Mid-Morning Look: February 13, 2020

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Mid-Morning Look

Thursday, February 13, 2020

Index

Up/Down

%

Last

 

DJ Industrials

-157.59

0.53%

29,393

S&P 500

-12.80

0.38%

3,366

Nasdaq

-33.12

0.34%

9,692

Russell 2000

-3.91

0.23%

1,685

 

 

U.S. equities pullback after touching record highs for the major averages yesterday, as China deployed a revised methodology to diagnose the coronavirus overnight, sending the number of confirmed cases soaring and adding to weaker stock market sentiment while safe-haven Treasuries and gold rebounded. Due to the change in methodology, new cases in China jumped to 14,840 on Wednesday, from 1,638 a day earlier and the death toll in Hubei, where the illness is thought to have originated, climbed by 242. Having had several days of relative calm, it’s was a bit of a wake-up call for investors, while several companies continue to feel the impact of the virus on its business, though many noted it’s too early to tell the impact (BABA noted today after its results). Oil prices rise despite the IEA saying global oil demand will drop this quarter for the first time in over a decade as the coronavirus batters China’s economy. Stocks are already trading off their morning lows, as the early move appears to be some light profit taking after rallying the last week in the U.S. and Europe. Shares of Cisco (CSCO) are sliding, weighing on the Dow Jones Industrial Average after disappointing guidance.

 

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar index little changed, holding at the 99 level (2020 highs) while the euro continues to decline – down below 1.085 (-0.2%) vs. the dollar (note its 2017 low stands at 1.0839). Commodity prices edging higher with both gold and oil prices trading to the upside early while Treasury market’s rally in a rotation into defensive names, as yields pullback from their recent advance as the 10-year moves back below 1.60%.

 

Economic Data

·     Weekly jobless claims rose 2K to 205K, but below the 201K estimate while prior week claims revised to 203K form 202K); continuing claims fell 61K to 1.698M (vs. est. 1.745M) in the latest week and at the lowest level since Nov; the 4-week moving average was unchanged at 212K

·     Consumer Prices (CPI) for January rose 0.1% , below the 0.2% estimate while ex: food, energy MoM 9core prices) rose 0.2%, in-line with views; Consumer prices YoY rose 2.5%, its largest rise since Oct. 2018 and slightly above the 2.4% estimate

 

 

Macro

Up/Down

Last

 

WTI Crude

0.24

51.41

Brent

0.34

56.13

Gold

4.60

1,576.20

EUR/USD

-0.0017

1.0856

JPY/USD

-0.26

109.84

10-Year Note

-0.017

1.615%

 

 

Sector Movers Today

·     Autos; TSLA said it intends to offer about $2B of common stocks and CEO Elon Musk to purchase up to $10 of common stock in this offering and board member and Oracle co-founder Larry Ellison to buy $1M worth – also TSLA recalls Model X SUVs because of a potential issue that can lead to a loss of power steering assist that could make steering harder and increase the risk of a crash; NSANY posted a net loss of 26.09 billion yen ($237.0 million) in the quarter ended December which compared with a Y70.41 billion net profit a year earlier and missed estimate for net profit of Y46.12 billion (Q3 revenue dropped 18% to Y2.504 trillion); BWA Q4 EPS topped views even as revenue fell back 0.4% as engine segment sales were down 0.5% to $1.533B and issues soft rev guidance or year ($9.750B-$10.075B vs. $10.12B est.); separately, TSLA said the SEC issued a subpoena on Dec.4 seeking information concerning certain financial data and contracts including Tesla’s regular financing arrangements; RUSHA Q4 below ests (64c/$1.32B vs est. 97c/$1.46B

·     Consumer Staples; PEP Q4 EPS and sales top views as sees year organic revenue growth up 4% after Q4 organic rev growth was 4.3% vs. est. 3.72% but guides 2020 core EPS $5.88 vs. est. $5.95; PM raised to outperform at Cowen citing accelerating user growth and better geographic diversity; NUS shares slide after a softer Q1 and 2020 outlook weighed on shares, guiding below views – sees 2020 revs $2.17-2.30B vs. est. $2.47B and EPS $2.00-2.40 vs. est. $3.32) as the coronavirus outbreak has led to the cancellation of all in-person meetings in China; KHC posted further declines in sales but avoided another cut to its quarterly dividend; THS reported a -4.5% drop in Q4 sales (missing estimates) while organic sales were down -3.8% and volume was down -4.0% and gross profit fell 130 bps to 19.8% of sales; IFF slides on Q3 revenue miss while guidance also falls short of views for Q4 revs

·     Media & Telecom movers; ATUS was upgraded to strong buy at Raymond James saying mgmt has removed cost and can begin to reap the benefits of network upgrades, SME expansion, advertising, and mobile (note Q4 revs missed estimates); newspaper publisher MNI said it’s filing for Chapter 11 bankruptcy protection; MTCH and IAC both names as new “short” calls at Kerrisdale Capital weighing on shares; CTL posted in-line Q4 EPS and revenues

·     Metals & Materials; CF reported 4Q19 adjusted EBITDA of $325M, missing the $327M estimate while sales were lower YoY as a result of lower selling prices across all products, partially offset by higher YoY ammonia and ammonium nitrate sales volumes; LIN reported Q4 earnings from continuing operations that topped analyst expectations, driven by volume and price increases, and targeting 10%-13% growth in earnings for 2020; HUN Q4 EPS in-line and revs slightly better while sees 2020 ebitda above 2019 level

·     Machinery; Goldman Sachs with a broad machinery call as they upgraded CAT to buy with 20% upside to our new $168 tgt as see a combination of tightening US construction equipment capacity utilization, dealer inventories and backlog approaching trough levels, and margin tailwinds in 2021, and upgraded CMI to buy with $200 tgt as believe US truck leading indicators have inflected, and estimates have been de-risked following 2020 guidance – the firm downgraded AGCO to neutral as no longer feel comfortable underwriting a margin recovery in South America where AGCO continues to face further risk of share loss and downgraded FRTA to neutral noting input costs have started to re-accelerate and we would expect margin expansion to slow down until offsetting price increases can be introduced

·     Utilities & Solar; BE said it will restate nearly four years of financial statements due to accounting errors related to its managed services agreement/says revenues for the transactions will now be recognized over the duration of the contract instead of upfront; CPYYY shares fall as the U.K. electricity and gas provider said 2020 adjusted operating cash flow is likely to fall to the bottom end of a range of £1.6 billion to £1.8 billion; in solar, SPWR was downgraded to market perform at Cowen after earnings, citing current valuation and lack of near-term catalysts until after the proposed Maxeon spin in 2Q (though longer-term is optimistic)

 

Stock GAINERS

·     AMAT +3%; as beats Q1 consensus and forecasts Q2 revs, profit above estimates – while reiterated the strong WFE outlook LRCX provided earlier this earnings season (suggests a 2020 WFE of $55-58B, up 10-15% from ~$50B in C2019) – warns of $300MM impact from coronavirus

·     APT +19%; after saying it has booked over $10.4M in orders for its N-95 Particulate Respirator face mask since January 27 due to increased demand from the COVID-19 outbreak

·     CRSP +3%; reported 4Q19 & FY19 results, and announced enrollment in the phase I trial of CTX120, the company’s 2nd wholly-owned allogeneic CAR-T asset, had begun

·     IRM +4%; rises after Q4 FFO and revs topped consensus estimates, with in-line guidance

·     LIN +4%; Q4 earnings from continuing operations that topped analyst expectations, driven by volume and price increases, and targeting 10%-13% growth in earnings for 2020.

·     RDFN +8%; as Q4 earnings topped views along with better-than-expected revenue and gross margin growth in all segment

·     SNGX +5%; said the U.S. FDA granted fast-track designation to its RiVax development program to prevent ricin intoxication

 

Stock LAGGARDS

·     AKRX -11%; after saying it may pursue sale of its business via chapter 11 bankruptcy protection to address its litigation-related overhangs

·     BE -9%; said it will restate nearly four years of financial statements due to accounting errors related to its managed services agreement/says revenues for the transactions will now be recognized over the duration of the contract instead of upfront

·     CSCO -5%; reported Q2 results and Q3 guidance largely in line with consensus while product revenue of $8.67B came in below consensus of $8.79B and was back to negative territory with down -3% YoY and also mentioned tough comp from 2019 and challenged product orders

·     HEAR -12%; announced prelim Q4/FY’19 results slightly below guidance and the holiday quarter was weaker than anticipated due to the atypical timing of next gen console announcements

·     MGM -5%; as Q4 adj EPS 8c missed the consensus 26c with in-line revenue $3.19B while CEO Jim Murren to step down and said Q4 results below expectations on Far East weakness and withdraws FY20 guidance (did announce stock buyback)

·     MRO -7%; after earnings results as 4Q revenue, other income $1.22B, down -31% YoY vs. est. $1.26B, 4Q adjusted EPS 7c vs. est. 10c and 4Q production 413 mboe/d, -3.1% QoQ

·     NTAP -10%; after company’s Q3 results missed expectations and Q4 profit forecast came in below estimates and announced CFO retirement (Q3 sales of $1.40B missed $1.46B est on 2c EPS miss)

·     NUS -15%; after a softer Q1 and 2020 outlook weighed on shares, guiding below views – sees 2020 revs $2.17-2.30B vs. est. $2.47B and EPS $2.00-2.40 vs. est. $3.32

·     R -6%; as Q4 EPS loss that missed the lowest estimates on slightly better Q4 revs of $2.28B while said it expected softer conditions in rental throughout the year;

·     TSLA ; said it intends to offer about $2B of common stocks and CEO Elon Musk to purchase up to $10 of common stock in this offering and board member and Oracle co-founder Larry Ellison to buy $1M worth – also TSLA recalls Model X SUVs because of a potential issue that can lead to a loss of power steering assist that could make steering harder and increase the risk of a crash

_________________________________________________________________

Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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