Mid-Morning Look

Wednesday, May 12, 2021

U.S. stocks sink to start the day following a “hotter” than expected inflation reading as April Consumer Prices (CPI) rises 0.8% vs. est. 0.2% and core CPI MoM figures at 0.9% vs. est. 0.3%, both well above consensus views (and comes ahead of the PPI data tomorrow which is also expected to be sharply higher). The data pushed Treasury yields to their highest levels in over 2-weeks (10-yr high 1.675%), while gold prices were volatile. The index for used cars and trucks rose 10.0% in April. This was the largest 1-month increase since the series began in 1953, and it accounted for over a third of the seasonally adjusted all items increase. The S&P 500, Dow Jones Industrials and Nasdaq Composite are now falling for a third straight day (S&P and Dow off record highs late last week). Financial and banking stocks seeing strength as inflation fears back into the market following the CPI report this morning, pushing Treasury yields higher. Another heavy dose of Fed speakers are expected throughout the day with the Fed’s Clarida saying earlier the acceleration in inflation is transitory, mismatches between labor supply and demand account for the disappointing April jobs report, the economy remains a long way from the Fed’s goals. The CBOE Volatility index (VIX) rises to its highest levels in two-months above the $23 level. Surging commodity prices (lumber, copper, corn, iron ore, soybeans) and labor shortages have boosted market fears that despite reassurances from the U.S. Federal Reserve, near-term price spikes could translate into longer-term inflation.

Economic Data

·     Consumer Prices (CPI) April headline numbers hotter at 0.8% (highest number since June 2008) vs. est. 0.2% and core CPI MoM figures at 0.9% (highest since 1981) vs. est. 0.3%. On a YoY basis, CPI headline data rises to 4.2% vs. est. 3.6% and core CPI YoY rises 3.0% vs. est. 2.3%. April CPI energy -0.1%, gasoline -1.4%, new vehicles +0.5%

Sector Movers Today

·     Energy stock movers; oil stocks (FANG, COP, MRO, etc.) edging higher again in supply concerns as the biggest U.S. pipeline (Colonial) remained closed following a cyberattack at the end of last week. Filling stations across the east coast have begun reporting gas shortages since Colonial Pipeline was hacked on Friday. The pipeline delivers around 45% of all refined fuels along the eastern U.S. coast between Texas and New York, said it continues to make progress in restoring its network to full capacity. Gas prices in the U.S. hit the highest levels in seven years on Tuesday. the American automobile association said average pump prices hit $2.99 cents a gallon across the united states this week, the highest since late 2014.

·     Retailers; GPS said it is resuming its $1B buyback program that was suspended in March 2020 and expects to purchase up to $200M this fiscal year of the $800M remaining; WWW reported in-line Q1 adj EPS 40c on revs $510.7M vs est. $511.8M, guided FY adj EPS $1.95-2.10 (est. $2.08), and sees FY revs $2.24-2.3B (est. $2.24B); RBC downgraded DG to Sector Perform as its growth may slow compared to other retailers as fading stimulus and rising food/gas prices squeezed their existing customer base; HBI was upgraded to Buy with a $25 pt at Stifel and to Equal-Weight at Wells as both are now more confident in the company’s management and strategies; Credit Suisse lifted their estimates on ASO and their price target to $39 from $32 after the company’s strong preliminary Q1 update yesterday; BTIG upped their target on YETI to $100 ahead of tomorrow morning’s earnings report as their Q1 checks throughout the quarter showed continued robust demand with traffic to the company’s website +94% YoY

·     Insurance; AJG said it expects to finance its $3.57B acquisition of certain WLTW assets with a combination of long-term debt, short-term borrowings, free cash, and common equity; LMND posted a Q1 EPS loss of (81c) that was worse than the expected (78c) loss on revs $23.5M vs est. $21.9M, and issued guidance for Q2 of revs $26-27M (est. $26.24M) and adj EBITDA loss of ($43M)-($40M) and for the full-year of revs $117-120M (est. $115.56M); SLQT reported Q3 EPS $0.22 vs. est. $0.24 on revs $266.9M vs. est. $261.1M, guided FY revs $920-940M (est. $934.9M), and sees FY adj EBITDA $225-235M (est. $237.4M); Credit Suisse maintained SLF as their Top Pick among Canadian life insurers, raised their pt on GWO to C$37 and lowered their MFC pt to C$27 and remains optimistic on the group after reporting relatively in-line Q1 results; THG increased their share repurchase authorization by $400M to $1.3B

·     Software movers; video gamer EA delivered a strong finish to FY21, with Apex Legends reporting a record quarter and sequential growth throughout the year and FY22 guide was better than expected; NLOK upgraded to Buy from Underperform with $30 tgt at Bank America saying the company demonstrated improvements on multiple fronts such as better growth; BIGC posted a high-quality beat as ARR further accelerated, remaining above 40% for the second consecutive quarter, with Subscription revenue benefiting from strength in enterprise growth; SSTI reported top and bottom line beat and lifted `21 rev guidance

Stock GAINERS

·     EYES +13%; after saying it had positive results in its two-year Early Feasibility Study of the Orion Visual Cortical Prosthesis

·     FANG +3%; as energy related stocks outperform behind the bounce in oil prices on supply concerns following the Colonial Pipeline shutdown due to a cyber security attack last week

·     FUBO +15%; beat & raise Q1, with revenue, subs, and ARPU well above the Street, driven by improvement in retention rates, product (personalization and content discoverability), engagement, and the addition of ESPN content

·     MCFT +3%; reports better-than-expected Q3 results and raises full-year financial outlook, helped by higher volumes and prices for its products and lower dealer incentives

·     NERV +24%; after the company announced positive results from an open-label extension of a phase 3 trial of its schizophrenia candidate roluperidone

·     UPST +15%; after reported Q1 adjusted EPS of 22c, beating ests by 7c on revs beat $121M vs. est. $116M and now expects 2021 revs of $600M vs. prior guidance of $500M

·     WEN +2%; Q1 adj EPS 20c tops the 14c consensus on higher revs of $460.2M vs. est. $444.31M while raises FY21 adjusted EPS view to 72c-74c from 67c-69c and boosts FY21 global systemwide sales growth view to 8%-10% from 6%-8%

Stock LAGGARDS

·     ARRY -34%; after EPS of 19c missed estimates and revs slide 44% to $245.93M from $437.7M a year ago, driven by a reduction in the amount of ITC safe harbor related shipments (beat ests of $240.8M) while warns that continuing increase in steel and freight costs will impact margins in the Q2 and subsequent qtrs if prices do not normalize

·     CURI -11%; after disappointing Q1 results as EPS larger at ($0.39) vs est. ($0.20) on revs $9.9Mm also below est. $10.6Mm, subs +28% to about 16Mm

·     GO -12%; downgraded to Hold from Buy at Deutsche Bank while cuts tgt to $37 from $43 saying they are incrementally concerned about the company’s near- to medium-term sales outlook, while Hallum cut to Hold with $40 tgt also on Q2 outlook

·     LITE -14%; shares tumble after Q3 revs of $419.5M missed the $433.5M estimate (EPS in-line), while guidance for the upcoming quarter well below views at $360M-$400M vs. est. $408.9M

·     LMND -9%; posted a Q1 EPS loss of (81c) that was worse than the expected (78c) loss on revs $23.5M vs est. $21.9M, and issued guidance for Q2 of revs $26-27M (est. $26.24M) and adj EBITDA loss of ($43M)-($40M)

·     NVAX -3%; downgraded to Neutral at JPMorgan saying among the several disappointing updates from the recent earnings print / call, the most troubling to us is the clear challenge the company still faces in manufacturing its vaccine candidate at large scale

·     SLQT -15%; reported Q3 EPS $0.22 vs. est. $0.24 on revs $266.9M vs. est. $261.1M, guided FY revs $920-940M (est. $934.9M), and sees FY adj EBITDA $225-235M (est. $237.4M)

·     WIX -14%; reported strong 1Q results with revenue well ahead of expectations and collections and FCF both ahead as well, however, 2Q guidance at the mid-point was below consensus