Mid-Morning Look

Thursday, September 10, 2020

Despite weakness in overnight futures, U.S. markets open strong only to push higher as investors look to “buy the dip” for a second day following the snapped three day losing streak Tuesday following the high flying tech heavy Nasdaq Composite drop of 10% in a three day stretch from record highs. Strength early mostly in tech names, with bottom fishing on mega cap names after the recent plunge as TSLA, AAPL, AMZN, among the biggest gainers a day after the space was lifted by semiconductors on positive guidance/commentary from the likes of QRVO/TSM. Economic data mixed as initial jobless claims filed traditionally through state employment offices were unchanged at a seasonally adjusted 884,000 in the week of Aug. 30 to Sept. 5, yet new claims rose when including self-employed workers who applied for benefits under a separate federal program. European stocks edged lower, while the euro rises as ECB lifts forecasts without talking down currency. The ECB lifted its estimate for the eurozone economy this year, now seeing a contraction of 8% versus its previous estimate of an 8.7% drop. Overall, the ECB left its interest rates unchanged. Oil prices dip while gold rises and Treasury yields inch higher. Travel names are higher led by gains in airlines and trucking (better LSTR guidance), while online gaming names (PENN, DKNG) surge ahead of the NFL season kickoff tonight.

Economic Data

·     Weekly jobless claims unchanged at 884K vs. est. 846K; while continued claims rose to 13.385 mln vs. est. 12.925 mln) and 13.292 mln prior; the 4-week moving average fell to 970,750 from 992,500 prior week; US insured unemployment rate rose to 9.2% from 9.1% prior

·     Producer Price Index (PPI) MoM for August rose 0.3% vs. est. 0.2% and core prices (Ex: Food & Energy MoM for August rose 0.4% vs. est. 0.2%; PPI final demand YoY fell (-0.2%) vs. est. (-0.3%) and core prices YoY rose 0.6% vs. est. 0.3%

·     July wholesale sales +4.6% vs. consensus +2.8% and down from June up 9%; U.S. July wholesale inventories revised to -0.3% vs. from -0.1%

Sector Movers Today

·     Leisure and Gaming; CHDN was downgraded to hold from buy following outperformance at Jefferies while saying they believe regional and digital gaming offer the highest ceiling, though the Macau rebound is valid, albeit slower and Las Vegas should be much more gradual (says top choices are LVS, CZR ); PENN initiated buy and $80 tgt at Rosenblatt saying it has the opportunity to gain significant share in the online sports betting market at above peer margins driven by their Barstool partnership and physical footprint; DKNG advanced for a 3^rd day heading into first weekend of NFL football

·     Housing & Building Products; RH shares surge as beats Q2 Street estimates, as people working from home spent more on their homes while saying expects to reach 20% adj operating margin in fiscal 2020 with mid-single-digit rev growth (which analysts very + on); HDS was downgraded to hold at Truist following recent advance on earnings saying demand will most likely be muted at HDS given continued pressure in multi-family housing; FBHS was upgraded to overweight at KeyBanc saying their favorable macro outlook bodes well for Fortune’s U.S.-centric portfolio as Plumbing and a resurgence in cabinet demand lift estimates

·     Transports; KSU rejected a roughly $20 billion takeover offer from a group of investors, arguing that the bid undervalues the railroad operator, according to WSJ last night saying Global Infrastructure Partners and the infrastructure arm of private-equity giant Blackstone Group Inc. had offered Kansas City Southern $208 a share https://on.wsj.com/32dF2Vz ; in the trucking sector, LSTR boosted its Q3 EPS to range of $1.40-$1.46 from $1.11-$1.17 and revenue $1.02B-$1.06B from prior $885M-$935M; FDX shares remain active ahead of earnings next week as Bernstein today said setup here is potentially challenging ahead of earnings; airlines helped pace gains for the Dow Transports early (DAL, JBLU, UAL)

·     Consumer Staples; SAFM upgraded to buy at Goldman Sachs and raise tgt to $139 saying the risk/reward at current levels is attractive and believe expectations for the US poultry market have bottomed; LMNR reported better-than-expected 3Q:F20 results beating and consensus on the top and bottom lines; FIZZ reported Q1 net sales of $293.4M, just below the $296M estimate

Stock GAINERS

·     DGX +3%; raised its FY20 guidance, now expected revenue of $8.4B to $8.8B (from $8B to $8.6B, street at $8.7B), adj EPS of $7.50 to $9.00 (from $6.60 to $8.60 prior, street at $8.27) citing faster than anticipated recovery through the end of August

·     NAV +16%; after Reuters reported Volkswagen’s trucks arm Traton increased its takeover offer to $43.00 from $35 per share https://bit.ly/33iScQq

·     RH +21%; as beats Q2 Street estimates, as people working from home spent more on their homes while saying expects to reach 20% adj operating margin in fiscal 2020 with mid-single-digit rev growth (which analysts very + on)

·     RRGB +5%; said company-owned restaurants the week ended Sept. 6, weekly net comp restaurant revs fell 21.9% compared to the week ended Aug. 2, weekly net comp restaurant revenue was down 35.4%

·     SLQT +19%; rises after forecasts annual revenue above estimates after Q4 revenue nearly doubles to $141.4M, topping Street estimates of $119.6M

·     VRTU +24%; to be acquired by Baring Private Equity Asia in a deal valued at $2.0B, with holders to receive $51.35 per share, 26.8% premium from yesterday close https://bit.ly/3il8DlU

·     ZS +4%; reported strong F4Q20 results as adj. billings remained strong, +55% y/y (vs. Street +39%), with continued elevated adoption of ZPA (VPN replacement) and a record quarter for ZIA

Stock LAGGARDS

·     CSIQ -6%; weak after proposed offering of us$200 mln of convertible senior notes due 2025

·     GME -15%; posted a larger-than-expected loss while revenue missed consensus estimates again and said comp store sales declined (-12.7%) despite an 800% growth in e-commerce sales

·     NKLA -7%; is the target of a short report from Hindenburg Research as the firm claims it has gathered extensive evidence on false statements by Nikola founder Trevor Milton over an extended period

·     SPWR -5%; sees Q4 revenues of $330M-$370M, in line with $356M analyst consensus; GAAP net income flat to $10M; adjusted EBITDA of $20M-$30M while for year sees revs $1.06B-$1.1B below est. $1.38B

·     SRPT -1%; after U.S. regulators have asked Sarepta to include an additional potency assay ahead of dosing in its late-stage trial of its drug, SRP-9001, to treat Duchenne muscular dystrophy

·     STSA -80%; following an unsuccessful Phase 3 EMERGE efficacy trial evaluating STS101 (dihydroergotamine) as an acute treatment for migraine – said topline data did not show statistically significant differences between placebo on co-primary endpoints

·     TRQ -24% after the company and its controlling shareholder RIO signed a memorandum of understanding to pursue a re-profiling of existing project debt that could cut projected funding requirements of the Oyu Tolgoi project by as much as $1.4B

Syndicate:

·     Albireo Pharma (ALBO) 4M share Secondary priced at $40.00

·     Athenex (ATNX) 10M share Secondary priced at $11.00

·     Intercontinental Exchange (ICE) 9.181M share Secondary priced at $100.20

·     Purple Innovation (PRPL) 11.826M share Secondary priced at $18.50

·     Repay Holdings (RPAY) 13M share Secondary priced at $24.00