Mid-Morning Look

Thursday, August 06, 2020

U.S. futures opened lower initially following weakness in Europe after The Bank of England warned of a slower economic recovery from the COVID-19 crisis, saying it may now be the end of 2021 rather than the second half of next year, while U.S. markets remain antsy about a new stimulus package out of Washington to add to the trillions already spent to help out of work American and small businesses impacted from the COVID-19 pandemic. Reports indicate that a stimulus meeting is expected to take place at 5:00 PM tonight in Washington with both sides trying to iron out final details. Stocks opened lower, but again, rallies on the open to trade to new record levels for the NASDAQ and the S&P is now less than 2% from its all-time best. Economic data favorable as weekly jobless claims and continuing claims came in better than expected (and prior month), ahead of tomorrow’s nonfarm payroll report for July. Treasuries gained along with the U.S. dollar after its recent drubbing, while gold prices surge again (14 of last 15 days moving higher). The White house is considering executive action if no deal is found by the end of the week as Trump said he will extend eviction moratorium, suspend the payroll tax cut collection, and boost unemployment benefits. Another day another rally with an all quiet on trade front for now with China and markets hoping to hear a stimulus deal tonight.

Economic Data

·     Weekly jobless claims fell to 1.186M from last week 1.435M and was better than the 1.4M estimate; the 4-week avg fell to 1,337,750 from 1,368,750 prior week; continued claims fell to 16.107M from 16.95M prior week (and better than est. 16.72M); the insured unemployment rate fell to 11.0% from 11.6% prior

Sector Movers Today

·     Internet; ETSY price tgts raised by several analysts after posted Q2 results that surged past expectations amid +146% GMS growth ($2.7B in GMS) with 35.1% EBITDA margin (guided Q3 revs $366M-$426M vs. est. $278.6M); WIX slides after Q2 results beat on revenue but missed with a net loss due to marketing investments related to the pandemic tailwind (26c loss vs. est year 34c profit) while Creative Subscriptions revenue was up 21% Y/Y to $190.2M; GDDY tgt raised by several analysts after Q2 revenue increased 9.4% to $806M, while capping off the strongest quarter for net customer growth ever by adding more than 400K net new customers to total over 20M paying customers (also issued higher Q3 guidance)

·     Casino & Leisure movers; PENN 52-week highs as posted a smaller than expected loss of ($1.69) vs. est. ($2.11) on better revs of $305M while says launch of Barstool Sportsbook App on track for 3Q; Lodging space another negative update as HLT reports a bigger-than-expected Q2 loss as pandemic-led lockdowns disrupted demand (61c loss vs. est. 31c) while RevPAR falls 81% in Q2 and revs were down 77.3% at $564M (est. $848.7M); in leisure, CWH reported revenue growth of 9% in Q2 and gross profit growth of 19%. Adjusted EBITDA increased 122.5% to $220.7M as well as earnings that topped consensus

·     Housing & Building Products; in building products, JPMorgan upgraded SUM to overweight while downgraded MLM (tgt $250) and VMC (tgt $145) to neutral as reevaluated building material stocks following earnings and a recent run-up in shares saying the sector will trade sideways over the next two to three months or at least until we have greater visibility on demand for next year; KBH was upgraded to overweight at KeyBanc as 3Q20 (orders up 17% in June/July) update supports our revised EPS and our selective (not cyclical) rating

·     Retailers; VSTO the latest sporting goods store to outperform on earnings as forecasts Q2 sales, profit above estimates after Q1 revs were boosted by a 40% jump in online sales and higher demand for ammunition; YETI blows past consensus for its Q2 report, including generating adjusted EBITDA of $57.9M vs. $31.0M consensus as direct-to-consumer sales soared 61% to $133M off a surge in demand for outdoor recreation and leisure lifestyle products; GIII downgraded at Barclay’s and cut tgt to $10 from $16 as sees secular risk to wholesale demand given reliance on the department store channel and a sector-wide inventory overhang.

Stock GAINERS

·     BHC +12%; reported earnings but shares surged after announcing plans to spin off its eye-care unit Bausch & Lomb which contributed roughly 55% of BHC’s overall revenue in 2019

·     BMY +3%; posted better-than-expected earnings and a positive patent ruling for its blockbuster blood thinner Eliquis (EPS $1.83 on sales $10.1B vs. est. $1.48 and $10B)

·     DNLI +37%; after signing a binding agreement with BIIB to co-develop and co-commercialize its small molecule inhibitors of leucine-rich repeat kinase 2 (LRRK2) for Parkinson’s disease, which will result in up to $1.125B in potential milestone payments for Denali

·     EDIT +14%; after reports the CRISPR/Cas9 gene editor and modified CRISPR gene editor BEAM were in a potential tie-up https://bit.ly/3a5CXxl

·     GDDY +7%; tgt raised by several analysts after Q2 revenue increased 9.4% to $806M, while capping off the strongest quarter for net customer growth ever by adding more than 400K net new customers to total over 20M paying customers (also issued higher Q3 guidance)

·     PENN +10%; as posted a smaller than expected loss of ($1.69) vs. est. ($2.11) on better revs of $305M while says launch of Barstool Sportsbook App on track for 3Q

·     SYNA +5%; was upgraded to overweight with $100 tgt at KeyBanc after reported strong F4Q20 results that were above expectations and provided guidance (inclusive of the acquisition of AVGO’s IoT and DisplayLink) that was largely in line with expectations

·     VSTO +12%; on earnings as forecasts Q2 sales, profit above estimates after Q1 revs were boosted by a 40% jump in online sales and higher demand for ammunition

Stock LAGGARDS

·     BDX -7%; shares tumbled early after reporting a top and bottom line Q2 miss while guidance trails EPS consensus

·     FSLY -20%; posted a strong 2Q beating for earnings and revenue while guidance also calls for a solid 2H, but does suggest 3Q growth below normal seasonality

·     LYV -2%; posted big quarterly loss but noted that 86% of customers are holding onto their tickets in hopes that events canceled because of Covid-19 will be rescheduled, rather than taking refunds

·     HLT -2%; weakness in lodging space as reports a bigger-than-expected Q2 loss as pandemic-led lockdowns disrupted demand (61c loss vs. est. 31c) while RevPAR falls 81% in Q2 and revs were down 77.3% at $564M (est. $848.7M) –

·     OSUR -32%; 2Q EPS loss (16c) vs. est. loss (10c) and cash and cash equivalents $173.9 million vs. $72.6 million

·     WDC -16%; posted relatively in-line F4Q results, but it offered disappointing F1Q guidance as headwinds related to datacenter digestion, lower NAND pricing, and the production ramps of new NAND capacity and 16/18TB HDDs weighed on the revenue and margin outlook

Syndicate:

·     2U (TWOU) 6.8M share Secondary priced at $45.50

·     Acutus Medical (AFIB) 8.823M share IPO priced at $18.00

·     Avalara (AVLR) 3.937M share Secondary priced at $127.00

·     Blue Apron (APRN) 4M share Secondary priced at $9.25

·     DiaMedica Therapeutics (DMAC) 6M share Secondary priced at $5.00

·     Oak Street Health (OSH) 15.625M share IPO priced at $21.00

·     Rocket Companies (RKT) 100M share IPO priced at $18.00

·     Strategic Education (STRA) 1.9M share Secondary priced at $105.00

·     Simulations Plus (SLP) 1.818M share Secondary priced at $55.00

·     Virgin Galactic (SPCE) 23.6M share Secondary priced at $19.50