Mid-Morning Look

Tuesday, June 30, 2020

U.S. equities opened mixed as the tech heavy Nasdaq Comp outperforms, led behind strength in semiconductors after strong earnings and guidance from Micron as well as raised revenue guidance from Xilinx, while the Dow Jones slides led behind weakness in Boeing (BA) after Norwegian Air cancels orders for 97 Boeing aircraft (recall it was gains in BA yesterday the propelled the index higher as the FAA confirmed it had approved key certification test flights for the grounded 737 MAX). Today marks the final day of the quarter, a stellar quarter as investors have jumped into beaten up stocks following the March coronavirus pandemic related sell-off. Note coming into the day, the percent change from the 3/23 close was: Dow: 37.67%, S&P: 36.46% and the NASDAQ: 43.92%. Oil prices slide this morning, while gold prices edge higher and Treasury yields remain near 1-month lows (10-yr 0.62%) as investors tread cautiously into the final day of the quarter. Markets also await testimony to Congress from Treasury Secretary Mnuchin and Fed Chair Powell on the government programs. Economic data was mixed as consumer confidence jumped in June above estimates while manufacturing PMI in Chicago region fell well short of consensus estimates.

Economic Data

·     Chicago PMI for June reported at 36.6 below the 45 estimate and compared to 32.3 prior month

·     Consumer Confidence for June reported at 98.1 vs. estimate for 91.5 reading (prior month was 86.6); consumer inflation rate expectations 6.7% in June vs. May revised 6.4%; expectations index 106.0 in June vs. May revised 97.6 and present situation index 86.2 in June vs. May revised 68.4

Sector Movers Today

·     Semiconductors; strength in the sector today given MU and XLNX earnings/guidance; MU reported MayQ results in-line with pre-announcement, and guided to a much stronger AugQ revenue of $6.0B (vs. est. of $5.5B) with strength from Data center and 5G handset ramp while XLNX raises mid-point of rev guidance as sees Q1 revs $720M-$734M (est. $690.2M) saying stronger-than-expected rev in wired & wireless, data center group offset weaker-than-expected rev in consumer-oriented end markets in qtr (tgt raised by many analysts); IIVI shares fall initially after announces stock offering –shares of equipment names (LRCX) as well as other semis rally

·     Bank movers; last night, the CCAR banks published planned capital actions and their new stress capital buffer (SCB); WFC said based on the Federal Reserve Board’s instructions regarding capital distributions through the end of 3Q 2020 it expects it will reduce its dividend from the current level of $0.51c per share; expects 2Q results will include increase in allowance for credit losses substantially higher than increase in 1Q; DFS and ALLY both stated they will maintain their current dividend in Q3, similar to most of the large banks; COF announced their SCB but made no mention of the dividend

·     Auto sector; UBER shares active following reports has made a bid to take over rival food-delivery company Postmates, the New York Times reported Monday night. Talks were reported to be ongoing, but a deal could come within hours https://on.mktw.net/2NGKvfF ; Mizuho lowered JunQ estimates for ALV and VNE though say they see SepQ/2H positioned better with recovery in the U.S. and China; AZO was removed from best ideas list at Wedbush as believe that the near-term strength the company is experiencing is likely to fade as car sales recover and stimulus/benefits run out (or get downsized); TSLA is set to report deliveries and production in early July, while Opco says it appears both are moving along at a healthy rate with TSLA’s re-ramp proceeding relatively efficiently and alongside solid vehicle sell-through

Stock GAINERS

·     AYI +7%; posted beat as Q3 adj EPS $1.94 on sales $776.2M topped the est. $1.37 and $755.7M while says sees pricing pressure, tariff costs in Q4

·     CAG +3%; reported a beat on the top and bottom line for Q4 as organic sales surge 21.5%, helped by at-home consumption amid COVID-19 lockdowns while the company said it expects it to rise 10%-13% in current qtr

·     LULU +7%; announced that it is acquiring MIRROR, an at-home, digitally-enabled interactive workout platform. LULU is paying $500M for the company

·     MU +6%; reported MayQ results in-line with pre-announcement, and guided to a much stronger AugQ revenue of $6.0B (vs. est. of $5.5B) with strength from Data center and 5G handset ramp

·     SGEN +1%; price tgt raised by several analysts after the company and GMAB announced positive topline results from the Phase II study “innovaTV 204” evaluating Tisotumab vedotin (TV) in recurrent or metastatic cervical cancer

·     UBER +3%; has made a bid to take over rival food-delivery company Postmates, the New York Times reported Monday night. Talks were reported to be ongoing, but a deal could come within hours https://on.mktw.net/2NGKvfF

·     XLNX +7%; raises mid-point of rev guidance as sees Q1 revs $720M-$734M (est. $690.2M) saying stronger-than-expected rev in wired & wireless, data center group offset weaker-than-expected rev in consumer-oriented end markets

Stock LAGGARDS

·     BA -6%; after Norwegian Air cancels orders for 97 Boeing aircraft, consisting of 92 737 MAX and five 787 Dreamliners/ also files legal claim seeking return of pre-delivery payments related to the aircraft and compensation for its losses related to the grounding of 737 MAX

·     GNW shares fall after extends merger agreement with Chinese conglomerate Oceanwide to September 30 from the previous deadline of June 30 and said it plans to include a debt offering in the near-term to address liabilities

·     INO -11%; said its COVID-19 vaccine candidate was considered safe and well-tolerated in all 40 of the participants in a Phase 1 clinical trial but did not disclose data about their antibody response

·     JCOM -3%; after being mentioned as a new short call at Hindenburg Research, alleging related party transactions, lack of governance and a legacy business in decline

·     OCX -48%; announces completion of DetermaDx clinical validation study; prospective, blinded clinical validation study did not achieve pre-defined endpoint of improvement over routinely used clinical factors for managing patients with radiologically identified lung

·     OKTA -1%; downgraded to neutral from buy at BTIG saying they believe it is very well positioned in multiple growth markets longer term, but checks lead them to believe that customer identity deals have temporarily slowed

·     VRCA -23%; after announcement working with FDA to resolve issues related to vp-102 new drug application

·     WFC -2%; said based on the Federal Reserve Board’s instructions regarding capital distributions through the end of 3Q 2020 it expects it will reduce its dividend from the current level of $0.51c per share; expects 2Q results will include increase in allowance for credit losses substantially higher than increase in 1Q

·     ZYNE -38%; after its pivotal trial of Zygel (CBD gel) in Fragile X Syndrome failed to reach its primary or key secondary targets