Mid-Morning Look

Friday, July 31, 2020

U.S. equities are mixed as the tech heavy Nasdaq Composite rises, getting a boost from strong earnings results/guidance overnight from AAPL, AMZN and FB, while GOOGL slips (though the index well off earlier highs). The Dow, S&P and SmallCaps slide on mixed economic data, no stimulus deal reached in Washington this week (just hours before federal jobless benefits officially expired), and mixed earnings as well. Energy a drag after Dow component CVX posts significant quarterly loss. Asian markets mostly weaker overnight with Japan and Australia the big decliners while China was the lone bright spot. U.S. Treasury yields lower as they yield on 5-year note touches record low of 0.214%, while the dollar bounces off lows and gold surges to another new high. Earlier, the dollar index (DXY) dropped below the 93 level to its lowest levels since May of 2018, with the euro pulling back off overnight highs above $1.19 (also highest since May 2018), before slipping back to break-even around 1.184. The British Pound rises to highs around 1.316, best levels since March (52-week high 1.3514 on 12/13). Gold prices back around record highs near the $2,000 an ounce level – helped by dollar weakness and strong China data overnight. Meanwhile new coronavirus cases in the U.S. climbed back above 70,000 as daily reported deaths rose to their highest level in more than a month Thursday. A very busy week of earnings is in the books, with another busy week coming up, knocking out the majority of the S&P 500.

Economic Data

·     Personal savings for June was 19% vs. 24.2% in May; Personal income fell -1.1% vs. est. down -0.5% while personal spending rose 5.6% vs. est. 5.5%; June core PCE price index +0.2%, in-line with estimates and prior month, while June overall PCE price index +0.4% vs. May +0.1%

·     Chicago PMI for July strong, reported at 51.9 vs. est. 44.0 (and vs. prior month 36.6)

·     University of Michigan Final Sentiment for July fell to 72.5 from prelim reading o 73.2 and mostly in-line with estimates, but down from June level of 78.1; the expectations index fell to 65.9 vs. 72.3 last month while the current economic conditions index fell to 82.8 vs. 87.1 last month

Sector Movers Today

·     Pharma movers; SNY, GSK strike deal for $2.1B Covid vaccine deal with the U.S.; MRK tops Q2 profit estimates and raises its FY outlook on increased demand for its blockbuster cancer therapy Keytruda as those sales grew 29% to $3.39B in the quarter; PFE and BNTX said they will supply Japan with 120M doses of their mRNA-based vaccine candidate against the coronavirus in H1 2021; financial details are not disclosed; ABBV 2Q sales and EPS beat and raised its guidance, but the results were muddied by the inclusion of Allergan from May 8; U.S. appeals court rejects Takeda pharmaceuticals’ appeal seeking a preliminary injunction against MYL’s generic version of its gout drug Colcrys; VRTX reported top-line revenues of $1.5B vs. FactSet consensus of $1.4B, driven by better-than-expected Trikafta revenues in 2Q ($918M vs. consensus of $876M) and also increased its product revenue guidance;

·     Biotech movers; REGN will collaborate with BNTX on a clinical trial evaluating the combination of PD-1 inhibitor Libtayo (cemiplimab) and the latter’s BNT111 FixVac candidate for the second-line treatment of patients with advanced cutaneous melanoma; GILD 2Q earnings were slightly below expectations overall as product sales of $5.1B missed FactSet consensus of $5.22B, while R&D spend came in higher at $1.2B due to remdesivir investment; BEAT announced Q2 results that were largely in-line with consensus, when adjusting to exclude a one-time $9.7M benefit; SESN announces an exclusive license agreement with Qilu Pharmaceutical for the development and commercialization of Vicineum™ in Greater China; ACHV said the USPTO has granted a patent on novel analogs of cytisinicline, a process for their preparation, and their use in the prevention or treatment of CNS and addictive disorders.

·     Retailers; AMZN impressive 2Q results as revenue and operating income significantly exceeded heightened expectations, revenue advanced 41% y/y FX-adj. as momentum in online shopping persisted, operating income of $5.8B, exceeded Street expectations of $1.2B, while AWS revenue grew 29% YoY decelerating 400bps sequentially; UAA reported Q2 revenue that topped the highest estimates with $707M figure vs. $538M estimate but was down (-41% YoY) on a smaller than expected Q2 EPS loss – but shares fell after warning it expects profit margins to be pressured for the rest of the year; GOED 1.1M share IPO priced at $9.00; VFC beats quarterly sales estimates and reports smaller-than-expected loss, boosted by a 78% jump in online sales

·     Software movers; EA reported record June qtr. results well ahead of consensus, driven by core titles Apex Legends, FIFA, Madden and Sims 4; PFPT 2Q upside driven by strength in core email offering and emerging products while renewals were stronger than expected and increased guidance for 2H; VSTA 18.575M share IPO priced at $19.00; TENB 8M share Secondary priced at $31.95

Stock GAINERS

·     AAPL +5%; reported a record June quarter, with revenue/EPS results exceeding Street expectations by +13.4% and +25.9%, despite the pandemic and several store re-closures. IPad and Mac sales led the quarter’s revenue growth – announced a 4 for 1 stock split

·     ACHV +10%; said the USPTO has granted a patent on novel analogs of cytisinicline, a process for their preparation, and their use in the prevention or treatment of CNS and addictive disorders

·     AMZN +4%; impressive 2Q results as revenue and operating income significantly exceeded heightened expectations, revenue advanced 41% y/y FX-adj. as momentum in online shopping persisted, operating income of $5.8B, exceeded Street expectations of $1.2B, while AWS revenue grew 29% YoY decelerating 400bps sequentially

·     FB +7%; following stronger than expected 2Q20 results, positive commentary, growth stabilization in July, elevated user engagement, while some warn Q2 ad revenue deceleration could pressure the stock

·     LEJU +82%; announces that real estate services company E-House will purchase a 56.19% stake in the company and said BABA will increase its stake in E-House to about 8.32% as part of a strategic collaboration.

·     MDRX +16%; after Q2 adj EPS 18c and revs $406.2M topped the 12c and $399M and said it will sell its EPSi unit to a Roper Technologies unit for $365M

·     PINS +26%; reported adjusted loss per share for the second quarter that was narrower than the average analyst estimate. Shares surged 29% to $32.50 in premarket trading, setting the stock up for its highest intraday price since September

Stock LAGGARDS

·     CAT -2%; with lower Q2 earnings and revenues from a year earlier though beat estimates as Q2 net income fell to $458M from $1.62B in the prior-year period/said may not see improvement in profit margin in Q3 vs. Q2

·     CPLP -15%; after eps, reduces dividend to 10c per common unit

·     CVX -3%; Q2 earnings missed analysts’ earnings expectations following a $8.3B loss and writing down the entire value of its Venezuelan operations (posted an adjusted loss of $3 billion, or $1.59 per share, versus analysts expectation for a 93c loss)

·     EXPE -8%; bigger-than-expected Q2 loss and lower-than-expected revenue, as gross bookings plunge 90% due to the coronavirus crisis

·     GILD -3%; 2Q earnings were slightly below expectations overall as product sales of $5.1B missed FactSet consensus of $5.22B, while R&D spend came in higher

·     GOOGL -4%; reports its first quarterly sales slide in its 16 years even though Google’s ad sales recovered since plummeting in March/overall Q2 revenue was $38.3B, with the slowest growth since a 2.9% increase during the Great Recession in 2009

·     SHAK -8%; after a bigger-than-expected EPS loss of (45c) vs. est. (37c) amid COVID-19-led lockdowns and protests in U.S. cities

·     UAA -4%; posted strong quarterly revenue, topping views but shares fell after warning it expects profit margins to be pressured for the rest of the year

Syndicate:

·     1847 Goedeker (GOED) 1.1M share IPO priced at $9.00

·     Fathom (FTHM) 3.43M share IPO priced at $10.00

·     Tenable Holdings (TENB) 8M share Secondary priced at $31.95

·     Vasta Platform (VSTA) 18.575M share IPO priced at $19.00

·     Vital Farms (VITL) 7.813M share IPO priced at $22.00