Mid-Morning Look

Monday, September 27, 2021

U.S. stock markets are mixed to start the week as financials, industrials, and energy leading the Dow higher up over 200 points back above 35K, while the Nasdaq drops over 1% initially (has since pared losses by half) as growth stocks fall on rising treasury yields (MSFT, AAPL, CRM top decliners in the Dow). The yield on the benchmark 10-year tops 1.51%, highest levels since late June while the 30-yr surpasses 2% (but yields pullback off highs). Oil prices surge, extending last week gains as WTI crude tops $75 per barrel (leading energy stocks to best levels in months). Financials/insurance stocks advance on the Treasury yield pop. Reopen sectors also leading markets higher (casinos, travel, cruise lines, leisure) as the Russell 2000 SmallCap index outperforms the large cap tech sector (laggard groups generally playing catch-up). News generally quiet to start the week, with handful of Fed speakers today after the FOMC upped its timeline of interest rates last week at its policy meeting. New orders and shipments of key U.S.-made capital goods increased solidly in August amid strong demand (durable goods up +1.8% vs. est. 0.7%). Markets awaiting news out of Washington as House Speaker Nancy Pelosi pledged this weekend to pass a $550 billion infrastructure bill this week and signaled that the headline amount on a bigger package of spending and tax measures will be lowered from $3.5 trillion.

Sector Movers Today

·     Metals & Materials; KRA enters a merger agreement under which DL Chemical will acquire the chemical company for 5446.50 per share in cash, in a deal valued at ~$2.5 billion, a 12% premium to Friday’s closing price https://bit.ly/3udr7LI ; Keybanc reduced 3Q estimates on several paper & packaging companies (SLGN, BLL, GPK, WRK) ahead of earnings season owing to rampant cost inflation and supply chain problems, which have led to numerous negative pre-announcements and guidance reductions; ASH warns FY 2021 adjusted EBITDA could come in as much as $10M below the low end of previous guidance of $570M-$590M, saying continued challenges in shipping, logistics and packaging are inhibiting its ability to meet strong overall customer demand.

·     Pharma movers; MRK announced that the Phase 3 KEYNOTE-394 trial investigating KEYTRUDA, Merck’s anti-PD-1 therapy, in Asian patients with advanced hepatocellular carcinoma previously treated with sorafenib met its primary endpoint of overall survival; ASLN falls after the company reports topline data in its Phase 1 study of ASLAN004 for the treatment of moderate-to-severe atopic dermatitis; PFE announces start of Phase 2/3 EPIC-PEP study for the prevention of COVID-19 infection; BMY said the U.S. FDA has accepted supplemental Biologics License Applications (sBLA) for two combinations of its blockbuster cancer drug Opdivo (nivolumab) for review.

·     Casinos, Gaming, Lodging & Leisure sector; cruise lines (CCL), theme parks (DIS), casinos (WYNN) among leaders as reopen sectors outperform; in lodging, Bank America downgraded shares of Hyatt (H) and INN to Underperform saying it is purely a relative call as we are moving to a slightly less bullish stance on the Lodging recovery following our Conference amid 1) the delta variant, 2) delayed office reopenings, 3) soft September commentary, 4) some group cancellations, and 5) less favorable leisure seasonality. Firm remains positive on the Lodging sector overall with 10 Buy ratings versus 5 Underperform ratings. Barron’s says HLT and DAL are good places to hide in the travel industry until the sector quiets down; in casinos, Bloomberg reported Macau is tightening travel restrictions to in an attempt to prevent outbreaks ahead of Golden Week starting Oct 1

·     Consumer Staples; AMZN’s Whole Foods Market is implementing a grocery delivery fee across the U.S., rolling back a perk the retailer had offered for paying Prime members since it began offering home delivery from the organic grocer; COTY expands beauty tech offerings globally with omni-channel perfect corp. partnership; BYND said it is expanding the availability of Beyond Breakfast Sausage Classic Patties by more than 1,500 WMT stores and Beyond Breakfast Sausage Spicy Patties by more than 1,300 stores; for KDP, Goldman Sachs sees favorable risk-reward heading into KDP’s long-anticipated virtual Investor Day on October 1 and expects it to be a positive catalyst as the market continues to underestimate a few key positives

Stock GAINERS

·     CCL +4%; casinos, cruise lines and leisure related reopen trades outperform today

·     COG +4%; energy again the standout to the upside as WTI crude rises over 2% above $75.50 per barrel (shares of FANG, EOG, MRO, OXY, COG all surging)

·     KRA +7%; enters a merger agreement under which DL Chemical will acquire the chemical company for 5446.50 per share in cash, in a deal valued at ~$2.5 billion, a 12% premium to Friday’s closing price https://bit.ly/3udr7LI

·     POWW +4%; boosted Q2 rev view to $55M from $51M and topping consensus of $52.6M citing continued momentum

·     VZIO +8%; a positive mention in Barron’s this weekend saying stock buyers should consider newly public Vizio, which completed upfront advertising negotiations with more than $100 million in commitments

·     XLRN +4%; is in advanced discussions to be acquired by a large pharmaceutical company for about $180 a share in cash, Bloomberg reported late Friday https://bloom.bg/3ANfEVx

Stock LAGGARDS

·     ASH -1%; warns FY 2021 adjusted EBITDA could come in as much as $10M below the low end of previous guidance of $570M-$590M, saying continued challenges in shipping, logistics and packaging are inhibiting its ability to meet strong overall customer demand.

·     ASLN -28%; after the company reports topline data in its Phase 1 study of ASLAN004 for the treatment of moderate-to-severe atopic dermatitis

·     BHVN -3%; after saying its verdiperstat treatment failed to make a statistically significant improvement in patients with multiple system atrophy (MSA).

·     RIDE ; after Goldman Sachs is downgraded to sell from neutral, which sees a number of headwinds for the electric vehicle company

·     SPNE -5%; said late Friday it expects its total revenue for q3 of 2021 to grow in mid-single digit range; said it is unable to confirm its prior revenue guidance for q4 and full-year 2021 at this time