Mid-Morning Look

Thursday, November 05, 2020

Stocks keep on rising, with investors showing no fear or concerns about the election/rising Covid cases globally, piling money into riskier assets as tech once again leading the charge higher with the Nasdaq Composite rising about 1,000 points the last 3-days. Markets have surged despite uncertainty in Washington as Democratic Presidential hopeful Joe Biden is near the 270 electoral votes need to before President after victories in Michigan and Wisconsin, but the Trump campaign has announced legal action in three states to stop counting or recount in other cases claiming unfairness. Markets also awaiting results still from a handful of states (PA, GA, NV, NC, AZ). The Nasdaq Composite rising over 2.5% to 11,900 – now less than 200 points from record highs (12,074) and well off the 10,850 lows just three days ago (followed the tech sell-off after earnings last week in big tech AAPL, AMZN, FB). Meanwhile, the number of Americans filing for first-time jobless benefits ticked down by 7,000 to 751,000, but missing forecasts for a much steeper drop.

Market winners on Wednesday (and continue into today) after the election were bonds as well as mega cap tech and healthcare related sector (split gov’t likely means less drug pricing and tax concerns) while the biggest losers were Smallcaps, cyclicals, infrastructure (gridlock fear raises lower chances of big stimulus plan) and solar on profit taking (rebounds today). Reflation trade questioned as metals and industrials pressured while financials remain lower on plunging Treasury yields and the expectations of higher capital gains taxes under Biden plan. Gold bounced to a more than three-week high as increasing bets of a Joe Biden victory in the close U.S. election boosted hopes for larger stimulus and dented the dollar, ahead of a Federal Reserve policy statement later this afternoon. European markets rose after the Bank of England added another 150 billion pounds ($195.20 billion) to its asset purchase program, while Asian stocks surged as well overnight with Japan’s Nikkei rising 1.7% to a more than nine-month high. The race is coming down to close contests in five states. Biden held narrow leads in Nevada and Arizona while Trump was watching his slim advantage fade in must-win states Pennsylvania and Georgia as mail-in and absentee votes were being counted. The Republican president clung to a narrow lead in North Carolina as well, another must-win for him, but he has also filed lawsuits and demanded recounts that could keep some uncertainty dragging on.

Economic Data

·     US jobless claims fell to 751,000 oct 31 week vs. est. 732,000 and down from 758,000 prior week (revised from 751,000); US continued claims fell to 7.285 mln from 7.823 mln (est. 7.2M); the 4-week moving average fell to 787,000 oct 31 week from 791,000 prior week (previous 787,750); the US insured unemployment rate fell to 5.0% from 5.3% prior week

·     U.S. Q3 non-farm productivity rose +4.9% vs. est. +5.6%, down from +10.6% in Q2 while unit labor costs fell -8.9% vs. est. decline of -11.5% and vs. up +8.5% in Q2

Sector Movers Today

·     Semiconductors; Philly semi index rises over 3% to fresh all-time highs above 2,450 (was below its 50-day MA just a few days earlier of 2,271) – group buoyed by earnings; QCOM surges as several analysts raise tgt prices after co forecasts Q1 revenue above estimates as it ramps up chip sales for AAPL’s 5G iPhone models – with global smartphone volumes steadily recovering, QCOM is well-positioned to benefit from the long-term 5G investment cycle; QRVO reported upside results/ outlook as F2Q sales/EPS of $1.06B/$2.43 topped positively revised guidance and beat original guide by 13%, led by mobile, though IDP was also strong, +67% YoY and Q3 guidance above views (follows recent SWKS, CRUS results); IIVI Q1 results beat on profit with $0.84 ($0.29 above estimates) but narrowly missed on the top line with better margins while guidance above views ($750M-780M vs. est. $730.4M)

·     Retailers; GOOS EPS beats by $0.11, beats on revenue on better margins; FIVE downgraded to hold at Loop Capital based on valuation; HBI shares tumble as a weaker Q2 outlook (EPS of 25c-30c on revs $1.6-$1.61B below 45c and $1.71B) overshadow a Q3 beat; WWW reports revenue was down 14.6% in Q3 on a constant currency basis – the Wolverine Michigan Group saw a 10.2% drop in revenue and Wolverine Boston Group recorded a 20.3% decline; CPRI beats Q2revenue and profit estimates, as all three CPRI’s brands- Michael Kors, Jimmy Choo and Versace- saw sales growth in Mainland China in Q2; COST total October comp sales of +14.4% vs Consensus +10.5%, with the core US comp strong at +16.4%; YETI Q3 EPS of $0.61 vs est. $0.37 on better sales, driven by a top line beat and stronger than expected margin delivery

·     Software earnings; PAYC reported F3Q results well ahead of consensus and guided 4Q in line as new business trends continue to be very healthy, with the company continuing to lean into S&M to drive growth; RPD delivered a strong quarter with 29% ARR growth (31% last qtr) against expectations of 26% as management increased their 2020 ARR growth outlook to 24% vs. a previous midpoint of 21.5%; UPWK delivered a solid Beat & Raise Q3, w/ Revenue accelerating to 24% YoY, coming in % above Street, and a solid beat on EBITDA; ZNGA reported Q3’20 Bookings in-line and adj. EBITDA ahead of consensus; FROG delivered a strong first print as a public company, with all key metrics coming in above our/consensus expectations and the company issuing F4Q guidance above views; PING posts Q3 top and bottom line beat, but shares slump as Q4 ARR outlook disappoints

·     Media & Telecom movers; MTCH business continues to demonstrate resilience during the pandemic, as evidenced by 3Q revenue exceeding our/Street revenue and EBITDA by >5% and >12%, respectively according to Keybanc; NYT Q3 EPS and revs beat as revenue from digital-only products increased 34%; VZ upgraded to Overweight at JPMorgan citing accelerating wireless service revenue growth, spectrum shortages are clearing, Tracfone accretion among other reasons; MDP jumps as EPS beats by $1.04, beats on revenue with 15% growth in national digital advertising to a record high and a 43% increase in local political spot advertising (strength in broadcasting names NXST, SBGI, TGNA on political ad revs); GTN also reported better-than-expected results in Q3 benefitting from aggressive political ad spending for Nov. 3 elections

·     Leisure and Gaming; U.S. home rental company Airbnb Inc plans to make its initial public offering (IPO) registration public as early next week, setting course for a stock market debut next month – Reuters reported overnight; in lodging, PLYA Modest miss on EBITDA says all hotels expected to be open by YE, in time for high season; Hyatt (H) 3Q Adj. EBTDA modestly less bad than expected – as EPS loss miss driven by weaker-than-expected RevPAR, worse owned and leased contribution and operating deleverage; VAC 3Q Adj. EBITDA well above expectations though 4Q contract sales guide light; in theme park, SEAS 3Q EBITDA of ($11M) vs. est. loss ($17M) on slightly better sales of $106M (est. $99M) as attendance was down 81%

·     Restaurants; PZZA 3Q EPS $0.35 vs. est. $0.32 on revs $472.9Mm vs. est. $466.1Mm, comps +23.8% in North Am, +20.7% International; announces new $75Mm share repurchase program; WEN upgraded to buy from neutral at Bank America and raise our estimates and price objective following 3Q earnings yesterday saying its well positioned to capitalize on restaurant market share consolidation to drive-thru centric; FRGI rises after earnings as sales have recovered behind strong gains in the drive-thru (+29% at Pollo Tropical (PT)), expanded delivery, and improved off-premise execution/ operations; TAST (Burger Kings) warned that sales took a downward turn in August and September after having risen from pandemic lows; CBRL Q1 comp store restaurant sales of -16.4%; and Comparable store retail sales of -8.1% and sees Q1 net income of ~$167M to $172M and adj. EBITDA of ~$50M to $55M

Stock GAINERS

·     CAH +9%; Q1 EPS beat handily as Pharma and Medical divisions came in ahead of consensus, while general managed care space outperforms under expectation Biden win

·     FSLR +7%; rebound in solar stocks after profit taking yesterday – sector seen positive under Biden as campaign had announced aggressive plans to ramp up renewable energy production

·     PH +7%; Q1 EPS and revs top views and raises its guidance for FY21 earnings and organic revs

·     QCOM +13%; as several analysts raise tgt prices after co forecasts Q1 revenue above estimates as it ramps up chip sales for AAPL’s 5G iPhone models

·     TLRY +12%; broad gains in cannabis space – after yesterday profit taking (ACB, APHA, CGC, CRON) as Democrat Joe Biden’s electoral vote nears him close the becoming the 46th U.S. president

·     UPWK +46%; delivered a solid Beat & Raise Q3, w/ Revenue accelerating to 24% YoY, coming in % above Street, and a solid beat on EBITDA (prompted upgrade at Stifel to buy)

Stock LAGGARDS

·     BABA -3%; Q2 results beat on profit but narrowly missed on revenue with $22.8B, which was up 30% Y/Y but $510M short of estimates

·     BLUE -22%; as SCD filing in the US has been pushed out from H2:21 to late 2022 as BLUE transitions from clinical-grade/adherent cells to commercial-grade/suspension cells manufacturing and the FDA asks for more data

·     CLVS -16%; posts Q3 revenue miss (smaller EPS loss) and lower guidance for Q4 revs of $38M-$40M below the $46.9M estimate

·     HBI -18%; shares tumble as a weaker Q2 outlook (EPS of 25c-30c on revs $1.6-$1.61B below 45c and $1.71B) overshadow a Q3 beat

·     LLY -1%; as pharma names with some profit taking after surge yesterday (ABBV, JNJ, BMY)

·     PING -15%; posts Q3 top and bottom-line beat, but shares slump as Q4 ARR outlook disappoints