Mid-Morning Look

Tuesday, July 28, 2020

U.S. equities are lower, giving back some of yesterday’s strong gains (especially in tech) with several potential market moving catalysts on the near-term horizon, including the FOMC meeting details tomorrow, big cap tech earnings the next few days (AAPL, AMZN, FB, GOOGL) and the finalization of the COVID-19 stimulus bill out of Washington (while many late stage COVID-19 vaccine trials got underway this week). Stocks a drag this morning following disappointing earnings results out of Dow components MMM and MCD, while PFE and RTX shares rise post their earnings. Weaker consumer confidence for July did not help sentiment this morning (index for July falls to 92.6 from 98.3 prior month and below consensus of 94.5). PFE also gets a boost after they nearly get $2 billion (along w partner BNTX) to secure 100 million doses of their experimental Covid-19 vaccine. U.S. coronavirus cases rose by 55,000 Monday, the slowest daily pace since July 7, giving investors cause for cautious optimism. Back to the stimulus plan, Senate Majority Leader McConnell (R–KY) introduced the HEALS Act, a $1 trillion coronavirus relief bill that includes money for health, testing, schools, liability protection, and small businesses; $1200 stimulus payments to Americans; and $200/week extra in unemployment insurance. Negotiations with Democrats will continue throughout the week. Gold prices extend gains after touching a new record high yesterday, while the dollar is little changed. Traders are now turning their focus to the conclusion of the Federal Reserve’s two-day policy meeting on Wednesday.

Economic Data

·     S&P CoreLogic Case-Shiller National Home Price index rose 4.46% y/y in May after rising 4.61% in prior month; S&P/Case-Shiller 20-city NSA index at 224.76 after 223.92 in April; the 20-city SA index rose 0.04% m/m in May after rising 0.24% the prior month; national home price index rose 0.1% m/m in May after rising 0.41% the prior month

·     Consumer confidence index for July falls to 92.6 from 98.3 prior month and below consensus of 94.5; the expectations index was 91.5 in July vs. June revised 106.1 and the present situation index 94.2 in July vs. June revised 86.7

·     Richmond Fed Index jumps to a positive reading of 10, above last month unchanged and topping the consensus view of up 5

Sector Movers Today

·     Semiconductors; INTC announced changes to its technology leadership team to “accelerate product leadership and improve focus and accountability in process technology execution. As let go its chief engineer; AMKR rises after Q2 beat and said it expects Q3 profit between 17c-35c above est. 17c and expects sequential revenue growth in Q3, driven by launch of flagship smart phones, including more 5G models; NXPI posted higher 2Q results and 3Q guidance driven by stronger performance in Industrial IoT and Communications Infrastructure & Other, while Automotive missed our expectations

·     Chemicals & Materials; RBC Capital raised RPM’s PT to $93 and EBITDA multiple to 16x after solid FQ4 results and outlook, ARD reported global bev-can volume growth of 3%, they raised CCK PT to $85 on food and bevcan volume growth, and raised SLGN PT to $45 on similar strength in food can consumption due to higher at-home food consumption; HUN reported a Q2 EPS/Ebitda that topped views and better guidance for Q3; SHW EPS $7.10 tops the street $5.69 on slightly better topline with a beat on every segment

·     Transports; the airline lobby group IATA says traffic is not growing as fast as airlines are adding capacity, with demand for flights disappointingly low so far/doesn’t see global air traffic recovering to 2019 levels until 2024; had seen recovery by 2023/domestic load factors in June at 62.9% on average but international only 38.9%; AAL maintained sell at Citigroup; JBLU daily rate of a $9.5b burn per day vs. $11m prior guidance (improvement the result of both better revenue and cost controls) and reiterating Q3 FCF burn guidance of $7-9m/ day; US Class I rail traffic under coverage (CSX, NSC, UNP, KSU) had some very slight deterioration from last week. Total traffic declined by 8.6%, vs. last week -8.3%; QTD -8.2%, driven by accelerated ex-intermodal decline at 15.6% (vs. last week -13.9; QTD -15.0%)

·     Housing & Building Products; in building products, MLM 2Q EPS $3.49 topped the $3.03 estimate on slightly better revenue of $1.27B saying product demand remains strong and will reinstate full-year earnings guidance when it has sufficient visibility (the group slipped – VMC, SUM, EXP – after MLM comments seeing likely lower product demand across the industry over next few qtrs due to Covid); builder DHI Q3 EPS beat includes $38M tax benefit ($1.72 vs. est. $1.28) while Q3 net sales orders rose 38% Y/Y to 21,519 homes and 35% in value to $6.3B; AWI shares plummet after guidance after saying sees FY sales in the range of $1.04-$1.05 bln, an annual growth of 7%-8% vs previously guided range of 7%-10% while Q3 missed on sales side while EPS beat

Stock GAINERS

·     AMKR +11%; after Q2 beat and said it expects Q3 profit between 17c-35c above est. 17c and expects sequential revenue growth in Q3, driven by launch of flagship smart phones, including more 5G models

·     CMI +6%; after Q2 EPS of $1.86 beats consensus view of $0.91 on better revs of $3.90B while saying expects Q3 revenue to improve from Q2

·     COWN +12%; said its strongest quarter ever was driven by capital markets activity in biotech and healthcare tools and diagnostics, and as an investment in electric-vehicle company Nikola added $64.9 million, or $2.21 per share, to economic operating income.

·     KODK +298%; won a $765M government loan under the Defense Production Act to support the launch of Kodak Pharmaceuticals and help speed up domestic production of drugs that can treat a variety of medical conditions

·     PII +9%; as Q2 profit easily beats views ($1.30 vs. est. 63c) and reinstates year guidance while saying quarterly North America retail sales rose 57% YoY, with both ORV and motorcycle retail sales up significantly

·     SPPI +29%; after the company’s drug, poziotinib, for previously treated non-small cell lung cancer, met the main goal of a mid-stage trial on Monday (the disease control rate (DCR) was 70% and the median progression free survival was 5.5 months)

·     VCRA +34%; reported strong 2Q20 results, which exceeded estimates as device revenue grew 18% y/y, while software revenue declined 21% y/y.

Stock LAGGARDS

·     AWI -12%; after guidance after saying sees FY sales in the range of $1.04-$1.05 bln, an annual growth of 7%-8% vs previously guided range of 7%-10% while Q3 missed on sales, while EPS beat

·     CNC -2%; slightly lowered its 2020 revenue forecast to between $109B-$111.4B from prior $110B-$112.4B view (but still above the Street) after posted adj Q2 EPS of $2.40, below estimates

·     FFIV -6%; revenue/EPS was ahead of expectations while other metrics were mixed

·     HXL -3%; reported a Q2 sales decline of 37.8% Y/Y to $378.7M, with Composite Materials sale of $321.6M (-36.4% Y/Y), Engineered Products sale of $72.9M (-41.7% Y/Y) and Commercial Aerospace sales $203.9 (-51% Y/Y) as gross and operating margins fell

·     LW -6%; shares fall after missing FQ1 EPS estimates that saw a 17% drop in volume and foodservice revs fell -44% YoY

·     MCD -2%; 2Q adjusted EPS 66c missed the 74c estimate (and down from $2.05 YoY) while 2Q comparable sales fell -23.9%, slightly worse than estimates while revs fell -30% YoY, but narrowly beat estimates

·     MMM -5%; after its top and bottom line Q2 (reported 12% decline in revs) consensus as coronavirus crisis hammers demand for its products, while continues to suspend guidance given uncertainty around the pandemic

·     OMC -7%; posted in-line Q2 EPS but revs that missed analyst estimates, and said it sees similar reductions to its revenue through the rest of the year due to the Covid-19 pandemic

·     TSLA -2%; Bernstein downgraded from Market-Perform to Underperform, and maintaining our price target of $900 saying find it difficult to justify Tesla’s current valuation