Mid-Morning Look

Tuesday, July 07, 2020

U.S. equities are mixed as the S&P 500 is on track to snap its 5-day winning streak while large cap tech continues to keep the Nasdaq Composite higher, as it has not posted back to back losses since May 12-13, is on track for its 6^th straight day of gains and is up 14 of the last 16 days heading into today, led by all-time highs for AAPL, AMZN, TSLA, NVDA, EBAY yet again. Markets have largely ignored the rising coronavirus outbreak cases in dozens of U.S. states over the last 2-weeks and what it could potentially mean, focusing attention instead on the improving economic data, and optimism of a US recovery from the forced pandemic lockdown closures. Those impacts are still being felt in various industries as airlines, cruise lines, casinos, leisure and theme parks, restaurants and retailers remain somewhat pressured, but technology names remain the outperformer (Nasdaq up over 16% YTD). Economic data generally quiet on the day, while commodity prices are mixed.

Treasuries, Currencies and Commodities

·     In currency markets, the dollar is mixed, pulling back from overnight highs as it slips against the British Pound, and Japanese yen, but up against the euro. Commodity prices are edging higher as oil prices are recovering and gold prices surge back above the $1,800 an ounce level, erasing earlier losses. Treasury markets are also flat, as the 10-year yield holds around 0.67% in what has been sideways trading over the last few weeks – holding just under the 0.7% mark.

Sector Movers Today

·     Semiconductors; NVDA record highs, topping the $400 level for the first time; KeyBanc boosted estimates and targets for ADI, QCOM, MCHP and NXPI while also upgraded SWKS to overweight and recommend building long-term positions in semicap, memory (MU), and CPU (INTC) saying quarterly supply chain findings are mixed, with cautious sentiment and low visibility being dominant themes; AMBA was double upgraded from Underperform to Buy at Needham with $55 tgt as introduce our CY22 estimates, which reflect a strong ramp in CV revenue from the three waves of CV design wins

·     Software movers; in video games, EA tgt raised to $125 from $115 at Oppenheimer citing strength of its Sims game; ATVI tgt to $86 from $79 at Piper, shuffling expectations for Activision’s lineup through CY22, giving them further comfort in view as top pick in the space; ZM to use NOW Platform to help scale customer service operations and enable Hardware as a Service; Rosenblatt upped tgt for SPLK from $220 to $250, while also positive on shares of QLYS, DDOG, PANW and ZS while negative on CRM and WDAY saying most recent industry checks indicate that large deal activity is finally increasing, but with a big caveat. Much of it is driven by migration of workloads to the cloud – a key secular trend that we have been highlighting as a top spending priority over the last three months, along with cloud-based security

·     Healthcare services, Medical equipment and devices; QDEL said it expects Q2 revenues to increase more than 80% to ~$201M – $202M, compared to consensus of $172.6M, driven by demand for COVID-19 diagnostic products; ILMN downgraded to neutral at Guggenheim following the 81% rally off the March lows while still think NIH spending and clinical mix shift can continue to benefit Illumina; LVGO raised its Q2 revenue outlook to $86M-$87M form prior view $73M-$75M saying its updated rev forecast includes about $2M-$3M of one-time items

·     Aerospace & Defense; Avolon said it has cancelled another 27 of its BA 737 MAX orders on top of the 75 aircraft pulled earlier this year. Aircraft leasing companies have cancelled hundreds of Max orders and pushed back remaining deliveries this year; CUB was awarded $950M ceiling indefinite-delivery/indefinite-quantity (id/iq) contract for U.S. air force’s advanced battle management system; EADSY has been awarded an end-to-end turnkey contract for a telecommunications satellite by Optus, Australia’s number two telecom company

Stock GAINERS

·     CRVS +124%; initiated a Phase 1 study to investigate a novel immunotherapy approach for patients with Covid-19, following FDA’s acceptance of its investigational new drug application

·     ENDP +9%; received FDA approval of QWO for the treatment of moderate to severe cellulite in the buttocks of adult women/first FDA-approved injectable treatment for cellulite

·     LVGO +19%; raised its Q2 revenue outlook to $86M-$87M form prior view $73M-$75M saying its updated rev forecast includes about $2M-$3M of one-time items

·     NVAX +27%; received $1.6B in funding from the federal government’s accelerated COVID-19 vaccine development program (Operation Warp Speed) of its NVX-CoV2373 vaccine candidate including production of 100M doses starting in late 2020

·     OTIC +11%; as announced review of OTIVIDEX’s statistical analysis plan as well as positive top-line OTO-313 Phase 1/2 data for Tinnitus

·     ROL +5%; said it expects Q2 revenue growth in the low to mid-single digits, driven by strong growth in its residential business, as people spent more time at home

·     VSLR +23%; to be acquired by RUN in an all-stock transaction that implies an enterprise value of about $3.2B, with VSLR shareholders to receive 0.55 SunRun share for each Vivint share, leaving them with about a 36% stake in the combined entity https://on.mktw.net/2BOKNyC

Stock LAGGARDS

·     BA -3%; as Avolon said it has cancelled another 27 of its BA 737 MAX orders on top of the 75 aircraft pulled earlier this year

·     EOLS -38%; Administrative Law Judge overseeing the U.S. ITC released a Notice of Initial Determination for a case filed by ABBV’s Allergan and its Korean partner Medytox in January 2019 to block imports of Evolus’ and Daewoong Pharma’s Jeuveau

·     MC -5%; downgraded to underweight at JPMorgan citing uncertainty over the U.S. election, Brexit, and COVID-19 all expected to constrain the company’s advisory business well into 2021

·     SHAK -2%; updates on Q2 results, disclosing sales of $91.8M vs. $101.0M estimate saying they were impacted negatively by ~$3.2M due to nationwide protest activity and resulting curfews while same-Shack sales were down 49% during the quarter on a 60.1% drop in traffic

·     SPG -3%; amid broad weakness in the REIT sector/sells $2B of senior notes in 3 tranches

·     UAL -5%; after WSJ reports the company has warned of booking declines due to new travel restrictions, with the drop-off most acute at its Newark hub/also tells employees to prepare to get notifications of potential furloughs as soon as this week