Closing Recap

Wednesday, April 21, 2021

Equity Market Recap

·     U.S. stocks snapped their modest two-day losing streak, rebounding across the board with nine of eleven sectors rising (utilities and comm services slid) as earnings season heats up, finishing the day at the best levels of the day. The “reopen” trade rebounded with gains in cruise lines, airlines, hotels, and leisure, while tech popped behind a rebound in semi’s, though NFLX shares dropped on disappointing sub numbers and outlook. After a brief pop back above the 18 level yesterday, the CBOE Volatility index (VIX), or fear index, ended near the lows, falling over 8%. Momentum related sectors, which have come under selling pressure in recent weeks, saw strong bounces today (solar, electric vehicles, media, among them). The recent resurgence of Covid infections in parts of Asia and South America, which have renewed concerns of tighter restrictions and impacts to economies pressured oil prices today, while gold saw its highest settlement in 2-months. There were no major economic data points today.

·     Top stock/sector movers; NFLX plunges after its disappointing subscriber growth and forecast as the worst stock in the S&P, while NEE plummets on its revenue miss and HAL rounds out the worst performers in the index after its earnings; DISH soars after announcing it will build a 5G network on AMZN’s AWS cloud platform; other earnings movers include ISRG, EW soaring on after beating estimates in MedTech/devices, ASML, CSX, THC, TEL, ANTM rise; losers include KNX, VZ; NCLH spikes after Goldman upgrades to Buy on its industry leading capacity growth and RCL CCL also climb; airlines UAL, AAL, LUV, ALK fight off a red open to turn green and outperform on the day; WBT jumps over 40% after being acquired by competitor MIDD in a $4.3B deal; DISCA rises for the first time in 8 sessions and $VIAC $VIPS $GSX soar as Archegos names outperform.

Commodities, Currencies and Treasury’s

·     Gold futures rose to a 2-month high, up $14.70 or 0.8% to settle at $1,793.10 an ounce, the highest levels since Feb 24^th as treasury yields continue to ease off, as well as seen as a safe-haven with the growing sense of unease over the surging COVID-19 cases in Asia. May silver holding gains, near high’s +2.8% at $26.56. The U.S. dollar index (DXY) was little changed around the 91.15, while Treasury yields remain subdued at 1.56%, helping boost precious metals.

·     Oil prices fell for a second day, as WTI crude declined -$1.32, or 2.11% to settle at $61.35 per barrel, weighed down by renewed concerns that surging COVID-19 cases in India will drive down fuel demand in the one of the world’s largest oil importers. Unexpected bearish weekly inventory data also didn’t help matters, as the EIA showed a weekly build vs. an expected draw. Russian Deputy Prime Minister Alexander Novak said that a OPEC+ meeting of oil producers next week may confirm or tweak output plans following its decision to ease production curbs.

Sector News Breakdown

Consumer

·     Retailers; in toy space, MAT upgraded to Buy from Hold and raise tgt to $25 from $14 at Berenberg, while raise tgt on HAS to $115 from $99 saying have toy makers come through the pandemic stronger than when they entered and are attractively priced; Cowen raised target on AEO to $40 from $31 after management meetings instilled confidence on earnings growth and sustainable margin expansion; Piper expects CROX to report a beat and raise in Q1 and said recent share consolidation on concerns of a 2H slowdown is overblown as the brand moved higher in its spring GenZ survey of preferred footwear and the company has increased its pricing

·     Auto sector; AZO was downgraded to underperform from neutral at Bank America saying it was a larger relative COVID winner and has less exposure to the DIFM recovery channel and think shares have outperformed and do not appear to be pricing in medium-term deceleration risk; LAD beat top and bottom line estimates for Q1 with the highest Q1 revenue and EPS in co’s history saying new vehicle retail sales up 59.7%, while used-vehicle retail sales increased 54.6%; for TSLA, German newspaper Handelsblatt says, TSLA start of production at Berlin Grünheide factory might be delayed significantly; electric vehicle stocks rebounded (FSR, NIO, CHPT, BLNK)

·     Consumer Staples & Restaurants; PEP upgraded to Buy from Neutral at UBS with $165 tgt as believe it is only at the mid-point of an investment cycle that will yield a sustainable improvement to top and bottom-line growth; JACK was downgraded to Hold from Buy at Deutsche Bank; IPAR Q1 revenue $198.5M vs consensus $159.7M; guides FY EPS $1.65 vs prior $1.40-1.45 and consensus $1.47 and revenue ~$700M vs prior $650-660M; PG downgraded to Neutral at Citigroup saying they came away from the earnings call feeling that the next several couple quarters will likely see incremental pressure and that results could be bumpy; Taco Bell is testing a meat alternative of it own in addition to the test of a BYND it plans to launch this year.

·     Casinos, Gaming, Lodging & Leisure sector; in cruise sector, NCLH upgraded to Buy from Neutral at Goldman Sachs and raise tgt to $37 from $27 due to the company’s industry leading capacity growth, exposure to more aspirational consumers, and the longest liquidity runway; RRR downgraded to Neutral at Goldman Sachs while update estimates to reflect sequentially in-line to slightly better brick and mortar results given better state gaming reports and loosening restrictions; in online Sports Betting (PENN, DKNG, MGM), Bank America said OSB handle for states that have reported for March is +478% Y/Y and +14% M/M; iGaming GGR is +250% Y/Y and +22% M/M

Energy

·     Energy stock movers; group was pressured on Tuesday as attention turned to earnings and inventory data this morning; in oil services; two major names report today (HAL, BKR) as each said North American oil markets were showing signs of recovery as both beat expectations for first-quarter earnings, while revenue was down year on year for both companies as oil and gas customers remain committed to lower spending; HALEPS of 19c beat by 2c as revenue of $3.45B was up 6.6% from Q4 but down from $5B YoY (est. $3.36b); BKR Q1 EPS of 12c beat by a penny, while adj operating income fell to $270 million for the quarter from $462 million last quarter.

·     Inventory data: the API showed a build of 436K barrels of oil for the latest week; gasoline inventories showed a draw of 1.62M barrels, distillate inventories show a build of 655K barrels and Cushing inventories show a draw of 1.28M barrels. The EIA said weekly crude stockpiles rose +0.6M barrels vs. -3.0M consensus, -5.9M last week.

·     E&P Pipelines: BCEI was upgraded to buy and tgt to $40 from $30 at Truist saying it generates higher than group FCF/EV Yield of 18% vs 9%; MRO posted prelim Q1 Q1 production totaled 345K net boe/day with sales of 341K net boe/day, including oil output of 172K net boe/day with sales of 168K net boe/day; Q1 cash flow from operations totaled $610M-$630M

·     Utilities & Solar; KeyBanc downgraded POR and DTE to Sector Weight on valuation after both shares outperformed the S&P and UTY in Q1, also downgraded ES to Sector Weight on valuation as it is now trading above its historical premium to UTY, raised its price target on NWE to $72 as they see more room to run as it still trading at a historical discount to peers compared to its historical valuation, said PEG can trade higher as it goes through a strategic transition, and upgraded FE to OW with a $42 price target that implies shares moving above their range since last summer’s Ohio bribery scandal; Bank of America upgraded FSLR to Neutral with an $86 target; Truist upgraded BCEI to Buy and raised their price target to $40 from $30 as it trades at 2.5x 2022E EV/EBITDA vs small-cap peers at 4.4x despite generating 18% FCF/EV yield vs the group’s 9%; NEE reported Q1 adj EPS 67c vs est. 58c on revs $3.73B that widely missed est. $4.9B and fell from $4.61B YoY (down ~19%), the company’s first rev miss in 5 quarters, reiterated its FY21 EPS guidance $2.40-2.54, and said it expects to grow 6-8% in 2022 and 2023 from this year; NEP similarly beat on EPS ($2.66 vs est. $0.40) but missed on revs $246M vs est. $290.9M) and lifted its run rate for adj EBITDA in the upper end of its previously announced range $1.44-1.62B

Financials

·     Bank movers; SBNY posted Q1 EPS $3.24 vs. est. $2.85, book value per share $102.69, NII $406.5M (+16.7%), and deposits $73.97B, a $10/66B increase (+16.8%); FULT Q1 EPS 43c vs. est. 35c, NII $164M, Net interest margin 2.79% (vs 2.75% 4Q20); FHN Q1 adjusted EPS 51c beat consensus 37c, NII $508M vs $303M YoY; HWC recorded Q1 EPS $1.21 vs est. $0.97, NII $237.5M vs est. $233.8M, revs $321.6 vs est. $314.6M; BOKF Q1 EPS $2.10 vs est. $1.93 on revs $444.3M vs est. $470M, with NII $280.4M; PACW Q1 EPS $1.27 on sales $306.1M vs estimates 91c on $294.05M; UCBI Q1 EPS 83c on rev $189.1M that both topped consensus views; IBKR reported Q1 EPS 98c on revs $893M, both of which topped estimates (91c on $736.6M), customer accounts 1.33M (+74% YoY), total DARTs 3.31M (+128% YoY), and customer equity more than doubled YoY to $330.6B; NDAQ Q1 adj EPS $1.96 vs est. $1.73 on revs $851M vs est. $814.5M as its market services unit revenue jumped over 20% from last year to a record $338M and its listing services revenue grew 31% and also raised its quarterly dividend to 54c from 49c

·     Insurance; EQH and MET initiated Buys in insurance sector, Neutral ratings on AFL, LNC, and PRU at UBS as prefer stocks with clear paths to portfolio simplification, which they see as the best strategy to generate value in this macro-sensitive, capital intensive and highly regulated sector; WRB Q1 EPS $1.23 vs. est. 81c on revs $2.16B (+19% YoY) vs. est. $2.11B, net premiums written $2.05B (+11% YoY), and net premiums earned $1.85B (+9.4% YoY)

·     FinTech & Payments; FUTU 9.5M share Secondary priced at $130.00; Cowen raised estimates on 15 of the 17 payment companies they cover and are most favorable on WEX, FIS and GPN but also sees meaningful upside for networks V (Visa), MAannounced it purchased online returns experience company Returnly in a deal valued at approximately $300M

·     Bitcoin news; Deutsche Boerse removed COIN from Frankfurt trading; Rosenblatt initiated COIN with a Buy rating and $450 target given the long-term adoption and acceptance of cryptocurrency, though they are more cautious in the short-term as the stock faces downside risk from a pullback in crypto prices; Following yesterday’s earnings report, SI was maintained at Outperform by Wedbush given its torrid deposit and transaction growth, strong network effects, and rapidly expanding digital currency market

·     Mortgage Services; RKT downgraded to Neutral from Buy and HMPT downgraded to Underperform from Buy at Bank America as sees a less favorable interest rate backdrop and intensifying competition pressuring margins; Barclays downgraded COOP, LDI to Equal-Weight as rates moving higher is a risk to refinancing, and these names plus RKT have the most exposure to refinancing and the most downside risk to earnings if refinancing falls below expectations, and they also initiated UWMC at Overweight as shares have fallen 43% YTD after going public via SPAC in January (S&P +10.5%) to now trade at an attractive valuation and have a strong near-term earnings outlook with prospects to increase its market share in a growing channel; BTIG was positive on OPEN, saying the company should be on track for a strong Q1 with the potential to top its Q1 $600-625 rev guide as they see no sign that the tight housing market is hurting the company’s ability to re-ramp; BTIG downgraded NLY to Neutral on valuation and limited upside with the name trading at one of the highest dividend/book value hurdle rates

·     REITs; Wells said their broker checks suggests healthy leasing activity in data centers and they now see potential upside to guidance in EQIX as a beneficiary of the expected resurgence in enterprise activity and say QTS offers attractive risk-reward with momentum in its hyperscale business and potential enterprise upside; Wells also reiterated HIW as their top office pick and upped its pt to $49 from $48 given its strengthening cash flow profile, exposure to markets with positive population migration trends, and a lack of major upcoming expirations; BTIG downgraded IRT to Neutral after shares hit their $16 target and upgraded BRG to Neutral from Sell after shares hit their previous $9.50 target; Citi initiated GLPI at Buy with a $50 target as they believe shares will continue to benefit from heightened institutional interest in the US casino space, proven resilience of regional gaming revenues, internal growth opportunities, and external opportunities from new entrants to the space as well as existing operators

Healthcare

·     Biotech & Pharma movers; PFE said it has identified in Mexico and Poland the first confirmed instances of counterfeit versions of the Covid-19 vaccine it developed with BNTX; Citigroup opened a 90-day positive catalyst watch on both ABBV and BMY saying the stocks have been held back in large part by concerns that increased rates of cancer and CVD seen in the recent PFE ORAL Surveillance trial data with competing JAK inhibitor Xeljanz would result in lower company competing revs; KIN announced positive results in a study of its long-acting IL-31 antibody which treats dogs affected by atopic dermatitis; ZLAB 4.78M share Secondary priced at $150.00

·     MedTech Equipment; EW delivered Q1 results ahead of consensus, noting a restart to more normalized patient flow and clinical trials as revs of $1.22B (up 5% ex-FX) exceeded consensus’s $1.16B, including TAVR revenue of $791.7M (up 4% ex: FX) that surpassed the Street’s $770.3M estimate; ISRG upgraded at both Baird and Oppenheimer as the co smashed 1Q estimates and reinstated guidance for first time since pandemic onset (revenues of $1.29B, ahead of our/consensus estimates of $1.20B/$1.11B, on OUS growth, especially in capital equipment)

·     Healthcare Services; UNH upgraded to Buy with $450 tgt at Argus reflecting robust membership growth in its managed care businesses and a solid backlog in the Optum segment, UNH has raised its 2021 guidance; in managed care as well, ANTM reported 1Q results, with revenue light of consensus ($32.1B vs. $32.97B) though EPS beat ($7.01 vs. $6.38), with a solid beat on Benefit Expense (85.6% vs. 87.7% cons) and raised its ’21 EPS guidance in hospitals, THC posted Q1 EPS beat which reflected strong pricing despite sequentially lower volumes across the enterprise and raised FY21 revenue and EBITDA guidance by $200mn (+1%) and $100mn (+3%) at the midpoint, respectively; in the dental industry, Credit Suisse raises price tgts for NVST to $49 (from $46), ALGN to $693 (from $630), XRAY to $71 (from $66), HSIC to $75 (from $74), and PDCO to $41 (from $40) on greater conviction in growth prospects across the industry based on our survey

Industrials & Materials

·     Aerospace & Defense; CACI awarded prime position on $12.6 billion multiple-award defense intelligence agency contract; SPCE shares remained weak to start (came into day down 9 of last 10 sessions) following several high-profile holders selling shares – Branson, Wood – but along with many of the names that sold off recently, found upside momentum midday

·     Industrial & Machinery; MIDD agreed to buy the fellow food-service-equipment maker WBT in a stock swap valued at about $2.93 billion as it will issue 0.1240 share, valued at about $20.69 based on Tuesday’s closing price of $166.83 https://on.mktw.net/3gr3mLp; Raymond James upgraded FSS to Strong Buy from Market Perform on accelerating demand in key verticals even before accounting for a potential infrastructure bill, though they say the stock would be one of the biggest beneficiaries of any bill given its substantial exposure to public revenues and industrial/transportation infrastructure.

·     Transports; The IATA said it sees up to $48B 2021 airline industry loss vs. $38B earlier; railroads remain volatile (follows CNI competing bid for KSU yesterday of $325, topping the prior $275 bid from CP) as CSX reports mixed Q1 results as EPS of 93c missed the 95c estimate while revenue fell 1% to $2.81B vs. est. $2.78B as intermodal and other revenue growth was more than offset by declines in merchandise, coal, and fuel surcharge revenues; HTLD and KNX among trucking stock out with earnings today, while KNX raises FY21 adjusted EPS view to $3.45-$3.60; The Baltic Dry Index surges to its highest in more than a decade (+7.1%), powered by a jump in the Capesize vessel segment on increasing iron ore shipments from Brazil.

·     Metals & Materials; copper stocks FCX cut to Neutral from Buy with a price target of $36, up from $30 citing valuation following the stock’s recent rally and SCCO downgraded to Sell from Neutral in anticipation of a rebalancing of the copper market into 2H21, both at UBS, but notes the correction in FCX will likely be offset by higher Grasberg volumes, cost dilution and possibly higher dividends; precious metal stocks outperform behind gains in gold, silver palladium

Technology, Media & Telecom

·     Internet; NFLX delivered 1Q paid net adds of 3.98M, which was well below consensus expectations and the company’s guidance of 6.00M while subscriber growth outlook fell short as expects to add just 1 mln new streaming customers in Q2, below Street expectations of nearly 4.8 mln (shares of DIS, FUBO, ROKU weak in sympathy); AMZN tgt raised to $4,200 at Oppenheimer and raises AWS revenue estimates ahead of 1Q results as remains best large cap pick; Israel’s Finance Ministry announces that AMZN Web Services and GOOGL Cloud are the winners of the four-phase Nimbus project valued at $1.2B

·     Semiconductors; ASML raised its 2021 outlook, and said its 2022 prospects already look stronger than forecast, as the increase in output this year will come from immersion lithography systems and deep ultraviolet lithography machines while its EUV is constrained by supply limitations; SKYT 6.96M share IPO priced at $14.00; NVDA weak as the Korea Fair Trade Commission said it will intervene in a proposed $40B merger between Nvidia and British chip designer ARM Holdings, as the approval of the proposal may hurt fair market competition; LAZR shares jumped on reports the company hired Alan Prescott from TSLA as its chief legal officer and Trey Campbell of INTC as its vice president of investor relations

·     Software movers; MSFT added to catalyst watch list at Citigroup saying the combination of reseller survey and channel checks gives us incremental confidence that MSFT can drive revenue upside across key three segments; DV 13.3M share IPO priced at $27.00; PATH 23.89M share IPO priced at $56.00; RPD acquired Velociraptor, a leading open-source technology and community used for endpoint monitoring, digital forensics, and incident response; in software preview, Citigroup said see the best set-ups for MSFT, ANSS and DT while remain cautious on Sell/High Risk-rated FSLY and PLTR upgraded to Buy with $180 tgt at Jefferies as believes work-from-anywhere is "here to stay which is a powerful shift" for the company to capitalize on

·     Telecom & Media movers; Dow component VZ reported higher Q1 earnings and revenue but reported phone net losses ($1.31/$32.9B vs. est. $1.29/$32.46b) – reported a loss of 178,000 phone net losses for its whole wireless business and said it had 102,000 Fios net additions; AMZN announced that DISH selected AWS as its preferred cloud provider and will construct its 5G network on AWS, part of a strategic collaboration; ANGI 1H revenue estimates raised at BTIG after the co reported a strong March comp and data showing momentum carrying into April; ROKU rebranded the content it acquired from failed venture Quibi as "Roku Originals," which will also served as the brand for its original programming