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The market's violent reversal gave the bears a much needed boost as stocks closed on their lows. We also discuss our latest 'Wolfe Fusion Short Basket'.
Scheduled system seat capacity for the May-Aug four-month period shows seat growth of -58.6% y/y, down 62bp w/w. Domestic growth was down 58bp w/w to -55.6% y/y. Pacific capacity was down 69bp w/w to -85.6% y/y, transatlantic was down 1.2pp w/w to -87.8% y/y, and Latin was down 86bp w/w to -74.6% y/y. Int’l growth was down 94bp w/w to -79.6% y/y. Domestic competitive capacity was down 1.3pp w/w to -62.6% y/y.
Lazydays – a multistate RV dealer – reported preliminary 2Q results today that showed accelerating unit sales in June with continued demand into July. The company had previously disclosed May retail results (units +55%), and we were encouraged by the June improvement (units +81%). While there has been some disruption to nationwide retail sales figures from state DMV closures, we think today’s release suggests solid underlying consumer demand.
Wolfe Research Senior Multi-Industry Analyst, Nigel Coe, hosted a webcast to discuss the following, Our View on the Key Debates, Where We See Earnings Surprises, Top Tactical Ideas Around the Quarter, Investor Positioning and Areas of Push Back, Feedback on Survey
Airlines have (barely) outperformed the S&P 500 since our 5/29 upgrade to Market Weight. But since then we believe the outlook has worsened, estimates are generally too high, and many airlines are adding back capacity too fast relative to a modest demand recovery tempo. In a low demand environment, the impact of a few can be material. We believe the actions of AAL, JBLU, and SAVE alone are enough to derail a growing supply/demand mismatch at an industry level.
Our initial note title on the D midstream sale was “Short-term pain, long-term gain”. Last week, we saw the short-term pain with D stock down 11%, while the sector finished flat – the 30% dividend cut particularly hurt the stock in our view. Looking ahead, we believe the market will start to focus on the long-term gain. We like the entry point with the stock trading less than a 1-turn premium to the average regulated and with 2 major catalysts into year-end: 1) the GREEN trade into a potential Biden win in the election – D is one of the only clear plays on this in utilities and it’s the cheapest of the ESG winner peer group; and 2) share repurchase kicker with $3B to be done by YE (5% of shares). We upgrade D to Outperform from Peer Perform and raise our PT to $80 reflecting better sector multiples.
This morning DGX announced preliminary 2Q20 results. The company expects Q2 revenue of approximately $1.83 billion vs. WR / Consensus estimates of $1.77B / $1.53B. Core testing volumes decreased 34% vs. WR estimate of -40%. Including the contribution from COVID testing, volumes declined 18% y/y, implying a ~16% y/y volume tailwind from molecular and serology testing. We estimate the y/y COVID-19 revenue tailwind at 30-35% with COVID-19 testing reimbursement well above DGX’s average requisition.
We are upgrading LH to Outperform from Peer Perform. Put simply, the stock looks undervalued even after making what we believe to be conservative assumptions for core earnings power and relative valuation. Combined with the potential for significant upside to consensus estimates from high-margin COVID-19 testing, we think the set-up is attractive. We also believe labs are relatively well-positioned vs. most of healthcare for a Biden win / Democratic sweep.
Mid-morning it was reported that Guangdong will remove its quarantine policy for travel to Macau beginning on July 15. The policy previously required Guangdong residents to quarantine for 14 days after returning from Macau, which basically prohibited people from wanting to go to Macau. Quarantines for other regions within Mainland China and Hong Kong are still in effect. Note 2Q20 Macau GGR was down 96% y/y due to these travel restrictions into Macau.
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