Closing Recap

Tuesday, November 16, 2021

Equity Market Recap

·     It was another “melt-up” kinda day on Wall Street as major averages once again approached all-time highs behind strong economic data and retail earnings as investors continue to look the other way when it comes to inflation and warnings signs the Fed may have up their policy sooner than expected to offset surging prices. Markets also remain unconcerned about the upcoming debt ceiling limit the first week of December after Washington politicians “kicked the can” down the road last month. Consumer stocks helped lead the way behind better Home Depot results and as Walmart forecast a strong holiday quarter (despite shares falling on a beat and raise quarter). Large cap technology stocks remain market leaders, with the Philly semi-index (SOX) touching a new record high. Market momentum in the electric vehicle space continued with big advances for Lucid (LCID) and Rivian (RIVN) along with Tesla (TSLA). Economic data showed retail sales rose in October as Americans appeared to have started holiday shopping early amid supply chain concerns, giving the economy a lift at the start of the fourth quarter.

·     Stocks and Sector movers: HD among leaders in the S&P and Dow, hits record highs after its strong earnings and comps with LOW also hitting its own record high ahead of tomorrow morning’s earnings; WMT shares slide despite its beat and raise, and its peer TGT was slightly higher ahead of its own report tmrw AM; ONON surges to its record high after a beat in its 1st quarterly report as a public company, PLBY spikes to its highest since July 1 on its beat; among earnings decliners, JMIA sinks to 52-week lows after its Q3 loss more than doubled since last year, BODY hits record lows after its revenue miss and guidance cut draws downgrades from Baird and Guggenheim; reopen names among the worst S&P laggards after NCLH announces an offering last night and Goldman downgraded LUV weighs on those names; in auto space, LCID, RMO soar while ZEV, FUV roll after earnings, QS drops sharply on a Morgan Stanley downgrade, and RIVN climbs again to record highs more than double its $78 IPO price as EV sector busy again (RIVN becomes 3^rd largest auto name by mkt cap only behind TSLA, TM, while LCID mkt cap of $83B tops that of Ford (F); PTON moves lower in pre-market trading after announcing a $1B stock offering, but shares rally back towards their post-earnings levels from November 5; ATVI plummets midday after the Wall Street Journal reported its CEO failed to inform the board of some sexual misconduct reports against supervisors (ATVI defended itself); RBLX gains over 10% during its Investor Day to hit record highs; FSLR falls on negative ITC Solar judge ruling.

Economic Data:

·     Retail sales for October rose +1.7% MoM, topping the +1.0% consensus and +0.8% prior month reading while Retail Sales ex-autos strong up +1.7% MoM, topping the +0.9% estimate (prior month revised to +0.7% from +0.8%); ex-Auto & Gas: +1.4% MoM vs. est. +0.8%; Oct retail sales ex-gasoline +1.5% vs. Sept +0.6%

·     Import Prices for October rise +1.2% vs. est. +1.0% (Sept unchanged at +0.4%); while U.S. Oct export prices rise +1.5% vs. est. +0.9% (Sept +0.4% vs. prior +0.1%); Oct year-over-year import prices +10.7%, export prices +18.0%

·     Industrial Production for October rose +1.6%, topping the consensus estimate of +0.8%; Capacity Utilization +1.2% at 76.4% vs. est. 75.8%

·     Sept Retail inventories ex-autos revised to +0.7% from +0.6%; Sept inventory/sales ratio 1.26 months’ worth vs Aug 1.26 months; Sept business inventories +0.7% 9in-line w ests); Sept business sales +0.9% vs Aug +0.1%

Commodities, Currencies & Treasuries

·     Oil prices finish well off the lows, with WTI crude settling at $80.76, down -$0.12 (lows were $80.03) ahead of weekly inventory data tonight (AP) and tomorrow (EIA). Gold prices fell a second day (after having its 7-day win streak snapped Monday), with December gold down -$12.50 or 0.7% to settle at $1,854.10 an ounce, off recent 5-month highs.

·     The U.S. Dollar index (DXY) posted highest close since July 2020, rising 0.25% to 95.80, with the euro dropping below the 1.135 level vs. the buck. Treasury yields jumped initially with the 10-year hitting highs around 1.635%, only to trade slightly below those levels the remainder of the day (flattish) and the 30-yr moved above 2% following stronger economic data.

Sector News Breakdown

Consumer

·     Retailers; COOK posted a top- and bottom-line beat, with strong sales offset by a GM miss; Cowen downgraded POSH to Market Perform with a $22 PT from $42 as they expect the stock could be range-bound with a lack of positive catalysts in the near term, and they separately raised FL Q3 estimates and PT to $68 from $61 ahead of results 11/19 and view consensus estimates as conservative at DKS (reports 11/23), LULU (12/8), UAA, DECK, and PUMAB Riley upgraded URBN to Buy and upped their PT to $45 from $36; Wells expects for reports to continue the theme of supply chain headwinds contributing to top-line constraints into the holiday season with rising costs, but they see potential downward revisions at names like GPS, VSCO, BURL, ROSTetc. as many brands have already reported better prints, and their top picks remain SIG, BBWI, TDUP, FTCH (“supply chain” bucket), GPS and CPRI (“too cheap” bucket); ONON posted a quarterly beat in its first earnings as a public company with Q3 sales CHF218M (+67.6%) vs est. CHF183.1M, DTC sales +93% YoY; PLBY reported a strong quarter, above consensus on revenue and adjusted EBITDA; Q3 revs rose 67% to $58.36M vs. est. $57.66M; DTC revs grew 139% YoY to $36.0M

·     Auto sector; TSLA SEC filings showed Elon Musk sold another $930M in shares while exercising a stock option award to buy 2.1M shares at $6.24 each; ZEV Q3 EPS (67c) was a wider loss than expected (18c) on revenue $6.3M vs est.$5.5M, guided Q4 revs $4-6M vs est. $10.7M; LCID shares rose despite its misses on the top and bottom lines as its reservations totaled 13k at the end of Q3 but have jumped over 30% to more than 17k since the end of the quarter, the Q3 reservations represented an order book of about $1.3B, and they remain confident they will be able to produce 20k vehicles in 2022, and Citi lifted their target on the stock to $57 from $28 after the report; RMO shares also spiked overnight after its Q3 EPS (13c) beat est. (28c) on revenue $5.8M vs est. $4.4M; QS downgraded to EW at Morgan Stanley who cut their target to $40 from $70 on risks that could lead to battery commoditization and deflation to levels far below current economic models; REE Q3 adj EPS (7c) vs est. (10c) and unveiled its Leopard, an autonomous last-mile delivery concept vehicle geared for delivery, e-retailers, and tech companies powered by a new modular REEboardTM EV platform architecture that will be showcased Jan 5-8 in Las Vegas at CES 2022; FUV Q3 EPS and sales missed estimates; RIVN shares have now risen in each of their first four full trading days as shares surged overnight to open above $160, more than double its $78 IPO price (opened at $106.75 last Wednesday)

·     Auto retail & suppliers; AAP Q3 adj EPS $3.21 vs est. $2.87 on revs $2.6B vs est. $2.58B, comps +3.1% vs est. +0.46%, raised FY outlook for net sales to $10.9-10.95B from $10-6-10.8B, comps +9.5-10% from +6-8%, and adj op margin to 9.4-9.5% from 9.2-9.4%; ALV expects to grow organically by ~4% more than light vehicle production per year on average from 2022-24, introduced a long-term growth target for organic sales growth of 4-6% per year beyond 2024, and announced a new stock repurchase program of up to $1.5B or 17M shares over the next 3 years; Wedbush raised their target on KMX to $160 from $135 as their proprietary data tracker shows the company’s operating income, retail units, and gross profits holding up in the near-term with unit comps tracking at +15% QTD vs consensus +8%;

·     Housing & Building Products; HD Q3 EPS $3.92 vs. est. $3.40; Q3 revs $36.82B vs. est. $35.01B; Q3 comp sales rose 6.1% vs. est. 2.4% and comparable sales in the U.S. increased 5.5% vs. est. 2.3%; Q3 average ticket $82.38; gross margin declined to 34.1% from 34.2% (note LOW expected to report earnings on Wednesday morning)

·     Consumer Staples & Restaurants; WMT 3Q adj EPS $1.45 vs est. $1.40 on revs $140.5B vs est. $135.6B, Walmart US comps ex fuel +9.2%, Sam’s comps ex fuel +13.9%, total US comps ex fuel +9.9%, e-comm sales +8%; sees FY adj EPS around $6.40 vs est. $6.33; IPAR introduced FY22 guidance for EPS $2.80-2.85 vs est. $2.78 sales $925-950M vs est. $913.3M; WEN downgraded to hold from Buy at Argus the company recently posted weaker-than-expected comp sales and margins in 3Q and has lowered its full-year guidance.

·     Casinos, Gaming, Lodging & Leisure sector; PTON commenced an underwritten public offering of $1B in shares *priced at $46 per share); IGT released details from investor day which included realigning Digital & Betting into a new legal entity; expected to be completed within 12 months, supporting evaluation of a potential separate public listing of the business and implementing $300M multi-year share repurchase program (first in its history); DKNG announced a collaboration with BHCMC, LLC, a subsidiary of BUKS, manager of Boot Hill Casino & Resort; GMBL slides after 1Q EPS ($0.03) vs est. (0.35) on revs $16.4Mm vs est. $16.4Mm, adj EBITDA ($2.7Mm) vs est. ($5.9Mm); sees FY net revs $100Mm vs est. $95Mm; LTRY Q3 EPS $0.24 on revs $32.2Mm vs est. $22.5Mm, trans/user 12.4 vs 11.2

Financials

·     Financial services; HOOD was downgrade from Overweight to Neutral at Atlantic Equities and cut its tgt to $35 from $65 saying the abrupt cessation of user growth in Q3 and per guidance for Q4 indicates that growth will be dramatically lower than our original expectations; RRD received a higher buyout offer of $9.10 from Private investment firm Chatham Asset Management LLC who outbid an earlier offer from Atlas Holdings LLC of $8.52; CBOE enhances global equities offering with the acquisition of NEO, terms undisclosed; GFF slides after quarterly results

·     Lending, Bitcoin, FinTech & Payments; crypto asset prices fell, with Bitcoin sharply lower around $60K after news of tighter scrutiny in U.S. and China, while Ethereum, Litecoin, Ripple, and Bitcoin cash all slide, weighing on stocks leverage to Bitcoin (MARA, COIN, MSTR, RIOT, SI, NCTY); SOFI 50M share Spot Secondary priced at $21.75; NRDY shares slip to a new 52-week low after the online learning platform posted disappointing quarterly results and guidance (Q3 revs of $31.3M missing the $35.9M estimate)

·     REITs; CUBE filed to sell 13.5M shares of stock after announcing last night it has entered into an agreement to acquire 100% of the outstanding partnership units of LAACO, Ltd., the owner of the Storage West platform for approximately $1.69 billion; SUI 3.5M share Spot Secondary priced at $185.00; CLI slips after AMZN fails to sign lease in Jersey City

Healthcare

·     Pharma movers; PFE said it has signed a voluntary license agreement with United Nations-backed public health organization the Medicines Patent Pool that will allow generics makers to manufacture its COVID-19 oral antiviral treatment; APLS 8.75M share Secondary priced at $40.00; YMAB downgraded to Neutral at JPM noting shares have underperformed the NBI as sentiment has turned negative on the early Danyelza launch in high-risk neuroblastoma

·     Biotech movers; BIIB said Al Sandrock, Biogen’s top scientist and the face of its efforts to develop treatments for Alzheimer’s disease, will leave the company at the end of the year; MOLN tumbles after saying a planned futility analysis of ensovibep in an ongoing clinical study hasn’t met the thresholds required to continue enrollment of adults with Covid-19 in a hospitalized setting; OPTN shares slide after cutting its FY outlook after Q3 revs miss ($21.8M vs. $23.5M)

·     Healthcare Services; TALK shares tumbled after weaker Q3 earnings and management shake-up as co-founder Oren Frank steps down from CEO role and from board, while Co-founder and head of clinical services Roni Frank also steps down from role/board (shares downgraded at both Baird and Citigroup today); CLOV shares decline following its 35M share stock offering; BODY shares tumble, downgraded by several analysts disappointing series of updates which materially reduce visibility into 2022E, with nearly all the top-line Q3 shortfall in Nutrition and Connected Fitness; QGEN rises after Reuters noted a media report about possible M&A operation on Betaville website saying U.S. laboratory equipment supplier TMO had renewed takeover interest in Qiagen; Bloomberg reported that the European Union will issue a list of objections as soon as tomorrow over ILMN’s $7.1B takeover of GRAIL

Energy, Industrials & Materials

·     Aerospace & Defense; BA strong gains recently, its 3^rd straight day of gains after Indian low-cost airline Akasa Air places order for 72 Boeing 737 MAX jets valued at $9 bln at list prices; AXON shares rise as reports Q3 YoY rev growth of 39% to $232M topping the Street estimate of $201M, raises 2022 revenue outlook to $1 billion and sees FY revs. high end of $840M-$850M vs. est. $843.6M (also posted ~$2.4B of bookings, record ARR growth); POWW top and bottom-line beat for Q2 (adj EPS $0.17 vs est. $0.11 on revs $61Mm vs est. $55Mm) and better guidance; SPCE shares slipped after founder Richard Branson discloses stake sale worth $300M overnight, as filing showed he sold 15.6M shares in negotiated block trade transaction at $19.25 on Nov 10

·     Transports; CAR was downgraded to Under-weight from Equal-weight at Barclay’s while raise tgt to $217 following the short-squeeze induced run-up post earnings, causing valuations to get overstretched even on our optimistic forecasts; XL reported Q3 revs of ~$3.2M which was in-line with management’s pre-announced guidance earlier this month. Revenue was down ~13% sequentially and down ~49%; in airlines, ALGT upgraded to Buy from Neutral and raise tgt to $250 from $245 at Goldman Sachs while the firm downgraded LUV to Neutral from Buy and cut tgt to $59 from $63; ODFL downgraded from Buy to Neutral at UBS as its strong growth story appears to be fully reflected after an 84% move up in the stock in 2021TD (vs the S&P 500 +25%)

·     Solar; several stocks volatile after U.S. Court of International Trade Judge Gary Katzman said in a ruling Tuesday that former President Donald Trump’s action to close a loophole for solar panels that generate power on both sides "constituted an action outside the President’s delegated authority," reported Bloomberg. Shares of FSLR moved lower following news of the ruling; other solar names rally on news CSIQ, JASO, SPWR, YGE

·     Metals & Materials; in the copper space (FCX, SCCO), Goldman Sachs notes Global deficit continues to guide copper stocks towards scarcity; History suggests the copper price should see accelerating upside if stock draws continue from current levels; seasonal surplus in Q1-22 likely to offer some potential short-term relief; and China’s copper demand is stronger than apparent refined demand suggests; metals in general weaker on the day (steels, aluminum)

Technology, Media & Telecom

·     Internet; U.S.-listed shares of Chinese cos (BABA, BIDU, JD, DIDI) active as investors appeared to cheer U.S. President Joe Biden and Chinese leader Xi Jinping’s three-hour meeting; JMIA shares slip early after posting larger Q3 loss as operating loss rose 93% YoY to $64M, while quarterly revs of $42.7M topped estimates; NTES Q3 revs of 22.2 bln yuan ($3.48 bln) beats est. 21.17 bln yuan ($3.33 bln); misses profit estimate, reporting earnings of 5.75 yuan per share (90 cents/share) vs est. 5.97 yuan per share; MELI 1M share Secondary priced at $1550.00; SE with better guidance as now expects FY e-commerce revenue to be between $5B-$5.2B from prior view of $4.7B-$4.9B after Q3 revenue more than doubles to $2.69B

·     Semiconductors; the Philly semi index (SOX) rises back near its record highs of 3,838.62, paced by gains in QCOM, AMD, WOLF, ON, BRKS; QCOM said BMW will use its chips in the next generation of driver-assistance and self-driving systems; Hynix was upgraded to a Buy from Hold at Westpark Capital saying the DRAM industry is becoming less cyclical with structural growth longer term

·     Software movers; WDAY upgraded to Buy from Neutral and raise tgt to $370 from $255 at UBS as think its multiple could expand as investor sentiment turns more positive on the back-office category over the next 12 months; WK 1.3M share Block Trade priced at $152.00; Unity Software (U) to raise $1.5B in convertible senior notes offering; PRCH strong 3Q results and better FY guidance as PF revenue +54% y/y, accelerating from 2Q’s +47%, 10% above; ATVI shares tumbled on reports the CEO did not inform co’s board of some sexual-misconduct reports of supervisors within the company

·     Hardware, Components & Services; ANET downgraded to Neutral from Buy at UBS given ~30% revenue growth in CY22 saying it leaves little room for upside in view ultimately capping P/E multiple expansions from current levels; RXT posts a Q3 beat, Q4 bookings that position Rackspace to achieve its full year $1b target (Q4 rev guidance in-line); DM posted larger-than-expected Q3 loss of (-$0.26) vs. est. loss (-$0.09); Q3 revs $25.4M vs. est. $27.11M as Q3 net loss of $66.9M, including $15.2M of in-process R&D assets related to acquisitions

·     Media & Telecom movers; FOXA 1.7M share Block Trade priced at $40.75; WMG downgraded to Underperform from Buy at Bank America and reducing tgt to $42 from $53 as think shares are fairly valued and see downside risk in the near-to-intermediate term; ATSPU shares rise as the SPAC to take SoundHound public through a deal that values the voice assistant maker at $2.1B; deal will provide SoundHound with gross proceeds of up to $244M