Mid-Morning Look

Wednesday, June 02, 2021

U.S. stocks edging higher on low volumes (narrow trading ranges), with major averages not far from their record highs heading into key economic data later this week. Momentum related names/sectors are once again the biggest movers today with the recent resurgence of the January Reddit/WSB so called “meme” stocks with AMC surging in recent days, along with bounces in BB and early strength in EXPR, KOSS, GME, NOK (among others). Also seeing a further pop in Bitcoin and other crypto-related stocks as Ethereum and Bitcoin prices rally. No major U.S. economic data today to move markets as Treasury yields remain depressed (10-year back below 1.6%) and the dollar bounces. Market participants await the monthly jobs report on Friday, while ADP releases its report on private sector employment tomorrow, along with weekly jobless claims. Oil prices extend gains, lifting the energy complex for a second day, while financials remain among top YTD gainers. Markets again not showing any fear of rising inflation pressures or concern over Biden’s tax plan to fund infrastructure deal.

Sector Movers Today

·     Retailers; OSTK rises tZERO after reports it is looking for a Buyer, according to CoinDesk. The company is exploring several options, including a SPAC merger, said tZERO VP of Investor Relations Michael Mougias https://bit.ly/3pfoXIX ; LE 1Q EPS $0.08 vs. est. ($0.29) on revs $321.3Mm vs. est. $280.3Mm; sees 2Q revs $345-355Mm vs. est. $328.4Mm, sees 2Q EPS $0.05-0.12 vs. est. ($0.16); guides FY net revs $1.61-1.65B vs. est. $1.58B; CTRN said it has authorized a new $30 million share-buyback program after what the company said was a strong first quarter; BBBY announces three new private label brands

·     Consumer Staples; JBSAY shares active after the Brazil-based meat-processing giant suffered a ransomware attack that disrupted production, causing volatility in meat sector (TSN, PPC, SAFM); SAFM downgraded to an Equal Weight from Overweight at Barclay’s after the company put a new facility on hold with constructions costs high. That facility was seen as needed to justify the higher rating; Bernstein noted except for SMPL, HSY, and SJM in food space, all experienced negative sales growth YoY in the last 4 weeks period citing Nielsen data (sales were +31.4% for SMPL +4.2% for HSY and +1.9% for SJM – negative for MKC, BYND, CAG, KHC, GIS, HAIN, TSN, CPB, K and MDLZ); POST acquires ready-to-eat cereal business from THS for $85M; CCEP upgraded to Overweight from Neutral, price target $70 from $49 at JPMorgan

·     Energy stock movers; oil companies adding to Tuesday’s gains (not to the same degree) as crude extends gains on OPEC+ supply discipline. In recent days, prices have hit highs not seen in over 2-years following OPEC+’s statement of confidence that global oil demand is recovering. OPEC+ reiterated their plans on Tuesday to taper output cuts by 441kbpd in July, while Saudi adds back the remaining 400kbpd of their unilateral cut. The plan to eventually return 1.9Mbpd to the market no faster than 0.5Mbpd each month was reiterated, while it was agreed that monthly meetings would resume after missing a month.

·     Semiconductors; AMBA reported better sales and a narrower loss for Q1 despite a range of supply chain disruptions as auto momentum (+40% y/y) continues on share gains and accelerating CV adoption (ADAS, L2+ Autonomous driving) while guides Q2 revs above views ($74M-$77M vs. est. $69.4M); STX raised June qtr and FY estimates as sees better demand and pricing trends at Cleveland Research which was also positive on WDC as sees improved HDD demand and pricing trends; AMD rises for a 7th straight day alongside broader strength in semiconductors despite chip supply shortages impacting production

Stock GAINERS

·     AMBA ; reported better sales and a narrower loss for Q1 despite a range of supply chain disruptions as auto momentum (+40% y/y) continues share gains and accelerating CV adoption (ADAS, L2+ Autonomous driving) while guides Q2 revs above views ($74M-$77M vs. est. $69.4M)

·     AMC +27%; extending Tuesday’s gains after raising $230.5 million in a stock sale to Mudrick Capital Management – investors unfazed after the Hedge fund sold 8.5 million freshly issued AMC shares at a profit on Tuesday, immediately after buying them

·     CNST +66%; German co MorphoSys AG (MOR) announced a $1.7B acquisition of CNST, paying $34.00 per share in cash. MorphoSys also entered a long-term strategic funding partnership with RPRX which will make a $1.425B upfront payment to MorphoSys, supporting its growth strategy; the investment is anchored by royalties on Janssen’s Tremfya https://bit.ly/2SQtoOa

·     DXC +3%; upgraded to Overweight, raising our 2022 estimates and elevating our price target to $48 at Wells Fargo

·     LYRA +16%; on plans to partner with LianBio to commercialize an experimental treatment for chronic sinusitis, LYR-210, in China and other parts of Asia.

·     SLB +3%; guided 2021 revenue to above $22.5B vs. est. of $22.53B and sees free cash flow margin above 10% (ahead of conference presentation)

·     TLRY +3%; AMZN said will no longer screen its workers for cannabis (except for positions subject to regulation by the U.S. Department of Transportation) and will drop weed-testing requirements for recruitment as it supports a proposed U.S. legislation to legalize cannabis at the federal level

·     Visa (V) +2%; Jefferies noted Visa updated volumes through May which showed continued recovery relative to 2019 levels across all metrics. Specifically, US payment volumes improved to 32% above 2019 levels; card present volumes are 10% above ’19 QTD

Stock LAGGARDS

·     CNK -4%, IMAX fall; after Goldman Sachs downgraded both to Sell from Neutral which reflects their more cautious view on domestic box office

·     GOTU downgraded to Neutral at Goldman Sachs and lower forecasts as sees slower enrollment and revenue growth ahead/reduced expectations for enrollment and gross billings

·     IRTC -18%; said Mike Coyle has decided to resign from his position as president and CEO and a member of the company’s board, effective June 1, due to personal matters

·     SAFM -1%; downgraded to an Equal Weight from Overweight at Barclay’s after the company put a new facility on hold with constructions costs high

·     TPR -3%; seeing weakness in consumer retail sector today (LB, PVH, GPS)