Mid-Morning Look

Thursday, October 15, 2020

Stocks fall with no sectors really working today in a broad “risk-off” trading day thus far, as the dimming hopes of a stimulus deal in Washington, surging coronavirus cases (second wave fears) especially in Europe raising fears of the reopen trade slowing, the timeline for Covid-19 vaccines and treatments (after JNJ, LLY paused this week) and another disappointing jobs report all weighing. Weekly jobless claims stay above the 800K level for a 7^th straight week, though manufacturing data was mixed (better Philly data, weaker NY). European markets plunged as governments hurried to impose lockdown measures to halt the spread of Covid-19 cases. France declared a state of emergency and imposed a nightly curfew for the Paris region and eight other metro areas across the country. The euro falls to a 2-week low of $1.1689 against the dollar, down -0.45%. Overall, the back and forth on the pre-election stimulus program has gone from a lot of optimism to a lot of pessimism, with the White House raising its offer recently to $1.8 trillion (from initial $1 trillion) but the Democrats refuse to budge at their $2.2 trillion figure. Mortgage rates fall to record low for the 10th time this year at 2.81%. Earnings disappointments from banks this week, as well as a profit warning in tech last night (FSLY) weigh

Economic Data

·     Seventh week in a row with jobless claims in the +800K as claims rose to 898,000 oct 10 week above consensus 825,000 while last week revised to 845K from 840K; continued claims fell to 10.018 mln vs. est. 10.700 mln and down from upwardly revised 11.183M (from 10.97M); the US insured unemployment rate fell to 6.8% from 7.7%; the 4-wk claims avg rose to 866,250

·     Philly Fed survey showed growth of manufacturing activity surged in October after three months slowing down, as the general activity stood at 32.3 in October, sharply up from 15.0 in September and above ests of 14.0 reading; index for new orders rose 17 points to a reading of 42.6, while the shipments index also increased 10 points to 46.5

·     Export prices for September rose +0.6%, topping the 0.4% estimate while import prices rose +0.3%, in-line with consensus

·     Empire Fed manufacturing business conditions index was +10.5 in October below the consensus 15.0 and also down from the 17.0 in September; new orders index +12.3 in October vs +7.1 in September; prices paid index +27.8 in October vs +25.2 in September; and the employment index at +7.2 in October vs +2.6 in September

Sector Movers Today

·     Retailers; TIF said Aug and Sep “declined slightly” YoY and positive trends continued in Oct (US –LDD%), E-commerce sales nearly doubled and represents 13% of sales Ytd through Sep and for Q4 expects –MSD in sales and +MSD in operating earnings; SNBR Q3 EPS handily beat ($1.79 vs consensus $1.06) and revenue $531.2M vs. consensus $523.5M as EBITDA $93.2M above consensus $55.6M on better comps +11% (good for mattress retailers TPX, PRPL); Guggenheim reiterated its favorable outerwear outlook ahead of VFC earnings tomorrow, raising tgts on COLM to $105, VFC to $85 and highlight KTB with increased interest in the denim category this fall; NKE tgt to $150 from $125 and LULU to $405 from $400 at Oppenheimer as reiterate Outperform ratings on both and are among our favorite larger-cap ideas through 2021; PTON tgt raised to $150 at Bank America saying delivery times are holding at 4-8 weeks suggesting strong demand and app downloads are up 241% in Oct so far (from 129%/197% in Aug/Sep)

·     Transports; Dow Transports slide after touching record all-time highs on Wednesday; airlines active as UAL reported an adjusted 3Q:20 EPS loss of $8.16 on revenue that was down 78% YoY due to the ongoing impacts of COVID – both worse than estimates and follows weak results from DAL earlier this week – a positive, is liquidity noting inclusive of undrawn revolvers and the undrawn but approved CARE Loan, UAL ended the quarter with access to $19.4B of potential liquidity; in trucking sector, Stifel upgraded shares of truckers and logistics names WERN, USX, and KNX to buy noting the truckload market remains quite tight in terms of capacity presently, which has been good for carriers that play the spot market

·     Utilities & Solar; DUK was downgraded to Neutral on valuation at Credit Suisse as recent outperformance has pushed the stock price near its new $93 target, which was upped from $88; Wells Fargo upgraded recent laggards EVRG, OGE to Overweight from Equal Weight as they see an attractive risk/reward opportunity in both stocks as expectations appear relatively muted and we believe they both have an attractive long-term capex runway with regulatory treatment representing a key gating factor; ED was downgraded to Neutral with an $82 pt from Buy at BofA on valuation and limited upside following its outperformance since early September; FSLR was started at Neutral with a $90 target at Susquehanna; SPI’s subsidiary EdisonFuture entered into an agreement with Shaanxi Tongjia to design and manufacture electric vehicles

·     Networking, delivery; FSLY shares tumble as surprises with weaker Q3 revenue guidance (now expects F3Q20 revenue of $70M-$71M, below guidance of $73.5M-$75.5M and withdrew all prior F3Q and FY20 guidance saying its largest customer (TikTok) did not grow as fast as expected, given geopolitical dynamics (shares of CDN peers AKAM, NET as well as other companies with small TikTok exposure – as per Opco – COUP, BIGC, DDOG, TTD were weak)

·     Auto sector; LEA and VC upgraded to buy from neutral at Guggenheim as adopting a more bullish stance on the auto suppliers and see potential for the group to outperform over the next 6-12 months (says LEA offer the most significant earnings and multiple rerating potential, as well as attractive company-specific factors – while maintain buy on GNTX); TSLA cut the price of the company’s Model S for the second time in a week on Wednesday, as Model S price changes to $69,420; CARS shares rise after guiding Q3 revenue ~$142 -144M vs consensus $137.M, EBITDA margin between 33% and 34%, and net profit ($10M)-($12M)

Stock GAINERS

·     CARS +13%; positively pre-announced 3Q results as expects revenue of approximately $142-$144MM vs. consensus of $138MM and adjusted EBITDA margin to come in at 33-34%, or $47-$49MM vs. our $43MM and consensus $40MM

·     EIGR +6%; as data shows that its experimental drug to treat the new coronavirus was more effective than placebo in reducing infection in patients with mild-to-moderate COVID-19 who were not admitted in hospital

·     ORGO +19%; guides Q3 revs $99-$100M vs. est. $72M and forecasts 2020 revenue to be between $311M-$314M vs. est. $275.1m

·     SNBR +8%; Q3 EPS handily beat ($1.79 vs consensus $1.06) and revenue $531.2M vs. consensus $523.5M as EBITDA $93.2M above consensus $55.6M on better comps +11%

·     SPI +76%; entered into a strategic cooperation framework agreement with Shaanxi Tongjia Automobile, a leading manufacturer of all-electric logistic vehicles in China.

·     TGNA +2%; after better guidance saying full year subscription revenue growth is now expected to be up in the high-twenties percentage- an improvement from our prior outlook of up mid-twenties reaffirmed in August (lifts broadcasters NXST, GTN early)

·     WBA +3%; Q4 profit beat $1.02 vs. est. 96c and says it expects single-digit growth in adj EPS for FY 2021 as COVID-19 effects subside and recovery plans take hold in key markets

Stock LAGGARDS

·     AA -8%; $ as posts smaller Q3 loss than expected on better revs of $2.37B topping the $2.25B est. (but down -7.9% YoY), but warned that its aluminum business is expected to face challenges on the cost side during Q4 as aluminum unit are expected to decline, on a quarter-over-quarter basis

·     APHA -11%; reported a narrower-than-expected fiscal first-quarter loss but revenue that rose less than forecast despite. Revenue grew 15.5% to C$145.7 million ($110.2 million), but missed consensus of C$159.6 million

·     FSLY -29%; surprises with weaker Q3 revenue guidance (now expects F3Q20 revenue of $70M-$71M, below guidance of $73.5M-$75.5M and withdrew all prior F3Q and FY20 guidance saying its largest customer (TikTok) did not grow as fast as expected, given geopolitical dynamics

·     GH -3%; slipped after Aetna deems its Guardant360CDx testing panel not medically necessary in lung cancer treatment

·     UAL -4%; reported an adjusted 3Q:20 EPS loss of $8.16 on revenue that was down 78% YoY due to the ongoing impacts of COVID – both worse than estimates and follows weak results from DAL earlier this week

·     VRTX -16%; announced the discontinuation of ’814 for alpha-1 antitrypsin deficiency, an early/mid-stage but high-focus pipeline candidate, due to toxicities observed at subtherapeutic exposures

Syndicate:

·     Array Technologies (ARRY) 47.5M share IPO priced at $22.00

·     MINISO (MNSO) 30.4M share IPO priced at $20.00

·     SI-Bone (SIBN) 3.19M share Spot Secondary priced at $22.00

·     VivoPower (VVPR) 2.941M share Secondary priced at $8.50