Closing Recap

Tuesday, February 23, 2021

Equity Market Recap

·     Stocks end mixed in an incredible midday rally after a very ugly start for U.S. averages, with the Nasdaq Composite falling as much as 3.9% (after falling 2.4% Monday), before rallying 500-points off the 13,000 lows! The S&P, after being down as much as 1.75% early, managed a massive rally to turn positive late day and snap its’ 5-day losing streak while the Russell 2000 Smallcap cuts its losses in half despite a bout of selling pressure early amid rising yields and inflation expectations. Stocks recovered, getting some help from Federal Reserve Chairman Jay Powell who said in his testimony to the Senate Banking Committee, the recovery path is "highly uncertain," and that the economy still needed central bank support. The benchmark 10-year Treasury yield fell after hitting an intraday high of 1.39% and the 30-year slipped from 2.19%, while the dollar was mixed. Rising interest rates and fears of increasing inflation have put the brakes on strong gains made at the beginning of February…but despite recent losses, equities remain near all-time highs. Markets still await any news of a stimulus package, with sides back and forth on minimum wage in the $1.9T bill. Stocks did crater this morning as the Nasdaq Composite hit lows around 13,000, well below its 13,240 50-day moving average support before rebounding – as again, investors take every oppty to buy any dip, especially at support of major technical levels. Earnings still plentiful as Dow component Home Depot (HD) reported a beat for quarter, but lack of guidance weighed on shares.

·     In top story/sector news: the EV sector weak after CCIV finally completes merger to take Lucid Motors public in a $24B deal; shares of TSLA turn red YTD, along with weakness in BLNK, FSR, WKHS, NKLA, NIO, XPEV, RIDE; stay-home names ZM, TTWO, EA slide, while NLS misses rev estimates to drag PTON lower and KR slips on Bank of America downgrade; re-open higher again with PLNT, DIS, hotels, HLT, AMR, casinos WYNN, MGM, AMC rising on yesterday’s NY headlines; Energy names MRO, OXY, FANG jump despite mixed earnings reports after weak open; bitcoin prices dropped as low as $45K after touching record highs Monday above $58K, weighing on names leveraged to Bitcoin including GTBC, MSTR, SI, XENT, OSTK, MARA, RIOT, NCTY, PYPL.

Economic Data

·     S&P CoreLogic Case-Shiller for Dec.; Composite – 20 (S.A.) +1.3% M/M vs. +1.0 % consensus, +1.5% prior (revised from +1.4%), Composite- 20 (N.S.A.) +0.8% M/M v. +0.7% consensus, +1.1 % prior and Composite – 20 (N.S.A.) +10.1% Y/Y vs. +9.6% consensus, +9.2% prior

·     U.S. FHFA home price index rose 1.1% to 313.5 in December, another historic peak, after rising 1.0% to 310.0 (was 310.1) in November. The index inched up to a 11.4% y/y pace versus 11.1% (was 11.0%) previously. The index has posted monthly gains since January 2012

·     Richmond Fed composite manufacturing index +14 in Feb vs +14 in January; Richmond fed manufacturing shipments index +12 in Feb vs +10 in Jan

·     Dallas Fed Texas service sector revenue index 2.6 in February vs 0.8 in January and Dallas Fed Texas service sector index of general business activity outlook 5.0 in February vs -1.2 in January

Commodities

·     Oil prices finish little changed, as WTI crude slips 3c to settle at $61.67 per barrel, holding up well despite the broader stock market pullback. Brent crude edged higher 13c or 0.2% to settle at $65.37 per barrel. Oil prices remained stable after prices jumped over 4% the day prior as markets continue to eye the pace of recovery for energy production in Texas and also weighed potential outcomes for next week’s meetings among major oil producers.

·     Gold prices slipped, falling -$2.50 to $1,805.90 an ounce after touching a one-week high, dipping as the dollar held steady, but holding a tight range as investors turned cautious with Federal Reserve Chairman Jerome Powell’s testimony to Congress. Gold prices have also been watching the move in Bitcoin, falling recently as the crypto currency touched record highs above $58,000 the day prior…but as prices dipped to lows around $45K today, gold found solid footing.

Currencies & Treasuries

·     The U.S. dollar was mixed, bouncing after the dollar index (DXY) dropped below the 90 level for the first time since early January, falling to 3-year lows vs. the British Pound and slipped vs. the euro. More dovish comments from U.S. Federal Reserve chief Powell failed to quell inflation fears. The rising likelihood that Congress will pass President Joe Biden’s $1.9 trillion stimulus plan has raised concerns about a possible spike in inflation. In opening remarks to the Senate Banking Committee, Powell said, "The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved." Sterling hit a new nearly three-year high of $1.412 as investors stuck with their bets that a rapid rollout of the COVID-19 vaccine would allow the British economy to reopen over the next few months.

·     Treasury yields mostly unchanged most of the day, but still at highest levels in over a year on economic recovery optimism, also raising inflation expectations; The U.S. Treasury sold $60B in 2-year notes at a yield of 0.119% vs. 0.118% when issued prior, with the bid-to-cover at 2.44 and indirect bidders awarded 57.3%, directs 12.01%; the 10-year yield steady at 1.35%.

Sector News Breakdown

Consumer

·     Retailers; NLS falls after Q4 revenue $189.3M misses est. $191.7M, though EPS 90c beat est. 75c and FY21 rev guidance $553M was in-line, and the results dragged down PTONposted Q4 EPS $3.05 vs. est. $2.79 on revs $1.57B vs. est. $1.65B, comp store sales fell (-17%), retail gross margin improved 171 basis points of sales, inventory decreased approximately 26%, and operating expenses decreased $122.8M; Macy’s (M) reported Q4 adj EPS 80c vs. est. 4c on sales $6.78B vs. est. $6.5B, qtrly comparable sales down 17.0% on an owned basis and down 17.1% on an owned plus licensed basis, digital sales +21% YoY, and sees FY21 net sales $19.75-20.75B vs. est. $20.13B, which contemplates continued pandemic-related challenges in spring season with momentum building in back half of 2021; CROX Q4 adj EPS $1.06 (est $0.79) on revs $411.5M (est $399.5M) and guides Q1 revs +40-50% (est +127.5%), sees FY revs +20-25% (est +21.1%); REAL Q4 EPS loss (49c) was larger than est. loss (41c) on revs $84.59M vs. est. $94.06M, gross merchandise volume was $301.2M and sees Q1 gross merchandise volume $301M-$310M; Cowen raised their price target on BURL to $285 from $264 and also raised estimates on TJX and prefer BURL in off-price retail, viewing consensus into 2021 as conservative given recovery potential relative to 2019 levels as their survey suggests traffic is above expectations and work suggests better inventory in 2H21; LB gained in premarket trading on a report that that Goldman Sachs will begin to formally pitch a sale of Victoria’s Secret to PE firms this week, according to the New York Times who cited people with knowledge of the matter; EXPR filed a registration statement yesterday to cover the potential sale of up to 25M shares

·     Auto sector; electric vehicle sector under pressure, led by declines in SPAC CCIV after the company announced its $11.75B transaction with Lucid Motors (deal was widely expected); the pullback also weighing on shares of TSLA (now down 25% from their high mark of $900.40), along with weakness in Chinese automakers LI, NIO and XPEV (which had a lock up expiry today); other names leveraged to electric vehicles such as FSR, WKHS, BLNK, RIDE also lower; NKLA unveils details about its N.A. hydrogen fuel-cell electric vehicle commercial truck program – plans to introduce a FCEV variant of the Nikola Tre Cabover, and the long-range Nikola Two FCEV Sleeper; WKHS shares tumbled as the U.S. Postal Service said Tuesday it would award a multi-billion-dollar, 10-year contract to OSK to manufacture a new generation of postal delivery vehicles

·     Housing & Building Products; HD shares slip despite Q4 eps, revs and comp sales topping views as company failed to issue full-year guidance (Q4 comp sales increased 24.5% (vs. est. 19.2%) and comparable sales in the U.S. increased 25% (vs. est. 20.9%); increases quarterly dividend 10%); TREX Q4 EPS 37c vs. est. 36c on better revenue $228.3M vs. est. $215.9M – Stifel said Web traffic remains strong highlighting continued demand, channel inventories are still relatively lean; IBP initiates quarterly dividend, variable dividend; boost buyback

·     Consumer Staples; KR downgraded to underperform from neutral at bank America given tough comparisons as well as profit headwinds (gas & Ocado); Jefferies upped their target on ELF to $29 from $26 on upside potential with double-digit growth potential to its base business from ULTA sales and loyalty program; EL offered about $1 bln to take control of DECIEM Beauty Group Inc, the parent of Ordinary and NIOD skincare brands, raising its stake to about 76% from about 29%

·     Restaurants; SBUX upgraded to Outperform and raise our target to $120 at BMO Capital as view SBUX as a reopening beneficiary with meaningful potential upside to FY21/FY22 consensus, partly driven by comp contributions from sales transfer due to the US asset base transformation, accelerating digital momentum, easing competitive dynamics in China, and margin recovery; CBRL reported a Q2 EPS miss (70c vs. est. 94c and down from $2.70 YoY) as comp sales -21.9% vs. +3.80% YoY and estimate -20.1% and in-line revs of $677M (though down -20% YoY)

·     Leisure and Gaming; CCL 40.45M share Spot Secondary priced at $25.10; MGM upgraded to Buy from Hold with $42 tgt at Argus as in Las Vegas, expect MGM to benefit from a recent decision by the governor to allow casinos in Nevada to operate at 50% of capacity; again reopen stocks such as casinos (LVS, WYNN, MGM), theme parks (SIX, SEAS, DIS), saw strength as stay at home winners from 2020 see extended selling pressure; DKNG pares losses after proposal filed in Texas

Energy

·     Energy stock movers; XEC posted Q4 EPS 89c vs. est. 68c on revs $434.72M vs. est. $419.66M, intends to invest $500-600m on the drilling and completion of wells in 2021 with 73 net wells expected to begin producing during the period with 1Q21 oil production expected to average 65-69 Mbls per day and total production to average 205-225 MBOE per day; FANG reported Q4 EPS 82c vs. est. 83c ($1.93 YoY), adj Ebitda $475M (-43% YoY) which misses est. $530.9M, and average realized price crude oil equivalent per Boe $27.41 (-30% YoY); LPI Q4 EPS $3.22 on revs $188.1M vs. ests. $3.18 on $187.76M, total production averaged 82,552 BOE per day, including oil production of 21,929 BOPD; MRO Q4 adj EPS loss (12c) was narrower than est. loss (20c) on revs $830M (-32% YoY) vs est. $850.5M, with Q4 and FY20 total company oil production both at guidance midpoint; OXY Q4 adj loss (78c) was wider than est. loss (58c), Q4 Production of 1,143 MBoed exceeded midpoint of guidance by 13 MBoed, and qtrly average worldwide realized crude oil prices increased by approximately 5% from Q3 to $40.77 per barrel; RIG reported a Q4 EPS loss (6c) vs. est. loss (19c) on revs $690M vs. est. $699.08M, adj EBITDA $210M (vs $338M YoY), and contract backlog was $7.8B as of the February 2021 Fleet Status Report;; CVI Q4 EPS loss ($1.18) missed consensus loss ($0.72) on revs $1.12B, slightly below consensus $1.19B; MGY posted Q4 EPS 15c on revs $149.2M; VNOM Q4 EPS loss (41c) came in below est. (2c) loss and fell from 3c profit YoY on revs $76.3M (est. $56.5M, $92.7M YoY)

·     MLP sector; WMB posted in-line Q4 adj EPS 31c, adjusted EBITDA $1.336B (+4% YoY), expects 2021 adjusted EBITDA $5.05-5.35B, and 2021 growth capex between $1B to $1.2B and leverage ratio of 4.25x; OKE Q4 EPS 69c was below consensus 73c, and sees FY21 EPS $2.40-$3.08 (est. $3.03), a 12% increase of adjusted EBITDA midpoint for FY21 to $3.05B, and more than a 70% decrease of total capital expenditures to a midpoint of $600M

·     Utilities & Solar; Citi estimates a 3-4% negative stock impact for gas utilities (ATO, SWX, RRC) from the TX deep freeze, with price spikes impairing RRC’s historically strong regulatory relationship, SWX as better positioned in other Southwest states and CA, and CMS is not very exposed to TX; CIBC downgraded JE to Underperformer from Neutral and lowered their price target to $1 from $10 to reflect an initial estimate of an approximate $315MM financial loss from the extreme weather conditions in Texas, which exceeds current liquidity and will likely require a capital injection to get through this abnormal event, which could come with a material negative impact on equity value; AWR Q4 EPS 54c and rev $124.2M top estimates (47c, $110.5M)

Financials

·     Bank movers; WFC to sell Wells Fargo Asset Management to private equity firms GTCR LLC and Reverence Capital Partners for $2.1B, as part of the bank’s strategy to grow its wealth and brokerage businesses; in finance, GDOT strong Q4 results were overshadowed by poor optics from weaker-than-expected fy21 adjusted eps guidance that excluded any impact from stimulus; AAN revealed earlier in a 10K filing that it received a subpoena from the California Department of Financial Protection and Innovation asking for documents relating to compliance with state consumer protection laws; in REITs; EXR, LSI, PSA all report and all posted very strong results ahead of the Street and better than expected earnings guidance for 2021. Truist notes the sector is benefiting from very strong pricing trends

·     In insurance; PFG downgraded to In Line from Outperform at Evercore/ISI after the company announced a review of its business mix and capital management under an agreement with activist investor Elliott Investment Management; AGO and MBI rise after the Financial Oversight and Management Board for Puerto Rico comes to an agreement with certain bondholders in a step to resolve $35B of debt and non-debt claims.

Healthcare

·     Biotech movers; Bloomberg reported that SoftBank said to plan billions in investments in biotech stocks – said SoftBank’s "billions" in expanded biotech and healthcare sector investments are said to come from asset management arm SB Northstar, sources told Bloomberg, but a Softbank spokesperson describes the reporting as "misleading and inaccurate" the news service added; ICPT downgrade to Sell at HC Wainwright with $25 tgt as no longer believe a viable regulatory path for OCA exists in NASH and do not expect the REVERSE study readout in cirrhotic NASH patients due by YE21 to be positive; CLVS shares dropped on EPS miss and slightly better revs as Rubraca sales rose 10% YoY, but cash burn dropped

·     Services, MedTech and Equipment; MDT logged a profit and higher revenue in the latest quarter as EPS beat ($1.29 vs. $1.15) and revs were in-line with consensus as revenue from the company’s largest segment, its cardiac and vascular group, declined 4% year over year to $2.71 billion. Minimally invasive therapies revenue rose 6.3% to $2.31 billion (no guidance); TECH upgraded to Buy and setting our TP at $435 at Stifel saying the case for outperformance on the back of top-line excellence looks strong; LH shares rose after Bloomberg reported Barry Rosenstein’s Jana Partners has nominated directors to the board of LabCorp, including former chairman of CVS

Industrials & Materials

·     Industrial & Machinery; IR shares higher following better-than-expected results for the fourth quarter, as industrial stocks remain one of the best performing sectors (CAT, DE recent record highs); GTES was upgraded to Outperform at RBC Capital on what we see as a positive inflection in its earnings recovery with 4Q20 growth in all geographies, prospects for faster deleveraging and margin expansion; FLOW was upgraded to Op at RBC as well saying the risk-reward in the shares now appears more balanced

·     Aerospace & Defense; SPR posted Q4 adj EPS loss ($1.31) vs. est. loss ($0.85) on weaker revs $877M vs. est. $895M as sales by segment: Fuselage Systems -59%; Propulsion Systems -59%; Wing Systems -45%/cash balance at the end of 2020 was $1.9B vs. $2.4B at the end of 2019; LDOS shares slide as posts Q4 revenue of $3.25B, missing the estimate of $3.39B as Q4 health revenue dropped 2.5% to $513M and Q4 SG&A expenses rose 9.3% to $187M (revenue guidance for the year was well below consensus views)

Technology, Media & Telecom

·     Internet; SNAP spiked midday after positive comments at investor day after saying it sees "multiple years" of 50%-plus revenue growth, largely due to work on its self-serve ad platform; other than that, not much else other than broad sector selling, specifically in high valuation winners from 2020 (PINS, ETSY, SPOT); FB said it would restore Australian news pages after negotiating changes with the government to a proposed law that forces tech giants to pay for media content displayed on their platforms; SHOP 1.18M share Spot Secondary priced at $1,315; for GOOGL, French state antitrust investigators say in report google breached competition authority’s orders relating to talks with news publishers

·     Semiconductors; TXN was upgraded to Outperform from Market Perform and initiating a $220 price target at Raymond James noting the company has managed to grow earnings and cash flow despite a lack of M&A and looking forward, analog industry consolidation is now near an end, which means there’s no longer a reason to prefer others over TI; overall semiconductor space down with broader technology sell off

·     Software movers; PANW reported solid FQ2 results and provided a better than expected outlook for FQ3 and FY2021 as beat street billings estimates by 2.6%, revenue by 3.2% and operating income by 10% and increased its full year billings growth outlook to 19%-20% y/y from prior growth 18%-19% previously; DBX offering privately $1.135 bln convertible debt deals equally split between 5-yr and 7-yr notes; ZI Q4 beats as strength in the quarter was broad based with Revenue, Operating Income, FCF and Billings all ahead of Street estimates and momentum is expected to continue with initial 2021 revenue guidance of +36% well above expectations; FIVN reported another record quarter, with results and guidance outperforming expectations as lead metrics continue to accelerate from impressive rates; PLTR several insider selling – all 10b5-1 plan sales – but President Cohen sold 2Mm shares @ $26.80; BIGC posted a beat as subscription growth accelerated to low 30s and ARR growth rose above 40%; BOX rises after earlier Reuters report that Starboard Value may launch a proxy fight for three board seats unless the cloud data-storage company takes steps to boost shareholder value