Mid-Morning Look

Monday, April 06, 2020

U.S. equities posting a strong rebound to start the week, trying to recover from last week’s declines given the sour jobs data last week (jobless claims jumped 6.6 million and nonfarm payroll jobs lost topped -700K) as coronavirus infection rates and reported deaths eased in some key locations while the Trump administration issued a more optimistic tone overall at yesterday’s coronavirus press conference (despite warning numbers in the hardest hit areas of the US will likely see further spikes in numbers this week). New York state’s 594 reported coronavirus deaths on Sunday came in below Saturday’s 630 deaths, and slowing death rates in Italy and Spain offered some hope as well that we could start seeing a peak level in the U.S. as well. Both European and Asian markets advance sharply overnight as well. Seeing early strength in all major sectors, with hard hit financials (especially mortgage finance, REITs related movers that have tumbled) helping pace gains along with materials and utilities. Economic relief checks are expected to go out over the next two weeks, while the SBA small business outreach program started Friday with intentions for $350B going towards employee costs as well as rent and utilities. In the oil sector, OPEC+ will meet on Thursday (instead of an expected meeting today), offering some optimism about a possible settlement in the oil price war, but mixed messages from various participants has crude oil falling despite the risk rally, but paring earlier losses. Spain daily new COVID-19 deaths declined for fourth day in a row to lowest number in 13 days and daily new cases also declines for fifth day in a row to lowest number in 15 days.

Sector Movers Today

·     Retailers; CPRI among top gainers in the S&P given broad recovery for heavily beaten up retailers with gains in KSS, M, PVH, JWN as well); Wayfair (W) said it expects to meet or exceed its Q1 forecast for net revenue and adj EBITDA margin as it benefits from a bump in online orders amid coronavirus lockdowns/sees strong demand across most home goods categories in U.S. and international segments

·     Casino & Leisure movers; ERI shares jump as Jefferies commented on the casino sector saying they believe the regional casino operators will survive the Covid-19 outbreak and ERI will close on the CZR acquisition; PLNT was upgraded to an Overweight rating from Neutral oat JPMorgan on a positive view that it can survive in a post-pandemic industry that might see consolidation/valuation is also seen as attractive after the sell-off of shares; SEAS announced its CEO was stepping down after just five-months on the job; in cruise lines, Saudi Public Investment Fund reports an 8.2% stake in CCL

·     Oil services; Bernstein upgrading the sector to buy (raises rating on BKR, FTI, HP, NOV, SLB to outperform and upgraded HAL, OII, PTEN to market perform from underperform) noting since they started covering the space in 2014, firm has never been bullish, even in the depths of ’16..but expectations have dropped far too low and for the first time in 7-years, it is time to buy; PUMP shares active after Reuters reported oil billionaire Dan Wilks this week took a 10% stake in the company according to a regulatory filing

·     Insurance; mortgage insurers remain pressured (ESNT, RDN, MTG, NMIH) as rising unemployment bodes ill for the pace of mortgage payment delinquencies, and declining home sales, which translates into lower new insurance written; ALL said on Monday that it would return more than $600 million in auto insurance premiums to customers; Piper upgraded CB and HRTG to overweight from neutral as are cautiously optimistic towards the P/C insurers due to the steep drop in stock prices and our view that the well-capitalized insurers will likely resume profitability after the pandemic and the resulting financial market turmoil has subsided

·     Medical equipment and devices; 2020 guidance withdrawals continue, adding HSIC, PDCO, SWAV and TMO to the list as each company withdrew guidance this morning; MYGN reimbursement approval and launched the BRACAnalysis Diagnostic System in Japan to assess Hereditary Breast and Ovarian Cancer risk in people with breast and ovarian cancer; Jefferies lowered estimates for MDT, ABT, BSX, EW, SYK, ZBH and ALC as anticipate that 2020 sees a sharp falloff in non-essential procedures and cap-ex revenue in 2Q and 3Q, with a slow recovery in YE and into 2021

·     Semiconductors; INTC was upgraded at Raymond James primarily based on view that the company is exposed to the right end markets for this pandemic – namely, notebooks and datacenter, at same time, firm lowers estimates across a large number of analog and broad-based companies (ADI, MXIM, NXPI, ON), to account for both supply disruptions and lower end demand resulting from the global shutdown; AVGO says is experiencing some disruption to parts of our global supply chain; says Malaysia warehouse is currently fully operational, pursuant to a critical industry exemption

Stock GAINERS

·     CCL +13%; after Saudi Public Investment Fund reports an 8.2% stake in the cruise line

·     CPRI +23%; among top gainers in the S&P given broad recovery for heavily beaten up retailers with gains in KSS, M, PVH, JWN as well)

·     ERI +30%; after Jefferies earlier said they see considerable upside from the CZR merger, considerable risks from what is under control of other parties between now and closing

·     IMMU +104%; surges after saying its phase III confirmatory Ascent study will be halted due to compelling evidence of efficacy (breast cancer study)

·     INO +11%; says early-stage clinical testing of its COVID-19 vaccine candidate, INO-4800, will begin this week after U.S. FDA accepts Investigational NDA/1^st patient dosing planned for today

·     PUMP +11%; shares active after Reuters reported oil billionaire Dan Wilks this week took a 10% stake in the company according to a regulatory filing

·     VIR +15%; after news GSK will partner with them to develop new treatments for COVID-19, and also make an equity investment of $250 mln in VIR

·     W +35%; said it expects to meet or exceed its Q1 forecast for net revenue and adj EBITDA margin as it benefits from a bump in online orders amid coronavirus lockdowns/sees strong demand across most home goods categories in U.S. and international segments

Stock LAGGARDS

·     DAL ; Warren Buffett’s Berkshire Hathaway disclosed the sale of 12.9M common shares of DAL and about 2.3M shares of Southwest (LUV) according to regulatory filings late Friday

·     LK -15%; extends recent declines, says it will maintain normal operations at its stores even as a fraud investigation plays out

·     MNLO -44%; shares fall after late-stage trials of Serlopitant, a skin drug to treat itches, did not meet primary endpoints

·     WORK ; said it plans to sell $600 million worth of convertible senior notes, due 2025 as the notes will be convertible to cash, shares of common stock, or a combination of both

·     ZM -6%; downgraded to underperform at Credit Suisse noting they see the current crisis accelerating the adoption of video communication, but at 40x CY20 consensus revenue, the current share price embeds significantly greater conversion of free users than their upside model