Mid-Morning Look

Tuesday, January 26, 2021

U.S. stocks open higher after a steady round of large cap earnings as markets turn to fundamentals (hopefully) with several Dow component results releasing including AXP in financials (EPS beats but on lower Q4 profit), MMM rises after profit beat, JNJ shares hit record highs as expects 2021 profit above estimates and VZ in Telco slides on results as misses postpaid phone sub estimates. U.S. Treasury yields turn lower, 10-year yield last at 1.03%, while stocks pullback from early gains – but major averages still showing overall strength. The market debate lately remains around several speculative bubbles with the short index up 30% YTD (as per Opco), Bitcoin mania, record breaking call volume and record low put/call ratio, valuation extremes, SPAC and IPO frenzy and manic price action in names like GME to name a few all a center of focus. Stocks in Europe got a boost while shares in Asia declined. Earnings on deck tonight for AMD, MXIM, SBUX among leaders (111 S&P names report this week and 13 Dow components in total). Economic data was slightly better ahead of the FOMC meeting this week.

Economic Data

·     Consumer Confidence index rose to 89.3 (consensus 89.0) vs December revised 87.1 (previous 88.6); the present situation index 84.4 in Jan vs. Dec revised 87.2 (previous 90.3) and the expectations index 92.5 in Jan vs. Dec revised 87.0 (previous 87.5)

·     Richmond Federal Reserve Manufacturing Survey for January rose +14 vs. +19 prior; shipments +10 vs. +12 prior, capacity utilization +4 vs. +15 prior and new orders +12 vs. +24 prior

Sector Movers Today

·     Retailers; EXPR mentioned cautiously by Wedbush after rocketing 150% in the last two trading days on the heels of retails wider squeeze-play with most-shorted stocks up +14% versus least-shorted stocks +4% in the RUA index so far in 2021; BOOT Q3 results were strong, surpassing initial top and bottom line expectations; UAA upgraded to outperform and tgt raised to $23 at Cowen saying estimates are conservative through FY23 given improving top-line trajectory, gross margin expansion on SKU rationalization, DTC mix shift and Asia expansion; DG upgraded to a Buy at Loop Capital and tgt raised to $260 from $220 as believe the co has several strategic initiatives that will drive improved financial performance in F2021 and beyond; BBBY was downgraded at both UBS (to Sell) and Raymond James (to MP) with shares up 73% YTD and move has tilted the risk-reward to the downside; OSTK rises after saying it will convert its wholly owned block chain-focused subsidiary, Medici Ventures Inc., to a limited partnership

·     Consumer Staples; BYND and PEP said they would form a joint venture to develop and sell snacks and beverages made from plant-based protein; KMB downgraded to Hold from Buy at Argus as the co continues to face challenges from weakness in the K-C Professional segment and unfavorable currency translation; IFF guides Q4 revenues of ~$1.27B vs. a consensus of $1.25B and posted operating profit for the Q4 is expected to be ~$100M, and Adjusted operating profit excluding amortization to be ~$203M; BRBR upgraded to buy and tgt to $35 from $20 at Truist calling it one of the few packaged food companies that has momentum coming out of 2020 AND favorable YoY comparisons for the 1H21; CL upgraded to hold from sell at Berenberg

·     Auto sector; in auto parts, ALV posted a larger Q4 profit and sees 2021 sales growth or around 25% and organic sales around 20%; VLDR in multi-year sales agreement to provide puck lite sensors to Emesent; LAZR downgrade from Outperform to Market Perform with $38 pt at Northland as continue to believe that Luminar will be a leader in the lidar market, but there are now 5 lidar companies that are public or in the process of going public via a SPAC; PRTS rises after the company announced earlier that it had launched a new dedicated shopping hub for the hybrid, plug-in hybrid, and electric vehicle community this week

·     Aerospace & Defense; HXL topline results came in just below consensus estimates of $297M, while the company’s Adj. loss per share in-line with consensus, while operating margins were (6%) in the Composites segment and positive 8.6% in engineered products; RTX posted Q4 adj EPS 74c on sales $16.4B, topping estimates (70c on $16.24B), and they see FY21 adj EPS $3.40-3.70 on sales $63.4-65.4B; LMT reported Q4 net sales $17.03B (est. $16.95B), cash flow from operations $1.81B (est. $1.76B), backlog $147.13B, and they see FY21 diluted EPS $26-26.30, cash from operation at least $8.3B and net sales $67.1-68.5B; Cowen raised its price targets on AER, ALand FLY and favor them in that order as they see the worst likely being over for aircraft leasing stocks; CACI was awarded a $96M Task Order by the U.S. Army to support medical communications for combat casualty care program

·     Semiconductors; AMD earnings expected tonight after the close along with MXIM in chip space; for WDC, Wedbush expects will report upside to Street est. & believe guidance will exceed prior expectations as CQ4 upside & better CQ1 NAND & PC HDD dynamics filter into the CQ1 outlook; price tgts in chip space raised at Barclay’s (AMAT, ADI, QCOM, NXPI, NVDA, MXIM, MRVL, QRVO, TXN) saying with many names up 15-20% over the last month, many of their estimates and price targets have quickly become outdated; Citing the recent capex increase at foundry giant TSMC and Samsung’s DRAM recovery, D.A. Davidson upgrades semiconductor equipment company AMAT to Buy saying the industry has “never been stronger.”

·     Industrial & Machinery; GE mixed Q4 as adj EPS 8c on revs $21.93B vs. est. 9c and $21.83B but offered an upbeat outlook for its business this year after reporting a surge in quarterly free cash flow and guides FCF $2.5B-$4.5B this year; Dow component MMM Q4 results beat as adjusted EPS $2.38 vs. est. $2.15 and revenue $8.58B vs. est. $8.4B on mixed guidance; PCAR 4Q EPS $1.17 vs. est. $1.22 on revs $5.57B vs. est. $5.14B; CR Q4 backlog trends, FCF help offset top-line softness; ROK mixed Q4 as adj EPS beat ($2.38 vs. $1.88) but sales miss ($1.57B vs. $1.61B)

Stock GAINERS

·     BLNK +16%; along with gains in WKHS, NKLA, RIDE on speculative buying over potential legislation this year under the Biden Administration after he reiterated his plan to replace all federal vehicle fleets with electric vehicles.

·     BYND +29%; and PEP said they would form a joint venture to develop and sell snacks and beverages made from plant-based protein (short Squeeze accelerated gains)

·     DKNG +8%; upgraded to Buy with $65 tgt at Goldman Sachs as expect ongoing sales beats versus consensus driven by 1) sustained market leading position in new and existing markets, 2) ability to participate in the economics of single operator states, and 3) presence of national partnerships

·     GE +7%; after predicted a free cash flow of $2.5 billion to $4.5 billion this year after generating cash flow of $4.4 billion in the fourth quarter – compares to average analyst estimate of $3.03 billion for 2021 and about $2.6 billion for the latest quarter.

·     OSTK +15%; will convert its wholly owned block chain-focused subsidiary, Medici Ventures Inc., to a limited partnership

·     PII +6%; Q4 revs and EPS both beat and FY guide above all estimates on both Revs and EPS in the RV leisure space

·     REGN +2%; announced positive initial results from an ongoing Phase 3 clinical trial evaluating REGEN-COV(TM) (Casirivimab and imdevimab antibody cocktail) used as a passive vaccine for the prevention of COVID-19 in people at high risk of infection

·     STAA +11%; after replacing PBH in the S&P MidCap 400

·     TFII +11%; tgt raised by several analysts (JPM, Cowen, Stifel) after co announced its plan to acquire UPS Freight for $800MM in cash

·     TLRY +12%; says it has been selected by the French National Agency to supply certified medical cannabis products for experimentation in France

·     VLDR +10%; in multi-year sales agreement to provide puck lite sensors to Emesent

Stock LAGGARDS

·     AXP -3%; 4Q EPS $1.76 vs. est. $1.31, revs net of int exp $9.35B vs. est. $9.34B, says trends continued to steadily improve in 4Q, non-travel & entertainment spend exceeded pre-Covid levels for second consecutive qtr, but profit down from last year

·     BBBY ; downgraded at both UBS (to Sell) and Raymond James (to MP) with shares up 73% YTD and move has tilted the risk-reward to the downside

·     CR -6%; reported an adjusted quarterly profit below Wall Street expectations

·     EXPR -24%; mentioned cautiously by Wedbush after rocketing 150% in the last two trading days on the heels of retails wider squeeze-play with most-shorted stocks up +14% versus least-shorted stocks +4% in the RUA index so far in 2021

·     FVRR -4%; downgraded to Sell at MKM noting shares currently trading at 36x ‘21E Revenue, above historical peak of any other Internet marketplace in recent times. In fact, FVRR’s valuation currently exceeds pandemic winners such as ZM

·     KRMD -15%; downgraded to Neutral at Piper and lowering our PT to $4.50 ($9 previously) following the disclosure of soft Q4 results and the departure of its President and CEO

·     ROK -5%; mixed Q4 as adj EPS beat ($2.38 vs. $1.88) but sales miss ($1.57B vs. $1.61B)

·     VZ -2%; reported Q4 results with relatively flat revenue of $34.7B as consumer revs were down 1% to 423.9B, retail postpaid net adds were 357,000 and the churn was 0.96% and Fios net adds totaled 92,000/misses postpaid phone sub estimates