Mid-Morning Look: February 21, 2020

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Mid-Morning Look

Friday, February 21, 2020






DJ Industrials




S&P 500








Russell 2000






U.S. equities slipping early, on track for weekly declines amid early signs of the coronavirus outbreak curtailing economic growth in some markets and evidence that the epidemic is claiming more lives outside China (South Korea noted a jump in cases overnight). Along with the global fears of the coronavirus (as more and more companies are citing lower earnings estimates/rev impact going forward due to disruption and uncertainty), markets got some sour economic data as Markit said U.S. services sector PMI fell below 50 for first time since February 2016, and its lowest since 49.3 in October 2013, while the Composite PMI fell below 50 for first time since matching 49.6 in October 2013. The U.S. dollar pulling back off 3-year highs following the data, but the recent spike in the greenback is also likely raising earnings result fears for future quarters for multi-national companies that tend to suffer from a much stronger US currency. Defensive and safe-haven assets seeing renewed strength as gold prices up over 1.5% to highs around $1,650 an ounce (fresh 7-year highs), while Treasuries jump and yields plunge (as the 30-year yield falls to 1.89%, its lowest on record). Energy’s recent rally falters this morning as crude futures fell over 2% on renewed concern over the impact of the coronavirus, now overshadowing hopes that China’s stimulus efforts this week will cushion the blow to demand. Goldman Sachs recently warned that investors may be underestimating the impact of the outbreak on U.S. companies’ earnings as economic activity slows in China and tourism takes a hit, as more than 75,000 people have been diagnosed with coronavirus, and over 2,000 have died globally. South Korea reported its first fatality, while two patients in Iran also died and confirmed cases began to climb in Beijing.


Economic Data

·     Weak manufacturing data as Markit said US Manufacturing PMI, Feb-P slipped to 50.8 from 51.9 prior and est. 51.5, while US Services PMI contracts to 49.4 well below the est. 53.4 and Composite PMI at 49.6, lowest levels since October 2013

·     Existing home sales for January fell -1.3% to 5.46M vs. est. 5.44M after rising 3.9% in the prior month; 3.1 months’ supply in Jan. vs. 3.0 in December and 3.5 months’ supply seasonally adjusted in Jan. vs. 3.6 in Dec. seasonally adjusted; inventory rose to 1.42M homes from a month ago and the median home price rose 6.8% from last year to $266,300







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10-Year Note





Sector Movers Today

·     Retailers; LULU said the majority of its 38 stores in China have been closed “for a period of time” since Feb. 3, as a result of the coronavirus outbreak/said some stores are operation in a reduced schedule, while the online business has continued to operate; REAL was upgraded at Raymond James to outperform as expects continued positive near-term fundamental trends, including strong gross merchandise volume growth and margin improvement; TPX and SNBR active after Mattress industry data for 4Q suggested that 4Q19 mattress dollar sales growth accelerated, posting an increase of 9.8% y/y (following a decrease of 2.3% in 3Q); CHWY was upgraded to outperform at RBC Capital citing profitability inflection year along with strong sustainable fundamentals and favorable risk/reward

·     Consumer Staples; WW was upgraded to buy at Davidson saying consensus 5% sales growth in 2020 is modest, and they estimate subscriber growth of at least 10% is possible, based on recent trends and 3Q19’s 4.43M subs; SFM upgraded to outperform at Bernstein after the fresh produce retailer forecasts FY profit well ahead of expectations after Q4 results were well ahead of both internal company and Street expectations; PPC falls following a mixed Q4 earnings report as adjusted EBITDA rose 46% Y/Y to $161.6M, but missed the consensus mark of $193.5M

·     Media & Telecom movers; ZIXI beats revenue estimates for Q4, boosted by its acquisition of AppRiver last year and also forecasts current quarter and 2020 revenue above analysts’ estimate; CMCM slips after saying says GOOGL has disabled the company’s accounts on Google Play Store, Google AdMob and Google AdManager on Feb. 20/says its ability to attract new users and generate rev from Google may be adversely affected from Feb. 2020; Sprint (S) jumps after agreeing to amend terms of its merger with TMUS to avoid delaying close of the deal; NCMI surges after Q4 EPS and revenue beat and guidance above views for 2020

·     Restaurants; TXRH reported Q4 EPS 61c topping the 53c estimate after revs of $725.2M was up from $605.9M YoY and above the $713.7M estimate while comp sales increased 4.4% at company restaurants and 3.4% at domestic franchise restaurants; JACK was downgraded to neutral at Baird as see a more balanced risk/reward equation in light of the year-to-date bounce in valuation metrics and some lingering risk factors; BJRI was downgraded to hold at Stifel after reporting mixed Q4 results, with an earnings beat, a comparable sales shortfall, continued traffic declines and higher expected G&A in 2020



·     AERI +10%; rises after Q4 sales beats helped by higher-than-expected prices of its eye pressure reduction drug Rhopressa and eye drop Rocklatan, while its 2020 sales forecast comes above estimates (sees year revs $100M-$110M vs. est. $101M)

·     BAND +6%; on Q4 results as KeyBanc raised tgt to $91 on improved sequential execution with its Strategic Accounts which led to +$2.6M upside to CPaaS high-end guidance for 4Q19

·     BXRX +18%; after the FDA approved its New Drug Application for Anjeso meloxicam injection, which is indicated for the management of moderate to severe pain, alone or in combination with other non-NSAID analgesics

·     DBX +21%; after 4Q report delivered revenue/paid user adds/ARPU ahead of consensus expectations but RBC Capital said stealing the show was new messaging that supports double digit growth and material margin expansion that implies FCF greater than $1B by CY24

·     DE +9%; after posting an unexpected rise in Q1 profits, helped by early signs of stabilization in the U.S. farm sector (posted a 37c EPS beat on higher revenue of $6.53B)

·     EHTH +7%; after Q4 profit of $4.13 topped the $2.43 estimate on higher net income and sales driven by an increase in number of approved members for all Medicare products

·     SFM +16%; upgraded to outperform at Bernstein after the co forecasts FY profit well ahead of expectations after Q4 results were well ahead of both internal company and Street expectations



·     APPN -23%; falls after reported an in-line 4Q with a sub rev beat though Cowen notes is lower than prior qtrs., and net new adds were strong while net rev retention down-ticked slightly

·     CMCM -15%; after saying says GOOGL has disabled the company’s accounts on Google Play Store, Google AdMob and Google AdManager on Feb. 20

·     DVN -4%; energy stocks giving up most of their weekly gains as oil prices tumble amid renewed fears of coronavirus impact on demand in Asia (HAL, APA, NBL among top S&P decliners)

·     FSLR -13%; after its earnings/guidance fell short; Q4 EPS $1.48/$1.4B vs. est. $2.72/$1.75B; sees 2020 EPS $3.25-$3.75 vs. est. $3.56 and sees 2020 sales $2.7B-$2.9B vs. est. $3.37B

·     FSLY -8%; declines after new CEO and guides Q1 EPS loss slightly worse than estimates

·     LTHM -17%; was downgraded at BMO Capital to underperform following Q4 results, which included a sharp announced drop to 2020 EBITDA expectations (~$60-85M)

·     PBYI -5%; despite surprise quarterly profit and higher sales, weighed down guiding for surprisingly weak Q1 Nerlynx sales of $40M-$42M (-30% Q/Q) raises concern despite FY20 Nerlynx guide of $215M-$225M

·     TECK -10%; after cutting its steelmaking coal tgt citing impact from coronavirus and posted Q4 adjusted EPS well below the prior year figures

·     TRUE -14%; after issuing full-year guidance below expectations as expects Q1 revenue of $87M to $89M vs. $87M consensus and full-year revenue of $335M to $355M vs. $367M consensus

·     ZS -12%; as forecasts current-qtr adj profit of 1c-3c, below estimates of 4 a share, while operating expenses in Q2 rose 44% YoY to $71.9M – though beats street estimates for Q2 earnings, forecasts FY earnings and Q3 revenue above expectations


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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