Mid-Morning Look

Friday, February 19, 2021

U.S. stocks open higher, as the S&P tries to snap its 3-day losing streak, with major average still on track to finish with modest declines (though Dow looking higher). Industrials getting a boost amid strong Deere (DE) earnings as shares touch all-time highs (also lifting Dow component CAT to record highs). In tech, semiconductors jumping behind better AMAT earnings results (demand exploding for chips with mass shortages, and increased demand for cloud, auto) – equipment names (LRCX, KLAC) have been leading on higher cap-ex spending by chip names during quarter. Cruise lines (CCL, NCLH) among top gainers in the S&P as “reopen” trades doing well today with SIX rising on theme park comments, online travel (BKNG record highs), airlines (UAL) also surging; restaurants extend gains despite persistent EPS/rev misses this week (BLMN, TXRH) as investors look to future. Materials rising on economic recovery hopes with copper prices hitting best levels in a decade (FCX surging). Stocks remain well bid given notable tailwinds for markets including earnings strength, prospects for fiscal stimulus, and ongoing vaccine rollout. Improving global coronavirus trends also fueling some risk appetite. Recent extreme winter weather in US continues to catch a lot of headlines given implications for disruption to business, deliveries/logistics and vaccine rollout effort. 

Treasury yields higher as 10-year yield up over 4 bps to 1.33% (up 11 bps on the week) and the 30-yr up 2.7 bps to 2.10% (also up about 11 bps on the week) – rising rates providing boost to financials and banks. Manufacturing data was mixed this morning – but in another sign of rising inflation (after spike in PPI this week), Markit data said “”firms raised their selling prices at the fastest pace since July 2008 to partially pass on greater input prices.” The Fed’s Rosengren repeats today Fed policymakers expect to keep interest rates at near zero levels until 2% inflation target has been reached and Fed will continue purchases until there is substantially more progress in lowering unemployment and raising inflation. Treasury yields inching to highs of week, but stocks keeping pushing higher.

Economic Data

·     IHS Markit said U.S. manufacturing sector flash PMI for February at 58.5 (in-line) vs final January 59.2; input prices for February at 73.3, highest since April 2011, vs final January 65.1 and prices index for February at highest since July 2008; services sector flash PMI for February at 58.9 (consensus 57.6) vs final January 58.3 (highest since March 2015); Markit flash composite input prices index and output prices index for February at highest going back to October 2009

·     Jan. existing-home sales rise to 6.69m rate; vs. est. 6.60m; Existing home sales increased 23.7% on Y/Y basis, up from 20.7% in December 2020; Unsold inventory sits at 1.9-month supply, unchanged from December

Sector Movers Today

·     Industrial & Machinery; DE shares jump on big Q1 beat as EPS $3.87 topped the $2.16 estimate and Q1 total revenue $9.11B vs. est. $7.21B while raises FY21 revenue outlook to $4.6B-$5B from $3.6B-$4B and-first-quarter net income more than doubles on 23% gain in net sales (giving a boost to machinery names CAT, CNHI, LNN, AGCO); BOOM reported 4Q20 EBITDA of $3.7 million, down sequentially, due to a drop at NobelClad. Revenue of $57.1 million rose 3.3% sequentially, and fell 33.9% year-over-year

·     Metals & Materials; copper futures top the $4 per pound level for the first time since 2011 as demand grows, lifting copper producers early (FCX, SCCO); other industrial related names moving higher on jump in commodity prices (MP advanced in rare earth space); steel stocks also rising along with industrial metal strength (X, NUE); gold miners (AEM, NEM) slide

·     Leisure and Gaming; SIX said it is preparing to open all of its theme parks and waterparks for 2021 season; is currently hiring thousands of team members for 2021 season; RCL amended its credit agreement to extend the waiver its fixed charge coverage to net debt ratio. Also pushed out restrictions on dividends and buybacks through Q3’22; PLNT with slight miss on revs and EBITDA (comps -10%) and no guide but said “encouraged with our start to 2021, as we have seen net member growth and improved usage”; DKNG tgt raised to $80 at Oppenheimer into 4Q earnings on recent analysis of state data implying solid upside to ’21 consensus revs ($866M)

·     Utilities & Solar; DTE reported Q4 EPS $1.39 vs est. $1.29, reaffirmed its FY21 EPS guidance range of $6.88-7.26, and remains on track to complete the spin-off of DT Midstream by mid-2021 after commencing the Form 10 registration process with the SEC; POR Q4 EPS 57c vs est. 42c, on in-line revs $2.15B, initiates FY21 EPS guidance $2.55-2.70 (est. $2.60), and reaffirms 4-6% long-term diluted EPS growth using 2019 base year; ED posted Q4 EPS 75c (est. 74c) on revs $2.96B (est. $3.151B) and guides FY21 EPS $4.15-4.35 (est. $4.30) along with projected capital investments $4.02B in FY21 and $8.11B for 2022-2023; AEE Q4 EPS 46c vs est. 43c on revs $1.33B; SJW posted Q4 EPS 46c vs est. 35c and (-19c) loss YoY on revs $135.7M vs est. $130M; LNT Q4 EPS 24c slightly beat est. 23c on revs $817M, missing consensus $1.12B, and they maintained FY21 EPS forecast of $2.50-2.64; JKS signed a strategic partnership with Tongwei to form a JV for a high-purity crystalline silicon project and for industrial chain cooperation

Stock GAINERS

·     AMAT +9%; reported a solid JanQ, with Rev/EPS of $5.2B/$1.39, above consensus of $5.0B/$1.28, and guided to a strong AprQ at $5.4B/$1.50 (ahead of consensus $4.9B/$1.27)

·     ANET +1%; as posted a beat & raise and improvement in visibility and confidence into CY21 outlook and underlying business trends – Q4 revenue of $648M (+17% Y/Y vs -7% comp), beating expectations by 3% and the high-end of guide ($635M)

·     DE +10%; shares jump on big Q1 beat as EPS $3.87 topped the $2.16 estimate and Q1 total revenue $9.11B vs. est. $7.21B while raises FY21 revenue outlook to $4.6B-$5B from $3.6B-$4B and-first-quarter net income more than doubles on 23% gain in net sales

·     FCX +8%; copper futures top the $4 per pound level for the first time since 2011 as demand grows, lifting copper producers early (FCX, SCCO)

·     MGA +8%; rises on strong Q4 beat as Q4 adj EPS $2.83 vs. est. $2.03; Q4 revenue $10.57B vs. est. $10.12B; raised dividend 8% to 43c; sees FY21 revenue $40B-$41.6B vs. est. $38.45B

·     NVAX +5%; disclosed a memorandum of understanding between Gavi and Novavax to make available a cumulative volume of 1.1 billion doses of the Novavax vaccine to the COVAX Facility

·     PLTR +10%; bounces after earnings/lock-up related weakness as Cathie Wood’s ARK Innovation bought 5,274,700 shares yesterday, more than doubling existing stake to over 9.35 million shares

·     SIX +5%; after saying it is preparing to open all of its theme parks and waterparks for 2021 season; is currently hiring thousands of team members for 2021 season

·     UAVS +24%; rises after responds to Bonita’s research’s short seller research report saying it contained ” false, inaccurate and misleading” information about the company

·     VCNX +174%; after co signed multi-project deals for its drug discovery platform Activmab

·     WATT +42%; shares surged on a Bloomberg report that AAPL is working on a magnetically attached battery packer for the newest iPhones (though report didn’t specify WATT – FWIW)

Stock LAGGARDS

·     EHTH -2%; reported 4Q results essentially in line with pre-announcement but provided its initial 2021 guidance below views ($660M-$700M vs. est. $760.6M and lower profit outlook)

·     FE -2%; defensive utility stocks pulling back with stocks mostly higher

·     HOLX -5%; as medical equipment stocks broadly lower (PKI, TMO, ABT)

·     KHC -3%; downgraded to Neutral from Overweight at JPMorgan noting with the stock +69.5% since March 2020 upgrade (sector +23.2%) and +16.3% this month alone, the stock is now approaching fair value; much like recent casual diner names

·     UBER ; as the U.K.’s top court ruled that a group of former drivers for Uber were entitled to a minimum wage and other benefits while working for the company, dealing a setback to Uber and other gig-economy firms in world-wide battles over their employment model.