Mid-Morning Look

Friday, December 17, 2021

U.S. stocks extending their weekly decline amid another rout in technology and high growth names on rising rate fears from the Fed, banks falling along with weaker Treasury yields, while the surging cases of the Omicron variant adding concern to reopen stocks/sectors such as leisure, travel, energy, and consumer heading into the weekend. The Nasdaq reeling further from the Federal Reserve’s decision move mid-week to end its pandemic-era stimulus faster, which pushed investors towards cyclical parts of the market. Treasury yields have tumbled to multi-week lows, as the benchmark 10-year falls to 1.37% (off December highs of 1.7%), while gold prices and other defensive sectors outperform. Oil prices extend losses with “risk-off” as stocks move to lows, while crypto space hammered again as Bitcoin drops 5% and Ethereum 7%. Not many safety places early on, with investors bailing ahead of the weekend on fears of rising Omicron cases potentially leading to stricter policies. Stocks on track for weekly losses of 2% for the S&P and over 3% for the Nasdaq and Russell 2000. Transports pressured despite strong earnings beat by FDX overnight, lifting shares of the package delivery company.

Sector Movers Today

·     Casinos, Gaming, Lodging & Leisure sector; SIX was upgraded to Outperform from Neutral at Credit Suisse and up tgt to $53 saying the risk-reward sets up well given stock’s recent sell-off following co’s earnings report in October; in gaming, Wells Fargo said they believe the recent pullback in USSB/iGaming-exposed stocks has created some interesting opportunities, and highlight CZR and PDYPY as top ideas for investors looking to gain exposure to digital gaming; seeing travel and lodging names under pressure early before paring losses

·     MedTech Equipment; JPMorgan upgraded EW to Overweight with a $140 PT (from $114) as they view the company’s guidance as conservative and say it offers best-in-class growth with several positive data points, upgraded IART to Neutral as they are hopeful the new CEO can make more tangible strides toward its 5-7% revenue growth target, upgraded IRTC to OW with a $116 PT (from $100) on favorable risk-reward, a solid setup for 2022+, and meaningful growth opportunities, downgraded MDT to Neutral, removed it from its Focus List, and lowered its PT to $105 from $130 after setbacks to their most significant pipeline products, and resumed BAX at OW with a $95 PT as they see shares materially undervalued after closing the Hill-Rom deal

·     Asset managers; BMO Capital with a few changes as IVZ upgraded Invesco to Outperform from Market Perform with a $33 price target saying that sustained improvement in net flows and consequent benefit to organic revenue growth are not yet fully reflected; TROW upgraded to Outperform with a price target of $246, down from $253 as now sees high single-digit % upside to consensus EPS expectations following the announced takeover of Oak Hill Advisors; and BEN downgraded to Market Perform from Outperform with a $38 price target saying that benefits from the LM transaction have been slower to materialize than previously expected

Stock GAINERS

·     CERN +12%; after the WSJ reported ORCL is in discussions to acquire CERN in a deal that could be worth around $30B, saying a deal could be finalized soon, assuming talks don’t fall apart https://on.wsj.com/3s7yLbA 

·     EPAY +15%; after Private equity firm Thoma Bravo to buy co in an all-cash transaction valuing it at about $2.6B, with EPAY’s shareholders to receive $57 per share in cash, a premium of 16.7% to stock’s last close https://bit.ly/3E6CBnI

·     EW +2%; as JPMorgan upgraded EW to Overweight with a $140 PT (from $114) as they view the company’s guidance as conservative and say it offers best-in-class growth with several positive data points

·     FDX +6%; after announces new $5 bln share repurchase program along with a 2Q adj EPS beat of $4.83 vs est. $4.27 on revs $23.5B vs est. $22.47B, as continue to forecast improved earnings and margins for FY; sees FY 2022 EPS of $20.50-$21.50 vs. est. $19.64

·     NEM +2%; as gold miners a flight to safety with Gold prices edging higher

·     ZM +3%; strength in several off the stay-at-home beneficiaries (TDOC, W) during the pandemic amid the increased Omicron cases popping up around the global/fears of tighter restrictions

Stock LAGGARDS

·     DRI -6%; after issuing mixed FY22 guide as revs better $9.55B-$9.70B vs. $9.54B est. but EPS miss $7.35-$7.60 vs. $7.61 est., following an EPS, sales, and comp sales beat for Q2

·     FRPT -9%; after cutting FY21 guidance on supply chain issues as now sees FY21 sales of $425M to $430M vs. $445M prior view and $442M consensus; also sees adjusted EBITDA of about $42M for FY21 vs. $50M prior view and $49M consensus.

·     FUTU -5%; and TIGR shares tumbled on report that Chinese regulators are planning to ban online brokerages such as Futu Holdings Ltd and UP Fintech Holding Ltd from offering offshore trading services to mainland clients due to concern about data security and capital outflows

·     GM -5%; said Dan Ammann, the CEO of its majority-owned Cruise self-driving car subsidiary, is leaving co, effective immediately; GM did not give a reason for the departure

·     JPM -2%; as financials a drag on tumbling Treasury yields, with 10-yr hitting 1.37%

·     RIVN -14%; as reported non-GAAP adjusted EBITDA loss of ($-727Mm), below consensus of (-$690Mm), while generated roughly $1mm in revenue in 3Q with operating expenses amounted to $694mm – says expect to start production in Georgia facility in 2024

·     X -4%; issues Q4 2021 adjusted EBITDA is expected to be approximately $1.65B vs est. $2.13B; Q4 guidance indicates another quarter of strong performance yet reflects a temporary slowdown in order entry activity