Mid-Morning Look

Monday, December 14, 2020

Stocks in the U.S open broadly higher, led again on positive vaccine developments and ongoing hopes of additional stimulus relief out of Washington, while also buoyed by several M&A news headlines. The FDA on Friday issued an emergency authorization for a Covid-19 vaccine developed by PFE and its German partner BNTX as inoculations begin today, while MRNA says will produce up to 800Mm vaccine doses in US, Europe in 2021 as it prepares for a panel of U.S. FDA advisers to discuss its vaccine’s emergency use authorization this week. New York State began on Monday administering COVID-19 vaccine to health care workers. Oil prices erased overnight gains after OPEC‘s latest Monthly Oil Market Report cut its forecast for 1Q 2021 demand by 1M bpd, offsetting overnight vaccine optimism as PFE/BNTX inoculations take place today in parts of the U.S. after FDA emergency use approval Friday. Also boosting price initially, were supply fears as a shipping firm said an oil tanker was hit in the Saudi port of Jeddah, which the energy ministry called a terrorist act. Several M&A deals in the banking, healthcare, and software sectors (details below), helping lift stocks. No major U.S. economic data today. Overall stocks looking strong again after another strong recovery last Friday pushed major averages.

Sector Movers Today

·     Transports; Wells Fargo with several changes as they upgraded railcars GBX and TRN to Overweight from Underweight and also raised Ryder (R) to Overweight from Equal weight while downgraded SNDR and WERN to Underweight in trucking saying they prefer to focus on stocks that have strong structural stories, where we see strong capital allocation, self-help mechanisms, and the opportunity to gain share within their respective sub-industries, hence XPO, KNX, JBHT and HUBG remain top ideas; FDX estimates and tgt raised to $365 from $322 at Credit Suisse citing accelerating eCommerce trends and a peak season that could prove to be stronger and longer (particularly in the lead-up months of Oct and Nov), as well as continued tightness in international airfreight markets

·     Industrial & Machinery; MMM reports Nov sales of $2.9B (+8% Y/Y), organic local-currency sales increased 7%, while divestitures decreased sales by 1% and forex increased sales by 2% Y/Y; IR upgraded to buy and raise tgt to $53 from $44 and downgrade JCI to neutral w/$51 tgt in at Citigroup as prefer companies with a balanced/diversified mix of end market/cyclical exposure + self-help (DOV, HON, EMR, FTV); select “early cycle” names (ROK, GTES); and emerging L-T growers (APG, VRT, VNT); Wells Fargo downgraded GWW to Underweight (from EW) and raised MSM to Equal Weight (from UW) saying their ’21 outlook remains unchanged at the top, with WCC and AIT our top picks. After favoring quality through the downturn, with FAST our top pick a significant portion of ’20, we’re looking for the turn and value names with more to give in ’21.

·     Auto sector; NIO -6% as 60M share secondary priced at $39; TSLA informed employees at its Fremont factory that high-end Model S and X production lines will close from December 24 to January 11. The 18-day shutdown is longer than usual and not the same as Model 3 and Model Y production; Barron’s said electric vehicles (EVs) are the future of the auto industry, noting XPEV ADRs have tripled, LI is up 180% from its July 30 IPO and NIO is up nearly 600%, adding that while It can be hard to part with a stock after such enormous gains, taking profits in the Chinese EV trio looks like the prudent thing to do as competition is heating up in the local market

·     Retailers; JPMorgan downgraded BJ and MIK to Neutral from Overweight and removing both stocks from JPM’s Analyst Focus List and also adding OW-rated ULTA to the Analyst Focus List; DLTH upgraded to buy from hold at Stifel as product innovation, new customers acquired during 2020, and improved digital competencies set the stage for success; HBI downgraded to hold from buy at Stifel and cut tgt to $15 from $17 saying while constructive on long-term opportunities, they see it prudent to take a wait and see approach on HBI shares into 2021; BBBY announces approval of new $150 mln accelerated share repurchase program additive to current $225 mln accelerated share repurchase program

Stock GAINERS

·     ALXN +32%; to be acquired by AZN in a $39B deal, with ALXN holders getting $60 in cash and 2.1243 AstraZeneca American Depositary Shares, or ADSs, with each ADS representing one-half of one ordinary share https://reut.rs/345J17i

·     INSG +19%; as Vodafone Qatar is the first operator in the region to launch the next generation Inseego, its 5G MiFi® M2000, a 5G mobile hotspot

·     NVAX +6%; rises after Jefferies init buy and $200 tgt and overall positive vaccine sentiment news on rollout of shots today from PFE

·     PS +6%; to be acquired by Vista Equity Partners in $3.5B deal with holders receiving $20.26 per share in an all-cash transaction valued at about $3.5B. https://on.wsj.com/2Ko27yE

·     PSA +4%; on reports representatives of Elliott and Public Storage have had multiple discussions in recent weeks about changes that could be made at the company, according to people familiar with the matter – WSJ https://on.wsj.com/2LtUjvz

·     SCHW +4%; said new brokerage accounts were 430 thousand in November, up over 200% from November 2019 and total client assets were $6.42 trillion as of month-end November, up 63% from November 2019. Also, reports Fidelity’s fee increase creates opportunity for Schwab and Interactive Brokers https://bit.ly/3mfIoy7

·     TTWO +5%; Codemasters considers a higher acquisition bid by Codex Games Limited, an indirect subsidiary of EA, over TTWO’s offer of 485 pence per share in cash and stock https://bit.ly/3a9zKiz

Stock LAGGARDS

·     GMDA -16%; says based on U.S. FDA feedback, it now plans to submit marketing application for omidubicel, an investigational bone marrow transplant therapy for patients with blood cancer, in H2 2021 (had planned to submit application by end-2020)

·     NIO -6%; 60M share Secondary priced at $39.00

·     SNOW -4%; IPO lockup expiration comes Tuesday 12/15

·     SPCE -11%; shares drop after Virgin Galactic’s (SPCE) latest spaceflight test was cut short after the engine of its SpaceShipTwo vehicle ‘Unity’ did not fully ignite as it attempted to launch above New Mexico on Saturday

·     SWI -15%; shares fell after a cyberattack of U.S. government facilities and a government directive to power down its Orion platform

·     VLO -2%; energy stocks among the top decliners in the S&P after outperformance last week