Mid-Morning Look

Friday, April 16, 2021

Stocks are mostly higher on this option expiration Friday, with major averages on track for another weekly advance as the S&P 500, Dow Jones Industrials, and Dow Transports all set new record intraday highs (again). Sentiment rising behind better housing data as homebuilding surged to nearly a 15-year high (June 2006) as well as a solid start to quarterly earnings with big banks providing upbeat results all week (though stock reactions have been muted, with the sector having risen into the quarter). Earnings results from AA, PPG and JBHT in the materials and transport sectors boosting those names this morning. Increasing COVID-19 vaccinations, warmer weather, dovish monetary policy, and massive fiscal stimulus are still driving the economy, with growth this year expected to be the strongest in nearly four decades. That comes after China reported record GDP data, rising 18.3% in Q1 from 6.5% YoY, but still fell short of estimate of a rise over 19%. Inflation fears still not weighing on stock markets: 1) A new U.S. Federal Reserve index of inflation expectations hit 2.01% for the first quarter of 2021, the first time the quarterly measure has hit the Fed’s 2% target since mid-2018; 2) One year inflation expectation in Michigan Confidence (3.7%) highest since 2012, while 5–10-year inflation expectations ticked slightly lower (2.7%). In vaccine news, an advisory committee to the U.S. CDC will re-convene next week to discuss JNJ’s Covid-19 vaccine, after the use of the vaccine was paused following reports of rare but serious blood clots. Separately, the WSJ reported that JNJ privately asked other vaccine makers to jointly partner and discuss blood clot risks – with AZN agreeing and PFE + MRNA declining. Earnings kick it into full-gear next week, with some of big S&P components expected to report.

Economic Data

·     Housing Starts MoM for March reported at 1.739M annual rate (up 19.4%), well above the 1.613M estimate and prior month upwardly revised reading of 1.457M; single-family starts +15.3% to 1.238M and multifamily +30.8% to 501,000-unit rate. Building permits for March MoM rises 2.7% to 1.766Munit rate, topping the 1.75M estimate.

·     University of Michigan surveys of consumers sentiment prelim April 86.5 (consensus 89.6) vs final March 84.9; current conditions index prelim April 97.2 (consensus 96.3) vs final March 93.0 and consumers expectations index prelim April 79.7 (consensus 83.6) vs final March 79.7. One year inflation expectation in Michigan Confidence (3.7%) highest since 2012, while 5-10 year inflation expectations actually ticked slightly lower (2.7%).

Sector Movers Today

·     Trust banks busy with earnings from BK and STT with top and bottom line beat as EPS of $1.47 beat the $1.35 estimate (but down from $1.62 last year) on better revs $2.95B v. est. $2.87B – said NII fell to $467M from $664M (but was close to in-line w ests), while AUM rose 34% YoY to $3.59 trillion – total fee revenue was $2.48 billion, up from $2.4 billion last year; BK with Q1 EPS $0.97 vs. est. $0.87 as revs of $3.9B fell 5% but above estimates $3.85B; said AUM of $2.2 trillion, increased 23%; qtrly total fee and other revenue $3.27 bln vs $3.29 bln

·     Metals & Materials; in metals, aluminum giant AA Q1 results topped estimates (79c/$2.87B above est. 46c/$2.63B), as Q1 shipments rose ~7% sequentially for alumina, and ~13% for aluminum and said it is expecting a strong 2021 "based on continued economic recovery and increased demand for aluminum in all end markets’; gold miners (AEM, NEM, GOLD) and prices were strong early after Reuters reported China has given domestic and international banks permission to import large amounts of gold into the country, potentially helping to support gold prices after a months-long decline (China is the world’s biggest gold consumer)

·     Leisure, Casinos & Gaming; CZR, DKNG and FanDuel become official sports betting partners of the NFL, allowing them to integrate sports betting content directly into NFL Media properties like NFL.com and the NFL App. Caesars also renews rights as the NFL’s official casino sponsor and DraftKings renews as official daily fantasy partner; EBET shares extend gains after IPO priced at $6 Wednesday night, settled at $36.42 yesterday and has gone parabolic since; BALY 11M share Secondary priced at $55.00; in cruise, AIDA Cruises today announced it will offer new cruises in Greece from May 23, 2021, with 7-day cruises departing from Corfu and traveling through the Greek islands to Crete and Rhodes, as well as to Katakolon (Olympia) and Piraeus (Athens).

·     Alternative energy, Utilities & Solar; MAXN 6.9M share secondary priced at $18 per share for $125M gross raised; RUN upgraded to Overweight at Piper given recent share price weakness (down 51% vs. the recent peak) coupled with a strong growth story associated with residential solar (20-25% MW in ’21; 15% MW medium-term) and a management team with a history of value creation; UBS upgraded ARRY to Buy after underperforming peers (down about 40% YTD vs TAN -19%) as it should continue to benefit from U.S. solar demand and is trading at 19x 2022E EV/EBITDA vs 39x for other solar equipment manufactures, and also upgraded JKS to Neutral after its Q4 results and YTD underperformance (-44%); FBR initiated BLDP at Buy with a $30 target as they view the company as best positioned in the fuel cell space for heavy-duty applications and they also reinstated coverage on FCEL at Neutral with an $11 target due to its current valuation, though they are positive on the company’s long-term prospects and alternative value streams from its technologies, such as in carbon capture

Stock GAINERS

·     AA +8%; Q1 results topped estimates (79c/$2.87B above est. 46c/$2.63B), as Q1 shipments rose ~7% sequentially for alumina, and ~13% for aluminum and said it is expecting a strong 2021

·     DKNG +4%; CZR, DKNG and FanDuel become official sports betting partners of the NFL, allowing them to integrate sports betting content directly into NFL Media properties like NFL.com and the NFL App – DraftKings renews as official daily fantasy partner

·     EBET +8%; shares extend gains after IPO priced at $6 Wednesday night, settled at $36.42 yesterday and has gone parabolic since

·     GFN +56%; after URI agreed to acquire the company for $19 per share in cash, representing a total enterprise value of approximately $996M, including the assumption of $400M of net debt

·     LSCC +12%; will replace PTC in the S&P MidCap 400, which is replacing VAR in the S&P 500 index (Siemens Healthineers AG acquired Varian Medical Systems Inc. in a deal that closed April 15)

·     PGNY +6%; will replace UFS in the S&P MidCap 400, and UFS will replace EGOV in the S&P SmallCap 600

·     PPG +10%; rises on top and bottom-line quarterly beat, while sees aggregate sequential net sales up a low-teen percentage when compared to Q1

Stock LAGGARDS

·     EDIT -13%; was initiated with a Sell and $20 tgt at Goldman Sachs which implies 52% downside potential as remain cautious on the CRISPR gene editing firm’s lead drugs, EDIT-101 for IVS26 Leber’s congenital amaurosis type 10 (LCA10) and EDIT-301 for sickle cell disease

·     PINS -6%; as Cleveland Research cautious, noting feedback at quarter end appeared more modest vs. prior work, as agencies cited mixed trends for larger retailers, a slowing pace of net-new advertiser gains

·     RIOT -9%; broad weakness in names leveraged to the price of Bitcoin with crypto space pulling back today (GBTC, MSTR, SI, MARA, WBAI, NCTY)

·     SPLK -7%; downgraded to Sector Weight at KeyBanc following the announced resignation on Thursday of CTO Tim Tully, saying the departure comes at a tough time during the transition this year of the cloud customer base to SCP

·     W -2%; after Bloomberg reported AMZN is experimenting with a premium service that lets customers opt to have furniture or appliances assembled as soon they arrive at their homes – which would compete with Wayfair, HD, LOW, BBY among others

Syndicate:

·     Akoya Biosciences (AKYA) 6.58M share IPO priced at $20.00

·     Bally’s (BALY) 11M share Secondary priced at $55.00

·     Biomea Fusion (BMEA) 9M share IPO priced at $17.00

·     Maxeon Solar (MAXN) 6.94M share Secondary priced at $18.00

·     SeaSpine (SPNE) 4.5M share Spot Secondary priced at $19.50

·     Synlogic (SYBX) 10M share Spot Secondary priced at $3.00