Closing Recap

Tuesday, December 28, 2021

Equity Market Recap

·     A late push by the S&P came up just short as it failed to secure its second consecutive record close after hitting an intraday high above 4,800 for the first time ever. The Nasdaq and Russell also reversed lower after a strong open as all three snapped their respective 4-day winning streaks, though the Dow advanced for the fifth straight session. Despite today’s choppy and volatile intraday move, it was only December’s second day with an absolute move less than 0.6% in the S&P as wide swings have been a daily staple this month. Travel stocks recovered yesterday’s losses and a midday rotation led to defensive staples and utilities leading with industrials. Oil prices hit their highest levels since November ahead of next week’s OPEC+ meeting. Today’s volume was muted again in between the Christmas and New Year holidays.

·     Stock/sector news; BA rises after Indonesia cleared its 737 MAX to return to service after its fatal October 2018 crash in the country; PTON rolled again to touch its lowest level since May 2020 after Raymond James was cautious, sees demand slowing meaningfully; today’s low brings its YTD decline over worse than -76%; UAL, AAL, DAL, LUV outperform to recover all of yesterday’s losses on cancellations over the weekend, Omicron fears; BTC Bitcoin, ETH Ethereum slide, dragging COIN RIOT MARA; NVAX spikes as much as 11.5% after India grants its vaccine EUA but rolls to red for the 6th straight day, now losing more than 25% during the stretch; MRNA, BNTX have now lost over 15% during their own 6-day losing streaks

Economic Data:

·     US Redbook YoY Actual 21.4% (Previous 16.4%)

·     Case-Shiller Home Prices: U.S. Home prices +1.1% in October from September, +17.4% in 12 months through October; US October 20-metro area home prices +18.4% from year ago vs +19.1% in September, +0.9% seasonally adj vs +1.0% in September

Commodities, Currencies & Treasuries

·     Oil hit its highest price of December with WTI Crude settling up $0.41, or 0.54%, at $75.98/barrel, its highest settlement in over a month after touching a high of $76.92 during its fifth straight day of gains. Brent prices approached $80 for the first time in more than a month and similarly settled at its highest price of December.

·     Gold prices edged higher, settling up $2.10, or 0.1%, to settle at $1,810.90/oz. The metal hit a high above $1,820 today, its highest price since November 22.

Sector News Breakdown

Consumer

·     Retailers; Cowen prefers to own stocks tailored towards high-end consumers with pricing leverage (LVMUY, RH, BRLT) and ones that provide deep value to lower-end consumers (COST, WMT, GO, and would be buyers of KSS, Macy’s (M), GOOS on valuation, prospects of inflections, and attractive growth and cash flow relative to price; VIPS lowered their Q4 revenue outlook to now forecast YoY decline of (5%)-flat from prior guidance of 0-5% growth due to market and operational conditions, and Jefferies lowered their PT on the new guidance as they also see the warmer December affecting winter clothing demand; VSTO acquired Stone Glacier for an undisclosed sum

·     Auto sector; TSLA had its PT raised to $1400 PT from $1100 at Wedbush with China remaining the linchpin to their bull thesis as it can make up to 40% of deliveries next year for $400/shr in addition to the company possibly doubling its production capacity with its Berlin and Austin plants, and demand outstripping supply, and Argus also upped their PT to $1313 from $1010 to reflect continued gross and operating margin expansion with top-line growth; Needham started EVGO at Hold as they believe the company will be a formidable player in charging but believe long-term Street expectations are too aggressive; LAZR is a top pick for 2022 at Northland as it is likely going to be the only lidar company in a production vehicle next year, has a supply chain in place, cost reduction path, strong partnerships, and announced a $300M buyback plan; KNDI announced successful mass production of its LFP battery; Truist lowered their FY22 revenue and adj EBITDA estimates on TRUE to reflect Q3 results and recent auto sales trends with their PT going to $4.25 from $6

·     Casinos, Gaming, Lodging & Leisure sector; Raymond James remains cautious on PTON as they see continued softness in this quarter with a meaningful slowdown after pandemic significantly pulled demand forward and its FY outlook assumed strong Dec/Mar growth, so a weak quarter would make it very challenging to achieve its guidance; BTIG sees downside risk to Q4 room nights/bookings for ABNB, EXPE, BKNG with strong revenue and weak bookings in the quarter reversing in 1Q22; Argus upped their PT on HLT to $178 from $162 after raising their FY22 EPS estimate to above-consensus as they believe the continued vaccine rollout will lead to increased room demand and shares are trading below peers on FY22 EPS valuation; MIDD closed their previously announced acquisition of MasterBuilt and also acquired Char-Griller

Energy

·     Refiners: Cowen expects VLO to beat while MPC, DK could miss and have less conviction in their above-consensus estimate on PSX, and cracks could remain supported through 1Q22 to support offensive names near-term though defensive names have outperformed quarter-to-date

·     Utilities & Solar; JKS completed its IPO registration with China Securities Regulatory Commission; SPWR named a new Chief Marketing Officer and is in advanced discussions regarding the potential sale of its commercial & industrial solutions business that could be finalized as early as 1Q22; FCEL reports tomorrow morning

Financials

·     Bank movers; Stephens initiated AVBH at OW with a $29 target given its current compelling valuation with a setup for NII and rev growth well above peer levels due to its sizable excess liquidity and sensitivity profile, HTBK at OW with a $13.50 target, and BMRC at EW with a $40 target due to its premium valuation and little upside to Street estimates; BXSL downgraded to Underperform at Raymond James; KKR raised its buyback plan to $500M from $160M

·     FinTech, Consumer Finance, Bitcoin, and Services; Westpark maintained PSFE at Hold with a $5 target despite early progress on its previously delayed new customer pipeline and cost reduction targets as they await evidence of a more consistent growth recovery; HCW downgraded EQOS to Neutral after the company announced its CEO will be replaced by its COO effective immediately, possibly causing the board to re-think its leadership and end game within the crypto environment; SWKH received an offer from Carlson Capital to acquire al shares they do not already own for $20.20 in cash

Healthcare

·     Pharma movers; India approved emergency use authorization to MRK’s Covid antiviral pill and two vaccines, including the Serum Institute of India’s version of the NVAX vaccine; MVM Partners revealed a 15.2% stake in OPTN; CURLF acquired Bloom Dispensaries for $211M that will be immediately accretive to their adj EBITDA margins

·     Biotech movers; BBIO bounced after yesterday’s -72% decline on its Ph3 trial fail after several analysts (including BTIG, Mizuho, Goldman, Bank of America) significantly lowered their PTs after the failure but maintained their Buy ratings; OpCo would be aggressive buyers of ALNY after shares fell -17% on BBIO’s fail yesterday as they do not share this skepticism and believe their trial is in a relatively strong position to succeed in any efficacy comparison; LifeSci initiated BTTX at OP with a $15 PT almost triple current levels as they believe it represents a unique opportunity for small cap-oriented, fundamental growth investors

·     MedTech Equipment; Bank of America reiterated NVST at Buy as the FDA’s clearance of its N1 implant removes an overhang and is one part their organic growth upside opportunity along with M&A that should provide a robust growth pathway

·     Healthcare Services; INNV downgraded to N at Goldman after significantly lowering their EBITDA estimates for FY22-23 (follows last week’s CMS sanctions); Noble upped their PT on DLHC to $21 from $16.50 as the 2022 federal budget proposes increase funding to the VA, HHS, NIH, and Defense Health Program that bodes well for continued growth and grows its TAM; CLVT filed 0an 8K that revealed it discovered an accounting error that should likely impact GAAP EBITDA, earnings, and FCF; UAL disclosed a passive 5.1% stake in YOUReuters reported activist Jana Partners wants EHC to re-engage with interested third parties on a potential merger for its home health and hospice business before moving forward with a planned spin-off of the unit

Industrials & Materials

·     Aerospace & Defense; Indonesia cleared the BA 737 Max to return to service three years after a fatal crash on a domestic carrier contributed to the international grounding of the plane; KTOS received a $50.9M contract from the US Navy for 65 aerial target drones

·     Industrial & Machinery; RRD identified a systems intrusion and is not aware of any compromise of client data or determine the extent of material adverse impact on business at this time; ASPN terminated their supply agreement with BASFY for aerogel products

Technology, Media & Telecom

·     Internet; AMZN, UBER, FB, ROKU, CHWY, SPOT, BMBL, WIX, DUOL are Evercore’s top 2022 picks in the space; Benchmark initiated BILI at Buy with an $86 PT as its transformation to a full-spectrum online video and entertainment platform provides a wider user base that should result in expanded TAM and monetization opportunities and IQ at Hold as they are cautious on the general competitive dynamics, long-term growth outlook for longform video, and stringent governmental content scrutiny

·     Semiconductors; VECO is one of Northland’s Top Pick for 2022 after pivoting its focus to the semiconductor market and is finding new applications for its MOCVD and Ion Beam Deposition equipment and is well-positioned for the next generation of computing platform or the metaverse; Stifel raised their price target on MTSI after the company completed its sale of its interest in AMCC for $127.7M in cash to strengthen its financial position into 2022

·     Software movers; APPS announced a strategic multi-year partnership with GOOGL to support the Android ecosystem by enabling nearly a billion devices with intelligent app Discovery

·     Hardware, Components & Services; AEY Q4 EPS 5c from (9c) YoY on revenue that increased 61% to $19.7M; Needham named FFIV as its Best Idea for 2022 in networking as they believe its software growth will improve its operating margin and drive advancing multiples and raised their PTs on CIEN to $88 from $80 after its third consecutive beat-and-raise report and $1B buyback and EXTR to $18.50 from $16 due to its healthy demand, huge backlog, and abating supply chain and cost pressures; BB was granted five patents; AAPL closed its NYC stores to shoppers due to rising Covid cases

·     Media & Telecom movers; Needham started CTV at Buy with a $10 PT given its large and growing TAM, entire revenue coming from growing online video and connected TV ads, delivers its ads to all consumer-facing devices, its clients are the largest TV advertisers in the world that creates high entry barriers and low client churn, and its material discount to ad tech peers; Benchmark initiated TME at Hold as it could be impacted in near/mid-term by regulatory changes such as antitrust on music license exclusivity or required changes in live streaming practices