Closing Recap

Wednesday, April 22, 2020

Equity Market Recap

·     U.S. stocks were on cruise control higher throughout the day, getting a boost from large cap mega tech stocks and energy stocks which benefitted from a near 20% recovery in WTI crude as investors cheered the Senate passing a $484B virus relief bill which adds to the Payroll Protection Program for small businesses and also provides aid to hospitals and funding for COVID-19 testing. The $350B PPP ran out of money last Thursday after less than two weeks. The House is set to vote on the bill this Thursday. With today’s gains, stocks snapped their 2-day losing streak. Also helping market sentiment were reports that Governors in several states including Georgia, South Carolina, Oklahoma and Tennessee were set to slowly reopen their economies today and over the next week. Better than expected earnings results overnight (SNAP, NFLX, CMG) helped push markets higher as well with another big dose of results tonight and tomorrow. Markets will also closely watch tomorrow’s jobless claims report, where another 4.5MM are expected to announce first time claims, while continuing claims are expected to reach 17MM (22MM individuals have filed first time unemployment claims the last 4-weeks). Commodity prices jumped with gold surging 3% and oil up 20% while the dollar was little changed and Treasuries slipped.

Commodities

·     WTI crude oil prices bounce after falling over 47% yesterday, with the front-month June contract rising $2.21, or 19.1% to settle at $13.78 per barrel despite another week of bearish inventory data. Natural gas prices rose 6.1% to settle at $1.94 mln btus, its best close since February amid cooler weather forecasts. A global supply glut amid plummeting demand due to the coronavirus and its impact on travel has pushed storage capacity close to its limits, sending WTI crude prices into negative territory for the first time ever earlier this week. The EIA said crude stockpiles increased by 15 million barrels last week, while the API also reported larger builds.

·     Gold prices jumped on the day, rising $50.50, or 3% to settle at $1,728.30 an ounce amid a broad bounce in commodity prices. Helping boost gold included expectations for more fiscal/monetary stimulus measures amid massive economic damage due to stay-at-home and business shutdown orders. Gold prices had dipped to a near two-week low at $1,659.68 per ounce on Tuesday as a wider market sell-off drove a scramble for cash and prompted investors to sell precious metals to cover losses.

Currencies & Treasuries

·     The U.S. dollar recovered off earlier weakness, trading to its best levels mid-afternoon and adding to yesterday’s gains when it hit a 2-week high. On Wednesday, most currencies traded in relatively narrow ranges against a backdrop of steadying stock markets. Currencies that are leveraged to energy saw a small bounce after falling recently with oil recovering. Markets are watching what politicians and governments are doing dealing with the virus, and also keeping a close eye on several states that started opening up their economies (Georgia, South Carolina). Treasury markets slipped along with the bounce in stocks, as the 10-year yield rose 5bps to 0.62%, but not exactly calling for an “all clear” with yields still not far off record all-time lows.

Sector News Breakdown

Consumer

·     Retailers; Macy’s (M) is looking to raise as much as $5B in debt by using inventory as collateral for $3B and real estate to bring in $1B-$2B, CNBC reported, citing unidentified people; AEO said it sees current quarter results significantly impacted by COVID-19/said that it has the liquidity to sustain the company beyond FY20 even with stores closed due to COVID-19 since March 17/has drawn down $330M of its $400M revolving credit facility, and has about $490M in cash and cash equivalents on hand; IRBT cut to underweight at JPMorgan as believe underperformance is unjustified owing to a weaker than expected start to the year (1Q preannouncement) and likely significantly reduced near-term consumer spend; LB shares slipped after Bloomberg reported that Sycamore Partners is seeking to terminate its agreement with the company regarding the Victoria’s Secret brand

·     Consumer Staples; TSN said Tyson Fresh Meats, the beef and pork subsidiary of Tyson Foods, plans to indefinitely suspend operations at its Waterloo, Iowa, pork plant this week; KMB Q1 results higher, buoyed by strength in its consumer tissue segment with sales climbing 13% in 1Q, and operating profit in the category jumped by more than half

·     Restaurants; CMG shares jumped, and analysts raise tgts across the board with many noting comp store sales were -30% entering April & further improved to the down high-teens range for the week ended 4/19, with CMG suggesting benefits from a slowdown in pantry loading, home cooking fatigue and stimulus checks/digital sales jumped; WING shares at 52-week highs – up more than 60% from March lows of $44.27; PZZA another restaurant names making 52-week highs, also up 60% from March lows ($28.55)

·     Auto movers; TSLA was downgraded to underperform at Bank America on valuation; LYFT said in light of the evolving and unpredictable effects of COVID-19, Lyft is currently not in a position to forecast the expected impact of COVID-19 on its financial and operating results for the remainder of 2020; LEA said it had approximately $2.45 billion in cash on hand, which includes $1 billion of cash proceeds from the Company’s revolver drawdown

·     Housing & Building Products; ZG said Page views on for-sale listings on Zillow and requests to be connected to a Zillow Premier Agent have ticked up in April, and both are higher than they were a year ago while purchase mortgage applications, while still down 35% YoY, are stabilizing; building product stocks MLM and SUM both downgraded at Davidson; BECN says overall April daily sales are down about 20% YoY and during April, most markets experienced modest negative impacts with mid-to-high single digit daily sales decreases compared to last yr

·     Casino & Leisure movers; in lodging, STAY was upgraded to buy from hold at Jefferies saying they expect RevPAR outperformance to lead to a positive surprise for the quarter; LVS expected to report earnings tonight, the first in the gaming/casino sector

Energy

·     Energy stocks were market leaders for a change, as the volatility in the commodity space and in prices (oil, gasoline, heating oil) remains “off the charts” crazy, with massive 30-50% swings in the physical commodity the last few sessions; shares of HAL, FANG, CXO, PXD among early S&P 500 top gainers despite news in the space generally quiet. Note yesterday, President Trump did says he was working on a plan to make money available to the oil industry while the Texas Railroad Commission delayed a vote to force producers to cut; BKR reported a massive quarterly loss and $16B in charges while anticipates spending in North America will contract by at least 50% in 2020 – follows somber reports from HAL, SLB of late in services space

·     Inventory data; the API showed a build of 13.22M barrels of oil for the week ended April 17, its third consecutive increase, while gasoline inventories rose 3.44M barrels, distillate inventories rose 7.64M barrels, and Cushing inventories show a build of 4.91M barrels. This morning, the EIA said $ weekly crude build 15M barrels vs. est. 14M build; gasoline rises a smaller 1M vs. est. 4.5M and distillates jump 7.8M barrels vs. est. 3.4M

Financials

·     Bank movers; IBKR shares drop after Q1 revs of $581M just missed estimates on EPS beat but fell after noting it booked an $88M loss due to some customers who were long oil and lost way more than the equity in their accounts; handful of insurers out with earnings including CB and WRB; in credit card space, Visa (V) was downgraded to neutral from buy at Guggenheim

·     Mortgage lending and services; the Federal Housing Finance Agency (FHFA) announced support measures for mortgage servicers, which should limit their advance commitment exposure to long-term forbearance requirements; BTIG noted announced initiatives to provide liquidity to mortgage servicers by putting in place a 4-month advance obligation limit for loans in forbearance (positive for COOP, NRZ, OCN) – BTIG also said mortgage insurers (RDN, ESNT, MTG, NMIH) should have been positive for them as well

·     REITs; JPMorgan downgraded BRX, FRT to neutral and cut AKR, REG, RPAI, RPT and WRI to underweight while upgraded KIM to overweight saying the changes better align their strip center ratings with previously published view stating that they prefer other property types today where we have a greater conviction on how the COVID-19 impact could play out; AMH was upgraded to strong buy at Raymond James following last week’s April operating update and their own SFR channel checks, and is taking advantage of the recent pullback; TCO shares fell on fears of M&A deals possibly falling apart after Sycamore Partners pulled its bid for the company’s Victoria Secret Brand it agreed to buy in January (SPG agreed to buy TCO in February)

Healthcare

·     Pharma movers; JNJ was upgraded to buy from neutral at Bank America and raise tgt to $175 from $150 due to our belief that in the current unprecedented environment the most defensive names will continue to outperform; PRTA shares fall after the company’s experimental drug, prasinezumab, failed to meet primary goal in part 1 of a mid-stage trial in patients with early Parkinson’s disease; IMMU received FDA approval for its breast-cancer treatment Trodelvy

·     Biotech movers; BIIB shares fall after saying Alzheimer it expects to complete the U.S. filing for its Alzheimer’s drug aducanumab in Q3, a marked shift from guidance late last year that the submission would come in early 2020; BNTX shares jump after Germany’s Paul-Ehrlich Institute signed off on a Phase 1/2 clinical trial evaluating its COVID-19 vaccine program, BNT192, for the prevention of the respiratory infection, the first such study there.

·     Medical equipment and devices; MDT said it expects COVID-19 disruptions to significantly impact its results for fiscal Q4 ending April 24 citing the diversion of hospital resources to fight the pandemic; DGX Q1 revs of $1.82B beat the $1.75B estimate on a 5c EPS beat while suspended buybacks/dividends and said it has started testing blood for COVID-19 antibodies using tests made by ABT and PKI reported 1Q results, with revenue ($6.23B vs. $6.17B est.) and EPS ($2.94 vs. $2.80 est.) both ahead of street, with organic revenue growth was 2%, at the higher end of the company’s 1% to 2% preview from earlier in April; EXAS provided preliminary 1Q revenue of $348M above est. $342M while noting test orders in the first 20 days of April had declined -63% YoY, the company indicated it was sensing stabilization in this decline

·     Healthcare services and providers; CERN and MDRX were both downgraded at Jefferies saying for CERN, mgmt is pulling several key levers to create LT shareholder value, including very achievable LT margin expansion (in our view), MSD top line growth, and capital returns to shareholders – but believe its baked in. For MDRX says CV19 likely has a bigger negative impact on MDRX vs. larger peers given its rev mix and skew towards ambulatory providers; HCSG shares rise after posting better-than expected Q1 profit, helped by lower costs and revs top estimates for the quarter; SDC jumps after Evercore ISI said lingering fears of infections among dental patients and practitioners likely to lead to negative patient volumes until Q4

Industrials & Materials

·     Transports; UAL 39.25M share secondary priced at $26.50 among first airlines to raise cash through selling stock; DAL reported a larger quarterly loss while revenue missed expectations as focus remains on improving cash burn and liquidity expectations through 2Q; in rails, CP lowered its profit outlook while maintained its capex views following better earnings; CSX earnings after the bell tonight in rail sector

·     Metals & Materials; TECK was downgraded at Citigroup to neutral saying its trading at the widest discount to NAV in our coverage but we struggle to see the stock outperforming without more clarity on the timing and capex for the QB2 project; SON was upgraded to buy with $52 tgt at Argus as believe that Sonoco’s solid balance sheet and dividend are attractive in the current environment

Technology, Media & Telecom

·     Internet; NFLX reported a record high Q1 global subs of 15.8MM, smashing estimates for around 8MM, driven by accelerating Sub Adds across each region, and Q2 guide of 7.5MM Sub Adds well exceeds Street expectations (proves was a big beneficiary of the “stay at home” move due to pandemic – also said was looking to raise $1B in debt offering); SNAP Q1 results impressed with a 5M DAU beat and 9% revenue beat – revs $462Mm vs. est. $430Mm and 1Q DAUs 229Mm vs. est. $223.8Mm (shares of TWTR, PINS also rise in sympathy); EXPE rises after the WSJ reported the co is nearing a deal to sell a stake in itself valued at about $1B to PE firms Silver Lake and Apollo

·     Semiconductors; TXN posted an expected weaker JunQ top-line guide down 13% q/q (down 21% y/y) and said it is approaching JunQ guide similar to 2008 financial crisis with customers’ limited ability to forecast, but building inventory (said MarQ PC-Servers strong and expected strong into JunQ, offset by weak Auto-Industrial); INTC tgt raised to $62 from $53 at Jefferies as expects it will beat its revenue forecast in the quarter, with the data-center business a particular bright spot; TER rises after better results last night in semi equipment space with solid 1Q beat, with revenue and EPS above our and consensus estimates. It also guided 2Q well above consensus; shares of XLNX, LRCX among earnings tonight

·     Software movers; MANH delivered a solid EPS beat, with a FY revenue outlook that reflects a more challenging environment with an implied 22% q/q decline in services; SCPL upgraded to neutral at Bank America based on positive revs and download data that could boost sentiment and/or drive positive Street est. revisions in 2Q/2020 while ZNGA downgraded to underperform as it has outperformed their entire video game coverage (up 23% vs. 5% YTD) on equally positive engagement and revenue data/now trades at ~23x 2021 EPS (~4.6x PEG) vs. digital publishers at ~12x (~1.5x PEG) and traditional publishers at 22x (~1.2x PEG).

·     Media & Telecom movers; AT posted a 4.5% drop in revenue from a year ago and withdrew its forecast of 2% revenue growth for the year, saying it can’t provide a financial forecast for 2020 due to the coronavirus pandemic; ATNI was downgraded at Raymond James; GTN, SSP tgts cut to $13.50 and $6.50 respectively at Guggenheim as expects pressure on advertising will continue throughout the next four quarters.

·     Hardware & Component news; ZM announced robust security enhancements with the upcoming general availability of Zoom 5.0, a key milestone in the company’s 90-day plan to proactively identify, address, and enhance the security and privacy capabilities of its platform