Closing Recap

Thursday, May 20, 2021

Equity Market Recap

·     Stocks averages finished sharply higher as the S&P 500 index avoided its longest losing streak since late February (snaps 3-day skid) as investors once again took advantage of yesterday’s market pullback after Fed tapering comments to add to positions, especially in recently beaten-up tech stocks. Retailers, transports, and energy stocks were the source of funds today as the Nasdaq powered higher by over 1.7% to lead major averages. Economic data was better as jobless claims declined for a seventh straight week. Treasury prices rise as the dollar and yields decline along with a further pullback in oil prices. The April FOMC minutes yesterday showed Fed talked about tapering though economists do not seem to be changing their tapering timeline. Crypto volatile again as a more than 10% rally in bitcoin was clipped midday after the U.S. Treasury Department called for new rules that would require large cryptocurrency transfers to be reported to the Internal Revenue Service. The proposal came one day after a brutal sell-off on concerns over tighter regulation in China and unease over the extent of leveraged positions among investors sank the world’s biggest cryptocurrency to its lowest level since late January.

·     Sector/stock movers; Retailers generally among the worst decliners in the S&P – KSS despite its beat on warnings of margin pressure, $LB dropping despite its beat and positive analyst commentary, RL on its comp sales miss with weaker-than-expected sales guidance; CPRI, PVH also among worst performers being weighed by group; HRL leads the S&P after its beat-and-raise, while PLCE WOOF gain after their earnings despite other retailers falling today on earnings; solar continues yesterday’s outperformance as CSIQ rises on strong guidance, SEDG SHLS move higher after Goldman upgrades both; OTLY opens at $22.12, 30% above its IPO price; other alternative food BYND also outperforms on the day.

Economic Data:

·     U.S. jobless claims fell to 444K in latest week from 478K prior and compared to the 450K est.; continued claims rose to 3.751M in latest week vs. est. 3.640M; the 4-week moving average fell to 504,750 from 535,250 prior and the U.S. insured unemployment rate rose to 2.7% from 2.6%

·     May Philly Fed Business Outlook reported at +31.5 vs. +45.0 estimate and down from +50.2 prior

·     The Leading Economic index stood at 113.3 in April, up 1.6% compared with March. The rise broadly matches expectations from economists who forecast the indicator to increase by 1.4%. In March, the index rose by 1.3% compared with the previous month.

Commodities

·     Oil prices slide with WTI crude down -$1.31 or 2.07% to settle at $62.05 per barrel, falling for a 3^rd straight session on reports progress was made towards a deal to lift sanctions on Iran, which could boost crude supply. Gold manages a modest $0.40 advance to settle at $1,881.90 an ounce, after surging to a four-month peak on Wednesday, getting a boost from the plunging dollar and Treasury yields, but held back as investors poured money into riskier assets such as stocks. Investors shrugged off the Fed’s hints on possible tapering of economic support measures in its Fed minutes policy statement yesterday. Fed minutes showed "a number" of officials thought that if the recovery holds up, it might be appropriate to begin discussing a plan for adjusting the pace of purchases.

Currencies & Treasuries

·     The U.S. dollar was punished again, retreating yesterday’s gains as the dollar index (DXY) moved back below the 90 level (highs 90.23 vs. low 89.77), falling on a weaker Philly Fed outlook, while jobless claims was better than expected. Treasury yields continued to fade all afternoon, also putting pressure on the greenback, seeing the 10-year down 5 bps from Wednesday’s post-minutes highs, at 1.64%. U.S. sells $13 bln indexed 9-yr 8-mo notes at high yield -0.805%, awards 63.74 pct of bids at high with bid-to-cover at 2.50 for 10-yr TIPS.

Sector News Breakdown

Consumer

·     Retailers; LB Q1 adj EPS $1.25 vs. est. $1.21 on revs $3.02B vs. est. $3.01B, guides Q2 EPS $0.80-$1.00 vs. est. $0.76 and says Q2 sales should be 10-15% above 2Q19 levels; BJ reported Q1 adj EPS 72c vs est. 58c on revs $3.87Bvs est. $3.66B, comps ex-gas -5% YoY (vs. est. -8.4%); KSS posted Q1 adj EPS $1.05, well above est. (2c) loss on revs $3.89B vs est. $3.5B, gross margin 39% vs est. 35.6%, sees FY22 EPS $3.80-4.20 (est. $3.09) and revs increasing mid-high teen percentage; PLCE Q1 adj EPS $3.25 and revs $435.5M handily topped even the most optimistic view (consensus called for a (2c) loss on revs $359.3M), comp sales +83% vs est. +42%; RL reported Q4 adj EPS 38c vs est. (69c) loss (though estimates ranged from (52c)-$1) on revs $1.29B vs est. $1.21B, comp sales -4% vs est. -2.8%, announced it will reinstate its dividend in the upcoming quarter at 68.75c, and expects FY22 revs to increase 20-25%, below est. +31.1%; CATO Q1 EPS 92c on revs $213.1M, comp sales +111% YoY; SCVL Q1 EPS $3.02 vs est. $1.40 on sales $328.5Mm vs est. $274.4Mm, guides Q2 sales $268-278M (est. $281.9M) and sees 2Q EPS $1.00-1.20 vs est. $0.94; Morgan Stanley raised their price target on DKS to $93 ahead of Q1 results; POSH partners to bring social shopping to SNAP

·     Auto sector; Ford (F) rises on reports the auto maker plans to undercut several rival producers of electric pickup trucks when its battery-powered F-150 goes on sale next year as they said the F-150 Lightning will have a starting price of $39,974 when it arrives in showrooms next year; Ford also to form a battery joint venture in the United States with South Korean battery maker SK Innovation; TSLA plans to hold a Model S Plaid delivery event at June 3 from the Fremont factory, per a tweet from Elon Musk; LAD 3.11M share Secondary priced at $322.00; RIDE downgraded to Underperform at Wolfe research with $1 price tgt; CPRT rises on earnings beat

·     Consumer Staples; OTLY 84.376M share IPO priced at $17.00 per ADS; HRL said profit remained flat in Q2, but that it has upgraded its sales forecast for the full year – said Q2 volume fell 3%; SJM named a catalyst call buy idea at Deutsche Bank ahead of earnings as points specifically to initiatives from management and strong execution; MCD held its shareholder meeting today; SYY targets fy24 adjusted eps to be more than 30% above; targets fy24 adj eps to be more than 30% above adj fy19 eps; commits to strong balance sheet

·     Restaurants; CMG upgraded to Buy from Neutral at UBS with a price target of $1,700, up from $1,575 given increased visibility into a compelling multi-year growth opportunity, upside to Consensus earnings and a risk/reward (3:1) which skews significantly to the upside; WEN upgrade from Hold to Buy at Argus with $27 tgt saying the co continues to benefit from new menu items, low single-digit unit expansion, and accelerated investments in its digital business; DIN said its IHOP® segment unveiled the latest plans to launch a pilot of its new fast-casual concept, flip’d by IHOP (flip’d), aiming to address the growing demand for made-to-order meals; JACK tgt raised to $139 at Truist as view JACK’s ability to accelerate development as the key driver of its stock over the next 3-4 years; DPZ CFO Stuart Levy is resigning to pursue other opportunities

Energy

·     Energy stock movers; sector underperformed as money rotated out of recent winners (industrials, materials and energy); energy stocks outperformed coming into this week with oil prices at multi-year highs – but as prices have dropped this week, so have majors and other segments of the commodity complex

·     Refiners: Goldman downgraded HFC to Sell with a price target of $34 from $36 due to uncertainty surrounding the company’s capital allocation strategy, their less favorable views on crude differential where HFC’s refining margins are highly correlated, their view that the company’s renewable diesel project is less advantaged than peers, the stock’s more expensive valuation vs peers on a FCF basis, and their 2022 EPS estimate being 28% below consensus

·     Utilities & Solar; CSIQ Q1 EPS 36c missed est. 41c on revs $1.09B vs est. $1.05B, total module shipments 3,139 MW (+42% YoY, +5% QoQ), and sees Q2 revs $1.4-1.5B (est. $1.37B); Goldman upgraded SEDG to Buy, albeit with a lowered pt of $290 from $312, as they say the company is better positioned to weather supply constraints that include chip shortages than its peers (ENPH) and also upgraded SHLS to Buy as they expect the company’s business to outpace the industry due to greater adoption of its EBOS (electrical balance of system) solution, the company’s EV-related offerings; Barclays initiated AGR at Equal-Weight with a $66 target as they wait to see if they will be able to continue executing as it shifts its focus to solar and offshore wind

Financials

·     Bank movers; BAC positive mention by Wells Fargo, calling it the best rate play among large banks as it is est. 3x more sensitive to higher rates than traditional banks; in insurance; ALL reported catastrophe losses for April of $544M, comprised of 5 events, -17% YoY with an estimated cost of $490 million plus unfavorable prior period reserve estimates; REITs; at JPMorgan, ACC, FRT upgraded to Neutral, REG upgraded to Overweight, CPT, PEAK both downgraded to Neutral in commercial real estate; in lending, TREE upgraded to Outperform at Northland as sees an improved risk/reward

·     Bitcoin recovers from a near four-month low as other cryptos follow suit, as major backers Tesla chief Elon Musk and Ark Innovation CEO Cathie Wood – indicate their support for the currency. Prices dropped yesterday as China’s crackdown on cryptocurrencies weighed on the industry. Prices were strong early today but pared gains after the U.S. Treasury said “we call for crypto transactions of more than $10,000 to be reported to the IRS” which took the steam out of the crypto trade early afternoon https://cnb.cx/3wp5FmG and https://on.wsj.com/3f4OIrX . Yesterday, Bitcoin dropped as much as 31% Wednesday to near $30,000, and Ether was 44% down at less than $2,000 at one stage.

Healthcare

·     Pharma movers; PFE and BNTX said they have reached a new agreement with the European Commission to supply up to 1.8 billion additional doses of their COVID-19 vaccine; MRK was downgraded to Hold from Buy at Argus amid uncertainties about its growth and margin profile as it prepares to spin off Organon; LLY said tirzepatide met all primary and key secondary outcomes in a final Phase 3 study in adults with type 2 diabetes and increased cardiovascular risk; SEEL 19.35M share Secondary priced at $3.10; INVA announced an agreement with GSK to purchase GSK’s equity stake in the company in a deal valued at $392M.

·     Biotech movers; attention turning to American Society of Clinical Oncology (ASCO) Conference in 2-weeks, with abstracts released last night for many names; VTGN shares rose after Baird started coverage with an outperform rating and price target that implies a nearly three-fold gain in the stock; INCY said data from the primary analysis of the phase 2 trial optimizing ponatinib treatment in patients with chronic phase-chronic myeloid leukemia, or cp-cml, met its primary endpoint; ALLO upgraded to Buy at Truist as find Allogene’s data at ASCO – particularly in large B-cell lymphoma to be encouraging – reported durability with six-month CR=36% in LBCL being the highlight given on par with historical data for autologous CART as per RBC; BDTX shares fell after the company posted early-stage results of BDTX-189 in treating certain patients with advanced solid tumors

·     Healthcare Services; HIMS was upgraded to Outperform at Credit Suisse as sees strong business momentum with possible upside to second half of 2021 revenue estimates; WOOF with a beat and raise quarter as Q1 adj EPS 17c/$1.4B was above 9c/$1.27B and raises FY21 adjusted EBITDA view to $550M-$560M from $520M-$530M as well as EPS and rev outlook

Industrials & Materials

·     Aerospace & Defense; SPCE shares rise as the co confirms next rocket powered test flight of SpaceShipTwo VSS Unity to be conducted on May 22; this follows the completion of a maintenance review of VMS Eve, the mothership jet aircraft designed to carry SpaceShipTwo to an altitude of ~50,000 feet; GILT awarded over $4 million in orders for support of low earth orbit constellation; TGI Q4 adj EPS 10c vs. est. 8c as Q4 revs better at $466.83M vs. est. $436.26M though is not providing guidance for the year

·     Industrial & Machinery; IR upgraded to Buy from Hold at Deutsche Bank and raise tgt to $54 from $50 noting it is the third worst performer in the MI/EE group year-to-date, and sees the current level as an optimal entry point into a very high quality; FTV was upgraded to Overweight at JP Morgan with higher $80 tgt saying is impressed with the company’s ongoing portfolio transformation and now has more confidence in business quality and execution

Technology, Media & Telecom

·     Semiconductors; MX rises early after Seeking Alpha noted that the MagnaChip CEO reiterated that the deal with PE firm Wise Road shouldn’t raise concerns about China and technology transfer; NVDA was assumed w/ Overweight and $700 pt at Keybanc based on belief it is best positioned to monetize one of the fastest and highest value add workloads in the data center in AI/ML and CUDA software and developer base represents one of the deepest competitive moats in semis, while the emerging software revenue opportunity could re-rate NVDA further; SIMO downgraded to Underweight at Morgan Stanley saying it should be very difficult for the company to maintain strong growth momentum into 2022; ADI upgraded at Bernstein post earnings

·     Software movers; KNBE reported solid results that delivered both a top and bottom-line beat, including free cash flow, in their first quarter as a public company with growth driven by both new customer wins and upsell in their existing base; PCOR 9.47M share IPO priced at $67.00; SNPS boosted its adjusted earnings forecast for the full year, topping the average analyst est.

·     Hardware, Components & Services; CSCO FQ3 results did come in above expectations and some lead metrics grew double-digit, but guided Q4 outlook below estimates (Q4 EPS $0.81-$0.83 vs. est. $0.85) as cautions supply chain issues will linger through end-2021; KEYS delivered another solid quarter according to Stifel with underlying demand metrics that demonstrate continued end-market improvement as order growth accelerated (+22% y/y, +9% q/q)

·     Media & Telecom movers; VIAC upgraded to Buy from Underperform at Bank America and up tgt to $53 from $38 saying in their view, VIAC’s deep breadth of content has value as an entire entity or if sold in individual parts; LUMN downgraded to Perform at Oppenheimer saying its legacy businesses face secular pressure, and it will take a few years before higher growth areas offset this; VZ announced deployment of 5G ultra-wideband in 14 additional arenas, multi-year deals as 5G partner of 15 @NBA teams who play at these venues