Mid-Morning Look

Monday, July 06, 2020

U.S. equities joined the spike in global stock markets overnight, as the Nasdaq Composite eyes another record level and remains on track for its 5^th consecutive advance (along with the S&P 500 – which would be longest streak since December), as investors bet on China leading the economic revival from the coronavirus-driven downturn. The Shanghai Index jumped 5.7% overnight (180-points) to record its largest one-day gain since 2015 (highest close since Feb 2018) amid expectations of a faster and a better bounce-back in business activity than other major countries still battling the COVID-19 crisis (follows strong data over the last few weeks). Note the S&P remains about 7% from its record highs and the Dow about 11% below their respective peaks from February, up more than 40% from March lows. Stocks got another leg higher after June ISM Non-Manufacturing PMI data (services data) jumped well above estimates into expansion territory, buoyed by a spike in new orders. Instead of focusing on the recent surge in coronavirus cases (U.S. hitting its highest daily total this weekend), investors are focusing on the other side of what this pandemic looks like, such as the recovery and pointing to fact that death rates and hospitalizations are not surging with the cases. During the 4^th of July holiday weekend, several states reported a record increase in new infections, with Florida surpassing the highest daily tally reported by any state during the peak of the outbreak. Despite US futures jumping on China mkt strength overnight, Treasury prices still remain strong, with the 10-yr yield only up 2 bps still holding below 0.7%. Financials, technology and Materials are pacing gains while defensive Healthcare lags.

Economic Data

·     ISM Non-Manufacturing index jumped to 57.1 from 45.4 in May and above the 50.2 estimate, helping boost stock markets higher as the employment index rose to 43.1 from 31.8 in May, prices paid index 62.4 in June vs. 55.6 in May and the new orders index surged to 61.6 in June vs. 41.9 in May in another sign of an economic recovery

·     U.S. IHS Markit June final composite PMI at 47.9 (vs. flash 46.8) and vs. last month 37.5 reading and June final services PMI at 47.9 (vs. flash 46.7)

Sector Movers Today

·     Metals & Materials; sector gets a boost following strength in China markets overnight, helping lift sentiment further on an economic recovery in the country; FCX said it expects Q2 copper sales to exceed previous guidance provided in April of 690M pounds by approximately 8%, and gold sales are expected to exceed April guidance of 165,000K by about 10% (had previously cut its outlook in April); CRS said it expects to reduce inventory by $100M-$120M in 4Q, which the company says is a major contributor to the lower than anticipated operating income results for the quarter as now expects adjusted operating loss to be in the range of $16M-421M; DOW announced that it has signed a definitive agreement to sell its rail infrastructure assets and related equipment at six North American sites to Watco in excess of $310M

·     Medical equipment and devices; TMO boosts medical device names after saying Q2 revenue growth is higher than consensus estimates, as estimates both reported, organic revenue growth will be about 10%, primarily driven by strong global sales of PCR-based tests, services supporting covid-19 response; ABT receives FDA approval for heart rhythm devices with Bluetooth connectivity, continuous remote monitoring; BDX said the FDA grants emergency use authorization to its covid-19 antigen test; GMED downgraded to neutral from overweight at Piper as they are worried about the potential impact of a second outbreak of COVID-19 on domestic spine procedures, and says the Street is modeling GMED recovering fairly quickly; TNDM was upgraded to buy and ALC downgraded to sell at Citigroup; shares of HOLX, IDXX, RMD, TMO, DHR all touching 52-week highs in MedTech

·     Semiconductors; The Philly semi index hitting new record highs (SOX) touching above 2,050, as tech outperforms; INTC lags strength in tech space after Goldman Sachs downgraded shares to sell with downside $54 tgt saying recent industry checks indicate a slowdown in PC builds in 2H20 and continued share loss for Intel in the client and server CPU markets; XLNX added to Conviction Buy List at Goldman Sachs with $113 tgt as believe Xilinx’s diversified end-market mix coupled with its unique product initiatives will drive growth

·     Utilities; very active in news as the Dakota Access pipeline must shut down by Aug. 5, a district court ruled Monday surprising the oil industry; Dominion (D) shares fell after material announcements: 1) the divestiture of substantially all Gas Transmission & storage assets in a transaction valued at $9.7 billion (projected Q4 close), and 2) the abandonment of the Atlantic Coast Pipeline project along with DUK In conjunction with these actions Dominion announced that it expects to repurchase $3 billion of common stock, EPS guidance for ’20/’21 was rebased lower, the dividend was reset lower, and EPS & dividend growth guidance was increased

Stock GAINERS

·     CRTO +21%; raises its Q2 ex-TAC revenue forecast from $140-$147M to $174-$175M and was higher than the $150.5M consensus while its EBITDA outlook is lifted from $6-7M to $32-33M versus the $6.78M estimate

·     FCX +6%; said it expects Q2 copper sales to exceed previous guidance provided in April of 690M pounds by approximately 8%, and gold sales are expected to exceed April guidance of 165,000K by about 10%

·     REGN +2%; said it had begun a Phase 3 clinical trial testing an antibody cocktail to prevent COVID-19/the study will specifically focus on the cocktail’s efficacy preventing disease in 2,000 people who have been exposed to the virus by a close contact

·     SBH +12%; after reports enterprise-wide estimated sales of $348 million in June, up 9% from the previous year and 33% from May/said E-commerce sales grew 115% in June YoY and sees enterprise-wide sales of $705 mln in Q3

·     SINA +9%; announces non-binding “going private” proposal for all the outstanding ordinary shares not already owned by New Wave for $41 per share in cash

·     TMO +3%; after saying Q2 revenue growth is higher than consensus estimates, as estimates both reported, organic revenue growth will be about 10%, primarily driven by strong global sales of PCR-based tests, services supporting covid-19 response

·     TSLA +6%; tgt raised to $1,500 from $1,050 at JMP Securities after the co delivered significant upside to our estimates and the consensus outlook for 2Q20 deliveries, reporting a total of 90,650 units as compared to our estimate of 73,800 and the consensus figure of 70,300

·     UBER +4%; announced a $2.65 billion all-stock deal to buy food delivery firm Postmates which will help its food delivery arm of the ride-hailing app Uber Eats to expand into new areas

Stock LAGGARDS

·     COO -2%; downgraded to neutral at Baird and cut its tgt to $391 from $335 based on a confluence of modest issues including concern about the broader industry-wide contact lens consumption issues and growing rebate/pricing pressures

·     D -5%; announced that it expects to repurchase $3 billion of common stock, EPS guidance for ’20/’21 was rebased lower, the dividend was reset lower, and EPS & dividend growth guidance was increased after divesting substantially all Gas Transmission & storage assets in a transaction valued at $9.7 billion and abandoning its Atlantic Coast Pipeline project with DUK

·     INTC -1%; lags strength in tech space after Goldman Sachs downgraded shares to sell with downside $54 tgt saying recent industry checks indicate a slowdown in PC builds in 2H20 and continued share loss for Intel in the client and server CPU markets

·     LYV -1%; as names that have been most impacted by coronavirus global lockdown, and yet to see meaningful recovery in their businesses (cruise, casino, leisure, ticketing, airlines) lag markets