Closing Recap

Wednesday, February 10, 2021

Equity Market Recap

·     Stocks were choppy as major indexes hit new intraday records with the Nasdaq topping the 14K level S&P above 3,900, Russell above 2,300 (all before slipping) – overcoming a sharp pullback mid-morning that occurred in aggressive fashion. Stocks have seen sharp spikes and drops over the last few weeks, but nothing has kept markets lower, as investors have taken any and every opportunity to add to positions on the slightly slip. The “go big” stimulus hopes out of Washington DC to the tune of $1.9 trillion (a 3^rd round after two under Trump administration), further vaccine rollout, an accommodative Fed (Powell spoke today calling for more fiscal measures) and growing earnings (estimates rising for quarters) have provided the positive backdrop for stocks that have risen since the pandemic bottom last March. Valuations remain stretched, pockets of bubble concerns (SPAC’s, Bitcoin, cannabis, EV space, IPOs still surging, etc.), hasn’t phased investors in the least to this point with volatility remaining subdued.

·     Inflation remains tame as U.S. consumer prices rose moderately in January as an increase in the cost of gasoline was blunted by a slump in airline fares. In sector and stock news, Cannabis extends recent rally with shares of TLRY, SNDL, ACB, APHA, GTBIF surging; TWTR, UAA, LYFT rise on earnings while CSCO, AYX drop; GM shares were lower despite top and bottom line beat after warning about future pressure from the current semiconductor shortage; ENPH hits ATH on its earnings beat; MTCH spikes after acquiring South Korean social media company Hyperconnect.

·     It’s a busy week of new issues with five IPOs expected to price tonight and trade tomorrow: BMBL (social) 45M share IPO expected to price between $37-$39, AFCG (real estate) 5.56M share IPO expected to price $17-$19, APR (healthcare) 7.5M share IPO expected to price $19-$21, BVS (healthcare) 7.35M share IPO expected to price $16-$18, and SGFY (healthcare) 23.5M share IPO expected to price $17-$19. Also secondary pricings expected for: BEPC, DAO, KALV, LESL, NNOX, OMF, and OSH.

Economic Data

·     January Consumer Price Index (CPI) rose +0.3%, in-line with consensus and vs. +0.4% prior, while core CPI (ex: food & energy) was flat vs. +0.2% consensus and +0.1% prior; Jan CPI year-over-year +1.4% vs. est. +1.5% and core YoY +1.4% vs. est. 1.5%

Commodities

·     Precious and industrial metals end higher as April gold rises $5.20 or 0.3% to settle at $1,842,70 an ounce (rises 4^th straight session), while platinum futures surge $52.50 or 4.4% to settle at $1,246.90 an ounce (best levels since Feb ’15) while copper futures rise 5c or 1.4% to settle at $3.772 a lb, best levels since 2013 as commodity prices are firmly higher amid the pullback in the dollar (after rising last week) and expectations for another U.S. stimulus package, which also raised hopes for an economic recovery, boosting prices for metals.

·     Oil prices extend gains as well, with WTI crude up 32c or 0.55 to settle at $58.68 per barrel, an 8^th straight day of gains and longest in over 2-years – to 13-month highs – as weekly inventory data showed a decline in supplies. EIA report that showed US oil inventories fell last week by a hefty 6.6M barrels, putting total US stockpiles at 469M barrels, just 2% above the five-year average.

Currencies & Treasuries

·     Treasury yields slide along with the pullback (from record highs) in U.S. stocks, with the 10-year down to 1.138% from highs above 1.20% earlier this week following a subdued 0.3% increase in consumer prices in January (in-line with estimates). Concerns over rising inflation are among the factors leading to a steepening yield curve, as markets fret about the effect of economic recovery on prices and expect higher CPIs as the year progresses. The dollar extends its losses along with the drop in yields on expectations inflation is likely to accelerate more slowly than many expect. The U.S. Treasury sold $41b in 10-year notes at a yield of 1.155% vs. 1.157% when issued prior; primary dealers take 20.47%, directs 18.92% and indirect 60.61% while the bid-to-cover was 2.37

Sector News Breakdown

Consumer

·     Retailers; UAA posts a surprise holiday-quarter profit and tops revenue estimates on strong online demand for its apparel and accessories and higher Asia-Pacific sales but sees 2021 revenue growth below estimates even as it sees profit in line with expectations; WMT dipped after the WSJ reported ORCL and WMT plan to buy TikTok’s U.S. operations has been pushed back indefinitely, as President Joe Biden reviews the previous administration’s efforts to address potential security risks posed by Chinese tech companies; HEAR rises as guides Q4 Non-GAAP EPS between $0.73-0.82 vs. a consensus of $0.47; sees adjusted EBITDA between $21M and $23M vs. $16.6M in last year’s quarter; MAT earnings report beat expectations as sales jumped 10%; URBN Q4 net sales $1.09B vs. est. $1.10B and comps (7%) vs. est. (6.2%): Free People +6%, Urban Outfitters (6%) and Anthropologie (11%)

·     Auto sector; GM beats Q4 adj. profit est. on strong demand for trucks and SUVs during the COVID-19 pandemic, but posts weaker-than-expected FY21 outlook, citing a shortage of chips used in car production; Electric vehicle startup Rivian Automotive aims to go public as early as September with a valuation of $50 billion or more, Bloomberg reports, citing unnamed people familiar with the matter. The company, backed by AMZN and Ford (F), has been speaking with bankers about possible plans, Bloomberg said; LYFT reported revenue and EBITDA that were 2% and $33m above consensus and sounded optimistic on the recovery in 2021 – still being impacted by Covid-19 as January ride share rides -51% YoY; PAG Q4 EPS $2.49 vs. est. $2.13 and revenue $5.81B vs. est. $5.74B as EBITDA $317.8M vs. est. $279.4M

·     Consumer Staples; KO Q4 adj EPS 47c vs. est. 42c; Q4 sales $8.6B vs. est. $8.63B; Q4 global unit case volume down -3%; sees FY21 adjusted EPS growth high single digits to low double digits; sees FY21 organic revenue percentage growth of high single digits; LMB 1.784M share Secondary priced at $12.00; BG posted stronger-than-expected Q4 earnings and said its full-year adjusted profit would top estimates due to strong demand and tight commodity supplies; PM set a target of at least $1 billion in net revenue for its "beyond nicotine" products by 2025 (goal was announced ahead of the company’s investor event on Wednesday); HAIN upgraded to Overweight from neutral at Piper and raise tgt to $50 from $42 as believe some key growth drivers still have a long runway (e.g. innovation, distribution gains, productivity); COTY upgraded to buy at Evercore/ISI saying capacity to turnaround is no longer in question; it’s a question of when, in our view, and tough to play it cute; THS shares rose after Bloomberg reported Jana Partners, which confirmed this morning a 7.5% activist stake, has called on the company to launch a strategic review, including exploring a potential sale https://bit.ly/3dctPLd

·     Leisure & Services; shares of MSGS, LYV shares advanced after Reuters reported New York state will allow large stadiums and arenas, such as Citi Field and Madison Square Garden, to reopen for sports and concerts later this month, with sharply limited capacity and other measures to prevent the spread of COVID-19 (good for service companies ARMK, CTAS); MAN upgraded to Buy at Argus saying while Manpower’s results have been hurt by the pandemic, we believe that the company is well positioned for recovery based on its digital infrastructure and global footprint; AVY upgraded to Buy at Argus as well with $195 tgt as expect volume recovery, restructuring savings and productivity improvements to benefit earnings in the coming quarters

Energy

·     Energy stock movers; PAA reported weaker than expected Q4 results, with adj. EPS 29c missing consensus 33c, revs $5.96B missing $6.13B, and adj. EBITDA of $559M missing consensus $594.1M, driven in part by a weaker than expected Transportation segment, and the company guides FY21 adj EPS $0.95 vs est. $1.28; HP reported a Q1 adj EPS loss (82c), slightly wider than est. (79c) loss on revs $246M vs est. $236.12M, its North America Solutions segment exited the quarter with 94 rigs (+35% from Q4), and its Q2 EBITDA guidance implies a range of $16-32M vs est. $14M; EQNR reported a Q4 adj loss after tax $554M ($1.19B in income YoY) on total revs $11.75B (est. $12.36B, $15.17B YoY), and agreed to sell its interests in the Bakken field in North Dakota and Montana to Grayson Mill Energy for approximately $900M

·     Oil extended its rally for a ninth day, its longest winning streak in two years, supported by producer supply cuts and hopes that vaccine rollouts will drive a recovery in demand (and follows bullish inventory data overnight). The American Petroleum Institute (API) said weekly crude inventories fell by 3.5 million barrels to about 474.1 million barrels; crude stocks at the Cushing, Oklahoma, delivery hub fell by 1.4 million barrels; gasoline stocks rose by 4.8 million barrels, and distillate fuel inventories, which include diesel and heating oil, fell by 487,000 barrels

·     Utilities & Solar; ENPH reported better than expected Q4 results as adj EPS 51c tops est. 40c, revs $264.8M tops est. $254.8M, and strong Q1 guidance, seeing revs $280-300M vs est. $259.8M; JMP reiterated FSLR at Outperform and raised their price target to a street-high $141 from $135

Financials

·     Bank movers; Stephens upgraded MSBI, ICBK to OW and downgraded FMBI to Equal-Weight after the stock’s ~50% rally in the past 3 months means they see it as fairly valued; CME posted Q4 adj EPS $1.39 vs est. $1.36 on in-line revs $1.1B; SBNY adding to yesterday’s advance up 1.7% after JPM pt was raised to $250 from $180 – saying “Banking Bitcoin: Positioned to Ride the Crypto Wave; Digital Asset Deep Dive”

·     Insurance; ACGL Q4 operating EPS 56c vs. est. 38c, Q4 gross premiums written +19.6% YoY, net premiums written +21.6% YoY; AIZ Q4 operating EPS $1.82 vs. est. $2.08 on revs $2.555B vs. est. $2.54B and expects to provide FY 2021 outlook following outcome of evaluation of strategic alternatives, including potential sale, of global preneed; CNO Q4 EPS $0.61 vs. est. $0.59 and said they acquired Directpath for about $50Mm with additional possible earn-out; VOYA Q4 adj EPS $1.90 vs. est. $1.47, total company assets under management and administration were $700B as of Dec. 31, 2020, and its board authorized an additional $1B in share repurchases

·     Consumer Finance; KeyBank remains OW payments after in-line results and guides, keeping GPN as a Key Idea on favorable domestic recovery beta and diversity warranting a premium valuation vs FIS, FISV; JMP reinstated OMF at Market Outperform with a $65 target after its earnings report and management’s positive near-term view on credit, net interest margin, and capital returns on its conference call; Needham initiated LPRO at Buy with a $50 target as the leading underwriting and analytics platform for auto lending with best-in-breed revenue growth and EBITDA margin

·     REITs; UDR Q4 FFO per share 49c (est. 48c) on revs $302.4M (est. $304.8M), NOI $204.9M (est. $196.9M), physical occupancy rate 96.1% (est. 95.7%); EGP reported Q4 FFO/shr $1.38 vs est. $1.37, EPS 94c on in-line revs $92.7M, and expects full-year FFO $5.63-5.73; TWO Q4 EPS 30c beat est. 23c, though $49.86M revs missed est. $59.65M; PEAK reported Q4 FFO 41c vs est. 39c on revs $431.7M vs est. $596M, and guide FY21 FFO $1.50-1.60 (est. $1.59) and EPS $1.02-1.12; WELL posted Q4 FFO $0.84 (est. $0.78) on sales $1.12B (est. $1.13B) and guided Q1 FFO 71-76c and EPS 24-29c (est. 23c), and they also report that Covid cases at its senior housing have decreased about 55% since mid-January

·     Asset managers; BEN prelim assets under management of $1,494.4B vs. $1,498B as of Dec.31, 2020 led by market depreciation and slight long-term net outflows; WDR preliminary assets under management of $74.3 billion for the month ended January 31, 2021, compared to $74.8 billion on December 31, 2020; LAZ preliminary assets under management ("AUM") as of January 31, 2021 totaled approximately $255.2 billion. The month’s AUM included market depreciation of $1.2 billion, foreign exchange depreciation of $1.1 billion and net outflows of $1.1 billion; APAM assets under management as of January 31, 2021 totaled $156.5 billion; VRTS reported total assets under management (AUM) as of January 31, 2021 of $132.9 billion; TROW preliminary assets under management of $1.46T at Jan. 31, 2021 declines 0.4% from $1.47T at Dec. 31, 2020.

·     Services; EGOV shareholders to receive $34 in cash after being acquired by TYL in $2.3B deal https://on.mktw.net/3jzFODs ; FISV 4Q adj EPS $1.30 vs. est. $1.29 on revs $3.83B vs. est. $3.73B and guides FY21 internal revs +8-12%, adj EPS $5.30-5.50, which assumes no significant extension of Covid impacts beyond 1H21; Genpact (G) Q4 adj EPS 51c vs. est. 49c on revenue $951M vs. est. $934.47M, sees FY21 adj EPS $2.26-2.29 vs est. $2.27, and raise share repurchase authorization by $500M and dividend by 10% to 10.75c per share; SPGI’s price target was raised to $435 from $420 at UBS and to $380 at BMO following its strong earnings report; BMO increased their price target on KKR to $72 from $54 after its Q4 beat on Monday and incorporating its recent Global Atlantic acquisition, and Barclays upped their target to $62 on the name after its guidance

Healthcare

·     Pharma movers; Cannabis stocks led today’s gains (TLRY, SNDL, CGC, ACB) amid a broader sector rally on potential U.S. regulatory reform and a string of positive earnings from the likes of Canopy Growth; TEVA posts better-than-expected Q4 profit and revenue, helped by higher sales of its generic drug, Austedo, to treat Huntington’s disease and guides year adjusted EPS of $2.50 to $2.70 vs. est. $2.67; PACB rises after a WSJ report that SoftBank is planning to invest $900m in the gene-sequencing company in the form of convertible debt; ABBV and Caribbou sign collaboration license agreement for CAR-T cell products

·     Biotech movers; GILD and GLPG announced the decision to halt the ISABELA Phase 3 clinical studies with the investigational autotaxin inhibitor ziritaxestat in patients with idiopathic pulmonary fibrosis; BPTH surges as U.S. Patent and Trademark Office grants third patent to company’s DNAbilize platform technology; PBLA slides after saying independent data safety monitoring board recommended its experimental drug, SBP-101, be held for patients in trial, while it obtains additional safety information

·     Healthcare services and providers; MODN delivered a strong start to FY21 with a beat across all metrics as F1Q Subscription revenue of $31.4mn, up 12% y/y, represents a return to double digit top-line growth and news of from J&J agreeing to migrate its US Pharma business to Revenue Cloud, in MODN’s largest ever deal (prompting analyst upgrades/tgt hikes); THC Q4 results were in line with mgmt’s pre-released comments in Jan, while FY21 guidance ranges were above-Street on all metrics; IQV reported 4Q results with revenue of $3.3B and EPS of $2.11 (vs. $2.01 cons) and raised its 2021 adj EPS guidance to $7.77 to $8.08 (from $7.65 to $7.95); HCSG falls after earnings and news CFO to take temp leave while the company holds discussions with the SEC about the resolution of an investigation

·     MedTech and Equipment; QGEN reported 4Q results, with revenue of $571M (36% growth vs. at least 32% growth guide) with COVID revenues a key contributor as EPS was $0.68 (vs. $0.64 to $0.65 guide and $0.65 cons) and reiterated its 2021 guidance

Industrials & Materials

·     Aerospace & Defense; drone names have been perking up to start the year (EH, UAVS, DFLYF); SPCE shares weak after UBS downgraded to Neutral from Buy saying the near-term catalyst path appears largely priced in

·     Metals & Materials; Steel producer Thyssenkrupp raised its full-year outlook, boosted by a recovery at its steel unit that could strengthen the case for a spin-off. Thyssenkrupp’s steel division expects to nearly break even this fiscal year, compared with a low triple-digit million euro loss previously expected; SON raises divided by 5%; CCK posted Q4 adj. profit of $1.50 above the $1.27 estimate and Q4 revenue of $2.9B above views driven by increased canned beverage and food volumes globally

Technology, Media & Telecom

·     Internet; TWTR reported revenue and EBITDA that were 8% and 21% above consensus and guided above for 1Q/results showed solid usage growth and healthy participation in the rising digital ad-spend tide; AKAM slides after earnings and guidance while also splitting into two new business groups, Security Technology and Edge Technology, both of which will be supported by a single global sales organization (downgraded at both JPMorgan and Hallum citing its 2021 outlook); YELP reports Q4 revenue of $233.2M above the expectations of $228.31M, helped by increased paying advertising locations with better ’21 guidance and posts a surprise Q4 adj. profit; CDN provider FSLY shares tumbled, pressured after earlier reports President Biden to review ORCL bid for TikTok US operations (FSLY gets revenues from TikTok)

·     Software movers; AYX shares tumble early reported F4Q results that were largely in-line with its pre-announcement, in which ARR slightly missed its guidance – Piper noted despite a $7.4M ARR shortfall, reported ASC 606 revenue upside benefited from an increase in average contract duration, which in turn drove meaningful operating margin leverage that climbed to 30.6%; QLYS downgraded to UW from EW with $110 tgt at Morgan Stanley; EA announced that it has agreed to sell $750 million in aggregate principal amount of its 1.850% Senior Notes due 2031; CDAY reported a solid quarter, but the guide was worse than expected

·     Media, Networking, Hardware & Component news; CSCO FQ2 strength came from better parts within the core IP business (datacenter switching, wireless, SD-WAN), Cloud Security, and WebEx, especially within the non-Enterprise verticals but Piper notes the Apps business trajectory is becoming concerning as competitors are taking share; CRTO shares jumped after Bloomberg reports that the company has drawn takeover interest in recent months.