Mid-Morning Look

Friday, June 04, 2021

Stocks and precious metals rallied while the dollar fell from earlier three-week highs as a weaker-than-expected U.S. jobs report (added 559K jobs vs. est. 650k) eased concerns the Fed would taper sooner than later. If jobs data came in significantly higher, it may have renewed fears that the recovery could push the Fed to contemplate paring back its bond buying and raising interest rates. Treasury yields declined off highs around 1.6355%, slipping to lows around 1.58% while gold prices jumped back near $1,900 after yesterday decline. Software and semiconductor stocks getting a boost after better earnings (AVGO boosting semis) while energy stocks pare gains after leading the S&P earlier this week as oil prices climb. Bitcoin and other crypto assets declined after another cryptic tweet from TSLA CEO Musk.

Economic Data

·     Payroll data slightly below views: the U.S. economy added 559K vs. est. 650K (revised to 278K vs. 266K prior), private payrolls reported at 492K vs. est. 600K (prior 218K) and manufacturing jobs rose 23K vs. est. 24K (prior month -18K) – unemployment rate dips to 5.8% vs. est. 5.9% (vs. 6.1% prior) and avg hourly earnings rose 0.5% vs. est. 0.2%

·     Factory Orders for April fell -0.6% to $485.2B vs. -0.2% consensus and +1.4% prior (revised from +1.1%) while shipments rose +0.6% to $249B.

Sector Movers Today

·     Retailers; LULU posted another quarter of solid results with both stores and e-commerce beating expectations (consistent across both geographies and product categories) – Q1 adj EPS $1.16 and revs $1.2B both topped ests of $0.91 on $1.13B and its Q2 guidance was also above estimates as they see Q2 adj EPS $1.10-1.15 (est. $1.01) on revs $1.3-1.33B (est. $1.2B) and now sees FY net rev. $5.83-5.91B from $5.55-5.65B; JOAN rises after analysts posts better-than-expected quarterly results as first report since IPO in March as Q1 adj EPS 46c beat est. 19c and revs $574.4M vs est. $566.8M, and Guggenheim raised their price target to $20 from $15 after the beat; ZUMZ Q1 EPS $1.03 vs. est. $0.04 on revs $279.1M vs. est. $221.88M and did not provide guidance; FIVE reported Q1 EPS $0.88 on sales $597.8M above est. $0.65/$551.1M, comp sales +162% vs est. +146.8%, and guides Q2 sales $640-660Mm (est. $584.3M); TLYS Q1 EPS 36c vs est. (2c) loss on revs $163.2M vs est. $128.9M; Stephens upgraded DKS to EW from UW and raised its target to $95 from $74; AEO raised its dividend 31% to 18c from 13.75c.

·     Software movers; ASAN reported Q1 non-GAAP EPS of ($0.21) better than (consensus ($0.27)) on revenue of $76.7M (vs. est. $70.1M), up 61% YoY and the 2^nd straight quarter of acceleration from 57% in FQ4 and 55% in FQ3; DOCU reported Q1 results that were much stronger than expected and raised its full-year forecast to $2.027B-$2.039B vs. est. $1.98B – Q1 billings of $527M (consensus $467M), up 54% y/y, an acceleration from 46% in F4Q21; MDB posted strong Q1 results, with non-GAAP EPS of ($0.15) vs. est. loss ($0.36) on y/y revenue growth of 39%, well above the consensus of 30% and an acceleration from 38% growth last quarter, and with Atlas revenue of ~$93.4M, up 73% y/y (guidance mixed); PD reported better than expected Q1 results. Q2 guidance calls for revenue growth ahead of expectations and EPS below; full-year guidance was raised for revenue and left unchanged for EPS; CRWD delivered quarter with near-record organic new ARR of $140M (was $144M as reported) vs. $143M in Q4/21 to total $1,194M (+74% y/y) vs expectations of $1,120M (+63% y/y), FCF of $117M (39% margin) and 1,524 customers

·     Semiconductors; AVGO reported strong results/guidance, which were above expectations, as pull-ins in wireless (AAPL) drove upside in the quarter with solid GMs at 75% as broadband and networking are expected to see double-digit y/y growth (raised guidance); FORM upgraded to Buy at Davidson based on ramping long term drivers (including an intensifying Foundry battle), strong model leverage and an increasingly attractive valuation

·     Consumer Staples; DEO upgraded to Buy from Hold at Argus and setting a target price of $225 as expect continued improvement in Diageo’s U.S. business, driven by the company’s strong brands and market share gains in the spirits segment; GO downgraded to hold from buy at Jefferies and cut tgt to $32 from $45 as believes diverse inflationary cost pressures will reduce GO’s EPS growth rate, and weigh on the multiple, though co is set for long-term predictable growth; GIS said it expects to incur charges of approximately $160 mln in fiscal 2021, primarily reflecting severance expenses; COST reported May net sales $15.59B (+24.2% YoY), total comp sales +22.8% (est. +23.4%) for the month, and comp sales ex-gas, FX +16.7% (est. +14.5%)

·     MedTech Equipment; COO Q2 sales of $719.5M (+31% organic; +7.0% vs. 2019) came in $28.5M above consensus, while EPS of $3.38 (+124% YOY) beat by $0.29 driven mostly by CooperSurgical, which beat by $19.9M on strength in Fertility, while CooperVision came in $8.6M ahead; SENS rises after saying Promise study demonstrated strong accuracy of 180 Day CGM Sensor; ABT said it plans a restructuring as costs are expected to be incurred during remainder of 2021 with majority of costs expected to be recorded in Q2; PEN upgraded at Buy at BTIG saying survey conducted by the brokerage suggests doctors stuck with co’s stroke portfolio despite share losses early in FY21 due to competitive trialing

Stock GAINERS

·     ASAN +8%; reported Q1 non-GAAP EPS of ($0.21) better than (consensus ($0.27)) on revenue of $76.7M (vs. est. $70.1M), up 61% YoY and the 2^nd straight quarter of acceleration from 57% in FQ4 and 55% in FQ3

·     DOCU +13%; reported Q1 results that were much stronger than expected and raised its full-year forecast to $2.027B-$2.039B vs. est. $1.98B – Q1 billings of $527M (consensus $467M), up 54% y/y, an acceleration from 46% in F4Q21

·     FIVE +4%; 1Q sales and margin beat and 2Q is now expected to come in well-ahead of our prior expectations

·     HOFT +10%; on record sales as Q1 consolidated net sales of $162.9 million, a $58.3 million, or 56%, increase compared to the year-ago period

·     NCTY +17%; after saying to buy carbon-neutral cryptocurrency miner Montcrypto Ltd, to invest up to C$5.6 mln in two phases

·     NOC +2%; upgraded to Buy from Hold at Stifel and raise tgt to $475 from $350 saying defense industry stocks are cheap and the market will eventually realize it

·     ODP +6%; Staples sent a letter to ODP’s Board of Directors outlining a $1B, or $18.27/share, proposal to acquire its consumer business, including the Office Depot and OfficeMax retail stores business, the Company’s direct channel business (officedepot.com), and the Office Depot and OfficeMax intellectual property

Stock LAGGARDS

·     COIN -1%; weakness in Bitcoin and crypto prices after another cryptic tweet from Tesla CEO Elon Musk on Bitcoin prices

·     MOS -4%; says it will immediately close its K1 and K2 potash mine shafts at Esterhazy, Saskatchewan, and resume production at its Colonsay potash mine to partly offset the closures

·     NGL -16%; shares fall as its Q4 adjusted EBITDA from continuing operations fell to $94.3M from $161.8M a year earlier, hit by lower volumes in each of its operating segments

·     PNR -2%; Morgan Stanley downgraded their U.S. Multi-industry view to In-Line from Attractive and are downgrading PNR from Equal-weight to Underweight

·     PSTH -10%; Bill Ackman’s SPAC Pershing Square Tontine Holdings (PSTH) fell after the blank-check company confirmed that it was in discussions with Vivendi (VIVHY) to buy 10% of Universal Music Group for around $4 billion

·     WKHS -5%; downgraded to market perform at Cowen saying it now looks fairly valued following the retail trader-driven rally