Closing Recap

Tuesday, August 04, 2020

Equity Market Recap

·     U.S. stocks advanced again on Tuesday as the Nasdaq logged its 30th record close of 2020 (rising a 5^th consecutive session) while the S&P 500 ended above 3,300 (rising a 3^rd straight session) as large-cap tech stocks take a breather and lagging financials, staples and REITs outperformed. Treasury markets advanced as yields slipped back near record lows (2-yr 0.11%) while gold surged again, adding to its recent win streak with a close above the $2,000 an ounce level. No new news out of Washington as the White House and Democrats agree to reach a corona-virus stimulus relief package by the end of the week (despite both sides still not budging on certain key points). Late Tuesday night, the U.S. and China agreed to high-level talks on Aug. 15 to assess Beijing’s compliance with the bilateral trade agreement signed early this year, according to people briefed on the matter. The trade pact has emerged as one of the few remaining avenues for the two countries to engage on matters of mutual concern. Relations have deteriorated in recent months, with the Trump administration hammering Beijing over the coronavirus outbreak, Hong Kong among other things. Oil prices rose 69c to $41.70 per barrel.

Sector News Breakdown

Consumer

·     Retailers; RL the latest retailer with disappointing results as Q1 revenue fell -66% YoY to $487M, missing the $610M estimate (comes ahead of CPRI and KTB results later this week while TPR and FOSL report next week); FIT shares slipped after headlines Google’s Fitbit deal faces in-depth EU probe amid data concerns

·     Auto’s, Electric vehicle sector; BLNK rises as Cushman & Wakefield agreed to engage brokerage force, network of property managers to offer blink services; Ford (F) announced COO Jim Farley to become CEO starting October 1^st as Hackett retiring; NKLA shares active ahead of earnings after the bell (shares bounced the last 2-days); LEA posted a narrower-than-expected Q2 loss

·     Consumer Staples; USFD reports sales fell 29.2% in Q2 off a 28.0% decline in case volume, both negatively impacted by social distancing measures and required closures of non-essential businesses that occurred during the quarter as a result of COVID-19; DEO reports organic sales fell 8.4% in FY20 to miss the consensus estimate of -6.3% while organic sales slumped the most in Asia with a 16% decline, while North America was the only region with growth; EPC falls after missing estimates for quarterly profit and net sales, as consumers staying at home due to COVID-19 lockdowns (less shaving)

·     Housing & Building Products; LGIH guidance for home closings in 2020 of 8.0K-8.8K exceeds the consensus estimate of 7.7K – positive momentum in May and June continued into July, helped by low interest rates and an undersupply of existing homes; SITE 2.15M share Spot Secondary priced at $123.00; TREX Q2 results easily top views on higher Q3 sales view of $215M-$225M vs. est. $194M, but analysts raised concerns about the forecast, which suggests gross margins will decline in the second half; TCS downgraded to sell at Goldman Sachs as sees downside risk due to the unlikely nature of a positive sales inflection, heightened competition, demand pull-forward, and the highly discretionary nature of the category; BMCH upgraded at Wedbush after quarterly results were above expectations on sales/EBITDA, including expense control in SG&A

·     Casino & Leisure movers; in lodging, Hyatt (H) Q2 revenue of $250M missed the $306.7M estimate as comp hotel RevPAR was down 89.4% during the quarter, although sequential improvement was seen since April. Greater China, where the impacts of the COVID-19 pandemic were first reported, continues to lead the recovery; rebound early in pandemic related names as cruise lines partially recover after recent pullbacks (CCL, RCL, NCLH)

·     Services; CHGG tgt raised by a few analysts as delivered a strong 2Q beat, with organic Chegg subscriber growth of ~58% y/y being the most impressive; PBI collaborates with UPS to offer businesses benefit from savings on UPS office shipping products.

Energy

·     E&P sector; BP halved its dividend overnight to 5.25c after reporting a record $6.7B loss; the figure included $9.2B in impairments across the group, largely due to BP’s revised forecast for oil and gas prices over the next three decades, and $1.7B of exploration write-offs; NBL downgraded at Truist following pending deal with CVX;

·     Utilities & Solar; SEDG reported 2Q20 results at the high end of guidance and above consensus (revs $331.9M vs. est. $318.4M), with GM slightly ahead of expectations while guiding revenue for 3Q20 in line, with GM at the midpoint 100bps ahead of the Street estimate; CSIQ said it has commenced the construction of the 10 MWp solar power plant in Germany, which will be powered with over 22,900 pieces of the company’s high-efficiency mono-PERC modules

Financials

·     REITs; INVH reported 2Q Core FFO/share of $0.32 (+4.4% y/y), vs. est. $0.31 and posted same store revenue, expense, and NOI growth of 2.0%, 1.3%, and 2.3%, respectively, compared to JPMe at 2.0%; VNO reported 2Q FFO/share on OP basis of $1.06, which was $0.06 ahead of consensus while leasing stats were actually a bit better than expected in 2Q with office spreads coming in higher (+12.1% GAAP/+14.1% cash); ESS reported 2Q Core FFO/share of $3.missing consensus of $3.32 while core NOI growth was much weaker than expected with y/y same store revenue, expense, and NOI growth of -3.8%, +6.0%, and -7.4%, respectively

Healthcare

·     Pharma movers; MNK shares plunge after saying it is working with external advisers to explore options including the possibility of a filing for reorganization in bankruptcy under Chapter 11 in the near-term (also reported earnings for quarter that beat); ELOX announced it has received US Orphan Drug Designation for ELX-02 for the treatment of Cystic Fibrosis; DBVT shares drop as the FDA declines to approve its experimental skin patch called Viaskin Peanut to treat peanut allergies in children aged 4 to 11/FDA indicated need to modify patch and conduct an additional human study

·     Biotech movers; VYGR announces termination of its research collaborations with biopharmaceutical firm ABBV to study and develop a type of antibody; NBIX reported 2Q20 diluted GAAP EPS of $0.81 on revenue of $302M, compared to Street estimates of $0.61 and $261M. Ingrezza sales grew by 16% versus 1Q20

·     Medical equipment and devices; TCMD reported 2Q20 revenue/EPS of $35.1M/($0.72), behind both consensus’ $36.9M/($0.19)E, with EPS pressured by a $4M impairment for Airwear inventory write-off; ABMD said the FDA gives an emergency use authorization to co’s left-sided invasive heart pump, Impella, to help patients suffering from COVID-19-related heart and lung failure

·     Healthcare services and providers; TDOC, ONEM, EHTH shares active after Cowen noted that policies with biggest impact in Centers for Medicare & Medicaid Services’ (CMS) Monday proposal for expanding telehealth services beyond pandemic will require additional legislation – CMS proposed policies to expand Medicare access to some telehealth services permanently, beyond the COVID-19 public health emergency; MCK was upgraded to buy at Deutsche Bank

Industrials & Materials

·     Industrial & Machinery; EMR raises guidance for 2020 after adjusted EPS, which excludes restructuring and related costs, was $0.80, exceeding midpoint of management guidance of $0.60, driven primarily by aggressive cost reduction actions and a lower effective tax rate

·     Transports; YRCW Q2 EPS loss ($1.09) on revs $1.02B vs. est. loss ($1.66) and $1.01B; secures $700M investment from US Treasury; LSTR was upgraded to neutral from sell based on our belief of being past the bottom in the truck cycle and our confidence that our previously stated views around capacity constraints and cycle tightening are coming to fruition; airlines rebounded with broader markets (AAL, LUV, JBLU)

·     Materials; MOS posted a Q2 profit that easily topped consensus with an upbeat outlook amid strengthening fertilizer/agriculture markets in 2H (positive for NTR, CF) – Q2 potash sales volume of 2.6 mln tonnes vs. 2.2 mln tonnes a year earlier; CTT downgraded to Sector Perform from Outperform at RBC Capital post Q2 results on valuation; SON downgraded to hold from buy at Argus as the shares are approaching our former target price of $52 – think the company’s products and services will be in high demand as the nation begins to rebuild in 2021, but near term earnings are a risk.

·     Metals movers; Morgan Stanley cautious on copper producers as downgraded SCCO from Equal weight to Underweight saying despite good cash flow generation, SCCO’s premium valuation vs. peers and its own history seems unwarranted – firm also downgraded FCX with $12.50 tgt as believe good news is already priced into the stock at current levels; RS upgraded to buy with $115 tgt at Deutsche Bank as believe RS has further added credibility to its business model and showed the strength of its management team in handling a significant decrease in activity

·     Aerospace & Defense; BA announced a mixed shelf offering overnight; RBC Capital upgrades AJRD to Outperform while downgrades HXL to Sector Perform saying they think defense exposure continues to provide a more stable fundamental back drop and while investor concerns regarding the outlook for defense budgets has weighed on the sector’s valuation, we think it’s been overstated. The group has appreciated on average by 4% over the past 3 months, vs. +16% for the S&P 500; SPCE shares dip following 20.5M share stock offering (and earnings)

Technology, Media & Telecom

·     Internet; TWTR is being probed by the Federal Trade Commission over alleged violations in its use of private data for advertising, according to a Form 10-Q filed Monday – Twitter said the probe may lead to a fine of $150M to $250M and that it has recorded an accrual of $150M; BKNG says it is looking to lay off 25% of its employees as a result of the COVID-19

·     Semiconductors; CRUS Q1 results that beat expectations, though it gave an outlook that was “a bit soft due to iPhone 12 delays; and 2) Android headwinds at Huawei/Samsung and share loss, as revs declined 77% q/q and 70% y/y (note CRUS derives more than 80% of its revenue from Apple, according to supply-chain data compiled by Bloomberg); KLAC delivered a strong beat and raise as demand for semiconductor process control equipment remains high due to expanding leading-edge capacity and as demand for specialty process and PCB equipment exceeded expectations; STX was upgraded to neutral from sell at UBS and raise tgt to $46 from $41 as the 2H risk they highlighted at the end of the last year has largely occurred and the stock has underperformed the S&P by roughly 27% YTD; AMD rises after Jefferies price target to $95 saying they think INTC delays are ‘systemic’ and they think AMD share gains will accelerate, and that the AMD bull-case will morph from 30% share to 50% over the next 12-18 months.

·     Software & Hardware movers; TTWO announced record FY1Q results that came in well ahead of consensus, continuing a familiar theme among video game publishers that have reported quarterly earnings to date (beat helped by largest franchises, including GTA + NBA 2K); VRNS Q2 results were above expectations for virtually all headline metrics with ARR of $235.7M that grew +52% y/y vs. consensus of $225.5M or +45% as ARR comps become more challenging in the 2H/20 and Q3/20 guidance was above expectations; RNG and FIVN each reported strong revenue, earnings and cash flow upside in 2Q20, with the companies benefitting from robust cloud communications and contact center adoption; MIME posted $0.22/$115M, beating the consensus forecast of $0.16/$113M as revs rose 16% y/y (21% in constant currency) and raised its FY21 outlook for both revenue and adjusted EBITDA; HLIT shares jump following earnings beat, guides FQ4 and FY20 above estimates;

·     Media & Telecom movers; DIS expected to report earnings after the close tonight; TMUS says launches nationwide standalone 5G network