Closing Recap

Thursday, November 04, 2021

Equity Market Recap

·     Stocks just keep going higher! New record highs for the S&P 500 and Nasdaq Composite while the Russell 2000 and Dow Jones Industrials and Transports take a small breather. Large caps again doing the heavy lifting as the tech surge has no quit to it (relentless power) with the Nasdaq rising for the 9th straight day, its longest win streak since Dec ’19 and hit its 42nd record high of 2021 today, now up 5.5% above its 20-day MA and is pacing for its 5th straight positive week. Strength broad based, but none hotter than semiconductors, as the Philly semi-index (SOX) crushing prior all-time highs of 3,592 coming into the day, topping 3,700 behind QCOM earnings, and continued NVDA and AMD upward momentum (each setting new all-time highs). Meanwhile, the S&P 500 rises for its 15th gain in the last 17 trading days and 6th day of gains in a row as investors keep chasing winners and continue to be rewarded without any signs of concern. Even after the Fed’s well-telegraphed asset tapering news yesterday (will reduce its purchase of Treasury securities by $10B per month and MBS by $5B per month from its current monthly rate of at least $80B for Treasuries and $40B for MBS), and rising rate hike fears creeping into the first half of 2022, market optimism remains strong. Rising inflation fears, supply concerns heading into the holiday quarter also not a concern currently for markets.

·     Stock/sector movers: MRNA plunges after missing on the top and bottom line and lowered its forecast for vaccine sales; NVAX (reports tonight), BNTX PFE follow lower; Philly semi index (SOX) crushing prior all-time highs of 3,592 coming into the day, now up 2.5% or 90 points at 3,680 behind $QCOM earnings, NVDA and AMD upward momentum, $QRVO standout to downside on its weak Q3 guide; FSLY extends its rally over the past month after its beat last night, ROKU slides to lowest levels since May on its weak guidance due to supply chain disruptions; ETSY leaps to ATH on its quarterly growth while $W drops sharply on its revenue miss and guidance in e-commerce, while video game makers EA TTWO rose after both raised annual sales forecasts; among reopen plays, BKNG H gain on beats and recovering trends, PLNT soars to record highs, MGM shares top $50 for the first time since 2008; sports gaming names PENN BALY both slide on misses; PZZA, DIN both rocket on strong comp sales and revenue; COST hits new ATHs after reporting October comp sales, VSTO spikes to 5-year highs after its blowout quarter/guide.

Economic Data:

·     Weekly jobless claims fell to 269K in latest week, below the 275K estimate while the prior week was revised to 283K from 281K; the 4-week moving average fell to 284,750 from 299,750 prior week; continued claims fell to 2.105M from 2.239M prior week; the U.S. insured unemployment rate fell to 1.6% from 1.7%

·     U.S. Q3 non-farm productivity fell -5.0%, missing the -3.0% consensus and sharply lower from the Q2 rise of +2.4%; U.S. Q3 non-farm unit labor costs surge +8.3% from +1.1% in Q2 and came in above consensus of +7.0%

·     The U.S. trade deficit widened in September to a record (-$80.9 billion), driven by climbing demand for capital goods like computers and electric equipment and industrial supplies that have been soaring in cost as global supply chains remain snarled. The deficit in trade of goods and services widened 11.2% in September. Imports rose by 0.6% to $288.5 billion, while exports fell by 3% to $207.6 billion

Commodities, Currencies & Treasuries

·     U.S. crude futures fall more than $2.00, down 2.54% at $78.81 per barrel while Brent drops -$1.45 or 1.77% to settle ay $80.54 per barrel despite OPEC decision not to pump more (which. was widely expected). Gold futures ended sharply higher, with prices rising $29.60 or 1.7% to settle at $1,793.50 an ounce, supported by a fall in U.S. Treasury yields in the wake of Wednesday’s decision by the Federal Reserve to taper bond purchases by $15 billion a month.

·     Treasury yields tumble yet again as both bonds and stocks surge: the U.S. two-year Treasury yield falls to session low below 0.4%, lowest since Oct. 21 (recall topped 0.51% last week), while the U.S. Treasury 5-year yield falls 10 basis points to 1.088% and 10-yr yield down at 1.51% at lows before paring losses. A big surge for the U.S. dollar, gaining more than 1% vs, the British Pound after the Bank of England unexpectedly left interest rates unchanged. Stronger economic data also helped bolster the greenback.

Sector News Breakdown

Consumer

·     Retailers; KTB 3Q adj EPS $1.28 vs est. $1.03 on revs $652Mm vs est. $615.4Mm; raises FY adj EPS guide to $4.15-4.20 from $3.90-4.00 vs est. $4.12 and sees FY revs growth +high teens to $2.47-2.48B vs est. $2.43B; increased qtrly cash dividend by $0.06 to $0.46; BKE Oct. net sales $96.5m, +24% YoY and Oct. comp sales +23.3%; NuOrion sent a letter to Macy’s (M) demanding the formation of a special committee to evaluate proposals from PE firms to make strategic investments; QRTEA Q3 adj EPS 30c missed est. 49c on revs $3.1B that also missed est. $3.37B, declared a special $1.25 cash dividend; RVLV 3Q EPS 22c vs est. 14c on revs $244.1M vs est. $214.7M; JPMorgan upgraded CPRI to OW and raised their target to $77 from $62; VSTO reported a strong quarter and FY guide with Q2 adj EPS $2.41 vs est. $1.78 on sales $778.5M vs est. $722.7M, sees FY22 adj EPS $7.70-8 vs est. $6.11 on revenue $2.9-2.95B vs est. $2.78B; BGFV Q3 missed on the top and bottom line with EPS $1.07 vs est. $1.13 on revs $289.6M vs est. $314.6M, though Q4 EPS view 55-70c topped est. 50c and issued a special $1 dividend; GIL and HBI also movers off earnings

·     Auto sector; the WSJ reports that TSLA and HTZZ are negotiating over how quickly Hertz will receive deliveries from a bulk order of 100,000 Tesla electric cars for its rental fleet, according to people familiar with the matter. Hertz on Oct. 25 said it had placed "an initial order of 100,000 Tesla’s by the end of 2022." HYZN said it expects to supply 49-ton hydrogen fuel cell heavy-duty trucks for 60-day trial at Sha Steel Group’s operating base in port of Zhangjiagang; in EV space, NKLA posts larger Q3 operating loss and says $125M reserved to fund potential SEC settlement; FSR 3Q EPS ($0.37) vs est. ($0.35) on revs $15,000 and Cowen notes the co has now secured US capacity with Foxconn, battery supply with CATL removing uncertainties.

·     Consumer Staples; ELF Q2 adj EPS 48c vs est. 13c on sales $91.9M vs est. $83.7M and raised FY22 sales outlook to $364M-$370M from $357M-$364M (est. $366.7M), but Piper downgraded shares to Neutral despite the solid quarter as they do not see adequate flow through in EBITDA margin to support an OW rating; Kellogg (K) reported Q3 adj EPS $1.09 above est. $0.93 on revs $3.62B vs est. $3.54B, reaffirmed full-year guide for EPS while raising sales growth forecast to +2-3% from +0-1%; COST Oct. 2021 total company comparable sales up 17.5% vs. est. 12.4%; Oct. U.S. comp sales ex-gas, FX +11.7% vs. est. +7.50%; HBI Q3 adj EPS 53c vs est. 47c on revs $1.79B slightly below est. $1.8B, sees Q4 adj EPS 40-45c on sales $1.71-1.78B whose midpoints are in-line with consensus estimates; GIL Q3 adj EPS 80c and sales $801.6M crushed estimates; REYN reported Q3 adj EPS 33c vs est. 32c on revs $905M vs est. $879.9M, guided Q4 adj EPS 44-51c vs est. 50c and adj EBITDA $170-190M vs est. $177.35M, lowered FY adj EPS range to $1.53-1.60 from $1.54-1.64 as they increased estimated cost pressures to $450M from $400M

·     Restaurants; CAKE 3Q print missed expectations on softer sales & elevated costs, reporting 3Q 2-year SSS of 8.3% (consensus 8.9%), adj. EPS of $0.65 (consensus $0.70) & an operating margin of 4.2% (consensus 5.4%); PZZA announces new $425M share repurchase plan after Q3 EPS and sales beat and comp sales +6.8% vs. est. 4%; SBUX downgraded to Hold at Argus which reflects the impact of rising labor costs, supply-chain challenges, and increased competition as well as weaker comp sales in China (down 7% in 4Q21) as a potential near-term headwind

·     Casinos, Gaming, Lodging & Leisure sector; MGM reported better-than-expected third-quarter results and said it planned to sell the Mirage operations in Las Vegas; HST reported 3Q adjusted EBITDA of $177mn vs est. $134mn, as beat was broad based with higher revenues across segments (rooms, F&B and other) and ongoing stronger cost control; PENN reported Q3 EBITDA $480mm vs est. $537mm, Q3 EPS 52c vs est. 71c on in line revs noting while July was a record month, the second half of August and September was impacted by Hurricanes and Delta; PLNT rises, after missing the last 6 quarters in a row, they finally beat a good quarter and raised FY EPS to $0.75-$0.80 vs prior $0.65-$0.70 on sales of $575M (mid) vs prior $535M.

Energy

·     Energy stock movers; OPEC+ agreed at its meeting Thursday to stick to plans to raise oil output by 400,000 barrels per day (bpd), despite calls from the United States for extra supply to cool rising prices. Top OPEC producer Saudi Arabia has already dismissed calls for speedier oil supply increases from the organization. OPEC+ sources have said the United States has plenty of capacity to raise production itself if it wants to help the world speed up an economic recovery.

·     E&P and Majors; lots of earnings: CPE 3Q beat highlighted by a -16% opex beat that delivered 14% better cash op margin per boe and adjusted FCF of 119mm 50% v. Street; CDEV Solid and largely down the middle 3Q with a 1% oil beat on in-line capex driving a 5% EBITDA and 11% FCF beat v. Street; PXD higher 3Q earnings and FCF than consensus driven primarily by better-than-expected gas production and three stream prices; APA upgraded to Buy at Truist as anticipate near-term upside potential from Egypt, Suriname (non-CF related) Southern Midland, Alpine High & Austin Chalk along w/steady North Sea cash flow; CLR solid 3Q21 post last week’s pre-release with the big news being a $3.25B all cash purchase of select PXD DE Basin assets

·     Utilities & Solar; SPWR swung to a quarterly loss and sales were slightly under expectations ($323.6M vs. est. $333M) and said sees full-year revenue and adj EBITDA below prior guidance; AWK was downgraded to Neutral at Goldman Sachs; DUK reported mixed Q3 with EPS beat but revs of $6.95B miss estimates (reaffirms year guidance); DTE unveils a plan to spend $7B over five years to develop a "smarter and more reliable" electric grid in southeast Michigan.

Financials

·     Bank & broker movers; CME signs 10-yr partnership with Google Cloud to transform global derivatives markets through cloud adoption; FRME and LEVL announced merger agreement by which Level One Bancorp, Inc. will merge with and into First Merchants Corporation in a stock and cash transaction currently valued at approximately $323.5 million.

·     Insurance; MET adjusted profit of $2.1B, or $2.39 per share easily topped the $1.74 estimate, boosted by strong investment gains as total variable investment income more than doubled to $1.41 billion from a year earlier; ALL Q3 adj EPS 73c missed est. $1.67 on revs $12.5B vs. est. $10.59B, property-liability written premium $11B (+16.7% YoY), combined ratio reported 105.3% vs est. 97.4%, and was downgraded to Outperform from Strong Buy at Raymond James; LNC Q3 adj EPS $1.62 missed est. $2.57 on sales $2.7B vs est. $4.81B, BVPS including AOCI $113.77 (+2%), BVPS excluding AOCI $76.96 (+8%); TRUP Q3 EPS (17c) vs est. (18c) on revs $181.7M vs est. $177.6M, total enrolled pets +37%, subscription enrolled pets +22%; Atlantic downgraded AON to Neutral after its extraordinary share price movement since cancelling its WLTW merger in July with its PE and relative PE now at record highs, and remained OW on AJG, MMC who trade modestly above their historic average PE relative multiples

·     Bitcoin, FinTech & Payments; SQ shareholders have approved the issuance of new shares for the U.S. company’s $29 billion purchase of Afterpay Ltd; NRDS 7.25M share IPO priced at $18.00

Healthcare

·     Pharma movers; MRK said Britain’s medicines regulator authorizes oral COVID-19 antiviral pill developed by the company and partner Ridgeback Biotherapeutics, the first country to clear therapy; NVS announced an agreement to sell its 53.3M (nearly 33%) Roche (RHHBY) bearer shares to Roche for a total of $20.7B in a bilateral transaction; ANIP 1.50 mln common shares priced at $50.00/share; MDXH 3.75M share IPO priced at $12.00; ZTS posted Q3 well above expectations, raises FY guidance; ALXO tumbles after releasing evorpacept study data in myelodysplastic syndromes

·     Biotech movers; MRNA slides after 3Q miss EPS $7.70 vs est. $9.05 on revs $5.0B vs est. $6.2B and weaker guidance as sees year revs $15B-$18B vs. est. $19.87B; REGN big earnings beat as Q3 adj. EPS $15.37 beats $9.49 estimate, sales rise 51% YoY to $3.45B and beats $2.79B estimate and $804M attributable to REGEN-COV; CRSP announced Q3 earnings and delayed data for BCMA/CD70 to next year to incorporate consolidation dosing; SAVA said it has been informed by the Journal of Neuroscience that there is no evidence of data manipulation in an article it published in July 2012 describing a new approach to treating Alzheimer’s disease1; SGMO rises after reports promising preliminary data from early-stage study of ST-920, its treatment candidate for Fabry disease

·     MedTech Equipment; TNDM delivered 3Q21 revenue of $179.6M (up 45% y/y) which was above consensus’ $171.4, although the $8M beat was less than the last few quarters weighing on shares; in ortho, ZBH reported 3Q results, with revenue of $1.92B (vs. $1.94B cons), with Hips light of consensus, and the company noting continued challenges and market pressures in the 3Q – in-line with recent commentary/results from peer SYK (ZBH also lowered its ’21 guidance)

·     Healthcare Services; CI reported better-than-expected Q3 profit and modestly raised its full-year adjusted profit forecast, on the back of growth in its health services unit; ABC swung to a Q4 profit, as the drug distribution company moved past expenses related to opioid lawsuits, and revenue that rose above expectations; LHCG results were generally in line with last month’s pre-release, reflecting previously disclosed trends seen from other HHC providers; CCRN reported upside 3Q results and guided 100%+ ahead of consensus for 4Q revenues and EBITDA; ONEM 3Q results marked by top and bottom-line beats, solid membership growth and increased guidance (sees Q4 revs $213M-$222M vs. est. $150M)

Industrials & Materials

·     Aerospace & Defense; KTOS posted 3Q21 adjusted EPS of $0.09 and adjusted EBITDA of $24M, both ahead of expectations, but total revenue growth was down 1% and the company lowered its full year 2021 revenue and EBITDA guidance; SPIR announced that it has been included as a subcontractor in an award contract between Harris Miller & Hanson Inc. and NASA

·     Industrial & Machinery; in machinery, CNHI slips after sounded a cautious note on its 2021 outlook due to supply chain issues, after its operating profit almost doubled in Q3 – said its 2021 revenues were now seen at the lower end of the range it provided three months ago; PWR 3Q adj EPS $1.48 vs est. $1.45 on revs $3.4B vs est. $3.4B; guides FY revs $12.55-12.85B vs est. $12.49B, sees FY adj EBITDA $1.21-1.26B vs est. $1.9B and FY adj EPS $4.62-4.87 vs est. $4.59; says long-term outlook positive; ADSW raises year rev view and backs its adj EBITDA outlook after Q2 results missed estimates

·     Metals & Materials; CF posts revenue that misses expectations, though the company says its outlook for the nitrogen industry is positive for several years to come/said crop prices look to remain high through 2023, which should support strong plantings and fertilizer use; lithium producer ALB lifts its FY outlook for EPS to $3.85-$4.15 from a previous view of $3.60-$4.00, above $3.61 analyst consensus estimate, and adjusted EBITDA to $830M-$860M from $775M-$815M previously after topping Q4 estimates; BLL 3Q adj EPS $0.94 vs est. $0.99 on sales $3.6B vs est. $3.54B; says expanding 2021 return of value to shareholders to $1B in addition to over $1.5B CAPEX and anticipates returning $2B to shareholders in 2022; RS was upgraded to Buy and $190 tgt at Goldman Sachs and raise estimates to account for higher anticipated pricing realizations in 4Q21 and 2022.

Technology, Media & Telecom

·     Internet; BKNG jumps reported gross bookings that beat analysts’ forecasts, as an increase in Covid-19 vaccination rates helped spur a rebound; FSLY reported a mixed quarter with results above consensus leading shares higher while organic revenue growth remains pressured at up 9% Y/Y; online retailer Wayfair (W) shares slip after guiding revenue down 10%, 4Q EBITDA margins 350bps below consensus and said it could take a few quarters for e-commerce growth to return; ETSY Q3 GMS growth of 18% accelerated from 13% in Q2, along with EPS/sales beat

·     Semiconductors; QCOM tops expectations for Q4 revenue and profit and forecast Q1 profit and revenue to beat estimates on strong demand for chips used in phones, cars and internet-connected devices (upgraded to Buy at Goldman Sachs); QRVO delivered strong quarterly results for the September quarter but provided December quarter guidance that was below consensus expectations, primarily driven by challenges related to ongoing supply constraints; DIOD reported better than expected revenue for 2Q driven by broad-based strength which drove record segment revenue across most categories; NVDA new record highs, price target is raised to $320 from $245 at Wells Fargo, as metaverse represents a sizable opportunity for the chipmaker; INFN reported revenue largely in-line with consensus

·     Software movers; PING reported a very solid 3Q, led by ARR growth of 19% Y/Y that modestly exceeded the Street’s +18% forecast; RPD reported an impressive 3Q, led by ARR growth of 38% that easily exceeded the Street’s 33% forecast; PTC reported Q4 results that beat expectations, with higher margins, as recovering end-markets drove solid bookings growth and healthy organic ARR growth of 12%; HUBS 3Q billings ($353M / +43% y/y or 45% cc) and revenue ($339M / +49% or 47% cc) were again well ahead of consensus estimates ($343M / $327M). Revenue surpassed high investor expectations ($359M vs. ~$335M); QLYS delivered a good quarter, with all metrics ahead of expectations and results driven by increased adoption of VMDR, which now accounts for ~32% of customers and >40% of LTM bookings; UPLD delivered top-line revenue growth of 3% (vs. Street at 5%) in 3Q coming in at the lower end of guidance as miss was driven by a deceleration in volume-based messaging activity and limited net new logo traction; KNBE upgraded to Buy at Goldman Sachs following another strong quarter for execution

·     Video gamers; EA and TTWO each boosted their 2021 adj sales forecasts – TTWO raised its annual adjusted sales outlook to between $3.3 billion and $3.4 billion, citing strong demand for its key franchises "Grand Theft Auto V", "NBA2K" and "Red Dead Redemption 2." EA F2Q22 EPS of $1.58 beat consensus of $1.17, Net bookings of $1.85 bn beat consensus of $1.73/$1.76 bn

·     Hardware, Components & Services; NPTN to be acquired by LITE for $16 per share or about $918M in cash, a 39% premium to Wednesday close (optical names LASR, AAOI active In sympathy); SKLZ reported in-line/miss on revenue and EBITDA, while reaffirming FY21 revenue guidance

·     Media & Telecom movers; ROKU guided Q4 total revs $893M, well below estimates of $944.4M and expects product development and new hires to increase operating expenses on a sequential basis/says it expects global supply chain disruptions to likely continue into 2022; MTCH reported revenue in-line and EBITDA 3% above consensus but lowered 4Q implied revenue guidance by ~$25mn, of which $20mn is attributed to continued weakness from Hyperconnect; VIAC posted a Q3 rev beat on in-line EPS amid strength in its streaming and TV entertainment businesses as it added 4.3M global streaming subs to about 47M; MGNI reported adjusted Q3 revenue that lagged behind the average analyst estimate; LBRDK Q3 EPS misses by $0.56, beats on revenue; FOXA posted strong 1Q-FY22 results with better-than-expected advertising revenue, margin upside, and momentum with its streaming/digital assets