Closing Recap

Thursday, July 22, 2021

Equity Market Recap

·     Markets were calmer today as stocks seem to have settled in after recent volatility stemming from surging Covid cases/Delta variant and the start of earnings season. There were still several key pieces of data reported today, including more earnings reports, weekly jobless claims, and housing data. Employment data for last week was dismal as initial jobless claims climbed 59K from last week’s pandemic low to 419K, a 2-month high and much worse than the expected 350K claims. The weekly increase in claims was the most in 16 weeks, while the 69K miss vs consensus was the biggest disappointment since the 2nd week of February, and claims being almost 20% above consensus was the worst showing since the final full week of March 2020 when the full extent of the pandemic was still relatively unknown. On a different note, housing data showed improvement from the last reading as existing home sales increased 1.4% in June to 5.86-million rate, though this did slightly miss the expected 5.9-million rate, and the median home price hit a record $363.3K last month that jumped 23.4% from June 2020. These soft economic data pushed Treasury yields lower, which consequently pressured bank stocks (XLF the worst performing S&P sector on the day) but lifted tech stocks and drove the Nasdaq to outperform the other indices.

·     Stock/sector movers: As noted above, multiple companies issued their quarterly results, with DPZ setting its record high on its beat a day after CMG did the same in casual dining, while rails CSX, UNP paced the S&P, and CROX, DHR also hit their respective all-time highs, though not all reactions were rosy. TXN, DHI, WHR, LVS, KMI, UL, AAL, LUV were all in the red after their results. Earnings continue with SNAP, TWTR, SAM, COF, SIVB, FE, INTC highlighting companies reporting tonight and NEE joining Dow components AXP, HON in focus tomorrow pre-market. Other key movers include FE leading the S&P after reaching a $230M settlement with the DoJ to settle their bribery case, SBUX hitting ATHs after coffee futures hit a 6.5-yr high following a freak frost in Brazil, WSM sliding on a Goldman downgrade to Sell, DIDI sinking to a new low after reports China is weighing an unprecedented penalty for the company, AKAM giving up its morning gains after widespread DNS outages.

Economic Data:

·     U.S. weekly jobless claims rose to 419,000 in the latest week, well above the consensus of 350,000, while the prior week was upwardly revised to 368,000 from 360,000; the 4-week moving average rose to 385,250 from 384,500 prior week; continued claims fell to 3.236M from 3.625M and above est. 3.100M; U.S. insured unemployment rate unchanged at 2.4%

·     Existing Home Sales rise 1.4% to 5.86-million rate, slightly below estimate 5.90M but above May reading of 5.78M; inventory of homes for sale 1.25 mln units, 2.6 months’ worth; and the June national median home price for existing homes $363,300, +23.4% from June 2020

Commodities

·     Oil prices rose, with WTI crude up $1.61, or 2.29%, to settle at $71.91 per barrel, which completes a jump of more than 10% off Tuesday’s lows as investors shake off demand concerns from the Delta variant. Gold prices also finished higher, rising $2, or 0.1%, to settle at $1,805.40/oz after the weekly jobless claims miss sent Treasury yields lower

Sector News Breakdown

Consumer

·     Retailers; CROX 2Q adj EPS $2.23 vs est. $1.60 on revs $641Mm vs est. $565.2Mm, digital sales +25.4% (36.4% revs mix); guides 3Q revs +60-70% vs est. +41%, sees 3Q adj op mgn 24-26% vs est. 22.4%; Bank America notes NKE 10K disclosed inventory in China was +41% y/y in 4Q21 (+80% vs ’19), with 4Q21 reported sales up 17%/14%, respectively/meanwhile, the strength in N.A. sales in 4Q was due to record results in both DTC (+64% vs ’19) and wholesale (+13% vs ’19); Goldman initiated FL at Buy with a $70 target based on its strong omnichannel presence, solid pipeline allowing for pricing power and top line growth, among other reasons and ASO at Neutral with a $40 target as it will continue to improve its merchandising and inventory but faces tough comps and the stock appears to be fairly valued

·     Auto sector; DIDI shares weak after Bloomberg reported China is weighing an unprecedented penalty for the ride hailing company following its IPO last month; LAD Q2 adj EPS $11.12 crushed est. $5.5 on revs $6.01B vs. est. $4.99B, new vehicle retail sales +130%, used vehicle retail sales +95.7%; DA Davidson initiated HYRE with a Buy and $25 PT as it is well positioned to ride the strong long-term secular growth in ridesharing and delivery in addition to benefitting from the economic re-opening in the near-term; UBER entered into a definitive for Uber Freight to acquire Transplace for approximately $2.25B, consisting of $750M of UBER stock and the rest in cash; DDAIF said Mercedes-Benz will invest EU40B into EV research and development between 2022-2030 and will be ready to switch to electric only by the end of this decade and its new vehicle architectures will only be electric starting in 2025

·     Housing & Building Products; homebuilder DHI raised its revenue guidance for the year as it continues to expect a strong housing market after a Q3 beat (expects revenue of $27.6B-$28.1B, compared with its prior outlook of $26.8B-$27.5B) – shares dip as Q3 net orders rose only 2%; in appliances, WHR delivered upside ($6.64 vs. our $5.60) as North America demand and margins exceeded expectations, with FY21 guidance raised; WSM was downgraded to Sell at Goldman Sachs saying comps are more difficult than other hardline peers

·     Consumer Staples & Restaurants; DPZ trades new all-time highs as reported Q2 earnings and revenue beat expectations, while U.S. same-store sales grew 3.5%, topping ests for a (-1.4%), and international same-store sales growth of 13.9% was ahead consensus for 8.7% growth; in staples Unilever (UL) said that that sales increased at a healthy 5% clip in the three months through June, compared with the same period of 2020, but warned operating margins are expected to be flat in 2021, down from the slight increase it was targeting just three months ago

·     Casinos, Gaming, LVS said Q2 losses narrowed as revenue recovered from less tourism and more restrictive measures to limit the spread of Covid-19 last year – Adj prop EBITDA was $244m below Bofa $282m, saying miss was mostly all Macau; BALY announced a five-year sports betting partnership with Sportradar, a leading global provider of sports betting and sports entertainment products and services; GAMB said it expects to price its downsized IPO at $8-$9 per share after an original target range of $11-$13; Bank America notes online sports betting handle (DKNG, PENN) for states that have reported for June was $1.7B vs. $1.8B during May, +439% Y/Y, -16% Q/Q & -6% M/M, while iGaming (online casino) GGR was $295M for June compared to $310M in May, +117% Y/Y, +15% Q/Q and -5% M/M

·     Leisure and Lodging; ABNB upgraded to Buy from Neutral at BTIG with a $170 PT on a view that renewed COVID uncertainty yields an appealing entry point for one of the most compelling models in our coverage universe; Guggenheim reiterates Buy on WWE w/ $75 PT after return of live audience; in boating, HZO 3Q revenue beats estimates, boosts guidance; POOL posts Q2 EPS/sales beat and raised guidance (LESL, HAYW also moved in sympathy)

Energy

·     Oil Equipment, E&P and Majors; NOG upgraded to Overweight at Piper; FTI reported Q2 EBITDA of $144M, slightly above Street expectation of $142M as operating CF of ($86M) and FCF of ($126M) were lower than expected due to working capital, but FY21 EBITDA guidance has been raised slightly and ’21 FCF guidance of $120M-$220M is maintained; GTLS reported in-line results and increased the 2021 outlook

·     Pipelines: KMI reported solid 2Q21 results that beat consensus expectations and increased its 2021 guidance, partially on the Stagecoach acquisition and partially on stronger refined products demand and commodity prices

·     Solar and Alt Energy; DQ rises as Xinjiang Daqo New Energy, 79.57% subsidiary of US listed Daqo New Energy (DQ), will IPO on the STAR board on July 22 with a share price of RMB21.49, representing 7.5x FY21 PER. Jefferies said they believe the shares could more than double on day 1 given the strong oversubscription at 3700x; PLUG hires former Tesla alum David Mindnich to influence plug power’s global Gigafactory footprint; Piper said recently, CA provided its final interconnection update before earnings commences. The update has positive implications for SEDG as the company benefited from the semiconductor shortages impacting ENPH

·     Utilities & Solar; for the week in utilities, AGR kicked off 2Q earnings season with a raise in guidance. AEP, NEE, and FE are scheduled to report later this week. SC PSC approved the multiparty settlement in the DESC electric rate case; FERC ruled with PJM in favor of D’s plan to exit the PJM with its current FRR plan; the back and forth between activist Elliott and DUK continued as both exchanged letters; and KY regulators partially rejected a proposal by AEP for upgrades to its WV coal plant; VST upgraded to Buy from Neutral at Guggenheim based on our view that the shares’ persistently high FCF yield does not reflect what should be increasing comfort around the medium-term viability of VST’s FCF generation; FE rises after it reached an agreement with the U.S. Attorney’s Office to pay $230 million to resolve an investigation by the Department of Justice into allegations of bribery disclosed in July 2020

Financials

·     Bank movers; large cap and regional banks dropping as Treasury yields resume downward trajectory; TCBI upgraded to Overweight at Piper saying they have not been bullish for some time, but have recently been warming to the story due to the arrival of new leadership, which to date has focused on de-risking the balance sheet; in investment advisors, Jefferies downgrades ENV to Underperform from Buy while lowering PT to $63 from $95, a new Street low; handful of movers post earnings results in small/mid cap banks: CBSH, TBK, UMPQ

·     FinTech & Payments; FIS, GPN, FISV, LSPD, NCR top five ideas in payments at RBC Capital as previews June qtr earnings where he expects results to be in line to above expectations; V (Visa) agreed to buy Currencycloud, a developer of APIs that powers remittance and currency exchange services, in a deal that values the platform at GBP700m, or $951M

·     Consumer Finance & Services; EFX revenues significantly beat consensus estimates driven by the strength in Verification Services while company raised FY21 guidance more than its 2Q beat; DFS y beat consensus estimates but missed our estimates primarily due to less than expected reserve releases. Credit metrics were generally in-line to slightly better than expected; SLM Q2 core EPS $0.45 vs. est. $0.35; raises FY21 GAAP EPS view to $3.15-$3.25 from $2.95-$3.15; affirms FY21 private education loan origination y/y growth view of 6%-7%; MC Q2 adj EPS $1.19 vs. est. $0.80 on revs $360.9M vs. est. $273.8M, raised its quarterly dividend by 9% to $0.60 and approved a $100M share buyback; OMF Q2 adj EPS $2.66 vs est. $2.19, NII $708M vs est. $769.1M

·     Insurance; MMC Q2 EPS $1.60 vs est. $1.43 on revs $5B vs est. $4.53B; GL reported Q2 EPS $1.92 vs est$1.82 on sales $1.27B vs est. $1.24V, guides FY EPS $7.34-7.54 (est. $7.29) and estimates Covid life claims between $53-55M; FAF Q2 EPS $2.72 topped est. $1.68 on revs $2.27B that also topped est. $1.87B; Bank of America issued a double-downgrade on TRV to Underperform from Buy after lowering their 2022EPS forecast on the company to a Street low due to decelerating commercial P&C pricing and eroding underwriting margins in personal auto and homeowners’ insurance

·     REITs; FR posted a 2Q21 FFO beat and increased guidance by $0.03/share (1.6%) at the midpoint. In addition, occupancy improved sequentially, accelerating cash rent spreads (+16% vs. +10% in 1Q21); SLG Q FFO/share $1.60 vs est. $1.62, qtrly consolidated revs $218.1Mm vs est. $189.6Mm, op income $88.7Mm; same-store cash NOI including share of same-store NOI from unconsolidated JVs -3.7% yr/yr; CCI Q2 adj FFO/shr $1.71 vs est. $1.66 on revs $1.58B vs est. $1.56B, site rental revs +8%, guides FY site rental revs $5.677-5.722B and sees FY adj FFO/shr $6.78-6.89 vs est $6.81; Compass Point upgraded MNR to Buy with a $21.50 PT

Healthcare

·     Pharma movers; PFE announced a billion-dollar deal with ARVN to develop and commercialize its experimental breast-cancer treatment as Pfizer will make a $650M upfront payment to Arvinas, in addition to a $350M equity investment with up to $1.4B in potential milestone payments; RHHBY shares fall despite 1H results beating estimates, with analysts noting expected decrease in pandemic-driven sales and biosimilar erosion impact in the second half; NRXP announces it has validated the first commercial formulation of Zyesami (aviptadil), its investigational drug for COVID-19 patients, for intravenous use; ENDP shares spiked midday after settling an opioid-related case in Tennessee for $35M when the state was looking for $2.5B

·     Biotech movers; MCRB said its drug to treat mild-to-moderate ulcerative colitis did not meet the main goal of a mid-stage clinical trial; consequently, MCRB would close the open label and maintenance portions of the study; BIIB reports Q2 adj. profit of $5.68, above average analysts’ est. of $4.54 and raises its 2021 sales view to $10.65B-$10.85B from its prior view of $10.45B-$10.75B saying its newly-approved Alzheimer’s drug, Aduhelm, brought in sales of $2M in Q2; MRNA signs new 20M dose COVID-19 vaccine supply deal with Taiwan

·     MedTech Equipment; DGX 2Q ad PES $3.18 vs est. $2.38 on revs $2.55B vs est. 2.38B; guides FY net revs $9.54-9.79B vs est. $9.49B, sees FY adj EPS $10.65-11.35 vs est. $11.14; ABT Q2 eps $1.17 vs. est. $1.02; q2 revs $10.2b vs. est. $9.69b; qtrly covid-19 test sales of $1.3 bln; qtrly diagnostics revenue up more than 57%; sees year EPS $4.30-$4.50 vs. est. $4.36; DHR Q2 adj EPS $2.46 vs. est. $2.05; Q2 revs $7.22B vs. est. $6.72B; for q3 2021, anticipates that non-GAAP core revenue growth will be in mid- to high-teens percent range

·     Hospitals; after strong gains this week post HCA beat and raise, group little break despite THC revenue beat by roughly 4% with acute care and ASC driving the beat. EBITDA (ex-grants) was 10% above Street expectations with acute care margins the key driver. Guidance was increased on an underlying basis despite pending Miami hospital divestitures

Industrials & Materials

·     Transports; earnings picking up steam with earnings results today from LUV (slightly wider than expected loss), AAL Q2 EPS loss (-$1.69) vs. est. loss (-$1.96); Q2 revs $7.5B vs. est. $7.34B; sees Q3 revs down about 20% and ALK; AAL sounded a cautious note about the third quarter and LUV reported a wider-than-expected loss while ALK’s 2Q op revs slightly above estimates; in rails, UNP Q2 EPS $2.72 tops consensus of $2.50 on better revs of $5.5B, saying business volumes, as measured by total revenue carloads, increased 22%, while CSX reported a 33% jump in its Q2 revenue to $2.99B, topping ests, driven by growth across all its business units and said expenses decreased 9% y-o-y to $1.30 bln and operating income improved to $1.69 bln in the qtr

·     Metals & Materials; RS 2Q EPS $5.08 vs est. $4.89 on sales $3.42B vs est. $3.17B, qtrly avg selling price/ton sold $2,418 vs $1,681 yr-ago; expects metal prices to remain strong in 3Q, sees 3Q avg selling price/ton sold +7-9%, sees 3Q tons sold -1% to +1% sequentially; CLF reported Q2 EPS $1.33 that missed est. $1.55 on revs $5.05B vs est. $4.97B, adj EBITDA $1.36B vs est. $1.3B, and sees Q3 adj EBITDA ~$1.8B; NUE recorded Q2 EPS $5.04 vs consensus $4.74 on net sales $8.79B (+103% YoY) vs est. $8.3B, shipments 7.48M tons (+37% YoY), and sees Q3 earnings to be the highest quarterly earnings in the company’s history; FCX posted Q2 EPS 73c vs est. 76c on revs $5.75B vs est. $5.77B, sees Q3 copper sales volume 1.035B lbs; NEM Q2 adj EPS 83c was in-line with on sales $3.07B vs est. $3.04B and sold its entire stake in Probe Metals for C$23.9M

Technology, Media & Telecom

·     Semiconductors; TXN Q2 EPS and sales top consensus but forecasts Q3 revenue slightly below estimates, hit by concerns that a shortage of chip components as sees Q3 revs$4.4B-$4.76B, with the midpoint below analysts’ expectations of $4.59B; next up for the chip space is Dow component INTC earnings tonight after the close – equipment stocks may be active on its cap-ex guidance (recall yesterday shares of LRCX, AMAT, KLAC jumped on positive ASML comments)

·     Software movers; in Internet security, BMO said given a robust backdrop, they expect strong June/July quarter results across the board, and are raising our target price on ZS from $225 to $250, on PANW from $445 to $460, and on FTNT from $227 to $275; TEAM downgraded to market perform at Cowen as see a lack of catalysts for the stock in the medium-term given that valuations are near historic peak levels and the co. is entering a multi-year model transition that should pressure growth/margins; SE tgt raised to $320 at Morgan Stanley saying they see it becoming a leading Super App across ASEAN & a core driver is the continuing success of Free Fire funding e-commerce/fintech expansion

·     Hardware, Components & Services; NTGR tumbles as posted Q2 rev and adj EPS below Street consensus, citing worldwide supply chain constraints and said for 2H, expect the market growth to moderate further to approximately 20% above second half 2019 levels; VERI signs an agreement to acquire PandoLogic, Inc, a provider of intelligent hiring solutions with a total consideration for the acquisition at $150 million

·     Media & Telecom movers; AT Q2 results exceeded consensus profit estimates while adding wireless customers and continuing growth in subscribers to its HBO Max video service; AMCX downgraded to Sell from Hold in transfer of coverage at Deutsche Bank as see limited upside from a valuation perspective and believe the traditional cable networks business continues to face structural headwinds; LGF also downgraded to Hold from Buy in transfer of coverage at Deutsche Bank but increase our price target to $19 from $16; BMBL got a spike after Motley Fool newsletter named it as a new pick

·     Internet; SHOP positive mention by a few analysts today, with Wells Fargo saying the company has just begun to scratch the surface of its potential in financial services. And that Shopify Balance is the beginning of an effort that will lead to new products and revenue opportunities, as well as improve retention and customer acquisition efforts