Mid-Morning Look

Tuesday, May 11, 2021

A rough day for U.S. stock averages, with broad based market selling, but led by further declines in high growth/high multiple technology stocks as markets continue to fear inflation (no matter how many Fed officials talk about inflation being “transitory”), with high-value stocks benefiting from lower rates. Treasury yields inch higher with the 10-year at 1.62% while the dollar falls to 2 ½ month lows vs. the euro. Commodity prices still pushing higher with oil on the rise, copper, lumber, corn and now soybeans hitting multi-year highs with no signs of prices abating. Several companies during the quarter noted the impact of rising prices and the need to offset those costs with higher prices of their own. Job openings, a measure of labor demand, jumped 597,000 to 8.1 million on the last day of March, the highest since the series began in December 2000, according to JOLTs data. Several big swings in earnings land after mixed results, while vaccine maker NVAX slides after it delayed the timeline for its COVID-19 vaccine. Major averages have held up extraordinarily well despite several induvial stock sectors saying sharp corrections in the last few weeks (solar, EV,s cannabis, software, space) – with the S&P 500, Dow Jones Industrials and Dow Transports all coming off record highs just a few days ago.

Sector Movers Today

·     Retailers; LB Q1 adj EPS $1.25 vs. est. $0.98, Q1 revs $3.024B vs. est. $2.89B both above views while confirms plan to separate Bath & Body Works, Victoria’s Secret into public companies – said Q1 2020 sales were negatively impacted by closure of stores for about half quarter due to covid-19 pandemic; HBI shares tumble as Q1 results beat estimates helped by double-digit growth in both its global innerwear and activewear businesses, but issues downbeat FY outlook of $1.51-$1.59 EPS vs. est. $1.61 and revs $6.2B-$6.3B vs. est. $6.72B; NKE upgrade from Hold to Buy with $192 pt at Jefferies as have grown increasingly confident in the med-term growth and profitability trajectory of the biz; BBBY launched a new low-price, in-house brand to compete for bargain hunters who’ve been heading to Amazon and Target; REAL slides, was downgraded to Neutral at BTIG after earnings saying the thesis plays out, but with fewer catalysts going forward and stubbornly high ebitda losses; NLS rises on EPS beat with strength in sales was once again broad-based across channels, brands, product lines, and geographies

·     E&P and Majors; PXD slides after announced entity majority owned by Apollo Global Management and subsidiary of Quantum Energy Partners offering 6 mln shares; Double Eagle III to sell ~3.8 mln shares, while Quantum subsidiary to sell ~2.2 mln shares, per filing; OXY Q1 adj EPS (15c) loss vs consensus (33c) on revs $5.48B vs est. $4.91B and Permian production 457MBoed that was on the high end of its guidance, and sees FY production 1,140 MBoed with 485 MBoed in the Permian Basin; KOS recorded a Q1 EPS loss of (8c) that was slightly narrower than expected (9c) loss on revs $176.5M vs est. $177.5M

·     Pharma movers; PFE, BNTX active as the FDA has expanded the emergency use authorization of the COVID-19 vaccine developed by the two for use in adolescents aged 12 to 15 years of age; ELAN upgraded to equal-weight from underweight and raise tgt to $29 from $25 at Barclay’s; LRMR reports promising data from its early-stage trial of its experimental therapy, CTI-1601, to treat Friedreich’s ataxia; LLY and MiNA Therapeutics Ltd. In a global research collaboration to develop novel drug candidates using MiNA’s proprietary small activating RNA technology platform. MiNA will receive a $25M upfront payment and is eligible to receive milestones up to a total of $245M; VYGR announced it is planning to re-partner VY-AADC for future development and commercialization, rather than advancing the program on its own; PRGO reported 1Q results, with revenue of $1.01B (vs. $1.03B cons) and EPS of $0.50 (vs. $0.57 cons), with the company citing difficult comps associated with pantry stocking from the 1Q20 and a historically weak cough/cold season this year

·     Metals & Materials; in steel sector, U.S. Steel (X) upgraded to Overweight from Equal-weight at Morgan Stanley and raise tgt to $32 from $24 noting that steel market fundamentals remain on solid footing, with HRC prices now expected to be above $1K per ton through at least Q4 of this year; Bank America raised estimates for UFS, IP, WRK, PKG saying inflation was and remains a headwind for companies but the demand backdrop (and imperative caused by cost pressures) has led companies to keep pushing price hikes; UFS agreed to be acquired by Canadian paper and packaging company Paper Excellence for about $2.8 billion, or $55.50 a share, in cash as deal represents a 17% premium to Monday’s closing price of $47.38 for Domtar https://bit.ly/3o5qLDM ; in chemical companies LYB, DOW and HUN all downgraded to neutral at Goldman Sachs while the firm upgraded DD, EMN, and UNVR to Buy from Neutral; FOE to be acquired by Prince International Corporation, a portfolio company of American Securities LLC, in an all-cash transaction deal of ~$2.1B or $22.00 per share in cash https://bit.ly/3eCzuu1

Stock GAINERS

·     DDD +18%; one of few bright spots, up 11% as Q1 adj profit of 17 cents/shr on revenue of $146.1 mln easily beats Refinitiv est for profit of 2 cents/shr on revenue of $136.63 mln

·     FOE +22%; to be acquired by Prince International Corporation, a portfolio company of American Securities LLC, in an all-cash transaction deal of ~$2.1B, $22 per share https://bit.ly/3eCzuu1

·     IGT +9%; smashed consensus Q1 earning marks, including adjusted EBITDA of $450M vs. $260M anticipated as revs of $1.01B topped views by $133M

·     NLS +4%; on EPS beat with strength in sales was once again broad-based across channels, brands, product lines, and geographies

·     SWAV +12%; was upgraded at Bank America and Piper after earnings, where SWAV’s 2021 revenue guidance, which came in 20% above recently raised consensus expectations and suggests SWAV will deliver 195% revenue growth in 2021

·     UFS agreed to be acquired by Canadian paper and packaging company Paper Excellence for about $2.8 billion, or $55.50 a share, in cash, 17% premium to Monday’s closing price of $47.38 https://bit.ly/3o5qLDM

·     WYNN +2%; after reporting Q1 results and announcing Wynn Interactive’s merger with Austerlitz Acquisition Corporation.

Stock LAGGARDS

·     HBI -14%; shares tumble as Q1 results beat estimates helped by double-digit growth in both its global innerwear and activewear businesses, but issues downbeat FY outlook of $1.51-$1.59 EPS vs. est. $1.61 and revs $6.2B-$6.3B vs. est. $6.72B

·     JMIA -9%; tumbles after Q1 revs slipped (to 27.4M euros from 29.3M) as the ecommerce company focused on African markets faced fresh challenges in some countries due to pandemic-related restrictions.

·     INO -5%; posted a wider-than-expected quarterly loss as its costs rose and revs of $371,120 also misses analysts’ avg. estimate of $855,140 while saying plans to begin a global late-stage trial of its COVID-19 vaccine candidate this summer

·     NVAX -14%; delayed the timeline for its COVID-19 vaccine, now sees EUA in 3Q (from 2Q) and full production output to 4Q (from 3Q); data from the US Phase 3 is expected before the end of 2Q

·     REAL -24%; was downgraded to Neutral at BTIG after earnings saying the thesis plays out, but with fewer catalysts going forward and stubbornly high ebitda losses

·     RXT -20%; posts modest Q1 EPS and revs beat but bookings and guidance outlook weigh as sees full-year 2021 revenue of $2.9-$3.1B, the midpoint of which came in below estimates of $3.02B

·     SPCE -8%; tumbles after posting a larger than expected Q1 EPS loss – ($0.55) vs est. ($0.27), while says timing of next flight currently being evaluated, says continuing to experience ongoing delays to business due to covid

·     TSLA -2%; shares fell following a Reuters report that said the electric vehicle company halted plans to buy land to expand its Shanghai plant and make it a global export hub because of uncertainty created by tensions between the U.S. and China

Syndicate:

·     IHS Markit (INFO) 3.8M share Block Trade priced at $106.15

·     Ingersoll-Rand (IR) 14.92M share Spot Secondary priced at $49.00

·     Insmed (INSM) 10M share Secondary priced at $25.00

·     Jeld-Wen (JELD) 10M share Spot Secondary priced at $29.20

·     KKR Real Estate Finance (KREF) 5M share Spot Secondary priced at $20.30

·     Lexington Realty (LXP) 16M share Spot Secondary priced at $12.20

·     Pioneer Natural (PXD) 6M share Spot Secondary priced at $161.00