Mid-Morning Look

Wednesday, February 19, 2020

U.S. stocks once again pushing higher, erasing yesterday’s when Apple warned for the upcoming quarter revs due to impact of the coronavirus and after Wal-Mart missed quarterly expectations, as market sentiment remains extremely high and fear very low. The Nasdaq Composite with a quick spike on the open, rising above the 9,800 level for the first time ever, while the S&P 500 index also touches all-time bests. Overnight reports that China launched fresh measures to support local businesses that are struggling because of the coronavirus outbreak is helping boost markets. China’s Ministry of Industry and Information Technology also said the government would connect factories with technology companies to identify weak links in their supply chains. Markets have also taken comfort amid a fall in the number of new cases of the virus being confirmed each day. The U.S. dollar at three year highs, gold prices at 7-year highs and Treasury yields remain very depressed. Even surging inflation data points today in the form of PPI failed to worry markets (recall the Fed has indicated in the past it will tolerate stronger than 2% inflation for a sustained time before it will consider hiking rates), while housing market data hit their best levels in over 13-years for housing starts and 12-years for permits.

Treasuries, Currencies and Commodities

·     In currency markets, the dollar jumping once again with the buck rising to its best levels against the Japanese yen since May of last year (highs 110.89) while the euro dips to its lowest levels since May of 2017 on strong US data. The overall dollar index (DXY) at its highest level for almost three years. Commodity prices are broadly rising with global stock markets as gold moves to fresh 7-year highs (overnight high $1,614 an ounce), while oil prices also gain ahead of inventory data tonight and tomorrow. Treasury market’s remain higher as yields still weak with the 10-year at 1.56% and the 2-year at 1.41%.

Economic Data

·     Producer prices (PPI) for January jumped the most in more than a year, rising 0.5% above the 0.1% estimate (after a 0.2% boost in Dec), boosted by rises in the costs of services such as healthcare and hotel accommodation. In the 12 months through January, the PPI advanced 2.1% (vs. est. 1.6%), the biggest increase since May, after rising 1.3% in December. Excluding food, energy and trade services components, producer prices increased 0.4%, the most since April.

·     Housing starts for January fell -3.6% to 1.567M, but was better than the expected decline of -11.2% to 1.428M as the prior month was upwardly revised to 1.626M (highest since Dec 2006) from 1.608M; Building permits surged to a near 13-year high, up 9.2% to 1.551M (above est. 1.45M and highest levels since March 2007), pointing to sustained housing market strength amid lower mortgage rates. The 30-year fixed mortgage rate is at an average of 3.47%.

Sector Movers Today

·     Autos; TSLA shares jumped after Piper raised its price tgt to $928 from $729; in auto parts, APTV said given recent COVID-19 developments, it is lowering its 1Q20 revenue and EBIT guidance reflecting a significant level of production delays through February; SAH shares sunk despite Q4 adjusted EPS of 97c topping the 88c estimate on better sales

·     Consumer Staples; APRN Q4 revenue fell 33%, as the company spent less on marketing while its customer base also shrank 9% to 351,000 compared with the previous quarter/said it was considering going private and announced closure of its Arlington, Texas facility; NOMD expects to report Q4 organic revenue growth of 1.7% and adjusted EBITDA of approximately €116M and sees 2020 organic revenue growth in the low-single digit range and adjusted EBITDA of approximately €440M to €445M vs. €456M consensus; COTY has launched the sale of its professional hair and nail products business, according to Bloomberg which could bring in as much as $8B for the company; SPB reaffirmed its FY20 guidance during its presentation today at the CAGNY conference today; FDP falls as reported Q4 adjusted loss per share of (45c) missing est of up 3c on weaker sales of $1.03 billion below the estimate $1.07 billion

·     REITs; EXR reported a 4Q beat, though KeyBanc said fundamentals appear poised to decelerate more than anticipated in the year ahead, resulting in a ~1% guidance miss at the midpoint; ACC initial same-store revenue guidance for fall 2020 implies 50 bps of acceleration at the midpoint (+1.5% to +3%) vs. the prior year; KRG reported a 1c quarterly beat, but after stripping 2c of lease term fee income, KeyBanc said it suspects results may fall slightly short of consensus while FY20 FFO guidance missed Street expectations by ~2.5%; PSB reported 4Q19 core FFO that missed consensus expectations, while the 4Q cash SSNOI growth accelerated vs. the 3Q19 pace; QTS posted an FFO beat, record new leasing ($27.7M) in the quarter, and continued momentum into 2020; ROIC reported in-line 4Q results highlighted by steady 3.5% SSNOI growth, solid leasing activity, and a year-end portfolio leased rate of just under 98% but 2020 FFO guidance missed

·     E&P and equipment sector; CXO Q4 EPS was 11% above consensus and 4Q19 oil production was 3.7% above consensus while 1Q20 oil production guidance was 2.4% below consensus, and 4Q19 capex was 1.2% above consensus; FANG Q4 EPS was in line with consensus, but 4Q19 capex was 3.7% above consensus while 4Q19 production was pre-reported; in research NOV was downgraded to hold at Argus as E&P customers reduce capital spending amid low oil prices, and focus on strengthening their balance sheets and returning capital to shareholders; RIG was downgraded to sell at Argus as they remain concerned about challenging conditions in the offshore drilling market despite the company’s relatively new fleet

·     Medical equipment and devices; ABT will partner with PODD to offer a personalized diabetes management system via the combination of its FreeStyle Libre 2 glucose sensing technology with the latter’s Omnipod Horizon Automated Insulin Delivery System; CODX said it has received new orders for its vector control tests and equipment from mosquito abatement districts following attendance at several vector control conferences; DXCM signs a non-exclusive commercialization agreement with PODD aimed at combining its current and future continuous glucose monitoring systems with the latter’s tubeless insulin delivery Pod; MYO following its agreement with HOMELINK enabling the company to process out-of-network claims for its MyoPro powered arm and hand brace

Stock GAINERS

·     ADI +6%; reports Q1 results that beat on earnings but narrowly missed on revenue while sees Q2 revs of $1.35B (vs. est. $1.38B), plus or minus $50M, which was reduced by $70M to account for the potential coronavirus impact

·     CODX +5%; said it has received new orders for its vector control tests and equipment from mosquito abatement districts following attendance at several vector control conferences.

·     DISH +2%; posts Q4 rev of $3.24B, beating estimates of $3.15B and said pay-TV business loses 194,000 subscribers in the quarter, fewer than the 334,000 it lost a year earlier while EPS of 69c was 10c better as net income rises 15.4% to $389M

·     ENPH +42%; shares surged after better Q4 revs and gross margins – 4Q adj revs $210M vs. est. $205.4M, and 4Q adj gross margin 37.3% vs. est. $35.4%

·     GRMN +5%; as posts Q4 revenue of $1.1B, above the $1B estimate with EPS of $1.89 well above the $1.05 estimate as beats revenue and profit estimates for at least 10th straight quarter

·     INCY +3%; announced that the second Phase 3 study from the TRuE-AD clinical trial program evaluating ruxolitinib cream in patients with atopic dermatitis met its primary endpoint

·     NVDA +3%; new all-time highs as upgraded to outperform at Bernstein and up tgt to $360 from $300 saying the company’s March 19 analyst day and the completion of the Mellanox acquisition are two potential catalysts

·     QUAD +21%; jumped after its Q4 beat and strong 2020 outlook

Stock LAGGARDS

·     ALLY -9%; after agreeing to buy CardWorks, a non-prime credit card and consumer finance lender for $2.65B as it looks to diversify its consumer product offerings (CardWorks has $4.7 billion in assets and $2.9 billion in deposits)

·     APRN -21%; as Q4 revenue fell 33%, as the company spent less on marketing while its customer base also shrank 9% to 351,000 compared with the previous quarter/said it was considering going private and announced closure of its Arlington, Texas facility

·     APTV ; said it sees $150-200M rev hit from coronavirus vs. prior view of $50M; sees 460-80M op income hit vs. prior view $20M; impact to 1Q and FY results remain highly uncertain

·     FDP -16%; as reported Q4 adjusted loss per share of (45c) missing est of up 3c on weaker sales of $1.03 billion below the estimate $1.07 billion

·     GRPN -40%; after Q4 profits, and revenues falling well short of expectations (revs tumbled nearly 24% from the prior year to $612.3M, vs. expectations for $705M) while said it plans to exit the Goods category and focus on local experiences

·     SGMS -19%; as reported a -7% Q4 AEBITDA miss as all segments ex-Digital were soft while mgmt also pushed back their 5.5x net leverage target to 2021E