Mid-Morning Look

Monday, December 21, 2020

Stocks open lower, pulling back from record highs late last week as reports of a new and potentially more contagious strain of the coronavirus in the UK raised fears of further economic disruptions as the country imposed fresh lockdowns to combat the virus. Several countries in Europe announced they have started barring travel from the U.K, which has weighed on travel, leisure, energy, and hotel related stocks this morning. Investors again took the opportunity to buy any dip, with a big bounce in technology right off the bat (before sliding again), while financials are leading markets after last week’s Fed stress test headlines opened the door to buyback and dividends on a limited basis (JPM, GS, C). The virus fears are overshadowing a good weekend of news, as Democratic and Republican leaders finally reached an agreement on a new coronavirus relief deal worth around $900 billion that includes a second round of stimulus checks and additional unemployment benefits (among other items). Meanwhile, Moderna (MRNA) received emergency use authorization on its Covid vaccine late Friday (was expected) and Dow component Nike (NKE) advanced after strong earnings and guidance late Friday. But for the moment, investors using the UK virus strain news as a reason to lock in profits in what has been a tremendous 7-week run since the election, ahead of a holiday shortened trading week. No major U.S. economic data this morning, while oil prices are lower and the dollar edges slightly higher.

Sector Movers Today

·     Bank movers: JPM, GS, WFC, BAC, C, MS among leaders as large cap banks and regionals (PNC, USB, HBAN, RF, ZION) seeing strength after last week’s Fed stress test headlines opened the door to buyback and dividends on a limited basis. The Fed said the largest U.S. banks have enough capital to withstand over $600 billion in losses from a short sharp economic slump, as well as a moderate longer-lasting downturn, and will be permitted to pay out dividends and buy back stock on a limited basis. JPM said its board authorizes a new common equity share repurchase program of $30 bln after the U.S. Federal Reserve relaxed restrictions and permitted banks to pay out dividends and buy back stock on a limited basis

·     Pharma movers; FGEN falls after it and partner AZN said the FDA extended its review period for the marketing application for its experimental treatment Roxadustat for anemia in patients with chronic kidney disease by three months to March 20^th; EXEL announces cabozantinib significantly improved progression-free survival in cosmic-311 phase 3 pivotal trial in patients with previously treated radioiodine-refractory differentiated thyroid cancer; QURE slides after U.S. regulators have put a clinical hold on its hemophilia B gene therapy program after a preliminary diagnosis of a form of liver cancer in one patient taking part in a late-stage study; European Medicines Agency has recommended granting a conditional marketing authorization for the vaccine developed by PFE and BNTX to prevent coronavirus disease; EYEG shares jumped after buying privately owned biotech co, Panoptes Pharma, to strengthen its eye disease portfolio

·     Retailers; NKE with strong results across the board late Friday as Q2 EPS 78c beat est. 62c and Q2 revs $11.2B up 9% YoY vs. est. 10.55B as digital again was strong, growing 84% and also delivered on its inventory plans, ending the quarter in a healthy position, -2% YoY and raised year guidance; WMT upgraded to outperform from sector perform and raise tgt to $170 from $153 at RBC Capital; FOXF upgraded to Buy at Truist and up tgt to $130 as increasingly comfortable that FOXF can generate 10%+ organic growth over the next 3-5 years; BNED creates new partnership with licensed sports merchandise leaders Fanatics and Lids; GME rises as RC Ventures reports an increased stake of 12.9% stake from just under 10% prior

·     Energy; WTI crude and Brent oil prices down on slowing demand fears given the travel restrictions and tighter curbs in the UK on virus fears; announced M&A deal in the E&P space as FANG to acquire QEP in $555M deal, as QEP holders to get 0.05 of FANG for each QEP share they own, implying a per share value of $2.29, a small discount to QEP’s Friday close (deal valued at $2.2B including $1.6B in QEP debt); RDSA shares tumble after announcing a write-down of oil and gas assets by $3.5B-$4.5B for Q4 which bring total cuts for 2020 to more than $22 billion

·     Cyber security sector; SWI downgraded by a few analysts as increasingly see the risk of customers turning off the software in wholesale fashion given the risk of compromised Orion software impacting critical internal network and IT infrastructure for large companies and federal govt agencies (but shares bouncing after falling every day last week); security technology stocks soared on Friday (FEYE, FTNT, PFPT, CRWD) amid cyber-attack disclosures; Wedbush raised price tgts on CHKP, CYBR, FTNT, OSPN, PANW, PFPT, QLYS, SAIL, TENB, TLS, VRNS, ZIXI, ZS in cyber security as believe there is a $200 billion dollar growth opportunity in cloud security “up for grabs” over the next five years

Stock GAINERS

·     AGIO +30%; after saying it will sell its cancer business for $2 bln to privately held Servier which includes $1.8 bln in upfront cash and $200 mln in a potential future milestone payment for its experimental brain cancer treatment, vorasidenib

·     AJRD +21%; has entered into a definitive agreement to be acquired by LMT for $56 per share in deal valued at $5B, representing a 33% premium to AJRD’s prior closing price of $42.04 https://on.mktw.net/3nDGrNF

·     CLVS +6%; after announcing topline data from Phase 3 ARIEL4 study, evaluating Rubraca as study in 349 women met its primary endpoint of improved progression-free survival (PFS) compared to chemotherapy

·     HMSY +8%; to be acquired for $37 in cash by Veritas-backed Gainwell in deal transaction in an enterprise value for HMSY of ~$3.4B https://bit.ly/38sBGQu

·     GS +5%; and JPM helping pare the Dow Jones losses after Fed stress test results show banks can resume buybacks

·     NK +20%; after privately-held ImmunityBio and NantKwest have entered into an agreement to merge in a stock-for-stock transaction. https://bit.ly/34wUVXU

·     NKE +5%; strong results across the board late Friday as Q2 EPS 78c beat est. 62c and Q2 revs $11.2B up 9% YoY vs. est. 10.55B as digital again was strong, growing 84% and also delivered on its inventory plans, ending the quarter in a healthy position, -2% YoY and raised year guidance

·     RCII +12%; agrees to acquire online lease-to-own provider Acima Holdings in a cash-and-stock deal valued at $1.65B; total consideration consists of $1.27B in cash and ~10.8M Rent-A-Center common shares currently valued at $377M https://bit.ly/34xzpCt

·     RP +30%; to be acquired by Private-equity firm Thoma Bravo LP for $9.6 billion, as Thoma Bravo is paying $88.75 per share for the company, a 31% premium to RealPage’s closing price Friday of $67.83, officials at the firms said https://on.wsj.com/3rjFKLu

·     ZM +1%; amid early gainers in “stay-at-home” beneficiaries along with ROKU, ETSY, AMZN, SQ, PYPL and Internet security, while food and staples are mixed

Stock LAGGARDS

·     AAL -3%; Airline sector (AAL, DAL, LUV, JBLU, UAL) was rattled in reaction to the new travel bans and flight cancellations in Europe aimed around a more contagious strain of COVID-19 in the U.K

·     BA -2%; shares fall following a U.S. Senate report saying Boeing officials “inappropriately coached” test pilots during recertification efforts

·     CCL -5%; cruise line shares down on travel ban concerns due to new covid-19 strain

·     FGEN -9%; after it and partner AZN said the FDA extended its review period for the marketing application for its experimental treatment Roxadustat for anemia in patients with chronic kidney disease by three months to March 20th

·     INTC -2%; and AMD shares slumped late Friday and carried over early today after Bloomberg first reported that MSFT is working on in-house chips for use in server computers that run on its cloud services https://bloom.bg/2WvdtDy   

·     QURE -19%; after U.S. regulators have put a clinical hold on its hemophilia B gene therapy program after a preliminary diagnosis of a form of liver cancer in one patient taking part in a late-stage study