Mid-Morning Look

Wednesday, May 26, 2021

U.S. stocks opened mixed, once again led by the reopen industries such as travel, leisure, and retail (which is also benefitting from stronger earnings out of ANF, URBN, DKS), while commodity and energy names underperform. Economic data pushed markets lower yesterday after softer new home sales and consumer confidence data, but no major news today. Inflation fears have subsided over the last week as Treasury yields extend declines (10-yr 1.55% today) with Fed officials continuing to downplay the recent spike in prices calling them transitory (note iron ore, copper, lumber, and corn prices have tumbled over the last week after a massive surge to start May) – though officials did note some asset taper comments last week in the Fed Minutes. Retailers jump on strong earnings, while crypto related assets get a boost as Bitcoin, Ethereum jump early. Stocks are holding up after its recent rally, though volumes remain light along with limited macro news flow, though some tech earnings tonight. Its generally quiet with market focus on infrastructure bill headlines (sides are still far apart), as well as Fed speakers and inflation.

Sector Movers Today

·     Broadline/Misc. retailers; the January Reddit/WSB “meme” stocks have seen recent upward momentum, with poster child GME rising a 5^th day, on track for its highest levels since mid-March; sporting goods stores rally after DKS Q1 adj EPS $3.79 tops $1.12 est.; Q1 revs $2.92B vs. est. $2.18B; raises year EPS view to $7.05-$7.68 well above the prior $3.81-$4.55 est.; Q1 comp sales surged 115% which included 14% rise in eCommerce (BGFV, ASO, SPWH active); BBW posts Q1 EPS of 60c on better revs $91M cents and sees 2021 core earnings between $28M-432M which is above 2019’s reading of $15.3M; BBBY announces same day delivery partnership with DASH in the US

·     Industrial & Machinery; Barclays upgraded JCI to OW as they see the company accelerating its organic growth into 2022 as its service business and F&S gain momentum while most of their stocks under coverage are expected to decelerate, and downgraded ITW to UW as they expect the stock to reverse its outperformance against the S&P since mid-February due to decelerating organic sales growth, market share gain efforts not gaining traction, and potential levelling off in margins as input costs increase; HEI Q2 EPS 51c vs. est. 48c on sales $466.7M vs. est. $443.1M, and did not provide guidance but Canaccord said its steady improvement is positive for the stock and supports its valuation premium; JBT was upgraded at Baird to Outperform with a $151 pt, and Wells was also positive on the near- and long-term earnings trajectory; CMCO reported Q4 adj EPS 50c vs est. 52c on sales $186.2M vs est. $182.3M, and sees Q1 revs $212-217M (est. $204M); DA Davidson downgraded DE to Neutral on emerging cost pressures but raised its PT

·     MedTech Equipment; Agilent (A) delivered EPS beat and posted a record 19% organic growth relative to expectations of ~8% and guidance of 7-9%, driven by broad-based +DD growth in all end markets and business segments, led by +25% organic growth in LSAG; BSX downgraded to Hold from Buy at Needham as it expects a revision in 2022 and 2023 estimates before and after co’s investor day in Sept and says the upcoming launch of ABT’s heart device, Amplatzer Amulet, could cause growth of BSX’s device WATCHMAN to slow down; PROG said it saw positive results from a study for its Targeted Therapeutics program which evaluated delivery of its PGN-001 adalimumab drug substance directly to the colon in a preclinical model of colitis; STE upgrade from Hold to Buy at Needham as believe that the CMD deal will be significantly accretive to STE’s EPS, conservative FY22 guidance will lead to an increase in the consensus estimate, hospital capital spending is stronger than expected in 2021, and STE shares are attractively valued; MDRX announces $350M share repurchase plan

·     Commodity prices have been slipping again with corn falling again after headlines China to limit some corn imports, cancel several U.S. cargoes – follows a decline in corn over 5% on Tuesday to $6.20 3/4 per bushel and has now fallen 15% since May 7, slipped after the Department of Agriculture reported that U.S. farmers had planted 90% of their corn crops, above the five-year average of 80%; overnight, iron ore prices plunged overnight as the Chinese government continues efforts to tamp down soaring commodity prices

·     Software movers; ZS beat on both the top and bottom lines in 3Q21 as showed strength in the enterprise segment and their streamlined go-to-market motion is bringing in increased new logos (was upgraded at BMO to Outperform after results); DV first quarter as a public company showed revenue and EBITDA both beat estimates, with guidance for Q2 and FY21 also topping expectations; earnings tonight expected from ZUO, OOMA, OKTA, WDAY; RBLX was accused in a federal lawsuit of ripping off users — mostly children — of its popular gaming platform by selling them in-game items and later deleting them without reimbursement

Stock GAINERS

·     A +5%; delivered EPS beat and posted a record 19% organic growth relative to expectations of ~8% and guidance of 7-9%, driven by broad-based +DD growth in all end markets

·     ANF +12%; posted earnings and sales that beat expectations (EPS 67c crushes est. loss of 38c);

·     DKS +13%; Q1 adj EPS $3.79 tops $1.12 est.; Q1 revs $2.92B vs. est. $2.18B; raises year EPS view to $7.05-$7.68 well above the prior $3.81-$4.55 est.; Q1 comp sales surged 115%

·     F +3%; outlines plans to boost spending on its electrification efforts by more than a third and aims to have 40% of its global volume be all electric by 2030

·     TOL +2%; posted F2Q21 EPS of $1.01 versus $0.59 last year and $0.80 estimate as total sales improved by 25% Y/Y to $1.84B topping the $1.77B est. due to an average closing price of $808.6k

·     URBN +14%; posted better-than-expected Q1 sales of $927M (vs. est. $900M) with comp sales rising 10% driven by strong double-digit growth in digital channel sales (was upgraded to Neutral at JPMorgan with $38 tgt)

·     ZS +13%; reported a better-than-expected F3Q, led by billings growth of 71% Y/Y that easily beat Street estimates of 41% growth while managed to avoid any billings deceleration despite facing a 55% comp that was 37 points more difficult

Stock LAGGARDS

·     BSX -3%; downgraded to Hold from Buy at Needham as it expects a revision in 2022 and 2023 estimates before and after co’s investor day in Sept and says the upcoming launch of ABT’s heart device, Amplatzer Amulet, could cause growth of BSX’s device WATCHMAN to slow down

·     CCK -6%; as packaging companies ARD, BLL, CCK all downgraded at BMO Capital following news that Can-Pack is building a second U.S. beverage can plant in Indiana, which raises fresh questions and suggests that heady expansion plans by the incumbents could be challenged

·     GOTU -17%; as posts Q1 loss of 5.20 yuan per share, compared to a profit of 0.76 yuan a year earlier; operating expenses triple from last year on increased marketing expenses and staff compensation

·     JWN -9%; qtrly sales -13% worse than est. decline -10% while gross margins miss as declined 260bps v ’19 as excess inventory was cleared

·     LRMR -41%; after saying the FDA has placed a clinical hold on the CTI-1601 clinical program and that the company will not be closing a previously announced private placement financing

·     TVTX -14%; announced that the FDA did not view the interim results from DUPLEX in FSGS as sufficient to support Accelerated Approval, instead deferring until more mature eGFR data are available

·     WBA -4%; CVS shares slipped initially after Business Insider report that AMZN is weighing a push into physical pharmacies to grab a bigger slice of the $370 billion prescription market