Mid-Morning Look

Wednesday, November 18, 2020

U.S. stocks opened flat to slightly higher amid another round of positive market news, with vaccine enthusiasm possibly baked in after big developments the last week from Pfizer and Moderna with high efficacy readings in clinical trials. PFE news this morning helped futures briefly as the company and partner BNTX wrapped up the efficacy portion of their Covid-19 vaccine study, concluding that the vaccine prevented 95% of cases of the disease (higher than prior levels). The Dow Jones Industrials outperforms led by shares of Boeing (BA) after its 737 Max wins approval from U.S. FAA to resume flight. There was also positive news overnight that the FDA has issued an emergency use authorization (EUA) to the single-use COVID-19 diagnostic test kit from Lucira Health, a California manufacturer. Still, markets and investors continue to navigate the near-term of worsening coronavirus trends remain (Tokyo to raise alert level after logging record rise in infections, U.S. hospitalizations hit record 73K as more states announce restrictions amid the resurgence of Covid cases). Several sectors lower to start with Real Estate leading after two days of outperformance, while tech also slips after initial outperformance. Dow Transports outperform topping 12,500 led by airlines after Boeing 737 Max winning approval from U.S. FAA to resume flights (lifts airline stocks). Housing data comes in better than expected for October on low rates, oil prices extend recent gains and Treasury yields are steady. Markets also awaiting additional stimulus relief, but that prospect has likely been pushed out to 2021 following the Presidential election. Also, after the November 26 U.S. holiday, Congress will need to pass and extension of the continuing resolution that funds the Federal government by Dec. 11 or face a partial government shutdown.

Economic Data

·     Housing Starts for October rose +4.9% M/M to 1.530M vs. 1.460M expected, while prior revised to 1.459M from 1.415M); single-family housing starts in October were at a rate of 1.179M, 6.4% higher than the revised September figure of 1.108M. Building permits for Oct +0.0% to 1.545M vs. 1.560M expected and 1.545M (revised from 1.553M).

Sector Movers Today

·     Aerospace & Defense; Dow component BA shares surge after the FAA allows co’s 737 Max to resume flights – U.S. FAA chief Steve Dickson said is “100% confident” in the safety of the Boeing 737 MAX but says the airplane maker has more to do as it works to improve its safety culture (the 737 MAX crashed in Indonesia and Ethiopia, killing 346 people within five months in 2018 and 2019); shares of aerospace suppliers SPR, TDG, HII, GE active on the news; Citigroup downgraded SPR to neutral noting vaccine & MAX progress have pushed stocks significantly higher, so cutting with the stock +65% since they reported on Nov 3; TDG upgraded to buy from hold at Jefferies based TDG Commercial AM sales rise 7% from 2019 to 2023and potential capital deployment likely with cash balance at 92% of sales; Cowen raised price tgts for SPR to $39, RTX to $77, MOGA to $83 in supplier space; ESLT downgraded to hold at Jefferies saying the global nature of the pandemic limits visibility to a recovery w/ 1% organic growth in 2020E and 3% in 2022E

·     Leisure and Gaming; in cruise lines, CCL prices 57.4M shares at $18.05 to limited number of holders of its 5.75% convertible senior notes due 2023 – to use proceeds to repurchase from such holders aggregate of ~$499.4M principal amount of convertible notes, leaving ~$628M outstanding; NCLH 40M share Block Trade priced at $20.80; PII share slip after the co’s CEO leaves to go to CNHI and firm reaffirmed its guidance for the year; in lodging, Jefferies raised tgt prices for buy rated MAR from $130 to $145, WH from $61 to $66 and HLT from $102 to $120 as well as hold rated CHH from $96 to $106, and H from $56 to $75; CWH declares regular quarterly and special dividend totaling $1.00 per share

·     Auto sector; TSLA upgraded to overweight and tgt raised to $540 from $360 saying Tesla is on the verge of a profound model shift from selling cars (volume x price) to generating high margin, recurring software and services revenue (platform users x ARPU); in electric vehicle space, NIO reports a 146.4% surge in Q3 revenue to 4.53B yuan vs. est. 3.53B yuan and said deliveries reached record high during Q3 while expects to deliver 16,500 to 17,000 vehicles in Q4; registrations of new cars in Europe declined by 7.8% to 953,615 units amid the pandemic

·     Retailers; TGT posts strong Q3 results with unprecedented sales gains according to the CEO, as comp sales +20.7% (digital +155%), adj EPS $2.79, and sales $22.34B all soundly beat estimates (+11.3%, $1.60, $20.7B); TJX reported Q3 EPS 71c on net sales $10.12B, both coming in higher than the most optimistic analyst estimate, and the company expects to reinstate their quarterly dividend; LZB reported Q2 adj EPS 82c on revs $459.1M (vs ests. 50c on $433.7M) and reinstates its quarterly dividend at 14c/share, and forecasts Q3 sales +0-4% and Q4 sales +40-45% to total 2H sales $974.9M; UAA was upgraded to Buy from Hold with a $20 tgt at Argus on improving demand, stabilizing costs, management’s reinstated guidance, and a bullish technical pattern; JPM reiterated its OW rating on NKE and raised their price target to $146 from $140; Following earnings yesterday, KSS was upgraded to Hold from Underperform with a $28 pt from $14 at Gordon Haskett, and its price target was raised at Wedbush, Deutsche Bank, BofA, Credit Suisse, UBS; Wedbush said they expect GPS quarterly earnings next Tuesday to be below consensus expectations due to weakness in the company’s core brands

Stock GAINERS

·     BA +3%; after the FAA allows co’s 737 Max to resume flights – U.S. FAA chief Steve Dickson said is “100% confident” in the safety of the Boeing 737 MAX but says the airplane maker has more to do as it works to improve its safety culture

·     BYND +3%; launched plant-based minced pork in China as the company makes a stronger push in Asia as promised

·     CHMA +4%; after saying says its oral therapy, Mycapssa, to treat acromegaly met main goal in late-stage trial as the non-inferiority clinical trial compared co’s Mycapssa to injectable therapy

·     FTI +6%; said it received a notice to proceed for a major Engineering, Procurement and Construction contract by SRE and IENova at the Energía Costa Azul liquefied natural gas facility in Mexico; for TechnipFMC, a “major” contract exceeds $1B

·     PFE +3%; and BNTX rise after having wrapped up the efficacy portion of their Covid-19 vaccine study, concluding that the vaccine prevented 95% of cases of the disease

·     TGT +2%; posts strong Q3 results as comp sales +20.7% (digital +155%), adj EPS $2.79, and sales $22.34B all soundly beat estimates (+11.3%, $1.60, $20.7B)

·     TJX +3%; reported Q3 EPS 71c on net sales $10.12B, both coming in higher than the most optimistic analyst estimate, and the company expects to reinstate their quarterly dividend

·     UAL +3%; airlines rebound with news of Boeing (BA) 737 Max winning approval from U.S. FAA to resume flights

Stock LAGGARDS

·     GDRX -4%; falls a second day following news that AMZN enters online pharmacy business (shares downgraded at JPMorgan following the Amazon plan)

·     KC -10%; Q3 results beat bottom line estimates but narrowly missed on the top with $254.6M (+73% Y/Y), which was $6.54M below estimates

·     LOW -6%; Q3 adj EPS $1.98 slightly misses $1.99 estimate and revs $22.31B top estimated $21.25B, as comp sales +30.1%, though the company sees Q4 growth slowing to +15-20% and guides Q4 adj EPS $1.10-1.20 (est. $1.16);

·     PAYC -33%; after Q3 EPS loss (12c) vs. est. 2c and reports negative revenue of ($152,541) vs $9.008M last year (downgraded ay Ladenburg to sell)

·     PII -4%; announced that Chairman and CEO Scott Wine will leave the company at the end of the year to assume the role of CEO at CNH Industrial and reaffirmed its previous 2020 sales and EPS guidance

Syndicate:

·     Kodiak Sciences (KOD) 5.19M share Secondary priced at $108.00

·     Norwegian Cruise Line (NCLH) 40M share Block Trade priced at $20.80

·     Oncternal Therapeutics (ONCT) 7.258M share Spot Secondary priced at $3.10

·     Pinduoduo (PDD) 28.7M share Secondary priced at $125.00

·     Resideo (REZI) 17M share Secondary priced at $15.00

·     Revolve Group (RVLV) 5.1M share Block Trade priced at $20.00