Mid-Morning Look

Wednesday, October 14, 2020

U.S. stocks erase early gains after a late day slide Tuesday snapped a four-day win streak for the benchmark S&P 500 index as headlines pertaining to vaccine trial pauses (JNJ, LLY yesterday), failure to reach a stimulus bill compromise in Washington (drama continues), and trade tensions all weigh on sentiment. At the same point, stocks have surged in recent weeks ahead of earnings season (which kicked off this week with mixed banking results – GS strong today, BAC, WFC slip following their numbers), as investors look to November and the Presidential election. Markets appear to be baking in a Democratic White House as polls showing Biden with a good lead, while if they can also take the Senate, could raise prospects of an even bigger stimulus deal that they have been pushing for. Gold prices rebounding after yesterday’s slide while oil prices bounce and Treasury yields dip. Technology stocks have outperformed this week but seeing modest declines early. Inflation data today (PPI) came in a bit hooter than expected for September and CPI was in-line with views yesterday.

Economic Data

·     Producer Price Index (PPI) for Sept rose 0.4% above the 0.2% estimate while core prices MoM also rose 0.4% vs. est. 0.2%; PPI YoY rose 0.4% as well vs. est. 0.2% and core prices YoY jumped 1.2% vs. est. 0.9% (rising inflation data points)

Sector Movers Today

·     Large cap bank movers; GS shares rise as reports a 94% rise in quarterly profit, driven by a resurgence in deal-making and continued strength in its trading and underwriting businesses – said earnings per share doubled to $9.68 from $4.79 and easily topped estimates ($5.57) with FICC sales & trading revenue $2.50%, trading revs $4.55B and IB revs $1.97B 9all above views; BAC posts a 15.8% drop in quarterly profit, hit by higher provisions for credit losses due to COVID-19 pandemic (provisions for credit losses $5.12 billion vs. $779 million YoY) – EPS of 51c topped the 49c estimate while Q3 revenue net of interest expense $22.33 billion, -2.1% YoY; WFC reports a 57% slump in Q3 profit as the bank’s loan book shrank and near-zero interest rates as well as higher costs hurt its bottom line – (EPS of 42c missed the 44c est.) Charge-offs for loan losses and provisions for future credit losses were stable during the quarter

·     Retailers; BBBY announced that it has entered into separate agreements to sell its Christmas Tree Shops retail banner, its institutional Linen Holdings business and a distribution center located in Florence, New Jersey and expects to generate a total of approximately $250M in aggregate from the monetization of these assets; AEO upgraded to hold from sell at Loop Capital and increasing our price target from $9 to $15 as we see business slowly improving – still believe the back-to-school season was down YoY, but there is a likelihood for sequential improvement that is greater than our previous estimate; PTON tgt raised to Street high $144 at Truist and $142 at Barclays; NLS had Street-high estimates raised at Truist and 12-mo PT to $28 as a result of solid 3Q trends and favorable commentary from a recently-conducted consumer survey suggesting that the elevated demand environment should continue well into 2021; GME rises as Senvest Management disclosed a 5.5% (3.4m share) stake in the company last night

·     Metals & Materials; in chemicals, Goldman Sachs adds Buy-rated AXTA to the conviction buy list as consensus estimates for 2020/21 have remained unchanged since 2Q20 earnings, even as the outlook for the autos end-market (to which AXTA has high exposure) has improved meaningfully while removed SHW from the conviction buy list following recent outperformance; ALB was downgraded to Underperform at RBC Capital noting it currently trades at ~17x our FY21 EBITDA estimate and well above its 7-15x historical range and lowers ests given view 2021 lithium pricing could be similar to 2020 and our expectation of moderate production growth at 3-4%; in ag chemicals, RBC raised its tgt on MOS to $25 from $20 and cut CF to $32 from $38 ahead of EPS

·     Software movers; UBS assumes coverage of six software names and initiates four – in report, assume coverage with WDAY at neutral (up from sell and tgt to $235 from $175) and downgraded SPLK to sell from buy and cut tgt to $165 from $242 with new buy on DOCU, neutral on CTXS and VMW and a new sell rating on VEEV; BTIG noted GWRE weakness yesterday at its annual Analyst Day (virtually) provided key updates to the long-term product roadmap, especially around Guidewire Cloud Platform (GWCP), and its long-term financial model with a framework for $1bn/$1.5bn ARR levels, which they suspect was the primary catalyst that drove shares down; TTD tgt raised to $750 from $580 at Needham saying eMarketer raised its 2020 programmatic ad spending est. by $3.7B to $60B

Stock GAINERS

·     BBBY +6%; announced that it has entered into separate agreements to sell its Christmas Tree Shops retail banner, its institutional Linen Holdings business and a distribution center located in Florence, New Jersey

·     CXO +12%; after Bloomberg reported COP is in talks to buy Concho saying the deal may come in the next weeks, and would represent a big shale bet https://on.mktw.net/2GO1bSN (report lifting comp E&Ps such as APA, PXD, FANG on industry consolidation speculation)

·     GME +5%; as Senvest Management disclosed a 5.5% (3.4m share) stake in the company last night

·     MDRX +38%; after agreeing to sell its CarePort Health business to WellSky, a global health and community care technology company for an agreed price of $1.35B

·     PLAY +4%; said comparable store sales have steadily improved during Q3, down 62% in September vs. down -75% in August

·     QCOM +3%; tgt raised to $165 at Bank America saying the event read positively for Qualcomm, who is the only RF vendor with a millimeter wave solution shipping at volume, and we highlight that mmWave RF content potentially increases the BOM by roughly $45

Stock LAGGARDS

·     ALB -1%; was downgraded to Underperform at RBC Capital noting it currently trades at ~17x our FY21 EBITDA estimate and well above its 7-15x historical range

·     AMC -18%; is considering a range of options that include a potential bankruptcy to ease its debt load as the pandemic keeps moviegoers from attending and studios from supplying films, Bloomberg reported overnight (AMC later denied the reports)

·     CYCN -43%; after saying results from its Phase 2 study of olinciguat for sickle cell disease don’t support further internal development

·     KR -1%; downgraded to EW from OW at Wells Fargo saying it remains a key beneficiary of the COVID pandemic, but the risk/reward no longer looks favorable

·     WFC -3%; reports a 57% slump in Q3 profit as the bank’s loan book shrank and near-zero interest rates as well as higher costs hurt its bottom line

Syndicate:

·     Alphatec (ATEC) 11.43M share Spot Secondary priced at $8.75

·     Americold Realty Trust (COLD) 31.9M share Secondary priced at $38.00

·     Codiak (CDAK) 5.5M share IPO priced at $15.00

·     Eton Pharmaceuticals (ETON) 2.8M share Secondary priced at $7.00

·     Ocular Therapeutix (OCUL) 7.18M share Spot Secondary priced at $9.75

·     Royal Caribbean (RCL) 8.33M share Secondary priced at $60.00

·     Sunrun (RUN) 8M share Block Trade priced at $62.00

·     TransAct Technologies (TACT) 1.2M share Spot Secondary priced at $7.10