Mid-Morning Look: October 27, 2020

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Mid-Morning Look

Tuesday, October 27, 2020

Index

Up/Down

%

Last

 

DJ Industrials

-101.65

0.37%

27,583

S&P 500

-2.98

0.09%

3,397

Nasdaq

41.63

0.36%

11,399

Russell 2000

-1.57

0.10%

1,603

 

 

U.S. stocks start the day mixed, but a much better picture than yesterday when stocks fell the entire morning, when the Dow Jones Industrials dropped as much as 800 points before partially rebounding late day as failed stimulus aid talks, uncertainty ahead of the Presidential election next week, a surge in Covid-19 cases in the U.S. and Europe threatening the “reopen” trade, and mixed economic data all weigh on sentiment. Better earnings this quarter thus far has helped somewhat with Bernstein noting that companies representing more than 20% of S&P 500 market value having reported their third quarter earnings, 89% of firms managed to meet or beat analysts’ consensus earnings estimates so far, well above the average of 78% over the last twelve years (still a big week of results to come).

 

Economic data was mixed with better Durable Goods orders, rising for a 5th straight month, up 1.9% in September compared with August while new orders for nondefense capital goods excluding aircraft increased by 1% last month. However, consumer confidence data for dipped slightly to 100.9 in October, undershooting expectations, after jumping 15.0 points to 101.3 the prior month. In stock news, one of the bigger themes yesterday was the unwinding of some of the recent strength we saw last week in the “reopen” names as hotels, travel, cruise, casinos all falling (recover today). Healthcare in focus today with earnings from LLY, PFE and MRK this morning as well as industrial giants CAT and MMM. Treasury yields dip as the dollar slips and oil rebounds.

 

Economic Data

·     Durables Goods for Sept rose 1.9% vs. est. 0.5% with August up 0.4%. Durable Goods ex-defense orders +3.4% vs. August +0.9%; and Sept durables ex-transportation orders +0.8% vs. est. 0.4% and August up 1%; nondefense cap orders ex-aircraft +1.0% vs. est. 0.5%

·     Consumer confidence index 100.9 (consensus 102.0) vs. september revised 101.3 (previous 101.8) as the present situation index 104.6 in oct vs sept revised 98.9 (previous 98.5) and expectations index 98.4 in oct vs sept revised 102.9 (previous 104.0)

·     October Richmond Federal Reserve Manufacturing Survey: +29 vs. +21 prior as shipments +30 vs. +13 prior, capacity utilization +26 vs. +21 prior and volume of new orders +32 vs. +27 prior.

 

 

Macro

Up/Down

Last

 

WTI Crude

0.18

38.77

Brent

0.31

450.77

Gold

1.90

1,907.60

EUR/USD

0.0017

1.1826

JPY/USD

-0.29

104.54

10-Year Note

-0.022

0.781%

 

 

Sector Movers Today

·     Casino and Gaming; LVS shares rose after Bloomberg reported the co is looking into the sale of its flagship casinos in Las Vegas, and working to solicit interest from possible buyers, and may fetch $6B or more for its Las Vegas properties https://bloom.bg/31M4X6b ; BYD reports adjusted EBITDAR rose 12% in Q3 to $238.8M vs. $173M consensus, prompting several analyst tgt hikes (JPM to $49, MSCO to $45) and easily topped Q3 EPS and revenue; in European gaming space, RBC Capital reiterated its Outperform rating on GVC, downgrading FLTR to Sector Perform given its strong run, and retaining our Sector Perform on WMH in light of the proposed acquisition by Caesars while expect the US sports betting & online gaming markets to grow at a ~40% CAGR through 2025, reaching a total market size of $11B ($7.3B sports & $3.7B iGaming).

·     Services; in online education, CHGG shares fell despite reporting 3Q results ahead of consensus expectations, driven by upside in both Chegg Services as well as Required Materials, and also increased its 2020 revenue and EBITDA guidance and provided strong initial 2021; also in learning, LRN shares jump after posted $0.30 profit vs. estimates of a loss of $0.31 on better revs of $371M (est. $362.5M); in security, ADT was upgraded to buy from neutral at Citigroup following the recent selloff offer a more favorable risk/reward, but cuts tgt to $10 from $13.50

·     Casino and Gaming; LVS shares rose after Bloomberg reported the co is looking into the sale of its flagship casinos in Las Vegas, and working to solicit interest from possible buyers, and may fetch $6B or more for its Las Vegas properties https://bloom.bg/31M4X6b ; BYD reports adjusted EBITDAR rose 12% in Q3 to $238.8M vs. $173M consensus, prompting several analyst tgt hikes (JPM to $49, MSCO to $45) and easily topped Q3 EPS and revenue; in European gaming space, RBC Capital reiterated its Outperform rating on GVC, downgrading FLTR to Sector Perform given its strong run, and retaining our Sector Perform on WMH in light of the proposed acquisition by Caesars while expect the US sports betting & online gaming markets to grow at a ~40% CAGR through 2025, reaching a total market size of $11B ($7.3B sports & $3.7B iGaming).

·     Industrial & Machinery; CAT reported Q3 EPS $1.34 on $9.9B in sales, beating estimates of $1.17 and $9.7B, and the company generated $900M in FCF, also beating estimates $300-400M, and the company expects sales and demand to improve in Q4, and its share buyback plan will be on hold through year-end and the CEO anticipates raising its dividend next year; MMM posted Q3 adjusted EPS $2.43 on revs $8.4B (est. $2.26 and $8.29B), but they do not provide guidance as it is not able to estimate the full duration, magnitude and pace of recovery across its diverse end markets with reasonable accuracy; ROP reported 3Q adj EPS $3.17 on revs $1.37B (vs est $3.05, $1.36B), and guides 4Q adj EPS $3.39-3.49 vs est $3.52, and sees FY adj EPS $12.55-12.65 vs est $12.52; CMI reported Q3 EPS $3.36 on revs $5.12B, both topping estimates ($2.35, $4.46B), and the company also reported record quarterly operating cash flow of $1.2B; LECO Q3 earnings beat estimates, as Q3 adj EPS $1.10 comes in ahead of 81c consensus and sales of $668.9M beat $612.9M expectation; FELE Q3 EPS 83c was greater than the highest analyst estimate (70c) and was above 2019’s 73c, and net sales $351.2M was also greater than highest estimate ($347M) and 2019’s $348.4M; AWI Q3 EPS $1.07 on revs $246.3M both beat estimates and the company guides FY20 sales to $920-935M, above est. $905.92M; CR Q3 results also beat estimates (EPS $1.05 on revs $735M) and issues FY20 guidance above estimates ($3.75-$4.00 EPS range vs $3.75 est, sales to decline 17-19% from previous 17-21% expected decline);

 

Stock GAINERS

·     AIG +7%; said it plans to spin off the life and retirement unit from the parent company but has yet decide on how to execute the spin-off; says the board has plans to establish two independent companies

·     ANAB +8%; was upgraded to outperform from neutral with $35 tgt at Wedbush, recommending shares as believe the amended licensing deal around dostarlimab and Zejula provides significant downside protection

·     FFIV +9%; Headline revenue/EPS at $617M/$2.43 were ahead vs. consensus at $607M/$2.37 and represented 4.5% total revenue growth to close out the FY on a strong note. Product revenue again drove the upside at $280M (+5.8%)

·     HOG +23%; 3Q adj EPS easily topped views at $1.05 vs. est. $0.21 on revs $1.17B vs. est. $844Mm, qtrly motorcycle shipments 43,000 (-6%) and $4.7B liquidity end of qtr., though not providing FY20 guidance

·     LRN +7%; shares jump after posted $0.30 profit vs. estimates of a loss of $0.31 on better revs of $371M (est. $362.5M)

·     NVAX +3%; said it expects to launch a Phase 3 trial for its COVID-19 vaccine candidate in Mexico and the U.S. by the end of next month. It already started a late-stage trial for its vaccine in the U.K. in September.

·     SPI +16%; as its board approves co’s plan to spin off its Solar Juice Co., Ltd unit via an initial public offering – SPI Energy will retain majority ownership of Solar Juice after the spin off

·     SRRK +75%; announces positive proof-of- concept data from topaz phase 2 trial interim analysis of srk-015

·     XLNX +8%; AMD agreed to buy XLNX in a $35B deal, confirming recent reports; Under the deal, Xilinx shareholders are to receive around 1.7234 AMD shares for each of their Xilinx shares, representing a premium of almost 25% https://on.mktw.net/3kz4dZE

 

Stock LAGGARDS

·     CATB -64%; shares plunge downgraded at Oppenheimer after reported results from its Phase 3 PolarisDMD study with edasalonexent in patients with Duchenne muscular dystrophy (DMD). The study did not meet primary or secondary endpoints

·     DXCM -5%; pre-announced 3Q20 sales of $500.9M (+26% y/y) that beat Street’s $480.1M estimates while pre-announced the sales results in conjunction with a 8k announcing the retirement of EVP and Chief Commercial Officer

·     ET -6%; cut its distribution from $1.22 (20%) to $0.61/share (10%) annualized

·     LLY -5%; reported a top and bottom line quarterly miss while reaffirmed its guidance for the year and also said Federal health researchers have halted testing a combo of LLY’s Covid-19 antibody drug and remdesivir in hospitalized Covid-19 patients as committee found a lack of a benefit

·     PFG -5%; shares sunk after Q3 EPS of 85c was well below the consensus of $1.39

_________________________________________________________________

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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