Mid-Morning Look

Friday, May 01, 2020

U.S. equities are lower for a second straight session, declining after the increasing possibility of resurgent U.S./China frictions after President Trump threatened China with new tariffs in retaliation for the slow action giving details about the spread of the coronavirus in its country. Shares of AMZN decline after a strong quarterly result, but warned of increased costs and a hit to operating income in the next quarter. Economic data was a bright spot for a change as construction spending and ISM manufacturing data coming in above consensus estimates in a weak that has seen nothing but dreadful data due to the impact of the coronavirus business shutdowns. May Day holidays thinned trading over in Europe, while Asian stock markets closed with mixed results, as Japan’s Nikkei tumbled -2.8%. Choppy trading for oil prices as WTI crude turns negative after rising more than 6% earlier this morning and topping the $20 per barrel level. Gold prices dip, the dollar is mixed and Treasury prices also little changed. Earnings season is just about half way down with nearly 250 companies reporting to this point in what was a gigantic week highlighted by transports, pharma and of course large cap tech. The decline in stocks today comes after the S&P 500 and Dow each posted their best month since 1987, helped by a slowdown in coronavirus infections and death rate as well as multiple stimulus/relief plans that were instituted by the Fed and Treasury to help keep credit markets functioning and liquidity plentiful.

Economic Data

·     Markit US Manufacturing PMI for Apr-F reported at 36.1 (lowest reading since March 2009) vs. flash reading 36.9 and estimate 36.7 while output dropped to 28.8 in April versus 46.5 in March

·     Construction spending unexpectedly rises 0.9% vs. est. (-3.5%), while February was revised to -2.5% from -1.3% and private construction rose 0.7%

·     ISM Manufacturing better at 41.5, topping the est. for 36.0 (PMI last at 49.1 in March); segment breakdown showed: Production fell to 27.5 vs 47.7 prior (lowest on record) while new orders fell to 27.1 vs 42.2 and employment fell to 27.5 vs 43.8; supplier deliveries rose to the highest levels since 1970’s at 76 reading vs 65.0 prior

Sector Movers Today

·     Casino & Leisure movers; casino sector dealing with negative data point that gross gaming revenue in Macau fell 96.8% in April to 754M patacas ($95M) as visa restrictions hampered any kind of comeback at all (not unexpected) – Macau GGR is down 68.7% YTD and most analysts see a 40% to 60% drop for all of 2020; MGM quarterly revenue was down 21% for Las Vegas Strip revenue properties and 10% for regional casinos while MGM China saw a 63% drop in revenue during the quarter and consolidated adjusted EBITDAR plunged 61% to $295M

·     Chemicals; DOW was downgraded at both Credit Suisse and Citigroup saying problems at the company likely will persist for some time to come (notes Dow is idling ~10% of its polyethylene and elastomer capacity in the Americas); NWL reported a Q1 loss and a drop in sales (missing estimates) citing disruptions caused by the coronavirus pandemic, while is withdrawing its full-year guidance; HUN said it sees Q2 ebitda around breakeven and says Q2 volume could be down more than 30% vs year ago; LYB plunges after Q1 earnings miss expectations as revenues fell 15% Y/Y to $7.49B and said Q1 EBITDA ex-LCM fell to $1.07B from $1.43B a year ago

·     Energy stocks highlighted by big earnings results out of Dow components CVX (cuts capex to as low as $14B from $16B) and XOM (which posted a big quarterly loss); COP was downgraded to neutral at Bank America following a rebound that has allowed the stock to recover greater than 80% of its initial sell-off; IMO swung to a Q1 loss amid falling oil prices and cuts back production; SLCA Q1 net loss attributable to SLCA widens to $72.3M from $19.3M, hurt by impairment charges and expects Q2 oil & gas segment sales to decline sharply

·     Transports; in airlines, UAL reported a Q1 loss of $1.7B due to the impact of the coronavirus travel restrictions and said it expects Q2 cash burn to be $40M-$45M a day (better than AAL comments yesterday of $70M per day during the same period)/says it had $9.6B in liquidity as of April 29, up from $7.2B at the end of March; AAL tgt cut to $1 at Evercore/ISI from $10 saying they entered the crisis with the weakest relative balance sheet among airlines; FWRD shares slip in trucking after EPS and revenue miss and suspends quarterly guidance

Stock GAINERS

·     AAPL +4%; reverses overnight declines of over 4% after better results for the quarter, though fell on a YoY comparisons and offered no new guidance

·     CLX +5%; after Q1 beat and raises FY20 EPS view to $6.70-$6.90 from $6.10-$6.25 (est. $6.57) and also up FY20 revenue growth guidance to 4%-6%, 6%-8% organic sales growth, from down low single-digit to up 1% and flat to 2% organic sales growth

·     MDGS +112%; said that following the signing of a collaboration agreement with L1 Systems Ltd. for the joint commercialization of various Covid-19 related products and solutions

·     MRNA +7%; announces deal with Swiss contract drugmaker Lonza Group AG for MRNA’s potential COVID-19 vaccine

·     MTZ +6%; shares rise after stronger Q1 results ($1.60/$1.4B vs. est. 45c/$1.29B), though guidance for Q2 and year below views

Stock LAGGARDS

·     ADSK -4%; was downgraded to underperform at Bernstein and cut tgt to $155 from $197 saying the depth of this recession, and the secondary economic ripple effect, will stifle near-term revenue growth more than investors expect

·     AMZN -5%; after touching record highs the prior session after the online behemoth beat on revenues but operating and gross/operating margins declined as the co is spending an incremental $4B – operating profit guidance range was of -$1.5b to +$1.5b was, which is below consensus (vs. our $1.7 billion)

·     CURO -17%; profit misses estimates as the company increases allowance for loan losses due to impact from COVID-19 and also notes weakness in single-pay segment due to lower volume during last two weeks of Q1

·     MGM -7%; quarterly revenue was down 21% for Las Vegas Strip revenue properties and 10% for regional casinos while MGM China saw a 63% drop in revenue during the quarter and consolidated adjusted EBITDAR plunged 61% to $295M

·     NWL -6%; reported a Q1 loss and a drop in sales (missing estimates) citing disruptions caused by the coronavirus pandemic, while is withdrawing its full-year guidance

·     UAL -6%; reported a Q1 loss of $1.7B due to the impact of the coronavirus travel restrictions and said it expects Q2 cash burn to be $40M-$45M a day/says it had $9.6B in liquidity as of April 29, up from $7.2B at the end of March

·     WDC -14%; reported an in-line MarQ and guided to an in-line JunQ, noting strong data center demand trends but retail channel business (~19% of MarQ rev) hit by COVID-19. Although WDC noted no debt covenant issues, it suspends dividends

·     WY -14%; suspended its dividend, reduced operating capacity by 20% for lumber and 15% for oriented strand board in April and sees extending lumber and oriented strand board capacity reductions at similar levels in May (follows Q1 EPS, Ebitda, sales beat)

·     ZEN -5%; as reports a wider than expected Q1 EPS loss on slightly better revs and pulls 2020 forecast due to pandemic-related uncertainties