Closing Recap

Tuesday, August 10, 2021

Equity Market Recap

·     Markets were somewhat choppy today with the S&P 500 and Dow both hitting all-time highs within the first hour of trading, but while the Dow was able to maintain its gains, the S&P 500 briefly went red before rebounding. Meanwhile, the Nasdaq came within 2 points (0.01%) of joining the other two with its own record high early in the session, but quickly rolled to red as interest rates rose to their highest levels in almost a month and hampered sentiment in the high-growth tech names. Elsewhere, the U.S. Senate passed a $1 trillion infrastructure plan today with 19 Republicans joining all 50 Democrats voting to approve the bill that includes $550B in new funding, and it will now move to the House (boosting shares of material and metal stocks all day). The Speaker of the House, Nancy Pelosi, has said that she will not bring this bill to a vote, though, unless it is accompanied by a separate $3.5T spending plan, which advanced in the Senate to a budget resolution in a 50-49 vote along party lines. Lastly, earnings season is close to wrapping up as more than 90% of the S&P has now reported this quarter. 2020-2021 IPOs/SPACs COIN, TDUP, TASK, POSH, PLBY, U, UPST, RPRX join WEN as significant companies reporting tonight-tomorrow AM.

·     Stocks/sector news; KSU spikes after CP submits a new takeover offer valued at almost $300/share (2.884 shares of CP + $90 cash) ahead of their shareholder vote next week on its current bid of $325/share from CNI; AMC opens strong and almost hits a gain of 10% in the morning after its earnings beat, but the stock gives up all of those gains throughout the day; Metals/commodities lead with NUE among S&P leaders and STLD, X, CLF, FCX, CENX, AA all rising over 5%; SDC plunges to 52-week lows after its EPS, revs, and FY guidance all miss consensus, and SQSP slumps to its lowest price since its IPO debut 5/19 after its guidance disappoints; E-commerce names REAL, JMIA plummet after Q2 misses and mattress names mixed with CSPR nearing 52-week lows on a quarterly loss that widened vs last year but PRPL jumps after its results; overall retailers outperform (VSCO, GPS, ANF, AEO, M); DDD surges as much as 40% after its strong quarterly report, SYY soars on its rev beat and raised guidance, and CHGG bounces on its beat; Banks (JPM, GS, MS, WFC, BAC, C) rise as the 10-yr yield touches 1.349%, its highest in almost a month; Energy (APA, HAL, FANG, MRO) rallies with the rebound in crude prices.

Economic Data:

·     U.S. Q2 non-farm productivity +2.3%, below consensus +3.5% while Q1 was revised down to +4.3% from prior +5.4%; non-farm unit labor costs rose +1.0%, mostly in-line with the 1.1% estimate while prior month was -2.8% vs. prior +1.7%

Commodities

·     Gold prices rose $5.20, or 0.3%, to settle at $1,731.70, rebounding from yesterday’s lowest settlement price since March and reversing early morning declines in its first daily rise in 4 sessions. The precious metal has been pressured recently following better jobs data last week that has simultaneously pushed the U.S. dollar and treasury yields higher and includes the 10-yr yield reaching its highest level since July 15 today.

·     Oil prices rebounded with WTI crude rising $1.81, or 2.7%, to settle at $68.29 to recover all of yesterday’s losses that followed last week’s 7% pullback, the largest weekly drop in prices since October, and complete a 4.8% bounce of yesterday’s 2.5-month low.

Sector News Breakdown

Consumer

·     Retailers; NLS shares tumble as reported Q1 results that were better than expectations driven by continued strong demand but offered operating margin guidance for the remainder of the year that was below estimates (said sees FY2H22 operating margin running in the LSD-MSD% range which is below Truist ~17% expectation); ELY posted 2Q print and upward guidance revision that puts ELY on track to hit its ’22 financial targets a full year early; PRPL results were in-line with the June earnings warning as bottom line results were below (no guidance) on previously discussed production issues. Guidance calls for results to be in-line to above the Street in 2H21; CSPR posted a Q2 loss that surprisingly widened from a year ago, while revenue topped forecasts, as increased raw materials, freight, and labor costs hampered the mattress and bedding company’s ability to meet demand

·     Auto sector; ZEV surges after saying it entered into a deal to deliver up to 7,500 zero-emission shuttle buses to Forest River Inc, a leading shuttle bus producer in agreement worth up to $850M; NKLA announces another expansion to its dealer network for Class 8 truck sales and service coverage with the addition of Alta Equipment Group; FSR resumed Overweight and $40 tgt at Morgan Stanley citing an ‘on time’ launch of the Ocean when demand for EVs exceeds supply; and FSR’s strategic value as it engages experienced manufacturing partners.

·     Housing & Building Products; BECN downgraded to Hold at Jefferies as see EBITDA down in 2022, with the GM gains from mix & the spread on higher shingle prices vs lower cost inventory reversing; ETH management expects F1Q sequential revenue growth with strong gross margin trends expected to continue throughout FY22 (despite higher product costs).

·     Consumer Staples; SYY Q4 adj EPS $0.71 topped the $0.60 estimate on better revs $16.14B vs. est. $14.23B and guided year EPS $3.33-$3.53 vs. est. $3.35 while saying it sees no signs of Delta variant impacting demand; WTRH declines after reporting a Q2 loss of (4c) vs estimates of a 2c profit on revs $49.2M, down from $60.5M YoY and below est. $51.4M; IPAR Q2 EPS 71c vs est. 43c on in-line revs $207.6M and reaffirmed FY outlooks for EPS $1.95 and revs approximately $750M; SAM announced a partnership with PEP to create an alcoholic Mountain Dew drink

·     Restaurants; Pizza Hut and BYND announces partnership to test new plant-based Beyond Pepperoni Pizza topping; DIN upgraded to Buy from Hold at Deutsche bank with $93 tgt noting shares are down ~27% from its high achieved three months ago, while the business recovery is largely in tact

·     Casinos, Gaming, Lodging & Leisure sector; movie theatre chain (and “meme” stock) AMC reported earnings as revenue tripled in Q2 and that its theaters will soon accept bitcoin; DKNG says it now live with its new NFT ecosystem and the first preseason Access Collection is expected to drop later this week; gym owner PLNT mixed Q2 as EPS missed ($0.21 vs. est. $0.23) on better revs of $137.3M, while guided 2021 profit and revs below consensus

Energy

·     E&P and Majors; CDEV was upgraded from Neutral to Buy at MKM Partners and increasing price target by $1 to $7 per share due to a higher gas price realization – notes CDEV has depreciated almost 40% since late June and now reflects over 40% equity value upside; BKR awarded contract from Chevron Australia PTY to deliver subsea compression manifold technology for Jansz-io compression project; BPBP was downgraded to Hold at Jones; Goldman named MPC as a Top Pick on its capital profile; BCEI Q2 EPS $1.19 vs est. $1.31 on revs $156.03M vs est. $137.57M; NGL Q1 EPS ($1.23) on revs $1.49B vs est. $1.46B, adj EBITDA $91.1M vs est. $114.8M and reaffirms FY22 adj EBITDA $570-600M vs est. $551.5M

·     Utilities & Solar; ARRY upgraded to Buy at Roth Capital saying they are incrementally more bullish on ARRY into Q2 with the stock down ~45% since Q1 results, as see potential for the stock to leap higher on any healthy amount of good news such as reinstating guidance and margin stability

Financials

·     Insurance; PRA upgraded to Overweight from Neutral at Piper and raising tgt to $26 as think prospects have turned in the second quarter after a number of years of struggling profitability; UIHC was downgraded to Market Perform at Raymond James given their poor 1H21 and Q2 results that have led to the stock falling ~27% YTD as the litigation environment in Florida remans difficult, and they want to see signs of improvement; Credit Suisse downgraded MFC to Neutral as they will be particularly impacted by the transition to IFRS 17 for insurance contract reporting given their accelerating new business gains in recent years; Truist downgraded ATH to Hold

·     Bitcoin, FinTech & Payments; crypto assets (Bitcoin, Ethereum) remain higher after surge this weekend while names leveraged to Bitcoin (COIN, BTBT, NCTY, MSTR, SI, RIOT) take a little breather; BLND was initiated with a Buy/OW rating at Canaccord ($28 PT), Goldman ($30), Truist ($24), KeyBanc ($25), Piper ($24), Wells ($24), and William Blair; RBC reinstated coverage on PSFE at Outperform as strong demand for the company’s eCash products and elevated ecommerce by consumers could drive upside to their estimates; Exane upgraded FISV

·     Consumer Finance; WHF was upgraded to Neutral at JPMorgan despite their Q2 miss yesterday as Q3 is shaping up to be the strongest originations quarter ever, and along with elevated repayment activity in 2H21 could result in higher NII from increase fee income and a larger earning asset base; CNS July AUM $99.5B, up from June’s $96.23B due to net inflows of $782M and market appreciation of $2.7B with distributions $208M

·     REITS; Raymond James upgraded PSA to Outperform (TP $350) and CUBE to Market Perform, downgrading EXR to Market Perform, and reiterating our Outperform on LSI (TP $135, +$46) following record 2Q21 results and increased 2021 guidance; WPC 4.5M share Spot Secondary priced at $78.00; WPTIF was acquired by BX for $22/unit; DBRG acquired a controlling stake in digital infrastructure leader Vertical Bridge, and was also initiated by Raymond James at Outperform with an $8.50 target as its shift to digital infrastructure from traditional real estate should make its balance sheet staple with lower risks and produce consistent cash flows, and the company; BRDG was initiated at OW with an $18 price target by both JPMorgan and Citi; FB Riley upgraded SVC to Buy with a $15 PT; CXW Q2 adj FFO 46c on revs $464.6M vs est. $466.1M, adj EBITDA $101.7M, and did not provide guidance due to uncertainties from Covid-19; WPG Q2 adj FFO 75c missed est. 84c on revs $138.4M vs est. $129.8M

Healthcare

·     Pharma movers; ARCT shares jump after saying its Phase 3 study, which will be fully funded by a global entity (saving ARCT over $300M as per Piper) and will begin in 2H21; RETA decision to share mid-cycle commentary from the FDA’s review of the bardoxolone NDA in Alport was a surprise, and the delineation of four review issues (and changes to the FALCON ADPKD study to a lesser extent) drove shares down meaningfully; HOOK Phase II trial (NCT03629080) assessing CMV Vaccine (HB-101) in Kidney Transplant patients has reported an decrease in patient recruitment from 150 to 83.

·     Biotech movers; FULC rises after saying its experimental drug, FTX-6058, showed positive interim results in an early-stage trial testing it in patients with sickle cell disease; FGEN reported 53M in net roxadustat Q2 sales in China ( 21% q/q): 13M booked by FibroGen below consensus 21M; HALO Q2 royalty revenues of $45.8M, ahead of consensus’ $45.4M and 2021 guidance was also revised higher reflecting strong demand for bulk ENHANZE API and higher collaboration revenues; AXSM extends yesterday declines after plunging 46% Monday as several analysts cut tgts following surprise FDA letter to company on July 30 citing deficiencies in the AXS-05 application for MDD which precluded labeling discussions

·     MedTech Equipment; PEN Q2 revs of $184.3M (up 72.7% y/y ex-fx) surpassed the Street’s $170.8M, with gross margins expanding to 64.4% from 61.8% y/y on better EPS and raised 2021 revenue guidance to $720-$730M from $695-$705M; FLGT reported Q2 revenue, non-GAAP EPS and total test volumes that missed expectations due to COVID-testing declines that offset core genetic testing strength and lowered 2021 guidance

·     Healthcare Services; SDC slides after the dental equipment manufacturer reported revenue for the second quarter that missed the average analyst estimate; CAH partners with ABT and QDEL to offer rapid OTC COVID-19 tests/the OTC tests expand Cardinal Health’s COVID-19 testing and surveillance offerings in support of safe reopening programs; Texas Governor Greg Abbott is calling for Texas hospitals to temporarily postpone elective procedures given the surge in COVID patients – hospitals HCA and THC have exposure to the state

Industrials & Materials

·     Transports; CP formally submits its new proposal to acquire KSU in a deal that values the company at $31B, with the proposed transaction at $300 per share saying it has the unanimous support of the Canadian Pacific board; overall transport index getting a boost from the rails, while airlines traded mostly higher early

·     Metals & Materials; metals were among the biggest winners on the day, seeing outperformance in steels (X, STLD, NUE) aluminum (AA, CENX) and others metals (CLF) a id a rotation into materials; NTR raises FY21 adj EPS view to $4.60-$5.10 from $2.55-$3.25 and boosts FY21 adjusted EBITDA view to $6B-$6.4B from $4.4B-$4.9B; TMST said it is increasing base pricing on all special bar quality (SBQ) products by $60/ton effective September; CF posted a top and bottom line miss for Q2 (Q2 EPS $1.14 vs. est. $1.57; Q2 sales $1.59B vs. est. $1.62B)

Technology, Media & Telecom

·     Internet; SQSP shares slide in first quarter as an IPO, as beat Q2 & in-line FCF and guided FY21 in-line implying a 2H guide down and more meaningful back-half deceleration than investors expected – Piper noted forward guidance implies 2H organic growth could moderate to 15% y/y vs. 29% in 1H on tougher comps; CHGG raised its 2021 Chegg Services guidance by $11.5M, (33% y/y implied growth) and EBITDA guidance by $19M (36.7% implied margin) vs. prior levels; REAL shares slide as reported 2Q:21 results with GMV in line with the company’s preliminary report and revenue below expectations amid slower direct revenue growth as the company returned to a more normalized mix of consignment supply

·     Semiconductors; in DRAM space (MU), contract prices of PC DRAM expected to decline by 0-5% in 4q21 as spot prices of dram modules continue to weaken, says Trendforce; TSM said July monthly sales of NT$124.6bn, -16% MoM, +17.5% YoY. 30% of 3Q rev forecast of NT$413.4b; IMOS reports July revenue of $86.5M (+2.4% M/M; +28.2% Y/Y); INTC files for potential 5-part senior notes offering

·     Software movers; WDAY signs a strategic partnership with Google Cloud to further their digital transformations; SAIL reported solid 2Q21 results that were better than expectations due to strength in its subscription business (up 40% YoY), which more than offset the decline in its license business; QLYS delivered a good quarter, with all metrics ahead of expectations and solid cash flow as results were driven by increased adoption of VMDR and multi-product momentum given increased consciousness towards cyber-security; CRM announced Salesforce+, an all-new streaming service with compelling live and on-demand content for every role, industry and line of business, all in one place.

·     Hardware, Components & Services; VUZI reported slightly softer-than-expected 2Q21 results with total revenue of $2.9mn, down 4% y/y; DDD helps boost 3D stocks early after 2Q adj EPS $0.12 vs est. $0.05 on revs $162.6Mm vs est. $143.3Mm