Mid-Morning Look

Wednesday, October 28, 2020

A very ugly day on Wall Street, falling more than 2% across the board and on track to push major averages lower for the month with no current stimulus relief deal out of Washington (after much back-and-forth for weeks now), no current vaccine, and Covid-19 cases are going in the wrong direction in a big way (especially in Europe) all heading into the Presidential election next week. Given the sharp downturn in stocks globally, major U.S. markets break below key technical levels as the Dow, S&P 500 and now the Nasdaq drop below the 50-day this week and now the Dow and S&P below the 100-day support. Even a good start to earnings for the quarter thus far has failed to overshadow the more macro global concerns. The continued rise in COVID-19 cases has prompted renewed lockdowns in Europe (Germany and France) and raised worries about the strength of the economic recovery in the U.S. as airlines, restaurants, retail, energy, cruise and leisure names fall, Oil prices plunge on slowing demand fears, while safe-haven assets outperform (Treasuries and the US dollar). There was no major economic data today but a ton of earnings results (recaps below). A very ugly day with no comments out of Washington or from the Fed which has warned repeatedly about the need for added fiscal stimulus.

Sector Movers Today

·     Leisure and Gaming; theme parks fall (DIS, SEAS, FUN) two-fold, hit by the raising COVID-19 cases globally, threatening the hopes of a recovery, while SIX reports Q3 EPS loss ($1.37) on revs $126M misses the ($1.00) and $142.73M estimate; attendance was 2.6 million guests, a decline of 11.4 million guests YoY; HOG downgraded at Morgan Stanley after shares surge yesterday as Harley delivered a strong, consensus-beating Q3 driven by cost performance; ELY and Topgolf have entered into a definitive merger agreement to combine in an all-stock transaction. The number of shares to be issued is based on an implied equity value of $2B; RRR reported Q3 Adj. EBITDA of $161M which was well ahead of Street estimates of $92M driven by better than expected Gaming revenue and continued margin expansion; cruise lines (CCL, NCLH, RCL), and lodging names (HLT, H, MAR) pressured on the European country lockdowns

·     Transports; sector slammed on travel restriction concerns as some European countries institute lockdowns to slow the spread of the virus, with airlines among the hardest hit (AAL, DAL, UAL, JBLU); UPS posts Q3 profit above Street expectations, helped by a surge in home deliveries due to the COVID-19 pandemic as Q3 revs rise about 16% to $21.24B topping views; HA with a miss driven by weaker topline; CHRW posted an EPS beat but primarily on a lower than expected tax rate while net revenue of $589M (-7% y/y) was below consensus of $611M and Q3 net revenue margin of 13.9% (-250bps y/y) contracted for a fourth consecutive quarter

·     Utilities & Solar; Solar stocks get solid results/guidance from FSLR which posted a Q3 earnings beat and crushing revenue expectations with a 70% YoY gain to $928M with implied FY 2020 guidance of $3.65-$4.15 EPS and revenues of $2.6B-$2.9B, vs. consensus of $2.88 EPS and $2.69B revenues while ENPH also strong earnings results boosting solar space (SPWR, JKS, SEDG, CSIQ active on results); in utilities EIX reports 3Q20 beat and an updated 2020 guidance, primarily due to higher CPUC earnings and lower expenses; DTE was downgraded at BMO Capital after shares rallied on earnings and spin-off of midstream business

·     Restaurants; EAT reported Q1 eps 28c, surprising analysts who expected a (15c) loss on revs $740.1M, and Q1 same-restaurant sales fell 10.9% YoY, and the company sees the metric down mid-single digits for Q2 and forecasts Q2 adj EPS 40-60c, in-line with 50c est.; DIN Q3 EPS 80c and rev $176.6M beat estimated 36c and $165.9M as Applebee’s same-restaurant sales decreased (13.3%) YoY and IHOP’s decreased over 30%, though both restaurants saw improvements in 10/13 weeks of the quarter; CHEF Q3 net sales $254M (-36% y/y) misses even the lowest analyst estimate ($258M, avg est $266.7M), as (38c) EPS loss also misses expected (32c) loss; DENN posted a surprise Q3 adj EPS profit of 1c (est 3c loss), though revs $71.6M miss $71.9M est as same-store sales decreased by 33.6%. The company also issued FY20 guidance, expecting same-store sales of 70-75% of 2019’s levels and adj EBITDA of at least $28M

·     Insurance; AFL posted Q3 EPS and sales above views and said it sees potential for modest sales improvement for the rest of the year, depending on the pace of economic recovery; CB Q3 core EPS $2.00 vs. est. $2.12, 3Q net premiums written $9.08 billion, +5.3% YoY, 3Q book value per share $124.98 vs. $120.33 YoY, 3Q property & casualty combined ratio 95.2% vs. 90.2% YoY and 3Q net premiums earned $8.77 billion, +5.3% YoY; MAX 9.25M share IPO priced at $19.00; UNM Q3 adjusted EPS $1.21 vs. est. $1.32 on in-line revs of $3B; RNR reported Q3 operating loss per share of ($2.64), wider than estimated ($2.36) loss, though revs $1.33B topped $1.27B estimate, and Net Income available per share 94c ($47.8M total); THG posted Q3 EPS $2.46 on rev $1.25B, and Net Income per shares of $3.13, and has entered into an accelerated $100M share buyback

Stock GAINERS

·     ADP +8%; outperforms as Q1 revenue fell slightly while its profit increased from the comparable quarter a year prior and expects adjusted year earnings to be down 3% to 7% an improvement from July when it expected adjusted earnings to fall between 13% and 18%

·     BG +5%; after the company raises its 2020 profit outlook following a Q3 beat

·     CYH +20%; shares rose as reported 3Q20 results that topped expectations with revenues of $3.126B (Street: $2.91B) and adj. EBITDA of $431M (Street: $432M) as margins expanded 180 bp y/y to 13.8%

·     FSLR +15%; posted a Q3 earnings beat and crushing revenue expectations with a 70% YoY gain to $928M with implied FY 2020 guidance of $3.65-$4.15 EPS and revenues of $2.6B-$2.9B, vs. consensus of $2.88 EPS and $2.69B revs

·     GE +9%; unexpectedly reported a quarterly profit and a positive cash flow on the back of cost cuts and improvements in its power and renewable energy businesses

·     TUP +28%; as beats quarterly sales and earnings estimates saying consumers cooking more at home and needing more food storage pushed Q3 sales up 14% to $477.2M (vs. est. $362M

Stock LAGGARDS

·     BBBY -15%; after guiding FY21 comp sales to be stable, a disappointment as estimates look for growth of over 13% – also announces share buyback of up to $675M over the next three years ahead of its investor day later in the day

·     BGFV -11%; reported mixed 3Q with revenue slightly below estimate ($305M vs. est. $313M) while EPS of $1.31 was well above our $1.10 estimate

·     CCL -6%; as cruise lines, airlines, travel, and hotels fall on rising Covid cases

·     CHRW -7%; posted an EPS beat but primarily on a lower than expected tax rate while net revenue of $589M (-7% y/y) was below consensus of $611M

·     ELY -20%; and Topgolf have entered into a definitive merger agreement to combine in an all-stock transaction – said number of shares to be issued is based on an implied equity value of $2B

·     MA -6%; Q3 adjusted eps $1.60 vs. $2.15 y/y, missing estimated $1.65 on net revenue $3.8B (-15% y/y), also missing estimate $3.96B, though Q3 purchase volume +2% to $1.24T, beating

·     SIX -9%; reports Q3 EPS loss ($1.37) on revs $126M misses the ($1.00) and $142.73M estimate; attendance was 2.6 million guests, a decline of 11.4 million – negative DIS, SEAS, FUN

·     SUM -16%; falls as Q3 revenue fell 3% to $709.6M citing lower cement sales volumes (revs -14% to $84.9M) while general and administrative expenses surged 31% to $81.5M

Syndicate:

·     Biodesix (BDSX) 4M share IPO priced at $18.00

·     EQT Corporation (EQT) 20M share Spot Secondary priced at $15.50

·     Gatos Silver (GATO) 21.43M share IPO priced at $7.00

·     MediaAlpha (MAX) 9.25M share IPO priced at $19.00

·     Mirati Therapeutics (MRTX) 4.33M share Secondary priced at $202.00

·     Root (ROOT) 26.831M share IPO priced at $27.00