Closing Recap

Tuesday, June 01, 2021

Equity Market Recap

·     Stocks finish mixed as the S&P 500 index moved to within 4 points of its all-time closing higher of 4,238 before slipping back around the 4,200 level, while the Dow, Nasdaq, and Dow Transports all crept closer to their respective records before profit taking ensued in another quiet day on Wall Street following the Memorial Day holiday. The leader in the S&P index was energy as oil prices trade to the best levels in over 2-years before paring gains late day, while reopen sectors also climbed (airlines, casinos, movie theatres). Investors continue to cheer signs of an improving economy ahead of a week packed with major economic data that is expected to shed more light on the path of inflation. Latest data showed U.S. manufacturing activity picked up in May as pent-up demand amid a reopening economy boosted orders.

·     Sector and stock movers: Energy outperforms on the day with DVN, MRO, APA, OXY, FANG leading the S&P as WTI Crude prices touches its highest in 2.5 years following the June OPEC+ meeting; ABT slumps after cutting guidance on lower Covid testing demand, drags QDEL, TMO; LH; DGX; CLDR spikes after being acquired by PE firms KKR and Clayton Dubilier & Rice for $16/share in a $5.3B deal; delivery data for NIO, XPEV and Citi u/g of NIO provides a tailwind for the EV sector on the day (CHPT, BLNK, WKHS, RIDE); AMC surges, extends last week’s rally after issuing stock and other theaters IMAX, CNK, NCMI join the rally after this weekend saw the most ticket sales since before the pandemic.

Economic Data:

·     Markit U.S. manufacturing sector final PMI for May at 62.1 (strongest level in 14-years) vs flash reading 61.5 and final April 60.5; manufacturing sector final output index for May at 59.6 vs flash reading 58.1 and final April 57.2; final input prices index for May at 78.1 vs flash reading 78.8 and April 77.2.

·     ISM U.S. manufacturing activity index 61.2 in May above the 60.9 estimate and 60.7 in April; prices paid index 88.0 in May vs. 89.6 in April; new orders index 67.0 vs. 64.3 in April; the employment index 50.9 down from 55.1 in April (lowest since November).

·     April construction spending +0.2% (vs. est. +0.5%) to $1.524 trln, vs. March +1.0%; private construction spending +0.4% and public spending -0.6%.

Commodities

·     Oil prices rose $1.40 or 2.11% to settle at $67.72 per barrel, with Brent topping $71 before pulling back to settle at $70.25 per barrel up 1.34%, with prices touching their highest levels in over 2 years before the pullback on better China data, expectations for growing fuel demand during the summer driving season. OPEC+ agreed to continue a slow easing of supply curbs in their meeting on Tuesday. Gold prices managed a late day bounce as prices settled lower by a modest -$0.30 to $1,905.00 an ounce, remaining near highest settlement since the first week of January as the dollar slipped.

Currencies & Treasuries

·     The U.S. dollar index (DXY) dipped slightly at 89.70 (lows 89.66) – touched 6-yr lows vs. the Canadian dollar down around 1.2006 before paring losses; euro also edging higher while British Pound slips. The buck fell vs. the CAD which continues to be supported by trend high oil prices, and a generally weaker USD. Treasury yields inched higher early as the 10-year touched above 1.63% but slid midday to around 1.61%, staying in a narrow trading range. Crypto prices dropped after early gains as Bitcoin, Ethereum, Litecoin all slipped midday.

Sector News Breakdown

Consumer

·     Retailers; LULU tgt raised from $385 to $392 at Cowen saying valuation metrics have contracted meaningfully from peaks set in late July 2020 and now sit at three-year averages/see upside to Q1 sales and EPS estimates and are raising estimates; KIRK posted adjusted earnings per share for the first quarter that beat the average analyst estimate (Q1 adj EPS $0.12 on sales $123.6M (up 605); comp sales for Q1 rose 75.3%); Barron’s positive mention on MLHR saying the stock is a play on workers returning to the office as well as a shift to more flexible work options; CL King upgrades CAL to Buy from Neutral, price target $29

·     Auto sector; NIO said it delivered 6,711 vehicles in May, up 95.3% Y/Y and down 5.5% M/M from April delivery of 7,102 vehicles (shares were also upgraded to Buy at Citi); XPEV said May deliveries jump nearly sixfold as May vehicle deliveries surged 483% to 5,686 units, spurred by record-high demand for XPEV’s P7 sedan

·     Housing, Home Furnishing, & Building Products; WSM upgraded from Underperform to Neutral with $180 tgt at Bank America after strong 1Q results and our belief that earnings growth holds in longer than previously expected and key competitive advantages; in building materials, SUM upgraded from Sell to Neutral at Goldman Sachs as are positive on an emerging recovery in infrastructure orders and improved Cement pricing outlook; TMHC announces stock repurchase boost for up to $250 mln in shares

·     Consumer Staples; Krispy Kreme has filed a Registration Statement on Form S-1 with the SEC relating to the proposed initial public offering of its common stock; HNST initiated coverage by several analysts with at least four Buy/Outperforms and high price tgt of $21 (Telsey) with low of $15 (Loop); ULTA and EL remain Opco’s top beauty picks; Bloomberg reported cyberattack on meat producer JBS (JBSAY) has resulted in the shutdown of some of the globe’s biggest slaughterhouses, and there are signs that the shutdowns are spreading (meat related companies include TSN, SAFM, HRL, PPC)

·     Casinos, Gaming, Lodging & Leisure sector; AMC sold 8.5 million shares of its common stock for $230.5 million to Mudrick Capital Management L.P – share sale deal would represent a price of for AMC’s stock of $27.12 a share, which is 3.8% above Friday’s closing price of $26.12; PLNT shares stock could drop 50% after a stunning recovery according to Barron’s as growth slows and the market becomes saturated; in lodging, Blackstone & Starwood boost offer to buy STAY to $20.50 in cash; cruise lines (CCL, RCL, NCLH) and airline stocks outperform with more money rotating into the economic reopen plays; casino space benefits (WYNN, MLCO) after Gambling revenue in the world’s biggest casino hub for the month of May jumped nearly six-times, or by 492.2%, on travel curbs – May’s figure was 10.5 bln patacas ($1.31 billion)

Energy

·     Energy stock movers; U.S. crude futures climbed to the highest in more than 2 1/2 years after the OPEC+ alliance forecast a tightening global market, while international efforts to revive a nuclear deal with Iran were yet to reach a breakthrough. West Texas Intermediate rose, while global benchmark Brent topped $70, a level which helped boost energy stocks across the board. Newswires noted OPEC+ agrees to stick to existing plans to ease oil output cuts in June, July

·     E&P and Majors; XOM, EQNR, PBR said they will proceed with an $8B development of Brazil’s Bacalhau oil discovery; Bernstein upgraded EQNR Outperform with a $28 tgt based on new analysis around their renewables portfolio supporting further upside and a stronger expected macro environment in 2H 2021/22 also offering continued earnings and dividend growth momentum; Raymond James upgraded DVN to Strong Buy from Outperform as its meaningful outperformance of its Delaware wells versus competitors could mean there is unrealized productivity upside, which would further improve its FCF/EV yield and leading dividend yield outlook; Truist initiated OAS with a Buy rating and $115 target as they believe its recent financial restructuring will allow for strong FCF generation with dividend growth and possible share buybacks, and they also initiated REPX with a Buy rating as a unique small cap operator given its low decline conventional assets that provide solid growth with minimal capital

·     Pipelines: ET files for potential mixed shelf offering but did not disclose the size; PBA announced it has agreed to acquire all the issued and outstanding shares of Inter Pipeline (IPPLF) in a share-for-share transaction that values Inter Pipeline common shares about $8.3B; KMI agrees to acquire the Stagecoach Gas Services natural gas pipeline and storage joint venture from ED and CEQP for $1.225B; VTNR adding to last week’s rally after agreeing to buy an Alabama refinery from Shell for $75 million (shares rose 95% on Friday and 124% on Thursday) and Stifel upped their price target to $17 from $2

·     Utilities & Solar; BMO upgraded TAC (TransAlta) to OP from MP as shares remain in deep value territory versus peers despite performing well since last March, and their new $14.50 pt (from $12.50) implies a total potential total return of about 34%

Financials

·     Bank movers; The financial sector extends gains as the largest AUM ETF Financial Select Sector SPDR Fund (XLF) has hit all-time trading highs while the Vanguard Financials ETF (VFH) also touched a record high, hitting $94.57. So far, year-to-date, it’s the second-highest performing segment behind energy (fins +29% YTD and up over 34% the past six months); ONB and FMBI announce merger to create a premier midwestern bank; to have $45B in total assets and $34B in total deposits; sees deal closing late 2021 or early 2022; announces all-stock merger of equals transaction total market value $6.5B; BNS quarterly results beating analysts’ estimates, thanks to fewer-than-expected provisions to cover loan losses and an increase in domestic loan growth.

·     FinTech, Payments and Bitcoin; FUTU shares active after the company announced its platform achieved 100,000 paying clients in under 3-months since launch in Singapore; COIN said starting this week, they’ll invite select customers off the waitlist for Coinbase card to begin earning up to 4% back in crypto rewards; MOGO said it is acquiring as additional 2.0% of the outstanding common shares of Coinsquare from Michael Diamond and an affiliated company; SOFI began trading after announcing on Fri closing of its reverse merger with Chamath Palihapitiya’s SPAC, Social Capital Hedosophia Holdings Corp V

·     REITs; EQR upgraded to Outperform from Market Perform with $89 tgt at BMO as believe the performance gap between EQR and its Sunbelt peers will continue its reversal, as cities reopen and demand increases in EQR’s markets; MAA downgraded to MP from OP and raise tgt to $170 from $147 at BMO noting have long been favorable of MAA’s Sunbelt portfolio, affordable price point, repositioning strategy and relative valuation but shares have surged 38% LTM; EPR upgraded from Market Perform to Strong Buy at Raymond James saying despite the YTD outperformance (EPR +51% vs. the RMZ +17%), EPR shares still trade ~30% below pre-COVID

Healthcare

·     Pharma movers; AKBA said the U.S. FDA has accepted the marketing application for its drug candidate, vadadustat, for review and has set March 29, 2022 as the action date by which it will decide on the drug’s approval; ALKS said the U.S. FDA approved LYBALVI for the treatment of adults with schizophrenia and for the treatment of adults with bipolar I disorder; BBIO receives fast track designation for encaleret for the treatment of autosomal dominant hypocalcemia type 1; in cannabis, CGC Q4 fiscal 2021 came below expectations while net revenue for the quarter grew ~38% YoY to reach C$148M; LCI announces FDA acceptance, as a priority original ANDA, of the generic Advair diskus® filing; PRTK announces FDA approval of Nuzyra® oral only dosing regimen for the treatment of community-acquired bacterial pneumonia

·     Biotech movers; MRNA asked the FDA for full U.S. approval of its Covid-19 vaccine — the second drugmaker in the U.S. to seek a biologics license that will allow it to market the shots directly to consumers; LCTX said restoration of retinal tissue was observed in two additional patients enrolled in the company’s Phase 1/2a study of its lead product candidate, OpRegen; MRTX and ZLAB enter into a collaboration to develop and commercialize adagrasib in greater China; LMNL said it has decided to stop its plans to move fezagepras into a Phase II clinical study in Idiopathic Pulmonary Fibrosis and a phase Ia/IIb study in Hypertriglyceridemia, as it evaluates the impact of the PK data profile observed in the on-going study.

·     MedTech Equipment; ABT guides EPS outlook lower as sees FY EPS between $4.30-$4.50, below consensus of $5.04 citing significantly lower demand for COVID-19 tests/also sees Q2 EPS of at least $1.00, below estimates of $1.23; Evercore/ISI positive on three stocks, upgrading ILMN to in-line from underperform with $400 tgt, ISRG upgraded to in-line from underperform with $825 tgt and SYK upgrade from In Line to Outperform w/ $285 pt

Industrials & Materials

·     Aerospace & Defense; BA was upgraded to Outperform from Market Perform at Cowen and raise tgt to $290 from $240 saying fast improving air traffic is bolstering aircraft demand now that the U.S. has hit a 50% vaccination rate; SPCE filed a shelf registration for $1 billion of mixed securities, plus 2.7m shares issuable upon the exercise of previously sold warrants

·     Industrial & Machinery; Barron’s was positive on industrials CAT, DE, HON, ODFL, OSK, ROK, SAIA, SIEGY, WCC, XPO saying if widespread inventory shortages—which are the result of several factors—lead to prolonged inflation, the Federal Reserve could raise interest rates, denting stocks, but if supply bottlenecks ease, pent-up demand is satisfied and economic growth returns to modest pre-pandemic levels, rates are likely to remain at historic lows for longer and stock indexes could continue to shine; ALSN was double downgraded to Sell from Buy at Goldman Sachs saying trucking spot prices are at historical highs (+84% YoY), while utilization levels have deteriorated (April load-to-van -36% from February highs) for a sub-sector that has the shortest cycle in our coverage

·     Transports; airlines rise (UAL, AAL, DAL, JBLU) on improved traffic as the TSA reported that it screened almost 1.96 million people at airports, compared with 1.85 million on Thursday. That’s the most since March 7, 2020, when the COVID-19 pandemic was in its early stages; the overall Dow transport index inched back closer to the 16K level 9all-time highs stand at 16,170), paced by broad based gains on signs of an improving economy.

Technology, Media & Telecom

·     Semiconductors; IDCC guides Q2 revs $83M-$88M vs. est. $79.6M; AMAT, LRCX positive mention in Barron’s saying the chip shortage is creating an opportunity for two stocks according to Barron’s (AMAT.LRCX) saying both trade at about 20x earnings estimates for the next 12 months, lower than the multiples of S&P 500 Index and the PHLX semiconductor Index

·     Software movers; CLDR entered into a definitive agreement to be acquired by affiliates of Clayton, Dubilier & Rice and KKR in an all-cash transaction valued at approximately $5.3B (confirming reports overnight by the WSJ). Cloudera shareholders will receive $16.00 in cash per share, representing a 24% premium https://bit.ly/3wNeAii

·     Hardware Components & Services; FFIV was downgraded to Sell from Neutral with $165 tgt at Goldman Sachs as believe reopening presents risks to F5’s revenue momentum and note our EPS forecasts are tracking below consensus; LITE was downgrade from Buy to Neutral at Goldman Sachs with $86 pt tgt after recent disclosure from the company challenges our 3D share gain thesis for the iPhone 13/also see limited near-term visibility in the Optical segment; in 3d, DDD announces sale of On Demand Manufacturing Business Company exiting service bureau business through sale to Trilantic North America for $82M