Mid-Morning Look

Thursday, October 28, 2021

U.S. stocks are rebounding nicely following late yesterday’s slide into the close, as the Smallcap Russell 2000 index rebounds over 1% after underperformance yesterday (fell -1.9%) and both the Nasdaq and S&P 500 make another run back to new highs. Investors largely ignoring the disappointing GDP report, showing growth of 2% vs. estimates of 2.7%, and well below last quarter reading above 6%. The weak data raises hope the Fed will postpone that start of its Fed tapering program which is expected to start next month. Earnings again boosting several stocks and sectors in tech, industrials, retail, and autos/travel. Earlier this morning, President Biden released a new framework on the Democrats’ $1.75 trillion social-spending and climate package Thursday aimed at winning support of congressional Democrats locked in talks over his agenda. Healthcare industry rises as the plan completely abandons all policy ideas aimed at lowering prescription drug prices. After a brief blip lower late yesterday, stocks resume upward trajectory, again showing no concern of supply chain constraints for companies, labor shortages, rising prices and inflation fears – all of which many companies have noted in their earnings results, but are to this point not impacting stock prices. The U.S. dollar showing weakness post the weaker GDP reading, gold prices are up slightly, and Treasury yields rebound partially after longer-dated yields plunged yesterday (note today the yield on the 30-yr dipped below the 20-yr for the first time).

Economic Data

·     Economy slows: Q3 GDP (initial estimate) rises a disappointing +2.0% vs. +2.7% consensus and down sharply from the +6.7% growth in Q2

·     Initial Jobless Claims fell -10K to 281K vs. 290K consensus, 291K prior; the 4-week moving average 4-week moving avg. at 299.3K in the week ending Oct. 23; continuing claims fell 237K to 2.243M in the week ending Oct. 16

·     U.S. Sept pending home sales index -2.3%, missing the estimate of flat and sales were down -8.0% from Sept 2020; prior month reading was +8.1%

Sector Movers Today

·     Healthcare Services; LH 3Q adj EPS $6.82 vs est. $4.92 on revs $4.1B vs est. $3.65B; raises FY EPS guide to $26-28 vs est. $23.16, sees FY revs +13-14% vs est. +8.9%; TDOC Q3 revenue, visits, and adjusted EBITDA beat consensus, but midpoint of the adjusted EBITDA guide for 2021 is below consensus, and membership of 52.5M lives was slightly behind consensus; In hospitals, UHS Q3:21 adj. EBITDA of $482M and adj. EPS of $0.69 (GAAP $0.85) vs. Street estimates of $407M and ($0.03) as the results reflect highest-YTD COVID-19 volumes; MOH 3Q results a bit soft (IRF strong, Home Health and Hospice weak), full-year guidance trimmed

·     Semiconductors; GlobalFoundries (GFS) 55M share IPO priced at $47.00; TER receives three analyst upgrades with Hallum, UBS, and Cowen all raising to Buy equivalents – UBS says new disclosure around its customer exposure this year leads us to conclude that AAPL – TER’s biggest customer – is now de-risked; PI posted better-than-expected Q3 results, exceeding both revenue and earnings estimates despite ongoing supply constraints that continued to prevent the company from meeting strong customer demand; KLAC delivered a strong beat-and-raise quarter and raised its C4Q21 and C1H22 outlook and said expects total revenue will grow by a HSD% in C1H22 over C2H21; WOLF reported September quarter results ahead of expectations, while December quarter guidance was solidly ahead of consensus. Management highlighted strong demand for its power portfolio

·     Software movers; TWLO posted Q3 revenue growth of 65% Y/Y, well above consensus of 52% Y/Y on the surface, but decelerating organic revenue growth of 38% (vs. 50% in Q2), weak Q4 guidance weighed on shares; NOW reported a strong 3Q with revenue, billings, cRPO, and operating income coming in above expectations and net new ACV continues to accelerate, but shares slipped early as 4Q subscription billings guidance of +26% y/y disappointed; DDOG with analysts positive on the infrastructure software company in the wake of its user conference, where it unveiled new products; CHKP beat estimates with a slight gain in Q3 profit and raised its 2021 estimates amid rapid growth in its consolidated cyber security platform

·     Consumer Staples; HSY 3Q adj EPS $2.10 vs est. $2.00 on sales $2.36B vs est. $2.33B, guides FY adj EPS $6.98-7.11 vs est. $6.91 that reflects stronger than anticipated consumer demand, an improved tax outlook and optimized brand investment; TAP Q3 EPS $1.52 on sales $2.82B vs est. $2.92B; BUD rises as it posted strong Q3 sales with revenue $14.27B above est. $13.61B, adj EBITDA $5.1B vs est. $4.96B (+3% vs est. -1.17%) along with beats against estimates for organic rev +7.9% and volume growth +3.4%, raised the lower end of its FY21 adj EBITDA guidance to +10-12% from +8-12%, and MO also said it’s not planning to sell its investment in the world’s biggest brewer after review that preceded expiration of lock-up, eliminating what analysts perceived was on overhang on the stock; MO 3Q adj EPS $1.22 vs est. $1.26 on revenue $5.53B vs est. $5.62B, narrows FY adj EPS guide to $4.58-4.62 from $4.56-4.62 vs est. $4.62; KDP Q3 adj EPS 44c was in-line with consensus on sales $3.25B vs est. $3.17B, reaffirmed FY21 adj EPS outlook while raising sales growth forecast to +7-8% from +6-7%; PPC Q3 adj EPS 67 missed est. 73c on sales $3.83B vs est. $3.69B; FDP is raising prices on bananas, pineapples, and fresh-cut fruit November 1 due to inflationary and supply chain pressures

Stock GAINERS

·     CAT +3%; Q3 profit and revenue topped analysts’ estimates, helped by higher sales volume on strong demand for equipment and services, as well as favorable prices

·     DBGI +79%; rises announces it launched DSTLD on Amazon Prime

·     F +10%; rises on better-than-expected 3Q earnings report which featured stronger than expected revenue, margin, EBIT, EPS, and FCF and reinstates dividend

·     HCWB +76; as receives FDA clearance to proceed with phase 1b clinical trial for immunotherapeutic HCW9218 for pancreatic cancer

·     IFRX +30%; was upgraded to strong buy at Raymond James based on new data from a high dose (2400mg biweekly) cohort of an open-label Phase 2a PoC study in pyoderma gangrenosum

·     LC +29%; Q3 EPS $0.26 vs est. $0.03 on revenue $246.2M vs est. $221.2M; sees Q4 revs $240M-$250M vs est. $235.7M, raised FY view for revenue to $796M-$806M from $750M-$780M

·     MIME +6%; after the WSJ reported late yesterday the company is working with advisers to explore a sale or potentially take a big investment

·     MRK +3%; reports adjusted earnings of $1.75, topping the $1.55 estimate while raises and narrows 2021 guidance for revenue and profit to $47.4 bln-$47.9 bln and $4.71-$4.76 per share respectively

·     OSTK +17%; a winner in online retail after top and bottom line beat and upbeat commentary

·     SNBR +6%; posted Q3 comps and EPS well above expectations, and strong double-digit demand growth continuing

·     TER +11%; receives three analyst upgrades with Hallum, UBS, and Cowen all raising to Buy equivalents – UBS says new disclosure around its customer exposure this year leads us to conclude that AAPL – TER’s biggest customer – is now de-risked

·     WOLF +28%; reported September quarter results ahead of expectations, while December quarter guidance was solidly ahead of consensus. Management highlighted strong demand for its power portfolio

Stock LAGGARDS

·     ABMD -4%; after Q3 EPS beats but cutting year sales view to $1.01B-$1.03B from $1.03B-$1.05B (below est. $1.03B) citing Delta variant and hospital labor shortages

·     ALNY -16%; shares tumble after Q3 revenue miss ($187.6M vs. $218M est.) and CEO change

·     EBAY -5%; falls amid mixed views following its lighter revenue forecast, while the co also expanded its stock buyback program.

·     EW -3%; slips on Q3 miss and commentary that October trends have not yet improved, as well as a slightly softer than expected 4Q guide

·     NOC -7%; continued weakness in defense stocks this earnings season as NOC joins recent declines in RTX, LMT after Q3 revs missed views saying labor issues and supply chain impacted qtr

·     RFL -79%; tumbles after a saying a Phase III trial of CPI-613 (devimistat) in patients with relapsed or refractory acute myeloid leukemia failed to meet its primary endpoint

·     TDOC Q3 revenue, visits, and adjusted EBITDA beat consensus, but midpoint of the adjusted EBITDA guide for 2021 is below consensus, and membership of 52.5M lives was slightly behind consensus

·     TIGR, FUTU tumble -15%; shares slide after a Peoples Bank of China official called cross-border online brokers illegal in an article

·     TWLO -14%; posted Q3 revenue growth of 65% Y/Y, well above consensus of 52% Y/Y on the surface, but decelerating organic revenue growth of 38% (vs. 50% in Q2), weak Q4 guidance weighed on shares