Mid-Morning Look

Tuesday, September 01, 2020

The rally in August for U.S. stocks (Nasdaq rose 9%, S&P, Dow each over 7%) continues into September as the Nasdaq Composite reaches another new record, while the S&P 500 and Dow also gain as market sentiment remains incredibly positive with no negative catalysts to shake up the market (nothing new on trade with China, earnings have been solid, data improving and the Fed continues to say all the right things for equities). Chinese manufacturing data overnight indicated that exports are underpinning a recovery as a private gauge of China’s factory activity grew at the fastest pace in August since January 2011. Stocks got another boost following the strong ISM reading, showing the economy continues to improve while the Federal Reserve has made it clear no rate hikes are anywhere on the horizon – presents the ongoing goldilocks scenario for equities. The dollar dropped to a two-year low, while Treasury prices fall, yields small spike following the ISM data, as 10-yr yield 0.72%. Software leading gains today as one of the faces of the “stay-at-home” pandemic Zoom Media (ZM) surges around 40% after its blowout quarter and upward guidance, while large cap names lead again (AAPL, NFLX, AMZN).

Economic Data

·     U.S. IHS Markit August final manufacturing PMI at 53.1 (vs. flash 53.6); new orders index for august at 54.1 vs. flash reading 54.3 vs. final July 51.3; PMI and new orders index both at highest since January 2019

·     July construction spending rises +0.1% vs. est. 1% and compared to June down (-0.5%); private construction spending rose 0.6% and public spending down (-1.3%)

·     ISM manufacturing activity index rises to 56.0 in August (highest since January 2019), topping the consensus for 54.5 reading and was above the 54.2 reading in July; prices paid index 59.5 vs. 53.2 in July, new orders index jumped to 67.6 (highest since December 2017) from 61.5 in July and the employment index 46.4 topped 44.3 in July

Sector Movers Today

·     Restaurants; busy morning for group that has continued to rebound as COVID-19 cases have slowed; BLMN upgraded by two analysts as Deutsche bank raised to buy with $20 tgt as believe that there is still ~40% upside over the next 12 to 18 months while Raymond James also upgraded to strong buy with $18 tgt, while the firm downgraded EAT as it has been the strongest performing stock in their universe behind better than expected F4Q results/F1Q guidance and cut DRI as see a somewhat mixed NT setup ahead of the company’s F1Q release; Raymond James also upped tgts on CHUY, FRGI and RUTH tgt raised to $1,600 from $1,320 at Wedbush

·     Gaming sector; PENN rebounds after Craig Hallum said the sports betting and online gaming (i.e. blackjack, roulette, slots) market is less than $2B today but is expected to grow to $20B+ over the next decade as initiates with buy and $75 tgt but sees potential to $200 plus; Bloomberg reported that William Hill eyes CZR’s online gaming after completing purchase of CG Technology which was spun off from Cantor https://bloom.bg/3i0gjti ; WYNN, MLCO, MGM active after gaming revenue in Macau fell 94.5% in February to 1.33B patacas ($167M), with the relaxation of travel and visa restrictions in some regions only leading to a minor bump of traffic months end

·     Biotech movers; GILD announced an agreement with JNCE to exclusively license its JTX-1811 program (GILD to make $85M upfront payment and $35M equity investment); PSTV said the FDA grants orphan drug designation for its lead investigational drug, Rhenium NanoLiposomes; for treatment of patients with recurrent glioblastoma, an aggressive type of brain cancer; ORTX says additional interim data from clinical trial evaluating safety and efficacy of OTL-203 for treatment of mucopolysaccharidosis type I support planned initiation of registrational trial in 2021

·     Retailers; WMT unveils perks of its new membership program, Walmart Plus, which will grant subscribers unlimited free delivery, fuel discounts and no checkout lines as the new loyalty program will cost $98 a year, or $12.95 a month, slightly cheaper than AMZN Prime membership; BBW shares rise after earnings as Q2 E-commerce sales jump near four-fold, helping beat Wall Street revenue estimates and said have seen (Q3) sales trends steadily improve in store locations; JILL has just 10 days to get permission from the vast majority of its lenders for a deal that would extend the struggling retailer’s debt maturities, excuse it from financial covenants and give it fresh cash

·     Hardware & Component news; AAPL rises again early following its recent 4 for 1 stock split, as well as reports (from Bloomberg) that it has asked suppliers to build at least 75 million 5G iPhones for later this year, roughly the same as last year; NPTN was upgraded at B Riley to buy based on Huawei being de-risked while demand from non-Huawei customers remains strong, following the company’s Q3 update reaffirming views; RXT reports higher revenue, as Q2 bookings rise 107% to $288M and issues a better forecast for 2020 profit

Stock GAINERS

·     ATNX +12%; as the FDA grants priority review to Athenex’s marketing application for its oral metastatic breast cancer treatment

·     COHU +5%; said it now expects Q3 revenue at high-end of guidance at approximately $146M (est. $140.4M) as order forecast has improved through Q3

·     JNCE +62%; as GILD announced an agreement with the co to exclusively license its JTX-1811 program (GILD to make $85M upfront payment and $35M equity investment)

·     KODK +40%; after D.E. Shaw reports 5.2% stake as of Aug. 21 in a 13G filing

·     LBRT +43%; as SLB said it is selling its North America fracking business to rival Liberty Oilfield Services Inc. for a 37% stake in a new combined company,

·     NPTN +12%; was upgraded at B Riley to buy based on Huawei being de-risked while demand from non-Huawei customers remains strong, following the company’s Q3 update reaffirming views

·     PENN +10%; rebounds after Craig Hallum said the sports betting and online gaming (i.e. blackjack, roulette, slots) market is less than $2B today but is expected to grow to $20B+ over the next decade as initiates with buy and $75 tgt but sees potential to $200 plus

·     QCOM +1%; upgraded to Equal Weight at Wells and boosted tgt to $120 from $90 based on higher peer group valuation metrics as well as various possible outcomes to the Huawei situation

·     WMT +2%; unveils perks of its new membership program, Walmart Plus, which will grant subscribers unlimited free delivery, fuel discounts and no checkout lines as the new loyalty program will cost $98 a year, or $12.95 a month

·     ZM +36%; after another historic quarter in F2Q21, with revenue at $664M (+355% y/y) vs. consensus at $500M and billings at $854M (+384% y/y) vs. consensus at $553M and 32% q/q and raised its yearly profit and revenue outlook

Stock LAGGARDS

·     ABBV -2%; after U.S. house oversight panel subpoena seeks documents from AbbVie from 2009 through 2019 regarding Humira, Imbruvica

·     KHC -2%; as defensive food stocks underperform with broader markets higher – CPB, K also slip)

·     REGN -3%; as it and SNY said that the rheumatoid arthritis drug Kevzara failed a Phase 3 clinical trial testing the therapy as a treatment for severely ill COVID-19 patients.

·     TSLA -1%; after the company entered into an agreement with a syndicate of banks to sell up to $5.0B of its shares over time