Mid-Morning Look

Thursday, December 03, 2020

U.S. stocks open higher again, refusing to show any fear or trepidation despite a stock market surge over the last month (coming off best month for many major averages in years – Russell 2000 best ever month), as vaccine optimism, stimulus hopes, better earnings, an accommodative Fed, a weaker dollar and improving economic data (strong manufacturing today) all overshadow surging coronavirus cases. Markets extending their rally into the holiday season on expectations of strong spending, as the Nasdaq Composite reclaims a new record high along with the S&P 500 and the Dow tops the 30,000 level again, led by behind strength in Boeing (BA) after confirms order for 75 additional 737 MAX airplanes from Ryanair. Overall, major averages are all at or near record highs.

Several tech names surging after earnings/guidance overnight in software sector including SNOW, ESTC, ZS, OKTA while SPLK the lone pullback. Asset managers rise after WDR to be acquired by Macquarie for 48% premium, while oil names an early drag. Economic data was mostly favorable as jobless claims came in lower with declining continuing claims and strong manufacturing data from Markit, though ISM Services data disappoints missing estimates and dipping below prior month (though did show expansion). U.S. House Majority Leader Steny Hoyer expressed hope yesterday that a fiscal stimulus deal could be reached “in the next few days”, and any legislation would likely need to be supplemented with further aid next year – which has been another big market driver this week. Republicans and Democrats also face a Dec. 11 deadline to pass a $1.4 trillion budget or risk a shutdown of the government. New day, new highs – market remains turbo charged into year end!

Economic Data

·     U.S. jobless claims fell to 712K better than the 775K est., while prior week revised to 778K; continued claims fell to 5.520 mln in latest week (vs. est. 5.915 mln) from 6.089 mln prior week; the 4-week moving average fell to 739,500 from 750,750 prior week and the U.S. insured unemployment rate fell to 3.8% from 4.2% prior week

·     Markit Services PMI Nov-F at 58.4 vs. Oct 56.9 (vs flash 57.7) and highest since March 2015, Final Composite PMI at 58.6 (vs flash 57.9), also highest since March 2015vs. Oct 56.3; Final services employment index at 57.8 vs flash 58.6 and final October 53.4 – final services and composite employment indexes both highest since survey began in 2009

·     ISM Non-Manufacturing for Nov (services) slowed to a six-month low in November amid widespread restrictions on businesses reported at 55.9 last month, below the 56.6 in October and missing estimates. Services sector PMI and business activity index both lowest since may, new orders lowest since August. The second straight monthly decrease pulled the index further below its 57.3 level in February.

Sector Movers Today

·     Apparel Retailers; GES Q3 adj EPS 58c on revs $569M vs. est. 5c and $515.58M, and the company expects Q4 revs to be down low-mid 20s due to lower customer traffic related to the pandemic and store closures; PVH reported Q3 Adjusted EPS of $1.32 (6x higher than consensus $0.22) on revs $2.12B (-18.1% YoY, above consensus $1.99B), as all three brands report better than expected revenues, with Tommy Hilfiger’s and Calvin Klein’s international driving the largest portion; BKE reported November total sales +8.1% to $86.3M and comp sales +8.4%; EXPR 3Q adj EPS ($1.17) vs. est. ($0.51) on sales $322.1Mm vs. est. $376.4Mm, comps -30%, and they do not provide guidance for 4Q

·     Discount retailers; DG Q3 EPS $2.31 on net sales $8.2B (est. $8.14B), comp sales +12.2% (est. +11.5%); FIVE Q3 EPS 36c on revs $476.6M, both topping estimates (19c on $445.6M), and comp sales +12.8% beat est. +5.3% and was the company’s strongest growth since 2010; FIVE 3Q sales and margin beat, due to leverage and tight cost controls. While go-forward expenses should normalize, 4Q comps are off to a strong start

·     Consumer Finance; Dyal Capital Partners is in talks to merge with ORCC, part of a complicated deal with a special-purpose acquisition company that would value the fast-growing asset managers at about $13 billion – WSJ reports https://on.wsj.com/39DeK3w ; FOUR 8M share Secondary priced at $55.50; SQ upgraded to outperform at Evercore ISI and hikes PT to $300 from $161, implying upside of ~33% from last close as expects co’s Cash App to sustain incredible growth through innovation and total addressable market expansion; PYPL tgt raised to $312 from $240 at Evercore/ISI as believes will continue to benefit from the accelerating shift to online payments created by the COVID-19 pandemic/continue to disrupt payments/banking industries

·     Asset managers; WDR agrees to be acquired by Macquarie Group for $25 per share, in a $1.7B deal, a ~48% premium to the stock’s closing price on Dec. 1. Macquarie also will sell Waddell & Reed’s wealth management platform to LPLA for $300M and enter into a long-term partnership with Macquarie https://bit.ly/37ye9x6 ; XP 31.654M share secondary priced at $39.00; Jefferies said BLK and TROW top picks in U.S. in asset manager space and from an M&A perspective they view WETF is the leading take-out candidate saying as organic growth challenges persist industry consolidation is on the rise

Stock GAINERS

·     BA +4%; Ryanair announced that it signed a purchase agreement with Boeing for 75 new MAX-8200 aircraft, which increases its firm order for the Boeing aircraft from 135 to 210, with a total value of over $22B 9confirms prior reports)

·     CDMO +11%; blow-out Q2 results as revenue came in above both consensus and Street high estimate, while guidance was raised by more than the amount of the beat

·     CRWD +12%; after Q3 beats with 86% YoY revenue growth to $232.46M (est. $212M), subscription revenue was up 87% to $213.5M and ARR totaled $907M vs. the $853.8M with better Q4 guidance

·     ESTC +15%; delivered strong results with marked revenue/billings outperformance with SaaS revenue +81% to 26% of the mix

·     OMER +20%; after a rule from CMS showed the company’s Omidria qualifies as a non-opioid pain management drug that functions as a surgical supply

·     PVH +5%; reported Q3 Adjusted EPS of $1.32 (6x higher than consensus $0.22) on revs $2.12B (-18.1% YoY, above consensus $1.99B), as all three brands report better than expected revenues

·     TSLA +3%; was upgraded to Buy from Neutral at Goldman Sachs with a price target of $780, up from $455 on better long-term sales outlook and margin expansion

·     WDR +49%; agrees to be acquired by Macquarie Group for $25 per share, in a $1.7B deal, a ~48% premium to the stock’s closing price on Dec. 1. Macquarie also will sell Waddell & Reed’s wealth management platform to LPLA for $300M https://bit.ly/37ye9x6

·     XPO +3%; announced a proposed spinoff of its two-core business, Transportation and Logistics, into two separate publicly traded companies

·     ZS +14%; reported strong F1Q21 results as the company is benefiting from an acceleration of digital transformation as billings growth accelerated to +64% y/y (vs. Street +39.5%), and FY21 billings guidance was raised by ~6% at the mid-point

Stock LAGGARDS

·     COST -1%; reported Q1 net sales $42.35B (+16.9% YoY), Nov net sales $15.67B (+15.1% YoY), and comp sales +13.4% (ex-gas +14.2%), missing estimates (+13.8%, +15.4%)

·     EXPR -28%; after 3Q adj EPS loss ($1.17) worse than est. ($0.51) on sales $322.1Mm vs. est. $376.4Mm, comps -30%, and they do not provide guidance for 4Q

·     JAZZ 4%; as study of Zepzelca in combination with doxorubicin in adult patients with small cell lung cancer (SCLC) did not meet the pre-specified criteria of significant for the primary endpoint of overall survival

·     KR -5%; Q3 sales of $29.72B just below the $29.97B view while Q3 digital sales more than doubled, but was down compared with a 127% growth in the last qtr and raised its FY 2020 guidance

·     SFIX -2%; downgraded to underweight on valuation at Wells Fargo with shares being among the strongest YTD performers in our group (up ~60% vs. SPX +12%)

·     SPLK -20%; posted a very disappointing F3Q with lower than expected bookings and ARR, as several large deals slipped – as missed on most major metrics for the quarter

Syndicate:

·     Array Technologies (ARRY) 31.875M share Secondary priced at $35.00

·     Codexis (CDXS) 4.289M share Spot Secondary priced at $17.50

·     Dada Nexus (DADA) 9M share Spot Secondary priced at $50.00

·     Docebo (DCBO) 3M share IPO priced at $48.00

·     Kinnate Biopharma (KNTE) 12M share IPO priced at $20.00

·     Oak Street Health (OSH) 5.63M share Secondary priced at $46.00

·     Outset Medical (OM) 4M share Secondary priced at $53.00

·     Progenity (PROG) 7.645M share Secondary priced at $3.27

·     Shift4 Payments (FOUR) 8M share Secondary priced at $55.50

·     Twist Bioscience (TWST) 2.8M share Secondary priced at $110.00

·     Veritone (VERI) 3M share Spot Secondary priced at $18.50

·     XP Inc. (XP) 31.654M share secondary priced at $39.00