Closing Recap

Friday, July 30, 2021

Equity Market Recap

·     Stocks close the day lower after Amazon’s Q2 sales miss and tepid forward guidance weigh on the S&P and Nasdaq, closing a week where the three major averages suffered losses despite each index also making new all-time highs. This was a busy week of earnings as AAPL, MSFT, AMZN, GOOGL, FB, TSLA, AMD, and BA highlighted a calendar where 180 of the S&P 500 and 10 of the 30 Dow components reported their quarterly results. In addition to the busy earnings season, investors were wary of a recent uptick in Covid cases as the highly contagious Delta variant continues spreading. According to Stat News’ Covid dashboard, the U.S.’ 7-day moving average for cases as of yesterday reached the highest number since April 19 and has been steadily increasing for the past month. Despite the weekly loss, all three ended July higher, marking the 6th consecutive monthly gain for the S&P. Elsewhere, Chinese stocks were weak as Beijing continues their scrutiny and crackdown of tech companies that started late last week by making its tutoring industry non-profit. iShares’ China ETF (MSCI) and China Large-Cap ETF (FXI) both suffered their worst months since September 2011 and KWEB, KraneShares’ China Internet ETF that started in August 2013, suffered its worst monthly and 2-week performance ever. For next week, investors can look ahead to more earnings that include CZR, MGM, DKNG, PENN in gaming, biotech names MRNA, NVAX, NTLA, EDIT, TWST, RARE, TXG, QDEL, video game makers EA, TTWO, ATVI, and others such as COLM, FANG, H, LYV, BKNG, FSLY, ETSY, GM, SPCE, SQ, ZG, NCLH.

·     Stock/sector news: AMZN shares slide below $3,400 for the 1st time in over a month after its Q2 sales and Q3 guidance miss estimates, while PINS plunges below $60 for the 1st time in over 2 months after its MAUs were worse than expected; in other tech results: TEAM surges over 20% on its beat and strong guide, TWLO drops on seeing a larger-than-expected Q3 loss, and ZEN plummets on its miss in software, while SWKS shares were also weak in semis, though KLAC spikes on its beat, new buyback, and Needham u/g as a WFE beneficiary; PG leads the Dow on its beat but CL slips after lowering guidance in staples; in healthcare, GILD red after narrowing FY sales guidance and ABBV red after the midpoint of their FY EPS guidance missed consensus, though DXCM soars to ATHs on its beat; CPRI leads the S&P on its strong EPS and raised guidance, FSLR lead other solar stocks on its beat and raised sales guidance despite cutting its FY EPS guidance due to higher costs, X, WWE rise on beats, and CAT slumps after its results.

·     Regarding the virus: new research indicates that even those who are inoculated can carry enough of the virus to be infectious, the New York Times reported, citing the Centers for Disease Control and Prevention. An agency document showed that the delta variant may also cause more severe illness than previous variants, the Washington Post said.

Economic Data:

·     Chicago PMI Actual 73.4 well above consensus forecast 64.2 and previous 66.1

·     University of Michigan consumers sentiment final July 81.2 above est. 80.8 and vs. preliminary July 80.8 and final June 85.5; current conditions index final July 84.5 vs prelim July 84.5 and expectations index final July 79.0 vs prelim July 78.4

·     Personal Income for June rises 0.1% vs. est. decline -0.3% (previous -2.0%) while Personal Spending for June rose 1.0%, above the est. 0.7% (prior was unchanged); Real Personal Spending rose 0.5% vs. est. 0.3%

·     PCE Price Index rose +0.5% MoM vs. +0.6% consensus and +0.5% prior (revised from +0.4%), while the Core PCE Price Index rose +0.4% MoM vs. +0.5% consensus and +0.5% prior

·     On a YoY basis, PCE Deflator rose 4.0% for June, in-line with ests (previous 3.9%) and PCE Core Deflator for June 3.5% vs. est. 3.7%

·     The Employment Cost Index (ECI) Q2 up 0.7% vs. est. 0.9%

Commodities, Currencies & Treasuries

·     Oil prices end the day, week, and month higher – as WTI crude rises $0.33, or 0.45% to settle at $73.95 per barrel. WTI crude now up for a second straight week and 4^th month in a row. Oil prices shrugged off early losses as markets juggle strong earnings and economic data with the prospect of new restrictions possibly being triggered by a resurgence of Covid-19 cases. Baker Hughes (BKR) reported that the number of active U.S. rigs drilling for oil was down by two at 385 this week. That followed four weekly increases in a row. The total active U.S. rig count, which includes those drilling for natural gas, also declined by three to stand at 488. Gold prices fell -$18.60 or 1% to settle at $1,817.20 an ounce after surging on Thursday.

·     Treasury yields stayed in a tight narrow range, with the 10-year yield hitting lows below 1.23% before ending down slightly around 1.24%, as a dovish Fed mid-week kept the notion that rates will remain low for a long time and there was no discussion of asset tapering. Treasury auctions this week (7-yr) were also uninspiring. The U.S. dollar rebounded after Thursday’s declines, with the dollar index moving back above the 92 level in a volatile week for currency markets. The index down 0.75% for the week, its worst weekly performance since the first week of May.

Sector News Breakdown

Consumer

·     Retailers; AMZN slides after forecasting Q3 sales $106B-$112B, below $118.9B expectations, as consumers return to brick-and-mortar stores – that followed a Q2 sales miss as well ($113.1B vs est. $115.2B) while EPS of $15.12 beat the $12.30 est.; CPRI crushed their Q1 earnings report, with adj EPS $1.42 topping est. $0.81 and revs $1.25B beating est. $1.12B, adj gross margin 68.1% vs est. 66.2%, and raised FY22 adj EPS outlook to $4.50 from $3.80-3.90 and bumped its full-year rev outlook to $5.3B from $5.15B; CRI Q2 adj EPS $1.67 handily beat est. $0.73 on revs $746.4M vs est. $717.1M, resumed its dividend at 40c/share, and raised its full-year forecast for adj EPS to +75% from +40% and net sales to +15% from +10%; VFC Q2 adj EPS 27c vs est. 11c on revs $2.19B vs est. $2.16B and also lifted its view for the full-year as its FY adj EPS forecast moves to $3.20 from $3.05 and its FY rev outlook is now $12B vs prior $11.8B; DECK was expected to report a (5c) loss in Q1 but delivered EPS $1.71 on revs $504.7M vs est. $407.1M and raised its full-year guidance for adj EPS to $14.45-15.10 from $14.05-14.65 and sales to $3.01-3.06B

·     Auto sector; auto suppliers AXL and DAN shares active after quarterly results; DIDI shares active (along with other China U.S. stocks) after the SEC said it has asked staff to seek certain disclosures from offshore issuers associated with China-based operating companies; said new disclosures will be required for Chinese co’s before registration statements declared effective

·     Consumer Staples; DOLE 25M share IPO priced at $16 per share; Consumer products giant PG beats quarterly sales and profit estimates, helped by higher demand for its skin and health care products (net sales rise 7% to $18.95 billion in Q4, beating estimates); CL lowers guidance – now expects a decline in gross profit margin from a previous prediction of gross margin expansion. EPS growth is now expected to be at the lower end of the mid to high-single digit range; NWL posted adjusted EPS of $0.56, beats by $0.11, but the company failed to raise guidance because of upcoming inflation and freight headwinds.

·     Restaurants; BLMN rises as Q2 EPS of $0.81 tops the $0.68 est. and revs surged to $108B, well above consensus with upbeat Q3 guidance; TXRH Q2 EPS $1.08 vs. est. $0.94 and Q2 revs $898.79M vs. est. $855.56M; but restaurant margin is down sequentially to 17.7% from 18.6% last quarter and now predicts annual commodity cost inflation to be 7%, up from 4%; BJRI 2Q EPS and revs beat $290.3M vs. est. $284.34M but says company is only operating 62 of their 212 California restaurants; Q2 Comp restaurant sales improved 121.9%; QSR Q2 adj EPS 77c vs est. 61c on revs $1.44B vs est. $1.37B, adj EBITDA $577M vs est. $526.7M

·     Casinos, Gaming, Lodging & Leisure sector; KeyBanc said daily theme park attendance trends (using 2019 as a baseline) for the week of 7/19 thru 7/25 continues to point to a strong start for 3Q21 (SEAS, SIX, FUN). While the data shows decelerating w/w trends off elevated levels from last week, all three operators saw trends remain over 100%, with strong trends for both weekdays and the weekend; cruise lines slipped led by RCL after saying six passengers on Royal Caribbean’s Adventure of the Seas ship have tested positive for COVID-19 during routine testing

Energy

·     Energy stock movers; CVX Q2 profits tops estimates as adj EPS $1.71 beat est. $1.50 as they say rebounding crude oil prices carried earnings and cash flow to pre-pandemic levels and revs $37.6B topped est. $34.32B; XOM Q2 adj EPS $1.10 vs est. 98c on revs $67.74B vs est. $63.96B and its chemical business delivered its best quarter in company history ($2.32B vs est. $1.94B); COG Q2 adj EPS 26c vs est. 28c on revs $324.7M vs est. $429.5M, and reaffirmed its 2021 standalone guidance to deliver an avg net production rate of 2,350 Mmcfe/day; E (Eni) Q2 adj eps EUR 0.24 on revs EUR 16.64B and continues to aim for hydrocarbon production 1.7M boe/d; SM Q2 EPS 1c vs est. (27c) loss on revs $563.85M vs est. $395/02M, narrowed FY21 production guidance to 130.1-135.6 Mboe/d; ENB Q2 adj EPS C$0.67 vs est. C$0.57, adj EBITDA C$3.3B vs est. C$3.26B; BKR announced a $2B share repurchase authorization; Tudor downgraded EQT to Hold from Buy, but RBC said they would be buyers on weakness as they believe yesterday’s 9.9% selloff after earnings is overdone; BKR announces $2 billion share repurchase authorization

·     Utilities & Solar; FSLR quarterly results lift the solar space (Q2 EPS $0.77 vs est. $0.54 on revs $629M vs est. $617.2M) while cut year EPS view, but upped sales view; EIX 2Q results that came in below expectations, and markets await 2021 guidance once a final decision on Track 1 of the GRC is announced—possibly in August

Financials

·     Asset managers/brokers; LPLA EPS beat driven by materially stronger Commissions + Advisory, with gross profit ~4-5% ahead, and well managed expenses relative to the stronger revenues, leading to EBITDA 13% ahead of Consensus; LAZ beat on better revenues driven by strength in both financial advisory and asset management, partly offset by higher expenses; AON EPS beat on better organic growth and margins which more than offset higher tax – though profit was down 5% to $379M, weighed down by higher expenses related to compensation and benefits; WETF beat on better revenues and well managed expenses and guidance largely in line

·     REITs; WELL Q2 EPS beat $0.03/share vs. consensus and the initial 3Q21 guidance range is $0.015/share above the current consensus midpoint; AVB results were stronger than we expected based on the company’s April/May data, and guidance shows a much stronger inflection in 4Q21; DLR financial metrics bettered our expectations while new leasing (including interconnections) was a record fourth highest for the company, driven by strength across all regions. Renewal rates increased 0.1% on a cash basis and 2.1% on a GAAP basis; CPT FFO inline, guidance raised and same store revenue and NOI both better while leasing spreads were much better in July; ESS beat and raise and same store NOI beat driven by lower expenses

Healthcare

·     Pharma movers; ABBV Q2 adj EPS $3.11 slightly above views on revs $13.96B (est. $13.63B), as Humira net revenues increased 4.8% to $5.07B and Imbruvica net revenues rose 7.2% Y/Y to $1.381B; RANI 6.667M share IPO priced at $11.00 ($3 below the $14-$16 range); SGEN 2Q report driven by outperformance of all commercial products; VRTX reported a strong 2Q beat and raise with total cystic fibrosis (CF) franchise revenue of $1.8B, driven by Trikafta revs

·     Biotech movers; SAVA shares tumble again after STAT news Adam Feuerstein notes the company said that a preliminary analysis of a small clinical trial showed that simufilam improved the cognition of patients with Alzheimer’s disease, independent researchers are "expressing doubts about the purported benefits," calling the study results things like "overblown," "inappropriate," and "uninterpretable." (shares of other Alzheimer drug co’s ANVS, AVXL weak this morning); GILD Q2 sales and earnings topped estimates as continued COVID impact lead to Veklury outperformance and HIV weakness, but BMO said the potential for prolonged HIV franchise weakness could weigh on shares

·     MedTech Equipment; DXCM 2Q revenue exceeded expectations and management raised guidance, and that is before the G7 launch. Revenue of $595.1M (up 32% y/y, with unit volume up mid-40%) surpassing consensus’s $552M (shares of diabetes players moved in reaction: PODD, SENS); EW delivered a robust beat to Q2 estimates driven by $61MM upside to our WW TAVR estimate, with strength in both the US and internationally; ZYXI Q3 and FY revenue forecast miss estimates after Q2 profit beats estimates, rev misses slightly; IDXX Revs were $826M (vs. $789M cons), with 25% organic growth with CAG Diagnostics recurring revenue organic growth of 26%. EPS was $2.34 (vs. $2.03 cons) with the higher revs and better operating margins.

·     Healthcare Services; EHTH reported 2Q21 revs of $96.6 mln, up 8.8% Y/Y. 2Q21 revs were $5.8 mln ahead of Cons. 2Q21 adjusted EBITDA was ($13.0) mln, $3.2 mln ahead of Cons. While EHTH maintained its full year consolidated outlook, it lowered its Medicare segment revenue by $20 mln and adjusted EBITDA by $17-$18 mln and raised the IFP segment outlook by the same magnitude.

Industrials & Materials

·     Aerospace & Defense; MAXR mentioned positively by Kerrisdale Research calling it a new long saying checks indicate supply-chain issues have been resolved and Maxar’s long-awaited Legion constellation remains on track for 4Q launch; BAH mixed Q2 results as EPS beats but revs of $2.0B a slight miss while backs year profit and sales outlook; DPRO 5M share Secondary priced at $4.00

·     Industrial & Machinery; CAT Q2 adj EPS $2.60 vs. est. $2.40 on sales $12.9B vs. est. $12.58B as the 29% YoY increase in sales was primarily due to higher sales volume driven by higher end-user demand for equipment and services; JCI reported Q3 adj EPS 83c that met consensus on sales $6.34B vs est. $6.27B; TEX Q2 EPS $1.02 vs. consensus $0.60 on revenue $1.039B vs. consensus $1.018B and sees FY sales about $3.9B vs est. $3.777B; RSG Q2 adj EPS $1.09 vs. est. $0.94 on revs $2.81B vs. est. $2.7B, raised its quarterly dividend 8% to 46c, and boosted its FY21 adj EPS view to $4.00-$4.05 from $3.74-$3.79 (est. $3.84); FTV posted Q2 adj EPS 66c vs est. 60c on revs $1.3B vs est. $1.29B, guides Q3 adj EPS 62-66c vs est. 63c and FY adj EPS $2.65-2.75 vs est. $2.62; ITW Q2 adj EPS 29c was above est. 3c on revs $1.28B vs est. $1.16B, raised its FY EPS forecast to $8.55-8.95 from $8.20-8.60 and sees FY revs $14.3-14.6B (est. $14.41B); GWW Q2 adj EPS $4.27 missed est. $2.62 on in-line sales $3.21B and reaffirmed FY sales view of $12.7-13B; B (Barnes Group) reported Q2 adj EPS 45c vs est. 43c on revs $321.2M vs est. $302.2M and raised the lower end of its full-year guidance; GFF Q3 EPS 43c vs est. 40c on revs $646.8M vs est. $632.1M

·     Metals & Materials; U.S. Steel (X) achieved 2Q21 adjusted EBITDA of $1.29B (guidance of $1.2B), exceeding the Street’s $1.21B; posted adj EPS of $3.37, above analysts’ est. of $3.08 as net sales more than double to $5.03B; in chemicals; LYB Q2 EPS and sales top views and raised its dividend; HUN Q2 adj net income was $191 mln vs year ago net loss of $30 mln as earned 86c per share vs loss of 14c a share in prior year period; CC Q2 EPS $1.20 vs. est. $0.92; Q2 revs $1.7B vs. est. $1.52B; Q2 adjusted EBITDA of $366 million, up 120% yoy and said expect 2021 adjusted Ebitda and adjusted eps to be in top end of guidance ranges

Technology, Media & Telecom

·     Internet; PINS shares punished after Q2 user growth missed consensus estimates, having monthly active users (MAUs) declined ~7%, while says growth in U.S. was decelerating in the latest quarter (MAU grew only 9% to 454M during Q2 below ests 487.1M)

·     Semiconductors; NVDA slides after reports that China antitrust officials delay review of Nvidia’s $40 billion arm acquisition https://bit.ly/3fdb0aV (raises concerns of other pending chip related deals including AMD, XLNX, MXIM, ADI); SWKS posted solid F3Q results, which were slightly above expectations, while guidance including a partial quarter of SLAB’s I&A business was in line, as SWKS indicated supply constraints are limiting upside demand; KLAC upgraded to Buy with $390 tgt at Needham post earnings (EPS/revs beat) as believe it will be an outperformer in the current WFE upcycle, and will continue to outperform in the next WFE downcycle

·     Software movers; TWLO 2 revenue growth of 67% Y/Y (52% Y/Y organic), well above consensus of 49% Y/Y while investors view the Q3 guidance of 50-52% Y/Y growth as conservative; TEAM a big winner on the day with Subscription revenue growth +50% YoY vs. est. 40% YoY; ZEN Revs light ($318mn vs consensus $320mn) and guides 2Q below the street ($334.5mn vs cons $336mn); FTNT slides despite reporting Q2 earnings results that beat analyst estimates and raising the full-year forecast, falling on valuation concerns

·     Media & Telecom movers; CHTR Q2 adjusted EBITDA $5.02B tops consensus $4.87B and Revenue $12.80B vs cons $12.62B while video Losses were ‘better’ in the quarter: (63k) vs est. (135k) with Residential broadband net adds +365k; TMUS upgraded to Outperform at RBC Capital & raises PT to $180 post 2Q21 results last night as now have increased confidence in the long-term sustainability of the recent operating and financial momentum; in Canadian Telecom, RBC Capital views the 3500 MHz auction results as near-term negative for ROG shares, neutral for BCE, TU and Cogeco and near-term positive for Quebecor and believe the path to regulatory approval for the Rogers-Shaw transaction has become clearer (should wireless remedies be required); WWE rises as beat estimates for Q2 results, driven by ticket sales at its marquee annual event, WrestleMania, and higher content monetization