Closing Recap

Thursday, April 08, 2021

Equity Market Recap

·     It was another light volume, narrow trading day for major averages (still feeling the lingering effects of Easter holiday week) …but stocks still managed solid gains, with major averages (yet again) touching or nearing all-time highs again, paced by strength in technology mega caps (again). The S&P 500 reached a new intraday/closing high and the Nasdaq finished at 7-week highs amid a further rotation into large cap heavy weight stocks, while Smallcap Russell 2000 rebounded. The rally this week comes behind better economic data (not necessarily today as jobless claims rise a second week), ongoing dovish Fed commentary (several members noting inflation not a concern as only see near-term rise in prices), positive sentiment related to the new infrastructure bill (no concern yet about higher corporate taxes to pay for it), bullish sentiment into earnings next week when big banks kick off earnings (GS, C, JPM, WFC among them) and of course FOMO (as investors have “fear of missing out” next market rally). As mentioned, volumes have completely dried up this week, perhaps the calm before the storm, as Q1 earnings season begins next week with results from big U.S. banks (Refinitiv notes analysts have raised expectations for S&P 500 earnings to increase to 24.2%, versus 21% forecast on Feb. 5). The U.S. dollar fell to a two-week low, tracking Treasury yields lower, after data showed a surprise rise in U.S. weekly jobless claims, oil slipped and gold hit more than 1-month highs.

Commodities, Currencies and Treasury’s

·     Oil prices dipped, with WTI crude down $0.17 to $59.60 per barrel, in a relatively quiet day for energy prices after recent volatility. Gold prices post highest settlement since late February as prices rise $16.60 or 1% to settle at $1,758.20 an ounce, helped by easing Treasury yields and as the dollar hits 2-week lows. The U.S. dollar dropped, tracking Treasury yields lower, after data showed a surprise rise in U.S. weekly jobless claims. The U.S. Dollar Index (DXY) fell to its lowest since March 23 along with a two-week low against the Japanese yen. The benchmark 10-year Treasury yield held around 1.635% after topping 1.77% late last month, its highest in more than a year, as the pullback in yields have helped ease inflation concerns for the time being.

Economic Data

·     U.S. jobless claims rose to 744,000 in the latest week, well above the 680K estimate while prior week revised to 728K from 719K; the 4-week moving avg rose to 723,750 from 721,250 prior; continued claims fell to 3.734M vs. est. 3.650M (3.750M prior); the U.S. insured unemployment rate unchanged at 2.6%

Sector News Breakdown

Consumer

·     Retailers; COST reported net sales of $18.21 bln for retail month of March, five weeks ended April 4, 2021, up 17.6% from $15.49 bln last year; March total same-store sales rose 16% vs. est. 12.3%; March E-Commerce sales rose 57.7%; GME said it is nominating Chewy Inc. co-founder Ryan Cohen as its chairman at the company’s June annual meeting (was not unexpected); BKE March net sales $139.4M, +240.2% y/y and +69.5% vs 2019; RBC raises 1Q/2021/2022 EPS and targets on AEO, ANF, GPS, and URBN as remains favorable on the group into 1Q as seeing signs of pent-up demand in the apparel category; Cowen initiates WSM Outperform, price target $214

·     Auto sector; Ford Motor (F) said it sold 153,822 vehicles in China in Q1, up 73% YoY; NKLA is partnering with RIG360 on a network of heavy-duty truck service and maintenance centers and plans to provide sales and service products for commercial customers at more than 65 RIG360 dealer locations; GM is temporarily idling or extending shutdowns at several plants in North America due to the global semiconductor shortage, CNBC reported; BLNK rises on deployment of 42 charging ports at 10 Four Brothers Pizza Inn locations across New York

·     Consumer Staples; CAG slight beat for Q3 adj EPS 59c vs. est. 58c and sales $2.8B vs. est. $2.71B while reaffirms guidance for year and said net sales for grocery & snacks segment increased 10.8% to $1.1 bln in quarter; STZ posted a Q4 EPS/sales beat as profit slipped, but posted growth in its top line and beer shipment volume and issued softer guidance for 2022 EPS of $9.95-$10.25 vs. est. $10.44; BYND expands U.S. retail distribution within multiple national and regional grocery chains (Kroger, Wegmans, Sprouts, Target among them); WW downgraded to equal-weight with $34 tgt at Morgan Stanley saying at this price, they see a more balanced risk reward, especially given weaker 1Q app download data

·     Restaurants; CMG reit Outperform and $1,800 saying checks through March point to Q1 SSS growth towards the high end of ‘mid- to high-teens’ guidance and above 16.8% consensus; WING initiated sector perform at RBC Capital saying while co saw strong comp store sales & global unit growth last year, believe strong fundamental performance and growth potential are already embedded in current valuation; Dining and restaurant names (DRI, RRGB, EAT, among others) have been surging amid reopen plays

·     Leisure, Casinos and Gaming; price tgts raised at KeyBanc for several casino/gaming names saying while evidence of upside to 1Q21 consensus is building, more important, they believe, is that the slope of recovery is now beginning to contort upward, quickly, and at current stock price levels vs. peers (CZR tgt to $110 from $102, RRR pt raise from $32 to $38, BYD pt raise from $61 to $69, and BALY pt raise from $65 to $70, maintains Overweight on all); RCL extends suspension of certain sailings while continuing its measured return based on science-backed protocols; PLNT shares bounced after Motley Fool with a re-recommendation on shares today

·     Housing & Building Products; BTIG boosted 2021 and 2022 estimates for building products distribution and installation coverage (IBP, BLD, BLDR) and raising tgts noting distributor stocks are up +14% YTD on average, but lagging homebuilding coverage which is +28% on average; Loop Capital initiated TREX and AZEK with buy ratings ($110 tgt and $52 tgt respectively) in building products category

Energy

·     Energy stock movers; energy among weakest sectors with further rotation into technology names with APA, COG, COP, CVX, MRO, PXD, XOM among top decliners in S&P); In stock news; VNOM upgraded to Overweight at Piper as believe the recent ~20% decline in the share price provides an attractive entry point; VLO said it expects to report a net loss in range of $2.05 to $1.81 per share for Q1 as expects electricity & natural gas costs incurred to be higher than expected due to impacts of winter storm; HES agreed to sell assets in the Bakken in North Dakota to oil and gas company Enerplus Corp. for $312 million

Financials

·     Bank movers; earnings season coming up soon, with big banks expected to kick things off in the next 2-weeks as analysts position ahead of results; USB upgraded to Overweight from Neutral at JPMorgan saying as spending picks up, it should benefit the most as card-related fees accounted for 16% of its total revenues in 2019, well above 4.7% median among large banks; GS tgt raised to $390 at Citigroup to reflect what appears to be a very strong 1Q macro environment and raise 1Q EPS estimate by roughly ~$3.50; ISBC tgt raised to $18 at RBC Capital as argues that ISBC should be an outsized beneficiary of increased banking industry liquidity and stable loan yields

·     Consumer Finance; Visa (V) shares slipped late morning after headlines that the co’s incentives to banks examined in Justice Department probe; ALLY, CACC, SC tgt and ests raised in auto lending at Credit Suisse saying overall, reported EPS will be dominated by the changes in the loan loss reserve (especially at ALLY and SC). Expect strong credit and only modest growth to result in the beginnings of a drawdown in reserves, though we expect this to happen in stages over the balance of 2021 and 2022; WETF upgraded to equal-weight from underweight with $6.75 tgt at Morgan Stanley, moving to the sidelines as organic growth is coming in stronger than expected and fee compression also better than feared

·     Bitcoin related news; Bitcoin prices rise; Peter Thiel comments yesterday who mulls whether the Chinese might be accumulating it as a possible financial weapon against the U.S. and the dollar; RIOT to buy Texas-based Bitcoin mining facility operator Whinstone US Inc from Germany’s Northern Data AG in a cash-and-stock deal worth about $651M/after the deal, NB2 will hold about 12% of total outstanding shares in RIOT; MOGO said its payments platform, Carta Worldwide, announces a partnership with LendingClub Bank

Healthcare

·     Pharma movers; INCY and LLY said their rheumatoid arthritis drug baricitinib did not meet the main goal of preventing progression to mechanical ventilation in hospitalized COVID-19 patients under a late-stage study; BMY said Opdivo (nivolumab) plus chemotherapy and Opdivo plus Yervoy (ipilimumab) demonstrate superior survival benefit compared to chemotherapy in unresectable advanced or metastatic esophageal squamous cell carcinoma; TEVA Canada announces new autoinjector for Ajovy for the preventive treatment of migraine in adults; in cannabis, CGC reached an agreement to acquire Supreme Cannabis Co. Inc. in a stock and cash deal valued at about C$435 million ($345.6 million); MRK announced that its Phase 3 KEYNOTE-564 trial evaluating Keytruda as an adjuvant treatment of patients with RCC following surgery met its primary endpoint of disease-free survival (DFS).

·     Biotech movers; BIIB and Bio-Thera Solutions announce commercialization and license agreement for proposed biosimilar currently in phase 3 with the potential to treat moderate to severe rheumatoid arthritis; RPRX acquired Dicerna’s royalty interest in OXLUMO(TM) (lumasiran) for an upfront cash payment of $180M and up to $60M in contingent milestone payments; IMMP rises as the FDA grants fast-track designation to eftilagimod alpha, its lead product candidate for cancer

·     MedTech and Equipment; GKOS upgraded to Outperform at Oppenheimer saying they came away from our mid-March OPCO Healthcare Conference feeling more positive on GKOS’ near-/medium-term outlook given better US competitive dynamics, improving (while fluid) COVID-19 trends, and recent positive clinical data announcements; SPNE upgraded to Overweight at Wells Fargo as positive checks on 7D Surgical leads to belief the company can drive sustainable growth long-term; HOLX agreed to acquire Mobidiag Oy, a privately held, commercial-stage developer of innovative molecular diagnostic tests for an enterprise value of approximately $795 million; ABT receives CE mark approval for next-generation TriClip device

Industrials & Materials

·     Aerospace & Defense; LHX downgraded from Buy to Neutral at Goldman Sachs as believe L3Harris is well positioned within the defense end-market, with exposure to priority categories; while operations have been strong and margins still have upside. But its end-market growth rate is decelerating vs. most of Industrials accelerating; TXT upgraded from Neutral to Buy w/ $71 pt at Goldman Sachs saying leading indicators in the business jet market have improved, especially in Textron’s aircraft categories and for Cessna aircraft specifically

·     Metals & Materials; containerboard names active (IP, WRK, PKG) as UBS said conditions supporting US containerboard price increases are weakening. High frequency data points indicate slowing demand growth, rising inventories, and unfavorable consumer preferences; SON was downgraded at Wells Fargo as believe valuation reflects known catalysts and potential for ongoing portfolio adjustments, rendering a more balanced risk/reward scenario; PLL a 40% increase in the lithium resource at its flagship Piedmont Lithium project in North Carolina.

Technology, Media & Telecom

·     Internet; TWTR has recently held discussions to acquire Clubhouse, the audio-driven social network, Bloomberg reported late yesterday, saying the two parties reportedly discussed a potential valuation of approximately $4B https://bloom.bg/31TyScz ; GDDY announced the acquisition of .club and .design domain extensions along with the acquisition of 28 additional domain extensions and business assets; NFLX rose after the WSJ reported multi-year deal for rights to Sony movies, including upcoming ‘Spider-Man’ films

·     Semiconductors; SIMO said it sees Q1 revenue to grow ~25% sequentially, significantly higher of the 7% to 12% guidance range issued in Feb and sees non-GAAP gross margin to be at the high-end of the company’s original 48% to 50% guidance range; NXPI downgraded to equal-weight at Morgan Stanley and cut tgt to $199 from $213 following recent outperformance; CREE tgt raised to $115 from $100 at Wells Fargo saying companies like them, that see future growth in auto-related rev driven by secular trends tend to trade at very rich valuations

·     Media movers; Guggenheim raised estimates and tgts for broadcasters GTN, NXST, SSP, and TGNA to reflect their moderately higher advertising outlook for 1Q and the remainder of 2021 as TV advertising for local broadcasters gained steam in March as the economy opened up more, vaccinations accelerated, and new stimulus was approved.

·     Wireless & Telecom; GOGO upgrade to Outperform w/$14 pt at Cowen saying it remains well-positioned within the growing BA broadband sector and like the long term story but sense some urgency as the shares have repriced over the past 2 months; ORBC to be acquired by GI Partners in an all-cash transaction of ~$1.1B, including net debt, as ORBC holders will receive $11.50 in cash per outstanding share https://bit.ly/3mvq4TA

·     Hardware & Component news; FFIV downgraded to Neutral from Outperform at Credit Suisse on valuation; the Nikkei reported production of some AAPL MacBook’s and iPads has been postponed because of the global chip shortage; BOX slipped after headlines KKR to lead purchase of $500M of convertible preferred stock in Box; COMM said it is planning to spin off its home-networks business and begin other initiatives to reduce operating costs throughout the company

·     Services and Software movers; OKTA reiterated target for 30-35% growth through FY24 at its investor day; CACI awarded multiple-award $700 million blanket purchase agreement to provide national security investigations to department of homeland security; ZUO gets a boost after Berenberg initiated Buy and $20 tgt earlier; CRM named top software pick today at Bank America; CRWD held investor day today