Mid-Morning Look

Friday, November 12, 2021

U.S. stocks holding modest gains early, extending Thursday’s bounce, but major averages are still on track to snap their 5-week winning streak (barring a midday rally) as another surge in inflation prices this week dented investor optimism. Economic data negative as the University of Michigan Sentiment Survey collapses to 11-year-lows as inflation expectations surge (headline sentiment plunged from 71.7 to 66.8 (way below the 72.5 expected) – that is the lowest since 2011. The data is just another reminder that the surging prices over the last year are having a more reaching impact on consumers than the Fed has suggested, which could trickle down to stocks. Treasury yields remain subdued despite the PPI, CPI and UoM data this week, with the 10-year holding below 1.6%, though note gold came into Friday with a 5-day win streak, and highest levels since the summer (as a hedge against inflation).

Economic Data

·     University of Michigan Sentiment data a big miss at 66.8 for Nov-P, a big miss and surprise below the consensus 72.4 (and final Oct 71.7); current conditions index prelim Nov 73.2 (consensus 80.0) vs final Oct 77.7 and consumers expectations index prelim Nov 62.8 (consensus 70.0)

·     U opening declined -191k to 10,438k in September after dropping -469k to 10,629k (was 10,439k) in August from the 11,098 all-time high from July which was the first time ever with an 11-handle. This is the second monthly decline of the year. Latest market craze remains companies “breaking-up” with JNJ announcing today it will split into two companies and Toshiba confirming prior reports it will split into three – both follow a recent move by GE splitting into three different companies (seeing movement in other industrial conglomerates today such as MMM). Seven of 11 S&P sectors are higher, led by Communication Services, while financials are at the bottom.

Sector Movers Today

·     Semiconductors; AAPL supplier Foxconn, cautioned that the global semiconductor shortage could last well into the second half of next year. Foxconn, which posted stronger-than-expected profits of $1.33 billion for Q3, said the ongoing shortage would mean revenues would likely fall 15% from 2020 levels over the final months of the year; SMIC said it will contribute $3.655 billion to set up a joint venture in Shanghai to manufacture integrated circuit wafers; NVDA was downgraded at Wedbush solely on valuation; memory/hard-disk drive names jump (MU, STX, WDC) few possibilities for strength include: 1) headlines earlier from WSJ that U.S. firms are increasing investment in China semiconductor companies, 2) Hallum was positive on $WDC, and 3) Digitimes noting Winbond to allocate more capacity for specialty DRAM

·     Healthcare Services; LH and SYNH shares active after Bloomberg reported LabCorp is in talks to merge some of its assets with Syneos Heath Inc., e discussing a deal in which part of LH’s Covance clinical research division will merge with Syneos; BHG downgraded to EW from OW at Morgan Stanley while the firm lowers price tgts on AMWL, OSH, OSCR, CI saying the last week of Q3 earning season was a tumultuous one, with Covid still wreaking havoc on costs and leading to significant sell-offs in stocks. We reduce PTs to reflect multiple contraction seen across healthcare disruptors

·     Casinos, Gaming, Lodging & Leisure sector; in casinos, PENN upgraded to hold from Sell ay Deutsche bank but much lower tgt of $31; CZR was initiated with a Buy and Street high $191 tgt at B Riley; in gyms/fitness, XPOF tgt raised to $32 at Piper following strong Q3 results and raised 2021 guidance, while Guggenheim, Baird and Raymond James also upped tgts; FXLV shares slipped initially as reports Q3 EPS ($1.52) vs. est. loss (5c), sees FY21 revenue $132M-$137M, consensus $134.82M

Stock GAINERS

·     BIIB +2%; said late-stage studies found that its Alzheimer’s drug Aduhelm significantly lowered blood levels of an abnormal form of the protein Tau

·     BLNK +11%; reported a Q3 rev beat, and gross margins were strong, while EPS missed due to higher Opex tied to hiring

·     FTCH +15%; after the co confirmed that they are in discussions with Richemont in relation to a potential expansion of their existing Luxury New Retail strategic partnership. The parties are discussing a few possible options

·     JNJ +2%; said it plans to split into two companies, separating its consumer health division that sells Band-Aids and Baby Powder from its pharmaceuticals and medical devices business

·     RIVN +4%; extending the surge for the EV maker seen since its IPO this week, sending its market value over $100B

·     STX +7%; strength in the memory, hard-disk drive space (WDC, MU)

·     TLRY +3%; broad base strength early for cannabis names after a long week of earnings in the sector (CGC, CRON, CURLF all higher early)

Stock LAGGARDS

·     AFIB -39%; downgraded to Underweight at JPMorgan as the co noted Acutus posted another softer than expected quarter as meaningfully lower AcQMap placements and procedure pull-through led to a miss and lower

·     AZN -5%; Q3 core Ebit of $2.28 billion was 14% below consensus, reflecting a lower gross margin while sales were 1% below consensus, with many key growth drivers shy of expectations

·     BKKT -3%; posts a Q3 net loss of $28.8M, wider than the $18.0M loss recorded a year ago, though Q3 adjusted EBITDA of ~$24.1M nearly doubled from -$12.3M a year ago.

·     CBIO -33%; after announced a strategic decision to halt the clinical development of MarzAA, report data to date, and seek a buyer for its hemophilia assets. Catalyst plans to focus its resources on its complement therapeutics and protease medicines platform

·     HPE -6%; downgrade from Neutral to Sell at Goldman Sachs with $14 tgt as prefer CSCO and DELL, while noting a declining DRAM pricing environment which has historically been negative for Server Average Unit Price (AUP).

·     NVDA -1%; downgraded at Wedbush solely on valuation

·     RIDE -11%; after the EV company said commercial production and deliveries of its Endurance pickup will be delayed until Q3 of 2022, citing component and material shortages, along with other supply chain challenges (downgraded to Neutral at BTIG on delay)