Mid-Morning Look

Monday, March 27, 2023

U.S. stocks start the day broadly higher, as all eleven S&P sectors opened to the upside after a week of stock market gains, with major U.S. averages on track for their 5^th up day in last six. The big news over the weekend centered around First Citizens (FCNCA) purchase of SVB Bank in a deal that includes ~$72B of assets at a discount of $16.5B, absorbing all SVB loans & deposits. That coupled with reports U.S. officials were said to consider more support for banks helped push financial stocks higher initially and boost investor sentiment. Authorities would consider expanding an emergency lending facility that would give the bank more time to prop up its balance sheet according to Bloomberg. Meanwhile the Fed remains more cautious, with attention for now staying on inflation after they raised interest rates last Wednesday by another 25-bps and market expectations grow for another rate hike at the May meeting. Morgan Stanley strategist Mike Wilson reiterated his cautious message that earnings guidance looks too high following the bank turmoil while JPM said this quarter likely marked the high point for stock this year. Today’s calendar was quiet ahead of some of the bigger macro events of the week (Congressional hearings on Bank failures Tue/Wed and Eurozone CPI/US Feb PCE on Fri). The S&P 500 (SPX) index holding around the 4,000 level and above its 200-day moving average (3,931), while just below its 50-day MA (4,014) as technicals remain a key in market action.

Sector Movers Today

·     REITs remain a weak component of S&P: In commercial property/REITs: @LizAnnSonders said “U.S. regional banks account for ~70% of all CRE loans; while S&P 500 Real Estate has lagged its parent index by 7% MTD, Markit CMBX BBB S14 Index (synthetic tradable index referencing basket of 25 CMBS), is -12% MT.” In data center REITs: DLR downgraded to Market Perform at BMO Capital and lower tgt to $100 from $121 as believe DLR’s operating fundamentals are improving, demand remains largely healthy, and valuation is reasonable but leverage is too high at 7.1x. Firm upgraded EQIX to Outperform as view data centers as generally well-positioned to weather a challenged macro, and are encouraged by EQIX’s pricing power, the tailwind from strong bookings and lower churn, a $2.3B development pipeline, and services expansion. Raymond James said they are refreshing multifamily estimates (CSR, EQR, ESS), lowering 2024 projections below consensus for the sector.

·     Banks rise early: FCNCA shares jump as announced the acquisition of failed SIVB out of FDIC receivership. FCNCA is getting $110 billion in assets (which will roughly double its asset base), $72B in loans and $56B in deposits. FCNCA entered a loss share agreement and equity appreciation rights with the FDIC. Other regional banks moving higher (FRC, CFG, FITB, PACW, ZION, WAL and others) after reports this weekend from Bloomberg that US officials were said to consider more support for banks. Authorities would consider expanding an emergency lending facility that would give the bank more time to prop up its balance sheet.

Stock GAINERS

·     BLKB +14%; after its largest shareholder Clearlake Capital Group L.P. disclosed a bid to buy all the outstanding Blackbaud shares for $71 each, a 22.8% premium to Friday’s closing price of $57.83 in a deal valued at about $3.78 billion. https://on.mktw.net/3Zlxavw

·     CCL +3%; Q1 revenue beats analysts’ estimates, helped by resilient demand and improving ticket prices as occupancy increased by seven % points compared to Q4, driven by higher capacity.

·     FCNCA +43%; announced the acquisition of failed SIVB out of FDIC receivership. FCNCA is getting $110 billion in assets (which will roughly double its asset base), $72B in loans and $56B in deposits. FCNCA entered a loss share agreement and equity appreciation rights with the FDIC.

·     IOVA +9%; said it has completed its Biologics License Application submission to the FDA for lifileucel in advanced melanoma.

·     KRE +3%; early strength in regional bank sector (FRC, CMA, KEY, ZION) after reports this weekend from Bloomberg that US officials were said to consider more support for banks.

·     NVS +7%; following the announcement of the interim analysis of the NATALEE study of Kisqali in adjuvant HR+/HER2-breast cancer, which was stopped early by the independent data monitoring committee as the primary endpoint of invasive disease-free survival has been met.

·     PINS +6%; upgraded to Buy at Citigroup and increase tgt to $35 from $27 with a risk/reward skew of 2.3 and 66% upside in our Bull case as increase ests for ’24 revs/EBITDA.

·     ROKU +10%; upgraded from Neutral to Positive w/ $75 PT at Susquehanna saying long-term drivers remain in play, while near-term business fundamentals appear to be bottoming.

Stock LAGGARDS

·     BNTX -4%; it expects roughly EU$5B in sales of its Covid vaccine this year, widely missing expectations of 7.45 billion euros and said sales would dive more than 71%; shares of vaccine makers MRNA, PFE, NVAX lower.

·     COIN -6%; weakness in the Bitcoin/crypto space this morning.

·     DISH -2%; downgraded from Buy to Neutral at UBS and slash tgt to $10 from $27 saying with sub losses continuing, wireless dilution ramping & wireless M&A less likely NT are more cautious.

·     OLLI 2%; downgraded to Neutral from Buy at Citigroup noting merchandise margin dollars came in weaker than expected and implied guidance.

·     UBX 42%; after announces results from Phase 2 ENVISION Study showed UBX1325 monotherapy did not achieve non-inferiority through 24 weeks due, in part to an unexpected 3.5 letter gain in the anti-VEGF control arm.