Closing Recap

Wednesday, October 20, 2021

Equity Market Recap

·     U.S. stocks finish mixed with the Dow Jones Industrial Average touching new all-time intraday highs, taking out its prior 35,631.19 high, while the S&P 500 index topped its prior closing record high (up a 6^th straight day), but fell just short of a fresh intraday record as markets were boosted by a strong start to quarterly earnings the past week. The tech heavy Nasdaq Comp ended the session modestly lower. Precious metals rose along with crypto assets (bitcoin touched an all-time high) as inflation fears weighed on stocks midday. This morning, billionaire hedge fund manager Paul Tudor Jones said in a CNBC interview that inflation could be "much worse" than feared…it’s probably the single biggest threat to certainly financial markets and probably I think to society just in general.” Later in the day, Fed Reserve official Quarles said he expected elevated inflation pressures to decline without requiring a more aggressive response by the central bank next year — but warned of growing risks to that forecast, including from additional government spending being contemplated by the Biden administration. Quarles said “if inflation stays at 4% next spring, the Fed "might have to reassess" rate rise path. Results of the 20-year auction also pushed Treasury yields higher, adding to the inflation concerns. Investors continue to pour money into crypto assets as an inflation hedge with bitcoin hitting a new record high topping $67K, while Ethereum rises above $4K as crypto space remains red hot. The CBOE Volatility index (VIX) slips for the 10^th time in the last 12- days, dropping to lowest since Aug 13^th.

·     Stock/sector movers: NFLX shares slip despite beating on EPS and subscriber growth; ANTM leads the S&P on its strong quarter and raised FY guidance; CMA hits highest levels since March 2019; ABT VZ higher on EPS beats and raised guidance; NVAX plummets almost 25% at the morning lows as the company faces production delays on regulatory concerns on the methods used to test the purity of tis Covid vaccine; solar names ARRY, FSLR, SHLS, SEDG slide as Guggenheim downgraded, reversing solar stocks’ recent run higher; autos broadly higher as F soars on a Credit Suisse upgrade, LAD jumps on its beat, MGA green despite falling early after lowering their guidance; TSLA flattish into earnings tonight; EAT stumbles to YTD lows after pre-announces Q1 results with a wide EPS miss and comps that also miss expectations; Bitcoin leveraged stocks (miners, banks) rise as Bitcoin tops $67K to trade at new all-time highs.

Commodities

·     Oil prices rise, with WTI crude gaining $0.91, or 1.1% to settle at $83.87 per barrel (off lows of $81.30 earlier), getting a boost following bullish weekly inventory data as the EIA said weekly Crude oil stockpiles unexpectedly fell -400K barrels vs. the expected build for +1.9M consensus (and vs. +6.1M last week). Gasoline data also bullish with a weekly draw of -5.4M barrels vs. -1.3M consensus, -2.0M last week and distillates fell -3.9M vs. -0.7M consensus. Overnight, the API showed a weekly build of 3.29M barrels of oil for the week. Gold prices rise $14.40 or 0.8% to settle at $1,784.90 an ounce, getting a boost after the dollar weakened, as worries over rising inflation and fears that supply chain constraints would derail global economic growth boosted demand for the safe-haven metal.

Currencies & Treasuries

·     Bitcoin prices reached a new all-time high above $67,000, surpassing the previous high of $64,888.99, according to the CoinDesk bitcoin price, before paring gains but still ending sharply higher. Strength across the whole crypto space with Ethereum, Litecoin, others benefitting as investors look to plays against inflation. The U.S. dollar dipped as risk sentiment improved, with the greenback pulling back from one-year highs last week as market participants ramped up bets that the Federal Reserve will raise rates sooner than expected to quell rising price pressures. Yields bounced as the Treasury’s $24B 20-year reopening was mixed, but overall, quite poor given the issue tailed out to 2.10% versus the 2.075% at the bid deadline. It is 30 bps cheaper than the 1.795% rate at the September reopening and 25 bps above the 1.850% award rate.

Sector News Breakdown

Consumer

·     Auto sector; Ford (F) upgraded to Outperform from Neutral at Credit Suisse and up tgt to $20 from $15 saying has seen a "significant turnaround" as the company and its transition to electric vehicles has sharply accelerated; MGA cut its 2021 total sales view to $35.4-36.4B from $38-39.5B and below est. $37.5B and now expects its adjusted EBIT margin rate to be 5.1-5.4% vs. prior view of 7.0-7.4% as these changes reflect declines in anticipated 2021 light vehicle production due to ongoing semiconductor chip shortages and the COVID-19 pandemic; Into earnings, Cowen lowered their PTs on BEEM ($28 from $29), EVGO ($13 from $18) while remaining positive on BLNK ($35 from $37), CHPT ($37 from $41), and QS ($36 from $39) in EV space; LAD Q3 adj EPS $11.21 and revenue $6.2B both beat estimates of $9.30, $5.75B as new vehicle same-store revenue -3.2% was offset by used vehicle same-store revs +39.9%; Goldman started HYZN at Buy with $7 target; TSLA scheduled to report earnings tonight

·     Consumer Staples; NSRGY raised its growth outlook for the year on the back of strong coffee sales and price hikes for food products; DANOY delivered a strong quarter with sales increasing 5.8% driven by the Essential Dairy and Plant segment, China Specialized Nutrition, and FX turning positive in the quarter

·     Restaurants; casual dining names weaker after EAT released preliminary F1Q22 results at its Investor Day as Q1 EPS $0.34 misses est. $0.68 and revs in-line at $876.4M as company-owned comps +17.0% vs consensus +18.7% – Chili’s +13.4% vs consensus +13.8% (decelerated from +8.8% in July to +3.1% in August, before recovering to +7.0% in September) – BJRI, DENN, RRGB, BLMN shares volatile on guidance; RBC Capital said they are incrementally cautious into earnings next week for QSR, MCD, YUM, SBUX saying while believe average check drivers (e.g. pricing, digital) and improving mobility in international markets likely provided a top line tailwind, they wonder to what extent staffing challenges and dissipating stimulus benefit may begin to have a more visible impact on domestic trends

·     Casinos, Gaming, Lodging & Leisure sector; in leisure, Morgan Stanley reiterated their Buy rating and $165 PT on PII as they say Tesla’s plans to enter the ATV market could heighten awareness of the sector and be major news, though it dose also pose a potential risk; WGO reported a beat on the top and bottom line for Q3; in online gaming (DKNG, PENN, GENI), New Jersey becomes first state to hit $1 billion in monthly sports bets. The top 5 in total bets since June 2018: 1. NJ – $19B, 2. Nevada – $16.8B, 3. Pennsylvania – $8.8B as per Axios

·     Retailers; COST trades to new all-time highs; BBIG slides after the company reported the resignations of Chief Executive Officer Christopher Ferguson and Chief Financial Officer Brett Vroman; BOOT tgt raised to $110 at Cowen as expect strong momentum amid a more challenging backdrop; Blackstone Inc. (BX) agreed to acquire a majority stake in Spanx Inc., the womenswear brand founded in 2000, in a deal that values the brand at $1.2 billion.

Energy

·     Energy stock movers: Inventory data bullish this morning as the EIA said weekly Crude oil stockpiles unexpectedly fell -400K barrels vs. the expected build for +1.9M consensus (and vs. +6.1M last week). Gasoline data also bullish with a weekly draw of -5.4M barrels vs. -1.3M consensus, -2.0M last week and distillates fell -3.9M vs. -0.7M consensus. Overnight, the API showed a build of 3.29M barrels of oil for the week ending October 15, gasoline inventories show a draw of 3.5M barrels, distillate inventories show a draw of 3M barrels and Cushing inventories show a draw of 2.5M barrels

·     Oil services; BKR reported a quarterly profit that fell short of expectations, sending shares lower as EPS missed by $0.06, Q3 net income totaled $8M, compared with a $170M loss in the year-earlier quarter, while revenues of $5.09B rose less than 1% Y/Y and came in short of expectations; in research, HAL upgraded to Buy from Hold at Argus with $32 tgt which reflects improving energy market fundamentals, which we expect to result in higher 2022 capital spending by E&P companies

·     E&P and Majors; XOM is debating whether to continue with several major oil and gas projects as the company reconsiders its investment strategy in a fast-changing energy landscape, the WSJ reported; MTDR issued an operational update; RBC Capital with E&P earnings preview, saying their tactical ideas to buy into earnings include MRO (EG and buyback upside) and APA (FCF upside and option on Suriname update) and expect CFPS beats from APA (+6%) better realizations, CLR (+4%) production beat, MTDR (+4%) production beat, while expect CFPS misses from EQT (-6%), PXD (-2%), SM (-2%)

·     Utilities & Solar; in solar, Guggenheim downgraded shares of FSLR, SEDG, ARRY, SHLS to Neutral from Buy and revise ests lower as believe that risks to 2022 revenue and earnings outlooks are rising, notably in utility and large-scale commercial solar, and we don’t believe those risks are fully reflected in consensus estimates. Meanwhile, the four stocks have appreciated, rising by an average of 24% since the beginning of June; Roth Capital also expressed caution in solar, saying ENPH is headed toward a sizeable miss when it reports Q3 earnings on October 26, as they are concerned about ENPH’s ability to deliver a better-than-expected Q4 guide; NEE outperforms early on EPS beat

Financials

·     Bank movers; BAC renews $25 billion repurchase plan; CMA Q3 GAAP EPS of $1.90 beats by $0.26 and revs of $755M (+6.3% Y/Y) beats by $21.58M; CFG Q3 EPS $1.22 vs. est. $1.16; Q3 revs $1.66B vs. est. $1.64B; provision for credit losses a benefit of $33 mln; FHN Q3 Non-GAAP EPS of $0.50 beats by $0.09; GAAP EPS of $0.41 beats by $0.08 while net interest income was up 1% as we delivered loan growth of 1% before the impact of the PPP portfolio; MTB Q3 Non-GAAP EPS of $3.76 beats by $0.27; GAAP EPS of $3.69 beats by $0.19 and revs of $1.53B (+4.8% Y/Y) beats by $60M; trust bank NTRS Q3 revenue rises 10% Y/Y as new business contributed to its trust, investment, and other servicing fees (revs $1.64B beats $1.61B est.) as net interest income of $357.1M rises 4% from $343.9M in Q2 and 6% YoY; CTBI Q3 GAAP EPS of $1.19 beats by $0.03.

·     Bitcoin, FinTech & Payments; Bitcoin extends recent gains, trading to new all-time highs above $67K at highs, which follows the ProShares bitcoin strategy ETF (BITO) with its NYSE Arca debut yesterday on 10/19; WU was downgraded to neutral from Buy at BTIG saying its money transfer platform could face increasing pressure from free alternatives including newly unveiled Facebook App and Blockchain-Based options such as Strike; Stronghold Digital Mining (SDIG) opens at $27, after its IPO priced at $19

·     Consumer Finance; SYF downgraded to Neutral at JPMorgan saying since upgrading shares in January, SYF’s reserve releases and repurchases have substantially exceeded the assumptions driving our bullish thesis (SYF has released $1.65B of reserves YTD and repurchased $1.9B through 3Q21)

·     Financial Services: BTIG cut its tgt on DMS to $11.50 from $15 due to a combination of our lower estimates and multiple compression across the financial services-oriented digital advertising space, including names such as EVER, TREE, QNST and MAX noting the forward EV/EBITDA multiple has compressed by an average of 54% across these four peers; NDAQ raises 2021 non-GAAP operating expense of $1.61B-1.62B vs. its previous range of $1.59B-1.62B. Q3 adjusted EPS of $1.78 tops the consensus estimate of $1.73 and increased from $1.53 in Q3 2020.

·     China Evergrande Group called off plans to sell a majority stake in its property-management unit for the equivalent of $2.6 billion, a major setback in the real-estate giant’s attempts to ease its liquidity crunch. The cash-strapped developer said Wednesday that it had planned to sell 50.1% of the profitable subsidiary, Evergrande Property Services Group Ltd., to a unit of rival developer Hopson Development Holdings Ltd.

·     REITs: Cowen maintains their positive view on the data center stocks and currently favor the smaller cap COR SWCHare incrementally positive on CONE, and are less positive on EQIX DLR; Berenberg initiated Buy ratings on EGP ($215 PT), FR ($66), INDT ($77), and a Hold on ILPT ($28), and INDT was also started at Outperform with an $80 target at JMP as management’s continued execution on its transformational roadmap should narrow the valuation discount to peers; B. Riley started CMCT at Buy with a $13 PT; KRG and RPAI shareholders both approved the companies’ planned merger that is now expected to close Friday; CONE shares rallied early afternoon after Cowen upgraded to Outperform with $90 tgt

Healthcare

·     Pharma movers; VYGR said preclinical data showed that a single intravenous (IV) dose of its GBA1 gene replacement therapy achieved widespread distribution in the central nervous system and peripheral tissues of mice; FSTX said it has entered into a license and collaboration agreement with JNJ company Janssen Biotech to develop and commercialize multiple next generation bispecific antibody therapeutics where F-star is entitled to receive upfront fees of $17.5M, near-term fees and potential further milestones of up to $1.35B.

·     Biotech movers; NVAX tumbled on reports the company is facing production delays as the methods it used to test the purity of its COVID-19 vaccine have fallen short of U.S. regulators’ standards, Politico reported (NVAX responded to reports saying they are confident in manufacturing quality); BIIB sold only $300,000 worth of its new $56,000-per-year Alzheimer’s disease therapy Aduhelm in Q3, falling far short of analysts’ $12.1 million estimate, but shares bounced as quarterly earnings of $4.77 topped ests of $4.09 and better overall sales

·     MedTech Equipment; TMO upgrade from Neutral to Buy with $700 tgt at Citigroup as see a clean setup for shares ahead of 3Q21 and into next year and believe TMO trades at an unwarranted discount given it has de-risked 2022 while the rest of the space navigates challenging comps; ABT Q3 adj EPS $1.40 vs. est. $0.93 as Q3 sales rise 23.4% to $10.9B and raises guidance as Q3 2021 sales were buoyed by strong sales of COVID-19 testing products

·     Healthcare Services; in managed care, ANTM Q3 adj EPS $6.79 vs. est. $6.37; Q3 revs $35.5B vs. est. $35.3B; raises FY21 adj EPS view to greater than $25.85 vs. est. $25.65; ATIP cuts FY21 revenue view to $620M-$630M from $640M-$670M (est. $652.72M) due to lower than expected patient volume

Industrials & Materials

·     Transports; UAL posted a narrower loss than expected despite the impact of the coronavirus delta variant; in rails, CNI posted an adj. EPS of C$1.52 in Q3, beating C$1.41 consensus, with the upside relative to our estimate coming from both sales (+C$0.03) and operating performance (+C$0.06) – Management reaffirmed its guidance for 2021 EPS and CEO to retire; in trucking, KNX sees year adj. eps $4.50-$4.55, had seen $3.90-$4.05 after EPS/revs beat; The Baltic Exchange’s dry bulk sea freight index (DSX, EGLE, GNK, SBLK) snapped its eight day losing streak, supported by higher rates across all vessel segments. The overall index, which factors in rates for Capesize, panamax, Supramax and handysize vessels, rose by 37 points, or 0.8%, to 4,751

·     Metals & Materials; in chemicals, WDFC as Q4 EPS $0.61 missed the $1.24 est. and revs $115.2M below the $117.5M est.; guides FY22 EPS $5.24-$5.38 below consensus $5.94, while rev view was better; CMP downgrade from Market Perform to Underperform at BMO Capital saying valuation seems ahead of itself and investors aren’t appreciating CMP’s inflationary pressures this winter in salt (inability to pass-through higher costs, namely freight); in the minerals sector, KeyBanc raises ests for KRP, MNRL, BSM, VNOM 6% in 2021 and 13% in 2022 on higher Oil/NGL/Gas Prices and expect strong dividend raises in 2H21 and into 2022; VALE said it would slow down production of low-margin iron ore in Q4 by ~4 mln tonnes due to low prices

Technology, Media & Telecom

·     Internet; NFLX reported a solid 3Q, reflecting solid performance from returning (e.g., Money Heist Part 1, Sex Education) and new (e.g., Squid Game) originals as Q4 guidance of 8.5M is slightly above consensus (3Q EPS $3.19 vs est. $2.56 on revs $7.5Mm vs est. $7.48Mm, net adds 4.38Mm vs est. 4Mm; sees 4Q net adds 8.5Mm vs est. 8.3Mm); PINS shares spiked late morning after Bloomberg reported PYPL said to explore purchase of the social media firm and have discussed price of about $70 https://bit.ly/3G7KXxk ; FB, facing intense scrutiny over its business practices, is planning to rebrand the company with a new name that focuses on the metaverse; U.S. listed China stocks got a bounce early as Credit Suisse double upgraded China to overweight, noting they had been underweight Chinese equities since summer 2020.

·     Semiconductors; Mizuho downgraded MU, WDC and QRVO to Neutral given increasing headwinds for memory and handset component suppliers, and lowered their estimates and PT on QCOM but keep it at a Buy as high margin QTL should remain strong with iPhone ramps; ASML reported Q3 net profit EUR1.74B, above est. EUR1.63B on sales EUR5.24B that was within guidance range of EUR5.2-5.4B and said they continue to see high demand; MU announced that it intends to invest more than $150B globally over the next decade in leading-edge memory manufacturing and research and development, including potential U.S. fab expansion; KeyBank started INDI at OW with an $18 target as they view the company as a key disruptor in the auto semiconductor industry and well positioned to gain share in a market that is inflecting given the adoption of EV, ADAS, connectivity, and infotainment; Digitimes reported industry sources believe TSM will remain the sole-supplier for Apple’s next-generation Mac series despite SSNLF and INTC both seeking to win orders for the processors

·     Software movers; SPLK at its annual user conference event: .conf21 expanded its new pricing model by making workload-based pricing available to all size accounts, announced a government logging modernization program to aid public sector accounts in adapting to the expanded cybersecurity requirements; Needham initiated Buy ratings on SNPS ($360 PT) and CDNS ($183 PT) as they believe these two will benefit from a growing EDA industry as rare software plays in the semi industry; MSFT tgt raised to $375 at Wedbush saying September quarter checks have shown incremental strength again as the Azure cloud growth story is hitting its next gear

·     Media & Telecom movers; Dow component and telecom giant VZ Q3 adj EPS $1.41 vs est. $1.36 on revs $32.9B vs est. $33.2B; qtrly total wireless retail postpaid churn of 0.94% and retail postpaid phone churn of 0.74%; qtrly total wireless retail postpaid net adds 699K vs est. 473.8K; raises FY adj EPS $5.35-5.40 vs prior 5.25-5.35 and est. $5.31; in advertising, OMC slides after mixed results with EPS beating, but revs in-line and says global economic conditions may continue to be volatile as long as covid-19 remains, which could negatively impact clients’ spending plans (shares of IPG, WPP volatile in reaction) – said advertising revenue decreased to ~1.82B, compared to ~1.83B in Q3 2020