Mid-Morning Look

Thursday, September 09, 2021

Stocks are looking to snap their modest 3-day losing streak for the S&P 500 and Dow Jones Industrial Average as large cap tech once again remains the market leader (day in…day out). The number of Americans filing new claims for jobless benefits fell to the lowest level in nearly 18 months last week, helping the jobs outlooks while in central bank news, the ECB will dial back its emergency bond purchases a notch over the coming quarter, it said on Thursday, taking a token step towards unwinding its emergency aid. Several major U.S. airlines (AAL, DAL, LUV, JLBU, UAL) downgraded their financial forecasts Thursday, pointing to a slowdown in bookings as the spread of the Delta variant leads to a surge in Covid-19 cases. However, airline stocks unphased this morning, with much of the bad news baked in including other sectors in the reopen space (restaurants, theme parks, cruise lines and gaming among them). Same can be said for industrials (BA, CAT) and chemicals (PPG, SHW) which are rebounding after recent pullbacks. Oil prices rebound after falling more than $1 initially.

Economic Data

·     Weekly jobless claims fell to 310,000 below the est. 335K (last week revised to 345K from 340K); the 4-week avg fell to 339,500 from 356,250 prior week (previous 355,000); continued claims fell to 2.783 mln in latest week (vs. est. 2.744 mln and 2.805 mln prior week; the U.S. insured unemployment rate unchanged at 2.0%.

Sector Movers Today

·     Retailers; LULU a standout quarter as EPS of $1.65 coming in well ahead of $1.19 consensus and sales in Q2 were +61% Y/Y supported by triple-digit store growth & 4% Y/Y CC gain in eComm on top of +157% last year (FY2H guide topped prevailing consensus and implies low/mid-20%’s 2 year CAGR); Macy’s (M) upgraded to Outperform with $27 tgt at Cowen as forecast continued momentum from: more agile inventory and pricing management, data-centric loyalty, and personalization actions; GME Q2 revenue totaled $1,183B topping $1.12B est. while EPS loss of (-$0.76) missed the est. loss (-$0.67); ASO raised its full-year earnings forecast, citing improving profitability to $5.45-$5.80 from prior $4.15-$4.50 on better sales; JILL rises early on posting Q2 profit from loss year ago while Direct to consumer net sales, which represents 46.4% of total net sales, grew 11.3% over 2020 levels

·     Transports; airlines issue monthly outlooks: 1) UAL said it expects Q3 capacity to fall at least 28% compared with the same period in 2019, as bookings take a hit due to the rise in COVID-19 cases fueled by the Delta variant; 2) LUV said it sees October operating revenue down 20% to 30% vs 2019/expects q4 2021 capacity to increase about 60% YoY and to decrease about 5% vs. Q4 2019; 3) JBLU warned Q3 revs would be down 6% to 9% from the same period in pre-pandemic 2019, compared with previous guidance of a decline of 4% to 9% and sees bookings softness extending in to 4q trough period; 4) AAL cut Q3 rev outlook to be down 24% to 28% from the same period in pre-pandemic 2019, compared with previous guidance of a 20% decline (Street est. at -22.5% decline) and now expects adjusted pre-tax margin to be negative 10% to negative 14% versus previous guidance of negative 3% and negative 7%; 5) DAL now expects its adjusted total revenue in September to be near the low end of its prior guidance, which estimated a decline of 30% to 35% compared with the pre-pandemic September-ended quarter in 2019

·     Hardware, Components & Services; CSCO downgraded to EW from OW at Morgan Stanley, but up tgt to $59 from $57 saying while they remain confident in growth trajectory, achieving our bull case requires a stronger software growth trajectory, leaving us on the sidelines heading into upcoming Analyst Day; BASE shares tumble as beats Q2 revenue expectations, but non-GAAP net loss per share of $1.54 comes in wider than estimate of a $1.23 loss on weak rev outlook ($29.3M-$29.5M vs. est. $30.61M); NPTN upgraded from Underperform to Market Perform at Raymond James as expect NeoPhotonics takes a small portion of the ZR transceiver market, but a majority share of lasers, which helps profitability; APP upgraded to Buy from Hold with $90 tgt at Stifel saying positive stance is based on our increased confidence in the software platform outlook, which includes upside from the Adjust acquisition

Stock GAINERS

·     CRDF +18%; said that data from a colorectal cancer drug trial showed “robust objective response rate and progression free survival

·     CURV +23%; 2Q adj EPS $0.36 vs est. $0.16 on sales $332.9Mm vs est. $294.7Mm; guides 3Q sales $305-315Mm vs est. $305.1Mm

·     CZR +2%; announced an agreement to sell the non-US assets of William Hill to 888 Holdings for approximately GBP 2.2B

·     LULU +12%; standout quarter as EPS of $1.65 coming in well ahead of $1.19 consensus and sales in Q2 were +61% Y/Y supported by triple-digit store growth 9raised guidance)

·     MRNA +4%; said it plans to announce the development of a vaccine candidate that will protect against Covid-19 and the flu, to be known as mRNA-1073. The company will also announce a pediatric vaccine called mRNA-1365, which combines its experimental respiratory syncytial virus vaccine with its experimental human metapneumovirus vaccine.

·     RH +8%; reported 2Q results that beat expectations on the top- and bottom-lines and margins, +470bps of EBIT margin expansion (to +26.6%) and raised its 2021 outlook for the second time this year

·     WLTW +3%; outlined its strategy to drive long-term growth – grow at or above market in priority areas, simplify business to increase agility and effectiveness.

Stock LAGGARDS

·     BASE -26%; as beats Q2 revenue expectations, but non-GAAP net loss per share of $1.54 comes in wider than estimate of a $1.23 loss on weak rev outlook ($29.3M-$29.5M vs. est. $30.61M);

·     CSCO -1%; downgraded to EW from OW at Morgan Stanley, but up tgt to $59 from $57 saying while they remain confident in growth trajectory, achieving our bull case requires a stronger software growth trajectory

·     GME -9%; Q2 revenue totaled $1,183B topping $1.12B est. while EPS loss of (-$0.76) missed the est. loss (-$0.67)

·     HGEN -50%; tumbles after U.S. FDA declines emergency use approval for COVID-19 drug; said the FDA declined to grant emergency use authorization for its drug, lenzilumab, to treat patients hospitalized with COVID-19

·     IVC -38%; cuts FY21 revenue view to down 1% to up 2% from up 4%-7%; sees FY21 adjusted EBITDA $30M-$37M and sees FY21 free cash flow usage $10M-$20M

·     NTES -2%; as China’s focus on reining in the power of tech companies continues/a report in the South China Morning Post notes that the government will halt approvals for new online games

·     SAM -8%; said the market for hard seltzer products has continued to experience decelerating growth trends and believe there will be continuing uncertainty about hard seltzer demand trends for remainder of 2021 (withdraws year guidance as sees year outlook below prior view)