Mid-Morning Look

Tuesday, February 11, 2020

U.S. equities doing what they do best these days, setting new record highs once again, with gains in REITs, energy (for a change) and materials and of course more outperformance in tech and telecom. Big news today was the merger agreement between Sprint and TMUS approved by a Federal Court in New York (helping boost tower stocks (AMT, CCI, SBAC). But in an interesting (and scary) stat, coming into today, 67% of the S&P 500’s year-to-date returns come from just four names: MSFT 28%, AAPL 15%, AMZN 13% and GOOGL 11%. U.S. stocks rise ahead of Federal Reserve Chairman Jerome Powell’s comments in prepared remarks to Congress today in his testimony on the economy and monetary policy (started at 10:00 AM tomorrow – speaks to Senate tomorrow). Global stocks also extend gains despite coronavirus concerns while analysts slash China growth forecasts as the disease continues to spread. China’s NHC confirms more than 1,000 deaths and 42,000 cases of the respiratory focused virus, although yesterday’s new case total showed some signs of slowing (there were 2,478 new confirmed coronavirus cases on the mainland China by Monday, down from 3,062 the previous day, bringing the total to 42,638). European stocks hit fresh record highs as the euro trades at the lowest level to the U.S. dollar since late September. Federal Reserve chairman Jay Powell said the central bank is “closely monitoring” the risks to the US economy from the coronavirus outbreak in China that has threatened to dampen growth. In politics, today is the New Hampshire Democratic Primary.

Treasuries, Currencies and Commodities

·     In currency markets, the Euro bounces off near 52-week lows around 1.09 to the downside (1.0899 low on 9/30/19), before recovering, while the dollar generally steady ahead of Fed Chairman Powell day 1 testimony on Capitol Hill on the economy and monetary policy. Commodity prices mixed as oil prices rebound off 13-month lows, while gold prices slip and Treasury market are little changed as yields inch modestly higher.

Economic Data

·     The National Federation of Independent Business (NFIB) said its index of small-business optimism rebounded from a small dip in at the end of last year, rising to 104.3 points in January from 102.7 in December

·     U.S. JOLTS reported job openings dropped -364k to 6,423k in December after falling -574k in November to 6,787k (revised from 6,800k). This is a second month with openings below 7,000k, after holding above that mark for 19 months since April 2018.

Sector Movers Today

·     Autos; DDAIF reported its second year of heavy losses in a row, with net profit plummeting to 2.4B euros (2.6B dollars) in 2019 as costs for gov’t and legal action against Mercedes-Benz diesel vehicles as well as an expensive recall of Takata airbags hurt earnings, also prompting them to cut their dividend; in auto retail, AN with better-than-expected quarterly profit and revenue, helped by higher demand for used vehicles and automotive spare parts while its premium luxury business saw sales rise 23% YoY (good for KMX, LAD, GPI, PAG, SAH); ABG was upgraded at Bank America to buy as believe the recent pull-back in stock (down 15% YTD and 23% from recent Dec ’19 high) presents a good entry point for investors; tire maker GT reported net sales for Q4 of $3.71B, down -4.2% YoY and below the $3.88B estimate on weaker earnings

·     Semiconductors; AMKR rises as beats Q4 EPS and sales estimates as Q4 revenue grew 9% sequentially to a new record of $1.18B and sees Q1 EPS 9c-24c on revs $1.08B-$1.16B above est. 8c/$1.01B (comps include CCMP, QUIK); AMD tgt raised by $10 to $63 at RBC Capital and maintain outperform as thinks that PC share gains will continue to move into the mid-20 percent market share range; shares of NVDA, AMD, at 52-week highs today; IIVI shares jumped after beat and raise for Q2 while guidance below views due to virus impact

·     Consumer finance and lending; MA gets approval in principle from the People’s Bank of China to begin formal preparations to set up a domestic bankcard clearing institution in China; ONDK slides after reported weaker Q4 EPS (5c vs est. 9c) as the quarter was hurt by higher expenses across the board, while loan originations came in 3% lower (as per KBW) while positives included an in-line 2020 outlook and share buybacks; IIIV was downgraded at BTIG after earnings and as believe that after the stock appreciated by 88% in just over four months its shares, which trade at 18.4x consensus FY22E adjusted EBITDA, are now close to fairly valued

·     Metals & Materials; VALE said Q4 iron ore output falls 22% following dam disaster to 78.34M metric tons, and quarterly iron ore sales fell 3.2% from a year ago to 77.91M mt; ANFGF downgraded to Underperform at RBC Capital with a price target of 740p (previously 850p) based on lower expected copper prices at a time where the group faces weaker grades and higher capex requirements and cut RIO to Underperform following our assessment of the impact of the Coronavirus on the iron ore market (lower expected iron ore prices by -6% in 2020); CMP shares jump to 52-week highs despite Q4 sales of $500.3M missing the $521.3M est (though was up 2.8% YoY) and EPS missed by about 20c; FCX outperforms in copper sector

·     Media & Telecom movers; Sprint (S) and TMUS shares rose after U.S. District Judge Victor Marrero approves the $26B merger between the two, saying the deal is unlikely to stifle competition in the U.S. wireless market. A consortium of state AGs were fighting the merger on antitrust charges/deal still needs approval from the California Public Utilities Commission to close (tower stocks AMT, CCI, SBAC advanced on the news); in advertising, CRTO reports Q4 beats with downside Q1 guidance that sees revenue ex-TAC of $209-212M compared to the $230.66M consensus and for FY20, Criteo expects revenue ex-TAC to decline by about 10% in constant currency; OMC reports top/bottom line Q4 beat; WWE receives another analyst downgrade, with JPMorgan downgrading following its disappointing earnings results last week

Stock GAINERS

·     AMKR +22%; beats Q4 EPS and sales estimates as Q4 revenue grew 9% sequentially to a new record of $1.18B and sees Q1 EPS 9c-24c on revs $1.08B-$1.16B above est. 8c/$1.01B

·     AMT +4%; along with other towers (CCI, SBAC) following the Sprint/TMUS deal approval

·     BURL +4%; raised its 4Q outlook for revenue, comp sales, and EPS to levels above consensus in conjunction with a debt transaction update (Wedbush and RCB says they are encouraged by the news and see it as a positive read for off-price peers ROST and TJX

·     CMP +8%; to 52-week highs despite Q4 sales of $500.3M missing the $521.3M est (though was up 2.8% YoY) and EPS missed by about 20c

·     RNG +7%; trades to record highs after Q4 results topped expectations and gave an outlook that was seen as strong (guides revs of $257M-$259M (28-29% growth, above consensus for $249.2M)

·     S +71%; and TMUS shares rose over 10% after U.S. District Judge Victor Marrero approves the $26B merger between the two, saying the deal is unlikely to stifle competition in the U.S. wireless market. A consortium of state AGs were fighting the merger on antitrust charges.

·     SAM +5%; upgraded to outperform from neutral at Credit Suisse and raise tgt to $525 from $400 saying after speaking to a series of category buyers, beer distributors and industry participants, sees staying power of hard seltzer

Stock LAGGARDS

·     ELY -6%; reported mixed Q4 results (sales beat, EBITDA miss), while issued a below consensus FY20 guide, largely driven by worse than feared impacts from the coronavirus and FX (GOLF, DKS move in reaction)

·     GT -9%; reported net sales for Q4 of $3.71B, down -4.2% YoY and below the $3.88B estimate on weaker earnings and said Q4 tire unit volume -2%

·     LOGC -25%; as the FDA places a clinical hold on LOGC application to start a trial of its methylmalonic acidemia treatment, LB-001, in humans

·     MAS -4%; posted a Q4 EPS beat but guided year profit to $2.35-$2.55, below the $2.58 estimate while sees 1H operating margins down about 100bps, but recovering in 2H

·     ONDK -14%; after reported weaker Q4 EPS (5c vs est. 9c) as the quarter was hurt by higher expenses across the board, while loan originations came in 3% lower (as per KBW)

·     UAA -18%; after saying sees 2020 sales to be down at a low single-digit percent from 2019 (vs. estimate for sales to rise 4.2%), and said coronavirus outbreak will have a $50M-$60M impact on Q1 sales and 2020 forecast does not take into account potential impact post Q1

·     WORK -5%; after rebuffed a news report saying IBM had bought its service for its employees worldwide, turning into Slack’s largest customer. “IBM has been Slack’s largest customer for several years and has expanded its usage of Slack over that time