Closing Recap

Tuesday, May 11, 2021

Equity Market Recap

·     It was another volatile day on Wall Street as the tech heavy Nasdaq posted a 300-point recovery off the opening session lows (13,108), which had followed a big downdraft Monday when it settled at the lows – but there remain some serious catalysts in the near-term horizon in the next few days. We have Wednesday’s U.S. inflation report (CPI) followed by Thursdays’ data report (PPI) along with a series of U.S. government bond auctions this week (U.S. to sell $41B in 10-year notes Wed) which are seen as the next factors to deepen or arrest the slide. The March 2021 PPI reading of 4.2% for final demand was the highest reading since September 2011’s 4.5% and given the easy comps from April 2020, estimates are expected for April 2021 PPI to hit around 6%. A rough day for U.S. stock averages was wiped out right on the open, with markets moving well off the lows all day, paced by gains in some of the high-flying growth names that had been the center of selling pressure the last few weeks. Treasury yields inch higher with the 10-year at 1.62% while the dollar falls to 2 ½ month lows vs. the euro. Commodity prices still pushing higher with oil on the rise, copper, lumber, corn and now soybeans hitting multi-year highs with no signs of prices abating. Still, several (at least five – Harker, Mester, Bullard, Bostic, Daly) Fed speakers again today made sure to remind markets that inflation will be “transitory” and that it is "premature" to even start the conversation about tapering – taking every opportunity to ease investor concerns about long-term inflation. The Dow tumbled over 500 points after touching record highs above the 35K level yesterday, along with a 1% drop in Dow Transports from its recent record highs. Recently underperforming Smallcaps and Tech led today.

Commodities

·     Gold prices edged lower for the first time in 5-sessions, slipping -$1.50 to settle at $1,836.10 an ounce, failing to rally despite a further decline in the dollar as prices pulled back from three-month high the previous session, with investors awaiting U.S. consumer price data to gauge inflation. Prices jumped more than 3% last week as the metal surpassed a key psychological level of $1,800 and after weaker-than-anticipated April jobs numbers. Palladium fell 1.1% to $2,928.00 per ounce, while platinum was down 0.6% at $1,240 and silver gained 0.8% to $27.54 per ounce.

·     Oil prices recovered off morning losses (much like the stock market) as WTI crude gained 36c or 0.55% to settle at $65.28 per barrel. This afternoon, Ark Invest Cathie Wood said she would be surprised if oil prices hit $70 again and said that she predicts ‘a very serious correction in commodity prices.’ Supplies of gasoline tightened further in parts of the U.S. as the nation’s biggest fuel pipeline was shut down for a fifth day after an attack by hackers, raising concerns about price spikes ahead of the Memorial Day holiday. Colonial Pipeline said it was working toward a substantial restart of operations by the end of this week after a cyberattack forced it to cease operations on Friday, choking off nearly half of the East Coast’s fuel supply

Currencies & Treasuries

·     The U.S. Treasury sold $58B in 3-year notes at a yield of 0.329% vs. 0.327% when issued prior as the bid-to-cover (demand) was 2.42 and indirect bidders were awarded 49.62% of the auction and directs 18.11%. Note tomorrow the U.S. Treasury to sell $41B in 10-year notes and $27B in 30-year notes on Thursday. The U.S. dollar index (DXY) falls to lowest level since late February at 89.97, while the Euro rises to highest level since late February at $1.218 (before paring losses), while the British Pound jumped to 1.416 and the Canadian dollar at 1.21.

Sector News Breakdown

Consumer

·     Retailers; LB Q1 adj EPS $1.25 vs. est. $0.98, Q1 revs $3.024B vs. est. $2.89B both above views while confirms plan to separate Bath & Body Works, Victoria’s Secret into public companies – said Q1 2020 sales were negatively impacted by closure of stores for about half quarter due to covid-19 pandemic; HBI shares tumble as Q1 results beat estimates helped by double-digit growth in both its global innerwear and activewear businesses, but issues downbeat FY outlook of $1.51-$1.59 EPS vs. est. $1.61 and revs $6.2B-$6.3B vs. est. $6.72B; NKE upgrade from Hold to Buy with $192 pt at Jefferies as have grown increasingly confident in the med-term growth and profitability trajectory of the biz; BBBY launched a new low-price, in-house brand to compete for bargain hunters who’ve been heading to Amazon and Target; REAL downgraded to Neutral at BTIG after earnings as thesis plays out, with fewer catalysts going forward and stubbornly high ebitda losses; NLS rises on EPS beat with strength in sales was once again broad-based across channels, brands, product lines, and geographies

·     Auto sector; TSLA shares fell following a Reuters report that said the electric vehicle company halted plans to buy land to expand its Shanghai plant and make it a global export hub because of uncertainty created by tensions between the U.S. and China; Chinese Electric vehicle (EV) such as NIO, LI remain pressured as well in broad sell-off in space; VLDR reported sales slightly ahead of expectations, but came in well below on 1Q Non-GAAP gross margins at 15.4% and guided to margins of 16-24% for the FY, below our estimates said Needham; used vehicles consignment store LOTZ drops after co posts a bigger-than-expected quarterly loss (revs topped views)

·     Housing & Building Products; TREX posted solid 1Q results and provided a 2Q and 3Q revenue framework that came in meaningfully ahead of expectations as demand for composite decking remains robust, and has outstripped industry supply for some time now; JELD 10M share Spot Secondary priced at $29.20; homebuilders across the board down sharply (TOL, LEN, BZH, MTH, DHI) with a handful of the pulling back from record highs the day prior

·     Consumer Staples & Restaurants; TSN downgraded to Neutral from Overweight at Piper given less attractive risk/reward as expect strong near-term momentum to continue in the Beef segment, but also expect further near-term headwinds and uncertainty; UTZ to acquire Festida Foods for $41m, which is 6x FY20 EBITDA ex-synergies according to Bank America; food stocks gave back some of Monday profits with declines in K, CPB, CAG, HSY

·     Casinos, Gaming, Lodging & Leisure sector; IGT smashed consensus Q1 earning marks, including adjusted EBITDA of $450M vs. $260M anticipated as revs of $1.01B topped views by $133M; WYNN rises early after reporting Q1 results and announcing Wynn Interactive’s merger with Austerlitz Acquisition Corporation; ELY outperforms in leisure space following quarterly results as it says golf continues to experience unprecedented demand

Energy

·     E&P and Majors; PXD slides after announced entity majority owned by Apollo Global Management and subsidiary of Quantum Energy Partners offering 6 mln shares; Double Eagle III to sell ~3.8 mln shares, while Quantum subsidiary to sell ~2.2 mln shares, per filing; OXY Q1 adj EPS (15c) loss vs consensus (33c) on revs $5.48B vs est. $4.91B and Permian production 457MBoed that was on the high end of its guidance, and sees FY production 1,140 MBoed with 485 MBoed in the Permian Basin; KOS recorded a Q1 EPS loss of (8c) that was slightly narrower than expected (9c) loss on revs $176.5M vs est. $177.5M

·     The EIA today in its monthly report said U.S. crude output to fall 290,000 bpd to 11.02 million bpd in 2021 (vs fall of 270,000 bpd forecast last month); U.S. petroleum demand to rise 1.02 million bpd to 20.53 million bpd in 2022 (vs rise of 980,000 bpd previously forecast)

·     Utilities & Solar; PLUG reported prelim Q1 net rev above $67M that would miss the consensus $78.2M, said it sees Q2 gross billings above $105M and sales $102M vs est. $105.9M; AEE reported Q1 EPS 91c vs est. 74c on revs $1.57B vs est. $1.54B and reaffirmed its FY21 EPS guidance $3.65-3.85; JPMorgan upgraded SJI to Neutral after the company’s Investor Day last week laid out plans for its first long-term refresh since 2018 that is focused on its clean energy vision and RNG investments; Needham initiated CLNE with a Buy rating and $12 target due to its partnerships with industry heavyweights (BP, TOT) and after shares have pulled back about 25% since announcing a deal with Amazon for RNG trucks, and also initiated BEEM at Hold as they believe its solar-powered charging solutions will succeed despite believing that grid-tier chargers will make up the majority of EV charging infrastructure as grid availability becomes scarce

Financials

·     Bank movers; Truist upgraded CMA to buy from hold and tgt $100 from $72 and raised TCBI to buy from hold with tgt $85 up from $73 saying changes are primarily based on a more positive bias on banks that are best positioned to benefit from higher Fed Funds; Bank of America said there is potential for banks to outperform in an economic environment with modest inflation and reiterated C (Citi) as their top large cap pick and highlight PNC on its strong leverage to the return of capex and MTB given its leverage to NYC; Piper raised their price target on SIVB to $650 from $600 after incorporating its recent preferred and senior debt offerings and its stronger balance sheet growth

·     Asset managers; Credit Suisse reiterated their long-term bullish recommendation in global alternative asset managers (CG, BX, PAX, APO, PGHN) as one of the few financial service industries who benefits from low interest rates and their secular growth; BHF Q1 adj EPS $4.36 vs est. $2.62 on revs $938M (-90% YoY) that missed est. $2.13B; AMK reported platform assets $81.7B at the end of April vs $78.9B in March and $59.8B in April 2020, and Raymond James upgraded the stock to Strong Buy from Outperform; CNS April prelim AUM $92.84B from $87.04B in March

·     Insurance; VOYA posted Q1 adj EPS $1.70 vs est. $1.19 that were materially helped by favorable financial markets and continues to repurchase stock and retire debt with the excess capital from its Individual Life sale; Wells said insurance companies are seeing better pricing within the commercial lines market, which is favorable for CB, ACGL, WRB, HIG

·     FinTech & Payments; AFRM reported Q3 EPS loss ($1.06) vs est. (30c) on revs $230.7M vs est. $198.2M, sees Q4 adj operating loss ($55M)-($50M), sales $215-225M (vs est. $210.4M), and FY sales $824-834M (est. $783.3M); RPAY Q1 adj EPS 18c and revs $47.5M both beat consensus of 16c on $44.9M, guided FY revs $210-220M (est. $184.8M, and acquired Billingtree for $503M

·     REITs; SPG Q1 FFO/shr $2.48 vs est. $2.27 on revs $1.24B vs est. $1.15B, guided FY FFO $9.70-9.80 (est. $9.68) and said it does not expect a return to 2019 occupancy levels until next year or 2023 as it looks to play hardball in rent negotiations with tenants; MAC posted in-line Q1 FFO 45c on revs $190.4M slightly above est. $187.4M and said it still sees full-year FFO $1.77-1.97; NHI Q1 normalized FFO $1.24 missed est. $1.34 on revs $80.9M vs est. $78.8M

Healthcare

·     Pharma movers; PFE, BNTX active as the FDA has expanded the emergency use authorization of the COVID-19 vaccine developed by the two for use in adolescents aged 12 to 15 years of age; ELAN upgraded to equal-weight from underweight and raise tgt to $29 from $25 at Barclay’s; LRMR reports promising data from its early-stage trial of its experimental therapy, CTI-1601, to treat Friedreich’s ataxia; LLY and MiNA Therapeutics Ltd. In a global research collaboration to develop novel drug candidates using MiNA’s proprietary small activating RNA technology platform. MiNA will receive a $25M upfront payment and is eligible to receive milestones up to a total of $245M; VYGR announced it is planning to re-partner VY-AADC for future development and commercialization, rather than advancing the program on its own; PRGO reported 1Q results, with revenue of $1.01B (vs. $1.03B cons) and EPS of $0.50 (vs. $0.57 cons), with the company citing difficult comps associated with pantry stocking from the 1Q20 and a historically weak cough/cold season this year

·     Biotech movers; NVAX poised to be the fifth company to market a Covid-19 vaccine in the U.S., has delayed reporting key Phase 3 data and now expects to disclose results by the end of June; INO posted a wider-than-expected quarterly loss as its costs rose and revs of $371,120 also misses analysts’ avg. estimate of $855,140 while saying plans to begin a global late-stage trial of its COVID-19 vaccine candidate this summer; INSM 10M share Secondary priced at $25.00

·     MedTech Equipment; SWAV was upgraded at Bank America and Piper after earnings, where SWAV’s 2021 revenue guidance, which came in 20% above recently raised consensus expectations and suggests SWAV will deliver 195% revenue growth in 2021; RMD was upgraded to Buy at Citi; FLDM rises after Activist investor Caligan Partners reported an 11.2% stake last night in filing

·     Healthcare Services; SDCs 1Q21 update was in-line with the preliminary results released on 5/3, and management reaffirmed the 2Q guidance provided at that time. SDC continues to see a $10-$15mn revenue headwind from the cybersecurity incident on 4/14; CRL to replace FLIR in S&P 500 at open on 5/14; CNC was upgraded to Overweight at Stephens

Industrials & Materials

·     Aerospace & Defense; group has been crushed over the last few weeks, led by weakness in drone space; SPCE overnight tumbles after posting a larger than expected Q1 EPS loss – ($0.55) vs est. ($0.27), while says timing of next flight currently being evaluated, says continuing to experience ongoing delays to business due to covid; in Industrial & Machinery; IR 14.92M share Spot Secondary priced at $49.00; ITT downgraded to neutral at UBS saying now think outsized growth (driven by Friction/accelerated share gains) and margin opportunity, which have been core to our thesis, are mostly priced in over the near-term

·     Transports; just a day after touching fresh all-time highs at 16,170, the Dow Transports sliding with the broader stock market; in truckers, Baird downgraded HTLD to neutral from Outperform w/$21 tgt and LSTR cut to neutral w/$182 tgt saying after the strong YTD outperformance and positive EPS revisions, investors should increasingly favor names which benefit from structural changes in demand and offer company-specific opportunities to improve profitability and drive market share gains (top ideas FDX among large-caps and HUBG among the SMID-caps)

·     Metals & Materials; in steel sector, U.S. Steel (X) upgraded to Overweight from Equal-weight at Morgan Stanley and raise tgt to $32 from $24 noting that steel market fundamentals remain on solid footing, with HRC prices now expected to be above $1K per ton through at least Q4 of this year; Bank America raised estimates for UFS, IP, WRK, PKG saying inflation was and remains a headwind for companies but the demand backdrop (and imperative caused by cost pressures) has led companies to keep pushing price hikes; UFS agreed to be acquired by Canadian paper and packaging company Paper Excellence for about $2.8 billion, or $55.50 a share, in cash as deal represents a 17% premium to Monday’s closing price of $47.38 for Domtar https://bit.ly/3o5qLDM ;

·     Chemical companies LYB, DOW and HUN all downgraded to neutral at Goldman Sachs while the firm upgraded DD, EMN, and UNVR to Buy from Neutral; FOE to be acquired by Prince International Corporation, a portfolio company of American Securities LLC, in an all-cash transaction deal of ~$2.1B or $22.00 per share in cash https://bit.ly/3eCzuu1

Technology, Media & Telecom

·     Internet; the highs flying, high multiple tech stocks seeing the most punishment again early (AMZN, GOOG, TWTR, SNAP, BIDU) as investors bail amid inflation fears; SHOP upgrade from Hold to Buy with $1,400 tgt at Loop Capital as continue to believe Shopify has a compelling merchant value proposition, which is further bolstered by the company’s growing ecosystem; JMIA tumbles initially after Q1 revs slipped (to 27.4M euros from 29.3M) as the ecommerce company focused on African markets faced fresh challenges in some countries due to pandemic-related restrictions (but like so many tech names, rebounded throughout the session).

·     Software movers; PLTR topped revenue expectations while offering a better-than-expected top-line forecast for the current quarter; RBLX shares jumped after earnings beat as average daily active users for the quarter hit 42.1 million, up 79% year-over-year and hours engaged hit 9.7 billion, up 98% year-over-year; ATVI was upgraded to Outperform at BMO Capital; EGHT Solid Q, mixed guide. crossed to positive FCF and EPS for the first time; NLOK posting a solid beat and raise which was much better than peer MCFE

·     Hardware, Components & Services; DDD a bright spot in tech (3D) as Q1 adj profit of 17c on revs $146.1M easily beats the 2c/$136.6M estimate; VUZI slides after posts Q1 net loss $0.12/ vs. est. loss of 10c due to higher operating expenses (revs beat); BRKS reported F2Q and guided F3Q well above on both Life Sciences (45% of Rev) and Semi Solutions (55% of Rev), the latter reflecting strong WFE of $75-80 bn in CY21 and $80-85 bn in CY22; RXT slides as bookings and weak gross margins were investors’ largest concern, up only 6% Y/Y vs double-digit growth expectations