Closing Recap

Tuesday, August 03, 2021

Equity Market Recap

·     Unstoppable? Might be the best word to describe stock market action as every stock market dip (albeit brief) continues to be bought by investors, helped by bullish quarterly earnings, as well as peace of mind that the dovish Federal Reserve is in their corner (keeping asset purchases going and rates at record lows). Other pockets of concerns such as Covid (and Delta variant) and its impact on tighter mask restrictions/vaccine mandates by some companies/cities, China’s regulatory clampdown, rising inflation fears and plunging Treasury yields have failed to dent investor optimism (fear index=VIX remains around 18). Economic data has been steady, but a few recent reports showed slowing growth concerns (markets still unphased however). Oil prices edge lower again, with WTI crude holding just above $70 per barrel due to lingering concern over rising cases of the Delta coronavirus variant. Of note, Goldman strategist Mueller-Glissmann noted that with 187 days without a 5% drawdown in S&P 500 – one of the longest uninterrupted stretches in the last 100 years – the market is starting to look quite precarious and with "both equities and bonds getting more expensive, multi-asset portfolios are becoming more vulnerable to rates and growth shocks" (remains to be seen).

·     In stock/sector news: CLX plunges after missing quarterly revenue estimates and seeing a larger-than-expected decline in FY22 sales; in retail, RL, UAA soar, COLM rises after beat-and-raise reports from all 3 and shopping REIT SPG jumps on its own beat with FY guidance range completely above consensus estimates; SEDG spikes, trades above $300 for 1st time since March after its strong beat-and-raise as TAN solar stocks outperform again; IPGP plunges on its miss with weak guidance in chip space, NVDA slides report that the U.K.’s antitrust authority is evaluating blocking an Arm acquisition; DISCA slides after earnings to weigh on other media names VIAC, DIS, CMCSA, FOX; TTWO plummets to its 2021 lows (now down over 20% YTD) after its guidance miss also weighs on other video game names ATVI, EA ahead of their own earnings (ATVI tonight, EA tomorrow PM); SNY acquires TBIO for $38/share; China names were weak again after state media calls online games “spiritual opium” to sink shares of TCEHY, BILI, HUYA, DOYU, and BABA Q2 revs also slightly missed consensus; shares of theme parks, restaurants, casinos among early losers as local officials in various Delta COVID-19 hotspots have reinstituted mask rules, while a vaccination requirement was announced in NYC today.

Economic Data:

·     Factory Orders for June rose +1.5% to $506.0B vs. +0.8% consensus and +2.3% prior (revised from +1.7%); new orders for manufactured goods increased in 13 of the past 14 months; shipments +1.6% to $499.0B and unfilled Orders +1.0% to $1,223.1B

·     New York Fed: Total Household Debt Increased By $313B To $14.96T In Q2 Of 2021

Commodities, Currencies & Treasuries

·     Oil prices slide as WTI crude down -0.70, or 0.98% to settle at $70.56 per barrel hurt by lingering concern over rising cases of the Delta coronavirus variant. Brent crude falls -$0.48 or 0.66% to settle at $72.41 per barrel.

·     Gold prices slid -$8.10 or 0.4% to settle at $1,814.10 an ounce as investors rotated back into riskier assets, with stocks jumping. The pullback could have also been based on some consolidation of profits after a run above $1,800 for the precious metal.

·     The yield for the 10-year Treasury note was up slightly at around 1.18% and the U.S. dollar was inching higher, up around 0.05%, measured by the ICE U.S. Dollar Index (DXY). The 10-year Treasury note yield around 1.18%, just off lowest level since Feb. 11, while 2-year Treasury note yield little changed at 0.172%. Concerns about the coronavirus delta variant slowing economic growth in the U.S. and other countries remain in focus.

·     The U.S. dollar fell just below 109 yen, losing nearly 0.4% for the second day and it traded against the Swiss franc as much as 0.3% lower. The franc also gained against the euro to its greatest value in nine months. Last week the dollar lost nearly 1% as U.S. Federal Reserve policy makers said they expected it would still be while before job growth allowed them to pull back on support for the economy.

Sector News Breakdown

Consumer

·     Retailers; RL shares lead a retail rally after Q1 results top views and boosted its FY rev outlook to 25%-30% from prior view 20%-25%; BABA mixed results as Q2 EPS $2.54 beats by 30c but revenue of $31.87B missed the consensus $32.54B; Today was LB split day where Victoria’s Secret and Bath&Body Works trade independently (VSCO surges in first day and BBWI slips); UAA raised its full-year earnings outlook and reported second-quarter sales that surpassed analysts’ expectations; WWW buys Lululemon competitor Sweaty Betty for $410 million; COLM Q2 $.61/566.4mn vs est. -$.07/503mn – (GM 51.6% vs est. 47.9%), while raises year to $4.30-$4.55, from $4.05-$4.30 on better sales

·     Auto sector; BMWYY shares dipped after the German carmaker warned of volatile H2 after it reported strong second-quarter results; AUTO said it has bought the assets of CarZeus, a Texas-based used vehicle acquisition platform that purchases vehicles directly from consumers and resells them through wholesale channels for $400K; NKLA posts Q2 EPS loss (-$0.20) vs. est. loss (-$0.20) and says validation activities continued on first batch of five Nikola Tre BEVs in Q2; TM July sales growth of 32.8% Y/Y as Truck sales up 28.5% and car sales up 42.1% for the month

·     Housing & Building Products; TREX quarterly results were above but EPS was only in line with expectations as raw material inflation compressed margins; LPX reported Q2 adj EPS $4.74 vs est. $4.38 on revs $1.33B vs est. $1.22B, adj EBITDA $684M, upped its dividend to 18c from 16c, and sees Q3 adj EBITDA above $530M; BCC posted Q2 EPS $7.62 vs est. $4.83 on revs $2.4B vs est. $2.05B, as they believe low mortgage rates, work-from-home, and demographics created a favorable demand environment for home improvement that they expect to continue into next year, though home improvement demand faces a near-term headwinds as travel restrictions are lifted and leisure spending picks up given pent-up demand

·     Consumer Staples; CLX shares slide as missed Q4 revs and said it expects fiscal 2022 sales to fall between 2% and 6%, compared with Wall Street estimates of a 1% decline as demand for its bleaches, wipes and other surface cleaners eased off pandemic highs; FRPT 2Q revenue beat FactSet consensus by $3M but EBITDA missed by $1M due to higher beef, manufacturing, and freight costs during the company’s capacity ramp-up that will persist into 2H; PEP announced a $3.3 billion sale of its Tropicana and other juice brands in North America to French private equity firm PAI Partners; APRN slips as posts wider Q2 EPS loss of (-$0.98) on in-line revs of $124M while continues to see high single-digit to low double-digit net revenue growth for FY2021 and positive annual adj EBITDA starting with FY2022 (said orders and customers fell)

·     Gaming, Lodging & Leisure sector; ABNB upgraded from Sector Weight to Overweight with $180 tgt at Cowen as believe a material positive revision cycle is about to take place driven by: 1) market conditions remaining favorable; and 2) model durability against digital ad inflation; SABR Q2 adj EPS loss of (52c) was smaller than est. (59c) loss on revs $419.7M vs est. $396.5M; MAR posted better-than-expected Q2 profit, as a rebound in travel strengthens with rising COVID-19 vaccinations and said Q2 occupancy in its key U.S. and Canada and Greater China markets up 56.1% and 62.4%, respectively, compared with 19.6% and 35.5%, a year earlier; in gaming, IGT Q2 Adj EBITDA 442mn vs est. 353mn – EPS -$.48/1.04bn vs est. 926mn – Guides Revs for the 2nd half meaningfully higher than last year; LVS slides below $40 as casinos pressured with restrictions beginning to tighten up due to Delta variant – (note shares not far off its pandemic lows around $37.50 in Apr 2020) – shares of WYNN, CZR, MGM also pressured.

Energy

·     Energy stock movers; earnings and demand fears factor into energy movers: E&P and Majors; CLR topped Q2 expectations and saying it has resumed its $1B stock buyback program, Q2 adjusted EBITDAX soared to $990.9M from $36M in the year-ago quarter and raises various FY 2021 guidance metrics; FANG posted better than forecast Q2 earnings and revenues, and raising its annual dividend by 12.5% to $1.80/share; PXD coming in shy of Q2 earnings and revenue estimates while declaring a variable quarterly dividend of $1.51/share.

·     Major oils; COP Q2 profit nearly doubles from the previous quarter, topping analysts’ estimates, helped by higher oil and gas prices and production and raises its share buyback plans in June by $1 billion; BP increased the dividend for its second quarter and launched a $1.4 billion share buyback; reported a net profit of $3.12 billion for the three months to June,

·     Refiners: PSX Q2 EPS handily topped views, posting a profit for the first time in more than a year as Q2 GAAP earnings totaled $296M, compared with a $654M loss in Q1, as its chemicals unit generated record quarterly earnings of $623M, compared with $154M in Q1; TA Q2 revs $1.83B topped the $1.75B estimate saying improvements driven primarily by a $60.5M increase in non-fuel gross margin, a result of operating improvements across nearly all business lines; SUN another refiner with a top and bottom line beat on better adj Ebitda of $201M

·     Utilities & Solar; SEDG shares jumped after easily beating Q2 earnings expectations and guiding Q3 revenues of $520M-$540M compared with $503.4M analyst consensus, as well as non-GAAP gross margin of 32%-34%

Financials

·     Bank movers, Asset manager; BEN Q3 EPS $0.96 adj vs. est. $0.77; Q3 revs $2.17B vs. est. $2.12B; total AUM was $1.552B, up $53.2B in quarter; banks remain subdued as Treasury yields stay low; in insurance; EVER reported a solid 2Q revenue/VMM beat (+34%/40% y/y; 3%/4% above Street est.) on stronger pricing from better targeting of higher-intent consumers. Management raised ’21E guidance but expects 3Q revenue (+22%) to decelerate

·     Payments & Consumer Finance & Lending; shares of GPN, FIS, FISV, MA, V all getting crushed again after the SQ / Afterpay $29B deal announcement yesterday on rising competition concerns; COOP to buy 11.1 mln shares of its common stock, 1 mln shares of its preferred stock from affiliates of KKR for about $396M; LDI slides after Q2 earnings and revenue, reflecting lower loan origination volumes and profit margins, fall short of consensus estimates; AFRM shares spiked late day after Bloomberg reported Apple plans to launch buy now, pay later in Canada on Aug. 11, to partner with Affirm’s PayBright on buy now, pay later

Healthcare

·     Pharma movers; LLY reported 2Q results, with better revenues $6.74B (vs $6.6B est.) and a slight miss on EPS $1.87 (vs. $1.89), with higher COGS and SG&A and noted that it plans to submit donanemab for Alzheimer’s by end of 2021 – consistent with prior messaging; AMGN shares edge higher ahead of earnings; SNY agreed to acquire TBIO in a deal that gives the mRNA-therapeutics company a total equity value of around $3.2 billion; SNY to pay $38.00 a share in cash (shares of other mRNA names CVAC, ARCT rise in sympathy); OTLK announces positive clinical and top-line results from its pivotal Phase 3 Norse Two safety and efficacy trial.

·     MedTech Equipment; ZBH reported 2Q results, with revenue of $2.03B (vs. $1.97B) with better Sports, Extremities & Trauma and Dental, Spine & CMFT, while Hips and Knees were both light of street. EPS was slightly ahead at $1.90 (vs. $1.86). EPS guidance tightened to $7.65 to $7.95; BRKR 2Q revenue of $570.8mn which beat FactSet consensus of $537mn and GSe of $543mn. 2Q EPS of $0.44 was in-line with FactSet consensus of $0.44 and beat GSe of $0.38. Total growth of 34.4% came in well above consensus of 26.5%; TCMD reported 2Q21 revenue/EPS of $51.1M/$0.07 vs. consensus’ $49.9M/$0.10 estimates; ABT receives FDA approval for imaging software that uses artificial intelligence to visualize coronary blood flow and blockages; WAT with Q2 beat and raise as FY21 Revenue +13%-15% cc. growth with 1-2% FX tailwinds vs. Street ~+13%

·     Healthcare Services; HSIC reported 2Q results, with revenue of $2.97B (vs. $2.87B est.), with strength in its Dental and Technology segments while Medical came in light of consensus. EPS was $1.11 (vs. $0.98 cons). EPS Guidance was increased to at or above $3.85

Industrials & Materials

·     Aerospace & Defense; LDOS Q2 EPS $1.52 missed est. $1.58 though revs $3.45B topped est. $3.38B, net bookings $3.8B, book-to-bill ratio 1.1% vs 1.6% YoY, and reaffirmed FY outlook for adj EPS $6.35-6.65 and revs $13.7-14.1B; LHX reported Q2 adj EPS $3.26 vs est. $3.18 on revs $4.7B vs est. $4.63B, raised the low end of its FY adj EPS view, now seeing $12.80-13 from $12.70-13 (est. $13.01), and sold its Electron Devices and Narda Microwave-West businesses for $185M; WWD Q3 results missed expectations with EPS 74c falling short of est. 97c and revs $556.68M shy of est. $617.09M as supply chain disruptions affected their quarterly performance, though these issues should partially moderate in Q4; BA postponed the planned launch of its CST-100 Starliner capsule from Florida’s Cape Canaveral bound for the International Space Station in what was to have been a crucial do-over test flight following a failure during its 2019 debut.

·     Industrial & Machinery; CMI Q2 results beat on top and bottom line as Net income rose to $600M, or $4.10 per diluted share vs. $276M, while also announced the exploration of strategic alternatives for its Filtration business unit; ETN quarterly beat with strength across the board, solid orders, and outlook ahead of consensus; AME solid qtr driven by strength in both segments with FY guide raised ahead of consensus; PLOW better-than-expected Q2 results with upside in both Attachments and Solutions, and raised its FY21 revenue and EPS guidance due to outperformance and a lower tax rate

·     Transports; in airlines, TSA checkpoint data 7-day avg trending -21% vs 2019, generally reflecting softer weekdays and better weekends; 8/1 was the strongest checkpoint day since the pandemic began; ODFL downgraded at Goldman Sachs after run-up in shares and upgraded XPO to Buy; the Baltic Dry index, which factors in rates for Capesize, panamax, Supramax and handysize shipping vessels, shed one point to 3,281 points

·     Metals & Materials; REYN cut its adjusted 2021 earnings per share forecast; ARNC swung to a loss, which included a one-time pension charge, and revenue that came up a bit shy of forecasts while raised its 2021 revenue guidance range

·     In ag chemical space, MOS Q2/21 EBITDA was above expectations, primarily due to strong prices and margins across all segments. In the potash segment, sales volumes were lower than expected (2.3Mt actual vs. 2.5Mt RBC) due to rail issues that slowed Canpotex sales; KPLUY raised its EBITDA outlook once again to between EUR 700 mln-EUR 800 mln – up from prior view or EUR 500-600M ($832.09 mln-$951.06 mln)

·     Materials & Chemicals; DD Q2 earnings that beat expectations, amid an ongoing recovery in markets hurt by the COVID-19 pandemic a year ago and raised its full-year outlook; Q2 adj EPS $1.06 vs. est. $0.95; Q2 revs $4.14B vs. est. $4B; BCC gains on better-than-expected profit in second quarter as benefited from robust construction activity in Q2, which drove prices of wood higher; WLK beat driven by vinyl’s (18c), corp (10c) partly offset by olefins (-13c).

Technology, Media & Telecom

·     Semiconductors; MRVL to acquire networking chip startup Innovium for $1.1 billion in a bid to capture a greater share of the silicon used to power the largest, most complex data centers; NXPI Q2 sales of $2.6B edged consensus’ $2.58B estimate despite weather-related interruptions (~$100M impact) and otherwise tight supply/EPS of $2.44 bested Street’s $2.32E on better GM/OM. Mgmt. guided 3Q sales to $2.85B, topping Street by 6%; IDCC said it has signed a license deal with Chinese smartphone manufacturer Xiaomi covering InterDigital patents related to cellular wireless, WiFi and HEVC video technology; IPGP shares tumble after surprise earnings miss this morn from the optical fiber laser maker (hit shares of IIVI); NVDA shares slipped after a morning report that the U.K.’s antitrust authority is evaluating blocking an Arm acquisition.

·     Video game industry; Chinese video game/software names move lower initially (NTES, DOYU, HUYA, BILI) after TCEHY said it would curb minors’ access to its flagship video game after China’s state media refers to online games as "spiritual opium", stoking fears of tighter regulation; ATVI president J. Allen Brack is out after sexual harassment suit, employee walkout; TTWO Q1 top-line results were above the Street’s estimates driven by strong engagement trends across several core franchises while total net bookings were $711 million, vs. consensus of $688 million

·     Software sector; ZI posted a strong beat-and-raise quarter with full year guidance coming in nicely above the street and organic growth accelerated to 54% Y/Y (vs. up 50% in 1Q); VRNS delivered another robust performance in the June quarter as the company handily beat the Street across the board with ARR growth beating by 400 bps; WDAY and PLAN both upgraded to Overweight at Barclay’s saying as investors look for opportunities in the 2H of the year, they believe that Workday and Anaplan stand out as companies with low valuations and those that will benefit from enterprise heavy 2H spending trends; PERI Q2 numbers ahead of the positive prelim results given Jun 28th and raised midpoint FY21 revenue and AEBITDA guidance

·     Hardware, Components & Networking; HOLI rises after announcing its board is studying a nonbinding offer of $23/share in cash from Superior Emerald (Cayman); ANET reported strong 2Q21 results with revenue of $707M/$2.72 EPS vs. est. at $688M/$2.54, as both Enterprise and Cloud Titan demand remained resilient with GM coming in above consensus at 65.2%

·     IT Services; GLOB, EPAM both upgraded to Buy from Hold at Jefferies saying IT Services, led by digital engineering and business transformation services, are in the early stages of a new multi-year demand cycle; IT shares jumped after the company tops Q2 analyst estimates and again raises its full-year forecast.

·     Media & Telecom movers; DISCA beat on top and bottom line as earnings more than doubled in the second quarter from a year earlier, noted costs and expenses increased 25% to $2.28 billion – also, quarter-end total of 17M paying direct-to-consumer subscribers missed some street forecasts (note shares of other media companies dipped in sympathy – VIAC, FOXA, NWS, CMCSA); WMG with Q3 EPS, sales and Ebitda above views