Mid-Morning Look

Friday, April 17, 2020

U.S. equities higher, rising amid optimism about a possible coronavirus treatment following positive anecdotal data from GILD’s Remdesivir (shares up 8%) and on the chances for reopening the U.S. economy sooner than later for many States after the Trump Administration outlined guidelines last night. The hopes/positive sentiment outweigh the recent troubling economic data in the U.S. earlier this week (jobs, housing, manufacturing data), including China’s first contraction in decades falling 6.8% for the first quarter. Shares of retailers, restaurants, leisure, hotels among the biggest gainers this morning after Trump said yesterday that some states could start to reopen as soon as today, at least based on new guidelines issued by the White House. The Dow Jones Industrial Average gets a big boost from component Boeing (BA) after announcing the resumption of commercial plane production at its Seattle-area facilities. So far, seeing strength in all eleven S&P sectors, while many of the names that have benefitted from the stay at home rules such as AMZN, NFLX, grocers, and food related names are seeing a pullback today. U.S. Treasury prices rise and yields fall despite the early enthusiasm in the stock market, with the two-year yield flat at 0.19% and the 10-year yield up a basis point to 0.62%. The US dollar slips along with weakness in oil and gold prices heading into a busy week of earnings coming up.

Sector Movers Today

·     Aerospace & Defense; Dow component BA shares jump after it announced plans to resume production of all commercial airplanes in a phased approach at its Seattle-area facilities next week/said 27K employees in the Puget Sound area will return to production of the 747, 767, 777 and 787 programs, and the 737 program will resume working toward restarting production of the 737 MAX (shares of suppliers also benefit with SPR, TDG, HXL rising); UBS downgrade BDRBF to buy from neutral given a weaker bizjet outlook coupled with greater risk on the portfolio transformation, while says likes RTX, LMT in earnings preview for industry

·     Transports; KSU the first rail to report earnings as tops estimates as revenue in all the commodity groups with the exception of energy came in ahead of last year’s marks/company’s operating ratio was 59.7% vs. 66.2% a year ago; JBHT was upgraded to buy at Argus as like its industry position, and think companies will increasingly focus on their domestic supply chains as the economy eventually recovers; Barclay’s downgraded several rails (CNI, CP, NSC) and package delivery (FDX, UPS) ratings

·     Bank movers; banks seeing a nice recovery after a tough week of earnings and significantly higher provisions for losses from some of the biggest banks (JPM, C, WFC); regional banks early winners after sharp selling this week (CMA, FITB, KEY, HBAN rally); RF reported Q1 EPS miss with better NII/NIM being offset by higher core expenses while provision also came in above ($373M vs. $310MM est); CFG reported Q1 EPS beat on better NII and lower provision, partly offset by higher expenses

·     Casinos & Gaming; LVS CEO said it will suspend the dividend but says it has enough cash to proceed with its capital expenditure plans in Singapore and Macau; SunTrust said while gaming stocks continue to trade largely on liquidity concerns, we expect the focus to shift to fundamentals over time where our preference remains drive-to regional properties; SunTrust upgraded TRWH to Buy as view their regional exposure and cost focused operating philosophy favorably during the recovery phase and upped CZR to Buy from Hold on valuation as expect the pending acquisition by ERI to close in the next few months

Stock GAINERS

·     AMC +37%; after saying it will offer $500M in first-lien five-year debt

·     BA +11%; after it announced plans to resume production of all commercial airplanes in a phased approach at its Seattle-area facilities next week (lifts suppliers HXL, TDG, SPR)

·     CFG +12%; reported Q1 EPS beat on better NII and lower provision, partly offset by higher expenses

·     GILD +7%; following positive anecdotal data reported by STAT News in GILD’s ongoing phase III remdesivir program looks promising on the surface and continues to support some potential for the drug to be active in certain COVID-19 points

·     MRNA +16%; after receiving $483M funding from U.S. govt. agency to accelerate development of its potential coronavirus vaccine/the vaccine being tested in early-stage trial by National Institutes of Health and Moderna expects to begin mid-stage trial in Q2

·     PLNT +8%, shares gain while stay at home exercise machine makers NLS and PTON shares fall as President Trump allows gyms to re-open in the first phase/if adhere to strict physical distancing

·     TROX +20%; rises after positive guidance for 1Q as benefited from the absence of Chinese TiO2 exports

·     UBER +4%; withdraws FY20 guidance, warns of impairment charge on minority equity investments of up to $2.2B

Stock LAGGARDS

·     AAPL -1%; downgraded to sell at Goldman Sachs and cut its tgt to $233 from $250, as it reduced its earnings estimates for a third time since Feb. 17 saying they are modeling a far deeper reduction in unit demand through mid-2020 followed by a shallower recovery heading into 2021

·     CPB, GIS, KR; grocers and food stocks that have benefitted from stay at home guidelines by government seeing profit taking today on new guideline outlines by government

·     NEM -2%; as gold miners fall after U.S. President Donald Trump’s plans to revive the country’s economy and investors opting for riskier assets/gold prices tumble from 7-year highs

·     NFLX, WORK, ZM, ATVI ; shares of stocks that have benefited from the “stay at home movement” giving back gains today on the Trump guideline plan to open economy