Mid-Morning Look

Friday, October 02, 2020

After opening October higher yesterday, markets declined today after President Trump tweeted overnight that him and First Lady Melania Trump tested positive for Covid-19. Markets faced additional pressure after September non-farm payrolls came in at +661,000, missing the 850,000 expectation and providing further evidence of a slowing recovery. Stocks have been paring losses, though, after House Speaker Nancy Pelosi says something will get done regarding stimulus, as well as generally positive economic data including UMich sentiment and durable goods orders. Travel stocks have been particularly beaten down today as Trump’s positive result brings questions about further restrictions and pending stimulus, including one designed for the airline industry. Energy stocks were underperforming again this morning as both Brent and WTI Crude futures were down over 3%.

Economic Data

·     Nonfarm payrolls for September rose 661,000, below the est 850,000 and down from 1.489M reading in August, which was revised up from previous 1.371M reading; September private sector jobs rose 877,000, above the 850k est but a decline from 1.022M in August; Sept factory jobs rose 66,000, beating the 35,000 estimate (Aug was upped to 36k from 29k). The unemployment rate was reported at 7.9%, below the estimated 8.2% and August’s 8.4%; hourly earnings rose +0.1% (est +0.2%); the labor force participation rate was 61.4% in September, compared to 61.7% in August;

·     August factory orders rose +0.7%, below +1.0% est (+6.5% in July); August nondurables orders +0.8% vs July +1.8%.

·     University of Michigan sentiment reported at 80.4 vs est 79.

Sector Movers Today

·     Transports; Airline stocks (AAL, DAL, LUV, UAL, ALK, JBLU) pressured on worries about the effect of President Trump contracting COVID-19 will have on a stimulus package for the industry; CSFB raised its price target and Q3 estimates on rails (UNP, CSX, NSC) to about 2% above the street average given better than expected volume trends; Susquehanna upgraded JBHT to Positive from Neutral and downgraded LSTR to Neutral from Positive in trucking; Citi issues bull case targets on FDX of $500 and on UPS of $220-40;

·     Auto sector; TSLA reported 139,300 Q3 deliveries (129,950 est). a 44% increase from Q3 2019 and Q3 production of 145,036 vehicles, a 51% YoY increase; LI delivered 3,504 vehicles in September, bringing its Q3 total to 8,660 (+31.1% Q/Q) and YTD total to 18,160; NIO delivered 4,708 vehicles in September (+133.2% YoY) and 12,206 for Q3 (+154.3% YoY); UBER raised $500M in funding from Greenbriar Equity Group for Uber Freight, bringing the value of Uber’s logistics unit to $3.3B; GM is considering revising its NKLA deal to possibly include a higher stake than its previously agreed to 11% after Nikola’s recent tumble on fraud, sexual abuse allegations against founder Trevor Milton;

·     Biotech movers; MESO shares dropped after the FDA issued a Complete Response Letter (CRL) for remestemcel-L for treatment of pediatric steroid-refractory acute graft versus host disease, recommending that Mesoblast conduct at least one additional study in adults and/or children to provide further evidence of effectiveness; BLUE’s marketing application for its eli-cel gene therapy was accepted by the EMA; IMGN was upgraded to Buy with a $14 pt at Guggenheim; AMAG was downgraded to Neutral with a $13.75 pt at HC Wainwright; IMNM 3.25M share IPO priced at $12.00 ONCR 5.8M share IPO priced at $15.00; ARQT 4M share offering priced at $25/share;

Stock GAINERS

·     NNOX +40%; following yesterday’s announcement that the company will perform a live demonstration of its Nanox.ARC system at RSNA 2020 conference

·     PACB +6%; JP Morgan upgraded after encouraging conversation with new CEO Christian Henry about his new strategy

·     TWLO +13%; said at its investor day that it sees prelim Q3 revenue will be ahead of previously issued guidance of $401M-$406M (est. $407.9M)

·     MRNA +3%; vaccine names higher after Trump tests positive for Covid (INO, NVAX, BNTX also higher)

Stock LAGGARDS

·     MESO -36%; plummet after the FDA declined to approve its remestemcel-L therapy, requesting at least one more study that shows its therapy

·     NCLH -3%; RCL, CCL, LUV, ALK down over 2% as travel names among top S&P laggards

·     DXCM -5%; downgraded to Underweight at Wells Fargo who cut their target to $350 from $420

·     SGH -9%; reported 4Q EPS 82c on rev $297M vs 79c, $299M ests, and guides Q1 adjusted gross margin to 18-19% range, missing 21% estimate

·     XOM -2%; warned yesterday that Q3 earnings could fall to a loss of up to 68c, well below current analyst estimates of a 7c loss

Syndicate:

·     Academy Sports (ASO) 15.6M share IPO priced at $13.00

·     Arcutis Biotherapeutics (ARQT) 4M share Secondary priced at $25.00

·     Heritage Global (HGBL) 4.75M share Secondary priced at $1.75

·     Immunome (IMNM) 3.25M share IPO priced at $12.00

·     Oncorus (ONCR) 5.8M share IPO priced at $15.00

·     Owens & Minor (OMI) 8.5M share Secondary priced at $20.50