Closing Recap

Thursday, October 21, 2021

Equity Market Recap

·     U.S. stocks surge led by gains in the Nasdaq, while the S&P 500 pushed to new all-time highs in another late day rally for stocks. The Smallcap Russell 2000 edges higher, the Dow slipped behind weakness in IBM, dropping over 8% following its disappointing earnings results, while Dow Transports rallied behind better CSX, LSTR, AAL results. Energy stocks slide as oil prices finished the day lower, snapping a 6-day win streak. Positive economic data helped the “risk-on” mood with existing home sales data topping consensus, while weekly jobless claims were below last week’s levels and consensus. The Philly Fed Index was solid but came in below last month figures and economist estimates. Still absolutely no stock market fear at all as the CBOE Volatility index (VX) falls for the 11^th time in the last 13-days, approaching its July lows. Treasury yields inch higher with 10-yr hitting 1.67% and 5-year yield touches 1.20%, highest since February 2020). Overall, another strong start to earnings season with more names on deck tonight (INTC, SNAP, CMG, MAT) and investors keep buying stocks.

·     Stock & Sector movers: TSLA opens lower despite its EPS beat overnight, but rallies intraday to a high of exactly $900, the 1st time hitting that level since Jan. 25 when it hit its ATH of $900.40; in airlines, AAL rises, LUV ALK slip as all three post Q3 EPS and revenue beats; retail strong as CROX, TSCO, POOL soar on strong quarterly reports, AN surges to record highs on its beat and new $1B buyback program, while Cowen raises ests on PVH, RL, DKS as sees underappreciated strength in sporting goods; in tech, IBM plunges as the worst stock in the S&P on its revenue miss, LRCX slides on weak guidance, SAP sinks despite posting an earnings beat as the stock gave up some of its gains since last week on raised guidance in software, and HPQ among leaders in the S&P after its Investor Day include bullish guidance and a dividend raise; BMBL, MTCH, SPOT, RBLX rose after GOOGL lowered its Play Store fees for subscriptions and music streaming apps to 15%, and music streaming services ‘as low as 10%’ while AAPL initially dipped on the news; in financials, DFS plunges on weak revenue to drag SYF, COF, AXP (reports tomorrow AM), and PYPL extends yesterday’s roll on reports it offered to buyout PINS at $70; DWAC surges (as much as 400%) in its first day of trading and WE also higher after completing respective SPAC deals.

·     Stocks pulled back (briefly) from afternoon highs as the drama in Washington D.C. continued. Senator Joe Manchin said an agreement isn’t likely this week: “This is not going to happen anytime soon, guys.” Earlier reports showed Democrats were close to agreeing on an overall price tag for U.S. President Joe Biden’s ambitious expansion of social programs, but there are no guarantees they will reach a deal. They have spent months arguing about the size and scope of what was initially proposed as a $3.5 trillion plan to expand the social safety net and fight climate change, which key Democrats this week have agreed will be cut to well below $2 trillion.

·     The U.S. Federal Reserve today banned individual stock purchases by top officials at the central bank and unveiled a broad set of other restrictions on their investing activities roughly six weeks after reports of active trading by some senior policymakers triggered an ethics uproar. The new rules will limit the types of financial securities the Fed’s top officials can own, including an outright ban on purchases of individual stocks or holding individual bonds. It also requires advance notice and approval of any transactions, and investments be held for at least a year.

Economic Data:

·     Weekly Jobless claims fell to 290K in latest week vs. 300K est. and below last week upwardly revised 296k figure (from 293kk); the 4-week moving average fell to 319,750 from 335,000 prior week (previous 334,250); continued claims fell to 2.481M from 2.603M prior (est. 2.55M); the U.S. insured unemployment rate fell to 1.8% from 1.9% prior

·     Philly Fed Survey for October reported at 23.8 vs. 30.7 in September and below the 25.0 estimate

·     U.S. September leading economic indicators (LEI) +0.2% vs. est. +0.4%

·     Existing home sales for September rose 7% to 6.29M unit rate (above consensus 6.09M) and vs. Aug 5.88M; U.S. Sept inventory of homes for sale 1.27 mln units, 2.4 months’ worth; the Sept national median home price for existing homes $352,800, +13.3 pct from sept 2020

Commodities, Currencies & Treasuries

·     Oil prices finish lower for the first time in 6-session, with WTI crude down -$0.92 or 1.1% to settle at $82.50 per barrel. While Brent crude futures dropped -$1.21 or 1.41% to settle at $84.61 per barrel in a bout of profit taking for energy prices. Gold prices edge lower, down -$3.00 to settle at $1,781.90 an ounce, easing back after posting gains in each of the last two trading sessions. Treasury yields continue to inch higher (10-yr above 1.67% and 5-year yield touches 1.20%, highest since February 2020), but no concern in stock markets about rising inflation fears still. The U.S. dollar index (DXY) pushed higher mid-afternoon after a couple of days of profit taking (DXY recently trades 1-year highs).

Sector News Breakdown

Consumer

·     Retailers; CROX stock jumped after reporting EPS $2.42 from 91c YoY, adjusted EPS $2.47 that beat consensus $1.87, revenue $625.9M (+73% YoY) above est. $606.8 million, and expects FY21 revenue growth 62-65% vs est. 67.1% as factory closures in Vietnam due to Covid impact operations, and sees FY22 revenue growing 20% from FY21; Cowen raised their price targets on RL to $161 from $158, PVH to $127 from $115 and also raised estimates on DKS as their checks, industry data, and September’s retail sales all point to underappreciated strength in the U.S. department store channel and Sporting Goods, and they also upped their PT on M to $32 from $27 as they do not see an e-commerce spinoff as likely in the near-term but believe the standalone e-comm business could carry an $11.5B enterprise value, or as much as $40/share; TSCO Q3 EPS $1.95 and revenue $3.02B both beat consensus and they raised their full-year outlook for net sales to $12.6B from $12.1-12.3B, comp sales to +16% from +11-13%, and operating margin to 10.2-10.3% from 9.7-9.9%; POOL reported Q3 EPS $4.54, stronger than est. $3.84, on sales $1.41B vs est. $1.37B; Bank of America highlighted BBWI as one of the best positioned retailers into holiday and 2022 as it has largely a domestic supply chain

·     Auto sector; TSLA Q3 EPS and revs beat ($1.86/$13.76B vs. $1.58/$13.62B est.) and said reached an operating margin of 14.6%, exceeding our medium-term guidance of ‘operating margin in low-teens and automotive gross margin rose to 28.8%, from 25.8% the previous quarter; AN unveiled an additional $1 billion share buyback program while reported a quarterly profit that nearly doubled, benefiting from higher car prices due to surging demand and tight inventories; DIDI rises after a media report that Chinese regulators are nudging the company towards a Hong Kong listing; GPC raises year EPS and free cash flow guidance for 2021 after Q3 EPS/revs beat

·     Housing & Building Products; TPH touched 5-month highs following Q3 beat; TOL remains preferred name in homebuilders at RBC Capital followed by PHM while remain Underperform on TPH as they lower 2H’21 estimates, 3Q/4Q EPS estimates, CY’21 EPS estimates, and PTs across the group

·     Consumer Staples; COCO 11.5M share IPO priced at $15.00; in food, Unilever (UL rises on higher-than-expected Q3 sales growth; reports higher-than-expected underlying sales growth for Q3 beating analysts’ expectations; reiterates full-year profit margin forecast, defying some analysts’ fears of a cut; warns inflation is likely to accelerate next year

·     Restaurants; DENN was upgraded to Buy from Hold at Truist and increasing ests. and PT to $18, from $17 as see upside to 3Q21 ests, given expanding operating hours and strength in DENN’s key markets; Wedbush removing CAKE from their Best Ideas List (BIL) due to our investment price discipline; PTLO opens at $26 after IPO priced at $20

·     Casinos, Gaming, Lodging & Leisure sector; LVS earnings results expected weak and that they were as Q3 total reported EBITDA $17M loss vs Street +$160M, Macau $32m vs. Bofa $45m (weak in Sep no surprise) and Singapore $15m below Bofa $100m highlighted by weak VIP revs in the region which just went away (-67% y/y); BALY and professional ice hockey team Nashville Predators have forged a sports betting deal, which will run through 2025; in leisure, CCL was upgraded to Hold from Sell at Berenberg

Energy

·     Energy stock movers; U.S. antitrust regulators have extended the approval process for at least five oil and gas mergers and acquisitions in the last three months, as President Joe Biden’s administration scrutinizes deals in a bid to tackle soaring energy prices, according to regulatory filings and corporate lawyers, Reuters reported.

·     E&P and Majors; heading into earnings for the E&P sector, KeyBanc said they expect 3Q21 earnings to be a bit of a tailwind on higher commodity prices leading to strong, positive FCF for nearly all companies in our coverage despite slightly higher capex; in equipment, FTI shares slip as Q3 rev of $1.58B missed the $1.7B estimate along with a surprise Q3 adj loss and EBITDA of $140.6M missing views as results were impacted by lower activity in the North Sea and Asia

Financials

·     Bank & Broker movers: RJF to acquire TriState Capital Holdings Inc. (TSC) in a cash-and-stock deal valued at $1.1 billion, with TSC holders to receive $6 in cash and 0.25 shares of RJF stock in a deal valued at $31.09 per share; KEY Q3 EPS 65c tops the 57c est. on better revs $1.82B (vs. est. $1.75B) as Q3 CET1 capital ratio 9.6%; BKU Q3 GAAP EPS of $0.94 beats by $0.05 and revs of $220.6M (-1.4% Y/Y) misses by $11.91M; WeWork (WE) open at $11.28 in first day of NYSE trading after Spac merger with Bowx Acquisition; in insurance; ALL reported catastrophe losses for Sept. of $165M and Q3 catastrophe losses $1.3B pretax; MMC reported a rise in third-quarter profit, benefiting from higher revenue in the period.

·     FinTech & Payments; PYPL shares fall to lowest levels since May as Wall Street analysts unexcited about potential combo with PINS following reports yesterday of possible M&A deal; Mizuho said heading into 3Q earnings, their survey suggests investors are most positive on AFRM, TOST, SOFI. In contrast, buy-side sentiment is most negative on the three "deal" stocks, MQSurvey also sheds light on the bogeys needed to drive positive stock reactions for key stocks, including: Visa guidance, PYPLs preliminary FY22 guide, Cash App gross profit, and merchant acquiring growth rates for FIS, FISV, and GPN. Unrelated to the survey, we are lowering long-term ests & PT for MQ, raising multiple & PT for AFRM

·     Consumer Finance; AXP earnings expected after the close; DFS shares slumped following its earnings results overnight; Bank America noted total card spending, as measured by BAC aggregated cards, is up 19% over a 2-year period for the 7-days ending Oct 16. Lower income credit card spending on the rise relative to debit while the turn to leisure supports higher income spending; ALLY entered into a definitive agreement to acquire fair square financial for $750 mln in cash and reported earnings results that topped consensus; SLM rises early on earnings

·     Bitcoin news; the crypto space takes much needed breather after prices of Bitcoin traded new all-time highs above $67K on Wednesday and Ethereum above $4,100 today; saw some selling pressure on several names that are leverages to crypto BTBT, COIN, BITO, MARA, RIOT, MSTR; Mizuho raised its ests and tgt on COIN (to $300) amid higher Bitcoin prices and rising volatility as they see early signs of Bitcoin market share gains in October following multiple quarters of share losses; AGMH announces significant order for 25,000 digital currency mining machines

Healthcare

·     Vaccine news: the COVID-19 vaccine developed by PFE is "highly effective" at preventing infection and symptomatic disease from the Delta variant among people aged between 12 and 18, Reuters reported, citing research conducted in Israel. In the trial, estimated effectiveness of the vaccine against COVID-19 infection in the study age group was 90%, and 93% against symptomatic disease, on days seven to 21 after the second dose; U.S. regulators signed off on extending COVID-19 boosters to Americans who got JNJ or MRNA vaccine and said anyone eligible for an extra dose can get a brand different from the one they received initially

·     Pharma & Biotech movers; CRNX 7.576M share Spot Secondary priced at $19.80; SIOX said the FDA granted fast-track designation to AXO-AAV-GM1 in the genetic disorder GM1 gangliosidosis; VTYX 9.47M share IPO priced at $16.00; BLUE will withdraw marketing application for Skysona from MHRA as does not intend to initiate new clinical trials in Europe for beta-thalassemia, cerebral adrenoleukodystrophy/sickle cell disease programs; NTLA received FDA orphan-drug designation to NTLA-2001 for the treatment of transthyretin, or ATTR, amyloidosis.

·     MedTech Equipment; DGX 3Q adj EPS $3.96 vs. est$2.88 on revs $2.77B vs. est. $2.45B; saw some softness in late summer but overall rebound in September; guides FY net revs $10.45-10.60B vs. est. $10B and sees FY adj EPS $13.50-13.90 vs. est. $11.93; DHR reported a beat on the top and bottom line for Q3; in hospitals, THC posted 3Q21 adjusted EBITDA of $855MM (or $851MM excluding COVID stimulus grant income), well above $739.3MM consensus estimate, and topping the high end of management’s $700-750MM guidance range by 14%.

Industrials & Materials

·     Industrial & Machinery; Citigroup opening positive catalyst watches on E&C companies ACM, J, PWR, and MTZ as think 3Q earnings for most E&Cs should be solid despite some increased risk of supply chain hiccups

·     Airlines earnings in focus this morning: AAL reported adj EPS loss (99c) vs est. ($1.03) loss on revenue $8.97B (+20% vs Q2) vs est. $8.94B, load factor 78.7% above est. 77%, and expects Q4 sales down ~20% with capacity down 11-13% from 4Q19; LUV Q3 adj EPS loss (23c) was narrower than est. (26c) loss on revenue$4.68B vs est. $4.64B, load factor 80.7% vs est. 81.9%, and sees Q4 load factor 80-85% vs est. 81.9% and operating revs down 15-25% vs 4Q19; ALK reported a Q3 profit with adj EPS $1.47 beating est. $1.36 on revs $1.95B vs est. $1.94B, and expects Q4 revenue 16-19% lower than 2019

·     In rails, CSX Q3 EPS 43c and revenue $3.29B bested even the most optimistic analyst estimate (consensus 38c, $3.06B) driven by stronger pricing and continued solid execution and its rail adjusted operating ratio ~55.7% was the best among the railroads that have reported thus far by a wide margin; UNP Q3 EPS $2.57 on revenue $5.57B vs est. $5.39B; RBC downgraded CNI to Sector Perform as their $168 target price is now <6% from current levels after its recent move and says CP remains their preferred rail name; The Wall Street Journal reported that Elliott has a large position in CNI and supports Jim Vena, who is also backed by UK-based activist TCI Fund, as the new CEO following the current CEO’s announced retirement on Tuesday

·     Truckers & Logistics: XPO, GXO, KNX, JBHT, HUBG and SAIA remain Overweight ideas in trucking at Wells Fargo saying the current environment is supportive of our sector selectivity, as we prefer strong structural stories where we see strong capital allocation, self-help mechanisms; LSTR posted Q3 EPS $2.58 vs est. $2.49 on revs $1.734B vs est. $1.66B, sees Q4 EPS $2.55-2.6 vs est. $2.43 on revenue $1.7-1.75B vs est. $1.64B; CVLG Q3 adj EPS in-line $1.02 on revs $274.6M vs est. $259.9M

·     Metals & Mining: KALU Q3 adj EPS $0.57 vs. est. $1.33 on sales $751M that missed est. $773.2M; FCX Q3 adj EPS 89c vs est. 82c on revenue $6.08B vs est. $6.17B, copper production 687M lbs. vs est. 1.01B, says the outlook for copper market is extraordinarily positive and sees Q4 copper sales volume 1.03B lbs., and cut its FY view of copper sales volume to 3.8B lbs. from 3.85B, now sees capex $2.3B from $2.2B; NUE Q3 EPS $7.28 was below consensus $7.43 on net sales $10.31B vs est. $10.27B; SCHN posted Q4 adj EPS $1.82 vs est. $1.81 on revenue $846M above est. $782M; IIIN Q4 EPS $1.28 vs est. $0.96 on revs $171.26M vs est. $170.26M; RBC double-downgraded VALE to Underperform as China’s economic rebalancing away from property and fixed asset investments hits iron ore, which is the driver of the company’s profitability

·     Chemicals: DOW 3Q operating EPS $2.75 vs est. $2.56 on sales $14.8B vs est. $14.25B; says continue to see robust end-market demand that is expected to extend into 2022; PPG Q3 was better than expected with adj EPS $1.69 vs est. $1.58 on sales $4.37B vs est. $4.24B, but cut FY adj EPS forecast to $6.67-6.73 from $7.40-7.60 and below est. $7.03 with net sales down 8-10% YoY as supply chain disruptions worsened throughout this quarter and commodity and component shortages restricted manufacturing output; Cowen raised their PTs on ALB to $275 from $260 and LAC to $24 from $19 and sees opportunities in these two names plus LTHM as next generation materials names continue to benefit from rising prices given supply constraints and strong demand driven by EVs and battery suppliers

Technology, Media & Telecom

·     Internet; another massive “risk-on” day for large cap tech names, with NFLX trading to all-time highs just a day after slipping post mixed results; FVRR, WIX downgraded to Sector Perform from OP – The combination of slowing new digital business formation and our checks with SMB-focused ad/marketing/engineering agencies suggesting less improvement from the summertime hyper-seasonality instructs our view that risk/reward on both is now too balanced to warrant an Outperform rating; thus we downgrade; the CFPB orders tech giants (AAPL, GOOGL, FB) to turn over information on their payment system plans; says information will help better understand how firms use personal payments data and manage data access to users

·     Semiconductors; LRCX tgt lowered by several analysts after its Q1 earnings beat and a slight miss on Q2 guidance which was held back by supply chain issues – reported an in-line SepQ and guided to in-line DecQ with Foundry/Logic and DRAM strong and NAND balanced into YE2021; AMD said Ryzen™ Threadripper™ PRO processors will help power the new GeForce NOW RTX 3080 membership tier from NVDA

·     Software movers; SAP reported final results for Q3 and raised the high-end of their FY Cloud and Software revenue guidance; Keybanc said Year-end environment favors stock selection, and we see GLBE and LSPD as best positioned to positively surprise; XM Q3 results topped expectations, highlighted by 67% growth in RPO (with cRPO up 58%), while the co raised its financial goals organically; in gaming, ATVI tgt trimmed at Opco to $105 noting they have observed meaningful delays of new content in WoW: Shadowlands, compared to historical cadence

·     Hardware, Components & Services; IBM drops after revenue miss, in-line earnings as Q3 operating EPS comes in as expected at $2.52, while 3Q Revenue $17.62B missed the $17.79B estimate; Bernstein noted HPQ put forth a very bullish outlook at its analyst day, targeting 2-4% revenue growth and high single digit EPS growth for 2021 – 2024. For FY 22, HP guided EPS of $4.17 at the midpoint, ~10% above consensus. It also raised its dividend by 29% to $1 per share, or a 3.5% yield, and reaffirmed its commitment to return100% of its FCF to shareholders; AVYA downgraded to EW at Barclay’s saying the company’s cloud journey is taking longer than hoped, and firm downgraded LPSN to underweight saying the company is betting on a strong future for its conversational AI technology platform with a new President of Field Operations

·     Media & Telecom movers; AT) Q3 adj EPS $0.87 vs. est. $0.78; Q3 revs $39.92B vs. est. $39.14B; added 928,000 net new phone subscribers who pay a monthly bill, above quarterly expectations of 560,000, (VZ added 429,000 subscribers in its latest quarter); AT&T added 12.5 million subscribers globally for its premium TV channel HBO and streaming service HBO Max; sees FY21 adjusted EPS at high end of low- to mid-single digit growth; a day after OMC earnings results disappointed Wall Street, IPG posted a beat on the top/bottom line and boosted its 2021 organic growth view to 11% from 9%-10%; in towers, CCI results were ahead of expectations, but 2022 guidance for new tower leasing activity, as Tower Organic growth of 5.5% vs. consensus of 6.0% and KeyBanc’s 6.7% with the shortfall coming from lower new tower leasing due to lower prepaid rent amortization and higher T-Mobile churn; in research, Barclay’s downgraded; DWAC shares spiked as SPAC enters deal to take Trump Media & Technology Group (TMTG) public. TMTG to launch former U.S. President Donald Trump’s own social media called TRUTH Social; ROKU warns customers contract negotiations with YouTube have failed; shares of app stocks BMBL, MTCH, RBLX, SPOT advanced after GOOGL lowers Play Store fees for subscriptions and music streaming apps from 30% to 15%, and music streaming services ‘as low as 10%’