Mid-Morning Look

Thursday, April 09, 2020

U.S. equities rising on the final day of trading for the week as the Federal Reserve once again coming to the rescue of financial markets and Main Street, releasing well timed program headlines of additional stimulus (news came at 8:30 AM – the same time the jobless claims numbers showed another 6.6M filing for first time unemployment – bringing the total to 16.8M in just three weeks as the coronavirus impact hits hard) as details of a the stimulus plan to provide $2.3 trillion in new support for the economy in an effort to fight the impact of the coronavirus epidemic. The Fed program will include a new fund to buy debt from banks issued to small and medium sized U.S. businesses with up to 10,000 employees and another to buy short-term notes issued by U.S. states and municipalities. Treasury yields bounce off lows after the Fed program, while commodity prices surging with oil up over 5% ahead of OPEC+ production talk meeting today (headlines indicate they have reached a deal on deep cuts with hopes for cuts of anywhere over 10M barrels), while gold surges to fresh 8-year highs. The major U.S. stock exchanges will be closed Friday in observance of Good Friday. Earnings season kicks off next week with most of the large cap banks releasing earnings and many will watch for any commentary pertaining to lending and loans following the recent SBA loan program announced by the government to help small businesses.

Economic Data

·     Weekly jobless claims jumped another at 6.6M, above the 5.5M estimate (over 16M jobless claims the last 3-weeks) and continuing claims at 7.45M vs. est.8.23M from 3.059M the prior week; the 4-week moving average rose to 4,265,500 from 2,666,750 prior

·     Producer Prices (PPI) for March final demand fell (-0.2%) vs. est. down (-0.4%) while core prices (excluding food & energy) rose 0.2% MoM vs. est. 0%; core PPI ex food, energy rose 1.4% YoY vs. est. up 1.2%

·     University of Michigan sentiment falls to 71.0 reading vs. est. 75.0 – declines most on record and down from 89.1 prior month; the current economic conditions index fell to 72.4 vs. 103.7 last month (31.3-point drop nearly double prior record decline of 16.6 points set in Oct. 2008) and the expectations index fell to 70.0 vs. 79.7 last month

·     Wholesale Inventories for February fell (-0.7%) vs. estimate of a (-0.5%) decline as wholesale inventories decreased to $655.8b vs $660.2b in prior month; wholesale sales fell 0.8% in Feb. after rising 1.3% the prior month

Sector Movers Today

·     Asset managers; WDR preliminary assets under management of $56.0 billion for the month ended March 31, 2020, compared to $65.0 billion on February 29, 2020; CNS preliminary AUM $57.4B as of March 31, a decrease of $11.9B from assets under management at February 29; BEN prelim AUM at $580.2 billion at March 31, 2020, compared to $656.5 billion at February 29, driven lower by sharp market declines

·     Business Development sector; late yesterday, the SEC gave business development companies additional flexibility, on a temporary basis, to issue and sell senior securities in order to provide capital to small and medium-sized businesses. It will also allow BDCs to participate in investments in these companies alongside certain private funds that are affiliated with the BDC (names to watch MAIN, ARCC, AINV, HTGC, GAIN, among them)

·     Biotech movers; BNTX rises after saying PFE to make an equity investment of $113M as part of joint effort to develop COVID-19 vaccine/PFE investment is part of $185M in upfront payments, including $72M in cash and BNTX eligible to receive future milestone payments of up to $563M; PTLA said it would be regaining its rights to andexanet alfa in Japan, after terminating its agreement with its two pharma partners and gets upfront payment of $15M and lose the right to regulatory milestones of $20M and sales-based milestones of up to $70M and royalties; IBIO signed two master services agreements and a memorandum of understanding with the Infectious Disease Research Institute in support of its SARS-CoV-2 Virus-Like Particle vaccine development

·     Aerospace & Defense; FLIR was downgraded to sell from buy at Goldman Sachs following outperformance and as they estimate downside risk to estimates amidst persistent weakness in fundamentals and elevated valuations (cut tgt to $31 form $44) while upgraded ERJ to Neutral as challenges to its business are likely priced in; Cowen said defense will see much less COVID-19 disruption than industrial markets with generally stable cash flows although we could see some guide tweaks – big cap favorites are RTX and LHX and see HII as a short-term relative safe-haven

·     Semiconductors; MCHP said it expects net sales growth of 3% Q/Q for its quarter ending on March 31/said it received record bookings in the quarter, and the backlog for the June quarter is currently up 9% Q/Q; KeyBanc said on Apple suppliers (SWKS, QRVO, CRUS, AVGO, SYNA) that spend analysis indicates March iPhone sales declined 56% y/ y, while unit sell-through declined 42% y/y, which indicates online sales have not been able to compensate for store closures. Additionally, we observed a significant drop in blended ASPs, which declined ~20% y/y in March; INTC a standout decliner in generally mixed sector

Stock GAINERS

·     BIG +21%; announced a sale-leaseback agreement, which should yield $550M of after-tax proceeds as deal expected to close in fiscal 2Q

·     BILI +6%; after Sony Corporation of America, a subsidiary of SNE, entered into an agreement, pursuant to which SCA will subscribe for 4.98% of the total outstanding shares of the company

·     BLMN +19%; reached settlement with activist shareholder Jana Partners as agreed to add two new independent directors to its Board after Jana pushed for board changes few months ago

·     BNTX +16%; after saying PFE to make an equity investment of $113M as part of joint effort to develop COVID-19 vaccine/PFE investment is part of $185M in upfront payments, including $72M in cash and BNTX eligible to receive future milestone payments of up to $563M

·     DIS +5%; after saying paid subscriptions to its Disney+ streaming service soared past 50 million (the service that launched in November was previously was at 28 million)

·     NLS +45%; after the company said preliminary sales for Q1 rose 11% to $94 million, the first time quarterly sales have grown year-over-year since 2018 driven by home exercise equipment

·     SPG +15%; rebound in beaten up REITs (KIM, VTR) following additional Fed stimulus measures to help businesses, which in turn helps pay landlords

Stock LAGGARDS

·     ANET -2%; downgraded to neutral from overweight at Piper noting shares have rallied due to the shift to the cloud in a remote work environment, but there is no clear catalyst in the near-term

·     ANTM -1%; was downgraded to hold at Jefferies saying the far-reaching impact of the spread of the novel coronavirus and a likely recession will overshadow the near-term benefit for some managed care companies

·     INTC -3%; as the semi giant weighing on tech early and semiconductors in general

·     QRVO -2%; KeyBanc said on Apple suppliers (SWKS, QRVO, CRUS, AVGO, SYNA) that spend analysis indicates March iPhone sales declined 56% y/ y, while unit sell-through declined 42% y/y

·     SBUX -1%; said it sees Q2 EPS about 32c, below ests of 39c saying business disruption related to Covid-19 in China hurt results by 15c-18c and expects the negative financial impacts to Q3 will prove “significantly greater” than in Q2 and extend into Q4