Closing Recap

Friday, November 20, 2020

Equity Market Recap

·     U.S. stocks traded in a narrow range on the day, though the last hour of trading saw a selloff. Sentiment was mixed as stocks bounced off overnight lows on news that Pfizer (PFE) and BioNTech (BNTX) said they will submit a request to U.S. regulators for an emergency use authorization to sell their Covid-19 vaccine just days after saying it was 95% effective. Pending review by the U.S. FDA, the vaccine could reach high-risk populations by mid-December while rival Moderna (MRNA) is close to finishing its own clinical trial, after showing comparable effectiveness in an interim data analysis. Treasury Secretary Steven Mnuchin declined to renew four emergency Fed loan programs last night, but did meet with Senate Majority Leader Mitch McConnell and White House Chief of Staff Mark Meadows to discuss a potential stimulus plan in hopes of presenting a proposal to Democrats. JPMorgan becomes the first Wall St. bank to forecast a negative GDP reading for the first quarter, though they see the economy beginning to bounce back in the second or third quarter and BMO sets a 2021 year-end price target of $4,200 on the S&P 500, calling for a 17% run from yesterday’s close. JPMorgan also said late day in a global strategy note they see some vulnerability in equity markets in the near term from balanced mutual funds, a $7tr universe, having to sell around $160bn of equities globally to revert to their target 60:40 allocation either by the end of November or by the end of December at the latest, which could have added to the late day roll. Treasury yields end at weekly lows.

Commodities

·     Oil rose +1.03%, or 41c to settle at $42.15 a barrel, capping off its third consecutive weekly gain, the longest steak since June. November’s 17% increase in WTI futures has almost doubled the S&P 500’s gain over the same time period. Pfizer and BioNTech’s vaccine, which was submitted to the FDA today for Emergency Use Authorization and could be made available next month, has provided optimism despite surging Covid-19 cases, lockdown measures, and the CDC urging Americans to restrict travel for the Thanksgiving holiday next week. Brent rose over $45/bbl today at its highest levels. The Baker Hughes Weekly Rig Count showed a weekly decline for the first time in 9 weeks, as the U.S. oil rig count fell by 5 to 231 and the gas rig count increased by 3 to 76. Gold prices rose $10.90, or +0.6%, to settle at $1,872.40 an ounce, though it did record a weekly loss of about -0.7%, the second consecutive weekly slide.

Sector News Breakdown

Consumer

·     Retailers; HIBB posts Q3 adj EPS $1.45 (est. 46c, highest analyst est. 57c), 20.3% rise in Q3 sales (est. +4%) to $331.4M, comp sales +21.2% also beats highest estimate, and sees Q4 EPS $1.00-$1.10 (above expectations of $0.60); in footwear, FL reports Q3 adj EPS $1.21 vs est. $0.63 on sales $2.11B, a 9% rise in Q3 sales (est. +1%) as demand surged during the COVID-19 pandemic as people took up outdoor exercises, such as running or cycling; CAL Q3 adj EPS 48c on revs $647.5M, both topping ests (4c, $619.5M); ROST Q3 EPS $1.02 on revs $3.8B, comp sales -3% all beat estimates (61c on $3.43B, -12.3% comps); BKE reported Q3 EPS 85c vs est. 55c on revs $251M and comp sales +12.4%, both also beating estimates ($232.6M, +4.1%); CPRI was downgraded to Hold with a $35 pt from Buy at HSBC, but was upgraded to Buy with a $72 pt at BTIG who sees underappreciated value despite the stock rising almost 30% since its blowout FQ2 report on Nov. 5th, citing a sharp acceleration in digital traffic, multiple structural gross margin tailwinds; HSBC also downgraded GOOS to Hold with a target C$45.75; NKE increased its quarterly dividend by 12% to 27.5c/share

·     Auto sector; GM tgt raised to $48 at Deutsche Bank, encouraged by GM’s updated product and investment strategy and targeted cost/margin trajectory, which could ultimately give it a strong market position and solid profitability in EVs; UBER tgt raised to $60 at Needham, encouraged by company’s customer retention characteristics in its delivery business and believes Uber is having more success in retention than investors realize; CPRT reported strong fiscal 1Q21 results, underpinned by HSD revenue growth and 20% earnings growth; EV space has been on fire this week led by TSLA, but also strength from NKLA, BLNK, WKHS, SOLO, AYRO among names; NKLA initiated buy and $35 tgt at Loop Capital today; SOLO was named as a Citron short with a $2 tgt

·     Housing, Furnishing & Building Products; WSM reported strong 3Q results that topped sell side and buy side expectations on the top- and bottom-lines (comp sales +24.4% vs est. +11.3%) as the business remained consistently strong into 4Q, and also expressed confidence that it could “comp the comp” and further expand operating margins in 2021; in building materials, Goldman Sachs upgraded EXP and FRTA to buy as they benefit from building pricing gains vs. consensus expectations in their residential businesses while downgraded VMC and MLM to neutral

·     Consumer Staples; NGVC Q4 profit jumps YoY as net sales rose 16% to $264M and comp sales rose over 13% and declares special cash dividend of $2.00 per share; BTIG raised tgts on food distributors PFGC to $52 from $45 and USFD to $$39 from $30 to reflect our view of the independent restaurant landscape, profitability gains and longer-term market share opportunity; BRBR Q4 EPS $0.25 vs consensus $0.19 and revenue $282.6M vs consensus $262.1M; POST Q4 EPS $0.58 vs consensus $0.78 and revenue $1.41B vs consensus $1.44B; EBITDA $274.8M vs consensus $274.8M; guides 1H21 EBITDA $520M-$550M

·     Leisure and Gaming; in online gaming, after a strong week of gains on positive analyst comments, more seen today as DKNG initiated overweight and $58 PT at Piper as believe DraftKings can take significant share of the still nascent Sports Betting market by leveraging a brand that it has built up over the past eight years with Daily Fantasy Sports at its core and initiated PENN with an overweight and $84 tgt saying it can leverage its investment in Barstool Sports to create a new revenue stream as well as infuse younger, more diverse customers to its database of >20M members in its current loyalty program; in the cruise industry, CCL scraps sailings well into late 2021, leaving some ships dry of revenue for more than a year, as it needs more time to fulfill requirements for sailing approval by the U.S. Centers for Disease Control and Prevention.

·     Services; AAN released separate presentations for its Aaron’s and Progressive businesses which are expected to split as separate public companies on November 30th (note Progressive tracking stock will begin trading on the 25th; PRGW); GSX tumbles after reporting net loss of 932.5 mln yuan ($142.00 mln) in Q3 compared with profit of 1.9 mln yuan a year earlier

·     Restaurants; RBC sees a negative impact on restaurants in the very near-term as dine-in restrictions should reverse trends that have been improving since the spring but the restrictions may have less of an impact on sales than expected as restaurants have had capacity limits recently, and they name DRI as their favorite restaurant name an raised their pt to $117 from $107; SHAK was downgraded at Wedbush on valuation with their $77 target staying unchanged;

Energy

·     Energy stock movers; a solid week of gains for energy stocks on economic recovery hopes amid positive vaccine news, as oil prices touched 2-month highs during that stretch; refiners equipment and service names have seen the biggest bounces; in stock news, OXY was upgraded from Neutral to Positive at Susquehanna as are increasingly confident in base case of a recovery in oil prices to near ~$50 per barrel by YE21 into 2022 on the back of improving macro data points and recent positive vaccine news; HP delivered roughly in-line operational results, with consolidated top-down EBITDA of $7M, while generous NWC tailwinds and disposals keyed stronger than modeled net cash flow; Truist said believe U.S. production could fall at least 1-2% sequentially this quarter and next versus the 1.2% sequential growth expected by the EIA as COVID is impacting Frac crews across Permian, Bakken, Eagle Ford. The most active operators currently in the Permian are XOM (Hold), EOG (Buy), CXO (Buy), and PXD (Hold); Raymond James maintains its Outperform ratings on PSX, VLO and DK and raises its price targets on each;

·     Utilities & Solar; FE concluded that there was a material weakness in internal control over financial reporting, and Bank of America downgrades the stock on a possible risk of other state investigations; CSIQ price target was increased to $50 at Roth and $48 at OpCo; CFRA downgraded SR to Hold from Buy;

Financials

·     Bank movers; Bank America downgraded BK to underperform and lowered their pt to $39 from $42 as they see muted returns after the recent market and rate driven rally given ongoing challenging core growth trends and some tough comps, and double upgraded CG to Buy with a $35 tgt from $30 on an attractive outlook given the potential for FRE/margin growth in 2H21-’23 as flagship funds re-enter the market, an improving performance fee backdrop driven by a healthy net accrued balance, and the continued scaling and increasing profitability of the Investment Solutions (IS) & Credit businesses; Bloomberg reports their 13F analysis shows hedge funds added more shares of WFC than any other investment in the Financial services sector during the third quarter and sold CFG, while financials decreased as a percentage of the value of total hedge fund holdings from the previous quarter; DA Davidson downgraded NBHC to Neutral

·     Insurance: Piper views ATH as undoubtedly the best positioned among the public life insurance companies that participated in the re-opening trade, while PFG seemed to suggest possible 4Q20 dental claims tailwinds while being confident noise from the IRT transaction will fade in summer 2021, and saying AEL continues to be a show-me story, but the story it tells is compelling; MET is in advanced talks to sell its P&C car and home insurance unit to Swiss company Zurich Insurance for close to $4B and a deal could be announced by early December, according to Reuters;

·     Consumer Finance; INTU posted Q1 adj EPS on revs $1.3B vs est. 37c on $1.2B, and guides Q2 adj EPS $1.31-1.34 and res +8-9%, above est. $1.21 and +6.1%; OpCo raises their price targets on V, GPN, and FIS

·     REITs; NRZ‘s national mortgage lending and servicing arm New Rez LLC, confidentially submits a draft registration statement with the SEC for a proposed IPO; KIM upped its quarterly dividend to 16c/share from 10c; Morgan Stanley upgraded UDR to OW with a $44 pt from Equal-Weight and raised price targets on EW-rated ESS, AVB, and EQR; Raymond James downgraded ACRE to Outperform from Strong Buy while upgrading TRTX to Strong Buy from Outperform and XAN to Outperform from Market Perform; AHT received notice from the NYSE that it has been in full compliance with all listing standards after receiving a non-compliance notice on Oct 1

Healthcare

·     Pharma movers; PFE said it has applied to U.S. health regulators for emergency use authorization (EUA) of its COVID-19 vaccine – the application to the FDA comes just days after Pfizer and German partner BNTX reported final trial results that showed the vaccine was 95% effective in preventing COVID-19 with no major safety concerns; ALXN said Friday the European Commission has approved the new 100 mg/mL intravenous formulation of Ultomiris for the treatment of paroxysmal nocturnal hemoglobinuria and atypical hemolytics uremic syndrome; AMRN rises after saying a late-stage trial of its heart drug, Vascepa, conducted by its Chinese partner met main goal. AMRN said Vascepa significantly reduced high levels of triglycerides when compared to placebo in Chinese patients; STOK 2.5M share Secondary priced at $39.00

·     Biotech movers; GILD’s drug remdesivir is not recommended for patients hospitalized with COVID-19, regardless of how sick they are, as there is no evidence it improves survival or reduces the need for ventilation, a World Health Organization panel said on Friday; AVRO 5M share Spot Secondary priced at $15.00; LQDA downgraded to neutral from outperform at Wedbush on likely negative PDUFA decision and lack of catalysts; MRVI 60M share IPO priced at $27.00; DTIL rises after announcing a genome editing research collaboration and license agreement with LLY which will initially focus on Duchenne muscular dystrophy (DMD) and two undisclosed gene targets; INO presents clinical results of its DNA medicines ino-5401 + ino-9012 in novel combination with pd-1 inhibitor Libtayo® in the treatment of newly diagnosed glioblastoma multiforme

·     Healthcare Services, MedTech and Equipment; SHC 46.6M share IPO priced at $23.00; HOLX downgraded to hold from buy at Needham saying while co is seeing a massive benefit from COVID-19 testing, it expects testing to begin declining in 2021

Industrials & Materials

·     Industrial & Machinery; HEES and URI both upgraded at Bank America given that we might finally have a COVID-19 vaccine at the same time that the used equipment market is firming, industrial production is rebounding, and time utilization is recovering; ALSN downgraded to neutral and PCAR downgraded to underperform in machinery at Bank America; in multi-industry, Goldman Sachs downgraded LII to Sell from Neutral as see 8%/9% downside to 2021-22 FactSet consensus amid slowing residential HVAC replacement demand and increased cost pressure, while relative valuations are at the high end of the historical range and cut TT to Neutral from Buy as we see risk/reward as more balanced following recent

·     Aerospace & Defense; Canaccord upgraded aero suppliers, raising ATRO to buy from hold and raise tgt to $15 from $7 saying even with the recent move in the stock, ATRO is still down ~65% YTD and has been one of the harder-hit stocks in the A&D sector; also upgraded SPR to buy from hold and up tgt to $40 from $21 as continue to believe SPR’s aggressive move on its cost structure will add to incremental upside in 2021-2023 as volumes gradually recover

·     Metals & Materials; CLF and SCHN both upgraded to Overweight at KeyBanc and downgraded NUE to sector weight as increase estimates across the carbon steel group on inflation and end of destocking cycle and while the equities have largely calibrated these changes, they see incremental opportunities ahead for CLF and SCHN that are not being fully recognized (firm also raised its price tgt on steel maker MT to $21)

·     Transports; CHRW was upgraded to Peer Perform from Underperform at Wolfe; ZTO was downgraded at HSBC to Reduce from Hold after its earnings after Wednesday’s close

Technology, Media & Telecom

·     Semiconductors and Software; MCHP entered into private exchange agreements with certain holders of its outstanding notes; FEYE announced an acquisition of Respond Software for $186M in cash and stock along with a strategic investment of $400M led by Blackstone Tactical Opportunities and ClearSky; WDAY delivered another quarter of solid execution against a difficult backdrop with sub. revenue/ backlog and margins all ahead of expectations – stock lagged as analysts cited potential headwind in subscription backlog forecast; MCFE inaugural 3Q results were in line with flash numbers shared with the IPO (modest beat against St.), and 4Q guide was comfortably ahead on revs ($732-742M, St. $728M) & profitability ($254-264M, St. $255M); Roblox (RBLX) filed its S-1 form with the SEC yesterday for a $1B IPO after Q3 rev and DAUs almost doubled YoY while its hours engaged and net loss more than doubled