Mid-Morning Look

Thursday, February 06, 2020

U.S. equities open higher before paring gains as stocks were boosted globally overnight on positive trade news as China announced it will cut tariffs on $75 billion of U.S. imports by half, starting next week. China’s Ministry of Finance said 10% tariffs on some U.S. goods would be cut to 5%, while other goods that have faced 5% levies will have those cut to 2.5%, starting Feb. 14, Beijing time. The news lifted markets in Asia and Europe and carried over to the U.S. With today’s early gains, the S&P 500 setting new record highs as investors digest another heavy dose of quarterly earnings (recap of top movers below). While sentiment in global stocks has improved this week, the concern of the growing number of cases and related deaths due to the coronavirus remains, with the number of confirmed cases jumped by 3,694 to 28,018, and the death toll rose to 563 early Thursday.

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar extends gains on solid economic data as the euro slides to a new YTD low of 1.0986 (52-week low around the 1.09 level end of September), while the dollar approaches to 110 level against the Japanese yen. Commodity prices are mixed as energy prices mostly lower (modest declines) while precious metals rise along with industrials (copper, nickel, aluminum). Treasury market’s slip as stocks rise again with the 10-year yield up at 1.66%.

Economic Data

·     Productivity for Q4-P rose 1.4%, slightly below the 1.6% estimate (nonfarm productivity fell 0.2% in Q3) while unit labor costs rose 1.4% (vs. est. 1.3%) in 4Q vs. up 2.5% prior quarter; output rose 2.5% in 4Q vs. up 2.3% prior quarter and compensation per hour rose 2.8% in 4Q vs. up 2.3% prior

·     Weekly Jobless Claims fell 15K to 202K (lowest since April), better than the 215K estimate as the 4-week moving avg. at 211.8k in the week ending Feb. 1; prior week claims revised up to 217k from 216k and continuing claims rose 48k to 1.751M in the week ending Jan. 25

Sector Movers Today

·     Retailers; PTON shares fell more than 10% overnight after the company beat consensus estimates but issued revenue guidance that was below Q3 expectations; GPRO shares dropped following disappointing revenue and earnings as revs of $528M missed the $566M estimate; FNKO shares dropped over 30% as guides Q4 sales below expectations due to lower-than-expected purchases among top customers in the holiday season (also guided Q4 EPS 16c-18c below the 43c estimate); CSPR 8.35M share IPO priced at $12.00; TPR Q2 comp Coach sales rise 2% beating est. of 1% while Kate Spade comps fell a smaller (4%) vs. est. down (8%) on an EPS beat and in-line overall sales figure; IRBT shares jump on beat–Q4 EPS 70c/$426.8M vs. est. 40c/$415.51M; sees FY20 revenue $1.32B-$1.35B vs. est. consensus $1.32B

·     Consumer Staples; in beauty, ELF Q3 revenue of $81M topped ests of $76.7M on better EPS driven by strong demand for beauty products (follows good COTY results the day prior), while EL shares also jump on strong beat though guidance lowered on sales and profit due to coronavirus impact; in food, Kellogg (K) shares slipped after the food company gave weak 2020 earnings guidance, despite posting a Q4 EPS and sales beat/guides 2020 FY EPS on a currency-neutral basis to fall 3% to 4% while estimates were for $4.03, implying a 3.6% increase; PM shares jumped in tobacco space after small EPS/revs beat while reports cigarette shipping volume fell 8% in Q4 to miss the consensus estimate for a drop of 5%

·     Semiconductors; MU upgraded to strong buy at Raymond James with $70 tgt as thinks supply/demand conditions are highly likely to improve further as the year progresses and that inventory levels are approaching normalized levels; QCOM results/guidance surprised to the upside driven by a 33% jump in chipset ASPs from Dec Qtr. to Mar Qtr. on initial 5G volumes, but June Qtr. commentary disappointed according to Cowen; MPWR reported 4Q sales/EPS of $167M/$1.04 bested consensus $163M/$1.03E and 1Q sales outlook of $164M (down 2% Q/Q, up 16% Y/Y) also beat Street $160M est.

·     Software movers; CTSH beat revenue and profit in Q4, as layoffs cut costs with SG&A expenses of ~$676M in Q4, ~$100M less than last year, though year guidance missed ($3.97-$4.13 vs. $4.13); ZNGA Q4 bookings of $433M topped estimates of $418.8M, driven by the success of its new titles “Merge Magic!” and “Game of Thrones Slots Casino”; FSCT will be acquired by Advent International for $33/share in an all-cash transaction, in deal valued at $1.9B; CDAY slides as reported EPS results below expectations and issued guidance below expectations (guides 1Q adj EBITDA $47-49M vs. est. $54.3M); VMW upgraded at Bernstein to outperform as believe that the downside risks are baked into VMware’s stock price while the upside opportunities are not; TWLO reported strong 4Q19 results with mixed CY20 outlook (2020 revenue guidance above prior expectations, though operating income guidance was much weaker due to planned investments); NUAN issued upside to revenue, EPS, and CFO vs. consensus estimates; FEYE delivered record revenue, billings, and OCF in 4Q and 2019, but also a ~$16M billings miss

·     Restaurants; YUMC Q4 comp sales topped estimates but warned 2020 sales and profit would take a hit, as the coronavirus outbreak has forced it to temporarily shut more than 30% of its stores and warned of additional store closures; YUM Q4 comparable sales rose 2% in Q4 to match the consensus expectation as comp sales were up 3% for KFC vs. +2.7% consensus and fell 2% for Pizza Hut vs. -0.9% consensus; DNKN Q4 EPS of 73c topped views on better revs and comp sales rose 2.8% in the US while announced a stock buyback of up to $250M

Stock GAINERS

·     CAH +10%; Q2 revenue and profit above Wall Street estimates and also raised FY2020 forecast for adj EPS to a range of $5.20-$5.40, topping the $5.04 estimate

·     FSCT +8%; will be acquired by Advent International for $33 per share in an all-cash transaction, in deal valued at $1.9B

·     MT +10%; after reporting a higher operating profit, lower debt and a better dividend than anticipated; reported a 53% drop in EBITDA to $925M in Q4, with sales falling 15% to $15.51B; said it will pay a 30 cents a share dividend

·     LDOS +12%; after the Department of Defense awarded the $7.7B Navy NGEN contract to the company, selected over the incumbent PRSP sending those shares tumbling

·     MBUU +8%; after posting better-than-expected 2Q results and slightly boosting net sales forecast

·     SONO +13%; on Q1 revenue beat ($562.1M vs. est. $545.5M) as speaker revenue rose 7% to $466.7M on better earnings and year mid-point above views

·     TWTR +15%; mixed Q4 as missed on earnings and beat on revenue, crossing the $1B mark for the first time while in-line Q1 view has revenue of $825-885M compared to the $868.9M consensus

·     UIS +51%; as SAIC agreed to acquire UIS’ U.S. Federal business in an all-cash transaction valued at $1.2B/UIS says to use proceeds to pay down debt and reduce pension obligations

·     ZNGA +14%; Q4 bookings of $433M topped estimates of $418.8M, driven by the success of its new titles “Merge Magic!” and “Game of Thrones Slots Casino”

Stock LAGGARDS

·     ABMD -6%; as Q3 earnings beat by 4c on weaker revs of $221.6M and guides year sales to the low end of $846M-$877M view (vs. prior outlook $885M-$925M)

·     BDX -11%; lowers FY20 revenue and profit forecast to reflect impact of remediation effort for the Alaris pumps it recalled in April and anticipated loss of sales from those products

·     CDAY -10%; reported EPS results below expectations and issued guidance below expectations (guides 1Q adj EBITDA $47-49M vs. est. $54.3M)

·     FNKO -39%; downgraded by several analysts as guides Q4 sales below expectations due to lower-than-expected purchases among top customers in the holiday season (also guided Q4 EPS 16c-18c below the 43c estimate)

·     GLOP -40%; reports Q4 loss of (-$2.37) per share vs. year-ago profit of $0.30 saying it recognized a non-cash impairment of $138.8M on five of its steam turbine propulsion vessels built in 2006 and 2007 while reduces its dividend to 12.5c from 56c

·     GPRO -12%; disappointing revenue and earnings as revs of $528M missed the $566M estimate

·     K -6%; gave weak 2020 earnings guidance, despite posting a Q4 EPS and sales beat/guides 2020 FY EPS on a currency-neutral basis to fall 3% to 4% (vs. est. up 3.6%)

·     PRSP -16%; plunges after company was unsuccessful in its defense of the large “NGEN” contract with the U.S. Navy, which represented 15%-20% of revenue (awarded to LDOS)

·     PTON -7%; after the company beat consensus estimates but issued revenue guidance that was below Q3 expectations

·     WWE -9%; tumble to fresh 52-week lows as guides Q1 OIBDA to $60M-$65M below the $67.5M estimate, while Q4 OIBDA and revs missed estimates