Mid-Morning Look

Friday, July 24, 2020

U.S. equities are broadly lower, led by another sharp decline in the tech heavy Nasdaq Composite, which is trying to avoid its first back-to-back daily losses since May 12^th-13^th heading into the weekend. U.S. stocks opened lower as U.S.-China tensions heightened concern over diplomatic relations between the two after China retaliated by ordering the U.S. to close its consulate in the southwestern city of Chengdu, a day after Washington forced Beijing to leave its mission in Houston. Markets are also closely watching Washington as Congressional Republicans continued to debate an additional stimulus package. Safe-haven currencies are strong as the Japanese yen rises to 4-month highs vs. the dollar around 105.80, though the overall dollar index (DXY) remains at its lowest levels since September 2018 (94.60 level). The NASDAQ Composite fell over 200 points to lows of 10,217 breaking (a more than 600 point drop from Wednesday intraday highs of 10,839 now). In tech, shares of Intel (INTC) the biggest news story after posting a beat for quarterly results, but news of a delay in the launch of its 7nm CPU products overshadowed and sent many Wall Street bailing on the stock which drops more than 17% (lifting shares of AMD and TSM seen as benefitting from the delay). Gold futures topped the $1,900 an ounce level (a close above there would mark a new all-time closing high). Economic data this morning favorable as New Home Sales rise in June, topping expectations (housing data remains strong). At this point, U.S. stocks are already well off their morning lows, a consistent pattern when markets see sharp declines.

Economic Data

·     US June New Home Sales rose 13.8% to 776K annual rate, above the 700K estimate with strength in the Northeast which rose 89.7%; us June new home supply 4.7 months’ worth at current pace vs. May 5.5 months and the median sale price $329,200, +5.6% from June 2019 ($311,800)

·     IHS Markit July flash composite PMI was at 50.0 (vs 47.9 in June) while the IHS Markit July flash services PMI at 49.6 (vs 47.9 in June)

Sector Movers Today

·     Restaurants; BJRI reports a slight comparable sales beat with a -57.2% mark for Q2 vs. -58.4% consensus. Adjusted EBITDA came in at -$13.7M vs. -$22.2M consensus; BLMN posted a smaller than expected loss of (74c) vs. est. ($1.12) while revs of $578.5M missed the $592M estimate and said combined U.S. comparable restaurant sales in Q2 down 39.4%; TACO shares outperform following its quarterly results

·     Bank movers; GS has agreed to a $3.9 billion settlement with the government over the multibillion-dollar 1MDB scandal. The deal includes a $2.5 billion cash payout by Goldman and a guarantee by the bank to return at least $1.4 billion in assets linked to 1MDB bonds; JPM was upgraded to buy from neutral at Goldman Sachs with $116 tgt as believe JPM is well positioned to defend short-term returns and sustain its dividend over the next several quarters, as well as having the highest longer term return profile of the large banks; FCFS downgraded to neutral from outperform at Wedbush saying headwinds tied to economic stagnation in SE states of major significance to the company due to the effects of rising cases of COVID-19 are persisting

·     Biotech movers; SRPT receives fast track designation for srp-9001 micro-dystrophin gene therapy for the treatment of Duchenne muscular dystrophy (DMD); ANNX 14.75M share IPO priced at $17.00; INZY 7M share IPO priced at $16.00; CVM announced that it has concluded animal experiments using its Leaps Covid 19 conjugate that provide the basis for moving forward into animal challenge studies with live virus SARS-CoV-2; PTE rises after saying its skin regeneration treatment, SkinTE, plus standard of care showed positive results in trial evaluating treatment of diabetic foot ulcers; MRNA falls a second day after losing its patent case yesterday against ABUS, arguing that its patent for the technology used to deliver messenger RNA to a patients’ cells was unpatentable – patent judge found that Moderna had not shown that the claims in the patent were unpatentable

·     Semiconductors; INTC was downgraded by several Wall Street analysts after the chip maker posted good results and guidance, though the headline for a delay in the launch of 7nm CPU products, a significant concern given long delays at the 10nm node, weighed heavily on shares; AMD rises in reaction to INTC’s announced product delay (7nm shifting by six months), allowing AMD to work toward a 3nm product in/around the same time frame as Intel’s 7nm; SWKS nicely beat both EPS and revenue expectations for Q2 and Q3 guidance driven by the mobile business, which saw strong traction in China with domestic brands (tgt prices raised by analysts); overall semi index down sharply led by INTC concerns

Stock GAINERS

·     AMD +11%; after INTC announced a product delay (7nm shifting by six months), allowing AMD to work toward a 3nm product in/around the same time frame as Intel’s 7nm

·     ECOM +27% after acquires analytics firm BlueBoard to help brands accelerate growth across retailer websites and marketplaces; ECOM says it will bring BlueBoard’s technology to market as ChannelAdvisor Brand Analytics

·     EW +1%; reported Q2 results that beat consensus on both the top and bottom-lines primarily due to better-than-expected TAVR sales as well as the firm’s Q2 guidance range of $700-900M

·     FE +4%; said the company is in discussions with U.S. Department of Justice lawyers and will fully cooperate with subpoenas it received in connection to federal racketeering probe over an Ohio law to bail out nuclear reactors.

·     SAM +16%; reported 42% revenue growth (300 bps ahead of Cowen forecast) and an impressive EPS beat on the quarter driven by outsized growth in Truly and raises 2020 EPS to $11.70-$12.70 from $10.70-$11.70

·     SKX +3%; tgt price raised by several analyst today as sales in China increased 11.5% for Skechers during the quarter, including an ~43% increase in e-commerce sales

·     VZ +2%; reported a Q2 revenue beat ($30.4B vs. est. $29.95B) while total wireless service revenue of $15.9B fell -1.7% YoY and said Q2 total wireless retail postpaid churn of 0.78%, and retail postpaid phone churn of 0.58%

Stock LAGGARDS

·     AXP -1%; Q2 revenues both missed consensus views ($7.68B vs. est. $8.13B), while 2Q consolidated provisions for losses rose to $1.6B, up from $861M a year ago

·     EHTH -33%; reported strong 2Q20 results that were above consensus and raised its guidance for the year – but increased churn weighed on the shares – as a result of higher churn, the company reported a decline in LTV by 4% y/y and expects a 10% decline in 4Q20

·     INTC -14%; downgraded by several Wall Street analysts after the chip maker posted good results and guidance, though the headline for a delay in the launch of 7nm CPU products, a significant concern given long delays at the 10nm node, weighed heavily on shares

·     MRNA -4%; after losing its patent case yesterday against ABUS arguing that its patent for the technology used to deliver messenger RNA to a patients’ cells was unpatentable – patent judge found that Moderna had not shown that the claims in the patent were unpatentable

·     WDC -4%; broad weakness in the semiconductor sector after INTC (outside of AMD), with profit taking in recent winners such as MU, WDC, KLAC, AMAT)

Syndicate:

·     Annexon (ANNX) 14.75M share IPO priced at $17.00

·     Inozyme (INZY) 7M share IPO priced at $16.00

·     iTeos Therapeutics (ITOS) 10.586M share IPO priced at $19.00

·     Nurix Therapeutics (NRIX) 11M share IPO priced at $19.00