Mid-Morning Look

Thursday, April 30, 2020

U.S. equities volatile again, with major averages giving up overnight strength following another round of dismal economic data points, pointing to the impact the coronavirus business shutdowns has had on the U.S. economy, but stocks pare losses after the Fed announces expansion to “main street lending” program. Stocks open in the red after the U.S. reported another 3.84M in jobless claims, bringing the total filings to more than 30M in six-weeks, and U.S. personal spending in March also dropped by the most on record. There were tons of earnings releases to go through today (most S&P companies reporting in one day for the quarter), but the software sector a standout to the upside following better results from MSFT and NOW (leads group higher), while FB rises on its standout quarter in social media space. Tech another big night of earnings with AAPL and AMZN results released after the close. Despite today’s pullback off highs, the S&P is on track to record its biggest monthly gain since 1974, and the DJIA is poised for its best monthly gain since 1987. While data in the U.S. remains bleak (though many are hoping the April figures will mark the bottom), ECB President Lagarde said the Eurozone economy could shrink by 15% in Q2, as the global pandemic takes its toll. Crude oil prices continue to rebound, with June WTI rising over 20% early, topping $17.50 per barrel while Treasury prices rise (yields fall with 10-year below 0.6%) and the dollar extends its recent declines. In the ECB meeting today, the central bank said conditions on the targeted longer-term refinancing operations (TLTRO III) have been further eased; A new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) will be conducted to support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop

Economic Data

·     Weekly jobless claims reported at 3.839M vs. est. 3.5M but down from prior 4.427M; continuing claims rises to 17.992M above the prior week 15,976M but below the est 19,476M; U.S. insured unemployment rate rose to 12.4% from 10.9% prior week; the 4-week moving average fell to 5,033,250 in week from 5,790,250 prior week

·     Personal Spending for March fell a greater than expected (-7.5%) MoM vs. est. decline (5.0%) while personal income in March fell (-2.0%) worse than the (-1.5%) estimate; real personal spending fell (-7.3%) vs. est. (-6.2%); PCE prices fell 0.3% m/m; est. -0.3%; rose 1.3% y/y, while core prices fell 0.1% m/m; est. -0.1%; rose 1.7% y/y

·     Chicago PMI falls to 35.4 in April, the lowest since March 2009 as per CNBC and below the est. 36.9; prices paid fell and the direction reversed, signaling contraction while new orders fell at a faster pace, signaling contraction and employment fell at a faster pace

Sector Movers Today

·     Internet; FB strong 1Q:20 results with revenue, users, and engagement growth coming in well above Street expectations, while profitability was in-line despite a number of incremental costs (Q1 monthly active users 2.60b vs. est. 2.34b/ sees 2020 capex down to $14B-$16B from prior range of $17B-$19B); TWTR posted a Q1 revenue beat, and smaller-than-expected loss while its daily users (DAU) who can view ads soar 24% to 166M topping the 164M est. and reports a slight rebound in ads sales in Asia after a plunge due to the outbreak/shares slip after saying the last 20-days of March saw ad spending fall -27% YoY and said April ad spend similar to March; EBAY Q1 results were better than expected for eBay, with GMV, Revenue and EPS above street estimates while Q2 revs and EPS range came in above Street’s expectations, while management reiterated FY20 guide; AMZN next up with earnings tonight

·     Software movers; MSFT tgt raised by several analysts after reported all revenue segments, gross and operating profit, and EPS above consensus estimates and within or above its guidance range with usage growing to record levels across its diverse portfolio; ZM slips after admits its app does not have 300M daily active users (DAU) – has now updated the original blog post to say it had over 300 mln daily meeting participants, not active users; NOW exceeded Q1 expectations, guided 2Q below and lowered FY20 guidance due to near-term uncertainty related to net new ACV (analysts raise tgt, downgraded at Piper on valuation); TYL reported 1Q20 results that were in-line to slightly above expectations and withdrew previous full-year guidance

·     Media & Telecom movers; CMCSA Q1 EPS beat estimates while revs miss and said gains 477,000 broadband subscribers in Q1, its best net additions in 12 years as broadband segment grew 9.3% to $5Bn as more people stayed in due to the coronavirus outbreak; NLSN Q1 misses and updating its FY20 outlook to reflect the potential coronavirus impact (FY20 sees constant currency revenue decline of 1-4% (was: 1.5-3% growth), EPS of $1.43-1.58 (was: $1.67-1.80); FOXA, DISCA, VIAC all pressured early as media sector very weak

·     Energy stocks; COP rises as posted better-than-expected first-quarter earnings and announced deeper production cuts ahead; RDSA cut its dividend following a steep drop in oil demand; QEP shares jump as qtr earning ex-items, net income rose to $48.4M from $34.1M YoY and oil equivalent production in Permian basin rose 21% to 4.9M Boe while cuts capex by 32% to $385M; overall energy sector getting a boost as oil prices resume recent bounce after historic crash over a week ago, with prices up over 20% this morning lifting many stocks

·     Consumer Staples; MO 1Q adj EPS $1.09 vs. est. $0.98, revs ex excise tax $5.05B vs. est. $4.60B, rescinded buyback program, maintaining div payout ratio tgt about 80% of adj EPS, intends to vigorously defend JUUL transaction; CHD reports organic sales increased 9.2% in Q1, consisting of a volume increase of 6.9% and positive product mix and pricing of 2.3%/organic sales were higher in every segment, led by a 10.2% gain in consumer domestic; KHC 1Q adj EPS $0.58 vs. est. $0.55 on net sales $6.16B vs. est. $6.14B, organic revs +6.2%, adj EBITDA $1.42B; TAP net sales were a tad light and adjusted EBITDA missed while adjusted EPS beat while volumes up a touch which was impacted by pantry loading; PPC said chicken demand from quick service restaurants returning near pre-covid-19 outbreak levels; BYND rises early after MCD said earlier expects pant based protein on menu over time

Stock GAINERS

·     BYND +5%; after MCD CEO, Chris Kempczinski said on CNBC that he expects to see plant based products on MCD menus.

·     FB +6%; strong 1Q:20 results with revenue, users, and engagement growth coming in well above Street expectations, while profitability was in-line despite a number of incremental costs

·     HOLX +10%; after earnings/plans to launch a second test for the novel coronavirus that will run on its base Panther instrument/was upgraded at SVB Leerink to outperform and target to $62 from $41 citing the increased testing capability

·     MSFT +1%; tgt raised by several analysts after reported all revenue segments, gross and operating profit, and EPS above consensus estimates and within or above its guidance range with usage growing to record levels across its diverse portfolio

·     NOW +9%; exceeded Q1 expectations, guided 2Q below and lowered FY20 guidance due to near-term uncertainty related to net new ACV (analysts raise tgt, downgraded at Piper on valuation

·     OSTK +7%; reported retail sales climbed more than 120% YoY in April due to demand created by coronavirus lockdown measures

·     TSLA +6%; after reporting a surprise Q1 adjusted profit and was able to expand non-GAAP automotive gross margins by nearly 500 bps yoy

·     WYNN 1%; after CEO Matthew Maddox stated during a White House meeting today that casinos could reopen by Memorial Day if all goes well. Earlier this week, the casino operator started to take reservations for Memorial Day weekend

Stock LAGGARDS

·     GT -14%; after the company’s Q1 profit missed analysts’ estimates

·     HBI -6%; after reporting a 9.4% drop in innerwear sales and 10.2% decrease in outerwear sales in Q1 and said gross margin fell 260 bps to 37.6% of sales

·     TPR -9%; shares fall following weaker Q3 results and no guidance (27 loss for Q3 vs. est for (11c) loss/suspends dividend, share repurchase program

·     TWTR -5%; posted a Q1 revenue beat, and smaller-than-expected loss while its daily users (DAU) who can view ads soar 24% to 166M topping the 164M est. but shares slip after saying the last 20-days of March saw ad spending fall -27% YoY and said April ad spend similar to March

·     TXT -11%; said Q1 profit and sales fell as jet and helicopter deliveries fell during the coronavirus pandemic/sales were $2.78B below the $3.09B estimate

·     ZM -5%; after admits its app does not have 300M daily active users (DAU) – has now updated the original blog post to say it had over 300 mln daily meeting participants, not active users