Mid-Morning Look

Thursday, April 08, 2021

The S&P 500 index trading at new all-time highs (approaching the 4,100 level), while the Nasdaq trading at roughly 2-month highs amid a further rotation into large cap heavy weight stocks, while Smallcap Russell 2000 underperforms a second day. Major averages buoyed by mega tech-related stocks (FB, MSFT, GOOGL new record highs again), a day after the Federal Reserve reiterated its pledge to remain ultra-dovish until an economic recovery is more secure. The tech sector has seen a solid recovery over the last week or so as Treasury yields back off from their 14-month highs (10-yr at 1.63% from 1.78% highs over a week ago), easing inflation fears and hurting high multiple stock names. Economic data has mostly been favorable of late for services, manufacturing, and confidence – but jobless claims surprisingly climbed for a second straight week. Few Fed speakers on the calendar today (highlighted by Fed Chair Powell speaking at a virtual International Monetary Fund event at 12:00. Volumes this week have dried up, calm before the storm, as Q1 earnings season begins next week with results from big U.S. banks (Refinitiv notes analysts have raised expectations for S&P 500 earnings to increase to 24.2%, versus 21% forecast on Feb. 5. The U.S. dollar fell to a two-week low, tracking Treasury yields lower, after data showed a surprise rise in U.S. weekly jobless claims.

Economic Data

·     U.S. jobless claims rose to 744,000 in the latest week, well above the 680K estimate while prior week revised to 728K from 719K; the 4-week moving avg rose to 723,750 from 721,250 prior; continued claims fell to 3.734M vs. est. 3.650M (3.750M prior); the U.S. insured unemployment rate unchanged at 2.6%

Sector Movers Today

·     Consumer Staples; CAG slight beat for Q3 adj EPS 59c vs. est. 58c and sales $2.8B vs. est. $2.71B while reaffirms guidance for year and said net sales for grocery & snacks segment increased 10.8% to $1.1 bln in quarter; STZ posted a Q4 EPS/sales beat as profit slipped, but posted growth in its top line and beer shipment volume and issued softer guidance for 2022 EPS of $9.95-$10.25 vs. est. $10.44; BYND expands U.S. retail distribution within multiple national and regional grocery chains (Kroger, Wegmans, Sprouts, Target among them); WW downgraded to equal-weight with $34 tgt at Morgan Stanley saying at this price, they see a more balanced risk reward, especially given weaker 1Q app download data

·     Retailers; COST reported net sales of $18.21 bln for retail month of March, five weeks ended April 4, 2021, up 17.6% from $15.49 bln last year; March total same-store sales rose 16% vs. est. 12.3%; March E-Commerce sales rose 57.7%; GME said it is nominating Chewy Inc. co-founder Ryan Cohen as its chairman at the company’s June annual meeting (was not unexpected); BKE March net sales $139.4M, +240.2% y/y and +69.5% vs 2019; RBC raises 1Q/2021/2022 EPS and targets on AEO, ANF, GPS, and URBN as remains favorable on the group into 1Q as seeing signs of pent-up demand in the apparel category; Cowen initiates WSM Outperform, price target $214

·     Energy stock movers; energy among weakest sectors with further rotation into technology names with APA, COG, COP, CVX, MRO, PXD, XOM among top decliners in S&P); In stock news; VNOM upgraded to Overweight at Piper as believe the recent ~20% decline in the share price provides an attractive entry point; VLO said it expects to report a net loss in range of $2.05 to $1.81 per share for Q1 as expects electricity & natural gas costs incurred to be higher than expected due to impacts of winter storm; HES agreed to sell assets in the Bakken in North Dakota to oil and gas company Enerplus Corp. for $312 million

·     MedTech and Equipment; GKOS upgraded to Outperform at Oppenheimer saying they came away from our mid-March OPCO Healthcare Conference feeling more positive on GKOS’ near-/medium-term outlook given better US competitive dynamics, improving (while fluid) COVID-19 trends, and recent positive clinical data announcements; SPNE upgraded to Overweight at Wells Fargo as positive checks on 7D Surgical leads to belief the company can drive sustainable growth long-term; HOLX agreed to acquire Mobidiag Oy, a privately held, commercial-stage developer of innovative molecular diagnostic tests for an enterprise value of approximately $795 million; ABT receives CE mark approval for next-generation TriClip device

Stock GAINERS

·     COMM +6%; said it is planning to spin off its home-networks business and begin other initiatives to reduce operating costs throughout the company.

·     DHR +2%; among top S&P movers as Citigroup initiates positive catalyst watch following analysis of 1Q21 vaccine production trends, as expect the company to beat 1Q21 bioprocessing expectations and move 2021 guidance higher throughout the year.

·     OKTA +6%; several analysts positive following company’s analyst day where they reiterated target for 30-35% growth through FY24

·     ORBC +53%; to be acquired by GI Partners in an all-cash transaction of ~$1.1B, including net debt, as ORBC holders will receive $11.50 in cash per outstanding share https://bit.ly/3mvq4TA

·     SIMO +8%; after guiding Q1 revenue to grow ~25% sequentially, above the 7% to 12% guidance range issued in Feb and sees non-GAAP gross margin to be at the high-end of the company’s original 48% to 50% guidance range

·     SPNE +3%; upgraded to Overweight at Wells Fargo as positive checks on 7D Surgical leads to belief the company can drive sustainable growth long-term

Stock LAGGARDS

·     APA -2%; as energy among weakest sectors with further rotation into technology names (COG, COP, CVX, MRO, PXD, XOM among top decliners in S&P)

·     ASO -6%; JP Morgan re-offered 9 mln shares at $28.80, 6.4% discount to stock’s Weds close

·     BOX -8%; as private equity giant KKR led a $500 million investment in the cloud services provider, with the company planning to use most of the funds for a stock buyback.

·     CMA -2%; weakness in many large cap and regional banks on sliding Treasury yields

·     DISCA -3%; weakness in media related names again – VIAC also declines

·     LNDC -8%; as Q3 revenue falls short of expectations

·     NCLH -4%; along with weakness in other cruise lines, paring recent advances – RCL also extends suspension of certain sailings announced earlier

·     STZ -3%; posted a Q4 EPS/sales beat as profit slipped, but posted growth in its top line and beer shipment volume and issued softer guidance for 2022 EPS of $9.95-$10.25 vs. est. $10.44

Syndicate:

·     Astrotech (ASTC) 21.64M share Spot Secondary priced at $1.50

·     Crinetics (CRNX) 4.56M share Spot Secondary priced at $16.44

·     Identiv (INVE) 3.29M share Spot Secondary priced at $10.65

·     Maravai Lifesciences (MRVI) 18M share Secondary priced at $31.25

·     Netstreit (NTST) 9.49M share Secondary priced at $18.65

·     Otonomy (OTIC) 6.29M share Spot Secondary priced at $2.25

·     Phreesia (PHR) prices public offering of 4.5M Shares at $50.00