Mid-Morning Look

Tuesday, May 31, 2022

U.S. stocks paring some of last week’s gains, pulling back early in a bout of profit taking after the S&P rose 6.59% last week, the Dow added 6.24%, and the Nasdaq gained 6.84% amid signs of peaking inflation and consumer resiliency boosted investor sentiment. S&P 500 briefly falls to lows around the 4,100 level, down over 1% while the tech heavy Nasdaq underperforms, breaking below 12,000 before both bounced off their respective lows. Oil prices jump, lifting energy stocks again as European Union leaders agreed this weekend to pursue a partial ban on Russian oil. Rates are higher, with the 10-year Treasury yield up 11 basis points to 2.86% and the 2-year up 4 basis points to 2.53%. Eurozone inflation accelerated to record high 8.1% in May from 7.4% in April, beating expectations for 7.7% as price growth continued to broaden. Economic data in the U.S. positive this morning as Consumer Confidence for May and Chicago PMI data both topping expectations. 

Economic Data

·     Consumer Confidence index for May 106.4 above consensus 103.9 as April revised 108.6 (previous 107.3); present situation index 149.6 in May vs April revised 152.9 and expectations index 77.5 in May vs April revised 79.0 (previous 77.2)

·     CaseShiller March 20-metro area home prices +21.2% from year ago vs revised +20.3% in February; March home prices in 20 metro areas +2.4% seasonally adj vs +2.4% in February; March 20-metro area home prices non-adjusted +3.1% vs +2.4% in February

·     FHFA House-Price Index rises 1.5% in March vs. 2% expected gain while prior month revised to 1.9% gain, up 19% Year-Over-Year

·     Chicago PMI for May rises to 60.3 vs est. 55 after 56.4 the prior month; Prices paid rose at a faster pace; signaling expansion while new orders rose at a faster pace, Employment fell at a slower pace; inventories rose at a faster pace; and Production rose at a faster pace

Sector Movers Today

·     Pharma movers; GSK agreed to buy privately-held Affinivax, a clinical-stage biopharmaceutical company for $2.1B upfront and up to $1.2B in potential milestones; TXMD surges after agreeing to be acquired by private-equity firm EW Healthcare Partners at a total enterprise value of about $177 million, with holders to receive $10 a share in cash, more than four times Friday’s closing price of $2.14 https://bit.ly/3x15MYR ; ETON said it was notified by its privately held partner Azurity Pharmaceuticals that the U.S. FDA had declined to approve their anti-seizure drug, lamotrigine; TGTX slips after FDA extended the review of its experimental drug, ublituximab, for the treatment of relapsing forms of MS and will now take a decision by Dec. 28; SNY slips after the FDA put on hold a trial to support switching ED medication, Cialis, to OTC from prescription

·     Chemicals: FMC, SHW, and PPG all initiated at Underperform ratings at Credit Suisse saying a rising interest rate environment could negatively impact residential and commercial paint demand, while initiated outperform ratings on LIN and EMN; LIN upgrade from In Line to Outperform with $355 tgt at Evercore/ISI as like the defensive set up relative to a challenging market set up for cyclicals; at Alembic Global, DOW and LYB both downgraded to Neutral from Overweight citing expectation for a second half “air pocket” for the U.S. chemicals sector

·     Metals & Mining: M&A news in gold miners as South African miner Gold Fields Ltd (GFI) agreed to buy Canada-based miner Yamana Gold Inc (AUY) in an all-share deal valuing the company at $6.7 billion. Gold Fields said its shareholders will own about 61% of the combined group; in steels, STLD downgraded to Neutral from Buy at Goldman Sachs saying while remain constructive on the fundamentals of the business, we see this better reflected in current valuation with the stock having outperformed since initiation

·     Internet & Media: PARA’s “Top Gun: Maverick” set a record for Memorial Day weekend openings, drawing $126 million over the three-day weekend, and paced toward $156 million counting Monday’s Memorial Day holiday (AMC, CNK, IMAX moved as well); Jefferies lowered price tgts and cut FY23 ests for 11-Internet stocks saying negative sentiment across both consumers and businesses is likely to result in more cautious spending patterns, with headwinds worsening as the economic slowdown deepens (lowers tgt by 15% on LYFT, UBER, SONO, UPWK and sees least impact on BMBL, MTCH); U.S. listed China stocks (BIDU, BABA, PDD, JD) rise amid easing in lockdown measures in major cities and better-than-expected economic data

Stock GAINERS

·     AUY +8%; Gold Fields Ltd (GFI) agreed to buy Yamana Gold Inc (AUY) in an all-share deal valuing the company at $6.7 billion; GFI said its shareholders will own about 61% of the combined group

·     BABA +4%; along with gains in other U.S. listed China stocks (BIDU, PDD, JD) amid easing in lockdown measures in major cities and better-than-expected economic data

·     CTT +46%; and PCH entered into a definitive agreement to combine in an all-stock transaction. Based on the closing stock prices of PotlatchDeltic and CatchMark on May 27, 2022, the combined company is expected to have a pro forma market capitalization over $4B

·     CVX +1%; lone Dow component higher to start, with energy stocks higher as oil prices extend gains in 2022 after European Union leaders agreed to pursue a partial ban on Russian oil

·     DISH +2%; upgraded from Hold to Buy at Truist and up tgt to $60 from $25 saying with the DISH Network investor day now in the rearview mirror, the stock is now beginning to rebound

·     TXMD +343%; after agreeing to be acquired by private-equity firm EW Healthcare Partners at a total enterprise value of about $177 million, with holders to receive $10 a share in cash, more than four times Friday’s closing price of $2.14

Stock LAGGARDS

·     AAL -2%; weakness in airlines and other transport/travel names amid another spike in oil prices after the EU decided Monday on a partial and phased ban on Russian oil

·     AEO -8%; downgraded to Underweight from EW at Morgan Stanley and slash tgt to $8 from $22 after mgmt cut its 2022 guide significantly last week

·     BMRN -5%; after saying earlier it will re-submit its application seeking approval for its gene therapy in Sept, compared with prior expectations of June, due to FDA request for more info

·     ETON -5%; said it was notified by its privately held partner Azurity Pharmaceuticals that the U.S. FDA had declined to approve their anti-seizure drug, lamotrigine

·     KIRK -12%; posted larger-than-expected Q1 loss of (-$0.62) vs. est. loss (-$0.33) as sales fell -16% Y/Y to $103.3M saying results reflect continued macroeconomic headwinds hampering consumer demand for home décor and furnishings

·     OTLK -55%; after withdraws application seeking U.S. approval for its treatment of wet age-related macular degeneration, ONS-5010

·     PODD -14%; shares tumble after DXCM this morning denied it is in any merger talks (recall PDDO had risen ~16% since the start of last week on a media report from Bloomberg that DXCM was in talks to buy the company);

·     SNY -4%; after the FDA put on hold a trial to support switching ED medication, Cialis, to OTC from prescription

·     TGTX -7%; after FDA extended the review of its experimental drug, ublituximab, for the treatment of relapsing forms of multiple sclerosis and will now take a decision by Dec. 28