Mid-Morning Look

Monday, February 22, 2021

U.S. stocks slide as rising bond yields fueled concern that a surge higher in big multiple technology shares could slow down. With today’s weakness, the S&P is on track for its 5^th straight day of declines as tech leads lower. Commodity prices are broadly higher with oil resuming upward momentum (WTI above $61 per barrel, Brent above $64), while copper rises again and gold reclaims $1,800 an ounce level as the dollar weakness and treasury yields slip after touching fresh 1-year highs earlier (10-yr above 1.37%). Bitcoin again attracting incredible attention, rising to highs above $58,000 yesterday before plunging to lows around $47,000 this morning and recovering (back around $53K). Busy day for M&A news with a bank deal (MTB acquired PBCT in $7B deal), some more SPAC deals, FRTA acquired in $2.7B deal and in autos, GT acquired tire maker CTB for $2.8B. Energy stocks among top gainers in the S&P given the spike in oil prices while airlines also leading after Deutsche Bank upgraded eight airlines. Dow component Boeing (BA) slides after an engine failure on a 777 aircraft over the weekend leads to UAL halting all flights by its 777 fleet. Media names get another good report as DISCA rises post earnings. Investors keeping a close eye on rising yields as the 10-year Treasury yield note was flirting with a rate of about 1.40%, raising worries that higher borrowing costs will derail the mostly bullish recovery for the equity market from the COVID-19 pandemic. Stocks could regain traction higher as the U.S. House of Representatives likely will vote on President Joe Biden’s proposed $1.9 trillion stimulus package by the end of the week. Markets also await another busy week of earnings (lots of “reopen” related stocks) as well as Federal Reserve Chair Jerome Powell in his semiannual monetary policy testimony before the Senate Banking Committee and on Wednesday before the House Financial Services Committee.

Economic Data

·     January Chicago Fed National Activity Index: +0.66 vs. +0.40 consensus, +0.41 prior (revised from +0.52). The M/M growth was led by improvements in personal consumption-related indicators

·     Leading Indicators for January rose +0.5% to 110.3 vs. +0.3% consensus and +0.4% prior (revised from +0.3%); coincident Economic Index +0.2% to 103.3.

Sector Movers Today

·     Auto sector; CTB +18%; to be acquired by GT for about $2.8 billion in cash and stock, with holders receiving $41.75 in cash and issue 0.907 shares which values Cooper at $54.36 a share, a roughly 24% premium from Friday https://on.mktw.net/3aM7ylP ; TSLA has stopped taking orders for the cheapest version of its Model Y electric SUV and removed it from its online configurator just a month into launching the vehicle, according to a report from Electrek; Lucid Motors is close to striking a deal to go public through a merger with blank-check company CCIV, Bloomberg reported this weekend. The new report builds on a Reuters article from February 16, but with a valuation level cited at up to $15B vs. the $12B cited just a few days ago. https://bit.ly/3k6Q3zA; Xos Inc, an electric commercial vehicle maker, agreed to go public through a merger with blank-check firm NGAC in a deal valuing the combined entity at $2 billion. The deal will provide Xos with $575 million in gross proceeds, including a $220 million private investment led by Janus Henderson Investors and a consortium of truck dealers led by Thompson Truck Centers.

·     Retailers; KSS rises after a group of activist investors that includes Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital confirmed a WSJ report over the weekend that it holds a 9.5% stake in Kohl’s through stock and call options and suggests unlocking real estate value; OSTK tgt raised to $126 from $98 at Wedbush and to $110 from Needham as expect strong Q4:20 results driven by holiday spend and strategic initiatives helping capitalize on the COVID tailwinds; FL was upgraded to outperform at Evercore/ISI as expects robust e-commerce momentum among other things; GME rises early after Reddit user Keith Gill doubled down on investment – showing Friday afternoon he bought an added 50K shares to bring total investment to 100K shares, worth about $4 million

·     Media & Telecom movers; DISH posted Q4 revs of $4.56B topping the $4.42B estimate on better EPS as Net Pay-TV subscribers decreased by ~133,000 to 11.29 mln in Q4, including 8.82 mln DISH TV and 2.47 mln Sling TV subscribers; DISCA reported Q4 adj EPS of 76c, beating ests by a nickel as revenue of $2.89B beat the $2.83B est. and said streaming subscribers should reach 12 million by the end of the month; USM, TDS both downgraded to neutral from Overweight at JPMorgan after earnings beat but lower 2021 growth and higher spend than expected; in Telco (VZ, T, TMUS), Opco notes Spectrum Auction Results are supposed to be out this Week but may be postponed until final payments are made; MSGS rises after saying NY Knicks expect to announce general public on-sale for march 4 game vs. Detroit (LYV shares also rise)

·     Metals & Materials; commodity prices continue to surge, with copper, oil, lumber, food all rising; LTHM upgraded to Buy at Argus based on expectations for gradually declining industry supply and meaningful improvement in lithium pricing beginning in 2H21; Bank America upgraded chemical companies DOW to neutral new PE forecast, primarily for US, but also Europe, is resulting in higher estimates and raised LYB to Buy as estimates are moving higher on account of a more bullish PE and PP backdrop

Stock GAINERS

·     CCIV +13%; Lucid Motors is close to striking a deal to go public through a merger with blank-check company CCIV, Bloomberg reported this weekend. https://bit.ly/3k6Q3zA

·     CTB +25%; to be acquired by GT for about $2.8 billion in cash and stock, with holders receiving $41.75 in cash and issue 0.907 shares which values Cooper at $54.36 a share, a roughly 24% premium from Friday https://on.mktw.net/3aM7ylP

·     FRTA +3%; to be acquired by Quikrete Holdings, Inc. for $24.00 per share in an all-cash transaction valued at approximately $2.74 billion, including outstanding debt https://on.mktw.net/3kbDZNq

·     GLOG +18%; after BlackRock’s Global Energy & Power Infrastructure team agrees to acquire the company for $5.80 per share, a 17% premium from Friday’s close

·     GME +17%; after Reddit user Keith Gill doubled down on investment – showing Friday afternoon he bought an added 50K shares to bring total investment to 100K shares, worth about $4 million

·     KSS +8%; rises after a group of activist investors that includes Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital confirmed a WSJ report over the weekend that it holds a 9.5% stake in Kohl’s through stock and call options

·     PBCT +10%; to be acquired by MTB in all stock transaction in deal valued at about $7.6B, confirming a weekend report by the WSJ; People’s United shareholders will receive 0.118 of a share of M&T common stock for each People’s United share they own https://bit.ly/3aF4iIO

·     PFG +8%; announced a strategic review of its business mix, capital management, and capital deployment options; will also add two new independent directors to its board after holding talks with one of its largest investors, Paul Singer’s Elliott Investment Management

Stock LAGGARDS

·     BA -3%; shares fall as co recommends suspending use of its 777 jets with Pratt & Whitney 4000 engines, after a UAL plane’s engine shed debris over Denver on Saturday/U.S. regulators announce extra inspections; note RTX owns Pratt & Whitney

·     BCLI -29%; as FDA says company’s current data from a late-stage study to treat amyotrophic lateral sclerosis (ALS) does not support filing of a marketing application

·     EBIX -48%; after RSM resigned as the company’s independent registered public accounting firm. RSM said in a filing it was unable to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of unusual transactions.

·     MGI -24%; reported Q4 EPS 12c vs est. 7c on revs $323.3M vs est. $326.7M and suspending trading on Ripple’s platform due to its ongoing SEC litigation

·     MOGO -12%; sold ~5.35M common shares at $10.10 per share in a registered direct offering, for gross proceeds of ~$54M; shares down about 10%

·     OTIC -43%; as its late-stage study testing Otividex, its drug to treat Meniere’s disease, did not meet the main goal

·     PBR -22%; after Brazil President Jair Bolsonaro moves to fire state-led PBR’s CEO, Roberto Castello Branco; intends to replace him with a retired army general – move follows Branco’s insistence to set PBR’s fuel prices independent of political pressure, as Reuters reported last week

·     VTRS -10%; after provided a downbeat 2021 revenue outlook, while saying it was initiating a dividend; guides FY21 revs $17.2B-$17.8B vs. est. $18.4B and lower FCF outlook