Mid-Morning Look

Tuesday, January 05, 2021

After starting out the year with losses, stocks are drifting higher on Tuesday ahead of Georgia’s Senate runoff elections results later today which has received mass media attention as it will determine the balance of power in Washington. While a “blue sweep” of Congress could warrant greater fiscal stimulus to aid the economy, it could also allow President-elect Joe Biden to push through greater corporate regulation and higher taxes, hurting some areas of the market. Congress is still controlled by Democrats, while the tight Senate seat control shows Republicans hold the majority at 50-48. If Democrats win both seats, that will mean control of the House, Senate and White House, making it easier for Democrats to pass bills without challenge. If incumbent Georgia Republicans David Perdue and Kelly Loeffler hold their seats, the GOP will have majority control and greater ability to block President-elect Joe Biden’s agenda and proposals from the Democratic-controlled House. All major S&P sectors were higher, with energy stocks leading on the back of higher oil prices, recovering after sliding Monday as OPEC+ production meetings are ongoing. In the near term, investors also remain focused on the coronavirus pandemic, with elevated infection levels and the likelihood of restrictions on social and business activity potentially setting back the global economic recovery. A highly contagious strain of Covid-19 recently discovered in the U.K. has also been found in New York, the state’s governor said Monday.

Economic Data

·     ISM Manufacturing activity index for Nov reported 60.7 in December (above consensus 56.6) vs. 57.5 in November; prices paid index 77.6 in December (vs. est. 65.7) and vs. 65.4 in November; new orders index 67.9 in December vs 65.1 in November; the employment index 51.5 in December vs 48.4 in November – PMI at highest since august 2018

Sector Movers Today

·     Semiconductors: Apple supplier Dialog Semiconductor (DLGNF) raised their Q4 guidance last night and iPhone assembler Hon Hai Precision reported revenues above Street estimates on strong 5G iPhone demand; QCOM said CEO Steve Mollenkopf will be stepping down from his post on June 30 and replaced as CEO by Cristiano Amon, the company’s current president, who was unanimously selected by Qualcomm’s board of directors; MU upgraded to Buy from Sell at Citigroup and raise tgt to $100 from $35 based on belief that the long-awaited upturn in DRAM (68% of F20 revenue) is about to materialize, which should drive upside to Micron EPS and stock; AMBA tgt raised to $115 from $90 at Craig Hallum as take a look AMBA both in terms of its applications (Auto and Security), but also its transition towards greater CV exposure

·     Solar sector active as Goldman Sachs upgraded ENPH to Buy and downgraded FSLR (to sell) and CSIQ (to neutral) where they see an average of ~1% upside to Solar coverage and remain constructive, albeit a bit more selective, on the group heading into 2021. Firm said across verticals, stock selection is leaning more toward residential solar, where we rate installers like NOVA and SPWR at Buy, while we also upgrade inverter manufacturer ENPH to Buy. FSLR downgraded to Sell from Buy with 20% downside to our revised 12-month target of $81 from $101 predicated upon our view that FSLR’s gross margins and EPS power are peaking n-t

·     Media & Telecom Movers; FUBO rebounds after seven days of declines, defended by Needham as reiterate buy and $60 tgt saying never expect FUBO to be forced to absorb 6x shares traded again, which implies that this is a floor (company also raises Q4 revs $94-98M vs. $86.6 est. (prior $80-85M); CCO downgraded to neutral from buy at Citigroup saying while they are likely in the midst of an ad recovery, at prevailing values, think the market has already priced in a return to 2019 EBITDA in 2022; China Telecom Corp Ltd (CHA), China Mobile Ltd (CHL) and China Unicom (CHU) shares rise after the NYSE reversed its decision to delist the three stocks, citing further regulatory guidance

·     Leisure and Gaming; CHDN announced today it will move to a single brand strategy for its online wagering segment by rebranding the Company’s sportsbook and iGaming platform as TwinSpires; UBER named a top pick with $60 tgt at Needham today on the basis that it is well hedged for both basic recovery scenarios that aren’t yet fully reflected in the stock; IGT completed regulatory approval in Nevada for its Resort Wallet, which allows players to use a loyalty card to wager on slot machines and is the first in cashless slot play in the state; ABNB was downgraded to Neutral with a $120 pt at Atlantic Equities, initiated at Neutral with a $150 target by Citi who says the stock is a growth name and a beneficiary of the vaccine rollout but their Neutral rating is due to very aggressive valuation, and BTIG says their street-high estimates are closer to the mark

Stock GAINERS

·     ALB +6%; after being upgraded to in-line from underperform at Evercore ISI this morning and tgt to $160 from $86 saying electric vehicle penetration rate expectations have increased

·     BILI +5%; on reports plans to raise over $2 bln through a secondary listing in Hong Kong, CNBC reported, saying the company will likely file with regulatory authorities for its proposed offering by end of the current week or early next week

·     BPFH +30%; SIVB agrees to acquire BPFH for about $900M of stock and cash as holders will get 0.0228 shares of SIVB common stock and $2.10 of cash for each BPFH share they own, valued at about $10.94 each https://bit.ly/2JJK0Db

·     CHA, CHU, CHL all rise; after the NYSE reversed its decision to delist the three stocks, citing further regulatory guidance. The NYSE originally said it would delist the securities following the U.S. government’s move to block investment in firms owned or controlled by China’s military

·     CYTH +48%; after saying its lead candidate, Trappsol Cyclo, to treat Niemann-Pick Disease Type C showed disease stability or improvement in an early-stage trial

·     FANG +6%; big bounce in energy stocks across the board (OXY, DVN) as Saudi Arabia and Russia reached a compromise over oil policy among the world’s biggest producers, agreeing to keep production in check through February and then start ramping back up again in March – Reuters

·     FUBO +22%; rebounds after seven days of declines, defended by Needham as reiterate buy and $60 tgt saying never expect FUBO to be forced to absorb 6x shares traded again, which implies that this is a floor – company also raises Q4 revs $94-98M vs. $86.6 est. (prior $80-85M)

·     MRKR +41%; as the FDA lifted the partial clinical hold on its Phase 2 trial, evaluating MT-401, the company’s lead multi-tumor-associated antigen-specific T cell product candidate for AML

·     MU +4%; upgraded to Buy from Sell at Citigroup and raise tgt to $100 from $35 based on belief that the long-awaited upturn in DRAM (68% of F20 revenue) is about to materialize, which should drive upside to Micron EPS and stock

Stock LAGGARDS

·     CAG -1%; Credit Suisse shifted back to a bearish view on packaged foods to consider the expectation for two years of sales declines compared to peak levels as downgraded CAG and BGS to underperform and remain underperform

·     FSLR %; downgraded to Sell from Buy at Goldman Sachs with 20% downside to our revised 12-month target of $81 from $101 predicated upon our view that FSLR’s gross margins and EPS power are peaking in the near-term

·     FTNT -2%; downgraded along with OKTA and RPD to neutral at Piper in software space, while upgraded DOCU and upped tgts on several security related names

·     PHM -2%; Bank America downgraded to underperform as believe a lower valuation multiple could be warranted as the market balances strong mid/longer-term fundamentals with increased affordability concerns