Mid-Morning Look

Tuesday, June 21, 2022

U.S. stocks in rebound mode to start the abbreviated trading week, with the Nasdaq rising over 3% and the S&P 500 about 2.5% with all 11-sectors moving higher early on strong breadth. Investors snap up heavily beaten stock prices after the S&P and Nasdaq has fallen 10 of the last 11-weeks on rising inflation and aggressive Fed action fears potentially pushing the economy into a recession. The Nasdaq is higher for the 4^th time in last 5-days as tech tries to rebound (Nasdaq Comp comes into the day and week down 33% from its record high). Asian equities mostly higher overnight with Japan and Hong Kong among the standouts. European markets seeing good gains. Treasury markets weak as yields inch higher, while oil prices also rebound after tumbling last week. Seeing an early bounce in stocks, but still much fear in this market ahead of Fed Chairman Powell testimony later this week to Congress and the Senate on monetary policy. Goldman Sachs sees a 30% chance of the U.S. economy tipping into recession over the next year, up from its previous forecast of 15%. Bitcoin prices up 5% and back above the $20K level after hitting $17,787 on Saturday afternoon – Bitcoin is still off 70% from the all-time high of $67,802 seen in November. The Japanese yen dives to new 24-year low vs dollar. Lone piece of economic data showed Existing Home Sales for May reported at 5.41M unit rate (lowest since June 2020), but in line with consensus and down -3.4% from April 5.60M figure; inventory of homes for sale 1.16M units, 2.6 months’ worth; the national median home price for existing homes $407,600, +14.8% from May 2021

Sector Movers Today

·     Solar: in the solar industry, AES, CWEN, Cypress Creek Renewables and D.E. Shaw Renewable Investments pledge to buy $6B of U.S.-made solar panels. The Co’s said on Tuesday they have formed a buying consortium to purchase 6-7 GW/year of crystalline silicon solar modules to encourage the rapid scaling of domestic solar manufacturing in the U.S. – the equivalent of more than 25% of the amount installed in the U.S. last year; in research SPWR downgraded to Sell from Neutral (tgt to $13 from $19) and NOVA downgraded to Neutral from Buy (tgt to $24 from $31) at Goldman Sachs, while lowered tgt on RUN to $36 from $40, and raised SHLS to $22 from $19

·     Consumer Staples; MDLZ announced an agreement to acquire Clif Bar & Company, maker of energy bars with organic ingredients, for $2.9 billion with additional contingent earnout considerations; Kellogg (K) said it plans to separate into three independent companies, by spinning off its U.S., Canadian, and Caribbean cereal and plant-based businesses, which collectively represented approximately 20% of its net sales in 2021; CHD upgraded to overweight at Wells Fargo saying the stock is now at historical discount to entire HPC peer set; in beverages, SAM, KDP and TAP downgraded to Neutral from Buy at UBS as expect growth to moderate looking ahead and say analysis suggests that KO, PEP, STZ, and CELH will see continue to see higher levels of organic revenue growth vs. peers and as such offer compelling risk/reward

·     Transports: SAVE rises as JBLU sweetens its takeover offer by $2 per share to $33.50 per share as it attempts to fend off rival Frontier Airlines’ (ULCC) proposal and represents a 68% premium to Frontier’s cash-and-stock; LUV said it sees Q2 operating revenue compared with 2019 up 12% to 15%, sees Q2 load factor 85% to 87% and CASM compared with 2019 down about 7%; EasyJet Plc (EJTTF) said it expected to fly about 90% of its pre-pandemic capacity in July, August, and September, down from the 97% it had scheduled last month; also warned the ongoing operational disruption would lead to higher crew costs and airport charges

·     Hardware, Software movers; SYM rises after WMT disclosed a 62% stake in the company last Friday https://on.mktw.net/3HJfUcv (SYM was also initiated at Outperform and $18 tgt at Cowen); ADBE downgraded to equal-weight at Morgan Stanley and given Street-low $362 Target from $591 on expectation of a slowing structural growth profile; DOCU announced Dan Springer has agreed to step aside as CEO and the company has retained a leading national executive search firm to assist with succession planning; BKSY shares jump after awarded 5-year JAIC contract for AI data that has ceiling value of $241M; CDNS announces $100 million accelerated share repurchase agreement

Stock GAINERS

·     CHWY +8%; upgraded to Outperform at Wedbush saying they revisit CHWY customer retention and spending and find little downside risk to the consensus outlook

·     CNVY +137%; to be taken private, as TPG to acquire the 25% remaining shares of CNVY it does not already own, paying $10.50 cash/share, representing a 143% premium to Friday’s close https://bit.ly/3y7wZcS

·     K +3%; said it plans to separate into three independent companies, by spinning off its U.S., Canadian, and Caribbean cereal, and plant-based businesses

·     NRZ +5%; announced late Friday it has entered into agreements providing for the internalization of the Company’s management function

·     PAYA +27%; rises after Bloomberg reported the company is working with an advisor to explore sale https://bloom.bg/3QyO9rh

·     PTCT +21%; as STAT news reported Duchenne muscular dystrophy drug achieves study goal, potentially confirming European approval https://bit.ly/3y6Y7ZC

·     SAVE +4%; as JBLU sweetens its takeover offer by $2 per share to $33.50 per share as it attempts to fend off rival Frontier Airlines’ (ULCC) proposal and represents a 68% premium to Frontier’s cash-and-stock

·     SYM +35%; after WMT disclosed a 62% stake last Friday https://on.mktw.net/3HJfUcv (SYM was also initiated at Outperform and $18 tgt at Cowen)

Stock LAGGARDS

·     ACAD -30%; after being halted all day Friday during its FDA AdCom, where the Advisory Committee voted 9 to 3 against supporting the approval of pimavanserin for the treatment of Alzheimer’s Disease Psychosis. The PDUFA is 8/4/22

·     AMED -11%; after CMS released late Friday its proposed 2023 home health reimbursement rule that included a net (4.2%) rate decrease inclusive of a (6.9%) impact from behavioral adjusters

·     DVA -10%; after the Supreme Court ruled in a case between the company and Marietta Memorial Hospital Employee Health Benefit Plan

·     HIMX -3%; cut its Q2 revenues and EPS guidance provided on May 12, 2022, citing weaker macro environment, and slowing end market demands

·     IP -2%; Citigroup downgrades paper stocks/containerboard IP and WRK following cautious commentary Friday evening from PPI Pulp & Paper Week and evidence of slowing demand

·     JD -3%; total sales rose 10.3% over the 18 days to Sunday during the first major shopping festival since a recent COVID-19 outbreak, the company said, sharply down from the 2021 event’s growth of 27.7%

·     ODP -14%; after co’s announcement saying: “the board also determined not to resume the company’s previously announced potential public company separation at this time and instead to maintain all of its businesses under common ownership.”