Mid-Morning Look

Friday, July 10, 2020

U.S. equities open mixed with the Nasdaq Composite sliding initially before bouncing sharply off its lows, as stocks overall look to end the week on a positive note. Dallas Fed President Robert Kaplan said in an interview on Fox Business regarding the economy that “If we all wore a mask, it would substantially mute the transmission of this disease and we would grow faster.” The comments come as daily coronavirus case totals spiked each day this week, averaging more than 50,000 new cases a day in the U.S. Treasury yields bouncing off lows as stocks recover – 10-yr back above 0.6% (off lows 0.567% for the 10-yr), while gold prices are on track for a 5^th straight week of gains. Stocks got a boost this morning following positive vaccine news as Gilead (GILD) said additional data on the company’s remdesivir drug shows improved clinical recovery as 74.4% remdesivir-treated patients recovered by day 14 and Remdesivir associated with 62% risk cut in mortality. Earnings the next possible market catalyst with big banks reporting next week including JPM, C and WFC on Tuesday.

Economic Data

·     Producer Price Index (PPI) falls an unexpected (-0.2%) vs. est. +0.4% for June MoM while core prices dropped (-0.3%) vs. est. +0.1% MoM; YOY PPI for June plunged (-0.8%) vs. est. (-0.2%) and core PPI YoY rose 0.1% vs. est. (-0.2%)

Sector Movers Today

·     Retailers; footwear and apparel active after Susquehanna upgrade FL to positive) and CAL to neutral) and raise tgt to $34 from $25 on FL while raises estimates on CROX and takes the price target up to $50 while keeping it as top pick in the footwear and apparel space (also raised ests on DECK, HIBB, SKX to reflect the benefits of the increased consumer spending); EXPR said it has reopened ~95% of its stores, traffic and sales have steadily improved and e-Commerce demand was positive in the month of June/comp sales for open stores sequentially improved from -50% in early May to ~-15% by the 3rd week in June; WDFC quarterly miss on both top and bottom line

·     Casino & Leisure movers; HOG was upgraded to sector perform at RBC Capital saying key is 2021 where setup especially favorable for HOG given easy retail comps/need to restock dealers (notes aggressive inventory mgmt now means an ugly 2H’20); in cruise lines, CCL said to accelerate removal of ships for FY20 – reports Q2 EPS loss $6.07) and revs $740M with $4.37B loss (cruise lines advanced early following the company update)

·     Bank movers; CMA upgraded to outperform with $49 tgt along with WFC at RW Baird in banking space ahead of earnings starting next week for financials; KEY was downgraded to Underperform and cut tgt to $12 at Bank America saying it has greater risk of a dividend cut vs. peers; and has greater exposure to industries at higher risk of default in a COVID-induced downturn, at ~20% of total loans vs. 14% at peers; MC downgraded to Neutral at Piper saying while still has confidence in the strength of its franchise, they find it difficult to recommend adding to positions given the combination of macro-uncertainty facing M&A activity levels and MC’s increasingly apparent lack of expense flexibility

·     Metals & Materials; in the timber sector, CTT upgraded to outperform at RBC Capital as see Timberlands as an attractive asset class due to their steady income characteristics and long lifespan; RBC also upgraded PCH to outperform and up tgt to $45 citing a more attractive backdrop like very strong North American softwood lumber markets and record-low rates; in chemicals, BASFY said 2q operating result above market expectations; in metals, gold miner EGO reports Q2 preliminary gold production of 137,782 ounces, up 50% from a year earlier

Stock GAINERS

·     CCL +4%; said has secured over $10 billion of additional liquidity to withstand another full year in a 0 revenue scenario

·     CMA +3%; upgraded to outperform with $49 tgt along with WFC at RW Baird in banking space ahead of earnings starting next week for financials

·     EGO +3%; reports Q2 preliminary gold production of 137,782 ounces, up 50% from a year earlier

·     GBX +17%; reported higher than expected Q3 revenue and profit while saying it received orders for 800 railcars worth $65M, bringing its backlog to 267,000 units, with a value of $2.7B

·     GILD +2%; after additional data on the company’s remdesivir drug shows improved clinical recovery as 74.4% remdesivir-treated patients recovered by day 14 and Remdesivir associated with 62% risk cut in mortality

·     MATX +22%; after guidance ahead of consensus; said it sees Q2 operating income for Ocean Transportation to be $40.5M-$42.5M vs. $19.7M YoY; and sees Q2 EPS 70c-75c vs. est. 12c

·     NFLX +3%; reiterated buy and $670 tgt at Goldman Sachs saying they believe shares advance has been driven by growth in content on the platform, a lack of competition for entertainment hours

·     SNBR +13%; upgraded to overweight and raising tgt to $65 at Piper saying mattress demand is rebounding faster than anticipated, and retailer survey suggests industry growth will be strong in Q3/see potential for significant upside to current consensus estimates for 2020/2021

Stock LAGGARDS

·     BYND -6%; after being initiated with a sell and $123 tgt at Citigroup as sees margin pressure on Beyond Meat due to the high operating costs

·     FSLY -4%; downgraded to Underperform from Buy at Bank America while raising the tgt to $90 from $50 saying fundamentals are intact but valuation is difficult to justify/also adds that stock is proving to be the most expensive in its coverage

·     PYPL -2%; little pullback after surging to record highs the last 2-weeks along with SQ amid surge for contactless payment systems during COVID -19 pandemic

·     WDFC -5%; reported quarterly miss on both the top and bottom line