Closing Recap

Thursday, February 06, 2020

Equity Market Recap

·     U.S. stocks extend their weekly advance, led by new record highs for the S&P 500, while all major averages were higher on better economic data, mixed earnings and positive trade news with China overnight. Markets opened the trading session higher, holding gains overnight as China announced it will cut tariffs on $75 billion of U.S. imports by half, starting next week. China’s Ministry of Finance said 10% tariffs on some U.S. goods would be cut to 5%, while other goods that have faced 5% levies will have those cut to 2.5%, starting Feb. 14. The news was welcomed with markets in Asia and Europe rising, spilling over to the U.S. ahead of a very busy day of earnings results. Still, the concern of the growing number of cases and related deaths due to the coronavirus remains, with the number of confirmed cases jumped by 3,694 to 28,018, and the death toll rose to 563 early Thursday. Boeing (BA) helped pace the Dow Jones gains as the company said it is fixing a new software problem on Max 737/FAA set for certification flight within weeks, while TWTR shares jump on the NASDAQ following its earnings results.

Economic Data

·     Productivity for Q4-P rose 1.4%, slightly below the 1.6% estimate (nonfarm productivity fell 0.2% in Q3) while unit labor costs rose 1.4% (vs. est. 1.3%) in 4Q vs. up 2.5% prior quarter; output rose 2.5% in 4Q vs. up 2.3% prior quarter and compensation per hour rose 2.8% in 4Q vs. up 2.3% prior

·     Weekly Jobless Claims fell 15K to 202K (lowest since April), better than the 215K estimate as the 4-week moving avg. at 211.8k in the week ending Feb. 1; prior week claims revised up to 217k from 216k and continuing claims rose 48k to 1.751M in the week ending Jan. 25

Commodities

·     Oil prices reverse earlier declines, as WTI crude rises 20c to $50.95 per barrel (though Brent slips). An advisory body to OPEC and its oil-producing allies recommending that they significantly deepen their supply cuts in response to the impact of the deadly coronavirus outbreak. The technical committee of OPEC+ added a third day of meetings after failing to reach a recommendation on an emergency summit of oil ministers. Oil is already down sharply from this year’s high, falling into a bear market last week, from its 2020 high. Gold prices rise $7.20 or 0.5% to settle at $1,570.00 an ounce, rising despite another advance in U.S. markets and a stronger dollar, supported as a safe-haven amid fears of the coronavirus.

Currencies & Treasuries

·     The US dollar extended its recent gains vs. its counterpart currencies, helped by solid economic data the last few days (and into tomorrow’s jobs report) as the euro slides to a new YTD low of 1.0965 (52-week low around the 1.09 level end of September) following weaker German manufacturing data overnight, while the dollar approaches to 110 level against the Japanese yen. Meanwhile the 10-year yield erased earlier gains, falling below 1.64% after touching highs of 1.68% ahead of tomorrow jobs report.

Sector News Breakdown

Consumer

·     Retailers; PTON shares fell more than 10% overnight after the company beat consensus estimates but issued revenue guidance that was below Q3 expectations; GPRO shares dropped following disappointing revenue and earnings as revs of $528M missed the $566M estimate; FNKO shares dropped over 30% as guides Q4 sales below expectations due to lower-than-expected purchases among top customers in the holiday season (also guided Q4 EPS 16c-18c below the 43c estimate); CSPR 8.35M share IPO priced at $12.00; TPR Q2 comp Coach sales rise 2% beating est. of 1% while Kate Spade comps fell a smaller (4%) vs. est. down (8%) on an EPS beat and in-line overall sales figure; IRBT shares jump on beat–Q4 EPS 70c/$426.8M vs. est. 40c/$415.51M; sees FY20 revenue $1.32B-$1.35B vs. est. consensus $1.32B

·     Auto’s; FCAU reports adjusted operating profit, which strips out one-time items, of EUR6.7B in 2019, buoyed by strong results in North America. The auto maker’s adjusted earnings in the region were EUR6.7B, resulting in a 9% profit margin; ORLY mixed Q4 results as sales beat but earnings miss as auto retailers end lower (AN, MNRO)

·     Consumer Staples; in beauty, ELF Q3 revenue of $81M topped ests of $76.7M on better EPS driven by strong demand for beauty products (follows good COTY results the day prior), while EL shares also jump on strong beat though guidance lowered on sales and profit due to coronavirus impact; in food, Kellogg (K) shares slipped after the food company gave weak 2020 earnings guidance, despite posting a Q4 EPS and sales beat/guides 2020 FY EPS on a currency-neutral basis to fall 3% to 4% while estimates were for $4.03, implying a 3.6% increase; PM shares jumped in tobacco space after small EPS/revs beat while reports cigarette shipping volume fell 8% in Q4 to miss the consensus estimate for a drop of 5%; TSN slides after cutting its year forecast for adjusted operating margin in its chicken segment to 4%-6% from its prior target of 6%-8%

·     Restaurants; YUMC Q4 comp sales topped estimates but warned 2020 sales and profit would take a hit, as the coronavirus outbreak has forced it to temporarily shut more than 30% of its stores and warned of additional store closures; YUM Q4 comparable sales rose 2% in Q4 to match the consensus expectation as comp sales were up 3% for KFC vs. +2.7% consensus and fell 2% for Pizza Hut vs. -0.9% consensus; DNKN Q4 EPS of 73c topped views on better revs and comp sales rose 2.8% in the US while announced a stock buyback of up to $250M

Energy

·     TOT Q4 profit beat expectations, as record production offset the impact of lower natural gas prices (Q4 adjusted net income at $3.17B well above $2.65B est. – Q4 net profit more than doubled to $2.6B from $1.13B a year earlier); in equipment, MTRX shares plunged on Q2 loss and missed revenues prompting an analyst downgrade; in utilities, NJR reports lower quarterly profit as says Q1 consolidated net financial earnings (NFE) fell to $40.4M from $54.1M a year earlier, partly due to weakness in Energy Services segment; PTEN plunges after results.

·     MLPs; Goldman Sachs upgraded shares of PAA and PAGP to buy from neutral as saying recent underperformance (-6% for the past three months vs the AMZ) appears overdone and does not reflect a change in business, firm estimates imply modest upside exists to consensus EBITDA, cash flow and leverage metrics should improve and the potential for non-core asset sales could lead to further deleveraging not in our forecasts.

Financials

·     Bank movers; DB shares rose to its best level in 16-months after disclosing that Capital Group has taken a 3.1% stake in the German lender (Qatari royal family, with a combined share of at least 6.1%, remains the top holder); BGCP shares fell after its guidance indicates Q1 2020 pretax adjusted earnings aren’t likely to improve from $106.2M a year earlier; consumer finance and lending; CURO shares surge after Q4 results and better guidance ($3.10-$3.35 vs. est. $3.08)

·     Insurance; group outperformed yesterday following several solid earnings results (CB, ALL, PRU, UNM), while today, MET Q4 adjusted EPS and revs topped views and LNC Q4 operating revenue rises in all four segments, sending shares higher

Healthcare

·     Pharma movers; BMY Q4 EPS of $1.22 well above the 88c estimate, helped by addition of sales from Celgene, while sales of cancer drug Opdivo dip slightly to $1.76B and sales of blood thinner Eliquis rise 19% to $2.03B; TNXP shares plunged after saying it will stop enrollment in a late-stage study of its treatment for posttraumatic stress disorder (PTSD), Tonmya, following an analysis by the Independent Data Monitoring Committee;

·     Biotech movers; REGN beats estimates with Q4 rev of $2.17B and EPS $7.50 (both above estimates) as sales of eye drug Eylea rose 13% to $1.22B, slightly beating estimates; AQST said the U.S. FDA confirmed clinical development for its drug, AQST-108, will be reviewed under pathway proposed by co and will not require any additional data; GHSI said it has developed treatment targeting upper respiratory tract infections/says new product, preliminarily labeled acuMMUNE, to be introduced under NutriGuard label

·     Medical equipment and devices; BDX slides as lowers FY20 revenue and profit forecast to reflect impact of remediation effort for the Alaris pumps it recalled in April and anticipated loss of sales from those products/follows Q1 results that beat estimates (cuts FY20 adj. EPS view to $11.90-$12.10 from $12.50-$12.65 and cuts FY20 revenue view to up 1.5%-2.5% from up 4%-4.5%); ABMD slides as Q3 earnings beat by 4c on weaker revs of $221.6M and guides year sales to the low end of $846M-$877M view (vs. prior outlook $885M-$925M); SRDX upgraded to buy from hold at Lake Street saying results reflected solid beats on both the top and bottom lines.

·     Healthcare services and providers; CAH Q2 revenue and profit above Wall Street estimates and also raised FY2020 forecast for adj EPS to a range of $5.20-$5.40, topping the $5.04 estimate (results helped shares of ABC, MCK); CI Q4 profit beat estimates by reducing medical costs and benefiting from its $52B acquisition of pharmacy benefits manager Express Scripts (guides year revs $154B-$156B vs. est. $149B); PPD opens at $31 after 60M shares IPO priced $27

Industrials & Materials

·     Aerospace and Defense; LDOS rises after the Department of Defense awarded the $7.7B Navy NGEN contract to the company, selected over the incumbent PRSP sending those shares tumbling (downgraded at Wells Fargo on news); GD was upgraded to overweight at JPMorgan with $225 tgt as see potential to return ~17% of the current market cap over 2020-22 (3 years), which stacks up well vs peers; BA volatile after Reuters reported FAA’s Dickson said at an airline industry event in London that regulators were likely to agree on the design fixes needed to return the Boeing 737 Max aircraft to service –then said BA engineers have discovered a new software problem on the grounded 737 Max that must be patched before the plane can return to service

·     Transports; in marine shipping, GLOP shares plunge as reports Q4 loss of (-$2.37) per share vs. year-ago profit of $0.30 saying it recognized a non-cash impairment of $138.8M on five of its steam turbine propulsion vessels built in 2006 and 2007 while reduces its dividend to 12.5c from 56c; KSU was downgraded to Market Perform at BMO Capital saying that while the demand outlook is favorable the stock’s strong performance leaves a modest margin of safety; in freight, ODFL shares jumped on in-line revenue while profit rose less than the same time last year; WERN reported mixed Q4 results, as shares advanced

·     Industrials, Metals & Materials; MT shares strong (helping steel producers) after reporting a higher operating profit, lower debt and a better dividend than anticipated; reported a 53% drop in EBITDA to $925M in Q4, with sales falling 15% to $15.51B; said it will pay a 30 cents a share dividend; in ag machinery, AGCO shares slump after Q4 miss and softer guidance

Technology, Media & Telecom

·     Internet; TWTR rises on mixed Q4 results that missed on earnings and beat on revenue, crossing the $1B mark for the first time while in-line Q1 view has revenue of $825-885M compared to the $868.9M consensus and operating income of $0-30M/said average monetizable DAU totaled 152M, above the 148.1M consensus and added 7M mDAUs Q/Q, above the 2M net add est.; GRUB Q4 Ebitda of $26.7MM beat the $20.5MM est., driven by stronger sales and slightly lower technology and G&A expense while revs and key sales metrics were above ests with Daily Average Grubs (DAG) growing 7.5% to 502,600, compared with our 458,150 estimate; ANGI slides after the Q4 results missed on revenue and EPS and company guides 2020 downside adjusted EBITDA of $200-250M versus the $223-245M

·     Semiconductors; MU upgraded to strong buy at Raymond James with $70 tgt as thinks supply/demand conditions are highly likely to improve further as the year progresses and that inventory levels are approaching normalized levels; QCOM results/guidance surprised to the upside driven by a 33% jump in chipset ASPs from Dec Qtr. to Mar Qtr. on initial 5G volumes, but June Qtr. commentary disappointed according to Cowen; MPWR reported 4Q sales/EPS of $167M/$1.04 bested consensus $163M/$1.03E and 1Q sales outlook of $164M (down 2% Q/Q, up 16% Y/Y) also beat Street $160M est.

·     Software movers; CTSH beat revenue and profit in Q4, as layoffs cut costs with SG&A expenses of ~$676M in Q4, ~$100M less than last year, though year guidance missed ($3.97-$4.13 vs. $4.13); ZNGA Q4 bookings of $433M topped estimates of $418.8M, driven by the success of its new titles "Merge Magic!" and "Game of Thrones Slots Casino" (GLUU another gainer in video games after earnings); FSCT will be acquired by Advent International for $33/share in an all-cash transaction, in deal valued at $1.9B; CDAY slides as reported EPS results below expectations and issued guidance below expectations (guides 1Q adj EBITDA $47-49M vs. est. $54.3M); VMW upgraded at Bernstein to outperform as believe that the downside risks are baked into VMware’s stock price while the upside opportunities are not; TWLO reported strong 4Q19 results with mixed CY20 outlook (2020 revenue guidance above prior expectations, though operating income guidance was much weaker due to planned investments); NUAN issued upside to revenue, EPS, and CFO vs. consensus estimates; FEYE delivered record revenue, billings, and OCF in 4Q and 2019, but also a ~$16M billings miss

·     Media & Telecom movers; WWE shares tumble to fresh 52-week lows as guides Q1 OIBDA to $60M-$65M below the $67.5M estimate, while Q4 OIBDA and revs missed estimates; CCOI was upgraded to buy at Goldman Sachs; QNST rises on quarterly revenue beat an in-line earnings; IAC reported mixed Q4 results as Ebitda narrow beat, revs miss; FOXA slow roll to lows all morning after earnings overnight topped views; Intelsat (I) shares volatile after FCC C-Band plan foresees $13B or more to satellite providers -C-band plan to be forwarded by FCC Chair Pai will include $9.7B for airwaves and $3.3B-$5.2B for switching costs

·     Hardware & Component news; SONO rises on Q1 revenue beat ($562.1M vs. est. $545.5M) as speaker revenue rose 7% to $466.7M on better earnings and year mid-point above views; SAIC agreed to acquire UISU.S. Federal business in an all-cash transaction valued at $1.2B/UIS says to use proceeds to pay down debt and reduce pension obligations; DBX mentioned as new strong sell opinion at SprucePoint LLC as sees 25%-60% downside