Mid-Morning Look

Monday, July 17, 2023

U.S. stocks continue to defy odds, adding to last week gains paced by strength in Technology and Consumer Discretionary yet again (2 of the top 3 sectors in 2023), while defensive Utilities, REITs, and Healthcare are lower. With the Fed in its “quiet” period ahead of its upcoming Fed meeting, and the CPI and PPI inflation reports easing last week, attention firmly on corporate earnings, as the barrage gets underway this week with large cap/regional banks domination, as well as a few tech momentum names including TSLA and NFLX this week. Treasury yields and the US dollar partially rebound after sharp losses last week, while commodity prices slide following weaker economic data out of China last night. China 2Q GDP 6.3% vs 7.1% est., June factory output 4.4% vs 2.5% est., retail sales 3.1% vs 3.3% est., and fixed investment 3.8% vs 3.4% est. No earnings this morning, but things will start getting busier tomorrow.

Economic Data

·     The Empire State Manufacturing Index for July rose +1.1 vs. -3.0 consensus and +6.60 in June; New Orders rose +3.3 vs. +3.1 in June; shipments rose +13.4 vs. +22.0; prices paid rose +16.7 vs. +22.0 and employment rose +4.7 vs. -3.6 prior.

Sector Movers Today

·     In Online/Internet: BIDU was added to Regional Conviction Buy list at Goldman Sachs and raised price tgt from $183 to $197 as views Baidu as one of the best positioned China Internet names pivoting to the secular Generative AI theme, with its expanding AI product suite backed by its 4 layers of Generative AI service offerings. YELP upgraded to Buy from Neutral at Goldman Sachs and raised tgt to $47 from $38 citing stable/rising local advertising trends, an analysis of the incremental margin opportunity and the potential for stable/increased shareholder returns. Goldman lowers its ETSY operating estimates and reduce its price target to $110 (from $130) as it expects continued GMS pressure near-term from the company’s exposure to more challenged discretionary categories but increase its W price target to $55 from $35.

·     In E&C sector: KeyBanc raises its price target to $75 from $66 for KBR supported by high/improving visibility into a material outyear EPS growth acceleration to the tune of >25% annually through 2025 at 50% capital deployment; raises PWR tgt to $219 from $190, which is supported by a raise on its 2024E EPS/EBITDA and raises ACM ests on higher organic growth assumptions where it had an overly severe FX drag built in for F2H23.

·     In Software: TWLO downgraded from Overweight to Neutral at Piper while raise tgt to $71 from $56 noting shares are up ~40% since Q1’s disappointing print, with the performance primarily due to bullish-sounding conference commentary, broader market moves, and potential activism. In Cyber Security: Stifel said C2Q23 cybersecurity VAR Survey (n=42) and conversations with larger partners point to modest sequential improvements across both quarterly growth and outperformance. Said survey results were stronger for ZS and weaker for NET.

Stock GAINERS

·     ARGX +26%; after its ADHERE CIDP study hits all major endpoints w/ highly competitive relapse rate in Stage B (26-28% delta vs PBO; HR=0.39) and 67% response rate in Stage A supports Vyvgart Hytrulo as attractive therapy

·     BBIO +51%; announces consistently positive results from Phase 3 ATTRibute-CM study of acoramidis for patients with transthyretin amyloid cardiomyopathy (ATTR-CM); said the Phase 3 trial of acoramidis achieved a highly statistically significant result on primary endpoint.

·     BKI +12%; and ICE announced that, in connection with their previously announced merger agreement for ICE’s acquisition of Black Knight, they have agreed to sell Black Knight’s Optimal Blue business to a subsidiary of Constellation Software Inc. (CSU) for $700M.

·     CHWY +5%; upgraded from Neutral to Buy at Goldman Sachs and raised tgt to $50 from $42 as sees a more positive risk/reward skew at current levels. Firm said is increasingly more positive on Chewy’s ability to maintain ~10%+ topline growth from 2023-2027.

·     COYA +19%; said saw positive results from an open-label proof-of-concept clinical study for ld IL-2 in patients with Alzheimer’s disease.

·     IMVT +10% after ARGX headlines – Wells Fargo said since IMVT is also pursuing CIDP w/batoclimab (likely w IMVT-1402), increases their POS.

·     TSLA +1%; said they built its first Cybertruck, four years after Elon Musk first unveiled the pickup.

·     YELP +3%; upgraded to Buy from Neutral at Goldman Sachs and raised tgt to $47 from $38 citing stable/rising local advertising trends, an analysis of the incremental margin opportunity and the potential for stable/increased shareholder returns.

Stock LAGGARDS

·     APLS -19%; due to a safety bulletin distributed to eye doctors. The notice warned of six cases of occlusive retinal vasculitis, a serious inflammatory side effect, reported in people injected with Syfovre, the company’s recently approved eye disease treatment – STAT News.

·     F -4%; after slashes prices of F-150 Lightning trucks, base variant to cost 17% less, or $10K less.

·     T -3%; new 52-week lows, downgraded to Neutral from Buy with a price target of $16, down from $22 at Citigroup along with FYBR and TDS

·     TWLO -4%; downgraded from Overweight to Neutral at Piper while raise tgt to $71 from $56 noting shares are up ~40% since Q1’s disappointing print.

·     YETI -5%; downgraded to Underweight at Keybanc in leisure sector preview (on macro price action) saying they still prefer exposure to golf and see retailers.