Closing Recap

Thursday, February 18, 2021

Equity Market Recap

·     Stocks end the day in negative territory (but well-off morning lows as investors again take every opportunity to buy any dip) as major averages are on track to post its first losing week in over a month with several market factors weighing on market sentiment today. Retailing giant Wal-Mart (WMT) fell sharply as Q4 adj EPS $1.39 missed the $1.50 estimate, while also forecast 2022 adj EPS and sales below estimates hitting retailers; inflation fears remain a market concern following a surge in PPI, commodity prices and food prices, taking its toll on high multiple stocks (copper 9-yr highs, lumber futures soar to all-time high of $1,000 and oil remains up near 1-year highs despite today’s pullback). Vaccine news has been mixed of late with several drugs showing smaller effects on the South African Covid variant. A jump in Treasury yields and a rebound in the dollar have also played a part in the recent slippage off record highs for stocks. Today’s top story was the House finance panel grilling chief executives of Robinhood and Reddit as well as Citadel CEO Ken Griffin, as they all defended their businesses as lawmakers probed how Reddit users trading on retail platforms squeezed hedge funds that had bet against shares last month.

Economic Data

·     Weekly jobless claims rose 13K to 861K, above the 768K estimate and prior week also revised higher to 848K from 793K); U.S. continued claims fell to 4.494M in latest week vs. est. 4.413M and vs. prior 4.558M; the 4-week moving average fell to 833,250 from 836,750 prior week; the U.S. s insured unemployment rate unchanged at 3.2%

·     Import prices for January rose 1.4% MoM, topping the 1.0% consensus (prior revised to 1% from +0.9%), while export prices rose +2.5% MoM, well above the +0.7% consensus and upwardly revised +1.3% (from 1.1%)

·     Housing Starts for January fell -6.0% MoM to 1.580M, below the 1.655M expected and 1.680M prior (revised from 1.669M), while building permits jumped +10.4% to 1.881M vs. 1.670M expected and 1.704M prior (revised from 1.709M).

·     Philly Fed Business Outlook for Feb reported at +23.1 topping the +20 consensus but down from the +26.5 prior (unrevised)

Commodities, Currencies & Treasury’s

·     Oil prices dipped amid broader market weakness, as WTI crude slips $0.62 or 1% to settle at $60.52 per barrel, while Brent dipped $-0.41 or 0.64% to settle at $63.93 per barrel. Brent briefly topped the $65 per barrel level for the first time in a year as a cold blast that’s pummeled U.S. oil production escalated into a global supply shock. More than 4 million b/d of U.S. oil output — about 40% of crude production was offline but slowly coming back.

·     Gold prices were volatile today, rising $2.20 to settle at $1,775 an ounce, snapping its 4-day losing streak after trading to fresh 7-month lows earlier below $1,770 an ounce as the dollar rallied along with Treasury yields. But as yields eased and the dollar pared gains, gold prices managed to recover off the lows. Treasury yields jumped earlier with the 10-year moving back above 1.3%, but later slipped to 1.28%; along with a pullback in the dollar as the dollar index (DXY) dropped -0.3% to 90.60 after a recent bounce. 

Sector News Breakdown

Consumer

·     Retailers; WMT disappoints as Q4 adj EPS $1.39 missed the $1.50 estimate, while also forecast 2022 adj EPS and sales below estimates, which offset news of a $20B share repurchase plan and better monthly comp sales beats for Q4; in mattress space, UBS upgraded TPX to buy saying risk-reward is skewed to the upside at current levels and raised SNBR to Neutral (which also reported earnings overnight); Swiss watches, exports -11% in January, slower than the -2.5% in December but driven by tough comps and calendar effects; RGR reported strong 4Q:20 results easily beating our estimates and consensus on the top and bottom lines

·     Auto sector; VC reported mostly in-line Q4 results as EPS $1.06 vs. est. $1.17 on revs $787M vs est. $789.9M, and said it expects industry production volumes will increase about 8% in 2021 to 80 million units vs the initial expectation of 14% growth; DAN Q4 adj EPS $0.24 vs est. $0.41 on sales $2.11B vs est $1.93B, guiding FY21 revs $8.05-8.55B (est $8.3B), and sees FY21 EPS $1.90-2.40 (est $2.20); ALSN reported Q4 EPS 53c vs est. 71c on revs $535M vs est. $521.4M and sees FY21 sales $2.265-2.415B; LKQ posted Q4 EPS 69c on revs $3.0B vs ests. 59c, $2.9B and sees FY21 Adj EPS $2.65-2.85 (est. $2.74); Citi raised its price target on GM from $70 to $85 and sees a path to $100 and removed its High Risk designation on the stock following its recent results and conversations with management; TSLA cut the price of its Model 3 Standard Range Plus to $36,990 from $37,990, and its Model Y Standard Range’s price to $39,990 from $41,990, according to the company’s website; Jefferies said they remain buyers of F (Ford) and lifted their target to $14 from $13 as a classic turnaround story and the long overdue EV strategy formulation; Stephens downgraded KAR to Equal-Weight from OW after the company reported Q4 earnings yesterday that missed their estimates and consensus; JPMorgan reiterated their OW rating and $115 target on GPC as their thesis in their September upgrade remains on track with the potential for eye-popping results in 1H21 as sales growth accelerates with margin upside, and they also lowered their target on SAH to $52 from $55 after their Q4 EBITDA missed expectations

·     Consumer Staples; SAM shares fell as reported strong 4Q organic sales growth of 53%, with EPS of $2.64 that was in line with consensus; HRL reported Q1 EPS 41c vs. est. 40c on better revs. GM -110bps. Ebit margins -60bps and see FY21 EPS $1.70-$1.82 vs. est. $1.72 (doesn’t include Planters acquisition); APRN falls after mixed Q4 as EPS ($0.67) vs consensus ($0.61) and revenue $115.5M vs consensus $110.5M; guides EBITDA loss of no more than $6M vs consensus ($0.6M); HLF drops on Q4 EPS and rev miss (EPS $0.71/$1.41B vs est. $0.84/$1.45B)

·     Restaurants; CAKE posted a top and bottom line miss (4Q adj EPS ($0.32) vs. est. ($0.04) on revs $554.6Mm vs. est. $599.3Mm) and comps fell -19.5%; JACK reported better than expected EPS results on in-line sales; BLMN quarterly revenue missed analysts’ estimates ($812.5M vs. est. $864M) while comp sales at all four of co’s chains decline between 11% to nearly 30%, with Fleming’s Prime Steakhouse & Wine Bar underperforming the most

·     Leisure and Gaming; Bank America noted the online sports betting market share based on handle: FanDuel (28%), DKNG (24%), PENN/Barstool (24%), BetMGM (20%). PENN/Barstool and BetMGM both exceeded our expectations, showing their ability to compete with digitally native incumbents; in housing, homebuilders active as Treasury yields rise, boosting mortgage rates as Freddie Mac said 30-year fixed rate rises to 2.81% from 2.73% prior (LEN, KBH, MTH); In lodging, disappointments continue as MAR 4Q adj EPS $0.12 slightly beat but revs of $2.17B missed the $2.4B estimate as comparable systemwide constant dollar REVPAR -64.1%, and global occupancy remained at 35% (follows weak results from HLT, CHH yesterday); Hyatt (H) posted a larger Q4 EPS loss ($1.77) vs. est. loss ($1.30), suspended its quarterly dividend and said qtrly comparable system-wide RevPAR decreased 68.9% – 4Q adj EBITDA loss of -$98mn vs est. -$48mn; in services; BFAM soundly beat Q4 revenue and EPS on continued strength at Back Up and improving decremental margins at Centers; CHGG 9.8M share secondary priced at $102

Energy

·     Energy stock movers; Hundreds of thousands of homes in Texas are coping without heat for a fourth day on Thursday after utilities made some progress restoring power; FTI downgraded to Neutral with $8 pt from Buy at UBS who sees limited upside and valuation that broadly reflects their sum-of-the-parts following the company’s spin off of Technip Energies; CPG announced that it has entered into an agreement with Shell Canada Energy, an affiliate of RDS), to acquire Shell’s Kaybob Duvernay assets in Alberta for $900M; CEI entered a definitive merger agreement with Viking Energy to acquire remaining interest in Viking; SUN reported Q4 EPS 77c vs. est. 80c on revs $2.55B vs. est. $3.31B, and sold 1.8B billion gallons in the quarter (-12% YoY); SM Q4 EPS 2c on revs $320.29M both missed expectations (5c on $342.32M)

·     Utilities & Solar; SPWR posted Q4 EPS 14c, topping est. 7c, on revs $341.8M vs est. $355.84M, seeing Q1 GAAP net loss ($20M)-($10M) on revs $270-330M vs est. $328.85M but expects to meet or exceed its 2021 guidance given the confidence it has in its business entering the year; PPL Q4 EPS 59C vs est. 61c on revs $1.93B vs est. $2.14B and did not provide formal guidance due to its process to sell its U.K. utility business, which is expected to be announced in 1H21; SO Q4 Non-GAAP EPS $0.47 (est. $0.42), GAAP EPS of $0.37 (est. $0.27) on rev $5.12B (+4.3% Y/Y) vs est. $4.53B; Guggenheim upped their price target on ES to $96 from $87 after management pointed to the top half of their growth range during their earnings on Tuesday; FE shares jumped on headlines the company got a letter from Carl Icahn on buying a stake (Bloomberg)

Financials

·     Bank movers; WFC was upgraded to Neutral from Underweight at JPMorgan after reports that the Fed will accept the bank’s plan to overhaul its risk management and compliance measures with expectations that its asset cap will be removed in 2022; Morgan Stanley reiterated their UW rating on JPM as they want to be overweight rates and risks in a recovering economy, while the bank is not the most rate sensitive and has a stronger credit profile than other names under coverage so EPS upside is limited; Seaport initiated AUB and CNOB at Buy; in Fintech; MOGO expands into U.S. digital payments market through subsidiary, Carta worldwide – broadens carta’s addressable opportunity in $500 billion North American payments

·     REITs; VTR reported Q4 FFO 83c vs est. 72c on revs $921.2M vs est. $910.2M, and said it expects Covid to continue affecting its results this quarter and sees Q1 FFO 66-71c (est. 71c); HPP posted Q4 FFO 44c on revs $203.8M, both narrowly beating estimates (43c on $199M); SUI reported Q4 FFO $1.16 on revs $384.3M, both beating consensus, increased its annual 2021 distributions by 5% to $3.32 per share, and projected Q1 FFO $1.13-1.17 (est. $1.31) and FY21 FFO $5.79-5.95 (est. $5.85); SKT posted Q4 FFO 54c, doubling consensus 27c, on revs $111.2M vs est. $103.9M, and sees FY21 FFO $1.4701.57 vs est. $1.14; CONE Q4 FFO 94c vs est. 89c on revs $268.4M vs est. $264.8M and guided FY21 FFO $3.90-$4 and revs $1.11-1.15B (ests. $3.93, $1.12B); ESRT reported a breakeven Q4 with FFO 17c on revs $151.4M; UE Q4 adj FFO 23c on revs $87.3M; SITC posted Q4 FFO 25c vs est. 23c on revs $108.4M vs est. $102.5M and guides FY21 FFO $0.90-$1.00 (est. $0.98)

Healthcare

·     Pharma movers; vaccine news mixed following reports PFE on South African Covid variant as NEJM study shows the dominant local coronavirus variant may reduce antibody protection from Pfizer’s COVID-19 vaccine by two-thirds; RIGL enters strategic collaboration with LLY to develop ripk1 inhibitors for the potential treatment of immunological and neurodegenerative diseases – Lilly will pay an upfront cash payment of $125M, potential $835M in milestone payments; TLRY downgraded at Piper on valuation, while the cannabis producer reported Dec qtr sales in line with expectations, and EBITDA was better than expected

·     Biotech movers; MRNA tgt raised to $215 from $150 at Morgan Stanley as now forecast ~850M doses in 2021 (up from 700M prior and ~796M announced) for revenues of ~$19B and also see the opportunity for greater booster sales in the mid-term and raise our estimates to include ~$10B in sustainable sales through 2025.

·     MedTech and Equipment; SNN Q4 trails profit estimates; posted a pretax profit of $246 million for last year, compared with $743 million for 2019 and below estimates of $268 mln; GMED delivered 4Q20 revenue of $233.4M (up 9.9% y/y ex-fx, above consensus’s $231M), driven by a record quarter in Enabling Technology and strong U.S. Spine sales; TXG 4Q was strong, with 49% revenue growth coming in comfortably above the Street and an initial 2021 outlook of revenues of $480-$500m (+61-67% growth), bracketing $494m consensus; IART slides on weaker outlook as sees revs for FY21 $1.52b-$1.53B missing the $1.54B estimate while posted Q4 EPS beat (84c vs. est. 73c)

Industrials & Materials

·     Aerospace & Defense; UAVS a roll lower in drone sector after short report/cautious comments by Bonitas research; recall earlier this week, Wolfpack research had short call on rival drone maker EH which sent shares tumbling over 70% on Tuesday alone; general space was weaker

·     Chemicals; NTR Q4 EPS 24c tops est. 15c on better revs $4.05B vs. est. $3.58B as Q4 potash EBITDA up 48%, nitrogen EBITDA up 3% while firm increases dividend to 46c and approved the purchase of up to 5% of outstanding common shares; MOS Q4 EBITDA beat expectations by ~7% due to higher volumes while sales of $2.46 bln topped $2.15 bln est. and adjusted EBITDA was $508M vs consensus of $472m; AXTA posted stronger than expected as sales exceeded expectations in all but the lock-down impacted Refinish segment and margins did solidly better owing to greater cost savings and modest price improvements; CF also top and bottom line beat for Q4 and said FY21 nitrogen pricing outlook more positive

·     Metals; gold miner GOLD beats Q4 profit estimates on a jump in gold prices due to coronavirus-induced economic uncertainty; NEM Q4 earnings more than doubled and beat analyst estimates ($1.02 vs. est. $0.95 and above prior year $0.50), driven by higher prices, while revs of $3.38B just missed estimates; in steel, RS Q4 EPS beat on in-line sales of $2.13B and says demand in energy market remained under pressure in q4 with modest improvement expected in q1

Technology, Media & Telecom

·     Internet; BIDU reported 4Q20 earnings ahead of expectations driven by strength in AI and Cloud as net Revs came in at RMB 30.26bn vs. RMB 30.05bn with Baidu Core RMB 23.1bn (+6% y/y); FSLY tumbles as forecasts a larger-than-expected loss for both Q1 and sees FY21 loss in the range of (44c-35c), worse than the expected loss of (21c), despite a Q4 beat; BCOV posted upside in both revenue and AEBITDA and raised its Q1 outlook above consensus; Apple TV app now available on the latest Google Chromecast (GOOGL)

·     Semiconductors; after touching record highs earlier this week, semiconductor index (SOX) seeing profit taking, while chip shortages remain hot topic; Citigroup said MU checks indicate DRAM pricing is better than expected, and expect upside to DRAM pricing throughout 2021 given the supply/demand imbalance – also believe Micron peak EPS can reach $15.00, and the stock can eventually reach $150.00; LASR posted better-than-expected Q4 results as revenue increased 53% y/o/y above the high end of guidance and ahead of Street expectations of 46% growth; NVDA tgt raised to $700 from $600 at Oppenheimer as sees upside to Q4 & Q1 consensus estimates; STX double upgraded to buy from underperform at Bank America as expects to deliver strong revenue and earnings growth over next few years well above consensus

·     Software movers; TWLO outperforms delivered strong 4Q20 results, solidly exceeding consensus (even ex-M&A), and issuing strong 1Q21 revenue guidance, albeit w/below consensus EPS on accelerated/deferred investment and dilution from Segment; PLTR falls as direct listing in September included a lockup period, which expires today. Insiders were only allowed to sell 20% of their shares in the listing, which means the remaining 80% are open for trading today; SWI will be in focus as next week the U.S. Senate intelligence committee will hold a hearing on February 23 on the Russia-linked SolarWinds hack that breached a number of federal agencies.

·     Hardware & Component news; ROKU earnings expected tonight – Guggenheim raised revenue and profit estimates to better reflect growth in digital and connected television advertising demand; SNPS tgt beat on the top and bottom line, while reaffirming the F21 guide, consistent w/its historical practice in 1Qs and expressed confidence that recent strength in Asia Pac, esp. China, was sustainable and not a result of pull-forwards.