Mid-Morning Look

Wednesday, May 20, 2020

U.S. stocks rebound following Tuesday’s late-session selloff as investors weighed signs the American economy will continue to reopen and key retail earnings showed signs of resiliency. As of today, all 50 states in the U.S. have at least partially reopened their economies. Energy stocks surge as oil prices spike over 5% to its best levels in months following a surprise draw in weekly stockpiles. Retailers mixed as large cap names such as Target and Lowe’s report stellar quarterly results, followed better WMT totals the day prior, while specialty retail names remain weak as URBN sales disappoint. Semiconductors extend gains after better ADI results and ahead of NVDA tomorrow night. Again gains are broad based as the rally off the March lows continues, with recent big gains in casinos (PENN jumps over 10% today as they reopened 10 casino locations), airlines (UAL said seeing rebound in passenger numbers) and cruise lines (RCL with mixed commentary today), among the hardest hit sectors due to the shutdown to slow the coronavirus pandemic. Treasury markets are steady as the 10-year yield holds 0.7%, while the dollar index slipped to its lowest level in 3-weeks ahead of the FOMC meeting minutes from April meeting, set to be released around 2:00 this afternoon.

Sector Movers Today

·     Transports higher; railroad stocks rally behind several positive analyst comments as UBS upgrade shares of UNP to Buy and raise tgt to $181 from $156 as believe a combination of strong current cost takeout actions and attractive leverage to upside when demand improves create an attractive reward to risk profile while raised CSX to buy and raise tgt to $80 from $63 as believe CSX will provide strong leverage to a cycle turn and volume growth in 2021 while the company’s cost reduction actions are likely to limit downside risk; NSC was upgraded to outperform at Evercore; UAL paced gains in airlines earlier after CEO in interview on CNBC said is starting to see rebound in passenger numbers, and the timing on recovery is getting better every day (but says while demand is improving, it’s not anywhere close to normal)

·     Housing & Building Products; LOW a better earnings result than peer HD yesterday, as Q1 adj. EPS $1.77/$19.7Beasily tops the est. $1.31/$18.08B and Q1 comp sales rose 11.2% well above the 4% estimate and US comp sales for U.S. home improvement business up 12.3%; FND 4.97M share Spot Secondary priced at $45.00; EXP upgraded to Outperform at Raymond James saying construction has been deemed an essential service in most of Eagle’s states, supporting near-term results

·     Casino & Leisure movers; regional casinos PENN, BYD extend recent gains after reports casinos in Louisiana and Mississippi are reopening this weekend; HOG is reopening factories this week at reduced production rates and sending dealers fewer motorcycles, according to a memo sent to dealer; in cruise lines, RCL said the company started the year in a strong booked position before COVID-19 and says the 2021 booked position is within normal historical ranges/estimates its cash burn to be currently be in the range of approximately $250M to $275M per month

·     Media & Telecom movers; Guggenheim raised price targets for AMCX, DIS, DISCA, DISCK, FOXA, and VIAC saying they prefer FOXA and VIAC in media space as notes the SP500 is down 13% from its recent peak on 2/19 vs. a median decline of -28% for media shares. – said while they maintain concern toward the secular industry outlook (declining live ratings, cord cutting), they view aggressive conclusions of incremental negativity as overdone

·     Hardware, Software movers; CRWD tgt raised to $95 from $80 as believe that CrowdStrike has emerged as a key beneficiary of the remote working paradigm that has accelerated during the COVID-19 Crisis; PLAN downgraded at Wells Fargo and lower tgt to $50 from $55 as shares have now rebounded >75% from March lows and see a more difficult near-term setup taking shape; FSCT shares fall after filing with the Delaware Court of Chancery, as accuses Advent International of violating the terms of the $1.9B merger agreement; earnings tonight from TTWO in video games; KRNT surges to record high after saying it sees at least 30% sequential growth in Q2 with high single-digit YoY revenue growth in H2 and positive operating profit for the entire year

Stock GAINERS

·     ADI +5%; Q2 EPS of $1.08 topped estimates of $1.03 while revs just miss at $1.32B vs. est. $1.33B while forecast midpoint for Q3 topped views

·     INO +16%; after saying it experimental COVID-19 vaccine produced protective antibodies and immune system responses in mice and guinea pigs, according to results published in journal Nature Communications/safety data from early human trials found to be benign

·     KRNT +25%; after saying it sees at least 30% sequential growth in Q2 with high single-digit YoY revenue growth in H2 and positive operating profit for the entire year

·     KIN +14%; enters into agreement with VXRT for manufacture of Vaxart’s oral vaccine candidate for COVID-19/KIN will produce the candidate vaccine bulk drug substance and provide it to Vaxart to be formulated into vaccine tablets

·     MYGN +7%; after the FDA approves use of its BRACAnalysis CDx test as companion diagnostic to identify men with metastatic castration-resistant prostate cancer and also test their suitability for treatment with MRK and AZN’s Lynparza

·     PENN +11%; after the regional casino operator said it announced ten of its casinos reopened

·     SURF +39%; after saying it has entered into a clinical trial collaboration with MRK through a subsidiary, to evaluate the safety and efficacy of combining Surface’s SRF617, an investigational antibody therapy targeting CD39, with Merck’s Keytruda

·     UAL +5%; after CEO in interview on CNBC said is starting to see rebound in passenger numbers, and the timing on recovery is getting better every day (but says while demand is improving, it’s not anywhere close to normal)

Stock LAGGARDS

·     BDX -3%; as announces concurrent offerings of $1.5B of common stock and $1.5B of depositary shares, each representing 1/20 interest in its mandatory convertible preferred stock

·     FSCT -11%; after filing with the Delaware Court of Chancery, as accuses Advent International of violating the terms of the $1.9B merger agreement.

·     LK -32%; as resumes trading after over a month-long halt on April 7 as earlier in week, said Nasdaq notified it of plans to delist its shares, a month after coffee chain disclosed inflated annual sales following an internal probe revealed some 2019 sales were fabricated

·     MCK -1%; after its forecast for fiscal 2021 missed analysts’ expectations $13.95-$14.75 vs. est. $15.36) noting guidance reflects anticipated headwinds as a result of the COVID-19 pandemic

·     URBN -6%; said Q1 total Company net sales decreased -31.9% YoY to $588M and comp retail segment net sales decreased -28%, driven by negative retail store sales due to mandated store closures (by brand, fell -19% at Free People, -24% at Urban Outfitters and -33% at Anthropologie)

·     VNO -2%; as REITs remain pressured as shares of O, REG also lower

Syndicate:

·     Alarm.com (ALRM) 5.62M share Secondary priced at $47.50

·     Cable One (CABO) 250K share Secondary priced at $1,700.00

·     Floor & Decor (FND) 4.97M share Spot Secondary priced at $45.00

·     Medigus (MDGS) 3.333M share Spot Secondary priced at $1.50

·     Ocular Therapeutix (OCUL) 8.182M share Spot Secondary priced at $5.50

·     RealPage (RP) 5.085M share Secondary priced at $59.00

·     Virgin Galactic (SPCE) 20.7M share offering priced at $15.15