Mid-Morning Look

Monday, July 13, 2020

U.S. equities are broadly higher as the tech heavy Nasdaq Composite along with several of the high-flyer tech names (TSLA, AAPL, NFLX, GOOGL, FB, NVDA) have gone parabolic with record highs being reached on a daily basis as momentum remains clearly to the upside with no apparent fear after the record run. Stocks are adding to last week gains as overall sentiment surges given more positive COVID-19 vaccine news after PFE/BNTX vaccine candidates are given fast-track status, last Friday’s GILD remdesivir shows benefits in 1 in 3 patients in South Korea and MRNA positive mention at Jefferies on its COVID remedy. Attention turns to earnings this week as banks get things started tomorrow after PEP the first major consumer staple with earnings this morning, beating on the top and bottom line. The U.S. dollar resumes selling pressure, falling vs. most rival currencies today (no major economic data today to move markets), while gold prices rise, benefitting from the weaker buck but oil prices slide. Treasury yields are inching higher, but still remain not far off all-time record lows (10-yr yield 0.65%). While technology, materials, industrials and staples pace early gains the energy, financial sectors along with names most impacted the coronavirus pandemic (hotels, travel, leisure, cruise, restaurant, retail) continue to be the top laggards with winners still getting bout and losers falling sharply. Again SmallCaps underperform Large Caps as the Russell 2000 is little changed.

Sector Movers Today

·     Internet; tgt prices for Internet names continue to rise about the spike in prices over the last few weeks, as analysts playing catch-up; NFLX tgt raised to $625 at BMO ahead of earnings as estimate 2Q20 6.506mm paid additions (est. 6.445mm), leading to 126.39mm paid subs; AMZN tgt raised to $3,700 from $2,750 and modestly increased estimates at Cowen as expect a strong quarter and expect revenue slightly above the high end of guidance

·     Semiconductors; group continues to make record highs on a near daily basis (Philly semi index top the 2,100 level for the first time ever) – helped today by M&A news after ADI agreed to acquire MXIM where ADI shareholders will own 69% of the new entity, while Maxim shareholders own the remaining 31%/combined entity is expected to have revenue of $8.2B and free cash flow of $2.7B. https://on.mktw.net/3iWWxjk

·     Media & Telecom movers; tower stocks AMT and SBAC were both downgraded to Sector-weight at KeyBanc as believe 2021 consensus U.S. new leasing assumptions are too high by 60-70 bps for the industry and are likely to reset lower in the next three to six months; Goldman Sachs initiates in the media sector, highlighting that cord-cutting is rapidly accelerating (US paid-TV subscribers declining 10% y/y by 4Q20) and pivoting from legacy linear business models to DTC strategies will be difficult – DIS and VIAC initiated buy, LGF and DISCA Neutral, and FOXA, AMCX at Sell; AMC confirmed an agreement to secure $300M in new funding and reduce its debt by $460M-$630M

·     Asset Managers; TROW reported assets under management of $1.22 trillion, +8% YoY; June client transfers from mutual funds to other portfolios $1.1 billion, -66% YoY; APAM reported that its assets under management as of June 30, 2020 totaled $120.6 billion; MC was downgraded to neutral at Goldman Sachs as it faces long-term margin pressure as it continues to reinvest through the cycle; LM prelim June AUM $783.4 billion, included long-term net outflows of $3.6 billion, driven by equity and fixed income net outflows of $2.5 billion and $1.3 billion, respectively; BEN reported assets under management of $622.8 billion, -13% YoY

Stock GAINERS

·     ALT +15%; after saying preclinical studies of its Covid-19 vaccine candidate, AdCOVID, were successful and set the company up to start a Phase 1 trial later this year

·     BFYT +37%; to be acquired by Madison Dearborn Partners for $31 per share as transaction will be executed via an all cash tender offer that will commence in the coming days

·     BGNE +9%; AMGN invests an additional amount of ~$421M in BGNE’s registered direct offering of ordinary shares, which maintains Amgen’s current pro rata ownership at ~20.3%

·     BNTX +9%; and PFE said four investigational vaccine candidates from their BNT162 mRNA-based vaccine program being developed for Covid-19 received fast track designation from the FDA

·     EQ +151%; after partner Biocon announced that a clinical trial conducted in India demonstrated that itolizumab significantly reduced mortality in patients hospitalized with Covid-19

·     MXIM +11%; as ADI agreed to acquire MXIM where ADI shareholders will own 69% of the new entity, while Maxim shareholders own the remaining 31%/combined entity is expected to have revenue of $8.2B and free cash flow of $2.7B. https://on.mktw.net/3iWWxjk

·     PEP +2%; reported a top and bottom line quarterly beat though reports organic revenue declined 0.3% in Q2 as very strong growth in the snacks business offset a decline in beverages.

·     SSSS +22%; after Barron’s noted the co’s large stake Palantir, a software data company that has widely been reported to be considering going public in the near term

·     WKHS +10%; said its C-Series all-electric delivery trucks have received an executive order from the California Air Resources Board

Stock LAGGARDS

·     ADI -3%; declines following its acquisition of MXIM in the semiconductor sector

·     FANG -4%; energy stocks falling broadly as oil prices decline/energy remains one of the weakest sectors with MRO, NOV, DVN, OXY all among top decliners in the S&P

·     FOXA -2%; initiated with a sell rating along with AMCX at Goldman Sachs as firm prefers buy rated DIS and VIAC

·     NCLH -4%; cruise lines fading amid the surging US COVID-19 cases that current to plague investor sentiment (Florida over 15K cases on Sunday alone)