Closing Recap

Friday, February 12, 2021

Equity Market Recap

·     Stocks surged into the bell, ending at the highs with big gains across the board with Dow Transports and the Russell 2000 rising over 2%, the Nasdaq Composite rising over 1% led by outperformance in semiconductors which advanced over 7% to record highs. Momentum buying continues to push major averages sharply higher as energy stocks surge given the latest massive rally in oil prices (WTI nears $60 per barrel), semiconductors at record highs on chip shortages, transportation stocks nearing record highs, financials getting a boost in rising Treasury yields and economic recovery hopes, electric vehicle names spike and Bitcoin leveraged names had a massive week with Bitcoin topping $49K this week. Retailers have seen strength on reopen expectations and new clothes to go back to work; leisure and entertainment stocks seeing strength on expectations of overwhelming demand when vaccines take full effect on population and people feel more comfortable to travel again. The optimism is well noted – but how of this good news and sentiment is baked into this market? At the same time, the names that have benefitted the most from stay at home such as software, video games, online retail, etc. – will they continue to see surging demand? Will the improvement in the economy and subsequent pullback in Treasuries (leading yields higher), start to take its toll on markets? Lots of questions remain – but at this point, no fear at all with volatility at lows again as investors keep chasing stock performance. The S&P 500 traded Thursday at 22.42 times its projected earnings over the next 12 months, above a five-year average of 17.95, as per Dow Jones. In an interesting statistic, a record 47.2% of U.S. equity trading volume in January was executed outside public stock exchanges, up from 39.9% a year earlier, according to Rosenblatt Securities. Stocks have stayed in record territory this week, buoyed by movement toward a fresh round of stimulus spending, strong corporate earnings, and progress in the rollout of Covid-19 vaccines. President Biden said the U.S. has struck deals to buy another 200 million vaccine doses. Dow component Disney (DIS) shares slip after hitting record highs earlier following a stellar quarter highlighted by surging Disney+ subscriptions.

Economic Data

·     University of Michigan surveys of consumers sentiment prelim Feb 76.2 (consensus 80.8) vs final Jan 79.0; the expectations index prelim Feb 69.8 (consensus 75.7) vs. final Jan 74.0 and the current conditions index prelim Feb 86.2 (consensus 88.0) vs final Jan 86.7

Commodities, Currencies & Treasuries

·     Oil prices rose to fresh 13-year highs, as WTI crude approached the $60 per barrel level, with WTI crude rising $1.23, or 2.11% to settle at $59.47 per barrel (oil prices end higher for the 9^th time in last 10 days), ending the week higher by 5%. The weekly Baker Hughes (BKR) rig count rose 5 total to rigs to 397, with oil rigs up 7 to 306 and gas rigs fell -2 to 90 in latest week (oil drillers add oil rigs for 12^th week in a row). Prices got a boost early after Reuters reports a claim by Yemen’s Houthi rebels that they hit Saudi Arabia’s Abha International Airport with drones. Gold prices slip -$3.60 or 0.2% to settle at $1,823.20 an ounce but managed a small gain on the week of roughly 0.6% as the dollar slipped.

·     Treasury yields edge higher to end the week near their best levels, led by a rise in the long end of the curve as the U.S. 2-year/10-year Treasury yield curve steepens to 1.0870%, widest composite spread since April 2017. The 10-year yield hit the 1.20% level for a third time in 2021 (matching 11-month highs), while the 30-year ended near the 2% level. Economic data has been mixed of late, and the dollar, which had rallied off 2-year lows 2-weeks ago, slipped the last few days, but was little changed on Friday into the long weekend.

Sector News Breakdown

Consumer

·     Retailers; YETI was upgraded to Buy from Neutral at Citi who raised their target to $91 from $85, reversing their downgrade last month given their belief that the stock was properly valued and that sales would decelerate but the company’s 2021 15%-17% sales growth outlook is stronger than expected even as they still expect the company’s growth to slow from COVID-fueled levels, and its price target was also raised to $100 from $90 at Jefferies who reiterated their Buy rating and called the name a top pick, though Hedgeye added the stock to its Best Short Idea List; Citi downgraded PLCE to Sell from Neutral while raising their target to $50 from $42 as they believe pressures on the business from pre-Covid has only accelerated during the pandemic, forcing the company to close stores and invest in e-commerce which is a drag on margins, and very weak comps in FY20 means their customers have been shopping elsewhere and even more stimulus would not necessarily be a tailwind; Raymond James reiterated their Strong Buy rating on TPX and raised their price target to $42 after the company’s impressive Q4 results with strong FY21 guidance and accelerating trends QTD from Q4; OpCo downgraded WSM to Perform from Outperform but raised their pt to $136 from $115 as they are increasingly concerned that elevated Street forecasts could prove too optimistic in the near-term, though they remain upbeat on the stock’s longer-term fundamental prospects; Bank of America reiterated GME at Underweight as their fundamentals remain challenged and factors driving the stock price higher recently, including Reddit conversations and short interest, are all down significantly

·     Auto sector; TSLA must recall around 12,300 Model X cars worldwide due to car body moldings problems, Germany’s motor vehicle authority (KBA) said on its website, saying the recall affects cars built in 2015 and 2016 and added there was a risk that the molding could fall off the vehicle; Ford (F) was reiterated at OW by JPMorgan as the stock is trading in-line with history despite several significant positives in the name and after their fireside chat with the company’s senior leaders highlighted product-driven profit growth and EV efforts; Stephens upgraded CPRT to OW and upped their pt to $140 from $122, saying the stock’s recent underperformance provides an attractive entry point; Morgan Stanley issued initiations on EV stocks with FSR at OW with a $27 pt as their EV sleeper pick due to its design-centered business model, QS also at OW with a $70 pt as the company’s development of state cell tech over the past decade positions it well to supply US-based EV players, RIDE at UW with a $18 pt as it faces competitive pressures in EV pickups from startups and legacy OEMs with far greater scale and distribution advantages, and RMO at UW with a $12 pt as it sits in the middle/downstream part of the value chain of batteries and does not appear to be involved in vehicle design or cell technology; AXL reported Q4 Adj EPS 51c (est. 26c, 13c YoY) on sales $1.44B (est. $1.36B) and see FY21 sales $5.3-5.5B vs est. $5.49B; GP announced an agreement with Forest River for 150 EV Star+ cabs and chassis over the next 36 months, and BTIG upped its price target on the stock to $40 from $25

·     Housing & Building Products; HD and LOW both upgraded to Buy from Hold at Zelman in home improvement sector; MHK shares rose after Q4 results easily topping consensus with upbeat guidance (Q4 adj EPS $3.54 vs. est. $2.87; Q4 revenue $2.64B vs. est. $2.49B; sees Q1 EPS $2.69-$2.79 vs. est. $2.11)

·     Leisure and Gaming; cruise lines RCL and NCLH downgraded (to sell and hold respectively) at Berenberg and remain sellers of CCL as expect pent-up demand for the industry to be a significant tailwind for the cruise sector – but believe there are significant headwinds that are not factored into current share prices; casinos move higher (WYNN, LVS, MGM) after reports late yesterday Nevada plans to gradually loosen its current coronavirus restrictions over the next three months before delegating decisions about business closures to local governments on May 1

Energy

·     Energy stock movers; energy stocks among leaders on the week as oil prices climb to fresh 13-month highs on economic recovery hopes; the weekly Baker Hughes (BKR) rig count rose 5 total to rigs to 397, with oil rigs up 7 to 306 and gas rigs fell -2 to 90 in latest week (oil drillers add oil rigs for 12^th week in a row); RDS was upgraded at Scotia saying now forecasts co to have an above-average free cash flow and organic cash return yields vs. its global integrated peers, and to yield a respectable performance on most other performance drivers; NBLX mixed Q4 results as EPS beat but revenue missed estimates as gathered 286,000 gross barrels of oil and gas equivalent per day and 146,000 barrels of produced water per day.

Financials

·     Banks and Asset Managers; Barclays raised its target on ARES to $58 from $56 and still see significantly more EPS upside from shadow AUM deployment and insurance opportunities related to its Aspida platform, and they can envision improving sentiment; CFG was upgraded to Buy with a $46 price target at Compass Point; SCHW end-January total client assets $6.76 trillion, up 67%, January core net new assets $34.2 billion, and end-January total client assets up 1% vs end-December

·     Consumer finance; Following yesterday’s Investor Day, PYPL price target was raised to $310 from $275 at Credit Suisse, to $310 from $249 at JPMorgan, to $310 from $300 at KeyBanc, to $329 from $302 at Morgan Stanley, and reiterated as a Buy with a $345 target at Goldman; AFRM reported Q2 rev $204M vs est. $189.3M, with GMV $2.1B (+55% YoY), 4.5M active consumers as of Dec 31, 2020 (+52% YoY), with transactions per active consumer approximately 2.2 (+7% YoY), and they see Q3 rev $185-195M vs est. $189M; MA files mixed securities shelf

·     Services; Jefferies upgraded TRU to Buy with a $115 target given the ramp of counter-cyclical business such as healthcare, fraud, and insurance which make up about 25% of its US business, and channel checks also indicate fintech should ramp this year, an area where the company is over-indexed vs peers; MCO posted Q4 adj EPS $1.91 vs est. $1.99 on revs $1.29B vs est. $1.24B, operating income $444M (-12% YoY, est. $495.2M) and see FY21 adj EPS $10.30-10.70 vs est. $10.38; BL 4Q adj EPS $0.21 (est $0.08) on revs $95.7Mm (est $91.6M), and guides 1Q adj EPS $0.04-0.06 (est $0.09) on revs $95.5-96.5Mm (est $95.75M), and guides FY21 adj EPS $0.38-0.41 (est $0.52) on revs $410-415M (est $411.4M)

·     REITs; REG Q4 FFO 76c vs. est. 72c, same property NOI, excluding termination fees, -10.5% YoY for Q4 and -11.6% during the full year 2020 driven primarily by a higher rate of uncollectible lease income due to the COVID-19 pandemic, and they see FY21 FFO $2.96-$3.14 vs. est. $3.28; CUZ posted 4Q FFO $0.68 vs est $0.69 on revs $183.1Mm vs est $182.8Mm, collected 98.8% of rents including 99.2% from office customers during qtr, and sees FY21 FFO/shr $2.76-2.86 vs est $2.83 assuming physical occupancy remains significantly below normalized levels until 2H21; WPC reports Q4 adj FFO $1.28 vs est. $1.18 on revs $307.4M vs est. $297M, and sees FY21 adj FFO $4.79-4.93 vs est. $4.81; BRX reported Q4 FFO 33c vs consensus 34c on revs $269.4M, beating est. $242.4M, and see FY21 FFO $1.56-1.70 vs est. $1.65; FRT posted Q4 FFO 99c, missing est. $1.09, on revs $219.5M vs est. $206.8M; DLR Q4 FFO $1.61 beat est. $1.53 on revs $1.06B that slightly beat est. $1.03B, and they guide FY21 FFO $6.40-6.50 (est. $6.49) on revs $4.25-4.35B (est. $4.34B); SHO Q4 EPS (16c) loss was narrower than expected (34c) loss and its sales $37.36M missed est. $47.25M (-86.3% YoY from $272.95M); KRG reports Q4 EPS 33c on sales $68.36M (est. $64.66M), and they see FY21 FFO $1.24-1.34

Healthcare

·     Pharma movers; cannabis volatility continues, with more profit taking after big gains earlier in the week after being the latest “buy” target for Reddit forums; ACB sales and EBITDA for the Dec qtr were below the FactSet consensus; NK and partner ImmunityBio on Thursday aftermarket announced that the U.S. FDA had authorized the expansion of an early-stage study testing their T-cell COVID-19 vaccine; PFE and BNTX to supply the united states with 100 million additional doses of covid-19 vaccine, U.S. government exercises option to bring total supply to 300 mln doses, enabling vaccinations for 150 mln people – U.S. government will pay $1.95 bln for additional 100 mln doses; DNLI said its experimental treatment, DNL310, shows effectiveness in helping patients with Hunter syndrome in an ongoing early-stage trial saying the drug was well-tolerated and showed robust and durable biomarker response

·     Biotech movers; FOLD shares tumbles as reported highly anticipated Phase 3 PROPEL data for AT-GAA in Pompe disease, as it narrowly missed the primary endpoint on statistically significant superiority over Lumizyme on change in six-minute walk distance (6MWD); XERS said the European Commission approved Ogluo (glucagon) injection for the treatment of severe hypoglycaemia in those with diabetes mellitus; RARE downgraded to neutral at JPMorgan; SGEN reported a slight 4Q20 EPS beat ($0.90 vs. est. $0.89, driven by higher product revs and royalties; ALNY downgraded to neutral at Citigroup and increasing tgt to $175 (+$5) as believe upside will be limited by a growing appreciation by the Street of competitors’ threats to the ATTR business by both acoramidis (a next-generation oral TTR stabilizer) and gene editing; ALNY posted narrower-than-expected quarterly loss and revenue that beat estimates

·     Several IPO and secondary deal pricings: APLT 3M share Secondary priced at $23.00; BBIO 3M share Spot Secondary priced at $62.50; CODK 2.75M share Secondary priced at $21.00; CLGN 2M share Secondary priced at $17.50; CFMS 81M share Spot Secondary priced at $1.05; CRVS 8.57M share offering prices at $3.50; DBTX 7.062M share IPO priced at $18.00; INFI 21M share Spot Secondary priced at $3.80; LGVN 2.66M share IPO priced at $10.00; NEXI 6.471M share IPO priced at $17.00; ONCR 3M share Secondary priced at $19.00; PLX 7.609M share Secondary priced at $4.60; SQZ 3M share Secondary priced at $20.00; TLIS 13.8M share IPO priced at $16.00; TVTX 6.55M share Secondary priced at $26.75

·     MedTech and Equipment; DVA noted higher mortality and COVID related expenses that drove a 4Q miss, with EPS of $1.67 below the $1.87 consensus, which was captured in year guidance; DXCM reported full 4Q results that were in line with its earlier preannouncement as revenue of $568.9M (+23% YOY) topped consensus by $16.9M. Meanwhile, management reiterated the initial 2021 guidance it provided last month, calling for 2021 revenue of $2.21-2.31B (+15-20%) vs. consensus of $2.325B; ILMN rises as posted Q4 rev above analysts’ estimates and said it expects year-over-year revenue growth of 17%-20% in 2021 (as several analysts lift tgt price)

Industrials & Materials

·     Transports; Dow Transports outperformed broader markets, playing catch up with major averages as neared its record highs of 13,208 with all 20-names in index higher initially, with gains in airlines, rails, truckers, package delivery and marine as well

·     Aerospace & Defense; SPCE shares fell after providing an update on its test flight – said "we have been progressing through our pre-flight preparations and, during that process, we have decided to allow more time for technical checks. We are working to identify the next flight opportunity"; U.S. trade representative decides to keep tariffs on EU and the UK goods over Boeing (BA) case with WTO – tariffs are 15% to 25% on $7.5 billion of goods.

·     Metals & Materials; in chemicals, Bernstein noted global fertilizer prices continue to rise, especially in the U.S. and increase earnings estimates for all three fertilizer companies (NTR, MOS), particularly MOS who benefits from rapidly rising US phosphate and potash prices; in lithium, ALB upgraded to buy from neutral with $184 tgt and SQM upgraded to buy with $62 tgt (up from $55), turning more bullish due to: EV momentum in China and Europe, the dissipation of excess lithium inventory, and announcements by OEMs like GM to go all-electric by 2035; in steel space, Cowen said they expect above Street NUE 2Q guidance, a miss from X and above consensus F3Q CMC results. NUE is our top pick

Technology, Media & Telecom

·     Internet; GOOGL no longer a top pick at Citigroup saying street ests seem to high, but still remain bullish – notes while COVID has accelerated the digital ad migration, Street estimates for the next three years seem too high to us; in online travel, EXPE reported 4Q results with bookings and room night growth roughly in line with both Street and 3Q growth rates, as the recovery in travel was halted due to the second wave of COVID in late October. Lodging bookings did improve during the holiday period and ended January down high 40% vs. down 60% in 4Q; GDDY reported 4Q results ahead of expectations with 1Q21 and FY bookings, revenue, and FCF ahead of consensus, and announced the retirement of CFO Ray Winborne; Coupang Inc., the South Korean e-commerce giant backed by Japan’s SoftBank Group Corp., filed for a U.S. initial public offering

·     Semiconductors; sector trading at new all-time highs, as better earnings in space during the quarter for many names, as well as rising cap-ex spending boosting equipment stocks (AMAT, LRCX, KLAC improving NAND memory pricing (WDC, MU) and the latest warnings of a global chip shortage, all providing strength in the sector; SMCI shares slip after a Bloomberg report about years-long U.S. investigations into China tampering with the company’s products for hacking and spying purposes https://bloom.bg/37pHScD

·     Electrical Components, Opticals; IIVI joins the fray in the bidding war for rival COHR, making a $260 cash/stock buyout offer for the laser tech co valued at about $6.36B ($130 cash and rest in stock). MKSI earlier this week offered to acquire COHR in deal valued at about $5.8B ($240 per share), which had topped a previously agreed offer from LITE at $5.7B ($220 per share). With a $10.4B market cap, IIVI is the largest of the bidders https://on.mktw.net/2Ze35Bq

·     Software movers; HUBS rises after better than expected 4Q results, which saw 41.5% Y/Y growth in customer count drive 43% growth in billings and EPS of $0.40 nearly double the $0.23 estimate as experienced a balanced mix of customer adoption across each of the subscription tiers and also set top and bottom-line guidance ahead of consensus; DDOG reported 4Q led by upside to revenue, ARR and EPS, and with usage trends having solidified. In addition, the co. made two small but strategic acquisitions to expand its utility and/or improve the security of its platform; SVMK shares fell as guidance for the online survey company’s March quarter came in short of analyst estimates (sees revenue of $99.5M-$101.5M, falling shy of the Street consensus at $104.9M and for the year sees sales of $436M-$443M vs. est. at $450M

·     Media & Telecom movers; media conglomerate DIS posts top and bottom line beat and across most of its segments and surpassed consensus estimates for Disney+ subscribers in the quarter, coming in at 94.9m vs. consensus of 92m; Direct-to-consumer services continued their strong subscriber growth momentum, reaching a combined 146mm total paid subscribers (vs. 121mm in the prior quarter)

·     IT Services and Networking news; LLNW shares fall after being downgraded at Raymond James and Davidson on limited visibility following top and bottom line miss overnight (Q4 adj EPS loss (3c) vs. est. 2c; Q4 revenue $55.4M vs. est. $61.27M); NET shares also tumble as 4Q results beat cons across most major metrics but prudent guidance for 1Q & 2021 weren’t enough for investors with great expectations as per Jefferies (shares of FSLY down in sympathy); CGNX Q4 EPS beats, revs ~10% ahead with bullish guide sends shares higher