Mid-Morning Look

Friday, June 18, 2021

Stocks slipped early morning following hawkish commentary from St. Louis Jim Bullard said in a CNBC interview that the central bank must remain “nimble” in the face of a “booming” economy and a growing inflation risk, noting that policy has “tilted a little more hawkish” since the beginning of the year. Bullard said that while the taper discussion is now open, it will take “several meetings” to get organized. He noted that the central bank is committed to giving markets “plenty of time” to react.

Commenting on the general economic outlook, Bullard said Fed members have been “surprised to the upside” in the last six months about the speed of the post-COVID recovery. These comments follow the FOMC meeting on Wednesday where the Fed brought forward its first post-pandemic rate hike into 2023 and 7 of the 18 policymakers now expect the Fed funds rate to rise from 0 in 2022 vs only 4 before. The S&P is on track to finish lower for the 4^th straight trading day, which would mark its worst losing streak since declining 5 straight sessions Feb 16-22. The Dow is also suffering its worst day in over a month as the index has traded lower every day this week, its first 5-day losing streak since late January, and the first time falling more than 3% lower for a week since then.

Sector Movers Today

·     Retailers; for toy retailers (HAS, MAT), the NY Post noted shipping issues are impacting toy deliveries out of China again, which could create a toy shortage into holiday season; VSTO tgt raised to $53 from $42 at Cowen calling it an attractive entry as the ammo surge has legs, Remington’s ramp offers upside to F22 Street ests, & VSTO’s improved credit profile & new operating philosophy allows product introductions & channel enhancements; gun maker SWBI rises as Q4 GAAP EPS $1.71 easily topped the est. $1.02 on better revs ($322.9M vs. est. $259.8M) while raises dividend and buybacks stock

·     E&P and Majors; Morgan Stanley upgraded OXY to Overweight on a more compelling risk-reward against a backdrop of sustained higher oil prices, MRO to Equal-Weight on fading Dakota Access Pipeline risks and improved international cash flow, and downgraded DVN and XEC to EW after both stocks recently outperformed following respective mergers (DVN-COG, XEC-WPX); JPMorgan upgraded OEC to OW as they see favorable June quarter demand conditions for carbon black producers and they prefer this name to CBT (remains N) given the stock’s lower valuation and CBT’s exposure to China and its fickle pricing dynamic; TUSK files to sell 24.1M shares of common stock for holders; MGY 7.6M share Block Trade priced at $14.55

·     REITs; Stifel raising estimates and tgts for all Self-Storage REITs (NSA, EXR, PSA, CUBE, LSI) given the strong operating environment as believe the historically high occupancy level coupled with robust demand will continue to allow owners to push rental rates for existing and new customers; NHI upgraded to Market Perform from Underperform at BMO and maintain our $71 target price saying after cutting the dividend a conservative 18%, see a more balanced risk/reward with upside to the dividend from here; Janney initiated SACH at Buy with a $6 pt as a unique way to play robust trends in commercial and residential real estate with growth from its strong presence in Connecticut; RBC said the recovery in seniors housing (VTR, CTRE) remains encouraging with positive near- and long-term outlooks and they also said multi-family residential has seen the largest increase in positive sentiment, though investors are still favoring single-family (AMH, INVH)

·     Transports; for railroads (CSX, UNP, NSC, KSU), Bernstein says more than halfway through Q2, industry’s volume in the last 13 weeks has returned to pre-pandemic levels, lifted by robust Intermodal growth (up 7.5% v. 2019); in airlines, ALK, DAL both upgraded to Outperform from Peer Perform at Wolfe Research and raised UAL to Peer Perform from Underperform

Stock GAINERS

·     ADBE +2%; as delivered a strong quarter, handily beating consensus estimates and also guiding for Q3 above consensus (analyst raise tgt prices)

·     ANPC +18%; says it has been granted a U.S. patent for its medical devices for both disease detection and treatment applications

·     CAI +45%; announces to be acquired by Mitsubishi HC Capital Inc. in an all-cash transaction for $56.00 per share, which represents a total equity value of approximately $1.1B

·     GERN +14%; after reporting positive data from a mid-stage study of blood cancer treatment imetelstat, which showed benefits including symptom response and overall survival in patients with myelofibrosis, a chronic blood cancer

·     SWBI +10%; rises as Q4 GAAP EPS $1.71 easily topped the est. $1.02 on better revs ($322.9M vs. est. $259.8M) while raises dividend and buybacks stock

·     SYKE +30%; to be acquired by Sitel Group® in all-cash transaction valued at $2.2B, with shareholders to receive $54 per share https://bit.ly/3vC7tIr

Stock LAGGARDS

·     ATHA -41%; CEO Leen Kawas has been put on temporary leave as the board reviews actions stemming from doctoral research while at Washington State University

·     ORPH -37%; has been volatile heading into the PDUFA data, as shares fall after disclosing its NDA for arimoclomol received a CRL from the FDA, given the need for additional qualitative and quantitative evidence for the application, potentially requiring additional trials.

·     MU -4%; Cleveland Research downgraded to Hold from Buy

·     C -2%; on track for its 12^th consecutive down day as banks extend recent weakness (KBE, KRE both also down about 2.5% after falling ~5% yesterday)

Syndicate:

·     Ambrx Biopharma (AMAM) 7M share IPO priced at $18.00

·     Ares Commercial (ACRE) 6.5M share Spot Secondary priced at $15.82

·     ATA Inc. (ATAI) 15M share IPO priced at $15.00

·     Codex DNA (DNAY) 6.67M share IPO priced at $16.00

·     Century Therapeutics (IPSC) 10.6M share IPO priced at $20.00

·     Cyteir Therapeutics (CYT) 7.4M share IPO priced at $18.00

·     Magnolia Oil & Gas (MGY) 7.6M share Block Trade priced at $14.55

·     Tremor International (TRMR) 6.76M share ADS priced at $19.00