Closing Recap

Wednesday, November 18, 2020

Equity Market Recap

·     Stocks were higher most of the day, with new record highs for the SmallCap Russell 2000 index and Dow Transports with stocks showing zero fear as the 2020 laggards such as energy, financials, retail still playing catch recently on economic recovery optimism after positive vaccine news and hopes for additional stimulus measures. However, stocks slipped late afternoon after New York State said of the 154,434 tests reported yesterday, 5,294 were positive (3.43% of total), as that figure above 3% positivity led to NYC schools to be closed for in-person learning starting tomorrow, sending major averages plunging into the close.

·     Retail helped dominate today as TGT, TJX, LZB all trade to record highs after earnings, while LOW slipped despite rev beat as sees its growth slowing in Q4. More positive vaccine news as PFE and BNTX rise after reporting its vaccine is 95% effective in its final analysis and filing an emergency use authorization request to the FDA. Dow component Boeing (BA) a big gainer early after the FAA officially grants approval for the 737 Max to fly again, but the stock pares gains throughout the day (shares still up around 20% from late last week). In the EV space, TSLA jumps as much as 9% after an analyst upgrade just a day after being added to the S&P 500 index (as of December 21^st rebalance), while NIO slips despite beating earnings and rev estimates on profit taking.

·     Housing data came in better than expected for October on low rates, oil prices extend recent gains, the dollar fell a 5^th day and Treasury yields were steady. Markets still await additional fiscal stimulus relief, though sides remain far apart. Also, after Thanksgiving, 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. Coronavirus cases still climbing in U.S. and Europe, prompting additional tighter restrictions by the day – but stocks remain unphased thus far. Italy has 34,282 new coronavirus cases vs 32,191 day before and reports 753 coronavirus-related deaths in last 24 hours; the UK records 19,609 new covid-19 cases compared with 20,051 a day earlier and records 529 new covid-19 deaths compared with 598 a day earlier; France reports 28,383 new confirmed covid-19 cases in past 24 hours, from 45,522 on Tuesday. After a sluggish start, European shares closed higher as vaccine optimism and a round of takeover deals helped offset concerns over fresh lockdown measures to slow the spread of the virus in the region.

Economic Data

·     Housing Starts for October rose +4.9% M/M to 1.530M vs. 1.460M expected, while prior revised to 1.459M from 1.415M); single-family housing starts in October were at a rate of 1.179M, 6.4% higher than the revised September figure of 1.108M. Building permits for Oct +0.0% to 1.545M vs. 1.560M expected and 1.545M (revised from 1.553M).

Commodities

·     Oil prices rise as WTI crude gains 39c or 0.94% to settle at $41.82 per barrel (11-week high) on expectations that further progress in vaccines against coronavirus will revive global demand, and amid signs of robust consumption in Asia. Bullish weekly inventory data also helped prices. Pfizer said a final analysis of clinical-trial data showed its Covid-19 vaccine was 95% effective, an improving figure and boosting hopes that an effective treatment is seen as key in reversing this year’s unprecedented slump in fuel use. Gold prices slipped -$11.20 or 0.6% to settle at $1,873.90, falling a second straight day as increasing optimism surrounding the latest vaccine developments from drug makers Pfizer and Moderna supported risk, and weakness in safe-haven related assets. The rapid rise in the number of coronavirus cases in Europe and the United States continues to provide some backdrop for prices.

Currencies & Treasuries

·     The U.S. dollar slipped again, falling for a fifth straight session to one-week lows vs. many major counterparts as positive vaccine news offset the surge in coronavirus cases and tighter economic restrictions across the globe. Sterling traded at a one-week high above $1.33 (+0.5%), helped by a weaker U.S. dollar and by hopes that Britain will forge a post-Brexit trade deal with the EU. It also appeared as stocks rallied, markets showed a little more appetite for risk-taking, with gains in EM currencies. The buck overall is expected to weaken as global economies improve once the vaccine gets widely distributed and as the Federal Reserve holds steady on its dovish rate stance. Bitcoin rose above $18,000 for the first time in nearly three years. The euro edged higher, while the greenback fell 0.3% against the yen to 103.86. Treasury prices were little changed, as the 10-year yield held around the 0.88% level.

Sector News Breakdown

Consumer

·     Retailers; TGT posts strong Q3 results with unprecedented sales gains according to the CEO, as comp sales +20.7% (digital +155%), adj EPS $2.79, and sales $22.34B all soundly beat estimates (+11.3%, $1.60, $20.7B); TJX reported Q3 EPS 71c on net sales $10.12B, both coming in higher than the most optimistic analyst estimate, and the company expects to reinstate their quarterly dividend; LZB (52-week highs) reported Q2 adj EPS 82c on revs $459.1M (vs ests. 50c on $433.7M) and reinstates its quarterly dividend, and forecasts Q3 sales +0-4% and Q4 sales +40-45% to total 2H sales $974.9M; UAA was upgraded to Buy from Hold with a $20 tgt at Argus on improving demand, stabilizing costs, management’s reinstated guidance, and a bullish technical pattern; JPM reiterated its OW rating on NKE and raised their price target to $146 from $140 as the company drives demand in growth areas including digital sales and women apparel, outperforms its gross margins, and manages its SG&A and is being smarter with its investments and shifting to higher ROI spend; Following earnings yesterday, KSS was upgraded to Hold from Underperform with a $28 pt from $14 at Gordon Haskett, and its price target was raised at Wedbush, Deutsche Bank, UBS; Wedbush said they expect GPS quarterly earnings next Tuesday to be below consensus expectations due to weakness in the company’s core brands

·     Auto sector; TSLA upgraded to overweight and tgt raised to $540 from $360 saying Tesla is on the verge of a profound model shift from selling cars (volume x price) to generating high margin, recurring software and services revenue (platform users x ARPU); in electric vehicle space, NIO reports a 146.4% surge in Q3 revenue to 4.53B yuan vs. est. 3.53B yuan and said deliveries reached record high during Q3 while expects to deliver 16,500 to 17,000 vehicles in Q4; registrations of new cars in Europe declined by 7.8% to 953,615 units amid the pandemic; GM gained on reports it will roll out details of expanded and accelerated electric vehicle strategy on Thursday; NKLA shares outperformed on the day in EV space

·     Housing & Building Products; LOW Q3 adj EPS $1.98 slightly misses $1.99 estimate and revs $22.31B top estimated $21.25B, as comp sales +30.1%, though the company sees Q4 growth slowing to +15-20% and guides Q4 adj EPS $1.10-1.20 (est. $1.16); results not as strong as HD the day prior; homebuilders generally stronger (KBH, DHI, LEN) following better monthly housing starts data for October as industry continues to benefit from all-time low rates

·     Consumer Staples; BGS announced that its CEO Ken Romanzi is stepping down to pursue personal interests while David Wenner will be taking over CEO responsibilities on an interim basis; BYND launched plant-based minced pork in China as the company makes a stronger push in Asia as promised; UN targeting annual sales of €1B from plant-based products by 2027; Citigroup initiates MDLZ at Buy, price target $68

·     Leisure and Gaming; in cruise lines, CCL prices 57.4M shares at $18.05 to limited number of holders of its 5.75% convertible senior notes due 2023 – to use proceeds to repurchase from such holders aggregate of ~$499.4M principal amount of convertible notes, leaving ~$628M outstanding; NCLH 40M share Block Trade priced at $20.80; PII share slip after the co’s CEO leaves to go to CNHI and firm reaffirmed its guidance for the year; in lodging, Jefferies raised tgt prices for buy rated MAR from $130 to $145, WH from $61 to $66 and HLT from $102 to $120 as well as hold rated CHH from $96 to $106, and H from $56 to $75; CWH declares regular quarterly and special dividend totaling $1.00 per share; in gaming, UBS lowered Macau gross gaming revenue (GGR) forecast to now down -65% in Q4’20, with 2021E reaching 75% of 2019A levels (85% for mass and 60% for VIP) down from -50% decline in Q4 previously.

Energy

·     Inventory data: Last night the American Petroleum Institute (API) showed a bigger than expected build of 4.17M barrels of oil for the week ending Nov. 14; gasoline inventories show a build of 256K barrels, distillate inventories show a draw of 5.02M barrels and Cushing inventories show a build of 1.64M barrels. This morning, the EIA said crude inventories rose a smaller than expected +0.8M barrels vs. +1.6M consensus (and +4.3M last week), while Gasoline stockpiles rose +2.6M barrels vs. +0.1M consensus, and Distillates -5.2M barrels vs. -1.5M consensus

·     Stock movers; FTI said it received a notice to proceed for a major Engineering, Procurement and Construction contract by SRE and IENova at the Energía Costa Azul liquefied natural gas facility in Mexico; for TechnipFMC, a "major" contract exceeds $1B; NEX and NOV entered into an agreement to collaboratively field test NOV’s electric fracturing system known as the Ideal eFrac fleet – the Ideal eFrac fleet provides efficient, environmentally conscious hydraulic fracturing capabilities that dramatically reduce emissions, equipment, complexity at the well site; TOT secured a 10-year contract to expand and manage Paris’s public EV charging network; JPM sees refiners returning to normal in the second half of next year after a vaccine becomes widely available, setting their base case for a normalized 2022 framework, and maintain their OW ratings on PSX and VLO, Neutral on CVI, HFC, and MPC, and UW ratings on DK, PARR, and PBF

·     Utilities & Solar; PCG names Patricia Poppe as CEO to replace interim CEO William Smith, effective Jan 4. Poppe has resigned as CEO of CMS effective Dec 1; SOL closed their acquisition of selected assets, including DG and solar-plus-storage projects, from Nova Development Management for about $3.8M; Barclays upgraded NI to OW with a $29 pt and AEE to EW with a $95 pt while downgrading NWE to EW with a $63 pt and PNM to UW with a $50 pt; FE received a noncompliance notice from the NYSE due to its failure to file its 10-Q for Q3, and it now has 6 months to file the form and any subsequent delayed filings; SR reported Q4 EPS loss (37c), narrower than est. (41c) loss on revs $251.9M vs est. $250.2M, raised its long-term EPS growth target to 5-7% from 4-7$, and increased its dividend for the 18^th consecutive year

·     MLP Sector; Bank America highlights Buy-rated EPD, MMP, PAA, TRGP and WMB screen best while downgrade RTLR to Neutral from Buy on challenged valuation above historical water midstream multiples, downgrade OKE to Underperform from Neutral on valuation as sustainability of volumes remains uncertain in the Bakken and Mid-con while upgrade ETRN to Neutral from Underperform as believe the market fairly captures MVP project risk.

Healthcare

·     Pharma movers; PFE and BNTX have wrapped up the efficacy portion of their Covid-19 vaccine study, concluding that the vaccine prevented 95% of cases of the disease. There were 170 cases of Covid-19 observed in the trial, and only eight in people who received the vaccine. There were no serious safety concerns, Pfizer said, and the most common severe side effect was fatigue, which occurred in less than 4% of patients; SVA experimental COVID-19 vaccine CoronaVac triggered a quick immune response but the level of antibodies produced was lower than in people who had recovered from the disease, preliminary trial results showed on Wednesday; LLY Jardiance reduced risk of cardiovascular events in adults with type 2 diabetes

·     Biotech movers; KOD 5.19M share Secondary priced at $108.00; CHMA said its oral therapy, Mycapssa, to treat acromegaly met main goal in late-stage trial as the non-inferiority clinical trial compared co’s Mycapssa to injectable therapy; GILD announces investigational long-acting hiv-1 capsid inhibitor, Lenacapavir, achieves primary endpoint in phase 2/3 study in heavily treatment-experienced people living with HIV; PTCT said the FDA designated both Orphan Drug Designation and Fast Track status to its PTC596 for the treatment of leiomyosarcoma; BLRX launches early-stage study with lead asset in COVID-19 related respiratory distress

·     Devices, Healthcare services and providers; Overnight the FDA has issued an emergency use authorization (EUA) to the single-use COVID-19 diagnostic test kit from Lucira Health, a California manufacturer. The Lucira COVID-19 All-In-One at home test kit provides rapid results. To date, the Agency has authorized nearly 300 tests for coronavirus; MDRX board approved a $300M share buyback; VREX rises early after sales beat estimate ($170M vs. est. $162M); AMWL raised to OW at Morgan Stanley as view AMWL’s risk reward as compelling as we see an opportunity for revenues to reaccelerate in 2022, driven by health systems adoption of software modules – while firm downgraded shares of GDRX

Industrials & Materials

·     Industrial & Machinery; TEX upgraded to buy from neutral at Citigroup for the first time since picking-up coverage in 2014, as most recent round of industry checks make them incrementally more positive on the outlook for global access equipment sales in 2021; TGLS downgraded to outperform from strong buy at Raymond James saying visibility into the recovery and private nonresidential markets in particular is still very limited; HON downgraded to hold from buy at Jefferies with shares up 16% YTD and surpassing their tgt saying shares could be range-bound

·     Aerospace & Defense; Dow component BA shares surge initially after the FAA allows co’s 737 Max to resume flights – U.S. FAA chief Steve Dickson said is "100% confident" in the safety of the Boeing 737 MAX but says the airplane maker has more to do as it works to improve its safety culture (the 737 MAX crashed in Indonesia and Ethiopia, killing 346 people within five months in 2018 and 2019); shares of aerospace suppliers SPR, TDG, HII, GE active on the news; Citigroup downgraded SPR to neutral noting vaccine & MAX progress have pushed stocks significantly higher, so cutting with the stock +65% since they reported on Nov 3; TDG upgraded to buy from hold at Jefferies based TDG Commercial AM sales rise 7% from 2019 to 2023and potential capital deployment likely with cash balance at 92% of sales and also upgraded SPR to buy with $40 tgt; Cowen raised price tgts for SPR to $39, RTX to $77, MOGA to $83 in supplier space; ESLT downgraded to hold at Jefferies saying the global nature of the pandemic limits visibility to a recovery w/ 1% organic growth in 2020E and 3% in 2022E

·     Transports; Dow Transports touch record highs led behind economic recovery hopes; LUV says has confidence in Boeing Max training updates and software and said will resume 737 Max 8 flights “sooner than” 2q 2021; UAL says plans to fly its Boeing 737 max aircraft in the first quarter of 2021; AAL will begin with non-commercial flights in early December before the official return to service date of 737 Max

Technology, Media & Telecom

·     Semiconductors; TSM rises on Nikkei report that GOOGL and AMD will be among the first clients for TSMC’s new SoIC chips, which use a new 3-D technology to stack and link different types of chips in one package; markets prepare for NVDA earnings after the close, with expectations high following strong semi results this quarter and increased stay at home for gaming chips.

·     Software movers; TEAM at its analyst day event said its "big, hairy, audacious goal is to engage 100 million MAU in the cloud as the company forecast subscription growth in the mid-30s% in both FY21 and FY22; PDD 28.7M share Secondary priced at $125.00; KC Q3 results beat bottom line estimates but narrowly missed on the top with $254.6M (+73% Y/Y), which was $6.54M below estimates – enterprise cloud services revenue increased 257% Y/Y to RMB409.1M; PAYS slides as Q3 EPS loss (12c) vs. est. 2c and negative revenue of ($152,541) vs $9.008M last year; YY shares tumbled as much as 20% after Muddy Waters out with short call on shares midday; ZM shares rose late day after NYC said they would close in person learning tomorrow amid surge in Covid-19 positivity rate above 3%.

·     Media & Telecom movers; ATEX downgraded to underweight at JPMorgan given a longer than planned path to customer sign-ups and our skepticism around the size of the company’s long-term opportunity; SCKT announced today that the SocketScan S550 Contactless Membership Card Reader/Writer has passed the Google Wallet Certification process; AVYA mixed results as EPS missed but topped revenue estimates; SIRI announced a new long-term agreement with the NBCUniversal News Group under which the simulcasts of MSNBC and CNBC will continue to air

·     Hardware & Component news; AAPL slashes App store fees for small developers; AAPL said starting in 2021 it will collect 15% rather than 30% of App Store sales from companies that generate no more than $1 million in revenue through the software platform, including in-app purchases; ANET was upgraded to outperform and $310 tgt at Evercore/ISI as sees improved capex outlook for co in 2021 as its key partners like FB and MSFT have seen cap-ex growth; CIEN was downgraded to neutral from buy at Rosenblatt on concerns over sales to AMZN and read from ACIA on flat optical spend from T and VZ which accounts for roughly 18% of sales and 23% including AMZN