Mid-Morning Look

Wednesday, February 03, 2021

Stocks open higher, led by strength in big tech after better earnings results from Alphabet (GOOGL) and Amazon (which was overshadowed by mgmt changes) as well as better economic data showing continued improvement in the U.S. economy (though markets have pulled back from highs in a bout of profit taking). Private payroll report from ADP showed 174K added jobs, topping the 50K consensus while the prior month was upwardly revised and the ISM services index is now above its pre-pandemic level, rising to its best levels in 2-years. Earnings have been stellar with more than 80% of reports from S&P 500 companies so far having surpassed expectations, with 97% of reports from technology companies beating, according to Refinitiv. Outside of the better earnings and improving data, market participants still hoping for additional fiscal stimulus to the tune of $1.9 trillion as proposed by President Biden, thought Republicans looking for much lower number. The air has certainly come out of the Reddit/WallStreetBets short squeeze over the last few days with GME, AMC, KOSS, EXPR, silver stocks, etc. well off their meteoric highs. In response to those recent market events, U.S. Treasury Secretary Janet Yellen is calling a meeting of top officials, including from the Securities and Exchange Commission and the Federal Reserve, this week to discuss market volatility. Another heavy dose of earnings after the close tonight with QCOM, PYPL, IAC, EBAY, KLAC, LNC, AFL, MET, ALL, among those expected.

Economic Data

·     January ADP Private Payroll jobs report stronger; showed +174K jobs added vs. +50K consensus while December payroll change revised to -78K from -123K.

·     IHS Markit January final composite PMI at 58.7 (vs. flash 58.0) and January final services PMI at 58.3 (vs. flash 57.5).

·     ISM Non-Manufacturing PMI (services) for January rose to its highest level in nearly two years, with growth in new orders and employment accelerating; index increased to a reading of 58.7 last month from 57.7 prior month and est. 56.8 (index is now above its pre-pandemic level); prices paid index 64.2 in January vs. 64.4 in December, new orders index 61.8 vs. 58.6 prior and employment index 55.2 vs 48.7 in December.

Sector Movers Today

·     Auto sector; Kia Motors (KIMTF) rises after Bloomberg reports the carmaker will sign a 4 trillion won ($3.59 billion) deal with AAPL to build electric vehicles https://bloom.bg/3jaxoT0 ; Ford (F) reports U.S. sales declined 8.3% to 143,578 vehicles in January and said truck sales down 8.6% to 74,928 units, Car sales squeezed 57% to 7,696 units and SUVs up 7.6% to 60,954 units; RACE downgraded to Sell from neutral at Citigroup; BLNK signs reseller agreement with Ballantyne Strong for deployment of electric vehicle charging stations at cinema operators, theme parks and other entertainment and leisure-related locations

·     Retailers; AMZN exceeded high expectations on the top & bottom lines, but the strong results were overshadowed by the announced CEO transition; GME active again after announced hired Matt Francis to the newly created role of chief technology officer, effective Feb. 15 (Francis most recently an engineering leader at AMZN’s AWS biz); CPRI shares rise on Q3 beat as EPS $1.18 vs. est. $1.01 on revs $1.3B vs. est. $1.33B, qtrly e-comm sales +65%, qtrly Versace global retail sales +dd, qtrly Kors revs -18.6%, qtrly Choo revs -26.7%, net inventory -18% yr/yr; not providing annual earnings guidance; KSS upgraded to Outperform at Cowen and raise tgt to $52 as think consensus EPS estimates under-appreciate KSS’s evolving model; TCS rises as Q3 adj EPS $0.42 vs. est. $0.33; Q3 revenue $275.5M vs. est. $262.16M; net sales in The Container Store retail business were $256.5 million, up 21.0%, inclusive of the 19.5% increase in Custom Closets

·     Software movers; TENB slides following disappointing Q1 revenue guidance of $118M-$120M, below the $121.2M estimate and downside year revenue outlook despite a Q4 beat; in video games, EA posted a slight beat in the Q3 holiday quarter for revs on in-line bookings of $2.4B but issued a lower Q4 outlook; FEYE delivered a solid finish to year-end 2020 displaying healthy upside on record revenue, ARR, profitability (operating margin/FCF), swiftly ahead of Street’s expectations; MANH reported upside to key metrics in 4Q20, including cloud subscription revenue, new RPO (bookings) and free cash flow while professional services revenue further stabilized; CHKP shares down 8% after softer Q1 and year guidance

·     Metals & Materials; US Steel (X) filed to sell 40M shares; FCX reinstated a cash dividend of $0.30 per share; steel producers NUE, STLC and STLD all upgraded to outperform from neutral at Credit Suisse as firm upgraded view of the US Steel sector to Overweight and raise TPs for most of coverage as expect they will benefit from capital efficient capacity growth and strong FCF; in chemicals, SMG shares rallied following its quarterly results

·     Media & Telecom movers; CMCSA was upgraded to Outperform and tgt upped to $60 at Cowen saying many of the headwinds that the co faced over the past 3 yrs. (namely Sky & NBCU) will begin to dissipate with the economy reopening; MSGS posted a larger than expected Q2 EPS loss of ($1.68) on slightly better revs of $28.77M; MTCH offers mixed forecast while topping estimates for latest quarter; WMG upgraded to Buy on valuation at Bank America

Stock GAINERS

·     BABA +5% as Bloomberg News reported that Ant Group Co. and Chinese regulators agreed on a restructuring plan to turn Jack Ma’s fintech giant into a financial holding company. Ant’s $37 billion IPO was suspended in November after Jack Ma blasted China’s regulatory system

·     CPRI +3%; on Q3 beat as EPS $1.18 vs. est. $1.01 on revs $1.3B vs. est. $1.33B, qtrly e-comm sales +65%, qtrly Versace global retail sales +dd, qtrly Kors revs -18.6%, qtrly Choo revs -26.7%, net inventory -18% yr/yr; not providing annual earnings guidance

·     GOOGL +8%; surged to new all-time highs, posting a record $56.9B revenue (est. $52.7B), up from $43.2B a year ago as ad revs jumped 22% YoY to $46.2B – while profit easily topped views at $15.7B vs. est. $11.9B and year ago $9.3B

·     GWPH +46%; JAZZ to acquire GWPH in $7.2B deal valuing GWPH shares at $220 ADS in cash each as the deal represents over 50% premium to GWPH’s Tuesday closing price (cannabis stocks active in sympathy as GWPH Epidiolex, an epilepsy treatment – was the first cannabis-based drug to win U.S. approval in 2018) https://on.mktw.net/2YI6NmF

·     SNE +8%; raised its full-year profit outlook amid more demand for games, movies and other content due to the lockdowns; now expects 940 billion yen ($8.95 billion) in operating profit in the 12 months through March compared with the 700 billion yen it previously forecast

·     TCS +13%; as Q3 adj EPS $0.42 vs. est. $0.33; Q3 revenue $275.5M vs. est. $262.16M; net sales in The Container Store retail business were $256.5 million, up 21.0%, inclusive of the 19.5% increase in Custom Closets

·     TLRY +14%; epilepsy treatment names ZYNE, CRBP, ZGNX, XXII active in sympathy as well as cannabis names CGC, APHA after GWPH acquired by JAZZ in $7.2B deal

Stock LAGGARDS

·     AMGN -2%; delivered modest top and bottom line beats (largely driven by volume growth), but shares dipped after issuing weaker FY21 guidance (guides FY21 adjusted EPS $16.00-$17.00 vs. est. $17.02 and revenue $25.8B-$26.6B vs. est. $26.43B

·     BIIB -4%; posted Q4 EPS miss $4.58 vs. est. $4.80 on revs $2.85B vs. est. $2.8B, while guidance disappoints as forecasts EPS $17.00-$18.50 well below the $24.67 estimate and 2021 revs $10.45B-$10.75B below $11.23B est.

·     CMG -3%; after missing Wall Street estimates for quarterly profit, hurt by costs related to keeping its business running during the COVID-19 pandemic – Excluding one-time items, the company earned $3.48 per share, missing the estimate of $3.73

·     SPOT -8%; following weak Q1 revenue and premium subscribers due to uncertainty revolving around COVID-19 guiding to range of 1.99B-2.19B euros, short of expectations of 2.23B euros

·     TENB -8%; slides following disappointing Q1 revenue guidance of $118M-$120M, below the $121.2M estimate and downside year revenue outlook despite a Q4 beat

·     VXRT -52%; plunges after it announces disappointing preliminary data from its Phase 1 study of VXA-CoV2-1, its oral COVID-19 tablet vaccine candidate saying that neutralizing antibodies were not detected in most of the subjects who were part of the study

·     VYGR -8%; shares tumble (downgraded by a few firms) after the company said NBIX provided notice that it would terminate the Parkinson’s disease portion of their collaboration agreement, effective Aug. 2

Syndicate:

·     Argenx (ARGX) 1.608M share Secondary priced at $320.00

·     Arcutis Biotherapeutics (ARQT) 5.5M share Secondary priced at $35.00

·     Krystal Biotech (KRYS) 1.923M share Spot Secondary priced at $65.00

·     Moleculin Biotech (MBRX) 14.274M share Secondary priced at $4.75

·     On24 (ONTF) 8.561M share IPO priced at $50.00

·     TELUS (TIXT) 37M share IPO priced at $25.00

·     U.S. Steel (X) 42M share Spot Secondary priced at $16.65