Mid-Morning Look

Thursday, March 25, 2021

Stocks open lower, erasing overnight gains as the momentum sectors that have been driving stock market interest and trading such as Bitcoin leveraged plays, Reddit/WSB “meme” trades, electric vehicles, and SPAC’s have all seen significant selling pressure over the last week or so, taking some of the froth out of the market momentum. Dow component NKE falls amid China tension after the company was criticized on Chinese social media over its Xinxiang statement. Economic better was better than expected today with GDP topping views and jobless claims falling to its best levels since early last year as the economy continues to improve. Lower Treasury yields (10-yr down 2 bps at 1.59% – ahead of important 7-year auction later today) aren’t helping high-valuation techs and even a jammed Suez Canal can’t boost energy stocks. Month end rebalance possibly weighing on markets again today. SPAC industry a focus after Reuters reported the SEC has opened an inquiry into the blank check acquisition frenzy on Wall Street and is seeking information on how underwriters are managing the risks involved. The high-flying Smallcap stocks, which have been market leaders (cyclicals such as energy, financials, materials) continue to break down after the Russell 2000 closed below its 50-day moving average for a second day on Wednesday (of 2,217) closed out a record run for the index above its 50 DMA. Volatile oil prices extend fall, WTI crude falls over 4% at session-low under $59 per barrel. Modest selling pressure in the early going after stocks closed near their lows yesterday.

Economic Data

·     Gross domestic product (GDP) rose at a 4.3% annualized rate in its third estimate of Q4 GDP growth, which was up from the 4.1% pace reported last month but a sharp deceleration from the record 33.4% rate logged in the third quarter. The economy is forecast to grow by as much as a 7.5% rate in Q1. The PCE price index +1.5%, in-line with consensus and +1.6% previous estimate, while Core PCE price index +1.3% vs. +1.4% consensus and +1.4% previous estimate. Consumer spending or Q4 rose +2.3% vs. est. 2.4% and durables fell (-1.1%) vs. prior (-0.6%).

·     Weekly jobless claims fell to 684K from 781K the week prior and better than the 730K estimate; the 4-week moving average fell to 736,000 mar 20 week from 749,000 prior week; continued claims fell to 3.870M in latest week vs. est. 4.043M and from 4.134M the prior week; the U.S. insured unemployment rate fell to 2.7% from 2.9% prior.

Sector Movers Today

·     Aerospace & Defense; BA tgt raised to $265 from $210 at Bank America saying improved market sentiment on commercial aero stocks now benefiting original equipment manufacturers, suppliers, airlines, and aircraft lessors; MAXR was upgraded to Overweight at JPMorgan with $47 tgt saying a turnaround opportunity remains, risk-reward now more favorable following the pullback; GD tgt raised to $200 from $160 at Citigroup saying the co has quietly outperformed the market & broader defense in recent months after posting strong cash flow performance in 2020 and setting a 2021 target ahead of our expectations; AVAV awarded $21 million contract option for raven radio frequency modifications under existing U.S. army fcs contract

·     Metals & Materials; in chemicals space, CE increases 2021 financial outlook as sees FY21 EPS $11.00-$11.50 vs. est. $10.13; says expects a strong finish to Q1 with adj EPES around $3.00 vs. est. $2.71; said expect momentum to continue across the middle of 2021; FUL posts beat and raise as Q1 adj EPS 66c vs. est. 48c; Q1 revenue $726M vs. est. $681M; raises its full year guidance on stronger outlook for revenue and Ebitda growth; AVNT tgt to $55 from $50 at Wells Fargo and raise 2021 EPS estimate above guidance from $2.40 to $2.50 as strong demand for polymers and engineered materials continue to drive production and demand

·     Media & Telecom movers; VIAC downgraded to sell at Moffett saying domestic average revenue per user growth other media companies like ViacomCBS will be challenging as they are giving up higher linear per subscriber revenues for lower-monetized direct-to-consumer products; NWSA agreed to acquire Investor’s Business Daily from O’Neil Capital Management, for $275M; HWCC to be acquired by OmniCable for $5.30 per share in deal valued at $91M https://bit.ly/3m1vGF3 ; IHRT upgraded to Outperform w/ $24 pt at Wolfe research saying though the pandemic has had a major impact on core radio advertising, it allowed mgmt. to successfully accelerate the execution of its digital strategy

·     Auto sector; QS shares slip after 10.4M share Secondary priced at $40.00 (deal downsized from 13M share prior); electric vehicle carnage continues after being one of the 2020 darling sectors, led by declines in TSLA as well as other EV’s/charging names (BLNK, NIO, LI, FSR, CHPT); UBER, LYFT pt raised to $75 and $65, respectively at Morgan Stanley as continue to rely on rideshare use case based modeling to gauge the slope of the recovery and remain bullish given

Stock GAINERS

·     CE +1%; increases 2021 financial outlook as sees FY21 EPS $11.00-$11.50 vs. est. $10.13; says expects a strong finish to Q1 with adj EPES around $3.00 vs. est. $2.71

·     CSCO +2%; upgraded to Buy at Goldman Sachs and raised tgt to $59 as believe it will still thrive in the new work environment as companies look to enable a video-conferencing heavy return to office mode

·     DRI +3%; after Q3 EPS 98c easily topped the 69c estimate on better revenue of $1.73B (est. $1.63B) and issues Q4 EPS view of $1.60-$1.70 above est. $1.24 and announces new $500M share repurchase program

·     HWCC +37%; to be acquired by OmniCable for $5.30 per share in deal valued at $91M https://bit.ly/3m1vGF3

·     NBIX +8%; after being added to S&P MidCap 400 index

·     RH +5%; price tgt raised by several analysts after the co reported a 22% rise in Q4 revenue to $812.4M, topping estimates of $797.7M on better EPS and sees Q1 revs growth at least 50%

·     SJM +2%; seeing strength in food related/defensive names with cyclicals and tech pressure

Stock LAGGARDS

·     AMWL -7%; reported strong 4Q20 results with revenue gross margin and adj. EBITDA all better than expected, but guided both F21 revenues and adjusted EBITDA below consensus (FY21 revenue guidance implies 9.6% YoY growth vs. Piper street-high est. 30.6%)

·     EOLS -21%; as posts Q4 revenue of $20.6 mln, below analysts’ estimates of $21 mln as well as wider Q4 loss of $3.28 per share, compared with 47c YoY

·     FANG -4%; energy stocks moving back to the downside along with tumble in oil prices (weakness in APA, DVN, MRO, OXY, HES among top decliners in the S&P)

·     KBH -3%; reported mixed Q1 results as EPS of $1.02 beat the est. $0.91 while revenue of $1.14B missed the $1.2B est., while raises FY21 housing revenue view to $5.7B-$6.1B from $5.55B-$6B

·     NKE -4%; after the company was criticized on Chinese social media over Xinxiang statement – NKE said it was “concerned” about reports of forced labor in Xinjiang and that it does not use cotton from the region

·     RAD -19%; lowers FY21 adj EBITDA view to $425M-$435B from $490M-$520M; said Q4 results significantly impacted by weak cough, cold, and flu season, continued effects related to covid-19 pandemic

Syndicate:

·     Certara (CERT) 10M share Secondary priced at $25.00

·     Cricut (CRCT) 15.315M share IPO priced at $20.00

·     Diversey (DSEY) 46.2M share IPO priced at $15.00

·     Evofem (EVFM) 17.143M share Spot Secondary priced at $1.75

·     Lava Therapeutics (LVTX) 6.7M share IPO priced $15.00

·     Olink (OLK) 17.657M share IPO priced at $20.00

·     QuantumScape (QS) 10.4M share Secondary priced at $40.00

·     SEMrush Holdings (SEMR) 10M share IPO priced at $14.00

·     Vizio (VZIO) 15.12M share IPO priced at $21.00