Mid-Morning Look

Monday, December 06, 2021

U.S. stock markets choppy to start the trading week with outperformance in the S&P 500 and Russell 2000 (each up around 1%), while the Nasdaq Composite bounces off lows (14,931) to trade higher but lagging broader market strength (highs above 15,150). Wall Street’s main indexes opened higher after declining sharply last week on Omicron and Fed taper fears, with investors favoring banks, energy and economy-linked stocks against technology and growth-heavy shares. There was no major U.S. economic data today in a fairly quiet week of data overall. So far, a steady climb off lows for U.S. stocks along with oil prices (WTI crude trying to snap its 6-week losing streak) as investors look to buy beaten up names after last week’s tumble, especially in beaten up high growth sectors. Treasury yields edge higher, but still far off recent highs (10-yr yield below 1.4% after highs of 1.7% just 2-weeks ago). Omicron variant, China relations, Fed tapering, and inflation concerns remain prevalent in markets to start the week.

Sector Movers Today

·     Bank movers; a sector that has been under pressure of late given the tumble in Treasury yields, mostly on the long-end of the curve; in research, Morgan Stanley busy as they upgraded WFC to Overweight in large cap with $61 tgt citing the biggest driver being higher Fed Funds Futures and also upgraded GS to Equal weight from Underweight citing ROE/ROTCE focus, share gain retention, tech investments; the firm downgraded shares of Citigroup (C) to Equal-weight in the absence of near-term catalysts for the stock, cut BK to Underweight on valuation, low loan exposure, and negative operating leverage; in the regional bank space, Morgan Stanley downgraded PNC to Underweight on valuation, currently trading at 12x our 2023 EPS with a 12% 2023 ROE, implying a 10% cost of equity, while upgraded SIVB to overweight and raised tgt to $985 from $770 saying expectation for a faster pace of Fed rate hikes benefits SIVB more than nearly any other bank in our coverage universe

·     Housing & Building Products; HD upgraded to Outperform from Peer Perform at Oppenheimer and upped LOW tgt to $300 from $235 saying they are more confident that risks of a significant, transitional-type setback, for Home Improvement Retail and/or its leading players, have diminished, and underlying demand growth within the space is apt to persist, even as pandemic tailwinds abate; RH tgt lowered to $600 from $760 ahead of earnings at Wedbush saying after a number of beat-and-raise quarters, they expect at best an in-line 3Q21 as supply chain challenges likely delayed revenue recognition and order backlogs increased; BECN and GMS both upgraded to Outperform at Raymond James saying both trade at double-digit FCF yields with EV/ EBITDA ~1 std dev below historical levels, and have seen significant recent insider buying

·     Transports; in general a pocket of strength today led by package delivery (FDX), and truckers (CHRW); in airlines, TSA reports checkpoint travel results decline 10-11% vs 2019 this past weekend, not showing significant Omicron impact; ODFL November revenue per day increased 29.9% as compared to November 2020 due to an 11.5% increase in LTL tons per day and an increase in LTL revenue per hundredweight; in research, Evercore/ISI upgraded airlines AAL (to in-line) and SAVE (to outperform); online travel rebounds (BKNG, EXPE)

·     Retailers; KSS rises after the WSJ reported activist investor Engine Capital is said to be pushing the department store chain to sell itself or to separate its e-commerce business and believes there are private equity firms that would pay at least $75 per share https://on.wsj.com/3lxvrCv ; BKE announces $5.65 special dividend and raises qtrly dividend by 6.1% to $0.02; Macy’s (M) is moving to the S&P MidCap 400 index from the S&P SmallCap 600 while HBI is moving to the MidCap 400 from the S&P 500; Baird upgraded HIBB to Outperform with a $100 PT after their shares have declined ~30% over the past two weeks to make risk/reward too compelling to ignore; LVLU initiated with OW/Buy ratings at Goldman, Jefferies, Baird, Cowen, Telsey, KeyBanc, and Piper; Following Q3 reports, Wells sees an underappreciated margin dynamic in TDUP despite nearer-term tailwinds with supply chain constraints, said GPS is too cheap to ignore after looking at their recent guidance reduction and an updated SOTP look with the value of Athleta and its real estate assets, and CRI’s wholesale operations was disappointing; UBS raised their PT on ASO to $56 from $52 ahead of Friday’s earnings report, Lake upgraded SPWH to Buy with a $20 target after they terminated their merger with Great Outdoors and ahead of Friday’s earnings given elevated demand above historical levels and attractive valuation; Bank of America reiterated DG at Underperform as they believe its long-term strategic drivers will be overshadowed by near-term headwinds and continued margin pressure

·     MedTech Equipment; EW, SWAV, NVRO all upgraded at Wells Fargo saying EW raised to overweight as see a long runway for transcatheter aortic valve replacement growth beyond low risk; upgrade NVRO to overweight as see a favorable risk/reward given the recent pullback; SWAV upgraded to Overweight as think the peripheral above-the-knee opportunity is almost as large as the coronary opportunity and the enhanced reimbursement for ATK procedures (+60-110%), which starts Jan 1, 2022, combined with the new M5 Plus device should drive significant upside in sales over the next few years.

Stock GAINERS

·     ACET +31%; reported positive interim data from its Phase 1 study of ADI-001 for the potential treatment of B-cell Non-Hodgkin’s Lymphoma

·     BABA +7%; trying to snap its 6-day losing streak after mgmt changes as CFO replaced

·     BKE +3%; announces $5.65 special dividend and raises qtrly dividend by 6.1% to $0.02

·     BKNG +5%; rebound in travel and leisure related stocks after falling the last two weeks on Omicron variant concerns

·     GCP +13%; Saint-Gobain will acquire GCP for $32.00 per share, in cash, in a transaction valued at about $2.3B https://bit.ly/3DrUXPM

·     HD +2%; upgraded to Outperform from Peer Perform at Oppenheimer and upped LOW tgt to $300 from $235 in home improvement retail

·     KSS +5%; after the WSJ reported activist investor Engine Capital is said to be pushing the department store chain to sell itself or to separate its e-commerce business and believes there are private equity firms that would pay at least $75 per share https://on.wsj.com/3lxvrCv

·     SAM +5%; upgraded Underperform to Market Perform at Cowen and raising PT to $500 from $400 saying Nielsen trends starting to show signs of stabilization and think the lower expectations are now priced into the stock

·     TACO +64%; to be acquired by JACK for $12.51 per share in cash, in deal valued at $575M including existing debt (shares of BJRI, FRGI, LOCO, DIN, CAKE among casual diners/restaurants rising amid the M&A news in space)

Stock LAGGARDS

·     CHWY -4%; downgraded to neutral from outperform at Wedbush, as sees a weaker growth outlook for the online retailer of pet product

·     COIN -3%; weakness across the board early in the crypto asset sector as Bitcoin, Ethereum and others plunge over the weekend in volatile trading (MARA, MSTR, RIOT, SI slide)

·     LCID -13%; after the EV maker said it had received a subpoena from the U.S. SEC, requesting documents related to an investigation on its blank-check deal with Churchill Capital Corp.

·     MRNA -12%; along with -13% drop in BNTX as vaccine makers pressured; NVAX down over 10%

·     TSLA -3%; as the SEC opened an investigation into TSLA over whistleblower claims on solar panel defects