Closing Recap

Wednesday, September 08, 2021

Equity Market Recap

·     It was a very slow, low volume day on Wall Street as U.S. stock markets opened in negative territory and stayed there throughout the trading session following its record run over the last month. Defensive utilities, consumer staples and REITs were among the S&P top sector gainers while materials, technology, energy and comm services brought up the rear as the Nasdaq Composite slipped from record highs the day prior. Europe’s Stoxx 600 down 1.0%, marks worst day in nearly 3 weeks as the German Dax down 1.4%, marks worst day since mid-July. Britain’s FTSE 100 down 0.7%, France’s Cac 40 down 0.8%, Spain’s Ibex down 0.4%. The Fed Beige Book showed the deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions."

·     The S&P 500 has rallied 38.75% without a 5%+ pullback over the last 307 calendar days according to Bespoke. The longest streak without a 5%+ drop for the S&P was 593 days from December 18th, 1957, to August 3rd, 1959. The S&P gained 54.16% over that period. Stocks (along with crypto) remain one of the few games in town with tons of money thrown into markets (via gov’t stimulus, Fed), $3.5 trln infrastructure deals still in the works, Fed continues to take dovish stance on rates/asset purchases, pushing out timeframe for taper while showing zero signs of inflation concerns at any point along the way. Meanwhile, growth prospects in the U.S. and China have slowed, but still no fear in markets.

·     Stock/sector movers: COIN slips after the SEC says it intends to sue the company in court if they launch a planned program letting users earn interest on lending cryptocurrency; GIS jumps after saying it expects FY organic net sales and adj EPS to be at the higher end of its guidance range as staples outperform along with fellow defensive sector utilities; GE slides intraday after investor update with guidance and comments on supply chain constraints, though shares recover most of their losses, with industrials (DOW, BA, CAT remaining among the weakest in the Dow today); PHM was the worst stock in the S&P after cutting Q3 deliveries outlook to below its prior guidance range and SHW falls after lowering its Q3 sales guidance (comes a day after PPG did the same); in earnings, COUP shares initially surge after the bell on a beat with strong guidance, but shares roll to red today, SMAR plummets despite an EPS beat, CASY slumps despite its beat as fuel margins remain below last year’s comp quarter; SPB spikes intraday after selling its hardware & home improvement business for $4.3B in cash.

Commodities, Currencies

·     Oil rose more than 1% on Wednesday, with WTI crude up $0.95 or 1.39% to settle at $69.30 per barrel ahead of weekly inventory data tonight (API) and tomorrow (EIA) which will likely show U.S. Gulf of Mexico producers made slow progress in restoring output after Hurricane Ida. U.S. crude oil production is expected to fall by 200,000 barrels per day (bpd) in 2021 to 11.08 million bpd, the U.S. Energy Information Administration (EIA) said on Wednesday, noting that Hurricane Ida should force a bigger decline than its previous forecast for a drop of 160,000 bpd. More than 90% of crude output in offshore Gulf of Mexico was shut in late August due to the powerful storm. As a result of the outage, Gulf of Mexico (GOM) production averaged 1.5 million bpd in August, down 300,000 million bpd from July, the agency said.

·     Gold prices edge lower, down -$5.00 or 0.3% to settle at $1,793.50 an ounce as the U.S. dollar index (DXY) rose to its highest since August 27^th, adding to yesterdays near 2% decline. Treasury yields slumped on a strong auction as the U.S. Treasury sold $38B in 10-year notes at a yield of 1.338% vs. 1.352% when issued prior, with the bid-to-cover (demand) at 2.59 (vs. prior 2.65) and indirect bidders awarded 71.05% (vs. 77.2% prior) of the auction and directs get 16.62%. Comments from the NY Fed’s Williams, where he played down inflation, also supported the rally in Treasury prices late day as yields dropped.

Sector News Breakdown

Consumer

·     Retailers; WMT files for four-part, notes offering; size not disclosed; OLLI was upgraded to buy at Berenberg noting its Army loyalty program ended Q2 with 12.2 million members, up 11.2% from a year earlier; LULU, RH, GME among earnings after the close tonight; China fined GOOS for running misleading ads, saying the company’s claims of using “the warmest material from Hutterite” deceived shoppers as most of its products are actually made with other material; Argus raised their FY22-23 estimates on BJ after the company’s 2Q22 beat last week, and said they would like to get the company on their Buy list

·     Auto sector; TSLA sold 44,264 China-made vehicles in August, compared with 32,968 vehicles in July, data from China Passenger Car Association shows/local sales of China-made EVs for August jumped almost 50% to 12,885 MoM; NIO announces at-the-market offering of $2B of ADRs

·     Housing & Building Products; homebuilder PHM cut its Q3 deliveries outlook to be up 8% from a year ago to 7,000 homes, but that’s below the deliveries guidance range provided on July 27 of 7,300 to 7,600 as increased supply chain disruptions and shortages of building products continue to hurt the pace of operations; BLD to acquire Distribution International (DI) for $1.0 billion in cash which provides significant entry into ~$5B mechanical insulation market

·     Consumer Staples; COTY 50M share secondary Block Trade priced at $8.53; in food, GIS said it expects its organic net sales and adjusted earnings for FY22 to be at the higher end of their prior guidance ranges amid the evolving operating environment and after its acquisition of Tyson Foods Inc.’s pet-treats portfolio; PM said sees full-year 2021 heated tobacco unit shipment volume that could be toward lower end of 95-to-100-bln-unit range while reaffirms full-year eps forecast and now expect to be toward upper end of our 12% to 14% organic growth range; Oppenheimer removed SBH from top pick ranking given uncertainty associated with the management change and the Delta variant; SPB announces definitive agreement to sell hardware & home improvement segment for $4.3B in cash

·     Restaurants; CMG price tgt raised to $2,250 at Cowen as forecast same store sales upside vs consensus in 2021-24, fueled by the company’s higher margin and data rich digital sales, while BTIG raised its price tgt to $2,150 to reflect our confidence in the continued sales momentum, unit development and margin improvement story.

·     Casinos, Gaming, sector; DKNG announced the addition of its new and exclusive game DraftKings Rocket to the DraftKings Casino product suite; GENI recorded a deeper second-quarter loss year over year, but revenue grew across the company’s business lines; FUBO and the New York Jets announce a multi-year partnership with Fubo sportsbook; CZR said its Sportsbook, Horseshoe Baltimore and Baltimore Ravens announce premier sports betting partnership

Energy

·     E&P and Majors; GDP downgraded to Hold at Truist after the recent run despite increasing activity and quality acreage (recently announced updated guidance with 2H21 production 5% above our prior estimates, $7mm of additional spending, cost improvements and 2022 production 20%+ above our estimates); WHD has reached an agreement with NESR to deploy Cactus’ frac rental equipment in the Middle East, as well as other initiatives in key markets.

·     Pipelines: WMB announces $1.5B share repurchase program; LNG updated their capital allocation strategy by 1) instituting a dividend policy, 2) committing to $1 billion of annual debt repayment, 3) renewing the $1 billion repurchase program, and 4) reaffirming the expansion of Corpus Christi in 2022

·     Utilities & Solar; solar stocks got a boost after a NY Times report that President Biden sets an ambitious goal for solar energy to 45% from 4%, almost half of the nation’s electricity from the sun by 2050 as part of its effort to combat climate change (shares of FSLR, RUN, ENPH, SEDG); defensive utility stocks (AEE, ES, ED, CMS, NEE) among leaders in the S&P with stocks showing modest weakness, all up over 2%

Financials

·     FinTech & Payments; PYPL agreed to buy Japanese "buy now, pay later" startup Paidy Inc. for about $2.7 billion, in a move that will boost its business in the world’s third-largest e-commerce market. https://on.mktw.net/3ncZkd1 (Paidy has >6M users (PYPL Japan pre acquisition 4.3M actives) and >700K merchants with a stated $1.5B GMV 2021 run-rate); GPN and Virgin Money form strategic alliance to redefine the future of digital commerce; FOUR 1.65M share Block Trade priced at $86.26; PYPL, SQ, SHOP shares slipped after Business Insider reported Amazon is working on a new point-of-sale system to lure merchants from Shopify, Square, and PayPal

·     Bitcoin related news; COIN said the SEC intends to sue it in court if it launches a planned program letting users earn interest on lending cryptocurrency; BITF mined 354 new Bitcoin in August and 745 Bitcoin in first 2 months of Q3; HOOD said they were rolling out crypto recurring investments, a new feature that allows you to regularly buy your favorite coins, commission-free and with as little as $1 on a daily, weekly, or monthly schedule of your choice.

Healthcare

·     Biotech, Pharma movers; SNY to acquire U.S.-based biopharmaceutical company KDMN, with holders to receive $9.50 a share in cash, representing a total equity value of about $1.9B on a fully diluted basis. https://on.mktw.net/3haEIOs ; PRGO to acquire Héra SAS, a leading global consumer self-care company, from funds affiliated with private equity firm Astorg and Goldman Sachs asset management in deal valued at $2.1B; PFE and TEVA have agreed to settle a patent dispute linked to the rheumatoid arthritis therapy Xeljanz, Bloomberg reported; NVAX initiates phase 1/2 clinical trial of combination vaccine for #COVID19 and Seasonal Influenza; ALEC tumbles as its President and Chief Operating Officer, Dr. Shehnaaz Suliman, as well as its Chief Medical Officer, Dr. Robert Paul, will step down

·     Healthcare Services, MedTech Equipment; ICUI to acquire the medical division of Smiths Group for $2.35B in a cash and stock deal, with $500M ICUI stock and $1.85B cash, with a potential $100M incremental earn-out; OPCH 9.2M share Spot Secondary priced at $26.90; UHS was downgraded from Neutral to Sell with $150 tgt at Goldman Sachs due to increasing pressure in the inpatient psychiatric labor market, and believe there are better opportunities to play the acute care recovery where UHS has just 45% exposure as a percent of EBITDA; LHCG to purchase 23 home health, 11 hospice and 13 therapy agencies across 22 states from the BKD + HCA venture, acquiring $146M in revenue.

Industrials & Materials

·     Industrial & Machinery; VRT to buy E&I Engineering Group Ireland Ltd and its affiliate, Powerbar Gulf LLC, in a $1.8B mostly cash deal while also lowers FY net sales outlook to between $4.88B-$4.94B from prior view of $4.97B-$5.03B citing worse-than-expected supply chain challenges https://on.mktw.net/38RtNEQ ; REVG lowered its FY net sales view to $2.3B-$2.45B from prior view of $2.45B-$2.6B and lowers FY adj ebitda $140M to $150M, from $145M to $160.0m; RXN tgt raised to $72 from $60 and RBC to $185 from $175 at KeyBanc after taking a closer look into the new companies post-deal.

·     Metals & Materials; in the chemical sector, SHW lowered its Q3 net sales guidance to be “up or down by a low-single digit percentage YoY” from “up mid-to-high-single-digit percentage” due to industry-wide issues with raw material availability, including impact of Hurricane Ida (the lower forecast follows a similar update from PPG yesterday); in lithium space, ALB was double upgraded to Buy from Sell with $280 tgt at Berenberg, raised long-term forecast for lithium prices to USD15,000/ton as believe Albemarle is well placed to deliver fast earnings growth supported by ideally timed capacity expansions; LYB announced it is weighing strategic options for its Gulf Coast-based Refining Segment, including a potential sale.

Technology, Media & Telecom

·     Internet; NFLX comes into the day with 8-day win streak, as JPMorgan said they believe 4Q should become NFLX’s strongest content quarter ever as project 3.8M net adds in 3Q & 8.0M in 4Q, implying 10% Y/Y growth in 2H as NFLX gains distance from pandemic pull-forward (raise tgt to $705); GOOGL pt raised from $3,140 to $3400 at Guggenheim and maintains Buy as continue to view Alphabet as a top investment idea in our coverage universe even after the strong YTD share performance; NTES and TCEHY slips on China headlines govt including cyberspace regulator summon gaming firms including Tencent and NetEase (Chinese tech names pressured early)

·     Semiconductors; ADI raises Q4 adjusted EPS view to $1.69 plus/minus 9c from $1.33 plus/minus 11c (est. $1.65) and raises Q4 revenue view to $2.3B plus/minus $70M from $1.78B plus/minus $70M (vs. est. $2.26B); to repurchase up to $2.5B of common stock; ASML maintained Overweight rating at Wells Fargo (#1 Top Pick) and increase our price target to $975 (was $800); 52x P/E & 43x EV/EBITDA our C2022E); IDCC announced a multi-year renewal of its licensing deal with Seiko Solutions.

·     Software movers; COUP reported better-than-expected F2Q22 results, with non-GAAP EPS of $0.26 vs. est. loss (-$0.06) on revenue growth of 42% (consensus 29%) including the benefit of the LLamasoft acquisition, an acceleration from 40% in F1Q22 and on y/y calculated billings growth of 49%, better than the consensus of 25%, and up from 46% last quarter; PATH reported FQ2 above-consensus expectations but given the higher valuation, the beat was not good enough to meet buy-side expectations, causing shares to fall after hours (price tgt was lowered by several analysts); CTXS rises as the WSJ reported Elliott Management Corp. has a more than $1 billion stake and wants the software company to take action https://on.wsj.com/3yOaCGN ; SMAR Q2 results topped expectations, but Calculated billings grew 47% YoY to $142.9 million, a deceleration from the 48% growth rate in Q1 which pressured shares