Closing Recap

Tuesday, November 03, 2020

Equity Market Recap

·     U.S. stocks close the day out strong heading into a pivotal evening where the White House will be decided (though many fear it could be contested given the impact of mail-in ballots), as well as the Senate where Republicans currently hold the seats. The dollar slid on bets of increased stimulus if Joe Biden wins but gold prices gained on the prospect of contested voting results. Treasury yields rise to multi-month highs with the 10-year yield above 0.88%, while oil gained for a second day. Following results this evening, markets still have the two-day FOMC meeting results tomorrow, another round of busy earnings, the monthly jobs report on Friday and continued headlines risk when it comes to the coronavirus with cases still jumping overseas. Several sectors are seen center stage ahead of the Presidential election as solar, cannabis, healthcare, casinos and infrastructure seen benefitting under a Biden presidency while energy, MLPs’, private prisons, defense seen rising under a Trump win with mixed takes on financials, technology and consumer.

·     European Covid-19 cases update still not promising as Italy reports 353 Covid-related deaths on Tuesday, first time more than 300 deaths registered since May 6; Spain had +5,141 new Covid cases vs. 4,334 yesterday; France says number of confirmed cases up by 36,330 over 24 hours, versus +52,518 on Monday and coronavirus deaths rise by 854 to 38,289; UK reports 20.018 new covid-19 cases on Tuesday, compared with 18,950 a day earlier

Commodities

·     Oil prices rose for a second day after touching 5-month lows on Friday, as WTI crude gained 85c or 2.31% to settle at $37.66 per barrel, rising alongside equities ahead of the U.S. election, while the dollar lost 0.5%, adding to positive sentiment in crude. There were reports that president of Algeria calls for extension of current oil cuts -while Reuters reported Libya oil production rises to about 850,000 barrels per day (as of 10/29 it stood at 680K).

·     Gold prices rose $17.90 or 1% to settle at $1,910.40 an ounce, getting a boost from the dollar decline and positioning ahead of the election. The bets on potential “chaos” or no declared winner this week is prompting bets in the precious metal. At the same time, the pandemic continued to rage with several European countries under fresh lockdowns.

Currencies & Treasuries

·     Treasury prices slipped on Tuesday as yields ran back to June highs as the 10-year hit 0.89%, the 2-year near 0.17% (August highs) and longer-term 30-year 1.65% as Americans go to the polls. Bullish traders are betting on generous fiscal stimulus after the election, but bearish ones are bracing for delayed results leading to tension in the markets. Yields have been steadily climbing over the last few weeks despite much uncertainty.

·     The U.S. dollar sunk ahead of the election as investors opted for riskier assets into tonight’s election with increased bets that Democrat Joe Biden will win Tuesday’s U.S. presidential election and launch a large new stimulus package. Expectations are that if Biden wins there will be bigger bets on fiscal stimulus along with a freer approach to trade, boosting other currencies. The euro fell from earlier highs of $1.1729 to around $1.17 and off Monday 1-month lows around $1.162.

Sector News Breakdown

Consumer

·     Housing & Building Products; Wayfair (W) outperformed as reports strong growth for revenue (+66.5% Y/Y), orders delivered (+72.8%) and active customers (+50.9%) in Q3 – U.S. revenue was up 66.5% to $1.3B and international revenue rose 66.7% to $225.9M; JELD reported Q3 Adj EPS 52c that beat estimates on in-line revs $1.11B ($1.09B YoY), largely driven by Europe sales +8.1% YoY; BLD Q3 Adj EPS $2.10 beats estimates but revs $697.2M miss est. $703M

·     Consumer Staples; in food sector, MDLZ Significant top-line beat and EPS in line with Street expectations and SYY reported Q1 profit and sales that fell from last year as the COVID-19 pandemic weighed on its foodservice business, but still beat expectations; STZ upgraded to OW with attractive valuation post significant stock underperformance, and ahead of an expected beer topline acceleration in fiscal 2H21 at Morgan Stanley; MNST also upgraded to OW at Morgan Stanley as forecast a reacceleration in US topline trends, which coupled with strong international growth, should drive revenue/EPS upside vs. consensus

Energy

·     Energy stock movers; HES downgraded to Hold following 3Q results at Argus on concerns about the company’s continued losses and rising debt levels (the debt/cap ratio was 56.5% at the end of the quarter, up 37% from the prior year); RDS upgraded to OW at Morgan Stanley and Outperform ($31 tgt) at Cowen who sees additional upside after management lowered capex guidance in their Upstream portfolio, setting a path to materially improve FCF generation and the balance sheet with potential acceleration of shareholder returns by early ’22, and its peer-leading leverage to international gas will serve as an offset during a period of commodity volatility; FTI said that the France-based financial services group, Société Générale SA, increased its stake to 2.72% in the company from 1.38%;

·     Earnings results; FANG Q3 EPS 62c came in above the highest estimate on in-line $720M revs, and the company is on track to meet Q4 avg production target of 170k-175k barrels of oil/day ,which is also expected to be the baseline for 2021; VNOM Q3 EPS loss (1c) was narrower than est. (4c) loss and sales $62.9M beat est. $49.4M and narrowed FY20 avg production guidance to 15,750-16,000 bo/d and initiated daily production guidance for Q4 2020 and Q1 2021 at 15,250-16,250 bo/d; RIG reported Q3 EPS loss (11c), wider than expected, though revs $773M slightly beat estimates (includes $449M gain on restructuring and retirement of debt) and the company said Q3 contract backlog was $8.2B as of the October fleet status reports; Pipeline PAA Q3 EPS and revs beat estimates and the company announced a $500M share buyback program, while fellow pipeline WMB Q3 Adj EPS 27c met estimates and revs $1.93B beat $1.75B est, but the company lowered 2020 capex growth expectation to $1-1.2B from original $1.1-1.3B range and continues to see 2020 Adj EBITDA in lower half of $4.95-$5.25B guidance range;

·     Utilities & Solar; EXC reported Q3 Adj EPS $1.04 on revs $8.85B (ests. 87c, $8.38B) and raised FY20 Adj EPS guidance to $3-3.20 from $2.80-3.10, and is conducting a strategic review of corporate structure, including possibly separating Exelon generation from utilities; D (Dominion) was upgraded to Outperform at BMO after recent pullback to relative July lows provides attractive valuation compared to high-quality ESG peers; Solar stocks swoon after SEDG Q4 rev guidance $345-365M misses $389.6M estimate even as Q3 Adj EPS $1.21 beats consensus and revs $338.1M were in-line; PLUG activist shareholder D.E. Shaw & Co reports 5% passive stake in SEC filing – Shaw, holding 5.34% of company’s stock, is the second-biggest PLUG shareholder

Financials

·     Bank movers; big banks rising (BAC, C, JPM, WFC) alongside the bounce in Treasury yields (which touched 4-month highs) as investors bet on a victory for Democratic presidential nominee Joe Biden. A Biden win could lead to some inflation, given how much money the U.S. Federal Reserve is committed to buying in bonds and banks – though banks could face concerns over more regulations as well as higher corporate taxes under a Biden administration; in insurance; EVER delivered a strong beat & raise 3Q as saw strong growth in revenue per quote request (18% y/y) driven by expanded targeting for carriers, deeper carrier integrations, strong carrier demand, and bundling; online brokers outperform led by SCHW

·     Payments and services; PYPL posted upbeat Q3 rev and profit as digital payments surged, driven by coronavirus-led lockdowns while disappoint Q4 profit outlook fueled by incremental investments and headwinds from payment processing agreement with EBAY (sees 17%-18% growth vs. est. 20%); CDLX reported a beat, as encouraging albeit early signs of recovery contributed to $46.1M revenue (vs. the Street $38.8M), which equates to an -18% decline in revenue as travel and U.K. trends remain subdued; EVRI beat 3Q Street expectations by more than 50% (down just 8% y/y) and guided 4Q almost 20% above consensus

Healthcare

·     Pharma movers; BMY said its experimental plaque psoriasis oral drug (deucravacitinib) proved more effective in clearing moderate to severe cases of the skin condition than placebo or AMGN’s Otezla in a late-stage study – drug also met a secondary goal; BHC posted quarterly profit vs year-ago loss, tops Q3 revenue estimates ($2.14B vs. $2.03B) and reaffirms outlook; KPTI SEAL study met its primary endpoint of a statistically significant increase in progression-free survival evaluating single agent, oral XPOVIO versus matching placebo in patients with advanced unresectable dedifferentiated liposarcoma; JAZZ Xyrem revenues grew ~5% YoY in the quarter, driven by 4% volume growth, with 15,075 active Xyrem patients during the quarter, up 2% YoY; HALO reported 3Q20 revenues of $65.3M, above FactSet consensus ($59.9M), ended 3Q20 with cash of ~$347M, and, increased 2020 revenue guidance to $250M-$260M from $230M-$245M; AUPH said its drug candidate for the treatment of dry eye syndrome, did not meet the main goal in mid-to-late stage study and that it is suspending the development program

·     Biotech movers; EDIT initiated underperform and $14 tgt at Baird saying they see sees limited market opportunity for the company’s lead indication Leber’s congenital amaurosis type 10 and is skeptical about LCA10-IVS26; ESPR posts Q3 sales of $3.8 mln, and says it has a cash balance of $215.7 mln, which several analysts say would only be sufficient for less than a year; PACB downgraded at Piper to neutral based on the lack of visibility on future COVID-19 related lab closures and valuation; GWPH reported a narrower-than-expected loss on revenue that rose above forecasts and also initiated a Phase 3 trial of a multiple sclerosis treatment

·     Healthcare services and providers; HUM raised the lower end of its full-year adjusted profit view after beating Q3 profit estimates, helped by a slow recovery in demand for optional medical services delayed due to the COVID-19 pandemic – its consolidated benefit ratio, the percentage of premiums spent on claims, improved to 82.6% in the quarter from 85% a year earlier; MCK reported Q3 revenue of $60.8B and EPS of $4.80 both above views with the international and med-surg businesses ahead of street consensus and raises its F2021 guidance; OMI reported 3Q results where EPS of $0.81 beat estimates of $0.67, primarily driven by better performance in both of the company’s segments as OMI continues to benefit from higher demand for PPE

·     MedTech and Equipment; INSP reported 3Q revenues/GAAP EPS of $35.8M/($0.39), blowing past consensus/our/company guidance of $22.7M/$22.1M/$20-$24M, respectively; OSUR said its subsidiary DNA Genotek gets emergency use authorization from U.S. FDA for its COVID-19 saliva collection device, ORAcollect RNA; BRKR Q3 beat but economic slowdown “will continue to have a negative year-over-year impact” on fourth-quarter results as scenarios for 4Q sales decline in the range of -2% to -6%; VCYT strong volume recovery that drove an expected 3Q beat and continued into October, but stopped short of issuing a formal 4Q outlook; MDT is recalling Rashkind Balloon Septostomy Catheters because of device quality issues that may lead to the device breaking, separating or failing during use, the FDA announced

Industrials & Materials

·     Industrial & Machinery; IR reported better than expected results last night, with revenue and EPS coming in ahead of consensus as orders in the quarter were down 8% y/y, though trends are improving, up 13% from 2Q; EMR Q4 adj EPS $1.10 beat the highest estimate on revs$4.56B (est. $4.48B), and the company guides FY21 Adj EPS to $3.40-3.50, above $3.30 est., and is planning on resuming stock buyback and increasing its dividend 2% in 2021; ETN Q3 Adj EPS $1.18 and revs $4.5B both beat estimates, and they affirm midpoint FY cash flow to $2.5B but narrow the range to $2.4B-$2.6B, though Q4 outlook remains uncertain amid the pandemic; JCI posts Q4 EPS 76c on $5.95B, both topping consensus, and Q1 Adj EPS guidance of 39-41c also tops estimates (39c); AGCO posted Q3 EPS $2.09 on revs $2.5B, both beating ests and rising from Q3 2019 (10c, $2.11B), and the company sees FY20 Adj EPS $5 vs. est. $3.92 and FY Sales $8.9B vs est. $8.42B

·     Transports; Dow Transports outperform up nearly 3% back above 11,500 (back above its 50-day MA earlier of 11,416) as all components outside of EXPD higher (shares down 2% after earnings); MATX leading up 9% after its earnings results; EXPD Q3 earnings and revenue rose from a year ago, as shipping volumes started to recover, and beat expectations; YRCW shares tumbled after Q3 results and the resignation of its CFO

·     Aerospace & Defense; the Federal Aviation Administration’s proposed new training module and emergency checklists for the Boeing (BA) 737 MAX are "clunky at best" and should be streamlined, the union representing pilots at LUV said in urging the FAA to simplify the procedure recommended to address an emergency that can force down the plane’s nose, an issue in the two fatal crashes that ultimately grounded the plane; SPR said qtrly rev down primarily due to significantly lower 737 max production and impacts of covid-19

·     Metals & Materials; KMT reported F1Q results last night, roughly in line with consensus and despite sales falling 21% Y/Y, margins were in line and total decremental margins of 11% included $22M in savings benefits from restructuring actions; CCK is considering selling its Food Can business early next year for $2b according to Bloomberg overnight; MOS with a mixed report as revenue missed but beat on margins

Technology, Media & Telecom

·     Internet; BABA shares slide after Shanghai suspends Ant Group’s blockbuster IPO; large cap tech rebounded; in online travel, TRVG shares rise after reported a smaller than expected Q3 loss and said it experienced a seasonal increase in volumes in Q3 as travel activities resumed in the summer after the easing of lockdown restrictions/sees travel activity to normalize in H2 2021;

·     Semiconductors; SWKS reported a strong beat and raise quarter (revenue and EPS guide was 13% and 14% above Street, respectively) as both broad markets and mobile grew significantly, with broad markets hitting a quarterly record; CRUS strong beat and raise, with CRUS benefiting not only from potential share gains by key customers vs Huawei, but also robust WFH/EFH tablet and portables/wearables demand; SIMO Q3 beats with an upside Q4 revenue forecast as SSD controller sales increased about 20% on the quarter and the year.

·     Software movers; MIME reported better than expected 2QFY21 results with much better than expected adjusted EBTIDA and cash flow and a slight beat on revenue; PAYC and CDAY both upgraded to Neutral from Underweight at JPMorgan noting SaaS HR-Payroll names Paycom and Ceridian have underperformed Growth Software by 7,300 bps YTD (+30% vs. +103%) due to major deceleration and heavy insider selling

·     Media & Telecom movers; in towers, SBAC beat 3Q consensus, raised its 2020 guidance and continues to provide upbeat new leasing commentary into 2021; BBGI surges as co says it expects to reduce operating expenses through year-end by more than $32M vs. 2020 operating budget after EPS and revenue beat; FOXA posted Q1 EPS and revs beat ($1.18 and $2.72B above the 76c and $2.58B est.); GCI Q3 revenue of $814.5M top ests $779M helped in part by a 31% jump in digital subscriptions; CMCSA is in talks with WMT to develop and distribute smart TVs, according to people familiar with the matter, as the cable giant looks to become a dominant hub for streaming apps not just tv channels, DJ reported (shares of ROKU fell)

·     Hardware & Component news; IPGP downgraded at Raymond James on valuation noting shares are up 31% vs. the S&P up 2.5% YTD and have handily outpace Automation/Robotic peers who are up 11% on average; ANET rises after posted adjusted Q3 profit of $2.42 beating the $2.21 estimate and revs $605.4M beat the $581M views as company said it saw continued improvement in underlying business trends during the quarter; NPTN relatively in-line 3Q20 report and sales guidance as NeoPhotonics removed Huawei from its 4Q20 sales outlook

·     Services; IT shares jump after Q3 results easily topping consensus and raised guidance for full year as demand is tracking above our prior expectations; ALSK to be acquired by an affiliate of Macquarie and GCM in an all-cash transaction valued at ~$300M, including debt, with holders receiving $3.00 per share https://bit.ly/3mFJLqG