Mid-Morning Look

Thursday, February 20, 2020

U.S. equities bouncing off overnight lows, as stocks continue to rise amid upward momentum, and dovish/accommodative central banks, offsetting any fears from the coronavirus impact on companies. Another round of solid economic data (Philly Fed Manufacturing highest reading in three years and LEI also firmly above estimates) is once again boosting the U.S. dollar earlier, as the dollar index (DXY) looks to touch the 100 level for the first time since 2017. While stocks rally off lows to trade flat, gold prices extend gains (despite the dollar move), oil edges higher and Treasuries remain well bid. A big deal in the banking sector today as Morgan Stanley acquired E*Trade in a $13B deal, while investors dig through another heavy dose of quarterly earnings. New virus cases in China rose by just 394 from the previous day (down from the prior day figure of 1,749), with a rise in the death toll of 114, the government said. Mainland China has now reported 2,118 deaths and 74,576 total cases. While the overall spread of the virus has been slowing, the situation remains severe in Hubei province and its capital. The Democratic debate last night not changing outlook as Bernie Sanders still front-runner, while other candidates step up their attack on Michael Bloomberg.

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar up another 0.6% against the Japanese yen – above the 112 level for the first time touching highs of 112.23 (52-week high stands at 112.40 on 4/24). Meanwhile, the .S. Dollar Index is close to breaching 100 for the first time since 2017, as the currency proves a haven of choice for investors. Commodity prices are firmly higher, led by gold prices rising to $1,620 an ounce (best levels since March 2013) and another bounce in oil prices (both rising despite a surge in the dollar). Treasury market’s continue to advance alongside gains in stocks and commodities, as yields extend their recent decline with the 10-year down at 1.53%.

Economic Data

·     Philly Fed Survey surges to 36.7 reading vs. est. 11.0 (prior month was 17), its highest level in three years. New orders increased 15 points to 33.6, its highest level since May 201 while the shipments index rose 2 points to 25.2 and six-month business outlook rose 7 points to 45.4

·     Weekly jobless claims – the number of Americans filing for unemployment benefits rose modestly last week, as initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 210,000 for the week ended Feb. 15 (in-line with estimates), as the four-week moving average of initial claims fell 3,250 to 209,000 last week and the number of people already collecting unemployment benefits, meanwhile, rose by 25,000 to 1.73 million.

·     Leading Index for January reported at 0.8%, above the 0.4% estimate

Sector Movers Today

·     Semiconductors; AMD was downgraded to equal-weight from overweight at Wells Fargo, but raise its tgt to $64 saying sees shares approaching more balanced risk/reward levels; Dialog Semiconductor (DLGNF) will acquire IOTS for $12.55/share in cash, or for ~$500M enterprise value (IOTS shares soar over 50% on takeover news); MX rises as Q4 rev of $200M and EPS of 32c topped consensus and forecasts Q1 revs to be $180M-$195M vs. est. $179.1M; ADI was upgraded at Citigroup following earnings results

·     Restaurants; DPZ jumps as revenue and profit beat estimates along with strong comp sales of 3.9% (vs. est. 1.9%), buoyed by the company’s focus on faster delivery and new promotions; YUM warns it is unable to accurately predict the impact that the coronavirus will have on results of operations, due to uncertainties including the ultimate geographic spread of the virus; CAKE report Q4 EPS miss and lower Q1 guidance for revs ($715M-$720M vs. est. $728.15M); JACK also with Q1 EPS miss ($1.17 vs. est. $1.38) but revs beat as system same-store sales increased 1.7%, company same-store sales increased 2.9%

·     Retailers; LB shares slump as the company to sell control of Victoria’s Secret to private equity firm Sycamore Partners in deal valuing brand at $1.1B, as the PE firm buys 55% of LB’s lingerie business and take it private/CEO of L Brands, Leslie Wexner, to step down (co expects same-store sales to fall 2% in Q4, with a 10% fall at Victoria’s Secret) https://on.mktw.net/2Pc41Sx ; GIL reports in-line quarterly earnings while raises its dividend; Gun maker RGR slides after the company’s Q4 results disappoint; ULTA tgt raised to $330 at Guggenheim; SNBR delivered a solid quarter, with sales, EBIT/EBITDA and EPS all exceeding expectations.

·     Casino & Leisure movers; in theme parks, SIX shares drop on unexpected quarterly loss and slashes its quarterly dividend to 25c from 83c while warns year guidance assumes significantly lower revenue contribution from the company’s international development agreements, organic revenue growth trends consistent with 2019, and operating cost headwinds (SEAS, FUN move in sympathy); HOG boosted its dividend and also authorized a stock buyback program of up to 10 million shares of the company; in cruise-lines, NCLH with a Q4 beat, but guided next quarter lower and warned on year outlook due to coronavirus uncertainty; in lodging, Hyatt (H) shares jump after sound Q4 beat (EPS 47c/$1.28B vs. est. 24c/$1.19B), while HST reported a $0.01 beat vs consensus while RevPAR fell 0.1% while Total RevPAR rose 1.9%

·     Metals & Materials; CLF earnings decreased in the fourth quarter, as revenue fell and the company’s year-earlier results were boosted by a big tax benefit (revs fell 23% to $534.1M vs. est. $556.4M); in the steel sector, shares of RS and AKS active after earnings results; KALU shares advanced on its earnings beat and said it expects Boeing 737 Max effect will be offset by higher general engineering and automotive shipments; gold miner NEM 52-week highs following its earnings results and miners in general helped by surging gold prices

Stock GAINERS

·     CAR +13%; leading the transport index higher after 4Q EBITDA and revs came in ahead of consensus and volumes came in higher in the Q and were guided +2-5% (vs. +3 and +2% at the high-end of initial guides in 2018 and 2019)

·     DPZ +25%; jumps as revenue and profit beat estimates along with strong comp sales of 3.9% (vs. est. 1.9%), buoyed by the company’s focus on faster delivery and new promotions

·     ETFC +23%; after agreeing to be acquired by MS in a $13B deal, with holders getting $58,74 per share as MS will pay 1.0432 of its shares for each E*Trade share (ETFC has more than 5.2 million client accounts with over $360 billion of retail client assets) https://on.mktw.net/39O1FRr

·     I +16%; on top/bottom line quarterly beat while overnight the company said it believes it should receive 60%-67% of the total of all acceleration payments, according to a filing with the FCC

·     IOTS +54%; as Dialog Semiconductor will acquire Adesto Technologies for $12.55 per share in cash, or for ~$500M enterprise value

·     MPC +4%; after reports Seven & i Holdings Co., the Japanese company that controls 7-Eleven, is in exclusive talks to acquire Marathon’s Speedway gas stations for about $22 billion https://yhoo.it/2PaQhYh

·     SEDG +7%; reported Q4 revenue and non-GAAP EPS that were ahead of consensus as momentum carried into Q1’20 with mgmt guiding above estimates, while continues to ramp facilities

·     STMP +51%; after much stronger Q4 results as EPS of $2.12 handily topped the 98c estimate on better sales of $160.9M vs. est. $142.3M

·     ZG +14%; Q4 results came in well ahead of expectations as the Premier Agent business saw growth accelerate for the second consecutive quarter

Stock LAGGARDS

·     CPRT -6%; after posting Q2 EPS and operating income that fell short of consensus views

·     SAM -5%; as reports Q4 EPS below Wall Street estimates ($1.12 vs. est. $1.47) as gross margins fell to 47.4% compared with 51.9% a year earlier on higher processing costs while midpoint of forecast FY 2020 EPS missed views ($10.7-$11.7 vs. est. $1.44)

·     SIX -15%; shares drop on unexpected quarterly loss and slashes its quarterly dividend to 25c from 83c while warns year guidance assumes significantly lower revenue contribution from the company’s international development agreements

·     SNPS -3%; beat for the Q and reiterated 2020 with a speed bump next Q on revs coming in below mid-point and sees less upside on SIG business

·     TVTY -42%; was downgraded by several analysts on low confidence in co’s nutrition business and lack of catalysts over next 6-9 months to drive valuation levels higher/Cantor notes that its 2020 nutrition unit forecast of $560 mln-$590 mln implies a 7%-8% decline from 2019 results

·     VIAC -17%; after lower Q4 sales ($6.87B vs. est. $7.32B) and profit of 97c per share missed the $1.44 estimate while quarterly ad revenue falls 2% to $3.03B as domestic ad revenue was hit by a decline in political ads