Mid-Morning Look

Friday, September 03, 2021

U.S. stocks slump initially after the Labor Department’s employment report for August showed that a weaker-than-expected 235K jobs were created (well below the 725K est.), even as the unemployment rate fell to 5.2% from 5.4% in the prior month. The data raises some questions about the timing and pace of the Federal Reserve’s plans to remove monetary policies, while also raises the question of how well the economy is growing jobs in the aftermath of the pandemic. With that being said, the resiliency of stocks continues to defy the odds with major averages bouncing nicely (on light volume) on the final Friday of the summer and ahead of the long holiday weekend. There were also a handful of other negative headlines for today: 1) jobs headline miss obviously disappoints, 2) Democrats discussing taxes on stock buybacks, excess CEO pay, 3) news yesterday that Senator Joe Manchin is demanding a “strategic pause” in action on President Joe Biden’s economic agenda, potentially imperiling the $3.5 trillion tax and spending package; 4) also more China regulation news overnight on entertainment industry. But none having any negative effect thus far. Markets focusing on strong tech earnings overnight with software names MDB, GWRE, OOMA, PD, and DOCU all giving a boost to the space on their results. The U.S. dollar weakened further after a much softer than the payrolls report that is likely to keep the Federal Reserve on hold in scaling back its massive stimulus measures. Rising COVID-19 cases in recent weeks have brought on concerns the economic recovery could stall. Bitcoin and Ethereum prices jumping in crypto sector.

Economic Data

·     August Nonfarm payrolls reported at 235K (big miss) vs. est. 728K (prior reading revised to 1.053M from +943K); Private payrolls rose 243K vs. est. +665K jobs added (prior month revised to 798K from+703K in July); Manufacturing payrolls rose 37K vs. est. 25K

·     The unemployment rate falls to 5.2%, in-line with estimates and down from 5.4% in July; Average hourly earnings rose +0.6% well above est. +0.3% MoM and rose 4.3% YoY vs. est. +4.0% Yoy

·     ISM Non-Manufacturing index for Aug in-line. U.S. services industry activity grew at a moderate pace in August, as the ISM said its non-manufacturing activity index slipped to 61.7 last month after racing to 64.1 in July, which was the highest reading in the series’ history, but in-line with views. Supplier deliveries fell to 69.6 last month from a reading of 72.0 in July and prices paid by services industries fell to 75.4 after surging to near a 16-year high of 82.3 in July.

·     Markit August final composite PMI at 55.4 (vs flash 55.4) and Final services PMI at 55.1 (vs flash 55.2)

Sector Movers Today

·     Software movers; DOCU posted solid 8% beat to Q2 billings, which grew 47% Y/Y, net expansion rate remained elevated at 124% and new customer additions were in-line with FY’21 levels; MDB (shares rise) reported smaller-than-expected Q2 loss as revs above Street estimates ($198.7M vs. $184.2M) helped by 83% yoy rev growth of its cloud database service, Atlas and guided Q3 revs $202.0M-$204.0M vs. est. $198.3M; PD (shares rise) reported a solid qtr as billings growth of 36% was above Street of 29%, a nice bounce back qtr while NRR reaccelerated from 121% to 126% on stronger cross-sell (Digital Ops +100% Y/Y) and 3Q rev guide of +29-32% was above Street of 27%; GWRE beat Q4 expectations with total revenue of $229.4mn vs. the Street at $222.4mn and guide of $218mn–$224mn and had 17 GWCP deals, a significant uptick from the 8 GWCP deals in F3Q while ARR was $582mn (+13% y/y) vs. guide of $562mn-$569mn

·     Retailers; OXM Q2 EPS $3.24 vs est. $2.33 and revenue $328.7M vs est. $308.2M; GM 64.3% vs consensus 63.0%; OM 22.0% vs consensus 16.6%; inventory (48%) y/y; guides Q3 EPS $0.20-$0.30 vs consensus ($0.25); JOAN slides as sales came in below expectations and the outlook for 2H has now moved lower (delay of events/ gatherings due to Delta), while Telsey downgraded due to limited visibility into the normalized demand level for arts & crafts, following a (29.9%) comp in 2Q21 that missed; TLYS Q2 EPS $0.66 vs consensus $0.51 and revenue $202.0M vs consensus $197.9M; comps +18.3% vs 2Q19; GM 37.0% vs consensus 34.1%; REAL reports August GMV ~$124.0M, +56% y/y and 41% vs 2019; AOV ~$477, +6% y/y and +8% vs 2019; says women’s shoes and women’s apparel were the fastest growing categories in August

·     Consumer Staples; CLX downgraded to Hold from Buy at Argus noting the company’s revenue has fallen from peak levels during the early months of the pandemic last year, with sequential declines in three of the past four quarters; SEC charges KHC and two former executives for engaging in years-long accounting scheme saying engaged in “accounting misconduct” to “improperly” reduce cost of goods from late 2015 to end of 2018; UTZ files $750M mixed securities shelf; Kellogg (K) said it plans to reorganize its North America supply-chain network to be more productive, help offset cost inflation and reinvest in its brands; BYND discloses resignation of COO Sanjay Shah, effective immediately

·     Pharma movers; AZN and the EU have agreed a C-19 vaccine supply & ended the litigation; the deal will ensure delivery of the remaining C-19 shots to EU countries; will deliver 60m doses by the end of Q3 & 135m by year end; Europe’s medicines regulator said on Friday it was reviewing if there was a risk of a rare inflammatory condition after inoculation with COVID-19 vaccines, following a report of one case with PFE shot; ARDX said data from its late-stage study showed co’s drug tenapanor providing “significant” phosphorus reduction in patients with chronic kidney disease on dialysis

Stock GAINERS

·     APOP +35%; announced the first ApoGraft transplantation in a Leukemia patient in the company’s clinical trial at Washington University in the U.S

·     CCJ +3%; upgraded to sector perform from underperform at RBC Capital, saying the combination of a rising spot price and a strong undercurrent of positive sentiment for the uranium sector may support elevated valuation multiples for the foreseeable future

·     GWRE +8%; beat Q4 expectations with total revenue of $229.4mn vs. the Street at $222.4mn and guide of $218mn–$224mn and ARR was $582mn (+13% y/y) vs. guide of $562mn-$569mn

·     IMPL +22%; said it received FDA approval for Trudhesa dihydroergotamine mesylate nasal spray for the acute treatment of migraine with or without aura in adults

·     MDB +22%; reported smaller-than-expected Q2 loss as revs above Street estimates ($198.7M vs. $184.2M) helped by 83% yoy rev growth of its cloud database service, Atlas and guided Q3 revs $202.0M-$204.0M vs. est. $198.3M

·     OOMA +13%; beat and raise; 2Q adj EPS $0.13 vs est. $0.09 on revs $47.1Mm vs est. $46.4Mm; guides 3Q adj EPS $0.08-0.11 vs est. $0.07, sees 3Q revs $47.8-48.5Mm vs est. $46.7Mm

·     PD +10%; reported a solid qtr as billings growth of 36% was above Street of 29%, a nice bounce back qtr while NRR reaccelerated from 121% to 126% on stronger cross-sell (Digital Ops +100% Y/Y) and 3Q rev guide of +29-32% was above Street of 27%

·     SAVA +2%; released a public statement regarding recent claims made against company saying they intend to defend ourselves & stakeholders against “false and misleading allegations”

Stock LAGGARDS

·     FBRX -79%; plunges after the company announced that its Phase II trial of FB-401 failed to the meet primary endpoint in atopic dermatitis

·     GS -0.5%; banks slipping on day – not much movement in yields since release of payroll data, 10-yr last up 3 bps to 1.324%

·     JOAN -13%; sales came in below expectations and the outlook for 2H has now moved lower (delay of events/ gatherings due to Delta), while Telsey downgraded due to limited visibility into the normalized demand level for arts & crafts, following a (29.9%) comp in 2Q21 that missed

·     SPCE -4%; extends yesterday declines after the FAA said it may not return SpaceShipTwo vehicle to flight, pending report or determines issues do not affect safety

·     YEXT -14%; as forecast a wider adjusted loss per share for fiscal year 2022