Mid-Morning Look

Tuesday, September 29, 2020

Following Monday’s sharp stock market outperformance, investors appear to be in a holding pattern ahead of several key developments over the next 24-48 hours, highlighted by the first Presidential debate between Trump and Biden this evening. Other factors include several Fed speakers throughout the day (six), as well anticipation for headlines on stimulus after House Democrats released a $2.2 trillion coronavirus relief package overnight that would restore $600 weekly jobless benefits, a last-ditch effort to revive stalled talks with the White House, while House Speaker Pelosi spoke with Treasury Secretary Steven Mnuchin Monday evening and the two agreed to talk again today. It’s also an important week of economic data, highlighted by the monthly nonfarm payroll data on Friday and private payrolls tomorrow. This morning, U.S. consumer confidence rebounded more than expected in September rising to a reading of 101.8 this month from 86.3 in August and well above reading of 89.5 in September. Airlines are making a last-minute push for another bailout, warning that up to 100,000 jobs are at risk, starting this week, without more aid from Washington. Headlines hanging over the market remain the rise of COVID-19 cases and fears of a second wave as reports showed the number of reported coronavirus deaths worldwide passed 1 million.

Economic Data

·     Consumer Confidence for September 101.8 (consensus 89.5) vs. August revised 86.3 (previous 84.8) while the present situation index 98.5 in Sept vs. Aug revised 85.8 (previous 84.2) and expectations index 104.0 in Sept vs. Aug revised 86.6 (previous 85.2)

·     U.S. advance August goods trade balance widens to -$82.94B vs. est. (-$82.6B) and (-$80.1b revised) as retail inventories excluding autos +0.9% and advance wholesale inventories +0.5%; exports +$3.2B to $118.3B and imports +$6B to $201.3B.

·     Home prices increased 3.9% on an annual basis in July, Case-Shiller 20-city price index shows

Sector Movers Today

·     Retailers; LVMH Moet Hennessy Louis Vuitton SE sued TIF over their soured merger deal, saying the U.S. jeweler’s business has been so deeply damaged during the pandemic that their takeover agreement is invalidated; BIG guiding Q3 EPS well above consensus to 50c-70c vs. est. 21c and said Q3 comparable sales will increase in the mid-teens; KSS tgt raised to $26 from $23 at Wedbush as proprietary data shows Kohl’s running above-consensus net sales and gross margin halfway through the third quarter; CROX ests and tgt raised (to $48) citing improving inventory in-stocks, positive European channel checks and 2H product newness; FIT rises after Reuters report that GOOGL is poised to win EU approval for $2.1 bln Fitbit deal saying the company has offered to restrict Fitbit data, Reuters reports; PRTY file to sell 13.2M shares

·     Consumer Staples; EL upgraded too neutral from sell with $231 tgt at Goldman Sachs; HSY upgraded from Market Perform to Outperform w/ $163 pt at BMO Capital saying despite an ongoing valuation premium to its food peers, HSY has become a compelling investment; UNFI posted a solid quarter, with higher-than-anticipated revenue leading to EBITDA outperformance. Revenue in 4QF20 increased 5.4% to $6.76B driven by a 21% increase in retail same-store sales; MKC posted a Q3 EPS and sales beat and approved a 2-for-1 stock split while resumes guidance; TAP enters exclusive agreement with KO to bring topo chico hard seltzer to the U.S.; earnings results on Thursday for PEP, CAG and STZ in food and beverages; BYND to expand WMT distribution, as to triple distribution of Beyond Burger to more than 2,400 locations nationwide

·     Biotech movers; BIIB disclosed a passive 11.16% stake in DNLI, which represents over 13.3M shares; SRNE said both COVI-GUARD and COVI-AMG showed potent neutralizing activities against SARS-CoV-2 virus, that causes COVID-19, in Syrian golden hamsters; ORPH 7.616M share IPO priced at $11.00; AXSM initiated underperform and $66 tgt at Bank America saying 2021 primary care launches (depression, migraine) are likely to disappoint with undifferentiated products in saturated market and see multiple/viable competitor readouts starting 4Q20; AXSM slides after initiated with an underperform and $66 tgt at Bank America, bearish due to view that Axsome’s 2021 primary care launches (depression, migraine) are likely to disappoint with undifferentiated products in saturated markets

·     Transports; Airlines are making a last-minute push for another bailout, warning that up to 100,000 jobs are at risk, starting this week, without more aid from Washington; in rails (CSX, NSC, UNP), North American Class 1 Railroad carloads were down -6% in Q3, reflecting lower Coal carloads as well as resulting from weakness across most other segments. However, this was partly offset by higher Intermodal volumes, which we note represent approximately half of total carloads, and increased Grain carloads; FWRD was upgraded to outperform at Raymond James as view it uniquely positioned to capitalize on a tightening freight market and a robust LTL pricing backdrop, anchored by its accelerating LTL door-door expansion

Stock GAINERS

·     ANGO +9%; after Q1 EPS and revs topping views and guidance above as well (sees FY21 revenue $278M-$284M vs. est. $274.5M)

·     BIG +7%; guiding Q3 EPS well above consensus to 50c-70c vs. est. 21c and said Q3 comparable sales will increase in the mid-teens

·     BYND +6%; to expand WMT distribution, as to triple distribution of Beyond Burger to more than 2,400 locations nationwide (note they had mentioned prior in August 4^th call – so not new news)

·     FIT +4%; rises after Reuters report that Google is poised to win EU approval for $2.1 bln Fitbit deal saying the company has offered to restrict Fitbit data, Reuters reports

·     FLDM +6%; said it executes a definitive contract with National Institutes of Health (NIH) to expand capacity for increased COVID-19 testing and is now eligible to receive up to ~$34 mln upon achievement of certain milestones

·     OKE +3%; upgraded to buy from neutral with $35 tgt at UBS driven by strong data points indicating a sharp rebound in gas vols on OKE’s system in the Bakken

·     TAP +3%; enters exclusive agreement with KO to bring topo chico hard seltzer to the U.S.

Stock LAGGARDS

·     AXSM -5%; initiated with an underperform and $66 tgt at Bank America, bearish due to view that Axsome’s 2021 primary care launches (depression, migraine) are likely to disappoint with undifferentiated products in saturated markets

·     IRWD -5%; after saying it will discontinue IW-3718 development program following results from planned efficacy assessment as trial did not achieve statistically significant improvement in heartburn severity (primary endpoint) – plans to implement organizational restructuring

·     MYOV -24%; falls after its lead drug relugolix, to treat advanced prostate cancer, failed to meet one of the secondary goals of castration resistance-free survival in late-stage trial

·     NFLX ; after Wells Fargo revises next quarter net adds from +5mm to +2.5mm due to churn concerns surrounding the controversy around Cuties

·     NKLA -6%; negative headlines continue to plague the EV maker as two women file sexual abuse complaints against Nikola founder Trevor Milton

·     NOV -3%; several E&P names giving back gains after the group rallied on Monday following the DVN merger announcement