Mid-Morning Look

Friday, May 22, 2020

U.S. equities open lower on the day, but major averages are still on track to register roughly 3% gains for the week on vaccine hopes for COVID-19, more dovish and accommodative commentary by various Fed speakers, rising oil prices and solid earnings results from large cap retail (TGT, WMT, LOW), Stocks prices moved lower on Friday amid profit taking and against deteriorating U.S.-China relations over Beijing’s move to impose a national-security law in Hong Kong. The Hang Seng index dropped over 5% on the controversial new security law in Hong Kong and no China GDP forecast fueled the concerns over U.S.-China relations. President Donald Trump told reporters on Thursday that the U.S. would react “strongly” toward those moves on Hong Kong. Oil prices are lower, on track to snap its 6-day winning streak amid rising U.S.-China tensions, and profit taking after signs of improving demand sent prices to their best levels in 10-weeks yesterday. Tech stocks outperform amid better earnings results from chip maker NVDA (new record highs), and software companies SPLK, PANW, while retailers are mixed following various earnings results (FL, ROST, DECK). Treasury prices are little changed while gold prices gain on the China tensions and expected further stimulus from the government.

Sector Movers Today

·     Home improvement, Housing & Building Products; BBBY said that it plans to reopen 600 stores, including 500 across North America, and bring back about 11,000 furloughed workers by June 13; MLM was upgraded to overweight at JPMorgan and increased estimates and tgts on building products across the board (VMC, SUM, EXP) on the back of better than expected 1Q results as see attractive upside at least in the short-term as 2Q will likely not be as bad as previously expected and considering the attractive valuations for group

·     Consumer Staples; USFD active after KKR reports 9.5% stake which was acquired on April 21 via a $500M purchase of 500k shares of the company’s convertible preferred stock; ELF Q4 net sales increased 13% to $74.7M topping the $67M estimate (on better earnings), helped by product launches and online demand and said is grabbing more shelf space at WMT; COTY announces launch of Kylie Skin at European premium beauty retailer Douglas, offering six products

·     Medical equipment and devices; Agilent (A) posted a Q2 profit beat with in-line revenue and said it is well-positioned to “face the challenges” of the COVID-19 pandemic and the company was poised to focus on “growth, a resilient business model, and strong balance sheet; ABT said interim analysis of a study in urgent care clinics indicates its Covid-19 rapid test, ID NOW, performs best in patients tested earlier after their symptoms start to show; BSX 25.55M share Spot Secondary priced at $34.25; NARI 8.203M share IPO priced at $19.00

·     Internet; BABA reported beat in quarter with revenues of CNY114.31B vs. est. CNY107.45B. Adj. EBITDA came in at CNY25.44B vs. cons CNY21.93B/guides FY revs to CNY650bn vs. cons CNY658bn/said although the pandemic negatively impacted most domestic core commerce business starting in late January, they have seen a steady recovery since March; NTES said it seeks June 11th Hong Kong listing and JD seeks June 18th

Stock GAINERS

·     A +6%; posted a Q2 profit beat with in-line revenue and said it is well-positioned to “face the challenges” of the COVID-19 pandemic

·     AMT +3%; and CCI were both upgraded to outperform from perform in at Oppenheimer as expect a strong rebound in tower activity

·     DE +1%; posted better than expected margins for the quarter on better earnings and revenues while sees FY net income $1.6B, below the $2.1B estimate and lowers shipment volumes in Agriculture and Turf

·     DECK +8%; after topping estimates on both lines of its FQ4 report while sales were down 4.5% and gross margin slipped 10 bps to 51.5% of sales

·     ELF +11%; Q4 net sales increased 13% to $74.7M topping the $67M estimate (on better earnings), and said is grabbing more shelf space at Walmart

·     MRNA +3%; after the NIH’s Anthony Fauci said on NPR that he expects the full results of a Phase 1 study of the biotech’s experimental Covid-19 vaccine within weeks

·     NAVB +115% after saying preliminary results from its Phase 2B study support the hypothesis that Tc99m tilmanocept imaging can provide an early indicator of treatment response in patients with active rheumatoid arthritis

·     PANW +5%; as Q3 results outperform Street estimates and raises FY adjusted profit forecast to $4.78-$4.81 vs previous projection of $4.55 to $4.65

·     SPLK +8%; reported solid F1Q results with +52% y/y ARR growth very strong, though 1Q revenue fell short of expectations, as shift to cloud bookings and shorter-term duration weighed

Stock LAGGARDS

·     ACB -8%; downgraded to Underperform at Jefferies despite a relatively positive Q3 with the re-rating seen post numbers neither justified nor sustainable in their view

·     AMRN -2%; after competitor Hikma Pharmaceuticals said its unit gained U.S. FDA approval for a generic version of Amarin’s fish-oil based heart drug Vascepa

·     HPE -9%; Q2 results were below consensus on both revenues (-16% YoY) and EPS (-47%) and the company did not provide guidance or a view on the prevailing demand environment

·     ICPT -13%; after the FDA has requested additional information related to its NDA for obeticholic acid, which it said will likely extend the review beyond the agency’s June 26 target action date

·     ROKU -3%; downgraded to Equal Weight from Overweight at Stephens with a $105 price target, slashed from $155, citing concerns about its partnership with Chinese electronics maker TCL

·     SNDX -15%; after announced disappointing results for its Phase 3 E2112 trial investigating Entinostat in HR /HER2- breast cancer as the trial did not show an improvement in overall survival (OS) with the addition of Entinostat to exemestane

·     WYNN -5%; along with weakness in MGM, LVS, PENN as casino names pare recent gains

Syndicate:

·     Boston Scientific (BSX) 25.55M share Spot Secondary priced at $34.25

·     ContraFect (CFRX) 11.798M share Spot Secondary priced at $4.45

·     Dynavax (DVAX) 14M share Spot Secondary priced at $5.00

·     Hoth Therapeutics (HOTH) 1.8M share Spot Secondary priced at $2.75

·     Inari Medical (NARI) 8.203M share IPO priced at $19.00