Mid-Morning Look

Monday, November 28, 2022

U.S. stocks start the trading week lower, with futures falling overnight after protests erupted against China’s Covid Zero strategy in one of the most significant challenges to Communist Party rule since the Tiananmen crisis more than 30 years ago. The unrest leads to a decline in commodity related assets as oil falls to lowest levels this year amid the clouded outlook for energy demand. Apple (AAPL) shares slipped on a report of disruption in production at a factory in China. Overall broad weakness to kick off the week after major averages posted advances the prior week and remain on track for the 2^nd straight month of gains (would be first back-to-back winning months in 2022 if holds). Most sectors lower to start led by energy, technology, materials, and utilities. Treasury yields are lower, while the dollar rebounds off early weakness to trade flat. Big week of earnings in tech space with handful of software names expected this week (SNOW, CRM, SPLK, SNPS) and storage (PSTG, BOX, NTAP). Crypto prices falling further with Bitcoin approaching $16,000 after FTX bankruptcy fall out continues.

Sector Movers Today

·     Retailers: Black Friday and Cyber Monday dominate headlines for retail. A record $9.12 billion was spent online for Black Friday, Nov. 25, up 2.3% y/y as electronics were the major driver of the increase in sales, with online sales up 221% over the average day in October 2022, according to data from Adobe Analytics. Spending on Cyber Monday, the biggest U.S. online shopping day, is set to hit a record $11.2 billion, according to Adobe Analytics (AMZN, WMT, TGT). SHOP said Shopify Merchants break Black Friday records with $3.36B in sales or +17% y/y (well above the 4Q cons GMV growth est. of +8.5% y/y); MasterCard indicated Black Friday Retail sales ex auto rose +12% v est. +15%; another round of earnings this week for retail: HIBB, CTRN on Tuesday, WOOF, FIVE, VSCO on Wednesday, DG, BIG, LE, DLTH, ULTA, TLYS on Thursday

·     Casinos, Gaming, Lodging & Leisure sector: WYNN upgraded to Overweight from Neutral at JPMorgan and raise tgt to $91 from $71 saying Wynn should benefit from a Macau recovery as COVID restrictions are eased; the firm downgraded DKNG to Underweight from Neutral with an unchanged price target of $12 as sees downside in the shares following the post-earnings rally and also downgraded PENN from Overweight to Neutral as think Penn trades near fair value with less upside potential than LV Strip centric or LV Locals centric operators, so we see it as a relative underperformer. Other casino names in Macau advanced after the Macau government on Saturday 11/26 announced that the six incumbent gaming operators (WYNN, MLCO, LVS, MGM, Galaxy, and SJM) were the “provisional winners” for new 10-year gaming concessions.

·     Video Game software: Morgan Stanley upgraded ATVI to Overweight (ATVI was also upgraded at Wells Fargo and Truist), resumed Unity (U) at Equal weight and downgraded APP to EW from Overweight saying they see a growing divergence as mobile gaming underperforms PC/console, leading them to reduce their mobile gaming forecasts by 8%/17% in ’22/’23, though remain bullish the long-term opportunity; Truist upgraded ATVI to Buy and downgraded SCPL to Hold with stock at PT, relative multiple (to market and parent) back at/near highs, tough 4Q hurdle. For EA, maintain Buy with shots-on-goal in F2H (World Cup, Star Wars Jedi, Wild Hearts), buyback support; TTWO maintain Buy at 25x FY23 P/E (weak slate; merger/macro/FX disruption) with pipeline (GTA) and bulk of synergies/deleveraging still ahead (out-years); RBLX maintain Hold on valuation (vs growth/volatility). Positive fundamentals. Risk-reward improving

·     Energy stock movers: U.S. oil price erases 2022 gain as China protests stoke demand fears, sending shares of energy stocks lower; APA provided an update on exploration activities in Block 58 offshore Suriname. APA holds 50% working interest, while TotalEnergies is the operator on the block with a 50% working interest; FANG downgraded to Underperform at Bank America saying valuation is disconnected; energy stocks COP, MRO, DVN among top S&P decliners on the day given the drop in oil; CVX said the U.S. will allow them to resume pumping oil from its Venezuelan oil fields after President Nicolás Maduro’s government and an opposition coalition agreed to implement an estimated $3B humanitarian relief program and continue dialogue in Mexico City

Stock GAINERS

·     AMZN +1%; along with TGT as handful of retailers rising after Black Friday sales results and into Cyber Monday

·     AXSM +32%; after saying its recently approved depression drug AXS-05 met the primary and key secondary endpoints in a Phase 3 study in Alzheimer’s disease agitation as it substantially and statistically significantly delayed the time to relapse and prevented relapse of agitation

·     PDD +13%; hits 52-week highs after earnings results – reported 3Q22 earnings well ahead of expectations as revs were RMB 35.5bn (+65% y/y) vs. est. RMB 30.9bn (vs. 2Q RMB 31.4bn) driven by strength in both OMS (+58% y/y) and transaction services (+102% y/y)

·     SHOP +3%; Shopify Merchants break Black Friday records with $3.36B in sales or +17% y/y (well above the 4Q cons GMV growth est. of +8.5% y/y)

·     SRPT +4%; as announces FDA has accepted for filing and granted Priority Review for the BLA for SRP-9001, Sarepta’s gene therapy for the treatment of ambulant individuals with Duchenne muscular dystrophy

·     TBLA +52%; and Yahoo announced that they have entered a 30-year, exclusive commercial agreement

·     WYNN +4%; upgraded to Overweight from Neutral at JPMorgan and raise tgt to $91 from $71 saying Wynn should benefit from a Macau recovery as COVID restrictions are eased; also rises on positive Macau gov’t 10-year gaming concessions to six incumbent gaming operators

Stock LAGGARDS

·     AAPL -1%; slips on report of disruption in China production; Apple will see a production shortfall of nearly 6 mln iPhone Pro units due to unrest at Foxconn’s Zhengzhou plant – Bloomberg

·     BIIB -2% after a woman receiving lecanemab, an experimental Alzheimer’s drug from Biogen and partner Eisai, in a study recently died from a brain hemorrhage, research paper publisher Science.org reported on Sunday – Reuters reported

·     CINC -42%; after saying its experimental drug Baxdrostat to treat patients with uncontrolled high blood pressure did not meet main goal in mid-stage study

·     DKNG -3%; downgraded to Underweight from Neutral at JPMorgan with an unchanged price target of $12 as sees downside in the shares following the post-earnings rally

·     FANG -3%; downgraded to Underperform at Bank America saying valuation is disconnected, while overall energy stocks biggest drag in S&P early on lower oil prices

·     SI -9%; extends recent declines amid weakness in crypto/Bitcoin space after FTX bankruptcy and concerns about exposure to FTX

·     TDG -4%; downgraded from Overweight to Equal Weight at Wells Fargo and cut tgt to $660 from $735 as see less upside for the stock with worsening mix trends and more expensive capital