Closing Recap

Tuesday, September 29, 2020

Equity Market Recap

·     U.S. stocks closed down slightly, rebounding off midday lows though pulling back after Monday’s surge as investors prepare for the first of three Presidential debates tonight, with President trump and former VP Biden set to hit the stage in Cleveland at 9:00 EST. Oil futures fell over 3% to their lowest finish in two weeks as concerns about rising coronavirus cases globally renewed demand fears and its potential to harm appetite for oil and other energy assets in the longer-term. Gold prices jumped over $20 an ounce back above the $1,900 level as the dollar slipped despite better economic data in the U.S. Treasury prices remain little changed. A different picture than yesterday when the 1.9% gain in the NASDAQ 100 capped off the best 2 days gain since April 14th. It also marked the best 2 day stretch for the SPX since June 8th. Despite the recent bounce, the NDX and the SPX are still down 6% and 4% for the month, respectively. The QQQ’s closed above the 50-day moving average for the 1st time in 7 trading sessions. Outside of the debate tonight, markets remain hopeful of a new stimulus bill after House Democrats released a $2.2 trillion coronavirus relief package overnight that would restore $600 weekly jobless benefits, a last-ditch effort to revive stalled talks with the White House. U.S. consumer confidence rebounded more than expected in September rising to a reading of 101.8 this month from 86.3 in August and well above reading of 89.5 in September. Amid a slew of Fed speakers, Dallas Fed President Kaplan said the U.S. economy won’t be back on track until late 2022 or sometime in 2023, while NY Fed President John Williams said that he doesn’t see any sign of high inflation.

Economic Data

·     Consumer Confidence for September 101.8 (consensus 89.5) vs. August revised 86.3 (previous 84.8) while the present situation index 98.5 in Sept vs. Aug revised 85.8 (previous 84.2) and expectations index 104.0 in Sept vs. Aug revised 86.6 (previous 85.2)

·     U.S. advance August goods trade balance widens to -$82.94B vs. est. (-$82.6B) and (-$80.1b revised) as retail inventories excluding autos +0.9% and advance wholesale inventories +0.5%; exports +$3.2B to $118.3B and imports +$6B to $201.3B.

·     Home prices increased 3.9% on an annual basis in July, Case-Shiller 20-city price index shows

Commodities

·     Oil prices plunged ahead of weekly inventory data, as riskier related assets slumped on the day and the energy sector returned to the bottom of the S&P sector standings. WTI crude fell below its 200-day moving average $39.62 per barrel, settling at $39.29 or down -$1.31 or 3.23%. While there was no one catalyst to explain the precipitous drop in oil prices, ongoing demand concerns stemming from the pandemic outweigh hopes for a new U.S. stimulus package. "I don’t think OPEC will increase production in January…If they do, the market will test them to the downside," Pierre Andurand, founder, and CIO at Andurand Capital was quoted as saying.

·     Gold prices close higher, rising $20.90 or 1.1% to settle at $1,903.20 an ounce, rising for a second consecutive session after a 5% pullback last week, getting a boost as the U.S. dollar extended yesterday’s decline. Last week, gold and silver prices came under pressure due to the mini rally in the greenback which can make dollar denominated assets more expensive to overseas buyers.

Sector News Breakdown

Consumer

·     Retailers; LVMH Moet Hennessy Louis Vuitton SE sued TIF over their soured merger deal, saying the U.S. jeweler’s business has been so deeply damaged during the pandemic that their takeover agreement is invalidated; BIG guiding Q3 EPS well above consensus to 50c-70c vs. est. 21c and said Q3 comparable sales will increase in the mid-teens; KSS tgt raised to $26 from $23 at Wedbush as proprietary data shows Kohl’s running above-consensus net sales and gross margin halfway through the third quarter; CROX ests and tgt raised (to $48) citing improving inventory in-stocks, positive European channel checks and 2H product newness; FIT rises after Reuters report that GOOGL is poised to win EU approval for $2.1 bln Fitbit deal saying the company has offered to restrict Fitbit data, Reuters reports; PRTY file to sell 13.2M shares

·     Consumer Staples; EL upgraded too neutral from sell with $231 tgt at Goldman Sachs; HSY upgraded from Market Perform to Outperform w/ $163 pt at BMO Capital saying despite an ongoing valuation premium to its food peers, HSY has become a compelling investment; UNFI posted a solid quarter, with higher-than-anticipated revenue leading to EBITDA outperformance. Revenue in 4QF20 increased 5.4% to $6.76B driven by a 21% increase in retail same-store sales; MKC posted a Q3 EPS and sales beat and approved a 2-for-1 stock split while resumes guidance; TAP enters exclusive agreement with KO to bring topo chico hard seltzer to the U.S.; earnings results on Thursday for PEP, CAG and STZ in food and beverages; BYND to expand WMT distribution, as to triple distribution of Beyond Burger to more than 2,400 locations nationwide (though note they had mentioned prior in August 4th call – so not new)

·     Restaurants; overall casual dining and restaurant names feeling pain most of the day given broadly negative news on COVID-19 trends, including higher hospitalizations due to the virus across the Midwest (shares of BLMN, CAKE, EAT, RRGB, DENN lower); DRI upgraded to buy from hold at Argus with $115 tgt as think that Darden turned the corner in 1Q21 with a more moderate decline in comp sales (down 29% after a sharper drop of 48% in 4Q20) and well-above-consensus EPS and think this guidance is achievable; PZZA reports preliminary comp for September and Q3 saying expects system-wide North America restaurants comps of 18.4% for September and 23.8% for Q3

·     Leisure and Gaming; PII announced a decade-long partnership with Zero Motorcycles Inc to co-develop electric vehicles as they will develop, manufacture and sell electrified off-road vehicles and snowmobiles; CZR 30M share Secondary priced at $56.00; in autos, NKLA negative headlines continue to plague the EV maker as two women file sexual abuse complaints against Nikola founder Trevor Milton

·     Housing, Furnishing & Building Products; RH upgraded Market Perform to Outperform at Cowen in transfer of coverage and raise tgt $370 to $435, constructive on RH’s operational and real estate transformation with upside to LT targets on revenue & margin catalysts; BBBY and BuyBuy Baby launch same day delivery ahead of the 2020 holiday season

Energy

·     Energy stock movers; several E&P names giving back gains after the group rallied on Monday following the DVN merger announcement; PBR said it plans to spend $6B through 2024 to decommission 18 offshore platforms, underwater gas pipelines and offshore wells, it says in a Brazilian securities filing; also says it predicts proceeds of $1B from divestments in 2020, after receiving $14.4B from asset sales; HESM was initiated at Equal Weight, $18 pt at Morgan Stanley; MKM downgraded WPX to Neutral with a $5 target from Buy; in MLP’s, OKE upgraded to Buy from Neutral with $35 tgt at UBS driven by strong data points indicating a sharp rebound in gas vols on OKE’s system in the Bakken; RDS is reportedly planning to restructure its senior management team and may cut thousands of jobs; Spruce Point was negative on NOVA, seeing up to 80% downside risk

·     Utilities & Solar; Dominion (D) upgraded to OW from neutral at JPMorgan and up tgt to $84 from $82; SPI filed an amended registration statement to sell up to $100M of its securities; MAXN filed a patent infringement lawsuit against CSIQ in Tokyo; VST announced plans to accelerate its transition to clean power generation and reduce its carbon footprint, and raised its 2020 adj EBITA guidance to $3.49-$3.69B from $3.29-$3.49B and sees 2021 adj EBIDTA in range of $3.08-$3.48B; BTU and ARCH shares were lower after the FTC’s motion for preliminary injunction was granted and the two companies are restrained from proposed JV; solar stocks (RUN, VSLR, SPWR) again outperform as investors look to clean energy; MAXN said it has filed a patent infringement lawsuit against CSIQ’s Japanese unit at the Tokyo District Court.

Financials

·     Bank movers; Raymond James initiated CATC as Outperform with a $58 pt and LOB as Outperform, $27 pt; BMRC was upgraded to Buy with a $33 pt at Janney; HONE announced it obtained regulatory approval for its share repurchase program; TD closed a 3-year, $500M sustainability bond due Sept 28 2023, the bank’s first sustainability bond; Independent Research upgraded JPM to Buy and set a $110 target; JPM will pay a record $920.2M in spoofing case;

·     Consumer Finance; INFO reported Q3 EPS $0.77 on $1.07B vs $0.69 / $1.07N est; Wedbush cut its target on RKT to $20 from $24, saying historical trends in market share combined with RKT’s own rebranding of its partner channel to "Rocket Pro TPO" is altering our view on the company’s long-term channel mix, but it has no impact on near-term EPS; Wedbush did up its target on COOP to $27.50 from $21 and reiterated its OP rating on projected book value, ROE growth; Stephens upgraded NRC to OW from EW and raised its pt to $31 from $23; SQ was upgraded by Wolfe to Outperform with a $195 pt; MA and ACIW announced a partnership to provide and improve real-tome payment services worldwide;

·     REITs; Bank of America upgraded SHO, PEB, STAY to Buy from Neutral and issued a double upgrade to Buy from Underperform on PK while downgrading HST, RLJ to Underperform from Neutral; Goldman initiated PLD at Buy, DRE and TRNO at Neutral, and FR at Sell; JPM raised its price target on O to $75 from $72 after raising its estimates on higher revenue recognition; VER announced that it collected 87% of Q2 rents and 95% for September, up from July’s 92% and August’s 94%; Wedbush lowered its price target on PLYM to $15 from $20 but kept its Outperform rating on stock dilution, property acquisitions; Morgan Stanley raised its price target on QTS, DLR and lowered its target on EQIX;

·     GPMT cut its quarterly dividend to 20c from 42c but reported a $357M cash balance and announced it was able to secure strategic financing of up to $300M; SUI acquired Safe Harbor Marinas for $2.1B

Healthcare

·     Pharma movers; IRWD slides after saying it will discontinue IW-3718 development program following results from planned efficacy assessment as trial did not achieve statistically significant improvement in heartburn severity (primary endpoint) – plans to implement organizational restructuring; APM surges after announces launch of Aptorum Innovations – an infectious disease liquid biopsy diagnostics subsidiary; BBIO announces FDA acceptance of its New Drug Application for fosdenopterin for treatment of MoCD Type A; PFE wins FDA approval of Xeljanz new use’ MYOV shares fall after its lead drug relugolix, to treat advanced prostate cancer, failed to meet one of the secondary goals of castration resistance-free survival in late-stage trial

·     Biotech movers; BIIB disclosed a passive 11.16% stake in DNLI, which represents over 13.3M shares; SRNE said both COVI-GUARD and COVI-AMG showed potent neutralizing activities against SARS-CoV-2 virus, that causes COVID-19, in Syrian golden hamsters; ORPH 7.616M share IPO priced at $11.00; AXSM initiated underperform and $66 tgt at Bank America saying 2021 primary care launches (depression, migraine) are likely to disappoint with undifferentiated products in saturated market and see multiple/viable competitor readouts starting 4Q20; AXSM slides after initiated with an underperform and $66 tgt at Bank America, bearish due to view that Axsome’s 2021 primary care launches (depression, migraine) are likely to disappoint with undifferentiated products in saturated markets; NTLA announced new data from preclinical studies, demonstrating the persistence of in vivo CRISPR/Cas9 gene edits to either reduce a disease-causing protein or restore a functional protein, in a mouse model

·     Healthcare services and providers; PRSC to acquire Simplura Health Group for an enterprise value of $575 mln as expects deal to immediately add to growth, margins and adj EPS; MOH to acquire Medicaid managed care organization Affinity Health Plan for ~$380M, to be funded with cash on hand

·     MedTech and Equipment; FLDM said it executes a definitive contract with National Institutes of Health (NIH) to expand capacity for increased COVID-19 testing and is now eligible to receive up to ~$34 mln upon achievement of certain milestones; ANGO rises after Q1 EPS and revs topping views and guidance above as well (sees FY21 revenue $278M-$284M vs. est. $274.48M)

Industrials & Materials

·     Transports; Airlines are making a last-minute push for another bailout, warning that up to 100,000 jobs are at risk, starting this week, without more aid from Washington; in rails (CSX, NSC, UNP), North American Class 1 Railroad carloads were down -6% in Q3, reflecting lower Coal carloads as well as resulting from weakness across most other segments. However, this was partly offset by higher Intermodal volumes, which we note represent approximately half of total carloads, and increased Grain carloads; FWRD was upgraded to outperform at Raymond James as view it uniquely positioned to capitalize on a tightening freight market and a robust LTL pricing backdrop, anchored by its accelerating LTL door-door expansion

·     Aerospace & Defense; BA shares giving back some of yesterday’s strong gains, which led the Dow higher after news last week that European regulators now expect to approve the 737 MAX’s return to service by November; CACI awarded $59 million task order to provide mission systems support for the office of undersecretary of defense; OSIS received orders worth ~$5M to provide electronic sub-assemblies for an innovative water solutions provider.

·     Chemicals; Wells Fargo reiterated its overweight on APD and raise our PT to $325 (vs. prior $315) as see strong high teens EPS growth in FY21E, strong leverage to a recovery of industrial demand and a strong balance sheet while raise tgt on LIN to $289 based on EBITDA of $9.5B following recent due diligence

Technology, Media & Telecom

·     Internet; NFLX shares slip after Wells Fargo revises next quarter net adds from +5mm to +2.5mm due to churn concerns surrounding the controversy around Cuties; in internet auto, CVNA and VRM shares rally after Piper raised estimates on both noting a barrage of data points that suggest strong Q3 fundamentals and better prospects for long-term share gains

·     Semiconductors: MU rises ahead of expected earnings after the close tonight; SWKS estimates raised at Piper as believe Skyworks is poised for a very strong September quarter, potentially pre-announcing positive results citing strong traction at the company’s largest customer

·     Software movers; McAfee (MCFE) files for an IPO to list on the Nasdaq as the number of shares weren’t disclosed and McAfee listed the $100M placeholder figure, which tends to mean the IPO seeks to raise in the lower nine-digit range; DBX added to Citigroup "Value Creators" Focus List; ZS expanded strategic partnership with VMW to help large organizations simplify the adoption of a complete Secure Access Service Edge (SASE) architecture

·     Hardware & Component news; NOK extended its long-term strategic relationship with BT into the 5G arena, making it BT’s largest equipment provider, following its selection as a 5G RAN vendor for the UK operator; in the EDA sector, RBC Capital said they continue to view the EDA sector as a secular winner and would add to long-term positions of CDNS and SNPS on pullbacks