Mid-Morning Look

Thursday, January 07, 2021

Thursday marks another record run for stocks, adding to yesterday record highs for the S&P 500, Dow, and Smallcap Russell 2000, while the tech-heavy Nasdaq Composite rebounds more than 2%, topping the 13,000 level for the first time after Congress certified Joe Biden’s Presidential victory overnight (after protests in Washington delayed the process yesterday), and President Trump pledged an orderly transition of power, easing investor concerns. To say momentum has been to the upside since the November Presidential election is a massive understatement, but the big push higher continues day after day as investors and markets continue their focus and attention on easy money through the Fed monetary policy (keeping rates at zero) and free money in the form of fiscal policy out of Washington with two stimulus packages to help the economy after the pandemic, with more likely in the pipeline with Democrats now controlling the White House, Congress and the Senate. Markets have also focused on the Covid-19 vaccine rollout news instead of the surging cases, have ignored slowing economic growth data points (ADP jobs this week) and the likelihood of rising corporate taxes under a “Blue Wave”. The buying optimism is flowing into building products, infrastructure, energy, financials, consumer, metals while defensive sectors are lagging (staples, utilities, and REITs). Sectors seen benefitting from Democratic power such as solar, electric vehicles and cannabis extending gains after their strong runs since the election. One of the wilder headlines today was that Elon Musk surpassed Jeff Bezos as the world’s richest man following the incredible run in TSLA shares over the last year as prices rise a 10^th day to a new record.

Economic Data

·     Weekly jobless claims fell to 787K in latest week, in-line with prior week and below the 800K estimate; the 4-week moving average fell to 818,750 from 837,500 prior week; continued claims fell to 5.072 mln vs. est. 5.200 mln and the US insured unemployment rate unchanged at 3.5%

·     The November International Trade gap widens to (-$68.10B) vs. estimate (-$66.80B) and prior (-$63.10B) as exports rose +1.2% to $184.20B and imports rose +2.9% to $252.30B

·     ISM non-manufacturing sector shows PMI 57.2 in December (vs. est. 54.6) vs 55.9 in November, growing for the seventh month in a row; Business activity index 59.4 in December vs. 58.0 in November; new orders index 58.5 in December vs. 57.2 in November and the employment index 48.2 in December vs. 51.5 in November.

Sector Movers Today

·     Bank movers; strength continues with Treasury yields rising further (10-year above 1.08%) and additional stimulus measure expectations offsetting rising corporate tax fears; Goldman upgraded FITB to Buy with a $35 pt expecting cost-cutting initiatives kicking in and revenues stabilizing in mid-2021 and possible greater reserve releases than its peers as it has greater reserves despite similar loss levels; Goldman also downgraded SC to Sell and lowered its price target to $21 as they believe the bank offers less upside than peers and reiterated their Buy rating on RF, though it removed the stock from its Conviction List after shares have more than doubled since being added to the list last March; Bank of America upgraded JPM to Buy and raised their target to $160 from $131 despite its current valuation and 2020 outperformance versus other mega-cap peers; Jefferies upgraded JPM, USB, WFC, HWC, PBCT, SNV, WBS to Buy as their 2021 outlook for the banks are about 15% above consensus for both 2021 and 2022 and they expect consensus estimates to broadly rise as clarity on the loss cycle emerges with vaccine progress, and they also downgraded TFC to Hold on valuation

·     Chemicals: APD downgraded to Hold at Jefferies saying it has the least cyclical leverage among the industrial gas companies, notes series of mis-steps on the first round of mega-projects and the benefits from the upcoming wave of CCS and hydrogen projects will likely accrue across the sector; ALB said it will expand capacity at its lithium production facility in Silver Peak, Nevada; MOS was upgraded to overweight at JPMorgan and raise tgt to $32 from $17 saying seems to be the most inexpensive of the agricultural companies and trades at the lowest multiple of EBITDA for 2021 of names under coverage; SMG tgt raised to $250 at Truist as like Hawthorne tailwinds, solid lawn/garden trends on extension of WFH trends, and new SOP on back of Hydrofarm IPO.

·     Consumer Staples; KO downgraded to Neutral from Overweight at JPMorgan (4th analyst downgrade of shares in as many days) due to the increased risk that KO loses its current tax dispute with the IRS; LW Q2 EPS 66c tops the 62c est. on better sales of $896M topping $876.8M and says North America and Europe shipments will remain soft during remainder of quarter; STZ announces new $2 billion share repurchase after the company beat estimates for Q3 and issued upbeat earnings guidance of $9.80-$10.05 vs. est. $9.44; Barclays downgraded food related names KR, ACI, UNFI and SPTN to Underweight as believe these Food retailers/distributors belong in the “Slippery” camp, will face challenges in FY21 due to tough compares; SMPL downgraded at Stifel to Hold solely on valuation as business continues to perform well and especially in light of the negative effect on the category from the pandemic/lockdown

·     Retailers; COST U.S. core same store sales (excluding fuel, FX) were up +11.0% in December (total company was up 10.9%), while US headline SSS (including fuel, FX) increased 9.6% and total company was up 10.7%; BKE reported comparable store net sales +17.9% and net sales +17.7% YoY for the 5-week period ending January 2, 2021; LB reported holiday net sales $3.836B (-1.8% YoY), comp sales +5% YoY, and guided preliminary Q4 EPS in the range of $2.70-2.80, above estimated $1.96; Barclays doubled down on their bullish outlook for retail in 2021, calling for a recovery in brick-and-mortar sales and named TJX as their top sector pick and upgraded CPRI and TPR to OW as companies poised to benefit from the sales recovery; Cowen upgraded FL to Outperform and upped their target to $55 from $38 as they think valuation is too cheap and that consensus is mismodeling sales and EPS through FY22

·     Auto sector; TSLA rises a 10^th straight day as analysts continue to be bullish, as RBC Capital upgraded to sector perform from underperform (with $700 tgt) admitting that we got TSLA’s stock completely wrong; RACE downgrade from Buy to Neutral at Citigroup noting shares are up 20% in the last 12 months while consensus 2021E EBIT estimates have fallen by 20%; DDAIF was added to catalyst call buy idea at Deutsche Bank; BLNK filed to sell 5M shares of its common stock (expected to price tonight); VNE downgraded to Underperform at RBC and raises tgt to $17 as lack conviction on VNE’s strategic pivot, believe mid-term margin/FCF trajectory could prove aggressive and see valuation as stretched

Stock GAINERS

·     ALNY +6%; after co reports positive late-stage data from protein disorder treatment

·     DDD +20%; after guiding Q4 revs to $170M-$176M, above the $140M est. and said non-Gaap operating income is expected to be $11M-$19M vs. $5.6M earned in the year ago period

·     DXC +9%; as Reuters reported France’s Atos confirmed on Thursday it has made a $10B bid approach for U.S. rival DXC Technology https://reut.rs/3opuj35

·     FCX +3%; copper prices hit their highest levels since 2013 for a third straight day, driven by expectations of infrastructure spending by incoming U.S. President Joe Biden after his party won control of the Senate (metals in general higher again)

·     OXFD +27%; to be acquired by PKI for $22 per share in deal valued at around $591M as deal expected to be completed in the first half of 2021 https://bit.ly/3s3rkQk

·     PLUG +30%; after South Korea-based conglomerate SK Group will take a 9.9% stake worth $1.5 billion in the hydrogen fuel cell maker and form a joint venture to help provide hydrogen fuel cell products to Asian markets (tgt raised to $60 at Hallum and $52 at FBR)

·     SPCE +6%; updated rocket update saying following the test flight on December 12, 2020, corrective actions have been defined and work is already underway

·     STZ +5%; announces new $2 billion share repurchase after the company beat estimates for Q3 and issued upbeat earnings guidance of $9.80-$10.05 vs. est. $9.44

Stock LAGGARDS

·     AYI -4%; as sales fell but earnings still rose slightly in the first quarter.

·     BBBY -9%; after missed on top and bottom line as Q3 EPS of 8c falls short of the 19c estimate and sales of $2.62B below the $2.75% view as total comp sales rose 2%

·     CAG -3%; food stocks generally weaker on day as CAG slips despite beat on top and bottom line

·     KO -1%; downgraded to Neutral from Overweight at JPMorgan (4th analyst downgrade of shares in as many days) due to the increased risk that KO loses its current tax dispute with the IRS

·     LVS said CEO Sheldon G. Adelson of both Las Vegas Sands and Sands China will take a personal leave of absence for medical reasons, effective immediately

·     MMM -3%; downgraded to Underperform from Neutral at Bank America

·     TWTR -1%; amid concern engagement will fall amid a Biden presidency

Syndicate:

·     Agree Realty (ADC) 3M share Spot Secondary priced at $65.00

·     Generation Bio (GBIO) 8M share Secondary priced at $24.50

·     Medical Properties Trust (MPW) 32M share Spot Secondary priced at $20.05

·     NeoGenomics (NEO) 4.082M share Secondary priced at $49.00

·     Prelude Therapeutics (PRLD) 2.208M share Secondary priced at $60.00

·     Playa Hotels & Resorts (PLYA) 35M share Spot Secondary priced at $5.00