Mid-Morning Look

Tuesday, November 30, 2021

Renewed fears of the Omicron variant hampers sentiment after the Moderna CEO said current vaccines would be less effective against this strain than they have been against the Delta variant. Stocks briefly bounced off their weak opens with the Nasdaq even going green, but markets have turned lower again towards their lowest levels of the morning during Fed Chair Jerome Powell and Treasury Secretary Janet Yellen’s appearance before the U.S. Senate Banking Committee. Treasury yields have plummeted so far, with the 10-year yield reaching a low of 1.421%, its first time below 1.5% since November 10, while gold and silver prices have spiked this morning and the dollar faded given the Covid fears and weak macroeconomic data. Both the Chicago PMI and Consumer Confidence came in below consensus estimates with their lowest readings since February as consumers continue to worry about the highest inflation in years, and home prices also decelerated their growth in September for the first time since May 2020, rising +19.5% vs Sept. 2020, down from August’s +19.8% increase.

Economic Data

·     U.S. S&P CoreLogic Case-Shiller September home prices +19.5% from year ago vs +19.8% in August, the first slowdown since May 2020

·     U.S. November MNI Chicago PMI 61.8 vs est. 67.0

·     U.S. November Consumer Confidence 109.5 vs est. 110.9

Sector Movers Today

·     MedTech Equipment; EXAS enters into an amendment to the Amended & Restated Cologuard Promotion Agreement with PFE, where the Pharma giant will no longer promote the company’s Cologuard colorectal cancer screening test to health care providers; Piper said EW is the best beat and raise story and believe it is better than MDT that missed badly; JPMorgan sees few positive catalysts into year-end for the sector as the Omicron variant disrupts volumes, causes negative revisions, and further fatigues investors, but they think a 2022 recovery rally is likely given attractive absolute and relative valuations and unchanged long-term fundamentals with favorable demographics; Credit Suisse echoes that sentiment, saying Omicron should drive near-term volatility, but still expects their favorite names (SYK, EW, BSX, ABT, GMED) to substantially outperform over the next 12 months as higher levels of immunization should mean managing this next surge without significantly impacting surgical procedures

·     Auto sector; TM upgraded at UBS to Buy on strong potential demand in key markets, 2022 output above the historical peak given limited semiconductor constraints, and significantly higher est. FY23-26 FCF than competitors; DIDI pressured early after China outlined new rules to safeguard the rights of ride-hailing drivers that require operators to provide social insurance and make their earnings public, and said companies should improve income distribution mechanisms and they will step up anti-monopoly measures; Wells raised their PT on AZO to $2,050 from $1,825 ahead of next week’s Q1 earnings report as the auto part group remains structurally stronger while its reasonable valuation, DIY leadership, DIFM share gains, pricing power and big buybacks warrant further upside

·     Utilities & Solar; SEDG downgraded to EW at MSCO despite their forecast of robust revenue CAGR and operating margins as their new $338 PT (from $318) implies no upside after shares have outperformed the MAC Global Solar Energy Index by ~20% YTD; JKS Q3 EPS 1c vs est. 2c on revs $1.33B vs. est. $1.34B, sees Q4 revenue $1.8B-$2.2B below consensus $2.24B; ARRY announces $325M convertible senior notes offering; BMO initiated WEC at Market Perform and a $92 PT as it sees strong growth through 2026 with a supportive regulatory environment, but says shares currently discount its premium profile appropriately; Goldman initiated AES with a Buy rating and $30 PT after it transformed into a more simplified geographic footprint with an improved balance sheet, and FLNC at Buy with a $52 PT as they say it is positioned to be one of the fastest-growing companies in their coverage given it is established as a leading provider of integrated storage systems, an end market that is expected to experience high growth itself

Stock GAINERS

·     MEIP +20%; after Ph2 tidal study data evaluating zandelisib as a single agent in patients with relapsed or refractory follicular lymphoma demonstrated a 70.3% objective response rate and 35.2% of patients achieved a complete response

·     IOBT +7%; initiated with Buy ratings at Cowen and Jefferies after encouraging Ph1/2 trial data and before it initiates Ph3 by the end of the year

·     AAPL +2%; DigiTimes reported Apple was China’s largest smartphone maker in October for the first time since December 2015, driven by the iPhone 13 series

·     CTRN +3%; Q3 EPS $1.03 vs est. $0.45 on sales $228M vs est. $220.7M, comp sales +19.7% vs 3Q19, approved new share buyback program of $30M, raised FY guidance

Stock LAGGARDS

·     MRNA -6%; after CEO said current vaccines would be less effective vs. the Omicron variant than they have been against the Delta variant

·     REGN -1%; said preliminary tests indicate its Covid-19 antibody drug cocktail is less effective against the Omicron variant

·     JKS -2%; Q3 EPS 1c vs est. 2c on revs $1.33B vs. est. $1.34B, sees Q4 revenue $1.8B-$2.2B below consensus $2.24B

·     BNED -20%; reported Q2 EPS 41c that widely missed est. 82c on sales $627M that also missed est. $663M

·     DDS -10%; initiated at Sell by UBS with a $190 PT (44% below current levels) given tough FY22 comps and macro headwinds, as well as their view that department stores will continue losing share vs other retailers

·     INTU -3%; 1.55M share Secondary priced at $668.95