Mid-Morning Look

Tuesday, May 18, 2021

The S&P 500 is flat as weaker-than-expected housing data dents sentiment, while the tech heavy Nasdaq Composite outperforms, trading above its 100-day moving average resistance of 13,450. Energy stocks leading decliners after outperformance on Monday as oil prices rise to yearly highs (but pulling back early). The dollar extended its slide, falling to its lowest level since late February following weaker housing data and as increased risk appetite lured investors away from the safe-haven greenback. U.S. Treasury yields stalled around the 1.64% level for the 10-year as market participants grew increasingly confident that the Federal Reserve will hold off on hiking interest rates, despite rising inflation concerns. Retailers in focus as Dow components Home Depot (HD) and Wal-Mart (WMT) each post stronger quarterly results. Electric vehicle stocks jump (NKLA, FSR, LI) as President Joe Biden will make the case for his $174 billion electric vehicle plan today. Crypto currency prices extend declines with Bitcoin trading to $43K. Dow Jones Industrial Average and Dow Transports with modest losses to start.

Economic Data

·     April Housing Starts fell -9.5% to 1.569M, below estimate of 1.702M (and vs. March +19.8%) – likely pulled down by soaring prices for lumber and other materials; Single-family starts -13.4% to 1.087M unit rate and multifamily +0.8% to 482,000-unit rate; April housing permits rose +0.3% to 1.76M vs. est. 1.77M vs. March +1.7%

Sector Movers Today

·     Internet; BIDU posted a Q1 earnings/rev beat driven by non-marketing sales growth, as revs rose 25% on the year to RMB28.14 billion on adj EPS RMB12.38 topping views; IQ reported 1Q results well ahead of expectations driven by a subs increase and stronger ARPU (membership services revs of RMB 4.3bn vs. est. RMB 4.18bn as memberships increased for the first time in 3 quarters); NTES 1Q results largely in-line with expectations with slight weakness in mobile gaming but strength in Cloud Music; DAO with mixed quarter in 1Q as they beat on Revs but missed on enrollments and OpEx

·     Retailers; Dow component WMT tops views as Q1 adj EPS $1.69 beats est. $1.21 on better revs and raises Q2 and year outlook (sees 2022 earnings to increase in high single digits, versus its prior forecast of a slight decline) – Q1 comp sales ex-gas +6.2% vs. est. 2.03%; and Walmart-only U.S. stores comp sales ex-gas +6% vs. est. about 2%; Macy’s (M) Q1 adj EPS 39c missed but raises full-year EPS and sales guidance, as qtrly comparable sales were up 62.5% on an owned basis and up 63.9% on an owned plus licensed basis versus 2020; GPS upgraded to Neutral from Underperform at Credit Suisse citing lack of near-term negative catalysts; Piper reit OW and $140 tgt on OSTK as believe the company could see upside near-term from a significant ramp in crypto trading, and upside medium/long-term should non-fungible tokens get labeled as securities by the SEC; COST tgt raised to $425 from $400 ahead of earnings at Oppenheimer though believe bottom-line Street figures could prove aggressive nearer term

·     Auto sector; electric vehicles (NKLA, NIO, XPEV, LI) got a boost (yesterday as well) as President Joe Biden will make the case for his $174 billion electric vehicle plan today, calling for government grants for new battery production facilities during a visit to a Ford Motor (F) electric vehicle plant in Michigan; FSR posted a mixed quarter and sounded confident that its Ocean SUV launch is on track for Q4 of 2022

·     Media movers; ATUS downgraded to underperform from neutral at Bank America as believe other opportunities in our coverage universe are more attractive following its strongest year of broadband net adds; TME posts solid 1Q subscriber adds and triple digit advertising growth offset by higher R&D, lower ARPU and higher OpEx due to TMEA creating in line profit (online music subscription revenue grew nearly 40% y/y mainly driven by net adds of 4.9M in paying subscribers – total paid subs of 60.9M vs. the Street’s 60.7M); AMZN is weeks into negotiations on a deal to acquire MGM Studios for about $9B, according to reports https://bit.ly/33SbL36 ; AT shares fell after saying it will cut its dividend payout ratio to the low 40% range from around 60% in the previous quarter, because of its $43B deal media asset deal with DISCA

·     Software movers; TWLO agreed to acquire Business SMS Platform Zipwhip for ~$850M in an equal mix of cash and stock as co sees deal adding modestly to gross margin and revs; PANW upgraded to Outperform with $400 tgt at Raymond James noting it has underperformed significantly YTD (PANW -5%), as previously noted concern that next gen ARR guidance did not appear conservative; SE falls as Q1 revs topped estimates with 147% YoY growth to $1.8B but fell short on adjusted EBITDA while the cost of revenue increased 120% to $1.1B largely driven by digital entertainment investments – Q1 adj EBITDA was $88.1M, below the $172.9M consensus; SNOW upgraded from Neutral to Buy with $285 tgt at Rosenblatt ahead of earnings as expect Snowflake to meet and possibly exceed our 93% y-o-y Product Revenue growth estimate

Stock GAINERS

·     AGEN +31%; after BMY entered into a definitive agreement for the global exclusive license to Agenus’ proprietary bispecific antibody program, AGEN1777, that blocks TIGIT and a second undisclosed target (AGEN to get $200M upfront payment and up to $1.36B in development)

·     AMC +8%; on track for its 8th straight day of gains – stock has rocketed 68.6% over the past seven days, which would be the best seven-day performance since the height of the trading frenzy surrounding so-called meme stocks in early February.

·     BIDU +3%; as posted a Q1 earnings/rev beat driven by non-marketing sales growth, as revs rose 25% on the year to RMB28.14 billion on adj EPS RMB12.38 topping views

·     CORE +4%; to be acquired by PFGC in a cash-and-stock deal valued at $2.5 billion where CORE holder will receive $23.875 per share in cash and 0.44 PFGC shares for each Core-Mark share owned. https://on.mktw.net/3wg55Ys

·     M ; Q1 adj EPS 39c missed but raises full-year EPS and sales guidance, bolstered by improved macroeconomic trends as qtrly comparable sales were up 62.5% on an owned basis and up 63.9% on an owned plus licensed basis versus 2020

·     LYFT +4%; and UBER active after Bloomberg reported new legislation creating collective bargaining rights for gig-economy workers is poised to be introduced in New York State in the coming weeks, said the president of the Transport Workers Union https://bloom.bg/3bAkU4h

·     MGM +4%; upgraded Overweight at JPMorgan saying the 11% pullback in the past month provides an opportunity to buy, as momentum in domestic casinos, particularly Las Vegas, continues to build every week

·     WMT +3%; Q1 adj EPS $1.69 beats est. $1.21 on better revs and raises Q2 and year outlook (sees 2022 earnings to increase in high single digits, versus its prior forecast of a slight decline)

Stock LAGGARDS

·     ADTN -2%; downgrade from Buy to Neutral with $20 tgt at Goldman Sachs as believe the stock is now pricing in the growth opportunity from broadband access market momentu

·     COIN -1%; after announces proposed private offering of $1.25 billion of convertible senior notes due 2026

·     CVX -1%; pullback in shares of broader energy stocks after outperformance this week

·     DM -1%; Q1 revenue and adjusted EBITDA beat while mgmt reiterates 2021 revenue guidance, lowers EBITDA guidance

·     SE ; Q1 revs topped estimates with 147% YoY growth to $1.8B but fell short on adjusted EBITDA while the cost of revenue increased 120% to $1.1B largely driven by digital entertainment investments – Q1 adj EBITDA was $88.1M, below the $172.9M consensus.

·     T -5%; said it will cut its dividend payout ratio to the low 40% range from around 60% in the previous quarter, because of its $43 bln deal media asset deal with broadcaster Discovery Inc