Closing Recap

Monday, November 02, 2020

Equity Market Recap

·     U.S. stocks bounced around, with the S&P and Dow outperforming the Nasdaq Composite which lagged again after late last week’s pullback in large cap tech post earnings (AAPL, AMZN, FB, TWTR) as investors gear up for an event-packed week starting with the U.S. presidential election tomorrow. Technology stocks faded from earlier highs to turn down as much as 0.7% before recovering in a volatile session (Nasdaq was up over 1.25% mid-morning). Major averages setting up for a crucial week which includes the Presidential election results Tuesday, the 2-day Fed Meeting results Wednesday, another barrage of corporate earnings and the monthly jobs report Friday. Squeezed in between all that, investors dealing with the continued spread of Covid 19 where cases continue to rise in U.S. and Europe. Election uncertainties remain an overhang as markets stay concerned about a contested election. Joe Biden is currently ahead in national opinion polls, but races are tight in battleground states that could make things interesting. Stocks recovered after a turbulent week as the S&P bounces off near six-week lows Friday. Earnings results tonight from PayPal, as well as Apple chip suppliers SWKS and CRUS. U.S. manufacturing activity accelerated more than expected in October, with new orders jumping to their highest level in nearly 17 years amid a shift in spending toward goods. The dollar rises to 1-month highs as oil prices recover off 5-month lows and gold advances.

·     Covid-19 cases still surging in Europe, threatening its economic recovery as: France reports new all-time high of number of new cases as number of confirmed cases up by 52,518 over 24 hours, versus +46,290 on Sunday; UK new Covid cases +18,950 vs 7-day avg 23,016; Italy new Covid cases +22,253 vs prior day +29,907 and Spain new Covid cases +55,019; deaths +379. The U.S. Centers for Disease Control and Prevention (CDC) reported 9,182,628 cases of the novel coronavirus, an increase of 77,398 cases from its previous count, and said that the number of deaths had risen by 451 to 230,383.

Economic Data

·     U.S. IHS Markit October final manufacturing PMI at 53.4 (vs flash 53.3), the highest since January 2019; IHS Markit manufacturing sector final PMI for October at 53.4 vs flash reading 53.3 and final september 53.2; Manufacturing sector final output index for October at 53.3 vs flash reading 53.0 and final september 53.1

·     U.S. manufacturing activity accelerated in October, with new orders jumping to their highest level in nearly 17 years amid a shift in spending toward goods like motor vehicles as the COVID-19 pandemic drags on. The Institute for Supply Management (ISM) said on Monday its index of national factory activity increased to a reading of 59.3 last month vs. est. 55.8 – that was the highest since November 2018 and followed a reading of 55.4 in September.

·     U.S. Sept construction spending +0.3% below est. 1.0% as Sept private construction spending +0.9 pct, public spending -1.7%

Currencies

·     The U.S. dollar index (DXY) touched its best levels in about a month, rising back above the 94 level (highs 94.28) as investors rotate into defensive assets, on edge over the outcome of Tuesday’s U.S. presidential election. Investors remain hesitant to trust polls after the majority failed to predict Trump’s victory in 2016. The euro dipped to $1.1625 and the greenback climbed slightly vs. the Japanese yen. A surge in global coronavirus cases also weighed on sentiment, In Europe, new COVID-19 cases have doubled in five weeks. The British slid after Prime Minister Boris Johnson announced over the weekend a one-month lockdown across England. The Federal Reserve also concludes its two-day meeting on Wednesday, with jobs data Friday.

Commodities

·     Oil prices recovered off overnight declines (WTI futures fell as much as 6% below $34 per barrel) as WTI crude rises $1.02 or 2.85% to settle at $36.81 per barrel in a recovery of riskier assets after last week’s declines (oil fell around 10% last week). Oil had plunged to a five-month low as gains in Libyan production coincided with a wave of new virus-lockdown measures in Europe, raising slowing global demand fears. With today’s gains, oil snapped its 3-day losing streak.

·     Gold prices gain $12.60 or 0.7% to settle at $1,892.50 an ounce, posting back-to-back daily gains as investors position themselves ahead of the election tomorrow, a surge in COVID-19 cases and renewed lockdowns in some nations boosting economic recovery concerns

Sector News Breakdown

Consumer

·     Retailers; UAA upgraded to Buy from Hold and increasing our target price to $17 from $11 at Stifel saying greater confidence stems from improved quality of revenue (DTC growth and off-price to 4% in 2020), sightlines to revenue inflection in 2021, gross margin drivers from mix and a streamlined expense base; HEAR upgrade from Neutral to Outperform at Wedbush as believe is executing well through this period, as evidenced by Q2 results and Q3/Q4 product releases which appear highly competitive; RGS Q1 rev slumps 55% to $111.4 mln, net loss more than doubles to $35.3 mln, due to COVID-19 impact; Wells Fargo downgraded OLLI to Underweight from Overweight, price target $70 from $118; OSTK removed from Wedbush best ideas list

·     Auto sector; NIO delivered 5,055 vehicles in October, +100.1% YoY, deliveries consisted of 2,695 ES6s, 1,477 ES8s and 883 EC6s and said YTD deliveries reached 31,430 units, an increase of 111.4% over the prior year; XPEV delivered 3,040 vehicles in October, +229% YoY and delivered 17,117 vehicles YTD, +64% YoY saying deliveries consisted of 2,104 P7s, smart sports sedan and 936 G3s, compact smart SUV; LI said delivered 3,692 Li ONEs in October as compared to 3,504 units in September, +5.4% MoM and YTD deliveries reached 21,852 units; in supplier space, TEN posts strong cash flow performance and margin expansion in Q3

·     Housing & Building Products; in flooring, LL Q3 EPS $0.67 vs consensus $0.26, revenue $295.8M vs consensus $275.6M, and comps +10.9% vs consensus +6.3%; GM above consensus; merchandise inventories (17.1%) y/y; not providing financial guidance; construction Materials stocks outperformed last week after bellwether MLM reported a 3Q beat and re-established its FY guide, the first US producer to do so

·     Consumer Staples; CLX Q1 EPS $3.22 on sales $1.92B vs. est. $2.32 and revs $1.75B; sees FY21 EPS $7.70-$7.95 vs. est. $7.69 and sees year sales growth between 5%-9%; ADM upgraded to neutral at Credit Suisse saying pullback overdone; EL Q1 results top views even as net sales decline 9%, benefiting from strong Chinese demand and a surge in online orders for its skincare and boosted its dividend (sees Q2 sales down 3%-5% vs. est. down 5%)

·     Restaurants; Inspire Brands will pay $106.50 per share for DNKN in a $8.8B deal, confirming prior reports last week and at $11.3B including debt https://on.wsj.com/3mI3OVy ; WING board has approved a special cash dividend of $5.00 per share while reports domestic same-store sales rose 25.4% in Q3 and digital sales were 62.0% higher during the quarter, though Ebitda for Q3 of $18.4M missed ests; UBS said investor sentiment on WEN is mixed as PZZA focus and concerns are on decelerating comps & difficult laps next year while WEN sentiment is somewhat improved on expectations for improved trends despite MCD strength; Raymond James upgrades RUTH to Strong Buy following the company’s encouraging 3Q/QTD business update as the company has recovered ~80% of pre-COVID sales volume

·     Leisure and Gaming; WYNN upgraded to OW from EW at Morgan Stanley as we see 1) an upcoming operating inflection with further upside post-COVID, 2) overblown concerns about Macau high-end, & 3) a positive catalyst if Biden wins, all at an attractive valuation. Our new price target of $95 (up from $90) implies 31% upside; in RV sector, CWH rises as Q3 rev of $1.68B rise 21% YoY and EPS $1.44 topping views of $1.5B and $1.02 while announces $100M stock repurchase program and raises 2020 adj EBITDA guidance to $495-$515 mln from prior $460-$490 mln forecast and LCII rises after its Q3 sales beat on record demand for RV’s); in cruise space, NCLH announces extension of suspension of voyages

Energy

·     Energy stock movers; oil prices fell initially on virus outbreak fears hitting demand and as Libya and Iraq are also boosting their production, causing a rise in overall supply from OPEC+, despite having reduced quotas across its other members – but prices posted a big bounce, with energy stocks (XOM, FANG, APA, PXD) among the top gainers on the day; COP upgraded to Buy from Neutral at Bank America; PBF upgraded to Neutral from Sell at Goldman Sachs; Lufkin Industries says it acquired SLB’s North American rod lift unit – which provides downhole pumps and accessories, beam pumping units; MPC reported Q3 Adj EPS loss of $(-1), narrower than est. $(-1.74) loss, as revs $17.5B miss estimated $18.1B;

·     Utilities; FE reported Q3 EPS 84c on revs $3B, both rising YoY and beating estimates, and the company reaffirmed its FY20 EPS of $2.40-$2.60; NI reported Q3 adj EPS 9c on revs $902.5M (est. 3c, $1.02B) and reaffirmed its 2021 EPS guidance of $1.28-$1.36 and its projected net operating EPS growth target of 7-9% for 2021-2024

Financials

·     Insurance; insurance brokers AJG upgraded to overweight from neutral at Piper and downgraded AON, MMC, and WLTW to neutral from overweight saying AJG’s organic growth is "solidly positive", while that of larger brokers mostly flat. Says with little change to strategy and management over the past decade, AJG seen as a relatively stable place to work for producers; LMND initiated overweight and $63 tgt at Piper calling it a disruptive insurance provider competing against legacy players with a digital and technology-forward competitive advantage; CLGX estimates that Hurricane Zeta caused $2.5B-$4.0B in insured wind and storm surge losses.

·     Private-equity firms backed 1,027 announced global deals, including add-on acquisitions, totaling $348.73 billion last quarter, according to data provider Dealogic Ltd., up from 726 deals worth $100.18 billion that sponsors backed in Q2. This compares with the 1,393 deals, including add-ons, totaling $220.66 billion that private-equity firms backed in Q3’19 of 2019. Private-equity firms announced 301 global deals worth $97.32 billion as of Nov. 2 for this quarter, Dealogic data show. The last quarter is often a busy one, regardless of election cycles. – Dow Jones

·     REITs; CBL said that it has filed for bankruptcy protection, as it looks to implement a plan to recapitalize and restructure parts of its debt; PEI files for bankruptcy in the U.S. bankruptcy court for the district of Delaware and said will pay all vendors, suppliers and employees during the course of Chapter 11; the bankruptcies failed to dent sentiment in other mall REITs KIM, SPG

Healthcare

·     Pharma movers; HZNP Q3 revs $636.4M (vs. $531M cons), with Tepezza revenue of $286.9M (vs. $226M cons). EBITDA was $329.8M (vs. $225M cons) and EPS was $1.74 (Vs. $0.97 cons) – raises its guidance to Tepezza; DBVT rises following the validation of its marketing authorization application for Viaskin Peanut by the European Medicines Agency; FUSN co-partners with b to develop cancer therapies; ANPC rises after China-based Jiangsu AnPac Health Management Co, in which ANPC has a 15% stake, has received regulatory nod to conduct COVID-19 nucleic acid tests; JNCE falls as discontinues patient enrollment in mid-stage study of its drug candidate, vopratelimab, in combination with another drug for the treatment of non-small cell lung cancer

·     Biotech movers; PSTX rises as the FDA lifted a clinical hold on a study of its CAR-T cell therapy in prostate cancer patients after the company agreed to make certain changes to the trial; CVAC says interim phase i covid-19 trial results show volunteers developed antibodies on a par with those who have recovered from serious cases; BLUE upgraded at William Blair to outperform based on our recent targeted surveys of physicians in U.S. we believe shares are undervalued at current levels; HZNP Q3 revs $636.4M (vs. $531M cons), with Tepezza revenue of $286.9M (vs. $226M cons). EBITDA was $329.8M (vs. $225M cons) and EPS was $1.74 (Vs. $0.97 cons) while raises guidance; ORTX said it was notified that a patient treated with Strimvelis under a compassionate use program in 2016 has been diagnosed with lymphoid T-cell leukemia

·     Healthcare services and providers; FLGT gets a boost early after NY state travel restrictions requiring two negative COVID-19 tests for most travelers as having second order read through for US elections; CAH and MCK both upgraded at Barclay’s as believe now is the time to become more constructive on the subsector; HSIC reported 3Q results, with revenue of $2.84B (vs. $2.5B cons), with strength in the company’s Medical business ($1.03B vs. $849M cons); MOH launches a $650M debt offering

·     MedTech and Equipment; PKI announced it would be acquiring Horizon Discovery Group for $383M, expanding the company’s portfolio of gene editing and gene modulation tools; TFX upgraded to Overweight and introduce $382 tgt at Keybanc as believe TFX has reset NT expectations to better reflect the uncertain environment, and now can shift to offense with underlying fundamentals that appear intact and a more reasonable valuation

Industrials & Materials

·     Industrial & Machinery; in the waste sector, CVA upgrade to Overweight at Barclay’s on cont’d resilience, valuation, price strength, and material strategic changes setting up medium-term catalysts, while WM reported a Q3 EPS and sales beat this morning and delivered Q3 adjusted operating EBITDA results in line with last year’s record performance (follows CWST beat and raise quarter last week); in industrials, PH, LFUS, TEL positive mention in Barron’s saying they could benefit if the U.S. makes an economic comeback like China’s

Technology, Media & Telecom

·     Internet; large cap tech erase early gains, extending last week declines for TWTR, AMZN, AAPL, FB while GOOGL remains strong; EIGI to be acquired by affiliates of Clearlake Capital Group in an all cash transaction valued at ~$3B including outstanding indebtedness, with holders getting $9.50/share https://bit.ly/2TIyhGm ; KeyBanc previews earnings for China ADRs’ as are raising estimates and our price targets on BABA, PDD, and VIPS on business upside, and lowering margin estimates on JD due to competition; FTCH shares jumped after theinformation reported BABA in talks to invest in the online fashion retailer https://bit.ly/3jShCe9

·     Semiconductors; INTC upgrade from Underperform to Market Perform at Northland as think INTC’s troubles are priced in and examine the breakup value of INTC and come up with a conservative estimate that exceeds its current EV of Intel; AMBA unveils the CV28M CVflow® processor for artificial intelligence (AI) providing flexibility required to enable a new class of smart devices; ON Q3 EPS 27c on revenue $1.32B vs. est. 20c and $1.27B; sees Q3 revs $1.3B-$1.4B vs. est. $1.31B; bog week of earnings coming up with SWKS tonight and CRUS, MCHP, QCOM, QRVO and SYNA also this week

·     Media & Telecom movers; AMC files to offer up to 20m shares; NLSN rises after saying it will sell its consumer goods data unit for $2.7 bln to private equity firm Advent International, while also posted Q3 revs of $1.56B, topping ests; OMC upgraded to In Line from Underperform at Evercore ISI; AMCX mixed Q3 report that included upside revenue of $654.02M (-9% Y/Y, $45.35M above consensus) and an EPS miss with $1.32 ($0.02 below consensus) as ad revs fell 15.5% YoY; LAMR upgraded to overweight at Morgan Stanley saying they are well positioned to benefit from an improving U.S. macro environment and is the only traditional media business with audience growth, both during and beyond the COVID-19 pandemic

·     Software, Hardware & Component news; LITE rise in optical space early after Q1 results beat on the top and bottom line with $452.4M (+$11.1M above consensus) and $1.78 EPS ($0.31 EPS); CDW posts Q3 adjusted profit of $1.83 beating the $1.51 estimate on better sales; COUP acquires supply chain software firm LLamasoft for about $1.5B to strengthen its payment platform; MSFT confirms that Apple TV is launching on its new game consoles next week, which means Apple TV will be available on the major next-gen consoles, including Sony PlayStation 5 (SNE) as well as Microsoft’s Xbox Series X and Xbox Series S; AAPL announced Monday that it would be holding a Nov. 10 virtual event, its third over the past three months.