Early Look

Wednesday, July 8, 2020

Stock futures are pointing to a mixed open a day after U.S. stocks slipped late Tuesday afternoon, erasing a rally earlier in the session, and snapping the 5-day win streak for the S&P 500 and Nasdaq Composite as stocks took a breather. The S&P 500 fell 1.5%, the Dow Jones Industrial Average dropped 1.1% and the Nasdaq Composite lost 0.9% but note all three indexes have risen more than 40% from their March lows. Financials, energy and transportation stocks led the declines after United Airlines said reservations for travel within the coming month began to slide after new quarantine measures were put into effect. With investors hesitant about the economy, Treasury and gold prices advanced. Markets are bracing for Q2 earnings season, which will kick off next week as profits are expected to plunge 44%, according to FactSet. In Asian markets, The Nikkei Index fell -176 points to 22,438, the Shanghai Index jumped 58 points or 1.74% to settle above the 3,400 level and the Hang Seng Index gained 153 points to 26,129. In Europe, the German DAX is lower by 80 points to 12,530, while the FTSE 100is down over -20 points to 6,165. Another quiet day on the economic front for the U.S. as markets look to further data on the coronavirus front which has shown cases rising as well as upcoming earnings results next week.

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -34.40 points, or 1.08%, to 3,145.32

·     The Dow Jones Industrial Average fell -396.85 points, or 1.51%, to 25,890.18

·     The Nasdaq Composite dropped -89.76 points, or 0.86%, to 10,343.89

·     The Russell 2000 Index declined -26.89 points, or 1.86% to 1,416.00

Economic Calendar for Today

·     7:00 AM EST      MBA Mortgage Applications Data

·     10:30 AM EST    Weekly DOE Inventory Data

·     3:00 PM EST       Consumer Credit for May

Earnings Calendar:

·     Earnings Before the Open: MSM, NTIC, SMPL

·     Earnings After the Close: BBBY, SAR

Sector News Breakdown

Consumer

·     Levi Strauss (LEVI) 2Q adj EPS ($0.48) vs. est. ($0.49) on revs $500Mm vs. est. $485.5Mm, e-comm biz +25%, adj gr margin 51.5% vs est. $51.8%; withdrawing guidance; says as stores have reopened, performance has trended above expectations with nearly 40% stores comping positive as exit June; qtr-end liquidity $2.0B; says will reduce non-retail, non-manufacturing workforce by about 15%; will not declare dividend for 3Q and will reassess for 4Q

·     Altria Group (MO) downgraded to Equal Weight from Overweight at Barclays

Energy

·     The American Petroleum Institute (API) showed a build of 2.05M barrels of oil for the week ending July 3, gasoline inventories show a draw of 1.83M barrels, distillate inventories show a draw of 847K barrels, and Cushing inventories show a build of 2.22M barrels.

·     TechnipFMC (FTI) said it was awarded a “major contract” – which the company values at more than $1B – for engineering, procurement and construction of a new hydrocracking complex for the Assiut National Oil Processing refinery in Egypt.

·     Natural gas prices rose over 2% to $1.88 mln btus to its highest close since early May after unscheduled maintenance caused a force majeure on TC Energy’s (TRP) Mountaineer Xpress Pipeline in West Virginia that sent Appalachian gas production plunging

Financials

·     Allstate (ALL) has agreed to acquire National General (NGHC) for approximately $4B in cash, or $34.50 per share; the transaction is expected to close in early 2021, subject to regulatory approvals and other customary closing conditions https://bit.ly/2CjqhGA

·     KKR & Co. (KKR) has agreed to buy retirement and life insurance company Global Atlantic Financial Group Ltd., which had a book value of about $4.4 billion as of March 31. KKR said the acquisition of Global Atlantic, which has over $70 billion of adjusted invested assets, represents an expansion in the global insurance business https://on.mktw.net/2DiVoCp

·     American Express (AXP) downgraded to neutral from buy with $105 tgt at Citigroup

·     Pzena Investment Management, Inc. (PZN) reported its preliminary assets under management as of June 30, 2020 at $31.5B

Healthcare

·     Medtronic Plc (MDT) has made an offer for smaller medical device maker Intersect ENT Inc. (XENT), according to people with knowledge of the matter, Bloomberg reported last night. XENT’s board is reviewing the offer with its advisers https://bloom.bg/3gHwlXZ

·     Akero Therapeutics (AKRO) 5.23M share Secondary priced at $36.00

·     89bio (ETNB) 2.6M share Secondary priced at $27.50

·     Ascendis Pharma (ASND) 4.225M share Secondary priced at $142.00

·     Vir Biotechnology (VIR) 7.14M share Secondary priced at $42.00

·     GenMark (GNMK) guides Q2 revenue $40.1M vs. est. $31.4M; said COVID-19 positively impacted second quarter placements and revenue; approximately 90% of gross placements included interest in COVID-19 testing; SARS-CoV-2 consumable revenue accounted for approximately 48% of total ePlex revenue; gross margin expected to be approximately 38% to 39% vs. 36% YoY

·     NextCure (NXTC) initiates Phase 1/2 trial for NC410, an immunomedicine developed to block immune suppression mediated by an immune modulator called LAIR-1.

Industrials & Materials

·     Caterpillar (CAT) upgraded to Neutral from Underperform at Bank America

·     MSC Industrial (MSM) Q4 adj EPS $1.40 on sales $835M vs. est. $1.16 and $824.9M; 3q operating margin 13.2%; 3q average daily sales $13M; says balance sheet remains strong, have ample room under debt covenants; is not giving eps guidance due to uncertainty, lack of visibility

·     Spirit AeroSystems (SPR) downgraded to Market Perform from Outperform and cut price target to $26 from $40 at Bernstein

·     Fluor Corporation (FLR) said the U.S. Department of Energy (DOE) Office of Environmental Management selected the company for a position on the multiple award Indefinite Delivery/Indefinite Quantity (IDIQ) contract to provide nationwide Deactivation

·     Leidos (LDOS) has been awarded a prime contract by the U.S. Customs and Border Protection’s Office of Field Operations and Cargo Conveyance Security with a ~total value of $379M

·     Valvoline (VVV) provided business update with sequential improvements in June compared to May, a 33% sales increase and 32% rise in lubricant volume.

Technology, Media & Telecom

·     AMC Entertainment (AMC) is close to reaching a restructuring deal that would help avoid a near-term bankruptcy, the WSJ reported. AMC also will reject a financing offer from senior lenders including Apollo Global Management (APO) in favor of a $200M financing effort led by P-E firm Silver Lake Group https://on.mktw.net/38CQXOu

·     SMART Global Holdings (SGH) Q3 EPS 70c on sales $281.3M vs. est. 67c and $282.6M; 3Q adjusted Ebitda $25.4M up 32% YoY; guides Q4 sales $290M-$310M vs. est. $294.2M and EPS 70c-86c vs. est. 77c

·     Synaptics (SYNA) to acquire rights to Broadcom’s (AVGO) Wireless IoT connectivity business as deal for approximately $250M in an all-cash transaction

·     DocuSign (DOCU) announced its acquisition of Austin-based startup, Liveoak Technologies, for $38M in an all-stock transaction