Mid-Morning Look

Tuesday, October 19, 2021

U.S. stocks at it again, with the S&P 500 index on track for a 5^th straight day of gains as investor optimism soaring into the start of earnings season, putting inflation fears, rising energy prices, Fed tapering concerns behind them amid another broad-based stock rally this morning. Dow component JNJ rises after a beat and raise quarter, while insurer TRV boosts the index as well after topping its Q3 profit view. Big week still ahead of earnings (that have thus far been dominated by banks/financials) with NFLX tonight as well as TSLA, INTC later this week in technology. Oil prices extend gains overnight (have since slipped) as an energy supply crunch continued across the globe, prompting increased demand. The recent hurricane season proved to be so disruptive that U.S. producers have not fully recovered from it still. Note Natural Gas yesterday closed below $5 for the first time since 9/22 on Monday and has fallen over 20% from its high of $6.312 back on October 5th. A strong start to markets with “fear” remaining non-existent as the CBOVE Volatility index tumbles further. Treasury yields inching higher with the 10-year around 1.61% while the dollar slips, and precious metals outperform.

Economic Data

·     U.S. Sept housing starts fell -1.6% to 1.555M unit rate, below consensus of 1.62M and vs Aug +1.2% (previous +3.9%); September single-family starts unchanged to 1.080 mln unit rate; multifamily -5.0% to 475,000-unit rate. Building Permits fell -7.7% vs. Aug to 1.589M unit rate, below the est. 1.68M and Aug figure of 1.731M.

Sector Movers Today

·     Aerospace & Defense; UAVS entered into a definitive agreement to buy Sensefly from Parrot at a valuation of $23M in cash and stock; SPCE tgt cut to $17 from $25 at Morgan Stanley as they no longer assume Inspire will be built, along with a push to the right of Delta’s entry into service to 2026; Cowen raised price tgts for TDG, ASLE, LHX, NOC in Aerospace & Defense saying rate overhang a Q3 issue and qtrly results are expected to be mostly in line with cautiously upbeat demand commentary, and focus on production rates for F-35, 737, and possibly 787

·     Bitcoin news; COIN rises after saying Facebook has chosen Coinbase as its custody partner for its pilot of Novi, a new digital wallet; Crypto stocks (COIN, MARA, RIOT, MSTR) in the spotlight as Bitcoin continued its climb toward all-time highs (last above $62K), bolstered by optimism over the launch of the first Bitcoin futures ETF (BITO – which opened at $40.88) on Tuesday; SI average digital currency customer deposits grew to a record $11.2B during Q3, compared with $9.9B in Q2, Q3 EPS of $0.88 rose from $0.80 in Q2, beating the consensus estimate of $0.71 on better revs $51.7M and said digital currency customers grew to 1,305 in Q3 from 1,224 in Q2 and 928 in Q2 a year ago; RIOT announces first industrial-scale immersion-cooled bitcoin mining operation

·     Tower stocks: CCI, SBAC upgraded to Outperform at Credit Suisse saying significantly improved carrier capex spend is going to drive towers’ growth higher in their view as project spend to peak in 2022 at $39.6 billion, with 2023 coming in closely behind at $37.6 billion. Wells Fargo said recent sector underperformance (AMT, CCI, SBAC) creates a more favorable risk/reward into Q3 earnings, in our view. The 3-tower cos have pulled back -4.7% on a WTD avg. basis since Q3 (vs. S&P of +3.9%). Cowen said remain positive on the towers and expect CCI to guide to 2022 tower net organic growth of ~6% which they think will be viewed positively.

·     Industrial & Machinery; Stifel lowered estimates for Machinery coverage (ASTE, MSA, TEX) due to concerns regarding supply chain challenges, raw material increases (particularly steel), and increased challenges regarding labor (recent strike at DE a notable example) – said they believe price/cost pressures will be most pronounced for our longer-cycle, backlog-driven names (ASTE, MTW, TEX); ECOL downgrade from Buy to Hold at Stifel saying 2021 has proven less predictable with one and likely another cut in guidance possible; DOV mixed Q2 results as EPS beat and revs miss ests while raises year EPS view to $7.45-$7.50 from $7.30-$7.40

·     Bank movers; BK Q2 EPS $1.04 vs est. $0.99 on revs $4B vs est. $3.95B, AUM $2.3T (+13%), provision for credit losses $45M vs est. recovery $17M; CBSH posted Q3 eps $1.05 vs est. $0.99 on revenue $351.54M vs est. $349.85M; FITB Q3 EPS 97c vs. est. 91c, NII $1.19B vs est. $1.17B, raised dividend to 30c from 27c; SNV Q3 adj EPS $1.20 vs. est. $1.08 on revenue $499.9M vs est. $489.6M, net charge-off ratio declined 6 bps from prior quarter to 0.22%; PACW posted Q3 EPS $1.17 vs est. $1.03, NII $279.8M vs est. $278.4M, revenue $327.1M vs est. $317M; SFBS reported in-line Q3 EPS $0.96 and revenue $104.3M, total loans grew $163.1M, or 8% annualized; ZION reported Q3 EPS $1.45 vs est. $1.33 on revs $694M vs est. $707.3M, loan growth ex-PPP +5.6% annualized, deposit growth +9.3% annualized; ONB Q3 adj EPS 43c vs est. 37c, NII $151.6M from $149.9M in Q2, commercial loan growth +7% annualized; FMBI Q3 adj EPS 46c vs est. 42c on revs $190.4M vs est. $189.8M; FBK Q3 adj EPS 89c vs est. 81c, on total rev $147.5M vs est. $137.9M; FNB Q3 EPS 34c vs est. 30c on revs $321.3M vs est. 307M; SBNY reported Q3 EPS $3.88 vs est. $3.69 on revs $512.2M vs est. $513.4M, NII $480.9M, provision for credit losses $4M, total deposits grew $10B in the quarter to $95.57B

Stock GAINERS

·     COIN +2%; after saying Facebook has chosen Coinbase as its custody partner for its pilot of Novi, a new digital wallet; for the pilot, Coinbase is supporting Novi via Coinbase custody

·     D +3%; reached a settlement late yesterday with Virginia in its pending triennial base rate case

·     JNJ +2%; on beat and raise as Q3 adj EPS $2.60 vs. est. $2.35, revs $23.34B vs. est. $23.72B and raises FY21 adjusted EPS view to $9.65-$9.70 from $9.50-$9.60 and boosts FY21 revenue view

·     PENN +4%; strength in gaming/casino names: Berenberg initiates CHDN with a Buy and $294 tgt, PENN Buy and $95 tgt, IGT Buy and $35 tgt calling it “undervalued”, SGMS Buy and $98 tgt and FUBO with a Buy and $50 tgt

·     SBAC +2%; CCI, SBAC upgraded to Outperform at Credit Suisse saying significantly improved carrier capex spend is going to drive towers’ growth higher in their view

·     TRV +2%; posted Q3 core eps $2.60, topping the $1.89 estimate and revs rose 6.4% YoY to $8.81B, topping the $8.61B est. as net premiums written $8.32 billion, +7.1% y/y, vs. estimate $8.17B and catastrophe losses $501M, +26% y/y, but below estimate $577.4M

·     WATT +31%; after receives U.S. Federal Communications Commission’s equipment authorization for wireless power transfer at any distance

·     WMT +1%; added to Goldman Sachs conviction Buy list (up tgt to $196 from $184) following significant YTD underperformance and as believe prior investments into ecommerce and its supply chain should support higher EBIT

Stock LAGGARDS

·     AVIR -71%; after saying the Phase II Moonsong trial evaluating AT-527 didn’t meet the primary endpoint in the overall population of patients with mild or moderate Covid-19, who were mostly low-risk with mild symptoms

·     EVER -14% after reported soft preliminary 3Q21 results, announcing that revenue, EBITDA, and VMM would all fall short of the prior guide due to advertising budget cuts with key carriers

·     GRTX -71%; after saying the primary endpoint of reduction in incidence of severe oral mucositis was not met/trial demonstrated relative reduction in all key SOM endpoints, including more than halving the median duration

·     HAL -2%; posted its third consecutive quarterly profit, as a jump in oil prices and drilling activity boosted demand for its services and equipment but was only in-line w ests while revenue of $3.86B was slightly under consensus expectations of $3.912B est.

·     MAN -6%; reported a miss on its top and bottom lines in its Q3 earnings, while guided Q4 EPS to be between $1.99 and $2.07, compared to consensus of $2.04.

·     PG -1%; slipped after topping FQ1 results though a decrease in gross margin during the quarter was driven almost entirely by commodity cost increases

·     SI -9%; average digital currency customer deposits grew to a record $11.2B during Q3, compared with $9.9B in Q2, Q3 EPS of $0.88 rose from $0.80 in Q2, beating the consensus estimate of $0.71 on better revs $51.7M and said digital currency customers grew to 1,305 in Q3 from 1,224 in Q2

·     ULTA -4%; said it is targeting 3% to 5% annual same-store sales growth from 2022 to 2024 and net sales is projected to grow at 5% to 7% CAGR with the target of opening net 50 new stores every year