Mid-Morning Look

Wednesday, December 16, 2020

Stocks markets in the U.S. open slightly higher as stimulus relief talks dominate morning headlines after Senate Majority Leader Mitch McConnel said last night “We’re making significant progress and I’m optimistic that we are going to be able to complete an understanding sometime soon.” Those comments followed meetings with both sides in Washington, while Politico reported this morning that “Hill negotiators are on the brink of a $900bn coronavirus rescue package that would include a new round of direct payments, but would leave out state and local aid, and a liability shield”. The hopes are helping stocks hold up after a disappointing November monthly retail sales report fell well short of expectations. Bitcoin (BTC) prices topped the $20,000 mark this morning (ironically it was nearly three years ago to the day when Bitcoin first approached $20K – before crashing to $4K just a few months after). Ongoing vaccine rollout also a boost for major averages. Also of note, the final FOMC meeting of the year later today, with more expected dovish commentary likely on the horizon in a year where they ramped up bond purchases and took other extraordinary measures to stem the economic carnage of the pandemic. Fed Chair Jerome Powell will hold a news conference at 2:30 following the statement.

Economic Data

·     Retail sales data disappoints: November Retail Sales fell -1.1% MoM, worse than the expected (-0.3%) consensus and (-0.1%) prior while Core Retail Sales unexpectedly fell (-0.9%) MoM vs. +0.1% consensus and -0.1% prior

·     U.S. business activity slowed in the first half of December as renewed restrictions to slow a resurgence in new COVID-19 infections hurt the services sector. IHS Markit said its flash U.S. Composite PMI Output Index fell to a reading of 55.7 early this month from 58.6 in November. The survey’s flash composite new orders index fell to 55.1 this month from a reading of 57.5 in November. Its flash services sector PMI dropped to a reading of 55.3 this month from 58.4.

·     Business Inventories for October rise 0.7% MoM vs. est. 0.6%; U.S. Oct. business sales up 0.9%

·     The NAHB Housing market index for December reported at 86, below consensus of 88 and down from the 90 reading in November; current single-family home sales 92 versus 96 in Nov, index of home sales over next six months 85 versus 89 in Nov

Sector Movers Today

·     Restaurants; EAT withdrew guidance for its second quarter of fiscal 2021 as its Chilli’s Grill & Bar and Maggiano’s Little Italy restaurants are impacted by dining room closures and capacity limits; CMG upgraded to buy from hold with a 12-month target price of $1,500 at Stifel as believe the brand should benefit in 2021 from increased consumer mobility and several sales-building initiatives; GTIM rises after reports Q4 net profit vs net loss a year earlier, in part helped by financial support under the CARES Act though quarterly net revenue dips

·     Pharma movers; PFE downgraded to Sector Perform & lowers his tgt to $42 at RBC Capital as believe the “stock” reflects the vaccine DCF opportunity, making it harder to argue for more meaningful upside to our price target; BNTX active as Shanghai Fosun Pharmaceutical Group Co Ltd says it will buy 100 mln doses of BNTX-Pfizer Inc’s PFE.N COVID-19 vaccine for use in mainland China next year; SAGE appoints former ALNY chief operating officer Barry Greene as CEO; SIOX announces positive six-month follow-up data from low-dose cohort of phase 1/2 trial of axo-aav-gm1 for gm1 gangliosidosis; REPL and HARP removed from the Best Ideas List at Wedbush

·     MedTech and Equipment; DGX raises its year diluted EPS view to be at least $9.98 vs. previous outlook of $8.22-$9.22; Adjusted diluted EPS to be at least $10.75 vs. prior outlook of $9-$10 and consensus of $9.90 on higher sales; PEN falls as announced that it is voluntarily recalling all configurations of the Penumbra JET® 7 Reperfusion Catheter with Xtra Flex technology because the catheter may become susceptible to distal tip damage during use; Citigroup upgraded GKOS to neutral and NUVA to Buy with top pick ZBH and downgraded shares of EW and PODD, updating financial models accounting for the second wave in 4Q20/1Q21 and introducing 2023E; IART said it is buying ACell Inc. for an upfront cash payment of $300 million at closing and cash payments of up to an additional $100 million upon the achievement of certain milestones.

·     Auto sector; LEA was upgraded at Argus to Buy from Hold due to the expectations that its products and services will be in high demand after the pandemic; AZO authorizes additional $1.5B stock repurchase; Hedge fund manager Louis Bacon declared a passive stake of 6.5% in FSR as of Oct. 29 per filing; Barclays initiated HYLN at overweight with a $20 target after the company said its focus next year is to position itself for long-term sustainable growth by capturing market share opportunity in EVs in its recent Q3 earnings report; LAZR was upgraded to Outperform from Market Perform at Northland, saying it isn’t likely that Mobileye will have its lidar in vehicles by the 2025 target as the partnership suggests Mobileye does not have an in-house product ready to go and that its parent company (INTC) has other priorities; NKLA was initiated by Evercore at In-Line with a $20 pt, saying they are cautiously optimistic that the company’s hydrogen ambitions offer unique investment opportunities in a nascent industry; HMC recalled over 1.4M vehicles in the U.S. and 1.8M worldwide due to issues that include software flaws, drive shafts that can break, and overheating window switches; LYFT and Motional, who have been working in a partnership to develop autonomous vehicles in Las Vegas since 2018, set a 2023 target to deploy a fully driverless robotaxi service across the U.S.

·     Transports; SAVE, UAL and JBLU all downgraded in airline sector at JPMorgan to underweight from overweight saying the recent rally in airline equities has significantly diminished the implied potential upside in 2021, with some having already passed through year-end 2021 price targets; LUV said November load factor came in below previous expectations and raised its Q4 estimate for average daily cash burn, as the recent spike in COVID-19 cases has led to lower demand and renewed travel restrictions (said November load factor fell to 48% from 55% in October)

·     Hardware & Component news; HPQ was upgraded to Overweight at Morgan Stanley saying it stands to benefit in pandemic scenarios with diverse exposure to both consumer markets that benefit from social distancing and commercial markets that benefit as economies re-open; Morgan also upgraded NTAP to Overweight from EW with $76 tgt saying it demonstrates meaningful operating leverage in economic recoveries and historically outperforms the rest of our coverage post a trough in IT spending intentions; ANET was upgraded to Outperform w/ $350 tgt at Wolfe as believe Arista will return to its classic beat-and-raise ways through 2021

Stock GAINERS

·     AOUT +15%; reported strong second-quarter results above expectations driven by broad-based product demand and raised guidance for the remainder of the year

·     CMG +4%; upgraded to buy from hold with target price of $1,500 at Stifel as believe the brand should benefit in 2021 from increased consumer mobility and several sales-building initiatives

·     MSTR +6%, along with gains in MARA, SI, XNET, RIOT, OSTK, which are names leveraged to Bitcoin after prices surged as much as 6% above $2,600 now

·     SWK +4%; raised its Q4 organic growth assumption to 10% from 3%-5% and full year FCF is assumed to be greater than $1B versus the prior assumption of $800M-$900M

·     TLRY +25%; will merge with APHA in the cannabis sector, as APHA holders to get 0.8381 shares of Tilray for each Aphria share owned, while Tilray owners will continue to hold their shares. Aphria will own about 62% of the combined company https://bit.ly/3ntrZrp

·     TWTR +4%; upgraded to Overweight from Neutral at JPMorgan with $65 tgt, bullish on online advertising in 2021 and expects industry growth to reaccelerate

Stock LAGGARDS

·     DISH -6%; after announces $2B convertible notes offering

·     EAT ; withdrew guidance for its second quarter of fiscal 2021 as its Chilli’s Grill & Bar and Maggiano’s Little Italy restaurants are impacted by dining room closures and capacity limits

·     LUV -1%; said November load factor came in below previous expectations and raised its Q4 estimate for average daily cash burn, as the recent spike in COVID-19 cases has led to lower demand and renewed travel restrictions (said Nov load factor fell to 48% from 55% in October)

·     PEN -7%; as announced that it is voluntarily recalling all configurations of the Penumbra JET® 7 Reperfusion Catheter with Xtra Flex technology because the catheter may become susceptible to distal tip damage during use

·     UAL -3%; SAVE, UAL and JBLU all downgraded in airline sector at JPMorgan to underweight from overweight saying the recent rally in airline equities has significantly diminished the implied potential upside in 2021, with some having already passed through year-end 2021 price targets

·     VTVT -33%; as announced that the Phase 2 Elevage study of azeliragon in people with mild Alzheimer’s disease and type 2 diabetes did not meet its primary objective

Syndicate:

·     Arvinas (ARVN) 5.71M share Secondary priced at $70.00

·     BioAtla (BCAB) 10.5M share IPO priced at $18.00

·     Castle Biosciences (CSTL) 4M share Secondary priced at $58.00

·     ContextLogic (WISH) priced its IPO at $24 to raise $1.1B, giving an initial valuation of $17B; WISH had planned to sell 46M shares in the range of $22-$24 per share

·     Ocular Therapeutix (OCUL) 3.725M share Secondary priced at $21.50

·     Upstart (UPST) 12.016M share IPO priced at $20.00