Mid-Morning Look

Tuesday, April 20, 2021

U.S. stocks open the trading day modestly lower, adding to Monday declines as the earnings barrage continues with Dow components IBM and JNJ rising after results, and tech in focus ahead of NFLX earnings after the close. The S&P Healthcare sector hit a record high this morning, while the Energy sector came under pressure, adding to last week declines. No major U.S. economic data to move markets and relatively quiet for Fed speakers this week. Markets prepare for about 80 S&P companies reporting earnings this week, only to get busier the next three weeks. Attention for the time being turns away from the macro backdrop where low rates, infrastructure spending and economic data have dominated in recent weeks, pushing major averages to all-time highs…but now company fundamentals will come into play. Expectations are for big beats in earnings and revs vs. easy comps on a YoY basis, and thus far, more earnings results have been beats.

Sector Movers Today

·     Bank movers; ZION Q1 EPS $1.90 vs. est. $1.17, NII $545M vs est. $554M, quarterly provision for credit losses was –($132M); SFBS posted in-line Q1 EPS $0.95, NII $94.2M vs. est. $93.6M; CMA reported Q1 EPS $2.43 vs est. $1.37, NII $713M vs est. $718.4M, and said it is planning to resume buybacks in Q2; FITB Q1 EPS 93c and revs $1.93B beat estimates of 69c on $1.9B; SNV Q1 adj EPS $1.21 topped est. 92c on revenue $485.6M that slightly missed est. $486.31M, Q1 net interest margin of 3.04% vs 3.12% sequentially; NTRS posted Q1 EPS $1.70 vs est. $1.49 on revs $1.59B vs est. $1.54B and ended the quarter with AUM more than $1.449T vs $1.405B YoY; FNB Q1 EPS 28c and revs $306M both missed consensus of 26c on $311.3M, NII $222.9M (-4.2% YoY), and total average deposits grew $4.7B (+19.3%); KEY Q1 EPS 61c topped consensus of 48c, NII $1.01B vs est. $1.02B, revs $1.75B vs est. $1.69B; PEBO Q1 EPS 79c vs est. 73c on revs $52.5M, vs. est. $53.3M; MBWM posted Q1 EPS 87c (est. 71c) on revs $42.99M (est. $42.1M); PNFP Q1 adj EPS $1.61 and revs $315.6M came in above estimates of $1.43 on $306.6M; WTFC reported Q1 EPS $2.54, well above est. $1.41, on revs $448.4M vs est. $411M

·     Consumer Staples; PG 3Q EPS $1.26 vs. est. $1.19 on sales $18.1B vs. est. $17.9B, beauty organic revs +7%, fabric and home care organic sales +7%, grooming organic sales +4%; says maintained outlook for FY21 organic sales +5-6%; plans to return about $19B cash to shareholders this FY; in the tobacco sector; PM Q1 EPS $1.57 vs consensus $1.40 and revenue $7.59B vs consensus $7.27B; organic growth +2.9%; Volumes – EU (4.7%) vs consensus (3.9%), and guides FY EPS $5.95-$6.05 vs prior $5.90-$6.00 and consensus $5.96 and revenue growth +5%-7% on organic basis vs prior +4%-7%; shares of MO dropped again after dropping 6.1% on Monday after the WSJ reported the Biden Administration is considering cutting almost all nicotine from cigarettes and banning menthol – Citigroup noted this morning that the threat of this regulation is a severe blow to tobacco if the Administration will actually bring such proposals forward

·     Retailers; NKE was downgraded to Neutral from Buy at Citigroup and cut tgt to $140 from $160 saying while they believe in NKE’s long-term growth and margin expansion story, they see near-term pressure on sales/margin due to a slowdown in demand in China related to the Xinjiang cotton issue; BBBY disclosed purchase of 20K common shares by CFO on April 16th; DG 2021-2022 estimates raised and tgt to $250 from $225 at Guggenheim and reiterate L-T Buy, though believe the shares’ 21% rally over the last month (vs. S&P 500 +6%) may necessitate a pause; Tommy Hilfiger to debut in more than 600 Kohl’s (KSS) stores with an expanded assortment on Kohls.com beginning fall 2021; LULU launching 2 new initiatives including a trade-in and resale program; WHR Authorizes an additional $2BN share repurchase authorization and is on top of $530M unused form the prior program and also increases the dividend by 12%.

·     Auto sector; TSLA tgt raised to $820 from $775 at Mizuho as believe the key to MarQ results are 1) Deliveries as both TSLA and NIO have reported upside to MarQ deliveries, 2) Increases to the 2021 outlook and 3) believe a weaker product mix with 3/Y, the Fremont facility shutdown, and model changeovers could be a GM headwind that may reverse in the JunQ; AAP says it sees Q1 comp sales up 22%-24% – comes ahead of Virtual Strategy Presentation – adjusted operating income margin rate2 expected to range from 8.5% to 8.7%; GAAP Operating income margin rate expected to range from 7.0% to 7.2%; AN Q1 adjusted profit almost triples from last year as the auto retailer benefited from higher earnings per vehicle, amid a global chip shortage that has forced automakers to cut production and raise prices

·     Aerospace & Defense; LMT 1Q EPS $6.56 vs. est. $6.31 on net sales $16.26B vs. est. $16.33B (missed) as qtr end backlog about $147B; guides FY EPS $26.40-26.70 vs. est. $26.31; HXL posted modestly better 1Q results owing to aggressive belt tightening as the cuts in Europe flowed through, as sales were in line (down 43%); SPCE shares slide further after Cathie Wood’s Ark Invest offloads more than 590,000 shares in the space tourism company – Ark space exploration ETF (ARKX) sold 275,207 shares in Virgin Galactic on Monday, representing ~0.88% in the ETF’s assets; SPCE had 1.94% weighting in ARKX when it started trading last month (down to 1.03%)

Stock GAINERS

·     CRSP +5%; and VRTX amended their collaboration agreement for CTX001 in sickle cell disease and beta thalassemia – VRTX will be responsible for 60% of program costs and will receive 60% of profits from future sales of CTX001 worldwide, representing a 10% increase in deal terms (CRSP to receive $900M upfront and potential for $200M in milestones)

·     FSR +9%; initiated at Buy and $31 tgt at Bank America saying Fisker’s key competitive advantages come in the form of an “interesting and attractive” product and its platform sharing

·     GTBIF cannabis sector rallies after the House voted 321 to 101 in favor of a bill that would protect banks that do business with companies in states that have legalized the plant for medicinal or recreational purposes from federal enforcement action

·     IBM +2%; posted Q1 Revenue of $17.73B vs. est. of $17.32B, Non-GAAP gross margin 47.3% vs. est. 46.9%m and EPS of EPS $1.77 beating the $1.69 estimate as revenue upside vs. consensus was posted across business units, particularly on Systems

·     JCOM +4%; announced its plan to separate the company into two independent publicly traded companies — J2 Global and Consensus

·     JNJ +1%; as better earnings overshadow negative vaccine headlines – EU drug regulator finds possible blood clot link in JNJ shot

·     KSU +15%; as CNI offered to acquire the railroad operator in a cash-and-stock bid valued at $33.7B, topping the prior deal agreed upon with by CP at roughly $25B. CNI said its bid is valued at $325 for each KSU share, a 27% premium to Monday’s closing price and above the $275 share deal from CP https://on.mktw.net/3xbYf7O

·     PLAY +2%; raises Q1 revenue view to $252M-$257M from $210M-$220M (est. $217.27M) and said as of April 18, through the first eleven weeks of 1q, overall comparable store sales were down 38% compared to 2019 levels

Stock LAGGARDS

·     ABT -3%; Q1 adj EPS $1.32 vs. est. $1.27; Q1 sales $10.5B (last year was $7.73b) vs. est. $10.69B; guides year EPS at least $5.00 vs. est. $5.04

·     HAE -5%; adding to yesterday’s 36% decline after announced that CSL Plasma had informed the company on Monday that they did not intend to renew the Supply Agreement for use of its PCS2 Plasma collection systems

·     MO -5%; after dropping 6.1% on Monday after the WSJ reported the Biden Administration is considering cutting almost all nicotine from cigarettes and banning menthol – Citigroup noted this morning that the threat of this regulation is a severe blow to tobacco if the Administration will actually bring such proposals forward

·     NKE -2%; downgraded to Neutral from Buy at Citigroup and cut tgt to $140 from $160 as they see near-term pressure on sales/margin due to a slowdown in demand in China

·     NKLA -3%; shares drop below $10 for the first time since March 2019 as the selling pressure continues in the EV space (excluding TSLA)

·     SNDX -25%; after provides data from SNDX-5613 trial

·     SPCE -7%; Cathie Wood’s Ark Invest offloads more than 590,000 shares in the space tourism company – Recently formed Ark space exploration ETF (ARKX) sold 275,207 shares in Virgin Galactic on Monday, representing ~0.88% in the ETF’s assets; SPCE had 1.94% weighting in ARKX when it started trading last month and is now down to 1.03% – Reuters

·     UAL -7%; earnings disappoint in airlines with larger loss for Q1 and said it expects capacity to be down 45% Y/Y in Q2 and revenue per available seat mile to be down 20% to mark sequential improvement.

·     XRX -3%; mixed as 1Q adj EPS of $0.22 missed the $0.30 estimate on revs $1.71B topping est. $1.59B, says 1Q still experiencing impact of pandemic; affirms guidance