Mid-Morning Look

Tuesday, October 20, 2020

U.S. stocks open higher, rebounding after Monday’s sharp declines ahead of House Speaker Nancy Pelosi’s Tuesday deadline for Congress to reach an agreement on a spending package to support American households and businesses through the pandemic. The broad-market S&P index fell 1.6% Monday as investors grew concerned that lawmakers were not making progress on a deal but seeing a boost early on hopes a deal will somehow materialize (though odds are low ahead of the election). Pelosi and Mnuchin edged closer on some policy differences holding up a sweeping coronavirus relief package, but disputes remained. While stimulus remains a key driver, equities moving higher led by financials behind better earnings in regional banks CBSH, RF, SNV, CMA, with each posting a strong beat. In bond markets, the yield on the benchmark 10-year U.S. Treasury note ticked up to 0.796%, from 0.760% on Monday. Mixed earnings in staples with PG rising and PM slipping after results while IBM declines as revs fall. Tonight’s focus turns to tech with NFLX and SNAP among those expected to report. Markets also continuing to assess the elevated number of new coronavirus infections in the U.S. and Europe in recent weeks as restrictions in some countries including the U.K. and France have been tightened, though most governments have avoided halting business activity completely. Economic data today was mostly better with existing home sales and building permits rising.

Economic Data

·     Housing permits for Sept rose +5.2% to 1.553M vs. est. 1.52M and Sept housing starts rose +1.9% to 1.415M below est. 1.457M; single-family permits +7.8% to 1.119 mln unit rate; multifamily -0.9% to 434,000 unit rate; September single-family starts +8.5% to 1.108 mln unit rate; multifamily -16.3% to 307,000 unit rate

Sector Movers Today

·     Internet; GOOGL shares active after the WSJ reported The Justice Department will file an antitrust lawsuit Tuesday alleging that Google engaged in anticompetitive conduct to preserve monopolies in search and search-advertising that form the cornerstones of its vast conglomerate; NFLX and SNAP each expected to report earnings after the close tonight with high expectations for both as each seen as beneficiaries of Covid-19/stay at home

·     Consumer Staples; ACI forecasts 2020 profit above estimates after Q2 beat as more people shop essentials during pandemic as guides FY20 adj EPS at $2.75-$2.85, above estimate of $2.23; Dow component PG boosts full year organic sales growth forecast to 4%-5%, up from a previous range of 2%-4% (est. 3.4%) and raises core eps growth +5% to +8%, from prior 3% to 7%; in tobacco, PM boosted a 5c EPS beat for Q3 and boosted year EPS view while Q3cigarette shipment volume fell -9.8% vs. -5.90% YoY and EU cigarette shipment volume -4.4%; MNST tgt raised to $90 at Guggenheim as expect a meaningful sequential organic sales improvement to +11% as consumer mobility has increased, while lowered ests; FIZZ upgraded to hold at Jefferies

·     Software movers; WDAY was upgraded to Overweight at Piper based on several catalysts that could drive a reacceleration in subscription growth next year after bottoming in the second half of this year in the mid-teens; FTNT upgraded to buy from neutral with $150 tgt at Goldman Sachs based on conversations with industry participants and industry trends this quarter, believe large enterprise headwinds may be abating sooner than anticipated

·     Metals & Materials; BHP reports a 7.2% rise in quarterly iron ore production, supported by stable demand from China, while keeping its full-year iron ore forecast unchanged; VALE reports a strong increase in Q3 iron ore production, due in part to restarts at mines that previously faced regulatory and coronavirus-related concerns; in steel space, STLD reported lower profit and sales for Q3, but reflected improved auto and strong construction demand; in paper and containerboard CCK reported 3Q adjusted EPS ~25% above its guidance, raised its 2020 adjusted EPS and free cash flow guidance and announced its intention to start paying a quarterly dividend of at least $0.20/share beginning in 1Q21

·     Regional banks; CBSH reported Q3 EPS $1.11 (est. 70c), Q3 Net loan charge-offs $7.6M ($8.4M in Q2), and Q3 net interest income $215.96M ($203.5M in Q2); RF reported Q3 EPS 52c on revs $1.64B vs. est. 33c / $1.49B, NII $988M (vs $960M est) and Q3 net interest margin 3.13% vs. 3.44% a year ago; ZION reported Q3 EPS $1.01, beating the 88c est, provision for credit losses $55M (vs $168M in Q2, $10M in Q3 2019), and deposits $67.1B (+20% YoY); CMA reported beats with Q3 EPS $1.44 (+80% vs Q2) vs est 84c on $211M net income (+87% vs Q2) and provision for credit losses of $5M (vs $138 in Q2); SNV reported Q3 adj EPS 89c on revs $492.4M vs. est. 52c and $469.67M; BXS, SFBS, TBK, MBWM, PEBO, PFBC, WASH also all post EPS that beat ests

Stock GAINERS

·     ACI +2%; forecasts 2020 profit above estimates after Q2 beat as more people shop essentials during pandemic as guides FY20 adj EPS at $2.75-$2.85, above estimate of $2.23

·     APTX +53%; announced positive Phase 2 data for NYX-783 in PTSD saying top-line data from its study “demonstrated statistically significant and clinically meaningful efficacy results and a favorable adverse event and tolerability profile.”

·     EMKR +8%; reports prelim Q4 rev of $33.5M, above its prior forecast of $29M-$31M and est. $30M as sees robust order book for cable TV products extending through the March 2021 quarter

·     GM +4%; ahead of making a “Major U.S. Manufacturing investment announcement” expected later this morning

·     IQV +5%; after reported 3Q results this am, with revenue ($2.786B vs. $2.75B cons), adj EBITDA ($604M vs. $573M cons) and EPS ($1.63 vs. $1.52 cons), each coming ahead of street consensus and above the top-end of the company’s guidance range

·     LOGI +5%; upgraded to overweight from neutral at JPMorgan and raise tgt to $100 from $70 after posted F2Q21 results materially above consensus expectations with broad strength across the portfolio exceeding $1B in quarterly revenues for the first time and raised guidance

·     MRNA +3%; as CEO Stephane Bancel reiterated vaccine timeline saying the U.S. government could authorize emergency use of its Covid-19 vaccine in December if it gets positive interim results in November

Stock LAGGARDS

·     DKNG -2%; two block trades of 1.7 mln shares each at $42.75 and $42.15, amid lock-up expiry

·     GOOGL -0.5%; after the WSJ reported The Justice Department will file an antitrust lawsuit Tuesday alleging that Google engaged in anticompetitive conduct to preserve monopolies in search and search-advertising that form the cornerstones of its vast conglomerate

·     HXL -6%; revenues and EPS substantially missed consensus expectations as commercial aerospace headwinds stemming from build rate reductions and inventory destocking continue to weigh

·     IBM -6%; results somewhat weaker than preannounced numbers as revenue declined for a third straight quarter and as EPS benefitted from an unexpected $0.21 boost from a lower tax rate

·     PXD -6%; PXD is said to be in talks to acquire PE in an all-stock deal that may be finalized by the end of the month, the Wall Street Journal reported https://on.wsj.com/3dKRwZ1

·     SYF -3%; reported Q3 EPS 63c on NII $3.45B, missing the 70c, $3.49B estimates. Separately, Sam’s club and Synchrony extended their strategic credit card program collaboration