Closing Recap

Thursday, August 12, 2021

Equity Market Recap

·     It was a slow steady climb for major U.S. averages, with the S&P 500 closing at yet another all-time high while the Nasdaq moved less than 1% away from its all-time best, though today’s rally came on noticeably light volume and general negative market breadth. The Dow Jones Industrial Average little changed as a jump in tech (AAPL, CRM, MSFT) offset weakness in financials (AXP, V) and industrials (CAT, BA). Markets again turn a blind eye to a higher inflation report, as the headline Producer Price Index (PPI) MoM for July rose 1.0% vs. est. 0.6% and on a YoY basis, spiked to 7.8% vs. est. 7.3% – while core figures (excludes food & energy) also came in “hotter” than expected. Still no fear for major averages as the CBOE Volatility index continues to plummet (drops below the 16 level), despite hawkish comments from Fed speakers yesterday as the Fed’s Kaplan and George who called for the central bank to move ahead with reducing monetary stimulus, citing expectations for continued labor-market gains. Rising Delta variant cases and fears it could lead to further lockdown restrictions also having no effect on trader sentiment as major averages keep melting higher.

·     Stock/sector movers: semi’s fall as Morgan Stanley downgraded MU due to the risk of a steep decline in DRAM prices sends the stock to its 2021 low (drags LRCX, AMAT, WDC, STX lower – were 5 of the worst decliners in the S&P); DDS shares go on a bit of a rollercoaster after a massive EPS beat, reaching ATH highs +7.7% early before rolling, but ends strongly in the green; Social Capital SPACs OPEN, CLOV surge after earnings beats and strong guides (SOFI reports tonight) and fellow Reddit names PLTR also rises over 10% on its beat; SONO rises on its surprise quarterly profit, HIMS rallying from its 70% decline off Feb. highs after raising guidance, BMBL rebounding after falling 43% from its Feb high into earnings; UTZ trades below $20 for the 1st time in almost 8-month slides after its Q2 EPS, FY guidance were weaker than expected; AXP, V the weakest in the Dow and MA trades at its lowest since May after Daiwa downgraded all.

Economic Data:

·     Inflation data “hotter” as Producer Price Index (PPI) MoM for July rose 1.0% vs. est. 0.6% and on a YoY basis, spiked to 7.8% vs. est. 7.3%; the core PPI (ex: food & energy) rose 1.0% MoM vs. est. 0.5% and on a YoY basis rose 6.2% vs. est. 5.6%

·     Initial Jobless Claims fell -12K to 375K vs. 378K consensus (revised to 387K from 385K prior); the 4-week moving average was 396.25K, up 1,750 from the previous week’s average of 394.5K; U.S. insured unemployment rate was 2.1%, down from 2.2% last week; continuing claims of 2.866M lower than 2.980M prior and lower with 2.880M consensus

·     The 30-year fixed-rate mortgage averaged 2.87% for the week ending Aug 12, up from 2.77% recorded in prior week and down from 2.96% averaged in same period a year ago, according to the Freddie Mac Primary Mortgage Survey.

Commodities

·     Oil prices end modestly lower as WTI crude falls -$0.16 or 0.23% to settle at $69.09 per barrel but are still on track for a 1% weekly advance. The IEA earlier said it was worried about lower demand in the near-term, but OPEC didn’t change their forecast. Gold prices down -$1.50 at $1,751.80 an ounce (comes a day after posting it’s the best daily gain in about 2-weeks).

Currencies & Treasuries

·     Treasury yields edge higher as PPI inflation data comes in “hotter” than expected and the U.S. Treasury 30-yr auction was weaker, pushing the 10-yr to highs 1.37% (complete opposite of yesterday action when CPI was in-line and record 10-yr auction pushed yields lower). The U.S. Treasury sold $27B in 30-year notes at a yield of 2.04% vs. when issued at 2.03% (the 4^th 30-yr tail in a row); the bid-to-cover (demand) at 2.21 and indirect bidders awarded 60.65%, directs getting 21% (note auction follows one of the strongest 10-year auction on record yesterday, with record indirect demand). The U.S. dollar with a small rebound, as the dollar index (DXY) back near the 93-level following the Producer Price Index data – buck little changed vs. euro and yen.

Sector News Breakdown

Consumer

·     Retailers; Adidas (ADDYY) is selling its Reebok brand to Authentic Brands Groups for up to 2.1 billion euros ($2.46B) – less than when it originally bought Reebok for $3.8B in 2006; Wedbush downgraded AEO to Neutral as they believe shares reflect the company’s upside opportunity and growth at current levels; DDS Q2 EPS $8.81 crushed est. $0.80 on sales $1.57B vs est. $1.34B, retail gross margin 41.7% vs est. ~33%; FOSL reported Q2 adj EPS 7c on revs $411M vs est. $333.5M, sees Q3 net sales growth 5-10%, and raised FY21 outlook for net sales growth to 14-17% from 12-16% and adj EBITDA margin to 6-8% from 5-7%; WWW to issue $550M of Senior Notes due 2029; VSCO was initiated with a Buy rating at FB Riley with an $77 PT and at Market Perform with a $76 PT at Telsey and started BBWI at Outperform with a $74 PT

·     Auto sector; NIO Q2 non-GAAP EPS loss (-$0.03) vs. est. loss (-$0.11); Revenue of $1.31B (+127% Y/Y) beats by $20M; said achieved a record-high quarterly delivery of 21,896 vehicles in Q2; FSR announces private offering of $600 mln 5-yr convertible notes; VRM reported strong 2Q:21 results with eCommerce units sold growth ~410bps ahead of consensus while eCommerce GPPU advanced +153% y/y; RIDE posted a $108 million loss for Q2, revised its financial outlook and said it was talking to strategic partners, while RBC Capital lowered ests, reiterated its underperform and cut its price tgt to $1 from $5; NKLA awarded an approximate $2 million grant from the U.S. Department of Energy to advance its research into autonomous refueling technologies for future hydrogen fueling stations; BLNK top-line beat with rev 66% vs. Street and 43% while reported 2Q EPS of ($0.32) compared to Street mean of ($0.16)

·     Housing & Building Products; housing stocks coming off strong day of returns following in-line CPI inflation data and lower treasury yields – however, today the PPI report came in higher as yields rebounded; MHO was upgraded to Outperform and tgt raised to $100 from $80 at Wedbush citing volume and margin growth; BLDR announces $1B share buyback

·     Consumer Staples; UTZ slides after warning on near-term cost pressure before pricing actions kick in – overshadowing a Q2 revenue beat – warns on higher than planned inflation across key input costs across commodities, transportation and labor; CORE said the waiting period under the HSR act for PFGC’s planned purchased expired on Aug. 9 and the closing conditions for the deal have been satisfied; GRWG falls despite revs rising ~190% YoY to $125.9M, driven by a ~60% increase in same-store sales while gross margin reached ~28.4% from ~26.4% YoY; in tobacco, MO that it will raise list prices on its cigarettes between $0.14-$0.17 as per RBC Capital

·     Casinos, Gaming, Lodging & Leisure sector; DASH is said to have held talks to purchase Instacart over the past two months that may have valued the grocery delivery company at $40B to $50B. The talks felt apart in recent weeks at least partly over regulatory concerns, according to a report in The Information https://bit.ly/2VKi4F5 ; Canadian Justice Minister David Lametti announced on Thursday that Canadians will be permitted to legally bet on single sporting events starting on August 27 (saw shares of PENN, DKNG rally in reaction); the NFL is adding BetMGM, PointsBet and WynnBET (WYNN) to its list of authorized gambling partners.

Energy

·     The International Energy Agency (IEA) cut its outlook for global oil demand “sharply” for the rest of 2021 as the resurgence of coronavirus rocks major consumers and predicted a new surplus in 2022. The IEA cut its 2021 global oil demand growth forecast by 100,000 barrels a day, while upgrading its 2022 forecast by 200,000 barrels a day

·     Refiners: PBF downgraded to Underweight from Equal Weight at Wells Fargo with updated price target of $8.00, reduced from $10.50, reflects potential and specific costs associated with several different regulatory and compliance events; HFC upgraded to Equal Weight from Underweight at Wells and raising price target from $28 to $31, which is the low-end of our risk adjusted sum-of-the- parts valuation

·     Utilities & Solar; CSIQ Q2 EPS 18c vs est. loss (03c) on in-line revs $1.43B, solar module shipments 3.7GW was the top end of its quarterly guidance, sees Q3 revs $1.2-1.4B vs est. $1.62B, reduced its FY21 total module shipment guidance 16-17GW from 18-20GW and reiterate FY outlook for project sales guidance 1.8-2.3GW and revs $5.6-6B; ARRY delivered a breakeven Q2 vs est. EPS 1c on revs $202.8M that missed est. $231M and full-year guidance also missed expectations with their adj EPS forecast 15-25c falling short of est. 37c and revenue guide $850-940M missing est. $1B; Mizuho upgraded EXC to N and PT $47.50 from $40 due to an increase in forward gas and electric prices and prosects of federal subsidies for nuclear generation, OGE to Buy with PT $39 from $32 on valuation as it transitions to a pure-play regulated utility from a diversified midstream model; PEG agrees to sell its 6,750 MW fossil generating portfolio to ArcLight Capital Partners for $1.92B, as it continues toward a clean energy infrastructure-focused company.

Financials

·     Finance & Bank movers; Of the major banks and brokers, GS, MS and WFC have broken out to new highs, while BAC, Citi and JPM still off best levels; Bitcoin related stocks and assets saw some profit taking after recent outperformance, with Bitcoin falling over 4% to hold around $44K while Ethereum dropped as much as 6% but held above $3,000; AXP, V the weakest in the Dow and MA trades at its lowest since May after Daiwa downgraded all

·     Real Estate & Consumer Finance/lending; OPEN shares surged after Wedbush added it to its Best Ideas List after last night’s earnings report with Q2 EPS loss (24c) beating est. (34c) loss on revs $1.2B vs est. $1.09B, adj EBITDA $26M vs ($2M) in Q1, and sees Q3 revs $1.8-1.9B, above est. $1.52B; CWK 12.5M share Spot Secondary priced at $18.45; OMF 7M share Spot Secondary priced at $57.30

Healthcare

·     Vaccine news: shares of vaccine makers PFE, MRNA, BNTX, NVAX, AZN active after a group of advisors to the CDC is scheduled to meet Friday to discuss whether people who are immunocompromised should receive COVID-19 booster shots. This is the main item on the agenda for the CDC’s Advisory Committee on Immunization Practices meeting; in another report, no new cases of a rare and severe blood clots following vaccination with AZN’s Covid shot have been reported in Britain in recent weeks after a decision to restrict its use in under-40s, British scientists said on Wednesday as per Reuters

·     Pharma, Equipment, & Biotech movers; FULC 6.6M share Secondary priced at $19.00; COO announced that the Chinese National Medical Products Administration, which regulates medical devices and pharmaceuticals in China, has approved CooperVision MiSight 1 day contact lenses; CDMO rebounds after yesterday sell-off as RBC called it an overreaction noting mgmt did say there are no updates to report across any of its client base, but Chief Commercial Officer, Tim Compton, did recently resign to join a former company/executive team

·     Healthcare Services; GOCO missed 2Q21 EBITDA targets and lowered EBITDA guidance on significantly higher CC&E costs, which are running ~$50MM ahead of plan for the year, prompting downgraded at three firms (CSFB, RAJA, Evercore); GDRX posts better-than-expected Q2 revenue, helped by higher subscription revenue from telehealth on in-line guidance; CANO boosted its guidance for 2021 and 2022 in its first quarterly report as a publicly traded company; CLOV shares rise following better Q2 revs of $412.5M on a stronger year outlook; HIMS reported Q2 revs that rose 69% to $60.7M from $52.3M a year ago and above the $56.5M estimate on better year rev outlook of $251M-$255M (est. $226.3M); DOCS adds to yesterday gains following better than expected financials for the first quarter of fiscal 2022 the day prior

Industrials & Materials

·     Transports; The Cass Freight Index blew in weak for July, with a 3.1% drop from the June level. The index was up 15.6% against the pandemic comparable from a year ago, while costs were 43% higher. On a two-tear comparison, the freight index was up 0.5% and the expenditures index was 22.7% higher. The bottlenecks have near-term implications for companies like FDX, UPS, KNW, ODFL and other parcel, freight related names

Technology, Media & Telecom

·     Internet; EBAY reported a decline in active buyers in Q2, in another sign of softening e-commerce trends – also guides Q3 revs $2.42B-$2.47B below the est. $2.92B); BIDU Q2 earnings beat was trumped by Q3 revenue guidance that missed consensus expectations at the midpoint (sees Q3 revs $4.7B-$5.2B vs. est. $5.14B); CPNG posted a Q2 EPS loss of (30c), wider than est. (15c) loss on revs $4.48B vs est. $4.45B as a fire at one of its fulfillment centers in South Korea resulted in inventory and equipment losses of nearly $300M, though Deutsche upgraded shares to Buy with a $44 PT this morning; COUR 7.9M share Block Trade priced at $37.25; DIBS shares tumble after 2q loss is wider than expected; Reddit will raise up to $700 million in a fundraising round led by Fidelity Management, the social media network said on Thursday, cashing in on a jump in its influence in the financial world to triple its valuation to over $10 billion.

·     Semiconductors; STX upgraded to Neutral from Sell at Goldman Sachs and up tgt to $98 from $85 as believes that he had underestimated the company’s ability to gain share in nearline HDD; DRAM industry call at Morgan Stanley as the firm downgraded MU to equal-weight from overweight with $75 tgt while also downgraded Hynix to Underweight and both Nanya Tech and Winbond from OW to EW saying this is a cyclical rotation and valuation call for DRAM; NVDA tgt raised to $245 at Wells Fargo as continue to view the co as our most compelling long term secular growth story

·     Software movers; PLTR Q2 adj EPS $0.04 vs. est. $0.03; Q2 revs rise 49% YoY to $375.6M vs. est. $353.2M; backs Annual Revenue growth of 30% or greater for 2021 through 2025 and raises its full-year free cash flow outlook from above $150 million to above $300 million; KNBE 10.43M share Secondary priced at $20.75; AZPN downgraded to Hold at Benchmark as see few catalysts to move the stock higher until 2022 at the earliest, especially trading at 29x EV/FY23E FCF

·     Hardware, Components & Services; in 3D sector, XONE to be acquired by DM in deal valued at $575M, consisting of $192M in cash and $383M in DM stock, with a per share price of $25.50 https://on.mktw.net/3jJbp6e ; BOX Q2 revs $214M above est. $211.5M and closed 133 new deals worth over $100,000 in the first half of fiscal 2022, up 28% YoY while boosts its year sales outlook to $856M-$860M from prior $845M-$853M; SONO rises after beat and raise with solid GM’s rose with a rise in premium products and still impacted by supply issues

·     Media & Telecom movers; Dow component DIS to report after the bell tonight; BMBL posted Q2 revs $186.22M vs. est. $177.51M as Q2 total paying users increased 20% to 2.9M; Q2 total average revenue per paying user increased to $20.88, compared to $18.12; AT is nearing a deal to sell TMZ to Fox (FOXA) after a year of talks that involved persuading Harvey Levin to sign off on a sale, according to Dow Jones, citing people familiar with the matter – terms value TMZ at between $100 to $125 million.