Mid-Morning Look

Wednesday, May 05, 2021

Stocks were looking strong on the open, recovering after yesterday’s declines, but a combination of mixed economic data (ISM services better, but down MoM and showed highest reading in prices paid since 2008 – and ADP private payrolls strong gain, but below ests), along with more Fed speakers, pushed stocks off the highs. U.S. Treasury Secretary Janet Yellen said late Tuesday she sees no inflation problem brewing, downplaying earlier comments that rate hikes may be needed to stop the economy overheating as President Joe Biden’s spending plans boost growth. Her initial comments accelerated a sell-off in tech stocks on Tuesday, as investors worried higher rates would weigh on valuations of growth companies. Since then, some Fed speakers have come out refuting the market overheating (Evans this morning). Oil prices are looking higher again, around March highs, along with gains again in several commodity prices (copper, corn, palladium), while the dollar is flat. The cryptocurrency craze continues with Ethereum hitting record highs the day prior and Bitcoin cash (BCH) along with Dogecoin grabbing headlines again today.

Economic Data

·     ADP said private payrolls rose by 742,000 jobs last month, the largest gain since last September (but below ests of 800K), while data for March was revised higher to show 565,000 jobs added instead of the initially reported 517,000.

·     Markit U.S. services sector final PMI for April at 64.7 vs flash reading 63.1 and final March 60.4; the U.S. services sector final new business index for April at 64.3, a series record going back to October 2009, vs flash reading 63.2 and final March 58.7; Services sector final input prices index at series high going back to October 2009; new orders index for April at 63.9 vs flash reading 62.9

·     ISM report on U.S. Non-manufacturing sector shows PMI 62.7 in April (below consensus 64.3) and down from prior 63.7 in March; business activity index 62.7 in April (consensus 69.5) vs 69.4 in March; prices paid index rises to 76.8 in April vs. 74.0 in March (highest since July 2008) while new orders slipped to 63.2 in April vs. 67.2 in March

Sector Movers Today

·     Semiconductors; AAPL said it awarded IIVI an additional $410 million from its Advanced Manufacturing Fund (more than doubles the total award to II-VI, after an initial $390 million award in 2017); LSCC beat and raise revenue and EPS was driven by broad based strength in its three target segments of Communications & Compute, Industrial & Automotive, and Consumer; XLNX reported MarQ rev/EPS of $851M/$0.75, and did not guide the JunQ given its pending acquisition by AMD beat and raise, with 2Q21 revenues guided to record levels (+12.3% vs. Stifel est.) backed by solid bookings, and capacity improvements

·     MedTech Equipment; BRKR with a top and bottom line Q1 beat and raises year organic revs view to +11% to +13%, from prior +7.00% to +9%; EXAS delivered a slight top line Q1 beat and initiated a Q2 guide slightly above consensus, but initiated a 2021 guide that came in just below the Street; GMED beat consensus revenue by 16% and EPS by 32% in 1Q21 driven by strong robotics implant pull-through, competitive rep hiring, new products, and improving biologics performance while raises its 2021 financial guidance; OMI posts Q1 adj EPS beat ($1.57 vs. est. 99c) and raises FY EPS outlook to $3.75-$4.25 per share from a previous $3.00-$3.50 per share; INSP reported another solid beat and guide up quarter; WAT with Q1 EPS and revs beat and guides both Q2 and year EPS views above estimates; ALC forecasts FY core EPS of $1.85-$1.95, below est. $1.96, and reported Q1 revenue of $1.91B missing the $1.92B estimate

·     Consumer Staples & Restaurants; MO downgraded to Hold from Buy at Argus noting it has seen a sharp decline in the value of its JUUL investment and is facing increased legislative and regulatory risks; HNST 25.81M share IPO priced at $16.00; PFGC Q3 EPS missed (19c vs. est. 28c) on better sales $7.2B (watch other food services SYY, USFD) and issues higher Q2 sales view ($8.2B vs. $7.5B); HLF Q1 results top consensus and raises FY 2021 net sales, adjusted diluted EPS forecast; DIN 1Q adj EPS $1.51 vs. est. $0.87 on revs $204.2Mm vs. est. $199.3Mm, IHOP comps -0.9%, Applebee’s comps +11.9%, says 99% of domestic restaurants open; currently cannot provide complete business outlook for FY; says April preliminary comps +11.4% Applebee’s, -4.7% IHOP; William Blair added PLAY to its near-term focus list as the company’s sales recovery thus far in the year sets it up to recover more than 90% of its pre-pandemic sales by the end of the year

·     Software movers; AYX reported qtrly rev above analyst estimates and loss per share narrower than expected, while guides Q2 revs $111M-$114M vs. est. $111.6M; PAYC reported an in-line revenue quarter (vs a ~2% average top-line beat in 2020) owing to a greater-than-expected one-time headwind from annual form processing; MCFE reported a significant upside 1Q, led by revenue growth of 25% Y/Y that beat forecast and 885K subscriber adds, which accelerated q/q – while Q2 guidance implies q/q consumer revenue declines, affirmed year; RNG reported strong Q1 results, driven by accelerating growth in enterprises (ARR growth of 62% Y/Y vs. 55% in Q4), strong momentum with partnerships (in early stages) and increasing CCaaS attach rates

·     E&P and Majors; PXD delivered adjusted EPS and EBITDA ahead estimates, excluding PE integration expenses; DVN Q1 adj EPS 45c vs. est. 33c. operating cash flow $592M, EBITDAX $959M, oil production 268k barrels per day exceeded the quarterly guidance by 5k, said it is on track to achieve its full-year 2021 capital objectives; BRY Q1 adj EPS $0.07 vs. est. ($0.07) on revs $94.2M vs. est. $118.9M; WTI posted Q1 EPS 11c on revs $125.65M that topped consensus views that called for 4c on $114.2M; CRK reported Q1 EPS 25c vs est. 12c on revs $332M vs est. 4 and average production 1.281bcf/day; MGY Q1 EPS 38c beat est. 26c on sales $207.66M that beat est. $190.10M; PVAC Q1 EPS 39c was below est. 41c on sales $88.56M above est. $73.10M; Bank of America upgraded COP to Buy and upped its pt to $67 from $65 on its improved balance sheet and sale of its CVE stake, combined with a pullback since March

Stock GAINERS

·     AYX +6%; showed some early signs of recovery as revenue growth of 9% improved from 3% in Q4, and ARR grew 27% and mgmt raised its FY21 ARR guidance by $10M to $635M

·     BGFV +20%; said Q1 same-store sales rose 31.8% vs guidance of 20% growth, reflecting broad-based demand for apparel, footwear and hardgoods; for Q2, sees comps to increase 22%-27%

·     CHMA +54%; after UK-based Amryt Pharma Holdings agreed to buy the co for $296.7M in an all-stock deal, gaining access to co’s hormonal disorder drug Mycapssa

·     CZR +6%; reported a Q1 EPS loss ($2.03) vs. est. loss ($1.80) on in-line revenue $1.7B, same-store adj EBITDA $548M (+34% YoY) beating consensus

·     EQOS +8%; as HC Wainwright said it initiated the cryptocurrency trading, management, and custody company with a Buy rating and said setting an ultra-conservative $12 price target at a rough 50% discount to the stock’s recent high

·     MTCH +5%; as revenue and ebitda beat on strength in Tinder and is tracking toward high-end of 2021 guide – MTCH’s average subscribers of 11.1mn increased 170k q/q

·     ODP +9%; said it will spin off its distribution platform, used by schools, offices and other businesses to buy supplies, into a separate company and announces a new $300M buyback

·     TUP +9%; Q1 EPS of 82c tops the 54c estimate on better sales or $460M amid an increase in activity and productivity of the direct selling sales

Stock LAGGARDS

·     ALC -6%; forecasts FY core EPS of $1.85-$1.95, below est. $1.96, and reported Q1 revenue of $1.91B missing the $1.92B estimate

·     DASH -2%; Bloomberg reported the Biden administration plans to block a regulation that would have made it easier to classify gig workers as independent contractors – decision could mean that GRUB, UBER, LYFT face a higher risk of having to classify drivers as employees

·     ESPR -31%; slides as Q1 sales disappoint, weighed down by pricing dynamics as U.S. revenue of $6.35M missed CSFB Rx-implied estimate of ~$11M

·     HFC -8%; posts bigger-than-expected Q1 loss as refineries ran below planned production in the Q1 at 348,000 barrels per day (bpd), 2,000 bpd below guidance

·     LL -12%; as reported Q1 EPS 34c vs. est. 23c on lighter revs, while comps rose 6.9%, missing the 10.5% estimate and is not providing guidance

·     MRCY -19%; as revised lower its FY21 revenue outlook and organic growth outlook citing timing and execution issues

·     PTON -5%; issuing voluntary recalls of its Tread+ and Tread treadmills, U.S. Consumer Product Safety Commission (CPSC) says

·     WRK -4%; posts top and bottom line miss as Q2 adj EPS 54c missed the est. 61c and revs of $4.4B below est. $4.51B – did say successfully implementing published PPW price increases across all major paper grade