Mid-Morning Look

Tuesday, November 23, 2021

U.S. stocks were attempting to rebound off overnight declines (and follow-thru selling pressure late Monday), but markets fail to hold those gains, with another slide in high growth tech stocks as well as interest rate sensitive sectors (such as homebuilders) as interest rate expectations rise. Markets turned sharply lower late yesterday as President Joe Biden nominated Federal Reserve Board Chair Jerome Powell to another four-year term, which boosted bets on both a near-term acceleration of the Fed’s tapering strategy, as well as those linked to a 2022 rate hike, in the face of the fastest pace of domestic inflation in more than three decades. The Nasdaq Composite Index retreated the most as the rise in Treasury yields continued, with the 10-year Treasury note yielding around 1.65% (The yield on the two-year note climbed to 0.644%, the highest level since March 2020). In corporate news, shares of Zoom Video Communications (ZM) along with other retailers active after earnings. U.S. markets will be closed on Thursday in observance of Thanksgiving and will end early on Friday. Oil prices oscillated after the White House said the U.S., China, Japan, and other countries would tap strategic oil reserves in a bid to temper gasoline prices and inflation.

Economic Data

·     November U.S. PMI Composite Flash reported at 56.5 vs. 57.8 consensus and 57.3 prior, while the Manufacturing PMI at 59.1 vs. 58.6 consensus and 59.2 prior and Service PMI down at 57.0 vs. 59.0 consensus and 58.2 prior.

·     Richmond Fed Composite Manufacturing index +11 in Nov vs +12 in Oct, while manufacturing shipments index +4 in Nov vs +1 in Oct

Sector Movers Today

·     MedTech Equipment; Agilent (A) posted a modest top-line beat on organic and a solid bottom-line beat, with an outlook on fiscal 2022 that brackets consensus. Strength was seen across the portfolio, with notable performance in Pharma (+21%), Diagnostics and Clinical (+11%), and the economically sensitive C&E market growing an impressive 12% according to Stifel; MDT reported sales short of expectations ($7.85B vs. est. $7.96B) and slashed its outlook for year sales growth to 7% to 8%, down from prior guidance of around 9%; ZBH downgraded to hold from Buy at Argus saying Zimmer is facing headwinds from the spread of the Delta variant, the deferral of elective procedures, and pricing cuts in China

·     Discount/Sporting goods/department stores: DKS Q3 adj EPS $3.19 easily tops consensus $1.97 on better revs of $2.75B vs. est. $2.5B while raises year EPS view to $12.88-$13.06 from $11-$11.45; also said Q3 comp sales increased 12.2% on top of a 23.2% increase in Q3’20 and a 6.0% increase in the third quarter of 2019; JWN earnings after the close; DLTR narrows FY21 EPS view to $5.48-$5.58 from $5.40-$5.60 and narrows FY21 revenue view to $26.25B-$26.41B from $26.19B-$26.44B vs. consensus $26.26B; BURL 3Q adj EPS $1.36 vs est. $1.26 on revs $2.3B vs est. $2.22B, comps +16%, inventory 1.06B vs 1.004B YoY; sees +77 net new stores for FY21; not providing other sales or earnings guidance for FY; MOV 3Q adj EPS $1.36 vs est. $1.01 on sales $217.7Mm vs est. $211Mm; raises FY guide

·     Semiconductors; MU (tgt raised to $95 from $75) and WDC (tgt to $75 from $55) both upgraded to Buy at Mizuho saying 1H22 demand trends are improving across all three markets with 1) 1Q22 PC/NB builds only FLAT to down 5% q/q (above prior assumption for down 10-15% q/q), with 2022 PCs FLAT to UP 5% y/y, 2) Handsets better as China OEMs could have a counter-seasonal FLAT 1Q22 (above previous assumption of down 10% q/q), 3) Server demand could improve in 1Q22 with AMZN orders returning potentially early 1Q22, despite >10 week DRAM inventory ; MRVL tgt raised to $100 from $75 at Oppenheimer; ADI posted a narrow Q4 EPS and sales beat with guidance above consensus views

·     Bitcoin, FinTech & Payments; Ark Invest bought shares of HOOD, COIN, MELI, CND, SQ, STNE, TOST and sold shares of PYPL, OPEN across their ARKW (Internet) and ARKF (Financial) ETFs; UBS raised their PT on FDS to $471 from $415 after its meeting with the new CFO highlighted opportunities to show margin upside and run the company with more leverage over time, but they keep their Neutral rating with shares trading more than two standard deviations above its premium to the S&P 500 over the last five years

Stock GAINERS

·     BURL +10%; 3Q adj EPS $1.36 vs est. $1.26 on revs $2.3B vs est. $2.22B, comps +16%, inventory 1.06B vs 1.004B YoY; sees +77 net new stores for FY21; not providing other sales or earnings guidance for FY

·     CLMT +8%; upgrade from Market Perform to Outperform at Cowen (also upgraded to Outperform at Wolfe) and raises PT to $23 from $12 after the co announced that it had secured financing for phase 2 of its renewable diesel

·     DLTR +6%; in-line results and narrows FY21 EPS view to $5.48-$5.58 from $5.40-$5.60 and narrows FY21 revenue view to $26.25B-$26.41B

·     DY +17%; on strong earnings beat Q3 adj EPS $0.95 vs. est. $0.69; Q3 revs $854M vs. est. $814.79M; said expects contract revenues for the quarter ending January 29, 2022 to increase modestly from Non-GAAP Organic Contract Revenues of $691.8M

·     HES +4%; strength across the board in energy stocks (APA, PXD, OXY among top gainers in S&P) behind the move higher on WTI crude prices

·     MU +4%; (tgt raised to $95 from $75) and WDC (tgt to $75 from $55) and both upgraded to Buy at Mizuho saying 1H22 demand trends are improving across all three markets

Stock LAGGARDS

·     AMWD -9%; shares slide on earnings miss (Q2 adj EPS $0.62 vs. est. $0.86; Q2 revs rose 1% to $453.2M vs. est. $467.25M)

·     AMYT -9%; after saying the U.S. FDA extended the review of its lead drug candidate, Oleogel-S10, by three months and will now give its decision by Feb. 28 ; also says it is in the process of addressing the EMA’s questions on the drug and expects its opinion in January

·     BBY -15%; despite beat and raise, hit by slowing growth; Q3 EPS $2.08 tops $1.91 estimate on better sales $11.91B vs. est. $11.58B) – digital sales rose only 2% for the quarter (rose 22% same period last year), margins of 23.5% compared to 23.6% last year while warns of higher costs

·     JACK -7%; after posted a Q4 margin decline and same-store sales that missed expectations rising +0.1%, missing the consensus for 3.1% growth, while restaurant-level margins were 20.1%, down 6.9% from the year-ago period, driven by higher costs

·     URBN -12%; tumbles Q3 rev and EPS beat analysts’ estimates, but said comparable retail segment net sales at Anthropologie rose 9% in Q3 versus 14% in Q2 as supply chain issues hit inventory levels and said it saw mid-single-digit negative retail store sales due to reduced store traffic

·     ZM -8%; shares tumble despite beat and raise quarterly results as Piper notes upside is missing and coming from wrong accounts-small and medium sized business