Mid-Morning Look

Monday, March 30, 2020

U.S. equities are mostly higher in the early going, though sectors most leveraged to the impact of the coronavirus “social distancing” and business closures that rallied last week are firmly under pressure again this morning (restaurants, casinos, airlines, hotels and cruise lines). Energy stocks are falling further as WTI crude drops below $20 per barrel earlier on plunging global demand due to travel restrictions around the world in an attempt to curb the further outbreak of COVID-19. U.S. deaths from coronavirus could reach 200,000 with millions of cases, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases warned on Sunday as major cities plead for more medical supplies. That comment prompted President Trump to extend the social-distancing guidelines until April 30, later than his prior “hopes” of ending them by Easter. “Nothing would be worse than declaring victory before the victory is won,” Trump said. The U.S. dollar is bouncing against most rival currencies this morning, with gains in treasury prices as well (sending yields lower), though commodity prices slide with gold and oil prices down. Heading into today, the coronavirus cases rose again (as expected) as there are now 724,945 cases of COVID-19 and at least 34,041 people have died, according to aggregated data from Johns Hopkins Whiting School of Engineering’s Centers for Systems Science and Engineering. The U.S now has the greatest number of cases worldwide, with 143,055 cases and 2,513 deaths, China 82,156 cases and 3,308 deaths and Italy has 97,689 cases and 10,779 deaths.

Sector Movers Today

·     Pharma movers; JNJ announces lead vaccine candidate for covid-19/expects to initiate phase 1 human clinical studies Covid-19 vaccine candidate by September 2020 at latest/to commit over $1B to vaccine research & development; on the heels of the U.S. Department of Health and Human Services acceptance of 30M doses of hydroxychloroquine from NVS and 1M doses of chloroquine from BAYRY, the FDA has signed off on Emergency Use Authorization of the meds to treat COVID-19; AXSM slides as phase III trial in treatment resistant depression on AXS-05 did not reach statistical significance on the Week 6 primary endpoint on Montgomery-Åsberg Depression Rating Scale; AZN said that trials for its diabetes drug Farxiga in patients with chronic kidney disease were stopped early based on its determination of overwhelming efficacy

·     Retailers; retailer ROST, TJX, NKE, ULTA, GOOS, SKX were all upgraded to overweight at Wells Fargo while downgraded ASC, CPRI, GPS, FTCH, DBI while slashing estimates to account for prolonged store closures and a weaker consumer in both the US and Europe/believe it will be shorter in duration than past recessions, setting the group up for a strong 2021 recover; ENR downgraded to Hold and remove from Franchise Pick list at Jefferies saying near-term headwinds likely to lead to a cut (or withdrawal) of ENR’s FY20 guide; among companies pulling guidance due to coronavirus impact uncertainty: SHOO (also suspends dividend and buyback), LZB (furlough 70% of workforce, slash pay for mgmt)

·     Bank movers; European banks dropped (CS, DB, UBS) to pace a broader market retreat after the chief regulator for the region recommended no dividend payments be made until the autumn; ABN Amro (AAVMY) the first to do so, saying will not pay interim dividend in August while said expects to record a loss in Q1; JEF  announced that Jefferies Group CFO Peg Broadbent has died from coronavirus complications; MS said to have won U.S. antitrust approval for its $13B acquisition of ETFC, Bloomberg reported late Friday; in investment mgmt, KBW Inc. upgraded HLNE to MP and downgraded BAM to MP as FRE estimates declined modestly largely due to do an expected deceleration in the timing of new fundraising, coupled with modest management fee sensitivity to market value adjustments

·     Casino & Leisure movers; in gaming, NY Post reported casino regulators are delaying a review of the casino industry merger between ERI and CZR in a development that is seen raising the odds that the deal is ultimately scuttled as Vegas stays dark for the near future https://bit.ly/2UNn73c ; GLPI reached agreements to acquire real estate assets of the Tropicana Las Vegas hotel and casino and the land from PENN for $337.5M; in lodging, RBC downgraded MAR, HLT to sector perform saying they are incrementally concerned that some owners will struggle to deal with the sharp decline in lodging demand, while Jefferies upgraded HST, SHO to buy as maintaining the impact of a 15% decline in RevPAR for 1Q20, a decline of 70%-75% in 2Q20, down 30-35% in 3Q20 and down 5% to flat in 4Q20 but believe that the most conservative balance sheets should be owned across the cycle

·     Transports; airlines (AAL, DAL, UAL) and cruise lines (CCL, NCLH, RCL) giving back much of its recent rallies, back under significant pressure as markets focus on the impact of the coronavirus on travel and business, with President Trump extending his “social distancing” timeframe to April 30^th over the weekend – another lost month of revenues for the hard hit industries

·     Waste sector; RSG was upgraded to overweight at JPMorgan as think solid waste should be a core holding in a portfolio as waste companies generate steady margins and positive FCF even in a market downturn; SRCL was also upgrade at Baird in waste space citing Friday’s disclosure that Saddle Point Management has taken a stake in SRCL, as firm now believes the strategic changes needed to “Make Stericycle Great Again” will be pursued

Stock GAINERS

·     ABT +9%; unveiled a coronavirus test that can tell if someone is infected in as little as five minutes, and is so small and portable it can be used in almost any health-care setting.

·     JNJ +6%; announces lead vaccine candidate for covid-19; expects to initiate phase 1 human clinical studies Covid-19 vaccine candidate by September 2020 at latest/to commit over $1B to vaccine research & development

·     MSFT +4% after saying this weekend it sees 775% jump in cloud services demand during coronavirus outbreak

·     OMI +39%; after the medical supplies distributor affirmed its 2020 guidance for earnings and predicted double-digit earnings growth beyond this year

Stock LAGGARDS

·     AAL -12%; as airlines feeling further pain from travel restrictions, paring last week gains as airlines falling broadly

·     AXSM -15%; phase 3 trial in treatment resistant depression on AXS-05 did not reach statistical significance on the Week 6 primary endpoint on Montgomery-Åsberg Depression Rating Scale

·     DVN -10%; more weakness in energy related stocks as oil prices tumble further while company cut its capital expenditure forecast for the full year to $1B from prior view $1.75B-$1.85B

·     ERI -19%; NY Post reported casino regulators are delaying a review of the casino industry merger between ERI and CZR in a development that is seen raising the odds that the deal is ultimately scuttled as Vegas stays dark for the near future https://bit.ly/2UNn73c

·     TGNA -12%; said it received four unsolicited acquisition proposals in recent weeks and “engaged substantially” with two of them/said those two parties made proposals shortly before the recent market dislocation due to the Covid-19 pandemic and both told Tegna they’re ending talks