Closing Recap

Thursday, August 06, 2020

Equity Market Recap

·     U.S. stocks extend their rally with the S&P 500 and Dow Jones Industrials rising a 5^th straight day and the unstoppable Nasdaq Composite rose for a 7^th straight day (32^nd record high of 2020) as markets remain optimistic a stimulus deal will be reached in Washington despite the two sides still being far apart. President Trump also tweeted earlier “I’ve notified my staff to continue working on an executive order with respect to payroll tax cut, eviction protections, unemployment extensions, and student loan repayment”. Markets also await tomorrow’s July nonfarm payroll report, as the prior two days’ jobs data (ADP and jobless claims) point to another likely strong report, showing improvement for the economy. At the same point, a weak number just further boosts the Fed case of keeping rates at historical lows for an extended period of time – a goldilocks scenario currently for global stock markets. Treasury prices pulled back as yields edged off near record lows while the surge in precious metals continued (gold and silver up a 5^th day in a row) as the dollar remains weak and rates at lows. Airlines (AAL, DAL), casinos (WYNN, MGM), hotels (MAR, H), online travel (EXPE, BKNG) names all jumped late day after the State Department lifted its advisory against all international travel. European markets fell as a three-day rally ran out of steam after the Bank of England warned of a slower economic recovery from the COVID-19 crisis, saying it may now be the end of 2021 rather than the second half of next year (similar comments from the Fed’s Barkin today as well). Oil prices hovered near five-month highs before slipping late day. Healthcare, energy and financials top S&P sector decliners while Communication services, technology, utilities and discretionary top gainers. Reports indicate that a stimulus meeting is expected to take place at 5:00 PM tonight in Washington with both sides trying to iron out final details.

Economic Data

·     Weekly jobless claims fell to 1.186M from last week 1.435M and was better than the 1.4M estimate; the 4-week avg fell to 1,337,750 from 1,368,750 prior week; continued claims fell to 16.107M from 16.95M prior week (and better than est. 16.72M); the insured unemployment rate fell to 11.0% from 11.6% prior

·     U.S. household debt falls in Q2 for first time since 2014, New York Federal Reserve says; household credit card balance falls by $76B most in series history dating to 2003 and U.S. mortgage origination volume of $846B in Q2 is largest since 2013, led by refinancings

·     Tomorrow – Nonfarm Payrolls for July data – expected for 1.5M jobs being added (vs. 4.8M month prior) and private payrolls to add 1.398M jobs (prior month 4.767M), manufacturing jobs to rise 266K (vs. 356K prior) as the unemployment rate is expected to fall to 10.5% from 11.1% – average hourly earnings expected to fall (-0.5%) vs. last month decline (-1.2%)

Commodities

·     Gold prices rise $20.10, or 1% to settle at $2,069.40 an ounce (intraday highs were $2,081.80), while silver prices outperformed, rising around 5% as the precious metal surge continues. Silver prices rising a 5^th straight day and gold also up a 5^th straight day (and gains for the 14th time in last 15 days) as they continue to benefit from rising inflation expectations as well as a plunging dollar and yields, making the asset more attractive. Oil prices slipped -24c or 0.6% to settle at $41.95 per barrel, down from earlier highs of $42.65 and yesterday’s levels above $43 per barrel (5-month highs); natural gas prices slipped 1% at $2.17 mln btus after a larger-than-expected weekly storage rise.

Currencies & Treasuries

·     Treasury prices rise as yields dip, with the 10-year down over 2 bps to 0.53%, but well off earlier lows of 0.50%, while the 2-yr yield was little changed, holding at 0.115%. Economic data has been strong (jobless claims today, ADP yesterday), but no sell-off in Treasury yields due to the Fed’s intervention of monetary policy, flooding the system with easy money. The U.S. dollar couldn’t hold on to earlier gains, as the dollar index turned lower late against the euro heading into the nonfarm payroll jobs report tomorrow morning.

Sector News Breakdown

Consumer

·     Retailers; VSTO the latest sporting goods store to outperform on earnings as forecasts Q2 sales, profit above estimates after Q1 revs were boosted by a 40% jump in online sales and higher demand for ammunition; YETI blows past consensus for its Q2 report, including generating adjusted EBITDA of $57.9M vs. $31.0M consensus as direct-to-consumer sales soared 61% to $133M off a surge in demand for outdoor recreation and leisure lifestyle products; GIII downgraded at Barclay’s and cut tgt to $10 from $16 as sees secular risk to wholesale demand given reliance on the department store channel and a sector-wide inventory overhang.

·     Consumer Staples; ELF bested estimates across all key markers in FQ1 – sales, EBITDA, new customers to file, product performance, category mix, social engagement, and distribution advancement; NUS Q2 sales came in at -2% Y/Y, slightly ahead of the early-July pre-announcement, with the standout measure being total customers reaching an all-time high, with 85% of sales now through digital; APRN 4M share Spot Secondary priced at $9.25

·     Services; ADT shares slumped as posting a Q2 surprise EPS loss of (7c) vs. estimate of 29c profit and Ebitda fell -11% to $563M, while also announced a notes offering; TWOU 6.8M share Spot Secondary priced at $45.50

·     Restaurants; FRGI shares rise after posting sales and non-GAAP EPS ahead of expectations as Q2 comp sales at Pollo Tropical decreased 31.6% and comparable restaurant sales at Taco Cabana fell 19.2%; PZZA mixed results as EPS beat by 5c but sales fell short of consensus $460M vs. est. $467M), though July comp sales rose 30.3% in North America and 13.9% internationally

·     Housing & Building Products; in building products, JPMorgan upgraded SUM to overweight while downgraded MLM (tgt $250) and VMC (tgt $145) to neutral as reevaluated building material stocks following earnings and a recent run-up in shares saying the sector will trade sideways over the next two to three months or at least until we have greater visibility on demand for next year; KBH was upgraded to overweight at KeyBanc as 3Q20 (orders up 17% in June/July) update supports our revised EPS and our selective (not cyclical) rating; HD trades record highs

·     Casino & Leisure movers; PENN 52-week highs as posted a smaller than expected loss of ($1.69) vs. est. ($2.11) on better revs of $305M while says launch of Barstool Sportsbook App on track for 3Q; Lodging space another negative update as HLT reports a bigger-than-expected Q2 loss as pandemic-led lockdowns disrupted demand (61c loss vs. est. 31c) while RevPAR falls 81% in Q2 and revs were down 77.3% at $564M (est. $848.7M) – CHH also drops as RevPAR down (-49.6%); in leisure, CWH reported revenue growth of 9% in Q2 and gross profit growth of 19%. Adjusted EBITDA increased 122.5% to $220.7M as well as earnings that topped consensus

Energy

·     U.S. natural gas futures pared gains on a slightly bigger-than-expected storage build last week, but remained on track to hit their highest close since December on rising liquefied natural gas (LNG) exports and forecasts the weather will remain hot through late August – up around $2.232 per mln btu (stocks leveraged to natural gas include RRC, SWN, CBT, EQT); in solar, SPWR 22c loss remains unch YoY, but beats 39c loss estimate, and $352.9M sales also beat est $310M

·     E&P sector; MUR reported smaller than expected Q2 loss, whereas revenues fell short of consensus, while adjusted EBITDA declined 66% Y/Y to $124.6M, and below estimate of $139.6M and further reduced 2020 capex budget, by $40M at the midpoint, to $680-$720M; SUN posts Q2 EPS $1.64 vs $0.56 est on $2.08B in sales vs $2.75B est (EPS 43c, revs $4.47B Q2 2019); TALO reported EPS loss of 45c, wider than the 38c expected loss on $88.9M revs, lower than expected $129.7M; HFC Q2 EPS ($0.25) on $2.06B sales beats ($0.55) EPS, $2.03B sales estimates; MRO reported 60c EPS loss inline with expectations, but $272M rev misses $618M est, as company also raised FY20 production guidance to 190k barrels/day and cut capex guidance to $1.2B from $1.3B; PE posted surprise adjusted EPS profit of 3c (est 12c loss), though $220M rev misses $319M est; PDCE adj EPS 14c beats expected 20c loss as $54.4M sales miss $268M estimate; XEC (51c) EPS inline with estimates, $249.3M miss est $311M; LNG 78c EPS (60c estimate) on $2.4B sales, improving from last year’s Q2 (44c) EPS loss on $2.29B sales

Financials

·     Insurance; MET earnings missed & variable investment income was negative to the tune of $0.48 while saying as variable investment income is anticipated to increase in the mid-single digits, the rebound will still leave it below where it sat at the end of 1Q20; LNC earnings missed handily & there were no notable items as alternative investment income was a drag to the tune of $0.62; AIG upgraded to buy from neutral at Bank America saying the 7.5% drop after earnings may have been overdone, as the market reacted to a material decline in AIG’s personal lines premiums, and to executives’ assessment that U.S. commercial loss trends were in the double-digits

·     Services; AVLR 3.937M share Spot Secondary priced at $127.00; RKT 100M share IPO priced at $18.00; ASPS shares plunged after posting a Q2 loss from operations of $17.8m with “industry-wide foreclosure initiations down by approximately 85%

Healthcare

·     Pharma movers; BHC reported earnings but shares surged after announcing plans to spin off its eye-care unit Bausch & Lomb which contributed roughly 55% of BHC’s overall revenue in 2019; BMY posted better-than-expected earnings and a positive patent ruling for its blockbuster blood thinner Eliquis (EPS $1.83 on sales $10.1B vs. est. $1.48 and $10B); DMAC 6M share Secondary priced at $5.00; GBT delivered another strong beat in 2Q for Oxbryta, posting revenues of $31.5M vs. FactSet consensus of $17M; HRTX declines after saying it expects fewer chemo patients to start treatment due to the pandemic and Chairman Kevin Tang resigned.

·     Biotech movers; DNLI shares rise after signing a binding agreement with BIIB to co-develop and co-commercialize its small molecule inhibitors of leucine-rich repeat kinase 2 (LRRK2) for Parkinson’s disease, which will result in up to $1.125B in potential milestone payments for Denali; SRPT reported 2Q sales slightly below consensus estimates and left full year guidance suspended – but focus heading into the update was confirmation of gene therapy timelines; ADMA falls after co reported bigger-than-expected Q2 loss and said it may offer to sell common shares through Jefferies to raise up to $50M; EDIT rises after reports the CRISPR/Cas9 gene editor and modified CRISPR gene editor BEAM were in a potential tie-up https://bit.ly/3a5CXxl

·     Healthcare services, medical equipment and devices; BDX shares tumbled early after reporting a top and bottom line Q2 miss while guidance trails EPS consensus; OSH 15.625M share IPO priced at $21.00; CAH shares tumbled after Q2 results; OSUR shares tumbled over 30% as posted larger Q2 EPS loss (16c) vs. est. loss (10c) and cash and cash equivalents $173.9 million vs. $72.6 million

Industrials & Materials

·     Industrial & Machinery; GNRC upgraded at Bank America noting shares have already soared to all-time highs, in our view, valuation alone seems unlikely to stop the momentum as we still have the rest of the hurricane and wildfire season ahead; HII falls on lower-than-expected Q2 EPS and revenue, hurt by COVID-19 related delays, and cuts 2020 shipbuilding revenue outlook to a range of $7.6B-$7.9B from $7.9B prior and reduces shipbuilding operating margin forecast; EAF Q2 EPS 35c on $280.7M sales beats 22c, $226M ests, though company forecasts challenging 2H 2020 amid low demand and pricing; WMS Q1 EPS $0.83 on $413.7M rev and company maintains 9c quarterly dividend but does not provide guidance; TEN reports Q2 EPS ($2.15), narrower than ($3.52) est on revs $2.6B vs $2.1B est and company sees Q3 rev substantially improved from this quarter but still lower than last year’s Q3; SRCL posts Q2 EPS $0.46 on $598.2M sales, both topping expectations; PWR closes at highest level since September 2000 after reporting Q2 EPS $0.74, beating $0.48 est on $2.51B rev consistent with ests and $500M share buyback plan

·     Transports; KSU hits 52-week highs on continued strength (recall shares surged last Friday on Dow Jones report that private-equity firms discuss bid for the rail); DLAKY reported EUR 1.5B (~$1.8B) loss on a 96% decrease in passengers YoY and CEO states that demand is not expected to return to pre-crisis levels before 2024; RYAAY restored 60% of August’s regularly scheduled flights and flew 4.4M customers in July (-70% YoY), though Italy warned airline of possible flight bans to/from country if airline does not comply with Covid-19 guidelines; ATSG Q2 sales $377.8M vs $0.29 / $367.6M est, an increase from Q2 2019’s $0.27 / $334.5M results; DSKE reports Q2 EPS $0.10 vs ($0.09) est as freight volumes increased WoW throughout May and June after bottoming in April and company restructuring doubled its quarterly operating income YoY; SBLK reported Q2 EPS (19c) vs (32c) est on $146.1M sales vs $101.6M est; GNK Q2 EPS 43c loss comes in narrower than expected 53c loss and $74.2M sales beats expected $29.1M; STNG $2.40 EPS on $346.2M sales improve from last year’s Q2 ($0.62) EPS on $150.8M sales, but miss $2.88 / $371.2M estimates

·     Metals & Materials; OLN shares slide after posting Q2 loss of ($120M) saying sales for the combined Chlor Alkali products and Vinyls and Epoxy businesses declined 27% YoY; CENX Q2 sales down 5% at $401.9M primarily due to lower LME prices and regional premiums, while posting Q2 loss of $26.9M, worse than loss of $20.7M YoY; SEE shares jumped after its profit and revs topped estimates along with a higher year outlook in the packaging sector

Technology, Media & Telecom

·     Internet; ETSY price tgts raised by several analysts after posted Q2 results that surged past expectations amid +146% GMS growth ($2.7B in GMS) with 35.1% EBITDA margin (guided Q3 revs $366M-$426M vs. est. $278.6M); WIX slides after Q2 results beat on revenue but missed with a net loss due to marketing investments related to the pandemic tailwind (26c loss vs. est year 34c profit) while Creative Subscriptions revenue was up 21% Y/Y to $190.2M; GDDY tgt raised by several analysts after Q2 revenue increased 9.4% to $806M, while capping off the strongest quarter for net customer growth ever by adding more than 400K net new customers to total over 20M paying customers (also issued higher Q3 guidance); CVNA shares jumped 20% after saying retail units sold rose 25% in FQ1 to 55,098 and revenue was up 13% to $1.118B

·     Semiconductors; SYNA was upgraded to overweight with $100 tgt at KeyBanc after reported strong F4Q20 results that were above expectations and provided guidance (inclusive of the acquisition of AVGO’s IoT and DisplayLink) that was largely in line with expectations; memory related space weak as WDC posted relatively in-line F4Q results, but it offered disappointing F1Q guidance as headwinds related to datacenter digestion, lower NAND pricing, and the production ramps of new NAND capacity and 16/18TB HDDs weighed on the revenue and margin outlook

·     Hardware & Software movers; ZNGA 2Q results were clean, with a solid beat and raise to the core business while integrating the financials of its acquisition of Peak; CDAY Q2 results missed top-line estimates and guided downside Q3 sales; FSLY falls after posted a strong 2Q beating for earnings and revenue while guidance also calls for a solid 2H, but does suggest 3Q growth below normal seasonality; ROKU shares pull back after a strong run into earnings last night posted good numbers but warned the ad industry outlook remains uncertain for Q3 and Q4 and said total TV ad spending will not likely recover to pre-COVID-19 levels until well into 2021

·     Media & Telecom movers; VIAC shares rise after Q2 EPS beat the average analyst estimate ($1.25 vs. est. 94c); LYV posted big quarterly loss but noted that 86% of customers are holding onto their tickets in hopes that events canceled because of Covid-19 will be rescheduled, rather than taking refunds; ZIXI delivered largely in-line revenue and EBITDA results and registered better than expected EPS