Closing Recap

Tuesday, June 08, 2021

Equity Market Recap

·     U.S. stocks picked up steam throughout the trading day with major averages closing well off the lows, led again by Smallcaps as the Russell 2000 approaches its record high following recent run-in biotech, energy, and financials, but broader markets overall were higher. Treasury yields have grinded lower over the last few weeks (touched lows of 1.51% on 10-yr today) as inflation fears have abated with the Fed calling price hikes “transitory” – note copper and lumber futures have tumbled over the last week after hitting multi-year highs. WTI crude closes above $70 for the first time since October 2018 while gold prices dipped. The U.S. trade deficit narrowed to $68.9 billion in April from $75 billion in March, the Commerce Department said. Bitcoin falls again after the U.S. retrieves millions in ransom paid to colonial pipeline hackers, as crypto assets broadly lower (hitting names leveraged to crypto), while the Reddit/WallStreetBets retail crowd turns attention to old and new names (driving shares of several stocks higher). Stocks held up despite reports late day out of Washington that infrastructure talks hit a significant roadblock.

·     Stock/sector movers: CLOV leads the high-short interest stocks today as it rises more than 100% at the day’s highs; WEN becomes the latest stock to get a boost from social media as it spikes to record levels, leads casual dining space higher; in tech earnings, MRVL jumps on its earnings and guidance, STX gains on its strong guidance, and COUP sinks despite better-than-expected quarterly EPS, revs, billings, and full-year EPS, revs guidance; in retail earnings, SFIX soars to 3-month highs on its beat with strong client growth and ASO hits ATH on its beat-and-raise; TGT touches new record highs after UBS upgrade with a $300 bull case, GNRC leads the S&P after KeyBank upgrades the stock with more than 20% upside from yesterday’s close. The cryptocurrency space tumbles again after yesterday’s news that US officials were able to seize most of the ransom paid to the hackers who targeted the Colonial Pipeline last month – Bitcoin falls over 10% to below $32K and Ethereum also slides double-digits to below the $2,400 level at the day’s lows; COIN RIOT MARA SI MSTR pressured in sympathy.

Economic Data:

·     U.S. small-business confidence edged lower last month, the first decline in four months, as a nationwide labor shortage and inflation worries weighed on business owners’ economic outlook, according to a survey released on Tuesday. The National Federation of Independent Business (NFIB) Optimism Index fell 0.2 point to a reading of 99.6 in May after three straight monthly increases. Five of the 10 index components improved, three declined and two were unchanged.

·     U.S. April trade deficit -$68.9 bln (consensus $69.0 bln) vs March deficit $75.0 bln (previous $74.45 bln); U.S. April goods deficit $86.68 bln, services surplus $17.78 bln; April exports +1.1% vs March +7.5%, imports -1.4% vs March +7.1%; April exports $204.99 bln vs march $202.67 bln, imports $273.89 bln vs march $277.69 bln

·     JOLTs Job Openings reported at 9.286M in April, above the prior month reading of 8.288M (again underscores the need by employers for jobs that are not being met)

Commodities

·     Oil prices edge higher by $0.82 or 1.18% to settle at $70.05 per barrel, topping the $70 level for the first time since October 2018. The U.S. Energy Information Administration cut its 2021 world oil demand growth forecast by 10,000 barrels per day to 5.41 million bpd. In its monthly forecast, the agency cut its oil demand growth estimate for 2022 by 90,000 bpd to 3.64 million bpd. Next up for energy markets API inventory data tonight and EIA tomorrow. Investors are also looking forward to U.S. consumer price index data due Thursday. Higher inflation data could spark some fears over the Fed tapering its expansionary monetary policy and drive gold prices lower. August gold prices fell -$4.40 or 0.2% to settle at $1,894.40 an ounce, the first decline in three trading days as the dollar rebounded. Investors look ahead to U.S inflation data (CPI) Thursday.

Currencies & Treasuries

·     Strong Treasury auction as the U.S. sold $58B in 3-year notes at a yield of 0.325% vs. the w/i slipped just ahead of the deadline from 0.330% in early action to 0.326%; the bid-to-cover (demand) was at 2.47 which was the best since the 2.83 from June 2018. Indirect bidders accepted 54.2%, also above the prior 49.6% and the 51.0% average. The dollar remains weak, as the dollar index (DXY) posted a modest gain back above the 90 level but overall unchanged on the day after sliding recently. Euro remains below the 1.22 level British Pound 1.41.5.

Sector News Breakdown

Consumer

·     Retailers; CHS reported a Q1 EPS loss of (8c) on sales $388M vs est. $280.3M and sees full-year sales improving between 28-34%; JILL posted a Q1 adj EPS 20c on revs $129.1M (+42% YoY) vs est. $117.22M; WWW said it expects 2Q21 rev to exceed 2Q19’s $569M, and reaffirmed its FY revenue guidance range $2.24-2.3B (est. $2.28B); ASO reported Q1 EPS $1.84 and sales $1.58B that both topped estimates ($0.84, $1.51B), same-store sales +38.9%, and sees FY EPS $4.15-4.50 (est. $3.42) and comp sales +6-9%; Argus upgraded ANF upgrade to Buy with a $47 pt due to its improving marketing, strengthening digital and omnichannel capabilities with digital sales now accounting for a majority of revenue, and its transition to smaller stores that can help boost customer engagement; BTIG upgraded SHOO to Buy with a year-end $55 price target (+30% upside) as they see the company taking share from slower rivals and further extending its market share position as the top fast fashion footwear brand in its category; UBS upgraded TGT to Buy with a $265 target from $210 ($300 bull case, $190 bear case) as they believe the company will maintain its momentum in the coming quarters despite tough comps and fading stimulus; GPS rises after co launches its first product in partnership with rapper Kanye West’s Yeezy/new Round jackets priced at $200 were sold out a few hours after the launch

·     Auto sector; TSLA sold 33,463 China-made electric cars in May, including exports, a 29% jump from April, according to data from the China Passenger Car Association. China’s new electric vehicle sales surged 177% to 185,000 in May; overall passenger vehicle sales, however, rose just 1.1% to 1.66 million; Ford (F) revealed the Maverick, a pickup truck with a body comparable in size to a compact SUV, such as a Ford Escape. Its starting price of $19,995 will make it the least-expensive vehicle in Ford’s U.S. lineup when it goes on sale this fall; electric vehicle stocks saw renewed strength today (NKLA, RIDE, LI, BLNK, CHPT); RIDE shares dropped late day after Dow Jones reported co amends annual filing w going concern notice – says current cash levels not enough to start commercial production; delaying certain expenditures in order to fund operations at reduced levels

·     Consumer Staples & Restaurants; KDP priced 28M shares of the Company’s outstanding common stock on behalf of MDLZ at $35.65 per share; PM reaffirms FY2021 adjusted diluted EPS outlook, below the consensus ($5.95-$6.05 vs. est. $6.08) and expects FY2021 net revenue growth of approximately 5%-7% on an organic basis; NAPA beat expectations in first earnings report as public company and provided optimistic signals as per CSFB; LW was upgraded to Buy at Jefferies and raised tgt to $100 from $84 saying while foodservice demand is rebounding quickly, still-tight industry capacity and high edible oil costs bode well for a return to pricing power; WEN jumps as the stock drew positive mentions on Reddit’s WallStreetBets forum, joining the long list of recent companies that have jumped on positive social media comments

·     Casinos, Gaming, Lodging & Leisure sector; MTN 3Q EPS $6.72 vs. est. $6.54 on revs $889.1Mm vs. est. $882.1Mm; guides FY EBITDA $530-570Mm vs. est. $559.9Mm, sees FY net income $93-139Mm vs. est. $126.8Mm; Q3 total skier visits 7.19 million; THO reported Q3 EPS and net sales that beat the average analyst estimate as gross profit margin improved by 240 basis points (RV names active on report – WGO, LCII, PATK); LESL files for offering of 24.5M shares of common stock by the selling stockholders; Hyatt (H) increased its 2021 net rooms growth outlook (to 6% from 5%) following the completion of two transactions for its ongoing capital strategy

Energy

·     E&P and Majors; MCF announced an agreement to combine with KKR & Co. Inc.’s Independence Energy LLC in a stock deal that values the combined company at about $4.8 billion; LBRT 12.3M share Spot Secondary priced at $15.60; Pembina Pipeline Corp said it would buy a 50% stake in Canada’s proposed Cedar LNG Project to develop the floating liquefied natural gas facility in British Columbia in partnership with indigenous group, The Haisla Nation;

·     In energy research; TELL and NEXT upgraded to outperform from in line at Evercore ISI, which says it is seeing green shoots for the LNG sales and purchase agreement (SPA) market; Johnson Rice with several changes as upgraded shares of APA, FANG, KOS and downgraded COG, EOG, SWN; JPMorgan positive on energy sector as they upgrade CVE to overweight (joins CNQ, CVX, XOM) saying they think that the current price environment remains a "sweet spot," with demand recovering from COVID-19 and the OPEC/shale market share war remaining subdued (remain neutral rated on COP and remain Underweight on OXY)

Financials

·     Bank movers; WFC announced its Active Cash credit card, the first in their new multi-card suite; JPMorgan reiterated SIVB as a Top Idea after 1Q21 was the strongest in the bank’s history with inflowing rising $45B QoQ and a record 1,600 new clients, and its widening moat and status as a big bank with more than 50% share of VC-backed startups

·     Asset managers and investment Co’s; BMO upgraded ARES to Outperform with a $68 target from $63 as they believe its peer-leading FRE growth and organic net flows is no longer reflected in the blended P/E multiple following two recent strategic and accretive acquisitions (Landmark and Black Creek); PZN preliminary total assets under management as of May 31, 2021 of $53.6B; UBS downgraded EFC to Neutral as its valuation looks full after its impressive re-rating and risks of the Fed tapering to pave the way for higher interest rates and a secondary offering; BRKbought a $500M stake in Brazilian bank Nubank, making it the biggest shareholder in Brazil’s largest digital bank and values Nubank at $30B

·     FinTech & Payments; TIGR announced a 6.5M share offering; Credit Suisse increased their estimates on V (Visa) and its price target to $285 from $280 after the company’s 600bps of cross-border improvement in May to ~85% of 2019 levels vs April’s 79% doubled their guidance of 200-300bps, which supports the view that the company’s cross-border revenue can surpass 2019 levels far before a full travel recovery

·     Consumer Finance; RKT was initiated at Piper with a Neutral rating and $18 target as the stock appears fully valued at 13x+ FY22E P/E and its valuation multiple exceeds many other large financial institutions with less volatility, and the stock was also initiated at Argus with a Buy rating and $23 target; In an SEC filing, AOMR (Angel Oak Mortgage) said they expect an IPO price between $20-21 with 8.05M of common stock; CSGP announced a ten-for-one stock split; SLQT will join the S&P SmallCap 600 effective prior to the opening of trading on Thursday, June 10; Citibank has informed Macy’s (M) it’s terminating their credit card pact due to dropping sales

·     REITs; Ahead of the Nareit Conference 2021, WELL revised its Q2 outlook for net income to $0.34-$0.38 per diluted share from previous guidance of $0.31 – $0.36 and normalized FFO to $0.75-$0.79 per diluted share vs. earlier guidance of $0.72 – $0.77, UDR increased its guidance ranges and sees Q2 FFO and AFFO per share to be at the high-end of its previous guidance range of $0.47-$0.49, PSA issued an operating update with occupancy at May 31 of 96.5% (+250bps YoY, +50bps QoQ), rent per SF $18.54 (+6.4% YoY, +2.7% QoQ); Wedbush initiated GEO with a Neutral rating and $7 pt given its historical growth and high level of profitability and cash flow, though the industry faces large headwinds of political opposition and a declining prison population; PEB said operating trends are improving each week, they expect to achieve positive adjusted EBITDA re in 2Q21 given strong leisure demand

Healthcare

·     Pharma movers; FOLD said the U.K.’s Medicines and Healthcare Products Regulatory Agency (MHRA) has granted a positive scientific opinion through the Early Access to Medicines Scheme (EAMS) to AT-GAA; LLY tgt raised to $246 from $214 at Guggenheim in the wake of today’s decision and BIIB’s $56K/year price of Aduhelm and raises POS for donanemab approval from 50% to 70%

·     Biotech movers; BIIB shares were upgraded by at least 5 analysts – Baird, Citi, Raymond James, Cowen among them) after the FDA approved its Alzheimer’s drug yesterday – shares pullback after yesterday surge; VBIV rises after the U.S. FDA granted "fast track" status to VBI-1901, the company’s treatment for recurrent glioblastoma patients with first tumor recurrence; INO rises after co expands partnership with Advaccine for covid-19 vaccine study

·     MedTech Equipment; BDX hits 2 billion injection device milestone in support of global covid-19 vaccination efforts; GKOS announces Australia’s TGA regulatory approval for PRESERVFLO MicroShunt – plans to commence initial commercial launch in late 2021; SESN expected to be included in Russell 3000 index effective June 28, according to a preliminary list of additions

·     Healthcare Services; HQY posted a 23% QoQ increase in interchange revenue drove the entirety of the $3M consensus beat in F1Q22 according to RBC as demand was driven by both seasonality and a rebound in delayed care. This largely offset a miss of similar magnitude on the service revenue side as commuter activity continues to drag on growth; CLOV emerges as the latest target for retail traders on Reddit forums as its shares surge again after rising over 32% Monday and again today; CVS slips as Amazon Pharmacy to offer six-month prescriptions starting at $6

Industrials & Materials

·     Aerospace & Defense; BA rises after Southwest to add Boeing’s 34 737 MAX 7 aircraft to its 2022 orders, taking the carrier’s total orders for the MAX 7 aircraft to 234 in 2022; CACI was removed from conviction Buy list with $316 tgt at Goldman Sachs saying CACI book to bill and proposal pipeline have retreated from elevated levels and the Afghanistan withdrawal is a drag on growth next year, while the firm added LDOS to conviction Buy list with $122 tgt saying its growing organically the fastest in our coverage over the next two years; RTX gets five-year, $495M Marine Corps contract

·     Industrial & Machinery; GNRC upgraded to Overweight with a $400 price target at KeyBanc citing confidence in further Home Standby upside from capacity additions and a meaningful runway in Storage, the emergence of Distributed Energy Resource (DER) platform; JCI upgraded to Overweight and raise tgt to $75 from $50 at JPMorgan; Wells Fargo upped BRC to overweight saying it remains reasonably priced despite five consecutive years of improved margin performance while downgraded EPAC as shares have rallied 39% the last 12-months

·     Transports; in airlines, DAL upgraded from Neutral to Buy with $60 tgt at Jefferies on the next phase of the recovery as the focus shifts from a recovery in domestic and leisure travel to corporate and international; overall Dow Transports managed a small gain

·     Metals & Materials; U.S. Steel (X) agrees to sell its Transtar rail operating subsidiary to Fortress Transportation and Infrastructure Investors (FTAI) for $640M; in lithium space (ALB, SQM, LIT), demand for lithium used in batteries is expected to expand by a factor of 30 by 2030, according to the International Energy Agency. Cobalt and nickel also will be needed for batteries while copper will be used by transmission lines, electric vehicles, and wind turbines.

Technology, Media & Telecom

·     Internet; FSLY shares fell initially (later rebounded) after a range of websites and online services faced disruptions/FSLY technology allows clients to manage traffic spikes and mitigate security threats (co said customers may continue to experience decreased cache hit ratio and increased origin load as global services return); ETSY proposed a private offering of $1 billion in convertible senior notes; SFIX posted a top- and bottom-line beat, with stronger Active Clients offset by a ~3% YoY decline in Active revenue per client, driving a revenue beat and healthier GMs triggering a less-than-feared loss

·     Semiconductors; MRVL posted strong results and guidance as stronger than expected Storage offset slightly weaker Networking due to 5G – F2Q22 revenue guidance coming in above estimate, largely driven by the Inphi business, which is expected to generate $215MM in F2Q22; STX guides Q4 revs $2.95B plus/minus $150M (est. $2.88B) and EPS $1.85 plus/minus $0.15 (est. $1.65) helping boost shares early; Financial Times reported NVDA submitted an application to Chinese competition regulators to review its proposed $40 billion takeover of U.K. chip designer Arm (which was announced about eight months ago); MU shares underperformed in space

·     Software movers; COUP forecast that it would post a loss in its 2022 fiscal year and named Tony Tiscornia as its new chief financial officer while reported FQ1 above consensus expectations and guided modestly higher on better billings growth of 46% exceeded consensus of 21%, with organic billings growth of ~23% Y/Y; PLTR was awarded a $7.4 million one-year contract renewal with the U.S. Centers for Disease Control and Prevention

·     Components & Services; Jefferies looked at the capex spending environment following the Q1 EPS season and recent events across the IT hardware space. Looking at our updated analysis, capex spending is expected to grow 2.5% for FY2021, which compares to a 3% decline in 2020 and little growth from 2014 through 2019 – highlight CIEN, ADTN, CALX and CMBM as beneficiaries of the improving capex spending environment

·     Media & Telecom movers; PLBY files to sell 4M shares of common stock; KeyBank said they recommend owning all the tower operators in their coverage and raised their target on AMT to $285 from $275 as recent management commentary suggests activity levels continue to accelerate, which supports the view that an improving macro narrative will lead to gross organic growth acceleration into 2022 with valuation multiples likely to return close to previous peaks