Closing Recap

Monday, December 14, 2020

Equity Market Recap

·     Major U.S. averages were initially higher, led by strength in technology, biotech and SmallCap value names after the launch of PFE/BNTX’s nationwide COVID-19 vaccine campaign in the U.S., while Alexion Pharmaceuticals (ALXN) shares surged following a $39 billion buyout offer from AstraZeneca (AZN) in one of the year’s biggest deals, giving a boost to the entire sector. Administration of the vaccine developed by Pfizer and its German partner began today following emergency-use approval from federal regulators last Friday with expected emergency use approval for Moderna’s drug either this or next week. While markets opened broadly higher, including gains in some in airlines, cruise lines, retailers, and restaurants (names seen as the biggest beneficiaries of a vaccine) – they could not hold those levels, seeing a “sell the news” reaction as stocks slipped into the close. Still, markets await news of a possible stimulus relief bill as talks are ongoing in Washington. Focus turns to the FOMC meeting mid-week and comments on asset purchases as well as early voting in a pair of U.S. Senate races in Georgia that will determine control of the chamber. The U.S. dollar index (DXY) falls to lowest since April 2018 at 90.451, down 0.4% on day while Treasury yield erase early gains, as the 10-year slipped backed below 0.9%. Oil prices rise as gold slipped.

Commodities

·     Oil prices came into the day riding a 6-week winning streak, with Brent crude climbing past $50 a barrel as another tanker explosion in the Middle East raised supply concerns, and as the first Covid-19 vaccine was distributed across the U.S. The explosion at the Saudi Arabian port of Jeddah comes three weeks after an oil tanker was damaged in a possible attack at the Saudi terminal of Shuqaiq. Oil prices pared gains after OPEC’s latest Monthly Oil Market Report cut its forecast for 1Q 2021 demand by 1M bpd, offsetting overnight vaccine optimism. On the day, WTI crude rose 42c, or 0.9% to settle at $46.99 per barrel, while Brent rose 32c to $50.29 per barrel.

·     Gold prices slid -$11.50 or 0.6% to settle at $1,832.10 an ounce, marking its lowest level since the beginning of the month despite the U.S. dollar hitting lowest level since April 2018 as the rollout of a COVID-19 vaccine in the United States drove optimism in wider financial markets with investors banking on a resultant economic recovery. Hopes of a global recovery and a decision to extend trade talks between Britain and the EU also supported markets.

Sector News Breakdown

Consumer

·     Retailers; after weeks of recovery, retailers were broadly lower on Monday (KSS, M, JWN, etc.); JPMorgan downgraded BJ and MIK to Neutral from Overweight and removing both stocks from JPM’s Analyst Focus List and also adding OW-rated ULTA to the Analyst Focus List; DLTH upgraded to buy from hold at Stifel as product innovation, new customers acquired during 2020, and improved digital competencies set the stage for success; HBI downgraded to hold from buy at Stifel and cut tgt to $15 from $17 saying while constructive on long-term opportunities, they see it prudent to take a wait and see approach on HBI shares into 2021; BBBY announces approval of new $150 mln accelerated share repurchase program additive to current $225 mln accelerated share repurchase program; FOSL slow roll lower all day as retail lagging, shares down over 20% late day on profit taking in the group

·     Auto sector; NIO -6% as 60M share secondary priced at $39; TSLA informed employees at its Fremont factory that high-end Model S and X production lines will close from December 24 to January 11. The 18-day shutdown is longer than usual and not the same as Model 3 and Model Y production; Barron’s said electric vehicles (EVs) are the future of the auto industry, noting XPEV ADRs have tripled, LI is up 180% from its July 30 IPO and NIO is up nearly 600%, adding that while It can be hard to part with a stock after such enormous gains, taking profits in the Chinese EV trio looks like the prudent thing to do as competition is heating up in the local market

·     Consumer Staples & Restaurants; CLX upgraded to buy from neutral at Citigroup and raise tgt to $249 from $238 as consider valuation to be attractive; Barclays anticipates cleaning and sanitation companies to emerge as long-term winners of the Covid-19 pandemic, calling for a 10-20% growth in SSS compared to pre-pandemic, predicting a share consolidation in ECL, market share growth for PG compelling growth opportunities for CLX, and growth prospects for ARMK

·     Restaurants; MCD upgraded to buy from neutral and raise tgt to $240 from $230 at UBS as believe risk/reward now skews significantly to the upside and remains one of the more compelling and visible US comp catalyst paths over the next several months and through ’21; DENN initiated with an Overweight rating and $16 tgt and view the NTM risk-reward as attractive at Wells Fargo; Cowen lifts their target on SHAK to $83 from $62 and keeps its Market Perform rating; JPMorgan is optimistic on restaurants despite near-term negativity in sales as these companies will survive and they forecast Covid-related restrictions ending at end of Q2. In casual dining, they are OW on BLMN, saying it stands out as the cheapest stock in the space and prefer it to EAT, remain OW on DRI ahead of Friday’s earnings report, and are UW on CAKE and TXRH as they are currently trading at their respective price targets

·     Leisure and Gaming; Cruise names were active as vaccine rollout begins (CCL, NCLH, RCL); DASH downgraded to neutral from buy at Davidson, turns cautious following the sizzling first day run for DoorDash, noting that there is little room for an operational hiccup at the current valuation level; LYV and other leisure names saw early strength in vaccine rollout news; AMC tumbled today as upbeat news from a vaccine rollout are overshadowed by new liquidity concerns

Energy

·     Energy stock movers: oil prices erased overnight gains after OPEC’s latest Monthly Oil Market Report cut its forecast for 1Q 2021 demand by 1M bpd, offsetting overnight vaccine optimism as PFE inoculations take place today in parts of the U.S. after FDA emergency use approval Friday. Also boosting price initially were supply fears as a shipping firm said an oil tanker was hit in the Saudi port of Jeddah, which the energy ministry called a terrorist act. OPEC sees global oil demand at 93.97M bpd in the first three months of next year, down from 94.95M bpd. For all of 2021, OPEC cut its demand 360K bpd. That would be up 6.25M bpd from 2020, or nearly 7%.

·     Energy movers; Cowen raises its price target on XEL to $48 from $38, saying the company is a Best Idea for 2021 on growing FCF and peer-leading dividend yield; EC board approved its 2021 investment plan for a $3.5-4B budget, of which 80% would be allocated to projects in Colombia with the remaining 20% to projects in the US and Brazil, and also includes $150M for decarbonization projects and $90M for water management; RDSand Eni (E) paid $1.3B to Kazakhstan to settle a revenue sharing conflict, and the deal includes new terms for production sharing and plans to boost production with a planned $1B expansion project; XOM released its emission reduction plans to be consistent with the Paris Agreement and anticipates meeting 2020 goals and aims for industry-leading greenhouse gas performance by 2030. Separately, activist investor Engine No. 1 will nominate 4 directors to the company’s board today

·     Refiners; MUSA it would buy QuickChek Corp for $645 million in cash, as the gas station and convenience store operator plans to expand its presence in the New Jersey and New York area; PSX unveiled a $1.7B capital budget for 2021, planning to invest $610M in midstream and $521M for reliability, safety, and environmental projects, in addition to pre-construction engineering and designs costs to reconfigure its San Francisco refinery to produce renewable fuels;

·     Utilities & Solar; AEP was upgraded to Buy from Neutral and its price target was raised to $84 from $81 at Mizuho who believes that there is a high likelihood of settlement in AEP Ohio’s distribution rate after the parties filed for a one-month delay in the regulatory calendar, which will provide an opportunity for the parties to engage in settlement discussions in early January; SWI, who serves government customers across the executive branch, military, and intelligence, saw its shares fall after a cyberattack of U.S. government facilities and a government directive to power down its Orion platform; AQN outlined its five-year capital plan at its Investor Day today, expecting to spend $9.4B to improve its reliability and increase renewable energy investments, and the company also guided FY21 EPS to be $0.71-0.76 with earnings expected to grow earnings 8-10% per year through 2025, and reiterated plans to raise its dividend by 10%; MDU raised FY20 EPS guidance to $1.92-2.02 from $1.80-1.90

Financials

·     Bank movers; HBAN and TCF announced the signing of a definitive agreement under which the companies will combine in an all-stock merger with a total market value of approximately $22 billion to create a top 10 U.S. regional bank https://on.mktw.net/37lrk5X in online brokers, SCHW said new brokerage accounts were 430 thousand in November, up over 200% from November 2019 and total client assets were $6.42 trillion as of month-end November, up 63% from November 2019. Also, reports Fidelity’s fee increase creates opportunity for Schwab and Interactive Brokers https://bit.ly/3mfIoy7 

·     Asset managers and Insurance; MCY positive mention in Barron’s; Morgan Stanley said with trading and equity/debt capital markets businesses likely moving lower in 2021 after a strong 2020, they believe the M&A advisors are the best way to play growing capital markets revenues in 2021 and the team sees more room for upside as highlights EVR as the best way to play and upgrades LAZ to Equal-weight and downgraded HLI to UW

·     REITs; PSA rises on reports representatives of Elliott and Public Storage have had multiple discussions in recent weeks about changes that could be made at the company, according to people familiar with the matter – WSJ https://on.wsj.com/2LtUjvz ; Jefferies initiates PFSI, RKT, BKI, NRZ with buys as they are bullish on Real Estate Finance industry into 2021 for the best-positioned operators as proprietary data and analysis indicates 18%+ upside to the industry’s 2021 mortgage origination forecasts; Keybanc raised retail REITs to Overweight from Sector Weight and remain Overweight the apartment REITs while cut industrial and data center REITs to Sector Weight and remain Sector Weight – individual upgraded WELL, CTRE, RPT, AKR, BDN to OW from SW, raised MAC, NHI to SW from OW – downgraded DLR, PEAK, DOC, ROIC, BXP, XHR

Healthcare

·     Pharma and Vaccine related movers; FDA on Friday issued an emergency authorization for a Covid-19 vaccine developed by PFE and its German partner BNTX as inoculations could begin as early as Monday following the news; MRNA says will produce up to 800Mm vaccine doses in US, Europe in 2021 – also a panel of U.S. FDA advisers will discuss Moderna’s vaccine’s emergency use authorization this week; AMRN says VASCEPA (icosapent ethyl)-related scientific findings during the NLA Scientific Sessions 2020, held from December 10 – 12, 2020; ARPO falls after reported topline results from a mid-stage study of its drug razuprotafib in patients with glaucoma; NVAX rises after Jefferies init buy and $200 tgt and overall positive vaccine sentiment news on rollout of shots today from PFE

·     M&A news in immunology; ALXN to be acquired by AZN in a $39B deal, with ALXN holders getting $60 in cash and 2.1243 AstraZeneca American Depositary Shares, or ADSs, with each ADS representing one-half of one ordinary share https://reut.rs/345J17i; BMRN shares rise in sympathy from ALXN/AZN $39B deal – Stifel said they think the deal is positive for APLS, ARGX and IMVT and would expect them to trade up on the news: said APLS given its complement focused pipeline and ARGX due to their focus on immunology, both of which were key drivers of AZN/ALXN deal

·     Biotech movers; INCY said the Phase 3 RUXCOVID study evaluating the safety and efficacy of ruxolitinib, a JAK1/JAK2 inhibitor, plus standard-of-care, or SoC, as a treatment for patients 12 years and older with COVID-19 associated cytokine storm did not meet its primary endpoint; CVAC has enrolled the first participant in the pivotal Phase 2b/3 study of its mRNA vaccine candidate, CVnCoV, against COVID-19; TCRR released positive data from the TC-210 Phase I/II trial, supporting the idea that the drug has activity in both malignant pleural mesothelioma and ovarian cancer, with the OC patient from the July data release converting to a PR from SD; GMDA fell after saying based on U.S. FDA feedback, it now plans to submit marketing application for omidubicel, an investigational bone marrow transplant therapy for patients with blood cancer, in H2 2021 (had planned to submit application by end-2020); SYBX jumps after announced its SYNB1891 drug has advanced into the combination therapy stage of the ongoing Phase 1 trial.

·     In biotech research, Guggenheim moved HRTX to Best Idea ahead of a pivotal year with the CINV franchise set to return to growth and HTX-011 mid-year PDUFA. Although we remove HZNP as our Best Idea given fewer near-term catalysts, we remain Buy rated on its attractive long-term outlook with high conviction in Tepezza (>$3B) and Krystexxa (~$1B) peak sales. In generics, a stable industry backdrop has us incrementally more positive on the sector, and we upgrade AMRX to Buy on above-consensus estimates and an improved generics outlook

·     Healthcare equipment, services and providers; in hospitals, HCA upgraded to Overweight and tgt raised to $194 from $143 at JPMorgan saying it continues to outpace peers in terms of revenue and EBITDA growth even during the COVID-19 pandemic’ CODX announced that it has sold over 10 million of its Logix Smart COVID-19 Test Kits to its domestic and international network of laboratories, hospitals, and distributors – sees Q4 revenue exceeding Q3; INGN rises after Keybanc upgraded to OW earlier as walked away from a virtual fireside chat with INGN’s CEO and CFO more confident in the potential for a turnaround starting in 2021

Industrials & Materials

·     Industrial & Machinery; MMM reports Nov sales of $2.9B (+8% Y/Y), organic local-currency sales increased 7%, while divestitures decreased sales by 1% and forex increased sales by 2% Y/Y; IR upgraded to buy and raise tgt to $53 from $44 and downgrade JCI to neutral w/$51 tgt in at Citigroup as prefer companies with a balanced/diversified mix of end market/cyclical exposure + self-help (DOV, HON, EMR, FTV); select "early cycle" names (ROK, GTES); and emerging L-T growers (APG, VRT, VNT); Wells Fargo downgraded GWW to Underweight (from EW) and raised MSM to Equal Weight (from UW) saying their ’21 outlook remains unchanged at the top, with WCC and AIT our top picks. After favoring quality through the downturn, with FAST our top pick a significant portion of ’20, we’re looking for the turn and value names with more to give in ’21.

·     Transports; Wells Fargo with several changes as they upgraded railcars GBX and TRN to Overweight from Underweight and also raised Ryder (R) to Overweight from Equal weight while downgraded SNDR and WERN to Underweight in trucking saying they prefer to focus on stocks that have strong structural stories, where we see strong capital allocation, self-help mechanisms, and the opportunity to gain share within their respective sub-industries, hence XPO, KNX, JBHT and HUBG remain top ideas; FDX estimates and tgt raised to $365 from $322 at Credit Suisse citing accelerating eCommerce trends and a peak season that could prove to be stronger and longer (particularly in the lead-up months of Oct and Nov), as well as continued tightness in international airfreight markets

·     Metals & Materials; TSE entered into a binding agreement with Arkema to acquire its polymethyl methacrylates and activated methyl methacrylates businesses together for ~$1.36B; UUUU entered into a supply agreement with CC to process monazite at its White Mesa mill in Utah, starting in Q1 2021; Morgan Stanley highlights that post extremely favorable vaccine data, it is time both to value equities off of 2022 and to continue to broaden OW ratings across the various sub-sectors of the Chemicals sector as upgraded CTVA and downgraded RPM to EW and cut AVNT as well – remains UW ALB and other tactical ideas into 2021 include: 1) If he were looking for more commodity chemical exposure, he would look at the Ti02 chain where he believes positive atmospherics around a potential pricing cycle in 2021 could lead to further share price appreciation in the near term; 2) If he were looking for more Ag exposure he would go to either: i) MOS (EW, $25 PT) or BG (EW, $72 PT); and 3) If he were looking for more specialty chemical exposure and a hedge against the ag upcycle reversing he would go to FMC

·     Aerospace & Defense; SPCE shares drop after Virgin Galactic’s (SPCE) latest spaceflight test was cut short after the engine of its SpaceShipTwo vehicle ‘Unity’ did not fully ignite as it attempted to launch above New Mexico on Saturday – flight did not reach space as we had been planning; BA has expanded inspections of newly produced 787 Dreamliners after finding a previously disclosed manufacturing defect in sections of the jet where it hadn’t been initially detected, the WSJ reported

Technology, Media & Telecom

·     Internet; GOOGL had technology issues as users of Alphabet’s Gmail services, some Google search functions, Google Docs and YouTube reported outages across the U.S., Europe and other parts of the world on Monday which began around 7 a.m. Eastern Time but were up and running around 8:00 AM; AMZN tgt raised to $4,350.00 from $4,150.00 at Cowen while maintaining an Outperform rating and shares were named a Best Idea for 2021; NFLX, AMZN, TWTR outperformed in the Internet space; FTC issues orders to nine social media and video streaming services seeking data about how they collect, use, and present information – orders being sent to AMZN, ByteDance, Discord, FB, Reddit, SNAP, TWTR, WhatsApp and YouTube

·     Software movers; PS to be acquired by Vista Equity Partners in $3.5B deal with holders receiving $20.26 per share in an all-cash transaction valued at about $3.5B. https://on.wsj.com/2Ko27yE ; CTSH announces an increase of $2B under current buyback plan; ZNGA announces proposed private offering of $750 million of convertible senior notes; Codemasters considers a higher acquisition bid by Codex Games Limited, an indirect subsidiary of EA, over TTWO’s offer of 485 pence per share in cash and stock https://bit.ly/3a9zKiz ; TWLO tgt raised to $420 at Cowen saying despite shares being up 230% YTD they think the strength of its end-markets, its recent strategic moves and the dominant position make it an attractive long-term holding; SNOW IPO lockup expiration comes Tuesday 12/15, just three months after its debut

·     Hardware & Component news; NTNX upgraded to outperform from perform at Oppenheimer with $40 tgt as believe Nutanix’s new CEO can improve operational execution and cost discipline, which could help investors re-focus on Nutanix’s best-of-breed HCI/SaaS portfolio; INSG rises as Vodafone Qatar is the first operator in the region to launch the next generation Inseego, its 5G MiFi® M2000, a 5G mobile hotspot that delivers breakthrough performance with features designed to provide the ultimate 5G experience for everyone; ST was upgraded to OW and $63 tgt at Morgan Stanley calling it the top pick for broad based suppliers in 2021, offering the greatest upside potential at 28% vs. 10% for the median in his coverage