Closing Recap

Friday, August 06, 2021

Equity Market Recap

·     The Dow and the S&P 500 indexes topped record highs as shares in economy-sensitive sectors jumped following a strong rise in payrolls in July, as fears of the Delta variant impacting the economic recovery failed to dent investor optimism. Nonfarm payrolls increased by 943,000 jobs last month, well above the expected 870,000 job additions. The “goldilocks” scenario played out as the data was strong enough to lift major averages, but not too strong to raise fears of the Fed having to step in with bond asset tapering ahead of plans. Treasury yields did settle the week at the highs, as the 10-year touched 1.3% and the dollar gained following the payroll report, which sunk gold prices to its lowest close in over a week, down 2.5%. It was a very busy two weeks of earnings, with roughly 60% of the S&P 500 having reported – mostly better outside of a few hiccups (AMZN) as the economic recovery remains on track. But will the recent restrictions instituted by various countries and companies change the outlook?

·     Stocks and Sector movers; Treasury yields go higher lifting banks and insurance names as GS, JPM, AXP help lift the Dow to record high; FEYE plunges to its 2021 low after weak guidance, drags other cloud security names PANW, ZS, CRWD, OKTA; NET also sliding after earnings and after Baird issued d/g on both this morning; SPCE spikes after its rev beat and reopening sales with seats starting at $450k; DKNG also rises on its rev beat and announcement of its NFT marketplace, YELP surges on strongest YoY revenue growth in 6 years; some earnings losers include biotech/pharma ILMN, QDEL, TWST, online travel TRIP, EXPE, online real estate names Z and RDFN; online car sellers mixed with CVNA hitting ATH after its 1st profitable quarter with a big revenue beat, CARG surging on its rev beat and Q3 guidance above consensus, though TRUE plummets after reporting a larger than expected quarterly loss; NVAX stumbles after its EPS miss and delaying seeking EUA from the FDA for its Covid vaccine until Q4 as its gives up most of its weekly gains (closed yesterday with a weekly rise over 30%).

Economic Data:

·     Strong economic data as payroll report beats – Nonfarm payrolls +943K in July, compared with +870K expected and +938K in June (revised from 850K), private payrolls mostly in line at 703K and manufacturing payrolls 27K vs. est. 25K; unemployment rate tumbles to 5.4% vs. 5.7% expected and 5.9% in June while wages rise 0.4% vs. est. 0.3%

·     The Fed reported that in June, total consumer credit surged by the most on record, soaring by $37.69 billion, nearly double the consensus estimate of $23 billion. The monthly increase was a whopping 10.6% SAAR, pushing the total to a new record high of $4.319 trillion

Commodities

·     Oil prices finished the day lower, as WTI crude slides -$0.81 or 1.17% to settle at $68.28 per barrel, posting its biggest weekly decline since October (down -7.7% on week) on concerns over the impact on fuel demand from travel restrictions to curb the spread of the Delta variant of COVID-19 as well as rising inventory data this week. Crude markets will be seeking price direction from monthly oil outlook reports due next week from EIA, OPEC, and the IEA. Brent crude dropped -$0.59 or 0.83% to settle at $70.70 per barrel, down about 6% for the week, which would be the largest losses in four months. U.S. oil rigs rose two to 387 this week, while gas rigs held steady at 103 as energy firms added oil and natural gas rigs for the fifth time in six weeks

·     Gold prices dropped -2.5% to settle at $1,763.10 an ounce, the first close below the $1,800 an ounce level in over a week, pressured on the rising dollar and Treasury yields. For the week, gold ended lower by about 3%, biggest pullback since mid-June. Iron-ore futures in Asia tumbled for the third consecutive week as demand fears (not helped by a resurgent Delta variant and more widespread lockdowns across the nation) and rising regulator controls in China become headwinds, according to Bloomberg.

·     U.S. Treasury yields closed at their highest levels of the week, with the benchmark 10-year touching highs above 1.3% this morning following the bullish jobs report but failed to push higher ahead of big week of inflation data (CPI/PPI) and as the U.S. treasury sells $126B in 3, 10, and 30-yr notes. The strong jobs reading boosted prospects the Fed could taper their bond buying asset program sooner than later, while also raising the case for higher rates (though the Fed has said on several occasions that rate hikes are a while away). The U.S. dollar also finished at its best levels of the week, rising 0.5% on Friday as the euro slipped back below $1.18.

Sector News Breakdown

Consumer

·     Retailers; LEVI purchased apparel brand Beyond Yoga for an undisclosed sum in a deal they expect to be immediately accretive to gross margins and EPS and will add over $100M to FY22 net revenue; Bank of America upgraded LESL to Buy with a $36 target because residential pools will likely stay open longer this year, commodity inflation on chlorine is likely to provide additional upside to the company’s same-store sales growth, the company has several initiatives for next pool season, and new pool demand continues to run at a strong clip; GIL reported Q2 adj EPS 98c above est. 52c on sales $747.2M vs est. $706.1M with record FCF $208M, reinstated its normal course issuer bid to repurchase up to 5% of outstanding shares, and was upgraded to Buy at Canaccord; QRTEA Q2 adj EPS 54c vs est. 50c on revs $3.5B vs est. $3.39Bm adj OIBDA $581M vs est. $542.3M; BMO initiated VSCO at Outperform with an $89 price target as their upgrade of LB last May centered on most dismissing Victoria Secret’s growth and this bias still remains despite material earnings upside

·     Auto sector; auto supplier LEA posted a top and bottom line miss as EPS $2.45 below the $2.68 est. and revs $4.76B misses $4.91 consensus while also cut FY21 revenue view to $19.7B-$20.5B from $20.35B-$21.15B (est. $20.72B); sees FY21 adjusted EBITDA $1.48B-$1.67B; Bloomberg reported DIDI is weighing giving up control of its most valuable data as part of efforts to resolve a regulatory probe into the aftermath of its controversial U.S. IPO; in online auto space, CARG reported better than expected 2Q results largely driven by upside in the recently acquired CarOffer business – and while dealer count declined sequentially in 2Q, dealer retention remains strong; CVNA posted +198% sales growth (vs. Wells +161%), record GPU performance (of $5,120) and its first ever positive EPS quarter (+26c) as a public company; TRUE posted Q2 EPS loss larger than expected on in-line revs $65.8M

·     Housing & Building Products; Zillow (ZG) beat the high end of revenue ($1,310M vs. $1,112M), with upside at Offers ($777M vs. $620M); FND reported a 2Q EPS beat ($0.73 vs. Street $0.63) based on sales upside and significant opex leverage with a slight GM miss. The underlying demand drivers for the business remain robust — 62% growth in comp transactions

·     Consumer Staples; BYND shares slip early after posting a larger loss and weaker guidance – Q2 EPS loss (-$0.31) vs. est. loss (-$0.23) and sees Q3 revs $120M-$140M vs. est. $153.7M; IFF 2Q results that were generally in line, despite the raw material and logistics headwinds, as better-than-expected results from its Nourish segment more than offset lower-than-expected results from Health and Biosciences; BGS Q2 adj EPS 41c vs est. 48c on sales $464.4M vs est. $444.5M as higher than expected cost inflation on inputs like raw materials and transportation impacted gross profit in the quarter and they expect input cost inflation to be materially higher in 2H21 than 2H20 and continued cost inflation in FY22; MNST Q2 EPS 75c vs est. 68c in revs $1.46B vs est. $1.4B; SFM reported Q2 adj EPS 52c vs est. 45c on sales $1.52B that missed est. $1.6B, comp sales -10% and 2-yr comp sales -0.6%, and raised FY adj EPS view to $1.90-2.02 from $1.87-2 but lowered FY sales outlook; SPB Q3 adj EPS $1.57 vs est. $1.58 on revs $1.16B vs est. $1.17B and still sees FY21 adj EBITDA and sales growth both increasing in the mid-teens; POST Q3 adj EPS 93c vs est. 97c on sales $1.59B vs est. $1.51B and said it plans to distribute a significant portion of its interest in BRBR to POST shareholders; BRBR separately delivered a Q3 beat as adj EPS 30c topped est. 22c and sales $342.6M beat est. $290.65M and raised FY21 sales forecast to $1.25-1.28B from $1.17-1.2B and above est. $1.18B

·     Restaurants; SHAK Q2 adj EPS of $0.05, ahead of consensus loss of ($0.07), driven by 52.7% same-Shack sales that came in about 400 bps above BTIG forecast and significantly better restaurant-level margin/same-store sales were down (12.4%) compared with 2019, a slight improvement from (14.8%) in 1Q21

·     Casinos, Gaming, Lodging & Leisure sector; CNK posted a narrower Q2 EPS loss while revs of $294.7M topped the $256M estimate – said had 5,864 screens as of June 30, and commitments to open five new theaters and 66 screens in 2021, followed by 12 new theaters and 109 screens after that; DKNG rises as Q2 revs $298M vs. est. $249.4M, qtrly monthly unique payers ("MUPS") for our b2c segment increased 281%; average revenue per MUP was $80 in q2 of 2021 representing a 26% increase; sees year revs $1.21-$1.29B vs. est. $1.17B; in cruise industry, CCL upgraded to Buy with $34 tgt at Citigroup reflecting positive momentum in the web traffic and pricing data we track, recent refinancing developments

Energy

·     Energy stock movers; Oil prices on track for worst week of the year, rising amid concern from the delta variant in China and other regions and on rising OPEC+ output. Traffic in Beijing was down 20% from a week earlier while oil in floating storage jumped to a four-month high. Monthly reports by OPEC and the IEA next week will shed more light on the impact of the latest outbreak

·     Utilities & Solar; PLUG released Q2 earnings with a nice beat on revenue (driven by Fuel Cell systems) at ~$125M vs. consensus of $114M (BTIG $100M), which was up 72% Y-Y. The Y-Y revenue growth was driven by ~3,700 gen drive units deployed (2,800 deployed in 2Q20). However, PLUG posted a Q2 EPS loss of $0.18 vs. consensus of negative $0.07; RUN slides following a wider Q2 EPS loss and announcement of CEO departure

Financials

·     Insurance; AIG Q2 adjusted EPS $1.52 vs. est. $1.17; raises share repurchase plan to $6B; Q2 adjusted book value per common shr $60.07; Q2 book value per common shr $76.73; VOYA Q2 adj EPS $2.20 vs. est. $1.46, Wealth Solutions full service recurring deposits for the trailing twelve months ended June 30, 2021 +6.7% YoY, full service net flows were $238 million in the second quarter, repurchased $518M of common stock in quarter, total AUM $721B at end of June; AEL Q2 adj EPS 98c vs est. 52c on annuity sales $1.2B, book value per share $60.46; PRI Q2 EPS $3.25 vs est. $2.91 Estimate on revs $654.69M vs est. $614.42M; BHF NII driven beat; $1B buyback Authorization announced

·     Bitcoin, FinTech & Payments; crypto space active again, coming a day after Ethereum, the world’s second-largest blockchain network, goes through a major software upgrade called Ethereum Improvement Proposal (EIP) 1559 – which is expected to stabilize transaction fees (RIOT, MSTR, MARA, SI, OSTK, BTBT, COIN among movers)

·     Banks, Consumer Finance; GPN upgraded to Outperform on valuation at BMO Capital following recent underperformance (shares -14% since 2Q21 earnings announcement) as believe shares overreacted to its conservative 2021E guidance; PFSI strong quarter, clearly beating estimates on an operating basis while continuing to grow market share in the highest margin origination channels.

·     Financial services; MCO to acquire RMS, a global provider of climate and natural disaster risk modeling and analytics, for ~$2.0 billion from Daily Mail and General Trust PLC; PCTY exceeded F4Q expectations, with the FY22 outlook calling for 25% growth; RDFN Q2 EPS loss (29c) was narrower than est. (33c) loss on revs $471M vs est. $454.8M, sees Q3 loss of ($24M)-($20M) and revs $530-541M vs est. $487.3M; CWK Q2 EPS 50c more than doubled est. 20c on revenue $2.25B vs est. $1.39B, fee revs $1.6B

·     REITs; COLD downgraded at Raymond James as the company reported worse than expected 2Q results and lowered the outlook for FY21 in response to ongoing COVID-related challenges impacting its tenants’ ability to rebuild inventory levels; EQR upgraded to Market Perform at Raymond James saying with the 2021 multifamily demand surge only continuing to gain momentum this summer, are rebalancing ratings and bumping forward estimates higher; VTR Q2 FFO 73c vs est. 72c on revs $919.2M vs est. $906.6M

Healthcare

·     Pharma movers; SPPI slides after receiving a complete response letter (CRL) from the FDA citing deficiencies related to manufacturing and indicated that a re-inspection will be necessary; APRE said the U.S. FDA places partial clinical hold on trials of eprenetapopt in combination with azacitidine in the company’s myeloid malignancy programs; in cannabis space, CGC reported a smaller quarterly adjusted loss on Friday, as it benefited from cost cuts and a rise in cannabis use during the coronavirus pandemic.

·     Biotech movers; NVAX slides after saying it would delay seeking U.S. emergency authorization for its Covid-19 vaccine until Q4 as it works to complete the manufacturing portion of its application (followed a larger than expected loss for the quarter); DRNA falls as its lead drug candidate, Nedosiran, met the main goal in a pivotal trial of patients with primary hyperoxaluria – but while reductions in urinary oxalate were significant in those with subtype 1 of the disorder, participants with subtype 2 showed inconsistent results

·     MedTech Equipment; QDEL shares fell on EPS miss as sales of Covid-related products fell to $83.4M vs $109M YoY and influenza products $1.6M vs $18.7M YoY; MDRX 2Q EBITDA came in 11% ahead of consensus helped by mounting benefits from the cost initiatives that began in ’20, prompting mgmt to raise its ’21 EBITDA guidance by 8% at the MP; VRAY reported Q2 revenue of $15.0M (+5% y/y), beating the $14.4M consensus estimate; ICAD announced Q2 revenue of $7.8M, missing the consensus forecast of $9.2M citing weakness from the Detection Product segment; ILMN Revenue and EPS was well ahead of expectations and management increased full year guidance; IRTC reported 2Q revs at $81.3M (+60% y/y), above consensus estimates of $76.3M as Zio AT was the bright spot in the quarter, accounting for ~10% of total revenues.

Industrials & Materials

·     Industrial, Aerospace & Defense; SPCE said it is reopening sales effective Thurs with prices beginning at $450,000 a seat while also posted a wider-than-expected Q2 loss but also better-than-expected revenues; FLR reports Q2 revs of $3.24B, topping estimates and raised its 2021 guidance (sees FY adj eps $0.60-$0.80, saw $0.46-$0.71); GNRC initiated an Outperform and $453 tgt at Credit Suisse noting Generac commands >75% market share in US home standby (HSB) products, with >2M installations to date.

·     Metals & Materials; MP Q2 earnings and revenues topped consensus as prices of rare earth oxides more than doubled from the year-ago quarter; Q2 net income swung to a $27.2M profit from a net loss of $62.5M a year earlier; gold miners pressured (NEM, AEM, AUY, GOLD) as gold prices tumble given the better jobs report, boosting expectations of Fed asset purchase tapering timeline being moved up; CTVA rises after Q2 EPS/revs beat and raises FY21 operating EPS view to $2.00-$2.10 from $1.85-$1.95 and revs view to $15.2B-$15.4B from $14.6B-$14.8B

Technology, Media & Telecom

·     Internet; YELP Q2 EPS a surprise profit $0.05 vs est. loss ($0.09) on netter revs $257.2M and adj EBITDA $63.8M (est. $41.5M), with a $250M increase to its stock repurchase program and raised guidance; GRPN Q2 gross profit jumped 41% to $193.9M, as cost of revenue fell 72% to $72M as trimmed its operating loss to $2 million, from a year-ago loss of $72.1 million; in online travel, EXPE Q2 revenue rises to $2.11B from$566M and above the $2.01B estimate as gross bookings surged 667% vs last year but warned the recent COVID-19 variant continues to create uncertainty in the travel industry

·     Semiconductors; IIVI files automatic common stock, convertible preferred stock offering; DIOD reported better than expected revenue for 2Q driven by broad-based strength which drove record segment revenue across most categories; OLED slides after Q2 results EPS miss as reported sales/EPS of $129.7M/$0.85, vs. Street’s $128.1M/$0.88, as lower gross margin contributed to lower-than-expected EPS and the co kept annual revenue guidance unchanged; SYNA surges as reported better-than-expected F4Q21 sales/non-GAAP EPS with positive gross margin surprise again as sales were up 18% Y/Y driven by IoT and margins jumped another 241bps+ sequentially, to 57.5%

·     Software movers; DBX Q2 revenue rose 13.5% to $530.6M, above the $523.9M estimate and said it had 16.14M paying users at quarter-end vs 14.96M a year ago; ZNGA agrees to buy China’s StarLark, the creator of "Golf Rival", for $525M in a cash-and-stock deal, while lowered its FY net bookings view to $2.8B-$2.9B below the est. $2.93B; FEYE shares fall in Internet security sector on in-line EPS/revs for Q2 and said its spinoff of its legacy products business to focus on cloud-based services will result in higher costs; BL reported 2Q results that beat expectations with subscription revenue +22% y/y to $95.2mn (vs. Street at $94.4mn) and bookings growth of 29% y/y to $115.5mn (vs. Street at $107.9mn); QTWO reported solid 2Q21 results given the current demand environment, with non-GAAP revenue of $124.2mn, up 25.5% (Street at $123.3mn), including 16% growth in registered users to >8.8mn; BIGC 2Q represented another quarter of accelerating subscription revenue growth (up 42%) and enterprise ARR was impressive with 54% y/y growth; AVLR Q2 beat highlighted by an impressive 52% billings growth and confirmation of a number of key growth vectors

·     Hardware, IT Services & Consulting; CSOD entered into a definitive agreement to be acquired by Clearlake Capital Group for $57.50 per share or $5.2B; AAPL suppliers in China scramble for workers ahead of iPhone 13 launch, according to reports; SWCH reported strong 2Q21 results and raised guidance for both organic and inorganic growth while signings came in at $24M and its backlog increased to $63.5M; IPGP downgraded to neutral at Citigroup as are concerned about potential demand slowdown in China (~45% of FY21E revs), although recoveries in the US and EU are on-track