Mid-Morning Look: September 14, 2020

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Mid-Morning Look

Monday, September 14, 2020






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A strong start for main U.S. averages to start the week, recovering after selling pressure the last two weeks as profit taking and valuation concerns dragged down some of the biggest YTD winners. The Philly semiconductor index (SOX) outperforms in tech up over 2% and moving back above its 50-day MA earlier of 2,152, led by gains in NVDA (buys chip designer Arm for $40B from Japan’s SoftBank Group Corp.) and MU (upgraded to buy at Goldman). Biotech space jumping, fueled by deal making as GILD buys IMMU in $21B deal, while SGEN rises after MRK to buy $1B equity stake – each providing a boost for SMID biotech names. Energy stocks the big laggards early in the S&P as oil stocks remain unloved. The U.S. dollar is pulling back after back-to-back weekly gains, while Treasury yields little changed (10-yr 0.66%). No major U.S. economic data today or Fed comments to disrupt markets. Oracle surged after reports that the cloud services firm beat Microsoft in the battle for the U.S. arm of TikTok. Global equities also got a lift on Monday after drug maker AZN resumed its British clinical trials of its COVID-19 vaccine along with other headlines from PFE/BNTX to expand their Phase 3 pivotal COVID-19 vaccine trial to about 44,000 participants.







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Sector Movers Today

·     Retailers; CROX positive mention in Barron’s this weekend saying the stock could double over time, with more styles, smart marketing, and a growing e-commerce effort; TPX upped its Q3 sales guidance; sees Q3 sales to grow by more than 30% compared with the year-ago period, the mattress company said, upping its 25% guidance from July; JILL avoided filing for bankruptcy protection after a majority of its lenders and shareholders agreed to support an out-of-court financial restructuring deal; FIT receives clearance from the USFDA and CE marking in the European Union for its electrocardiogram app to assess heart rhythm for atrial fibrillation; GME was upgraded to buy with $8 tgt at Jefferies noting risk but says Q4 kick-starts the next gen console cycle and expect GME to win big & early

·     Oil Majors and E&P sector; BP becomes the first oil major to call the end of an era saying the relentless growth of oil demand is over in its latest energy outlook; BP was also upgraded to outperform from neutral at Credit Suisse on valuation grounds and downgraded TOT to Neutral from Outperform; Wells Fargo upgraded E&P stocks XEC and MTDR to overweight as see substantially improved FCF generation versus our prior expectations, while downgraded CDEV and LPI to underweight as believe smaller operators that struggle to maintain production without outspending cash flows and expanding the balance sheet will continue to struggle against peers; Credit Suisse lowered estimates for U.S. refiners and cuts price targets by an average 20% on downward earnings revisions saying current level of inventories will prevent diesel margin to recover quickly in the near term (VLO, PSX, MPC)

·     Pharma movers; AZN said clinical trials for the Oxford coronavirus vaccine, AZD1222, have resumed in the U.K. following confirmation by the Medicines Health Regulatory Authority that it was safe to do so; PFE and BNTX submitted an amended protocol to the FDA to expand enrollment in their Phase III Covid-19 vaccine trial to up to 44,000 participants, a significant increase from the previous target of 30,000; on Sunday, President Trump signed an executive order to lower drug prices in U.S. by linking them to those of other nations and expanding the scope of a July action; JAZZ downgraded to sell from neutral saying believe upcoming changes to the SXB market dynamics may lead to changes in OpEx discipline; ELAN positive Barron’s mention; DVAX to supply its adjuvant or vaccine booster, CpG 1018, to French vaccine maker Valneva for producing up to 100M doses of its coronavirus vaccine candidate, VLA2001, in 2021

·     Semiconductors; NVDA shares rise as agreed to buy chip designer Arm for $40B from Japan’s SoftBank Group Corp (SFTBY), confirming reports this weekend (SoftBank bought Arm four years ago for $32B) https://on.mktw.net/3hnzQDb; CRUS upgraded from Underweight to Equal weight at Barclays noting the stock is down over 20% since earnings, on belief that December quarter is achievable, and says investors will want to own the stock ahead of the AAPL 5G cycle; MU was upgraded to buy at Goldman Sachs with $58 tgt as believe ongoing weakness in DRAM and NAND pricing will be short-lived, and says Micron is well-positioned competitively as it continues to execute on its tech transitions (i.e. 1anm in DRAM and 2nd-gen replacement gate in NAND); AMKR upgraded to outperform at Credit Suisse based on 14x 2021E P/E and 1.5x P/B on growth leverage from rising 5G and SiP content and leverage to improving auto demand; PLAB announces $100M share repurchase program



·     IMMU +105%; surges over 100% after GILD reaches a $21 billion deal to buy the company, paying $88 a share in cash, whose shares closed at $42.25 Friday, which represents a 108% premium https://on.mktw.net/32oLTvF 

·     INCY +3%; and partner LLY said their jointly developed treatment, baricitinib, combined with GILD’s antiviral remdesivir reduced the time of recovery in hospitalized patients with COVID-19

·     MRNS +10%; as was awarded BARDA contract to develop iv Ganaxolone for treatment of refractory status epilepticus caused by nerve agent exposure/BARDA to fund up to $51 million of $84 million contract for programs related to refractory status epilepticus development

·     MU +6%; upgraded to buy at Goldman Sachs with $58 tgt as believe ongoing weakness in DRAM and NAND pricing will be short-lived, and says Micron is well-positioned competitively

·     NVDA +8%; agreed to buy chip designer Arm for $40B from Japan’s SoftBank Group Corp (SFTBY), confirming reports this weekend (SoftBank bought Arm four years ago for $32B)

·     ORCL +6%; won the bidding for the U.S. operations of the video-sharing app TikTok, according to various reports, beating out MSFT in a high-profile deal https://on.mktw.net/2RmyyxJ (ORCL confirmed that it is part of the proposal submitted by ByteDance (for TikTok) to the Treasury Department over the weekend in which Oracle “will serve as the trusted technology provider”)

·     SGEN +9%; after saying will jointly develop and commercialize its vedotin, an investigational therapy for breast cancer and other solid tumors with MRK which will buy $1 billion worth of equity stake in SGEN and make a $600M upfront payment

·     SGMS +50%; after saying a group of investors led by Australia’s Caledonia Investments to buy 34.9% stake in SGMS from U.S. billionaire investor Ronald Perelman as deal is for $28 per share, a 47.6% premium to SGMS Friday close, valuing co at $2.65B https://bit.ly/2FrZpG9



·     APA -5%; among top decliners in the S&P as energy stocks broadly moving lower

·     KR -3%; downgraded to Neutral at Bank America and lower our PO to $40 given our outlook for muted ID trends in F2H (and likely neg in F22)

·     MNK -10%; as U.S. FDA declined to approve its experimental drug, terlipressin, for treatment of hepatorenal syndrome (HRS) type 1, a condition involving progressive kidney failure

·     NKLA -2%; after company issues statement on the “short” Hindenburg report issued on Thursday saying the report contains false statements and provides rebuttal to each point in the report

·     SNAP -2%; falling on potential tie-up between ORCL and ByteDance on TikTok


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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