Closing Recap

Tuesday, October 26, 2021

Equity Market Recap

·     Earnings season seems like it has the potential to be the latest catalyst for markets as stocks have extended gains given the recent positive earnings (coming into today, 23% of the companies in the S&P 500 reported EPS with 84% above estimates, which is above the five-year average of 76%, according to FactSet), as well as the elimination of corporate tax hike risks, and peak supply chain negativity. The S&P 500 comfortably hit a new record high for the 4th consecutive session while the Dow made its own new record for the 4th time in the past 5 sessions. The Nasdaq was about 0.1% shy of September 7’s all-time high in the morning, but an afternoon fade in Facebook brought the index briefly into the red as it underperformed the others. Facebook’s earnings dominated coverage overnight as investors keyed in given the recent spate of negative stories targeting the company in addition to ad demand concerns after Snapchat’s weaker guidance last Friday sent shockwaves through other social media stocks. Shares were higher overnight and in pre-market trading as its guidance miss was not as bad as feared, but shares ended up slipping to their lowest levels since May 19 and below their 200-day moving average as pressures on the company continue to mount. The flurry of big tech earnings accelerates tonight with AMD, GOOGL, MSFT, TWTR, TXN scheduled with financials V, COF, HOOD highlighting other names, while tomorrow morning is headlined by Dow components BA, KO, and MCD joining BMY, GM, KHC. In D.C., Democratic Senator Wyden says details on billionaire tax to be released tonight.

·     Stock/sector movers: FB opens slightly in the green as several analysts defend their weak quarter and guidance but bleeds to 5-month lows during the day; UPS surges to record highs after its results, lifts FDX and broader transport sector; defense names RTX, LMT drop sharply after both missed on quarterly sales with weak FY sales guidance; NVDA rips to a new record high for the 3rd consecutive day and AMD hits its own ATH into tonight’s earnings report while TXN lower into its report after Citi warns of potentially weak guidance; post-earnings winners include SPGI hitting ATH on its beat and raise, IVZ, HAS, GE, PKG; decliners include UHS, GLW, LOGI after each posted EPS misses, PII on its revs miss.

Economic Data:

·     September New Home Sales rise +14.0% m/o/m to 800K vs. 760K expected and 702K prior (revised from 740K); Sept new home supply 5.7 months’ worth at current pace vs Aug 6.5 months; Sept median sale price $408,800, +18.7% from Sept 2020 ($344,400)

·     US CaseShiller 20 YoY actual 19.7% (vs. forecast 20%, previous 19.9%); the House Price Index YoY actual 18.5% (down from Previous 19.2%); House Price Index MoM actual 1% (below forecast 1.5%, previous 1.4%)

Commodities, Currencies & Treasuries

·     Oil prices end strong, as WTI crude rises $0.89 or 1.06% to settle at $84.65 per barrel, back near best levels since October 2014 while Brent prices rose $0.41 or 0.48% to settle at $86.40 per barrel. Natural gas prices slipped -0.9% at $6.003/MMBtu amid concerns that bearishly mild weather in October may spill into parts of November as well. The move comes after a surge of over 10% the day prior.

·     Gold futures slid as December gold drops -$13.40 or 0.7% to settle at $1,793.40 an ounce, settling back below the key $1,800-an-ounce mark, a day after posting the highest finish since mid-September. More of a correction with the dollar higher and stocks staying strong. Monday, prices settled at $1,806.80, their highest since Sept. 14^th. The U.S. dollar edged modestly higher as traders await upcoming central bank meetings this week: The Bank of Canada meets tomorrow, the European Central Bank and Bank of Japan meet on Thursday and next week brings meetings of the U.S. Federal Reserve, Bank of England, Reserve Bank of Australia. The euro has been weakened recently by expectations that the European Central Bank will take a dovish stance when it meets. Treasury yields another tight range as the 10-year down at 1.62%.

Sector News Breakdown

Consumer

·     Retailers; HAS Q3 adj EPS $1.96 beat est. $1.69 on in-line revs $1.97B; REAL upgraded to Outperform at Raymond James on expected near-term revenue momentum given recoveries in supply and apparel sales with secular growth of the luxury resale market, an inflection point in its path to profitability over the next 18 months, and attractive risk/reward and valuation; ASO initiated at Outperform with a $54 PT at Wedbush despite challenging comps and supply chain constraints as the company has transformed into a top-tier sporting goods retailer under CEO Ken Hicks with sales +32%, operating profit +392% since 2018; Piper raised their Q4 estimates on BBY to a street-high and upped their PT to $155 from $150 as its Totaltech membership program’s attractive discounts should drive adoption and repeat behavior and MA’s holiday spending outlook for consumer electronics is +12% growth, though BBY’s Q4 comp consensus is -1%; RDBX rises early after the firm completed its business combination with Seaport Global Acquisition Corp., a special purpose acquisition company

·     Auto sector; TSLA crossed $1 trillion in market value Monday following a large EV order from Hertz and upward technical momentum buying, boosting shares of the electric vehicle space broadly (NIO, BLNK, XPEV) – prices topped out around $1,090 before pulling back; ABG posts Q3 revs that topped estimates; shares of auto makers GM and Ford (F) both expected on Wednesday (recall recently several auto suppliers have lowered guidance – MGA, GNTX, ALV; Spanish EV charger maker WBX jumps after headlines to partner with UBER to provide the ride sharing co’s drivers with home EV chargers

·     Consumer Staples; COTY upgraded to Buy from Hold at Deutsche Bank and up tgt to $11 from $10 saying its fundamental outlook appears unchanged (if not improved from three months ago) and its capital structure and business simplification has further progressed vs. three months ago; Credit Suisse downgraded BYND to Underperform with a new $73 PT from $125 as Q3’s revs miss vs guidance reinforces the view the company is reaching market saturation and will miss internal growth targets; IPAR Q3 revs $262.7M vs. est. $196.31M, raises FY21 EPS view to $2.35 from $1.95 and boosts FY21 revenue view to $810M from $750M (est. $771.7M); KMB catches two analyst downgrades following the significant profit warning (9%) at the Q3 2021 results on 25 October as well as management’s lack of visibility on the timing of input cost recovery and supply chain risks; TPB Q3 adj EPS 72c vs est. 70c on revs $109.9M vs est. $112.9M, lowered FY21 sales guidance to $433-443M from $447-462M and adj EBITDA to $104-108M from $108-113M

·     Casinos, Gaming, Lodging & Leisure sector; in gaming, DKNG shares rise after walking away from making a formal offer to buy Entain, after considering a $22.4 bln buyout proposal for the British gambling company; BALY upgraded from Market Perform to Outperform with $75 tgt at Cowen saying with the Gamesys acquisition completed, Bally’s expects to officially launch its Bally Bet app in early 2022, just in time for baseball season; in leisure products, PII slips as narrowly beat Street expectations (with an assist from lower tax rates) while more importantly lowering the guidance for the full year due to ongoing supply-chain challenges; HZO 4Q EPS $1.45 vs est. $1.17 on revs $462Mm vs est. $512.8Mm, comps -7%; guides FY22 EPS $7.20-7.50 vs est. $6.56

Energy

·     E&P and Majors; OAS to be acquired by CEQP for $1.8B including debt; Mizuho raises all oils price targets by fairly large percentage for COP, OXY, EOG, PXD, HES, DVN, APA, MRO, MUR, FANG, OVV, CLR; PXD discloses $501M in net losses from oil and gas hedging in Q3, according to an 8-K filing; the Q3 results bring Pioneer’s total hedging losses for the year to September 30 to $2.02B; natural gas-focused producers (CHK, AR, SWN, RRC, EQT) slip after hitting 52-week highs Monday as U.S. front-month natural gas soared to its largest one-day percentage gain since September a year ago; in research, CTRA, SM both upgraded to Outperform at Raymond James; in equipment, FTI upgraded to Overweight at Piper as believe the group can continue to trade higher as supportive ’23 earnings decks come into perspective in coming months

·     Utilities & Solar; solar names underperformed; in coal, ARCH slides after Q3 earnings come in well short of expectations, even as revenues surged 55% Y/Y to $594M – Q3 net income swung to a $89.1M profit from a year-earlier loss of $191.5M; also in coal, CNX double downgraded to Underperform at Raymond James given the company’s lack of pricing upside (hedged ~90% in 2022E) relative to peers and especially in light of our continued bullish natural gas outlook.

Financials

·     FinTech & Payments – Consumer Finance & Lending; UPST downgraded to Hold from Buy at Jefferies and raise tgt to $330 from $160 citing valuation following a strong advance in the shares of the artificial intelligence lending platform; TWO 30M share Spot Secondary priced at $6.52; TRU signed a definitive agreement to sell TransUnion Healthcare, Inc. to nThrive, Inc., a platform backed by Clearlake Capital Group, L.P for $1.735 billion in cash; BILL shares active as CNBC reported Corporate charge card start-up Ramp is going after publicly-traded competitor Bill.com with a free invoice management and payment platform

·     Bitcoin news; BKKT volatile after yesterday surge after having announced partnerships with MA & FISV (BKKT is a digital asset & crypto related company that was recently spun-off by ICE and began trading on the NYSE on 10/18); COIN initiated Buy and $415 tgt at Citigroup saying notwithstanding COIN’s significant exposure to cryptocurrency prices, the stock offers investors direct exposure to increased retail and institutional adoption; MOGO launched ‘green’ bitcoin, an initiative which makes all bitcoin purchased on the Mogo platform climate positive; OLB reports its DMint unit expanded bitcoin mining operation with addition of 500 Antminer S19j pro crypto mining computers

Healthcare

·     Pharma movers; LLY reported 3Q results, with revenues of $6.77B (vs. $6.63B est.) on better Trulicity, Jardiance, Olumiant) and EPS of $1.94 while raised its rev and adj EPS guidance, reflecting additional revenue from COVID-19 antibodies (to $7.95-$8.05 from $7.80-$8.00) and raises year revs; ZTS disclosed that EU inspectors were investigating two of the company’s sites in Belgium

·     Biotech movers: Guggenheim notes upcoming 4Q21 data for QURE: (1) HD biomarker and imaging update and (2) 72-month activity and ABR outlook from the Ph 3 HOPE B program – says positive data could potentially see the stock up 75-100%, whereas a disappointing outcome / discontinuation implies a potential 25-30% downside from current levels; SELB, DNA announce partnership to advance treatments for orphan and rare diseases

·     MedTech Equipment; PROG rises after entering privately negotiated agreements with certain holders of its existing 7.25% convertible notes due 2025 to exchange $20.2 mln of the notes for approx 8.5 mln shares of common; CDMO rises after being added to the S&P Smallcap 600 index (replacing CADE)

·     Healthcare Services; CNC Q3 adj EPS $1.26 vs. est. $1.25; Q3 revs $32.41B vs. est. $31.62B; Raises FY21 revenue view to $125.2B-$126.4B from $123.3B-$125.3B (est. $125.06B) and narrows FY21 adjusted EPS view; in hospitals UHS posts EPS miss of about $0.07 on Q3 revs $3.16B vs. est. $3.1B; acute care adjusted admissions +12.4% vs. +17.3% y/y as Delta surge impacted behavioral volumes (capping admissions); LHCG downgraded at Cowen as they anticipate 2022 EBITDA guidance could still fall as much as 10% below current consensus; PETS with a top and bottom line miss as 2Q EPS $0.31 vs est. $0.35 on sales $67.4Mm vs est. $72.45Mm

Industrials & Materials

·     Aerospace & Defense; RTX reported Q3 adj EPS $1.26 vs est. $1.09 on sales $16.21B vs est. $16.39B, raised its FY adj EPS outlook to $4.10-4.20 from $3.85-4 and above est. $4.06, now sees FY sales $64.5B from $64.4-65.4B (est. $65.1B), and FY FCF $5B from $4.5-5B; LMT Q3 EPS $2.21 vs est. $1.97 on sales $16B that missed est. $17.1B, lowered full-year outlook for sales to $67B from $67.3-68.7B (est. $68.34B) and cash from operations at least $8.3B from at least $8.9B while raising adj EPS view to $37.17 from $26.70-27, and sees FY22 sales $66B vs est. $70.5B; HUBB Q3 adj EPS $2.24 and sales $1.21B were both shy of consensus ($2.31, $1.24B) and lowered FY adj EPS range to $8.30-8.50 from $8.50-8.80; KTOS awarded a new $17.6M program with the US Air Force to develop and test jet UAS for manned-unmanned teaming

·     Industrial & Machinery; Dow component MMM lowers FY2021 EPS range to $9.70-$9.90 from an earlier estimate of $9.70-$10.10, citing supply chain disruptions, but shares edged higher on better-than-expected quarterly profit and revenue; GE reported stronger profits as cost cutting offset lower-than-expected sales of its industrial equipment in the September quarter, while overall revs fell 1% yoy to $18.43B missing the $19.3B estimate; PCAR slips after posting a decline in Q3 profit while revs topped consensus ($1.08/$5.15B vs. est. $1.20/$4.7B); WM posted Q3 adj EPS $1.28 below est. $1.36 on revs $4.67B vs est. $4.55B, now sees FY rev growth +17-17.5% from +15.5-16%; ADM Q3 EPS $0.97 and revs $20.34B both topped consensus ($0.88, $18.16B)

·     Metals & Materials; SHW Q3 adj EPS $2.09 vs est. $2.04 on sales $2.15B vs est. $2.09B as raw material availability hurt total sales by a high-single digit percentage and combined with higher costs to pressure margins, and will raise prices in Q4 to offset costs; CCK Q3 adj EPS $2.03 vs. est. $1.95 on sales $2.92B vs. est. $2.9B, raised year EPS view to $7.50-$7.55 from $7.30-$7.40 (est. $7.47) and Q4 EPS $1.50-$1.55 vs. est. $1.53; PKG Q3 adj EPS $2.69 vs. est. $2.34 on revs $2B vs. est. $1.93B as the beat was driven by higher prices and production volume, sees Q4 EPS $2.04 vs. est. $2.15; GPK Q3 adj EPS 34c beat est. 31c on revs $1.78B vs est. $1.83B, net organic sales -1% due to supply chain, labor constraints, remains on track for +2% FY organic sales growth; AXTA posted 3Q earnings that came in better than expected following its pre-announcement while offered a conservative guide given continued inflationary pressures as well as supply chain issues impacting the Autos end-markets

·     Transports; UPS Q3 adj EPS $2.65 vs. est. $2.54 on revs $23.2B vs. est. $22.56B, avg rev per piece shipped +13%, items shipped daily -2%, raised FY21 adjusted operating margin view to 13% from 12.7%; JBLU Q3 adj EPS (12c) was a narrower loss than expected (18c) on revs $1.97B vs est. $1.93B that was -5.5% vs 2019 compared to expected 6-9% drop, load factor 79.9% vs est. 82.3%, said September took brunt of bookings softness associated with Delta variant but trends are stabilizing and improving and sees Q4 EBITDA ($50M)-$50M, revs down 8-13% vs 2019 with capacity down 4-7% from 2019 that reflects seasonality and delayed corporate travel recovery; EADSY delivered its first A220 to fly for start-up Breeze Airways; Jefferies initiated GXO with a Buy and $103 PT on secular tailwinds in outsourcing and e-commerce that can drive organic growth toward the higher end of 8-12% while continuing to grow margins

Technology, Media & Telecom

·     Internet; FB Q3 results better than feared following significant negative news flow & SNAP further reducing expectations last week – FB’s comments around Apple’s iOS changes & the macro environment broadly echoed those from SNAP, but still included a few key differences, helping ease fears

·     Semiconductors; INTC downgraded to MP from OP and tgt cut to $52 from $60 at BMO Capital saying they took a couple of days to think this through and fail to see a scenario where shares outperform; SK Hynix said DRAM shipments were slightly worse than expected in 3Q21 on Chromebook weakness, but SK Hynix expects a solid 5-9% QoQ growth in 4Q21 while company raised both DRAM and NAND market growth expectation for 2021l at Citigroup, they open a negative catalyst watch on Buy-rated TXN ahead of its earnings call as expect the stock to sell off due to our expectation that 4Q21 guidance will be down at least 10% QoQ, far below seasonality; STX shares slipped after the company violated U.S. export rules by continuing to sell hard-disk drives to Huawei Technologies, Senate Republican say, Dow Jones reported; AMKR reports Q3 revs rose 24% yoy to $1.68B and said momentum continues into Q4; NVDA all-time highs for a second day along with AMD ahead of its earnings.

·     Software movers; PI initiated Buy and $69 tgt at Lakestreet as believe the RFID market is on the cusp of more rapid adoption and the upcoming availability of semiconductor wafer capacity should unleash significantly higher growth rates for Impinj; CRWD and AWS deepen relationship to provide fortified protection against ransomware attacks and identity-based threats; CVLT slides on negative surprise as the company missed on Q2 revs/earnings as co believes the issue was isolated to delayed software opportunities that are part of larger IT Transformation projects; PERI posts quarterly beat with the Display Advertising business driving upside and Search business mostly in line. The Display side grew 73% on a pro forma basis

·     Hardware, Components & Services; GLW reports Q3 core EPS ($0.50-$0.55 vs. est. $0.58), revenue below analysts’ expectations, hurt by lower production levels in the automotive industry due to the semiconductor chip shortage; CDNS reported strong 3Q results that exceeded management expectations across key financial metrics and noted that the Company is continuing to see strong design activity with deepened relationships

·     Media & Telecom movers; SIRI announced a 50% increase in its regular quarterly dividend to $0.0219615 per share; DISH teams with Helium on blockchain-based CBRS spectrum model; CAJ slides after missing Q3 top and bottom-line estimates as revs up 4% on the year to $7.44B, about $410M shy of estimates, and EPS was $0.42, missing estimates by $0.02