Mid-Morning Look: October 22, 2020

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Mid-Morning Look

Thursday, October 22, 2020

Index

Up/Down

%

Last

 

DJ Industrials

-50.33

0.18%

28,160

S&P 500

-4.03

0.12%

3431

Nasdaq

-34.54

0.31%

11,449

Russell 2000

11.40

0.71%

1,615

 

 

Stocks rose initially following a better than expected weekly jobless claims report (first time below 800K claims in several months), and record existing home sales data, helping offset the ongoing disappointment of a failed stimulus aid talks in Washington, though both sides continue to claim they are nearing a deal. However, markets have since declined, seeing a pullback across the board along with a decline in gold prices. Markets are also preparing for tonight’s Presidential debate ahead of the election in less than 2-weeks, where polls show Biden remains with a comfortable lead at this point. Futures bounced back of overnight weakness, falling after reports the U.S. accused Iran of interfering in the coming election, saying the country was behind threatening emails to Democratic-registered voters in battleground states, and that Russia also obtained voter registration data. Earnings dominated headlines this morning along with better economic data, with transports mixed after earnings in airlines and rails (AAL, LUV, UNP, CSX), TSLA rises on record quarterly revenue, consumer staples mixed after KMB and KO earnings and AT&T on track to snap its longest losing streak in nearly 20-years.

 

Economic Data

·     Weekly jobless claims data stronger than expected, falling out of the 800k-900k for the first time in about 2-months at 787K vs. est. 860K as the 4-week moving avg falls to 811,250 oct 17 week from 832,750 prior week and continued claims big decline to 8.37M from 10.018B prior (and estimate 9.5M); U.S. insured unemployment rate fell to 5.7% from 6.4%

·     U.S. sept existing home sales jump 9.4% to 6.54 mln unit rate beating the consensus 6.30 mln) and above the 5.98 mln in August; U.S. sept inventory of homes for sale 1.47 mln units, 2.7 months’ worth; national median home price for existing homes $311,800, +14.8% YoY

·     Leading economic indicators for September reports at 0.7%, in-line with estimates

 

 

Macro

Up/Down

Last

 

WTI Crude

0.60

40.64

Brent

0.69

42.42

Gold

-26.50

1,903.00

EUR/USD

-0.0036

1.1825

JPY/USD

0.20

104.77

10-Year Note

0.013

0.829%

 

 

Sector Movers Today

·     Metals & Materials; FCX reported a quarterly profit (beating ests) compared to a loss a year earlier, benefiting from higher gold prices as uncertainty fueled by the COVID-19 pandemic pushed investors toward safe-haven assets; in steel space, SCHN with a 10c EPS beat on better revs of $464M; RS with mixed results as EPS beat by over 30c but sales of $2.09B missed the $2.13B view and anticipates overall demand to continue its slow improvement in Q4 as sees EPS $1.30-$1.40 vs. est. $1.68; NUE with a top and bottom line beat for Q3 while saying it sees higher earnings in Q4 vs. Q3 (63c on Q3 vs. est. 62c) and said had total of 6.4 mln tons shipped to outside customers in q3, 16% increase from q2

·     Transports; AAL reports a third straight quarterly loss, hurt by a slump in travel globally due to the COVID-19 pandemic (Q3 net loss of $2.40 bln, or $4.71 vs. profit of $425M/96c a year ago); LUV 3Q loss smaller at ($1.99) vs. est. ($2.35), and ended the quarter with liquidity of $15.6B saying encouraged by modest improvements in leisure traffic trends since slowdown in July, says will resume selling all available seats beginning December 1; in railroads; mixed results as UNP posted a Q3 miss on the top and bottom line ($2.01/$49B vs. est. $2.05/$4.96B) while 58.7% operating ratio, an all-time quarterly record; CSX rises on its results as Q3 EPS of 96c beat by 4c though on revs miss $2.65B vs. 42.68) and announced a $500M buyback

·     Chemicals & Packaging; AXTA reported 3Q adjusted EBITDA of $273M, a record for the Company, compared to consensus of $194M while top line also beat consensus by 8% and guidance implies 12% EBIT upside vs. consensus in 4Q; DOW Q3 EPS of 50c beat by 17c as profit beat helped by cost cuts and demand rebound from consumer durables, construction and automotive businesses; SLGN continued strong results in 3Q and again raised FY guidance thanks to elevated at-home consumption and expects its 2021 earnings to remain at current elevated levels (shares were downgraded to neutral at Bank America on the heels of 3Q’s good performance versus our models, the in-line guide for 4Q, and the solid outperformance this year)

·     Housing & Building Products; housing data remains strong as Sept Existing Home Sales +9.4% from Aug to a new record 6.54M (est 6.3M), as inventory fell -19.2% YoY to represent a 2.7-month supply, the lowest since Realtors began tracking the metric in 1982, and the short supply pushed prices +14.8% YoY to a median price of $311,800 (record high adjusted for inflation); PHM reported 3Q adj EPS $1.34 on revs $2.95B (vs est. $1.12, $2.73B), unit backlog +29% to 14,962, net new orders +36% to 8,202, net new order value +43% to $3.6B; MTH Q3 EPS $2.84 vs. est. $2.42 and raised FY home sales gross margin 21% to 21.5% from ~21%, FY home closing rev. to $4.2B-4.4B from $4B-4.3B, and Q3 home orders 3,851 vs. 2,258 units; WHR reported organic sales increased 7% in Q3, ongoing EPS $6.91 on net sales $5.29B (est. $4.20, $4.76B) and now sees ongoing FY EPS $17.50-18.00 (est. $13.71), FY net sales -5-7% (est. -10.6%)

·     Retailers; PTON downgraded to neutral from buy at Goldman Sachs as shares are +458% vs. the S&P 500 +14% and also see some risk to December guidance when the company reports Sept. quarter earnings given shipping delays; RGS downgraded to hold from buy at Loop Capital and cutting our price target from $15 to $ given what we see as near-term risks of weak demand trends and potential for the new CEO to reset investor expectations; POOL raises FY20 adj EPS to $8.20-$8.50 from $7.05-$7.45 after Q3 earnings and sales topped views; DECK tgt raised to $291 at BTIG following latest round of checks, and raising FQ2 estimates on both UGG and Hoka as we believe both brands are poised to report strong revenue/EPS upside this quarter (tgt raised to $300 at Bofa); COLM mentioned as short call by Glasshouse Research; TSCO Q3 beats estimates, boosted by strong demand for consumables and summer seasonal items and sees Q4 profit and net sales above Street ests, but analysts remains concerned same-store sales at TSCO are apt to slow significantly over next several qtrs.

·     Semiconductors; XLNX Q2 revenue of $767M topped the $755.1M estimate and forecasts Q3 revenue between $750M-$800M, the midpoint of which is above est. of $772.3M, as results were driven by strong sales in its data center and aerospace & defense businesses, as well as improvement in its automotive end market; LRCX shares fell despite reporting record Q1 sales and EPS of $3.18B and $5.67, respectively, with better rev guidance for Q2 but margin guidance of 45%-47% disappointed; STM reported results in-line with preliminary guidance and guided Q4/FY20 above estimates on a V-shaped recovery in auto and content growth with Apple; ENTG reported better than expected results ($481M and $0.67 vs. Street at $462M and $0.63) and guided Q4 ahead of expectations ($480M-$495M and $0.62-$0.67 vs. Street at $458M)

 

Stock GAINERS

·     ALGN +32%; blowout quarter; as adjusted earnings, revenues, gross margin and operating margin all topped expectations as Q3 revenue rose 21% Y/Y as shipments of Invisalign teeth straighteners beat consensus projections by more than 40% (shares of SDC rose in sympathy)

·     BCOV +4%; solidly beat 3Q consensus and guidance, and guided 4Q above consensus citing broad-based demand across regions, and highlighted Beacon OTT and Virtual Experience deals

·     DFS +6%; topped estimates due to wider spreads, more resilient loan balances, and a lower provision on the back of a decline in credit losses

·     KO +1%; Q3 EPS and sales beat (55c vs. est. 46c and sales $8.7B vs. est. $8.36B) while 3q unit case volume -4% vs. +2% YoY and Q3 organic revenue -6% vs. +5% YoY

·     LVS +8%; Q3 results were in line to better across the board as Q3 hold-adjusted EBITDA -$240m in Macau (in line), +$59m Marina Bay (better), and -$3m Vegas (better)

·     T +5%; on track to snap its 10-day losing streak (longest since 2002) after in-line earnings and slightly better revs of $42.3B as mobility post-paid churn of 0.69% vs. 1.09% consensus, said total domestic HBO and HBO Max subscribers topping 38 million

·     TSLA +1%; tgt prices raised by several analysts (Wedbush raises bull case to $800) as reported record revenue of $8.77B in Q3, rising 39% YoY and topping ests of $8.36B on better earnings as operating income improved to record level of $809M

 

Stock LAGGARDS

·     CMG -5%; posted a Q3 EPS and sales beat as qtrly digital sales grew 202.5% and accounted for 48.8% of sales for quarter, but shares fell as profit was hurt by higher beef prices, delivery and other coronavirus-related costs and also failed to provide a yearly forecast

·     EW -3%; reported better-than-expected 3Q20 sales and EPS, highlighted by solid TAVR procedure recovery/growth and sales outperformance across all geographies, but shares dipped as Q4 revenue guidance was unchanged despite the Q3 beat

·     KMB -6%; as EPS misses by 2c on slightly better sales of $4.7B and raises year EPS and sales view to $7.50-$7.65 from $7.40-$7.60 but below est. midpoint

·     RGS -7%; downgraded to hold from buy at Loop Capital and cutting our price target from $15 to $ given what we see as near-term risks of weak demand trends

·     TSCO -6%; Q3 beats estimates, boosted by strong demand for consumables and summer seasonal items and sees Q4 profit and net sales above Street ests, but analysts remains concerned same-store sales at TSCO are apt to slow significantly over next several qtrs.

·     UNP -4%; posted a Q3 miss on the top and bottom line ($2.01/$49B vs. est. $2.05/$4.96B) while 58.7% operating ratio, an all-time quarterly record

 

Syndicate:

·     Accolade (ACCD) 5M share Secondary priced at $38.50

·     Aptinyx (APTX) 14M share Secondary priced at $3.00

·     Guild Mortgage (GHLD) 6.5M share IPO priced at $15.00

·     McAfee (MCFE) 37M share IPO priced at $20.00

·     Piedmont Lithium (PLL) says it will price its public offering of 2M American Depositary Shares at $25 each; the offering was expected to total 1.5M shares

·     Replimune Group (REPL) 4.688M share Secondary priced at $40.00

_________________________________________________________________

Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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