Mid-Morning Look

Wednesday, June 16, 2021

Stocks are mixed ahead of the FOMC monetary policy statement and Fed Chairman Powell press conference at 2:00 PM and 2:30 PM respectively. Markets have been quiet this week ahead of the meeting, with market participants (and algos) likely to hang on every Fed headline, watching specifically comments on tapering of asset purchases, the inflation outlook (are prices spikes transitory or long-term concerns) and economic overview. Given the recent comments by Fed members, they will likely echo that price increases are not permanent (but transitory) despite the recent spikes in PPI, CPI and import prices data over the last week. Treasury markets appear to believe as yields have fallen over the last month with the 10-year down 25 bps in a month to around 1.50% and the dollar remains depressed. Gold prices little changed around the $1,860 an ounce level. Oil prices get another boost after bullish weekly inventory data, pushing WTI crude above $72.50 per barrel. Metals and materials in focus after reports China has stepped up its campaign to rein in commodity prices and reduce speculation in a bid to ease the threat to its pandemic rebound from soaring raw material costs. Financials/banks among the top decliners in the S&P to start the day following cautious comments on trading revenues this week from some of the biggest banks (Citi, JPM).

Economic Data

·     Import Prices for May rises 1.1% vs. est. 0.8% (prior month revied up to 0.8% from 0.7%) and exports jumped 2.2% vs. est. 0.8% (prior month revised to 1.1% from 0.8%; May YoY import prices +11.3% (highest since 2011), export prices +17.4% (highest on record since 1984); May airfares to the US rose 13.5% YoY

·     May Housing Starts rose +3.6% MoM to 1.572M vs. 1.630M expected and 1.517M prior (revised from 1.569M) while Building permits fell -3.0% to 1.681M vs. 1.738M expected and 1.733M prior (revised from 1.760M). May single-family starts +4.2% to 1.098 mln unit rate; multifamily +2.4% to 474,000-unit rate

·     Service sector businesses in the New York region continued to stage a comeback in early June, when business activity grew at a record fast pace, according to a survey released Wednesday by the Federal Reserve Bank of New York. The business activity index increased by four points to 43.2, according to the survey of business leaders for service sector firms in New York, northern New Jersey, and southwestern Connecticut.

Sector Movers Today

·     Retailers; few analysts lowering ests and tgt on Dow component NKE into earnings (reports 6/24) as Cowen, Bofa are cautious based on weak sales in China, but say the bigger data point will be the intro of F22 guidance, which should provide insight into duration of China weakness; Sporting goods retailers were weak yesterday (ASO, DKS, HIBB, FL, etc. all sold off) following the deceleration in retail sales data; LZB top and bottom line beat as Q4 EPS $0.87 tops consensus $0.74 and revenue $519.5M vs consensus $498.5M; written same-store sales +100% (+29% vs 4Q19) and says demand trends remain strong across the business with backlog at record levels; TJX reiterate buy and $82 tgt at Bank America as expect TJX to continue to post solid sales growth with waning cost pressures; OXM boosts quarterly dividend by 13.5% to $0.42 from $0.37

·     Utilities & Solar; SPI rises as Phoenix Motorcars, a wholly owned subsidiary of SPI, has launched a full range of EV charging products for the U.S. market; Goldman upgraded EVRG to Buy with a $72 target given its attractive valuation, upside to consensus estimates, and positive changes to regulatory frameworks in both Kansas and Missouri, and they also downgraded Missouri-based AEE to Neutral given its current premium P/E valuation vs peers; BTIG upgraded ENS to Buy following management meetings last week; ED announced a public offering of 10.1M shares; ED 10.1M share Spot Secondary priced at $76.90; solar industry outperforms as RUN rises after positive comments from Morgan Stanley

·     Financial Services and Consumer Finance; COF selected as exclusive long-term issuing partner for new WSM credit cards/new credit cards and loyalty enhancements are expected to launch before end of 2021; SOFI initiated Buy and $30 tgt at Rosenblatt saying the incumbent legacy banks face a challenging road ahead as a new wave of digitally native and mobile-first banks rush into the market; HRB reports Q4 EPS $5.16 vs consensus $5.06 and revenue $2.33B vs consensus $2.32B; EBITDA $1.13B vs consensus $1.12B; increases quarterly dividend by 4% to $0.27/share

·     Metals & Materials; China has stepped up its campaign to rein in commodity prices and reduce speculation in a bid to ease the threat to its pandemic rebound from soaring raw material costs. State-owned enterprises were ordered to control risks and limit their exposure to overseas commodities markets by the State-owned Assets Supervision and Administration Commission (bearish for metals and materials); FCX remains weak (down 9 of last 11 sessions) as copper prices broke through and closed below its 50 DMA yesterday (which stood at $4.46 per lb.); in research, JPMorgan initiating coverage with OW ratings on CLF, RS and STLC , Neutral ratings on NUE, CMC and CRS, and assuming EAF and STLD with OW ratings and X with an UW rating; in steel sector, NUE and STLD each issuing monthly guidance

Stock GAINERS

·     CNC +6%; after providing investor day slides as reaffirmed 2021 adj EPS guidance and issues further out guidance for operating margins

·     DISH +2%; upgraded from Hold to Buy with upward $60 tgt (from $50) at Pivotal as view new target price as arguably conservative considering the significant upside potential in the DISH greenfield 5G wireless opportunity

·     EXFO +14%; after VIAV said it has submitted a proposal to buy the company at $7.50 per share in cash, valuing the co around $430M, a premium of 25% to a go-private transaction announced by EXFO’s majority shareholder, Germain Lamonde https://bit.ly/3iIvkmP

·     GM +2%; boosted its spending on electric and autonomous vehicles, pulled ahead plans for two U.S. battery plants and forecast stronger-than-expected second-quarter profits

·     KIN +45%; ELAN will acquire KIN at a price of $9.25 per share, or approximately $440 million, a premium of 52% based on the 30-day average https://bit.ly/3gwIJgc

·     MAXR +9%; initiated new Buy and $52 tgt at Goldman Sachs saying the company has issued 2023 targets that they believe may actually be a bit conservative

·     SPI +11%; after its Phoenix Motorcars unit launched a full range of electric vehicle charging products for the U.S. market

Stock LAGGARDS

·     APRN -19%; falling after secondary offering priced at $4.25

·     C -4%; large cap banks under pressure early following weaker comments on trading from Citi and JPM this week at a conference and ahead of FOMC meeting later

·     MX -8%; shares slide after saying it is assessing impact of interim order received on June 15 from U.S. department of treasury on behalf of CFIUS

·     ORCL -5%; posted a top and bottom line Q4 beat (Q4 adj EPS $1.54 vs. est. $1.31; q1 revs $11.23B vs. est. $11.04B) but issued a profit forecast below expectations (Q1 EPS $0.94-$0.98 vs. est. $1.02) as it ramps up its investments in cloud

·     RBLX 4%; released May key metrics, which showed daily active users hit 43M, which was up 28% from the previous May, but down 1% from 43.3M in April

·     TAL -9%; after Morgan Stanley downgraded its China education industry view (also cut EDU), citing the government’s desire to curb Kindergarten to Year 9 after-school tutoring; also reports China will impose tougher restrictions on the private tutoring industry

Syndicate:

·     Blue Apron (APRN) 4.75M share Spot Secondary priced at $4.25

·     Consolidated Edison (ED) 10.1M share Spot Secondary priced at $76.90

·     Convey Holding (CNVY) 13.333M share IPO priced at $14.00

·     Inhibikase Therapeutics (IKT) 15M share Secondary priced at $3.00

·     Molecular Partners (MOLN) 3M share IPO priced at $21.25

·     Protagonist Therapeutics (PGTX) 3.05M share Spot Secondary priced at $37.75

·     Rapt Therapeutics (RAPT) 3.79M share Secondary priced at $33.00

·     WalkMe (WKME) 9.25M share IPO priced at $31.00