Closing Recap

Friday, August 07, 2020

Equity Market Recap

·     U.S. stocks markets end the day mixed as SmallCaps outperformed with the Russell 2000 up around 1% and financials bounced after weeks of declines, while the strength in the tech heavy Nasdaq Composite was sold, falling for the first time in 8-sessions and down from record highs the day prior. The S&P 500 and Dow surged into the close on expectations President Trump will go forward with an executive order on extending unemployment benefits as well as an executive order dealing with evictions after deal talks fell apart again this afternoon. A combination of increased China tensions and no stimulus relief deal being reached in Washington weighed against the strong July nonfarm payroll data early. The dollar rallied, as commodities slip (gold down from record highs and snapped its 5-day win streak). With the bulk of Q2 earnings behind us (which were better than many had expected on sharply lower estimates), new factors roll into the markets including trade talks with China (set for late next week) while the Presidential election is less than 90 days away – another potential market moving catalyst. Meetings in Washington late Friday did not go well again as Treasury Sec Steven Mnuchin says he will come back when Democrats have a compromise they want to offer, while Democrat Pelosi says she told the White House to come back when you are ready to give us a higher number.

·     The U.S. added 1.76M jobs in July, topping consensus of 1.48M, while the unemployment rate fell to 10.2% from 11.1%, also topping consensus of 10.6%, and wages jumped. The data followed strong jobless claim improvement yesterday, but still doesn’t change the fact that the Fed will continue to support the economy through low rates (at least until late 2021 as per many Fed heads) and stimulus measures. Overnight, President Trump issued executive orders Thursday night banning “transactions” with the Chinese owners of the TikTok and WeChat apps starting Sept. 20. WeChat’s owner is Shenzhen-based tech giant Tencent Holdings Inc. (TCEHY). In a market positive, the “hot-spot” cases in the U.S. for coronavirus over the last month has started to see a substantial decline in cases, hospitalizations and deaths.

Economic Data

·     Nonfarm Payrolls for July showed an increase of 1.8M jobs vs. est. 1.48M (prior month 4.791M), while private payroll jobs added were 1.462M vs. est. 1.2M (prior revised to 4.737M) and manufacturing payroll jobs added only 26K vs. est. 255K – the unemployment rate slips to 10.2% from 11.1% (est. 10.6%) and average hourly earnings rose 0.2% vs. est. (-0.5%) decline

·     U.S. June wholesale inventories revised to -1.4% vs. est. drop -2.0%, while June wholesale sales rose +8.8% topping the 4.9% estimate and up from May +5.7%

Commodities

·     Gold prices fell for the first time in six-sessions, as December prices drop-$41.40 or 2% to settle the day at $2,028, falling from record highs the day prior as the dollar jumped on a strong monthly jobs report and as investors lock in some profits after gold prices had risen 14 of the last 15 days coming into the day. Given the “easy” monetary policy from the Fed, rates locked at historical lows for a long time, possible inflation fears, gold prices have jumped along with silver.

·     Oil prices ended the day lower, as WTI crude fell -73c or 1.74% to settle at $41.22 per barrel, pulling back from mid-week 5-month high levels – but still managed to rise 2.4% on the week with Brent up 2.5% the last 5-days. Talks between U.S. lawmakers over another round of stimulus have stalled, meanwhile, President Donald Trump threatened to pull White House reps out of talks and instead issue executive orders to address economic needs. Commodity prices overall slipped on the day as the dollar rebounded on better economic data.

Currencies & Treasuries

·     The dollar index (DXY) spiked on Friday, getting a boost from the stronger than expected monthly nonfarm and private payroll data, as the unemployment rate improved from the prior month, but is still holding above the 10% level. With today’s dollar recovery (euro down to 1.1783 from overnight highs 1.883), the dollar index ended slightly higher on the week – but follows a more than 4% decline the week prior on low rates and Fed/government printing money to help the economy. Treasury prices fell on the day but up on the week as yields bounce off near record lows on the week with investors adding to bonds and stocks on the week.

Sector News Breakdown

Consumer

·     Consumer Staples and Restaurants; NDLS a mover on earnings, with shares rising as Q2 comp sales fell (-30.1%) better than the -46.9% estimate while digital sales grew 135% and accounted for 74% of sales; HLF shares slide despite record breaking quarterly sales

·     Housing & Building Products; MHK delivered a large beat, driven by resilient margins in Flooring ROW while also announced a sizable restructuring effort that is expected to lower its costs by $110-120M or boost EBITDA by ~10%; ZG Q2 results came in ahead of estimates across all revenue and profitability segments as core Premier Agent business showed strong engagement and retention exiting Q2, and the company is guiding to ~15% y/y PA revenue growth

·     Casino & Leisure movers; CZR reported a Q2 EBITDAR beat while mgmt reiterated strong trends in the gambling focused regional markets, with sustainability potentially not fully contemplated in current estimates; online travel space gets a boost as BKNG quarterly results (though bad) not as bad as feared as new room night growth improved gradually across all regions with July at -35% ex-cancellations YoY growth from -85% in April; UBER shares fell in the ride hailing sector as 2q gross bookings fell -35% YoY to $10.22B vs. est. $10.42B; 2q mobility bookings fell 75% to $3.05B, while delivery bookings rose 106% to $6.96B; PENN, DKNG shares rise in part on continued excitement over sports betting after PENN CEO Jay Snowden appeared on CNBC

Energy

·     E&P sector; EOG among top decliners in energy sector after Q2 adj EPS loss (23c) worse than the estimate for (5c) loss and revs huge miss at $1,1B vs. est. above $2.4B; BP is preparing to sell a large chunk of its oil and gas assets even if crude prices rebound, because it wants to invest more in renewable energy as per Reuters report. Baker Hughes (BKR) total rig count fell -4 to 247 with oil rigs down -4 to 176, gas rigs unchanged at 69, and miscellaneous rigs unchanged at two

·     Utilities & Solar; solar stocks strong on FSLR and CSIQ results; FSLR 2Q net sales and EPS topped estimates, prompting an upgrade to buy from neutral from Bank America emphasizing confidence on bookings outlook, while CSIQ posts Q2 adj. profit of 9c vs. est. loss of (4c) helped by ~17% fall in operating expenses while revs of $695.8M topped views on good guidance

Financials

·     Bank movers; XLF, KIE, KRE all spike as financials jump midday amid rotation into laggards as tech and momentum names slide; GS revises its already reported Q2 results to boost litigation reserves by $2.01B after reaching an agreement with Malaysia to resolve investigations into its role in the country’s 1MDB investment fund scandal, according to its 10-Q filing; ICE, the owner of the New York Stock Exchange, said it would acquire mortgage-software firm Ellie Mae, from private-equity firm Thoma Bravo which values Ellie Mae at $11 billion, including debt (Thoma Bravo acquired Ellie Mae last year for $3.7B); ENV reported above consensus revenue and EPS largely due to outperformance in asset based revenue and also increased annual guide

Healthcare

·     Pharma movers; HZNP 11.8M share Secondary priced at $71.00; GWPH reported 2Q20 Epidiolex net sales of $117.7mn (inclusive of $6.6mn ex-US) in line with consensus; ALT completed the enrollment of 42 healthy subjects in a Phase 1b clinical trial of NasoShield, a single-dose intranasal anthrax vaccine candidate; EXEL reported net product revenue from the cabozantinib franchise of $178.7mn, falling below consensus of $189.6mn and representing ~7.7% yoy decline; PTCT and RHHBY said the FDA approved its oral treatment (risdiplam – sold under brand Evrysdi) for spinal muscular atrophy in adults and children two months and above

·     Biotech movers; BIIB shares jump after it and partner Eisai said the FDA has accepted its Biologics License Application (BLA) for aducanumab, an investigational treatment for Alzheimer’s disease as the application has been granted priority review; FRLN 8.824M share IPO priced at $18.00; the federal government of Switzerland has struck a deal with MRNA to supply with 4.5M doses of a COVID-19 vaccine if successfully developed; CLVS, PBYI, XLRN shares slipped after disappointing quarterly results as revs of key drugs missed consensus estimates 

·     Medical equipment and devices; ILMN shares fall as reported a lower-than-expected Q2 profit and revenue, hurt by pandemic-related disruption in its customers’ operations and withdraws its 2020 full-year revenue and earnings per share outlook (downgraded at Piper); CODX says its test for detecting SARS-CoV-2, the virus that causes COVID-19, was authorized for use in Australia; IRTC Reported Q2 revenue of $50.9M (-3% Y/Y) solidly outperformed the consensus estimate of $42.2M, with top-line results showing a faster-than anticipated rebound across the business.

·     Healthcare services and providers; CHNG 15M share Block Trade priced at $12.50; ANPC shares jump after saying it has been validating its COVID-19 antibody test for commercial use at its California lab and expects the process to be completed by second half of 2020

Industrials & Materials

·     Industrial & Machinery; RBA shares rise after Q2 EPS beat of 54c on revs $389M vs. est. 36c and $343M; in the waste sector, RSG topped consensus views which followed in-line results from peer WCN the day prior; AAXN shares dropped following tepid Q3 revenue outlook

·     Transports; UPS shares outperformed, hitting a new record high after announcing plans for hefty holiday fee increases and surcharges as home deliveries climb – FDX followed suit later by announcing some increases for international package surcharges; airlines (AAL, DAL, UAL) have been resilient this week with talk of additional aid from the government – at same time, good data overnight as TSA passenger data for y’day: 743,599 – best Thurs since March https://www.tsa.gov/coronavirus/passenger-throughput

·     Metals & Materials; LTHM shares fall as Q2 EPS of 0c and revs $64.9M (down 43% YoY) missed consensus views saying demand for lithium was very weak, particularly in electric vehicle applications, and Q2 adjusted EBITDA plunged 77% Y/Y to $6.4M; CF shares upgraded to buy at Citigroup with a $38 price target, raised from $29, saying a good monsoon season has provided a big lift to India urea demand and could lead to record imports in 2020

Technology, Media & Telecom

·     Software movers; AYX shares fall as Q2 EPS/revs beat and ARR totaled $430M up 40% YoY but bookings were flat and the company guided revenue lower for Q3 and year (sees revenue of $460-465M for year, below the $505.14M consensus; DBX shares slip after Q2 EPS and revs top views, helped by increased demand for its cloud services software, but was overshadowed by the departure of its CFO (said Q2 paying users rose to 15M from 13.6M a year earlier); NLOK reported a strong F1Q, as adjusted constant currency bookings accelerated to 7% Y/Y growth, and revenue and EPS significantly exceeded consensus; RPD reported a better than expected 2Q, led by ARR growth of 31% Y/Y that was significantly above forecast; SAIL reported strong 2Q20 results with revenue, billings, and operating leverage significantly ahead of our and Street expectations primarily due to strength in the company’s license business (up 80.4% yoy) as well as strong performance in its subscription business (up 36.2% yoy); TWLO 5.06M share Secondary priced at $247.00 and ZNGA 49M share secondary priced at $9.70; TDC rises as Cowen said 2Q results were “encouraging” as net-new annual recurring revenue and free cash flow exceeded expectations; the increase in margin outlook should also be well received; FSLY down again after Trump unveils sweeping bans on Chinese owners of messaging app WeChat and video-sharing app TikTok – shares fell over 17% yesterday after TikTok fears overshadowed the beat and raise qtr (CEO noted on c/c TikTok was its largest customer, representing 12% of revenue in 1H20)

·     HCM software; Truist notes in earnings recap that EVBG reported upside to revenue and profitability metrics and highlighted continued CEM traction and ongoing growth drivers related to return to work and COVID-19; UPWK 2Q results reflected upside across revenue and adjusted EBITDA while organic growth of 8% y/y was solidly above target range of 3% – 7%; PCTY reported revenue and EBITDA upside and highlighted solid bookings momentum and strong July sales month with these positive demand signals driving N-T growth investment

·     Internet; GRPN a standout after earnings as Q2 EPS loss (93c) on revs $395.6M vs. est. loss ($2.64) and $201.6M; for 2021, we expect to realize approximately $200 million in savings from our restructuring actions; STMP jumps as 2Q adjusted EPS $3.11 on revs $206.7M well above the consensus $1.09 and $144M, while mailing and shipping revenue rise 46% YoY and also boosted year forecast; CARG shares fell after the company reported lower marketplace subscription revenue of $79.96M (-38% Y/Y) on operations shutdown in Germany, Italy, and Spain in its active cost-saving efforts; YELP shares tumbled following its earnings, while TRUE surged on results; Trump’s Executive Order banning transactions with Chinese owners of TikTok and WeChat pressures Chinese internet stocks TCEHY, BABA, JD

·     Security software; SAIL blew away expectations and NET proved it can sustain hyper growth for multiple years as it launches new services and enterprise adoption accelerates according to Jefferies; DDOG growth decelerated but fundamentals remain intact; FTNT 2Q topline and profitability upside overshadowed by inline billings, decelerating 7ppts to 14% YoY

·     Media & Telecom movers; DISH Q2 revs of $3.19B tops the $3.1B est; loses 40,000 Dish TV net subscribers, lower than loss of 79,000 subscribers a year earlier; net income attributable to co rises to $452 mln, or 78c from $317 mln, or 60c (more); LBRDA and GLIBA entered into a definitive merger agreement last night under which Liberty Broadband has agreed to acquire GCI Liberty in a stock-for-stock merger; TMUS shares hit record high after co adds more monthly phone subscribers than expected in Q2, posts revs beat; media and movie theatre stocks jumped after a District Court judge nixed a ban that prevented studios from owning theaters (AMC, CNK, IMAX, LGF)

·     IT Services; several earnings out last night for group, recapped by Cowen saying: G strong execution drives big 2Q delta. It actually grew 3% vs. expected contraction of -5% and showed margin expansion on good cost control. It called out the 2Q revenue trough and sees stable margin from here, and a return to double digit global client revenue growth late next year (FY21); DXC beat on the quarter, but more importantly, communicated that progress on fixing troubled accounts is largely complete and its winning new work. It reported a B2B of 1.2x and affirmed asset sale plans; CNDT soars as beats across board on 2Q and an outsized new business bookings with TCV up 90% y/y with annual recurring revenue up 25% had the stock up over 50% last night