Mid-Morning Look

Thursday, April 15, 2021

The Dow Jones Industrial Average and S&P 500 remain on track for a 4^th straight week of gains, as both touch fresh record highs behind good earnings, strong economic data and more upside buying momentum. The S&P rises following better earnings from BAC, C, UNH, and PEP but many eco data points crushed estimates, including a big drop in jobless claims (details below). Overall, the path of least resistance remains higher as central bank liquidity tailwind, fiscal stimulus, vaccine distribution, reopening momentum, and inflows all bullish. In geopolitical headlines, the U.S. set to announce sanctions on Russia over election interference and SolarWinds hack. Dow Transports opened higher, nearing its record 15,0000 level, before profit taking ensued. The Nasdaq rises over 1%, topping the 14,000 level again (record highs stand at 14,175). Banking stocks have posted strong earnings results thus far, with Citi, and Bofa numbers beating after good results from Wells, GS, and JPMorgan yesterday (sliding yields hurt group a little – but results for Q1 well above expectations in most cases so far). Energy stocks among top decliners in the S&P and Russell after outperformance Wednesday. The recent pullback in U.S. bond yields (10-year fell below 1.6% after touching 1-year highs 2-weeks ago around 1.78%) and the Federal Reserve’s reassurance on keeping interest rates low have led to renewed demand for growth stocks (and value, and crypto, and commodities, etc.) The newly-listed cryptocurrency exchange Coinbase (COIN) slips a day after going public in a high-profile debut on the Nasdaq that briefly valued it at more than $100 billion.

Economic Data

·     Retail Sales for March jumped 9.8% MoM vs. est. 5.6% (and vs. prior -3%); core retail sales jumped 8.4% MoM vs. est. 5.0% as stimulus money, vaccinations and re-openings spurred a burst of shopping

·     Weekly jobless claims tumbled to 576K in latest week, below the 700K estimate (prior week revised to 769K from 744K); continued claims rose to 3.731M from 3.727M prior; the 4-week moving average fell to 683,000 in latest week from 730,250 prior week and the U.S. insured unemployment rate rose to 2.7% from 2.6%

·     Empire state current business conditions index 26.3 in April vs. est. 19.5; new orders index 26.9 in April vs 9.1 in March; prices paid index 74.7 in April vs 64.4 in March; the employment index at 13.9 in April vs 9.4 in March and six-month business conditions index 39.8 in April vs 36.4 prior

·     March Industrial Production +1.4%, below the consensus +2.7%; March Capacity Utilization at 74.4% below consensus 75.7%; Feb Industrial Production revised to -2.6% From -2.2%

·     Philly Fed Business Outlook reported at 50.2 vs. estimate 42 (51.8 prior unrevised)

·     April NAHB housing market index 83 (in-line with consensus and vs. 82 in March; the index of current single-family home sales 88 versus 87 in March; index of prospective buyers 75 versus 72 in March

Sector Movers Today

·     Bank movers; BAC with Q1 EPS beat of 86c vs. est. 66c; Q1 revenue $22.8B vs. est. $22.13B; announces $25B share repurchase plan; reported a 12% fall in consumer banking revenue to $8.1 billion in the quarter ended March; net charge-offs are expected to decline in 2q21 given recent positive delinquency trends; 1q provision for credit losses was benefit of $1.9 billion; TFC Q1 adj EPS $1.18 vs. est. $1.11; Q1 revenue $5.48B vs. est. $5.47B; Q1 provision for credit losses $48M; Citigroup (C) reported sharply higher Q1 profit and said it is shutting down most of its consumer-banking operations in Asia, Europe, and the Middle East (posts Q1 EPS of $3.62 vs. est. $2.60 (and above the $1.05 EPS in year ago period); USB Q1 diluted EPS $1.45, beating the 96c estimate bolstered by a release in credit reserves as the macroeconomic outlook improves and credit quality stays strong…but net interest income (NII) weakens to $3.09B from $3.2B last quarter as loan balances fall against a low rate backdrop

·     Transports; in airlines, DAL Q1 EPS loss ($3.55) vs. est. loss ($3.13) on better revs $4.15B vs. est. $3.91B while expects positive cash generation for the quarter ending June; sees revenue for the period to fall between 50% and 55% from two years ago, but the drop would be less than the over 60% decline in the first quarter; Citi opens a positive catalyst watch on UPS on its view that shares look attractive ahead of the company’s earnings report; Barclays positive on transports, upgrading XPO to Overweight given low valuation, solid fundamentals and a clearer post-split future, raises CP to Overweight in rails on long-term potential of the pending Kansas City Southern acquisition and upgraded UPS to Equal-weight given momentum in parcel markets, relative valuation and $5.5 bn liability bailout; GBX said to offer, subject to market and other conditions, $275.0 million aggregate principal amount of Convertible Senior Notes due 2028

·     Semiconductors; TSM said it would raise its capital spending budget to $30B from earlier range of $25B-$28B in January and raise its revenue growth forecast for 2021 to 20% for the year, from an earlier estimate of 15% growth (Stifel said names that are best exposed to TSM include KLAC AMAT, NVMI, ONTO, CAMT, and VECO); VSH raises Q1 revenue view $765M from $705M-$745M, consensus $728.4M; in research, NVDA was upgraded to strong buy and $750 tgt at Raymond James while the firm downgraded INTC to underperform and initiated AMD with an Outperform and $100 tgt calling it a secular winner due to a durable technical advantage vs. Intel

·     Media & Telco movers; ZKIN rises as co announces NFTs launches for NBA Players Dwight Howard and Michael Beasley on the xSigma NFT Marketplace; in advertising, PUBGY posted a Q1 revenue beat as North American segment was strong (boosts IPG, OMC early); in cable, Truist said is buyers of CMCSA, CHTR and CABO (~7%-24% recent relative underperformance) have witnessed leading into and after the release of details of the proposed infrastructure bill that includes $100b earmarked for relief and stimulus in the broadband industry; PLBY extends recent gains this week, getting a boost earlier in week on positive Hedgeye call

Stock GAINERS

·     AEO +3%; updated positively with strong spring results driving sales +mid-teens vs. 2019 and stronger margins driving operating income of $120MM vs. 2019’s $49MM (both above prior guidance sales and OI to exceed 2019 as well as consensus at +2%/$55MM)

·     DELL +4%; announces the planned spin-off of its 81% equity ownership interest in VMW – the transaction will result in two standalone companies positioned for growth in the data era

·     GSK +4%; The Financial Times reported Hedge fund Elliott Management Corp. has amassed a multibillion-pound stake in GSK https://on.mktw.net/3wXTQ8k

·     KLAC +1%; TSM said it would raise its capital spending budget to $30B from earlier range of $25B-$28B in January and raise its revenue growth forecast for 2021 (equipment names rally)

·     INO +12%; as results from a phase 1 trial showed INO-4800 was effective against the U.K., South Africa and Brazil SARS-CoV-2 variants.

·     NVDA +4%; was upgraded to strong buy and $750 tgt at Raymond James while the firm downgraded INTC to underperform and initiated AMD with an Outperform and $100 tgt

·     PPD +6%; after TMO said it would buy the contract researcher for $17.4B, paying $47.50 per share to boost its pharma service business https://on.mktw.net/3diuUQY

·     WRI +9%; KIM said it would buy WRI for about $3.87 billion, paying about $30.32 per share in cash and stock, a near 11% premium to the company’s closing share price on Wednesday and create a company with 559 shopping centers https://on.mktw.net/2OUWTNs

Stock LAGGARDS

·     BECN -1%; in roofing sector, OC and BECN downgraded to Neutral at Northcoast saying residential roofing checks are good…very good…too good…unsustainably good and believe the peak of the good news is right now

·     DAL -2%; mixed results as Q1 EPS loss ($3.55) vs. est. loss ($3.13) on better revs $4.15B vs. est. $3.91B while expects positive cash generation for the quarter ending June

·     GBX -4%; said it intends to offer, subject to market and other conditions, $275.0 million aggregate principal amount of Convertible Senior Notes due 2028

·     INTC ; cut to underperform at Raymond James reflecting the risk that Intel won’t reach its goals under new leadership, and also the pain they will likely endure in pursuit of that goal in terms of capex, lost market share, and a shifting landscape

·     MAXN -8%; drops as announces $125M offering of ordinary shares

·     QS -11%; shares fall after negative short report by Scorpion Capital https://bit.ly/32ipteA

·     SPCE -5%; after billionaire founder Richard Branson sells stocks worth over $150 mln as regulatory filing shows sold 5.58M shares at a price range of $26.82-$28.73 between April 12-14

Syndicate:

·     Agilon Health (AGL) 46.6M share IPO priced at $23.00

·     AppLovin (APP) 25M share IPO priced at $80.00

·     Esports Technologies (EBET) 2.4M share IPO priced at $6.00

·     Karat Packaging (KRT) 3.95M share IPO priced at $16.00

·     New Residential (NRZ) 45M share Secondary priced at $10.10

·     TuSimple (TSP) 33.784M share IPO priced at $40.00