Closing Recap

Monday, April 12, 2021

Equity Market Recap

·     Stocks ended lower, slipping slightly from record highs reached last week for the Dow, S&P 500 and Dow Transports as the low volume and volatility theme continue into a second week ahead of earnings results from major banks Wednesday. Stocks remain buoyed by the Fed, an improving economy, and expectations that pent up demand for goods and services will boost the economy further into the second half of the year with vaccines. Meanwhile, the message remains the same day after day from Federal Reserve members, with Rosengren saying today monetary policy is in the right place for the challenges now and with the economy labor-market slack still significant, and inflation still below the Federal Reserve’s 2% target, perspective is that the current highly accommodative stance of monetary policy is appropriate. The fact remains that as economic growth has surged, jobs data improved, and the Fed remains super dovish and accommodative, stock markets remain attractive, despite trading at record highs. The U.S. government posted a March budget deficit of $660 billion, a record high for the month, as direct payments to Americans under President Joe Biden’s stimulus package were distributed. The deficit for the first six months of the 2021 fiscal year ballooned to a record $1.706 trillion, compared to a $743 billion deficit for the comparable year-earlier period.

·     Sector movers: some of the top stories today included: UBER soars after the company reported March set a company record for monthly bookings and is on pace to achieve adj EBITDA profitability this year; travel names underperform after UAL announced prelim Q1 rev -66% vs 2019 and its intentions for two offerings, and Barron’s was negative on cruise lines RCL, CCL, NCLH over the weekend; Semi stocks slip after Citi lowered the sector to Equal-Weight following its outperformance over the past year and Evercore downgraded QCOM, while NVDA turns higher after announcing it will make CPUs and issues upbeat guidance, sending INTC, AMD lower; TSLA rises after Canaccord upgrades the stock with a price target above $1,000, though EV sector was weak with NKLA, RIDE, CHPT, BLNK all falling more than 6%; MSFT, NUAN both touch ATHs after the companies announce a $19.7B merger; APHA plunges after posting and EPS loss wider than expected and revenue falling YoY, weighing on other cannabis names TLRY, CGC; drone names weak, MAXR, EH, SPCE, UAVS, IRDM -5.5% as drone and space names fade – continue to see the "shine" come off some of the more volatile sectors.

Commodities

·     Gold prices dropped to lowest levels in a week along with broader stock markets as treasury yields and the dollar edged slightly higher; June gold fell -$12.10 or 0.7% to settle at $1,732.70 an ounce as investors await key U.S. inflation (CPI tomorrow morning) and retail sales data (Thursday). Federal Reserve Chair Jerome Powell, in comments on Sunday nights “60-Minutes” said the U.S. economy is at an "inflection point," with hopes of more growth and hiring in the coming months, while risks of a spike in COVID-19 cases if there is a hasty reopening lingered.

·     Oil prices finished higher, but well off their best levels as WTI crude rose $0.38 or 0.64% to settle at $59.70 (off highs $60.77) per barrel and Brent gained $0.33 or 0.52% to settle at $63.28 per barrel (off highs $64.31) getting a bounce on optimism over a rebound in the U.S. economy as coronavirus vaccinations accelerated.

Currencies & Treasuries

·     Treasury yields were little changed most of the day despite the U.S. Treasury selling $96B in notes today in two parts; Treasury sold $58 billion in three-year notes at a yield of 0.476% vs. 0.378% when/issued prior, with the bid-to-cover (demand) at 2.32 and indirect bidders awarded 51.1% and directs 15.77%. The U.S. Treasury also sold $38 billion in 10-year notes at a yield of 1.68% vs. 1.678% when/issued prior, with the bid-to-cover (demand) at 2.36 and indirect bidders awarded 59.6% and directs awarded 16.22%. The auctions came ahead of key data releases this week, including consumer price inflation which is set for tomorrow morning (which follows higher PPI data last Friday). Note yields have dipped from one-year highs reached last month (10-year just above 1.77%) on improving demand for the debt, though remain elevated amid concern that faster economic growth and rising price pressures will continue to push yields higher. The Treasury will also sell $24 billion in 30-year bonds on Tuesday. The dollar index (DXY) was quietly lower with no major economic data today to effect it (CPI tomorrow, retail sales Thursday).

Sector News Breakdown

Consumer

·     Retailers; SIG raises its Q1 and full year guidance saying it has seen stronger than expected conversion and average ticket values in the first quarter and believes this topline strength is likely due to a combination of traction from strategic initiatives as well as tailwinds from stimulus, tax refunds and consumer enthusiasm on the heels of vaccine rollouts; URBN said total retail segment comparable net sales thus far during Q1 of fiscal 2022 increased by high single-digits versus FY20 and says sales in North America during Q1 were driven higher by double-digit ‘comp’ results at both the Free People and Urban Outfitters brands; GME was downgrade to sell at Ascendiant with $10 tgt as remain very concerned about the long term prospects for its video game business especially once hardware sales temper as the installed base matures

·     Auto sector; TSLA upgraded to Buy from Hold at Canaccord and tgt raised to $1,071 from $419 saying the company is positioned to attack and conquer another trillion-dollar market as its ramps up its focus on energy generation and storage; UBER said its March 2021 total company gross bookings reached highest monthly level in company’s nearly 12-year history and continue to believe that UBER is on track to reach quarterly adjusted Ebitda profitability in 2021; BWA positive mention in Barron’s saying the company is ready for an electric vehicle future as it has prepared for the shift by designing components like electric drive modules; XPEV said to debut new LiDAR-equipped Smart EV

·     Housing & Building Products; TREX upgraded to Buy from Hold at Truist as think the potential for above expectation contribution margins, coupled with strong offseason 2021/2022 sales, should lead to multiple quarters of outperformance after two years of choppy results; Wedbush lifted their price target on CCS to $75 from $64 on the recent pull back in mortgage rates and the continuing shortages of existing and new home supply for sale; Loop Capital reiterated Buy ratings and raised targets on HD from $310 to $350 for and from $195 to $220 for LOW as they forecast a robust peak season based on checks, believe 2020 spurred DIY home improvement investments

·     Consumer Staples; BYND said it announced significant product distribution expansion within thousands of European retail locations this spring. As Beyond Meat has grown its retail presence in the region, the European plant-based foods market has seen aggressive growth with sales increasing by 49% over the last two years; NAPA was initiated with bullish ratings at Credit Suisse ($21 pt), JPM ($20 pt), Jefferies ($22 pt), Bank of America ($21 pt), Evercore ($22 pt), and Sector Perform ($19 pt) at RBC

·     Restaurants; CMG upgraded from Market Perform to Outperform with $1,800 pt at Raymond James as believe the company’s sales have fully participated in strengthening industry trends over the last four weeks, likely pushing recent average weekly sales (AWS) in excess of $50K and now see significant upside to 1Q21 expectations – Cowen said they are buyers of CMG into the print and note 3 positive read-thrus from our Fast Casual CEO panel

·     Casinos, Gaming, Lodging & Leisure sector; cruise lines (CCL, NCLH, RCL) mentioned cautiously in Barron’s saying facing a virtual shutdown and suffering heavy losses, the three-dominant cruise-line operators have raised a total of about $40B through debt and equity sales – article says the industry’s massive fund-raises during the pandemic will come with a price — higher interest expenses and a sharp increase in shares outstanding; PLBY shares jumped after added as a new best idea at Hedgeye; CWH, WGO, THO, LCII – the RV Industry Association said it projects total RV shipments for 2021 of between 523K units and 543K units for the coming year. The mid-point of that range is 24% higher than the 2020 RV shipments tally

Energy

·     Energy stock movers; Jefferies upgraded XOM to Hold and Eni (E) to Buy as they increase their Brent oil price forecast to $60/bbl for 2021-24E and $58/bbl long term (from $54/bbl and $55/bbl respectively), and they are focused on the return of buybacks heading into earnings and say BP could be the first to announce a program and RDShas the highest shareholder renumeration upside; VEI was initiated with Buy/OW ratings at Bank of America ($21 pt), Citi ($16.50 pt), Credit Suisse ($15 pt), RBC ($17 pt), Capital One ($23 pt), Morgan Stanley ($18 pt), and at Equal-Weight ($14) by Barclays; Roth downgraded EGY to Neutral on uncertainty and its unexpected CEO change (initiated coverage on the stock at Buy on 3/24); JPMorgan said sustaining FCF yields above 10% is critical for oil stocks, and they reiterate their OW ratings on BP, RDS, upgrade TOT to OW on valuation after YTD underperformance and REP to Neutral on a balanced risk-reward on fiscal tailwinds, and downgrade EQNR to Neutral

·     Pipelines: Piper said that Friday’s court ruling in the Dakota Pipeline case that the federal government will not take enforcement action at this time was positive for ET, PSXP, MPLX, ENB, and Bakken oil producers, but there are more future challenges and a possible DAPL shutdown hangs over other operating pipelines; Mizuho said Friday’s surge in PSXP (+5.1%) on the DAPL ruling could be short-lived depending on an upcoming District Court hearing on whether to shut down the pipeline, and the see limited upside in the stock barring a best-case litigation outcome; TOT closed deals with the governments of Uganda and Tanzania, and China’s state-owned oil company for the Lake Albert resources development project

·     Refiners: Credit Suisse added VLO as a Top pick and upped its price target to $90 from $85, saying the company will benefit over the next 5-7 months as the U.S. becomes the first region where demand fully recovers given its vaccine rollout, upgraded PBF to Neutral with a $17 target after refiners have revised their Q1 estimates down, which removes some of the overhang on the sector, and upgraded E (Eni) to Neutral after raising their estimates on the company’s gas and power retail earnings;

·     Utilities & Solar; Mizuho upgraded CMS to Buy with a $65 price target, saying the recent pullback from C-suite changes provides an ideal entry point in a company that has delivered 7% EPS growth for 18 years and is currently trading below its historical 10% premium to P/E, and they raised their price target on SO to $59 from $57, though remain UW on shares as they believe fuel load for its hot functional testing to be delayed to the end of this year versus the company’s target of July; Roth downgraded MAXN and JKS to Neutral following each company’s Q4 miss and weak Q1 guide last week and on continued pressures on margins and volume; CFRA upgraded JKS to Hold from Sell; Morgan Stanley resumed coverage on PLUG at Equal-Weight with a $35 target as they see modest stock upside despite its position in they shift to Hydrogen given its product advantages, strong balance sheet, and strategic partnerships

Financials

·     Bank movers; big week for banking space with most of the large caps expected to report: SCHW on Tuesday, FRC, GS, JPM, WFC on Wednesday, BAC, BLK, C, TFC, USB on Thursday and ALLY, BK, CFG, MS, PNC, STT on Friday April 16^th; GS mentioned positively in Barron’s saying the stock still has room to rise after a strong run during the pandemic, while the IPO and merger trends that propelled its business are still in play while is less exposed to negative impact of low interest rates; CADE announced a deal to merge with BXS in a deal that values the combined company at more than $6 billion and CADE shareholders will receive 0.70 BXS shares for each CADE share held – that values Cadence shares at $22.58 each, a 5.1% premium (Cadence shareholders will also receive a one-time special dividend of $1.25 a share) https://on.mktw.net/3s8QFqQ

·     SPACs, Investments & Insurance; AMP announced that it has signed a definitive agreement with BMO Financial Group to acquire its EMEA asset management business for GBP615 million, or approximately $845 million; MUDS, which is in a deal to take Topps public, rose after Topps announced it would begin selling baseball card non-fungible tokens or NFTs on April 20 through the WAX blockchain

·     Consumer Finance; WEX upgraded Market Perform to Outperform at Cowen and raise tgt from $235 to $268 as see material upside to Street fueled immediately by rising fuel prices as well as the prospect of additional Travel recovery driven upside which could prove our Street high 2022/23 adj. EPS estimates to be conservative

·     Bitcoin news; prices jumping on the morning, topping the $60,000 level once again up over 3%; MSTR said its board modified the compensation of non-employee directors, who will receives all of their service fees in bitcoin instead of cash going forward; SOS said it enters into a non-binding letter of intent to acquire the majority equity interest of three us-based power plants aiming to expand its crypto-mining operations into North America; RIOT said in March 2021, Riot produced 187 BTC, an increase of 80% over its pre-halving March 2020 production of 104 BTC; GNOS completed an exchange with the Dogecoin Cash Foundation of its entire holdings in First Bitcoin for 600M Dogecoin Cash.

Healthcare

·     Updates from American Association for Cancer Research Annual (AACR) Meeting 2021: BCTX presents data from studies of its lead drug candidate Bria-IMT at American Association for Cancer Research Annual Meeting 2021 – data shows therapy helped in disease control in advanced breast cancer patients; Guggenheim highlighted key takeaways from this weekend’s presentations at the Virtual American Association for Cancer Research Week: (1) RUBY’s poster on red cell therapy RTX-240 Phase I data, (2) BPMC’s numerous updates, including avapritinib presentations in aSM and iSM and first safety data from next-gen KIT inhibitor BLU-263, (3) BGNE tislelizumab global Phase III data in 2L NSCLC and Ph I data in combination with sitravatinib (MRTX), (4) final Phase I monotherapy data for SHP2 inhibitor RMC-4630 (RVMD), and (5) addl. poziotinib dosing data (SPPI) in exon20 EGFR/HER2 NSCLC.

·     Pharma movers; AZN said a Phase 3 trial to assess the potential of its Farxiga diabetes drug to treat patients with Covid-19 at risk of developing serious complications didn’t achieve statistical significance for its primary target; ADMP said it plans to resubmit the marketing application for ZIMHI, its treatment for opioid overdose, to the FDA within the next 45-days; TPTX initiates Phase 1/2 FORGE-1 study of TPX-0131, a potent inhibitor of the anaplastic lymphoma kinase (ALK) and multiple resistant mutations of ALK; in cannabis, APHA shares slide as reported a wider-than-expected fiscal third-quarter loss and revenue that rose less than forecast, citing reduced demand resulting from the COVID-19 pandemic

·     Biotech movers; SAGE and BIIB announce topline results from Phase 2 KINETIC study evaluating SAGE-324 in the treatment of people with essential tremor as meets primary endpoint, as reduces muscle tremor but with significant side effects, study results show; Piper provides upbeat outlook for the synthetic biology (SynBio) space as initiate CDXS and TWST with Outperforms as sees the global market for synthetic biology to reach ~$1.2B including an estimated total addressable market of $270B for SynBio in the U.S.

·     MedTech Equipment; IRTC shares plunge after Novitas published Medicare reimbursements rates for its ECG monitoring devices this weekend as the reimbursement rates for codes 93243 and 93247 at $103 and $115 respectively are well below the around $300 that Novitas was historically paying https://bit.ly/3dSKB0t; LMNX rises after Italian diagnostics group DiaSorin said it will buy the company for $1.8 bln in cash, agreeing to pay $37 per share, which represents a 12.3% premium to Friday’s closing price https://on.mktw.net/3s4Kxji

Industrials & Materials

·     Transports; sector was mixed as airlines underperform after UAL announced prelim Q1 rev -66% vs 2019 and its intentions for two offerings, and Barron’s was negative on cruise lines over the weekend; truckers, rails mixed helping keep the Dow Transport index up to little changed; overall the Dow Transports came up short of record highs but strong day behind FDX, UPS in an otherwise strong performance for the group

·     Metals & Materials; CCJ was upgraded to Buy at Cantor saying production guidance for 2021 related to the ramp-up at Cigar Lake was not provided, but we expect Cameco to take a "slow and steady" approach; in the containerboard & box sector (IP, PKG, WRK), BMO Capital said this week will be a busy one as Q1 figures for containerboard mills and downstream corrugated box plants will be released. Then, on Friday evening, Pulp & Paper Week will publish its estimates of April containerboard prices. A month ago, PPW recognized only $20-30/ton of the $60-70/ton March price hike; Copper miners fall (FCX, SCCO, BHP) on worries that top metals consumer China wants to put a lid on surging commodity prices to head off potential inflation

Technology, Media & Telecom

·     Internet; BABA was fined $2.8B by the State Administration for Market Regulation of China as part of the anti-monopoly investigation. Positively, Alibaba does not expect further investigations on this matter, and we believe the removal of this overhang could be a positive for shares

·     Semiconductors; QCOM downgraded to in-line from outperform at Evercore/ISI and cut tgt to $150 from $195 as believe the smartphone recovery and 5G tailwind largely reflected in the current valuation; IIVI mentioned positively in Barron’s saying for decades, the laser industry has been a fragmented collection of small players, but a wave of mergers is changing the dynamic, creating long-term opportunities for investors; Citigroup downgraded the Semiconductors & Semi Equipment sector to Market Weight after roughly 625 bps of outperformance thus far this year (and more than 2800 bps over the past 52 weeks); NVDA kicked off its flagship GTC conference and host investor day as announced several new partnerships and plans; INTC fell after NVDA said it plans to make a server processor chip based on technology from the United Kingdom’s Arm Ltd, putting it in the most direct competition yet with rival Intel Corp; NVDA said sees Q1 revs tracking above $5.3B

·     Hardware & Software movers; NUAN acquired by MSFT for $56 per share in all cash deal valued at $19.7B (confirms weekend reports my media) – MSFT expects deal to be accretive in FY23 https://on.mktw.net/3tfKsL8 ; AAPL shares down for the first time in 8-trading days as Bloomberg notes shares dip after analysts said the latest monthly shipment data for smartphones in China pointed to some "muted" trends for the iPhone maker; CLDR collaborates with Nvidia to accelerate data analytics and ai in the cloud

·     Media movers; WWE shares erase early gains as reopen sectors slide (company said both Saturday and Sunday WrestleMania sold out max capacity of over 25K); Credit Suisse raises PT of the media company FOXA by $7 to $34 and reiterates outperform rating saying the near-term concerns have faded as the TV ad market is attracting steam, as the NFL deal is done, the pace of cord cutting is getting stable-to-improve; MTCH upgraded to buy from neutral at BTIG and initiated BMBL with Buy and $77 tgt saying they are going all-in on dating with Key Themes: 1) Attractive category growth/margin profile; 2) Strong 5-yr outlook: 15-20% revenue CAGR, w/40% EBITDA margin; 3) Good set-up w/re-opening & new price tier.

·     Towers & Telecom; Wells Fargo said C-band amendment activity could be a ~$700MM annual revenue opportunity for the Big 3 tower companies and believe SBAC is poised to reap the highest upside in the coming 3-6 years. Firm said while CCI may see a slightly higher initial share of A-block upgrades given its more urban footprint, they ultimately believe SBAC is the best-positioned to monetize C-band activity given that: (a) it does not have legacy carrier portfolios with unused equipment rights / reserved space; (b) it largely prices its amendments on an à la carte, vs. more holistic, basis which should reap greater upside in periods of higher activity; and (c) it has the highest relative percentage of U.S. macro tower revenue among the Big 3 towers