Mid-Morning Look

Tuesday, July 11, 2023

U.S. stocks rising for a second straight day as investors await the consumer price index (CPI) inflation report tomorrow morning. Treasury yields rebound after sliding on Monday with the 10-year back to 4%. Technology shares lag led by semiconductor weakness and some large caps ahead of Nasdaq 100 balance in 2-weeks, while commodity related energy, materials, and industrials are the early S&P sector leaders with gold and oil prices rising. Financials also strong into banking earnings this Friday morning (JPM, Citi, WFC reporting). Small business confidence reaches 7-month high in June, NFIB says today in a relatively quiet day of data. Amazon kicks off its 2-day Prime sale event today. The US dollar bounces after hitting 2-month lows. Smallcap Russell 2000 outperform large caps for a second day.

Sector Movers Today

·     In Banks: lots of analysts positioning ratings ahead of earnings season: JPM upgraded to Buy from Hold at Jefferies and raise tgt to $165 from $149 citing balance sheet strength, strong liquidity positioning, and best-in-class earnings generation; ZION downgraded from Buy to Hold at Jefferies citing lack of stock-specific catalysts after decent bounce off the bottom, TFC cut from Buy to Hold at Jefferies saying sees few positive catalyst opportunities over the next few quarters that would justify relative re-rating vs peers and lastly downgraded HWC to Hold from Buy. Bank America upgraded USB from Neutral to Buy as believes investor focus on capital build has distracted attention away from what is among the highest quality franchises in US banking.

·     In Airlines: Jefferies out with a 2Q preview for Airlines saying for the quarter, estimates TRASMs remain 18% ahead of ’19, driving revs up 17% with capacity down 1%. The firm is incrementally positive on pricing given the continued tight supply, which supports higher revs/margins on lower ASMs. Jefferies’ top pick remains DAL as the best-in-class operator with option values from diversified rev and cash streams. In other research, GOL downgraded from Buy to Neutral at Goldman Sachs with $5.65 PT from $4.80; post the recent outperformance of Brazilian airlines stocks. JBLU downgraded from In Line to Underperform at Evercore/ISI with $8 tgt noting shares are up 37% in one month following a negative fundamental outcome (lost NEA ruling).

·     In aerospace & defense: Reuters reported Democratic Senator Elizabeth Warren joined three other lawmakers to urge the Defense Department to thoroughly review defense contractor LHX $4.7 billion deal for AJRD; for LMT, Reuters reported Washington will move ahead with the transfer of F-16 fighter jets to Turkey in consultation with Congress, U.S. National Security Adviser Jake Sullivan said on Tuesday, a day after Ankara gave the green light for Sweden to join NATO. Turkey had requested in October 2021 to buy $20 billion of Lockheed F-16 fighters and nearly 80 modernization kits for its existing warplanes.

·     In Chemicals: NTR said it temporarily curtailed its potash production in Saskatchewan as striking workers at the Port of Vancouver has limited export capacity; WDFC shares rose after Q3 results as EPS $1.38 vs. est. $1.22; Q3 gross margin 50.6%; Q3 revs $141.7M vs. est. $138.42M; Keybanc previews sector by cutting estimates for commodity names/segments (LYB, DOW, OLN, WLK, HUN) and raising for coatings; SMG upgraded from Hold to Buy at Truist and raised tgt to $80 from $65 as believes the post pandemic reversion of the US Consumer segment has finally ended and believes the stock can return to its historical counter-seasonal trading pattern.

Stock GAINERS

·     COIN +7%; as crypto related stocks outperform, while Bitcoin holds above $30K.

·     CRM +3%; said it plans to increase list prices by 9%, on average, across Sales Cloud, Service Cloud, Marketing Cloud, Industries and Tableau and will go into effect globally in August 2023.

·     GNRC +4%; upgraded to Buy with $155 tgt at Argus noting Generac has benefited from stronger-than-expected growth in its Commercial & Industrial business, as well as from cost-cutting efforts.

·     NWL +8%; initiated Buy and $13 tgt at Canaccord saying they believe new management can reignite modest top-line growth.

·     TNDM +7%; after receives U.S. FDA Clearance for Tandem Mobi Insulin Pump.

·     WDFC +17%; after Q3 results as EPS $1.38 vs. est. $1.22; Q3 gross margin 50.6%; Q3 revs $141.7M vs. est. $138.42M; reaffirms FY23 EPS view of $4.80-$5.00 and revs of $535M-$600M.

·     ZG +10%; upgraded from Neutral to Overweight at Piper and raise tgt to $62 from $42 saying they like the setup.

Stock LAGGARDS

·     ADCT -20%; said it paused enrollment of new patients in a mid-stage study evaluating its drug Zynlonta in combination with rituximab for treating a type of blood cancer, citing safety concerns.

·     AMD -2%; semiconductors early laggards in tech (AMAT, LRCX). 

·     CENX -9%; as Wolfe downgraded CENX to Underperform with $6 tgt and AA to Underperform and $25 tgt on weak aluminum prices, to reflect expected challenging aluminum markets ahead.

·     ETRN -3%; after an appellate court halted construction for the Mountain Valley Pipeline project in the Jefferson National Forest.

·     IOVA -8%; announced a 20 mln share offering priced at $7.50, 14.7% discount to last sale of $8.79.