Mid-Morning Look

Monday, July 20, 2020

U.S. equities start the trading week mixed, as the Nasdaq Composite looks to rebound after last week’s underperformance ahead of key earnings results this week (MSFT, INTC, TXN, SWKS, TSLA) while the Dow slides as concerns about a jump in COVID-19 cases overshadowed positive COVID-19 vaccine trial data from BNTX/PFE and AZN (at least for the moment) as investors are also hopeful for more stimulus from the government to help the economy. Pharma companies BNTX and PFE announced positive data on their experimental coronavirus vaccine that showed it was safe and induced an immune response in patients. AZN also provided bullet points that were positive, though shares slipped following the spike last week heading into the expected data. The economic reopening sectors (airlines, casinos, restaurants, cruise lines) volatile given the absorbent amount of vaccine related news this morning as well along with big jumps in COVID-19 cases over the weekend, topping the 70K mark twice in the U.S. The U.S. dollar turns positive as euro reverses lower after touching 4-month highs of 1.1468, while Treasury yields remain weak (10-year at 0.60%). Gold prices pushing back near 9-year highs while oil prices slip early on slowing demand fears with outbreak in coronavirus cases. Earnings will grab a large amount of headlines this week, but COVID headlines along with any trade news also closely watched.

Sector Movers Today

·     Energy stocks were active following M&A activity in the sector as CVX confirmed an all-stock deal to buy oil and gas producer NBL for about $5 billion or $10.38 per share/including Noble’s debt, the deal would be valued at about $13 billion https://on.mktw.net/2WANhIa (the WSJ reported the deal overnight first); Raymond James upgraded shares of APA, CXO, PE, PXD, MNRL, MTDR & LPI though said this should not be taken to mean this will be anything but an ugly quarter for the E&P space; MTDR was upgraded to buy at Stifel with raised $12 tgt based on their updated oil price forecast and risk adjustments to our NAV/share estimate of $14.40

·     Chemicals; CE to sell 45% stake in polyplastics JV for $1.58B and said is increasing buyback authorization by $500M; PPG was upgraded to buy at SunTrust saying expect the discount to peer SHW will narrow in the next few quarters as investors start to focus on its prospects for margin expansion, demand recovery in several markets and balance sheet optionality

·     Transports; the number of people flying in the U.S. last week (July 13-19) fell 4.4% compared to the previous week (July 6th – 12th) according to TSA data, the first weekly decline in passengers since early April (AAL, JBLU, DAL, UAL); KSU tgt to $183 from $175 at Raymond James as believe KSU possesses a unique growth story anchored by its Mexican franchise that provides above-average long-term growth opportunities among U.S. railroads

·     Retailers; DLTR said Michael Witynski, Enterprise President of Dollar Tree, has been promoted to President and CEO as Gary Philbin is retiring; DG, DLTR also mention positively in Barron’s saying dollar stores are resilient while many other retailers are struggling and could there be further upside in these stocks; in auto retail, AAP tgt raised to $166 from $156 at Bank America and reiterate buys on ORLY and GPC and Neutral on AZO following BAC credit card data last week and ahead of earnings; URBN was downgraded to sell at Loop Capital; retailers in general (KSS, GPS, TPR) slipped a nice rally in value for much of the prior week

Stock GAINERS

·     BNTX +5%; and PFE reported additional data from their experimental COVID-19 vaccine that showed it was safe and induced an immune response in patients/said the data also demonstrated an induction of high level of T-cell responses against the novel coronavirus.

·     BTAI +21%; after reporting that data from two Phase 3 trials of BXCL501 for the acute treatment of agitation in patients with schizophrenia and bipolar disorder met primary and secondary endpoints

·     CTXS +3%; upgraded to overweight at Barclay’s while Goldman Sachs said it continues to expect another strong quarter as conversations have pointed to continued demand, albeit the pace of reactionary spending seems to have moderated

·     HAL +4%; early after Q2 operating income $236M vs. est. $32.9M with EPS of 5c helped by aggressive cost cutting, even as revenues fell 46% Y/Y to $3.2B

·     LII +3%; posts headline earnings beat and in-line revs of $941M while boosts year EPS view to $7.90-$8.70 vs. prior guidance $7.50-$8.50 (Street $8.19)

·     NBL +6%; as CVX confirmed an all-stock deal to buy oil and gas producer NBL for about $5 billion or $10.38 per share/including Noble’s debt, the deal would be valued at about $13 billion https://on.mktw.net/2WANhIa 

Stock LAGGARDS

·     ALGN -3%; downgraded to underperform at Bank America noting the stock has had a particularly strong run in recent months, recouping all the losses from the March Coronavirus sell-off (+130% from trough on 3/23) and currently trading up +15% for year

·     AZN -3%; as a coronavirus vaccine the University of Oxford is developing with AZN showed promising results in early human testing, a sign of progress in the high-stakes pursuit of a shot to defeat the pathogen (note shares had surged heading into the expected positive results)

·     GPS -6%, along with weakness I other retailers (KSS, TPR), follows a nice rally in value for much of the prior week

·     MAN -5%; shares slide after earnings, posting net loss vs. year ago profit

·     MRNA -9%; fell on the better competing COVID-19 data from BNTX and PFE (lifting those shares) along with a valuation downgrade at JPM

·     NKLA -17%; after the company has filed to offer up to 23.9M shares, while the filing also relates to time-to-time sales from shareholders of up to 53.39M shares of common stock and up to 890,000 warrants