Mid-Morning Look

Monday, October 18, 2021

U.S. stocks open lower before bouncing, after futures dipped overnight with data showing economic growth in China slowed, while a relentless surge in oil prices fueled concerns about elevated inflation. Treasury yields topped 1.62% overnight before paring gains while WTI crude rises, looking to extend its weekly advance to 9-consecutive weeks. The data in China overnight showed slowing GDP and industrial production as its economy hit its slowest pace of growth in a year in the third quarter, hurt by power shortages, regulatory concerns in the technology sector and wobbles in the property sector (Evergrande). Markets also preparing for a busy week of earnings, with 72 of the S&P 500 names expected to report this week including Dow components JNJ, TRV, VZ and INTC as well as momentum tech stocks such as NFLX and TSLA as companies deal with supply chain disruptions, labor shortages and higher costs, especially in the wake of rising oil prices. Bitcoin prices pare gains after surging to 6-month highs last week while gold is little changed.

Economic Data

·     Industrial Production for September falls -1.3% M/M vs. +0.2% consensus and -0.1% prior (revised), while Capacity Utilization at 75.2% vs. 76.5% consensus and 76.2% prior and Manufacturing Output falls -0.7% M/M vs. +0.3% consensus and -0.4% prior.

·     The U.S. October NAHB housing market index 80, highest since July and versus 76 in september as the index of current single-family home sales 87 versus 82 in september and index of home sales over next six months 84 versus 81 in september.

Sector Movers Today

·     Housing & Building Products; LEN said its board increased share repurchase authorization by up to the lesser of $1 billion in purchase price, or 25 million in shares; ZG tumbles after saying it will stop pursuing new home purchases as it works through a backlog of properties already in its pipeline; in building products, FBHS and BECN upgraded at RBC Capital but downgraded SUM and is lowering estimates and targets as incorporate further supply chain disruptions and persistence/acceleration of significant cost inflation; in building materials, VMC, MLM upgraded to Buy from Neutral at DA Davidson citing more catalysts for the stock with signs of improving business momentum that include better lettings, stabilizing commercial activities, and pricing

·     Internet; NFLX estimates that its latest megahit, “Squid Game,” will create almost $900 million in value for the company, and only cost about $21M to make (note earnings are Tuesday night); AMZN under fire as WSJ reports members of a congressional committee questioned whether co executives misled them during an investigation of the company’s business practices and if they may have lied under oath; BIDU shares rise following a media report stating Chinese officials are considering rules which would make content from various tech platforms accessible in Baidu’s search engine; BABA is set to launch its first custom-designed processor chip to power its cloud computing business, several sources told Caixin, in a move to compete with U.S. rivals; PINS tgt cut to $62 from $82 at Credit Suisse though maintains its 2021/2022 EPS ests ahead of earnings; SNAP tgt raised to $90 from $88 at KeyBanc Capital Markets, which writes that the social media company’s ability to deliver annual revenue growth above 50% seems increasingly likely

·     Metals & Mining; Barclay’s lowered tgt prices slightly for gold/industrial miners KGC, NEM, GOLD, RGLD, SCCO and GMEXICO, while raising targets more materially on TECK and ERO, as marked Q3/21 commodity prices to market and adjusted the near-term outlooks slightly; Uranium stocks soar (CCJ, DNN, UUUU, UEC) after world’s largest producer announces launch, investment in physical uranium fund https://bit.ly/2Z2XJws

·     E&P and Equipment; Truist upgraded OXY to Buy and up tgt to $50 PT as they see the company’s record FCF continuing combined with asset monetization’s, possibly bringing plans to return its quarterly dividend to ‘19/20 levels along with the possibility of an additional variable dividend and/or stock repurchase; Mizuho increased their long-term nat gas price forecast to $3.30/mcf from $3 on improving supply and demand fundamentals and upgraded AR given a positive setup for propane driven by similar factors to gas and CTRA to Buy after the XECmerger and as the only gas producer under their coverage unhedged for 2022; Bank of America downgraded GTLS to Neutral on valuation and near-term margin concerns and CLB to Underperform based on the company having less operating to U.S. onshore, where they see meaningful 2022 upside, and not seeing a near-term meaningful recovery in its Reservoir Description segment

Stock GAINERS

·     ACI +2%; Q2 EPS and revs beat (64c/$16.51B vs. est. 45c/$15.81B), with better comp sales up 1.5% vs. est. down (-1.9%), raises FY21 EPS view to $2.50-$2.60, from prior guidance range of $2.20-$2.30 per share and raised its dividend

·     BIDU +3%; shares rise following a media report stating Chinese officials are considering rules which would make content from various tech platforms accessible in Baidu’s search engine

·     IO +38%; after its preliminary Q3 results show revenue $44-45M (vs $19.7M in Q2, $16.23M YoY) with more than half of its quarterly revenue from 3D data sales

·     OXY +6%; up with general strength in oil stocks as WTI crude opens higher, looking to extend weekly gains to 9-weeks; OXY was upgraded to Buy at Truist with street high $50 tgt

·     OYST +9%; said the FDA has approved TYRVAYA Nasal Spray 0.03 mg for the treatment of the signs and symptoms of dry eye disease.

·     STT +2%; Q3 EPS beat ($2.00 vs $1.92 cons) on better revs ($2.99B vs $2.96B) with fees largely inline but NII/NIM better and expenses were largely inline while provision was slightly worse

Stock LAGGARDS

·     AVDL -14%; after saying the U.S. FDA notified the co that the agency is still reviewing the marketing application of its sleep disorder drug, FT218, and the decision will likely not be taken this month (was expected Oct 15^th)

·     BIIB -2%; said a late-stage experimental treatment, Tofersen, for an inherited form of amyotrophic lateral sclerosis (ALS) failed to reach its main goal, but secondary measures and biomarkers showed favorable trends

·     MDT -4%; announced that the SPYRAL ON MED pivotal renal denervation (RDN) trial was not stopped early based on the interim analysis and that the study would continue until completion

·     NTAP -4%; downgraded to Sell from Neutral at Goldman Sachs as we begin to factor in a moderating IT spending environment in 2022

·     OMER -26%; said they received a Complete Response Letter (CRL) from the U.S. FDA regarding its Biologics License Application (BLA) for narsoplimab in the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy

·     RVNC -42%; after the FDA declined to approve its frown line injection treatment, citing issues with the company’s manufacturing facility; o other concerns were raised by the agency

·     SPCE -4%; downgraded to Sell with $15 tgt at UBS citing yet another delay for the company’s next powered flights, which had already been delayed from late September to late October following a supplier part issue

·     UPST -3%; downgraded to Underperform w/$300 tgt at Bank America on significant gain in public markets valuation in recent months that saw Upstart stock appreciate 187% since 2Q earnings

·     X -4%; U.S. Steel (X) downgraded to underweight and lower tgt to $17 from $35 and STLD downgraded to equal-weight and tgt to $61 from $77 as downgrades steel industry view, believing steel prices have peaked

·     ZG -10%; after saying it will stop pursuing new home purchases as it works through a backlog of properties already in its pipeline.