Mid-Morning Look

Wednesday, September 22, 2021

Investors seem to be breathing a sigh of relief into this afternoon’s FOMC policy statement as markets are sustaining a rally after yesterday’s morning rebound from Monday’s massive selloff faded. Today’s move higher comes after maligned Chinese real estate developer Evergrande assuaged some fears over its debt crisis when its main unit said it will make coupon payment for its onshore bond due tomorrow, though debt restructuring remains likely. Overnight, FedEx’s (FDX) earnings miss and lowered guidance sank shares of the company and Bitcoin went below $40K for the first time since August before the cryptocurrency rebounded back above $42K. Looking ahead for the day, Toast (TOST), a fintech company providing services to restaurant, and business software company Freshworks (FRSH) will both debut and are currently indicated to open above their respective IPO prices. Additionally, the official FOMC policy statement will be released at 2PM followed by Chairman Powell’s press conference, and investors are also awaiting the release of the quarterly dot plot to key in on any updates into the timeline for bond purchases to be tapered and interest rates to be raised.

Economic Data

·     MBA mortgage applications index rose 4.9% in week ended Sept. 17 after rising 0.3% in prior week

·     U.S. Aug existing home sales 5.88M unit rate (consensus 5.89M), vs July 6.00M (prev 5.99M)

·     US EIA Crude Oil Inventories Actual -3.481M (Forecast -2.45M, Previous -6.422M)

Sector Movers Today

·     Pharma movers; DVAX rises early after China’s Clover Biopharmaceuticals said its potential COVID-19 vaccine candidate, SCB-2019, adjuvanted with DVAX’s CpG 1018 vaccine booster, was 67% overall effective against COVID-19 and 79% against the highly infectious Delta variant in a late-stage trial; for PFE and BNTX, a CDC committee is set to meet Wednesday and Thursday to again discuss the science and possible administration plan for their COVID-19 booster shot; cannabis stocks (MJ, MSOS, TLRY, CGC, GTBIF, CURLF) were active after the House of Representatives approved a bill to ease banking rules for cannabis companies as part of its Defense Authorization Act

·     Metals & Materials; VALE and BHP both downgraded to Neutral from Buy at Bank America; shares of industrial metals (FCX, AA, X) rallied behind a bounce in iron ore prices in China rally on relief that China’s debt-burdened Evergrande would pay interest on a domestic bond, easing fears that the property giant’s troubles might hit the global economy; DNG raised its sales, earnings, and production guidance as it expects gold output to rise above 100,000 gold equivalent ounces for the first time in its history; BMO upgraded TECK to Outperform and raised their PT to C$44 from C$40 after the company’s investor day yesterday

·     Software movers; ADBE reported a good overall quarter, as F3Q revenue and margins were well above consensus. However, net new Digital Media ARR only modestly exceeded the Street, and was below investor expectations; MRIN surges after saying it entered into a revenue share agreement with GOOGL for company to develop its enterprise tech platform and software products effective as of October 1, 2021; WDAY hosted its virtual Financial Analyst Day last night and is aiming to drive subscriber revenue growth above +20% YoY until reaching at least $10B in total revenue with a 25% non-GAAP operating margin; Goldman reinstated MCFE as a Neutral with a $26 target after it completed the sale of its Enterprise business, and paid a special dividend and $1B debt repayment leaves meaningful catalysts behind us

Stock GAINERS

·     AMBA +5%; upgraded to Overweight from Sector Weight at KeyBanc with a $185 price target as see multiple favorable tailwinds related to the adoption of CV within the security and automotive end markets

·     DVAX +20%; after China’s Clover Biopharmaceuticals said its potential COVID-19 vaccine candidate, SCB-2019, adjuvanted with DVAX’s CpG 1018 vaccine booster, was 67% overall effective against COVID-19 and 79% against the highly infectious Delta variant in a late-stage trial

·     MRIN +59%; after saying it entered into a revenue share agreement with GOOGL for company to develop its enterprise tech platform and software products effective as of October 1, 2021

·     ONTX +16%; preliminary Phase 1/2a non-small cell lung cancer trial data show an early signal of activity in extensively pre-treated population with 2 partial responses out of 7 evaluable patients

·     SFIX +16%; strong Q4 with EPS 19c beating est. (13c) loss on revs $571.2M vs est. $547.9M with 4.2M active clients in the quarter (+18%); guided Q1 revs $560-575M vs est. $588M with FY22 net revs $+15% YoY vs est. +18%; announced branding of direct buy experience as Stitch Fix Freestyle

·     SOFI +7%; initiated at Jefferies with a Buy rating and $25 target as a leader in the neobank space

·     XPOF +11%; Raymond James double-upgraded it to Strong Buy from Market Perform to reflect leading position in boutique fitness market, numerous growth opportunities, and relatively attractive valuation

Stock LAGGARDS

·     ADBE -3%; reported a good overall quarter, as F3Q revenue and margins were well above consensus. However, net new Digital Media ARR only modestly exceeded the Street, and was below investor expectations

·     BIIB -2%; as STAT news reported the launch of Aduhelm having slower than projected sales has led the company to consider cost-cutting measures including layoffs (notes just over 100 patients infused w/ Aduhelm as of Sept 11^th)

·     FDX -8%; Q1 adj EPS $4.37 missed the expected $4.91 on revs $22B vs est. $21.9B, adj operating margin 6.8% vs est. 8.5%, FY adj EPS guidance $19.75-$21.00 was below est. $21.10

·     INCY -6%; with the company announcing FDA approval of its topical ruxolitinib cream for the treatment of atopic dermatitis with the focus on boxed warnings on serious infections, mortality, malignancy, major adverse cardiovascular events and thrombosis

·     UNH -1%; the WSJ reported Medicare insurers drew $9.2B in federal payments in one year through controversial billing practices and 20 of those companies benefitted disproportionately, accounting for more than half of the total

·     WKHS -8%; suspended deliveries of its c-1000 vehicle as additional testing and modifications are required to certify the vehicles under federal safety standards

·     FB -4%; company said AAPL’s ad changes were hurting its business and also revealed it had been inadvertently been under-reporting web conversion by an estimated 15% that led to advertisers believing their ads were not as effective

Syndicate:

·     a.k.a. Brands Holding (AKA) 10M share IPO priced at $11.00

·     Freshworks (FRSH) 28.5M share IPO priced at $36.00

·     RBC Bearings (ROLL) 3M share Spot Secondary priced at $185.00

·     Toast (TOST) 21.74M share IPO priced at $40.00

·     VersaBank (VBNK) 5.5M share IPO priced at $10.00

·     Warner Music (WMG) 2.34M share Spot Secondary priced at $44.00