Mid-Morning Look

Monday, November 14, 2022

After the massive rally last week for U.S. stocks on signs of decelerating inflation, stocks are mixed early, with gains in 2022 leader Energy (XLE), as well as Materials (XLB), Industrials (XLI) and defensives like Staples, Healthcare, and Utilities, while last week big winners Technology slides along with Financials and REITs. Treasuries weaker with the curve flattening. Dollar firmer after falling over 4% last week, its biggest pullback since March 2020. Oil prices dip initially. The S&P futures back to the 4,000 level with some saying eyes set for 4,080 200-day MA resistance test into the holidays. Inflation data back in focus with October producer prices (PPI) expected tomorrow morning. Fed Waller says over the weekend that the markets over-reacted to one CPI data point. Says pace of tightening may slow but endpoint still a way off (notes only dipped to 7.7%). In Politics, Democrats will retain control of the Senate after Arizona, Nevada races called (GOP still favored to win the House). Quiet day overall with no major earnings this morning or economic data or Fed speakers, but that picks up later this week. In the crypto space, Bitcoin has moved off overnight sub-$16K levels, settling in in the $16,500 currently. The mysterious outflows from the FTX exchange reported over the weekend are now said to exceed $600M from an initial $400M, and the Bahamas, where FTX is HQ‘d, has announced they are opening a criminal investigation. This morning, Binance’s CEO Changpeng Zhao said the cryptocurrency exchange plans to launch a fund to help crypto projects facing a liquidity crisis as the collapse of rival FTX ricochets through the industry. In the US, U.S. Treasury Secretary Janet Yellen says the collapse of FTX has exposed the “weaknesses of this entire sector” and calls for careful regulation.

Sector Movers Today

·     Retailers: big week for the retailers with results from WMT (11/15), HD (11/15), TGT (11/16), LOW (11/16) and a handful of others including TJX, KSS, M, ROST, BJ, FL double downgrade from Buy to Underperform at Bank America and clash tgt to $42 from $73 after conducting a deep dive on the company’s Magic: The Gathering business which accounts for roughly 15% of Hasbro’s revenue and 35% of EBITDA. Magic is a trading card game in which players collect cards to battle against each other; LOW downgraded at Citigroup ahead of earnings this week

·     Bank movers: SI rebounded after a sharp decline last week after the crypto bank said its exposure to Sam Bankman- Fried’s FTX cryptocurrency exchange represented less than 10% of its total deposits from digital asset customers. FTX’s deposits with Silvergate represent less than 10% of the $11.9 billion in total deposits from all digital asset customers, said the bank. While that appears to mean an amount of $1 billion or more, those are deposits, meaning FTX is a creditor. BAC was downgraded to Neutral from Buy at Citigroup saying “we are in a tricky period for bank stocks as NII tailwinds seem fully factored in and see downside risk to 2023 NII largely from a catch up on deposit repricing and noninterest bearing deposit outflows outweighing the benefits of fixed rate assets repricing; OZK authorizes $300M stock repurchase program

·     REITs: Triple-net REITs SRC and NTST both downgraded to Neutral from Buy at Bank America, taking a more balanced view of net lease REITs heading into 2023; COLD upgraded to Buy from Neutral and raising our PO to $33.50 from $27.50 at Bank America driven by view that top line growth is recovering faster than expected as management pushes rate (to offset any inflation pressures) and occupancy continues to climb; Piper downgrading ALEX to Neutral from OW based on valuation; MPW upgraded to Buy from Neutral at Bank America citing valuation

·     Healthcare Services & MedTech Equipment: XRAY slides as Q3 revs $947M misses est. $1.02B and EPS of $0.41 below $0.59 est. saying quarter was impacted by “continued macroeconomic headwinds; cuts its ’22 guidance, now expecting revenue of $3.85B to $3.88B (from $4.1B to $4.2B prior) and adj EPS of $1.90 to $2.00 (from $2.35 to $2.55 prior); Morgan Stanley reshuffles its ratings on US health care providers, upgrading OSH and downgrading OSCR as it weighs their strategies to bolster profitability

Stock GAINERS

·     AMD +2%; upgraded to Buy from Neutral at UBS and raise tgt to $95 from $75 as anticipates “some replenishment” moving through FY23, adding that computer hardware “typically out-performs off the bottom

·     BIIB +5%; after MorphoSys and partner Roche said a trial of a treatment for Alzheimer’s disease failed to meet its main goal; German-listed shares of MorphoSys fell 30% on the news

·     BMRN +2%; analysts note ASND’s Phase 2 appears to favor BMRN’s VOXZOGO – said data doesn’t seem v competitive vs Voxzogo

·     ENPH +2%; to join Nasdaq-100 Index and Nasdaq-100 Equal Weighted Index Mon, Nov 21

·     FREY +7%; following Q3 results and guidance

·     OPNT +1135%; as Indivior set to acquire overdose therapy maker for $145M https://bit.ly/3ttVr5a

Stock LAGGARDS

·     ASND -13%; after top-line results from the Ph2 ACcomplisH trial, as analysts note ASND’s Phase 2 appears to favor BMRN’s VOXZOGO – said data doesn’t seem v competitive vs Voxzogo

·     HAS -5%; double downgrade from Buy to Underperform at Bank America and clash tgt to $42 from $73 after conducting a deep dive on the company’s Magic

·     MOR -30%; after partner Roche said Phase 3 studies evaluating gantenerumab in people with mild cognitive impairment (MCI) due to Alzheimer’s and mild Alzheimer’s dementia did not meet their primary endpoint of slowing clinical decline (LLY, BIIB shares rally in reaction)

·     OTLY -12%; posted a wider than expected loss for Q3 while a modest 7% jump in revenue from the prior year to $183.03M came up $28.07M short of consensus estimates and cut year forecast

·     STOK -27%; after saying a higher dose of its experimental drug for epilepsy reduced the frequency of convulsive seizures in children with a rare form of the disease. However, the treatment effect was still too low to provide a meaningful benefit

·     STSA -82%; tumbles after saying its experimental migraine drug, STS101, did not meet main goals of freedom from pain and “most bothersome symptom” at two hours post-administration in a late-stage study

·     TEVA -2%; downgraded from Neutral to Underweight at JPMorgan saying the co has made significant progress in addressing its debt and cost structure over the past several years but they continue to struggle with the relative lack of growth in the portfolio over time

·     XRAY -8%; Q3 revs $947M misses est. $1.02B and EPS of $0.41 below $0.59 est. saying quarter was impacted by “continued macroeconomic headwinds; and cuts its ’22 guidance