Closing Recap

Wednesday, January 20, 2021

Equity Market Recap

·     U.S. stocks soared on Wednesday, with new record highs for the Nasdaq Composite, boosted by NFLX up 17% after sub numbers beat, (boosting the “FAANG” names as AMZN, AAPL, FB, GOOGL all paced the gains) as investors continue to chase market outperformance. The semiconductor index (SOX) touched intraday record highs before reversing lower in a bout of profit taking. The S&P 500 index also with record highs as most sectors rallied outside of the defensive ones (utilities and consumer staples again lagging). Oil prices jumped lifting energy stocks, banks were mixed after another round of earnings (MS, BK, USB, CBSH).

·     Markets rallied as Joe Biden was sworn in as the 46th president of the U.S. and Kamala Harris was sworn in as vice president, the first woman to hold that role. His calls for additional stimulus fiscal relief measures have been a big boon for stocks since the election, with rising expectations of bills being aggressively pushed without much push back given that Democrats now hold control of the Senate and House in what has been a rough period for Republicans. Overall, the ongoing fear of missing out (FOMO) continues to boost this market, as investors and traders chase performance in a market that has seen a massive bull run from the pandemic lows last March. President Trump leaves office today with stock markets at record highs, substantially higher than where it started when he entered the White House, even with the experience of an unprecedented pandemic. From his inauguration until market close yesterday, the S&P 500 is up 68%, the Nasdaq is up 138% and Dow Jones Industrial Average rose 57%.

·     In stock news, NFLX soars to record levels after new subscriptions beat estimates, also lifting competitors DIS, AAPL as well as other big tech AMZN, MSFT, GOOGL, FB; BK, USB, FAST the 3 worst performers in the S&P after they each reported earnings; in autos, Ford, GM both hit 52-week highs after Deutsche Bank lists both as Buy ideas; sports gaming stocks get a boost after Credit Suisse initiates a Buy and street-high price target on PENN and Morgan Stanley upgrades DKNG with a $179 bull case; shares of INSG, QCOM, MRVL, SWKS among 5G-related names to hit 52-week highs; Homebuilders ETF hits record highs as LEN, MTH, DHI, MTH outperform.

Commodities, Currencies and Treasuries

·     Oil prices rallied with the rest of the stock market, though finished off the best levels earlier, as WTI crude gained 26c or 0.49% to settle at $53.24 per barrel (earlier highs $53.79),rising again on the same expectations that the incoming U.S. administration will deliver massive stimulus spending that will lift fuel demand and enact policies that will tighten crude supply. The move higher comes ahead of weekly inventory data tonight (API) and tomorrow morning (EIA). Brent topped $56 per barrel, rising with other assets on hopes of more U.S. economic stimulus and a weaker dollar. Recall on Tuesday, U.S. Treasury Secretary nominee Janet Yellen urged lawmakers to "act big" on pandemic relief spending, which boosted oil prices. A record output cut by OPEC and its allies, a group known as OPEC+, last year helped lift prices from historic lows.

·     Gold prices jumped on the day, climbing $26.30 or 1.4% to settle at $1,866.50 an ounce (highest levels in about 2-weeks), while the U.S. dollar was mixed, rising against the euro, but slipping vs. the Japanese Yen and British Pound as the dollar index (DXY) was mostly little changed at 90.50. Treasury yields were little changed despite the surge in stocks, as the 10-year yield held just below the 1.10% level, pulling back from one-year highs of 1.18% last week.

Sector News Breakdown

Consumer

·     Retailers; Morgan Stanley reiterated its bullish Off-Price outlook and OW BURL, ROST, TJX on a likely reversal of 2020’s underperformance, easy y/y compares, and an expanded store market share opportunity vs. pre-pandemic (raises tgts on all three and says NKE remains top Brands pick); MIK was downgraded to underweight at Morgan Stanley saying doesn’t see a sustainable higher level of growth and believes the market is pricing in too much optimism (also downgraded OLLI and upgraded SBH and WSM; ELY tgt raised to $40 at Jefferies as expect robust demand for the sport will continue for the foreseeable future as consumers’ leisure time and spend face lessened competition; retailers were mixed though online presence names rose (AMZN)

·     Auto sector; TSLA another positive analyst comment as Oppenheimer raises its tgt to $1,036 from $486 citing stock’s huge ongoing rally (sky-rocketed 743% in 2020) and more data than competitors on vehicle safety to validate full autonomous mobility; GM tgt raised to $64 from $48 and Ford (F) to $11 from $9 as both named catalyst call buy ideas at Deutsche Bank, while also raised tgts on auto suppliers (AXL, DAN, GT, LEA, VC, TEN, VNE) and TSLA tgt raised to $890;

·     Housing & Building Products; CCS, PHM tgt and estimates raised in homebuilders at Wedbush ahead of earnings in the sector; AZEK files prospectus relating to sale of up to 17.5M shares of class a common stock by selling shareholders; sees Q1 revenue $209.1M-$213.4M vs. est. $201.6M; the January NAHB Housing Market Index: 83 vs. 86 consensus and 86 prior as the present single-family sales: 90 vs. 92 prior

·     Consumer Staples & Restaurants; PG reported Q2 core eps $1.64 vs. est. $1.51, sees FY organic revs +5% to +6%, up from prior view +4% to +5% and boosts its planned FY21 stock buybacks to up to $10B from a prior range of $7B-$9B; KR and ACI both downgraded to underweight from equal-weight in grocers at Morgan Stanley; BYND downgraded to Neutral from Buy at BTIG as believe growth through the retail channel will not be enough to sustain the growth rate and hefty trading multiple in 2021; ELF downgraded to neutral from OW at Piper, stepping to the sidelines following a strong 2020 (ELF shares up 60% vs. SPX +16%); DIN added to Wedbush Best Ideas List

·     Leisure and Gaming; DKNG upgrade to Overweight with $60 tgt at Morgan Stanley (bull case $179) as expect DKNG to start to talk about profitability in NJ, as FanDuel did, countering the bear thesis that the industry will never be profitable; in leisure, PII upgrade to Outperform with $136 tgt saying strong recreation retail demand is well known; in lodging, VAC reports Q4 prelim sequential 25% growth in ownership’s contract sales; PENN was initiated outperform and $128 tgt at Credit Suisse based on four key factors: (1) upside from pandemic-related savings and recent acquisitions as the topline returns, (2) upside to targeted cost savings, (3) better-than-expected margins in sports betting, and (4) PENN’s potential leadership in iGaming.

Energy

·     Energy stock movers; Stephens upgraded HAL to Overweight and raised its price target to $25 from $14; PUMP guides Q4 revenue $151M-$157M vs. consensus $149.21M ans still sees FY21 Capex below $85M; Truist lifted their price target on GPRE to a street-high $28 following yesterday’s investor call; Cowen raised its pt on FANG to $75 from $60 on expectations of a constructive update on their pending Guidon/QEP deals; Citi raised its target on COP to $60, saying the stock is currently undervalued and the market is underestimating its CXO acquisition and that they expect new catalyst to emerge within the next 90 days

·     MLP Sector; JPMorgan sees the MLP sector having a favorable backdrop given recovering crude prices and a gradual increase in demand through this year even after its recent run (AMZ +44% since 11/6), and they upgraded NS to Neutral and reiterated their OW rating on HEP; Mizuho raised their price targets on BPMP, ENLC, EPD, MMP, NS, OKE, PAA, TRGP, WES, WMBand DCP as the past year reset these companies’ business strategy for the better, including a heightened emphasis on capital discipline and FCF generation

·     Utilities & Alt Energy; GEVO 43.75M share registered direct offering priced at $8.00; Kerrisdale disclosed a short position in PLUG after the stock’s recent run (it has almost doubled in the past few weeks and is up 15x in the past year) as it now trades at 40x the company’s own aggressive 2024 revenue projection, though they say it is only set to generate $300M in 2020 rev and are skeptical that hydrogen will be a part of the energy transition given its inefficiencies and expenses

·     Solar: Credit Suisse downgraded BE to Neutral on valuation but raised its target to $32 from $27 after pricing in the recent blue sweep, which now includes higher growth rates given likely tax credit extensions and a potential zero-carbon policy that would drive hydrogen fuel cell demand, and they also used this rationale to lift the price targets on NOVA (to $48 from $40), ENPH (to $150 from $93), FSLR (to $70 from $64), SEDG (to $284 from $235), and SPWR (to $23 from $16), as well as NEP (to $86 from $71) given support for renewable projects, including wind repowering development; JPMorgan remains positive on alt energy after the recent stimulus and election results, though recent outperformance and elevated multiples means these stocks may experience increased volatility around earnings, and they recommend adding to positions on pullbacks and highlight RUN, NOVA as top growth ideas and HASI as their top income idea

Financials

·     Bank movers: BK among the worst performers in the S&P after earnings as Q4 revenue fell 19.6% to $3.84 bln, dragged down by a fall in fee revenue and net interest revenue and Q4 EPS of 79 cents, was nearly half as much as a year ago (though results topped views); MS Q4 profit surges ~57% (EPS $1.81 beat the $1.27 est.) as its trading business benefited from volatility in financial markets and revs of $13.6B top the $11.54B estimate and confirms plans to buy back $10 bln of shares this year; ZION quarter was highlighted by the better-than-expected credit metrics and significant reserve release that led to the EPS beat along with stronger deposit growth; CBSH, CFG, FULT among other banks out with earnings results in banks; USB Q4 EPS of 95c, beats by a penny and Q4 provision for credit losses of $441M vs. $635M in Q3; IBKR Q4 adj EPS 69c vs. est. 59c and reports Q4 revenue $599M vs. est. $558.85M; Q4 commission revenue showed strong growth, increasing $120M, or 71%, from the year-ago quarter.

·     Consumer Finance; RBC thinks that their and the street’s estimates for payment companies in FY21 could be too high given the re-imposition of lockdowns, seeing FIS, FISV, FOUR, GPN, MAand Visa (V) with the highest risk and lowering their estimates on FIS, FOCS, GPNand V Piper lowers its 4Q20 and 1Q21 end-to-end volume growth and revenue estimates for FOUR after the company’s disappointing December transaction data, though they remain Overweight and view the setback as transitory; Mizuho sees the potential for MOGO to become Canada’s version of PYPL or SQ’s Cash App as management sees its user base almost tripling and average user revenue doubling-tripling over the next 305 years

·     Business Services; CLCT shares rise after saying sees Q2 preliminary revenues to be ~$35.4M; gross margin is expected to be ~64% and adj. operating income of ~$10M and amends merger agreement to $92 per share https://bit.ly/2NehElS ; RPAY announced a technology integration with BTRS, a B2B accounts receivable automation and integrated B2B payments leader, to give corporate customers the ability to automate electronic payments to Billtrust’s vast network

·     REITs; Morgan Stanley downgraded XHR to Underweight in lodging after the stock rose 73% in 4Q20 and is already up another 10% YTD, and they see 21% downside with a $13 price target as they see its earnings recovery disappointing given its exposure to urban, higher-tier, group, and corporate hotels; GEO’s contract for the Moshannon Valley Correctional Facility in Pennsylvania was not renewed by the Federal Bureau of Prisons; Evercore downgraded UDR, AMH, INVH to In-Line and upgraded ESS, EQR to Outperform

Healthcare

·     Pharma movers; MRK received approval from U.S. regulators for Verquvo, a treatment to reduce the risk of cardiovascular death and hospitalization from heart failure; BMY said the FDA accepts for priority review application for Opdivo® (nivolumab) combined with chemotherapy as first-line treatment in metastatic gastric cancer, gastroesophageal junction cancer and esophageal adenocarcinoma; Citigroup opening a positive Catalyst Watch on LLY ahead of presentation of donanemab data at the AD/PD conference on March 13^th; SYRS 5.4M share Secondary priced at $14.00; TCRR 4.59M share Secondary priced at $30.50

·     Biotech movers; UTHR tgt raised to $200 at Cowen after additional data from the successful INCREASE study of Tyvaso in PH-ILD which included KOL perspectives and the company’s plan for commercial launch; BTIG said they continue to believe this TreT/Tyvaso DPI program is transformative for MNKD, as it is to receive low-double-digit royalties on sales, and will manufacture TreT, helping with overall margins; BLRX 12.5M share Secondary priced at $2.40; ADMP surges after submits application with U.S. FDA to start clinical trial of its experimental drug, Tempol, in COVID-19 patients

·     Healthcare services and providers; Dow component UNH the first with earnings in managed care space as Q4 adj EPS $2.52 vs. est. $2.41 and reports Q4 revenue $65.47B vs. est. $65.06B; backs FY21 adjusted EPS and revenue outlook

·     MedTech and Equipment; SWAV downgraded to Neutral at Piper on valuation and raise tgt to $132 from $96) and believe the resurgence of COVID-19 cases and fairly high buy-side expectations make for a less-than-optimal set up heading into the Q4 / Q1 print; BNGO 33.333M share Spot Secondary priced at $6.00; HAE announced this am that it would be acquiring privately-held Cardiva Medical in a deal worth up to $510M, with $475M in cash up-front

Industrials & Materials

·     Industrial & Machinery; CAT was downgraded to neutral from buy at Citigroup as estimates are raised to reflect stronger end mkt outlooks and our price target goes to $205 – but says the stock is stuck between favorable reflation/value dynamics as a global growth bellwether, and micro factors that may limit the earnings upside

·     Transports; DAL was upgraded to buy from hold at Argus and setting a price target of $48 saying while the first half of 2021 will be difficult, with management projecting a 60%-65% decline in 1Q revenue, they expect a return to profitability in the second half of the year and in 2022; in truckers, JBHT with 4Q EPS $1.44 vs. est. $1.29 on revs $2.74B vs. est. $2.57B as Q4 Intermodal Segment revenue was down 1% at $1.25B; BEST rises on reports the Chinese logistics is considering a sale as part of a strategic review

·     Metals & Materials; LAC 15.9M share Spot Secondary priced at $22.00; UFS upgraded to Buy from Neutral at Bank America citing supply constraints and a pickup in Chinese paper-market fundamentals, as well as other factors including the impact of a weaker US dollar

Technology, Media & Telecom

·     Internet; NFLX shares lead the Nasdaq Comp higher on better subs and FCF guidance while Q4 EPS/sales miss to in-line – Q4 global streaming paid net additions of 8.51M vs. guidance 6.0M; sees Q1 EPS $2.97 above est. $2.10 and says will explore returning cash to shareholders through ongoing stock buybacks, anticipate FY21 to be free cash flow breakeven; BABA rises Jack Ma resurfaced for the first time since China’s government began clamping down on his business empire nearly three months ago (shares od DIS, ROKU, FUBO rallied in sympathy with subs)

·     Semiconductors; Philly semiconductor index (SOX) reached another record high (before sliding late morning) as chip shortages highlight demand in the industry; semi equipment names taking a breather (AMAT, LRCX, KLAC), lagging in the semi space after massive surge over the last week on rising capex expectations for the industry; ASML Q4 results came in better than expected due to strength in the memory-chip segment; bookings were strong in the quarter at EUR4.2 billion, with both memory and logic contributing to the company’s order intake; 5G push gaining traction after positive comments in sector by Jim Cramer on CNBC (noting massive chip shortage – especially for auto) and after Motley Fool names 5G top tech investment space for 2021 (yesterday) – anything with 5G, or IoT (Internet of Things) seeing mass buying lately: SWKS, QCOM, MRVL, INSG, AIRG, MU, etc.

·     Hardware & Software movers; TWLO tgt raised to $400 from $370, and highlight RNG, AVLR, LPSN, and ZI heading into the December quarter results in SaaS preview at Mizuho; PERI 4.99M share Spot Secondary priced at $11.50; not much in way of news other than more positive analyst commentary into earnings season