Mid-Morning Look

Tuesday, March 16, 2021

Dow Jones Industrial Average opens at new highs before sliding, moving just shy of the 33,000 level while the S&P 500 benchmark index also touching record highs, coming within the 4,000 level for the first time as market sentiment surging. Stock momentum remains sharply to the upside on stimulus measures and expectations of further dovish Fed comments when it concludes its 2-day FOMC meeting tomorrow. Large cap tech leading Nasdaq higher along with bounce in semis and software, as Apple, Alphabet and Facebook among top gainers. Still no fear in the markets as the Cboe volatility index (VIX) drops to 5-week low in global trading hours session (below the 20 level). Oil prices extend fall, dropping over 2% as vaccine worries in Europe rise. The U.S. dollar index turns positive, as euro hits session low vs greenback despite a round of generally weaker than expected economic data (softer retail sales data and industrial production due to weather impact). Dow Transports decline for the first time in 7-trading days, led by weakness in CAR after analyst downgrade, rails and airlines. Energy stocks dropping with decline in oil prices as MRO, NOV, FANG, EOG top decliners in the S&P 500 (though energy broadly lower). Treasury yields have steadied the last few days – 10-year staying around 1.6% into Fed meeting.

Economic Data

·     Retail Sales dropped (-3.0%) MoM in Feb, worse than the (-0.9%) estimate and down from prior month +7.6% (revised), while core Retail Sales (ex autos) dropped (-2.7%) MoM, worse than the (-0.1%) consensus and +8.3% prior – sales were impacted on delayed tax refunds, weather impact (blizzard)

·     Import/Export Prices for January reported as import prices rise +1.3% MoM, slightly above the +1.0% consensus and +1.4% prior month reading; Export prices rose +1.6% MoM vs. +1.0% consensus and +2.5% in December

·     Industrial Production for February dropped (-2.2%) MoM worse than the +0.5% consensus and +0.9% prior month reading, again likely hurt by weather; Capacity Utilization 73.8% vs. 75.7% consensus and 75.6% prior, while manufacturing output fell (-3.1%) MoM

·     The NAHB Mar Housing Index 82 Vs 84 In February, while Business Inventories in-line at +0.3%

Sector Movers Today

·     Transports; Dow Transports decline for the first time in 7-trading days; CAR downgraded to EW from OW at Morgan Stanley following the strong performance alongside the increases in Consensus earnings estimates in outer years, and downgrade on a balanced risk-reward; in truckers, Cowen raised tgt on XPO (PT to $157 from $149) TFII ($85 from $82) and CVLG ($32 from $30) saying positive trends amongst industry data and contacts indicate ongoing capacity tightness and a bullish trucking outlook; rails active with several updates at JPM conference this morning (CSX, UNP); UNP said with a couple of weeks left in the qtr, q1 volumes are down 4% overall – CSX says had additional unplanned operating expenses associated with the difficult weather in Feb.; airlines have been soaring as vaccine distribution ramps up, showing increased demand, but some airline execs have warned it will take years to return to the pre-pandemic revenue and passenger levels.

·     Semiconductors; semiconductor space outperformed early; KLAC tgt to $300 from $280, MU to $120 from $110, WDC tgt to $72 from $56 all at UBS as firm was positive on NAND pricing; IIVI lays out the detail of the $2B investment commitment from private-equity firm Bain Capital supporting II-VI’s $6.6B bid for laser maker COHR. II-VI says the 5% preferred investment includes three tranches, with $750M committed for funding at signing at a conversion price of $85/share. Bain commits another $750M for funding at closing of the Coherent deal; RMBS says financial statements from sept. 30, 2019 through Dec. 31, 2020 should no longer be relied upon citing understatements of revenue and unbilled receivables; says results from sept. 30, 2019 through Dec. 31, 2020 will require restatement

·     Healthcare services and providers; SDC announced its suite of affordable yet premium oral care products, including the best-selling bright on premium teeth whitening system, whitening touchup pen, and electric toothbrush, will now be available at WMT locations across Canada; HQY reported F4 results slightly above consensus and provided F22 guidance as revenue and adjusted EBITDA guidance was mostly in line with expectations while adjusted EPS fell short; SSY soars after saying its wholly owned Trace Regional Hospital subsidiary has implemented its Trace Forward Capital Plan; OTRK appoints CVS executive VP and CTO as the CEO effective April 12

·     Energy stock movers; oil prices decline, putting pressure on 2021 winner such as energy stocks with EOG, MRO, FANG, OXY among top decliners in the S&P; NOV forecasts consolidated Q1 revenues will be between $1.20B-$1.25B (below est. $1.36B) with an adjusted EBITDA loss of $15M-$25M and announced that it expects operational disruptions and softer-than-anticipated customer orders will cause Q1 of FY21 operating results to fall below prior guidance; Goldman raised their price target on CVX from $115 to $117 (10% upside) and lowered their target on XOM from $66 to $66 (11% upside) after reviewing the companies’ 10-k filings; PARR commenced an offering of 5M shares

Stock GAINERS

·     CANF +69%; signs exclusive distribution agreement with Switzerland-based Ewopharma for its experimental treatments for psoriasis and liver diseases

·     FOXA +3%; after Chairman Rupert Murdoch raises stake through a 2004 Revocable Trust, buying 500,000 Class A shares at an avg. price of ~$42.76 on March 12, according to SEC filings

·     ICAD +2%; after saying the FDA had cleared a new version of its artificial intelligence software for 3-D mammography or breast imaging

·     JBL +4%; beat consensus estimates for Q2, guided May higher and lifted FY21 guidance as lower expenses for R&D, restructuring charges and amortization of intangible assets helped operating income

·     MU +5%; semiconductors outperform with Philly semi index (SOX) rising over 2% – KLAC tgt to $300 from $280, MU to $120 from $110, WDC tgt to $72 from $56 all at UBS as firm was positive on NAND pricing

·     NUE +1%; guided Q1 EPS of $3.00-$3.10, topping the $2.83 estimate saying margins have expanded since the beginning of the year, a trend it expects will continue into Q2 (follows recent positive EPS update from U.S. Steel)

·     SBUX +1%; was upgraded from Neutral to Buy at BTIG with $130 tgt as believe the faster-than-anticipated pace of restaurant reopening, coupled with massive federal stimulus, should lead to upward earnings revisions

Stock LAGGARDS

·     F said it continues to expect to meet its 2021 financial guidance it had laid out in its annual report/expects to take a $1 billion to $2.5 billion hit, and said plans to offer $2B of convertible senior unsecured notes due 2026 in a private placement

·     FCEL -11%; Q1 revenue $14.9M missed estimate $22.1M and its Q1 gross loss ($3.6M) vs $3.3M profit YoY, and they said its generation revenue fell to $4.9M (-10% YoY) due to a temporary shut-down of several of the Bridgeport Fuel Cell Project plants

·     MARA -6%; after earnings and as Bitcoin prices slip – reported Q4 EPS loss (10c) on revs $2.6M; said in q4, generated over 157 Bitcoins and held over 254 Bitcoins

·     NKLA -7%; files for common stock offering of up to $100 mln

·     NOV -7%; forecasts consolidated Q1 revenues will be between $1.20B-$1.25B (below est. $1.36B) with an adjusted EBITDA loss of $15M-$25M; announced that it expects operational disruptions and softer-than-anticipated customer orders will cause operating results to miss guidance

Syndicate:

·     Ares Commercial (ARES) 7M share Spot Secondary priced at $14.55

·     Biohaven Pharmaceutical (BHVN) 2.69M share Spot Secondary priced at $76.00

·     CleanSpark (CLSK) 9.09M share Spot Secondary priced at $22.00

·     Option Care Health (OPCH) 12M share Spot Secondary priced at $20.00