Mid-Morning Look

Tuesday, January 19, 2021

Stocks open strong to start the week after mixed results prior, paced by gains in energy, technology and healthcare, though overall strength was broad based (defensive staples and utilities again lagging) into a busy week highlighted by tomorrows Presidential inauguration. Markets remain optimistic ahead of former Fed Chairperson Janet Yellen’s confirmation hearings today at 10:00 in Washington for the Treasury Secretary seat and according to press reports (and prior comments by her) is expected to promote going “big” for fiscal spending to aid in the US recovery effort. The fiscal stimulus measures under Trump (two big packages) and more expected from incoming President Biden has been among the top key drivers for stock markets over the last few months. In addition, the Fed has remained accommodative on rates and policy, helping boost risk sentiment, while investors are bullish heading into quarterly earnings this week (NFLX, IBM tonight after banks BAC, GS reported this morning). The economic recovery trade continues to gain steam as coronavirus cases begin to slow in many states, with travel, leisure, retail, restaurants extending recent gains. Bank earnings like last week were mixed to slightly better (though BAC revs miss views, as shares slip after results).

Sector Movers Today

·     Bank movers; BAC authorizes $2.9B share repurchase plan and declares quarterly cash dividend of 18c per share and Q4 EPS of 59 cents beats consensus of 54 cents as Q4 revenue, net of interest expense was $20.1B below consensus $20.68B; Provision for credit losses decreased to $53M, reflecting a reserve release of $828M; GS Q4 net revenue rose 18% YoY to $11.74B, well above the $9.94B estimate on better trading revs and better EPS of $12.08; STT after q4 EPS $1.39 missed the $1.56 estimate but revs better $2.92B vs. est. $2.82B – sees FY21 NII down 14%-17%, sees FY21 fee revenue flat to up 2% y/y and up 3%-5% y/y and AUM up 11% YoY; CMA 4Q EPS $1.49 vs. est. $1.19, NII $469Mm, provision decreased $22Mm to a benefit of $17Mm vs 3Q; says 1Q21 avg deposits to remain strong, sees decline in NII with lower avg loan balances, LIBOR and security yields as well in 1Q vs 4Q20

·     Industrial & Machinery; Barron’s mentioned MMM positively, saying investors looking to make a bet on an industrial bounce back could do worse than buy 3M, noting the stock has dropped 7.9% over the past 12 months but could be set for a move higher into earnings; Goldman upgraded ITW to Neutral with a $217 pt, abandoning their sell rating given the pandemic makes it difficult to evaluate industrial stocks on fundamentals as thematic investing ruled 2020, which can continue in 2021 though there will also be a focus on fundamentals and ITW screens well for organic growth; Goldman also upgraded EMR to Buy with a $97 pt as the stock is a beneficiary to improving oil and gas fundamentals, inexpensive relative to coverage despite a healthy balance sheets and catalysts on the horizon, and is also one of the highest quality ways to invest in a recovery in oily industrials

·     Media & Telecom movers; VIAC and DISCA downgraded to underweight at Barclay’s noting over the past three months, ViacomCBS is up 66% (SPX up 8%) and Discovery is up even more, by 76%; CRTO was downgraded to neutral on valuation at Citigroup as view its strategy of transitioning its business into a full stack DSP favorably but its core retargeting business still represents 80% of revenue, which we believe is the most at risk; ETM was upgraded to overweight on risk reward at Wells Fargo and see attractive opportunities for later cycle recovery group/the advertising Services as raise tgt in IHRT to $20; at Evercore/ISI, LYV downgraded to in-line from outperform while WWE was upgraded to outperform from in-line with $58 tgt

·     Consumer Finance changes at JPMorgan: OMF top pick, AXP double upgrade to Overweight, SYF upgrade to Overweight, SC upgrade to neutral while downgraded NAVI, ESNT, GHLD all to neutral from overweight and RKT downgraded to Underweight: Our increasingly optimistic macro-outlook is consistent with improving forecasts of unemployment and GDP and a steepening forward 10YT curve. This outlook portends higher interest rates, better credit performance, and a significant rebound from 2020 trough earnings with momentum into 2022

·     Transports; JBHT and SNDR both upgraded to outperform from neutral, and WERN raised to neutral from underperform as sees both JBHT and SNDR to benefit from a substantial acceleration in intermodal (IM) demand in 2021 and pricing improvement in IM – raises PTs for JBHT to $175 from $131, SNDR to $29 from $22.89 and WERN to $44 from $43; FDX is proposing to resize its European workforce as it completes the integration of TNT, according to Bloomberg; HTLD reported in-line Q4 earnings on weaker revs of $155.8M vs. est. $162.4M; DAL disclosed that it entered into a payroll support program extension agreement with the U.S. Treasury Department and expects to receive $2.9B in relief payments

Stock GAINERS

·     ACRS +126%; reports positive preliminary topline results from a 12-week mid-stage trial of ATI-450, its investigational oral drug for patients with moderate to severe rheumatoid arthritis

·     COHR +33%; after LITE confirmed weekend reports it would acquire the laser maker in a $5.7B deal where COHR holders will get $100 in cash and 1.1851 shares of Lumentum stock for each Coherent share https://on.mktw.net/2M51Hhu

·     GM +8%; after Cruise, co partner with Microsoft to commercialize self-driving vehicles

·     GME +9%; extends last week gains (which was over 100%) rising over 20%, as rally seemed to be news Monday that Chewy co-founder Ryan Cohen would be joining GameStop’s board of directors, along with two former Chewy executives (shares mentioned cautiously in Barron’s this weekend) – shares pared gains after Citron out cautious on shares

·     GRTS +22%; after announcing that it would be advancing its second generation COVID-19 vaccine candidate into a Phase 1 clinical trial with NIAID support

·     HAL +1%; said its loss for Q4 narrowed as it took less in impairment charges than the same period last year, and that it is seeing recovery in the energy sector.

·     LAC +18%; U.S. Bureau of Land Management gave final approval on Friday to co’s Thacker Pass lithium mine in northern Nevada; move is part of a push by policymakers to boost domestic output of lithium for electric-vehicle batteries

·     VRCA +6%; after it announces positive data from post-hoc pooled analyses of its pivotal Phase 3 CAMP trials evaluating the safety and efficacy of VP-102

·     WU +8%; rises after announced a new agreement with WMT in which money transfer services will be enabled at Walmart stores nationwide

Stock LAGGARDS

·     BHVN -4%; provides update on phase 2/3 trial and Alzheimer’s disease program; said Troriluzole did not statistically differentiate from placebo at 48 weeks on study’s prespecified co-primary endpoints and also did not differentiate from placebo on key secondary measure

·     MGI -10%; falls in reaction to WU agreement with WMT

·     MRNA -2%; as the California state epidemiologist is recommending the state pause on the distribution of more than 330K doses (~10% of the state’s allocated supply) of the MRNA vaccine after a “higher than usual” number of people showed signs of a possible severe allergic reaction

·     NOV -6%; after saying it expects Q4 2020 revenue and earnings to be below prior guidance (sees revs $1.33B vs. est. $1.36B) saying a resurgence of covid-19 caused customers to defer orders, resulted in slower pace of bookings in second half of quarter

·     PTON -6%; downgraded to sell at UBS saying the stock is emblematic of a market that values growth over any semblance of valuation that can be justified

·     STT -2%; after q4 EPS $1.39 missed the $1.56 estimate but revs better $2.92B vs. est. $2.82B – sees FY21 NII down 14%-17%, sees FY21 fee revenue flat to up 2% y/y and up 3%-5% y/y

·     TRP -3%; on news over the weekend that Biden may cancel the Keystone XL pipeline permit as soon as his first day in office (watch rails CP CNI that may see some benefit from this)