Mid-Morning Look

Tuesday, August 10, 2021

U.S. equities starting the day with modest gains (though have been losing steam over the last few minutes), as the S&P 500 index and Dow touch a fresh record highs and other major averages holding near record highs as well. Markets leaders today include consumer discretionary, metals, materials, and energy after lagging in recent sessions as investors await a Senate vote on a much-anticipated $1 trillion infrastructure bill around 11:00 AM. Transports outperform led by railroads after CP raised its offer for KSU by about $2 billion to $27.29 billion. Economic data weaker as U.S. worker productivity growth slowed in the second quarter and labor costs were far weaker than previously estimated in the first quarter, the Labor Department said. Nonfarm productivity increased at a 2.3% annualized rate last quarter missing the 3.5% estimate and labor costs in-line at +1%. Treasury yields edge higher again as the 10-year tops 1.33% while the dollar edges higher, pushing gold prices lower for a 4^th straight day. Oil recouping some of the losses in the previous session.

Economic Data

·     U.S. Q2 non-farm productivity +2.3%, below consensus +3.5% while Q1 was revised down to +4.3% from prior +5.4%; non-farm unit labor costs rose +1.0%, mostly in-line with the 1.1% estimate while prior month was -2.8% vs. prior +1.7%

Sector Movers Today

·     Retailers; NLS shares tumble as reported Q1 results that were better than expectations driven by continued strong demand but offered operating margin guidance for the remainder of the year that was below estimates (said sees FY2H22 operating margin running in the LSD-MSD% range which is below Truist ~17% expectation); ELY posted 2Q print and upward guidance revision that puts ELY on track to hit its ’22 financial targets a full year early; PRPL results were in-line with the June earnings warning as bottom line results were below (no guidance) on previously discussed production issues. Guidance calls for results to be in-line to above the Street in 2H21; CSPR posted a Q2 loss that surprisingly widened from a year ago, while revenue topped forecasts, as increased raw materials, freight, and labor costs hampered the mattress and bedding company’s ability to meet demand

·     Auto sector; ZEV surges after saying it entered into a deal to deliver up to 7,500 zero-emission shuttle buses to Forest River Inc, a leading shuttle bus producer in agreement worth up to $850M; NKLA announces another expansion to its dealer network for Class 8 truck sales and service coverage with the addition of Alta Equipment Group; FSR resumed Overweight and $40 tgt at Morgan Stanley citing an ‘on time’ launch of the Ocean when demand for EVs exceeds supply; and FSR’s strategic value as it engages experienced manufacturing partners

·     Software movers; WDAY signs a strategic partnership with Google Cloud to further their digital transformations; SAIL reported solid 2Q21 results that were better than expectations due to strength in its subscription business (up 40% YoY), which more than offset the decline in its license business; QLYS delivered a good quarter, with all metrics ahead of expectations and solid cash flow as results were driven by increased adoption of VMDR and multi-product momentum given increased consciousness towards cyber-security; CRM announced Salesforce+, an all-new streaming service with compelling live and on-demand content for every role, industry and line of business, all in one place.

·     Bitcoin, FinTech & Payments; crypto assets (Bitcoin, Ethereum) remain higher after surge this weekend while names leveraged to Bitcoin (COIN, BTBT, NCTY, MSTR, SI, RIOT) take a little breather; BLND was initiated with a Buy/OW rating at Canaccord ($28 PT), Goldman ($30), Truist ($24), KeyBanc ($25), Piper ($24), Wells ($24), and William Blair; RBC reinstated coverage on PSFE at Outperform as strong demand for the company’s eCash products and elevated ecommerce by consumers could drive upside to their estimates; Exane upgraded FISV

Stock GAINERS

·     AMC +6%; reported earnings as revs tripled in Q2 and that its theaters will soon accept bitcoin

·     ARCT +23%; after saying its Phase 3 study, which will be fully funded by a global entity (saving ARCT over $300M as per Piper) and will begin in 2H21

·     DDD +30%; helps boost 3D stocks after 2Q adj EPS $0.12 vs est. $0.05 on revs $162.6Mm vs est. $143.3Mm

·     FSR +21%; as Morgan Stanley resumed coverage with an overweight rating and said it may be one of the only startups in the space to actually launch on time and ramp efficaciously in late 2022

·     FULC +70%; after saying its experimental drug, FTX-6058, showed positive interim results in an early-stage trial testing it in patients with sickle cell disease

·     KSU +6%; as CP formally submits its new proposal to acquire KSU in a deal that values the company at $31B, with the proposed transaction at $300 per share saying it has the unanimous support of the Canadian Pacific board

·     PEN +2%; Revenue of $184.3M (up 72.7% y/y ex-fx) surpassed the Street’s $170.8M, with gross margins expanding to 64.4% from 61.8% y/y on better EPS and raised 2021 revenue guidance to $720-$730M from $695-$705M

·     SYY +4%; Q4 adj EPS $0.71 topped the $0.60 estimate on better revs $16.14B vs. est. $14.23B and guided year EPS $3.33-$3.53 vs. est. $3.35 while saying it sees no signs of Delta variant impacting demand

·     ZEV +70%; after saying it entered a deal to deliver up to 7,500 zero-emission shuttle buses to Forest River Inc, a leading shuttle bus producer in agreement worth up to $850M

Stock LAGGARDS

·     AXSM -9%; extends yesterday declines after plunging 46% Monday as several analysts cut tgts following surprise FDA letter to company on July 30 citing deficiencies in the AXS-05 application for MDD which precluded labeling discussions

·     CSPR -10%; posted a Q2 loss that surprisingly widened from a year ago, while revenue topped forecasts, as increased raw materials, freight, and labor costs hampered the mattress and bedding company’s ability to meet demand

·     FLGT -18%; after reported Q2 revenue, non-GAAP EPS and total test volumes that missed expectations due to COVID-testing declines that offset core genetic testing strength and lowered 2021 guidance

·     NLS -12%; reported Q1 results that were better than expectations driven by continued strong demand but offered operating margin guidance for the remainder of the year that was below estimates (said sees FY2H22 operating margin running in the LSD-MSD% range which is below Truist ~17% expectation)

·     PLNT ; mixed Q2 as EPS missed ($0.21 vs. est. $0.23) on better revs of $137.3M, while guided 2021 profit and revs below consensus

·     REAL -13%; reported 2Q:21 results with GMV in line with the company’s preliminary report and revenue below expectations amid slower direct revenue growth as the company returned to a more normalized mix of consignment supply

·     RETA -18%; as decision to share mid-cycle commentary from the FDA’s review of the bardoxolone NDA in Alport was a surprise, and the delineation of four review issues (and changes to the FALCON ADPKD study to a lesser extent) drove shares down meaningfully

·     SDC -25%; posted 2Q21 sales of $174M, well below Street forecasts for $199M, with aligner shipments of 90,006 coming below JPM forecast for 105.5K due according to management to macroeconomic headwinds and a slower than expected international launch

·     SQSP -11%; beat Q2 & in-line FCF and guided FY21 in-line implying a 2H guide down and more meaningful back-half deceleration than investors expected