Mid-Morning Look

Wednesday, July 08, 2020

U.S. equities surge, quickly erasing some of Tuesday’s losses as the path of least resistance remains clearly to the upside, showing no signs of rising coronavirus cases and its impact on economies. Once again the gains are being paced by technology as the Nasdaq Composite recovers more than 1%, but the market advance is broad based. Strength across the board in large cap tech with semi’s software and Internet names among the top gainers but yesterday’s laggards such as financials, energy and transports are also bouncing. COVID-19 cases having topped 50k in the US for four consecutive days heading into today and several states (NJ) are now mandating mask wearing in public, but markets have focused on the economic reopenings, better data, Fed monetary easing intervention and hopes of an additional stimulus provided by the government to push markets higher. Trade news with China has been quiet, which has been okay with traders as China markets have spiked in recent days. The U.S. dollar plunging to lows down over -0.35% for dollar index to around 96.50 – off overnight highs just above 97 as weakness continues in the greenback given the ongoing Fed easing measures. Gold prices extend gains, rising above $1,820 an ounce after posting its best closing level since 2011 yesterday, aided by the weak dollar and hedge vs. riskier assets. Oil prices seeing modest gains, after good months of returns, but still down over 30% YTD on demand concerns. Earnings season is right around the corner, with big banks out next week, and while no one is expecting strong quarterly results (profits are expected to plunge 44%, according to FactSet), investors are looking to the future clearly and giving a pass to the quarter.

Sector Movers Today

·     Aerospace & Defense sector; Bloomberg reported that LHX CEO warns of defense supply-chain risk if virus worsens saying some parts are made only by companies reeling from lockdowns; SPR was downgraded at Bernstein to market perform and cut tgt to $26 from $40 due to a more negative trajectory for the return of global travel and more near-term pressure from Airbus and Boeing customers to defer deliveries; LDOS has been awarded a prime contract by the U.S. Customs and Border Protection’s Office of Field Operations and Cargo Conveyance Security with a ~total value of $379M; in gov’t IT services, Raymond James downgraded BAH and CAI to market perform while upgraded MMS to strong buy to reflect decelerating fundamentals in the intermediate term and potentially meaningful re-rating of defense centric service stocks lower from near historically high valuations.

·     Metals & Materials; AA better guidance as issues smaller prelim Q2 EPS loss to (8c)-0c on revs $2.1B-$2.18B better than the estimate loss of (54c) and $2.09B and expects Q2 production at its mining and refining locations to increase 5% and 2%, respectively QoQ; RIO upgraded to Sector Perform at RBC Capital saying with a more balanced view on iron ore markets and slower decline in price forecasts, see little impetus to sell with positive macro tailwinds and sector valuation dynamics, combined with an attractive 2020 dividend yield

Stock GAINERS

·     AA +5%; issues smaller prelim Q2 EPS loss to (8c)-0c on revs $2.1B-$2.18B better than the estimate loss of (54c) and $2.09B and expects Q2 production at its mining and refining locations to increase 5% and 2%, respectively QoQ

·     BIIB +5%; submits marketing application to FDA for its Alzheimer’s disease drug, aducanumab and also requested for a priority review for aducanumab which is jointly developed by co, Eisai

·     FSCT +6%; guides Q2 revenue outlook to $78M-$82M, above consensus of $74.8M as anticipates revenue from sales of one-year term-based licenses to be more than 35% of all license revs

·     GNMK +13%; prelim Q2 update featured revenues that beat the Street by ~+28%, driven by strength in COVID-19 test sales and instrument placements (2Q20 revenues of $40.1M, 118% y/y (vs. consensus of $31.4M, 71%)

·     NGHC +64%; after ALL agreed to acquire the insurer for approximately $4B in cash, or $34.50 per share/the transaction is expected to close in early 2021, subject to regulatory approvals and other customary closing conditions https://bit.ly/2CjqhGA 

·     NKLA +25%; shares rebound after JPMorgan upgraded to overweight and $45 tgt following the 40% in July month-to-date (S&P 500 up 1.5%)

·     SMPL +6%; reports better-than-expected Q3 EPS and revenue, while also said it sees FY20 adjusted EBITDA of $145M-$150M vs. est. $146.2M and EPS 86c-90c vs. est. 75c

·     XENT +34%; after Bloomberg reported MDT has made an offer for the smaller medical device maker, saying XENT board is reviewing the offer with its advisers https://bloom.bg/3gHwlXZ

Stock LAGGARDS

·     SPR -2%; downgraded at Bernstein to market perform and cut tgt to $26 from $40 due to a more negative trajectory for the return of global travel and more near-term pressure from Airbus and Boeing customers to defer deliveries

·     VVUS -28%; after completing the solicitation of an in-court prepackaged plan of reorganization, under which IEH Biopharma will take 100% ownership of the company ahead of its Chapter 11

Syndicate:

·     Akero Therapeutics (AKRO) 5.23M share Secondary priced at $36.00

·     Ascendis Pharma (ASND) 4.225M share Secondary priced at $142.00

·     89bio (ETNB) 2.6M share Secondary priced at $27.50

·     Vir Biotechnology (VIR) 7.14M share Secondary priced at $42.00