Mid-Morning Look

Thursday, July 01, 2021

Stocks are moving to the upside yet again today, with all indices in the green the S&P setting a new intraday record for the 6^th straight day and the Nasdaq coming inches from topping Tuesday’s record high in early trading. The Russell 2000, whose 17% YTD is the best so far, is leading yet again. Today’s strength comes on the heels of the S&P’s 2^nd strongest first half since the dot-com bubble and all 4 indices listed above posting their 5^th consecutive quarterly gain. Barron’s noted that first-half momentum of this magnitude typically carries over into the second half, as the 14 years with first-half gains of at least 10% since 1979 have averaged second-half gains of over 6% and continued higher in 11 of the 14 years. This morning’s weekly jobless claims data was the latest in the string of positive employment news this week, though tomorrow’s nonfarm payrolls report looms larger as it could trigger or hasten changes in the Fed’s dovish policies. Oil, whose prices rose more than 40% in the first 6 months of the year, is higher and topped $75/barrel for the first time since October 2018 after reports that OPEC+ reached a preliminary output deal, boosting shares of energy stocks.

Economic Data

·     US weekly jobless claims fell to 364,000 (est. 390,000) from the prior week’s 415,000 (was revised up from original 411,000), bringing 4-week average to 392,750 from 398,750; continued claims rose to 3.469M (est. 3.382M) from 3.413M prior week, uninsured employment rate stayed steady at 2.5%

·     US Markit Manufacturing PMI Final Actual 62.1 (Forecast 62.6, Previous 62.6)

·     ISM U.S. Manufacturing Activity Index 60.6 in June (consensus 61.0, 61.2 in May), lowest since January; ISM Employment Index 49.9 in June, the first time in contraction territory since November

Sector Movers Today

·     Auto sector; XPEV reported a monthly record 6,565 Smart EV deliveries in June (+15% vs May, +617% YoY), bringing Q2 deliveries to a record 17,398 (+439% YoY) and 1H deliveries to 30,738 (+459% YoY); NIO delivered 8,083 vehicles in June (+116.1% YoY) and 21,896 in the quarter (+111.9% YoY); GM Q2 US sales +39.7% vs est. +40.5%; TTM sold 43,704 vehicles domestically in June (+125% YoY); KeyBanc upgraded AXL to OW as it should benefit from a pro-cycle standpoint with notable earnings upside as investors’ perceptions about their EV positioning has neutralized near-term risk; RBC said that recent harsh weather will have an incremental positive effect on the core sales of the auto part retailers (AAP, AZO) and suspect that this effect may be amplified as consumers gradually return to their normal routines/commutes and miles driven climbs higher; The Karma Innovation and Customization Center revealed the first Club Car Current vehicles being produced under a contract manufacturing agreement with AYRO, which are light-duty EVs that fill the gap between full-sized trucks and small utility carts for low-speed logistics and cargo services in campus and urban environments; Into Q2, Wells is cautious on auto suppliers with high exposure to Ford, GM, and Nissan, bullish on suppliers with higher aftermarket & heavy truck exposure (BWA, TEN), and see risk for VC, LEA

·     Consumer Staples; MKC posted Q2 adj EPS 69c vs est 61c on revs $1.56B vs est $1.47B, ups FY21 adj EPS to $3.00-$3.05 from prev. $2.97-$3.02 and expects to FY21 sales growth 11-13; SMPL Q3 adj EPS 43c was above est. 28c on revs $284M that beat est. $2444M, adj EBITDA $67.5M vs est. $49.3M; Goldman initiated SKIN with a Buy rating and $31 target (85% upside) as its lead product HydraFacial has numerous first mover advantages driving a growing moat for its newly created skin health category, which is a fast growing market segment; PM bought nicotine gum maker Fertin for $820M

·     Industrial & Machinery; FC reported Q3 EPS 90c vs est 7c on revs $58.7M vs est $51.6M, now sees FY21 adj EBITDA $24.5M-$26.5M from $20M-$22M; LNN Q3 EPS $1.61 topped est. $1.30 on revs $161.9M that was also above est. $146.43M; AYI posted Q3 adj EPS $2.77 on revs $899.7M that topped consensus views of $2.27 on $839.8M; Credit Suisse upgraded AGCO to OP as they see limited downside; HCW upgraded ASPN to Buy after the company said revenue could double every 2 years over the next decade given demand for its PyroThin thermal barriers that address thermal runaway problems in EV batteries and a rebound in energy infrastructure spending; OpCo initiated AQB at Outperform with a $7 target

Stock GAINERS

·     XPEV +3%; reported record monthly deliveries in June; NIO also rising on its record deliveries

·     SPRO +14%; PFE invested $40M in SPRO and the companies also entered into a licensing agreement for SPRO’s polymyxin product candidate SPR206 for treating severe multi-drug resistant (MDR) Gram-negative infections in hospitals

·     FC +14%; Q3 EPS 90c vs est 7c on revs $58.7M vs est $51.6M, now sees FY21 adj EBITDA $24.5M-$26.5M from $20M-$22M

·     MEDS +79%; TRxADE HEALTH’s Bonum Health Signs Telemedicine Service Distribution Deal With Big Y Pharmacy

·     OXY +5%; Energy stocks (HAL, COP, SLB, HFC, MRO) rising after WTI Crude hits $75/barrel for the first time since Oct 2018 after reports OPEC+ reached a preliminary output deal and on positive data for gasoline demand

Stock LAGGARDS

·     MU -5%; Q3 adj eps $1.88 vs est. $1.72, gross margin 42.9% vs est. 42.0%, sees 4Q revs $8-8.4B (est. $7.85B), FY21 capex above $9.5B (est. $9.2B), and expects DRAM, NAND supply to remain tight into 2022

·     WBA -6%; 3Q adj EPS $1.38 vs est $1.17 on sales $34B vs est $33.76B, US comps +6.4%; raises FY EPS guide to about +10% vs est -1%

·     MKSI -3%; agreed to acquire ATC for $5.1 billion in cash and stock, paying $16.20 in cash and 0.0552 of a share of MKS for each ATC common share, equivalent to $26.02/share, a 1.9% premium

·     CVAC -6%; late stage vaccine trial showed 48% efficacy against Covid of any severity across all age groups and 15 variants, 53% against disease of any severity, and 77% against moderate and severe disease

·     HTZZ -14%; Hertz (symbol change from HTZGQ) shares choppy after emerging from Chapter 11 bankruptcy yesterday – were up as much as 59% before rolling to lows of -27%

Syndicate:

·     Krispy Kreme (DNUT) 26.7M share IPO priced at $17

·     Torrid (CURV) 11M share IPO priced at $21

·     EverCommerce (EVCM) 19.1M share IPO priced at $17

·     Hepsiburada (HEPS) 56.7M ADS IPO priced at $12/ADS

·     Acumen Pharma (ABOS) 10M share IPO priced at $16