Closing Recap

Wednesday, May 26, 2021

Equity Market Recap

·     Stocks end higher, but trading action in major averages was similar to yesterday, as the main indexes were little changed on the day (S&P 500 and Dow), trading in a narrow range after early gains. Smallcaps were the standout as the Russell 2000 index rose as much as 2% late day while Transports rose nearly 1% and the tech heavy Nasdaq rose about 0.5% in generally quiet news. Many of the market momentum names (crypto, NFT’s, EV’s, and reopen trades) were the biggest movers, while investors prepare for a busy night of earnings in software and retail and ahead of a busy morning of economic data including GDP, jobless claims.

·     Sector/stock movers: Retail earnings: DKS surges to a record after its blowout quarter; ANF highest since Aug 2014, BBW highest since Jan 2017, URBN spikes over 10%, CPRI rises on their respective beats, though JWN trades below $33 for the first time since early January on its miss; (WSM, AEO, BBY, DG, DLTR, BURL expected tonight-tomorrow AM); ZS jumps to highest price in almost 3-months on its beat-and-raise and BMO upgrade, INTU trades at its record high on strong guidance before profit-taking turns the stock red; TOL gains ion its earnings beat, lifts other homebuilders; alt energy stocks outperform as fuel cells PLUG, FCEL, BLDP and EVs BLNK, CHPT, LI, XPEV, QS, WKHS soar; Ford (F) climbs to its highest share price since July 2016 after boosting its EV investments to $30B by 2025 from $22B; CVS, WBA, RAD fall after Business Insider reports $AMZN is weighing a push into physical pharmacies; Reddit “meme” stocks GME, AMC, BB, SPCE, EXPR, KOSS, FUBO, and NFT plays TKAT, DLPN, ZKIN, MUDS outperform again.

·     Federal Reserve officials continued to downplay the prospects of rising inflation this week (though speakers were quit today). Yesterday, Fed vice chair Clarida said the U.S. central bank had the ability to curb an outbreak of inflation and engineer a soft landing without throwing the country’s economic recovery off track. Comments came a day after Fed Board Governor Lael Brainard and James Bullard, president of the St. Louis Federal Reserve, reiterated the Fed’s current dovish monetary policy stance and expectation that any price spikes would be transitory.

Commodities, Currencies & Treasuries

·     Oil prices edge higher as WTU crude gains 14c to $66.21 per barrel, its 4^th straight session of gains after a pullback late last week. Natural gas prices rose 2.44% to settle at $2.984 mln btus. Despite the bullish weekly inventory data showing a decline in U.S. crude and gasoline supplies, ongoing concerns about the potential addition of Iranian oil, as well as the impact from the Chinese crackdown on retail commodity investors remain.

·     Gold prices finish higher as June gold rises $3.20 or 0.2% to settle at $1,901.20 an ounce (its first settlement above the $1,900 level since January), rising today despite a small rebound in the dollar and Treasury yields. Note the GLD ETF snapped its 10^th day in a row of gains and up for 15 of the last 16 days – off $165.50 lows on May 4th (highs of $178.60 today)

·     Treasury yields and the U.S. dollar modest bounces after more than a week of selling pressure. The U.S. Treasury sold $61B in 5-year notes at a yield of 0.788% vs. 0.794% when issued prior with a bid-to-cover at 2.49 (better than 2.31 last month) and indirects awarded 64.35% and directs 14.87%. The U.S. dollar bounced after touching lowest levels since January, as the dollar index (DXY) hovered back around the 90 level up over 0.3%.

·     U.S. corn futures recovered slightly from a steep selloff a day earlier, lifting prices from one-month lows, although gains were limited by favorable crop weather across the U.S. Midwest. Soybeans were mixed after prior-session losses on good crop weather, while wheat fell to fresh six-week lows on strong U.S. winter crop prospects and stiff competition in export markets.

Sector News Breakdown

Consumer

·     Broadline/Misc. retailers; the January Reddit/WSB “meme” stocks have seen recent upward momentum, with poster child GME rising a 5^th day, on track for its highest levels since mid-March (comes a day after NFT․GameStop․com unveils what will become GameStop’s venture into the rapidly growing crypto and non-fungible token space); sporting goods stores rally after DKS Q1 adj EPS $3.79 tops $1.12 est.; Q1 revs $2.92B vs. est. $2.18B; raises year EPS view to $7.05-$7.68 well above the prior $3.81-$4.55 est.; Q1 comp sales surged 115% which included 14% rise in eCommerce (BGFV, ASO, SPWH active); BBW posts Q1 EPS of 60c on better revs $91M cents and sees 2021 core earnings between $28M-432M which is above 2019’s reading of $15.3M; BBBY announces same day delivery partnership with DASH in the US

·     Apparel retailers; CPRI easily tops Q4 ests with EPS of 38c on sales $1.2B vs. est. 2c and $1.02B while guides year EPS $3.70-$3.80 vs. est. $3.72 and sales about $5.1B vs. est. $4.99B – reinstated its share repurchase w/$400 mln of availability remaining (qtrly jimmy choo revenue rose 15.9% to $124M and Michael Kors revs fell -3.9% to $838M); URBN posted better-than-expected Q1 sales of $927M (vs. est. $900M) with comp sales rising 10% driven by strong double-digit growth in digital channel sales (was upgraded to Neutral at JPMorgan with $38 tgt); ANF posted earnings and sales that beat expectations (EPS 67c crushes est. loss of 38c); JWN qtrly sales -13% worse than est. decline -10% while gross margins miss as declined 260bps vs. ’19

·     Auto sector; Ford (F) outlines plans to boost spending on its electrification efforts by more than a third and aims to have 40% of its global volume be all electric by 2030 – under the plan called "Ford+," the co expects to spend over $30B on electrification (up from prior view $22B); FSR to partner with Mekonomen Group for delivery, servicing and fleet management across Denmark, Norway and Sweden – confirms that deliveries of Fisker ocean SUV are projected to start in Denmark, Norway and Sweden from Q4’22; LOTZ slides after cutting its FY21 revenue forecast to $272M-$317M from $335M-$375M saying its profit-sharing corporate vehicle sourcing partner has paused consignments

·     Housing & Building Products; homebuilder TOL posted F2Q21 EPS of $1.01 versus $0.59 last year and $0.80 estimate as total sales improved by 25% Y/Y to $1.84B topping the $1.77B est. due to an average closing price of $808.6k and indicated pricing is staying ahead of cost increases and the 21.9% GAAP gross margin in F2Q21 was 90bp better; SKY posted F4Q21 EPS of $0.60 versus our consensus estimate at $0.38 and total revenues rose 49% to $448 million driven by a 29% gain in volume and a 12% average pricing increase to $67,200. The Mortgage Bankers Association (MBA) said its seasonally adjusted Purchase Index decreased 4.2% in the week ended May 21 from a week earlier, reflecting a 7.2% decline in applications for refinancing.

·     Restaurants & Consumer Staples; CALM downgraded to underperform from Buy with $38 tgt at Bank America, more a call on industry fundamentals than company specifics as we expect higher grain costs to overwhelm pricing; RRGB Q1 sales and margins were ahead of expectations similar to peers in the restaurant sector with dining rooms open again and is expected to further benefit from markets reopening on the West Coast; MDLZ acquires high-growth European snacking company, Chipita S.A. for about $2 billion

·     Casinos, Gaming, Services, Lodging & Leisure sector; in cruise lines, NCLH says eight added ships to set sail beginning fall 2021; in education, GOTU posts Q1 loss of 5.20 yuan per share, compared to a profit of 0.76 yuan a year earlier; operating expenses triple from last year on increased marketing expenses; in gaming, SGMS acquires SportCast, a sports betting player engagement platform, for an undisclosed amount

Energy

·     Energy stock movers; U.S. crude stock inventories fell last week, the Energy Information Administration said – crude stockpiles fell -1.7M barrels (est. was for 1M barrel drop), while gasoline stocks fell by 1.7 million barrels in the week to 232.5 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 1 million barrels in the last week, EIA said. Overnight, the API reported a weekly draw of 439K barrels of oil; showed a draw of 1.98M barrels, distillate inventories show a draw of 5.13M barrels and Cushing inventories show a draw of 1.15M barrels.

·     E&P and Majors; in big oil today, RDSA ordered to cut emissions by a Dutch court, XOM loses two board seats to an activist that has attacked its strategy, including on climate change; CVX shareholders vote in favor of cutting emissions including from the fuels they produce; Morgan Stanley downgraded MMP to Equal-Weight on potential longer-term structural risk around gasoline demand given the expected pace of EV adoption, upgraded OKE to EW after increasing their EBITDA estimates on strength in Bakken producer activity but await better entry points given the stock’s full valuation, and also upgraded WES to EW after raising their estimated producer activity in the Delaware and DJ basins above implied guidance through 2025, but also views a pullback as likely required to build a position; Mizuho downgraded XEC to N and lowered their pt to $84 from $99 after Monday’s merger announcement with COG; JPMorgan upgraded OVV to OW given its compelling relative FCF/EV valuation and significant balance sheet deleveraging; Tudor Pickering downgraded AM to Sell

·     Pipelines: Morgan Stanley downgraded KMI to UW as the company’s DCF fair value screens with their UW group; RBC downgraded ENLC to Sector Perform on valuation and the commodity outlook, as well as the stock’s upside being reliant on an acceleration in producer activity rather than being in the company’s control

Financials

·     Bank movers; Senators grilled CEOs of JPM, C, WFC today; TIGR added as best idea short at Hedgeye paired with long FUTU; BGCP agrees to sell its insurance brokerage business to The Ardonagh Group for $500M in cash; in FinTech & Payments; FLYW 10.44M share IPO priced at $24.00; PYPL plans to allow customers to withdraw cryptocurrency to third-party wallets for the first time since it began offering buy and sell options last year, according to an executive

·     Consumer Finance & Services; ZIP opens for trading today in direct listing on NYSE with reference price at $18, pegging co’s market cap at ~$2.4B; INTU reported strong results across the board despite a mix shift in Consumer revenue from Q3 to Q4 stemming from the IRS tax filing extension (May 17, 2021), giving INTU 2.5 weeks of added tax filings in Q4 – Q3 revs slight miss but raised FY21 revenue +$479M at the midpoint

Healthcare

·     Biotech movers; TVTX shares fell as announced that the FDA did not view the interim results from DUPLEX in FSGS as sufficient to support Accelerated Approval, instead deferring until more mature eGFR data are available; NBRV surges the co and Chinese partner Sinovant Sciences said Lefamulin met the main goal in treating Chinese adults with community acquired bacterial pneumonia in a late-stage study; LRMR plunges over 40% after saying the FDA has placed a clinical hold on the CTI-1601 clinical program and that the company will not be closing a previously announced private placement financing; ICPT shares lipped midday after FDA restricts use of Ocaliva in primary biliary cholangitis (pbc) patients with advanced cirrhosis. adding and updating warnings due to risk of serious liver injury

·     Pharma & Healthcare Services; AIM announces positive safety data from the third cohort of Its phase 1 Intranasal clinical trial; WBA, CVS shares slipped initially after Business Insider report that AMZN is weighing a push into physical pharmacies to grab a bigger slice of the $370 billion prescription market; Reuters reported EU drug regulator says it is reviewing death of Belgian woman after getting JNJ covid-19 vaccine, 1st fatal report, with other case reports of blood clots with Belgian and Slovenian medicines agencies

·     MedTech Equipment; Agilent (A) delivered EPS beat and posted a record 19% organic growth relative to expectations of ~8% and guidance of 7-9%, driven by broad-based +DD growth in all end markets and business segments, led by +25% organic growth in LSAG; BSX downgraded to Hold from Buy at Needham as it expects a revision in 2022 and 2023 estimates before and after co’s investor day in Sept and says the upcoming launch of ABT’s heart device, Amplatzer Amulet, could cause growth of BSX’s device WATCHMAN to slow down; PROG said it saw positive results from a study for its Targeted Therapeutics program which evaluated delivery of its PGN-001 adalimumab drug substance directly to the colon in a preclinical model of colitis; STE upgrade from Hold to Buy at Needham as believe that the CMD deal will be significantly accretive to STE’s EPS, conservative FY22 guidance will lead to an increase in the consensus estimate, hospital capital spending is stronger than expected in 2021, and STE shares are attractively valued; MDRX announces $350M share repurchase plan

Industrials & Materials

·     Industrial & Machinery; Barclays upgraded JCI to OW as they see the company accelerating its organic growth into 2022 as its service business and F&S gain momentum while most of their stocks under coverage are expected to decelerate, and downgraded ITW to UW as they expect the stock to reverse its outperformance against the S&P since mid-February due to decelerating organic sales growth, market share gain efforts not gaining traction, and potential levelling off in margins as input costs increase; HEI Q2 EPS 51c vs. est. 48c on sales $466.7M vs. est. $443.1M, and did not provide guidance but Canaccord said its steady improvement is positive for the stock and supports its valuation premium; JBT was upgraded at Baird to Outperform with a $151 pt, and Wells was also positive on the near- and long-term earnings trajectory; CMCO reported Q4 adj EPS 50c vs est. 52c on sales $186.2M vs est. $182.3M, and sees Q1 revs $212-217M (est. $204M); DA Davidson downgraded DE to Neutral on emerging cost pressures but raised its PT

·     Transports; modest gains for the transport index led by another bounce in airline stocks (ALK, JBLU, AAL) following positive company updates yesterday, while rest of group with modest gains; Keybanc out on FDX saying they view UPS’s June 9 investor day and FDX F4Q21 earnings as positive catalysts as expect UPS to provide a credible path to improved margins, earnings growth, and returns against elevated expectations; we remain OW and raise our PT to $235 (from $225) and also upped its tgt on FDX to $370 (from $350); North American rail traffic rose 22.4% in week ended May 22, the AAR said

·     Metals & Materials; ARD, BLL, and CCK all downgraded to Market Perform from Outperform at BMO Capital following news that Can-Pack is building a second U.S. beverage can plant in Indiana; says Can-Pack’s "aggressive" expansion into the U.S., as well as a smaller entrance by Envases Universales, raises fresh questions and suggests that heady expansion plans by the incumbents could be challenged; NTR shares popped late day after Bloomberg reported BHP was said to be in talks on a giant potash mine

·     Commodity prices have been slipping again with corn falling again after headlines China to limit some corn imports, cancel several U.S. cargoes – follows a decline in corn over 5% on Tuesday to $6.20 3/4 per bushel and has now fallen 15% since May 7, slipped after the Department of Agriculture reported that U.S. farmers had planted 90% of their corn crops, above the five-year average of 80%; overnight, iron ore prices plunged overnight as the Chinese government continues efforts to tamp down soaring commodity prices

Technology, Media & Telecom

·     Semiconductors; NVDA comes into the day with 5-day win streak, helped after 4-for-1 stock split news last week, ahead of earnings tonight (shares up roughly 20% YTD); AMBA, ON, LITE announced two new joint reference designs that accelerate AIoT device deployment across verticals, building on the companies’ previous joint solution for contactless access systems; PLAB shares slipped after disappointing guidance

·     Software movers; ZS beat on both the top and bottom lines in 3Q21 as showed strength in the enterprise segment and their streamlined go-to-market motion is bringing in increased new logos (was upgraded at BMO to Outperform after results); DV first quarter as a public company showed revenue and EBITDA both beat estimates, with guidance for Q2 and FY21 also topping expectations; earnings tonight expected from ZUO, OOMA, OKTA, WDAY; RBLX was accused in a federal lawsuit of ripping off users — mostly children — of its popular gaming platform by selling them in-game items and later deleting them without reimbursement

·     Hardware, Components & Services; Chinese smartphone maker Xiaomi Corp reported Q1 revenue growth of 55%, above analyst expectations, taking market share from Huawei Technologies Co as revs rose to 76.88 billion yuan ($12 billion) from 49.70 billion yuan a year earlier; GLOB 1.2M share Secondary priced at $214.00; earnings expected tonight from NTNX; RAMP slight beat for quarter with in-line guidance, along with 70% bookings growth in the quarter, overshadowed by a $30M revenue headwind from a product sunset

·     Media movers; AMZN confirms reports last week that it will buy MGM Studios in $8.45B deal which includes a movie library of over 4,000 films; LIVX boosts FY22 revs guidance to $107M-$115M with adj operating income of $5M-$10M as live music reopens; FUBO will launch dedicated Conmebol experience where subscribers can stream all qualifying matches and shoulder programming; AMC downgraded at FBR/B Riley to Neutral with a $16 price target citing the lofty valuation, though the firm remains confident in the company’s 2022-23 box office recovery