Mid-Morning Look

Thursday, September 03, 2020

U.S. stocks open mixed as the tech heavy Nasdaq Composite slips for the first time in 5-days (falling over 2.5%), with profit taking in place after a round of less than exciting earnings results out of the software sector overnight, providing a catalyst for selling pressure early. At the same time, “reopen” related trades (regarding COVID) such as restaurants, retailers, travel, cruise lines are seeing strength early as well as stocks that tend to benefit from lower yields (utilities) with the 10-year yield extending losses. Economic data today was better with jobless claims falling more than expected, while nonfarm productivity and services data also topping economist expectations ahead of tomorrows nonfarm payroll report for August (after weak ADP private payroll reading on Wednesday). For the moment, a rotation trade in place with energy, financials, healthcare and small-caps in general seeing strength as tech selling ensues after the historic and monumental surge over the last few weeks pushed tech valuations into the stratosphere. Commodity prices slide, along with treasury yields in what has been a volatile sessions thus far after the Nasdaq closed above 12,000 for the first time Wednesday, the Dow topped 29,000 and the S&P posted its 22^nd record closing high.

Economic Data

·     Weekly jobless claims fell to 881,000 from 1,011,000 the prior week (and below estimates 950K), while the insured unemployment rate fell to 9.1% from 9.9% prior week; continued claims fell to 13.254M from 14.492M prior week (est. 14.0M) and the 4-week moving average fell to 991,750 from 1,069,250 prior week (previous 1,068,000)

·     U.S. Q2 non-farm unit labor costs revised to +9.0%, below the 12% consensus while Q2 non-farm productivity revised to +10.1% vs. est. 7.5% (prior 7.3%); output fell 37.1% in 2Q after being down 38.9% preliminary; employee hours fell 42.9% in 2Q vs. down 43% preliminary

·     U.S. trade deficit for July widened to (-$63.6B) vs. June deficit (-$53.5B) and vs. est. (-$58.0B); U.S. July goods deficit $80.91B and services surplus $17.35B; July exports rose +8.1% vs. June +9.6% and imports rose +10.9% vs. June +4.6%

·     ISM U.S. Non-Manufacturing sector shows PMI 56.9 in august (vs. est. 57.0) and vs. 58.1 in July; business activity index 62.4 in august (consensus 65.0) vs. 67.2 in July; paid index 64.2 in august vs 57.6 in July and new orders index 56.8 in august vs. 67.7 in July

·     U.S. IHS Markit August final services PMI at 55.0 (vs flash 54.8) and Markit August final composite PMI at 54.6 (vs flash 54.7)

Sector Movers Today

·     Retailers; SIG reports smaller-than-expected Q2 loss, beats revenue estimates as shoppers bought more jewelry online – Same-store sales were down 31.3% in Q2, even with e-commerce growth of 72.1% while brick-and-mortar sales improved sequentially; FIVE reported better Q2 results on the top and bottom line and signaled a strong start to Q3 while comps were +6% for the period that stores were open in 2Q and so far in 3Q QTD comps are also running +6%; MIK reported comparable sales jumped 12.0% in FQ2 at stores that were open and through the e-commerce channel while e-commerce sales alone surged 353.1% during the quarter and gross margin came in at 33.8% topping views; PVH revenue and earnings per share were above our expectations in 2Q, led by strength in International and digital, as well as strong expense controls; in sporting goods, SPWH reported blowout 2Q results with sales growing 80% year over year and EPS up 485% as both sales and EPS easily exceeded expectations (follows strong results from DKS recently); GCO posted smaller Q2 EPS loss on better sales lifting shares early

·     Auto sector; after surging its first day following its 5-1 stock split, TSLA shares tumble a 3^rd day following recent news Tuesday it entered into an equity distribution pact seeing aggregate sales proceeds of up to $5.0B; NIO deliveries grew 104.1% to 3,965 vehicles in August; said the company delivered 21,667 vehicles YTD, +109.9% YoY; GM and HMC sign a non-binding memorandum of understanding toward establishing a North American automotive alliance; CPRT reported better than expected fiscal 4Q20 results, beating on sales, margins and earnings as sales upside was driven by both Service revenues and Vehicle sales

·     Consumer Staples; CPB Q4 beat on sales (organic +12%) and GM (35.6% vs. est. 34%) but was offset by increased marketing and R&D – 1Q21 outlook is solid with Net Sales +5-7% (cons +LSD), EBIT 6-9% (cons +LSD), and EPS +13-18% (cons +LDD); BYND was initiated with an outperform and $160 tgt at Baird; in tobacco, JUUL is planning additional layoffs and likely to exit as many as 11 countries in Europe and Asia/limiting operations to the US, UK, and Canada; Cowen said new CDC youth survey data shows tobacco past month use jumped 1.9x b/w 2017-2019 to 36.5% but continue to forecast accelerating cigarette volume declines resuming in 2021 as view negative for JUUL, neutral for BATS and a positive for TPB

·     Software movers: CRWD shares fell after 184% YTD rally heading into earnings, falling despite stronger than expected FQ2 results from the top down, guided FQ3 ahead, and increased its outlook for the year while delivered an 8% beat on ARR, 6% upside on revenue, and substantially better than expected operating income and FCF; SMAR Q2 revs and billings metrics were better than consensus estimates for both the July and October Qs and October billings guidance for ~26% y/y growth is improved from the 22% y/y reported in the July Q, though remains far below the 58% y/y growth of the January Q and 30% y/y in the April Q; ZUO falls after reporting slightly in-line to better Q2 results on top and bottom line but issued a disappointing Q3 revenue outlook of $73M-$75M vs. est. $75.5M; GWRE reported F4 results ($244M/$0.83) that were well ahead of consensus ($208.9M/$0.45) and ARR of $514M also topped Street estimates of $506M; MDB tgt raised by a few analysts after delivered a strong F2Q print, beating conservative guidance, with all key metrics above management’s targets and street estimates

Stock GAINERS

·     AGTC +10%; will provide a management update on its planned Phase 2/3 X-Linked Retinitis Pigmentosa (XLRP) clinical trial design, a re-analysis of dose Groups 2 and 4 data, and new preliminary visual sensitivity data from Group 5 on September 9, 2020

·     CCL +10%; after Italy-based Costa Cruises is resuming initial sailings from Italian ports beginning Sept. 6, and will be followed by a second Carnival Corporation brand, Germany-based AIDA Cruises, resuming on Nov. 1 with Canary Island voyages

·     FGEN +7%; benefits from AKBA failed kidney drug

·     FIVE +6%; reported better Q2 results on the top and bottom line and signaled a strong start to Q3 while comps were +6% for the period that stores were open in 2Q and so far in 3Q QTD

·     FLGT +13%; and New York City Health and Hospitals will provide COVID-19 testing to hundreds of thousands of students across 1600 locations as they return to school in September

·     NVAX +8%; after saying positive early-stage data for COVID-19 vaccine candidate in healthy adults aged 18-59 was published in the peer-reviewed New England Journal of Medicine

·     PVH +6%; revenue and earnings per share were above expectations in 2Q, led by strength in International and digital, as well as strong expense controls

Stock LAGGARDS

·     ABMD -3%; CMS released its Hospital Inpatient Prospective Payment Systems (IPPS) final rule for FY21 and Guggenheim said the picture is a positive one overall, in their view, though noted the one notable exception is ABMD’s Impella, which will finally see its reimbursement rate come down after several years of proposed cuts ultimately being reversed by CMS in its final rule

·     AKBA -70%; after a pair of Phase 3 trials evaluating vadadustat as a treatment of anemia due to chronic kidney disease (CKD) in adult patients not on dialysis failed to meet a closely-watched safety target despite meeting goals measuring effectiveness

·     CIEN -18%; Q3 EPS and revenue topped consensus but guided Q4 revenue $800M-$840M, well below the $994.4M estimate and said saw greater than expected COVID impacts late in Q3

·     PD -23%; posted in-line Q2 revenue and guidance, but shares dropped on billings disappointment as growth was weaker at 7% YoY exacerbated by more extensive co-terming of deals and by more favorable payment terms for the most impacted customers according to one analyst

·     SMAR -13%; October billings guidance for ~26% y/y growth is improved from the 22% y/y reported in the July Q, though remains far below the 58% y/y growth of the January Q and 30% y/y in the April Q

·     ZUO -29%; falls after reporting slightly in-line to better Q2 results on top and bottom line but issued a disappointing Q3 revenue outlook of $73M-$75M vs. est. $75.5M