Mid-Morning Look

Wednesday, March 17, 2021

U.S. markets are lower, led by weakness in the tech heavy Nasdaq Composite which slides more than 1% initially as the impact of higher Treasury yields ahead of the FOMC meeting is taking a toll on growth stocks, while the Dow Jones Industrials Average rise initially behind strength in banks and materials. The bond market, which has been fairly calm this week, looks jittery ahead of the FOMC decision and Chairman Jerome Powell’s press conference later today where the economy, inflation and current monetary operations are expected to be discussed. The 10-year Treasury yield jumped 4 bps to 1.66%, its highest levels since January of last year near, when they fell from a high of around 1.9%, while the 30-year is up 2 bps to 2.41% (highest since Nov ’19) and the 2-year is up a basis point to 0.16%. Tech and momentum shares have been the most sensitive to a rise in rates and are falling. At the same time, the Dow Jones Industrial Average again inching towards the 33,000 level, near record highs, led by shares of industrials and financials (CAT, BA, JPM). Housing data disappointed today with sharp declines in February Housing Starts and Building Permits. Software names active after several earnings results overnight, but attention this afternoon squarely on the Fed and Chairman Powell.

Economic Data

·     Housing permits for February fell -10.8% MoM to 1.682M, below the 1.750M estimate and down from January reading of 1.886M unit rate; housing Starts for Feb -10.3% to 1.421M unit rate, below the 1.56M estimate and January 1.584M rate; February single-family starts fell -8.5% to 1.040Mm unit rate and multifamily down -15.0% to 381,000-unit rate

Sector Movers Today

·     Auto sector; LYFT added to the Wedbush Best Ideas List and raising price target from $72 to $85 reflecting a stronger reopening trajectory into 2H21/2022, improved profitability, and long-term opportunities for stronger revenue per rider; UBER drivers in Britain to be paid minimum wage, as part of co’s agreement to grant workers’ rights after it lost a case last month to reclassify its more than 70,0000 drivers there as workers – UBER faces pressure of paying drivers in Britain minimum wage for the full duration they are logged into the app; auto retailer price tgts raised at Wells Fargo as ups tgts to $1,500/$535/$185 for AZO and reiterate bullish stance as see an onslaught of potential 2021 upside catalysts that are not reflected in valuation today; in February, new passenger car registrations in the European Union dropped by 19.3%, as COVID containment measures and uncertainty continue to weigh heavily on demand, reported the European Automobile Manufacturers Association.

·     Healthcare services and providers; AMZN to launch across U.S. this summer, offering millions of individuals and families immediate access to high-quality medical care and advice—24 hours a day, 365 days a year (shares of TDOC, AMWL slipped on headlines); CVS was downgraded to Neutral from Buy at Guggenheim and removing their price tgt after the shares have had a substantial run since the week of Nov 2, the week the PFE Covid-vaccine efficacy data was first released to the market, significantly outperforming the S&P since that time (34% vs. 21%); OTRK was upgraded to Buy with $46 tgt at Canaccord on news Jonathan Mayhew will be taking over as CEO on April 12 saying the addition could enable them to regain its Aetna Behavioral Health contract for substance use disorder and potentially also add anxiety and depression conditions

·     Bitcoin news; Bitcoin drops around 3%, back below the $55,000 level after record highs above $60,000 this past weekend. Coinbase said it had registered about 114.9m shares for its direct listing on the Nasdaq, setting the U.S. cryptocurrency exchange up for the highest-profile listing from a firm primarily focused on digital currency. Bank America with a note today on bitcoin saying “Bitcoin supply is artificially scarce, demand drives prices Just like in other commodities, supply and demand drive Bitcoin prices. But there are twists. Bitcoin output is capped at 21mn coins and supply growth halves every 4 years. It is designed to become increasingly constrained. So demand swings are key to price moves. Indeed, we show major institutional announcements and miner reward cuts have been followed by upward Bitcoin moves. Similarly, flows into the Grayscale Bitcoin Trust (GBTC) appear to lead weekly Bitcoin returns”.

·     Casinos and Gaming; SKLZ files to offer 32 million shares, 17 million for the company and 15 million for selling shareholders; DKNG, PENN shares active as Oppenheimer noted the three critical digital gaming states, MI/NJ/PA, all released February digital OSB/iGaming revenue yesterday with key takeaway being that FanDuel is maintaining leading OSB share that the firm attributes to the strength in its Same Game Parlay offering. Notes DKNG ceded some OSB share in MI, where BetMGM was number – however, it’s still early in MI and we note that three of the four players DKNG/FanDuel/Barstool had negative net revenue in February

·     Retailers; DKS initiated with a Buy and $100 tgt at Williams Trading saying many investors do not appreciate that the success of DKS in 2020 was driven by the evolution of the Dick’s Sporting Goods brand, and the evolution of its digital omni-channel platform; LE reports Q4 EPS $0.60 vs guidance $0.54-$0.58 and revenue $538.4M vs guidance $528M-$533M; EBITDA $46.1M vs guidance $43M-$45M; guides Q1 EPS ($0.32)-($0.25) vs consensus ($0.47); CAL Q4 EPS $0.03 vs consensus ($0.01) and revenue $571.0M vs consensus $557.4M; GM slightly below consensus; Famous Footwear comps (1.8%) vs year-ago +5.1%; NKE earnings expected Thursday afternoon (3/18) as Cowen ups tgt to $173 and hiking EPS estimates for Q3, Q4 and into FY22 as believe fears over Europe lockdowns and Port issues in North America can be offset by underlying digital strength globally and in China; FNKO was upgraded to market perform at BMO Capital as appreciate the direction the company is headed, but remain concerned on the valuation

Stock GAINERS

·     BA +2%; industrials and materials pacing gains early in mixed tape, with CAT and DOW helping prop the Dow Jones Industrial Average higher

·     CRWD +4%; reported another strong quarter with Q4 EPS 13c and revenue $264.9M besting estimates of 8c on $250.4M, led by record ARR growth of $143M (+75% YoY vs +68% estimate), and sees Q1 EPS 5-6c (est. 3c) on revs $287.8-292.1M (est. $267.85M)

·     DKS +2%; initiated with a Buy and $100 tgt at Williams Trading saying many investors do not appreciate that the success of DKS in 2020 was driven by the evolution of the Dick’s Sporting Goods brand, and the evolution of its digital omni-channel platform

·     SMAR ; slips despite strong 4Q results as (4c) loss was narrower than est. (13c) loss and revs $109.9M beat est. $102.7M as demand returned in force with 49% billings growth, crushing estimate of 31% growth driven by large deals, strong sales execution, and an improving macro

·     TNXP +20%; says early results from a study in non-human primates showed its COVID-19 vaccine candidate, TNX-1800, protected both upper and lower airways of the animals on being challenged with the coronavirus

·     UAL +2%; strength in airlines and travel as reopen names holding up well

Stock LAGGARDS

·     ABBV -6%; as received an information request from the FDA for an updated assessment of the benefit-risk profile for Upadacitinib in psoriatic arthritis

·     KC -10%; after its outlook for Q1 rev between 1.83 bln yuan-1.93 bln yuan misses Refinitiv est. of 2.07 bln which reflects the relative late timing of Chinese Lunar New Year holiday in Q1 compared with 2020 and other business operations

·     KODK -8%; follows earnings results and files $500M mixed securities shelf

·     NRG -13%; downgraded at Wolfe Research after the company said Winter Storm Uri would have a more significant impact on its annual results – withdraws adj EBITDA, adj cash from operations and free cash flow before growth investments outlook for 2021 previously issued on March 1

·     PAE -7%; downgraded to hold from buy at Deutsche Bank and tgt cut to $10.50 from $12 due to the abrupt leadership transition and the potential for business disruptions and execution risks

·     PDD -8%; reported a Q4 loss that narrowed more than expected, as revenue more than doubled to beat forecasts thanks to online shoppers buying everything from groceries to luxury products, but shares slip as Colin Huang steps down as the chairman of board

·     PLUG -13%; as announced that it will need to restate its 2018–2020 financials because of accounting errors – Truist downgraded based on news and slashed tgt to $42 from $65

·     SKLZ -6%; files to offer 32 million shares, 17 million for the company and 15 million for selling shareholders

·     TDOC -7% as AMZN to launch across U.S. this summer, offering millions of individuals and families immediate access to high-quality medical care and advice—24 hours a day, 365 days

·     UBER -3%; as drivers in Britain to be paid minimum wage, as part of co’s agreement to grant workers’ rights after it lost a case last month to reclassify its more than 70,0000 drivers there as workers

Syndicate:

·     Colfax (CFX) 14M share Secondary priced at $46.00

·     Jowell Global (JWEL) 3.714M share IPO priced at $7.00

·     OLO (OLO) 18M share IPO priced at $25.00

·     Par Pacific (PARR) 5M share Secondary priced at $16.00

·     Renewable Energy (REGI) 5M share Spot Secondary priced at $67.00

·     Rubius Therapeutics (RUBY) 6.9M share Secondary priced at $29.00

·     Sun Country Airlines (SNCY) 9.091M share IPO priced at $24.00