Mid-Morning Look

Thursday, May 27, 2021

Stocks moving higher to start the trading day, led by gains in the Dow, S&P 500, and Russell 2000 Smallcaps which outperforms for a second straight day following mixed economic data. Initial weekly jobless claims came in better (406K vs. est. 425K), while Q1 GDP was roughly in-line at 6.4% (though inflation data points edge higher), and the volatile Durable Goods data was softer but core a little better. The 10-year Treasury yield is up 4 basis points to 1.61%, but not having an impact early. The auto space getting a boost led by Ford and GM, while aerospace surges (BA top gainer in the Dow) after rival Airbus issued a positive production update citing a strong recovery in aviation from the COVID-19 pandemic. The crypto space seeing another bounce with Bitcoin back above $40K (after dropping to 31K this past weekend), while reopen stocks are mixed. In earnings, several retailers (AEO, DG, BBY, DLTR) and software (WDAY, OKTA, SNOW) active after results. The latest counter-proposal from the GOP on the infrastructure bill was released today and stands at $928B (below Biden recently lowered $1.7 trillion) and includes $4B for electric vehicles; plan focuses on roads, bridges, broadband, airports. Treasury Secretary Janet Yellen testifies before the House Appropriations Committee at 11am ES. Also lots of rate talk in the UK overnight, as the stance here in the U.S. remains lower rates and accommodation for longer as Fed officials remain vigilant the economy needs it and rising inflation prices is temporary.

Economic Data

·     U^nd estimate for Q1 GDP was reported at 6.4% vs. est. 6.5%; Consumer spending rose 11.3% vs. 10.7% prior; Q1 business investment +10.8% vs. prior 9.9%, equipment +13.4% vs. prior +16.7%; Q1 home investment +12.7% vs. prior 10.8%; the GDP Deflator 4.3% vs. est. 4.1% and PCE index 3.7% vs. est. 3.5% with core PCE 2.5% vs. est. 2.3% (slightly higher inflation)

·     Weekly jobless claims fell to 406K in latest week, below the 425K estimate and prior week unchanged at 444K; the 4-week moving avg fell to 458,750 from 504,750 prior week (previous 504,750); continued claims fell to 3.642M from 3.738M prior week and the U.S. insured unemployment rate fell to 2.6% from 2.7%

·     Durables orders for April -1.3%, below the +0.7% estimate while March revised higher to 1.3% from 1.1%; Durables ex-transportation orders rose +1.0% vs. est. +0.8% and down from March +3.2%; Durables ex-defense orders unchanged vs March +2.2%; Machinery orders +1.4%, electrical equipment -0.9%, defense aircraft/parts -8.5%

·     Pending home sales index for April fell -4.4% vs. est. +0.8% to 106.2; April pending home sales +51.7% from April 2020

Sector Movers Today

·     Aerospace & Defense; Airbus (EADSY) said it is exploring an almost two-fold increase in output of best-selling single-aisle jets by the middle of the decade from current crisis-depressed levels and has finalized its output plans for the rest of this year; BA rises a 6^th day, buoyed by the positive production update by Airbus citing a strong recovery in aviation from the COVID-19 pandemic (shares of aero suppliers SPR, HXL moved as well)

·     Auto sector; Ford (F) upgraded to Outperform from Sector Perform with a price target of $17, up from $13 at RBC saying they have more confidence in the 2023 8% margin target, concerns over BEV strategy were addressed and think Ford F-150 Lightening is likely a watershed moment; CVNA and VRM estimates raised at Truist following analyses data which suggest that 2Q is likely to be driven by better than expected average sale price on largely inline unit sales numbers; GM said it is restarting production in five plants closed due to chip shortage

·     Consumer Staples; ELF reported top and bottom line beat, but guidance weighs- as Q4 adj EPS 16c vs. est. 10c on sales $92.7M vs .est. $82.4M, sees 2022 adj EPS 64c-67c (est. 71c) and revs $343M-$350M (est. $334.3M); SAFM posted Q2 EPS $4.34, doubling consensus $2.17, on revs $1.13B vs est. $1.04B; UVV Q4 EPS $1.58 on revs $617.6M and raised its dividend to 78c from 77c; Argus upgraded CCEP to Buy with a $70 target as they believe the company will report strong revenue and earnings over the next two years given growth in Asia-Pacific and a recovery in Europe; BYND launched a 6-pack of Beyond Burger in Canada

·     Healthcare Services, MedTech Equipment; MDT 4Q adj EPS $1.50 vs. est. $1.42 on revs $8.188B vs. est. $8.14B (cardio revs $2.908B, neuro revs $2.295B, med drug revs $2.338B); guides FY22 organic revs about +9%, adj EPS $5.60-5.75 vs. est. $5.72; LNTH receives FDA approval of pylarify® injection, the first and only commercially available PSMA pet imaging agent for prostate cancer; AFIB receives FDA approval to start U.S. atrial fibrillation IDE trial with the AcQBlate force sensing ablation system; WOOF 22M share Secondary priced at $24.00; DOGZ receives a large follow-on order from pet retailer Petco for its automatic dog and cat feeders across Petco’s 1,600 retail stores

Stock GAINERS

·     BA +4%; rises a 6th day, buoyed by the positive production update by Airbus (EADSY) citing a strong recovery in aviation from the COVID-19 pandemic (shares of SPR rise as well)

·     BBY +3%; beat Q1 consensus with adj EPS $2.23 vs est. $1.39 on revs $11.637B vs est. $10.44B, enterprise comps +37.2% (est. +22.1%), guided Q2 enterprise comps +17% and raised FY enterprise comps

·     DG +3%; raises FY21 EPS view to $9.50-$10.20 from $8.80-$9.50 (est. $9.58) and boosts FY21 net sales to range of a 1% decline to an increase of 1%; vs. prior view in the range of a -2% to flat

·     F +5%; extends recent gains to trade to 5-yea highs; upgraded to Outperform with $17 tgt at RBC Capital today saying they have more confidence in the 2023 8% margin target

·     ORGO +7%; rises as it will replace CROX in the S&P SmallCap 600 Index on June 2nd

·     PACX +2%; Acorns Grow will become a publicly traded company via a merger with Pioneer Merger Corp., a special-purpose acquisition company; deal values Acorns at about $2.2B

·     TELL +15%; signed a 10-year agreement with commodity trader Gunvor Singapore Pte Ltd for 3 million tonnes per annum of LNG, which they say represents the equivalent of about $12B in revenue over the 10-year term

·     VTNR +132%; after agreeing to acquire the Mobile refinery in Alabama from RDS for $75M

Stock LAGGARDS

·     ADSK -2%; ahead of earnings tonight in general sell-off in software today

·     DLTR -6%; guidance disappoints – Q1 EPS $1.60 vs est. $1.42 on net sales $6.48B vs est. $6.42B, though FY EPS guidance $5.80-6.05 fell short of expected $6.23

·     ELF -4%; reported top and bottom line beat, but guidance weighs- as Q4 adj EPS 16c vs. est. 10c on sales $92.7M vs .est. $82.4M, sees 2022 adj EPS 64c-67c (est. 71c) and revs $343M-$350M (est. $334.3M)

·     OKTA -11%; delivered a strong quarter, outperforming expectations with top-line strength flowing through to FCF upside, though the CFO steps down and Q2 guidance weighs on shares

·     PLAN -13%; as posts wider Q1 EPS loss of (10c) vs. est. loss (9c) and announced its CFO would step down later this year – did issue higher Q2 and year rev outlook

·     SNOW -4%; delivered a strong 1QFY22 exceeding consensus revenue estimates, benefiting from strong new customer additions (+66.6% YoY to 4,532), large customer growth (+116.7% YoY), and a steady net retention rate (168%) – but FY guide higher was in line to marginally higher than the beat for the Q

·     ZUO -3%; despite 1Q earrings ahead of expectations as subscription billings growth accelerated a reported revenue of $80mn vs. cons. $79mn and subscription billings growth that accelerated to 21% y/y from 16% in F4Q and 9% in the year ago period

Syndicate:

·     Azek (AZEK) 15M share Secondary priced at $43.50

·     Day One (DAWN) 10M share IPO priced at $16.00

·     FIGS (FIGS) 26.4M share IPO priced at $22.00

·     Invesco Mortgage (IVR) 37.5M share Spot Secondary priced at $3.43

·     Oak Street Health (OSH) 12.05M share secondary priced at $62.00

·     Petco (WOOF) 22M share Secondary priced at $24.00

·     Ranpak Holdings (PACK) 5M share Spot Secondary priced at $21.00

·     R1 RCM (RCM) 15M share secondary priced at $22.50

·     Singular Genomics Systems (OMIC) 10.2M share IPO priced at $22.00

·     Thryv Holdings (THRY) 4.24M share Secondary priced at $23.50