Mid-Morning Look

Friday, August 27, 2021

Stocks very much liked what Fed Chairman Powell had to say today, overshadowing several hawkish comments of Fed bond asset tapering the last 24-hours from Kaplan, George, and Bullard, as the S&P 500 and Nasdaq Composite all traded to fresh intraday record highs while Treasury yields slipped. An absolute moonshot for U.S. stocks as Fed Chairman Jay Powell said in prepared text today at Jackson Hole Fed event that there is reason for concern with PCE inflation at 4.2% & CORE at 3.6% over past 12 months, but he adds the factors that lead to inflation suggest elevated levels are temporary (has been saying this for about 6-months now). Powell also said it may be appropriate to start reducing asset purchases this year (but didn’t specify a timeline). The U.S. economy continues to make progress towards the Federal Reserve’s benchmarks for reducing its pandemic-era emergency programs, Fed Chair Jerome Powell said. In prepared remarks, Powell signaled the U.S. central bank will remain patient as it tries to nurse the economy back to full employment, repeating that he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process – a defense in effect of the new approach to Fed policy he introduced a year ago. His comments overshadowed anything else going on today including a pike in oil prices lifting energy names, mixed earnings in the tech and retail sector and economic data (personal income, spending, and confidence).

Economic Data

·     Personal Income for July rose +1.1%, topping the +0.2% estimate and above June’s +0.2%; Personal spending rose +0.3%, in-line with consensus and down from June’s +1.1% reading. July real consumer spending -0.1% vs June +0.5%

·     PCE Price Index rose +0.4% MoM, in-line with consensus and +0.5% prior, while on a YoY basis, PCE price index rises 4.2%, slightly higher than the +4.0% rate in June. The Core PCE Price Index showed an in-line reading of up +0.3% (vs. 0.5% prior), while on a YoY basis, core PCE price index increases 3.6%, same rate as in June

·     International Trade in Advance Goods for July fell -6.2% to $86.4B vs. -$90.9B consensus and -$92.1B prior (revised from -$9.12B); the exports of goods for July were $147.6 billion and Imports of goods for July were $233.9 billion, $3.4 billion less than June imports

·     University of Michigan surveys of consumers sentiment final Aug 70.3 vs. est. 70.7 and down from final July 81.2; current conditions index final Aug 78.5 vs prelim 77.9 and final July 84.5; the expectations index final Aug 65.1 vs prelim Aug 65.2 and final July 79.0

Sector Movers Today

·     Discount retailer weakness continues; BIG shares decline following EPS and comps miss (Q2 EPS $1.09 vs. est. $1.13; Q2 revs $1.46B vs. est. $1.48B) and Q2 comp store sales fell (-13.2%) vs. est. decline (-11.4% with weak guidance for Q3 (follows declines in shares of dollar stores DG, DLTR Thursday on lower forecasts); OLLI tumbles after the discount retailer’s Q2 adj EPS and revenue missed estimates as total net sales fall 21% to ~$416M from a year earlier while Q2 comp store sales down (-28.0%) from prior year; FIVE was downgraded at Morgan Stanley as it is trading near their updated $230 PT following the stock’s +28% YTD rally (including +25% since mid-July)

·     Software movers; WDAY reported strong F2Q results, beating on both the top and bottom line as strength in large enterprise helped drive results and FY22 subscription revenue guidance was raised well above the F2Q beat; VMW posted 2Q upside to consensus revenue, billings, margins, and cash flow estimates, but the mix of revenues, with more license and less subscription and SaaS disappointing Wall Street (also guided Q3 outlook below ests); BILL an upside standout as reported Q4 revenue rose 86% to $78.3M, above est. of $62.1M, with transaction volume increasing 14% q/q, prompting analysts to raise price targets; DOMO quarter revenue reaching $62.8M, 3% above consensus as Billings growth accelerated slightly, up 26% Y/Y and on a trailing-twelve-month basis/RPO growth strong at 24% Y/Y; MPLN announces $250M buyback program

·     Auto sector; Morgan Stanley downgraded auto retailer AAP to Equal-Weight as its defensive category, stable top-line growth, and significant margin upside make a bullish case, but slowing top-line momentum and risk to margin trajectory balance the risk/reward and they also downgraded AZO to EW despite being its top pick in DIY auto and strong defensive positioning with market share gains as they see these advantages currently being priced into the stock; Truist initiated CARS at Buy with an $18 PT as the leading auto marketplace with attractive valuation at ~7x forward EBITDA; DA Davidson initiated BLNK at Neutral with a $31 target

·     Casinos, Gaming, Lodging & Leisure sector; in theme parks, KeyBanc said daily attendance trends for the week of 8/16 to 8/22 (using 2019 as a baseline) saw decelerating trends from last week. However, note that trends for SIX continued to outperform SEAS; GAMB received a temporary supplier license by the Arizona Department of Gaming to provide marketing services for licensed operators in the state.; casino stocks extend recent move higher on reopen hopes, positive vaccine news again this week with WYNN, LVS, PENN, CZR higher

Stock GAINERS

·     BILL +15%; an upside standout as reported Q4 revenue rose 86% to $78.3M, above est. of $62.1M, with transaction volume increasing 14% q/q, prompting analysts to raise price targets

·     GAMB +7%; received a temporary supplier license by the Arizona Department of Gaming to provide marketing services for licensed operators in the state.

·     GNRC +2%; Oil and gas producers have shut more than 1.2 million barrels a day of U.S. Gulf of Mexico output as Tropical Storm Ida moves toward Louisiana

·     GPS +8%; reported 2Q adj. EPS of $0.70, beating consensus estimates of $0.47 as sales increased 5% vs 2019 and comps increased 13% vs 2019 – mgmt raised its F21 operating margin guidance to 7.5% (vs 6% prior), and now expects adj. EPS of $2.10-2.25 (up from $1.60-$1.75)

·     MRO +3%; general strength in energy focused stocks today as oil prices rebound (APA, OXY, COG among top gainers in the S&P 500 early) ahead of Tropical Storm Ida in the Gulf

·     WDAY +10%; reported strong F2Q results, beating on both the top and bottom line as strength in large enterprise helped drive results and FY22 subscription revenue guidance was raised well above the F2Q beat

Stock LAGGARDS

·     BIG -5%; following EPS and comps miss (Q2 EPS $1.09 vs. est. $1.13; Q2 revs $1.46B vs. est. $1.48B) and Q2 comp store sales fell (-13.2%) vs. est. decline (-11.4% with weak guidance for Q3

·     HIBB -9%; posted Q2 EPS and sales beat and raises year EPS and comp store sales outlook, but shares slide after weaker Q2 comp store sales which fell (-6.4%)

·     HPQ -4%; missed Q3 revenue estimates due to persistent supply constraints, including parts shortage as posted Q3 revenue of $15.3B missing the $115.9B estimate (shares were downgraded at Morgan Stanley as execution and lower earnings quality limit near-term multiple expansion)

·     OLLI -7%; after the discount retailer’s Q2 adj EPS and revenue missed estimates as total net sales fall 21% to ~$416M from a year earlier while Q2 comp store sales down (-28.0%) from prior year

·     PTON -7%; posts larger-than-expected quarterly loss and guides 1Q revs about $800Mm vs est. $1B, while warned its near-term profitability would suffer due to a decision to slash the price of its exercise bike (by 20% to $1,495), and higher commodity and marketing costs

·     SAVA -25%; shares tumbled after QTRX said they did not interpret test results or prepare data charts presented by Cassava at AAIC in July 2021 or otherwise (follows recent weakness in SAVA after recent allegations of manipulating its Alzheimer’s drug trial data)