Mid-Morning Look

Friday, August 20, 2021

Stocks open the day stronger, boosted by comments from Fed President Kaplan, a rebound in U.S. listed China stocks after an update by Chinese regulators, and investors again buying stocks amid the recent stock market pullback (though major averages still on track for weekly declines). Large cap tech again leading (MSFT, AAPL), while the Russell 2000 SmallCap index rebounds early, looking to snap its 6-day losing streak after closing below its 200-day MA support yesterday (ended a streak of 226 consecutive closes above its 200-DMA yesterday). Oil prices are lower, on track for a 7^th straight day of declines, but WTI crude off lows of $62.36 (lowest since May), while the dollar rise to 9-month highs. Comments this morning from the Fed’s Kaplan (a Fed “hawk”) helping lift buying sentiment saying he was watching carefully for any economic impact from the Delta variant of the coronavirus and might need to adjust his views on policy “somewhat” should it slow economic growth materially. Kaplan has previously said he would like the Fed to begin tapering its asset purchases in October, but his comments today indicate a growth slowdown due to the coronavirus could change his outlook. U.S. listed China stocks also getting a bounce after China’s securities regulators vowed to create conditions to push for China-U.S. cooperation on companies’ audit and supervision among work to be focused on for the second half of this year, according to a statement of China Securities Regulatory Commission (CSRC). Overall start to the day shows more strength in large cap names, boosting major averages.

Sector Movers Today

·     Retailers; FL with strong earnings results as comps rise +6.9% vs. +18.6% YoY but better than analysts’ estimates of a 0.1% rise saying Q2 sales boosted by demand for women’s and kids’ footwear, and fewer promotions ($2.28B vs. est. $2.09B est. for sales); BKE Q2 revenue jumps ~36% to $295.12M YoY, topping consensus of $226M and also posts higher Q2 earnings compared with a year earlier; FTCH reports smaller Q2 loss (-17c vs. est. -40c) as revs of $523M topped the $470M estimate and sees full-year digital platform growth of 35%-40% YoY; ROST mixed as 2Q EPS of $1.39, above consensus of $0.97 on strong sales and gross margin driven by higher average ticket and slight traffic improvement – comps increased 15% vs 2019, but stock weak early after softer Q3 guide (sees 3Q comps +5-7% with EPS $0.61-0.69 vs est. $0.93); LESL upgraded to Buy from Hold at Loop while maintaining our above consensus estimates for 4Q21/FY22 as believe the recent pullback is overdone; Macy’s upgraded at JPM post earnings

·     Pharma movers: AZN’s Alexion division will stop developing a treatment for the neurological disorder ALS due to lack of efficacy in a late-stage trial, it said today; JNJ CEO and Chairman Alex Gorsky, will take over as executive chairman on Jan. 3, stepping down as CEO and will be succeeded as CEO by Joaquin Duato, a 32-year company; FATE announces positive interim clinical data from its FT596 and FT516 off-the-shelf, IPSC-derived NK cell programs for b-cell lymphoma as 10 of 14 Patients in FT596 single-dose escalation cohorts 2 and 3 achieved objective response; ENDP shares fell on reports they are looking into possible financial restructuring as faces more than 3,000 lawsuits over its marketing and sale of opioids and carries more than $8B in debt. https://on.wsj.com/2UCU06O (note shares of TEVA, PRGO other names related to opioids); HEXO 47.5M share Spot Secondary priced at $2.95

·     Vaccine news: MRNA shares weak after U.S. health officials are investigating reports that its COVID-19 vaccine may be linked to a higher risk of a rare heart condition in younger adults than previously thought, the Washington Post reported https://reut.rs/3z3wKxP ; AZN said it would seek regulatory approval for an antibody drug after a study showed strong efficacy in preventing symptomatic Covid-19, offering a potential new alternative to vaccines for people who refuse shots or for whom they aren’t effective. The company said AZD7442 showed 77% efficacy in reducing risk of symptomatic Covid-19 compared with a placebo in late-stage clinical trials

Stock GAINERS

·     FGEN +5%; said the European Commission approved its drug roxadustat for the treatment of anemia associated with adult patients suffering from chronic kidney disease

·     FL +8%; with strong earnings results as comps rise +6.9% vs. +18.6% YoY but better than analysts’ estimates of a 0.1% rise saying Q2 sales boosted by demand for women’s and kids’ footwear, and fewer promotions ($2.28B vs. est. $2.09B est. for sales)

·     MSFT 2%; tops $300 per share after several positive analyst comments (tgt raised to $350 at both Wedbush and Mizuho) noting recent mid-quarter September checks have shown incremental strength again as the Azure cloud growth story is hitting its next gear of growth and after the co announced a first-ever price increase for its Microsoft 365 and Office 365 product suites

·     TSLA +1%; said it planned to build a humanoid robot, and expects to make a prototype sometime next year

Stock LAGGARDS

·     BLND -9%; Q2 results driven by an increase in banking transactions and continued platform adoption, but Piper notes the stock is pressured as the company did not provide pro forma Q2 financials, partially due to timing of the Title365 acquisition

·     ENDP -27%; looking into possible financial restructuring as faces more than 3,000 lawsuits over its marketing and sale of opioids and carries more than $8B in debt. https://on.wsj.com/2UCU06O

·     HEXO -25%; as 47.5M share Spot Secondary priced at $2.95

·     ICPT -10%; downgraded to Sell with lower tgt of $10 at Goldman Sachs saying while Ocaliva is approved in primary biliary cholangitis (PBC), recent label updates with contraindications pressure the commercial opportunity

·     MRNA ; after U.S. health officials are investigating reports that its COVID-19 vaccine may be linked to a higher risk of a rare heart condition in younger adults than previously thought, the Washington Post reported https://reut.rs/3z3wKxP

·     MUDS -2%; as the SPAC said the merger pact with Topps Intermediate Holdco and Tornante-MDP Joe Holding has been terminated by mutual agreement. Termination comes a day after the companies learned MLB and MLBPA would not be renewing their baseball card agreements

·     OTRK -8%; slips for second consecutive day as the disclosure of Cigna’s intent to terminate its contract by the end of ’21 yesterday draws analyst downgrades

·     ROST -5%; mixed as 2Q EPS of $1.39, above est. of $0.97 on strong sales and gross margin driven by higher average ticket and slight traffic improvement – comps increased 15% vs 2019, but stock weak early after softer Q3 guide (sees 3Q comps +5-7% with EPS $0.61-0.69 vs est. $0.93)

·     SNOW -10%; underperforms in software space