Mid-Morning Look

Monday, May 10, 2021

It is a tale of two markets today as the Dow hits another record high, topping the 35K level for the first time and Dow Transports jump over 1%, topping the 16K level for the first time ever, though the tech heavy Nasdaq Comp declines as high valuation/growth names give back Friday gains. The S&P 500 index is little changed as a surge in commodity prices (copper, oil, iron ore) lifts shares of miners, energy, and steel companies, raising inflation fears again for investors (impacting the tech space). A weaker-than-expected jobs report on Friday assured investors that the Federal Reserve will maintain its patience and keep its monetary policy accommodative to support the U.S. economy lifting markets sharply – but market participants continue to see surging prices everywhere. Cybersecurity firms active following the ransomware attack on the Colonial Pipeline Co that forced the shutdown of pipelines that supply the East Coast with much of its refined fuel. Earnings season is in its final stretch with about 87.2% of 439 S&P 500 companies beating estimates for profit, according to Refinitiv data. Analysts expect overall first-quarter earnings to jump 50.4% from a year ago, their strongest growth rate since 2010. There was no major economic data this morning, but a handful of earnings impacting stocks. Crypto currency names lots of attention with Bitcoin Cash, Ethereum hitting new highs while Bitcoin slips.

Sector Movers Today

·     Software movers; Defense officials are considering pulling the plug on the $10B JEDI cloud-computing project, which was awarded to MSFT in 2019 over AMZN, which has contested the award in court ever since https://on.wsj.com/3f9y3Cj ; ORCL was downgraded to Equal-weight from Overweight at Barclay’s after the shares hit its tgt price (valuation); CRWD and Google cloud extend strategic partnership to deliver defense-in-depth protection across hybrid cloud environments; TTD plunges as reports Q1 EPS and slight revs beat $219.8M vs. est. $216.9M) but shares slide after the co said its business has been impacted by the COVID-19 pandemic that has significantly impacted advertiser demand – also announced a 10-for-1 stock split (shares of MGNI, PERI declined in sympathy on advertising comments); cyber security stocks (CRWD, FEYE) in focus following the ransomware attack on the Colonial Pipeline Co that forced the shutdown of pipelines that supply the East Coast with much of its refined fuel

·     Media & Telecom movers; Jefferies upgrades LYV to Buy from Hold, price target $96 saying the pullback in the shares (-13% from 3/2, vs ~+11% for the index) provides a compelling entry point for a premium, pure-play recovery, long-term growth story; IHRT upgraded to Overweight and raises tgt by $11 to $29 at JPMorgan as remains bullish citing higher digital revenue growth led by its podcasting business, continued rebound in ad trends as the economy re-opens, and strong revenue flow amid recent cost-cutting efforts; CCOI was upgraded to Outperform and $84 tgt at RBC, positive on the stock amid the early signs of a potential recovery in the Corporate market

·     Biotech movers; AXSM Q1 EPS loss (78c) vs. est. (87c); said that its cash at March 31, 2021, along with the remaining committed capital from the $225M term loan facility, is sufficient to fund anticipated operations into at least 2024; MBIO said the FDA accepts its application to begin an early stage clinical trial for its experimental treatment, MB-106, for a type of non-Hodgkin lymphoma and chronic lymphocytic leukemia; INO said its experimental COVID-19 vaccine was safe and also triggered antibody titers in 400 or so adult participants in a Phase 2 clinical trial; GILD this weekend at ESMO, AZN and Daiichi Sankyo presented phase I data from their TROP-2 ADC DS-1062 in mTNBC, showing competitive results to Trodelvy according to RBC

·     Casinos, Gaming, Lodging & Leisure sector; BALY reported Q1 EPS of 28c, missing the 34c estimate but revs better at $192.2M vs. est. $171.7M and Ebitda jumped 138% YoY; in lodging, MAR 1Q adj EPS of $0.10 beat the $0.03 estimate on revs $2.32B missing the $2.36B est. but said saw demand improve meaningfully during 1Q, especially in mainland China where occupancy is near pre-pandemic level; SGMS beat across every segment, gross and EBITDA margins really good across segments and overall, $80m FCF; for gaming (WYNN, MLCO) Bernstein noted Macau daily GGR during the first nine days (including May 1-5 Golden Week) jumped 92% w/w from the last week of April (ADR MOP500mm vs. 260mm). The five days of Golden Week had ADR of ~MOP 600mm (-43% in May 1-5, 2019 with this year having better mass mix)

·     Retailers; ENR 2Q adj EPS $0.77 tops $0.60 est. on revs $685.1Mm vs. est. $625.9Mm, guides FY adj EPS $3.30-3.50 vs. est. $3.35; PRTY reported adj Q1 EPS (5c) loss, narrower than est. (17c) loss on revs $426.8M vs est. $405M and adj EBITDA $32.4M that more than doubled consensus, and sees Q2 revs $475-490M (est. $382.7M); Barron’s was positive on AEO, NKE, RVLV, and TJX as the pandemic brought cultural fashion changes and people will use these to get dressed for the reopen; Guggenheim raised their pt on ASO to $38 from $30 after they pre-announced comp sales +39%, the strongest under Ken Hicks (since May 2018); SPG and Authentic Brands Group agreed to buy Eddie Bauer, adding the outdoor gear and apparel retailer to a brand marquee housing Aéropostale, Forever 21 and Brooks Brothers

Stock GAINERS

·     AA +6%; shares of copper producers (FCX), aluminum (AA), iron ore (CLF) and steels (NUE) again leading the gains in the S&P 500 with furth rotation in materials amid surging prices

·     BNTX +2%; after announcing a 1.8B order for vaccine for ’21 to ’23 from the EU and announcing a JV with Fosun Pharma to produce its vaccine in China/also announced plans for a regional HQ and vaccine manufacturing site in Singapore

·     FEYE +5%; cyber security stocks (CRWD, FEYE) in focus following the ransomware attack on the Colonial Pipeline Co that forced the shutdown of pipelines that supply the East Coast with much of its refined fuel (though weakness in broader tech pares early gains)

·     HRVSF +14%; TCNNF said it has struck an agreement to acquire Harvest Health (HRVSF), another U.S.-focused operator, as holders in Harvest Health & Recreation Inc. would receive 0.117 of its stock for each Harvest share they own, a ratio that values the stock at $4.79 a share (shares closed last week at $3.58), in a deal valued at about $2.1B https://on.mktw.net/3f5eFGI

·     LB +4%; strength in retailers this morning – BBY, GPS also among top S&P 500 gainers

·     LYV +3%; Jefferies upgrades LYV to Buy from Hold, price target $96 saying the pullback in the shares (-13% from 3/2, vs ~+11% for the index) provides a compelling entry point

·     PRTY +9%; reported adj Q1 EPS (5c) loss, narrower than est. (17c) loss on revs $426.8M vs est. $405M and adj EBITDA $32.4M that more than doubled consensus

Stock LAGGARDS

·     CEVA -14%; after positing miss on the bottom line

·     COTY -3%; Q3 EPS missed estimates while sales of $1.03B was in-line with views and reaffirmed FY21 net revs $4.5-4.6B vs est. $4.57B, sees FY adj EBITDA $750Mm

·     FB -3%; FB and GOOGL downgraded to neutral from buy at Citigroup saying three things that make them nervous

·     MAR -2%; 1Q adj EPS of $0.10 beat the $0.03 estimate on revs $2.32B missing the $2.36B est. but said saw demand improve meaningfully during 1Q

·     SNGX -17%; said in a filing that it decided not to pursue a rolling NDA submission at this time for its HyBryte (SGX301) drug application

·     TTD -18%; reports Q1 EPS and slight revs beat $219.8M vs. est. $216.9M) but shares slide after the co said its business has been impacted by the COVID-19 pandemic that has significantly impacted advertiser demand – also announced a 10-for-1 stock split

·     WKHS -11%; posted Q1 revs below views and also set 2021 production of 1K units, but says the deliberate approach to growth will help it deliver increased volume in 2022 and beyond