Mid-Morning Look

Monday, October 05, 2020

U.S. stock markets pushing higher all morning following President Trump’s improving health situation and the market still hoping for stimulus bill as major averages look to rebound from Friday losses after the COVID diagnosis for the President and his wife along with a weaker-than-expected jobs report. Treasury prices declines as yields rise (10-year touches bets levels in weeks above 0.74%) as investors rotate back into riskier assets such as stocks. The dollar index down about -0.3% to 93.50 as stocks rise – gold advances 0.35% amid the dollar pullback while oil rebounds over 5% early after last week sharp declines. Markets soon preparing for the start of earnings season starting next week, while we are in the heart of preannouncement time this week. Until then, market volatility remains linked to COVID, the election, economic data, the Fed and hopes for additional stimulus out of Washington.

Economic Data

·     U.S. IHS Markit September final composite PMI at 54.3 vs. flash 54.4 and September final services PMI at 54.6 vs. flash 54.6; composite PMI for September at 54.3 vs flash reading 54.4 and final august 54.6. The index has rebounded from the 26.7 record low from April. It was also at 50.9 last September.

·     ISM U.S. non-manufacturing sector was 57.8 in September vs. consensus 56.3and above the 56.9 in august; non-manufacturing business activity index 63.0 in September vs. 62.4 in august; prices paid index 59.0 in Sept vs. 64.2 MoM, new orders index 61.5 vs. 56.8 MoM and non-manufacturing employment index 51.8 vs. 47.9 MoM

Sector Movers Today

·     Housing & Building Products; JELD upgraded to Overweight from Equal Weight and $32 tgt at Wells Fargo as believe JELD has improved its Windows manufacturing operations as contacts suggest the company’s product quality control issues are a thing of the past while pricing announcements across both Windows and Interior Doors are strong; Truist lowered Q3 ests on BLDR and BMCH on extreme lumber inflation in the quarter, impacting profits on the framing package business

·     Oil equipment; LBRT upgraded to overweight from equal-weight and up tgt to $10 and HP raised to EW at Barclays saying rig count and pressure pumping crews in the lower 48 states need to double in order to maintain production – expects lower 48 production to start to “meaningfully” decline by year end, providing a catalyst for an increase in rigs and completions crews in the second half of 2021; PTEN announced an average of 60 drilling rigs operating for the month of September vs. 59 in August; KOS restructured previously announced Gulf of Mexico prepayment facility into a five-year $200 mln term-loan facility; RNET secured a multi-year contract with another premier offshore drilling company for providing fully managed communications services and global satellite access

·     Industrial & Machinery; CAT reached an agreement to buy the oil and gas division of Scotland-based Weir Group for $405 million in cash; heavy duty truckers CMI, PCAR, NAV active as preliminary North America Class 8 net orders in September were up 145% from a year ago to 31,100 units, according to new data from ACT Research (Wells Fargo was at 20K estimate); TEX mentioned positively in Barron’s calling shares are cheap as the small-cap industrial company has a strong balance sheet and potentially higher profits, making it a good choice

·     Metals & Materials; Barron’s was positive on the lithium sector saying Electric vehicles like Tesla need lithium, and miners such as ALB, SQM and LTHM should be considered among the potential winners of an anticipated boom in the EV market; Bloomberg reported KPLUY is in advanced talks to sell its Morton Salt unit to Kissner Group for ~$3B, and a deal could be announced as soon as this week, Bloomberg reported over the weekend. https://bit.ly/2HWe3GC

·     Software movers; DOCU upgraded to Overweight with $260 tgt at Morgan Stanley as view the story today as more compelling than ever based on durable COVID-19 tailwinds driving strong new customer acquisition, and that the company’s growth and profitability profile that is ahead of SaaS peers; video game sector mentioned positively in Barron’s (ATVI, EA, TTWO) noting the pandemic is a significant moment for the industry with the delay in sports, film releases and other major events; CRWD assumed with a Buy at Goldman Sachs saying Crowdstrike has established itself as a technology leader in the Endpoint Security market

·     Telecom; AT downgraded to Underweight from Sector Weight at KeyBanc saying key first look data suggests deterioration in DirectTV subscription and average rev per user in August and declining wireless postpaid ARPU indicating limited rev improvement in Q3; ATUS upgraded to outperform at Bernstein as have gained comfort with forecasts, believe that underlying fundamentals bottomed earlier in 2020, and see the company expanding investments in 2021; GILT agrees to terminate merger agreement with communications solutions provider CMTL saying since the COVID-19 pandemic made timing of combination particularly challenging, GILT and CMTL concluded settlement is best path forward

Stock GAINERS

·     ATEN +4%; raised its revenue guidance for Q3 to come in at $55.5M-$56.5M, above the prior range of $53M-$56M, and vs. est. $55.7M.

·     CMPS +15% as Citron Research said goes long on shares with $100 tgt

·     CRVS +26%; after announces positive additional data from covid-19 therapy trial

·     EIDX +32%; BBIO has agreed to acquire all of the outstanding common stock of Eidos it does not already own, with EIDX holders given the right to receive in the transaction either 1.85 shares of BridgeBio common stock or $73.26 in cash per Eidos share in the transaction, up to an aggregate maximum of $175 million of cash. https://bit.ly/3lfVQSy

·     GAN +17%; after WYNN engaged the company in a 10-year agreement to be the enterprise software platform for its Internet sports betting and Internet casino gaming business in the State of Michigan.

·     LTHM +10%; after Barron’s was positive on the lithium sector saying Electric vehicles like Tesla need lithium, and miners such as ALB, SQM and LTHM should be considered among the potential winners of an anticipated boom in the EV market

·     MYOK +58%; to be acquired by BMY for $225 a share in cash, or $13.1B, as MyoKardia’s lead pipeline drug, code-named mavacamten, treats a chronic heart condition that can cause irregular heart rhythms in some patients and even death https://on.wsj.com/33wbS51  

·     REGN +6%; after President Trump’s doctor said the U.S. president is receiving an intravenous dose of REGN’s experimental antibody cocktail to treat COVID-19 – he is also taking a steroid, dexmethasone, and GILD’s intravenous antiviral drug, remdesivir

·     XPEV +9%; after the company reported a 31% M/M and 145% Y/Y jump in deliveries for September

Stock LAGGARDS

·     AMT -2%; weakness in towers early with CCI, SBAC also falling

·     BKNG -2%; ono of top decliners in the S&P along with weakness in airlines AAL

·     CNK -9% and AMC falls after rival Cineworld Group PLC’s Regal Entertainment Group’s decision to suspend operations at its more than 500 locations this coming Thursday

·     DKNG -7%; announced it commenced an underwritten public offering of 32 million shares of its Class A common stock, consisting of 16 million shares being offered by DraftKings and 16 million shares being offered by certain selling stockholders of DraftKings