Mid-Morning Look

Thursday, October 14, 2021

A moon shot for major U.S. averages to start the trading day, soaring across the board and adding to gains from Wednesday as back-to-back in-line/tamer inflation data points (CPI yesterday and PPI today) boosted sentiment about the economy and surging prices. Weekly jobless claims also help, with tis first figure below 300K since before the pandemic started. Oil prices rise after the International Energy Agency said that record natural gas prices would boost demand for oil and top oil producer Saudi Arabia dismissed calls for additional OPEC+ supply. Earnings kicking into full gear as Dow component UNH with a beat and raise lifts managed care companies, while banking results from MS, WFC, Citi, BAC all top consensus but share reaction less than impressive, falling across the board. Semiconductors among tech leaders after better results from TSM overnight. Defensive sectors lagging given the “risk-on” attitude this morning. U.S. listed China stocks among early decliners on more regulatory risk concerns. News yesterday that the White House wants to break a logjam at U.S. ports and stave off a holiday season of shortages and delays by opening Long Beach ports 24/7 also easing pricing concerns.

Economic Data

·     Producer Price Index (PPI) headline reading MoM for Sept rises +0.5% vs. est. +0.6% and on a YoY basis rose +8.6%, below the +8.7% estimate; on a core basis (ex Food & Energy), Sept MoM reading was up +0.2%, below the est. +0.5% and on a YoY basis rose +6.8%, also coming in below ests of +7.1%

·     U.S. jobless claims fell -36K to 293K in latest week (vs. time claims been below 300K since pandemic started) vs. est. 319K while prior week revised to 329K from 326K; the 4-week moving average fell to 334,250 from 344,750 prior (previous 344,000); continued claims fell to 2.593M from 2.727M prior (est. 2.675M); the U.S. insured unemployment rate fell to 1.9% from 2%

Sector Movers Today

·     Bank movers; WFC EPS $1.17 beat est. $0.99 and was aided by a 30c boost from the bank releasing $1.7B from its credit loss reserve, and its revenue $18.83B also beat est. $18.4B; BAC Q3 EPS 85c topped est. 71c on revenue $22.7B vs est. $21.68B, including net interest income $11.1B (+10% YoY), released $1.1B of its reserves, and net-charges $463M were 52% lower YoY; USB Q3 EPS $1.30 vs. est. $1.16; Q3 revs $5.89B vs. est. $5.77B; return on average assets 1.45% vs. 1.17% y/y; return on average equity 15.9% vs. 12.8% y/y; net charge-offs $147 million, -71% Yoy; Citigroup Inc. (C) reported a 48% jump in Q3 profit that comfortably beat market estimates, as the bank released loan loss reserves (took down $1.16B of loss reserves that were built in) and reaped fees from equity underwriting and investment banking as those revs rose 39%; MS Q3 profit rises 36% YoY with EPS of $1.98 topping the $1.69 est. and revs rise 26% to $14.75B vs. est. $13.93B helped as Investment banking fees jumped 67% to $2.85B, revs from advising on deals more than tripled to $1.27B and fees from arranging IPOs/stock offerings rose 16% to $1.01B (trading revs rose 6% to $4.52B a day after JPM said trading revs fell 5%)

·     Metals & Mining; MT downgraded to Sector Weight from Overweight at KeyBanc citing the firm’s view of limited prospective positive catalysts and a pending downturn in global spot steel metal spreads amid rising costs; STLD CEO said steel prices, driven to nosebleed highs by surging demand, should start to “erode” by the first part of next year as COVID-related supply bottlenecks ease and new domestic production comes online; CMC 4Q adj EPS $1.26 vs est. $1.27 on sales $2.0B vs est. $1.93B, says anticipates strong operating and financial performance will continue in FY22; U.S. Steel (X) upgraded to Buy from Hold at Argus as expect the company benefit over time from recent efforts to strengthen its balance sheet and note that business fundamentals remain strong (has $25 tgt)

·     Healthcare Services; managed care giant and Dow component UNH Q3 adj EPS $4.52 vs. est. $4.41 and Q3 revs $72.34B vs. est. $71.19B, helped by a jump in revenue from its Optum unit that manages drug benefits, rising 14% and raises FY21 adjusted EPS view; pharmacy retailer and Dow component WBA beat analyst expectations for both revenue and adjusted earnings with its Q4 FY21 financials as EPS beat by $0.15 per share while sales rose ~12.1% YoY topping views; EYE was upgraded to Overweight at Morgan Stanley as see healthy Optical category growth in ’22and ’23,amplified by EYE’s continued share gains; NEO was upgraded to Outperform at Raymond James supported by analysis of RaDaR and competitive MRD datasets

·     Transports; UPS was upgraded to buy from Hold at Stifel and up tgt to $224 saying despite tough comps, Ecommerce continues to drive secular volume growth in the company’s core small package unit; CAR was downgraded to Underweight with a $110 PT at Morgan Stanley on the back of what they see as 1) peak cyclical earnings, 2) a negative risk reward, and 3) a premature multiple re-rate and see better risk-adjusted opportunities for auto mobility; in trucking, Cowen said carriers expect rate increases of 5.1%, up 20bps from our 2Q survey and see the results as a positive for the group, and see KNX, SNDR as best positioned, while also like CVLG and USAK for investors capable of playing smaller cap names; Wells Fargo said XPO, GXO, KNX, JBHT, HUBG, and SAIA remain top ideas as believe that the current environment continues to be supportive of our sector selectivity

·     E&P and Majors; ; OXY agreed to sell its interests in two Ghana offshore fields for $750 million, with KOS paying $550M and Ghana National Petroleum Corporation paying $200M; Bank of America downgraded EOG and NOG to Neutral as they say it is premature to expect the company to resume spending on growth until there is better clarity on rebalancing of global oil markets, CLR to N as they see upside increasingly dependent on an upward reset at the long end of the oil curve after strong recent performance, resumed coverage on CTVA at Neutral, and double-upgraded RRC to Buy from Underperform as their preferred US gas play on the current cycle given it is among the most levered names to the current gas curve, but with significant exposure to strengthening NGL prices

Stock GAINERS

·     BAC +1%; Q3 EPS 85c topped est. 71c on revenue $22.7B vs est. $21.68B, including net interest income $11.1B (+10% YoY), released $1.1B of its reserves, and net-charges $463M were 52% lower YoY (better bank earnings today for C, MS, WFC but shares slipping)

·     BWEN +13%; as the Biden Administration Plans wind farms along nearly the entire U.S. coastline with Interior Secretary Haaland saying her agency will formally begin the process of identifying federal waters to lease to wind developers by 2025.

·     COIN +3%; as Bloomberg reported the waitlist for its not-yet-launched marketplace for nonfungible tokens (NFT) tops 1 mln signups on its first day after the company announced the Coinbase NFT marketplace on Oct. 12th

·     GMBL +9%; rises after forecasting higher revenue in FY22 saying it expects net revenue to increase by at least 490% to $100 mln to $105 mln in FY22 driven primarily by the multiple acquisitions completed in calendar 2021

·     UNH +6%; Q3 adj EPS $4.52 vs. est. $4.41 and Q3 revs $72.34B vs. est. $71.19B, helped by a jump in revenue from its Optum unit that manages drug benefits, rising 14% and raises FY21 adjusted EPS view (ANTM, HUM shares higher in reaction)

·     UPS +2%; upgraded to buy from Hold at Stifel and up tgt to $224 saying despite tough comps, Ecommerce continues to drive secular volume growth in the company’s core small package unit

Stock LAGGARDS

·     BTAI -12%; filed an 8-K that its chief commercial officer, Will Kane, resigned as of 10/8 – Canaccord said they believe the stock could see some pressure on this news.

·     CAR -2%; downgraded to Underweight with $110 PT at Morgan Stanley on the back of what they see as 1) peak cyclical earnings, 2) a negative risk reward, and 3) a premature multiple re-rate

·     DPZ -2%; on mixed Q3 results as EPS $3.24 vs est. $3.11 on revs $998Mm vs est. $1.04B; qtrly US comps -1.9%, qtrly international comps +8.8%

·     FUTU -14%; and TIGR slip after reports they face regulatory risks as China’s personal data privacy law takes effect Nov. 1, the official People’s Daily said in an analysis on its website

·     KIDS said 3Q revenue was hurt by the surge in cases of Covid-19 delta variant and RSV within children’s hospitals combined with staff shortage

·     W -1%; Wayfair downgraded for a second straight day as Morgan Stanley cuts to Underweight given the possibility of Home Furnishings category declines in both ’22and ’23 leading to declining near term sales and negative profit implications (was downgraded at Jefferies yesterday)