Mid-Morning Look: January 21, 2020

Darwin SarazaDaily Market Report

Mid-Morning Look

Tuesday, January 21, 2020

Index

Up/Down

%

Last

 

DJ Industrials

-68.05

0.23%

29,280

S&P 500

-6.65

0.20%

3,322

Nasdaq

-9.14

0.10%

9,379

Russell 2000

-10.88

0.64%

1,688

 

 

U.S. equities pulling back from record highs reached last Friday, following Asian markets lower (Europe mixed with the German Dax actually surpassing its record close set in January 2018) as worries about the fallout from a deadly virus outbreak in China and a gloomy growth outlook from the IMF weighed on market sentiment, ahead of heavy earnings this week as well. China officials confirmed the new coronavirus outbreak took six lives and that it could spread between humans, renewing fears of a global pandemic and reviving memories of Severe Acute Respiratory Syndrome (SARS), which killed nearly 800 people in 2002-03. Stock sectors such as airlines, cruise lines and gaming stocks (WYNN, MLCO) being hit the hardest along with China based ADRs, especially ahead of the wee long holiday in China. Back to the economy, a top IMF official said that a slowdown in global growth appears to have bottomed out but there is no rebound in sight. The IMF trimmed its global growth forecasts for 2020 and 2021. The U.S. dollar is down slightly, along with weakness in oil and gold while Treasury prices edge higher. No major economic data today to shake up markets nor Fed speakers ahead of the busy week of earnings.

 

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.35

58.19

Brent

-0.47

64.73

Gold

-4.50

1,555.50

EUR/USD

0.0004

1.1099

JPY/USD

-0.25

109.94

10-Year Note

-0.047

1.774%

 

 

Sector Movers Today

·     Casino & Leisure movers; casino stocks (WYNN, LVS, MLCO, MGM) fall as the World Health Organization is considering declaring an international public health emergency over the coronavirus in China; LVS was downgraded to equal-weight at Morgan Stanley as favor regional US stocks (BYD, ERI, PENN) as outsized US sports betting growth isn’t priced in/expect Macau to inflect but prefer cheaper HK stocks and are concerned about mass mkt forecasts

·     Bank movers; regional banks out with earnings as SBNY EPS of $2.78 beat by 8c with Q4 NIM 2.71% vs. 2.89% YoY and in-line expenses/CRE loan balances declined while C&I grew; CMA Q4 EPS of $1.85 beat by 11c and beat on provisions but guidance worse across NII, fees, expenses; BK was upgraded to buy at both Citi and Credit Suisse following underperformance since earnings, saying weakness overdone given less than 5% decline in estimates on higher expenses; UBS shares weigh on European banks as missed its key targets for 2019, as cut its mid-term guidance (now targets a return on Common Equity Tier 1 capital of between 12% and 15% and a cost-income ratio of 75%-78% through 2022); MS was downgraded at Citigroup and BAC downgraded by Atlantic Equities; USB downgraded to underperform at Credit Suisse

·     Biotech movers; several stocks rising amid the new virus outbreak in China, boosting sentiment for biotech names leveraged to drugs for infectious diseases (NVAX, NLNK, INO); GILD was downgraded at Guggenheim in broad sector call saying heading into 2020, KRYS, AVRO and ORTX are their top picks; EPZM active as the U.S. FDA is expected to decide whether to approve co’s drug tazemetostat to treat epithelioid sarcoma, a rare, slow growing type of cancer, by Jan. 23; BGNE said the Phase 3 trial of tislelizumab in combination with two chemotherapy regimens for the first-line treatment of squamous non-small cell lung cancer met its primary endpoint at the planned interim analysis; AMGN was upgraded to outperform at Evercore/ISI

·     Semiconductors; Citigroup positive on semi-equipment names LRCX, MKSI as raising their global WFE spend model to $47B/$55B (Street $45B/$50B) from $45B/$51B to reflect recent TSMC capex hike and media reports that Samsung will double memory equipment spend after a sharp decline last year (raise tgt on both); LRCX ests and tgt raised to $325 at Needham to reflect the improving WFE in 2020 and our updated outlook into 2021; INTC was upgraded to hold at Jefferies saying share loss, a transistor transition disaster, changing of the mgmt guard, and a CEO bonus that inflects with the stock in the low $60s tell us the table is set for change at INTC

·     Media & Telecom movers; LGF was downgraded to EW at Wells Fargo after cutting estimates at Starz; LBTYA downgraded to hold at Jefferies saying operational headwinds force them to cut estimates yet again as in LBTY’s levered equity model, profits in organic decline put the allocation of VOD deal proceeds for cash return in question; AVYA upgraded to buy at Goldman Sachs and raise tgt to $18 as believe the economics of the announced RingCentral deal are likely to drive Avaya’s revenue and profitability above consensus expectations

·     Retailers; LB was upgraded to overweight at KeyBanc saying valuation is attractive given the potential for a spin-off or sale of Victoria’s Secret/says the sale of the VS unit could fetch about $4-$6 per share, which would help LB’s Bath & Body Works with debt paydown; VFC said to explore strategic alternatives for the occupational portion of its work segment; COST upgraded to outperform at Oppenheimer and raise tgt to $335 from $300 saying recent underperformance offers an entry point as valuation is more attractive now; in hardline retail, DLTR, BIG and HOME downgraded at KeyBanc considering competitive pressure and EPS risks as believe Hardlines investors need to be increasingly selective (said continue to recommend DG while see TPX, PRPL and AAN as compelling stocks with company-specific drivers; TSCO was upgraded at Morgan Stanley while Wedbush was cautious as see more downside risk than upside risk

 

Stock GAINERS

·     ARAY +19%; upgraded to buy at BTIG after the company announced a long-term revenue outlook that calls for 8-12% revenue CAGR for FY21-23

·     COST +2%; upgraded to outperform at Oppenheimer and raise tgt to $335 from $300 saying recent underperformance offers an entry point as valuation is more attractive now

·     HAL +2%; swung to a Q4 loss as it booked impairments and other charges as well as lower revenue (but adjusted EPS topped estimates)

·     JBHT +2%; upgraded to outperform and $130 tgt at Raymond James on view that JBHT has seen peak pain across a number of metrics including EPS declines, ICS losses, intermodal volume optics

·     INTC +2%; upgraded to hold at Jefferies saying share loss, a transistor transition disaster, changing of the mgmt guard, and a CEO bonus that inflects with the stock in the low $60s tell us the table is set for change at INTC

·     OMI +16%; after Baird upgraded to outperform and raise tgt to $9

·     UBER +3%; agreed to sell its Indian food delivery unit to local rival Zomato, a deal that will give it a 9.99% stake in the latter (worth around $300M) and ~$35M in cash for reimbursement by Zomato of goods and services tax

 

Stock LAGGARDS

·     ARWR -13%; after Leerink initiated with an underperform and $32 tgt (Street low) as safety profile and regulatory path for lead asset ARO-AAT remains uncertain

·     CMA -3%; among top decliners in the S&P after quarterly earnings results

·     IP -3%; among weakness in containerboard stocks (WRK, GEF, PKG) after industry journal Pulp & Paper Week published U.S. domestic kraftliner prices for January, which were down $10/ton

·     MLCO -8%; shares weak as the World Health Organization is considering declaring an international public health emergency over the coronavirus in China – note this week is lunar holiday in China (shares of WYNN, MGM also down – LVS downgraded at Morgan Stanley)

·     RCL -3%; as cruise industry another sector hit amid fears of the new virus that is spreading in China as shares of CCL, NCLH also sliding

·     WW -7%; over the weekend was reported that competitor Noom signed up 55K on New Years Day to lose weight w their smartphone app

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Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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