Closing Recap

Tuesday, February 11, 2020

Equity Market Recap

·     U.S. stocks touched intraday record highs for the Dow, S&P 500 and Nasdaq Composite before beginning its slide late morning, only to finish just off its worst levels of the day as markets failed to rally behind comments from Fed Chairman Powell who held his first day of testimony on Capitol Hill. The tech heavy Nasdaq Composite failed to hold and close above the 9,700 level for the first time (touched highs of 9,714.73) with markets acting tired late day. The headline story of the day was the Sprint, T-Mobile merger deal getting approval from a NY judge, boosting shares of both companies (and raising competitive threats for VZ, T), while retail names slumped after a dire sales outlook for Under Armour (UA) pushed shares to 52-week lows. Powell reiterated his view that the economy remains "resilient," but that the central bank was closely monitoring potential risks, including the coronavirus. Regarding the coronavirus, China’s NHC confirmed more than 1,000 deaths and 42,000 cases as of last night, although yesterday’s new case total showed some signs of slowing (there were 2,478 new confirmed coronavirus cases on the mainland China by Monday, down from 3,062 the previous day, bringing the total to 42,638). Oil prices gained but fell well off its highs of the day while gold and Treasury prices slipped.

Commodities

·     Oil prices end higher, as WTI crude gains 37c or 0.7% to settle at $49.94 per barrel, partially recovering after touching slightly more than 1-year lows, but still ended well off its best levels of the day ($50.69). Concerns about demand for crude due to Asia’s coronavirus has weighed heavily on prices over the last few weeks, pushing prices to more than 20% from peak highs. Tonight we get weekly API inventory data and tomorrow the EIA will post its stockpiles data.

·     Gold prices slide -$9.40 or 0.6% to settle at $1,570.10 an ounce, it’s first losing session five days as US stocks continue to look past the potential impact of the coronavirus, setting new record highs again today and weakening the demand for safe haven assets.

Currencies

·     The U.S. dollar erased earlier gains, sliding to session lows late day after pushing to its best levels in four months on better data Monday, easing today as the euro recovers after nearly touching fresh 52-week lows (around the 109 level). The dollar was little changed vs. the Japanese yen rallying to intraday highs of 109.96, before ending near lows of 109.75.

·     Treasury prices slipped with yields edging higher in lackluster trading as investors watched comments from Fed Chairman Powell in his testimony to the House Financial Services Panel. The 10-year yield edged higher to 1.59%. The U.S. Treasury sold $38B in 3-year notes at a yield of 1.394% vs. 1.392% with the bid-to-cover (demand) at 2.56 vs. 245 prior and indirect bidders awarded 43.9% of the auction.

Economic Data

·     The National Federation of Independent Business (NFIB) said its index of small-business optimism rebounded from a small dip in at the end of last year, rising to 104.3 points in January from 102.7 in December

·     U.S. JOLTS reported job openings dropped -364k to 6,423k in December after falling -574k in November to 6,787k (revised from 6,800k). This is a second month with openings below 7,000k, after holding above that mark for 19 months since April 2018

Sector News Breakdown

Consumer

·     Retailers; UAA shares tumble after saying sees 2020 sales to be down at a low single-digit percent from 2019 (vs. estimate for sales to rise 4.2%), and said coronavirus outbreak will have a $50M-$60M impact on Q1 sales and 2020 forecast does not take into account potential impact post Q1; BURL raised its 4Q outlook for revenue, comp sales, and EPS to levels above consensus in conjunction with a debt transaction update (Wedbush and RCB says they are encouraged by the news and see it as a positive read for off-price peers ROST and TJX); ELY reported mixed Q4 results (sales beat, EBITDA miss), while issued a below consensus FY20 guide, largely driven by worse than feared impacts from the coronavirus and FX (GOLF, DKS move in reaction); LB was upgraded to neutral at Credit Suisse; HAS profit tops views, helped by better sales of Frozen 2 and Star Wars merchandise, though shares pulled back off highs

·     Consumer Staples; SAM was upgraded to outperform from neutral at Credit Suisse and raise tgt to $525 from $400 saying after speaking to a series of category buyers, beer distributors and industry participants, sees staying power of hard seltzer; USFD reports Q4 top and bottom line results mostly in-line with expectations

·     Restaurants; JACK was upgraded to outperform at Cowen and raise tgt to $102 saying mean reversion trade likely over the next 6 months with checks suggesting a strong Tiny Tacos start offering upside to fiscal 2Q comp; CMG touches new 52-week highs

·     Housing & Building Products; HD shares traded to new all-time highs; in building products, MAS posted a Q4 EPS beat but guided year profit to $2.35-$2.55, below the $2.58 estimate while sees 1H operating margins down about 100bps, but recovering in 2H; MLM shares slide after Q4 earnings miss estimates with in-line revs and 2020 rev midpoint guidance below views

·     Casino & Leisure movers; hotels slip initially after HLT issued lower profit guidance for 2020 at $4.08-$4.21, below the $4.30 estimate while also posted weak Q4 RevPAR at down (1%) and said it would be flat to up 1% globally in 2020 (said guidance didn’t include virus impact) – shares of MAR, H, CHH, WYND, STAY were active in lodging/hotels

·     Autos; DDAIF reported its second year of heavy losses in a row, with net profit plummeting to 2.4B euros (2.6B dollars) in 2019 as costs for gov’t and legal action against Mercedes-Benz diesel vehicles as well as an expensive recall of Takata airbags hurt earnings, also prompting them to cut their dividend; in auto retail, AN with better-than-expected quarterly profit and revenue, helped by higher demand for used vehicles and automotive spare parts while its premium luxury business saw sales rise 23% YoY (good for KMX, LAD, GPI, PAG, SAH); ABG was upgraded at Bank America to buy as believe the recent pull-back in stock (down 15% YTD and 23% from recent Dec ’19 high) presents a good entry point for investors; tire maker GT reported net sales for Q4 of $3.71B, down -4.2% YoY and below the $3.88B estimate on weaker earnings and said Q4 tire unit volume -2%

Energy

·     Energy stocks got a bounce, among the top gainers in the S&P early as oil prices rebounded off 13-month lows; Piper downgraded GPOR and RRC to neutral from overweight saying deteriorating global gas prices have raised concerns over less robust LNG utilization during the summer which would be detrimental to inventory balances/prices; in equipment, OII said it was awarded a contract from BP to provide comprehensive riserless light well intervention services offshore Angola; financial terms are not disclosed

·     Utilities; the utility index just a few points off record highs, staying higher following a the week Treasury yield environment making dividend paying names more attractive; shares of EIX, ETR, NEE and AEE at 52-week highs; Dominion (D) rises after earnings; EXC topped expectations for Q4 earnings and revenues, and issuing in-line earnings guidance for 2020

Financials

·     Bank movers; JPM is in talks to merge its Quorum blockchain unit with startup Consensys, Reuters reported saying the transaction is expected to be formally announced within about six months, although financial terms are still unclear, they said; WFC said to reorganize reporting lines, creates 5 business units, consumer lending to separate from consumer banking as per DJ

·     Insurance; BHF shares outperform at earnings beat, $500M stock buyback and improved capital position lifted shares of the insurer to fresh 52-week highs; other 52-week highs for other insurers, and/or brokers RE (earnings and revenue beat), MET, PGR, WRB, AON, MMC

·     Consumer finance and lending; MA gets approval in principle from the People’s Bank of China to begin formal preparations to set up a domestic bankcard clearing institution in China; ONDK slides after reported weaker Q4 EPS (5c vs est. 9c) as the quarter was hurt by higher expenses across the board, while loan originations came in 3% lower (as per KBW) while positives included an in-line 2020 outlook and share buybacks; IIIV was downgraded at BTIG after earnings and as believe that after the stock appreciated by 88% in just over four months its shares, which trade at 18.4x consensus FY22E adjusted EBITDA, are now close to fairly valued

Healthcare

·     Biotech movers; LOGC slides as the FDA places a clinical hold on LOGC application to start a trial of its methylmalonic acidemia treatment, LB-001, in humans; REGN upgraded to buy at Argus; REXN rises as the company said it has entered into an exclusive license agreement with Chinese biotech co, Zhejiang HaiChang Biotechnology Co Ltd. Under deal, REXN grants Zhejiang the license to develop and sell products comprising of its cancer drugs; MRNA announced enrollment in its Phase 2 clinical trial evaluating its mRNA vaccine (mRNA-1647) against cytomegalovirus (CMV) is proceeding ahead of schedule and also announces three new pipeline programs: mRNA-1189 (Epstein-Barr vaccine), mRNA-1345 (RSV vaccine) and mRNA-1273 (coronavirus vaccine).

·     Medical equipment and devices; DVA mixed Q4 results as EPS beat but revenues missed as RBC notes beat largely reflected "core" performance essentially in line and aggressive buyback activity, and FY20 increase largely reflects short-term benefit from nonrecurring items; BSX active as an appeals court, without issuing formal opinion, affirmed Patent Trial and Appeal Board decision that upheld its patent 8,685,048 for clamp to stop gastrointestinal bleeding; STE raised guidance for the third consecutive quarter lifting shares; LMNX rises on EPS beat for Q4 though Q1 revenue forecast trailed estimates

Industrials & Materials

·     Transports; XPO 4Q EBITDA came in at $432M (in-line) and much better than feared (as per KeyBanc and DB) as expectations were for a larger miss on France-related weakness in December, while EBITDA guidance was also good, at +7-10% yoy (vs. consensus of +7%), reflecting 3-5% yoy organic revenue growth; RLGT reported results slightly below ests as overall demand environment remained under pressure as tough comps negatively impacted the y/y comparison due to one-time disaster relief revenue in Q2’19

·     Metals & Materials; VALE said Q4 iron ore output falls 22% following dam disaster to 78.34M metric tons, and quarterly iron ore sales fell 3.2% from a year ago to 77.91M mt; ANFGF downgraded to Underperform at RBC Capital with a price target of 740p (previously 850p) based on lower expected copper prices at a time where the group faces weaker grades and higher capex requirements and cut RIO to Underperform following our assessment of the impact of the Coronavirus on the iron ore market (lower expected iron ore prices by -6% in 2020); CMP shares jump to 52-week highs despite Q4 sales of $500.3M missing the $521.3M est (though was up 2.8% YoY) and EPS missed by about 20c; FCX outperforms in copper sector

Technology, Media & Telecom

·     Internet; FB was downgraded to sell at Pivotal with $180 tgt saying they would be surprised if the company’s U.S. business does not continue to decelerate; GOOGL, AMZN trade 52-week highs; MELI posted a wider Q4 EPS loss on revenue of $674.3M vs. consensus at ($66M) on $667M/main negative in the quarter was the GMV miss in Brazil, overshadowing strong GMV growth in Argentina (109% LC) and Mexico (53% LC) as per BTIG; U.S. technology giants AAPL, FB, GOOGL and MSFT face a new wave of scrutiny from antitrust officials, as the FTC demanded information about their acquisitions of startups that may have eliminated emerging competitors.

·     Semiconductors; AMKR rises as beats Q4 EPS and sales estimates as Q4 revenue grew 9% sequentially to a new record of $1.18B and sees Q1 EPS 9c-24c on revs $1.08B-$1.16B above est. 8c/$1.01B (comps include CCMP, QUIK); AMD tgt raised by $10 to $63 at RBC Capital and maintain outperform as thinks that PC share gains will continue to move into the mid-20 percent market share range; shares of NVDA, AMD, at 52-week highs today; IIVI shares jumped after beat and raise for Q2 while guidance below views due to virus impact

·     Software movers; CRWD was upgraded to buy at Davidson from hold; WORK pared some of yesterday gains after they rebuffed a news report saying IBM had bought its service for its employees worldwide, turning into Slack’s largest customer. "IBM has been Slack’s largest customer for several years and has expanded its usage of Slack over that time; RNG trades to record highs after Q4 results topped expectations and gave an outlook that was seen as strong (guides revs of $257M-$259M (28-29% growth, above consensus for $249.2M); CRM 52-week highs with Morgan Stanley raising tgt to $225

·     Media & Telecom movers; Sprint (S) and TMUS shares rose after U.S. District Judge Victor Marrero approves the $26B merger between the two, saying the deal is unlikely to stifle competition in the U.S. wireless market. A consortium of state AGs were fighting the merger on antitrust charges/deal still needs approval from the California Public Utilities Commission to close (tower stocks AMT, CCI, SBAC advanced on the news – Moffett said operators with a higher ratio of T-Mobile revenue to Sprint revenue will thus fare better, which favors CCI compared to AMT and SBAC); in advertising, CRTO reports Q4 beats with downside Q1 guidance that sees revenue ex-TAC of $209-212M compared to the $230.66M consensus and for FY20, Criteo expects revenue ex-TAC to decline by about 10% in constant currency; OMC reports top/bottom line Q4 beat; WWE receives another analyst downgrade, with JPMorgan downgrading following its disappointing earnings results last week

·     Hardware & Component news; FLIR was upgraded at Raymond James as feel incrementally positive about FLIR’s longer-term option value in AEB systems for auto, an improving margin outlook catalyzed by Defense, and the potential to derive value from the sale of its maritime unit