Closing Recap

Thursday, April 22, 2021

Equity Market Recap

·     Stocks were chugging along, edging higher all morning to their best levels around 1:00 PM EST, erasing nearly all its losses from the beginning of the week – then the bottom fell sharply, declining as much as 1.25% at lows on the day. The roll in stocks followed a “tape bomb” after Bloomberg reported that President Joe Biden will propose to boost the capital gains rate to 39.6% for those earning $1M or more, an increase from the current base rate of 20%, citing people familiar with the proposal. When coupled with the 3.8% tax on investment income that funds the Affordable Care Act, federal tax rates for investors could be as high as 43.4%. For $1 million earners in high-tax states, rates on capital gains could be above 50%. For New Yorkers, the combined state and federal capital gains rate could be as high as 52.22%. For Californians, it could be 56.7%. Those headlines sunk stocks (quickly) with so many Americans tallying massive capital gains over the last few months as stock surge to new highs daily. Also, the rise in virus cases globally remains a concern, notably the surge in India as reports 332,051 new coronavirus cases, by far the biggest one-day increase so far, and a record 2,365 new deaths.

·     The tax proposal headlines overshadowed another day of relatively strong earnings and mixed data. The number of Americans filing new claims for unemployment benefits fell to a 13-month low last week, suggesting layoffs were subsiding while existing home sales tumbled. Heading into earnings after the close (which include INTC, SNAP, STX) over 100 S&P components have reported with earnings beat rate thus far above 80%.

·     Overall, despite today’s sell-off, major U.S. averages remain not far off record highs as the U.S. has expanded COVID-19 vaccination eligibility to most American adults, and more than half that population has had at least one dose of a vaccine (as per the CDC) as well as positive sentiment after the White House’s $1.9 trillion pandemic rescue package has allowed for broader economic rebound. Today, Senate Republicans formally rolled out the framework for their $568B counterproposal to Biden’s infrastructure plan. Also today, two U.S. senators are working to attach legislation to allow automakers to deploy tens of thousands of self-driving vehicles on U.S. roads to a bipartisan China bill, a significant reform that could help speed the commercial use of automated vehicles, Reuters first reported.

Economic Data

·     U.S. weekly jobless claims fell to 547,000 in the latest week, below the 617 estimate and from 586,000 prior week (previous 576,000); the 4-week moving average fell to 651,000 from 678,750 prior week; continued claims fell to 3.674M in latest week vs. est. 3.667M; and the U.S. insured unemployment rate fell to 2.6% from 2.7% last week.

·     Existing home sales for March fell -3.7%, reported at 6.01 mln unit rate (below consensus 6.19 mln) and down from February reading of 6.24 mln; March inventory of homes for sale 1.07 mln units, 2.1 months’ worth; national median home price for existing homes $329,100, +17.2% yoy

·     March Leading Economic Indicators (LEI) rises +1.3% vs. est. 1%

Currencies & Treasuries

·     Gold prices end lower, falling -$11.10 or 0.6% to settle at $1,782 an ounce, pulling back from 2-month highs, and remain up about 4% month-to-date as the dollar and Treasury yields slide. Crypto currency space volatile as Bitcoin dropped below $54K late afternoon on capital gain tax headlines that sunk broader markets. Oil prices end modestly higher, erasing earlier declines as WTI crude rises 8c to settle at $61.43 per barrel.

·     Bitcoin prices tumbled late day as Bloomberg Intelligence noted that the Biden administration may yet get tougher on banking rules for bitcoin, digital currencies, and stable coins, including Facebook’s Diem, in our view, especially as Biden reshapes the Fed going ahead. Treasury Secretary Janet Yellen is increasingly focused on sanctions evasion and terrorism financing, creating issues for Coinbase and other crypto firms.

·     Treasury yields flat on the day, before seeing first sign of life to the upside in about 2-weeks as the 10-year yield neared the 1.6% level (off weekly lows around 1.52% but off recent 1.77% 14-month highs) – but tumbled following the Biden tax plan proposal headlines.

Sector News Breakdown

Consumer

·     Retailers; TSCO raises FY comp sales +5% to +8%, saw -2% to +1% after Q1 results easily topped consensus (comp sales jumped 36.8%) and boosts FY21 revenue to $11.4B-$11.7B from prior view for $10.7B to $11.0B (est. $10.88B consensus); NKE tgt cut to $175 from $183 at UBS saying the reaction in China to Nike’s statement on Xinjiang is bigger than they expected as checks suggest Nike’s sales growth rate turned negative in China almost immediately after the controversy began and the company’s growth rate has not yet started improving; POOL 1Q EPS $2.32 vs. est. $1.15 on sales $1.06B vs. est. $823.9Mm and guides FY EPS $11.85-12.60 vs. est. $9.46 (also pos for LESL); SNBR Q1 EPS beat on tax but comps missed (+20% vs. est. 30%) on sourcing delays and said $50m of sales will shift into Q2 and noted demand comps was 30%; WHR Q1 beat across the board and raised guidance and added to buyback

·     Auto sector; Ford (F) mentioned favorably by two analysts as Wolfe upgraded to outperform with $15 tgt as see a very clear path for further improvement in 2022 and beyond, while Deutsche Bank added it to their short-term Catalyst Call Buy List citing favorable vehicle mix/pricing, combined with a robust product cycle, improved warranty performance; in auto preview, Wells Fargo bullish on GM, cautious on VC and most bullish on DAN; in electric vehicle space, which saw strength yesterday as the U.S. and China moved on cutting emissions, saw weakness in FSR today as Goldman downgraded to Sell with $10 tgt and cut RIDE to neutral with $10 tgt as well; WSJ column is negative on the car dealers (AN, LAD, KMX) saying supply issues will hurt future sales and margins will collapse once the supply issues are addressed

·     Consumer Staples & Restaurants; CMG price tgt raised by several analysts, with Cowen taking it to $1,725 from $1,600 following another stellar quarter that was capped off with high-teens same-store sales and the highest restaurant-level margin in over five years (Q1 adj EPS $5.36 vs. est. $4.89); NSRGY reported a 7.7% increase in Q1 organic sales that more than doubled the expected +3.3% in its best quarterly sales growth since 2011 that was spearheaded by coffee’s 17.1% increase and a 40% increase in e-commerce sales as both benefitted from stay-home periods, and their CEO said they are now more confident they can achieve an organic growth rate above 4% this year; Truist raised their price target on PLAY to $46 from $42 following the company’s preliminary sales earlier this month and management meetings; Evercore raised their price target on EL to $355 from $300; MO slides after Bloomberg headline that the company and Juul must face lawsuit over $13B deal

·     Casinos, Gaming, Lodging & Leisure sector; LVS reported Q1 actual/hold adj. property EBITDA of $244M/$191M, versus our/Street’s $231/$243M (hold adj is weaker); CHDN topped its Q1 revenue, sales and EBITDA consensus estimates saying Derby City Gaming recorded revenue growth of 52% and TwinSpires Horse Racing saw a 39% jump in revenue from a year ago; PLNT downgraded to Neutral at Piper, lowering estimates and maintaining our price target of $87 based on the pace of member and EPS recovery for 2022, which now looks less certain from our survey results – and the emergence of at-home fitness options; HZO shares leading boating stocks higher up over 11% after earnings as MCFT rallies in sympathy

·     Housing & Building Products; homebuilder DHI posts Q2 beat helped by strong housing demand and low mortgage rates as home orders rose 35% to 27,059 in Q2, beating analysts’ avg. estimate of 23,239, and raises year delivery view to 82,500-84,500 from 80,000-82,000

Energy

·     Energy stock movers; Oil prices extended their losses into a third day on Thursday as a surprise build-up in U.S. crude inventories and a resurgence of COVID-19 cases in India and Japan raised demand recovery concerns. Another Libyan oil firm to cut as much as 100k b/d of crude output this week as the budgetary crisis worsens according to reports.

·     In stock news; CVX is not interested in buying XOM’s 32.7% stake in Iraq’s West Qurna-1 oilfield, but Basra Oil Co. said it still aims to finalize the sale of Exxon’s stake by the end of June; VLO reported Q1 EPS loss -($1.73), narrower than est. –($1.85) loss on revs $20.81B vs. est. $19.57B and sold its 25% stake in Pasadena marine terminal JV; MKM upgraded XEC to Buy as their new $78 pt from $75 represents about 30% upside; ARCH Q1 EPS (40c) loss on revs $357.54M vs consensus of a (40c) loss on revs $320.27M

·     Pipelines: KMI posted a Q1 EPS and revenue beat and boosted its dividend as the co said they realized greater margins on KMI’s Texas intrastate pipeline systems resulting from the temporary supply and demand imbalances and substantial spot market price volatility; Evercore upgraded ET to Outperform with a $14 price target with $18 upside as the best risk/reward profile among midstream names as well as broader energy space

·     Services; Cowen lowered their price target on HAL to $25 from $29, though they disagree with yesterday’s underperformance on investors who concluded there was a lack of upside to Q2 guidance and a plateau in North America as they believe the company has demonstrated solid international execution and should benefit from an international recovery; Piper lifted their 2021-22 EBITDA estimates on BKR by 3% after yesterday’s beat and keeps the stock as their top OFS pick with 50% upside following its YTD underperformance vs the OSX (-6% vs +12%)

·     Utilities & Solar; AEP reported an increase in both revenue ($4.3B, +16% YoY vs est. $4.14B) and profit (EPS $1.15 vs $1.02 YoY, est. $1.17) in the company’s first quarter and affirmed its adjusted earnings guidance for the year and reaffirmed year outlook for EPS $4.55-4.75; NWE Q1 EPS $1.26 vs est. $1.14 on revs $400.8M vs $374.1M and affirmed its FY21 EPS guidance $3.40-3.60; Wells said most electric utilities under coverage are leveraged to a transmission build-out to some extent, but view AEE, AGR, AEP, EVRG, FTS, NEE, OGE, XEL and American Transmission Company (WEC, LNT as having transmission strategies and/or geographic footprints in the Midwest/Great Plains that could result in more meaningful upside to existing capital plans and earnings growth; In solar, Barclays upgraded SEDG, ARRY to OW and FSLR to EW, raised their target on RUN to $108 from $90, and downgraded SHLS to EW

Financials

·     Bank movers; the WSJ reported that CS established over $20B of exposure to investments related to Archegos Capital, but the bank struggled to monitor its exposure before the fund was forced to liquidate many of its major positions; HBAN Q1 EPS 48c vs. est. 35c; revs $1.37B vs. est. $1.22B; sees FY21 revs to increase 3%-5% YoY; in insurance; HIG increases its share buyback authorization to $2.5B through 2022 after turning down two more proposals from CB

·     Consumer Finance; DFS Q1 EPS of $5.04 crushed the $2.77 estimate on better revs of $2.8B while operating expenses of $1.08B fell from $1.28B in Q4 and $1.16B in Q1 2020 and said Payment svc vols rose to $75.9B from $70.1B prior quarter

·     Financial Services; EFX posted strong Q2 guidance, boosted its 2021 guidance after a Q1 beat (guides Q2 adj EPS of $1.60-$1.70 vs. consensus estimate of $1.51 on better revs); LDI declares special dividend of $0.612 and also says to increase liquidity and float in its common stock, underwriters agreed to release 6 mln shares under IPO lock-up

Healthcare

·     Pharma& Biotech movers; sector remains pressured, down about 10% from its early February record highs (XBI with shares of SRPT, FOLD, FREQ among those losing more than half their value this year alone – some causes include efforts in Washington to reduce drug prices, as well as recent reports the FTC has indicated it is preparing to take a harder line on drug-company mergers; BIIB Q1 beat ($5.34/$2.69B vs. rest. $5.04/$2.65B) while raised year EPS view but maintained rev outlook, as Tecfidera, Spinraza, and Tysabri sales have fallen ~56.4%, ~7.9%, and ~3.7% to $479.3, 520.5, and 503.3M, respectively; BNGO announces publication of new approach to study DNA replication using optical genome mapping with Saphyr, potentially supporting development of cancer drugs targeting replication pathways

·     Healthcare Services; IQV reported 1Q results with revenue of $3.41B topping 3.18B est. and better EPS of $2.18 (vs. est. $1.86 cons), with broad strength in its three segments w/ solid bookings/backlog and raised its guidance expecting revenue of $13.2B to $13.5B (from $12.55B to $12.9B prior) and EPS of $8.50 to $8.75 (from $7.89 to $8.20 prior); HCA the latest hospital to rally on better earnings (follows THC the other day)

·     MedTech Equipment; DGX reported 1Q results, with revenue of $2.72B (vs. $2.64B cons) and EPS of $3.76 (vs. $3.72 cons), with COVID testing continue to aid y/y comparisons and the company noting base business continued “its recovery to near pre-pandemic levels”, specifically calling our March organic growth vs. baseline and raised outlook; ALGN was upgraded at Berenberg; NPCE 6M share IPO priced at $17.00

Industrials & Materials

·     Aerospace & Defense; HEI upgraded to Buy from Hold and raise tgt to $150 from $130 at Canaccord saying their Q1/21 commercial aerospace MRO survey points to an acceleration in the sequential market growth (~5% in Q4/20 to ~9% in Q1/21); AL delivers two new Boeing (BA) 787-9 aircraft on long-term lease to China Southern Airlines; AVAV gets U.S. Army Lethal Miniature Aerial Missile Systems contract valued up to $41M

·     Airlines; AAL posted Q1 results largely in-line with estimates with EPS loss ($4.32) vs est. ($4.34) on revs $4.01B vs est. $4.04B and passenger rev $3.18B vs est. $3.17B; LUV Q1 EPS loss ($1.72) beat the est. ($1.85) loss and revs $2.05B narrowly missed est. $2.07B and its CEO said it is seeing pent-up leisure demand with steady weekly improvements in domestic bookings; ALK reported Q1 adj EPS ($3.51) that was narrower than est. ($3.63) loss on revs $797M that topped est. $785.58M and said its cash flow turned positive in March; SAVE Q1 adj EPS loss ($2.48) vs est. loss ($2.54) on revs $461.3M vs est. $459.1M

·     Railroads; UNP the last of major rails to report with EPS of $2.00, missing the $2.05 estimate on mostly in-line revs of $5.00 vs. est. $5.02B; CP recorded Q1 EPS C$4.50 on revs C$2.96B, said Q1 was its record for volume including March setting its record for gross ton miles and revenue ton miles, and sees FY21 double-digit adj EPS growth relative to 2020’s adj EPS $17.67 with high-single digit RTM growth; Carload volume rose 23.2% for the week ended April 17 on 12 reporting U.S., Canadian and Mexican railroads, while intermodal traffic soared 32.5%, the trade group said. In the week ended April 10, North American rail traffic rose 22.2%. For the first 15 weeks of the year, North American rail traffic is up 7.4%.

·     Trucking sector; ODFL posted Q1 EPS $1.70 on revs $1.13B that both topped consensus views ($1.58 on $1.1B); LSTR Q1 EPS $2.01 vs. est. $1.63 on revs $1.288B vs est. $1.15B, sees Q2 EPS $2.20-2.30 (est. $1.61) on revs $1.4-1.45B (est. $1.18B); Truck-stop operator TA is forming an alternative-energy business unit and plans to install EV charging and hydrogen fueling stations for cars and trucks at locations across the U.S.

·     Metals; busy morning of earnings in metals (steel/copper) space as FCX reported in-line Q1 EPS and sales; RS with a Q1 EPS and revenue beat and better Q2 guidance ($4.2–$4.40 vs. est. $3.27); CLF Q21 sales of $4.05B missed the $4.22B estimate while posts Q1 profit and raises FY21 adj Ebitda guidance to $4B; NUE said strong demand and higher average selling prices brought the company to its most profitable quarter on record (but sales fell short of ests at $7.02B vs. est. $7.19B on mostly in-line earnings) – average sales price per ton rose 25% over the year-ago period and steel mills total shipments rose about 1% to 6.54 million tons

·     Materials; DOW reported a 69% rise in Q1profit, as prices for its chemicals used in plastics and packaging rose on the back of tighter supply and high demand; SON with top and bottom line beat for Q1 and narrows year EPS outlook

Technology, Media & Telecom

·     Semiconductors; sector underperformed broader market as SOX index fell over 2%, led behind weakness in memory names (MU, WDC); LRCX Q3 beats with overall revenue up 55% on the year to $3.85B and $7.49 EPS, $0.88 ahead of consensus, while system sales were up 55% on the year to $2.6B and issues upbeat Q2 revenue guidance; INTC earnings after the close tonight; INTC won a ruling by a federal jury in Waco, Texas, in a lawsuit accusing it of infringing VLSI Technology LLC’s patents, Reuters reported

·     Software movers; XM tops Q1 estimates with $238.6M in revenue, up 36% on the year and about $11M ahead of estimates, and EPS of $0.01, four cents better than expected; TDC shares soar as positively preannounced Q1 results as recent momentum in the cloud-first strategy, solid execution and flexible pricing to drive new customer acquisition continued to start the year; SAP said its new all-in cloud transformation package was proving to be a hit with its customers, as it confirmed its Q1 results and recently raised guidance

·     Hardware, Components & Services; NTGR slips as Q1 EPS topped views, but shares slid as Q2 revenue of $305M-$320M missed the consensus for $325.6M; SKLZ shares rise after ARK Investment discloses 5.07M shares of Skillz bought; CIEN, COMM, JNPR and other comm equipment names were active after ATreduced 2021 capex to $17B from $18B

·     Media movers; DIS signed a movie licensing deal with SONY that will bring Spider-Man and other Marvel titles to the Disney Plus streaming service starting next year; Vivid seats, a leading concert, sports and theater ticket marketplace, to become a publicly-listed company via merger with HZACSling TV launches new exclusive DKNG sports betting information channel; in advertising, IPG downgraded to market perform at BMO as expect co to continue leading in organic growth, but this is increasingly reflected in the premium valuation; MTCH is forking over an increasing chunk of its sales to Apple and Google as users of its dating platforms like Tinder spend more money within mobile apps; SNAP earnings after the close tonight

·     Towers & Telecom; AT Q1 adj EPS 86c vs. est. 78c and Q1 revenue $43.94B vs. est. $42.69B as Q1 postpaid net adds of 823,000; qtrly postpaid phone net adds of 595,000 (vs. est. around 268K); qtrly prepaid phone net adds of 207,000; CCI topped Q1 FFO expectations and raised its full-year outlook, while Q1 adjusted funds from operations rose 24% to $738M