Closing Recap

Thursday, February 11, 2021

Equity Market Recap

·     U.S. stock markets chopped between gains and losses most of the day, searching for direction as major averages remain at or near all-time highs. The S&P 500 traded around the 3,900 most of the day and the Nasdaq Comp around the 14,000 level as sectors were mixed with technology holding up well. The Philly Semiconductor index (SOX) sets new record highs, topping the prior of 3,141 as chip shortage driving names higher. Earlier today, the Biden administration said it is identifying choke points in supply chains, discussing immediate path forward with businesses and trading partners (as related to auto chip suppliers which were highlighted in recent Ford and GM earnings). Market strength still underpinned by the same factors daily: additional fiscal stimulus expectations, rising earnings, improving data, accommodative FOMC.

·     Momentum trading dominating several sectors as a new army of retail investors has moved markets the last few months through Robinhood growth, Reddit, Discord and WSB forums (growth of online chat). The short squeeze meme names which soared meteorically in recent weeks (GME, AMC, BBBY, KOSS) have come crashing down (still up YTD big but down more than 80%-90% in some cases off highs) and have lost its luster. Silver producers were the next target of the investing herd before also slipping. The latest craze remains cannabis stocks, but they too cratered today. The WSJ reported that Federal prosecutors and regulators are investigating whether market manipulation or other types of misconduct fueled the rapid rise last month in prices of stocks such as GameStop and AMC Entertainment, and have sought information about the activity from brokers and social-media companies that were hubs for the trading frenzy.

·     The latest volatility remains in the cannabis space as Reddit users pump names, sending many (TLRY, SNDL, CGC) higher in recent days before profit taking today. Bitcoin mania also grabbing headlines after positive news recently that Tesla was buying $1.5B in Bitcoin and today after Bank of New York said it will hold, transfer, and issue bitcoin and other cryptocurrencies on behalf of its asset-management clients. Bitcoin prices have jumped this week, topping the $48K level (up 66% YTD), boosting names that mine, invest, etc. in the crypto (RIOT, MARA, SI, GBTC, MSTR, OSTK). Also signs of the euphoric stock market, the incredible impact some influential portfolio managers or newsletter recs such as Cathie Wood, Motley Fool (positive pick today on AXON – FVRR touches record highs after naming it a top pick for this year a week back) and even CNBC commentators have moved the needle in specific names on occasion (Najarians).

Economic Data

·     Weekly jobless claims fell to 793K from an upwardly revised 812K the prior week (from 779k), which was higher than the 757K consensus; continued claims fell to 4.545M in latest week vs. est. 4.490M and vs. 4.69M prior week; the 4-week moving avg fell to 823,000 from 856,500 prior and U.S. insured unemployment rate fell to 3.2% from 3.3% prior week.

Commodities, Currencies and Treasury’s

·     Oil prices end lower, as WTI crude slipped $0.44 or 0.75% to settle at $58.24 per barrel, snapping an 8-day win streak (longest in 2-years) and pulling back from 13-month highs. The IEA earlier said oil market conditions are due to weaken in the short-term, as it sees stockpiles climbing next quarter before declining sharply in the second half as OPEC+ keeps a lid on supply and the economy recovers. The agency cut its 2021 oil demand outlook by 200,000 barrels a day. Oil prices fell as reports of new coronavirus variants int the U.S.

·     Gold prices slumped, as April futures lost -$15.90 or 0.9% to settle at $1,826.80 an ounce, snapping a 4-day win streak as the broader rally in precious metals took a breather. The U.S. dollar halted its slide, little changed on the day while platinum prices pulled back from their best levels in over 6-years. The recent surge in platinum prices comes amid a relatively tight market as the metal is used by automakers in catalytic converters to clean car exhaust fumes.

·     The U.S. Treasury sold $27B in 30-year notes at a yield of 1.933% with a weak bid-to-cover (demand) at 2.18 an indirects bidders awarded 60.46%. Overall treasury yields were little changed on the day as well as little movement in currency markets as the dollar index snapped its recent bleed lower after touching 2-month highs last week. Markets continue to await details of the next stimulus relief bill.

Sector News Breakdown

Consumer

·     Retailers; After outperformance on earnings yesterday, UAA was upgraded to OW at Piper who forecasted another 25% upside even after the stock’s +30% YTD performance, Credit Suisse sees the company raising guidance throughout the year as it gains market share in retailers that NKE has de-emphasized, Barclays and Morgan Stanley remain Equal-Weight but upped their targets to $25 from $14 and $23 from $13 respectively, and BTIG reiterated its sell with a $10 target; ADDYY was upgraded to Buy from Neutral at UBS, who says that cleaner inventory in the channel after a painful 2020, new product launches, and a roadmap to margin expansion at March CMD provide upside risk; ELY reported 4Q adj EPS ($0.33) vs. est. ($0.19) on net sales $375Mm vs. est. $337.4Mm, golf club sales +48.5%, golf ball sales +14.3%, apparel sales +8.7%, and did not provide FY21 guidance due to Covid uncertainty; YETI reported Q4 adj EPS 74c vs est. 62c on net sales $275.8M vs est. $353.3M, and sees full-year adj EPS $2.11-2.14 (est. $2.05) with net sales increasing +15-17%; IRBT posted 4Q adj EPS $0.84 vs. est. $0.31 on revs $544.8Mm vs. est. $494.1Mm, and sees FY21 adjusted EPS $3.00-$3.25 vs. est. $2.19 on FY21 revenue $1.635B-$1.675B vs. est. $1.47B; TPX Q4 adj EPS 67c on sales $1.057B both topped consensus (52c on $986M), and its FY21 guidance for EPS of $2.30-2.50 on sales +15-20% were also above consensus ($1.99, +8.5%), and boosted its share repurchase authorization to $400M from $200M; HIBB sees 4Q adj EPS $1.30-1.40 vs. est. $1.09, 4Q comps +21.9% , guides FY22 EPS $5.00-5.50 vs. est. $3.84; LESL 29M Secondary priced at $26.00

·     Auto sector; in ride hailing, UBER Mobility missed expectations a little bit but Delivery outperformed meaningfully and EBITDA came in ahead of consensus on strong cost controls while affirming its goal of break-even for Delivery and profitability for by year-end FY21; ORLY reported solid 4Q20 results, delivering upside on both sales and earnings while comp sales of +11.2% came in above consensus at +9.5%, GM missed and was down 130 bps y/y and 2021 guidance was below expectations; in electric vehicle space, Morgan Stanley said they see a looming battery supply shortage that could impact growth curve (QS, RMO, TSLA); PAG reported 4Q sales and EPS above the Street – new and used unit declines were offset by stronger pricing; HYLN rises after introduces next generation battery module to improve performance and efficiency – new design features advanced cooling technology to enable longer battery life, higher charging rates and improved safety

·     Housing, Furnishing & Building Products; ZG shares jump as delivered a 4Q beat, above-Street guide and a surprising unit profit in the iBuyer business: Focal points in 4Q: 1) Premier Agent revenue +35% & IMT margin 48%; 2) Homes revenue beat, but it also showed a unit profit of >$19K; 3) 1Q guide showed PA revenue growth >30% and IMT margin >40%; BBBY upgraded to Buy at Bank America after a positive set of investor meetings with BBBY management and a large pull back in shares that makes valuation more attractive

·     Consumer Staples; PEP Q4 revs of $22.46B beats the $21.8B estimate and expects a mid-single digit rise in annual organic revenue and a high-single digit increase in adj. earnings for 2021; KHC said on Thursday it was selling its nut business to packaged food peer HRL for $3.35 billion in cash – separately, Q4 sales jumped 6.2% to $6.94B beating the $6.82B estimate on better EPS; TAP slides after missing Q4 profit and sales estimates (net sales fall 7.7% to $2.29B, largely hurt by restrictions in Europe and Canada due to the pandemic, below est. $2.4B) while Q4 adj. EPS of 40 cents missed the 77c est.; CHEF reported a weaker 4Q as lower sales and volatile commodities drove a greater than expected loss; net sales declined (34.0%) with lower gross margin resulting in adjusted EBITDA of ($10.5MM) below BTIG’s $1.4MM; Kellogg (K) posted Q4 profit and sales that missed ests (86c/$3.46B vs. 89c/$3.5B), but pointed toward surprise growth in full-year earnings – Europe growth with sales rising 15%, North America rose 8% in Q4; protein producers weak on softer results; PPC Q4 adj EPS 25c vs. est. 33c; Q4 revenue $3.12B vs. est. $3.29B; TSN reported a big earnings miss, but quarterly sales fell short of consensus

·     Restaurants; QSR reports adjusted EBITDA of $501M in Q4 to fall short of last year’s $622M mark and miss the consensus estimate of $547M as Tim Hortons system sales plunged 12.9% and comp sales decreased 11.0%, Burger King system sales fell 8.1% and comp sales declined 7.9% and Popeyes system sales were down 0.9% and comp sales were off 5.8%; DIN Deutsche downgrades to Hold from Buy, price target $80 from $77

·     Leisure and Gaming; Chairman Emeritus of PENN Peter Carlino sells $370 million worth of shares; Stifel said continue to have a cautious stance around MGM and other LV centric operators as we believe a return to normal within the group/convention business will be a long road ahead; MGM Resorts (MGM) 4Q adj EPS ($0.90) vs. est. ($0.90) on net revs $1.5B vs. est. $1.5B, 4Q casino revs -38% yr/yr and rooms revs -70% yr/yr at Vegas strip resorts, MGM China net revs -58% to $305Mm; says remains confident in long-term recovery of Las Vegas and Macau markets

Energy

·     In services & equipment; HP downgraded to neutral at Piper saying shares have recovered impressively over the past few quarters: expanding its # 1 market share position as we had envisioned, shoring up margins (higher than expected, thus far), and protecting the dividend & balance sheet that anchor HP’s uniquely distinguished investment profile – but thinks now increasingly discounting more optimism than balance vis-à-vis the $50-$55 WTI strip

·     In refiners; PBF posts bigger-than-expected Q4 loss, hit by lower refining margin; said expects refining capital expenditures to be about $150 mln for the first six months of 2021; near-term throughput for refining system to be between 675,000 barrel per day (bpd) and 725,000 bpd

·     In pipelines, Canada’s Inter Pipeline Ltd (IPL) said an unsolicited offer of up to C$18.25 per share from its largest shareholder Brookfield Infrastructure Partners (BIP) did not reflect the true value of the company which offered C$16.50 per share on Wednesday, a 23% premium to the stock’s prior closing price, and said it was willing to raise it to as much as C$18.25 if the pipeline operator gave it access to due diligence

Financials

·     Bank movers; BK said it will hold, transfer and issue bitcoin and other cryptocurrencies on behalf of its asset-management clients. In time, BNY Mellon will allow those digital assets to pass through to more traditional holdings, from Treasury’s to technology stocks, using a platform that is now in prototype; SBNY tgt raised to $280 from $210 at Wedbush as believe there is additional upside despite the strong rally as note the significant strides Signature is making with its digital assets business (follows recent similar comments from JPM)

·     Consumer Finance & Payments; MA said overnight that this year MasterCard will start supporting select cryptocurrency payments directly on its network; LDI priced 3.9mm shares (downsized from 15.0mm), at $14.00 ($4 below the lower-end of the range) and will debut on Thursday; WU was upgraded to equal-weight at Wells Fargo on the heels of a solid quarter, an improving macro-environment and growing/sustainable momentum in the digital business; overall payment names (PYPL, SQ) extend gains with investors betting that cryptocurrencies could bring new business.

Healthcare

·     Pharma movers; cannabis stock the latest market craze (TLRY, SNDL, OGI, ACB, CRON, APHA) as Pot sector continues to be mentioned on Redditt platforms (same platform that sent shirt interest stocks surging in recent weeks) – as shares jumped then fell sharply; ACIU surges after saying its vaccine candidate, ACI-35.030, achieved antibody response against tau protein in 100% of older patients with early Alzheimer’s disease in an early-to-mid stage trial and was safe and well tolerated with no safety concerns; ALNY Q4 revenue more than doubled on stronger drug sales, lifting the company to a narrower net loss and a better-than-expected adjusted loss; PLX enters into an licensing deal with SarcoMed USA Inc to develop PLX’s experimental therapy PRX–110 to treat respiratory diseases through inhaled delivery; MRK is in talks with governments and health authorities about possibly producing Covid-19 shots, the WSJ reported; RHHBY’s arthritis drug tocilizumab cuts the risk of death among patients hospitalized with severe COVID-19, also shortening the time to recovery and reducing the need for mechanical ventilation, results of a large trial showed on Thursday.

·     Biotech movers; INFI jumps after saying its experimental drug candidate, eganelisib, in combination with BMY’s Opdivo was well-tolerated and improved overall response rate, disease control rate, and progression free survival in patients with advanced bladder cancer; NVAX reported that the co is nearing EU supply deal for covid-19 vaccine; PACB upgraded to Overweight at Piper following the transformational $900M SoftBank cash-infusion and improved outlook on the timing of clinical catalysts and post earnings; MESO announces phase III trial results for its allogeneic mesenchymal precursor cell therapy rexlemestrocel-L for back pain as study shows treatment may provide safe, durable and effective opioid-sparing therapy

·     Several IPOs and secondary pricings overnight in healthcare: APR 7.5M share IPO priced at $20.00; BVS 8M share IPO priced at $13.00; KALV 5.375M share Secondary priced at $36.00; NNOX 3.09M share Secondary priced at $62.50; OSH 10.72M share Secondary priced at $56.00; ONTX 25M share Spot Secondary priced at $1.00; SGFY 23.5M share IPO priced at $24.00; TXMD 59.5M share Spot Secondary priced at $1.85

·     Services, MedTech and Equipment; LH posts Q4 adj profit of $10.56, topping the estimate of $8.11 as Q4 rev rose nearly ~52% to $4.5B, above the $3.95B estimate as diagnostic segment rev surged 79.5% to $3.15B, due to higher demand for COVID-19 testing; GNMK shares jumped over 25% after Bloomberg reported late Wednesday that the co is exploring a sale after being approached by potential buyers

·     Healthcare services; MOH adjusted EPS of -$0.51 came in below consensus estimates of 86c profit – but normalized EPS in the quarter (excludes the impact of COVID and one-time items) of $3.29 came in above the ~$3.00 projection; FLDM drops as Q4 EPS loss (13c) vs. est. loss (7c); Q4 revenue $44.61M vs. est. $50.72M; guides Q1 revenue $30M-$33M, below consensus $47.62M; CERN print was in-line, with revenue and EBIT meeting estimates, while tax rate drove a $0.01 beat on EPS, though guidance for 1Q came in below consensus (downgraded at UBS to Neutral);

Industrials & Materials

·     Industrial & Machinery; GNRC posts Q4 adj. EPS $2.12 vs. est. $1.96 on better revs of $761M, above estimate of $731.2M, helped by strong demand for home standby generators saying Q4 residential product sales rose 55% to $499M

·     Transports; Dow Transport index fell for a second day after snapping its 7-day win streak on Wednesday, with earnings mostly done for the quarter for airlines, rails and most truckers; RUSHA reported Q4 revenues of $1.27B vs. $1.32B in year ago quarter, ahead of consensus by $60M and delivered 3,142 new heavy-duty trucks (+5% Y/Y); XPO strong top and bottom line beat driven by ecommerce tailwinds, technology initiatives, and 110% growth in their N American truck brokerage

·     Metals & Materials; UBS said with X and CLF both announcing equity offerings this past month, investors are asking whether steel prices are at the peak. While steel producers tend to raise equity at the top of the price cycle, they also raise equity at the bottom (likely driven by cash flow pressure) and anytime in between; platinum extended its gains into a fifth straight session holding near more than a six-year high amid higher demand expectations from the auto sector as an economic recovery picks; ALB midday pop after positive mention by Najarian on CNBC

Technology, Media & Telecom

·     Internet; PINS rises after the FT reports MSFT made an approach to PINS about a potential acquisition in recent months, but says the talks are not currently active https://bit.ly/2Ni1mIC ; FVRR adds to recent gains after several positive Motley Fool comments (top pick of year) – up for the 9th time in 10 trading days – up over 28% during that stretch to record highs

·     Semiconductors; PI reported exceptionally strong results, with March quarter guidance handily beating expectations on the back of endpoint IC strength – adj. EBITDA loss was better-than-expected – beat driven by a 32% q/o/q increase in PI’s Endpoint IC business; WDC and MU rises after Morgan Stanley said new NAND checks showing movement in a positive direction; Philly semi index (SOX) sets new record highs, topping the prior 3,141 behind MU strength as well as equipment names LRCX, KLAC, AMAT pacing gains in the index (helped by recent + capex industry comments); ZBRA Q4 EPS and revs topped views in RFID space (along with better PI numbers)

·     Software movers; DAO 7M share Secondary priced at $34.00; AVLR reported strong Q4 results with re-acceleration to 35% revenue growth (29% organic), which was above consensus, driven by strong execution across the business, and resiliency in the current COVID-19 environment; QLYS reported solid 4Q results which beat the Street expectations, but overshadowed by the announcement that longtime Chairman and CEO Philippe Courtot will be taking a medical leave; PAYC reported a quality beat as new bookings momentum and stable retention more than offset unemployment headwinds said Keybanc (upped tgt to $500); ZNGA solid beat and raise against a high bar especially post GLUU

·     Media & Telecom movers; DIS highlights media space with earnings after the close tonight; dating app BMBL opens at $56 after 50M share IPO priced at $43.00, above its target range, to raise $2.2 billion – was previously aiming to sell 45M shares at price range $37-$39; shares of MTCH opened higher before slumping after the BMBL IPO opened; ATUS lower after Video (net loss 74k vs. est. loss 63.6k) + Broadband (net loss 4k vs. est. gain 13.8k) subscriber miss; TPCO rises after WSJ reported Alden Global Capital LLC, Tribune’s largest shareholder with a 32% stake, is discussing a deal with the publishing company to buy the shares it doesn’t already own