Closing Recap

Wednesday, July 29, 2020

Equity Market Recap

·     U.S. stocks once again trend higher as the FOMC leaves rates near 0% (as expected), and says it will hold rates low until confident economy has weathered the coronavirus storm (also in-line with prior comments). The commentary and headlines pushed stocks higher again, the dollar lower and gold to fresh record highs – the same trade that has been taking place for the last few weeks on expectations of increased easing and accommodative measures by the Fed and out of Washington. Fed Powell said in his press conference they aren’t even thinking about raising interest rates. Gold prices advanced for a 9^th straight session, while oil prices edged higher on bullish inventory data, as commodities also benefit further from further dollar selling pressure. In Washington, Democrats and Republicans remain far apart on the next phase of the stimulus bill for out of work Americans, but more talks took place today as they work to a compromise. Economic data a positive as pending home sales rise more than expected and the June trade deficit narrows. Markets also brace for another round of earnings results, with the busiest day of the quarter coming tomorrow (nearly13% of the S&P reports), but not before a busy night tonight with the likes of FB, PYPL, QCOM among them. Tech outperformed today following strong earnings results out of semi names (AMD) and software (FEYE, TENB), while financials and retailers jumped as well in what was a strong day for stocks. Restaurants got a boost following positive results out of several companies including SBUX.

FOMC

·     The Federal Reserve kept rates unchanged, as expected, at the conclusion of its two-day policy meeting and indicated they would aim to keep interest rates low until it is confident that the economy has weathered the storm wrought by the COVID-19 pandemic. The FOMC said it expects to maintain the target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. The Fed is buying $80 billion of Treasury’s and $40 billion of asset-backed mortgage securities.

Commodities

·     August gold futures rose $8.80 or 0.5% to settle at $1,953.40 an ounce, closing ahead of the FOMC policy meeting which took place later in the afternoon. Gold prices extended gains after following the dovish commentary from the Fed at its press conference. Oil prices edged higher as WTI crude rose 23c to $41.27 per barrel, getting a lift from bullish weekly inventory data out of both the API and EIA weekly reports that showed big weekly drawdowns of stockpiles.

Economic Data

·     Pending Home Sales rise 16.6% MoM in June vs. the est. up 15%, while the Northeast up 54.4% MoM, Midwest up 12.2% MoM, South up 11.9% MoM and the West up 11.7% MoM

·     June advance trade deficit of goods narrowed to (-$70.6B) from (-$75.3B) in the prior month, the Commerce Department said, while imports rose 4.8% in June to $173.234b from $165.327b in May and exports rose 13.9% in June to $102.593b from $90.069b in May

Sector News Breakdown

Consumer

·     Retailers; BGFV shares surged, lifting other sporting goods stores after reporting a jump in Q3 same-store sales to date in spite of widespread store closures and reinstated its quarterly dividend; LB announced $400M in annual SG&A cuts and stronger than expected 2Q sales (KeyBanc raised ests and tgt on headlines); TUP Q2 net income jumps 62% due to cost reduction program and net gains on retirement of debt and non-core assets; Wells Fargo said highlight two stocks where they see potential for consensus to shift meaningfully over the near-term (3-6 months) – TPR and UAA

·     Consumer Staples; MDLZ reported a beat on the bottom line while revs came in-line with consensus; KHC was upgraded to overweight from neutral at Piper as expect greater food at home trends to drive a sustainable lift at least into 2021, and KHC is well-positioned with a largely meal-oriented portfolio with modest foodservice exposure (15%); APRN says it added 20K new customers in Q2 while revenue was up 10% to $131M off higher orders per customer during the quarter and higher average order value; BGS and KHC removed from Tactical Outperform list since each are up 50% and 20% since late April, respectively said Evercore/ISI

·     Restaurants; SBUX posted a slight beat in Q3 revs at $4.2B, while comps fell (-40%) overall with America comps down (-41%) and China comps (-19% though said sees Covid impact to moderate meaningfully in Q4; DENN posted a slightly larger Q2 adj EPS loss and revs of $40.2M missed estimates while not providing guidance; WING shares jump early after Q2 total domestic stores comp growth +31.9%, above est. +23.4% while total revs rose 36% to $66.1M (est. $62.4M); DIN posts smaller Q2 EPS loss on better revs of $109.7M though Q2 same-store sales at Applebee’s fell 49.4%, while IHOP comparable sales fell 59.1% due to impact of COVID-19 pandemic

·     Casino & Leisure movers; theme parks in focus with SEAS and SIX reporting results; SIX reported a loss of $1.62 a share (worse than the $1.03 loss est.) while revenue was 96% lower than a year earlier, while in-park spending per capita fell 43%; SEAS said prelim Q2 revenue is expected to drop to $18M from $406M last year while attendance is forecast to be 300,000, down 6.2 million from 2019; n lodging REITs, Morgan Stanley upgraded shares of SHO and HST to equal-weight from underweight as expect US RevPAR to recover relatively slowly but says significant stock declines suggest it could be baked in the price; cruise lines active as NCLH extends suspension between 0ct 1-31, extends suspension for 3 cruise brands; Las Vegas strip June gambling rev. fell 61.36% YoY to $238.3M; gaming stocks jumped behind better results from BYD (PENN rallied)

·     Autos GM posts a narrower-than-anticipated loss amid lost production and said it recorded a nearly break-even EBIT quarter in North America despite losing 8 weeks of production/said auto operating cash flow was -$800M during the quarter

Energy

·     In inventory data; the API showed a draw of 6.83M barrels of oil for the week ending July 24, while gasoline inventories show a build of 1.08M barrels, distillate inventories show a build of 187K barrels and Cushing inventories show a build of 1.14M. Bullish data from the EIA as well as weekly crude inventories fell -10,611M barrels I latest week vs. est. for a build of 450K barrels, while gasoline rose +654k vs. est. draw -2M barrels and distillates +503k vs. est. +1,000k

·     E&P sector; HES reported a Q2 EPS loss of $1.05 vs a $0.02 loss last year, while Q2 $842M sales missed the $1.02B estimate after coronavirus impacted prices and demand; MTDR reported Q2 EPS loss of $0.03 and $62.9M in revenue vs estimates of $0.15 loss and $171.8M; EPD Q2 EPS of $0.47 was in-line with expectations, but $5.75B revenue misses the estimated $7.52B; OGS reported 2Q20 earnings beating estimates and reiterated guidance despite Covid headwinds, pointing to a stronger-than-mgmt.-anticipated fundamental backdrop

·     Utilities & Solar; EIX $1.00 EPS came in under the expected $1.10 and its Q2 revenues were -18% YoY; ETR posted Q2 EPS of $1.37, beating $1.25 estimates and last year’s $1.35; NWE posted Q2 EPS of $0.42, missing expected 49c, though $269.4M rev beat expected $252.4 while re-affirming 2020 guidance range of $3.30-$3.45 per share; AES purchases its ownership in AES Tiete to 43% after purchasing an additional 18.5% stake from Brazilian Development Bank for $246M; RUN will leave the S&P SmallCap 600 and join the MidCap 400 index

Financials

·     Bank movers; MS to acquire 49.99% of ATUS Lightpath fiber enterprise business for $1.1B; BCS reported a 91% decrease in net profit after setting aside £1.62B in loan loss provisions, although investment banking unit reported record revenue and a 16% profit increase, and the bank will not pay a dividend following the Bank of England’s request from earlier this year; BKU reported $0.80 Q2 EPS and $228.7M revenue, easily beating the 19c and $215.7M estimates; BANF moves higher after announcement that it will join the S&P SmallCap 600 index

·     Insurance; CB reported Q2 EPS loss of 56c, worse than estimated 39c loss, with net catastrophe losses of $3.35 per share, a $2.87 increase YoY – company did beat estimates on $8.13B net premiums a 3% YoY increase

·     Consumer finance and lending; Visa (V) reported better than expected EPS last night as lower expenses and higher Data Processing fees more than offset weaker cross-border volumes – but cross-border volumes came in -44 Y/Y, 8% below consensus

·     Financial Services; VERX 21.15M share IPO priced at $19.00; CSGP posted strong 2Q results, beating estimates on both the top and bottom line and noted that bookings and revenue improved as the quarter progressed and the multifamily and LoopNet segments continue to generate strong momentum; HRB prepared 21.2M U.S. tax returns during May 1, 2019 through July 17, 2020, an increase of 3.3% when compared with May 1, 2018 through July 17, 2019; ADP forecast an adjusted EPS decline for 2021 of 13% to 18%, worse than the expected decline of 4%

Healthcare

·     Pharma movers; ALEC shares fell following preliminary data from its Phase 1b and open-label Phase 2 trials evaluating lead candidate AL001 in patients with frontotemporal dementia; TEVA announces that licensee Otsuka Pharmaceutical Co., Ltd. has filed a marketing application in Japan seeking approval of Ajovy (fremanezumab) for the prevention of migraine; in specialty pharma (heading into earnings) Wells Fargo said we like the setup for PRGO into the print, and see risk for BHC, TEVA, and to a lesser extent, MYL; ARWR held a KOL webinar to review its ARO-ENaC program in cystic fibrosis which is expected to begin dosing patients in the Ph1/2 study next month

·     Biotech movers; AMGN reported 2Q top and bottom line beats and reiteration across most FY2020 guidance metrics as well as a raise in non-GAAP EPS guidance/Prolia, Mvasi, & Neulasta beat Street expectations but Repatha, Amgevita, Xgeva, Nplate & Neupogen missed consensus; INO said the FDA granted orphan drug designation for INO-3107, its DNA medicine being evaluated in a Phase 1/2 trial for treatment of recurrent respiratory papillomatosis; HTBX rises after saying its experimental COVID-19 vaccine showed positive result in pre-clinical testing in animals/demonstrated expansion of antibody-supporting CD4+, virus killing CD8+ T-cells; TCRR 8M share Secondary priced at $15.50

·     Medical equipment and devices; DXCM price tgt raised by several analysts as 2Q20 revenue of $451.8M (up 34%) exceeded the consensus estimate of $416.9M, with U.S. revenue up 38% and OUS up 21%. Guidance was reinstated, including 2020E revenue of $1.850B (up 25% y/y); DGX upgraded to overweight with $144 tgt at KeyBanc as we see material upside potential to near-term consensus expectations; BSX Q2 EPS and revs beat (org rev decline of -29% y/y compares to consensus -37%), while cardio, CRM, and MedSurg all beat (no guidance)

·     Healthcare services and providers; KODK surges again after won a $765M government loan under the Defense Production Act to support the launch of Kodak Pharmaceuticals and help speed up domestic production of drugs that can treat a variety of medical conditions; in managed care, ANTM Q2 EPS while revs a touch light while benefit expense ratio better 77.9% vs consensus 80.8% and said share repurchase activity was resumed in June; CYH the latest hospital to surge following better-than-expected earnings results

Industrials & Materials

·     Aerospace & Defense; BA announced plans to trim production of 787 and 777 widebody jets more than previously announced, and more slowly ramp up production of the 737 MAX than it had planned/while won’t change rates for the 767 or 747, BA said it would complete production of the iconic 747 in 2022; RTX was downgraded to hold at Argus saying shares are now trading at premiums on P/E and price/sales, even though industry peers have more clarity on earnings; GD profit falls over 22% on lower aerospace sales while lowers year profit view by 30c; AER rises as reports better-than-expected Q2 EPS and revenue, due to higher maintenance rents

·     Industrial & Machinery; ETN reported Q2 adjusted earnings of $0.70, beating estimates by $0.17, but representing a decrease of 54% from a year earlier with rev declines in all segments (Electrical Americas -29%; Electrical Global -16%; Hydraulics -32%; Aerospace -27%; Vehicle -59%; eMobility -33%); GE Q2 adjusted EPS loss (15c) on revs $17.75B vs. est. loss (10c) and $17.12B;

·     Transports; CHRW posted a beat on the top and bottom line and guided year cap-ex low end of range; CAR posted a smaller (but large) quarterly loss while revs of $760M beat the consensus of $690M and said it is targeting over $2.5B in cost savings on annual basis; NSC Q2 EPS and revs topped views and reports railway operating revenues fell 29% Y/Y to $2.1B, driven by a 26% decline in total volume/operating ratio was 70.7% vs. 70.6% consensus; USX posted strong Q2 results that were helped by lower overhead and fuel costs/upgraded at Bank America to buy; Dow Jones reports FL exploring moving its business to FDX from UPS after the latter told the company in June it would face a hefty rate increase on some of its shipping contracts

·     Agriculture; SMG shares jumps after Q3 EPS sales beat, raised guidance and approval of special dividend; BG posted a blowout Q2 EPS beat and raises 2020 EPS outlook to reflect stronger-than-expected Q2 results as Q2 net income more than doubles to $516M, boosted by the agribusiness segment while operating earnings in the segment jumps four-fold in Q2

Technology, Media & Telecom

·     Internet; EBAY reported clean beat & raise q2 results, w/ 15-year high GMV growth & 5-year high operating margins; SHOP shares jump as blew out 2Q estimates on merchant solution while last night filed a $7.5B mixed securities(Q2 revs $714.3M vs. est. $513.8M and GMV 30.1M) – not providing outlook for 3Q or FY20; AKAM beat 2Q20 with the revenue growth hitting a five-year high as results w/ multi-year high Revenue Growth (14% Y/Y ex-FX) & record high EBITDA Margin (45%), thanks to very strong Web traffic growth, robust Cloud Security growth (28% Y/Y ex-FX) & opex efficiency, but some analysts call guidance muted; FB earnings tonight

·     Semiconductors; AMD crushed it on the top and bottom line as qtrly computing and graphics segment revenue was $1.37B, up 45% YoY, and raises FY revenue to about +32%, from prior +20% to +30%; STX weighs on memory and HDD stocks after missing the top-line and guided Q1 EPS and revs below views; MPWR beat and raise and the guide is 10% higher than original; LSCC reported an in line Q and marginally better guidance; ASML was downgraded to Market-Perform at Bernstein noting TSM’s transition to 3nm will be later than expected

·     Internet security; sector strong after FEYE; saw strong results and guidance from FEYE, posting a net profit for Q2 vs. an expected loss as revenue and margins came in well above our Street estimates, while billings were roughly in line; TENB shares jump following better than expected Q2 results with positive operating income and FCF and an upside FY outlook while cash from operating activities totaled $17M compared to the -$2.1M in last year’s quarter (TENB shares upgraded to buy at SunTrust and tgt up to $40 from $25)

·     Software; SSNC posted upside 2Q results, beating estimates on both the top and bottom line on the back of solid operating trends despite the impact of COVID-19 on the economy; OMCL reported 2Q20 results, which were well-above consensus

·     Media & Telecom movers; TMUS was downgraded at RBC Capital based on relatively full valuation vs our price target, with few identifiable near-term catalysts, integration spend pressures on medium-term cash flows and potential impacts from promotional offering; ATUS announced today a 49.99% asset sale of LightPath to Morgan Stanley Infrastructure Partners (MSIP) for an implied enterprise value of $3.2B