Closing Recap

Wednesday, September 09, 2020

Equity Market Recap

·     Stocks outperform as major averages snap 3-day losing streak. Very bullish action for U.S. stocks on Wednesday, climbing throughout the trading day as the Dow moved back above the 28,000 level, the S&P 500 reclaimed the 3,400 level and the Nasdaq Composite moved back above its 50-day MA support that was breached yesterday (was 10,880), with a strong 3% advance as investors snapped up shares of tech stocks that had fallen from record highs less than a week ago on profit taking. The climb was steady throughout with most sectors ending higher (after all 11-sectors dropped yesterday) snapping the 3-day market skid for major averages. Technology pushed major indexes further into the green, while the broader market also got a boost from more defensive sectors (healthcare, utilities). Oil prices gained over 3% after falling 7% on Tuesday given slowing demand fears while gold edges higher. “Re-open” related trades such as airlines, cruise lines and others were volatile after COVID-19 vaccine maker AZN paused its Phase III study of a potential coronavirus vaccine due to a “suspected serious adverse reaction” of a participant in the UK (lower Q3 revenue forecast from UAL also hurt airlines). Markets still hopeful for further fiscal stimulus for the U.S. economy out of Washington, but the two sides have remained at a standstill for weeks now. Semiconductors were among the top gainers in the Nasdaq Comp following positive comments from QRVO and TSM. Retail TIF slumped after LMVH backed out of its M&A deal for the luxury goods maker.

Commodities

·     Oil prices partially recovered after yesterday 7% decline for WTI as crude advanced $1.29, or 3.5% to settle at $38.05 per barrel as commodity prices saw relief buying, helped by a weaker dollar. Prices fell yesterday on fears of slowing demand, while the EIA cut its 2020 world oil demand growth forecast by 210,000 barrels per day to 8.32 million bpd. In its monthly forecast, the agency cut its oil demand growth estimate for 2021 by 490,000 bpd to 6.53 million bpd.

·     Gold prices climbed for a 2^nd session in a row, up $11.70 or 0.6% to settle at $1,954.90 an ounce, its highest level in nearly a week as the dollar slipped and amid concerns over a delay in the development of a coronavirus vaccine. Gold price direction this week could be based how markets react to the European Central Banks monetary policy decision on Thursday.

Currencies & Treasuries

·     The U.S. dollar was mixed; the Canadian dollar rebounds from 3-week low as oil rallies, and the Bank of Canada sticks to economic support. The British Pound fell more than 1% below $1.29 after Brexit concerns, only to rebound and move back above the $1.30 level (finishing slightly higher on the day), while the euro recovered as well after recent selling pressure vs. the buck, back to the 1.18 level.

·     U.S. Treasury yields inched higher as investors sold Treasuries, rotating back into riskier assets such as stocks and commodities. The U.S. Treasury sold $35B in 10-year notes at a yield of 0.704% vs. 0.696% when issued prior to auction with the bid-to-cover (demand) at 2.30 and indirect bidders awarded 58.29%, directs 14.6%. Over the last few weeks, the U.S Treasury has been increasing the size of its auctions across the curve as it pays for stimulus meant to boost the economy after coronavirus lockdowns. The Treasury will also sell $23 billion in 30-year bonds on Thursday, up from $19 billion at July’s reopening but below the record $26 billion sold prior.

Sector News Breakdown

Consumer

·     Retailers; TIF shares tumble after luxury-goods giant LVMH Moët Hennessy Louis Vuitton SE said it was backing out of its $16.2B takeover of Tiffany & Co., claiming that both the U.S. jewelry company and the French government asked it to delay the acquisition beyond the closing date allowed by the merger agreement; NLS a positive call from Citron Research calling it the fastest growing name in home fitness with a $30 price target saying the company has found a new life under former MSFT executive Jim Barr and is about to blow out its earnings; LULU posted Q2 revenue and earnings ahead of estimates, led by e-commerce (+157% YoY in 2Q; +70% in 1Q), driving positive YoY revenue growth (vs. our -HSD% estimate) despite store closures, while talked down 2H store assumptions, but did not issue guidance; GIII said it expects sales to fall 28% to 33% during 2H’20 compared with the same period in 2019; CASY reports solid operating metrics, strong EPS driven by gas margins

·     Auto sector; TSLA shares partially recovered after having shares drop 21% Tuesday, their biggest one-day fall on record (though stock still has nearly quadrupled this year, despite declining 34% in September); LYFT said in first two months of Q3, rides on its rideshare platform were down (-53.6%), rideshare rides in month of august 2020 increased 7.3% MoM; in week ended September 6, rideshare rides reached a new high since April as change in rideshare rides recovered to less than a 50% YoY decline; UBER outperforms after Bank America noted the CFO provided an update on bookings trends for the month of August: Gross bookings declined by less than 10% y/y (trending better than Street at -11% for 3Q), with Mobility down 50% y/y (still below Street at -47% y/y for 3Q) and Delivery up over 130% y/y

·     Restaurants; TRXH indicate comp sales growth trending slightly above full quarter expectations; maintain relatively conservative near-term margin assumptions; Cowen said on the group checks at DNKN, JACK suggest that sales are mostly improving from June through August, leading them to view most concepts as tracking in-line to ahead of 3q consensus comp estimates; for CBRL, Bank America reiterate Buy rating and raise estimates and price objective to $150 from $125

·     Leisure and Gaming; casino and gaming stocks continue to push with JPMorgan adjusting tgt prices, bumping up BYD to $40 (up from $30), PENN to $62 (up from $48), RRR to $21 (up from $17), LVS to $57 (up from $53), WYNN to $101 (up from $98), MGM to $23 (up from $17), and CZR to $55 (up from $50), reflecting higher multiples on LV Strip and Macau EBITDAR streams while also ascribe sports betting/iGaming valuations; boating stocks slid after MCFT mixed results as EPS, sales and Ebitda topped views, as margins disappointed

Energy

·     Oil prices recovered some of yesterday’s sharp declines as WTI crude rose over 3% and Brent moved back above $40 a barrel, as markets broadly rebounded from Tuesday’s sharp selloff. While crude rallied along with other risky assets, it also found technical support today. Brent dropped a few cents below its 100-day moving average, before turning sharply higher.

·     Refiners; Piper remains cautious on sector in the short-term as recovery in demand remains sluggish and they forecast it lasting until 2021, though they view PSX and HFC as best positioned into results due to their diversified portfolios; these 2 stocks’ price targets were also raised at Goldman Sachs (HFC to $26 from $24 and PSX to $71 from $67)

·     Energy movers; ET said it expects expanded capacity will be available on the Dakota Access pipeline by next year’s Q3; NBL and CVX both rise after it is reported that Elliott Management took a stake in Noble yesterday to attempt to break up Chevron’s acquisition of Noble (shareholder meeting to approve pending merger is scheduled for 10/2); Goldman lowers targets on CVX ($91 from $100, reit Buy), XOM ($36 from $40, reit Sell), COP ($46 from $51, reit Conviction Buy), SU ($18 from $20, reit Conviction Buy), CVI ($13 from $15, reit Sell), VLO ($54 from $58, remain Neutral), MPC ($42 from $44, reit Conviction Buy), PBF ($7 from $8, reit Sell); RDSagreed to acquire KOS portfolio of African and South American exploration assets for $100M, plus up to an additional $100M in contingency payments

·     Utilities; PCG has begun inspection of the power lines which were turned off earlier in the week due to wildfires and they will begin restoring power once inspection is complete; BofA upgrades DUK to Buy, but lowers their target to $85 from $87; MGEE is initiated at Neutral, $64 pt at Morgan Stanley

Financials

·     Bank movers; Piper states that trust banks (STT) are well positioned to re-accelerate buybacks, which could increase 2021 EPS estimates by ~5%, and they also highlight that BK’s valuation discount compared to STT has become historically extreme; FRC announced a public offering of depositary shares; Bloomberg reports that KKR is in discussions to invest at least $1.5B in Indian billionaire Mukesh Ambani’s retail business, Reliance Retail Venture

·     Consumer Finance; MA reported that switched transactions increased 5% in the week ending 8/28 in an 8-k filing, which was flat from the previous week, though cross-border volume declined 35% during that week (slight improvement over 36% decrease for previous week)

·     REITs; Mall owners SPG, BPY are poised to acquire J.C. Penney Co. out of bankruptcy in a deal valued at roughly $800 million, WSJ reported https://on.wsj.com/3hcnDkn ; Goldman double-upgrades INVH to Buy from Sell and ups it pt to $35 from $29, downgrades ESS to Sell from Neutral (pt to $217 from $260) and AIV to Neutral from Buy (pt to $41 from $48); Piper also downgrades ESS but to Neutral from Buy and pt to $235 from $255, and reiterates OW rating on CPT and raises pt slightly to $102 from $100

·     Insurance; WTRE rises as Reuters reported a consortium led by insurer ACGL has made an approximately $500 million offer to acquire the reinsurance firm https://reut.rs/35qRqUa ; CB launched Chubb Studio to allow their partners to add digital insurance options to their service offerings

Healthcare

·     Pharma movers; AZN paused its Phase III study of a potential coronavirus vaccine due to a “suspected serious adverse reaction” of a participant in the UK (the Financial Times later reported clinical trials of the Covid-19 vaccine it is developing with Oxford university could resume early next week); PFE and BNTX announce data from preclinical studies of MRNA-based vaccine candidate against Covid-19 – BNT162b2 immunization prevented lung infection in 100% of sars-cov-2 challenged rhesus macaques; separately, the European Commission said it had entered final stage talks with BNTX to purchase up to 300 mln doses of a potential vaccine against COVID-19

·     Biotech movers; ITCI spike on positive topline results from its late-stage clinical trial evaluating lumateperone to treat patients with major depressive episodes associated with bipolar disorder, saying a single daily dose met the main goal and had favorable safety and tolerability profiles/expects to submit supplemental new drug application to FDA in late 2020 or early 2021; TRIL surges after updated data from its ongoing TTI-622 and TTI-621 dose escalation studies and also agreed to sell 2.29M shares of stock at a price of $10.88 to PFE says it expects biomarker data from covid-19 antibody cocktail from several hundreds of patients by end of Sept; BGNE announced that its New Drug Submission (NDS) for Zanubrutinib for the treatment of Waldenström’s macroglobulinemia (WM) has been accepted by Health Canada and granted priority review status

·     Healthcare services and providers; CHNG increased it F2Q21 guidance, now expecting solutions revenue of $690M to $710M (from $670M to $690M), adj EBITDA of $200M to $215M (from $180M to $190M) and adj better EPS citing slightly higher than expected healthcare utilization trends; SDC upgraded to peer perform at Wolfe noting it has been the worst performing stock in our coverage since COVID concerns hit the market in late January, -23% vs. Dental -3%; BDX new head-to-head study demonstrates equivalency and accuracy of covid-19 rapid point-of-care tests, despite different test sensitivity claims; PHR reported revenue and adjusted EBITDA above consensus estimates while continues to refrain from providing F21 guidance; HQY reported above-consensus F2Q results, and offered F21 guidance that was mixed in nature

Industrials & Materials

·     Industrial & Machinery; NAV reported a top and bottom line quarterly miss saying while marketplace uncertainties continue, they are accelerating the pace of progress on our Navistar 4.0 strategy for financial improvement, so we can pull forward its benefits and take full advantage of a stronger industry when it arrives; FLR said previously issued financial statements for the years ended Dec. 31, 2018, 2017 and 2016, and for each of the interim quarterly periods for 2018 and 2019 should not be relied upon

·     Transports; strong move early for the space as strength in truckers and package delivery (FDX, UPS) help offset weakness in airlines early (UAL, LUV, JBLU); FDX tgt raised at Argus ($250) and JPMorgan ($265) ahead of earnings next week; in airlines, UAL lowers Q3 passenger revenue down approx. 85% vs. previous 83% view; DAL said it sees no meaningful recovery in demand; HA said it expects capacity for Q3 to be down 87% from the same period a year ago, which is slightly lower than previous forecasts; AAL president says seeing gradual improvement in bookings, and hopefully, it’s sustainable, it’s still too soon to tell – says Q4 flight capacity to be down more than 50%, still preparing for a slow recovery

·     Metals & Materials; in chemicals, SHW upgraded from Market Perform to Outperform with $790 tgt at BMO Capital as expect U.S. housing trends (existing home sales and new home builds) to remain strong through 2021 into 2022 based on a confluence of factors; AUY said exploration results for its Minera Florida, El Penon and Jacobina mines "continue to support YoY growth

Technology, Media & Telecom

·     Semiconductors; strength in the sector led by QRVO which rises after positively preannounced September quarter results citing better than expected demand for its 4G/5G mobile products; MCHP expects consolidated net sales for sept qtr to be down between 2% and 6% sequentially with unchanged mid-point of down 4%; STM another chip name outperforming after Reuters reported that company CEO said at a Citi conference that Q3 revenues will be above the mid-point of the guidance

·     Software movers; WORK shares fell after Q2 calculated billings miss of $218.2M, an increase of 25% YoY but fell short of the $226M consensus views, while Q3 EPS guidance also fell short of consensus, prompting many analysts to lower tgt prices; COUP shares slip despite beat for the Quarter and billings ahead (30%) but wasn’t enough after run in shares nor was the guide of sub 10% (though many analysts raise tgt price)

·     Hardware & Component news; GLW provides financial update at global technology conference saying Q3 sales are expected to grow by a low-teen percentage sequentially and remains on track for positive free cash flow for year; ST raises Q3 revenue guidance to $735M-765M from prior guidance of $675M-705M vs. $703.24M consensus saying seeing increased business activity especially in our Automotive business in Europe and the U.S.; MSFT said its Xbox Series S console is coming Nov. 10 for $299; VVNT upgraded earlier at Deutsche Bank saying last month’s stronger than expected Q2 report and guidance and model changes can improve VVNT’s cash flows; The worldwide server market grew 19.8% Y/Y to $24B in Q2, according to IDC data; server shipments were up 18% to nearly 3.2M units. HPE and DELL were in a statistical tie for the top vendor spot, capturing market shares of 14.9% and 13.9%, respectively