Closing Recap

Wednesday, January 13, 2021

Equity Market Recap

·     U.S. stock markets finish mixed as the S&P 500 and Nasdaq Composite advanced, the Dow was little changed, and the Russell 2000 and Dow Transports pulled back from record highs as cyclicals, energy and financials took a mild breather after strong runs. The yield on the 10-year Treasury slipped for the first time in eight days, the dollar bounced, and oil prices dipped in what was another solid day on Wall Street. Several Fed policymakers have pushed back against the idea of the Fed tapering its asset purchases any time soon, which has boosted stocks further and rallied bonds. The expectations of a massive stimulus package from the incoming Biden administration has also kept the momentum trade higher (details are expected to be released tomorrow by Biden). Meanwhile the House began its impeachment vote of President Trump late day which led to a small pullback in stocks. Consumer Price Index (CPI) for December rises 0.4% and core prices (ex: food & energy) rises 0.1%, both in-line with consensus. In stock news, INTC jumps after announcing a new CEO change and upbeat Q4 guidance, boosting the Philly semiconductor index (SOX) to record highs before slipping. In retail, PRTY stumbles as prelim Q4 misses estimates with URBN on disappointing holiday sales and BIG on Q4 EPS guidance miss; GME spikes to highest levels since October 2015 in apparent short squeeze; homebuilders rally behind KBH earnings beat. The Big week of IPOs kicked off last night with Affirm Holdings (AFRM) jumping in its IPO debut (priced 24.6M shares at $49 last night), with DRVN, POSH, WOOF, PLTK IPOs all expected this week. Defensive sectors helped pace the gains.

Commodities

·     Oil prices erased earlier gains, as WTI crude dipped 30c to settle at $52.91 per barrel, snapping its 6-day rally and falling from 10-month highs yesterday. The EIA weekly inventory report showed U.S. gasoline and distillate inventories rose by a combined 9.2M barrels last week, and demand for gasoline stayed near a seven-month low. Prices had been moving higher after OPEC production supply reductions recently and rising demand hopes given the impact of the Covid-19 vaccine rollout. European countries have announced tighter and longer coronavirus lockdowns on Wednesday over fears about a fast-spreading variant first detected in Britain, but that has not taken the shine of oil prices over the last month.

·     Gold prices advanced, rising $10.70 or 0.6% to settle at $1,854.90 an ounce following an in-line CPI inflation report and as markets prepared for a House vote on impeaching President Donald Trump, for a second time, days before President-elect Joe Biden inauguration on Jan. 20. Trump was impeached by the House once before for abuse of power and obstruction of justice in December of 2019 but acquitted in the Senate.

Currencies & Treasuries

·     The 10-year Treasury yield fell for the first time in 8-days (snapping longest streak since Sept 2017), falling 5 bps to 1.08% after hitting highs of 1.18% the day prior. Yields slipped from highs yesterday after the Fed’s Bullard said it was too soon to talk about tapering and other Federal Reserve officials pushed back against tighter monetary conditions anytime soon, even with the prospect of higher inflation ahead. The U.S. dollar was modestly higher vs. other currencies but remain not far off more than 2-year lows.

Sector News Breakdown

Consumer

·     Retailers; URBN shares slumped after saying total net sales for the two months ended Dec. 31 decreased (-8.4%) from a year earlier, as its stores recorded lower traffic and expects Q4 gross profit margins to take a hit due to higher expenses from increased online sales; TGT said for the November/December period compared with last year: comparable sales grew 17.2%, reflecting comparable store sales growth of 4.2% and comparable digital sales growth of 102%; BGFV posted Q4 sales of $290.5M vs. consensus of $271.32M and sees Q4 adj diluted EPS in the range of $0.78-$0.81 vs. consensus of $0.57 on comp sales of up 10.5%; BIG QTD basic comps +7.5%, reflecting double-digit comps in all merchandise categories other than Seasonal, which is down by a mid-teen percentage due to low levels of Christmas inventory in December and guides year PS $2.40-$2.50 vs. est. $3.02; CRI downgraded at Wells Fargo citing valuation; PRTY said Q4 prelim sales are $645M-$650M, below the $676.5M estimate and comp sales are expected to fall in the mid-single digit range, below the consensus for a 2.3% decline; DECK tgt raised to $412 at BTIG citing a clean channel exiting holiday ’20, coupled with proper segmentation of the UGG brand and robust long term growth avenues for HOKA to pursue

·     Auto sector; GM upgraded to Buy from Neutral with $60 tgt at Nomura and revise earnings estimates to incorporate the upward revisions to our longer-term outlook for the progress of automotive powertrain electrification in the US and China; NKLA said it has secured an innovative electric rate schedule with Arizona Public Service Company; RIDE accepted an invitation from the United States Department of Energy to start the due diligence process toward securing an Advanced Technology Vehicles Manufacturing Loan

·     Housing & Building Products; homebuilders got a boost after KBH reported Q4 EPS and sales above consensus and said it expects meaningfully higher revenue and earnings in 2021 to drive significant expansion of return on equity (LEN, DHI, MTH, BZH other builders); in home improvement retail, HD was upgraded Buy from Neutral at Guggenheim with a $310 price target on the back of the closing of the acquisition of HD Supply, $3.0 billion debt offering and the recent moderation in the shares’ valuation, which has eroded HD’s historical premium.

·     Consumer Staples; SAM downgraded to market perform at Cowen and cuts tgt to $1,000 from $1,250 saying hard seltzer is slowing and getting more competitive, upside to estimates is limited and comps are tougher and higher multiples; GRWG downgraded to Neutral at Roth as believe valuation is stretched near-term; FARM announced a strategic partnership with High Brew Coffee, a manufacturer of ready-to-drink, or RTD, coffee products; ACI was downgraded at BMO Capital saying the valuation gap (pension-adjusted EV/EBITDA) has closed relative to KR;

·     Leisure and Gaming; MSGM 3M share IPO priced at $20.00; in leisure, MBUU upgraded to Outperform from Market Perform with a revised target price of $86 from $56 citing the recent acquisition of Maverick Boat Group, which they think provides immediate accretion of up to $1.00 per share on an annual run rate; New Jersey fell just short in December of becoming the first state to accept $1 billion in sports bets in a single month, but still extended a streak of record-setting months while reaching a record $6 billion in wagers for the year.

Energy

·     Energy stock movers; JPMorgan upgraded XOM to Overweight and raised their target to $56 from $50 as a recovery in earnings and improved capital discipline could lower their breakeven to low-$50s/bbl Brent which limits the risk of a dividend cut, and the company is listed along with PSX, XEC, FANG, PDCE, PXD, BKR, FTI, TRGPand LNG as their top picks in energy, a sector they project to outperform the S&P in 2021; NFE announced it will acquire GMLP and Hygo, a 50-50 JV between GLNG and Stonepeak, in a combined $5B deal https://on.mktw.net/3bACRR3

·     Oil services; Credit Suisse sees US onshore levered names as most likely to see 4Q beats, given that market’s strong and perhaps underappreciated 4Q activity levels, and international levered names at more risk of shortfalls driven by weaker activity levels and mix shift and they increase their price targets on BKR ($20 from $18), SLB ($21.5 from $20), HAL ($14 from $12), NOV ($16 from $15), and CHX ($18.5 from $15); Cowen sees further upside for the sector even after its recent run and keeps BKR as their top overall pick on their exposure to energy transition markets and replaced CHX as a top pick with SLB, FTI;

·     Utilities & Solar; Barclays upgraded WEC to Equal-weight with a $107 pt to reflect the company’s long track record of meeting or exceeding expectations and its above average growth trajectory, similar to comparable peers, and downgraded OGE to UW with a $35 pt exclusively on relative valuation as its 4-6% utility growth rate does not command the premium needed to justify current valuation relative to the rest of our regulated utility peer group and their target’s 12% upside is approximately 10% lower than their average company under coverage given their bias for the group to re-rate higher; HC Wainwright raised its price target on PLUG to a street-high $85 from $60 as yesterday’s JV with Renault cements it as the leading hydrogen and fuel cell play in the world; Truist sees REGI continuing last year’s momentum as it still sees it trading at a double-digit discount to its closest renewable diesel peers, and raises its pt to $105 from $75 on positive corporate initiatives and political and macro tailwinds

Financials

·     Bank movers; Piper downgraded PNC downgraded to Neutral from OW as its outperformance following its BBVA announcement outperformance limits immediate upside, saying they prefer HBAN, and upgraded WTFC to Overweight from Neutral based on its comparatively attractive valuation and its above-average loan production and re-deployment of excess liquidity; Wolfe reiterated their Outperform view on WFC in the long-term with a $36 pt, but is cautious ahead of Friday’s earnings as the stock has significant negative revision risk and is the second-most crowded long according to their survey; Baird downgraded CMA to Neutral with a $60 target; RILY 1.229M share Spot Secondary priced at $46.00

·     Asset managers: AB said preliminary assets under management (AUM) increased to $686 billion during December 2020 from $668 billion at the end of November; APAM Dec AUM totaled $157.8 billion; BEN prelim AUM was $1,497.9 billion at December 31, 2020, compared to $1,466.7 billion at November 30, 2020; IVZ prelim month-end AUM of $1,349.9 billion, an increase of 4.3% versus previous month-end/total net inflows were $11.9 billion; VRTS long-term and total assets under management as of December 31, 2020 of $130.7 billion and $132.2 billion (including $1.5 billion of liquidity assets) respectively; WDR prelim assets under management of $74.8 billion for the month ended December 31, 2020, compared to $72.4 billion on November 30, 2020; TROW prelim AUM of $1.47 trillion as of December 31, 2020, compared to $1.42 trillion on November 30, 2020

·     Insurance; RBC downgraded AJG to Sector Perform with a $124 PT as the stock’s resilience in 2020 means it is fairly valued right now and reflects expectations that favorable trends persist throughout 2021, and they also see opportunity for multiple expansion and expect bullish management commentary for P&C stocks ahead of earnings, favoring ACGL, MKCand CB, and MET, EQHand AEL in life

·     Consumer Finance; AFRM 24.6M share IPO priced at $49.00 (opened at $90.90 and traded over $100); Visa (V) and Plaid terminated their merger agreement and agreed with the Department of Justice to dismiss the litigation related to the proposed transaction; ALLY announces up to $1.6 billion share repurchase authorization and dividend on common stock; Jefferies upgraded MA and V (Visa) to Buy from Hold after the two companies have recently underperformed despite an accelerated shift to digital payments and also raised their price targets on Buy-rated PYPL (to $280 from $230), GPN (to $235 from $210), and FLT (to $315 from $285); BMO recommends buying auto lenders, seeing 20% upside in ALLY and 50% in SC; Truist reiterated their Buy rating on EEFT and lifted their target to $195 on better travel volume post-vaccine rollout and also raised their price target on Buy rated TREE to $350 from $340 following their report of better-than-expected preliminary Q4 results yesterday, and the stock’s pt was also raised at Bank of America to $380 from $350 but downgraded to Market Perform at Northland; Wedbush believes the regulatory outlook is better than feared after the recent Dem sweep in the GA Senate runoffs and is positive for networks MA, V (Visa), merchant processors FISV, FIS, GPN, and two-sided monetization platforms SQ, PYPL

·     REITs; Jefferies sees some degree of mean reversion in Office REITs as workers return from WFH and upgrades KRC to Buy with $66 pt as the best candidate in the sub-sector, and they also upgraded RPT, DOC, FR, HR, AKRand TRNO to Buy; Mizuho downgraded OHI and SBRA to Neutral in skilled nursing on uncertainty surrounding future stimulus support, the slow vaccine rollout delaying the recovery of the skilled nursing segment, and concerns about the rise of home health, and they also downgraded NHI to Underperform in senior housing as the recent spike in Covid cases should continue to pressure occupancy

Healthcare

·     Pharma movers; New York Times reported JNJ may not be able to deliver as many vaccine doses as initially anticipated because of manufacturing delays; BHC said it expects its Q4 revenue will be greater than $2.20B (est. $2.12B); anticipates gull year will outperform high end of its latest revenue guidance range; LGND received a $1.5M milestone payment from MRK, triggered by the FDA acceptance for review of a biologics license application for V114; FLXN said sees 4Q sales $26.3Mm vs. est. $25.7Mm, sees FY sales $85.5Mm vs. est. $84.9Mm; QLI rises in second day of trading after doubling yesterday after 5M shares IPO priced at $5; GMAB receives $40M milestone payment in ABBV collaboration; ACOR rises after enters definitive agreement with contract CTLT to sell its manufacturing facility for its Parkinson’s disease treatment Inbrija for $80 mln in cash

·     Biotech movers; REGN said the U.S. Department of Health and Human Services and the Department of Defense will purchase additional supply of the Casirivimab and Imdevimab antibody cocktail for use in non-hospitalized COVID-19 patients to meet the federal government’s Operation Warp Speed goals; SRPT and Genevant Sciences enter into research collaboration and option agreement for the delivery of LNP-gene editing therapeutics in Sarepta’s pipeline for neuromuscular diseases.

·     MedTech and Equipment; CMS announced that the MCIT (Medicare Coverage of Innovative Technology) proposal (announced in August ‘20) has been made into a final rule. Under this new rule, medical devices with FDA Breakthrough Device Designation will be eligible for up to 4 years of national Medicare coverage simultaneously with FDA approval; GKOS sees Q4 2020 sales about $73M (est. $67.8M) and sees FY 2020 sales about $225 mln (est. $219.45M); DHR sees revs about +38.5% vs. est. +43%, says 4Q core rev growth driven primarily by better performance in life sciences and diagnostics; STIM reported preliminary Q4/20 revenue that beat both our estimates as well as the company’s previously issued guidance. STIM expects Q4/20 revenue in a range of $15.0-15.5M, compared to our $13.3M estimate and guidance of $13.0-13.5M

Industrials & Materials

·     Transports; Dow Transports fell from all-time record highs the day prior with a general pullback (airlines led strength yesterday, rails the day prior); Barclay’s downgraded EXPD from Equal-weight to Underweight w/ $92 pt, CNI upgraded from Underweight to Equal-weight and HUBG upgraded from Underweight to Equal weight

·     Paper & Packaging; UBS initiated coverage on a few names with PKG a sell and $112 tgt and IP sell and $40 tgt as expect oversupply and lower OCC prices will result in lower containerboard prices and margins starting in 2Q21 (expect PKG to decline 20% as the outlook for EBITDA growth in 2022 disappoints and IP to decline 23%); GPK init neutral and $18 tgt noting GPK’s business is ~80% supermarket consumer packaging and industry volumes are flat over the last three years; WRK top pick at buy and $59 tgt as see a path to a stronger product mix, debt reduction and ultimately higher returns over the next two years

Technology, Media & Telecom

·     Semiconductors; INTC jumps after CNBC’s David Faber first reported that CEO Bob Swan to step down effective February 15 and VMW’s Gelsinger to replace him (later confirmed by INTC which also said it expects to exceed Q4 EPS and rev view); QCOM said it plans to buy Nuvia Inc. for its flagship smartphones, driver-assistance systems, laptops and networking infrastructure in cash deal valued at $1.4B; AMBA was upgraded from Neutral to Buy with $130 tgt at Roth as believe AMBA represents a differentiated investment opportunity in computer vision and low power video processors; ACLS raises Q4 EPS view to approximately 32c from 21c (est. 21c) and boosts Q4 revenue view to about $120M from $110M (same as estimates) as well as gross margin view; ON tgt raised to $39, reit buy at Mizuho as new ON CEO priorities focus on growth, GM and portfolio positioning driving manufacturing footprint; QRVO, MTSI top overall names in semis at Cowen as recent checks indicate lead times being extended through May for several kinds of chips sold across auto, consumer electronics and industrial market

·     Software movers; ZM 5.1M share Secondary priced at $340.00; PLTR downgraded to sell from neutral at Citigroup following the 150% advance since its listing, making the stock vulnerable’ this year, especially with upcoming lockup expiration, likely deceleration in growth; TTWO downgraded at KeyBanc citing valuation & concerns over slate of games; CVLT upgraded to overweight at KeyBanc, its second analyst upgrade in as many days; FTNT tgt raised to Street high $180 at Oppenheimer as see longer-term potential for ENS to participate in faster-growing new energy markets, including EV charging

·     Media & Telecom movers; TEF soared had agreed to sell its mobile phone masts in Europe and Latin America to AMT for 7.7 billion euros ($9.41 billion) in cash; in telco, Wells Fargo said top stock picks for the year are TMUS (wireless carriers), CONE (data centers) and SBAC (wireless towers); DIS tgt raised to $200 from $185 at Guggenheim primarily to better reflect assumptions for sports content expense timing, studio margins, and the near- and long-term pace of an anticipated parks and resorts recovery; Guggenheim said WWE shares remain attractive (reit buy and $66 tgt) vs. a peer comp of live event companies as shares rallied

·     Hardware & Component news; Wedbush positive on AAPL saying Asia supply chain checks for iPhones continue to be incrementally bullish around iPhone 12 5G demand and have now exceeded even our "bull case scenario" for units in FY21 given the current trajectory – While the Street is forecasting roughly 218 million iPhone units for FY21, they believe based on the current trajectory and in a bull case Cupertino has potential to sell north of 240 million units; SWCH upgraded to Buy at Jefferies saying earnings growth has inflected with an acceleration of leasing volume along with margin expansion; DBX said it would reduce global workforce by 11%

·     Networking and Optical; NPTN tgt to $12.50 from $9 at Needham saying Neo is producing strong growth, improving its balance sheet has improved and the shift to higher speed optics plays directly to its strengths; CIEN tgt raised to $65 from $58 at Needham as well