Closing Recap

Monday, November 16, 2020

Equity Market Recap

·     Stocks jump on yet more positive vaccine news; The Dow Jones Industrial Average touched record highs as Boeing (BA), Disney (DIS), energy names (CVX, XOM) and financials (JPM, GS) all benefit from news of a second vaccine maker showing positive results. Moderna (MRNA) said its Covid-19 vaccine candidate demonstrated 94.5% efficacy in its Phase 3 trial, helping shares touch record highs. The news followed strong efficacy data from PFE and BNTX last week which pushed major averages to records. The big beneficiaries of a post-lockdown economy are leading again, while tech lagged. The markets weakest sectors for the year, energy and financials led the broader stock markets higher, along with big bounce in industrials as cyclical stocks benefit from a perceived economic recovery. The enthusiasm for COVID vaccines overshadowed more lockdowns in the U.S., this weekend with stricter measures implemented by several states.

·     Reopen related plays (mall REITs, retail, restaurants, travel, cruise lines, energy, casinos, lodging) saw the biggest gains on Monday and the stay at home beneficiaries during the coronavirus pandemic (software, video games, online telehealth, online food delivery, retail) saw the biggest declines after Moderna (MRNA) was the latest company to provide positive vaccine news after reporting a 94.5% efficacy rate with its COVID-19 vaccine in a Phase 3 trial.

·     At the same time, the other elephant in the room is rising COVID numbers and the localized restrictions that are coming with them around the United States over the last week (though those related industries have been bouncing on vaccine hopes). Markets also awaiting additional stimulus relief, but that prospect has likely been pushed out to 2021 following the Presidential election. Also, after the November 26 U.S. holiday, Congress will need to pass and extension of the continuing resolution that funds the Federal government by Dec. 11 or face a partial government shutdown. The United States recorded more than 1 million new COVID-19 cases last week as new infections rose in every state except for Hawaii, according to a Reuters analysis of state and county reports. Deaths increased 12% in the week ended Nov. 15 and averaged more than 1,100 people per day.

Commodities

·     Oil prices rise, adding to last week’s 8% advance, as WTI crude gains $1.21 or 3% to settle at $41.34 per barrel but off earlier highs of $42.09 as Moderna reported its Covid-19 vaccine is highly effective against the virus, raising prospects of a quicker economic recovery. Though the full impact of a vaccine on crude demand is still a way off, China’s oil processing rebounded in October to match a record according to Bloomberg overnight. Natural gas prices dropped about 10% to $2.70 per mln btu on milder weather forecasts and further profit taking.

·     Gold prices edge higher by less than 0.1% to $1,887.80 an ounce, posting a modest advance for a third straight session, finding support from renewed economic restrictions due to Covid outbreak, holding steady despite positive vaccine news.

Currencies & Treasuries

·     The U.S. dollar was little changed after Moderna Inc became the second U.S. company in a week to report positive results from its COVID-19 vaccine trial – DXY flat at 92.67 as euro unchanged at 1.1832 after touching 1-week highs earlier around 1.1869; the yen ended higher. Optimism about the vaccine lifted stocks but currency markets were steady during the day. Treasury markets a similar story as the 10-year yield held around the 0.9% (down from last week highs of 0.99%), as markets were quiet following volatility last week.

Sector News Breakdown

Consumer

·     Retailers; TPR was upgraded to OW with a pt raise to $35 from $25 at JPMorgan after underperforming the S&P 500 by 80% the past 3 years following management’s confidence in multi-year bottom-line acceleration; LEVI was reiterated at OW with a new pt of $18 (from $17), and RL was reiterated at Neutral ($83 pt) after management met with JPM at the same conference; TGT was highlighted by Barron’s as being undervalued, saying the stores have gained market share from department stores and malls, and its valuation is cheaper and dividend yield greater than WMT, COST, DG, KSS, JWN; WMT sold 65% of its stake in Seiyu, a Japanese supermarket chain, to KKR and 20% to a Rakuten subsidiary, retaining a 15% stake in a $1.65B deal; FL price target was raised to $36 from $30 at UBS and $50 from $35 at Raymond James; CSPR shares tumbled as Q3 revenue fell 3.3% for the latest quarter as the Covid-19 pandemic disrupted its supply chain, though its loss narrowed; overall retail rises on vaccine hopes

·     Housing & Building Products; HDS to be acquired by HD for $56 per share for a total enterprise value (including net cash) of approximately $8 billion https://on.mktw.net/3lBSava ; FBM enters an agreement under which an affiliate of American Securities LLC, will acquire all outstanding shares of FBM for $19.25 per share in an all-cash transaction valued at ~$1.37B, including outstanding debt. https://bit.ly/35yiUXU

·     Consumer Staples; TSN posted Q4 earnings that beat expectations and declared a dividend for fiscal 2021 saying it saw volumes increase across beef, pork, chicken and prepared foods while incurred $200 million in COVID-19-related expenses for the quarter, and $540 million in expenses for the fiscal year; BYND unveils next iterations of iconic Beyond Burger coming in early 2021; consumer staples CLX, EL, CL all underperformed

·     Restaurants; big rally in the space given promising COVID-19 vaccine data as big chains MCD, CMG, QSR rise along with casual dining chains, among hardest hit amid pandemic lockdowns rise including CAKE, BLMN, DRI, EAT, TXRH, and RRGB; on the flip side, lockdown winners DPZ, PZZA were among the decliners; in research, BLMN and CHUY upgraded to outperform at BMO Capital

·     Leisure and Gaming; Gym related stocks that benefitted from stay at home orders (PTON, NLS) were under pressure following the positive MRNA vaccine news, while PLNT shares rebounded; cruise stocks (CCL, NCLH, RCL), theme parks (DIS, SIX, SEAS), lodging sector (MAR, HLT, H) were all among the markets top gainers on positive vaccine news leading to economic rebound hopes; BLNK shares jumped after introduces cable management solution for new and existing EV charger locations

Energy

·     Energy stock movers; energy was the best performing sector in the S&P, with a broad based rally from equipment (FTI), services (SLB) and refiners (HFC) on rising demand hopes; GPOR filed for Chapter 11 bankruptcy on Friday, securing $262.5M in debtor-in-possession financing from its existing lenders under its revolving credit facility, including $105M in new money that will be available upon court approval; Mizuho downgraded OGE to Neutral from Buy based on the belief that the current value of ENBL is fully reflected in OGE’s valuation; TRGP upgraded to Outperform at Credit Suisse as the company boasts a top-tier FCF yield, one of the fastest de-levering stories, the right asset mix for the next cycle, and built-in growth, positioning it to benefit from a relative return to normalcy

·     Utilities & Solar; RBC reiterated Outperform rating on AQN and raised their price target to $17 from $15, saying shares offer a good balance of growth, income, and exposure to renewables, and the company is expected to refresh its 5-year growth trajectory at its upcoming investor day (historically ~10%+ EPS growth without new acquisitions); Wolfe upgraded ETR to Outperform with a $119 pt and downgraded AEP to Underperform with a $95 pt; Capital One upgrades WES to Overweight From Equal-Weight and raises its target to $18 From $12

Financials

·     Bank movers; PNC acquired Spain’s BBVA for $11.6B in cash in one of the biggest global bank deals this year, which will further consolidate the U.S. banking sector; Wedbush adds SBNY to their Best Ideas List and ups its pt to $126 from $110 on the company’s consistently strong deposit and loan growth, positive NII outlook, and overall earnings power; CASH price target was raised to $42 from $33 at Raymond James; SIVB was downgraded to Perform from Outperform at OpCo despite no change in the very positive outlook after shares surpassed their price target on Friday, as the downgrade was based on valuation and limited upside as the analyst’s street-high 2022 earnings estimates are already 12% above consensus; Wedbush raises their price targets on Neutral-rated ZION, KEY, and USB and Outperform-rated CFG, FITB, RF, CMA, and HBAN; DA Davidson downgrades SSB and BXS to Neutral from Buy

·     Consumer Finance; Monthly Master Trust credit card data out: COF reports October net charge-offs 3.11% vs. 3.95% last year and reports October 30-plus day delinquencies 2.19% vs. 3.79% last year; SYF reported charge-offs for Oct. of +3% and Oct. delinquencies 1.76%; DFS credit card delinquency rate 1.31% at October end vs 1.28% at September end and credit card charge-off rate 1.88% at October end vs 1.98% at September end; BAC credit card delinquency rate was 1.36 % at October end vs 1.20% at september end and card charge-off rate was 1.97% in October vs 1.90% in september; JPM reported a credit card delinquency rate of 1% in October, up from 0.98% in September and net charge-off for the month was 1.89%, down from 1.92% in the previous month; ADS Oct net charge offs 3.8% vs. 3.9% last month and Oct delinquency ratio 4.9% vs. 4.7% last month; GHLD was initiated with Overweight ratings at Compass Point, JMP, JPM, and Wells Fargo; KeyBanc maintained their OW rating on SQ, and raised its target to $250 from $215 on rising monetization potential in the wake of Covid-19 as app users use Cash Card

·     REITs; SPG said on Sunday it will cut purchase price for an 80% stake of rival TCO by 18%, from $52.50/share to $43, for a total of $2.65B down from the $3.6B SPG walked away from in June due to pandemic-induced uncertainties; WELL downgraded to Equal Weight from OW at Wells Fargo who says that investors may move to the sidelines on healthcare REITs with senior exposure as cases rise across the country; Citi upgraded UNIT to Neutral from Sell and raised its target to $10 from $6; Argus raised its price target on BXP to $100 from $90 and reiterated its Buy rating as the REIT should benefit from the gradual reopening of the economy and the company’s development portfolio in coastal markets outside of New York City gives it a competitive advantage over its peers; MAC upgrade from Neutral to Buy at Compass Point

Healthcare

·     Biotech movers; MRNA shares surge (leading markets overall) after saying its COVID-19 vaccine candidate met its primary endpoint in a Phase 3 trial, demonstrating 94.5% efficacy – said it plans to submit an Emergency Use Authorization with the U.S. FDA in the coming weeks and expects it to be based on the final analysis of 151 cases and a median follow-up for more than two months; RAPT shares tumble after missed eps by $0.02 & beats on revs and also reports initial clinical data from its ongoing Phase 1/2 trial for FLX475 in multiple cancer indications; at Morgan Stanley, SAGE downgraded to EW from OW with $85 tgt as believe there remains a clear place in the treatment paradigm for zuranolone, but the overall benefit may be modest and thus see balanced risk/reward on upcoming 1Q21 data; also downgraded KOD to EW; CVAC rises on news the European Commission will authorize a deal to secure up to 405M doses of the company’s potential COVID-19 vaccine

·     Pharma movers; PFE, BNTX shares tumble after rival Covid vaccine (MRNA) with higher efficacy; ADMP shares plunge after receiving a Complete Response Letter from the FDA regarding its NDA for its ZIMHI high dose naloxone injection product for the treatment of opioid overdose; BYSI announces positive topline results from its protective-2 phase 3 registrational trial of plinabulin in combination with pegfilgrastim for prevention of chemotherapy-induced neutropenia; TNXP reports positive immune response results from covid-19 vaccine candidate tnx-1800, following vaccination of non-human primates; OBSV reports positive top-line results from its mid-stage study of its experimental drug ebopiprant for treating preterm labor; DRNA announces FDA acceptance of LLY’s investigational new drug application for first GALXC RNAI candidate under companies’ global research collaboration and licensing agreement and triggers $10 million payment to Dicerna; JNCE receives study may proceed letter from us FDA to initiate phase 1 clinical trial of jtx-8064 targeting lilrb2/ilt4 mechanism; JNJ’s Janssen unit expands its partnership with the Department of HHS where Janssen will commit $604M

·     Healthcare services and providers; medical distributors and pharmacy retail rising early on the positive Covid-19 vaccine news from MRNA today (CAH, ABC, MCK as well as WBA, CVS); CNC negative catalyst watch at Citigroup saying 2021 represents a more competitive environment with CNC standing out after being displaced as the lowest cost plan in a number of markets, which could offset gains from new market entry; MPLN rises after the positive Citi initiation earlier with buy and $10 tgt calling the company mispriced and misunderstood

Industrials & Materials

·     Industrials and Metals; group seeing strength as investors bet on an economic recovery given the positive vaccine news today along with a boost from better than expected Chinese industrial data; copper, gold and silver prices advanced, lifting respective stocks (FCX, TECK, STLD, NUE) amid a combination of strong demand indicators, particularly from China, supply constraints and lean exchange inventories; in industrials, ETN added to Bank America’s US 1 list noting vaccine news is a positive for Aerospace as firm notes Eaton’s Aerospace segment (14% of 2020E EBIT) represents a prospective source of incremental upside to margins and EPS; CMI updated investors today on its plans to grow its fuel cell and hydrogen production business to solidify the company as a global power leader.

·     Transports; shares of airlines (AAL, DAL, UAL, LUV) rise following upbeat efficacy data on Moderna Inc.’s COVID-19 vaccine candidate; overall Dow Transports jumped over 2% to new record highs above 12,400, as rails, truckers gained alongside airlines in global economic recovery hopes give the vaccine news; CSX moved to top rail pick at CSFB given increased confidence that the company is moving into the growth phase of PSR

·     Aerospace & Defense; BA shares surged, as aerospace seen a beneficiary to vaccine news along with boost in airline stocks (AAL, DAL, UAL, LUV); SPCE shares tumbles after saying its latest space test flight, planned between Nov. 19-23 from its New Mexico spaceport, will now be rescheduled for another time as starting Monday, New Mexico has imposed a stay-at-home order through Nov. 30 amid surging coronavirus cases

·     Materials; KeyBanc said they walk away from the recent IHS Markit Global Plastics Summit with an increasingly bearish view on ethylene demand and a more cautious stance on ethylene/PE names LYB, WLK, and DOWwas upgrade to Buy at Citigroup on containerboard price hike expectation of a second $50/ton containerboard price hike, which we expect could be announced in 1Q ‘21. While the stocks have outperformed over the past 3 months this likely reflects the November hike and stepped-up vols, rather than a second hike

Technology, Media & Telecom

·     Internet; JD posted Q3 beat on the top and bottom lines, reflecting the acceleration in Chinese consumer spending as net revenues were up 29% Y/Y to RMB174.2M with gross merchandise product sales of RMB58.1B (+35%) and net service revenue of RMB22.8B, up 43%; Needham initiated CHWY with a Buy rating and $75 pt, saying the company is poised to gain new customers, drive retention through subscription, and capture wallet share as newer cohorts mature and spend more, driving compounding growth; EXPE, BKNG, TRIP online travel names benefit from the improving market sentiment on vaccine news; AMZN announces that its Black Friday sales will kick off on Friday, November 20 and gores through November 27.

·     Semiconductors; Philly semi index (SOX) looking to close at new record all-time highs; MU positive mention in Barron’s this weekend saying the memory chip maker could see its stock double from here; for NVDA, Morgan Stanley boosted gaming estimates about 10% above consensus for the October and January quarters with most of the upside coming from desktop, this would reflect 15-20% upside for the desktop business, though mobile and console are also relatively strong.

·     Software movers; stay at home software stocks such as ZM, WORK, and video game names EA, ATVI, TTWO on positive vaccine new as raises hopes of normalcy; PANW Q1 beats with 23% Y/Y revenue growth to $946M and $1.62 EPS as billings increased 21% Y/Y to $1.1B and deferred revenue was up 31% to $3.9B with better guidance (Q4 revs $975-990M vs. est. $971.20M); BIGC was initiated buy and $80 tgt at Stifel saying acceleration of e-commerce adoption appears to be the closest thing to certainty in a world that is undeniably accelerating to a digital framework (BIGC was also upgraded to buy at Truist into robust eCommerce strength); BSY upgraded at RBC Capital following a strong quarter and a 17% pull-back in shares since mid-October

·     Hardware & Component news; VJET shares rise after receiving follow-up order for its new high-speed 3d printer VJET X for a premium German car maker; FFIV upgraded to Overweight and tgt raised to $192 at JPMorgan with its return to consistent buybacks, as communicated in already previewed plans by management ahead of the upcoming analyst day this week; DISH signed a multi-year anchor tenant tower agreement with CCI a key move in Dish’s work to build out its 5G wireless network and Dish’s first infrastructure partnership