Mid-Morning Look

Thursday, August 13, 2020

U.S. equities are mixed as the S&P flirts again with all-time record highs (traded above the February record closing high of 3,386 yesterday but not above the 3,393 intraday record high) while the Dow slips early behind weakness in CSCO after a weaker revenue outlook, though tech stocks bounce led by gains in software and Internet names. Weekly jobless claims were 963K, not a good number, but was the first time claims were below 1 million in 22-weeks, showing continued improvement, while continuing claims were 15.486M. At the same point, Washington remains deadlocked on another stimulus package as the White House and Democrats have been bickering for weeks now. Dow Transports slip early after coming into today with an 11-day winning streak – longest since 1992. Treasury prices were steady ahead of a big supply day as the Treasury is selling a record $26B in new 30-year bonds to complete the $112B August refunding after good 3- and 10-year auctions the prior two-days. The WSJ reported that high coronavirus case numbers in several major economies will blunt the recovery of an oil market already beleaguered by low demand, according to the IEA which forecast a sharper contraction in global demand for 2020. The Philly semiconductor index (SOX) pulls back from record highs yesterday, led by a drop in MU after Deutsche Bank downgrades as software and Internet names leading the Nasdaq higher today. Oil slips, gold little changed and the dollar mixed.

Economic Data

·     Weekly jobless claims continue to show improvement as claims fell to 963K from prior week of 1.186M and marked the first drop below the 1 million mark in 22-weeks (est was 1.1M); continued claims fell to 15.486M from 16.09M prior and the 4-week moving average fell to 1.252M from 1.339M prior week; US insured unemployment rate fell to 10.6% from 11%

·     Import prices for July rose +0.7%, slightly better than the 0.6% estimate, but down from June up 1.4%; Export prices rose +0.8% vs. est. 0.4% rise and vs. June 1.4% gain

Sector Movers Today

·     E&P sector; NBR was downgraded to sell from neutral at Goldman Sachs and cut tgt to $45 from $65 as anticipates negative free cash flows for the company in 2021 and 2022 while cutting respective EBITDA estimates by 16% and 15%; SWN was upgraded to Equal Weight at Wells Fargo to reflect the improved FCF outlook following the MR deal while downgraded NBL to Equal Weight given the pending acquisition by CVX; XEC was upgraded to Overweight at Piper saying while expectations into 2Q20 results were exceedingly low, the group for the most part did a good job defining the forward path; OXY was upgraded to neutral from underweight at JPMorgan after underperformance vs. the group 

·     Auto sector; TSLA momentum higher continues after surging over 13% on Wednesday on the mere news of a 5 for 1 stock split announcement; ride hailing space active after LYFT delivered 2Q results in-line with consensus for the most part, but July (and early August) trends are pointing to 3Q results below current consensus – said rideshare rides were down -70% y/y in May but were -61% in June and -54% YoY by July – did says has improved positioning towards reaching profitability; NKLA confirms that it is open to collaborating with Hyundai (HYMLF) on hydrogen technology even after prior proposals from founder Trevor Milton to the South Korean automaker were rejected; VRM shares tumble as Q2 EPS and res were better than expected but the more rapid-than-expected decline in ASPs led to 3Q revenue guidance that fell short of consensus and pressured shares

·     Retailers; TPR beats Q4 sales estimates ($715M vs. est. $663M), helped by recovery in China and surge in online orders for its Coach handbags while also posted a smaller-than-expected loss (not providing guidance) – a little boost for luxury names (CPRI, RL); FOSL said Q2 online sales more than doubled at its own websites, while it rose 20% at third-party marketplaces and expects significant improvement in online sales in H2 (sees Q3 net sales to decline 35%-45% compared to last year, vs 48% decline in Q2); RVLV net sales declined -11.8% in 2Q, ahead of estimates and net sales returned to positive growth in June while Q2 revs of $142M topped the $119M estimate, prompting an upgrade to strong buy at Raymond James; BBY tgt raised to $127 at Piper as see both near- and long-term positive catalysts for fundamentals

·     Industrial & Machinery; Dow component MMM said total sales increased 29% in health care, 9% in consumer, and 6% in safety and industrial in July; July sales rose 6% to $2.8B, organic local currency sales rose 3%; in the machinery sector, JPMorgan downgraded DE (to underweight on valuation) and OSK (to neutral) while upgraded CNHI to overweight; ROP said it reached a definitive agreement to acquire Vertafore in an all-cash transaction of $5.35B

·     Transports; Dow Transports came into today with an 11-day winning streak – longest since 1992; ZTO falls despite Q2 revs rising 18% Y/Y to RMB6.4B (US$906.2M); and Adj. net income increase of 5.7% Y/Y to RMB1.45B (US$205.7M) as lower guidance weighed on shares – lowers its FY20 adjusted net income RMB4.8B-RMB5.2B

Stock GAINERS

·     AZPN +30%; after strong beat and guidance as Q4 adjusted EPS $1.54/$199.3M topped the est. $1.17/$176.57M; guides FY21 adjusted EPS $4.78-$5.32 vs. est. $3.64 and revenue $704M-$754M, well above the consensus $600.43M

·     FAT +150%; after agreeing to acquire Johnny Rockets for $25M

·     MMM +1%; said total sales increased 29% in health care, 9% in consumer, and 6% in safety and industrial in July; July sales rose 6% to $2.8B, organic local currency sales rose 3%

·     ONEM +10%; reported revenue, membership, care margin and adjusted EBITDA at or above the high end of the company’s forecast and Q3 guidance crushed consensus estimates while launches service for National employers

·     PENN +3%; initiated buy and $60 tgt at Goldman Sachs, positive on a rebound in regional gaming while also sees Penn being able to leverage Barstool Sports’ embedded customer base and content creation engine to quickly take share in sports betting

·     RVLV +18%; net sales declined -11.8% in 2Q, ahead of estimates and net sales returned to positive growth in June while Q2 revs of $142M topped the $119M estimate, prompting an upgrade to strong buy at Raymond James

·     WCC +9%; reported a solid Q2 EPS beat of $1.04, topping the 67c estimate saying Anixter merger positively impacted sales by over 10%

Stock LAGGARDS

·     CSCO -10%; reported Q4 results that came slightly ahead of the Street (below seasonal norms), but guidance for 1QFY21 was below consensus as sees Q1 EPS 69c-71c vs. est. 76c and revs to fall (9%-11%) for Q1, below the estimate of down (-7.15%)

·     PING -7%; reported F2Q results that were slightly ahead of its July 6 preannouncement but there were some surface level disappointment in F3Q revenue guidance

·     LYFT -5%; delivered 2Q results in-line with consensus for the most part, but July (and early August) trends are pointing to 3Q results below current consensus – said rideshare rides were down -70% y/y in May but were -61% in June and -54% YoY by July

·     MU -3%; downgraded to hold from buy at Deutsche Bank with $48 tgt saying extensive checks with the supply chain following Western Digital’s recent lackluster guidance left him feeling more negative on the supply-demand balance for the memory sector

·     SDC -13%; posted an 82% plunge in Q2 revenue as sales of its teeth aligners were hit due to the COVID-19 pandemic

·     VREX -11%; was downgraded to perform at Oppenheimer as F3Q revenue declined 13% y/y to $171M, missing their $176M estimate, as COVID pressured elective medical procedures, while some industrial verticals stayed fairly steady

·     VRM -16%; as Q2 EPS and res were better than expected but the more rapid-than-expected decline in ASPs led to 3Q revenue guidance that fell short of consensus and pressured shares

·     ZTO -5% despite Q2 revs rising 18% Y/Y to RMB6.4B (US$906.2M); and Adj. net income increase of 5.7% Y/Y to RMB1.45B (US$205.7M) as lower guidance weighed on shares – lowers its FY20 adjusted net income RMB4.8B-RMB5.2B

Syndicate:

·     Adverum Biotechnologies (ADVM) 14.5M share Secondary priced at $13.00

·     KE (KE) 106M share IPO priced at $20.00

·     Newgioco Group (NWGI) 4.17M share Spot Secondary priced at $2.40

·     OneConnect (OCFT) 18M share Secondary priced at $18.00

·     Schrodinger (SDGR) 4.5M share Secondary priced at $66.00

·     Seres Therapeutics (MCRB) 10.5M share Secondary priced at $21.50

·     Sprout Social (SPT) 6M share Secondary priced at $27.50

·     Stewart (STC) 2.6M share Secondary priced at $38.00

·     StoneCo (STNE) 27.375M share Secondary priced at $47.50

·     TFI International (TFII) 4.4M share Secondary priced at $43.25

·     Vertiv Holdings (VRT) 20M share Secondary priced at $15.25