Closing Recap

Monday, January 10, 2022

Equity Market Recap

·     An amazing turn of events late day, as stocks surged off lows to finish mixed on Monday, with the Nasdaq Comp erasing a 2.7% decline to turn positive in the final minutes of trading as investors jumped in to buy mega cap mega tech stocks after last week’s 4% decline. Stocks started lower as bets that the U.S. Federal Reserve could raise interest rates as soon as March led investors to pare risky assets – but major averages WELL OFF the morning lows in another “buy the dip”. The Nasdaq hit 3-month lows, hitting below key technical levels before bouncing along with the S&P and Dow midday. This morning, Goldman Sachs joined Bank America’s call last Friday call for four (not the three that is currently forecast for the Fed) rates hikes in 2022, a call that picked up steam on Wall Street. Goldman Sachs said they continue to see hikes in March, June, and September, but have now added a hike in December for a total of four in 2022 and are pulling forward their runoff forecast from December to July, with risks tilted to the even earlier side. Main events for this week will CPI on Wednesday & Retail Sales and the start of financial earnings on Friday. The 10-year yield touched 1.80% this morning which is the highest market since January 2020 – those are pre-pandemic levels, before paring those gains. The Dow was down as much as 592 points at its lows before partially recovering while Dow Transports among biggest laggards.

·     Stock & Sector movers: busy day in retail into this week’s ICR conference with LULU sinking to 7-month lows after seeing Q4 EPS, revenue at the low end of its prior guidance ranges below estimates, FIGS jumps on its prelim Q4 revenue better than expected, CROX dropping sharply despite a stronger outlook, CURV plunging to record lows after cutting its Q4, FY sales guidance due to Omicron-driven labor challenges, FIVE TLYS PRTY roll on quarterly forecasts below consensus, GCO goes green despite early weakness on strong quarter-to-date sales with full-year adj EPS tracking above the midpoint of its current guidance, NKE also notably weak on an HSBC downgrade. Healthcare also busy as the annual JPM Healthcare Conference kicks off – BMY among the S&P leaders after setting FY22 guidance with reaffirmed long-term targets and an accelerated $5B buyback plan for this quarter in its presentation, NVTA slides after prelim 2021 revenue was below consensus, DXCM extends recent declines after initial FY22 revenue forecast missed expectation (now ~30% off November’s record high), MRNA rallies after raising its 2022 global vaccine deliveries forecast in its presentation

Economic Data:

·     Nov wholesale sales +1.3% vs. est. +1.5% and vs Oct +2.5% (previous +2.2%); wholesale inventories revised to +1.4% vs. est. +1.2%; U.S. wholesale inventories increased more than initially thought in November, suggesting that the restocking of warehouses likely contributed to economic growth last quarter.

·     NY Fed says median one-year and three-year-ahead inflation expectations both remained unchanged in December at 6.0% and 4.0%, respectively; says the mean perceived probability of finding a job after becoming unemployed increased to 57.5% in December from 55.9% in November; says median expectations for home price increases rose to 5.5% in December from 5.0% in November

Commodities

·     Oil prices fell, with WTI crude down -$0.67 or 0.85% to settle at $78.23 per barrel as concerns about demand fears stoked by Omicron coronavirus infections overtook concerns about oil supply from Kazakhstan. Traders weighed support from global oil supply risks tied to protests in Kazakhstan and tensions between Russia and Ukraine. This morning, Libya restarted production at its largest oil field after militants ended a blockade that helped push global oil prices in recent weeks, Dow Jones reported. Libyan oil production at 998k b/d; had recently fallen to 729k b/d over blockade and tch issues. A string of disruptions in the North African nation, along with major producers Kazakhstan and Nigeria, has cut over 1% of global oil supplies, driving prices above $80 a barrel amid tensions over Ukraine and rising winter demand. Gold prices finish the day little changed, inching higher $1.40 to settle at $1,798.80 an ounce (off highs $1,802 and low’s $1,789.30 an ounce) as investors weighed the blip higher in the dollar and Treasury yields, with a key focus on key CPI inflation data due later this week.

Currencies & Treasuries

·     Bitcoin tumbled below $40,000 for the first time since September before rebounding (fell as much as 42% from its high 2-months ago), while ethereum dropped over 8% to below $2,950 before paring losses as well – as both along with other crypto (and stock markets) bounce sharply off the lows. The global crypto market cap declines nearly 4% to 1.87T, according to data from CoinMarketCap. To start the year, Bitcoin is down about 15% but a nice recovery midday.

·     Treasury yields edged higher with the 1-year hitting above 1.8% this morning before paring gains, as the 2-yr yield neared 0.9% and the 30-yr was above 2.11% ahead of key inflation data later this week. The U.S. dollar index (DXY) rose +0.3% back around the 96 level, mixed vs. major currencies. The 10-year yield up for seventh straight day (highest in almost 2-yrs) while the 2-year yield hits highest since March 2020. The 10-year yield with its longest streak of gains since an eight-day run in April 2018 and last week had its biggest weekly rise since September 2019.

Sector News Breakdown

Consumer

·     Retailers; LULU shares slip after guiding Q4 adjusted non-GAAP $3.25-$3.32 vs. est. $3.34 and now expects company’s net revenue to be toward low end of its range of $2.125B-$2.165B vs. est. $2.17B; FIVE guides Q4 EPS $2.36-$2.48 below est. $2.49 and sees Q4 revs $985M-$1.005B also below consensus $1.01B, with Q4 comp sales up 2%-4%; CROX issues prelim Q4 revenue growth ~42% vs est. 36.4% with OM ~28% and guides FY21 revs to grow ~67% vs prior ~62%-65% while reaffirms FY22 outlook; FIGS Q4 prelim revs $128M vs. est. $120.4M as active customers are expected to total 1.9M, an increase of 46% y/y; AOV expected to be $113, an increase of 15% y/y; CAL raises guidance; FXLV prelim FY21 revs $133M-136M vs prior $132M-137M and consensus $133.3M and prelim Q4 – same store sales increased by 6% globally and 53% in the U.S.; PRTY reaffirms Q4 outlook ahead of presentation at the ICR Conference – revenue $685-700M vs. est. $705M; TLYS net sales of $173.3M increased by 16.5% for the 2021 holiday period and comps increased by 14.1% for the 2021 holiday period compared to an increase of 2.7% for the 2020 holiday period; GCO Q4-to-date sales – total overall sales +18% vs FY21 +18% and +9% vs FY20; guides FY22 EPS to be above midpoint of $6.40-6.90 (est. $6.72); HSBC downgrades NKE and ADDYY to Hold from Buy citing sustained supply chain issues saying Western brands are still facing production issues with the sector not completely out of "the woods" with supply chain problems;

·     Auto sector; Goldman Sachs raised their global EV forecast to 6.9m vehicles in 2022 and a 15% market share by 2025 following a doubling of take-up in 2021. Said in the US, look for auto production to recover in 2022 at a measured pace amidst robust end market demand, set against a challenging supply chain and input cost environment.

·     Housing & Building Products; RBC Capital upgraded CNM and KBH to Outperform in and downgraded TOL to Sector Perform, MHK and WHR remain preferred Underperform names saying a strong start to the spring selling season could provide support/NT upside if the recent backup in rates stabilizes, given the selloff to start ’22 – also continue to prefer distribution with BLDR remaining our favorite long, and prefer quality (MAS, FBHS)

·     Restaurants/Staples; KO mentioned positively in Barron’s saying the stock finally has its "fizz back" after reclaiming its Covid-era highs and says its shares should keep climbing; DOLE recalling packaged salads containing iceberg lettuce at its Springfield, Ohio and Soledad, California facilities on possible listeria contamination; FRPT guides Q4 net sales $115.9M below est. $120.3M at conference today; DENN reiterating its full year 2021 guidance expectations, prelim 4q domestic system-wide comp sales +49%; LOCO system-wide comparable restaurant sales for q4 increased 11.1% YoY, said Q4 revs expected to be $108M-$109M vs. est. $107.7M

·     Casinos, Gaming, Lodging & Leisure sector; in online betting (DKNG, CZR), shares active as the co’s took mobile sports bets over the weekend after the New York State Gaming Commission approved the respective sportsbook; FUBO said paid subscribers at year-end are expected to exceed 1.1 mln, up more than 100% Yoy while sees Q4 revs up 105%-109%; Gaming at Bank America changes: GLPI downgraded to Underperform from Buy, LVS downgraded to Underperform from neutral and trim tgt to $40 from $46; in leisure/travel, EXPE upgraded to Overweight at Piper and up tgt to $216 from $197 citing data sets on traditional lodging, air traffic, Omicron coronavirus variant and increasing vaccination rates , while ABNB downgraded to Neutral from OW and cut tgt to $169 from $215; in lodging REITs, PK, PEB downgraded to Neutral from Buy at Bank America, SHO double downgrade to Underperform from Buy while upgraded Hyatt (H) to Buy and cut RRR rating saying they are now torn between early cycle stock fundamentals and a late cycle stock market (characterized by rising rates, and slowing overall cyclical growth) and think this warrants a more neutral overall sector view

Energy

·     Energy stock movers; Oil prices were largely steady as supply disruptions in Kazakhstan and Libya offset worries stemming from the rapid global rise in Omicron infections. CTRA, MRO downgraded to Underperform from Neutral, DVN, PXD downgraded to Neutral from Buy at Bank America

·     Pipelines: EPD acquired Navitas Midstream Partners for $3.25B in cash to provide its natural gas processing and natural gas liquids business with an entry point into the Midland Basin; Wolfe upgraded KMI to Peer Perform without a compelling reason to still be underweight after its preliminary 2022 outlook last month and ahead of its Analyst Day that should have a constructive message, downgraded OKE to Underperform due to it trading at almost the highest multiple in the group leaving better value elsewhere, and upgraded PAA, PAGP to Outperform because of its positive setup for this year with a number of modest growth tailwinds

·     Utilities & Solar; Mizuho downgraded AGR to Underperform on a weaker earnings outlook with growth challenged in 2022 and 2023 and upgraded XEL to Buy after Friday’s Colorado rate case settlement and also named it as a 2022 Top Pick in the space along with LNT, CNP, CMS, NEE, DTE, ETRand PCG; BMO downgraded ES to Market Perform as they see better opportunities in the space given its current premium relative to peers and upgraded CNP to Outperform as they offer best-in-class EPS and DPS growth at an attractive valuation; RBC lowered their estimates and price targets on RUN, NOVA after the market took an unfavorable view of the proposed decision by the ALJ for net metering in California; UBS upgraded SEDG to Neutral following the release of the CPUC’s Proposed Decision over NEM 3.0 in CA that removes a potential overhang on valuations across residential solar names, and it also replaced NOVA on Goldman’s Conviction List; Seaport downgraded TPIC to Neutral as they prefer quality OFS names and beaten-down clean tech for 2022, and this stock is neither

Financials

·     Bank & Broker movers; industry continues to get support from rising rate environment and ahead of earnings this week; SCHW, RJF downgraded to Market Perform from Market Outperform; increase quarterly estimates on (MS, RJF, COWN, PIPR, EVR, HLI, LAZ, MC, BX, KKR, ENV), we reduce on six companies (GS, SF, LPLA, GHL, PJT, APO) and make no change on four (SCHW, COIN, MKTW, HOOD); We also provide additional valuation perspectives as increase price targets modestly for ENV to $101 from $97, for PIPR to $194 from $183, and for SF to $93 from $92; UWMC downgraded to EW from OW, PT to $7 (from $9) at Barclay’s as expect a strong economy and housing market to drive solid fundamentals for consumer finance not levered to refi activity.

·     Bitcoin news; Bitcoin tumbles below $40K, down 4.9% at $39,800; Ethereum down -8.5% at $2,950 as crypto extends declines (before paring losses); SI was removed from Wedbush best ideas list given a "near 100%" likelihood that the U.S. will adopt a central bank digital currency, which could negatively impact the addressable market for the company’s planned stablecoin; BITF buys 1K bitcoins for $43.2M, which increases its BTC holdings by 30% to more than 4.3K as of Jan. 10, 2022

·     REITs; Jefferies issued upgrades to Buy on BRX as internal and external growth opportunities should help it outperform this year, AIRC as one of the few bargains left in the Multifamily space, PSA on improving internal growth after a record level of acquisitions last year that are immediately accretive with significant embedded growth, KIM as positive fundamentals can drive organic growth, and HIW, and downgrades to Hold on STOR on the current cautious sentiment on the Net Lease sub-sector, EXR due to continued pressure on its management fees and tenant insurance, OFC despite its discounted valuation as there is limited opportunity for multiple expansion given flattening growth in defense spending, DEA on little upside to consensus estimates, EQIX as data center REITs have historically underperformed others during periods of rising rate, DLR because its valuation multiples are too high of a premium to historical valuations, NNNand SRC; Raymond James maintains their Underweight recommendation on office REITs due to a challenging fundamental backdrop with an uncertain future but upgraded Los Angeles-focused DEI to Outperform on growing optimism we are exiting the most severe portion of the pandemic, downgraded DEA to Market Perform as they see it as more a net lease REIT than office one and downgraded that sub-sector to Market Weight as well today, upgraded HT to MP given less risk due to a recovering fundamental environment with strong leisure demand and an anticipated increase in business demand this spring and PEB to Outperform given solid industry fundamentals, balanced exposure to currently strong leisure markets and rebounding business-dominated markets, and its top-notch management, and also said MPW continues to be their favorite healthcare REIT while changing their PTs on Strong Buys WELL ($100 from $98) and VTR ($60 from $67) and OP-rated OHI ($36 from $38); WE prelim December gross desk sales 66K (up from 55K in November) to bring Q4 gross desk sales to 164K (vs 153K in Q3) and 3.9M square ft sold in the month and 9.9M in the quarter; SRC prelim Q4 adj FFO 84-85c vs est. 84c and FY adj FFO $3.30-3.31 vs est. $3.30, sees FY22 adj FFO $3.52-3.58 vs est. $3.47

Healthcare

·     Pharma movers; PFE CEO says working on a new verse of vaccine effective against Omicron as well as other variants in CNBC interview; PFE and BEAM said they formed an exclusive four-year research collaboration focused on in-vivo base editing programs for three targets aimed at rare genetic diseases; PFE will make an upfront payment of $300 million to Beam; DNAY entered a strategic collaboration and licensing agreement with PFE to access and further develop Codex DNA’s novel EDS technology for potential application by Pfizer for its mRNA-based vaccines and other biopharma products.; IPSC announces research collaboration and license agreement with BMY said Q4 and FY 2021 total net revs are estimated to be ~$140M (est. $156.02M) and ~$580M (est. $594.68M), respectively; in cannabis, TLRY swung back to profits to exceed Street forecasts with its earnings for Q2, though despite a ~20% YoY growth, the quarterly revenue at $155.2M fell short of expectations; said net cannabis revenue grew ~7% YoY to $58.8M making up ~38% of the topline; BMY provided initial guidance for ’22 this am, expecting revenue of approximately $47B (vs. $47.8B cons) and adj EPS of $7.65 to $7.95 (vs. $7.85 cons).

·     Biotech movers; BMRN announced positive results for its hemophilia treatment trial on Sunday; GOSS upgraded to Outperform with a new $24 PT (prev. $11) ahead of a catalyst-rich year with three study readouts at SMBC Nikko; MRNA to offer a dose specific to Omicron; also raises 2022 vaccine sales forecast to $18.5B; SRPT announced topline results from Part 2 of Study SRP-9001-102 (Study 102), an ongoing, randomized, double-blind, placebo-controlled clinical trial to evaluate the safety, efficacy and tolerability of a single dose of SRP-9001 in 41 patients with Duchenne muscular dystrophy (guides Q4 revs $178.7M vs. est. $199M)

·     MedTech Equipment news/research; OMI agreed to acquire APR in a deal with an equity value of about $1.45 billion, where APR holders will receive $37.50 per share in cash, a 26% premium to Friday’s closing price https://on.mktw.net/3Gf9ikz ; PEN is said to be exploring a potential deal with SWAV according to a Bloomberg report Friday https://bit.ly/34pFvrm; in research, BTIG upgraded IRSG from Neutral to Buy and establishing a $372 PT, downgrades MDT from Buy to Neutral and removing our $128 PT and cuts ZBH to Neutral and removing our $161 PT as see ISRG as well positioned in FY22 from a competitive and new product perspective but also because Street numbers have room to move higher; IRTC shares surged amid newly released rates published by Novitas Solutions, a Medicare Administrative Contractor (MAC).

·     MedTech guidance from several co’s ahead of JPM Conference: EXAS guides Q4 revs $472M-$475M vs. est. $440.3M; sees FY prelim revs $1.765B-$1.768B vs. est. $1.73B; NVTA rises after pre announcing; SPNE guides Q4 revs up 19%-20% YoY to $55.1M-$55.5M (vs. est. $54.46M) and U.S. revs is expected up 18%-19% YoY to range from $49.9M-$50.2M; AXGN sees 2021 revenue $127.3M vs. est. $127.79M; RXST and HOLX reported preliminary revenue estimates, with additional details around 4Q and(or) business updates with BTIG saying results were encouraging for both despite some investor concerns around headwinds towards elective procedures due to the spike in Omicron seen midway through December; DXCM guides Q4 revs $698M, rising 23% YoY and above estimates $696M

·     Healthcare Services; CAH tumbles after saying it now expects additional inflationary impacts and lower volumes resulting primarily from global supply chain constraints, and a lower-than-expected offset from pricing actions/ests incremental impact will be approximately $150M-$175M to medical segment profit; in research, Citigroup upgraded hospitals CYH and HCA to Buy ratings from Neutral and said top picks for 2022 are CANO and UHS in healthcare services sector noting the industry has realized significant upheaval over the past couple of years driven by the consequences of the COVID-19 pandemic. However, while the backdrop remains fluid, they believe that the playing field has shifted as we enter 2022, with greater vaccine uptake and a relatively milder variant

Industrials & Materials

·     Aerospace & Defense; LHX and NOC both upgraded in Defense sector at Wells Fargo saying after launching with a cautious view last year, they see a better setup for defense in 2022 with negative estimate revisions behind, return of much-needed budget clarity, midterm election strength, and we think rising geopolitical risks (said GD remains top pick in the group)

·     Industrial & Machinery; GNRC upgrade from Neutral to Buy w/ $480 PT from $500 at UBS saying the current 19x 2022E EV/EBITDA multiple presents a buying opportunity with GNRC well-positioned to take share in the behind-the-meter (BTM) battery storage market; Wells recommends investors to position for quality beta and favors AME, IEX, ROP as companies not typically viewed as safe havens but have beta and backlogs reflective of a multi-year capex recovery and operating prowess to mitigate some margin pressures; Needham initiated SLDP at Buy with a $13 PT as an early-stage opportunity in the EV battery industry with products whose timelines are staggered to capture medium and long term opportunities

·     Metals & Materials; VALE it has partially halted operations at its Southeastern and South iron ore systems due to heavy rains that are affecting the state of Minas Gerais, but reiterated 2022 production guidance as the Northern system was not affected; in steel producers, CMC with a big headline beat (EPS $1.62 vs. est. $1.24), driven by better-than-expected margins globally while outlook encouraging as volumes solid supported by backlog and strength across key N.A and European markets – also announced plans on new Rebar micro mill targeting the East Coast

Technology, Media & Telecom

·     Semiconductors; SK Hynix upgraded to Buy from Neutral at Goldman Sachs and up price tgt on MU to $116 from $101 saying following recent industry checks, they are incrementally more positive on the DRAM supply/demand outlook due to favorable supply dynamics and an improving demand outlook; TSM December consolidated revenue NT$155.38bn, +4.8% m/m, +32.4% y/y. Taiwan Semiconductor to get advanced payment of NT$150bn this year for reserving production capacity; New Street started MU at Buy with a $135 PT; Westpark Capital continues to view MTSI as a somewhat underappreciated opportunity in semis in the early stages of a turnaround in which a relatively new management team is aggressively streamlining the product roadmap to address a broad, diverse group of high-growth, high-value end markets; Credit Suisse favors structural over cyclical growth for 2022 and prefer MU, ADI, NXPI, MCHP, KLAC, LRCXand AMAT while seeing accelerating growth in Compute, Memory, and SCE and highlight top pick MRVL, NVDAand INTC

·     Software movers; one big M&A story in the gaming space as TTWO to acquire ZNGA for a total value of $9.861 per share – $3.50 in cash and $6.361 in shares of Take-Two common stock, implying an enterprise value of $12.7 billion https://on.mktw.net/34DvS8L ; Unity Software (U) upgraded to Buy at BTIG following strong checks and a sharp pullback in shares post-earnings. Unity’s acquisition of Weta was completed 12/1 and the deal is a key driver of our more optimistic view on the business and estimate upside; CDNS tgt to $205 from $186 and SNPS to $445 from $395 at Keybanc following analysis of in-house chip development efforts at key hyperscalers and recent initiatives announced by several automotive OEMs; ZS upgrade from Neutral to Buy w/ $350 PT (from $380) at UBS in conjunction with upbeat 2022 preview work; RCM said it is buying Cloudmed, a software company for healthcare providers in an all-stock transaction; the transaction values Cloudmed at $4.1 billion, including $857 million of net debt

·     Hardware, Components & Services; Goldman Sachs said the IT Services sector is among the best positioned to benefit from an ongoing accelerated adoption of the Cloud and more Technology for corporates to run their businesses. See alpha oppty in stocks with significant secular tailwinds as initiate CTSH at Buy on underappreciated platform investments, initiate on TASK at Buy on exposure to high-growth technology end-markets, upgrade TWKS to Buy as favor exposure to Digital consulting demand; separately, Morgan Stanley downgrade CTSH from to Equal weight saying while encouraged by the meaningful progress he thinks management has made on a turnaround; TTEC downgrade to relative Underweight at Morgan Stanley noting less than 20% of TTEC’s revenue comes from TTEC Digital, where TTEC designs, builds, and implements third-party tech-enabled solutions around customer experience; DELL upgraded to Outperform at Bernstein; FFIV upgrade from In Line to Outperform w/ $275 PT from $240 at Evercore as believe CY22 will be another strong year for security and application security in particular

·     Media & Telecom movers; VIAC upgrade from Hold to Buy at Deutsche Bank and raise tgt to $43 from $39 driven by higher long term streaming revenue forecast and time value of money appreciation since our last update; in tower REITs, CCI downgraded to Hold at Jefferies saying it has the lowest AFFO/share growth projections of the peer group going into 2022; SBAC downgraded to Hold at Jefferies as well noting Tower REITs have historically underperformed the market during periods of rising interest rates