Mid-Morning Look

Wednesday, October 21, 2020

The market momentum continues to push stocks higher, with investors choosing to focus on the start of earnings season (mostly better reports with the exception of a few hiccups – NFLX), and still hopes of a stimulus aid package out of Washington after House Speaker Nancy Pelosi both said enough progress was made on Tuesday to justify further talks on Wednesday, with an aim of getting a package voted on before the Nov. 3 election. The Trump administration has proposed $1.8 trillion in aid, while Democrats are pushing for $2.2 trillion. The biggest sticking point remained funding for state and local gov’t, though Meadows has said progress has been made toward a deal. Markets also dismissing any election uncertainty (ahead of the last Presidential debate on Thursday), now less than 2-weeks away. There was no major economic data today to pressure markets. Social media stocks outperform behind better SNAP results, lifting shares of TWTR, FB and PINS, while NFLX missed on earnings and subs. Medical equipment names outperform on earnings (TMO, ABT) helped by increased Covid testing and auto retailers rise on better results (LAD, AN) with Tesla earnings tonight. The dollar extends losses, as the yen rises nearly 1%, the euro inches higher and the British Pound hits 6-week highs as gold rises. Full steam ahead for major equities into more earnings tonight.

Sector Movers Today

·     MedTech and Equipment; ABT posts Q3 adj profit of 98c, beating estimates by 7c helped by strong sales of its COVID-19 tests and said global COVID-19 testing-related sales were $881m in the quarter – raises FY20 adj EPS to at least $3.55 from prior view $3.25; DGX upgraded to buy from hold ahead of the company’s third-quarter results at Argus saying the company is playing a key role in responding to the COVID-19 pandemic, introducing a range of new tests along with new testing methods that can increase capacity and shorten the time needed to obtain results; TMO Q3 profit and rev top estimates, helped by strong sales of COVID-19-related products and performance in its life sciences unit (Q3 EPS $5.63/$8.52B vs. est. $4.31/$7.65B)

·     Auto retail strong after AN revenue $5.4B beat the $5.2B estimate as beat on both new/used while op income $308M vs. $240M on better revs and new $500m buyback (no outlook); LAD with better-than-expected Q3 revenue and profit, helped by a strong rebound in demand for used vehicles and Q3 same store used-vehicle retail sales jump 11.2% (watch ABG, GPI, SAH); AAP was upgraded to outperform at Raymond James now four years into a restructuring effort that they are increasingly optimistic will begin to drive incrementally better results going forward

·     Solar sector; RUN 8M share Block Trade priced at $60.00; Jefferies upgrades Utilities sector to Market Weight from Underweight; JP Morgan still sees favorable risk-reward in alternative energy even after the recent outperformance, highlighting ENPH as their favorite name ahead of earnings and the election, and also naming ENPH, RUN, NOVA, SPWR as the biggest potential beneficiaries of a Democratic sweep in November, but they do not forecast downside to estimates or fundamentals even if a sweep does not occur; CSIQ, JKS shares fall after last night, Chinese solar power cell makers and U.S. importers must pay the anti-subsidy duties established by the Commerce Department. The U.S. maintains countervailing duties on “crystalline silicon photovoltaic cells, whether or not assembled into modules” from China. Commerce thereafter hit Canadian Solar Inc. and its affiliates with a 11.59% duty rate, and imposed a 9.12% rate on Changzhou Trina Solar Energy Co. and its affiliates – Bloomberg said

·     Industrial & Machinery; CAT touches another fresh all-time high; PWR was downgraded to neutral at Davidson with $58 tgt as shares have risen +55% since our Dec. upgrade & markedly outperforming the S&P 500 (+7% during same period); OSK was downgraded to hold from buy at Jefferies saying despite the company continuing to execute well, they lower top line outlook for F&E and Defense based on potential federal/state/local budget constraints heading into 2021 driven by the reduction in tax revenue as a result of COVID; JCI upgraded to outperform at Oppenheimer saying while shares have recovered, it has opportunities to narrow its valuation discount to HVAC and other multi-industrial peers through a reacceleration of organic growth; CWST 2.35M share Spot Secondary priced at $56.00

Stock GAINERS

·     AN +4%; trades to record highs as revenue $5.4B beat the $5.2B estimate as beat on both new/used while op income $308M vs. $240M on better revs and new $500m buyback

·     ERIC +10%; posted a net profit attributable to shareholders of 5.35 billion Swedish kronor ($608.7 million), compared with a loss of SEK6.23 billion in the year-earlier period (est. SEK4.15B

·     NKLA +5%; after GM President on CNBC said in interview he is totally excited about opportunity when talking about relations ship with EV maker though notes deal isn’t finalized yet

·     PINS +14%; upgraded at both Goldman Sachs and bank America following strong results from SNAP overnight, as sees strong user growth continuing through 3Q, based on current app download data, and expectations for continued monetization improvement.

·     PYPL +5%; said it will host cryptocurrency payments, debuting its service due to rising interest in digital currencies from central banks and consumers amid the Covid-19 pandemic. Users would be able to buy, hold and sell cryptocurrency from their PayPal accounts

·     SNAP +29%; beats analysts’ estimates for user growth and revenue and said Q3 daily active users (DAU) rose 18% YoY to 249M vs. est. 244M while revs of $679M, up 52% YoY vs. est. of $555.9M and sees Q4 rev to grow between 47% and 50% YoY (TWTR, PINS, FB rise in reaction)

Stock LAGGARDS

·     CRSP -11%; after saying a patient died 52 days after taking its experimental CAR-T cell therapy, CTX110, in an early-stage trial to treat B-cell malignancies (at dose level 4) – trial, however, met main goal of safety at dose level 3, company says

·     GSX -23%; downgraded to Underperform from Neutral at Credit Suisse with a price target of $71, down from $85 as sees competition in China’s online education sector intensifying

·     IRBT -15%; shares fell despite beat and raise quarter as some analysts note that the profit guidance doesn’t imply an encore of 3Q

·     NAVI -2%; after Q3 revs miss (EPS beat) and NJ Attorney General sued Navient alleging the student loan servicing giant deployed “deceptive, misleading” tactics to boost its profits

·     NFLX -5%; as misses expectations for paid subscriber additions in Q3, hit by rising streaming competition and the return of live sports to television – EPS also missed while adding 2.2M paid subscribers globally, vs. analysts’ estimates for 3.4M

·     WORK -5%; downgraded to Underweight with a $27 PT at Morgan Stanley as CIO survey showing a fading positioning versus an intensifying competitive landscape

Syndicate:

·     Casella Waste (CWST) 2.35M share Spot Secondary priced at $56.00

·     Datto (MSP) 22M share IPO priced at $27.00

·     Phreesia (PHR) 5M share Secondary priced at $32.00

·     Sunrun (RUN) 8M share Block Trade priced at $60.00