Mid-Morning Look

Wednesday, March 11, 2020

The bump roller-coaster rise for U.S. equities continued again on Wednesday, with prices shooting sharply lower overnight and into the open, erasing much of Tuesday’s gains. Stocks dropped after the Trump administration failed to offer firm details on the President’s measures to combat the economic fallout of the coronavirus. Among some of the stimulus measures that have been talked about the last two days include: Tax extensions for certain taxpayers, small business, loan guarantees for airlines, hotels & cruise ships 9but not bailouts). Germany’s chancellor pledged to do “whatever is necessary” to face the crisis, while the Bank of England overnight cut rates back to historic levels as they deal with virus impact on their economy. So far, confirmed cases worldwide have topped 119,000 with U.S. cases having surpassed 1,000, and 30 deaths reported. Italy is ready to spend as much as 25 billion euros ($28.3 billion) on stimulus measures after announcing extreme measures, essentially shutting down its country until April, cancelling events, issuing curfews and preventing travel outside of towns. In politics, former Vice President Joe Biden defeated Sen. Bernie Sanders in Michigan’s Democratic primary on Tuesday, while also notched victories in Mississippi and Missouri (has 766 delegates to Sanders 618). Markets hoping for added stimulus measures as reports indicated China will make targeted RRR cuts and additional cuts to some other banks and the FOMC is expected to cut rates again next week (after a 50 bps cut last week mid-meeting)…but until the virus cases slow or a vaccine is issued, stocks could be in limbo as more companies step up measures to prevent the virus from spreading (meaning less travel, less going out and having a direct impact to revenues). Treasury prices gain again as yields fall, gold is little changed with oil down and the dollar dipping slightly after jumping on Tuesday more than 1%

Economic Data

·     Consumer price index (CPI) for February rose 0.1%, above the unchanged estimate and after rising 0.1% in January; CPI ex: food, energy MoM rose an in-line 0.2% while YoY, core prices rose 2.4% vs. est. 2.3% and total CPI rose 2.3% vs. est. 2.2%; U.S. Feb real average weekly earnings all private workers +0.5% vs. Jan +0.1%

Sector Movers Today

·     Retailers; NKE pressured after rivals Adidas (ADDYY) and Puma (PUMSY) both flagged a sales hit on their China businesses due to the coronavirus outbreak as Adidas said it sees decline in Q1 sales for Greater China/says store traffic reducing in Japan and South Korea while Puma said it no longer expected its business would return to normal soon and withdraws 2020 forecast; URBN says due to the uncertainty around the spread of covid-19 in N.A and Europe, at this time, we cannot forecast the extent to which covid-19 will impact our business in the 1q; in research, Wedbush upgraded five retailers with AEO, ANF, BURL and DOOR all boosted to outperform while raised ZUMZ to neutral; HEAR reported results in line, guided Q1’20 above the Street for revs, lower for adj. EBITDA; broader retail extends slide on reduced traffic/sales fears

·     Pharma movers; BMY said the FDA approves Opdivo plus Yervoy to treat hepatocellular carcinoma in patients who have been previously treated with sorafenib; MNK said NY State Attorney General joins 47 other states and U.S. Territory Attorneys General in supporting MNK’s proposed global opioid settlement; KALA 16M share Spot Secondary priced at $7.89; RDHL said it is pursuing an exploratory program of opaganib and RHB-107 individually and in combination with hydroxychloroquine and other compounds for the treatment of COVID-19; LLY added to conviction buy list at Goldman Sachs on the strength of its potential growth including in expanding categories like diabetes and migraine medicines

·     MLP sector; group has been crushed on plunging oil prices with the Alerian MLP Index down 46% YTD as approaches its lowest levels since 2000 (around the 100 level – currently 117 and off YTD highs of 260 nearly a year ago); Bank America downgraded MPLX and PAA to neutral from buy, cut WES to Underperform while upgraded KMI to buy as the firm resets EV/EBITDA target multiples to a blended multiple by weighting (i) scenario 1 (Bull case) with target multiples pre OPEC+ fallout discounted by 0.5x considering that industry growth is likely structurally stretched, (ii) scenario 2 (Bear case) with a historical downturn adjustment of a ~3x discount

·     Asset managers with monthly assets under management (AUM) data: 1) AB prelim AUM decreased 2.4% to $614B during February 2020 from $629B at the end of January due to market depreciation, partially offset by total firm wide net inflows into all three distribution channels; 2) TROW reported assets under management of $1.15 trillion, +7.5% YoY; Feb client transfers from mutual funds to other portfolios $900M vs. $400M YoY; 3) IVZ prelim AUM of $1,159.4B was a decrease of 4.9% versus previous month-end; 4) APAM prelim Feb AUM totaled $111.7B with separate accounts accounted for $58.8B of total firm AUM, while Artisan Funds and Artisan Global Funds accounted for $52.9B; 5) LM said prelim Feb AUM was $789.4B; 6) WDR prelim assets under management of $65B at Feb. 29, 2020 falls from $69.2B at Jan. 31, 2019

Stock GAINERS

·     DXC +5%; is selling its U.S. State and Local Health and Human Services business for $5B to Veritas Capital, the leading investor in government and healthcare technology businesses

·     GILD +3%; one of few bright spots as virus fears continue to grow

·     MNK +21%; after saying New York State Attorney General joins 47 other states and U.S. Territory Attorneys General in supporting MNK’s proposed global opioid settlement

·     SDC +1%; after its launch of SmileShop in three Walmart Canada locations in Ontario and Alberta

·     UNFI +1%; after topping estimates on both lines of its FQ2 report as sales benefited from continued growth in the supernatural channel during the quarter and an increase in gross margin was driven by lower inbound freight expense

Stock LAGGARDS

·     BA -10%; top decliner in the Dow and represents over -150 down Dow points

·     CDMO -33%; on Q3 earnings and revenue miss saying operations during the period were negatively impacted by “production challenges” related to a problem with a specific piece of equipment that resulted in the termination of in-process manufacturing runs and the postponement of other runs scheduled for the quarter/cuts guidance

·     DD -3%; after lowered its FY20 net sales view to $21.3B-$21.8B from prior guidance of $21.5B-$22.0B while maintained its FY20 adjusted EPS guidance of $3.70-$3.90 to reflect headwind from covid-19 virus

·     NBL -14%; among top decliners in energy sector that is being crushed again on lower oil and slowing demand and production fears given virus and price war overseas

·     PDD -3%; says Q4 total rev nearly doubled to 10.79 bln yuan ($1.55 bln), but was below estimates of 10.93 bln yuan; Q4 net loss of 0.72 yuan per share, beat estimates of a loss of 1.56 yuan

·     SNSS -37%; after being downgraded at Wells Fargo and cut tgt to $1 following review of 4Q19 results and outlook for the company’s lead BTK inhibitor Vecabrutinib

·     VSLR -9%; shares decline as posted larger quarterly loss of ($1.02) on weaker revenue of $77M