Mid-Morning Look

Monday, November 15, 2021

U.S. stocks are pulling back from morning highs as the S&P 500 index tries to make it a 20^th day of gains in its last 24 ahead of key retailer earnings this week (TGT, WMT, HD, LOW) and as investors deal with the recent spike in inflation that saw the CPI top 30-year highs last week. The lone piece of U.S. economic data this morning strong as the Empire Manufacturing index rose to 30.90, topping consensus of 21.20. U.S. stocks are coming off weekly declines, where the S&P 500 and Nasdaq each broke 5-week winning streaks. In Washington, President Biden is set to sign the $1 trillion bipartisan infrastructure bill, unlocking hundreds of billions of dollars for transportation, broadband and utilities improvements. Gold prices stalling near 5-month highs while oil prices slip amid a bounce in the dollar and Treasury yields, with the 10-yr topping 1.6% and the 30-yr above the 2% mark.

Sector Movers Today

·     Aerospace & Defense; BA paces gains in space after saying it is “getting close” to resuming deliveries of the 787 Dreamliner, after suspending them to deal with production issues, and following reports that China’s aviation regulator may be close to lifting the country’s flight ban on the 737 MAX; bog story this week is the Dubai Airshow while both BWXT (Tues) and MTU (Thurs) host investor days and both TDG (Tues) and WWD (Thurs) report Q4; Bloomberg reported this weekend that Airbus SE (EADSY) is in talks with AL on a significant aircraft order involving a mix of narrow- and wide-body jets, which could include the European plane maker’s coming A350 freighter; DLKAY was upgraded to Neutral from Sell at UBS saying progress for Lufthansa in Q3 have improved forecasts, while adding that the balance sheet is well on its way to restoration and that debt levels have likely peaked for Lufthansa; UAVS reported earnings

·     REITs; AMT is acquiring COR in a $10.1B deal for $170/share in cash that is expected to close by the end of 2021 or shortly thereafter; CONE is being acquired by KKR and Global Infrastructure Partners in a $15B with CONE shareholders receiving $90.50/shr in cash; Evercore downgraded SHO to In-Line and removed it from their SMID Long-Term Core Ideas list due to relative valuation and greater uncertainty accompanying the company’s ongoing management transition and the future portfolio composition / impact to NAV resulting from an anticipated increase in future transaction activity; MNR Q4 adj FFO 20c vs est. 21c on revenue $39.9M vs est. $49.1M; LXP received an open letter from shareholder Land & Buildings detailing why its board needs new, independent voices with input from shareholders to help reverse its track record of consistent underperformance

·     Auto sector; TSLA was in the news again due to Elon Musk’s comments about selling his shares after he responded to a Bernie Sanders tweet by saying “Want me to sell more stock, Bernie? Just say the word,” and Michael Burry tweeted “Lets face it…. He [Musk] doesn’t need cash. He just wants to sell $TSLA”; Wedbush maintained their Outperform rating and $85 target on GM but said the stock could hit $100 over the next 12-18 months as they believe its EV transformation story is starting to drive a re-rating; HC Wainwright upgraded BLNK to Buy with a $50 PT based on several positive developments; EVGO was downgraded to Neutral at Credit Suisse who raised their target to $17 from $11 as its recent rally appears to have priced in the benefits of the infrastructure bill and expanded partnerships with GM and Uber and cut to Underweight at Bank of America after shares doubled over the last 10 trading days to levels that are not appropriately pricing in risks; CHPT was initiated at Evercore with an Outperform rating and $34 PT and at JPMorgan with a Neutral rating and $26 PT; KXIN said Henan Yujie Times Automobile, which it plans to buy, saw a jump in EV sales in October; LCID’s Lucid Air was named the 2022 Motor Trend Car of the Year

·     Software movers; TLS plunges as 3Q revenue $70.1M misses the $76.8M estimate and cuts year sales view to $240M-$245M from prior $283M-$295M; SPLK announces CEO transition as Doug Merritt steps down with Graham Smith, Splunk’s Chair, named interim, while guides Q3 revs about $660M vs. est. $641M; CRWD was initiated with an underweight and $247 tgt at Morgan Stanley saying the potential for decelerating revenue growth creates an unfavorable risk-reward at ~26X CY23 sales; WDAY tgt raised to $340 from $285 at Oppenheimer saying combined with installed-base spending intentions suggesting significant adoption of analytics, core HR and employee experience, they see Workday as well positioned to reaccelerate HCM growth and capture a large upsell opportunity; SNOW tgt raised to $425 from $340 at Mizuho; CTXS approved a restructuring program which will include, among other things, elimination of full-time positions, termination of certain contracts; DMRC said to acquire the product cloud company, EVRYTHNG Limited in a stock transaction

·     Retailers; huge week for retailer earnings with WMT, TGT, HD, LOW, BJ, KSS, M, TJX, VSCO, BBWI, PLCE, WOOF, ROST, FL among those expected to report; CSPR to be acquired by Durational Capital Management for $6.90 per share purchase price which delivers substantial 94% premium; LESL files for offering of 56.6M shares of co by selling stockholders; DLTR was upgraded from Hold to Buy with $148 tgt at Deutsche Bank as now see improved risk/reward through potential operational and profitability improvements at Family Dollar (FDO) given a greater sense of urgency with Mantle Ridge’s influence (note late Friday, filings showed Mantle Ridge took a 6% stake in the retailer); Wayfair (W) was downgraded from Buy to Hold at Argus saying they expect Wayfair to benefit over time as more consumers purchase home goods online, but believe the share price depends in part on continued revenue growth, and revenue has now fallen for two straight quarters.

Stock GAINERS

·     BA +3%; paces gains in space after saying it is “getting close” to resuming deliveries of the 787 Dreamliner, after suspending them to deal with production issues

·     BLNK +6%; more strength in EV sector while HC Wainwright upgraded BLNK to Buy with a $50 PT based on several positive developments

·     CONE +4%; is being acquired by KKR and Global Infrastructure Partners in a $15B with CONE shareholders receiving $90.50/share in cash

·     COR +2%; AMT is acquiring COR in a $10.1B deal for $170/share in cash that is expected to close by the end of 2021 or shortly thereafter

·     CSPR +86%; to be acquired by Durational Capital Management for $6.90 per share purchase price which delivers substantial 94% premium

·     DLTR +13%; upgraded from Hold to Buy with $148 tgt at Deutsche Bank as now see improved risk/reward through potential operational and profitability improvements at Family Dollar (FDO) given a greater sense of urgency with Mantle Ridge’s influence (note late Friday, filings showed Mantle Ridge took a 6% stake in the retailer)

·     EYPT +54%; after the co announced positive interim Phase I DAVIO data (n=17) for EYP-1901 (a potential twice-yearly sustained delivery anti-VEGF treatment) in wet AMD at AAO on Saturday

·     TCNNF +9%; strength in cannabis on reports that legislation that would decriminalize marijuana and establish a tax on cannabis sales was being developed by Republican Representative Nancy Mace with the goal of introducing it in the U.S. House of Representatives later this month

·     TGT +2%; as a handful of retailers active ahead of key earnings this week (WMT, TGT, LOW, HD)

·     VVNT +17%; as raises FY Ebitda and revs to $650M-$660M, from $640.0M-$655M and $1.44B-$1.46B from $1.38B-$1.42B respectively

Stock LAGGARDS

·     AKAM -2%; downgrade from Outperform to Perform at Oppenheimer as now see difficult year-over-year comparisons on all three metrics (Ebitda margins, growth, and valuation) due to increased competition from well-funded and disruptive startups (NET, FSLY

·     CRWD -3%; was initiated with an underweight and $247 tgt at Morgan Stanley saying the potential for decelerating revenue growth creates an unfavorable risk-reward at ~26X CY23 sales

·     OTLY -19%; tumbles after guiding FY21 revs to exceed $635M, below its previous outlook of exceeding of $690M saying it is currently investigating a quality issue at one of its production facilities that will likely result in the destruction of inventory and lost sales

·     SAVA -5%; slides after disclosing in its latest 10-Q filing that certain government agencies have asked the company to provide them with corporate information and documents

·     SPLK -16%; on CEO transition and guides Q3 op margins about -14%

·     TLS -34%; plunges as 3Q revenue $70.1M misses the $76.8M estimate and cuts year sales view to $240M-$245M from prior $283M-$295M

·     TSLA -2%; CEO Elon Musk on Sunday asked Bernie Sanders on Twitter whether the U.S. senator wants him to sell more shares after Sanders demanded the wealthy pay their “fair share” of taxes. “Want me to sell more stock, Bernie? Just say the word,” Musk tweeted. Meanwhile, “The Big Short” investor Michael Burry tweeted that “Musk doesn’t need cash, he just wants to sell Tesla

·     TTWO -5%; weakness in video game sector with EA also lower following poor reviews of its Battlefield game

·     WMG -4%; posted Q4 EPS of 5c missing the 15c estimate saying COVID-19 impacted rev streams in the quarter and Q4 was also hurt by higher expenses related to restructuring and other initiatives – Q3 digital revs only +19% vs 29% q/q