Mid-Morning Look

Thursday, March 18, 2021

Stock markets open mostly lower, led by weakness in technology and energy shares as investors digest another round of economic data and yesterday’s FOMC meeting results. Large cap tech names pressured early (high growth) following another spike in Treasury yields with the 10-year hitting 1.75% (up more than 10bps), highest levels since January of last year. At the same time, banks are strong with gains in JPM, BAC, MS, WFC, Citi amid the rising Treasury yields, helping boost the Dow Jones Industrial Average to another new all-time high (note the Dow topped the 33,000 level for the first time yesterday – just five days after it first closed above the 32,000 level – its quickest 1,000-point milestone on record). Economic data was mixed with better jobless claims data, and exceptionally strong manufacturing data out of the Philadelphia region, scoring its highest reading since 1973. The downside of the report showed prices paid soared to its highest level since 1980, renewing concerns about rising inflation. The Fed’s Powell again tried to downplay the recent spike in yields and prices, calling it a function of an improving economy – but at what point do they notice the ongoing climb in yields? Dow Transport index record highs alongside the Dow Industrials as financials, industrials, materials lead. Stocks that tend to slide with rising interest rates such as housing seeing softness this morning. The dollar is higher, with commodity prices sliding led by 3% declines for oil prices.

Economic Data

·     Weekly jobless claims rose to 770K in latest week vs. est. 700k (prior week revised to 725K from 712k), continuing claims reported at 4.124M vs. est. 4.07M (prior week 4.144M), the 4-week moving average fell to 746,250 in latest week from 762,250 prior week (previous 759,000); the U.S. insured unemployment rate rose to 3.0% from 2.9% prior week.

·     Philly Fed Survey jumps to 51.8 (highest since 1973) above est. and prior around 23 level – Treasury yields bounce again on the strong data as prices paid component at 75.9, the highest since 1980.

Sector Movers Today

·     Softline/apparel retail; GIII results mixed as Q4 EPS of $0.30 beats but revs of $526.2M below consensus $535.1M (Q1 EPS guide better and revs miss); SIG posted Q4 EPS of $4.15, beating the $3.54 estimate citing strong growth in N.A. ecommerce sales and guided Q1 sales of $1.42B-$1.46B above est. $1.28B; ROST named short-term catalyst buy idea at Deutsche Bank; ADDYY and PTON join forces to release inclusive apparel line; RVLV upgraded to a Buy at Bank America saying it offers an opportunity to invest in trends that will strengthen in both a recovery & post-pandemic. Our $65 PO is based on 35x our F23E EV/EBITDA, which is a slight discount to a group of high growth digitally-focused peers

·     Consumer Staples; UTZ Q4 adj net income $20.4M tops est. $12.6M and revs $246.3M slightly above est. $243.0M and better EBITDA $34.0M vs. est. $31.5M on better FY21 EPS guide; CLX downgraded to Neutral from Buy, at Davidson and cut tgt to $189 from $234 noting in the four weeks ended March 7th, IRI data showed POS turned negative (-10.8%) due to the start of hard COVID-driven prior-year comps, which get even more difficult next month (+75%); Wells Fargo said Cannabis Banking Bill to be Reintroduced in Congress and view this as a headline positive for Overweight STZ, but also the broader cannabis complex

·     Semiconductors; COHR confirmed receipt of a revised acquisition proposal from IIVI of $7B; per the revised terms, each share of Coherent common stock would be exchanged for $220 in cash and 0.91 of a share of II-VI common stock (follows a recently revised offer from LITE of $6.9B); SMTC reported a solid beat-and-raise quarter with gross margins of nearly 62% and remains confident in its near-term outlook and could see double-digit growth this year; LAZR said it will provide Iris lidar sensors and components of its new Sentinel software system to the R brand electric vehicles from SAIC, China’s largest automaker

·     Utilities; Guggenheim downgraded both NRG, VST to Neutral from Buy given near-term uncertainties from the recent Winter Storm Uri in Texas after NRG suspended its guidance yesterday given a much larger loss from the storm than they previously anticipated; NRG was also downgraded to In-Line with a $42 target at Evercore; Mizuho remains UW on SO but lifted its target to $57 from $52 as they believe the company is far behind in closing out its work packages and turning tis systems over to ITP testing despite targeting the second half of March to start its hot functional testing; PPL said it agreed to sell its UK utility business to NGG for GBP7.8B (~ $10.9B) and agreed to acquire Narragansett Electric Company in Rhode Island from NGG for a total equity value of $3.8B; SJI 10.25M share Secondary priced at $22.25

Stock GAINERS

·     AOUT +19%; on beat and raise as Q3 adj EPS 82c topped the 36c estimate on better revs of $82.6M vs. est. $59.02M – also raises FY21 EPS $2.08-$2.15 (up from prior $1.49-$1.67) and sales $268M-$272M (up from $235M-$245M)

·     CFG +5%; big gains in large cap, regional banks and insurance stocks – ZION, LNC, CMA among early leaders in the S&P

·     FIVE ; posts the highest F4Q comparable sales growth in company history (+13.8% vs. est. 10.3%), and an earnings beat to consensus expectations

·     LAZR +3%; said it will provide Iris lidar sensors and components of its new Sentinel software system to the R brand electric vehicles from SAIC, China’s largest automaker

·     LYFT +1%; posted positive year-over-year growth in daily rideshare ride volume for first time in a year and says last week, rideshare ride volume reached a new record for 2021 and was the company’s best week since March 2020

·     SIG +8%; posted Q4 EPS of $4.15, beating the $3.54 estimate citing strong growth in N.A. ecommerce sales and guided Q1 sales of $1.42B-$1.46B above est. $1.28B

·     SINO +15%; said it will launch a new exchange for NFTs (non-fungible tokens) in collaboration with e-commerce public chain CyberMiles

·     WSM +17%; trades to new all-time highs after posted its 2nd straight quarter of ~25% comp growth, with strong 4Q sales across all of the company’s brands, driven by the Retail Lift and consumers’ continued focus on the home

Stock LAGGARDS

·     CLX -3%; downgraded to Neutral from Buy, at Davidson and cut tgt to $189 from $234 noting in the four weeks ended March 7th, IRI data showed POS turned negative (-10.8%) due to the start of hard COVID-driven prior-year comps, which get even more difficult next month

·     DG -7%; shares slip after results as posted Q4 EPS of $2.62, missing ests by 10c on better sales of $8.4B, on better comp sales of 12.1% vs. est. 11.2% and slightly better margins (32.5%) (along with $2B buyback and div hike) but guided net sales in the range of a -2% to flat vs. +1.85% consensus and on comp sales guidance of down (4%-6%)

·     DHI -3%; housing stocks starting to soften given the recent rise in Treasury yields to highest levels since January of 2020 – which impact mortgage rates (watch builders TOL, LEN, PHM , KBH, MTH

·     RIDE -10%; after Lordstown Motors CEO Stephen Burns says preorders are non-binding during interview on CNBC this morning – follows news overnight that it received request for information from SEC regarding Hindenburg short report

·     TBIO -30%; after posting disappointing results from early-to-mid stage clinical trial of its mRNA product candidate, MRT5005, for cystic fibrosis – prompting two analyst downgrades (Evercore and Truist)

Syndicate:

·     ContraFect (CFRX) 10M share Secondary priced at $5.00

·     Duckhorn Portfolio (NAPA) 20M share IPO priced at $15.00

·     Maxar Technologies (MAXR) 10M share Secondary priced at $40.00

·     Paya Holdings (PAYA) 20M share Secondary priced at $12.25

·     PhaseBio (PHAS) 16M share Secondary priced at $3.50

·     Primoris (PRIM) 4.5M share Secondary priced at $35.00

·     Sotera Health (SHC) 25M share Secondary priced at $27.00

·     South Jersey Industries (SJI) 10.25M share Secondary priced at $22.25

·     Vine Energy (VEI) 21.5M share IPO priced at $14.00