Mid-Morning Look

Thursday, February 25, 2021

Markets sliding after massive gains Wednesday in what was an extremely busy morning of earnings, economic data, and additional focus on the rise in Treasury yields, with the 10-year making new highs up over 8 bps topping the 1.47% level and the 30-year above the 2.3% mark. Despite the Fed continuing to say inflation expectations remain low and they won’t raise rates until next year (saying rather overshoot inflation), prices are rising everywhere, most evident in commodity markets as lumber trades recent record highs and oil at 13-month highs, along with surging food prices. The inflation fears have been creeping up, impacting some of the most richly valued names in tech over the last 2-weeks as the Nasdaq Composite underperforms the Dow and S&P. January Reddit “meme” short squeeze names (GME, KOSS, AMC, BBBY, NOK, BB) saw massive volume and buying late Wednesday that carried into markets overnight/this morning and grabbing attention of the media once again. Bitcoin prices quietly move back above the $50K level, while gold prices tumble over 1% but oil prices remain flat. The earnings barrage continued but begins to slow up heading into next week (recap of some top movers below). Economic data was mixed with jobless claims much better in latest week, while GDP prelim was in-line with estimates and pending home sales dipped.

Economic Data

·     U.S. Preliminary Q4 GDP (2^nd estimate) +4.1% vs. est. 4.2% and +4.0% previous estimate which reflects upward revisions to residential fixed investment, private inventory investment, and state and local government spending that were partly offset by a downward revision to PCE; PCE price index +1.6% vs. +1.5% previous estimate and core PCE price index +1.4% vs. +1.4% estimate

·     US jobless claims fell to 730,000 in latest week, much improved from prior week 841,000 and consensus of 838,000; the 4-wk moving avg fell to 807,750 from 828,250 prior week; continuing claims fell to 4.419M in latest week (vs. est. 4.467M) from 4.520M prior week and U.S. insured unemployment rate fell to 3.1% from 3.2% prior

·     Durable Goods orders for January rose +3.4% vs. est. +1.1% and vs. Dec +1.2%; Durables ex-transportation orders +1.4% vs. est. +0.7%; and durables ex-defense orders rose +2.3% vs. December +1.4%; durables shipments +2.0% vs. Dec +2.1%

·     Pending home sales index for January fell -2.8% vs. est. for unchanged though pending home sales rose +13.0% from Jan 2020

Sector Movers Today

·     Semiconductors; NVDA tgt raised by several analysts (Needham street high $800) after reported a strong JanQ and guided to a BIG AprQ rev/EPS of $5.3B/~$3.26, with continued strength in gaming (JanQ data center was up 97% y/y with MLNX and Ampere ramps, and gaming 67% y/y with higher DT/NB GPUs with RTX 30 Series ramps as per Mizuho); NXPI upgraded from Neutral to Buy with $225 tgt at Citigroup as recommend investors increase leverage to the cycle and NXP has higher than average leverage to semiconductor cycles (upturns and downturns), especially given NXP’s high (48% of 4Q20 revenue) exposure to the automotive industry; Mizuho upped tgts on and ests for MU, WDC, reiterating Buy and raising PTs on MU to $100, WDC to $80 and INTC to $70 after checks in the memory and PC supply chain; PLAB downgraded to Hold at Stifel as do not see any new catalysts for the name and admittedly, the margin profile is weaker than we thought going in after earnings

·     Media & Telecom movers; VZ and AT downgraded to perform from outperform mainly on valuation at Oppenheimer as C-Band Auction results were released, and the quiet period should end March 10. VZ bid $45.4B or ~$13M per license. T won 1,621 licenses for $23.4B compared to our $20B forecast. Opco said think VZ bid aggressively to catch up with TMUS’s 5G network quality. TMUS spent $9.3B for 142 licenses, likely coverage gaps. Positively, TMUS already has a large swath of 2.5GHz spectrum and it plans to have 5G nationwide coverage with mid-band by year-end. Surprisingly, Cable (CHTR, CMCSA) and DISH 4Q adj EPS $1.04 vs. est. $1.02 on revs $6.874B vs. est. $6.885B, domestic streaming subs 19.2Mm +71% YoY, qtrly global streaming subs +56% to nearly 30Mm; qtrly global streaming and digital video revs +71% to $888Mm; said it expects to reach as many as 75 million global streaming subscribers by the end of 2024

·     Consumer Staples; BUD posted Q4 EPS and sales above views; SAFM posted big EPS and sales beat as reported a $9.5 million profit in the three months ended Jan. 31 compared with a $38.6 million loss a year earlier (net sales $909.3M vs. est. $843.2M); TWNK reported better than expected 4Q results with sales and EBITDA above consensus expectations; SJM Q3 EPS $2.45 beat est. $2.23 on Sales (org +7.7 vs. est. 5.2%) and SD&A and margins slightly below; KDP Q4 EPS missed on higher SG&A but otherwise right in line as FY21 guide of EPS growth 13-15% and Rev +3-4% is what mgmt was communicating during the qtr; OpCo said they are buyers of the recent dip in COST (-10% YTD vs S&P 500 +3%) and the weakness creates an attractive entry point for investors with shares now trading at levels consistent with historical troughs on a relative P/E basis; Cleveland Research raised their Q4 comps and EPS on ULTA

·     Utilities; AEP Q4 EPS 87c beat est. 79c on revs $3.6B which missed est. $4.24B and sees FY21 EPS $4.55-4.75 which sandwiches the $4.65 estimate; PCG Q4 adj EPS 21c matched consensus expectations on in-line revs $4.75B and they see FY21 EPS $0.95-$1.05 (est. $1.22), Adj EPS loss between (38c)-(52c); SRE Q4 adjusted EPS $1.90 vs. est. $1.60 on revenue $3.17B (+7.7% YoY) vs est. $3.12B, and reaffirmed its FY21 EPS guidance of $7.50-8.10; CNP posted Q4 EPS 27c on revs $2.05B vs estimates for 20c on $2.35B and raised its FY21 EPS view to $1.24-1.26; ORA posted Q4 adj EPS $0.39 vs est. $0.35 on revs $179.4M (-6.8% YoY) vs est. $182.8M and forecasts FY21 rev $640-675M (est. $707M) and adjusted EBITDA $400-410M; OGE announced Q4 EPS 27c (est. 29c) on revs $485.4M (est. $562.62M) and seed FY21 EPS $1.76-1.86, below expected $2.19; AES Q4 EPS 48c slightly beat est. 44c and revs $2.56B came in below consensus $2.78B and its FY21 EPS forecast $1.50-1.58 bracketed $1.56 estimate; WTRG Q4 EPS 46c vs est. 45c on sales $492.92M vs est. $558.3M and sees FY21 EPS $1.64-1.69 (est. $1.67); SJI Q4 EPS $0.62 vs est. $0.54 on revs $1.54B; AWK reported Q4 EPS 80c, slightly above 79c estimate, on revs $923M, below $963.9M estimate, and is expecting FY21 EPS $4.18-4.18 (est. $4.24)

·     Healthcare services and providers; TDOC 4Q beat and in-line 2021 revenue guidance though 2021 guidance for US paid membership implies ~2% growth (~5% ex-temporary roll-offs at 2020-end), representing a meaningful deceleration vs the 2020 COVID year; AMED posted a modest 4Q beat and provided in-line initial 2021 guidance; HCA purchasing 80% of Brookdale’s Home health, hospice and outpatient therapy biz; SDC says it plans to launch its teeth straightening services in the Netherlands; NEO downgraded at Raymond James as the fundamental outlook and M&A potential are fairly well understood in the market and, given these dynamics, and believe the current valuation offers limited near-term upside

Stock GAINERS

·     GMBL +28%; after Citron research suggested, “It is opinion of Citron that GME next move is obvious and easy to justify stock price. They should buy GMBL. Listen to your customers…they like to gamble and they like video games” https://bit.ly/3qTSxDZ

·     GME +44%; on no specific news, rhyme, or reason – the January Reddit “meme” short squeeze names (KOSS, AMC, BBBY, NOK, BB) saw massive volume and buying late Wednesday that carried into markets overnight and this morning)

·     LB +3%; posted a strong earnings beat with EPS $3.03 topping est. $2.91 on in-line revs $4.81B, comp sales +10% YoY (+22% at BBW, -3% at VS) with operating margin expansion at both VS and BBW, and guides Q1 EPS 35-45c (est. 12c)

·     MRNA +7%; after providing an update on its COVID-19 vaccine delivery target expectations and strategy to combat key variants, though pared some of those gains after announcing its CMO would be resigning

·     PAND +131%; MRK to acquire PAND for $60 per share in cash, more than twice Pandion’s current share price in a deal valued at abut $1.85B

·     PWR +4%; 4Q adj EPS $1.22 tops $0.99 estimate on revs $2.91B vs. est. $2.92B and guides FY21 revs $11.95-12.35B above est. $11.91B

·     TNDM +8%; delivered strong Q4 results and guided for 2021 well above consensus expectations – 4Q results (revs $168M vs. $140M cons) and providing ’21 guidance above street consensus ($600M to $615M vs. $564M cons)

·     TWTR +8%; announced three long-term goals: sees at least double total annual revenue from $3.7 billion in 2020 to $7.5 billion or more in 2023, sees double development velocity by the end of 2023 and expects to reach at least 315 million MDAU in Q4 2023

Stock LAGGARDS

·     BBY -5%; reported Q4 adj EPS $3.48 vs est. $3.45 on revs $16.94B vs est. $17.24B, enterprise comps +12.6% that missed +14.5% estimate, guided enterprise comps Q1 +20% and FY22 -2% to +1%, sees Q1 and FY22 enterprise adj gross margin down slightly from FY21

·     BKNG -4%; reported Q4 adjusted EBITDA of a $38M loss (est. -$61M), while gross bookings of $7.3B declined 65% y/y, in slightly better than the 68% decline assumed by the Street (results come in better than feared – but shares with massive rally into results)

·     NTAP -10%; among top decliners in the S&P after Q3 profits despite a rise in revenue in the period (80 vs. $1.21 comp year ago) and net income was $182M vs. $277M YoY

·     PZZA -11% and DPZ fall after earnings; DPZ misses on earnings and sales as Q4 EPS of $3.46 per share, missed expectations of $3.89 and sales of $1.357B also trailed analysts’ projections; PZZA missed on earnings expectations for 4Q as EPS of 40c missed the 48c estimate

·     RCL -4%; cruise lines give up recent gains; NCLH reported a fourth straight wider-than-expected quarterly loss, but revenue beat expectations and said bookings have been “strong” for future periods

·     TDOC -5%; 4Q beat and in-line 2021 revenue guidance though 2021 guidance for US paid membership implies ~2% growth (~5% ex-temporary roll-offs at 2020-end), representing a meaningful deceleration vs the 2020 COVID year

Syndicate:

·     Adamas Pharmaceuticals (ADMS) 12.5M share Spot Secondary priced at $4.40

·     American Public Education (APEI) 3.2M share Spot Secondary priced at $25.00

·     Avita Medical (RCEL) 2.795M share Spot Secondary priced at $21.50

·     Green Plains (GPRE) 7.6M share Spot Secondary priced at $23.00

·     InflaRx (IFRX) 15M share Spot Secondary priced at $5.00

·     Tronox (TROX) 19.11M share secondary priced at $18.25