Mid-Morning Look

Friday, March 12, 2021

Stocks are mixed to end the week as the Dow Jones Industrials and Dow Transports each touch fresh record highs, along with gains in Smallcaps (another record), supported by the same themes that have pushed stocks higher this week. Industrials, materials, energy, financials and reopen sectors surging on signs of an economic recovery and additional stimulus checks moving back into the system. At the same point, technology names with high growth multiples seeing weakness as inflation fears again perk higher. The Dow Jones Industrial Average extends gains, led by shares of Boeing, Goldman, JPMorgan, and Amex (industrials/financials), while the tech heavy Nasdaq Composite slides as rising bond yields weigh on markets (10-yeat tops 1.63%, up 11 bps). The February Producer Price Index (PPI) data did little at ease inflation concerns, falling from prior month readings, but still elevated and in-line with consensus views. In other data, U.S. consumer sentiment improved in early March to its strongest in a year as the University of Michigan said its preliminary consumer sentiment index rose to 83.0 in the first half of this month from a final reading of 76.8 in February. Housing stocks seeing sharp weakness (MTH, LEN, KBH) following the jump in yields (rollover into mortgage rates) and as two analyst downgrade stocks today given rally in space. Stocks still holding up very well early, outside of tech pullback.

Economic Data

·     Inflation data in-line: Producer Price Index (PPI) February headline rose 0.5% in-line with estimates and down from 1.3% in January, while core PPI rose 0.2%, also in-line with ests. PPI YoY final demand rose 2.8% vs. est. 2.7% and core PPI YoY for Feb rose 2.5% vs. est. 2.6%

·     University of Michigan surveys of consumers sentiment prelim March 83.0 well above consensus of 78.5 (back to highest levels since last March) and above Feb 76.8; the current conditions index prelim March 91.5 vs. final Feb 86.2 and expectations index prelim March 77.5 vs. final Feb 70.7

Sector Movers Today

·     Metals & Materials; FCX said the copper surge isn’t a spike, but supported by fundamentals and that the rally has “degree of an echo” with 2010-11 according to the CEO today; FNV was upgraded to equal-weight from underweight at Barclay’s saying the return to target is now less negative – and notes while the stock is slightly rich, it has fallen over 30% from its July highs (vs S&P 500 up over 20%) – firm says prefer the gold miners to copper miners and see the most upside to Overweight rated GOLD, KGC and OGC; gold miners down (NEM, AEM) as gold prices tumble with spike in Treasury yields and the dollar

·     Housing & Building Products; in housing, LEN was downgrade from Outperform to Sector Perform at RBC Capital as see a balanced risk/reward following its strong YTD performance and with expectations elevated ahead of 1Q results; MDC was downgraded to underperform at Bank America as believes that the year-to-date run-up in the stock has factored in the positives; in home improvement/tools, SWK upgraded to Buy from Neutral at Bank America on its view that estimates are likely going up and the demand environment for tools is still robust

·     Media & Telecom movers; TMUS at its analyst day provided greater merger synergies than expected, higher long-term guidance, a more aggressive expansion into rural markets, a more aggressive in-home broadband push, a strategy to alter network perception, offset by de-emphasizing leasing handsets and the loss of Tracfone revenues, as per Truist; AT outlines growth plans at investor day: said it aiming to achieve 120M-150M HBO Max and HBO subscribers by 2025; expects HBO Max and HBO to finish 2021 with 67M-70M world-wide subscribers (had 61M end of 2020); expects to increase its fiber-connectivity network to reach 3 million new customers by the end of this year, said it plans to spend $6B-$8B on C-band deployment, mostly between 2022 and 2024 – and restated previous 2021 rev guidance; media names outperform again, led by VIAC as well as FOXA, DISCA (momentum trades)

·     Biotech movers; NVAX jumps after saying a completed late-stage clinical study showed that its vaccine candidate NVX–CoV2373 was 96.4% effective against “mild, moderate, and severe disease caused by the original COVID-19 strain; CFRX wins U.S. contract for exebacase study —-contract award for up to $86.8 million from the Biomedical Advanced Research and Development Authority (BARDA); NLSP enters into a license agreement with NVS to obtain, on an exclusive basis in the U.S., all of the available data referred to and included in the original NDA for Sanorex; CYCC 1.807M share Secondary priced at $7.00; MRKR 28.572M share secondary priced at $1.75; ICPT was upgraded to neutral from underweight and $21 tgt at HC Wainwright

Stock GAINERS

·     BA +2%; after private investment firm 777 Partners agrees to buy 24 737 MAX jets with an option to purchase an additional 60 and said plans to lease the 737-8s to its affiliated operating ultra-low-cost carriers

·     CAH +2%; after signed a definitive agreement to sell its Cordis business to global private equity firm Hellman & Friedman for about $1B

·     FNKO +10%; as posted Q4 top and bottom line beat (24c/$226.5M vs. est. 14c/$195.6M) and adj Ebitda rose 29% to $33.2M

·     GS +1%; among top gainers in the Dow as financials benefit from rising yields

·     LB +7%; boosted its Q1 EPS view to 55c-65c from prior 35c-40c citing strong sales, margin results quarter-to-date, authorized the repayment of $1.035B of debt through a call of two outstanding bond issues, announced a new $500M share repurchase plan and reinstated its quarterly dividend

·     MTN +7%; after Q2 results: EPS of $3.62 well above $2.31 est. on better sales ($684M vs. $644M)

·     NVAX +8%; said a completed late-stage clinical study showed that its vaccine candidate NVX–CoV2373 was 96.4% effective against “mild, moderate, and severe disease caused by the original COVID-19 strain

Stock LAGGARDS

·     CHPT -8%; after Q4 earnings fall short of views, while guides Q1 revenue of $35M to $40M and full-year revenue of $195M to $205M

·     POSH -18%; delivered a Q4 beat on EPS/sales despite higher cancellations leading to a lower take rate, while shares slip in Q1 guidance as guides Q1 revs $75.5M-$77.5M vs. est. $80.1M and adj Ebitda $1M-$2M

·     RIDE -18%; mentioned negatively by Hindenburg Research, calling it an electric vehicle SPAC with no revenue and no sellable product, which they believe has misled investors on both its demand and production capabilities

·     ULTA -9%; posted a material revenue & margin beat for Q4, but was overshadowed by the news that CEO Mary Dillon is stepping aside, along with conservative FY guidance ($8.85-$9.30 EPS vs. est. $10.61) and softer Q4 comp sales down (-4.8%)

·     ZUO -5%; reported smaller than expected Q4 loss of (2c) on better revs of $79.3M, but shares slip with broader software slide and mixed FY22 guidance (better revs, weaker EPS)

Syndicate:

·     AMMO (POWW) 20M share Secondary priced at $5.00

·     Carlyle Group (CG) 3M share Block Trade priced at $36.10

·     Cyclacel Pharmaceuticals (CYCC) 1.807M share Secondary priced at $7.00

·     Federated National (FNHC) 3.5M share Secondary priced at $4.75

·     Hayward (HAYW) 40.278M share IPO priced at $17.00

·     Joann (JOAN) 10.94M share IPO priced at $12.00

·     Marker Therapeutics (MRKR) 28.572M share secondary priced at $1.75

·     MeaTech (MITC) 3D 2.42M share IPO priced at $10.30

·     Longboard Pharmaceuticals (LBPH) 5M share IPO priced at $15.00

·     PetIQ (PETQ) 1.5M share Block Trade priced at $36.00

·     Prometheus (RXDX) 10M share IPO priced at $19.00