Closing Recap

Tuesday, April 27, 2021

Equity Market Recap

·     Stocks were stuck in neutral most of the afternoon, trading in a narrow range ahead of a busy tech earnings onslaught after the close with Microsoft, Google parent Alphabet, chip maker AMD, along with several other chip makers (TXN, MXIM) expected. Along with tech, biotech giant and Dow component Amgen as well as Starbucks are expected to post earnings. As for today, lackluster results from Tesla and 3M (warned on rising costs) dragged main indexes lower on Tuesday. Coming into numbers tonight, out of the 153 S&P components that have reported, 88% have beaten estimates with average earnings beat of 17.2% (and Q2 estimates raised 60%) as per CNBC. Among top gainers today were Transports behind UPS results and homebuilders on PHM results with each sector posting record highs. The S&P 500 and the Nasdaq ended at record levels on Monday, with the tech-heavy Nasdaq completing a full recovery from its 11% correction that began in February. Economic data again coming in strong, with Consumer Confidence jumping from prior month and well above consensus views. Markets also brace for the 2-day FOMC policy meeting which concludes tomorrow afternoon, as Goldman Sachs says amidst low core inflation, unemployment rate at 6%, and still higher broader slack, they do not expect incremental color on tapering. Treasuries slip, with yields rising across the curve as the 10-year hit 1.62% following a weak 7-year government auction, while the dollar was steady.

·     Top sector/story movers; UPS surges to all-time highs after its EPS and rev beat, boosting Dow Transports to record levels and sending shares of FDX, XPO higher as well; PHM similarly hits ATH on its earnings report, lifting XHB Homebuilders and peers TOL, DHI, THB to new record highs, and MTH, LEN, KBH gain in sympathy; CROX shares hit triple digits for the first time ever after it reported a blowout quarter and doubled its previous FY revenue growth guidance and HAS rises on its own EPS beat as retail outperforms; TSLA slides despite beating EPS expectations with record quarterly revenue; other earnings movers include MMC touching ATH, AAN highest since its November spinoff, WM, UHS rising and MMM, GE, NXPI, CDNS, LLY slipping; PENN, ABNB, DASH jump after Needham initiates Buy ratings; Philly semi index (SOX) little profit taking ahead of a busy night of earnings in chip space: AMD, MXIM, TXN, TER.

Economic Data:

·     Consumer confidence index for April 121.7 (well above consensus 113.0) while March revised to 109.0 (previous 109.7); the expectations index 109.8 in April vs. March revised 108.3 (previous 109.6) and present situation index 139.6 in April vs. March revised 110.1; the jobs hard-to-get index 13.2 in April vs. March 18.5

·     S&P Case-Shiller Feb 10-City Home Price Index up 11.7% Year Over Year; S&P Case-Shiller Feb 20-City Home Price Index up 11.9% Year Over Year; S&P Case-Shiller Feb U.S. National Home Price Index up 12.0% Year Over Year

Commodities

·     Oil prices edge higher as WTI crude rises $1.03 or 1.66% to settle at $62.94 per barrel, ending just off the highs ($63.05) and more than a dollar off the lows $61.91) as commodity prices in general edge higher. Oil was helped by reports that OPEC ministers have decided in a teleconference to re-affirm their support for allowing members to start raising production. Gold prices edge lower, down -$1.30 to settle at $1,778.80 an ounce, holding to a tight trading range ahead of the Federal Reserve’s monetary policy announcement due Wednesday.

Currencies & Treasuries

·     Treasury yields edge higher with the 10-year trading above 1.61% mid-afternoon following a tepid 7-year auction and ahead of the FOMCE rate decision meeting results tomorrow. The U.S. Treasury sold $62B in 7-year notes at a yield of 1.306% vs. 1.305% when issued prior, with a bid-to-cover at 2.31 and indirects awarded 57.07% of notes, directs 20.6%. The U.S. dollar, which has erased just about all of March’s gains, was up slightly vs. most currencies.

Sector News Breakdown

Consumer

·     Retailers; HAS announced that it has entered into a definitive agreement to sell Entertainment One Music for an aggregate price of $385M in cash and posted mixed 1Q results as adj EPS $1.00 beat est. $0.65 on weaker revs $1.11B vs. est. $1.17B; CROX big Q1 beat (EPS $1.49 vs. est. $0.88 and revenue $460.1M vs. est. $415.8M) and guides FY revenue growth +40%-50% vs prior +20%-25% and consensus +25.2% and OM 22%-24% vs prior 18%-19%; GME announces completion of previously announced ATM offering

·     Auto sector; TSLA Q1 adj EPS 93c vs. est. 80c; Q1 revs $10.38B vs. est. $10.29B – largely in line with expectations as auto GMs were marginally better than expectations, but higher EV credits (+$518M vs. $337M) and a gain from a sale of bitcoin ($101M) were largely offset by higher opex ($370M) resulting in inline EPS; LYFT shared details of its agreement to sell its Level 5 Self Driving division to Woven Planet, a subsidiary of Toyota, for $550MM; ABG posted Q1 EPS and revenue beat as Same store – Total revenue +18.3% and gross profit +21%, New vehicle revenue +21.6% and gross profit +60%, Used vehicle retail revenue +20.7%; in online auto, Wells Fargo said with eAuto Q1 prints around the corner, checks are coming up roses, yet share performance has been volatile in the last month (CVNA +14%/+29%/-6% vs. SPX +5%) on the back of rising rates, value over growth positioning and lingering concerns around inventory supply; RBC Capital raises ORLY estimates and price target (to $595) ahead of Q1 results

·     Consumer Staples; EL raise TP to $335 from $290, ELF tgt to $31 from $22, IFF TP to $150 from $145, COTY raise TP $$10 from $6 all at Stifel as see trading upside from current levels for companies benefiting from reopening; in food service (USFD, SYY, PFGC), Wells Fargo said earnings are rapidly approaching with reporting set to kick off in the first week of May and they are positive on the group into the prints

·     Restaurants; TXRH downgraded to neutral at Baird after a strong year-to-date move (+28% vs. S&P 400 +20%) and with some emerging risk factors; JACK shares undervalued and under-appreciated says Oppenheimer as raise tgt to $135; WTRH partners with nation’s largest restaurant franchisee; adds Applebee’s to delivery platform; DASH said it lowered some fees for restaurants to use its platform after many have struggled to stay in business during the recession.

·     Casinos, Gaming, Lodging & Leisure sector; in casinos (WYNN, MGM, MLCO) Bernstein noted Macau GGR during the week of April 19-25 remained largely flat w/w, mainly due to stable mass traffic and continued high VIP luck. GGR softened slightly -2% w/w from the prior week; in leisure, PII big beat for quarter while year outlook guidance hike doesn’t capture full EPS beat; GMBL rises as initiated new Buy and $21 tgt at HC Wainwright saying focus on esports is a differentiator and in our view positions the business for substantial growth while being somewhat insulated from the more competitive traditional online sports wagering; in online wagering, DKNG initiated Buy and $71 tgt, PENN Buy and $151 tgt at Needham

·     Services; AAN Q1 EPS $1.24 vs. est. 57c; Q1 revenue $481.1M beats $430.6M est. and raises FY revenue to $1.725B-$1.775B vs prior $1.650B-$1.70B on better Ebitda view $190M-$205M vs prior $155M-$170M

Energy

·     E&P and Majors; RRC Q1 adj EPS 30c (est. 25c) on revs $644.5M (est. $553.63M); BP Q1 adj EPS 78c more than doubled est. 38c and more than tripled 2020’s 24c, though revs $34.54B missed est. $58.92B, and the company committed $500M to buyback shares in Q2; JPM initiated NFG at Neutral with a $51 target as the vertically integrated NatGas company offers a unique business model with some structural advantages and steady dividend growth for 50 consecutive years, but its muted FCF generation and higher leverage vs E&P peers drives the Neutral rating; Citi upgraded BKR to Buy and lifted its target to $27 on attractive valuation after the stock’s recent underperformance despite having one of the best long-term outlooks among oilfield service stocks

·     Pipelines: JPM said they see favorable risk-reward in liquid-focused MLPs as the global reopening trade resumes, upgrading BPMP to OW as the best positioned MLP with attractive valuation and downgraded HEP to N as they see more compelling opportunities elsewhere in the sector; Jefferies upgraded GLOP to Buy with a $4 target as shares are trading lower in recent weeks despite a recovery in LNG shipping rates and demand

Financials

·     UBS said it lost $861M from Archegos implosion, a bigger hit than analysts expected, and Nomura (NMRsaid it is now expecting a $2.85B loss from its previous estimate of around $2B. These follow last week’s estimates from CS of a $5.5B cost from the fallout for the bank, MS saying it incurred a $911M loss, and MUFG warning it faces a $300M loss

·     Bank movers; UBS reported Q1 EPS 49c on NII $1.61B; HSBC posted Q1 EPS 19c vs est. 12c on revs $12.99B vs est. $12.94B, adj profits before tax $6.4B (+79% YoY) vs est. $4.3B; SF Q1 EPS $1.50 on revs $1.135B both topped consensus views of $1.39 on $1.07B and it raised its dividend to 15c from 11c; IVZ Q1 EPS 68c vs est. 62c on revs $1.25B vs est. $1.22B, AUM $1.4T (+4% vs 4Q20), net long-term inflows $24.5B; CATY Q1 EPS 92c vs. est. 77c, reversal of provisions for credit losses of $13.6M; HTLF Q1 EPS $1.20 vs. est. $1.10, net interest income $139.6M (+24% YoY); PJT Q1 EPS 89c and revs $206.7M beat estimates of 73c, $198.2M; IBTX Q1 EPS $1.39 (est. $1.34), NII $129.7M; HMST Q1 EPS $1.35 vs est. $1.12 on revs $93.4M vs est. $89.2M; EFSC to acquire FCBP in merger valued at $397.7M, or $33.40 per share https://bit.ly/3tWgJqX;

·     Analyst research; Atlantic downgraded JPM to Neutral; Credit Suisse upgraded SCHW to Outperform with an $86 target; Citi downgraded APAM and lowered their pt to $58 from $68 ahead of tonight’s earnings report after the company partially closed its High Income fund and its expectations for a more checkered reaction to the company’s post-earnings c/c tomorrow

·     Insurance; MMC Q1 adj EPS $1.99 vs est. $1.71 on revs $5.08B vs est. $4.79B; BRO posted a Q1 beat as adj EPS 70c came in above est. 58c on sales $815.3M vs est. $755.9M and increasing from $698.5M YoY

·     Services; Baird names SPGI new Outperform and $437 pt after its merger with HIS Markit given its broad growth drivers, best-in-class margin expansion track record, and ample margin expansion potential; Piper initiated UPST at OW with a $143 pt as it has the potential to disrupt auto and real estate lending and its SaaS revenue model provides the ability to deliver significant CAGR upside in a market worth a potential $3.4T in the long-term; RDFN was initiated at Neutral by Needham; TBI shares rise on Q1 results, expects improved gross margin

·     Consumer Finance; SYF reported Q1 EPS $1.73 vs. est. $1.38, interest and fees on loans $3.7B (-14% YoY), purchase volume $34.7B (+8%); TRU posted Q1 adj EPS 91c on revs $745M vs ests. 80c on $703.8M, sees Q2 adj 89-92c (est. 79c), and guided Q2 revs $744-754M (est. $691.6M), FY revs $2.949-2.992B (est. $2.86B); AMP Q1 adj EPS $5.43 vs. est. $4.69, adj net op revs $3.3B vs. est. $3.25B, and raised its quarterly dividend by 9% to $1.13; JPMorgan raised their price targets on several BDC stocks into earnings (AINV, ARCC, SLRC, BKCCetc) but downgraded WHF to UW on relative valuation versus peers; OMF Q1 EPS $3.37 topped consensus $2.10 on revs $825M that missed consensus $880.8M, and raised its dividend 56% to 70c/shr

·     Bitcoin news; Bernstein initiated COIN at Market Perform, $250 target; USB said it will offer a new cryptocurrency custody product in partnership with an unnamed sub-custodian and will be the administrator for NYDIG’s Bitcoin ETF, should it be approved by D.C. regulators

·     REITs; ARE Q1 FFO $1.91 vs. est. $1.85 on revenue $479.8M vs. est. $376.56M and cuts FY21 views for EPS to $1.58-1.68 from $2.14-2.34 and FFO to $7.07-$7.17 and narrowed adj FFO view to $7.68-7.78 from $7.60-7.80; WRI Q1 FFO 48c vs. est. 41c, revenue $121.4M vs. est. $104.43M, occupancy rate 93.0%, and did not provide guidance; SBAC Q1 adj FFO/shr $2.58 vs est $2.48 on revs $548.7M vs est $539.3M, and slightly raised its FY adj EBITDA guidance to $1.57-1.59B from $1.56-1.58B, revs to $2.22B-2.26B from $2.17-2.21B, and adj FFO $10.15-1.057 from $10-10.41; SUI posted Q1 EPS 23c, FFO $1.26, revs $442M (+42% yoY) vs est. $315.24M, and raised its full-year FFO guidance

Healthcare

·     Pharma movers; LLY Q1 EPS trails estimates (EPS $1.87 vs. est. $2.13 on revs $6.806B vs. est. $6.988B) and guidance lags consensus (FY revs $26.6-27.6B vs. est. $27.7B); ALDX rises after reports positive top-line results from late-stage trial of its investigational new drug in patients with allergic conjunctivitis as achieved statistical significance for all main and secondary goals, including itching, redness and tearing; MRK said it has entered voluntary licensing agreements with five Indian generic drug makers to expand access to molnupiravir, an investigational oral antiviral agent currently being studied in a Phase II trial for the treatment of non-hospitalized patients with confirmed COVID-19; AIM announces positive safety data in second cohort of phase 1 clinical study investigating intranasal administration of Ampligen as a potential prophylaxis or treatment for covid-19 and other respiratory viral diseases

·     Biotech movers; RETA said the FDA accepted its filing for the NDA for Bardoxolone for the treatment of patients with chronic kidney disease caused by Alport Syndrome; ESPR announced the anticipated ROW partnership including a $30mn upfront for commercialization of Nexletol/Nexlizet with existing partner Daiichi Sankyo and also announced access to the next and final tranche of funding from its existing RIPA agreement with Oberland, amounting to $50mn; Dow component AMGN expected to report earnings tonight; NVAX popped late day after President Biden noted it may have their vaccine coming soon

·     MedTech Equipment; MYGN agreed to sell the Myriad myPath Melanoma, Laboratory, to CSTL for $32.5M in cash; MDT receives FDA approval for an implantable TNM device study in bladder incontinence; ILMN presenting today at 5 p.m. ET, will face Wall Street for the first time after the FTC sued to block its proposed merger with the cancer testing firm Grail, as per Stat News; MASI slight beat on top/bottom line for Q1 while raises year outlook; DMTK rises on reports that CI has offered positive support for its PLA/PLA+ genomics patches for early melanoma detection

·     Healthcare Services; CNC reported 1Q results revenue of $26.93B (est. $26.51B) and EPS of $1.63 (vs. $1.50) as saw higher healthcare costs, with HBR of 86.8% (vs. 86.3% cons), with the company citing higher COVID-19 related costs, state premium rate adjustments and risk sharing mechanisms; HSTM Q1 revenue was slightly ahead estimate, essentially while adjusted EBITDA was nicely ahead of our estimate and FactSet consensus and raised year outlook; in hospitals, UHS revenue upside in the acute hospital business drove UHS’ EBITDA beat, with margins modestly ahead of expectations, as well

Industrials & Materials

·     Industrial & Machinery; GE reported lower revenue and a loss in Q1 as the company’s jet-engine business and divestitures weighed on results – GE’s revenue fell 12% to $17.1 billion, reflecting a 28% decline in its aviation unit and a 9% drop in its healthcare unit; Dow component MMM said its Q1 profit rose ($2.77 vs. est. $2.29) as sales grew across all segments (safety, transportation, consumer, and healthcare) and reaffirmed year EPS and sales outlook; HYFM slides following 4M share stock offering, using proceeds for $78M acquisition of plant nutrients firm Heavy 16, while also issues Q1 Ebitda and sales guidance

·     Transports; UPS gives the transport index a nice boost (new record highs) following earnings, as Q1 adj EPS of $2.77 topped the est. $1.72 and Q1 revenue $22.9B beat the est. $20.49B, though said is not providing FY21 earnings, revenue guidance; CNI reported 1Q:21 adjusted EPS of $1.23, slightly below consensus at $1.24, but the company raised full year EPS guidance to double digit from high single digit and continues to generate between $3-3.3b of free cash flow in 2021; in airlines, JBLU reported mixed quarterly results

·     Metals & Materials; DOW was upgraded from Hold to Buy at Argus saying they expect Dow to benefit in the near term from stronger pricing for commodity chemicals and increased demand in North America and China, as firm boosts estimates; in paint chemicals, SHW Q1 adjusted EPS $2.06 easily tops consensus $1.64 and revs $4.66B also above consensus $4.51B; AXTA top and bottom line beat as Q1 adj EPS 50c vs. est. 42c; Q1 sales rose 8% to $1.06B vs. est. $1.03B; sees semiconductor chip shortage impact on light vehicle to continue throughout Q2; ADM shares jumped on earnings, while also Reuters reported U.S. renewable fuel credits soared to the highest on record, as higher costs for soybean oil pushed up both renewable fuel and biomass-based credits (shares of BG, ADM leveraged to soybean oil)

Technology, Media & Telecom

·     Internet; SPOT announces paid podcast subscriptions, but the program is having a soft launch in the U.S. and only for select partners with podcasts on the Anchor platform; GOOGL earnings expected after the close tonight along with PINS

·     Semiconductors; NXPI reported MarQ at $2.57B, in line with $2.56B consensus and guided the JunQ flat q/q and in line with consensus at $2.54B, as margins were guided to 55.5% (cons. 53.7%) and said MarQ Auto sales were up 3% q/q (24% y/y); SYNA upgraded to Outperform at Cowen and up tgt from $130 to $176 saying recent checks in Taiwan indicate significant price hikes for display drivers and touch controllers, supporting margin leverage; ENTG shares slip as misses Q1 EPS by 2c on light revs, though guided Q2 above estimates (Q2 revenue between $530M-$545M (est. $523.35M) and EPS 77c-82c vs. est. 73c; AMD earnings tonight

·     Software movers; Dow component MSFT expected to report earnings tonight; SPLK downgraded to Equal Weight from Overweight with a price target of $160, down from $213 at Morgan Stanley saying challenges closing large deals, competitive noise, and a heightened level of executive departures increase the execution risk; SSNC beat 1Q21 consensus by $0.08 and raised 2021 adjusted EPS guidance at the midpoint by $0.15 and saw a return of organic growth after three quarters of negative growth; OPRA Q1 revenue jumps 28% to $51.6M, beating estimates of $48.5M and also sees Q2 revenue above estimates

·     Components & Services; GLW posts better-than-expected Q1 revenue and core EPS while said it expects Q2 core sales to be in the range of $3.3V-$3.5B above est. $3.24B saying elevated freight and logistics costs in Q1 due to disrupted supply chains will begin to decline in Q2; CDNS posted solid 1Q results, but the magnitude of the 2021 guidance raise was more in line with consensus levels, as shares tumble for one of biggest decliners in the S&P

·     Media & Telecom movers; VZ downgraded to neutral from Buy at Moffett as still believe Verizon will post stronger ARPU growth in 2021…but says that alone isn’t enough; SBAC improved its outlook for the year +$48M/ +$11M/ +$0.155 for revenues/ adj. EBITDA/ AFFOS at the midpoints, due to better tower activity; RBC Capital said they reiterate DISCA as preferred pick ahead of Q1 earnings given its relative positioning across Pay TV and a streaming opportunity that continues to be underappreciated; Goldman Sachs said DIS, VIAC remain top picks in media into earnings citing growth in streaming subscribers and pace of ad revs recovery