Mid-Morning Look

Friday, December 04, 2020

U.S. equities off to a strong start again, capping another week of big gains, as the release of a disappointing November non-farm payroll data report failed to dent investor optimism The U.S. economy in November added the fewest workers since the jobs recovery started six months ago, as nonfarm payrolls increased by 245,000 jobs after rising by 610,000 in October (missing the 469K estimate) – and marked the fifth straight monthly slowdown in job gains. Average hourly earnings were slightly higher (0.3% vs. est. 0.1% and the unemployment rate was better (6.7% down from 6.9% prior). But the bottom line remains, the equity market remains focused on positive vaccine development and roll-out and growing hopes for more fiscal stimulus before year end. The U.S. dollar index (DXY) on track for 8th straight day of decline – new 2 1/2-year lows, while Treasury yields move to weekly highs with the 10-year up around 0.98%. Oil prices move to their highest levels since March when widespread lockdowns aimed at curtailing the pandemic took effect, trading to $46 per barrel for WTI crude and Brent approaching the $50 per barrel level. A bipartisan, $908 billion coronavirus aid plan gained momentum in the U.S. Congress on Thursday as conservative lawmakers expressed their support – as markets have been clinging to these headlines the last few days. 

Economic Data

·     Weaker jobs data – Nonfarm payroll data for November reported at 245K vs. 500K consensus (prior revised to 610K from 638K) while private payrolls at 344K vs. est. 589K (prior revised to 877K from 906K) and manufacturing jobs 27K vs. est. 43K (and prior month revised to 33K from 38k); unemployment rate falls to 6.7% from 6.9% (est. 6.8%), wages rise 0.3% vs. est. 0.1%

·     Factory Orders rose 1% in October from the prior month, topping views for a rise of 0.8% while September’s reading was revised upward.

Sector Movers Today

·     Retailers; BIG reported a Q3 profit as higher comparable sales of 17.8% drove revenue growth (Q3 revs $1.38B topped $1.35B estimate and above $1.17B YoY), but declined to issue guidance; FRAN filed for Chapter 11 bankruptcy on Friday; FNKO upgraded to overweight at Piper saying the company is on track to execute Q4 at least in-line with expectations; SWBI tgt raised to $28 at Lakestreet after co second consecutive quarter of record results as strong demand and higher average prices drove record sales while higher-than-expected margin boosted the bottom line (VSTO, RGR other names leveraged to SWBI earnings); Cowen raised price tgts on RL and UAA tgts raised and lower tgts on COLM and HBI while noting early reads on Spring 21 order books and inventory positions are positive, but w/ valuations +50% since August, the rally is likely in later innings; TLYS said it expects holiday-quarter net sales and profit per share to be lower from a year earlier due to COVID-19

·     Energy research calls; VNOM upgrade to Buy and Raise Price Target to $16 at Truist as Viper continues to have the security of a large underlying operator who will essentially ensure volumes continue to increase to go along with higher prices and virtually no costs; CLR was upgraded to buy with $22 tgt at Truist as believe Continental’s continued operating efficiencies along with the latest OPEC + decisions that should help stabilize upcoming oil prices will result in material cash flow upside; Evercore ISI upgraded EQT to outperform from in-line, while downgraded COG to in-line from OP, recommending the shift saying while spot prices matter little for incremental cash flows for these names, it is upgrading EQT based on a better absolute outlook for natural gas

·     Chemicals and Materials; SLGN upgraded to Overweight from Equal Weight at Wells Fargo and increasing our price target to $45 (prior $43) saying with the stock down 11% over the past 90 days, and the Packaging index returning 15%, we believe the risk/reward now skews favorably; WRK upgraded to buy from hold at Argus with $47 tgt as view WestRock as a well-run company with a strong track record in its industry, and expect its products and services to be in high demand on the other side of the pandemic; CC downgraded to Equal Weight from Overweight at Barclay’s saying Per- and polyfluoroalkyl substance litigation news has been quiet, but that may come to an end and PFAS news flow will pick up steam

·     Software movers; CLDR shares rise following Q3 beats that included 10% YoY revenue growth to $217.9M (est. $209M), subscription revenue was up 18% to $197.4M and ARR increased 12% YoY along with a stock repurchase of an additional $500M in shares and better Q4 revs $219-222M (vs. est. $215.21M); DOCU rises after posting Q3 revenue of $383.9M topping the $361.2M estimate, helped by accelerating digital transformation of business and agreement processes while also guides Q4 revs $404M-$408M above the $387.3M estimate; PD rises as Q3 beat on the bottom line and top line with revenue up 26% Y/Y to $53.77M, $1.16M above consensus as Q3 customers with ARR over $0.5M up 40% Y/Y and guides Q4 revs above views; ZUO reported Q3 revenue beat and forecast Q4 revenue above Street’s estimates as subscription billings benefited from increased enterprise traction; MDLA Q3 results top on the top- and bottom-line driven by a mix of higher than expected Subscription and Professional Services revenue

Stock GAINERS

·     BCRX +20%; after saying the FDA had approved its once-daily oral drug, ORLADEYO, for prevention of hereditary angioedema (HAE) attacks

·     DOCU +7%; posted Q3 EPS, revenue beat and guidance as billings of $440M (est. $387M), up 63% y/y, an acceleration from 61% in Q2 and guidance better-than-expected for EPS, revs, and billings

·     FANG +9%; S&P 500 led by energy, in what seems to be major rotation on the day for the group (OXY, APA, MRO, PSX, HFC)

·     PD +20%; Q3 beat on the bottom line and top line with revenue up 26% Y/Y to $53.77M, $1.16M above est. as Q3 customers with ARR over $0.5M up 40% Y/Y and guides Q4 revs above views

·     SLG +4%; boosted its annual ordinary dividend by 2.8% to $3.64 a share and declared a special dividend with a value of $1.6967 a share, payable on Jan. 15

·     STPK +35%; Stem, a global leader in artificial intelligence (AI)-driven clean energy storage systems to become publicly listed through business combination with Star Peak Energy Transition (STPK) at an estimated equity value of ~$1.35B https://bit.ly/2JsnU8l

·     STRO +38%; rises after it posted “encouraging” interim data on a study of its ovarian cancer drug (Phase 1 study of STRO-002)

Stock LAGGARDS

·     BIG -7%; reported a Q3 profit as higher comparable sales of 17.8% drove revenue growth (Q3 revs $1.38B topped $1.35B estimate and above $1.17B YoY), but declined to issue guidance

·     CEMI -19%; slides after saying the FDA declined to review its application for emergency use authorization of its COVID-19 rapid antibody test at this time

·     MRVL -5%; Q3 results were in-line but shares fell as guides Q4 revs of $785M plus or minus 5% (vs. est. $786.4M), non-GAAP gross margin of about 64 and EPS of 25c-33c (vs. est. 28c)

·     OLLI -11%; downgraded to neutral at Goldman Sachs saying company’s Q3 earnings commentary was highlighted by a sharp slowdown in Q4 quarter-to-date trends

·     ULTA -4%; posted Q3 net sales below estimates on lower discounts ($1.55B vs. est. $1.56B) and forecast holiday-quarter same-store sales to fall up to 14% as U.S. shoppers avoid brick-and-mortar stores due to rising Covid cases

·     YEXT -14%; 3Q was better than expected but tough macro and muted upsells remain a drag on NT growth outlook according to Truist

Syndicate:

·     Burning Rock Biotech (BNR) 2.2M share Secondary priced at $25.75

·     Cambium Networks (CMBM) 2.5M share Secondary priced at $28.00

·     DoorDash (DASH) raises IPO price range to $90.00-$95.00 from $75.00-$85.00

·     LI Auto (LI) 47M secondary priced at $29.00

·     Seer (SEER) 9.21M share IPO priced at $19.00

·     Sigilon Therapeutics (SGTX) 7M share IPO priced at $18.00

·     Silverback Therapeutics (SBTX) 11.5M share IPO priced at $21.00