Mid-Morning Look

Wednesday, February 12, 2020

U.S. equities touching new record highs for the S&P 500 and Dow Industrials while the Nasdaq Comp back above the 9,700 level (just off yesterday intraday record highs above 9,714). Technology shares, along with financials and energy are helping pace the gains, though it is overall another broad based rally with defensive sectors rising the least. The Fed remains accommodative in a low rate environment, the economic data (especially jobs) has been very strong domestically, earnings results have generally been positive (markets overlooking comments about impact of coronavirus from various companies) and the pace of new cases overseas from the virus is continuing to slow – all helping push major global averages to new record highs (U.S. and Europe – S&P, Dow, German Dax, Stoxx 600). China reported another drop in the number of new cases of a viral infection and 97 more deaths, pushing the total dead past 1,100 even. The National Health Commission on Wednesday said 2,015 new cases had been reported over the last 24 hours, declining for a second day, as the total number of cases in mainland China is 44,653. Oil prices with a resounding bounce early, recovering off its recent 13-month lows on Monday. Earlier today, OPEC cut its 2020 oil demand growth outlook by 230,000 bpd to 0.99 mln bpd due to coronavirus impact on Chinese demand in its monthly report and lowers 2020 demand forecast for OPEC crude by 200K bpd to 29.3M. In politics overnight, Bernie Sanders won New Hampshire’s first-in-the-nation Democratic primary on Tuesday, narrowly topping nearest competitor Pete Buttigieg. It’s another strong start with volatility slipping over the last few days with stocks rising to new records.

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar pushing further to the upside, gaining momentum over the last week as the US economy showing several points of strength, (jobs, improving services, low inflation data points), while the euro back down near lows just above the 1.09 level (and back at yesterday lows and nearing 52-week low of 1.0879 on Oct 1st). Commodity prices are mixed as oil prices jump over 3% (off recent 1-year lows) and gold slip while U.S. Treasury prices tick lower, pushing the two-year yield up 2 bps to 1.44% and the 10-year yield 3 bps higher to 1.62%.

Sector Movers Today

·     Retailers; URBN 4Q net sales of $1.17B just above the $1.16B estimate while 4Q comp retail segment sales +4% vs. +3% YoY; but said wholesale segment net sales decreased 10% due to a 12% decrease in Free People; PVH said a majority of the company-operated and franchised Calvin Klein and Tommy Hilfiger stores in China are temporarily closed due to coronavirus concerns; ACCO reported 4Q EPS and sales above consensus and issued initial guidance for 2020, which calls for EPS of $1.20-$1.30, as management expects another year of strong progress against ACCO’s strategic imperatives

·     Biotech movers; FTSV tgt raised to $53 from $37 at Mizuho based on the expansion of magrolimab’s clinical program to include 1L TP53-mutant acute myeloid leukemia (AML) patients and an upward adjustment for the POS for magrolimab in 1L MDS; LGND agreed to buy assets from Icagen for $15M, sees 2020 revs $128M (was $121M)/sees 2020 adj EPS $3.45 (was $3.40); ADVM 9.5M share Secondary priced at $13.75; MRNA 26.316M share Secondary priced at $19.00; TBPH 5.5M share Secondary priced at $27.00

·     Asset managers; AB announced that preliminary assets under management increased to $629 billion during January 2020 from $623 billion at the end of December 2019, while also posting Q4 EPS above consensus; IVZ reported preliminary month-end assets under management (AUM) of $1,218.7 billion, a decrease of 0.6% versus previous month-end driven by unfavorable market returns, net outflows in non-management; TROW preliminary month-end assets under management was $1.21 trillion as of January 31, 2020; LM preliminary AUM was $806.0 billion as of Jan 31, 2020, which included long-term net inflows of $0.1 billion, driven by fixed income net inflows of $1.0 billion and alternative net inflows of $1.0 billion

·     Auto’s; LYFT shares fell after reported 4Q results ahead of expectations as revenue exceeded the Street’s forecast by ~3% and adj. EBITDA loss was $34mm better than consensus estimates while revenue per active rider increased +4% sequentially with in-line year guidance (report was good, but not up to expectations after UBER strong results recently); LAD Q4 results slightly missed estimates, not living up to recent peers earnings (such as AN); GT was downgraded to Neutral from Overweight at JPMorgan following earnings the day prior; ADNT was upgraded to an Equal-weight rating at Morgan Stanley after accounting for the sale of Yanfeng Global Automotive Interior Systems in China.

·     REITs; UDR 4Q19 earnings report was mixed, as 4Q19 FFO beat expectations, yet top-line growth moderated more than we expected and initial 2020 FFO guidance fell short of expectations; DEI with in-line 4Q19 FFO and initial 2020 FFO guidance and posted nearly 9% cash rent spreads and occupancy improved by 50 bps sequentially, notching the fifth consecutive quarter of positive net absorption; AAT reported a $0.03/sh 4Q miss, though management affirmed FY20 FFO guidance of $2.38-$2.46/share; MAC downgraded to underweight at Piper on the heels of the SPG transaction as this removes any potential M&A support in the near term, putting more pressure on MAC to improve its capital position

Stock GAINERS

·     AKAM +3%; price tgt raised by at least six different analysts following earnings/guidance after its solid Q4 beat ($1.23/$772M vs. est. $1.13/$749.2M) and guidance for year also above

·     IPG +6%; 52-week high in advertising sector after Q4 earnings top highest estimates, boosts its dividend and sets 2020 targets for 3% organic growth, EBITA margin improvement

·     MU +5%; upgraded to buy from neutral and raise tgt to $75 from $47 at UBS on the back of higher estimates and improving industry dynamics – especially in DRAM

·     SHOP +11%; after stronger Q4 revenue ($505.2M vs. est. $482M) driven by higher sales during the holiday season while EPS of 43c beat estimates by 20c and guides FY20 revenue $2.13B-$2.16B above consensus $2.11B

·     TAP +1%; said Q4 sales rose 3.4% to $2.5B while EPS of $1.02 was above the 78c estimate and last year’s 84c while volume was down 1.0% to 21.8M hectoliters

·     TEVA +9%; following earnings and revenue beat for Q4 though year guidance was below ests

·     URBN +4%; 4Q net sales of $1.17B just above the $1.16B estimate while 4Q comp retail segment sales +4% vs. +3% YoY; but said wholesale segment net sales decreased 10% due to a 12% decrease in Free People

·     WYNN +3%; upgraded to buy along with LVS at Bank America on easing concerns about the impact of the coronavirus, particularly in China

Stock LAGGARDS

·     ABMD -3%; downgraded to underweight at Morgan Stanley saying pressures from the company’s Impella invasive heart pump devices continue to appear more structural than transient

·     BBBY -26%; trading after reported disappointing holiday sales, saying same-store sales fell -5.4% for December-January period, hurt by lower store foot traffic, inventory issues and higher markdowns.

·     CME -2%; Q4 adjusted EPS of $1.52, missing the estimate of $1.55 and declined from $1.77 YoY while Q4 total revenue of $1.14B falls 7.9% Y/Y and misses the consensus estimate of $1.16B

·     CYBR -9%; despite record Q4 results after softer guidance for Q1 (EPS 35c-41c on revs $106-110M below est. 56c and $113.5M and mixed year guidance

·     LYFT -8%; reported 4Q results ahead of expectations as revenue exceeded the Street’s forecast by ~3% and adj. EBITDA loss was $34mm better, but markets disappointed with outlook which wasn’t as rosy as its recent rival UBER pushing up its profit outlook

·     NSP -20%; after earnings results and weaker margins across the board as gross margin declined 168 bps to 15.1% and operating margin declined 79 bps to 2.6%

·     WU 6%; posted quarterly earnings results that fell short on both the top and bottom line but its three-year outlook remained unchanged