Mid-Morning Look

Monday, February 28, 2022

U.S. stocks are volatile again (already recovering off sharp losses overnight) as investors deal with another day of global equities moving on macro/geopolitical headlines, assessing the fallout from a new set of sanctions imposed by the Western countries on Russia over its invasion of Ukraine. U.S. and European stocks dropped overnight after Russia’s central bank will be prohibited from undertaking transactions in dollars under a new concerted effort by the U.S. and its allies as it will limit the Russian government’s ability to use its $630 billion in reserves to prop up the value of the ruble or fund its war effort in Ukraine – by excluding some lenders from the SWIFT system (Ruble fell over 30% overnight). Russia’s central bank raised its key interest rate to 20% from 9.5% in an emergency move to counter the risks of the Rouble’s rapid depreciation and higher inflation, while introduced mandatory hard-currency revenue sales for exporters and banned foreigners from selling securities. Commodities soared, with oil, natural gas, wheat, and palladium rising, while rallies in a dollar gauge, gold and Treasuries underlined demand for havens. Brent futures jumped on concern that oil supply may tighten further should Russian flows be disrupted. An absolute plunge in treasury yields with 10-yr down about 12 bps to 1.865% and 2-yr down nearly 14 bps to 1.45% on growing expectations Fed will get less aggressive on expected rate hikes. A handful of Russian leveraged US listed stocks were halted this morning after the new sanctions.

Economic Data

·     February Chicago PMI was reported at 56.3 a big miss below the 63 consensus and 65.2 prior (unrevised).

·     Advance Retail Inventories rose +1.9% in January to $658.1B vs. +4.7% prior (revised from +4.2%)

·     International Trade in Goods for January with deficit -$107.6B vs. -$98.5B consensus and -$102.1B prior (revised from $101.0B); imports were $262.5B, up from $258.3B in December and exports were at $154.8B, down from $157.3B in December.

Sector Movers Today

·     Auto sector; TSLA supplier Panasonic (PCRFY) announced that its Energy Company will establish a production facility at its Wakayama Factory in western Japan to manufacture new, “4680” lithium-ion batteries for electric vehicles to expand its business globally; in auto suppliers, LEA downgraded at Morgan Stanley and cut tgt to $175 from $200 saying along with Q4, company gave revenue, op income, and EBITDA guidance that were all lower than consensus; the firm upgraded AXL to Overweight, doubling tgt to $16 on improved top-line growth outlook where ICE-derived FCF is harvested for longer than the market expects; TM suspends all domestic factory operations after suspected cyber-attack; NIO applied for a secondary listing of its Class A shares on Hong Kong stock exchange by way of introduction; GT positive mention in Barron’s

·     Utilities & Solar; REGI spikes after CVX agrees to acquire in the sustainable fuels producer in an all-cash deal valued at $3.15B, as Chevron will pay $61.50/share, a ~40% premium over Friday’s $43.81 closing price https://bit.ly/3C0GbAr ; BE upgraded to Positive from Neutral at Susquehanna and up tgt to $33 from $18 which reflect recent bullish medium-term outlook and potential tailwinds from higher geopolitical risks that could benefit alternative energy sources; EXC reaffirmed its guidance range for full year; solar stocks saw strength again (RUN, SEDG, ENPH, FTCI, SPWR, ARRY) on expectations that meaningfully higher oil, natural gas, power may remain elevated and may provide renewed interest in clean energy stocks

·     Pharma movers; VTRS said it will sell its biosimilars business to India-based biopharmaceutical company Biocon Biologics in a deal valued at up to $3.34 billion; AUPH falls as forecasts 2022 Lupkynis sales in range of $115-135M, which is well below $178M consensus estimate; LXRX voluntarily withdraws Sotagliflozin new drug application, resubmission targeted early 2q 2022; resubmission to correct recently identified technical issue; RETA expects to complete the submission of the rolling NDA for Omaveloxolone by the end of Q1; GSK said that it plans to demerge and list its consumer healthcare business–recently named Haleon–in July 2022, and set targets for the company, including 4%-to-6% sales growth in the medium term; ABBV downgraded to Neutral from Buy at UBS following a review of model and near-term pipeline opportunities and struggle to find further upside to the model

·     Aerospace & Defense; Wolfe Research upgraded the Defense sector ahead of what they view to be a multi-year upcycle in global defense spend and upgrade LMT to outperform on that better global spend outlook. Following Russia’s invasion of Ukraine last week on 2/24/22 the global perceived threat environment has significantly worsened. Shares of defense contractors such as RTX, NOC, GD, LMT active as well – note Germany said this weekend they would increase its military spending.

Stock GAINERS

·     CRWD +6%; strength in cyber-security stocks with Wedbush saying “now expect unfortunately a significant ramp-up of cyber warfare by Russian nation-state backed organizations over the coming weeks targeting various US/ Europe enterprises and government agencies”

·     FHN +29%; said it signed a definitive agreement to acquire FHN in an all-cash transaction valued at $13.4 billion, or $25.00 for each common share of First Horizon

·     IIN +37%; enters into agreement to be acquired by an affiliate of Altaris capital partners for $241M, with shareholders to receive $24.25 per share in cash https://bit.ly/3ItdwWN

·     REGI +38%; after CVX agrees to acquire in the sustainable fuels producer in an all-cash deal valued at $3.15B, as Chevron will pay $61.50/share, a ~40% premium over Friday’s close

·     SEDG +10%; solar stocks saw strength again (RUN, ENPH, FTCI, SPWR, ARRY) on expectations that meaningfully higher oil, natural gas, power may remain elevated and may provide renewed interest in clean energy stocks

·     TDOC +7%; after teaming up with AMZN to launch Teladoc on Alexa

Stock LAGGARDS

·     AUPH -30%; as forecasts 2022 Lupkynis sales in range of $115-135M, which is well below $178M consensus estimate

·     BP -6%; after saying it would exit its nearly 20% stake in Russia government-controlled oil producer Rosneft following pressure from U.K. officials after Russia’s invasion of Ukraine.

·     EPAM -28%; withdrew its first quarter and 2022 financial outlook due to heightened uncertainties and regional impacts resulting from military actions in Ukraine (also downgraded at Piper)

·     ERIC -8%; downgraded at Citigroup saying they expect Ericsson stock to be uninvestable for most investors for the foreseeable future (note a new report over the weekend revealed more details about alleged payments the telecommunications company made to ISIS) https://bit.ly/3hrq5pL

·     ITRI -14%; Q4 EPS $0.75 vs. est. $0.19; Q4 revs fell -8% to $485.64M vs. est. $505.7M; guides FY22 EPS $1.25-$1.75 vs. est. $2.12 and revs $2B-$2.1B vs. est. $2.2B saying headwinds due to semi component shortages impacting results

·     LXRX -18%; voluntarily withdraws Sotagliflozin new drug application, resubmission targeted early 2q 2022; resubmission to correct recently identified technical issue

·     MRNA -1% after ABUS files lawsuit against MRNA seeking damages for infringement of patents related to the latter’s COVID-19 vaccine

·     YNDX shares were halted trading (lower) pre-mkt along with other Russian based companies QIWI, HHR, GDEV, OZON on news pending

·     UAL -4%; travel stocks lower on geopolitical fears (NCLH, CCL, DAL, AAL, JBLU)