Mid-Morning Look

Wednesday, October 07, 2020

U.S. equities with a sharp recovery following the late day slide Tuesday, recovering nearing all of those losses after President Trump appeared to soften his earlier stance regarding offering support to American households, airlines and small businesses saying if he was sent a Stand-Alone Bill for Stimulus Checks ($1,200), they will go out to our great people immediately. Major averages posted their biggest daily percentage drops in two weeks thanks to a late afternoon sell-off after President Donald Trump declared an end to talks on a new fiscal stimulus deal. Airlines however this morning are higher after the President said Congress should extend $25 billion in new aid for the industry. Big tech mixed after Washington released a report about abusive power. Oil prices take a breather after two days of strong gains, as energy stocks slip. Markets get another heavy dose of Fed speakers’ again today – including Atlanta President Raphael Bostic, New York President John Williams, Boston President Eric Rosengren and Chicago President Charles Evans. Minutes from the central bank’s September meeting will also be released later in the session. Retailers higher on earnings and a broker upgrade, and MedTech names higher after several companies issue upbeat revenue guidance.

Sector Movers Today

·     Retailers; LEVI 3Q was well ahead of expectations, with sales, GM and EPS all better than consensus forecasts and Citi noted trends continued to improve in Sept, though 4Q guidance overall includes some caution about what the rest of the holiday season may bring; Barclay’s with several ratings changes as AEO, FL, GPS, URBN, KTB were all upgraded to overweight as believe will materially benefit from sales recovery, as well as KTB, which is both a defensive play on a COVID surge and an offensive play on global growth. Barclays downgraded two apparel manufacturers, cutting RL to Equal Weight and PVH to Underweight, as both have department store channel and apparel category exposure.

·     Consumer Staples; PM upgraded to buy with $100 tgt at Citigroup saying its current 3-year target for RRPs runs out in 2021 and expect a replacement, perhaps for 150-200 bln sticks equivalent for 2024 which would imply accelerating growth; COTY upgraded to buy from hold at Jefferies saying recent bold actions by co shows a sense of urgency to de-risk costs and the balance sheet; LW Q1 EPS 61c on sales $872M vs. est. 30c and $869.2M (though profit fell from $115.7M last period a year-ago to $89.3M this quarter)

·     Transports; airline stocks rally after President Trump said he would immediately sign individual stimulus measures sent to him, including $25 billion in airline payroll support; JPMorgan also upgraded JBLU and UAL to overweight SAVE raised to neutral while downgraded LUV to underweight while reducing forecasts to reflect a more conservative demand trajectory and revising our equity price targets to reflect our 2022 forecasts; UBS lowered tgts on truckers HTLD, JBHT and SNDR saying Truckload spot metrics show a market that remains on a trend of further tightening; Stifel said rail volumes were generally better than expected in 3Q20, as the tight truckload market and rush of imports to restock inventories drove Intermodal demand higher

·     Utilities & Solar; Piper initiates solar stocks SPWR ($20 pt) as a favorite idea, NOVA ($3 pt) at OW and RUN ($10 pt) at Neutral; SPWR pt was also raised to around $10 from $8 neighborhood at BAML who reiterated their Underperform rating as they remain cautious given SunPower’s valuation and expect underperformance versus cleantech stocks as enthusiasm wanes; SUNW said it signed $10 million in new commercial and agriculture projects in the third quarter, marking its strongest quarterly booking activity since early 2020; PECK announces the signing of a 5.3MW contract in Rhode Island

·     Chemicals; CE upgraded to overweight in chemicals preview at KeyBanc saying they prefer exposure to intermediates (EMN, HUN, CE), specialty (DD, AXTA), and ag (CTVA, FMC) names heading into 4Q20 and 3Q20 reporting season as they see these names as having better risk/reward than commodities. For CE, they upgrade recognizing that risks in acetyls and EM are skewed to the upside; RPM Q1 adj. profit topped estimates as Q1 net income surges 70.1% to $180.6M and sales rise 9.1% to $1.61B, also beating est. of $1.49B saying in Q1 select segments of the economy began to gain momentum as stay-at-home orders were relaxed

Stock GAINERS

·     AAL +4%; airlines rally after President Trump said he would immediately sign individual stimulus measures sent to him, including $25 billion in airline payroll support

·     IART +5%; said it expects Q3 revenue to be in range of $368-$370M indicating a Y/Y decline of ~2.7% on a reported basis but above estimates of $340.4M

·     LEVI +8%; 3Q was well ahead of expectations, with sales, GM and EPS all better than consensus forecasts and Citi noted trends continued to improve in Sept, though 4Q guidance overall includes some caution about what the rest of the holiday season may bring

·     MASI +4%; released a preliminary Q3 product revenue range of $274-$278M, topping the consensus estimate of $247M

·     NFLX +4%; after Pivotal tgt hike to street high $650 saying the company benefited massively from global “stay-at-home” trends amid COVID-19 pandemic during H1 of FY20

·     PERI +10%; raises FY Adj Ebitda $25M-$27M; Saw $19M-$21M

·     SUNW +42%; said it signed $10 million in new commercial and agriculture projects in the third quarter, marking its strongest quarterly booking activity since early 2020

Stock LAGGARDS

·     BAND -3%; downgraded to underweight with $140 tgt at Morgan Stanley saying MSFT’s new Azure Communication Platform could prove a meaningful opportunity for Bandwidth

·     DKNG -5%; 32M share Secondary priced at $52.00; also pressured after positive coronavirus results for a few NFL players on the Raiders, Titans, and Patriots

·     GOOGL -1%; as AAPL, AMZN, FB and GOOGL as U.S. House of Representatives panel report found that four big technology companies used “killer acquisitions” to hurt rivals, charged exorbitant fees and forced small businesses into “oppressive” contracts for profits

·     HES -2%; as energy names slip after outperformance recently on oil price bounce

·     RPM -1%; erases gains, turns to lows despite Q1 EPS and sales beat