Mid-Morning Look

Monday, August 03, 2020

U.S. equities continue to add to recent gains, with the Nasdaq Composite touching another fresh intraday record highs (topped 10,900 for the first time), led again by the usual suspects with Apple (AAPL) approaching 2 trillion mkt cap and MSFT adding to gains as well. The move today follows the surge on Friday when AMZN, FB, AAPL all jumped after strong earnings beats. The pandemic trade is weighing on some S&P companies, with cruise lines, REITs, and energy among the worst performers in the benchmark index. Gold prices remain strong, holding just shy of the $2,000 an ounce level after its latest surge, while the dollar rebounds on better economic data (ISM Manufacturing results touch best levels since March 2019). Oil prices inch higher as natural gas prices jump more than 10% to above $2.00 mln btus, highest since May. M&A activity to start the week as well as Varian (VAR) gets acquired in a $16B deal while Marathon Petroleum (MPC) announced an agreement for the sale of Speedway for $21B in an all-cash transaction. The fact that no stimulus bill has been reached in Washington (now going on more than 2-weeks) as sides remain far apart on key items, has failed to dent any investor optimism, as the market continues to trade at a disconnect to the economic figures seen in the U.S. recently (Q2 GDP -32%), though has been showing signs of improvement.

Economic Data

·     U.S. ISM Manufacturing for July rises to 54.2, topping the 53.6 estimate , trading at its highest levels since March 2019 as production rose to 62.1 vs 57.3, new orders rose to 61.5 vs 56.4 prior (best levels since Sept. 2018 and employment rose to 44.3 vs 42.1

·     July Manufacturing Markit PMI 50.9 vs Flash Reading 51.3; Index rises to 50.9 from 49.8 in June; Year ago 50.4; New orders rise vs prior month

·     Construction Spending fell an unexpected (-0.7%) vs. est. for a rise of 1% as private construction fell 0.7% in June, Private residential construction fell 1.5%, Private residential home improvement spending fell 0.4% in June to $201.5b and Public construction fell 0.7% in June

Sector Movers Today

·     Casino & Leisure movers; IGT reached a multi-year agreement with leading sports betting and iGaming provider, FanDuel Group to power high-volume retail sportsbooks through Sept. 2024; HGV raised our tgt from $23 to $27, VAC raised our tgt from $114 to $125, WYND raised our tgt from $39 to $43 at Truist as view drive-to domestic leisure-centric names as best positioned in our lodging and leisure coverage universe; cruise lines NCLH, CCL, and RCL were among the top decliners in the S&P 500 earlier on after CCL said canceled short trips on AIDA Cruises between Aug. 5 and 12 while it still waits for approvals from Italy

·     Autos; NIO reported deliveries growth of 322.1% to 3,533 vehicles in July, as delivered 17,702 vehicles YTD, +111.3% YoY; Hyundai North America sold total 57,677 units in July, a 1% increase YoY while retail sales were 53,555 units, up 4% YoY and the third consecutive month of increasing retail sales; RACE-Q2 adj ebitda EU124m, revs EU571M and guides 2020 adj ebitda EU1.08B-EU1.13B vs. est. EU1.16B; Mazda North America ytd sales down 5.5% y/y and North America July sales 24,085, up 3.4% y/y

·     Consumer finance and lending; COF cuts quarterly dividend to 10c from 40c; GPN Q2 adjusted EPS of $1.31 beat estimate of $1.20 while the company says business recovery continued through July and also reported a new multi-year agreement with TD Bank for processing and support services and a multi-year collaboration pact with Amazon Web; WEX downgraded at Wells Fargo saying the rebound in fundamentals has been a bit more gradual than we expected limiting our ability to raise our estimates, valuation and price target

·     Pharma movers; MRK upgraded to buy at Goldman Sachs with $105 tgt citing its pipeline and balance sheet optionality and believe Keytruda LOE tail risk priced in; LLY initiates a Phase 3 clinical trial, BLAZE-2, evaluating LY-CoV555 for the prevention of COVID-19 in residents and staff at long-term care facilities in the U.S.; HTBX Phase 1 trials for its Covid-19 vaccine with the University of Wisconsin–Madison could begin in early 2021, the university announced; TYME said FDA granted Orphan Drug Designation for its lead pipeline candidate SM-88, or racemetyrosine, as a potential treatment for patients with pancreatic cancer

·     Aerospace & Defense; SPCE signs a non-binding memorandum of understanding with Rolls-Royce (RYCEF) to collaborate in designing and developing engine propulsion technology for high speed commercial aircraft; GD downgraded to hold at Argus as once again cautious on the stock due to problems in the Aerospace segment, this time related to the impact of the coronavirus on deliveries and, increasingly, orders; BAH downgraded from buy from hold at Truist on decelerating organic growth and premium valuation (says prefers CACI on accelerating book to bill and ICFI on benefit from increased spending on public health)

·     Software movers; AAPL adds to last Friday gains, new highs daily after better earnings results and upward momentum; MSFT confirmed talks to acquire TikTok following blessing from Trump, who gave the two sides until 15-Sep to secure a deal; ZM said it will no longer sell new or upgraded products direct to customers on the Chinese mainland/instead, it will be offering its video conferencing services via third-party partners

Stock GAINERS

·     AAPL +4%; adds to last Friday gains, new highs daily after better earnings results and upward momentum

·     ADT +69%; entered into a long-term partnership with GOOGL to create the next generation of smart home security offerings; GOOG will commit an additional $150M for co-marketing, product development, technology and employee training and GOOGL will make a $450M investment in ADT in exchange for shares of a newly created Class B common stock

·     BCRX +3%; said the FDA granted Fast Track designation to its experimental drug, BCX9930, to treat blood disorder called paroxysmal nocturnal hemoglobinuria (PNH);

·     CBAY +13%; as announces positive results from a Phase 3 clinical trial, ENHANCE, evaluating lead drug seladelpar in patients with primary biliary cholangitis (PBC)

·     IGT +8%; as reached a multi-year agreement with leading sports betting and iGaming provider, FanDuel Group to power high-volume retail sportsbooks through Sept. 2024

·     IMUX +20%; after the co’s multiple sclerosis treatment meets main goals in mid-stage trial

·     JCAP +23%; to be acquired by an affiliate of NexPoint Advisors, L.P. for $17.30 per share in all-cash transaction valued at ~$900M as deal was unanimously approved by Board; JCAP to discontinue its regular quarterly dividends

·     MPC +8%; announced an agreement for the sale of Speedway for $21B in an all-cash transaction, $16.5B estimated after-tax proceeds

·     NIO +10%; reported deliveries growth of 322.1% to 3,533 vehicles in July, as delivered 17,702 vehicles YTD, +111.3% YoY

·     VAR +22%; to be acquired by Siemens Healthineers, a spinoff in 2018 of Siemen’s AG (SIEGY) for $16.4B as VAR holders will receive $177.50 each in cash, representing a 24% premium to the U.S. company’s closing price on Friday https://on.mktw.net/33iI7op

·     ZM +4%; said it will no longer sell new or upgraded products direct to customers on the Chinese mainland/instead, it will be offering its video conferencing services via third-party partners

Stock LAGGARDS

·     ALRM -18%; shares fall following news ADT entered into a long-term partnership with GOOGL to create the next generation of smart home security offerings

·     CCL -6%; cruise lines among the top decliners in the S&P 500 earlier on after CCL said canceled short trips on AIDA Cruises between Aug. 5 and 12 while it still waits for approvals from Italy

·     COF -1%; cuts quarterly dividend to 10c from 40c

·     SEDG -3%; downgraded ahead of June quarter results tonight at JMP Securities, noting the company has performed well through the pandemic, and believe that any reasonable expectations for SEDG’s future success are now reflected in the company’s stock price

·     SPR -5%; after saying it will further reduce production of 737 MAX shipsets to 72 units in 2020, from previously planned 125 units; to also cut 1,100 jobs at its commercial aircraft programs