj EPS (1c) loss, beating est. (74c) loss as revs $16.3B also miss est. $17.15B; DVN reported stronger than expected 3Q20 results driven by higher production and lower operating expenses as generated FCF of $and raised 4Q20 oil guidance to 148-153 mbbls/d (from 141-146) and guided 4Q20 capex of $160-$200mm; SM Q3 EPS (5c) loss is narrower than the expected (28c) loss, though $281M sales miss $309.9M estimate, and the company announces its CEO will retire Nov 2 and be replaced by their current President and COO; BE Q3 rev of $200.3M misses consensus view of $221.3M, while adj loss of (4c) narrower than expected loss of (12c), and the company reports adj EBITDA of $277M; COG reported Q3 adjusted EPS 9c on revs $291.04M vs. est. 6c and $351.72M, and Q3 2020 daily production was 2,406 mln cubic feet equivalent (mmcfe) per day and reaffirmed its Q4 production guidance range of 2,300-2,350 Mmcfe/day; DVN Q3 EPS loss (4c) beats est. loss (10c), but revenue of $1.07B (-38.9% Y/Y) misses by $40M as net production averaged 326,000 Boe/day, compared to consensus of 335.3 Mboe/day, while oil production 146k barrels per day exceeded midpoint guidance by 6k barrels per day; RRC Q3 adjusted EPS loss (5c) on revs $510M as 3Q nat gas production fell -0.6% YoY to 1.55M mmcfe/d and avg oil production fell -30% YoY to 7,134 b/d. The company also cuts FY20 production view to roughly 2.24 Bcfe/d from 2.25 Bcfe; TOT posted Q3 EPS $0.29, beating est. $0.03 on revs $33.14B, missing $39.36B est and down -31.7% YoY from $48.59B. The company lowered its FY20 production guidance to be lower than July’s 2.9M-2.95M Mboe/d and maintained its dividend, and Citi endorsed the stock as a core holding in energy for investors after their results

·     Utilities & Solar; FE fired CEO Charles Jones, as well as two senior VPs, effective immediately, after an internal review related to government investigations determined that the executives violated company policies; Tudor Pickering initiated Buy ratings on NEP ($72 pt) and BEP ($59 pt); PNW Q3 EPS $3.07 and revs $1.25B both beat estimates, and the company raised its FY20 EPS guidance to $4.95-$5.15 from $4.75-$4.95; PEG reported Q3 EPS 96c on revs $2.37B, both slightly missing consensus and the company has narrowed its FY20 Adj EPS guidance to $3.35-$3.50 from $3.30-$3.50; POR reported Q3 EPS loss (19c), beating est. (33c) loss but down from 61c profit YoY, on revs $547M, which topped estimates and increased from last year; PNM Q3 Adj EPS $1.40 beats $1.26 est, as sales increased +8.7% YoY to $472.46M, but misses $529.4M estimate; FTS reported Q3 EPS beat on revenues that increased YoY and increased its dividend by 5.8% and is now targeting average annual dividend increases of 6% through 2025

Healthcare

·     Pharma movers; LLY and INCY say new data support Baricitinib’s phase 3 study; PFE and AZN vaccines said to be under accelerated UK reviews; BLCM downgraded by two analysts on reduced probability-adjusted NPV for BPX-603 in HER2+ cancers following clinical update and restructuring around its controllable cell therapies; ABBV rises after company raises FY adj profit forecast, posts profit beat; VRTX reported a 3Q20 beat and raise with total cystic fibrosis revenue of $1.54B exceeding est. of $1.5B, due to continued Trikafta strength

·     Biotech movers; AXGT shares dropped after saying it sees delayed enrollment in Parkinson’s study with gene therapy; SGEN announced mixed Q3 results with surprisingly strong Tukysa sales offset by weak Adcetris performance owing to COVID-induced declines in new diagnosis of lymphoma patients, a concerning Padcev miss vs St as sales growth slowed in Q3; the EMA accepts for review BIIB’s marketing application for aducanumab for the treatment of patients with mild cognitive impairment due to Alzheimer’s disease; EQ rises after receives “Study May Proceed” letter from FDA for co’s COVID-19 experimental drug’s final stage trials as the co plans to start final-stage clinical trial in hospitalized COVID-19 patients in Q; BLRX announces positive results from interim analysis of genesis phase 3 trial of motixafortide (bl-8040) in stem cell mobilization- enrollment to cease immediately

·     Healthcare services and providers; CCRN upgraded to buy at Truist saying nurse staffing demand is at an all-time high and we expect new highs to be set in coming months; VCRA posted strong 3Q results, highlighted by deferred revenue and backlog balance +23% y/y and also beat consensus revenue/adjusted EBITDA estimates for 3Q; NVST 3Q20 revenue/EBITDA significantly exceeded consensus by ~20%/~140%, and management provided a positive outlook for the business, driven by end-market momentum continuing in October; ACHC surges after Q3 EPS and revenue top consensus and said U.S. same facility revenue increased 7.5% with a 4.2% increase in patient days and a 3.1% increase in revenue per patient day

·     MedTech and Equipment; RMD was upgraded to neutral at JPMorgan saying it again benefitted from a boost in ventilator sales offsetting weakness in the sleep business as revs rose to $751.9M, beating the 711M est. on better profit; NUVA downgraded by BTIG and Canaccord as valuation reflects a slower 3q recovery and a long road to a robot, but competition is gaining and likely to increase robotic adoption, ultimately outpacing NUVA leaving limited upside; SYK broadly strong numbers exceed high expectations; no guide but bullish forward comments

Industrials & Materials

·     Industrial & Machinery; HON Q3 profit beat estimates, but still slumps 53% y/y, as co says sales in its main aerospace unit fell about 25% – net income attributable slumps 52%; MTZ Q3 adjusted EPS $1.83 on revs $1.7B vs. est. $1.68 and $1.92B; sees Q4 EPS $1.64-$1.73 on revenue $1.7B-$1.9B vs. est. $1.72 and $2.09B; PWR reported adjusted EPS of $1.40, substantially above our estimate of $1.11 and consensus of $1.09 and revenues of $3.02 billion as consolidated operating margins of 8.4% beat and total backlog increased 13.5% y/y

·     Transports; Dow transports slide early with broader market declines as investors brace for the upcoming election; SAVE was upgraded at JPMorgan after recent rebound in airlines; CSX was upgraded to Outperform in rail sector at RBC Capital and raise tgt to $89 as replaces UNP as preferred U.S. name, most impressed with CSX, which demonstrated a significant sequential improvement in margins reflecting effective cost control

Technology, Media & Telecom

·     Internet; GOOGL rose 6% after beating analysts’ expectations and providing a better look on digital advertising (EPS $16.40 on revs $38.01B vs. $11.42 and $35.35B) as Cloud Platform brought in $3.44B in the quarter compared to $2.38B same quarter last year; FB Q3 results beat (EPS $2.71 and revs $21.47B vs. est. $1.91/$19.82B) as DAUs and MAUs both rose 12% YoY, with costs and expenses rising 28%, operating margin fell to 37% from a year-ago 41%; TWTR shares fell sharply as posted stellar headline EPS and revenue, but total ad engagements were up 27% and cost per engagement decreased 9% while also warned that they expect expenses to grow close to 20% YoY after costs and expenses increased 13% to $880M this quarter; CVNA reported record gross profit per unit of $4,056 and positive EBITDA in the company’s first profitable quarter

·     Semiconductors; a day after rising on more M&A news in the space (MRVL buying IPHI in $10B deal), the group slides today with broad based tech selling pressure; OLED posted much stronger-than-expected Q3 results after the close, with revenues coming in 30% above consensus while EPS of $0.85 were nearly 2x what the Street was forecasting and reinstated full-year 2020 revenue guidance

·     Software movers; TEAM forecasts $460-475M in Q2 revenue below consensus of $481.81M as the lower guidance offset a beat on the top and bottom lines for Q1; in video games, ATVI 3Q results came in above expectations on the top and bottom line, with particular strength in the Activision segment – after the raise, 4Q guidance now implies slight growth on the top line, though EPS is still down YoY; ZEN shares rise as reaccelerating metrics across international growth improved to 26% y/y (vs. 24% last quarter) and contributed to the $8.2M revenue beat while guided next qtr higher $274M-$279M vs. est. $273.6M) with positive analyst comments; BL reported upside across all key metrics including subscription revenue and billings higher than our estimates as company continues to see solid momentum with its SAP SOLEX partnership; PFPT slides despite beat and raise quarter

·     Media & Telecom movers; CHTR posted yet another quarter of strong performance and beats across the board as subscriber growth continued at a fast clip, profit margins expanded, and share buybacks were three times as large as in the prior quarter; ATUS reported strong 3Q results, with EBITDA beating Street forecasts by ~2.5% as revenue was slightly weaker than expected as Video missed, but organic broadband adds of 26k easily beat Street expectations according to Guggenheim; IMAX with rev drop for Q3 better than expected, but it swings to loss

·     Hardware & Component news; AAPL top and bottom-line beat helped as Q4 sales from services and Mac computers hit record highs but fell on a worse-than-expected drop in iPhone sales during the third quarter, and a steep decline in sales in China; PLT shares jumped as Q3 adjusted EPS forecast beats estimates; ANET upgraded to overweight at Morgan Stanley saying increased confidence in Arista’s ability to preserve share in the upcoming 200G/400G cycle for key hyperscale customers leaves us more compelled on a positively skewed risk/reward; PLT after Q2 beat which included 93c earnings and $415M in revenue (both handily topping consensus views) and better revs for Q3 of $417-447M (est. $379.92M); FLEX a winner after earnings/guidance

·     New IDC data shows the global smartphone market’s shipments declining 1.3% Y/Y in Q3, stronger than IDC’s prior 9% decline forecast. A total of 353.6M smartphones were shipped in the quarter, driven by the worldwide reopenings as the pandemic restrictions eased. Market share: Samsung returned to first place with a 22.7% share and 80.4M shipments, up 3% Y/Y. Huawei, hurt by the U.S. supplier ban, slipped into second with a 14.7% share and 51.9M shipments, down 22%. Xiaomi (XI) pushed ahead of Apple (AAPL) for the first time with a 13.1% share and 42% growth. Apple had an 11.8% share with 41.6M iPhones shipped, down 11% Y/Y