Mid-Morning Look

Tuesday, February 23, 2021

Stocks extend recent declines, with the S&P 500 down for its 6^th straight session while the Nasdaq Composite underperforms, plunging to lows around 13K before bouncing (dropped below its 50-day moving average of 13,240), as high valuation, higher multiple technology stocks saw aggressive selling pressure/profit taking after a tremendous run over the last few months. It was a mini flash crash, with prices falling sharply the first 30 minutes of trading, with nearly all tech names feeling the pain (but have since recovered well off those lows – Nasdaq fell as much as 3.9% and has rallied since as much as 2.2%). Selling was broad based in tech, but electric vehicles, high prices software companies and names leveraged to Bitcoin were among the hardest hit (while REITs and Healthcare names held up the best). Tesla (TSLA) traded more than 13% lower earlier today (traded near 50-day MA support of $616) as the electric-car maker suffers its second day of steep losses. The decline in Tesla’s share price comes as the value of bitcoin has tumbled from recent highs (lows around $45K this morning – off record highs above $58K just the day prior). The electric-vehicle maker said earlier this month that it had invested $1.5B in bitcoin. In addition to earnings and widespread panic initially on rising yields and inflation concerns, investors turn their attention to Fed Chairman Powell in his two-day testimony on monetary policy.

Fed Chairman Powell said in his semiannual monetary policy report to the Congress, “We have implemented our new framework by forcefully deploying our policy tools. As noted in our January policy statement, we expect that it will be appropriate to maintain the current accommodative target range of the federal funds rate until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, we will continue to increase our holdings of Treasury securities and agency mortgage-backed securities at least at their current pace until substantial further progress has been made toward our goals.

Economic Data

·     S&P CoreLogic Case-Shiller for Dec.; Composite – 20 (S.A.) +1.3% M/M vs. +1.0 % consensus, +1.5% prior (revised from +1.4%), Composite- 20 (N.S.A.) +0.8% M/M v. +0.7% consensus, +1.1 % prior and Composite – 20 (N.S.A.) +10.1% Y/Y vs. +9.6% consensus, +9.2% prior

·     U.S. FHFA home price index rose 1.1% to 313.5 in December, another historic peak, after rising 1.0% to 310.0 (was 310.1) in November. The index inched up to a 11.4% y/y pace versus 11.1% (was 11.0%) previously. The index has posted monthly gains since January 2012

·     Richmond Fed composite manufacturing index +14 in Feb vs +14 in January; Richmond fed manufacturing shipments index +12 in Feb vs +10 in Jan

·     Dallas Fed Texas service sector revenue index 2.6 in February vs 0.8 in January and Dallas Fed Texas service sector index of general business activity outlook 5.0 in February vs -1.2 in January

Sector Movers Today

·     Auto sector; electric vehicle sector under pressure, led by declines in SPAC CCIV after the company announced its $11.75B transaction with Lucid Motors (deal was widely expected); the pullback also weighing on shares of TSLA (now down 25% from their high mark of $900.40), along with weakness in Chinese automakers LI, NIO and XPEV (which had a lock up expiry today); other names leveraged to electric vehicles such as FSR, WKHS, BLNK, RIDE also lower; NKLA unveils details about its N.A. hydrogen fuel-cell electric vehicle commercial truck program – plans to introduce a FCEV variant of the Nikola Tre Cabover, and the long-range Nikola Two FCEV Sleeper

·     Housing & Building Products; HD shares slip despite Q4 eps, revs and comp sales topping views as company failed to issue full-year guidance (Q4 comp sales increased 24.5% (vs. est. 19.2%) and comparable sales in the U.S. increased 25% (vs. est. 20.9%); increases quarterly dividend 10%); TREX Q4 EPS 37c vs. est. 36c on better revenue $228.3M vs. est. $215.9M – Stifel said Web traffic remains strong highlighting continued demand, channel inventories are still relatively lean; IBP initiates quarterly dividend, variable dividend; boost buyback

·     Energy stock movers; XEC posted Q4 EPS 89c vs. est. 68c on revs $434.72M vs. est. $419.66M, intends to invest $500-600m on the drilling and completion of wells in 2021 with 73 net wells expected to begin producing during the period with 1Q21 oil production expected to average 65-69 Mbls per day and total production to average 205-225 MBOE per day; FANG reported Q4 EPS 82c vs. est. 83c ($1.93 YoY), adj Ebitda $475M (-43% YoY) which misses est. $530.9M, and average realized price crude oil equivalent per Boe $27.41 (-30% YoY); LPI Q4 EPS $3.22 on revs $188.1M vs. ests. $3.18 on $187.76M, total production averaged 82,552 BOE per day, including oil production of 21,929 BOPD; MRO Q4 adj EPS loss (12c) was narrower than est. loss (20c) on revs $830M (-32% YoY) vs est. $850.5M, with Q4 and FY20 total company oil production both at guidance midpoint; OXY Q4 adj loss (78c) was wider than est. loss (58c), Q4 Production of 1,143 MBoed exceeded midpoint of guidance by 13 MBoed, and qtrly average worldwide realized crude oil prices increased by approximately 5% from Q3 to $40.77 per barrel; RIG reported a Q4 EPS loss (6c) vs. est. loss (19c) on revs $690M vs. est. $699.08M, adj EBITDA $210M (vs $338M YoY), and contract backlog was $7.8B as of the February 2021 Fleet Status Report; CVI Q4 EPS loss ($1.18) missed consensus loss ($0.72) on revs $1.12B, slightly below consensus $1.19B; MGY posted Q4 EPS 15c on revs $149.2M; VNOM Q4 EPS loss (41c) came in below est. (2c) loss and fell from 3c profit YoY on revs $76.3M (est. $56.5M, $92.7M YoY)

·     Retailers; NLS falls after Q4 revenue $189.3M misses est. $191.7M, though EPS 90c beat est. 75c and FY21 rev guidance $553M was in-line, and the results dragged down PTONposted Q4 EPS $3.05 vs. est. $2.79 on revs $1.57B vs. est. $1.65B, comp store sales fell (-17%), retail gross margin improved 171 basis points of sales, inventory decreased approximately 26%, and operating expenses decreased $122.8M; Macy’s (M) reported Q4 adj EPS 80c vs. est. 4c on sales $6.78B vs. est. $6.5B, qtrly comparable sales down 17.0% on an owned basis and down 17.1% on an owned plus licensed basis, digital sales +21% YoY, and sees FY21 net sales $19.75-20.75B vs. est. $20.13B, which contemplates continued pandemic-related challenges in spring season with momentum building in back half of 2021; CROX Q4 adj EPS $1.06 (est $0.79) on revs $411.5M (est $399.5M) and guides Q1 revs +40-50% (est +127.5%), sees FY revs +20-25% (est +21.1%); REAL Q4 EPS loss (49c) was larger than est. loss (41c) on revs $84.59M vs. est. $94.06M, gross merchandise volume was $301.2M and sees Q1 gross merchandise volume $301M-$310M; Cowen raised their price target on BURL to $285 from $264 and also raised estimates on TJX and prefer BURL in off-price retail, viewing consensus into 2021 as conservative given recovery potential relative to 2019 levels as their survey suggests traffic is above expectations and work suggests better inventory in 2H21; LB gained on a NYTimes report that that Goldman Sachs will begin to formally pitch a sale of Victoria’s Secret to PE firms this week; EXPR filed a registration statement yesterday to cover the potential sale of up to 25M shares

Stock GAINERS

·     EXR +6%; EXR, LSI, PSA all report and all posted very strong results ahead of the Street and better than expected earnings guidance for 2021

·     FIVN +6%; reported another record quarter, with results and guidance outperforming expectations as lead metrics continue to accelerate from impressive rates

·     IR +3%; higher following better-than-expected results for the fourth quarter, as industrial stocks remain one of the best performing sectors (CAT, DE recent record highs)

·     LB +5%; after the NY Times reported bankers at Goldman Sachs will begin pitching to buyout firms about the potential sale of Victoria’s Secret as soon as this week

·     ZI +6%; beats as strength in the quarter was broad based with Revenue, Operating Income, FCF and Billings all ahead of Street estimates

Stock LAGGARDS

·     CCIV -43%; after the company announced its $11.75B transaction with Lucid Motors (deal was widely expected

·     GDOT -5%; posted strong 4Q results but was overshadowed by poor optics from weaker-than-expected fy21 adjusted eps guidance that excluded any impact from stimulus, with upward revision likely according to BTIG

·     HD -5%; shares slip despite Q4 eps, revs and comp sales topping views as company failed to issue full-year guidance (Q4 comp sales increased 24.5% (vs. est. 19.2%)

·     ICPT -7%; downgrade to Sell at HC Wainwright with $25 tgt as no longer believe a viable regulatory path for OCA exists in NASH and do not expect the REVERSE study readout in cirrhotic NASH patients due by YE21 to be positive

·     LDOS -9%; as posts Q4 revenue of $3.25B, missing the estimate of $3.39B as Q4 health revenue dropped 2.5% to $513M and Q4 SG&A expenses rose 9.3% to $187M (revenue guidance for the year was well below consensus views)

·     NLS -16%; reported mixed results with sales that missed due to logistics headwinds at the ports while the bottom line was better than expected.

·     REAL -10%; reported mixed 4Q results with in line GMV though lower than expected revenues and gross profits; shares downgraded at Raymond James

·     TSLA -6%; among top decliners in the S&P given the broad pullback in electric vehicle stocks

·     ZM -6%; stay at home beneficiaries that outperformed in 2020 due to the pandemic, have seen selling pressure over the last few days on vaccine rollout (ZM, PTON, DOCU, etc.)