Plus, Tyson Foods said net income fell 15% last quarter due to the coronavirus, J.Crew became the first major retailer to file for bankruptcy amid the pandemic, and PG&E shares are up after an upgrade from UBS.
Stocks were down to start the week with the Dow dropping 320 points, or 1.4%, at the open. The S&P 500 sank 1%, while the Nasdaq traded 0.7% lower.
As coronavirus cases in the U.S. rise to more than 1,159,245, and 3,529,408 globally, President Donald Trump promised a “conclusive” report on the Chinese origins of the outbreak on Sunday in a “virtual town hall” with Fox News. Trump said he believed that a “mistake” in China caused the COVID-19 pandemic, though he did not provide any evidence for the claim. “We’re going to be giving a very strong report as to exactly what we think happened. And I think it will be very conclusive,” Trump said. “I think they made a horrible mistake and didn’t want to admit it.” Trump added that tariffs against China would be the ultimate punishment, indicating the relationship between the world’s two largest economies is likely to become increasingly confrontational leading up to the U.S. election in November. Meanwhile, over the weekend, the FDA granted emergency use designation for Gilead’s remdesivir treatment, and for Roche’s COVID-19 antibody test.
Airlines stocks are down this morning, with Delta, American Airlines, Southwest, and United Airlines shares all down around 8% after Warren Buffett said this weekend that Berkshire Hathaway sold its entire stakes in the four largest U.S. carriers as the coronavirus devastates travel demand. While Buffett was optimistic over the long term outlook for the U.S. economy following the coronavirus crisis, the move to sell all positions in airlines demonstrates his concern that the pandemic has changed certain industries permanently and could be a sign that other investors are too optimistic about the economy returning to normal. “Mr. Buffet is a long-term investor, so his decision to sell reflects his belief that [the] airline industry is facing future challenges that fundamentally change the value-capture of that business,” said Fundstrat’s Tom Lee in a note to clients.
Tyson Foods shares are down nearly 9% this morning after the top meat supplier in the U.S. said fiscal second quarter net income fell 15% from a year earlier as unprecedented production disruptions weighed on its results. Tyson said in a statement that plant shutdowns and slowdowns due to the coronavirus pandemic are expected to continue, resulting in higher operating costs and lower volume for the rest of fiscal year 2020. And while the pandemic has meant higher retail sales volume, it hasn’t been enough to offset food-service losses, with around 40% of Tyson’s sales coming from the restaurant industry under normal circumstances. “Due to the uncertainty of the COVID-19 impacts to our operations, we are currently unable to provide segment adjusted operating margin guidance,” said CEO Noel White, with the company adding in commentary filed with the SEC, “The major challenge we face is the availability of team members to operate our production facilities as our production facilities are experiencing varying levels of absenteeism” due to the coronavirus.
J.Crew became the first major retailer to file for bankruptcy in the coronavirus era. The privately owned retailer filed for Chapter 11 bankruptcy early Monday morning after reaching a deal with its lenders to restructure its debt. The preppy mall staple will convert about $1.65 billion of debt into equity, and has obtained $400 million of debtor-in-possession financing and committed financing to exit bankruptcy from its lenders. “This agreement with our lenders represents a critical milestone in the ongoing process to transfer our business with the goal of driving long-term, sustainable growth for J.Crew and further enhancing Madewell’s growth momentum,” said CEO Jan Singer. J.Crew said in a statement that it will “continue all day-to-day operations, albeit under these extraordinary COVID-19-related circumstances,” adding that it will look to reopen its 182 J.Crew and 140 Madewell stores “as quickly and safely as possible.”
And PG&E shares are up this morning after UBS upgraded the California utility from Neutral to Buy. UBS said it is optimistic about the outlook for PG&E after it emerges from bankruptcy, which it filed for in January 2019 as it grappled with the growing costs of the deadly California wildfires caused by its equipment in 2017 and 2018. The analysts say PG&E’s “rate base” can grow in line with its projections of 7% to 8% over the next several years. The UBS analysts boosted their price target for the stock to $15 per share, and said the potential upside for the stock involves a much greater return than the downside.
Stocks We’re Watching
Co-Diagnostics Inc (NASDAQ: CODX): Co-Diagnostics shares are up more than 10% this morning after the molecular diagnostics company said that the Mexican Department of Epidemiology (“InDRE”) approved its Logix Smart Coronavirus COVID-19 Test for sale in Mexico. Co-Diagnostics also said that CoSara, its joint venture for manufacturing in India, expects to begin filling orders following the successful evaluation of CoSara’s Saragene COVID-19 RT-PCR test kit by the Indian Council of Medical Research, which found 100% sensitivity and 100% specificity without any cross reactivity with other respiratory viruses. “Orders for our Logix Smart COVID-19 test continue to be strong. We believe our continued growth is due to our ability to meet testing needs on a timely basis, with a high quality, cost-efficient, easy to process test,” said Co-Diagnostics CEO Dwight Egan. “We are pleased that our technology is also being deployed in many areas in the United States, providing high-throughput diagnostic solutions to improve the quality of COVID-19 detection in those communities. The Company has participated in governmental and private initiatives designed to increase test availability.”