Mid-Morning Look

Tuesday, August 25, 2020

U.S. stocks opened higher before fading despite positive trade talk news with China overnight, as markets take a small breather after record setting performances for the Nasdaq Composite and benchmark S&P 500 index yesterday. The Dow Jones Industrial Average slides following three index changes announced last night (AMGN, CRM, HON added to the Dow while PFE, RTX, XOM are removed ahead of the AAPL 4-1 stock split which changes the tech weighting in the Dow). Stock futures got a boost overnight attributed in part to a phone call between top U.S. and Chinese officials that saw them reaffirm their commitment to the phase one trade deal agreed to earlier this year, despite a rise in tensions between Beijing and Washington. There also remains increased optimism around COVID-19 vaccine development after the FDA approved the emergency use of blood plasma in COVID-19 patients this past Sunday. Stocks also await Federal Reserve Chair Jerome Powell’s address to the bank’s annual symposium in Jackson Hole, Wyoming later this week. Treasury prices have continued to cheapen, and yields rise as risk appetite surges and as supply weighs with the U.S. Treasury Department kicking off the first of its $148 billion of debt auctions this week, starting with a $50 billion sale of 2-year notes Tuesday afternoon. Economic data this morning mixed as housing and manufacturing data easily top views, but consumer confidence falls and was revised lower the prior month (consumer confidence fell 6.9 points to a lower 84.8 in August). Oil prices and stocks extend yesterday’s gains as Tropical Storm Marco made landfall Monday, but attention is focused on Laura, which was upgraded to a hurricane Tuesday morning and is expected to make landfall on the U.S. Gulf Coast later this week. Both the S&P and Nasdaq come into today with 3-day win streaks. The dollar edged slightly higher after the mixed data.

Economic Data

·     U.S. June 20-metro area home prices +3.5% vs. est. 3.8% and revised +3.6% in May while June home prices in 20 metro areas flat seasonally adj vs. est. +0.1%; June 20-metro area home prices non-adjusted +0.2% vs. revised +0.3% in M as per S&P Case-Shiller

·     New Home Sales for July surges 13.9% to 901K, easily above the 790K estimate July home sales northeast -23.1%, Midwest +58.8%, South +13.0% and West +7.8%; July new home supply 4.0 months’ worth at current pace vs June 4.6 months; July median price $330,600, +7.2%

·     Richmond Fed for August reported at +18 vs. est. +10 as shipments fell to 22 after 23 the prior month and new order volume increased to 15 after 9 the prior month

·     Consumer Confidence for August reported at 84.8, well below the 93.0 estimate and downwardly revised 88.6 from 92.6 in July; consumer expectations index 85.2 vs. July revised 88.9 and present situation index 84.2 vs. revised 95.9

Sector Movers Today

·     Retailers; BBY posted Q2 earnings and sales that topped consensus, while comp sales rose 5.8% beating the 3.7% estimate, but shares lagged after saying it expects sales growth may slow in the coming weeks due to challenges such as higher unemployment and potential supply issues; TIF slipped after LVMH said it notified Tiffany that it reserves the right to challenge the validity of the extension of the deal outside date; LB rises after MKM upgraded to buy with $40 tgt amid greater confidence in a Victoria’s Secret transaction and positive on Bath & Body Works; PLCE reported a wider-than-expected quarterly adj loss of (-$1.48) vs. est. loss (-$1.14) saying back-to-school sales have been significantly impacted and also anticipated a negative impact on its Q3 results; CROX was upgraded to buy at B Riley and raised its price tgt to $46 from $35; GPS was upgraded to buy at Citigroup and raised tgt to $24 from $12 saying the plan to spin off Old Navy was ditched, but the plan could imply the Board is willing to take on corporate actions to unlock shareholder value

·     Consumer Staples; SJM reported a beat on the top and bottom line and raises year sales view to 0% to +1%, saw -1% to -2% and raises FY21 free cash flow view to $925M-$975M from $900M-$950M; HAIN Q4 EPS of 32c topped the 26c estimate on in-line sales of $511M, while Q4 adj Ebitda rose over 9% to $62.2M; HRL posted aq3 EPS and sales that came in just above consensus views while saying it sees Q4 mirroring many dynamics seen in Q3; THS files mixed shelf

·     Hardware & Component news; AAPL shares slight pullback after hitting record highs above 4515 on Monday on continued momentum; NPTN downgraded to underperform at Raymond James based on assessment that the risk of losing Huawei has grown too high; RNWK supports the acquisition of Rhapsody International, Inc., which does business as Napster, by MelodyVR Group PLC, in deal valued ~$70M, comprising $15M in cash

·     Utilities & Solar; POR disclosed trading losses that could reach $155M, prompting the company to lower its full-year EPS view to $1.30 to $1.60 from $2.20-$2.50 prior and sees no impact expected to dividend guidance or long-term eps growth rate; SOL announced the signing of an agreement to acquire certain assets, including solar projects and accounts receivable, from an undisclosed U.S.-based developer in an all-stock transaction that values the assets at approximately $8 million; XEL was downgraded to hold at Argus citing valuation

·     Restaurants; SBUX was upgraded to buy from hold at Stifel and raise tgt to $90 from $78 as near-term believe SRS are recovering at least in line with Street estimates, which should be viewed favorably and sales trends should benefit in FY21 from aggressive steps the company is taking to improve convenience, such as curbside pickup and drive-thru handhelds; PZZA said August system-wide North America comps +24.2%, North America franchised restaurants comps +26.1%; JACK was initiated buy and $100 tgt at Deutsche Bank as like the setup because there is still upside in a base case

Stock GAINERS

·     AMGN +4%; will replace PFE in the Dow Jones Industrial Average

·     CRM +2%; will replace XOM in the Dow Jones Industrial Average

·     GPS +7%; upgraded to buy at Citigroup and raised tgt to $24 from $12

·     HON +3%; will replace RTX in the Dow Jones Industrial Average

·     IMVT +6%; said it expects to start registration-enabling Phase 3 trial in the first half of 2021, with positive topline results from ASCEND MG, a phase 2a study of IMBT-1401 in patients with myasthenia gravis (MG)

·     MDT +4%; Q1 EPS of 62c tops the 18c estimate but is down sharply from $1.26 last year due to disruptions caused by the coronavirus pandemic while revs of $6.5B tops the $5.44B estimate citing a recovery in procedure volumes

·     NIO +8%; was upgraded to neutral from sell at UBS and raise tgt to $16.30 from $1 noting the stock’s fundamentals have improved with the revival of sales volumes and margins in the company’s reported Q2 and guided Q3

·     SJM +8%; reported a beat on the top and bottom line and raises year sales view to 0% to +1%, saw -1% to -2% and raises FY21 free cash flow view to $925M-$975M from $900M-$950M

Stock LAGGARDS

·     BBY -6%; posted Q2 earnings and sales that topped consensus, while comp sales rose 5.8% beating the 3.7% estimate, but shares lagged after saying it expects sales growth may slow in the coming weeks

·     HAIN -8%; Q4 EPS of 32c topped the 26c estimate on in-line sales of $511M, while Q4 adj Ebitda rose over 9% to $62.2M

·     PANW -1%; solid beat for the Q as expected and on balance the billings guide is just in line and FY 21 growth is implied to be mid-teens w product flat to down

·     PLCE -21%; reported a wider-than-expected quarterly adj loss of (-$1.48) vs. est. loss (-$1.14) saying back-to-school sales have been significantly impacted and anticipated a negative impact on its Q3 results

·     POR -11%; disclosed trading losses that could reach $155M, prompting the company to lower its full-year EPS view to $1.30 to $1.60 from $2.20-$2.50 prior and sees no impact expected to dividend guidance or long-term eps growth rate

·     UAL -2%; little pullback in airlines, cruise lines after outperformance yesterday