Mid-Morning Look

Thursday, August 27, 2020

Another day another rally as stocks jump initially following comments from Federal Reserve Chair Jerome Powell in his opening speech at Jackson Hole meeting, announcing a new approach to policy that takes a more relaxed stance on inflation and on its view of how low U.S. unemployment can go. Powell said the Fed will seek inflation that averages 2% over time, a step that implies allowing for periods of overshoots. The apparent easy policy by the Fed and expectations they will continue to do whatever it takes (for as long as it takes) to help the economy is again buoying major stocks averages that had been climbing into today’s speech. Technology opened higher touching new intraday record highs for the Nasdaq Composite (6^th straight day of gains and looks to post its 39^th record high of 2020) as momentum continues to the upside. The pandemic, reopening trade working well today with airlines (UAL, DAL, AAL), cruise lines (CCL, NCLH, RCL), gyms (PLNT), casino (WYNN, LVS), theme park (DIS, SIX, SEAS), lodging (MAR, HLT), leisure (LYV) all outperforming this morning. ABT shares jump in the vaccine space after saying the FDA granted emergency use authorization for the company’s 15-minute COVID-19 test that will be priced at just $5 (smacking shares of other test makers such as QDEL, LMNX, DGX, CODX, GNMK, OSUR, FLDM). The S&P 500 and Nasdaq look to make it a 6^th straight day of gains while the Dow steadily approaches its record highs. Economic data today slightly encouraging but still shows a long way to go before the economy totally recovers from the COVID-19 pandemic shutdown that began in March. Tremendous volatility in the dollar and gold prices this morning, whipping between gains and losses since Powell speech. Early on stocks do what they do best these days – rise!

Economic Data

·     Weekly jobless claims fell to 1.006M from 1.104M the week prior and mostly in-line with the 1.0M estimate; US insured unemployment rate fell to 9.9% from 10.1% prior; the 4-week moving average fell to 1.068M from 1.175M; continued claims fell to 14.535M from prior 14.75M

·     U.S. second estimate for Q2 GDP fell (-31.7%) vs. est. (-32.5%) after GDP fell (-5%) in prior quarter; personal consumption fell (-34.1%) in 2Q after falling (-6.9%) prior quarter while the GDP price index fell (-2%) in 2Q after rising 1.4% prior; core PCE q/q fell (-1%) in 2Q

Sector Movers Today

·     Retailers; TIF returned to profitability in the summer quarter, giving investors hope that its proposed sale to LVMH for $16 billion might still have legs; dollar stores with earnings as DG Q2 comp sales jumped 18.8% to top the consensus mark of +14.9%, rising in each of the consumables, seasonal, home products and apparel categories on better margins but no guidance issued while DLTR disappointing given DT comps (only +3% vs. est. +5 to +HSD), while Family Dollar comps were fine (+11.6%); ANF jumps in surprise to upside as EPS handily beat and sales mostly beat on lower promotions and strong online (digital grew 56% to 55% of total sales); DKS was upgraded to Overweight at Morgan Stanley saying underappreciated EPS power & inexpensive valuation create a positive risk/reward, while Oppenheimer downgraded after the rally in shares post better earnings; BURL 2Q EPS of ($0.56) vs. est. ($1.06), with sales light at $1.01B vs. $1.13B, with comps at -14% from when stores re-opened

·     Consumer Staples; COTY reports Organic (LFL) net revenues declined 60% in FQ4 driven by LFL decreases in the EMEA segment of 67.2%, Asia Pacific of 57.5%, and Americas of 51.5%, with the mass business down 39%; SAM tgt raised to $977 from $922 and ests raised at Guggenheim as take a deeper look at the margin upside for Boston Beer as it manufactures an increasing proportion of Truly Hard Seltzer volumes in-house over the next couple years; SAFM topped Q3 earnings and revenue expectations despite disruptions to the chicken producer’s business from restaurant closures amid the pandemic (PPC, TSN moved in sympathy); BYND said it is launching a new e-commerce site and a whole new way to shop for Beyond Meat products

·     Semiconductors; MU with cautious analyst commentary as Citigroup reiterated its sell and $35 tgt saying it is facing two quarters where revenue could be negatively impacted by Commerce Department restrictions against Huawei, a notable customer for the chipmaker – KeyBanc said restrictions could lend risk to both Q1 and Q2 revenue (MU derives about 12% of its revenue from Huawei, according to supply-chain data); SMTC posted top and bottom-line beats for July quarter as strong data center demand helped push results above the high-end of expectations – notably, LoRa outlook lowered with FY21 target now at $85-$95mn (from $90mn-$120mn previously), due to COVID-induced customer pushouts

·     Media & Telecom movers; VIAC upgraded to equal-weight from underweight saying the company had the potential to become a bigger player in the direct-to-consumer space, referring to streaming video; WPP posted H1 2020 results this morning, a beat on revenue (3.0% against consensus) and on adjusted EBIT margins (214bps against consensus) while Q2 net revenue at £2,302m declined by -15.6% YoY with an organic growth of -15.1%; AMC said it is set to reopen an additional 170 U.S. locations starting tomorrow after reporting a successful first weekend

·     Industrial & Machinery; EMR will buy Open Systems International for $1.6 billion in an all-cash transaction; RAVN said it’s indefinitely suspending its quarterly dividend, deciding to reallocate the cash to supplement and accelerate investments in Raven Autonomy and Raven Composites; TITN Q2 adj EPS 29c on revs $303.5M much better than the est. loss (1c) and $267M while guidance for the year was well above consensus

Stock GAINERS

·     ABT +7%; said that the FDA granted emergency use authorization for the company’s 15-minute COVID-19 test that will be priced at just $5; says BinaxNOW works w/o relying on lab equipment

·     BMCH +21%; BLDR agreed to buy BMCH in an all-stock deal valued at $2.46B where BMC shareholders will get a fixed exchange ratio of 1.3125 shares of BLDR common stock for each share of BMC common stock equal to $36.63

·     BOX +4%; beat estimates for quarterly results on strong demand for its online software services amid the work-from-home push due to coronavirus-driven lockdowns and raised full-year 2021 revenue outlook

·     CLVS +6%; announced that the FDA approved FoundationOne Liquid CDx as a companion diagnostic to identify eligible patients for Rubraca.

·     NTAP +5%; posted impressive results as both sales/EPS materially beating expectations and proceeded to also deliver strong headline guidance while called out particular strength in large enterprise accounts in the Americas

·     PTON +5%; tgt raised to $96 from $88 at Goldman Sachs as believe that there could be considerable upside to our estimates, particularly for the June quarter

·     SIX +9%; as reopen trade lifting theme parks, airlines, cruise lines and lodging names

·     VBIV +53%; after Raymond James upgrade to Strong Buy following a first look at data for VBI’s COVID-19 vaccine, which simply looks like it could be the best vaccine of them all (including all the first movers and Operation Warp Speed members)

Stock LAGGARDS

·     COTY -7%; Organic (LFL) net revenues declined 60% in FQ4 driven by LFL decreases in the EMEA segment of 67.2%, Asia Pacific of 57.5%, and Americas of 51.5%, with mass business down 39%

·     DKNG -2%; after NBA games cancelled and season up in the air (Lakers and Clippers voted to end the season but talks ongoing)

·     QDEL -36%; along with weakness in CODX, FLDM, LMNX, GNMK, OSUR following the positive news for ABT after its emergency use authorization from the FDA for the company’s 15-minute COVID-19 test that will be priced at just $5

·     RAVN -1%; said it’s indefinitely suspending its quarterly dividend, deciding to reallocate the cash to supplement and accelerate investments in Raven Autonomy and Raven Composites

·     SMTC -6%; posted top and bottom-line beats as strong data center demand helped push results above the high-end of expectations – notably, LoRa outlook lowered with FY21 target now at $85-$95mn (from $90mn-$120mn previously), due to COVID-induced customer pushouts

·     SPLK -3%; tgt price raised by several analysts after results as produced its 7th consecutive quarter of +50% ARR growth and cloud ARR of $568M that accelerated to 89% growth vs 82% in Q1/21, but guidance push shares lower