Mid-Morning Look

Wednesday, July 29, 2020

U.S. equities are moving higher ahead of the FOMC meeting results later today, though not much is expected to change from the June meeting results as they will likely keep rates steady at historic lows as the Federal Reserve policy makers will turn their attention to how to jumpstart a stronger rebound from the virus-induced recession (results at 2:00 PM and Powell press conference at 2:30 PM). The dollar remains weak as the central bank has already been extremely aggressive with regards its stimulus packages, and there is a view they will do what it takes to cushion the blow of the health crisis. In Washington, Democrats and Republicans remain far apart on the next phase of the stimulus bill for out of work Americans, while the House hearing featuring CEOs from Apple, Amazon, Alphabet and Facebook starts at noon. Defensive REITS are rallying again (safe sectors such as utilities and staples led gains yesterday) while tech gets an early boost from semi space (AMD, MPWR earnings) and software (FEYE, TENB) while bracing for FB, PYPL earnings tonight and AAPL, AMZN, GOOGL tomorrow night. Gold prices dip off record highs while oil prices rise following bullish inventory data. Economic data this morning a positive as pending home sales rise more than expected and the June trade deficit narrows. Today also marked a very busy morning of earnings, with top results listed below.

Economic Data

·     Pending Home Sales rise 16.6% MoM in June vs. the est. up 15%, while the Northeast up 54.4% MoM, Midwest up 12.2% MoM, South up 11.9% MoM and the West up 11.7% MoM

·     June advance trade deficit of goods narrowed to (-$70.6B) from (-$75.3B) in the prior month, the Commerce Department said, while imports rose 4.8% in June to $173.234b from $165.327b in May and exports rose 13.9% in June to $102.593b from $90.069b in May

Sector Movers Today

·     Restaurants; SBUX posted a slight beat in Q3 revs at $4.2B, while comps fell (-40%) overall with America comps down (-41%) and China comps (-19% though said sees Covid impact to moderate meaningfully in Q4; DENN posted a slightly larger Q2 adj EPS loss and revs of $40.2M missed estimates while not providing guidance; WING shares jump early after Q2 total domestic stores comp growth +31.9%, above est. +23.4% while total revs rose 36% to $66.1M (est. $62.4M); DIN posts smaller Q2 EPS loss on better revs of $109.7M though Q2 same-store sales at Applebee’s fell 49.4%, while IHOP comparable sales fell 59.1% due to impact of COVID-19 pandemic

·     Casino & Leisure movers; theme parks in focus with SEAS and SIX reporting results; SIX reported a loss of $1.62 a share (worse than the $1.03 loss est.) while revenue was 96% lower than a year earlier, while in-park spending per capita fell 43%; SEAS said prelim Q2 revenue is expected to drop to $18M from $406M last year while attendance is forecast to be 300,000, down 6.2 million from 2019; n lodging REITs, Morgan Stanley upgraded shares of SHO and HST to equal-weight from underweight as expect US RevPAR to recover relatively slowly

·     Financial Services; VERX 21.15M share IPO priced at $19.00; CSGP posted strong 2Q results, beating estimates on both the top and bottom line and noted that bookings and revenue improved as the quarter progressed and the multifamily and LoopNet segments continue to generate strong momentum; HRB prepared 21.2M U.S. tax returns during May 1, 2019 through July 17, 2020, an increase of 3.3% when compared with May 1, 2018 through July 17, 2019; ADP forecast an adjusted EPS decline for 2021 of 13% to 18%, worse than the expected decline of 4%

·     Medical equipment and devices; DXCM price tgt raised by several analysts as 2Q20 revenue of $451.8M (up 34%) exceeded the consensus estimate of $416.9M, with U.S. revenue up 38% and OUS up 21%. Guidance was reinstated, including 2020E revenue of $1.850B (up 25% y/y); DGX upgraded to overweight with $144 tgt at KeyBanc as we see material upside potential to near-term consensus expectations; BSX Q2 EPS and revs beat (org rev decline of -29% y/y compares to consensus -37%), while cardio, CRM, and MedSurg all beat (no guidance)

·     Transports; CHRW posted a beat on the top and bottom line and guided year cap-ex low end of range; CAR posted a smaller (but large) quarterly loss while revs of $760M beat the consensus of $690M and said it is targeting over $2.5B in cost savings on annual basis; NSC Q2 EPS and revs topped views and reports railway operating revenues fell 29% Y/Y to $2.1B, driven by a 26% decline in total volume/operating ratio was 70.7% vs. 70.6% consensus; USX posted strong Q2 results that were helped by lower overhead and fuel costs/upgraded at Bank America to buy; Dow Jones reports FL exploring moving its business to FDX from UPS after the latter told the company in June it would face a hefty rate increase on some of its shipping contracts

·     Aerospace & Defense; BA announced plans to trim production of 787 and 777 widebody jets more than previously announced, and more slowly ramp up production of the 737 MAX than it had planned/while won’t change rates for the 767 or 747, BA said it would complete production of the iconic 747 in 2022; RTX was downgraded to hold at Argus saying shares are now trading at premiums on P/E and price/sales, even though industry peers have more clarity on earnings; GD profit falls over 22% on lower aerospace sales while lowers year profit view by 30c; AER rises as reports better-than-expected Q2 EPS and revenue, due to higher maintenance rents

Stock GAINERS

·     AMD +11%; top and bottom line beat as qtrly computing and graphics segment revenue was $1.37B, up 45% YoY, and raises FY revenue to about +32%, from prior +20% to +30%

·     CHRW +13%; posted a beat on the top and bottom line and guided year cap-ex low end of range

·     FEYE +14% and TENB +14%; internet security names both rise after strong results and guidance, prompting positive analyst comments, est and tgt hikes

·     HTBX +29%; after saying its experimental COVID-19 vaccine showed positive result in pre-clinical testing in animals/demonstrated expansion of antibody-supporting CD4+, virus killing CD8+ T-cells

·     KODK +354%; adds to yesterday 203% surge a day after winning a $765M government loan under the Defense Production Act to support the launch of Kodak Pharmaceuticals

·     LB +37%; announced $400M in annual SG&A cuts and stronger than expected 2Q sales (KeyBanc raised ests and tgt on headlines)

·     SHOP +9%; blew out 2Q estimates on merchant solution while last night filed a $7.5B mixed securities(Q2 revs $714.3M vs. est. $513.8M and GMV 30.1M) – not providing outlook

·     SMG +12%; after better eps/guidance and special dividend announcement

·     TUP +60%; Q2 net income jumps 62% due to cost reduction program and net gains on retirement of debt and non-core assets

Stock LAGGARDS

·     ADP -4%; after the company forecast an adjusted earnings per share decline for 2021 of 13% to 18%, worse than the expected decline of 4%

·     AKAM -3%; after better quarterly results, but analyst were mixed on the guidance calling it muted and that it may signal a slowdown in security products

·     ALEC -22%; following preliminary data from its Phase 1b and open-label Phase 2 trials evaluating lead candidate AL001 in patients with frontotemporal dementia

·     BA -3%; announced plans to trim production of 787 and 777 widebody jets more than previously announced, and more slowly ramp up production of the 737 MAX than it had planned

·     GE 4%; Q2 adjusted EPS loss (15c) on revs $17.75B vs. est. loss (10c) and $17.12B

·     STX -9%; weighs on memory and HDD stocks after missing the top-line and guided Q1 EPS and revs below views (guided to a soft SepQ rev/EPS of $2.3B/$0.85 vs. consensus of $2.6B/$1.27)

Syndicate:

·     Arcturus Therapeutics (ARCT) 3.264M share Spot Secondary priced at $53.00

·     BioXcel Therapeutics (BTAI) 4M share Secondary priced at $50.00

·     Boxlight (BOXL) 15M share Spot Secondary priced at $2.00

·     Essa Pharma (EPIX) 7.1M share Spot Secondary priced at $6.00

·     TCR2 Therapeutics (TCRR) 8M share Secondary priced at $15.50

·     Vertex (VERX) 21.15M share IPO priced at $19.00