Mid-Morning Look

Thursday, November 12, 2020

The broader U.S. stock market is lower as the big swings between the cyclicals (underperforming today) and the tech favorites continues this week (rebound a second day) as Smallcaps (Russell 2000) leads the declines. Overall, most S&P sectors are starting in the red, with reopening plays (travel, restaurants, mall stocks) sliding again on prospects of stricter COVID measures in major cities as cases reach 144K yesterday in the U.S. on surging hospitalizations. Financials are among the weakest, with rates falling after the core CPI came in flat for October, the lowest in five months (10-year Treasury yield is down at 0.90%, down about 8 basis points). Optimism about a Covid-19 vaccine powered markets higher at the start of the week with the Pfizer news, but has been since waning as investors and health experts raise questions about when it may become available for widespread use. Markets are also growing increasingly concerned about economic activity being hobbled by fresh restrictions in states such as New York, New Jersey and California on restaurants, gyms, etc. Weekly jobless claims remained high last week but slipped to their lowest level since March (and below estimates). Consumer prices were flat in October, as higher costs for dining out and groceries were offset by declines for items such as apparel and household furnishings. Few big names reporting earnings after the bell in the TMT sector with Dow components Disney and Cisco Systems expected as well as semi player AMAT. Republican senator Grassley on covid-19 relief negotiations: there hasn’t been any discussion yet between us senate majority leader McConnell and house rep. speaker Pelosi, but McConnell’s not going to rely on us treasury sec. Mnuchin anymore to do the dealing.

Economic Data

·     Weekly jobless claims fell to 709K from 757K in the prior week (and below consensus 735K), improving, but still substantially high as the 4-week moving average fell to 755,250 from 788,500 prior week (previous 787,000) and continued claims fell to 6.786M vs. est. 6.9M and down from 7.222M in the prior week

·     The consumer-price index (CPI) was unchanged in October from September, as price gains stalled followed four straight months of gains for consumer prices and was below the 0.1% estimate while core prices were also flat vs. est. for a rise of 0.2%. YoY figures for headline CPI of 1.2% and core prices 1.6% also fell short of estimates (1.3% and 1.8% respectively)

Sector Movers Today

·     Internet; Chinese internet stocks gain after TCEHY and PDD earnings top views, helping shake off regulatory concerns after the industry has taken a beating this week after news of China antitrust regulations that are targeting online platforms; PDD postedQ3 EPS 5c vs. est. loss (17c) and revs $2.09B topped the consensus $1.86B as Q3 average monthly active users were 643.4M, an increase of 50% from 429.6M YoY and active buyers ended Sept rose 36% YoY to 731.3M; WIX delivered another strong quarterly print that saw 3Q collections ($281M, 37% y/y) come in well above consensus estimates ($275M) and topped elevated investor expectations ($279-280M) as net premium subs (+302K) also cleared bullish investor expectations (~300K); BABA ends its annual Singles Day sales event with total GMV of RMB498.2B or about $75.1B (vs. $38B 2019)

·     Retailers; FOSL surges after reporting Q3 Adj EPS 31c, beating est. (71c) loss, on revs $435.5M, also beating est. $333.5M, and the company expects the pandemic to continue pressuring sales, seeing Q4 sales dropping 30-40% YoY, though weakness in retail stores will be offset by online demand; ENR reports organic sales increased 6.1% in FQ4 to beat even the top end of its guidance range of +3% to +6%, but Adj EBITDA $140.4M was lower than est. $160.1M, and the company forecasts FY rev growth 2-4% (est. 1.5%) and EPS $2.95-3.25 (est. $3.13); RVLV Q3 EPS 27c beats est. 14c on revs $151M that miss est. $154.2M and reports Oct net sales decreased in the high-single digits YoY; WMT launches Walmart Pet Care in an expansion of its pet offerings, which now includes insurance, dog walking, pet sitting, and the PetRx pharmacy. Shares of CHWY, TRUP, PETQand FRPT active on the news; CHWY launched compounded medications for pets, and intends to offer it as a service to veterinarians

·     Consumer Staples; EPC said its profit and sales declined for the latest quarter due to continued disruptions from the Covid-19 pandemic, but topped expectations; SPTN reported 3Q20 adjusted EPS of $0.70, topping consensus of $0.62, as pandemic-related tailwinds continue to drive results for both the food distribution and retail divisions; UTZ to buy a leading maker of tortilla chips, Truco Enterprises from Insignia Capital Group for $480M; GRWG revenue of $55M surpassed consensus of $47M with EBITDA of $6.6M versus $4.8M consensus and raised guidance for year

·     Semiconductors; AAPL chip suppliers remain active (SWKS, SYNA, QCOM, AVGO) after KeyBanc said its initial round of carrier surveys for the iphone 12 launch indicates healthy initial and for the iphone 12 pro, where demand is clearly outstripping supply; HIMX reported in-line w/ preannouncement and guided Q4 revs and EPS better than expected; AMAT to report earnings tonight after the bell I the semi-equipment sector

Stock GAINERS

·     CVAC +8%; CEO said hopes to receive approval for its experimental COVID-19 vaccine in Q3 2021 and aims to initiate rolling review of vaccine in Q1

·     FOSL +25%; after reporting Q3 Adj EPS 31c, beating est. (71c) loss, on revs $435.5M, also beating est. $333.5M, and the company expects the pandemic to continue pressuring sales, seeing Q4 sales dropping 30-40% YoY, though weakness in retail stores will be offset by online demand

·     IGT +8%; as Q3 revenue of $982M vs. last year’s $1.15B, beating estimates by $180.97M as player demand drives highest Global Lottery same-store sales growth

·     MRNA +3%; said the first interim analysis of results from the large-scale pivotal study, COVE, of vaccine candidate mRNA-1273 will include “substantially more” that the 53 cases it was expecting

·     NOW +3%; upgraded shares to overweight at Morgan Stanley with $652 tgt saying a rising priority for workflow automation post-Covid well positions NOW to sustain 25%+ revenue growth

·     PDD +21%; postedQ3 EPS 5c vs. est. loss (17c) and revs $2.09B topped the consensus $1.86B as Q3 average monthly active users were 643.4M, an increase of 50% from 429.6M YoY and active buyers ended Sept rose 36% YoY to 731.3M

·     XPEV +14%; reported a Q2 loss that widened from a year ago but revenue that jumped more than fourfold as deliveries soared 266% to 8,578 vehicles

·     ZM +5%; as stay at home beneficiaries rising amid surging Covid-19 cases in U.S.

Stock LAGGARDS

·     FLY -12%; posts adjusted Q3 net loss of $9M vs. adjusted net income of $59.8M a year earlier and Q3 sales slump 57% to $60M hurt by non-recognition of revenue for certain lessees due to the COVID-19 pandemic and no aircraft sales in the quarter

·     GOCO -15%; as Q3 revenue was below consensus but adjusted EBITDA was nicely ahead as experienced a mix shift which resulted in lower-than-expected commission revenue while enterprise revenue was significantly above our estimate

·     JE -12%; as Q2 sales fall 15% to C$649.6M and posts Q2 loss of C$4.37 per share compared to a profit of C$8.97 share a year earlier

·     RVLV -10%; Q3 EPS 27c beats est. 14c on revs $151M that miss est. $154.2M and reports Oct net sales decreased in the high-single digits YoY

·     VRM -11%; reported 3Q eCommerce units up 59% y/y, in line with guidance provided in mid-Sept, but Q4 rev guidance of $372M-$414M showed midpoint missed the $403.5M est.

·     WYNN -4%; as casinos, cruise and leisure stocks slide on stricter restrictions to fight Covid spread