Closing Recap

Monday, April 26, 2021

Equity Market Recap

·     Stocks opened the week in positive territory and continued to rise throughout the session, led by strength in technology shares as the Nasdaq Composite neared its all-time highs, playing catch-up with the Dow and S&P after recent underperformance. Tech got a boost ahead of a busy week of earnings, with Tesla (TSLA) results out tonight, as well as reports from AAPL, AMZN, MSFT, FB later this week (the busiest week of the quarter with over 30% of S&P components due). Improving confidence about the rapid recovery of economies from the COVID-19 pandemic continues to offset concerns about the speed of the market’s rally. Market investors also remain confident into the two-day meeting of the Federal Reserve that will begin on Tuesday and the impending release of U.S. quarterly gross domestic product data. Commodity prices were mixed with oil rebounding off earlier lows, while copper, lumber, soybeans, and the likes are making near decade highs as prices soar across the board. Stocks saw a late day mini roll after states that voted for President Biden lose 3 net House seats after census poll.

·     Top sector/stock stories; FCX leads the S&P, moving higher as copper hits its highest price since 2011; WY, PCH jump with the recent surge in lumber price and a positive Raymond James note; ACI slumps after forecasting a 6-7.5% drop in comp sales for this year as stay-home dining fades with the economy reopening, weighing on other grocery stores (KR, GO, SFM); CWH, WGO, THO outperform after the RV Industry Association reported Q1 saw a record 148,507 shipments and a monthly record 54,921 shipments in March; TSLA rises ahead of earnings tonight as other EV stocks also rise (NKLA, NIO, CHPT after Wedbush notes potential tailwinds from federal spending in Biden’s infrastructure bill); semis another strong sector, with memory names STX, WDC, MU outperforming within the space; Bitcoin snaps its 5-day losing, rebounds more than $7k off yesterday’s lows to lift RIOT, MARA, FTFT, MSTR; AXP the top performer in the Dow in a follow-through from its earnings on Friday and on increased travel hopes after the EU is reportedly mulling letting vaccinated Americans travel this summer.

Commodities

·     Gold prices rose $2.30 or 0.1% to settle at $1,780.10 an ounce recovering after slipping Friday, managing to climb despite a bounce in the U.S dollar early. All eyes remain on the FOMC policy meeting mid-week as well as President Joe Biden’s speech to Congress and data on first quarter U.S. GDP also due this week. Oil prices end the day lower, but well off their lows as WTI crude oil futures settle at $61.91, Down $-0.23, or -0.37% and Brent settle at $65.65, down 46c.

Currencies & Treasuries

·     Treasury yields were mixed as short-dated yields edged higher, while longer-term such as the 10-year were steady (10-year 1.568%). The U.S. Treasury sold $60B in 2-year notes at a yield of 0.175% vs. 0.171% when issued prior as primary dealers take 37.93%, directs 18.5% and indirects 43.56%; with a bid-to-cover (demand) as 2.34 (note the auctions pushed up early in the week due to the FOMC announcement mid-week). The U.S. Treasury also sold $61B in 5-year notes in the afternoon with a yield of 0.849%, in-line with the when-issued prior, with a bid-to-cover at 2.31% and indirect bidders awarded 57.9%. The U.S. dollar rose off 2-month lows vs. the euro, posting modest gains early vs. other currencies such as the safe-haven Yen and Swiss franc ahead of this week’s Fed monetary policy meeting. The dollar has fallen nearly 3% since late March as U.S. Treasury yields, which had risen this year and supported the greenback, traded in narrow ranges.

Sector News Breakdown

Consumer

·     Retailers; BBY was downgraded to Neutral at Wedbush after run-up in shares, while raising near-term estimates above consensus based on consumer electronics category strength, as believe that the category will continue to trail home improvement and home furnishings category growth in 2021; CSPR upgraded to Outperform at Wedbush saying with an attractive relative valuation and a clear and balanced path forward between revenue growth and profitability, see an opportunity as it is in the early stages of capturing market share

·     Auto sector; TSLA to report earnings after the close tonight; DORM reported in-line Q1 adj EPS $1.04 on net sales $288M vs est. $295.8M and guided FY21 adj diluted EPS to $4.40-4.60; JPMorgan reiterated GPC at OW and lifted their target to $140 from $115 after the company reported strong Q1 EPS 16% above JPM’s street-high forecast; Wedbush said President Biden’s climate plan is a bullish tailwinds for TSLA, GM, F, etc. as the shift towards EVs is a foundational part of the plan as $174B is earmarked towards electric vehicle initiatives with $100B going to tax credits and $15B towards charging infrastructure

·     Consumer Staples; supermarket ACI warned that it expects to face difficult comparisons in its new fiscal year, as many people look to reemerge from the Covid-19 pandemic and said it believes comparable sales for its new year will decline 6% to 7.5% on a year-over-year basis (headlines sunk food related stocks); NSRGY is in discussions to buy nutritional supplement maker The Bountiful Company, confirming recent media reports; Barron’s is positive on the packaged foods space (HSY, MDLZ, CAG, SJM, TWNK, KHC, GIS, K, and CPB) citing cheap valuations, generous dividend yields, and better growth prospects than meets the eye; SAM was downgraded to neutral at Citigroup after rally in shares; Jessica Alba’s lifestyles brand The Honest Company Inc. (HNST) released specifics Monday for its upcoming IPO, with the firm and certain investors offering 25.8M to the public at $14 to $17 apiece.

·     Casinos, Gaming, Lodging & Leisure sector; in casinos (WYNN, MGM, MLCO), Bank America noted Monthly visitations to Macau reached record high of 754k in March as the visitations recovery further gained momentum in April; in leisure sector, BC was upgraded to Buy at Citigroup saying they are encouraged by robust marine industry conditions, the inventory restocking cycle (2-3 years), leading margins, and valuation levels; in camping, CWH said it partners with BitPay in move to accept Bitcoin payments; THO, WGO rise as the RV Industry Association reported Q1 saw a record 148,507 shipments and a monthly record 54,921 shipments in March

·     Services & Education names; GSX rises as the company files w/ the SEC its annual report on Form 20-F for the fiscal year ended December 31, 2020; COUR shares initiated by several analysts this morning with Buy ratings from Truist, Needham, Loop, UBS and Stifel among them with tgt ranging from $52-$56 saying with approximately 77mm highly engaged learners and 200+ leading content partners, view Coursera as the leading platform for online education content.

Energy

·     Energy stock movers; Oil prices fell on fears that surging COVID-19 cases in India will dent fuel demand in the world’s third-biggest oil importer, while the end of a force majeure on exports from a Libyan terminal and an expected supply increase from OPEC+ added to pressure. Also today, OPEC+’s Joint Technical Committee sees oil demand rising by 6M b/d in 2021 and said oil stock surplus will be almost gone by the end of Q2, but also warned that India’s recent Covid surge may derail the recovery in oil demand

·     Services, E&P and Majors; Citi upgraded BKR to Buy and lifted its price target on Top Pick SLB to $35 as their bullish thesis on international recovery and subsequent FCF trajectory was reinforced after the company’s Q1 earnings; the Financial Times reported activist hedge fund Engine No 1 is driving a board overhaul of XOM as they believe the company faces an existential risk over its focus on fossil fuels; TOT suspended work at its LNG project in Mozambique after declaring force majeure due to a security threat; EQNR scaled back its target production startup date for its Hammerfest LNG facility in Norway due to repair work on damage from a fire last September could take up to 12 months to complete, but Covid restrictions have slowed progress; E (Eni) began production at its offshore Indonesian gas project; FTI announced it will sell 25M shares to sell part of its stake in Technip Energies

·     Utilities & Solar; Wells upgraded BEP, BEPC to Overweight after their recent pullbacks created attractive entry points for a long-term investment in high-quality clean energy companies; VST lowered its 2021 guidance for EBITDA to $1.48-1.88B from $3.08-3.48B and adj FCF to $200-600M from $1.77-2.17B as they now anticipate the adj EBITDA impact of January’s Winter Storm Uri to be $1.6B vs its previous estimate of a $900M-1.3B impact from the storm; Roth resumed coverage on SUNW at Neutral with a $10.75 pt, saying they are looking for improving revenue growth and margin expansion before becoming more constructive on the name

Financials

·     Bank movers; M&A deal in the regional bank space as NYCB agreed to buy FBC in a stock deal valued at $2.6 billion as FBC shareholders will receive 4.0151 New York Community shares for each Flagstar share they own, values FBC at $48.14 each https://on.mktw.net/3eAnZlw ; Wedbush upgraded KEY to Outperform and raised their price target to $25 from $23 after the bank reported one of the best outlooks among banks in their Q1 earnings that included positive NII, fee income, and expense growth; Seaport upgraded INDB to Buy with a $94 pt following last week’s earnings beat and acquisition of EBSB; Piper upgraded PVBC to OW as they forecast record NII from its robust loan pipeline and digital asset deposit portfolio, confidence in its credit outlook following its performance this past credit cycle, and long-term catalysts from rising interest rates and a possible sale next October after the company’s 3-year conversion anniversary, and they also upped their price target on EWBC to $81 from $73 after its EPS beat and raised guidance; Truist raised its price target on Buy-rated ACBI to $32 and RF to $25 on attractive tangible book value and faster loan growth; PRK Q1 EPS $2.61 vs est. $2.03 with loans $7.17B (+9.9% YoY); CBU Q1 adj EPS $1 vs est. 79c, ROE +104% vs +8.49% YoY; FBP Q1 adj EPS 31c vs est. 24c on NII $31M (+2.5% YoY) and approved a $300M buyback plan

·     FinTech & Payments; RBC initiated PSFE at Outperform with a $19 target due to its digital wallet capabilities, accelerated cash conversion for consumers otherwise out of the ecommerce loop, competitive moat and pricing power because its integrated payments are focused on specialized and complex end-markets, and its exposure to a large growth sector in the nascent US iGaming market

·     Consumer Finance; FUTU was initiated at Bank of America with a Buy rating and $195 target given its fast-growing client base, operating leverage from cross-selling and economies of scale, first-mover advantage, increased user engagement from its social community, and upside from a US self-clearing system in the near-term

·     Services; COMP was initiated with Buy/OW ratings at Morgan Stanley ($26 pt), Needham ($22 pt), Goldman ($32 pt), and Deutsche ($23 pt), and with a Neutral rating at Loop ($19 pt) and Barclays ($18 pt); Bank of America upgraded DFS to Buy with a $120 target; Argus reiterated their Hold rating on MKTX despite its growing market share and Q1 EPS, revenue growth as it is now trading at 58x their 2021 EPS estimate, saying they are waiting for a pullback towards peer average valuations to raise their rating

·     Bitcoin news; Bitcoin snapped its 5-day losing streak, approaching $55,000 again with shares of SI, RIOT, MARA, FTFT, TSLA, SOS, OSTK, MSTR among related stocks rising with the jump in prices; Trevor Lawrence, the presumed #1 overall pick in Thursday’s NFL Draft, signed an endorsement deal with cryptocurrency exchange Blockfolio and was paid in cryptocurrency for the endorsement; CWH partnered with BitPay in its move to accept Bitcoin as a payment

·     REITs; Evercore upgraded SPG to Outperform with a $128 target on limited downside risk with low tenant fallout as occupancy rate reaching a trough by the end of 1H21 and shopping center/mall REITs shifting to recovery and growth; Credit Suisse raised their price target on EPRT to $27 from $24 ahead of earnings to reflect stronger portfolio/revenue growth outlook, and also raised their estimates and targets on single-family REITs AMH (to $36 from $32) and INVH (to $36 from $33) ahead of earnings; Cowen sees solid data center demand driven by hyperscalers and favors COR, GDS, QTS in the space; In the industrial space, BTIG initiated INDT at Buy with a $74 target due to its high-quality legacy portfolio and investment strategy geared towards the Southeast and Mid-Atlantic, and ILPT at Neutral as they see limited near-term value creation opportunities in its portfolio despite their overall positive industrial outlook; in commercial real estate, JPM named KREF as its top pick into earnings and downgraded BXMT to Neutral given its lack of near-term catalysts to re-rate beyond pre-Covid valuation

Healthcare

·     Pharma movers; SNY has agreed to make MRNA’s Covid-19 vaccine at its site in Ridgefield, New Jersey, and will fill and finish up to 200 million doses starting in September; JNJ shares rose after the bell Friday after the FDA announced that following a safety review, the agency and the CDC have determined that the recommended pause regarding the use of its Covid-19 vaccine in the U.S. should be lifted and use of the vaccine should resume; VYGR rises after the company said the U.S. FDA has removed the clinical hold on the Investigational New Drug (IND) application for VY-HTT01, a gene therapy candidate for the treatment of Huntington’s disease; PRGO mentioned favorably in Barron’s saying the Dublin-based drug company, with a $5.6B market cap, could rise 20% or more as it returns to a pure-play consumer-health company and puts behind its tax issues

·     Biotech movers; AXSM said the FDA granted priority review to AXS-05 for the treatment of major depressive disorder as its NDA is supported by a pair of studies that showed statistically significant improvements in depressive symptoms with AXS-05 compared to placebo and active controls; BWAY receives FDA clearance for three-minute theta burst treatment protocol for major depressive disorder; QURE said the FDA has removed clinical hold on its gene therapy program for a type of blood disorder called hemophilia B (the agency had placed the program on clinical hold in Dec after a patient in a late-stage trial was diagnosed with a type of liver cancer)

·     Healthcare Services; HCA was downgraded to neutral from buy at Citigroup saying with a ~93.3% gain in shares over the past 12-month period, see a balanced risk-reward at the current valuation as they anticipate lower contributions from future COVID-related admissions; LHCG named a new catalyst call at Deutsche Bank with a buy rating as expects a series of favorable revisions to the estimates in the coming months which have not yet been reflected in the consensus; ACHL initiated Buy/outperform rated at Piper, Bofa and Opco with $25 tgt high at Piper

Industrials & Materials

·     Industrial & Machinery; LII reported strong beat with Q1 adj EPS $2.27 topping the consensus $1.31 on better revenue $931M (est. $790.95M) and raises FY21 adjusted EPS view to $11.40-$12.00 from $10.55-$11.15; OTIS Q1 adj EPS 72c vs. est. 63c; Q1 revenue $3.41B vs. est. $3.18B; Q1 new equipment orders up 18.4% with backlog up 8%; raises FY21 adj EPS view to $2.78-$2.84 from $2.67-$2.77 and raises FY21 revenue view to $13.6B-$13.9B from $13.3B-$13.6B

·     Transports; has surged since the start of the year, as Bespoke noted that in the last 120+ years, the Dow Transports have never had a longer weekly winning streak than the current streak of 12 weeks; U.S. airline stocks and cruise line operators gained early after the New York Times reported that U.S. tourists who’ve had Covid-19 vaccines could soon be permitted to travel to Europe

·     Metals & Materials; copper prices hit their highest in 10 years, while Soybeans, Wheat and Corn traded near their highest in eight years as the post-pandemic tide of liquidity continued to lift practically every boat in sight; CLF was downgrade downgraded to Sector Weight from overweight on valuation at KeyBanc; in lumber, paper sector, Raymond James upgraded WY to strong buy with $50 tgt, and named PCH new favorite idea with $79 tgt saying with lumber prices and futures hitting new highs once unimaginable a year ago, they are proactively raising forward earnings estimates for our lumber-exposed Timber REITs, PotlatchDeltic and Weyerhaeuser, ahead of expected 1Q results later this week.

·     Chemicals; GRA to be acquired by privately held Standard Industries Holdings Inc. in a deal valued at $7.0B, with W.R. Grace holders to receive $70 in cash https://on.mktw.net/3xpXuIk; AXTA was upgraded to Positive from Neutral with $41 price target at Susquehanna as value using a sum-of-the-parts valuation on our segment-level 2021 EBIT forecasts

Technology, Media & Telecom

·     Internet; NFLX mentioned positively in Barron’s saying it could become a surprising reopening play as many of its popular series and blockbuster films will return in the second half, after slowdowns in production; ETSY was downgraded from Overweight to Sector Weight at Keybanc saying think it remains one of the best long-term growth stories under coverage but its up 876% since our OW vs. 101% NASDAQ – think that OPEN and FTCH remain highly controversial and believe both have some of the highest return opportunities in our coverage.

·     Semiconductors; LAZR is collaborating with Airbus subsidiary Airbus UpNext to enhance the sensing, perception, and system-level capabilities to ultimately enable safe autonomous flights (shares of VLDR also rises in sympathy); BRKS to acquire collaborative robots and automation sub systems developer Precise Automation for $70 mln in cash; Nikkei reported that TSM will invest $2.8b in China to ramp up auto chip production; Bank of America raised their target on MRVL to $60 from $58 after incorporating its acquisition of IPHI

·     Software movers; Internet security software space active today following an M&A deal in the space as PFPT entered into a definitive agreement to be acquired by PE firm Thoma Bravo for $176 per share in cash, a 34% premium to Friday’s closing price in a transaction that values Proofpoint at approximately $12.3B https://bit.ly/3sTs2yw; CHKP reported a beat for Q1 EPS $1.54 vs. est. $1.50 and revenue $507.6M vs. est. $502.36M (shares of FEYE, CRWD, FTNT, QLYS, OKTA among other names moving in reaction)

·     Hardware, Components & Services; AAPL announces it will invest $430B in the US over the next 5 years, including adding more than 20,000 jobs in cutting-edge fields; ROKU says it may lose YouTube TV app after Google made anti-competitive demands, according to a report by Axios https://bit.ly/3aFh4X7