Mid-Morning Look

Friday, January 08, 2021

U.S. markets open higher, adding to weekly gains as the same market drivers that have lifted markets to records highs (accommodative fed, stimulus relief money, vaccine rollout) have continued to buoy sentiment alongside several upbeat guidance forecasts in the tech space (MU, ST, NEWR overnight). Markets opened higher, pushing aside another weak jobs report after a big miss on headline numbers for December (fell -140K vs. est. +71K), while prior month revised higher (private payrolls also a decline) while wages surged (+0.8% vs. est. +0.2%) and unemployment rate was steady at 6.8%. The nonfarm payroll report followed a disappointing ADP payroll report earlier this week. Gold extends losses slightly after U.S. non-farm payroll data, down over 3% while oil prices jump. The 10-year Treasury yield rises to 1.1% best levels in about 10-months while the dollar edges higher. Seeing weakness early in energy, solar, homebuilders, cannabis names (some of the week’s big gainers after Democrats took control of the Senate this week), while the momentum plays continue to grab media headlines (Bitcoin topped $41,000 today from $30,000 to start the week and Tesla tops $800B mkt cap). Markets prepare for earnings season kick off in about two weeks, with a big retail conference on tap next week. Smallcaps continue to dominate strength, rising about 6% the first few days of the year after a 20% advance in 2020, while financial getting a boost from a jump in yields.

Economic Data

·     Miss on headline jobs data: Nonfarm payrolls fell -140K vs. est. up +71K, (Nov revised to 336K from 245K), private payrolls fell -95K vs. est. +98K (prior month revised to 417K from 344K) and manufacturing payrolls rose 38K vs. est. 20K (prior revised to 35K from 27K); unemployment rate at 6.7% vs. est. 6.8%; averages hourly earnings spiked to 0.8% vs. est. 0.2%; U.S. labor force participation rate 61.5% in December vs 61.5% in November.

·     Wholesale inventories for November revised to unchanged (vs. est. -0.1%) from -0.1%; Nov stock/sales ratio 1.31 months’ worth vs oct 1.31 months; wholesale sales +0.2% vs oct +1.7%

Sector Movers Today

·     Semiconductors; another record high for the Philly semi index (SOX), led by MU posted Q1 numbers ahead of Dec 1st pre-announcement and guided 2Q higher as well as DRAM drove results with demand in mobile, cloud and auto (tgt raised by several analysts); STM preliminary Q4 revenue was $3.24B, topping its prior view of $2.99B plus or minus 350 bps, helped by smartphone demand as well as automotive products and microcontrollers; LRCX was downgraded to Hold from Buy at Needham as think the WFE industry is at an inflection point, where the growth driver is shifting from NAND in the last cycle to DRAM and foundry/logic in this new cycle; TSM reported December sales NT$117.37B, (6.0%) m/m, +13.6% YoY; IMOS Q4 revenue $224.7M (+13.3% Y/Y) as December revenue was $78.0M (+20.1% Y/Y; +6.8% M/M), helped by strong memory and DDIC demand throughout 2020

·     Housing & Building Products; RBC Capital with several changes as DHI was upgraded to Outperform while downgraded TPH and TMHC to Sector Perform in homebuilders. In building products MAS is their favorite long among BP OEM’s, while remain OP on AZEK and DOOR and remain underperform on MHK. In distribution, BLDR is favorite idea (macro tailwinds, lumber inflation, synergies) saying believe enthusiasm around housing is warranted into 2021 but we see risk that expectations are already lofty and a number of cross-currents present headwinds that could limit stock performance, so we recommend staying selective; WDFC shares jumped on better earnings and guidance as 1Q EPS $1.72 beat est. $10.3, sales $124.6Mm vs. est. $106.9Mm; guides FY sales $435-470Mm vs. est. $434.5Mm

·     Renewable & Clean energy: Raymond James made six rating changes: downgrading ITRI, LTHM, and TPIC from Strong Buy to Outperform; downgraded XYL from Outperform to Market Perform and cut ENPH from Market Perform to Underperform; but upgraded PRMW as all reflects an approach of being prudent and disciplined: locking in gains on some clear-cut winners, while staying on the lookout for opportunities on a selective basis; XYL was also downgraded to underperform at Cowen who lowered their estimates on the belief that further near-term upside is unlikely based on a slow recovery in key markets, mix and cost pressure on margins

·     Insurance; Evercore upgraded PGR to outperform, AFL and UNM to in-line from underperform and downgraded ATH and VOYA to in-line from outperform; Goldman upgraded CB to Conviction Buy with a $175 pt as the company’s broad platform and strong balance sheet position it well, RNR to Conviction Buy with a $199 pt as current valuation presents an opportunity to own shares, BRO to Buy with a $64 pt as they estimate it will have the highest EPS growth, adj EBITDAC margin expansion, and FCF margin in 2022 among brokers, WRB to Neutral as an insurer poised to benefit from stronger and stickier P&C rate momentum and downgraded PGR to Sell with a $90 pt, saying shares are overvalued with a lack of pricing power

Stock GAINERS

·     ACIA +10%; opted to terminate its merger with CSCO. The merger, announced last July, “was conditioned on the satisfaction or waiver of customary closing conditions, including obtaining necessary regulatory approvals within the timeframe contemplated by the merger agreement”

·     BNTX +5%; and PFE’s Covid-19 vaccine appeared to work against a key mutation in the highly transmissible new variants of the coronavirus discovered in Britain and South Africa, according to a laboratory study conducted by the U.S. drugmakers

·     CATM +12%; said that it received an offer from an undisclosed party for $39 per share in cash, above the prior $35 deal it reached with APO and Hudson Executive last month https://bit.ly/39fBJiW

·     FFIV +7%; reaffirms commitment to $1B in stock purchases; sees Q1 EPS top end of $2.26-$2.38 vs. est. $2.34 and revs between $623M-$626M vs. est. $605.2M; will acquire all issued and outstanding shares of privately held Volterra for approximately $500M

·     MRUS +27%; granted FDA fast track designation of zenocutuzumab for the treatment of patients with neuregulin 1 fusion cancers

·     MU +4%; posted Q1 numbers ahead of Dec 1st pre-announcement and guided 2Q higher as well as DRAM drove results with demand in mobile, cloud and auto (tgt raised by several analysts)

·     NEWR +8%; promotes Chief Product Officer Bill Staples to additional role of President and said it expects Q3 revenue and annual recurring revenue (ARR) above high end of guidance

·     ST +6%; raised Q4 revenue forecast to $902M-$907M from prior view $810M-$850M helped by higher orders and deliveries than anticipated for its automotive and industrial businesses

·     TSLA +6%; momentum continues – rising for an 11th straight session to another record high, up over 15% the first 5-trading days of the year after a more than 700% return in 2020, as bearish analysts have thrown in the towel this week (several upgrades)

·     WDFC +18%; shares jumped on better earnings and guidance as 1Q EPS $1.72 beat est. $10.3, sales $124.6Mm vs. est. $106.9Mm; guides FY sales $435-470Mm vs. est. $434.5Mm

Stock LAGGARDS

·     BA -1%; will pay $2.5 billion to resolve a criminal probe as it admitted that employees deceived aviation regulators about safety issues leading to two deadly crashes of the 737 MAX.

·     BLNK -2%; as 5.4M share Secondary priced at $41.00 per share

·     NEM -3%; gold miners fall with the drop in gold prices

·     NLTX -15%; following a clinical hold from the FDA related to its Investigational New Drug application to start a Phase 1 program of its immunotherapeutic candidate, NL-201

·     SRPT -49%; price tgt cut by several analysts (and a few downgrades) after the co’s DMD drug failed to achieve statistical significance in one of the main goals of a study while the drug, SRP-9001, met one of the goals of the study

·     VLDR -3%; guided Q4 revenue $15.5M-$16M (est. $29.5M) and 2020 revs $94M; said long-term outlook remains strong, but 2021 guidance withdrawn due to reduced near-term visibility