Closing Recap

Tuesday, November 02, 2021

Equity Market Recap

·     Another broad market rally as major averages touched record highs at some point, including the S&P 500, the Dow Jones Industrials, and the Nasdaq Composite (S&P rises a 4^th straight day, Nasdaq a 7^th straight day), while the Russell 2000 trades a new record (takes out March high of 2,360), and the Dow Transports crushed its all-time level behind irrational trading activity in one of its components (CAR) after earnings results (more on this later). The Dow Jones topped $36K for a second day (yesterday high was 36,009) led by healthcare (AMGN, MRK, JNJ). The Dow Transports rose as much as 14% or 2,265 points at 18,200 – single handily due to the unexplainable reaction post earnings in one of the index components, Avis (CAR), which surged over 200% topping $545 per share at one point before paring gains (reminiscent of the “meme” stock trading names in the beginning of the year GME, AMC – but this time single handily moving a MAJOR INDEX). The S&P 500 advances for the 13^th time in last 15-sessions with absolutely no concerns heading into the FOMC meeting tomorrow for investors (VIX below the 16 level). The Federal Reserve is expected to approve plans to scale back its $120 billion monthly bond-buying program on Wednesday (but no expectations for talk about interest rate hikes anytime soon). No clearer picture on the spending bills in D.C., but that too had no impact on markets.

·     Stock/Sector movers: CAR shares more than tripled at morning highs following its strong earnings report last night to single-handedly lift the IYT Dow Transports index to its own record high; today’s run capped off a remarkable run for the stock as its high was +1361% YTD, +1686% over the past year, and +8484% off its March 2020 low; CHGG shares went the opposite direction, losing almost half their value after slashing its FY revenue forecast; staples outperform post-earnings with CLX rising on its beat, MCK jumping to 6-yr high on its beat/raise, and EL surged on its quarterly beat after opening lower on lowered guidance; in retail, UAA surged on its beat with guidance much stronger than expected, while RL sunk despite its beat; payment space generally weak after GPN tumbled to 52-week lows on its guidance miss, dragging FIS to its 52-week low; TEVA, ENDP, JNJ, ABBV rally after a California judge ruled counties suing the companies for fueling the opioid epidemic failed to prove their case; ZG continue to be pressured, now down over 20% over the past 2 days as analyst are cautious into tonight’s earnings report.

Commodities, Currencies & Treasuries

·     Oil fell declined as WTI Crude dips -$0.14 or 0.2% to settle at $83.91 per barrel, but still not far off its recent three-year highs ahead of the OPEC+ meeting on Thursday and weekly inventory data tomorrow (EIA). U.S. crude inventory data is expected to show a rise of 1.6 million barrels tomorrow morning, adding to the recent build in stockpiles. On Thursday, the alliance is expected to stick to its plan for gradual, monthly production increases of 400,000 barrels per day. Oil prices have surged in 2021 with Brent up more than 60%, hitting a three-year high of $86.70 last week as global demand has recovered. 

·     Gold prices fell, slipping -$6.40 or 0.4% to settle at $1,789.40 an ounce, as the U.S. dollar and equities firmed ahead of Wednesday’s FOMC meeting results that is expected to provide a timeline on interest rate hikes amid rising inflationary pressures and the start of its $120B asset purchase plan. Precious metal prices have lagged of late given the “risk-on” mentality for investors, scooping up stocks at every turn. However, recent inflation concerns have limited the downside in gold and helped buying interest.

·     The U.S. dollar edged higher with the dollar index (DXY) up about +0.2% back above the 94 level as the euro holds below 1.16 and the JPY/USD below 114 ahead of the FOMC meeting. Treasury yields also relatively calm (when compared to stocks) ahead of Powell tomorrow with the 10-year yield 1.54%, down 3 bps and the 2-yr slipping in recent days to 0.45% (after hitting 0.52% last week – highest since March 2020).

Sector News Breakdown

Consumer

·     Retailers; UAA shares rose after posting a quarterly beat with raised guidance, as Q3 adj EPS 31c more than doubled est. 15c on revs $1.55B vs est. $1.48B, and now sees FY adj EPS about 74c from 50-52c (est. 55c) on revenue growth of about 25% from low-20s%; RL Q2 adj EPS $2.62 vs est. $2 on revs $1.5B vs est. $1.47B, total comp sales +23% vs est. +10.7%, sees Q3 revs +14-16% YoY vs est. +12.3% with FY growth now expected to be +34-36% from +25-30%, expects to resume buybacks in 2H; SKX downgraded to Hold from Buy at Argus based on current supply-chain challenges; OTTR raises FY21 EPS view to $4.05-$4.20 from $3.50-$3.65 after mixed Q3 results (EPS beat but sales missed); Wells said earnings season is so far showing almost all companies missing Q3 revenues with Q4 top-line outlooks reflecting supply chain headwinds, though the market is shrugging off misses, with Top Picks consisting of SIG, BBWI, TDUP, FTCH in their secure supply chain bucket and CPRI, GPS who are too cheap to ignore; AEO acquired Quiet Logistics for $350M in cash to further enhance its supply chain capabilities

·     Auto sector; TSLA falling off a record high close of $1,208.59 – follows tweet from CEO Musk overnight saying there has been no contract signed yet with Hertz and that the Hertz deal has zero effect on Tesla’s economic. Separately, Tesla is recalling 11,700 U.S. Vehicles because communication error may cause a false forward-collision warning or unexpected activation of the operating software — notice filed with NHTSA; RACE Q3 adj Ebitda 371M vs. est. 365M and revs EU1.05B vs. est. EU1.04B with upward revisions to guidance; Toyota (TM) said N.A. U.S. sales in Oct fell -29% with Toyota sales down -31% and Lexus down -15%; Hyundai reports sales in the U.S declined 1%Y/Y to 56,761 units in October; retail sales +1% to 52,767 units.

·     Consumer Staples; CLX Q1 EPS of $1.21 tops the $1.03 estimate on better revs ($1.81B vs. est. $1.7B) as posted weaker margins but reaffirms year EPS outlook; EL Q3 EPS beat by $0.20 on better sales of $4.39B vs. est. $4.25B, but lowers its ’22 sales forecast to +12% to +15%, from prior +13% to +16%; beauty names active after Estee Lauder Q3 sales terrific at +18% y/y after Loreal’s +21%

·     Casinos, Gaming, Lodging & Leisure sector; in leisure/services, CHGG tumbles more than 40% after earnings show miss on sales and the holiday forecast, CEO says that enrollment did not bounce back as anticipated, and students are taking less rigorous courses; LCII Q3 EPS $2.49 vs est. $2.47 on sales $1.2B vs est. $1.08B

Energy

·     Energy stock movers; Oil steadied near $84 a barrel on Tuesday, not far from a multi-year high, supported by signs that supply from OPEC and other producers is falling short, although expectations of a rise in U.S. inventories was weighing. BP forecasted that global oil demand will exceed pre-Covid levels in 2022. Japan said it’s looking at measures to stabilize the oil market with the U.S. and IEA. Brent prices topped $86 for the first time in nearly three years as oil prices have now climbed nearly 63% this year

·     E&P and Majors; COP Q3 EPS $1.77 vs est. $1.52 as it benefitted from a rebound in crude prices to pre-pandemic levels and its purchase of Concho Resources last October, and raised its dividend to 46c from 43c; FANG Q3 adj EPS $2.94 vs est. $2.77 on revs $1.91B vs. est. $1.53B, raised its full-year production guidance, and raised its quarterly dividend to 50c from 45c; BP Q3 underlying replacement cost profit $3.3B vs est. $3.06B, though it reported a quarterly loss due to an accounting issue related to hedges, on revenue $37.87B vs est. $38.95B, and said it plans to buyback $1.25B of shares; MGY Q3 EPS 67c vs est. 61c on revs $283.6M vs est. $274M; Truist downgraded XOM to Sell as forecasts suggest metrics could be less per share than other large operators, estimate shares trade at more than a 10% premium versus its closest peers, and do not see the company making as big of strides in the energy transition due to its late start

·     Refiners & Pipelines: WMB reported Q3 adjusted earnings and revenues that comfortably beat expectations and raising full-year adjusted EBITDA guidance; MMP Q3 adj EPS $1.09 vs est. $0.97 on revenue $639.1M vs est. $607.1M, raised FY21 distributable cash flow guidance to $1.1B from $1.07B; MPLX Q3 EPS 74c vs est. 71c on revenue $2.56B vs est. $2.35B; CVI Q3 EPS $0.83 vs est. ($0.04) on revenue $1.9B vs est. $1.73B; MPC Q3 adj EPS 73c vs est. 71c on revs $32.61B vs est. $25.65B

·     Utilities & Solar; FE says its three Ohio utilities reached a settlement to resolve several proceedings under consideration by the Public Utilities Commission of Ohio to provide $306M in refunds to utility customers in the state; OGS upgraded to Buy at UBS after shares have fallen 15% in part due to fears around securitization outcomes; FCEL and XOM extend joint-development agreement for carbon capture technology; PCG reported 3Q EPS below consensus and our estimates, reiterating 2021 guidance and capex plans through 2026

Financials

·     FinTech & Payments; GPN stock tumbles after the payment processing company’s FY2021 revenue guidance trails the consensus estimate even after Q3 results beat the consensus (latest of payment names pressured post guidance – followed recent FISV weakness) – lifts lower end of 2021 adjusted net revenue guidance range to $7.71B from $7.70B and keeps the upper end at $7.73B; that’s lower than the consensus estimate of $7.74B (FIS, SQ, PYPL weak)

·     Consumer Finance: DFS upgrade from Neutral to Buy w/ $138 at Seaport; CACC delivered sizable earnings beat that was entirely attributable to lower-than-expected provision expense and forecasted losses according to JMP; CURO EPS beats guidance on revenues, provisions; raised Canada guide

·     Services, Bitcoin news; overall crypto sector jumps again with Bitcoin at $64K, and ethereum topping $4,500; OLB surged as announced Tuesday that the company is prepared to process MA Bitcoin payments; EVER slides after posting a larger-than-expected Q3 EPS loss and guided next qtr revs $93.5M-$98.5M, below est. $105.8M and was downgraded at JPMorgan following results

·     REITs; ABR 7.5M share Spot Secondary priced at $19.70; big night of earnings with VNO Q3 FFO beats by $0.08, beats on revenue; SPG Q3 FFO easily tops views and raises its year FFO per share view to $11.55-11.65 from $10.70-10.80; ADC earnings beat and raised acquisition guidance; additional growth into ground lease assets; O reported 3Q AFFO of $0.91, in line with the Street and FFO came in at $0.89, $0.02 below the Street, while increases 2021 guidance

Healthcare

·     Pharma movers; A California judge said he would rule against several large counties that accused four drugmakers (TEVA, JNJ, ENDP, ABBV) of fueling an opioid epidemic, saying they had failed at trial to prove their $50 billion case; Dow component PFE raised full-year expectations for sales of its Covid-19 vaccine after Q3 sales topped estimates (also lifted Covid vaccine maker partner BNTX initially); BHC reports earnings and said it plans to spin off its medical aesthetics business in the next three months; NBIX reported Ingrezza 3Q21 sales of $286.5MM, slightly above consensus as it saw its largest Ingrezza TRx total (52,000, +6% Q/Q) and highest NRx number since last March and guides Q4 Ingrezza sales of >$300MM, in-line with ests; ACHV announced FDA clearance of its IND for ORCA-V1, the planned study of cytisinicline as a cessation treatment for vaping/e-cig use; MRK a Dow leader, topping $90 and trading at a new all-time high.

·     Biotech movers; LEGN slips after the FDA has extended the PDUFA target date by 3 months for the company’s lead asset Cilta-cel, from Nov. 29, 2021, to Feb. 28, 2022; CLNN slides over 30% after saying its phase 2 trial evaluating a drug for people with early amyotrophic lateral sclerosis didn’t meet primary or secondary endpoints; EQ said Itolizumab was well tolerated at doses ranging from 0.4 to 2.4 mg/kg; SAGE shares tumble over 6% after earnings and as announced the resignation of its chief medical officer today

·     MedTech Equipment; NVRO is expected to pay $20 million to BSX after a Delaware jury found that the medical device company had infringed on two Boston Scientific patents; HOLX delivered revs of $1.317B (-2.3%, -2.9% xFx) and adj. EPS of $1.61, vs. consensus of $1.013B/$1.00; OSUR said the FDA amended earlier emergency use authorization (EUA) for its Inteliswab COVID-19 rapid tests to only require one test for individuals with symptoms of COVID-19; BRKR 3Q revenue of $609mn beat consensus of $575mn and 3Q EPS of $0.57 beat est. of $0.44 as total growth of 19.1% came in well above consensus of 12.5%; SMLR tumbles as reported lower than forecast 3Q revenue and earnings due to modest softness in fee per test revenue

·     Healthcare Services; in distributors, MCK Q2 adj EPS $6.15 vs est. $4.66 on revenue $66.6B vs est. $63.12B; raises FY22 adj EPS view to $21.95-$22.55 from $19.80-$20.40 (est. $20.32); HSIC Q3 EPS ahead of expectations ($1.10 vs $96c est.), driven by better net sales ($3.18B vs $2.95B est.) and mgmt sees adjusted EPS of $4.27 to $4.35, saw at least $3.85, consensus estimate $4.33; BHG downgraded to Market Perform at Cowen and cut tgt to $9 from $14 citing near-term MLR risk, accelerating competition in 2022 ACA, and failure to achieve its targeted four-star MA rating for 2023; Congressional Democrats and the White House reached an agreement on a plan to lower prescription drug prices on Tuesday, U.S. Senate Democratic leader Chuck Schumer said.

Industrials & Materials

·     Industrial & Machinery; CMI EPS misses by $0.20, beats on revenue while lowering its full year 2021 revenue guidance to be up approximately 20% YoY and consensus growth of 21.93% Y/Y, compared to prior guidance of up 20%-24% and EBITDA is now expected to be approximately 15.0% compared to previous guidance of 15.5%-16% of sales; HSC slides as revenue and EPS below expectations due to supply chain issues and reduced demand in Rail as well as hazardous waste bottlenecks in Clean Earth; ETN Q3 adj EPS $1.75 vs est. $1.73 on sales $4.92B that missed est. $5.02B, sees Q4 adj EPS $1.68-1.78 vs est. $1.74, lowered full-year organic growth forecast to +9-11% from +11-13%; ROK Q4 adj EPS $2.33 vs est. $2.16 on revs $1.81B vs est. $1.91B, sees FY22 adj EPS $10.50-11.10 better than est. $10.22 on sales growth +16-19% vs est. +11.2%, organic sales growth +14-17%; WBT adj EPS 21c vs est. 18c on sales $411.5M vs est. $37.9M; PLOW Q3 EPS 29c and revs $127.6M missed consensus, narrowed FY21 revenue view to $525-565M from $520-580M and EPS view to $1.40-$1.90 from $1.40-$2.20; LPX Q3 adj EPS $3.87 vs est. $3.41 on sales $1.22B vs est. $1.11B, authorized additional $500M for buybacks; SRCL Q3 results failed to beat analysts’ estimates.

·     Transports; unexplainable action in Dow Transport index, surging above the 17,000 level (prior high 16,170), or over 5% at one point, all on the back of unusual trading action in one of its components; CAR surged over 215% topping $545 per share at one point before paring gains following a blowout quarter as Q3 adj EPS $10.74 crushed the $6.52 estimate and Q3 revs $3.0B vs. est. $2.71B were driven by increased revenue per day and rental days; in logistics, GXO reports beat and raise; The Baltic Exchange’s dry bulk sea freight index slipped to its weakest in about three months as the overall index, tracking rates for Capesize, panamax, Supramax vessels, dropped 241 points, or 7%, to 3,187.

·     Metals & Mining; FCX announces new $3B share repurchase authorization and addition of variable cash dividend on common stock; AA upgrade from Hold to Buy with $60 tgt at Jefferies saying the outlook for aluminum has become more positive as the global push for decarbonization is intensifying; CLF, BHP, RIO, VALE trade sharply lower as iron ore futures extend losses below $100/ton on shrinking steel production in China.

·     Chemicals; DD and WLK shares active post earnings; MOS shares fall after Q3 EPS missed by $0.20 on light revs $3.4B vs. est. $3.66B, though said it expects strong demand for fertilizers through the rest of the year, bolstered by agricultural commodity pricing trends (but warned of higher costs for raw materials); NTR reported a beat and raise for Q3 and FY EPS and Ebitda in the fertilizer sector; OLN announces new $1B share repurchase program; IPI plunges

Technology, Media & Telecom

·     Internet; GRPN announced a new U.S. distribution arrangement with GOOGL as the new distribution partnership will make Groupon’s local experiences and travel inventory available in the Google Pay mobile app; in online travel, EXPE downgraded to Neutral at Atlantic Securities as expect stock performance to be primarily driven by operational execution, creating a higher risk profile for the stock; SABR 3Q adj EPS ($0.50) vs est. ($0.55) on revs $441Mm vs est. $445.9Mm, not giving guidance at this time; YY double downgraded to Sell from Buy at Goldman Sachs saying it is likely to see its growth rate fall sharply into the low double digits starting 3Q21E from 140% five quarters ago; BIDU falls as the company plans for ‘extraordinary’ shareholders meeting; NFLX said that it is taking its first step in launching Netflix games on mobile to the world. Starting today, members everywhere can play five mobile games

·     Semiconductors; Philly semi index (SOX) came into the day at new record highs above the 3,500 level as chips still soaring; CRUS solid beat and raise driven by increased content from a higher attach of the camera controller and the power conversion IC and guidance mid-point above views (good for SWKS, QRVO other Apple suppliers; NXPI with a Q3 beat raise top and bottom and better GM+OM – Truist said delivered Q3 sales of $2,861m, 0.3% above consensus of $2,851m as all end markets were within a few percentage points of our model; RMBS weak Q3 results; HLIT reported 3Q eps, revs EBITDA Better, guided 4Q higher

·     Software movers; VRNS reported 3Q eps, revs, billings in line, guided 4Q higher; ZI reported another strong quarter, its fifth consecutive period of top-line acceleration to 60% Y/Y (54% organic) from strong enterprise penetration, up-/cross-sales and international expansion; ZBRA reported 3Q eps, revs, EBITDA better guided 4Q higher; MSFT said it is planning future metaverse apps for Xbox, Gaming – Bloomberg reported

·     Hardware, Components & Services; ANET share surge following solid 3q21 results, 2022 growth well ahead of expectations as guided for ~30% revenue growth in 2022 vs Goldman Sachs forecast for 12%; the Nikkei reported that AAPL cut production of iPad by 50% from its original plans for the past two months to allocate more chip components to the iPhone 13, Nikkei reports, citing unidentified people; ROG rises after the WSJ reported DD is nearing a deal to buy the electronics-materials specialist w/a mkt value of nearly $4B https://on.mktw.net/3GL1CqQ; KD will replace NTCT in the S&P midcap 400, and NetScout systems will replace IVC in the S&P Smallcap 600; FN posted a strong CY3Q (1QFY22) print with 24.4% Revenue growth driven by Optical up 7% ahead of forecast on a 29% increase in Telecom Optical products

·     Media & Telecom movers; SBAC reported strong 3Q21 results and raised its 2021 guidance; LYV tgt raised to $120 from $100 at Cowen ahead of earnings and raising FY21 revenue/AOI estimates on upward revisions to Q3 North America show counts and revenue per fan; ADTN reported 3Q eps, revs light