Mid-Morning Look

Thursday, July 29, 2021

Market resilience continues to astound day after day, as the S&P 500 index reaches yet another all-time high, getting a boost from a strong earnings season thus far and news of progress on the infrastructure bill, which overshadowed disappointing economic data with GDP growth falling short of consensus and jobless claims coming in above economist views. The Dow Jones Industrial Average also touching new highs as the Nasdaq Comp nears its all-time best in another strong performance for U.S. stocks. Gold prices rise more than 1.5% above $1,830 an ounce and silver rising over 3% nearing $26 – precious getting a boost post FOMC meeting yesterday as Fed remains accommodative for market – the dollar falls -0.28% under 92 level for DXY. The Federal Reserve said yesterday in its policy meeting (comments by Chair Powell) it was not yet time to start withdrawing its massive pandemic-era monetary stimulus, which is boosting investor sentiment again. Small caps, banks, transports, and chip stocks (behind QCOM results) are among the outperformers so far, and nearly all major S&P 500 sectors are green – communication Services is the sole losing sector, dragged down by weakness in Facebook after cautious comments for next quarter. Earnings get even busier with Amazon results tonight.

Economic Data

·     U.S. GDP for Q2 initial estimate came in well below consensus, rising 6.5% vs. est. 8.5% (vs. 6.4% in Q1) as core PCE prices rose +6.1% vs. +5.9% consensus and 2.5% prior; PCE price index rises +6.4% vs. 3.8% prior (revised); Personal consumption rose 11.8% from 11.4% previously, with spending on goods at a 11.6% pace, and 12.0% on services

·     Weekly jobless claims fell to 400K from prior week reading of 424K but was above consensus for a 380K reading; the 4-week moving average rose to 394,500 in latest week from 386,500 prior; continued claims rose to 3.269 mln from 3.262M; the U.S. insured unemployment rate unchanged at 2.4%

·     Pending home sales index for July down -1.9% vs. est. +0.3% to 112.8

Sector Movers Today

·     Auto sector; Ford (F) EPS of $0.13 beat consensus of -$0.10 driven by Ford Credit (+$0.24) & Int’l (+$0.08) partially offset by other items (-$0.09) and Ford raised FY guidance on adj EBIT to $9-10bn from $5.5-6.5B; DIDI rises after a report that the company is considering going private to ease investor concerns as Chinese crackdown widens; https://on.wsj.com/3i82o7g (DIDI later provided a statement refuting the overnight WSJ report); ORLY Q2 EPS and sales topped views though Wells Fargo notes +9.9% comps landed just short of +LDD% buyside expectations; VWAGY raises the outlook for its operating return on sales by 0.5 ppts to 6.0% to 7.5%; auto retail, SAH rises on results (AN, PAG, GPI move in reaction early); NKLA slides as Trevor Milton, founder of the EV company, has been indicted on three counts of fraud by the U.S. Attorney’s Office in Manhattan for making deceptive and false claims to investors; WKHS names a new CEO

·     Consumer Staples; MO beat profit and revenue expectations, and raised its full-year outlook in tobacco space with Total cigarette shipments rose 1.4% to 25.31 billion sticks; in grocers, ACI sees identical sales growth of -5% to -6% vs. -6% to -7.5% prior view. EPS of $2.20 to $2.30 is expected vs. $1.80 consensus which follows Q2 EPS/sales beat; In beverages, TAP and BUD both pressured early after quarterly results; KDP top and bottom-line beat and raised net sales outlook to +6-7% from 4-6% but reaffirmed EPS outlook at +13-15% citing reinvestment; Stifel said more positive on HPC names ahead of June quarter earnings reflecting increasing earnings visibility (PG, CL, REYN, FRPT); in food, HSY beat and raise but eps unchanged, sales upside offset by higher tax and supply chain costs; PPC EBITDA beat on higher sales and margins in U.S.; LNDC Q4 revs $139.8M vs. $125.4M estimate and adj. EBITDA was $12.1M vs $9M

·     Lodging & Leisure sector; WH reported Q2 adj EPS 95c vs est. 66c on revs $406M that missed est. $413.6M, REVPAR +110%, and guides FY adj EPS $2.60-2.70 (est. $2.33), REVPAR +40%, and fee-related and other revs $1.16-1.19B; RRR posted Q2 EPS $1.12 vs est. $0.38 on revs $428.2M vs est. $373.3M; VAC Q2 adj EPS 85c was below est. 91c on revs $979M that topped est. $920.2M; VICI posted Q2 adj FFO 46c vs consensus 47c on revs $376.4-368.6M, and guides FY adj FFO $1.82-1.87 (est. $1.87); CHDN results came in solidly above consensus, with EBITDA +$35.3M and sales +$31.3M. The beat was again primarily driven by record Gaming EBITDA (+$38.0M vs. +$27.3M vs. consensus), with wholly-owned margins +10 points vs. 2019, and very strong Rivers/MV results; HLT reported Q2 adj EPS 56c vs est. 39c on revs $1.33B vs est. $1.38B, adj EBITDA $400M vs est. $335.8M, RevPAR $73.03 beat est. $67.80, system-wide comp RevPAR +233.8%, and raised FY unit growth view 50bps to 5-5.5%

·     Semiconductors; QCOM reported a solid JunQ rev/EPS of $8.0B/$1.92 and guided to a strong SepQ at $8.8B/$2.25, above consensus $8.5B/$2.07 with strong premium and high tier launches and good 5G adoption – also files automatic mixed securities shelf; LRCX reported Strong JunQ ABOVE consensus and guided to a solid SepQ top line of $4.3B, also BETTER than consensus $4.1B with strength in 3D-NAND, EUV patterning, and etch tool traction and also increased its 2021 WFE forecast to ~$80B+, up >31% y/y; CRUS delivered stronger than expected June quarter results that came in near the high-end of the Company’s guidance range and exceeded consensus estimates; FORM mixed results and guidance with Jun-Q EPS above Street expectations and Sept-Q EPS guidance below expectations; in semi-equipment, LRCX Q4 results topped consensus but only issued in-line guidance for Q1 ($4.3B plus or minus $250M vs. est. $4.16B)

·     Software movers; CTXS tumbles as posted Q2 EPS beat but revs of $812M miss the $846M estimate and cuts FY21 EPS view to $4.75-$4.95 from $5.60-$5.80 (est. $5.71) and sales view; RSKD 17.5M share IPO priced at $21.00; ZM upgraded to Overweight at KeyBanc with a $428PT as see the Company benefiting from a future hybrid work state in which video and cloud communications stand as long-term priorities in enterprise IT budgets; NOW strong 2Q beat, 3Q/FY21 raise/subscription rev. beat by 3%, accelerating to 27% CC and subscription billings (+26% CC adj.) beat by 5%; PI posted better-than-expected Q2 results, handily beating on the top- and bottom-line and provided in-line guidance for Q3; PTC with in-line Q3 ARR/FCF and reaffirmed FY ARR/FCF guidance

Stock GAINERS

·     AGCO +3%; agricultural equipment makers rise after AGCO Q2 results and 2021 profit target top expectations and said it sees demand growing across all major markets in 2021

·     ALGN +4%; Q2 cases/revenue exceeded consensus by 5%/7%, and management raised its revenue guidance for the year, with 2H21 growth now expected to be above 25% growth yoy

·     Ford (F) +5%; 2Q EPS of $0.13 vs est. ($0.03), with sales of $24.1B above est. $23.0B; EBIT also much better than expected at $1.08B vs est. $250M; EBIT upside was across the board, in North America, International & Credit; raises FY EBIT guide to $9.5B mid-point vs prior $6B

·     LC +45%; after Q2 EPS $0.09 vs. est. loss (-$0.43) on better revs $204.4M vs. est. $134.5M and sees FY21 revenue $750M-$780M above est. $542.96M

·     MA +2%; delivered Q2 adj EPS $1.95 that bested est. $1.72 on revs $4.5B that was also better than est. $4.34B, purchase volume $1.47T (+36%) vs est. $1.37T, gross dollar volume +33%, cross-border volume +58%

·     MTH +12%; leading homebuilders higher on results – 2Q21 results exceeded guidance ($4.36 vs. guidance ~$3.17) led by 27.3% gross margins (guidance was 25%) and higher closings

·     QCOM +5%; solid JunQ rev/EPS of $8.0B/$1.92 and guided to a strong SepQ at $8.8B/$2.25, above consensus $8.5B/$2.07 with strong premium and high tier launches and good 5G adoption

·     TPX +14%; beat and raise as EBITDA beat by $50m and raised by over $100m

·     UMC +5%; follows upgrades from Citi and GS after the company beat guidance and market expectations

·     ZM +5%; upgraded to Overweight with a $428 PT at Keybanc saying they see the Company benefiting from a future hybrid work state in which video and cloud communications stand as long-term priorities in enterprise IT budgets

Stock LAGGARDS

·     CTXS -17%; posted Q2 EPS beat but revs of $812M miss the $846M estimate and cuts FY21 EPS view to $4.75-$4.95 from $5.60-$5.80 (est. $5.71) and sales view

·     EXAS -4%; strong quarter was somewhat offset by a modest guidance raise and lowering of expectations for Screening revenue in the back half of the year

·     FB -2%; comes in solid for Q2 results but warned revenue growth in Q3 and Q4 to “decelerate significantly” which overshadowed Q2 rev beat and MAU’s rising 7% yoy to 2.9B

·     IRBT ; as Q2 non-GAAP EPS $0.27 vs. est. $0.31 and lowers both its year EPS and sales outlook (lowers FY21 EPS view to $2.25-$3.15 from $3.00-$3.25)

·     MRK -1%; miss and lower guidance; Q2 adj EPS $1.31 vs. est. $1.44; Q2 revs $11.4B vs. est. $11.54B; cuts FY21 adjusted EPS view to $5.47-$5.57 from $6.48-$6.68 and cuts FY21 revenue view to $46.4B-$47.4B from $51.8B-$53.8B vs. est. $48.59B

·     NKLA -9%; as Trevor Milton, founder of the EV company, has been indicted on three counts of fraud by the U.S. Attorney’s Office in Manhattan for making deceptive and false claims to investors

·     PYPL -6%; 2Q revenue fell short of expectations, and forecasts Q3 rev, profit below estimates ($6.24B vs cons $6.27B)

·     SAVA -13%; after the company reported clinical data from an interim analysis of an open-label study with simufilam, its investigational drug for the treatment of Alzheimer’s disease.

·     UBER -4%; as SoftBank sells 45M Uber shares to cover for DIDI losses

Syndicate:

·     Ares Capital (ARCC) 12.5M share Spot Secondary priced at $20.00

·     Colfax (CFX) 6.54M share Spot Secondary priced at $43.90

·     Icosavax (ICVX) 12.13M share IPO priced at $15.00

·     Nuvalent (NUVL) 9.5M share IPO priced at $17.00

·     Rallybio (RLYB) 6.2M share IPO priced at $13.00

·     Robinhood (HOOD) 55M share IPO priced at $38.00, the low end of $38-$42 range

·     Riskified (RSKD) 17.5M share IPO priced at $21.00

·     ThredUP (TDUP) 6.42M share Secondary priced at $24.25