Closing Recap

Thursday, August 26, 2021

Equity Market Recap

·     Stocks close the day in negative fashion, with selling pressure ramping up late day after the Pentagon confirmed that several U.S. service members had been killed after two explosions went off near Hamid Karzai International Airport in Kabul, Afghanistan, while additional U.S. troops are being treated for injuries. The security picture in Afghanistan is likely to change given the circumstances, which weighed on market sentiment already on edge ahead of the Jackson Hole Fed Symposium tomorrow. Major averages finished near the lows of the session, with the S&P 500 and Nasdaq pulling back from record highs late Wednesday in what was a broad market pullback (but again on light volumes). Financials outperformed early, with the XLF hitting near all-time highs, while energy stocks slipped with oil prices. Economic data a non-factor after mostly in-line jobless claims and GDP missing ests but revised up slightly from prior month.

·     Fed in focus: Jackson Hole Symposium kicked off today as we await the main event, Chair Powell’s speech at 10:30 EST on Friday. Kansas City Fed President Esther George said she is ready to talk about cutting back the central bank’s asset purchases "sooner rather than later." St. Louis Federal Reserve president James Bullard said in CNBC interview today, "We don’t need the asset purchases at this point," repeating his call for the bond buying to end by early next year. "We will be able to get to a good consensus on the committee and get to a good wind-down process. Dallas Fed President Robert Kaplan said the economy is still on track for the Federal Reserve to begin reducing its massive monthly bond buys in October or soon after.

·     Stock/sector movers: CRM soars to its highest levels since last September as one of the few positive Dow components after its quarterly earnings and guidance come in above consensus; WSM surges to record highs on its strong earnings, new buyback, dividend raise, and raised guidance; ULTA tops $400 for the 1st time on its beat-and-raise before profit-taking reverses and COTY spikes after forecasting an annual sales growth for the 1st time in 3 years; discount retailers underperformed after weak guidance from DG and DLTR, and BURL warning of margin pressure from higher supply chain expenses – these reports drag TJX, FIVE, BIG; apparel names ANF and GES also slid after earnings on quarterly sales that missed estimates; Tech another sector with several companies reporting – NTAP hits its highest level in over 20 years after its beat-and-raise and ZUO hits 52-week highs, while SNOW, PSTG also outperform, while SPLK rolls off early strength to go red after its mixed earnings, and BOX, ADSK slide.

Economic Data:

·     Weekly initial jobless claims rise to 353K from 349K prior week, and above the 350K estimate; continuing claims fell to 2.862M from 2.865M (est. 2.790M); the 4-week moving average fell to 366,500 from 378,000 prior and the U.S. insured unemployment rate unchanged at 2.1%.

·     Gross domestic product (GDP) increased at a 6.6% annualized rate, in its second estimate of GDP growth for the April-June quarter, which was revised up from the 6.5% pace of expansion reported in July, but below ests of 6.7% (The economy grew at a 6.3% rate in Q1). Consumer spending rose +11.9% with Durables +11.3% (prior 9.9%).

·     GDP inflation data points: PCE price index increased 6.5%, also a 0.1% upward revision, while excluding food and energy prices, the PCE price index rose 6.1%, unrevised from the advance estimate. U.S. prelim Q2 GDP deflator +6.2% vs. est. +6.0%. U.S. Q2 PCE price index YoY +3.9% vs. prior 3.8% and Core PCE YoY steady at 3.4%.

Commodities, Currencies & Treasuries

·     Oil prices fell -$0.94 or 1.38% to settle at $67.42 per barrel on renewed concerns over demand due to rising COVID-19 infections and as Mexico restored some output after a fire disrupted supply. Losses were limited by the potential for other supply interruptions. Energy companies prepared for the possibility of a severe storm hitting the U.S. Gulf Coast this weekend.

·     Natural gas prices outperformed, rising over 7% or $0.29 to $4.18 mln btu (32-month highs) following the bullish weekly inventory report (smaller than expected build).

·     Gold prices finish higher, rising $4.20, or 0.2% to settle at $1,795.20 an ounce, managing to eke out a gain despite a jump in the dollar ahead of the Fed tomorrow.

·     Treasury yields have risen this week, with the 10-year hitting highs of 1.375% earlier today before paring gains. The U.S Treasury sold $62B in 7-year notes at a yield of 1.155% vs. 1.15% when issued prior with bid-to-cover (demand) at 2.34 (vs. 2.23 prior) and indirect bidders awarded 61.0% (prior 58.4%) and directs 18.86% of the auction.

·     The U.S. dollar saw upward momentum today after trading sideways earlier this week, with the dollar index (DXY) back above the 93 level, rising against the British Pound and euro. Bitcoin prices meanwhile slipped over 3% to drop below $47K.

Sector News Breakdown

Consumer

·     Retailers; GES shares fell on mixed Q2 as EPS $0.91 beat est. $0.70 but Q2 revs $628.6M missed the est. $648.6M while said expect revenues in q3 of fiscal 2022 to be slightly negative to flat versus q3 of fiscal 2020; ANF mixed Q2 as EPS $1.69 beat est. $0.77 but sales $865M missed est. $879.2M; BURL Q2 adj EPS $1.94 vs est. $1.47 on revs $2.22B vs est. $2.09B, comp sales +19% vs est. +14.8%, authorized buybacks up to $400M through Aug 2023, and did not provide guidance due to the ongoing pandemic, but said it expects to open a net 75 stores in FY21 and said the huge imbalance between supply and demand in global logistics systems is driving freight and supply chain expenses higher that will put significant pressure on their margins this year; MOV posted Q2 adj EPS 85c vs est. 30c on sales $173.9M vs est. $129M, sees FY EPS $2.75-2.90 and raise its sales outlook to $680-695M from $650-665M above est. $676.79M; BBW Q2 adj EPS 43c topped est. (20c) loss on revs $94.7M (+134.7%) vs est. $81M, sees Q3 revenue above 2019 and 2020 levels, and now sees FY21 sales $375-385M (est. $347.6M) from previous outlook above FY19’s $338.5M and raised its full-year EBITDA outlook to $45-50M from $28-32M; FLWS Q4 adj EPS 20c vs est. 19c on revenue $487M vs est. $472.6M and issued FY22 guidance for EPS to be in-line with FY21 (was $1.78), FCF above $100M, revenue +10-12%, and adj EBITDA +5-8% as it faces headwinds including challenging labor market

·     Retail analyst calls; Following yesterday’s earnings report from DKS, several analysts raised their price targets and Raymond James upgraded the stock to Market Perform from Underperform as they say they underestimated the company’s bullish potential though say it is difficult to recommend adding new capital to the stock with it trading at 15x their NTM EPS estimate above their historical 13x range; Morgan Stanley downgraded JWN to UW with a lower $27 PT from $36 as they see even further downside after yesterday’s -18% slide on Q2 sales and margin results that lagged peers

·     Dollar & Discount stores; DG Q2 diluted EPS $2.69 vs consensus $2.57 on revenue $8.7B vs consensus $8.59B, same-store sales -4.7% (est. -5.84%) vs 2Q20 but +14.1% on a two-year stack basis, and raised FY comp sales guidance to -3.5% to -2.5% from -6% to -4%; DLTR reported Q2 EPS $1.23 vs est. $1 on sales $6.34B vs est. $6.44B, same-store sales -1.2%, sees Q3 EPS 88-98c on sales $6.4-6.52B and same-store sales up low-single digits, and for FY21, sees EPS $5.40-5.60 on sales $26.19-26.44B vs est. $26.41B with same-store sales up low-single digits

·     Auto sector; XPEV reports Q2 deliveries growth of 439% Y/Y and 30.4% Q/Q to 17,398 units; P7 deliveries rose 44.5% Q/Q to 11,522 units, of which 97% can support XPILOT 2.5 or XPILOT 3.0; revenues from vehicle sales increased 562.4% to $555.1M; RIDE surges after appoints former CEO of Icahn enterprises L.P., Daniel Ninivaggi, as CEO; NSANY says Smyrna, Tennessee, assembly plant, will be idled during the week of Aug. 30 due to the global semiconductor chip shortage; in UK Car Manufacturing, according to the Society of Motor Manufacturers and Traders, only 53,438 vehicles were produced in July, down 38% from a year ago and the worst July since 1956; KXIN says it has reached a binding term sheet to buy Chinese small-size electric vehicle (EV) maker Henan Yujie Times Automobile Co Ltd

·     Housing & Building Products; home furnishing company WSM crushed its quarterly results as Q2 revenue of $1.95B topped the $1.81B estimate on better EPS of $3.24 vs. est. $2.61 while authorizes a 20.3% increase in its dividend and approves a new $1.25B stock repurchase

·     Restaurants; DENN announced that it has refinanced its amended and restated $350 million revolving credit facility to a new five-year $400 million revolving credit facility; Oppenheimer upgraded QSR to Outperform ($80 price target) and downgrade YUM to Perform saying QSR’s market cap is $10B discount to YUM’s, despite our expectation that QSR will: 1) generate higher absolute EBITDA and FCF levels than YUM in ’22E/’23E, and 2) unlock stronger unit growth trends

·     Consumer Staples; Beauty companies active as ULTA price tgt raised by several analysts after Q2 EPS $4.56 crushed est. $2.42 on net sales $1.97B vs est. $1.76B, comp sales +56.3% (+13.1% vs 2Q19) vs est. +44.8%, gross margin 40.6% vs est. 35.9%; raised full-year outlook for EPS/sales; COTY mixed Q2 results but said it expects to return to annual sales growth for the first time in at least 3 years; in food, SJM Q1 adj EPS $1.90 tops consensus $1.84 on better sales of $1.86B (est. $1.77B), but lowers year adj EPS view to $8.25-$8.65 from $8.70-$9.10 prior (est. $8.82) with slightly better sales view; BF upgraded from Sell to Neutral at UBS following the ~13% stock price correction YTD that leaves a more balanced risk/reward; SAFM, HAIN also with earnings

Energy

·     Energy stock movers; not much in way of news in the energy sector as natural gas prices rose following a smaller than expected weekly build in stockpiles, while oil prices snapped a 3-day win streak; RIG announced that BOE Exploration & Production LLC awarded Transocean a $252 million firm contract for its newbuild ultra-deepwater drillship, the Deepwater Atlas

·     Refiners: Citigroup cut estimates and targets across the refining group, downshifting to Neutral on PSX and to Sell on DK, while upgrading MPC to a Buy on the recent pullback saying excess global spare capacity and narrower-for-longer crude discounts ahead present persistent headwinds to a full recovery in Refining profitability

Financials

·     Insurance; banking stocks surging as the XLF touches near all-time highs into the Fed Symposium where bond tapering comments are expected, helping boost interest in instruments that tend to benefit from rising rates/yields; SLQT slumps after earnings missed estimates, prompting rating downgrades and price target cuts from RBC and KBW – also FY22 guide fell 17% below consensus primarily due to a more conservative assumption for policyholder churn

·     Bitcoin, FinTech & Payments; Bitcoin prices tumbled overnight as the largest cryptocurrency fell as much as 4.7% Thursday to $46,200, with other tokens including Ether retreating as well, paring Bitcoin’s rally since a July low to some 60% (after topping the $50K level for the first time in 3-months on Monday)

·     REITs; VTR upgraded to MP from UP with a $60 target at BMO Capital as see recent relative underperformance as providing a more reasonable entry point; WELL upgraded to Outperform with a $100 target at BMO as well as see recent COVID-related weakness as understandable given Delta variant uncertainty but see-through near-term noise to become more bullish on a multi-year senior housing (SH) recovery with a leading management/portfolio, as well as an impressive investment track record taking advantage of a leading cost of capital.

Healthcare

·     Pharma movers; PFE and BNTX announce collaboration with Brazil’s Eurofarma to manufacture covid-19 vaccine doses for Latin America; Japan Pharmaceuticals and Medical Devices Agency has approved MRK’s Keytruda (pembrolizumab) for two types of breast cancer; LCI falls as Q4 adj EPS loss (-$0.19) vs. est. loss (-$0.12); Q4 revs $106M vs. est. $110.63M on weak guidance as sees FY22 revenue $400M-$440M vs. est. $472.06M

·     Biotech movers; AMRX presented positive topline results from pivotal Ph3 of IPX-203 in Parkinson’s, achieving both primary/secondary endpoints vs. IR CD/LD with less frequent dosing; INO receives authorization to conduct phase 3 efficacy trial of its covid-19 DNA vaccine candidate, ino-4800. Inovio’s global phase 3 efficacy trial receives authorization to proceed from Brazil; MRNA slipped early after Japan suspends use of 1.63 mln doses of co’s COVID-19 vaccine more than a week after the domestic distributor received reports of contaminants in some vials (story originally broke late yesterday)

Industrials & Materials

·     Industrial & Machinery; PNR downgraded to Underweight at JPMorgan and tgt cut to $65 from $75 as valuation now more than discounts most of the upside from a better-than-expected outcome on earnings for the past 2 years, largely on the back of COVID-19 benefits in Aquatics; ABM announced the acquisition of Able Services for a purchase price of $830M; TITN reported a FQ2 beat with upside primarily in Ag and International Equipment sales, with strong cost control and management also raised its FY22 revenue and EPS guidance

·     Transports; XL says it is now offering its hybrid electric drive system for Ram 2500 and 3500 heavy duty pickup trucks; in shipping, DSX entered into a time charter contract with ASL Bulk Shipping HK Limited, for one of its Panamax dry bulk vessels, the m/v Selina as the gross charter rate is US$26,500 per day, minus a 5% commission; GBX announced new orders totaling 5,500 units valued at more than $530M received thus far during its Q4 that began on June 1; GOGL good earnings and now raised dividend to where its 18% yielder

Technology, Media & Telecom

·     Internet; YY rises after Reuters reported its two top shareholders, Chairman David Li and Xiaomi founder Lei Jun, aim to take the Chinese social media company private in a deal that may value it at up to $8B https://reut.rs/3DnlazS ; JD is reportedly in talks to acquire a controlling stake in China Logistics Property Holdings to help build out a logistics network strained during the pandemic-driven online shopping boom, Bloomberg reported

·     Semiconductors; ADI increases share repurchase authorization by $8.5B to approximately $10B; ON entered into a definitive agreement under which it will acquire GTAT for $415M in cash; TSM plans to increase the prices of its most advanced chips by roughly 10%, while less advanced chips used by customers like auto makers will cost about 20% more according to WSJ (following up on reports about price increases yesterday as well that sent shares surging)

·     Software movers; Dow component CRM tops consensus estimates for quarterly revenue at $6.34B above the $6.24B expectation while said it expects FY revenue in the range of $26.2B-$26.3B vs. est. $26.01B; ESTC Q1 topped expectations and raised its forecast for full-year revenues as sees $808M-$814M above prior view $782M-$788M (est. $789.2M) – Total subscription customer count rose over 16,000 vs. over 15,000 last quarter; ADSK shares fell after it reported better-than-expected quarterly earnings, but sales that were just barely in line and billings falling below ($1.015B vs. $1.023B); SNOW quarter revenue beat and now sees product revenue ranging from $1.06B-$1.07B, up between 91% and 93% a share, above its previous forecast of $1.02B-$1.035B, the second time it has raised guidance for the year; SPLK Q2 total revenues grew 23% to $606M above ests $562.82M while cloud revs rose 73% YoY to $217M and issues upbeat Q3 revenue guidance; ZM upgraded to Overweight at Morgan Stanley; ZUO rises following mixed quarterly results and guidance

·     Hardware, Storage, & Services; NTAP posted great results followed with a better-than-expected outlook, and impressively raised its full year guidance. NetApp also started to provide more details of its cloud business, which included breaking out quarterly sales for both hybrid and public cloud; PSTG posts a bigger-than-normal beat and guiding above for both Q3 and FY22 revenue and EBIT and said continues to see success across all geographies and all products; BOX strong F2Q results that broadly exceeded expectations, with much of the detail coming from the company’s pre-announcement earlier this month as large deal activity improved in the quarter, with increased attach rates of Suite products (73% of 6-figure deals vs. 49% in F1Q)