Mid-Morning Look

Friday, October 09, 2020

U.S. stocks extend their weekly gains, on track for best 5-day stretch since August as markets remain confident that an additional stimulus aid package will materialize despite mixed signals this week from both the White House and Democrats. Bloomberg reported this morning that Senate Majority Leader McConnell says airline-only aid bill unlikely ahead of election. Just the latest of a back-and-forth this week as House Speaker Pelosi said Thursday, she wants a comprehensive deal and wouldn’t accept a small deal just for airline aid without guarantees a more comprehensive aid bill will be on the docket. While the drama continues in Washington, investors brace for the upcoming earnings season which unofficially kicks off next week with big banks JPM, C, WFC, GS reporting. Coming into today, financials are up roughly 4% for the week as the XLF closed above its 200-day moving average for the first time since February while energy has been the weekly leader up nearly 7% so far and crude futures up above $41 per barrel as Hurricane Delta heads towards the Gulf Coast. Gold prices ending the week strong, up over 2% early amid weakness in the U.S. dollar, while oil dips.

Economic Data

·     U.S. Aug wholesale inventories revised to +0.4% vs. est. 0.5%; as Aug stock/sales ratio 1.31 months’ worth vs July 1.32 months; wholesale sales +1.4% vs. est. 2% but down from July +4.8%

Sector Movers Today

·     Semiconductors sector very active today following several developments: the WSJ reported AMD is in advanced talks to buy rival chip maker XLNX in a deal that could be worth more than $30 billion, https://on.wsj.com/3dcyGtv; NXPI announces a significant improvement in our outlook for Q3 as sees revenue $2.27B vs. est. $2.0B as experienced material improvement in demand across all end markets, but particularly in automotive and mobile end markets in Q3; the auto comment helping some names as KeyBanc noted IFX (~50% auto exposure), ON (33%), MCHP (25%), TXN (20%), MXIM (20%)/ADI (16%), AMBA (15%); MRVL tgt raised by several analyst after the company hosted its 2020 Analyst Day and continues to drive more design win share in their core enterprise/storage/5G networking infrastructure mkts while leveraging their core strengths

·     Transports; Dow Transports touched intraday record high for 3^rd straight day; MATX which said it expects Q3 net income and diluted eps to be $67.2-$69.4M and EPS $1.55-$1.60 (est. 96c) with operating income for ocean transportation to be $84.5-$86.5M vs. $43.9M YoY; truckers cautious at JPMorgan, turning negative on the truckload rate cycle ahead of 3Q20 earnings and downgrading KNX and SNDR to Underweight after cautioning in early July to “pump the brakes” on the TL stocks and the expected supply-side squeeze on rates. At the same time, upgraded HTLD Neutral as one of the few YTD underperformers with less downside to trough P/E, CHRW is our other long idea for the quarter ahead of net revenue margin inflection and widespread negative sentiment and Ryder (R) upgraded to neutral from underweight

·     Cannabis stocks (ACB, CGC, TLRY, APHA) rise further after VP nominee Harris vows to decriminalize pot. Democratic VP nominee Kamala Harris said marijuana would be decriminalized at federal level in U.S. under a Biden administration. During Wednesday night’s debate with Vice President Mike Pence, Harris said she and Democratic presidential nominee Joe Biden would also expunge criminal records those convicted of marijuana-related offences in the past

·     Asset managers; BEN was double-upgraded to Buy from Underperform at Bank America with a price target of $26, up from $20 citing the potential for improving flows and a remaining strong balance sheet with an elevated cash position; JHG was upgraded to neutral at Credit Suisse after spending more time researching the potential levers that activist investor Trian could encourage JHG management to pull (raise tgt to $26 from $16); CNS preliminary assets under management of $70.5 billion as of September 30, 2020, a decrease of $1.6 billion from assets under management at August 31, 2020

·     Metals & Materials; AA said it will curtail San Ciprián aluminum smelter in Spain to curb losses and initiate collective dismissal, likely to affect ~530 employees and expects restructuring charges related to severance; UBS said they prefer STLD over X, TX and GGBR in the steel sector saying construction start decline (leading indicator) does not bode well for 2021 steel demand; in paper, IP upgraded to Overweight at Wells Fargo and up tgt to $52 saying it is reaping benefits from increased food-at-home consumption and accelerated adoption of delivery-to-home activity in its Industrial Packaging segment

Stock GAINERS

·     EXTR +16%; raises Q1 adjusted EPS view to 5c-8c from prior 1c-4c (est. 2c) and ups Q1 revenue view to $233M-$236M from $220M-$230M (est. $223.61M) citing better-than-expected preliminary results across geographies and major market segments

·     HCA +2%; forecast Q3 revenues of ~$13.3B, +5% Y/Y above est. $12.67B while prelim 3Q same facility equivalent admissions -4%, and revenue per equivalent admission +15%

·     MATX +16%; said it expects Q3 net income and eps to be $67.2-$69.4M and EPS $1.55-$1.60 (est. 96c) with operating income for ocean transportation to be $84.5-$86.5M vs. $43.9M YoY

·     NXPI +5%; sees revenue $2.27B vs. est. $2.0B as experienced material improvement in demand across all end markets, but particularly in automotive and mobile end markets in Q3

·     SPTN +27%; discloses that it issued warrants to AMZN as part of a commercial agreement with the company

·     TLRY +4%; cannabis stocks still looking strong as markets taking note for a second day after Democratic vice president nominee Kamala Harris said marijuana would be decriminalized at a federal level in the U.S. under a Biden administration. https://reut.rs/3dcUdCl

·     XLNX +13%; the WSJ reported that AMD is in advanced talks to buy rival chip maker XLNX in a deal that could be worth more than $30 billion, https://on.wsj.com/3dcyGtv

Stock LAGGARDS

·     AA -1%; said it will curtail San Ciprián aluminum smelter in Spain to curb losses and initiate collective dismissal, likely to affect ~530 employees and expects restructuring charges

·     AMD -1%; following WSJ report that its in advanced talks to acquire XLNX

·     AMGN -1%; was downgraded by both Bernstein and Truist to market perform/hold noting the company’s Omecamtiv phase 3 data hit on its primary endpoint but missed on the reduction in cardiovascular death

·     OXY -1%; seeing pullback in energy related stocks after outperformance Mon-Thursday

·     SLG -2%; defensive REITs seeing weakness early (KIM, REG, SPG)

Syndicate:

·     iHuman (IH) 7M share IPO priced at $12.00

·     Intrusion (INTZ) 3.1M share Secondary priced at $8.00

·     Kronos Bio (KRON) 13.2M share IPO priced at 19.00

·     Natura (NTCO) 121.4M share Secondary priced at $16.4591 per ADS

·     Shattuck Labs (STTK) 11.88M share IPO priced at $17.00

·     Spruce Biosciences (SPRB) 6M share IPO priced at $15.00