Mid-Morning Look

Monday, September 28, 2020

U.S. stocks off to a strong start on the week, with energy names bouncing following M&A news in the sector (DVN, WPX merger), banks rebound after selling pressure last week, and travel names up on analyst upgrades (FDX, UPS) and hopes for additional aid for airlines hurt by the pandemic. Markets spiked late Friday on reports that Secretary Mnuchin and House leader Pelosi were set to renew stimulus talks, a much needed boost in the arm after several Fed speakers suggested last week that added help was needed to prevent the economy from stalling out. Healthcare stocks lagging early while tech rebounds further, as the Nasdaq Composite trades back above its 50-day moving average (stands at 11,024), while the S&P approaches its 50-day MA (3,354). A recent resurgence in global coronavirus cases (Europe and U.S.) had dented optimism of late, as the S&P fell for a 4^th straight week on Friday. The overhang of the Presidential election remains a wild-card for major markets ahead of earnings season in the next month as well. A fairly busy news morning thus far with a few M&A stories, but no major U.S. economic data or speakers on the calendar.

Sector Movers Today

·     MedTech and Equipment; MMSI upgraded to Equal-Weight at Wells Fargo as appears to be making operational improvements to address the issues the company encountered in 2019 and sense is Q3 is on track and will likely exceed consensus estimates; MTD downgraded to underweight at JPMorgan as see a meaningful disconnect between current valuation (27x 2021E EBITDA) and the long-term fundamental outlook and find it increasingly hard to justify the current valuation premium vs. peers, especially over TMO (20x 2021E EBITDA) and DHR (26x 2021E EBITDA); OGEN announces several advantages of Co’s Unyvero HPN panel (diagnostic tool) to help with early detection and antimicrobial stewardship in a study with Karolinska Institute in Sweden; QTNT rises following news its U.S. emergency use authorization for its COVID-19 antibody test, to detect antibodies in response to the SARS-CoV-2 virus using its MosaiQ blood testing microarray technology; MASI announces FDA clearance of the Rad-G™ Pulse Oximeter

·     Internet; BABA is hosting its annual Investor Day on September 28-30, with Day 1 covering strategic updates on commerce related businesses; Guggenheim upgraded SPOT to neutral from sell and SNAP to buy from neutral in digital media space as revised valuation to better reflect comparability with peer companies; in online travel, EXPE downgraded to Sector Perform at RBC based on recent OTA survey results and on less attractive risk/reward with shares trading roughly in line with our price target; SINA rises after to go private through holding company New Wave Holdings Ltd, which is led by its CEO Charles Chao, in a $2.6 billion deal with per share price $43.30 https://bit.ly/338TBdF ; WB shares rise following earnings beat while advertising and marketing revenue down 8% to $340.6M and VAS revenue fell 23% to $46.8M; MELI upgraded to buy at Jefferies and raise tgt to $1,350 saying they see faster growth in MELI’s high-margin Fintech business offerings leading to gross margin expansion and upside to consensus EBITDA – also says valuation is also more compelling following a ~15% drop in the stock since early August

·     Semiconductors: semi-equipment makers (LRCX, KLAC) among names weak early after media reports said the U.S. Commerce Department will force domestic chip companies to apply for a license to supply to SMIC (SMICY), China’s top chipmaker. KeyBanc says the news suggests “additional risk to semiconductor equipment companies and materials providers if trade war policies continue to escalate; QCOM tgt raised to $132 from $108 at Citigroup saying QCOM will see profit growth from its ramped up 5G chip production; WDC mixed news as Nikkei Asian Review reported that Kioxia (formerly Toshiba Memory) would be postponing their IPO plans, while Barron’s was positive this weekend on the hard-disk drive maker

·     Utilities & Solar; CPK to replace MNTA in S&P 600 at open on 10/1; PLUG was upgraded from Equal weight to Overweight with $14 tgt at Morgan Stanley-saying its investor day highlighted several areas of upside: fuel cell vehicle sales to Linde, Apex partnership to secure cheap US renewable power, several avenues of growth in Europe; SOL and Germany-based solar park developer Vodasun to form a 50/50 joint venture with starting project portfolio of 50 to 100 MW; ITRI was upgraded to strong buy at Raymond James calling it a tactical, valuation-driven upgrade, because the underlying fundamentals have changed only minimally due to COVID, while shares are down 33% YTD

Stock GAINERS

·     AAL +2%; closed a $5.48 billion loan with the U.S. Treasury, increasing its pool of cash to help fund operations until travel demand begins to return

·     BA +5%; after being upgraded to overweight and $184 tgt at Alembic citing news last week that European regulators now expect to approve the 737 MAX’s return to service by November

·     DVN +3%, WPX +5%; agree to combine in an all-stock merger of equals with an enterprise value of about $12B where WPX shareholders will receive 0.5165 shares of DVN stock (Devon holders will own about 57% of the new entity and WPX about 43%) https://on.mktw.net/2HCW5J4

·     MOBL +5%; agreed to be acquired by Ivanti Inc. in an all-cash deal valued at about $872M with holders to receive $7.05 in cash per share, a 27% premium https://on.mktw.net/3iakulM

·     PLL +188%; on news it will supply spodumene concentrate from Piedmont’s North Carolina deposit to Tesla in an initial five-year term

·     SINA +5%; to go private through holding company New Wave Holdings Ltd, which is led by its CEO Charles Chao, in a $2.6 billion deal with per share price $43.30 https://bit.ly/338TBdF

·     SPCE +15%; was initiated with a new buy and $35 tgt at bank America as believe SPCE’s growth potential is unparalleled vs. their coverage and the current nascent stages of the company provide investors with a unique entry point into the stock

·     THO +2%; adds to Friday gains as reports better-than-expected Q4 revenue and profit on rising retail demand for its products (shares rose late last week on better RV shipment data)

·     UBER +3%; as it won its legal fight in London to keep its license after a judge ruled in its favor today – UBER introduced a new system in April to verify drivers’ identities through a mix of facial recognition and human reviewers in an effort to allay concerns of the city’s transport regulator.

Stock LAGGARDS

·     INO -34%; as the FDA places a planned mid-to-late-stage trial of INO’s COVID-19 vaccine candidate, INO-4800, on partial clinical hold, citing additional questions with the trial including about the vaccine delivery device, CELLECTRA 2000, to be used in the trial

·     LRCX -1%; semi-equipment makers (LRCX, KLAC) among active names after media reports said the U.S. Commerce Department will force domestic chip companies to apply for a license to supply to SMIC (SMICY), China’s top chipmaker

·     MNK -11%; slides after a report that the company nears bankruptcy filing over opioid lawsuits https://on.wsj.com/3jdXHqG

·     NKLA -6%; slides again, adding to last week losses after short-seller Hindenburg Research’s recent report alleged NKLA misled investors and founder Trevor Milton stepped down as Exec chairman

·     WRK -2%; a little give back in paper related stocks after jumping on Friday following a price increase in the sector (IP announced a $50/ton containerboard price increase on shipments)