Mid-Morning Look

Thursday, March 11, 2021

The stock market resiliency continues to be astounding, as stocks surge for a second session, just a few days removed from the tech heavy Nasdaq Composite dropping as much a 10% from its recent highs (defined as correction territory) but has since outperformed. Stock gains have been led by cyclical and reflation related sectors with industrials, materials, and energy among the top gainers, along with financials as Treasury yields perk up. Dow component Boeing (BA) rallies for a 4^th straight session, helping push the index to another record high around 32,500, as shares touch best levels in a year. Over the last week or so, as goes Treasury yields, so goes the market (at least for now) – as the 10-year yield hit earlier lows of 1.475% (down about 15 bps from last week highs), helping boost stock futures (but as yields inch to highs now 1.54%, stocks pare gains). ECB President Lagarde said today “inflation is set to increase in coming months and be volatile…and increase in market rates poses risks for wider financing conditions” spooked markets slightly, prompting a bounce in yields (10-year back to 1.535%) and the dollar and a drop in gold (which fell more than $20 from earlier highs of $1,737 an ounce). Economic data was better as weekly jobless claims fall more than expected, showing a continued rebound in employment. Markets also remain excited about additional fiscal stimulus checks shortly as the House and Senate pass the $1.9 trillion bill and Biden is expected to sign into law on Friday. Positive headlines on vaccine front with the European Union’s drugs regulator recommended conditionally approving JNJ single dose COVID-19 vaccine. Smallcaps also surging as the Russell 2000 trades new record highs.

Economic Data

·     Weekly jobless claims fell to 712K in the latest week, better than the 725K estimate while prior week revised to $754K from 745K; continued claims fell to 4.144M in latest week vs. est. 4.22M and from 4.337M prior; the 4-week moving average fell to 759,000 mar 6 week from 793,000 prior week and the U.S. insured unemployment rate fell to 2.9% from 3.1%

Sector Movers Today

·     Vaccine news; The European Union’s drugs regulator recommended conditionally approving JNJ single dose COVID-19 vaccine, following authorizations in the United States and Canada; PFE and BNTX as real-world data from Israel suggests their COVID-19 vaccine is 94% effective in preventing asymptomatic infections and shows the vaccine was 97% effective in preventing symptomatic disease, severe disease and death; RIGL announces completion of enrollment for NIH/NHLBI-sponsored phase 2 trial of Fostamatinib in hospitalized COVID-19 Patients

·     Housing & Building Products; JPMorgan upgraded DHI to Overweight from Neutral in the housing sector as view its valuation, trading in-line with its larger-cap peers against our 2022E EPS despite our outlook for continued above average operating margins and ROE, as attractive, while downgrade NVR to Neutral from Overweight, as view the stock’s risk/reward as more balanced at this time relative to its peers. Firm also reiterate Overweight ratings on larger-cap PHM, smaller-caps MDC and TMHC and higher-growth small caps CCS and GRBK

·     Industrial & Machinery; REZI shares slipped after Roth Capital downgraded to Neutral saying mgmt shared unrealistic Products & Solutions gross margin guidance, showing the team is out of touch, in their view as they guide is for 46%-48% in 2024, vs 25.9% in 2020; GE downgraded at Oppenheimer after surpassing price tgt (falls a second day after lowering its year outlook in an investor update after announcing its exit from GE Capital Aviation Services (GECAS), selling it to AER); MTW was upgraded to Outperform from Neutral at Baird saying an infrastructure push couples with commodity inflation to lay the groundwork for improved Crane demand4 MYE slips as Q4 adj EPS 11c vs. est. 16c though Q4 revenue $137.5M vs. est. $128.83M

·     Media & Telecom movers; VZ announced it will spend an additional $10 billion in capex over the next 3 years to deploy C-Band as quickly as possible which will be in addition to the current capex guidance of $17.5B-$18.5B for 2021 – news lifted shares of CIEN, CALX, JNPR, COMM initially in telco equipment sector; VZ also disclosed it had won an average of 161 MHZ of C-Band spectrum; in media, BMBL shares jump as sales climbed in the latest quarter, driven by an increase in paying users for its dating apps – Total paying users across its dating apps increased to 2.7 million, up about 33% from the prior year; in advertising, WPP posted its 2020 results with a beat of 80 bps on Q4 organic growth rate, a beat of 40bps on 2020 adjusted EBIT margins and a 4% beat on adjusted EPS

Stock GAINERS

·     ASAN +4%; price tgt raised by several analysts after Q4 sales topped views and guided ahead on revenue for F1Q/FY22

·     BMBL +13%; as sales climbed in the latest quarter, driven by an increase in paying users for its dating apps – Total paying users across its dating apps increased to 2.7 million, up about 33% from the prior year

·     CIEN +4%; as VZ announced it will spend an additional $10 billion in capex over the next 3 years to deploy C-Band as quickly as possible which will be in addition to the current capex guidance of $17.5B-$18.5B for 2021

·     ETSY +6%; among top gainers in the S&P 500 as technology/high multiple stocks rebound

·     FCX +6%; as materials and industrials again help lead major averages – shares among top gainers in the S&P along with other metals

·     QRVO +6%; was upgraded to Overweight with $200 tgt at Barclay’s saying n-t rends remain strong, with growth in Android yielding June flat to even up slightly verses guidance of below $1B

·     VIR +36%; after saying that a monoclonal-antibody drug it has developed to treat Covid-19 showed strong efficacy in a trial. The drug called VIR-7831, partnered with GSK reduced hospitalizations or deaths from Covid-19 by 85% compared with a placebo

Stock LAGGARDS

·     ALTO -20%; posts wider-than-expected Q4 net loss of ($0.30) vs. est. loss ($0.24) and revs of $168.8M also misses expectations of $234.25M

·     CLDR -13%; as beat consensus revenue expectation Q3 with 19% beat on billings, but forecasts Q1 total revenue between $216M-$218M, below Street est. of $226.8M on weaker EPS outlook

·     FOSL -14%; said it expects Q1 sales to be hit by COVID-19 pandemic, sales seen down 12%-17% due to current restrictions, particularly in Americas and EMEA

·     GE -7%; falls a second day after lowering its year outlook in an investor update after announcing its exit from GE Capital Aviation Services (GECAS), selling it to AER

·     KDMN -10%; following the announcement that belumosudil’s PDUFA action date for the treatment of chronic graft-versus-host disease (cGVHD) has been extended by three months to August 30, 2021 (from May 30, 2021)

·     MYE -12%; slips as Q4 adj EPS 11c vs. est. 16c though Q4 revenue $137.5M vs. est. $128.83M

·     ORCL -8%; beat consensus expectations on revenue ($10.09B vs cons $10.07B), PF EPS ($1.16 vs cons $1.11), and posted a strong PF operating margin (47.4% vs cons 47.2%) – shares slip as some analysts note Cloud transition could take longer than investors appreciate

·     PRTY -4%; said it expects to post a narrower Q1 loss and lower revenue than the same period last year, when the Covid-19 pandemic started – which follows a Q4 earnings and revenue miss