Mid-Morning Look

Friday, May 21, 2021

Stocks open strong but paring gains on light volume following mixed economic data as strong U.S. factory and services activity surveys were offset by a slight miss on housing data (though average selling prices rose a record high). The stock market recovery mid-week was led by tech-related mega-cap shares, putting the Nasdaq on course to snap a four-week losing streak (came into the day with a 0.8% increase on the week), but mega-tech names modestly lower today. Retailers outperform behind good earnings results from FL, DECK, and ROST, while energy stocks rebound along with oil prices. The crypto space volatile again in what has been a tough week for the sector – today a target of China as China’s vice premier Liu said they will crack down on bitcoin mining and trading activities; Liu he says to crack down illegal securities activities, and severely punish financial illegal activities; says to keep yuan exchange rate basically stable (comments rolled prices for Bitcoin, Ethereum, etc.). Treasury yields edge higher as gold prices slide off a 4-month peak.

Economic Data

·     Markit May flash services PMI at 70.1 highest in series history (vs 64.7 in April), May flash composite PMI at 68.1 (vs 63.5 in April); manufacturing sector flash PMI for May at 61.5, highest in series history, (consensus 60.2) vs. April final 60.5.

·     Existing home sales fell -2.7% for April 5.85M unit rate vs. est. 6.09M; the national median home price for existing homes $341,600, +19.1% from April 2020; U.S. April inventory of homes for sale 1.16 mln units, 2.4 months’ worth.

Sector Movers Today

·     Software movers; DDOG was upgraded to Overweight at Morgan Stanley with shares trading 25% off highs and at a discount to SaaS peers on a growth-adjusted basis; SPLK upgraded to Buy at UBS with $125 tgt with shares down 45% since the weak 3QF21/Oct print in early Dec 2020 and given profoundly weak investor sentiment, saying shares look washed out; PANW 3Q results were strong highlighted by an acceleration in billings growth to 27% (28% normalizing for annual billings) vs 22% expectations; ASAN upgraded to Overweight at Keybanc as see well positioned to execute in the $32B Collaboration

·     Casinos, Gaming, Lodging & Leisure sector; WWE said returns to live events with 25-city tour beginning July 16; in cruise lines, CCL announced late yesterday its cruise brands Princess Cruises, Holland America Line and Carnival Cruise plan to resume trips starting with Alaska sailings in July; SIX tgt to $59 from $57 on increased EBITDA estimates at Stifel as believe visitation/spending patterns should continue to accelerate from current levels and show strength over the next four months; IGT tgt raised to $32 from $28 as left recent mgmt meetings incrementally positive as the recent Italy B2C sale has simplified the story moving into a post-COVID operating env’t

·     Semiconductors; AMAT reported a solid AprQ, with Rev/EPS of $5.6B/$1.63, above consensus of $5.4B/$1.51, and guided to a strong JulQ at $5.9B/$1.76 (topline ~7% above consensus $5.5B/$1.56), while noted 2021 WFE is now expected up ~28% y/y to the high-$70B range vs. prior low-$70B, with industry capital intensity running at 14% vs. historical 12%; STX downgraded to Market Perform at Northland as estimate that cryptocurrency is roughly 3% of HDD demand this quarter as STX shares have started to trade in sympathy with cryptocurrencies; NVDA announced a 4 for 1 stock split pending shareholder approval

·     Media movers; AT received two analyst upgrades as UB raised to Buy from Neutral and raise target to $35 from $32 saying they see a favorable risk-reward at the current valuation given a more simplified set of connectivity-based assets, lower dividend payout (~40% vs. ~60% post DTV deal), better visibility into EBITDA growth and lower leverage (New Street also upgraded shares); NLSN downgraded to neutral at Citigroup saying while believe Nielsen can hit its medium-term targets set forth at its investor day in December 2020, at prevailing levels we no longer view the risk-reward as overly compelling

Stock GAINERS

·     BA +2%; Reuters reported BA has drawn up preliminary plans for a fresh sprint in 737 MAX output to as many as 42 jets a month in fall 2022

·     DE +3%; with Q1 EPS and sales beat while raised its full-year net income forecast to be between $5.3B-$5.7B from prior forecast of $4.6B-$5.0B

·     DECK +7%; FQ4 results top views across the board with revenue/EPS of +50%/$1.18 easily beating estimates led by strength in UGG (+53%) and HOKA (+74%) sales – issues upbeat FY22 guidance

·     FL +3%; Q1 comp sales jumped +80.3% vs. topping the +61.9% estimate as EPS of $1.96 topped the $1.09 estimates; Q1 sales $2.15B vs. est. $1.88B and is not providing an outlook for the year

·     INSP +3%; announced last night ATHM will provide coverage for the company’s Inspire therapy, effective May 20th

·     NVDA +2%; announced a 4 for 1 stock split pending shareholder approval

·     PANW +6%; 3Q results were strong highlighted by an acceleration in billings growth to 27% (28% normalizing for annual billings) vs 22% expectations

·     SPCE +4%; upgraded to Buy with $36 tgt at UBS as remain positive on the fundamentals of the VG offering as well as the scarcity of the experience provided to customers

·     WWE +4%; said returns to live events with 25-city tour beginning July 16

·     YALA +17%; announced a $150M share buyback and responded to the “three” short reports published in the past 2 days as containing distorted, misleading, and unsubstantiated claims

Stock LAGGARDS

·     AMAT -0.5%; beat and raise quarter but shares were at YTD highs into results, profit taking early in some semiconductors after surging last few days

·     COIN -1%; weakness in crypto currency sector again today after China’s vice premier Liu said they will crack down on bitcoin mining and trading activities

·     FLO -3%; as Q1 revs fall -3.5% to $1.30B hurt by the pandemic, which was below the $1.33B estimate while Q1 branded retail sales fell 3.3% to $861.4M as volume declined in some areas

·     STX -1%; downgraded to Market Perform at Northland as estimate that cryptocurrency is roughly 3% of HDD demand this quarter as STX shares have started to trade in sympathy with cryptocurrencies.

·     VFC -8%; shares disappoint as the maker of “Vans” posts Q4 adj EPS of 27c, missing the 29c estimate, though guidance for FY22 comes in slightly above estimates