Mid-Morning Look

Tuesday, April 28, 2020

U.S. equities opened higher on the back of some positive earnings reports and growing optimism for the reopening of the global economy, but have since pulled back on other mixed earnings reports and disappointing economic data, coming in worse than lowered estimates. The Conference Board said on Tuesday its consumer confidence index dropped to a reading of 86.9 this month from a downwardly revised 118.8 in March. The tech heavy Nasdaq Composite pulls back after hitting highs of 8,830 (rising as much as 1%) while remains well off the 6,631 low on 3/23 in a V-shaped recovery over the last month. Lifting markets remains news that multiple U.S. states have taken steps towards a relaunch of economic activity after government restrictions were put in place to stunt the spread of the coronavirus, with Georgia permitting restaurants to reopen for the first time in a month on Monday. Stocks slipped off highs after mixed results/guidance from several Dow components this morning (CAT, MMM, PFE, MRK). Note after rallying nearly 29% from the March 23 low, the S&P now stands 15% below its Feb 19 high. Treasury prices remain strong as yields pull back, oil prices rebound after declines of 15% earlier to turn positive now, gold prices slide as stocks rally. Smallcaps are outperforming for a second straight session as large cap mega tech names fail to rally a second day as well.

Economic Data

·     U.S. April consumer confidence index 86.9 (below consensus 87.9) vs. March revised 118.8 (previous 120.0) while the present situation index 76.4 in April vs. March revised 166.7 (previous 167.7) and the expectations index 93.8 in April vs. March revised 86.8 (previous 88.2)

·     March advance trade deficit of goods widened to (-$64.2B) from (-$59.9B) in prior month and below the (-$55.0B) estimate; Imports fell 2.4% in March to $191.866b from $196.627b in Feb. and exports fell 6.7% in March to $127.647b from $136.741b in Feb.

·     Richmond Fed’s April manufacturing survey plunged to -53 vs. +2 last month and worse than expected decline of (-41) as shipments fell to -70 after 13 the prior month, new order volume slowed to -61 after 0 the prior month and order backlogs fell to -42 after -8 the prior month

Sector Movers Today

·     Industrial & Machinery; Dow component CAT Q1 EPS miss, does not provide FY20 guide; says Q2 to be more impacted than Q1; Dow component MMM said net sales beat, will start reporting monthly sales information in May; suspends buyback & withdraws guidance; CR Q1 EPS/revs both miss estimates while cuts year profit, sales and free cash flow view; ABB Operational EPS of $0.30, falling 2% from the same quarter a year ago and orders were 4% lower, but were above consensus views; SSD shares surge after earnings result and upgrade at Davidson to buy

·     Transports; LUV reports earnings and announces offering of 55mm shares & $1B of converts; UPS 1Q adj EPS $1.14 vs. est. $1.23 on revs $18B while suspends buybacks for 2020 (cuts FY buyback tgt by about $783Mm), sees 2020 CAPEX about $1B below prior view/operating income came in at $1.12B vs. $1.32B consensus as the U.S. domestic package segment fell short; CNI reports top/bottom line beat, withdraws 2020 guidance, maintains dividend/1Q operating ratio 65.7% vs. 69.5% YoY

·     Pharma movers; Dow components PFE and MRK each report earnings; MRK Q1 EPS and sales beats while lowered its 2020 guidance (revenue of $46.1-$48.1bn vs. prior of $48.8bn-$50.3bn ) and EPS as well given COVID-19 headwinds and F/X; PFE revenue beat & reaffirms guidance, no buybacks planned in 2020; taking steps to scale up some manufacturing ops; OCUL rises after Dextenza met all prespecified primary endpoints in a Phase 3 trial of patients with itchy eyes tied to allergic conjunctivitis; VRTX downgraded at RBC Capital on valuation while remain bullish on the company’s fundamentals, with high growth prospects for its core cystic fibrosis franchise, strong adoption of launching drug Trikafta, good insulation from COVID-19; JNJ downgraded to neutral at UBS on risk/reward

·     Healthcare services and providers; SDC rises announces plans to reopen its SmileShops in May in U.S., Canada, Germany and other countries as local governments begin to lift business restrictions/also granted U.S. patent for its SmileShop intellectual property; DGX rises as launches COVID-19 antibody test which can be purchased online (also upgraded to OW at Morgan Stanley); CNC mixed Q1 as EPS miss and maintains year profit but raises revenue outlook; UHS suspends dividend, buyback program after Q1 profit drops 40% as the company incurred higher expenses not directly related to its core operations due to the decline in market values on some of its investments.

·     Casino & Leisure movers; campers/RVs active (WGO, THO, LCII, CWH) after the RV Industry Association’s March 2020 survey of manufacturers found that total RV shipments ended the month with 30,288 units, a decrease of 20.3% from the 38,015 units shipped in March 2019; in theme parks, SIX was upgraded to overweight at Wells Fargo and downgraded FUN; Fewer than half of Americans plan to go to sports events, concerts, movies and amusement parks when they reopen to the public until there is a proven coronavirus vaccine, according to a Reuters/Ipsos opinion poll (DIS, SIX, SEAS, LYV)

Stock GAINERS

·     DCPH +19%; seen as a beneficiary of the failed BPMC data

·     DGX +1%; as co launches COVID-19 antibody test which can be purchased online; says individuals can request test and purchase it online; each test request is reviewed and, if appropriate, an order for testing is issued by a licensed physician

·     DHI +12%; revenue better, net sales -11% MTD in April, net orders up 20%, withdraws guidance

·     FFIV +12%; reported FQ2 revenue 4% above consensus, and guided for FQ3 revenue 2% above consensus driven by accelerating software momentum

·     HOG +9%; despite reporting motorcycle sales fell 17.7% Y/Y in Q1 to 40,439 units. Sales in the U.S. fell 15.5% to 23,732 units and sales in EMA were off 28.4% to 7,730 as the pandemic impacted demand in both regions/gross margin fell 10 bps to 29.0% of sales

·     PCTY +6%, ENPH +13%; PCTY will replace MDP in the S&P MidCap 400, and Meredith will replace DO in the S&P SmallCap 600; ENPH will replace CLB in the S&P MidCap 400, and Core Laboratories will replace AKRX in the S&P SmallCap 600

·     QTNT +13%; reported very strong final study performance data for its SARS-CoV-2 antibody test/expects to complete the CE marking process and the submission of the FDA emergency use authorization

·     SDC +25%; announces plans to reopen its SmileShops in May in U.S., Canada, Germany and other countries as local governments begin to lift business restrictions/also granted U.S. patent for its SmileShop intellectual property

·     SNDX +70%; after the company presented Phase 1 data for its menin inhibitor SNDX-5613 and said the FDA granted orphan drug status to SNDX-5613 to treat certain leukemia patients.

Stock LAGGARDS

·     BPMC -12%; announced this am that the VOYAGER trial did not meet the primary endpoint of an improvement in progression-free survival (PFS) for avapritinib versus regorafenib

·     CINF -11%; as falls short of profit estimates for the first time in at least eight quarters with results hurt by weakness in life insurance subsidiary and also hit by a fall in after-tax property casualty underwriting income,

·     HLIT -14% withdraws previously issued full-year guidance while reports Q1 rev of $78.4M and EPS loss (10c) missing the $85M/5c profit estimate and guides Q2 revs $62M-$77M vs. $97M est.

·     MRK -3%; Q1 EPS and sales beats while lowered its 2020 guidance (revenue of $46.1-$48.1bn vs. prior of $48.8bn-$50.3bn ) and EPS as well given COVID-19 headwinds and F/X

·     ROKU -6%; was downgraded to neutral at Guggenheim saying with lockdown orders expiring, we see incremental investor interest in ideas that have underperformed to date and that can benefit from this dynamic

·     UPS -5%; 1Q adj EPS $1.14 vs. est. $1.23 on revs $18B while suspends buybacks for 2020 (cuts FY buyback tgt by about $783Mm), sees 2020 CAPEX about $1B below prior view/operating income came in at $1.12B vs. $1.32B consensus as the U.S. domestic package segment fell short

·     WAT -5%; falls as profit and sales for the first quarter fell, mostly due to the coronavirus containment measures in China (sales $465M down from $514M YoY and est. $491M)