Mid-Morning Look

Wednesday, November 17, 2021

A modestly lower start for major U.S. averages, pulling back slightly after making another near record run Tuesday behind strong retail sales data and better earnings. Economic data coming in mixed this morning with Housing Starts missing estimates while Building Permits came in above. Retailers active on earnings with LOW following HD lead yesterday on EPS, revs, and comp sales beat while TGT slides despite its beat and raise as lower margins weigh on sentiment. Outside of a few large cap tech names again holding up the market (AMZN, AAPL, TSLA, NFLX, MSFT) broader growth sectors such as semis and software seeing selling pressure early. Precious metals getting a boost with stocks pulling back, while oil prices dip and Treasury yields steady (10-year at 1.62%). The electric vehicle space the latest momentum sector with massive moves again in TSLA, recent IPO, RIVN along with BLNK, LCID, others.

Economic Data

·     Housing starts unexpectedly fall in October, while permits rise; Housing starts fell -0.7% MoM to 1.520M vs. 1.587M expected and 1.530M prior (revised from 1.555M); Building permits for Oct rose +4.0% to 1.650M vs. 1.630M expected and 1.586M prior (revised from 1.589M).

Sector Movers Today

·     Retailers; TGT raised its forecast for annual same-store sales after beating quarterly expectations for EPS, sales and comp sales (comps rose 12.7% vs. est. 8.4%), but Q3 gross margin fell to 28% from 30.6% a year earlier on higher labor and freight costs which weighed on shares; TJX Q3 beats as EPS $0.84/$12.53B vs. est. $0.81/$12.27B on strong demand for its discounted products and said overall open-only comparable store sales growth for Q4 start were up in the mid-teens percentage range YoY; SCVL raises year EPS and sales outlook after Q3 beat; ODP announces $150M accelerated share repurchase and $150M increase in its existing stock repurchase plan; Canadian retailer Loblaw Cos Ltd raised its annual earnings outlook after posting third-quarter revenue and profit that beat estimates; LZB rises after adj. EPS beats, and raises dividend

·     Alt Energy, Utilities & Solar; Citi downgraded BLDP to Neutral/High risk due to disappointing sales in China and expected delay in meaningful fuel cell adoption in heavy-duty applications until 2023+ and initiated a pair trade O/W PLUG and U/W BLDP given PLUG raised FY22 sales guidance despite its 3Q21 miss and its hydrogen ecosystem strategy; Morgan Stanley downgraded MGEE to UW with a $69 PT as it has outperformed the utility group by ~5% YTD and now trades at a 28% premium to peers on their EPS estimates; after analyst day, ENPH had its PT raised by several analysts, including Evercore ($292 from $216), Truist ($290 from $250), OpCo ($290 from $225), Susquehanna ($290 from $210), Roth ($270 from $220), Goldman (to $270 from $235), and Cowen ($265 from $225); Guggenheim remains Neutral on FSLR but said yesterday’s 7% selloff on the restoration of tariff exemptions by the CIT was overdone and it is highly unlikely they will see any de-bookings from the decision and they are booked into 2023 at this point

·     Casinos, Gaming, Lodging & Leisure sector; IGT downgraded to Hold from Buy at Jefferies based on the current valuation and post the analyst meeting, the absence of meaningful catalysts to drive the shares higher; in lodging, Wells Fargo upgraded Hyatt (H) to Overweight, from Equal Weight, and downgraded CHH to Equal Weight as believe greater operational upside potential exists over the next 12 months for Hyatt vs. Choice given Hyatt’s weighting toward higher end hotels and corporate travelers; UBER introduces new membership program valued at $9.99 a month or $99.99 per year; in theme parks, Deutsche Bank initiated coverage on SEAS with Buy and $74 tgt based on its more concentrated portfolio of parks and the more immersive nature of the in-park experience, FUN a Buy and $66 tgt seen as a best in class operator and view its stable, experienced management team and a hold and $45 tgt on SIX

·     Metals & Materials; MT will commence a new share buyback program in the amount of US$1 billion, expected to be completed by February 2022; Wolfe initiates coverage on metals sector with Outperform ratings on CSTM, CLF, CENX, AA, CMC, TECK and FCX; CMP receives two analyst upgrades to Outperform (at DB, BMO); potash/fertilizer names active (NTR, MOS, IPI) after ICL has reached an agreement with Indian Potash Limited to increase the selling price of 150,000 tons of potash to be delivered to India in 2021 to $445 per ton, according to a regulatory filing; paper stocks slip early (IP, WRK, PKG) European-focused boxboard producer BillerudKorsnas issued new strategy saying it is looking into expansion in the Americas – could raise concerns around capacity additions and competition in the domestic market

Stock GAINERS

·     BA +1%; upgraded to Overweight from Equal weight at Wells Fargo and raise tgt to $272 from $224 as now sees a positive risk/reward balance with the stock lagging the S&P 500 Index by 30% since its March high

·     ENPH +2%; after analyst day, ENPH had its PT raised by several analysts, including Evercore ($292 from $216), Truist ($290 from $250), OpCo ($290 from $225), Susquehanna ($290 from $210), Roth ($270 from $220), Goldman (to $270 from $235)

·     HIMS +3%; after saying its health and wellness products in Amazon’s U.S. store

·     LOW +3%; Q3 EPS $2.73 tops est. $2.36 on Q3 revs $22.92B vs. est. $22.06B; Q3 consolidated comparable sales up 2.2% vs. est. decline -1.3%; boosted its full-year sales guidance, to about $95B, above its prior view of about $92B

·     TJX +9%; Q3 beats as EPS $0.84/$12.53B vs. est. $0.81/$12.27B on strong demand for its discounted products and said overall open-only comparable store sales growth for Q4 start were up in the mid-teens (results boost shares of ROST as well)

·     TSLA +3%; momentum driven spike as EV sector continues to outperform overall

Stock LAGGARDS

·     BIIB -1%; received a negative trend vote regarding the marketing authorization application for Alzheimer’s therapy aducanumab in Europe from its drug regulator Committee for Medicinal Products for Human Use (a formal opinion on aducanumab is expected in December)

·     DLO -16%; after reporting Q3 EPS 6c that missed est. 7c and in potential profit-taking as shares have more than doubled from its $21 IPO in early June

·     IQ -9%; after weak Q4 forecast as sees Q4 revenue between RMB 7.08 bln ($1.11 bln) and RMB 7.53 bln ($1.18 bln), below consensus of RMB 7.74 bln ($1.21 bln) saying it experienced significant uncertainty in content scheduling in Q3

·     PYPL -3%; downgraded to market perform from outperform at Bernstein and cut tgt to $220 from $260 citing concern about increasing aggregation of eComm within large platforms (e.g., Amazon, Shopify) and worry about well-funded onslaught and accelerating innovation

·     ROKU -9%; downgraded to Sell and reduce tgt to $220 from $330 at Moffett and lower 2025 revenue estimate by -17% due to lower estimated video advertising revenues

·     SAVA 22%; after WSJ reports the SEC is investigating claims that Cassava Sciences Inc. manipulated research results of its experimental Alzheimer’s drug

·     SE -8%; downgraded to Neutral at Bank America from Buy while up tgt to $386 noting shares are up 67% YTD (vs Nasdaq up 23%), mainly because of strong gaming/e-commerce revenues and they now see risk-reward as balanced

·     STNE -28%; as Q3 adjusted EPS of R$0.46 (US$0.08) misses the consensus estimate of R$0.60 and declined from R$0.99 in the year-ago quarter; Q3 net loss of R$1.26B compares with net income of R$249.1M a year ago

·     TGT -4%; boosts forecast for annual same-store sales after beating quarterly expectations for EPS, sales, and comp sales (comps rose 12.7% vs. est. 8.4%), but Q3 gross margin fell to 28% from 30.6% a year earlier on higher labor and freight costs which weighed on shares

·     V -5%; after AMZN to ban Visa credit cards in the UK due to the high transaction fees charged; Amazon customers can still use Visa debit cards, Mastercard and Amex credit cards, and Eurocard

Syndicate:

·     Braze (BRZE) 8M share IPO priced at $65.00

·     CubeSmart (CUBE) 13.5M share Secondary priced at $51.00

·     Cyclo Therapeutics (CYTH) 1.95M share Spot Secondary priced at $6.00

·     EyePoint (EYPT) 4.03M share Spot Secondary priced at $13.75

·     Iris Energy (IREN) 8.27M share IPO priced at $28.00

·     Norwegian Cruise Line (NCLH) 46.8M share registered direct offering priced at $23.64

·     Postal Realty Trust (PSTL) 4.25M share Secondary priced at $17.00

·     Sono Group (SEV) 10M share IPO priced at $15.00

·     ViewRay (VRAY) 12.5M share Spot Secondary priced at $5.60