Closing Recap

Thursday, May 06, 2021

Equity Market Recap

·     U.S. stock markets ripped into the close, erasing losses for tech and Smallcaps as the Dow Jones Industrial Average hits another all-time high led behind strength in financials (GS, JPM) while the Nasdaq slipped with many high-flying growth stocks extending recent declines. The Nasdaq slumped for a 5^th straight day (longest losing streak since October), picking up steam late day on comments that the Biden administration is likely to proceed on Trump’s China investment ban which sunk China ADRs. Defensive sectors such as consumer staples and healthcare names advanced, helping contain S&P losses which was dragged down by energy stocks. Financials outperformed with a handful of large cap stocks setting record highs today (including GS, COF, BRK/A, BLK, RJF, MET). Economic data was favorable with improving jobless claims and productivity, ahead of tomorrows monthly nonfarm payroll report. Investors also piled into precious metals with gold and silver outperforming as a hedge against rising inflation fears (along with crypto-currency names).

·     Stocks saw a morning boost after reports German Chancellor Angela Merkel is opposed to lifting IP protections on vaccines, saying it would create "severe complications" for vaccine production, according to Bloomberg. Those headlines helped boost vaccine stocks (MRNA, NVAX, PFE) which had been hit late yesterday/early today after support from the Biden administration for IP waivers sent shares of vaccine makers down. The Bloomberg Commodity Spot Index returned to its highest level since 2011 with big gains in corn, copper, precious metals. Overall markets just feel tired given the lengthy run to record highs the last few weeks, pulling back in high growth and Smallcaps despite a strong quarter of earnings beats.

Economic Data:

·     Weekly Jobless Claims fell to 498,000 in the latest week, below consensus of 540,000 while prior week revised to 590,000 from 553,000; continued claims rose to 3.690M from 3.653M prior; the 4-week moving average fell to 560,000 from 621,000 prior week; the U.S. insured unemployment rate unchanged at 2.6% from 2.6% prior

·     U.S. Q1 non-farm productivity rose a greater than expected +5.4%, topping the +4.3% estimate and was above Q4 decline of -3.8%; Q1 Unit labor costs fell -0.3%, better than the -0.8% est.

Commodities, Currencies & Treasury’s

·     Oil prices fell as India, the world’s third-largest oil importer, posted record daily COVID-19 infections and deaths on Thursday, which weighed on oil demand sentiment as WTI crude fell -$0.92 or 1.4% to settle $64.71. Gold prices jumped on Thursday, as June gold rose $31.40 or 1.8% to settle at $1,815.70 an ounce (highest levels since February), as Treasury yields fell, the dollar dropped -0.3%, and as investors looked for hedges against inflation. Palladium fell 1% to $2,943.37 per ounce, after having hit an all-time high of $3,017.18 on Tuesday on strained supplies while silver climbed 3.2% to $27.34 per ounce, having earlier hit its highest level in over two months at $27.45. The dollar index (DXY) dropped below the 91 level as the euro moved firmly back above the 1.20 level while the Japanese yen was little changed. The 10-year yield has been fading over the last few weeks, down at 1.56% today (now more than the 1.775% 14-month highs reached mid-April) ahead of tomorrow’s monthly jobs report.

Sector News Breakdown

Consumer

·     Retailers; COST reported total comparable sales for Apr. +32.5% vs. estimate +30.3%; ASO 14M share Secondary priced at $32.00; TPR 3Q adj EPS $0.51 vs. est. $0.31 on revs $1.27B vs. est. $1.22B; says on track to exceed FY19 EPS for FY; guides FY revs +mid-teens vs est. +10%; KTB 1Q adj EPS $1.43 vs. est. $0.87 on revs $652Mm vs. est. $605.9Mm; guides FY revs +low-teens vs. est. +13.7%, sees FY adj EPS $3.70-3.80 vs. est. $3.68; BKE reported net sales for Apr. $93.6M (+718% YoY); GIL Q1 EPS 48c and revs $590M easily beat consensus of 18c and $490.5M, and UBS was one of several brokers to raise their price target in response as they raised theirs to $46 from $43 on increased conviction that Gildan’s "Back-to-Basics" strategy will help the company beat the market’s earnings expectations; Gun makers VSTO (Q4 adj EPS $1.02 on revs $596.5M) and RGR (Q1 EPS $2.16 on revs $184.4M) both reported results that topped consensus; Cowen raised their pt on BOOT to $86 from $68 after upping their 4Q21E EPS to Street high $0.52

·     Auto sector; TSLA has received exceptionally strong demand for electric cars and are already sold out for the quarter, Electrek reports, citing sources; UBER reported GBs and EBITDA that were 8% and $93m above consensus but revenue below by $367m from the UK worker reclassification accounting charge; NKLA & Total Transportation sign LOI for 100 Nikola trucks; CARS Q1 EPS 8c on revs $153.3M vs est. $149.4M, adj EBITDA $48.1M vs est. $40.8M and sees Q2 sales $152-154M vs est. $150.4M

·     Housing & Building Products; HOME confirmed prior WSJ report that Hellman & Friedman would buy the company; deal was for $2.8B, or $36 per share https://on.wsj.com/33fXtJf ; in furnishings, Wayfair (W) adj EPS $1 vs est. 29c on revs $3.48B vs est. $3.39B, adj EBITDA $205.8M vs est. $138.8M, active customers 33.2M (+57% YoY) vs est. 31.3M, and sees Q2 adj EBITDA at or above this quarters and gross margin 27-28%; USCR shares tumble after posting weaker Q1 revenue of $285.7M missing the $305M estimate

·     Consumer Staples; in food, Kellogg (K) boosted its yearly forecasts (projected full-year organic net sales to be about flat, compared to its previous estimate of a decline of about 1%) after beating Q1 sales and profit estimates; SBH with Q2 sales beat at $926.3M vs. est. $825M with bigger Q2 adj profit amid increased consumer demand; APRN guided Q2 revs to about $122M-$126M, below $131M a year ago period with a Q2 loss of no more than $17M; THS said 1Q comparable sales fell 5% from the year earlier, and total sales for the period of $1.06B are weaker than forecasts from analysts. Volumes fell off compared with 1Q of last year,

·     Restaurants; PZZA Q1 EPS and revs topped views as N.A. comp sales rose 26.2% and International comps 23.2%, both well above consensus of 14.9% and 17.4% respectively; DRI upgraded to Outperform with $164 pt at Cowen as analysis leaves them constructive on Olive Garden sales in fiscal 2023 that they expect to overpower industry-related COGS & labor headwinds to deliver above-consensus EPS; QSR upgraded to Buy with $80 tgt at Argus as expect the company’s emphasis on drive-through purchases to boost revenue going forward

·     Casinos, Gaming, Lodging & Leisure sector; PENN reported Q1 EPS 55c vs est. 29c on revs $1.27B vs est. $1.14B, adj EBITDAR $447M vs est. $394.9M; LESL put up a monster beat and raised full year guidance to account for both a stronger just completed quarter as well on momentum into the next quarter; NCLH reported a wider-than-expected first-quarter loss and revenue that fell more than forecast, while cash burn was in line with forecasts and said it was preparing to return to service this summer; EVRI op- and bottom-line beats versus consensus estimates driven by strength in both its Games and FinTech segments; VAC Q1 adj EPS loss (49c) vs. est. loss (27c) on revs $759M vs. est. $794.77M; SEAS posted a Q1 EPS loss of (57c) that was narrower than expected (78c) loss on revs $171.9M vs est. $125.4M and adj EBITDA $25.2M vs est. ($5.22M) loss; GOLF Q1 EPS $1.13, sales $580.9M, and adj EBITDA $135.3M each beat even the most optimistic analyst estimate, and sees full-year adj EBITDA $255-285M (est. $258.4M) and net sales $1.8-1.88B above est. $1.75B

Energy

·     Energy stock movers; handful of E&P earnings as APA Q1 CFPS was 16% above consensus due to slightly higher production and much lower costs and 1Q21 Upstream capex was 19% below guidance; PDCE Q1 CFPS was 15% above consensus, but 2Q21 oil production guidance was 11% below consensus, capex was 13% below consensus and production was 5.3% below consensus; WLL Q1 CFPS was $0.91 above consensus, total production was 2% above consensus and 1Q21 oil production was 1% above consensus, but 1Q21 capex was $7M above consensus; XEC Q1 CFPS was 3.4% below consensus on slightly higher costs, oil production was 1.8% above consensus, but 1Q21 total production was 0.5% below consensus

·     Utilities & Solar; RUN reported strong 1Q results that exceeded expectations on customer additions and value per subscriber and increased its full year solar energy capacity installed growth outlook to 25-30% (was 20-25%) and its total value creation guidance to greater than $750MM (was greater than $700MM)

Financials

·     Bank movers; GS touched all-time highs today, along with early gains in BAC, JPM as financials paced the S&P 500 higher; in insurance; LNC reported a rise in first-quarter profit, benefiting from higher revenue; ALL EPS beat forecasts due to upside in all major divisions and business trends were healthy; MET another insurer with a beat on adjusted earnings lifting shares

·     FinTech & Payments; PYPL reported a better-than-expected quarterly profit as net income jumped to $1.46B from $786M and boosted year EPS and payments volume; SQ earnings on tap tonight after the close; in consumer Finance; RKT shares plunge as it reported quarterly results that disappointed investors, with in-line quarterly EPS, reported a margin of 3.74% in the first three months of the year, down from 4.41% in 4Q

Healthcare

·     Pharma movers; PFE downgraded to neutral at Mizuho saying delivered a stunning beat and raise 1Q21, with most of the raise driven by the COVID-19 vaccine, but find it more challenging to see clear drivers of meaningful upside; NBIX reported 1Q21 diluted GAAP EPS of $0.33 on revenue of $236.6M, compared to Street estimates of $0.53 and $250.7M, respectively (Ingrezza sales were flat versus 1Q20); EOLS upgraded to Buy at Mizuho saying with the recent weakness in shares, see an attractive risk/reward ahead of the company’s 1Q21 earnings next Wednesday; GBT reported 1Q sales revenue of $39.0M for Oxbryta, falling short of Opco/consensus estimates ($46.4M/$42.8M) with new prescriptions holding steady at ~950 for the quarter.

·     Biotech movers; vaccine makers (PFE, MRNA, BNTX, NVAX) tumbled late Wednesday as officials around the world including U.S. President Joe Biden called for vaccine intellectual property waivers (the WTO has discussed waiving patent rights to boost COVID vaccine supply to developing countries); REGN Q1 EPS $9.89 vs. est. $9.00 and Q1 revs $2.53B vs. est. $2.55B; MRNA posts Q1 revs miss at $1.94B vs. est. $2.22B as R&D expenses rise to $401M from $115.1M YoY; PSNL upgraded to Outperform at Oppenheimer as believe is entering an extended period of high growth as it leverages new functionality to bid on larger pharmaceutical contracts;

·     MedTech Equipment & Healthcare Services; TNDM reported Q1 results that easily beat top-line expectations (EBIT loss was a little higher) – the majority of the quarterly upside was seen internationally, though the domestic business was still strong too; CAH slides on EPS and revs miss ($1.53/$39.3B vs. est. $1.55/$40.1B) amid flat performance in its pharmaceutical segment and higher effective tax rates, while also narrowed its FY21 outlook for adj. EPS to $5.90 to $6.05, from $5.85 to $6.10; ACCD revenue and adjusted EBITDA beat consensus, and the F2022 revenue guide was also ahead of expectations and consensus

Industrials & Materials

·     Defense, Industrial & Machinery; RSG solid Q1, with $797MM in EBITDA coming in nicely ahead of $749MM consensus as beat was driven by solid fundamentals as margins and pricing were all above expectations; WCC with Q1 beat of $1.43 vs. est. 81c and raises FY sales view to +4.5% to +7.5%, from +3% to +6% and eps $6.80 to $7.30, from $5.50 to $6.00; HII beat expectations with an 8.4% segment profit margin in 1Q, but full-year guidance left unchanged

·     Metals & Materials; LIN raises guidance as now expects adjusted earnings per share of $9.60-$9.80, up 17-19% year-on-year – up from prior view of adjusted earnings per share up 11-13% to $9.10 to $9.30 for 2021; FMC reported 1Q21 EPS of $1.53, compared to consensus of $1.51 and on an EBITDA basis, results were also in line, with FMC reporting 1Q21 EBITDA of $307M, compared to consensus of $304M; PCT shares tumble after named as short by Hindenburg research saying it represents the worst of SPACs; CC pulls back from 52-week highs despite being upgraded to Buy at Argus; gold miners rallied with gold prices (NEM, AUY, GOLD, AME)

Technology, Media & Telecom

·     Internet; ETSY shares fell despite a beat on the top and bottom line with attention on Q2 gross merchandise sales (GMS) growth decelerating to between 5% and 15% YoY; FSLY shares tumbled after its CFO departed and the CDN guided Q2 EPS loss wider than expected on lower revs ($84M-$87M vs. est. $91.7M); MELI upgraded to Buy from Hold at Stifel with $1,800 tgt on the back of the strong 1Q performance as we believe growth will prove more resilient against challenging compares than previously expected (Consolidated GMV increased 114% y/y FX-a); in online travel, BKNG posted a narrower-than-expected quarterly loss, but CEO said believes it will be years, not qtrs, before a full recovery of the travel market, especially international travel

·     Software movers; TWLO said losses widened in the first quarter on higher operating expenses, but sales climbed due to continued demand for online communication services; ZNGA raises FY bookings forecast to $2.9 bln from $2.8 bln, slightly above estimate of $2.84 bln and also says it will buy mobile game ad network Chartboost for $250 mln; CTSH Revenue and EPS beat expectations but tax-adjusted EPS was in-line; QLYS reported solid Q1 with revenue, margin, EPS and cash flow beating Street’s estimates and its guidance and also raised its FY21 guidance; TRMB reported 1Q EPS of 66c vs. street of 55c, with the beat driven by better than expected revenues and margins across all segments ex. Transportation; ANSS Q1 ACV of $319.4M, or 6.1% y/y growth on a reported basis, below consensus expectations of $333.4M, or 10.7% growth

·     Communication, Components & Services; ADTN 1Q21 operational results came in slightly ahead of expectations and EPS beat strongly on $3mn of investment and other income; BAND posted strong Q2/20 results ahead of consensus expectations as revs of $113M was 5% ahead of $108M forecast with better-than-expected profitability; in optical, IIVI shares slid early as posted a Q3 beat but provided a downbeat profit outlook for the current quarter

·     Telecom, Media movers; FOXA reported strong 3Q-FY21 results, with broad-based strength and upside driven by accelerating affiliate revenue growth, rebounding advertising trends, impressive momentum at Tubi and other digital assets, very strong margins, and robust FCF; VIAC Q1 adj EPS $1.52 beat the $1.22 estimate on better revs of $7.41B as streaming revenue rose 65% to $816 million, with global streaming subscribers increasing 20% to 36 million; AMT 9M share Secondary priced at $244.75; SBGI, CMCSA, DIS – NBCUniversal has explored putting its regional sports channels on the streaming service Peacock or selling them off, as the company tries to figure out a future for a business under increasing stress WSJ reported midday