Mid-Morning Look

Wednesday, March 31, 2021

Stocks moving higher on the final trading day of the month and quarter, with the S&P 500 and Dow on track for best monthly returns since November, while the Nasdaq Composite turns positive on the month with today’s rotation back into tech while markets await details on President Joe Biden’s $2.25T infrastructure and jobs program. Biden’s plan to pay for the program with tax increases will be a major obstacle in getting any support from lawmakers. Green technology stocks (solar names) and some materials shares, like U.S. steel, have been rising into the stimulus plan. The 10-year Treasury yield is flat at 1.72% while the dollar is flat after a strong March. Dow Transports are pulling back slightly from all-time highs, seeing a rotation back into large cap tech today (Internet, software, semi’s all surging). Economic data mixed with a beat in the manufacturing space today with Chicago PMI, while ADP private payroll did come in slightly below views on headlines but showed a big upward revision from prior month (see below) and pending home sales disappoint. Industrials, materials, and metals still seeing strength into Biden infrastructure plan details. Cannabis names seeing strength after New York State Senate and Assembly Tuesday evening approved a bill that would legalize marijuana for recreational use. Reopen stocks mixed to higher as investors still buying names with vaccine rollout continuing.

Economic Data

·     ADP Employment Change for March actual 517k, below forecast of 550k and vs. previous 117k; the ADP February payroll change revised to +176,000 from +117,000

·     Chicago PMI another strong report, reported at 66.3, topping the 61.0 estimate and above prior month of 59.5 – another positive economic data point (recall yesterday massive consumer confidence beat)

·     U.S. Pending Home Sales MoM fell -10.6%, worse than the forecast decline of -3.0%, and compared to previous decline -2.8%

Sector Movers Today

·     Cannabis stocks active (ACB, CGC, CRON, APHA, TLRY, CURLF, CRLBF) after the New York State Senate and Assembly Tuesday evening approved a bill that would legalize marijuana for recreational use; the Senate vote was 40-23 and the Assembly vote was 100-49; GTBIF said it is demanding an immediate retraction by the Chicago Tribune of an article alleging the marijuana cultivator and dispenser is under federal investigation for possible pay-to-play violations in its efforts to secure state licenses.

·     Payments and FinTech; SQ was upgraded to Outperform at KBW as there is now about 17% upside to their $250 price target and they believe the company is a long-term winner within the underserved market with its Seller and Cash App and incremental investments/initiatives such as Tidal, Credit Karma Tax division, and Square Financial Services that can help increase engagement and drive incremental growth; Bernstein said they see a compelling bull case for Visa (V) as disruption, regulation/litigation/DOJ and sustained COVID-19 impact (e.g., on cross-border) fears are overblown; Argus raised their target on Buy-rated ADS to $130 from $95 as they see the company benefitting from improving travel and retail conditions as the pandemic diminishes, as well as their recent acquisition of Lon to provide consumers with a BNPL option

·     Transports; Dow Transports setting new all-time highs yesterday (though some weakness today), led by rebound in airlines, as well as massive surge for rails (many touching all-time highs) and car rental with CAR hitting record highs on rising hopes of further economic recovery; in shipping, INSW will buy DSSI for ~$416 mln, as it aims to expand crude shipping capacity and create one of the largest U.S.-listed tanker companies as DSSI shareholders will receive $10.17/share, or 0.55375 shares, of INSW stock; DAL said it will start selling middle seats May 1.

·     Pharma movers; PFE and BNTX said a Phase 3 trial of its COVID-19 vaccine in adolescents aged 12 to 15 years old showed 100% efficacy and robust antibody responses, an even better result that seen in an earlier study of participants aged 16 to 25 years old; DCTH announces positive Hepzato data in metastatic ocular melanoma; AFMD and NKMax America announce that the FDA has cleared an investigational new drug application for Phase 1/2a dose escalation and expansion study investigating the combination of AFM24 and SNK-01 in patients suffering from tumors known to express EGFR; CRL buys Retrogenix for $48M in cash; ACHL 9.75M share IPO priced at $18.00; PRQR 13.85M share Spot Secondary priced at $6.50; BHC said it would sell all its stake in Egypt’s Amoun Pharmaceutical Co SAE to ADQ for about $740 million

Stock GAINERS

·     AAPL +2%; upgraded to Buy from Neutral at UBS with $142 tgt from $115 to reflect a more stable long-term iPhone demand backdrop with better ASPs and to capture the “real” option value of Apple’s likely entry into the auto market

·     BNTX +6%; adds to yesterday gains after saying a Phase 3 trial of its COVID-19 vaccine in adolescents aged 12 to 15 years old showed 100% efficacy and robust antibody responses

·     CHWY +11%; Q4 results handily beat estimates across key measures and 1Q21/FY21 were guided above the Street, prompting several analyst tgt and ests hikes

·     HOG +7%; upgraded to Outperform at Baird for the first time since 2016 as like the strategic direction led by a proven leader and expect investors to get behind the change narrative embedded in The Hardwire (2021-2025 plan)

·     LRCX +5%; Bernstein initiates semi-equipment stocks LRCX ($700 TP) and AMAT ($160 TP) both at Outperform with overall positive long-term structural stance

·     PVH +7%; Q4 EPS loss (81c) was narrower than est. loss (84c) on revs $2.09B vs. est. $2.12B, and they expect 2021 revenue and earnings to continue to be impacted negatively by pandemic

·     SQ +7%; upgraded to Outperform at KBW as there is now about 17% upside to their $250 price target and they believe the company is a long-term winner within the underserved market with its Seller and Cash App and incremental investments

·     SURF +12%; said the U.S. FDA has granted Orphan Drug Designation for one of the company’s lead therapeutic candidates, SRF617, for the treatment of patients with pancreatic cancer

·     TLRY +3%; cannabis stocks rise early (ACB, APHA, CGC, CRON) after the New York State Senate and Assembly Tuesday evening approved a bill that would legalize marijuana for recreational use; the Senate vote was 40-23 and the Assembly vote was 100-49.

·     WBA +3%; reported Q2 adj EPS beat of $1.40 vs. est. $1.11 and raised its guidance to mid-to-high single digit adjusted EPS growth vs. LSD growth prior

Stock LAGGARDS

·     BB -8%; Q4 adj revenue of $215M missed the $245.11M estimate while also announces potential sale of part of patent portfolio

·     DCTH -22%; reverses earlier gains after reported positive top-line preliminary results from its Phase 3 Focus trial of Hepzato in patients with liver dominant metastatic ocular melanoma

·     DVN -2%; early weakness in energy space amid rotation into technology today

·     LULU -4%; as posted Q4 adj EPS $2.58 vs. est. $2.49 on revs $1.73B vs. est. $1.66B, total comp sales +21% and digital comps +92%, and guided Q1 EPS 81c-85c on revs $1.1B-$1.3B vs. est. 82c and $999.5M

·     RMO -17%; rebooted revenue guidance to ~$18M-$40M down from a pre-merger estimate of $140M as BTIG lowers tgt to $30 after company noted global demand for battery cells has sharply outpaced supply

·     VIAC -4%; pullback again in media names with DISCA shares also pressured