Mid-Morning Look

Thursday, July 30, 2020

U.S. equities taking a breather after a very busy morning of mixed earnings (and big earnings yet to come with AAPL, AMZN, FB, GOOGL tonight), the weakest GDP reading in its history (showed contraction over -32% in Q2), no new stimulus deal reached in Washington ahead of expiration of additional benefits tomorrow, and President Trump tweeting earlier today, asking for a possible delay to the U.S. election due to impact of the pandemic. The comment weighed on futures, though had even a greater impact on the dollar, reversing lower after initial gains as Germany reported its weakest GDP reading since 1970 (pushed the euro lower). The U.S. economy shrank by a 32.9% quarterly annualized rate in Q2 according to the Commerce Department, the steepest drop on record. The comments follows a warning from the Fed yesterday that the economy will depend on the course of the virus. Jobless claims and continuing claims data climbed for a second straight week, also weighing on the buck, while oil futures tumble. The quantity of earnings this morning was insane (over 235 total companies reporting today, including 68 S&P companies), with results from UPS in transports much better, a handful of E&P names out, payments companies such as MA and PYPL, as well as several upbeat results in semi’s again (QCOM, LRCX, QRVO). Of course this only sets the table for the tech onslaught tonight – with mega cap tech AAPL, AMZN, FB and GOOGL all expected to report after the close, a day after their Congressional grilling on anti-trust issues. The dollar extends its decline, as the euro tops the 1.18 level for the first time since September 2018, Treasury prices rise as yields slide.

Economic Data

·     US jobless claims rose to 1.434M vs. est. 1.445M but higher than the upwardly revised 1.422M figure; continued claims rose to 17.018M above the 16.2M estimate vs. 16.151M prior week; US insured unemployment rate rose to 11.6% from 11.1% prior; the 4-week avg rose to 1.368M from 1.362M the prior week

·     US Q2 final GDP contracted -32.9% vs. est. -34.5%, while personal consumption fell -34.6% (vs. Q1 -6.8%), in-line with economist estimates; US Q2 business investment -27.0%, equipment -37.7%, IP/software -7.2%; Q2 exports fell -64.1%, imports -53.4%; GDP deflator fell -2.1%, Q2 PCE price index fell -1.9% and core PCE -1.1% vs. est. -0.9%

Sector Movers Today

·     Oil E&P and equipment sector; space under pressure as oil prices tumble; APA announced a major oil discovery at the Kwaskwasi-1 well drilled offshore Suriname in Block 58 with TOT sending shares higher along with a smaller-than-expected quarterly loss; FTI EBITDA beat and higher than street guidance for 2020 (Subsea strong); CXO financials/production in line with cost savings better and sustainable; WPX CFPS beat, lower capex and reiteration of the 140 kbbl/d 2020 exit rate target; OII EBITDA beat; not providing segment financial guidance for 3Q/2H’20; WHD EBITDA beat with wellhead market share new high in June and expanding; OIS EBITDA miss & amended revolving credit facility (extend and decrease); AR EBITDA miss on better production

·     Retailers; HBI reports a Q2 EPS and sales beat; AEO upgraded to buy from neutral at Citi as believe the success and opportunity at Aerie is too significant to overlook, while downgraded LB to sell after rally in shares; OSTK spikes after Q2 results noting retail business and customer demand increased significantly in Q2; Cowen said they like the long YETI, DKS and ELY setups into earnings and raise tgts on each and view FY21E consensus recovery estimates on all names as too conservative; JAKK shares plunge after Q2 sales miss and larger EPS loss

·     Restaurants; YUMC reported a Q2 EPS beat but revs just miss as ; 2Q comparable sales fell -11% vs. +4% YoY but came in better than expected; CHEF downgraded to Neutral at Piper after earnings amid a realization of the sales lag that is likely to persist; DNKN misses profit expectations but beats on revenue, reinstates dividend; CAKE comparable sales fell 56.9% in Q2 as the impact of restaurant closings factored in while its restaurant margin was -7.0% of sales vs. +0.8% consensus

·     Metals & Materials; gold miners active (already having risen to 52-week highs recently for many of the names as gold prices surge 9-straight days to record highs coming into today) as AEM and KGC each reported Q2 results that topped consensus views while AEM boosted its 2020 gold production to 1.68M-1.73M oz. from 1.63M-1.73M; in steel, MT reported a smaller than forecast Q2 adjusted loss and better than expected EBITDA of $707M, driven by lower than expected operating costs; KRA falls after saying it sees weaker 2H demand related to Covid-19 and other factors

·     Software movers; busy night of earnings; CTSH upgraded by a few analysts following better-than-expected 2Q results and improved bookings momentum, especially for its digital-centric solutions; NOW reported strong 2Q20 results, handily beating our recent upwardly revised estimates and consensus across all metrics, but Needham said they believe some investor questions will arise from nuances regarding a divergence between billings versus RPO growth; PS posted solid Q with billings better and FY higher; INOV Q2 results beat on slightly better guidance; UCTT reported another strong beat-and-raise quarter, thanks to the resilience and the faster-than-expected recovery of its operations and provided flat Q/Q guidance for 3Q20 revenue relative to strong 2Q20 results; TENB announces 8.0M share offering by selling stockholders (follows stock outperformance yesterday post beat and raise qtr); PI reported June quarter results essentially in-line with Street expectations, but management did not provide guidance for the September quarter

·     Pharma movers; LLY mixed Q2 as EPS beat, sales fall short while raises FY20 EPS view to $7.20-$7.40 from $6.70-$6.90 and backs year revs; BMY and BLUE announce submission of biologics license application (BLA) to FDA for idecabtagene vicleucel (ide-cel, bb2121) for adults with relapsed and refractory multiple myeloma; ALKS downgraded to sell from neutral at Goldman Sachs following 2Q results as we lower our sales ramp for key pipeline drug ALKS 3831 ahead of a potential FDA approval in November; LXRX rises after it agreed to sell its rights, title and interest in Xermelo (telotristat ethyl) to TerSera Therapeutics for approximately $159M in cash; ALXN EPS & revs beat 21% and 13% respectively as Soliris, Ultomiris, Strensiq all beat; ELAN Q2 EPS and revs beat while Q3 guidance below consensus; AZN said that Q2 net profit surged and that late-stage trials for the vaccine it is developing with University of Oxford researchers are under way; JNJ said that its lead vaccine candidate protected against infection with SARS-CoV-2, the virus that causes COVID-19, in pre-clinical studies

Stock GAINERS

·     APA +13%; announced a major oil discovery at the Kwaskwasi-1 well drilled offshore Suriname in Block 58 with TOT sending shares higher along with a smaller-than-expected quarterly loss

·     HOLX +6%; delivered a significant beat ahead of all expectations, as the company shipped ~13mn COVID-19 tests

·     INO +7%; says its COVID-19 DNA vaccine INO-4800 was effective in protecting non-human primates from live virus challenge 13 weeks after the last vaccination

·     LRCX +4%; guides ~15% above the street after missing June due to supply constraints and revises up FY WFE expectations from mid-50s to high-50s

·     ORLY +5%; easily beat Q2 earnings and revs with revenue rising 19% YoY

·     OSTK +19%; after it reports a two-fold jump in Q2 net revenue to $783M saying customer demand in the retail business increased significantly in Q2, particularly in key home furnishings

·     QCOM +10%; forecasts Q4 revenue well above expectations to $5.5B-$6.3B vs. est. $5.78B, boosted by sales of its chips used in 5G devices and says resolved a licensing dispute with Huawei Technologies Co Ltd, which will pay QCOM a catch-up payment of $1.8B in Q4

·     QRVO +9%; posts Q1 EPS beat of $1.50 vs. est. $1.13 as the rollout of 5G and Qorvo’s operational performance helped drive a June quarter well above our expectations/guides Q3 revs of $925M-$955M topping the $802.8M est

·     UPS +12%; 2Q adj EPS $2.13 vs est $1.07 on revs $20.46B vs est $17.48B, not providing EPS and rev guidance due to uncertainty around economic recovery

Stock LAGGARDS

·     BAX -7%; cuts year sales view to -1% to +1%, saw +4% to +5% and guides year EPS below views as well after Q4 top and bottom line miss

·     BIIB -2%; loses bid to block MYL from selling Tecfidera copy; sought ban while it appeals Tecfidera patent ruling

·     COP -8%; posted weaker-than-expected earnings, as weak oil prices and slack demand caused it to curtail production (posted EPS loss of 92c wider than the 58c loss estimate)

·     KRA -19%; after saying last night it sees weaker 2H demand related to Covid-19 and other factors

·     NOW -4%; solid Q and headline guide is better and tone was upbeat but Opco notes there will be a billings shift in the 2H:2020 to 4Q mostly from invoicing timing, which led to below expectations guidance last night

·     VLO -8%; posted Q2 adjusted loss vs. profit last year as Q2 throughput tumbled 22% Y/Y to 2.32M bbl/day, while refining margins plunged 58% to $1.08B