Mid-Morning Look

Wednesday, April 29, 2020

U.S. equities posting strong gains early, getting a bounce from GILD’s COVID-19 drug data and GOOGL earnings, while Q1 GDP came in weaker than expected. Dow component Boeing (BA) also lifting markets on cost cutting and liquidity comments, offsetting an ugly Q1 earnings loss and drop in revenue. Stocks got a boost this morning after Gilead said the government trial of its remdesivir for the treatment of COVID-19 had met its primary endpoint, with more details to soon come from the National Institute of Allergy and Infectious Diseases. The news helped offset disappointing economic data after GDP Q1 actual showed a drop of (-4.8%) for the economy, worse than the (-4%) estimate as personal consumption plunged by a (-7.6%) figure, also worse than the (-3.6%) estimate. Mixed in with the earnings barrage, coronavirus drug update and economic data is day-two results of the FOMC meeting later today where no change is expected to benchmark rate of 0-0.25% and previews see little change to policy statement while the focus may be on continuing to develop strategy around asset purchases and expanding lending facilities. Despite the spike in stocks again, Treasury markets also remain strong, as yields refuse to go higher – the 10-yr yield down 2 bps below 0.6% and the 30-yr down 1 bps to 1.19%. Oil the other story as WTI crude jumps over 25% despite mixed weekly inventory data/gasoline futures rise after EIA data shows surprise draw in inventories. Stocks continue to benefit as well as many U.S. states and countries around the world begin to open their economies in small steps.

Economic Data

·     GDP data for Q1 in the U.S. misses estimates, falling (-4.8%), worse than the (-4%) estimate as personal consumption plunged by a (-7.6%) figure, also worse than the (-3.6%) estimate. Inflation readings also rose with Core PCE QoQ up 1.8% vs. est. 1.7% and GDP Price index rose 1.3% vs. est. 1.0% – sharply lower readings for GDP

·     March pending home sales falls (-20.8%) vs. est. (-13.6%) and down over (-16%) YoY, posting the sharpest monthly decline since May 2010

Sector Movers Today

·     Aerospace & Defense; BA said it is confident of getting sufficient liquidity to fund ops amid coronavirus crisis and is targeting 10% reduction in staffing levels after reporting negative operating cash flow for the first quarter of $-4.30 billion vs -$2.22b in 4Q on a core EPS loss of (-$1.70), in-line with estimates and revs falling -26% YoY to $16.91B (shares of suppliers SPR, HXL were also active on the BA report); MRCY posted adjusted Q3/20 EBITDA and EPS of $47.7M (22.6% margin) and $0.60, respectively. The strong quarter was highlighted by organic growth of 11%; NOC missed profit estimates for Q1 as earnings were reduced by $56M due to negative returns on securities relating to non-qualified benefit plans and other non-operating assets/company also issued slightly lower sales outlook for the year; GD said declines YoY in Q1 revs as sales sink for its aerospace division, which makes Gulfstream business jets as Covid-19 disrupts travel/revenue for the division falls by 24.5% in the three-month period…but the company pulls in significant new defense contracts

·     Restaurants; EAT shares jumped over 20% after easily topping EPS for Q1 on in-line revs of $860M, helping boost sentiment in restaurant stocks on the day (DRI, CAKE, RRGB, BJRI); SBUX reports a 10% drop in Q2 comp store sales (in-line with ests) and forecasts a 25%-35% drop for current qtr same-store sales in China – its biggest growth market – due to the impact of the coronavirus pandemic/sees China markets recovering by September-end, but expects impact on U.S. business to be significantly greater in Q3 and extend to Q4: LK said it would take advantage of U.S. SEC regulatory relief and not file its annual report by April 30.

·     Semiconductors; The Philly semi index (SOX) rises nearly 3% early above 1,760 – topping its 100-day MA earlier of 1,735, with AMD the only decliner in the space after earnings, while MKSI outperforms after earnings results; AMD reported MarQ in line and guided JunQ revenue to an in-line $1.85B (cons $1.88B), with modestly softer 44% GMs reflecting gaming console ramps; MPWR 1Q revenue of $166M was higher than consensus while EPS missed with 2Q revenue guidance at the midpoint was $170M, higher than the consensus estimate of $164M; MXIM reported a solid Q1 with results in line with guidance/negatively, Q2 is seeing notable declines q/q due to Automotive & Consumer which are expected to be “Strongly Down” q/q in June

·     Transports; Dow Transports strong, though pared gains as airlines again pacing gains with UAL, AAL, JBLU up notably early, while trucker CHRW top decliner after earnings, and UPS weak after BMO downgraded (follows weak earnings the day prior); LUV 70M share Spot Secondary priced at $28.50; in rails, NSC operating revenues fell 8% in Q1 to $2.6B as an 11% decline in total volume impacted the top line while adjusted operating ratio was 63.7% vs. 66.0% a year ago as the efforts to take advantage of structural cost opportunities continues/said Q2 volume is declining across all of Norfolk Southern’s commodity segments and is down 30% QTD

·     Chemicals; ALB was downgraded to sell at Loop Capital seeing pressure on catalyst segment results on dramatically lower demand for refined products; at Wells Fargo, CE was downgraded saying the remainder of 2020E will likely be under significant pressure from the Covid-19 pandemic where volumes declines are expected to be daunting and upgraded IFF as believe IFF’s portfolio should hold up better than most in our chemical universe; SHW said it anticipates consolidated net sales to fall in 2020 if the economic conditions don’t improve until early 2021, and revised its full-year sales and profit guidance lower

Stock GAINERS

·     DXCM +7%; tgts raised by analysts (Citi to $361 from $330) as delivered 1Q20 results that surpassed expectations and suspended 2020 guidance (revenue of $405.1M was up 44% and topped $358.5M estimate on record new patient adds)

·     GILD shares surged after saying it’s aware of positive data emerging from the National Institute of Allergy and Infectious Diseases’ study of the investigational antiviral remdesivir for the treatment of COVID-19 and that the trial has met its primary endpoint

·     GOOGL +9%; Q1 total revs (both gross and net) beat, while ad revenues slowed significantly in late March, although YouTube’s y/y ad revenue growth accelerated from Q4 (quarter was characterized by several analysts as “better-than-feared)

·     MA +4%; reported a 10c EPS beat for Q1 though income fell to $1.7B from $1.9B a year earlier as costs such as rebates and incentives rose and said it has seen early signs that spending levels are stabilizing

·     RCL +12%; as cruise lines among top gainers on the day along with CCL, NCLH as well

·     SPOT +13%; added 130M paid subscribers globally topping analysts’ estimates of 128.6M subs while total monthly active users grew 31% YoY and revenue jumped 22%/but lowers FY revenue forecast

·     WW +12% shares rise after smaller-than-expected Q1 EPS loss (4c vs. 23c est.) on in-line revs driven by strong product sales and Q1 total subscribers rose to 5M and a 16% rise in digital subscribers to 3.6M from a year ago

Stock LAGGARDS

·     AKAM -4%; falls despite strong earnings beat after withdrawing its outlook for the year

·     CHRW -5%; reports a more than 50% drop in 1Q profit as truckload pricing slid and the company spent more on technology/North America’s largest freight broker logs $3.8B in revenue, up 1.4% year-over-year on higher volume in trucking and less-than-truckload shipments.

·     HAS -5%; scrapped its 2020 outlook, sees weakness in Q2 earnings as coronavirus outbreak hurts sales after swinging to a Q1 loss

·     IRBT -5%; reports quarterly loss from year ago profit saying it saw disruptions to its sales and manufacturing supply chain activities from the spread of the coronavirus (revs fell -19% YoY)

·     LH -1%; after turning in a Q1 loss as demand for testing fell declined 50% to 55% from the LabCorp Diagnostics’ normal daily levels

·     ZM -7%; after GOOGL announced will make Meet free, as well as further pullback in “stay-at-home” stock winners over the last month as more states reopen