Closing Recap

Wednesday, July 28, 2021

Equity Market Recap

·     Stock markets liked what Fed Chairman Powell had to say after the Fed kept rates unchanged and asset purchases in place, noting that the Fed is nowhere near considering raising rates, said aims to provide more guidance ahead of a Fed ‘taper” (of assets) and that they expect inflation pressures to ease (though notes risks are to the upside). The comments were well received, adding to prior market gains led by technology, as better earnings results from Google-parent Alphabet boosted the Nasdaq as much as 0.9% after its biggest drop in over two months, while AMD, AAPL and MSFT also post better quarterly results. Another busy night of key earnings, highlighted by social media giant Facebook. Treasury yields fall, oil up and stocks higher.

·     In Washington DC, Senators said Wednesday they have reached a deal on the "major issues" in ongoing bipartisan infrastructure talks, according to reports. "We are prepared to move forward," said Ohio Republican Sen. Rob Portman, according to the Hill. Senate Majority Leader Chuck Schumer, a New York Democrat, announced that the Senate should be prepared to vote to start debate as soon as Wednesday, the Hill also reported.

·     Chinese tech-related stocks rebounded, with the KraneShares CSI China Internet ETF (KWEB) rising as much as +10% after the ETF faced was crushed over the past four days and reaching a 14-month low after tighter restrictions in Beijing broadens out from tech across various industries. Bloomberg noted that China’s securities regulator convened a virtual meeting with execs of major investment banks on Wed night, attempting to ease market fears.

·     Tech earnings dominated today’s action as GOOGL soars to record highs after a blowout quarter with record quarterly profit and revenue, MSFT also hits record highs after its EPS and revs top even the most optimistic estimate, though AAPL trades lower despite its beat and record revenue in each of its 5 geographic segments as forecasts for slightly slower revs growth next quarter hamper sentiment in big tech earnings. In chips, AMD jumps after its strong beat and guidance, SHOP shares flat despite a large EPS beat and record quarterly revs above $1B, Visa slightly down after a quarterly beat, and SPOT slumps and comes close to making new 52-week lows. Healthcare stocks jumped behind PFE, TEVA, BMY results, and Boeing surged on its beat. Industrials PWR, MTZ, FLR, CX, ACM, and EV charging stocks EVGO, CHPT, BLNK get a boost midday after a bipartisan agreement on infrastructure plan.

·     Tomorrow (along with more earnings), quarterly GDP data is expected to show an annualized 9.1% increase in the second quarter — one of the largest growth spurts on record. Consumer spending — the main driver of the economy — likely rose by 10% or more.

FOMC Meeting Headlines:

·     The U.S. economic recovery remains on track despite a rise in coronavirus infections, the Federal Reserve said in prepared text ahead of Fed Chairman Powell’s press conference. "With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen," the U.S. central bank said. It also said "the economy has made progress" toward the labor market gains the Fed says it wants to see before reducing its $120 billion in monthly bond purchases, the statement said. The Fed’s policy decision was unanimous. Higher inflation remained the result of "transitory factors," the Fed said. The Fed kept its overnight benchmark interest rate near zero and left unchanged its bond-buying program.

Commodities, Currencies & Treasury’s

·     Oil prices rise as WTI crude up $0.74, or 1.03% to settle at $72.39 per barrel after data showed U.S. crude inventories fell more sharply than analysts had forecast, bringing the market’s focus back to tight supplies rather than rising coronavirus infections. Crude inventories fell by 4.1 million barrels in the week to July 23, the U.S. EIA said, more than economist estimates while gasoline and distillate stockpiles also dropped. Oil has risen 45% this year, helped by demand recovery and supply curbs by OPEC+. Gold prices were little changed, losing a dime ahead of the FOMC meeting results, settling just below the $1,800 an ounce level.

·     Treasury yields and the dollar were fairly muted even after Fed Chairman Powell’s press conference, with the 10-year rising not higher than 1.275%, only a few bps move while the dollar stayed mostly higher vs. rival currencies – though did slide vs. the euro late day.

Sector News Breakdown

Consumer

·     Retailers; toy retail MAT followed up a good report from HAS the other day with a beat and raise of its own, boosting its full-year sales forecast, expecting sustained robust demand for its Barbie and Hot Wheels brands into the holiday season despite upcoming price hikes (sees year sales up 12%-14% vs. prior view up 6%-8%); NKE, LULU, FIGS, DECK, and YETI tgt prices raised at Cowen saying they are best positioned to capitalize and we believe will generate returns on capital north of 50% and should be valued at higher multiples; WMT to offer cloud-based services through Adobe Commerce; in footwear, SHOO posted revenues of $397.9M, beats by $25.7M, and adjusted EPS of $0.48, beats by $0.16, this quarter.

·     Auto sector; Ford Motor (F) earnings expected after the close tonight; QS posted a slightly larger Q2 EPS loss of (-$0.12) as ended Q2 with over $1.5B in liquidity and expect to enter 2022 with more than $1.3B in liquidity; Allego Holding BV, a pan-European electric-vehicle charging network, is going public through a combination with a special-purpose acquisition company affiliated with Apollo Global Management Inc., in a deal that values the combined business at $3.14 billion, the companies said (FSR will make a $10 million investment in the PIPE, and it also struck a deal with Allego for charging options in Europe); commercial vehicle registrations in the EU markets increased by 12.4% year-on-year to 185,573 units, said the European Automobile Manufacturers Association; EV chargers got a boost (BLNK, CHPT, EVGO) after Senator Warner said electric charging station funds were in infrastructure bill

·     Consumer Staples; MDLZ Q2 EPS $0.66 vs. est. $0.64; Q2 revs $6.64B vs. est. $6.42B; net revenues increased +12.4% driven by organic net revenue growth of +6.2%, favorable currency and acquisitions and raised its 2021 organic sales outlook to 4%+; AVY 2Q adj EPS $2.25 vs est. $2.06 on sales $2.1B vs est. $1.88B; guides FY adj EPS $8.65-8.95 vs est. $8.70; to acquire Vestcom for $1.45B cash, expected accretive to FY22; CHEF Q2 adj EPS $0.04 vs. est. loss (-$0.32); Q2 revs $423M vs. est. $355M; said not issuing guidance at this time

·     Restaurants; MCD global comparable sales +10.5% vs. a consensus of +38.7% and U.S. comparable sales were +25.9% vs. consensus of +23.1% – follows $0.25 EPS beat on better revs at $5.89B; SBUX posted record profit and sales for the quarter with an overall increase in comparable-store sales of 73% relative to the Q3 last year as U.S. comp sales rose 84% and raised its 2021 EPS view from $2.90-$3.00 to $3.20-$3.25; CAKE posted a wider EPS miss of $0.37, missing ests by $0.41 and said expected cost of sales inflation of 3% for the back-half of the year; WING shares slide on mixed results with headline EPS and revs topping views but posted a YoY income decline (to $11.3M from $11.5M) as domestic comp sales rose 2.1%, below 2.9% est.

·     Casinos, Gaming, Lodging & Leisure sector; theme parks and movie theatres get a bump after SIX and IMAX reported better-than-expected quarterly results; SIX Q2 EPS handily topped estimates (profit vs. expected loss) saying revs down 17% compared to the level of 2019, while attendance was 8.5M guests vs. 10.5M in 2019; in casinos, BYD Q2 adj EPS easily topped views with $1.54 topping the est. $0.90 on better revs $893.6M vs. est. $790.35M, aided by stimulus/vaccine; MGM upgraded to Neutral from Sell with $43 tgt at Goldman Sachs saying since Sept ’20 downgrade, a robust leisure-led recovery has taken hold, with Strip GGR +11% (hold-adjusted) vs. 2019 in May even as visitation remained -22% vs. 2019

Energy

·     Inventory data; the API reports that crude inventories fell 4.73M barrels last week, gasoline inventories fell 6.23M barrels, distillate inventories show a draw of 1.88M barrels and Cushing inventories show a draw of 126K barrels (last night). The EIA this morning said Crude Oil Inventories fell over 4M barrels, more than the -2M barrel draw estimate (bullish) as Distillates fell -3088M barrels, and gasoline with a -2253M draw

·     E&P and Majors; HES Q2 earnings beat estimates and raising its expected production to the top of its previous guidance range; OVV posted a Q2 GAAP loss of $205M, which includes $799M in net losses on risk management; raised its full-year crude and condensate production guidance to 190K-195K bbl./day; MTDR Q2 adjusted EBITDA rose 143% Y/Y to $261M; average production rose 27% Y/Y to 93,210 boe/day as results topped expectations; HMLP plunges after the co slashed its quarterly cash distribution to 1c per common unit from 44c

Financials

·     Bank & Insurance movers; CFG agrees to acquire ISBC in $3.5B stock and cash deal; PFG earnings beat while AUM reaches $990.4B in Q2, with total net cash flow of $2.1B; CB Q2 core EPS $3.62 vs. et. $2.99; P&C net premiums written were up 15.5% globally for the quarter and 12.6% for the first six months, powered by commercial lines and the best organic P&C growth since 2004; CME Q2 earnings beat reflects increased trading volume, new products; Robinhood (HOOD) 55M share IPO expected to price tonight with price range $38-$42

·     FinTech & Payments; Bitcoin and cryptocurrency related stocks jump as bitcoin rises for the eight-straight day, breaking above $40,000 as it posted its longest winning streak since Dec 2020; crypto miners RIOT, MARA, NCTY outperform early; MLNK 13.2M share IPO priced $26.00; BTCM entered into a definitive purchase agreement (the "Purchase Agreement") to acquire 2,500 new bitcoin mining machines; Visa (V) beat as Q2 core EPS $1.49 topped consensus of $1.34 on better gross revenue/lower incentives/expenses with strong volume momentum saying domestic spending almost back to pre-pandemic levels

·     REITs; IRT 14M share Secondary priced at $17.75; PGRE Q2 FFO 17c on revs $182.3M and raised its FY21 core FFO guidance to 86-90c (est. 85c) from 82-88c; HIW Q2 FFO 93c vs est. 90c on revs $185.5M vs est. $184.6M, same-store NOI +11.1% YoY, and upped its full-year FFO guidance to $3.62-3.73 from $3.54-3.66; STAG reported Q2 FFO 52c vs est. 50c on revs $138.4M vs est. $1.34.4M and now sees FY FFO $2.02-2.04 vs prior $1.96-2.00; EGP Q2 FFO $1.47 beat est. $1.44 on revs $99.58 vs est. $98.49M and raised full-year FFO outlook to $5.83-5.93 from $5.74-5.84; EXR delivered strong 2Q21 results that likely exceeded already high expectations heading into the quarter. FFO in the quarter of $1.64 beat consensus by $0.10 (+6.5%), and management raised FY21 FFO guidance 8.3% at the midpoint; EPR reported a big 2Q21 beat and management issued initial FY21 guidance that is above consensus, as the outlook for the Company’s experiential portfolio continues to improve. Cash rent collections of 85% in the quarter were even higher than management’s previous estimate

Healthcare

·     Pharma movers; healthcare a winner today on better earnings: BMY Q2 adj EPS of $1.93 and revs $11.7B slightly above estimates as backs full-year EPS outlook of $7.35-$7.55 and expects worldwide revenues to grow in the high-single digits; PFE Q2 results beat the top and bottom line consensus and raises FY21 adjusted EPS view to $3.95-$4.05 from $3.55-$3.65 (est. $3.70) and raises FY21 revenue view to $78B-$80B from $70.5B-$72.5B (est. $72.78B); GSK reported better than expected quarterly results, helped by the performance of its pharmaceuticals and vaccines businesses but only reiterated its guidance range for 2021 for a decline of mid to high-single digit percent Adjusted EPS at CER; in specialty pharma, TEVA shares jump after Q2 adj EPS of $0.59 in-line with estimates while revs of $3.91B missed the $4.02B estimate as Copaxone North America revenue fell -36% YoY to $152M while Europe Copaxone revenue rose 19% YoY to $100M; cannabis space gets a bump following better results from TLRY

·     Biotech movers; NOVN announces that the last patient has completed their planned Week-24 follow-up visit in the B-SIMPLE4 pivotal Phase 3 clinical study of SB206, a topical gel with antiviral properties for the treatment of molluscum contagiosum; INFI upgraded to Outperform at Wells Fargo following updated clinical data for eganelisib in urothelial bladder cancer (UBC) showing an impressive 40% reduction in risk of death compared to control and highly encouraging clinical/biomarker data in triple negative breast cancer

·     MedTech Equipment; SYK reported better-than-expected 2Q21 and raising guidance, prompting analyst tgt hikes (upgraded to Outperform at Northland); TMO Q2 results came in above analysts’ expectations, as recorded double-digit sales growth across its business segments compared with the pandemic-affected year-earlier period and raised guidance; RMD upgraded to Hold from underperform at Jefferies saying survey suggests is best positioned for gains; HRC shares jumped late morning after Bloomberg reported it rejected a $144 share bid from BAX calling it too low; MASI slipping despite beat-and-raises

·     Healthcare Services; TDOC shares slip as reported a wider-than-expected Q2 loss and guided for a wider per-share loss for the year than expected/said that its telehealth visits topped 3.5 million, 28% higher than the second quarter of 2020; HUM Q2 EPS $6.89 vs. est. $6.82; Q2 revs $20.58B vs. est. $20.5B; reaffirms year EPS view and FY 2021 expected individual Medicare Advantage membership growth range of approximately 425,000 to 475,000 members; CHE delivered another beat on continued strength at Roto-Rooter’s residential business, along with improvement in commercial and sequentially better Hospice performance and raised FY21 guidance to reflect the strong YTD performance; EHC posted a solid beat and raise in 2Q21 on strong SS volume growth in both segments as electives return to baseline levels for HH

Industrials & Materials

·     Industrial, Aerospace & Defense; BA shares rise after a strong earnings report with a surprise quarterly profit as Q2 adj EPS 40c blew out est. (81c) loss on revs $17B (+12% vs Q1, +44% YoY) vs est. $16.54B, and said it plans to almost double its current monthly production of 737Max planes from 16 to 31 by early 2022; GD shares rise early following Q2 beat and guides year EPS $11.50, above prior $11-$11.05 (est. $11.20); GNRC Q2 adj EPS $2.39 vs. est. $2.31; Q2 revs $920M vs. est. $863.41M; raises FY21 revenue growth view to 47%-50% from 40%-45% – but shares slide in margin concerns as corresponding adjusted EBITDA margin is now expected to be 24.5 to 25.0%, as compared to the previous guidance range of approximately 24.5 to 25.5%.

·     Transports; NSC Q2 profit that more than doubled to beat expectations, as revenue growth was more than triple the increase in costs, reported Q2 EPS $3.28 vs est. $2.94 on revs $2.8B vs est. $2.74B, railway operating ratio was a record 58.3%; Ryder (R) posted Q2 EPS $2.40 vs est. $1.38 on revs $2.38B vs est. $2.23B, sees Q3 EPS $1.95-2.05 (est. $1.69) and raised FY21 EPS view to $7.20-7.50 (est. $5.83) from $5.50-5.90; CHRW Q2 EPS $1.44 vs est. $1.33 on revs $5.5B vs est. $4.9B; ODFL reported Q2 EPS $2.31 vs est. $216 on revs $1.3B vs est. $1.25B, authorized a new buyback plan of up to $2B; HA Q2 adj EPS ($1.44) loss vs est. ($1.85) loss on revs $410.8M vs est. $399M, sees Q3 capacity 20-23% lower vs 2019 and revs 28-33% lower than 2019

Technology, Media & Telecom

·     Hardware & Services; AAPL beat Q3 sales and profit estimates, driven by better-than-expected iPhone sales as total revs hit $81.43B (above est. $73.3B) on better EPS $1.30 vs. est. $1.01 as China sales grew 58% to $14.76B in the fiscal third quarter ended June 26 – Services revs a record high of $17.49B above ests. $16.33B – shares slip after saying Q4 revs will grow by double-digits but will be below the 36.4% growth rate in the just-ended Q3; DDD announces sale of medical simulation business – Simbionix for $350M

·     Internet; GOOGL crushed it for the quarter as both revenue and profit surged to record highs powered by a rise in advertising spending – said ad revs rose nearly 70% to $50.44B and Ad revenue for its streaming video platform YouTube soar 83.7% to $7B; DUOL 3.7M share IPO priced at $102.00; SHOP 2Q adj EPS $2.24 vs est. $0.97 on revs $1.12B vs est. $1.05B, GMV $42.2B +40% yr/yr; SPOT reported a 20% jump in paid subscribers for its premium service, but quarterly MAUs of 365Mm missed analysts’ expectations of 371.5M with mixed guidance; TWTR said it will let retailers sell products through their profiles

·     Semiconductors; AMD Q2 revs almost doubled to $3.85B, beating the $3.62B estimate while guides Q3 revs about $4.1B, plus/minus $100M vs. est. $3.82B; MPWR set a quarterly revenue record while easily beating guidance across all metrics, driven primarily by increasing foundry capacity support, market share gains and the ramp of new products.

·     Software movers; MSFT sees Q1 sales to reach up to $44.2B, with productivity and business processes revs between $14.5B-$14.75B, intelligent cloud arm generating revs $16.4B-$16.65B, and more personal computing revenue between $12.4B-$12.8B (better guidance offset Q4 results that sent shares lower initially); SNPO 13.85M share IPO priced at $18.00

·     Networking and Components; EXTR Posts upside Q1. Revenue of $278M ahead of $264M consensus and NG EPS of 19c ahead of 17c consensus citing unprecedented demand for enterprise products and services/cloud new subscription bookings were up 111% y/y in FY21; JNPR upgraded to Buy and tgt raised to 433 at MKM saying pullback post 2Q21 earnings offers an attractive entry point for long-term investors