Mid-Morning Look

Thursday, October 29, 2020

U.S. stocks open higher, led by a recovery in technology ahead of AAPL, AMZN, FB, GOOGL, TWTR earnings after the close tonight, as investors look to scoop up stocks after posting its worst one-day return since June on Wednesday amid fears of rising Covid cases. An early combination of better GDP data for Q3 (33.1% growth), jobless claims (fell again in latest week), vaccine news (REGN, MRNA) and major U.S. markets needing to hold key technical levels leading to early gains. However, the situation in Europe worsening as ECB President Lagarde said the economy is losing momentum faster than expected after the ECB kept rates unchanged today. Europe is dealing with a massive resurgence of coronavirus cases over the last month, prompting shutdowns in several countries (Germany, France) and partial lockdowns in other regions. The fear is the cases will spread here in the U.S. In vaccine news: 1) REGN said its coronavirus antibody cocktail, REGN-COV2, significantly reduced medical visits in a trial of nearly 800 patients with mild-to-moderate COVID-19, 2) MRNA said it is on track to report early data from late-stage trial of its COVID-19 vaccine candidate next month/preparing to launch the experimental vaccine and has already received $1.1B in deposits for supply. No rebound in oil however as WTI crude oil drops below $35 a barrel (over 5%) to lowest since June as the dollar rises again and on slowing demand fears (euro falls to 4-week lows below $1.17) which also sends gold lower. Energy stocks among the biggest decliners given the plunge in oil and mixed earnings.

Economic Data

·     U.S. Q3 GDP reported 33.1% annualized growth reading, topping consensus of 30.9% and better than the prior (-31.4%) decline as Q3 consumer spending jumped +40.7% vs. Q2 (-33.2%); reading reflects increases in personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment; PCE price index +3.7% vs. 2.8% consensus and -2.1% in previous quarter, while core PCE prices +3.5% vs. 4.00% est. and -0.80% in previous quarter.

·     Weekly jobless claims fell to 751,000 in latest week vs. est. 775K and from 791,000 prior week (previous 787,000); US continued claims fell to 7.756 mln vs. est. 7.700 mln from 8.465 mln prior week; the 4-week moving average fell to 787,750 oct 24 week from 812,250 prior week and U.S. insured unemployment rate fell to 5.3% from 5.8% prior week

·     Sept pending home sales index fell -2.2%, missing the +3.4% estimate to 130.0 while Sept pending home sales +20.5 pct from sept 2019

Sector Movers Today

·     Retailers; TIF and LVMUY agreed to a revised deal price of $131.50/share for LVMH’s purchase of Tiffany, down from the original $135/share agreed to last November lowers the overall purchase price by about $430M; TPX 3Q adj EPS $2.94 vs. est. $2.20 on sales $1.132B vs. est. $1.07B, and targets 4Q net sales to grow in the low double digits vs. est. +7.5%, and also announces intentions to initiate quarterly cash dividend beginning 2021 and a 4:1 stock split in 4Q; RL reported Q2 Adj EPS $1.44, topping est. 83c, on in-line $1.19B sales, though it sees Q3 and FY21 results negatively impacted by the ongoing pandemic and prolonged demand recovery; BOOT Q2 EPS 20c on sales $184.5M top estimates, though fall YoY; KTB reports Q3 Adj EPS $1.33 on sales $583, beating ests (58c, $547.1M) and sees Q4 revenue ‘flat to down modestly’ vs. Q3; TPR reported strong profit growth across its portfolio of brands in FQ1 as gross margin was reported at 70.8% of sales (est. 69.3%, 67.6% YoY) and operating margin rose to 19.5% of sales (est. 8.4%, 12.3% YoY), though sales fell 9% for the Coach brand, 21% for the Kate Spade business, and 35% for the Stuart Weitzman business; Gun maker RGR reported strong 3Q:20 results easily beating consensus on the top and bottom lines as orders grew at a rapid rate

·     Leisure and Gaming; in boating, BC 3Q profit and sales top consensus with better guidance saying its entire boat business contributed to earnings growth; LESL 40M share IPO priced at $17.00; in cruise lines; CCL said its Aida Cruises is pausing sailings for November after the German government has ordered a one-month partial lockdown starting Monday. The cancellation comes a few weeks after the cruise line restarted sailings this month; RCL reports massive ($5.62) EPS loss as Q3 revs turn negative ($33.69M) as it had paused sailings for about half a year due to the Covid-19 pandemic, sending it to a loss of more than $1.3 billion; in gaming, PENN posted a Q3 EPS beat of 40c on higher revs as continue to see solid results across the portfolio in October – said barstool app generated a handle of $78M in its first 37 days across 30K first-time depositors

·     Energy stock movers; COP swung to a Q3 loss of 42c vs. year-earlier net profit of $2.74 as earnings fell due to the absence of a gain from the U.K. divestiture in 2019, as well as lower realized prices and lower volumes; CVE reported its third straight quarterly loss (C$194M), compared with a year-ago profit of C$187M, as EPS miss, revs beat and production rose; SU reported a larger than forecast adjusted Q3 loss and a 35% Y/Y decline in revenues to $6.5B, due to lower production and oil prices; in refiners, PBF post aQ3 loss from operations of $342.7M compared to income from operations of $151.9M a year earlier and says expects demand to remain depressed until there is a widely available medical solution for the COVID-19 virus

·     Internet; PINS the latest Internet related name to provide upbeat results and guidance given the stay at home situation due to Covid virus as Q3 adj EPS 13c on revs $443M vs. est. 2c and $387.6M; 3q monthly active users 442 million, +37% YoY; Q3 adjusted Ebitda $93M vs. $3.87M YoY; ETSY surprised few in beating Street estimates across the board as GMS came in at $2.63B, up 119% y/y (+117% in constant FX) and marketplace GMS grew 116%; next up FB and TWTR tonight with high expectations after SNAP last week; SHOP reported earnings that benefitted from online shopping during the pandemic, with Q3 EPS $1.13 profit beating 51c est. and coming in better than 2019’s (29c) loss on sales $767.4M, also beating $657.9M est. and improving from Q3 2019’s $390.6M sales; EBAY posted Q3 Adj EPS 85c, ahead of estimated 76c and 2019’s 53c as revenue increased YoY to $2.61B from $2.08B and guides Q4 rev to $2.64B-$2.71B and EPS to 78-84c (estimates were for $2.54B and 76c); SPOT slides as trims top end of Q4 rev guidance

·     Software movers; CTXS upgraded to outperform at Cowen citing material progress on its restructuring reduces execution risk and its third consecutive quarter of bookings traction; FSLY sequential revenue declined 6% due to TikTok traffic shifting from FSLY as well as a slower ramp in some new video customers prompted weak guidance and margins were weak due to the lower revenue; NOW Q3 revenue up 30% y/y and adj. subscription billings up 27% y/y as beat was driven by expansion in the existing customer base; PI falls as Q3 beats were offset by the weak current quarter outlook (saw Q4 revs of $26.5-28.5M below the $28.3M consensus on a greater EPS loss); PTC delivered ARR in line with guidance (+11% Y/Y-CC), revenue and CFFO/FCF upside, and improving business traction (e.g., better-than-expected CAD/PLM and IoT/AR bookings), but guides downside FY21 profit

Stock GAINERS

·     CMCSA +2%; Q3 earnings and high-speed internet customer net additions beat average analyst estimates (65c vs. est. 51c) on better revs of $25.53B – Q3 high-speed internet net additions were a quarterly record at 633,000

·     EGHT +11%; reported a strong September quarter, with revenue beating forecasts and margins better than expected, driven by solid results across the board (prompting analyst upgrades)

·     F +6%; reported a better than expected results last night and raised 4Q guidance as North American EBIT came in much better than expected on both favorable volumes and pricing as auto margin for 3Q was 7.6%, +370bps YoY

·     IPHI +18%; MRVL to buy IPHI in $10 bln cash-and-stock deal to bolster data center, 5G business as IPHI holders to get $66 in cash and 2.32 shares of stock https://bit.ly/2TGKZVX

·     MRNA +4%; said it is on track to report early data from late-stage trial of its COVID-19 vaccine candidate next month/preparing to launch the experimental vaccine and has already received $1.1B in deposits for supply (also reported earnings)

·     PENN +6%; posted a Q3 EPS beat of 40c on higher revs as continue to see solid results across the portfolio in October – said barstool app generated a handle of $78M in its first 37 days across 30K first-time depositors

·     PINS +37%; the latest Internet related name to provide upbeat results and guidance given the stay at home situation due to Covid virus as Q3 adj EPS 13c on revs $443M vs. est. 2c and $387.6M; 3q monthly active users 442 million, +37% YoY

·     REGN +2%; after saying late yesterday its coronavirus antibody cocktail, REGN-COV2, significantly reduced medical visits in a trial of nearly 800 patients with mild-to-moderate COVID-19

·     TPR +5%; reported strong profit growth across its portfolio of brands in FQ1 as gross margin was reported at 70.8% of sales (est. 69.3%, 67.6% YoY) and operating margin rose to 19.5% of sales

Stock LAGGARDS

·     APRN -26%; Q3 EPS (96c) loss was narrower than ($1.44) estimate and sales $112.3M matched consensus, though the company sees Q4 sales $108M-112M, lower than the est. $116M

·     CCXI -12%; downgraded at JPMorgan on mixed results from mid-stage trial of its treatment, avacopan, for a type of skin disease which showed no statistical significance at either 10mg or 30mg, although a numerical improvement was noted in the latter

·     FLWS -18%; posted earnings and sales beat though no official year guidance

·     INOV -14%; posted a 3Q revenue shortfall owing to Covid-19 related disruptions in its lower margin, non-subscription, legacy and services businesses

·     NOK -18%; plunges following a revenue decline and guidance reset alongside a new operating model and cut 2020 operating margin expectations to 9% from 9.5%;

·     TCDA -48%; plunges after saying FDA will need evidence of its lead experimental drug, veverimer’s effect on chronic kidney disease (CKD) progression from a near-term interim analysis of the trial

Syndicate:

·     Allakos (ALLK) 3.05M share Secondary priced at $82.00

·     Allegro MicroSystems (ALGM) 25M share IPO priced at $14.00

·     Forte Biosciences (FBRX) 1.404M share secondary priced at $28.50

·     Galecto (GLTO) 5.667M share IPO priced at $15.00

·     Leslie’s (LESL) 40M share IPO priced at $17.00

·     Scholar Rock (SRRK) 2.949M share Spot Secondary priced at $39.00

·     Ultragenyx (RARE) 4.44M share Secondary priced at $90.00