Mid-Morning Look

Thursday, September 24, 2020

Stocks in the U.S. are partially recovering amid better housing data as new home sales in August rose to levels not seen in 14-years, showing continued resilience in the economy. The news has thus far helped markets that have been very sensitive to recent macro headlines including rising concerns around the COVID-19 virus uptick in parts of the world, election uncertainty, the lack of further monetary/fiscal stimulus in the short term, selling pressure in YTD winners such as tech, technical breakdowns and Fed comments about more being needed on the stimulus front from Washington. Stocks started lower after Goldman Sachs lowered its Q4 GDP growth forecast from 6% to 3% on a quarterly annualized basis saying it leaves more room for catch-up later and have therefore raised their 2021Q2-Q4 growth forecasts as a partial offset. Markets will likely remain choppy from here until the election (about 40-days away) as risk appetite is going to remain challenged. U.S. stock index futures were lower early after data showed a surprise increase in the number of Americans filing new claims for unemployment benefits last week. On Wednesday, stocks ended sharply lower, with the Nasdaq falling more than 3%, and leading the market’s slide as worries about the economic recovery mounted. Note with Wednesday’s losses, the S&P 500 finished down 9.6% from the Sept. 2 record closing high, while the Nasdaq ended down 11.8% from that date.

Economic Data

·     Jobless Claims rose to 870K from 866K the prior week and was above the 840K estimate while continued claims fell to 12.58M in the latest week from 12.74M prior but above thee 12.3M estimate; the 4-week moving average fell to 878,250 from 913,500 prior week; US insured unemployment rate fell to 8.6% from 8.7% prior

·     August New Home Sales rose +4.8% to 1,011M annual rate well above the 875K estimate and 965K prior (revised from 901K) while single-family home sales +4.8% vs July +14.7%; new home supply 3.3 months’ worth at current pace vs July 3.6 months; the median sale price $312,800, -4.3% YoY ($327,000)

Sector Movers Today

·     Auto sector; TSLA shares try to bounce back after back-to-back session declines following its Battery Day headlines failed to impress investors; NKLA dropped sharply after being downgraded to Underperform from Neutral at Wedbush and cuts tgt to $15 from $45 saying recent questions surrounding the Nikola story raised by the bears will be a dark cloud over the stock until answered; KMX posted a top and bottom line beat for Q2 while saying it experienced negative comparable sales for used cars in June, but that was more than offset by positive comparable used-car sales in July and August; Guggenheim raised its tgt on auto auction names IAA to $59 from $52 and CPRT to $118 from $115 based on our higher estimates while update models to reflect lower volumes and stronger pricing/RPU

·     Hardware & Component news; BB beats Q2 revenue and earnings estimates following a record 6% increase in its qtrly revenue as demand for its security software suite, Spark, and its QNX car software rose; ACN Q4 earnings, revenue forecast falls short of analysts’ estimates, hit by lower spending from clients due to COVID-19 pandemic (guided Q1 revs $11.2B-$11.6B vs. est. $11.5B; JBL guided Q1 EPS $1.15-$1.35, above estimates of 99c but guided Q1 revs $6.7B-$7.3B, which at midpoint was below the $7.25B estimate noting several of their key businesses remain especially strong including Mobility, Healthcare and Cloud

·     Leisure and Gaming; in the gaming space, PENN files to sell 14M shares of common stock while was also downgraded to neutral at Macquarie while the firm initiated DKNG with an outperform and $65 tgt as think DraftKings can sustainably maintain top 2 share; Truist raised [price tgts in the sector, upping BYD (to $35 from $28), PENN (to $85 from $62), MCRI (to $57 from $50), MGM (to $24 from $18), and CZR (to $70 from $50) to reflect upside to estimates on regional resilience coupled with market re-rating for sports betting/iGaming

Stock GAINERS

·     DRI +5%; said a streamlined menu contributed to fiscal 1Q profit and margins that beat analyst expectations despite same-store sales trending lower than projected

·     GS +3%; raised to buy at UBS saying it is generating solid results in the current environment, which has sustained in 3Q and potential volatility from the upcoming US election could allow for a solid 4Q

·     MEI +11%; shares rise after guiding Q2 EPS 71c-81c on revs $270M-$285M from $230M-$250M prior and topping estimates

·     OMI +44%; boosted its guidance for full-year 2020, expects positive trends in 2021 (now sees adjusted EPS of $1.75-$1.90 (vs. prior $1.00-$1.20) and well above the consensus of $1.08 and says expects positive trends will continue in 2021

·     SBE +4%; ChargePoint Inc, one of the world’s oldest and largest electric vehicle charging networks, said it will go public by merging with SBE in a deal that values the company at $2.4B

·     SPI +36%; extends gains (after jumping 1,236% Wednesday) after having launched unit EdisonFuture Inc to design and develop electric vehicles and EV charging solutions

·     SSP +18%; after the TV station owner confirmed a deal to buy the broadcast network ION Media for $2.65 billion, in a deal backed by Warren Buffett https://on.mktw.net/306V8Po

·     SUNW, POLA shares surge following news yesterday that California state is planning to ban the sale of new gasoline-powered passenger cars and trucks starting 2035

Stock LAGGARDS

·     ACN -3%; Q4 earnings, revenue forecast falls short of analysts’ estimates, hit by lower spending from clients due to COVID-19 pandemic (guided Q1 revs $11.2B-$11.6B vs. est. $11.5B

·     KMX -10%; posted a top and bottom line beat for Q2 while saying it experienced negative comparable sales for used cars in June, but that was more than offset by positive comparable used-car sales in July and August (expectations were high into the print)

·     NCLH -4%; weakness early in cruise lines and airlines amid the rising COVID-19 cases globally

·     NKLA -11%; downgraded to Underperform from Neutral at Wedbush and cuts tgt to $15 from $45 saying recent questions surrounding the Nikola story raised by the bears will be a dark cloud over the stock until answered

·     RAD -15%; said its loss narrowed for the August quarter as sales rose amid the Covid-19 pandemic, and it set expectations for the full year amid strong demand for flu immunizations.

·     SHLL -10%; SPAC names were under pressure after SEC chief Clayton says in CNBC interview that they are looking at the SPAC Boom (shares of GMHI, GHIV, DMYT, SHLL, LCA, PIC, SPE

Syndicate:

·     Accel Entertainment (ACEL) 8M share Secondary priced at $10.50

·     ADC Therapeutics (ADCT) 6M share Secondary priced at $34.00

·     Kingsoft Cloud (KC) 16.422M share Secondary priced at $31.00

·     Taysha Gene Therapies (TSHA) 7.87M share IPO priced at $20.00