Mid-Morning Look

Tuesday, October 12, 2021

U.S. stocks again struggling for direction, failing to hold overnight gains initially as investors prepare for the start of earnings season kicking off tomorrow with big banks, including Dow component JPMorgan. The U.S. dollar index (DXY) near highs, up +0.2% at 94.50 as rival currencies extend recent losses; euro down at 1.1535 and dollar up vs. yen at 113.60. Asian stocks dropped overnight after China Evergrande Group once again misses payment on the firm’s 9.5% note due 2022 and its 10% bond due 2023. Also adding to concerns, Shanghai-based developer Sinic Holdings Group said that it doesn’t expect to pay the principal or interest due Oct 18 for a $250 mln bond. The IMF cut its 2021 global growth forecast to 5.9% from 6.0% in July forecast, largely due to supply disruptions in advanced economies. Economic data light today but big inflation reports coming the next few days (CPI and PPI). Market factors that remain, but quiet right now includes the debt ceiling extension (currently funded thru early December) and the Fed asset tapering timeframe which was initially expected to start in November but now in questions following the recent nonfarm payroll report miss last Friday.

Sector Movers Today

·     Housing & Building Products; TREX downgraded to Neutral from Outperform at Baird and cut tgt to $108 from $116 saying decking channel checks suggest sell-through demand will be slower in Q3 and Q4; Loop Capital reduced MHK tgt from $200 to $190 and cut Q4 and beyond EPS estimates given more enduring supply-chain cost pressure than we had modeled previously; Truist also weighs in on the building products sector saying they are buyer of FBHS and MHK on benefits from import supply chain disruption while raising BECN estimates on mid quarter residential roofing rebound but lowering MLM, VMC on transitory weather issues. Said import supply chain issues could hurt importers HD, LOW, SNPO but benefit domestic producers FBHS (raising est.) and MHK

·     Auto sector; TSLA sold 56,006 China-made vehicles in September, up 26.5% M/M from August’s sales of 44,264 units, and the highest since it started production in Shanghai about two years ago, Reuters reports; GM said LG Electronics agreed to reimburse GM for costs and expenses associated with the recall of Chevrolet Bolt EVs and EUVs due to manufacturing defects in battery modules; Automobile sales in China declined 19.6% Y/Y in September to 2.07M vehicles, falling for a fifth consecutive month; sales of passenger cars in September fell 17% Y/Y to 1.58M vehicles, the China Passenger Car Association said; VRM has agreed to acquire California based United Auto Credit Corporation for $300M in cash

·     Asset managers with monthly AUM data: APAM prelim assets under management as of September 30, 2021 totaled $173.6 billion; CNS preliminary assets under management of $97.3 billion as of September 30, 2021, a decrease of $3.2 billion from assets under management at August 31, 2021; BEN prelim month-end assets under management of $1,530.1 billion at September 30, 2021, compared to $1,572.1 billion at August 31, 2021; IVZ preliminary month-end assets under management of $1,528.6B, a decrease of 2.2% versus previous month-end. Total net inflows were $4.2B; TROW preliminary month-end assets under management of $1.61 trillion as of September 30, 2021; VRTS prelim assets under management (AUM) as of September 30, 2021 of $177.3 billion as the decrease in AUM from June 30, 2021 reflected market performance and open-end fund net outflows

·     Transports; in airlines, LUV cancelled more flights today after over 1,900 didn’t fly this weekend as the carrier struggles to balance worker shortfalls, packed planes and a busy flight schedule; AAL said it sees a smaller-than-expected adjusted net loss for Q3, guiding to loss between $620M-$675M vs. estimates for loss of $741.7M while sees Q3 revs down about 25% vs 3q 2019; MATX guides Q3 diluted EPS $6.39-$6.58 above est. $4.39 saying they continued to see strong demand with higher year-over-year volumes compared to the largely pandemic-reduced volumes in the third quarter of last year; KEX was upgraded to Buy from Hold at Stifel as believe there should be meaningful upside as market conditions normalize or even shift to bull market territory

·     Metals & Materials; uranium stocks (CCJ, DNN, UUUU, UECmoves higher early with some noting headlines Finland lobbies nuclear energy as a sustainable source; GEF announces a $60 per ton price increase on all uncoated recycled paperboard (urb) grades and a minimum 7% increase on tube and core and protective packaging products; HL posted a 24% Y/Y decline in silver production to 2.67M oz. from 3.54M oz. in the prior-year period, citing lower grades at Greens Creek based on mine sequencing, partially offset by Lucky Friday production

Stock GAINERS

·     ABNB +5%; was upgraded Neutral to Outperform at Cowen and upped tgt to $220 from $160 as expect step-up of Alternative in Lodging mix to be permanent and believe Street underestimating ABNB at 17% bookings growth in 22E

·     INBX +22%; after announcing interim results from a Phase 1 clinical trial evaluating the safety and pharmacokinetics of INBRX-101, in patients with alpha-1 antitrypsin deficiency, or AATD

·     MATX +6%; guides Q3 diluted EPS $6.39-$6.58 above est. $4.39 saying they continued to see strong demand with higher year-over-year volumes compared to the largely pandemic-reduced volumes in the third quarter of last year

·     MGM +6%; upgraded to Outperform from Neutral at Credit Suisse and up tgt to $68 from $33

·     QTRX +15%; announces that its Simoa phospho-Tau 181 (pTau-181) blood test has been granted Breakthrough Device designation by the U.S. FDA as an aid in diagnostic evaluation of Alzheimer’s Disease (AD)

·     RRD +33%; to be acquired by Chatham Asset Management, LLC for $7.50 per share (had held about 14.9% of the outstanding common stock prior to announcement)

·     SIG +2%; said it is buying Diamonds Direct USA for 4490M in cash and boosted its Q3 and FY 2022 outlook for revenue; expects total revenue for the full year between $7.04B-$7.19B, up from its prior range of $6.80B-$6.95B

·     TARA +13%; as the FDA cleared its IND application for TARA-002, an investigational cell-based therapy being developed for treatment of bladder cancer

·     TSLA +2%; sold 56,006 China-made vehicles in September, up 26.5% M/M from August’s sales of 44,264 units, and the highest since it started production in Shanghai about two years ago

Stock LAGGARDS

·     BEN -1%; weakness in asset managers as monthly AUM comes in lower than prior months for many of them due to market fluctuation

·     CTXS -3%; downgraded to Market perform at William Blair saying discussions speak to a dire and deteriorating situation at Citrix, which reduces their confidence in consensus estimates

·     CVAC -7%; after saying it is withdrawing its first experimental COVID-19 vaccine from European regulatory process and focus on second shot it is developing with GSK

·     HL -6%; posted a 24% Y/Y decline in silver production to 2.67M oz. from 3.54M oz. in the prior-year period, citing lower grades at Greens Creek based on mine sequencing

·     MXL ; named as short call from Jehoshaphat Research saying organic growth is 0% while the Street models double-digit growth (MXL later issued upside Q3 rev guidance)

·     MU -3%; weakness in chip names, specifically the memory sector (WDC as well)