Mid-Morning Look

Tuesday, October 26, 2021

Record highs for the S&P 500 and Dow Jones Industrial average yet again as path of least resistance remains higher (sharply) as coming into today, 23% of the companies in the S&P 500 have reported actual results for Q3 2021 to date with 84% having reported actual EPS above estimates, which is above the five-year average of 76%, according to FactSet. That doesn’t include the better results from the likes of GE, UPS, MMM among others, while FB results are mixed, but better than feared after red flags last week from SNAP. While the S&P 500 and Dow are at all time highs, the Nasdaq and Dow transports are approaching their record as well (Nasdaq prior record highs 15,402, Dow Transports 16,170). Economic data better with New Home Sales jumping. Smallcaps underperforming with the Russell 2000 index little changed as investors again pile into large caps. Markets also hopeful of resolution in D.C. as US Senate Majority Leader Schumer says today, he is “confident” a deal on Biden Plan is within reach as Democrats continuing to make progress on economic plan. Stocks just keep rising with no fear or apprehension as the S&P 500 approaches 4,600 and all major averages either at or near record highs. Homebuilders, U.S. listed Chinese stocks, and solar names among early market laggards.

Economic Data

·     September New Home Sales rise +14.0% m/o/m to 800K vs. 760K expected and 702K prior (revised from 740K); Sept new home supply 5.7 months’ worth at current pace vs Aug 6.5 months; Sept median sale price $408,800, +18.7% from Sept 2020 ($344,400)

·     US CaseShiller 20 YoY actual 19.7% (vs. forecast 20%, previous 19.9%); the House Price Index YoY actual 18.5% (down from Previous 19.2%); House Price Index MoM actual 1% (below forecast 1.5%, previous 1.4%)

Sector Movers Today

·     Aerospace & Defense; RTX reported Q3 adj EPS $1.26 vs est. $1.09 on sales $16.21B vs est. $16.39B, raised its FY adj EPS outlook to $4.10-4.20 from $3.85-4 and above est. $4.06, now sees FY sales $64.5B from $64.4-65.4B (est. $65.1B), and FY FCF $5B from $4.5-5B; LMT Q3 EPS $2.21 vs est. $1.97 on sales $16B that missed est. $17.1B, lowered full-year outlook for sales to $67B from $67.3-68.7B (est. $68.34B) and cash from operations at least $8.3B from at least $8.9B while raising adj EPS view to $37.17 from $26.70-27, and sees FY22 sales $66B vs est. $70.5B; HUBB Q3 adj EPS $2.24 and sales $1.21B were both shy of consensus ($2.31, $1.24B) and lowered FY adj EPS range to $8.30-8.50 from $8.50-8.80; KTOS awarded a new $17.6M program with the US Air Force to develop and test jet UAS for manned-unmanned teaming

·     Consumer Staples; COTY upgraded to Buy from Hold at Deutsche Bank and up tgt to $11 from $10 saying its fundamental outlook appears unchanged (if not improved from three months ago) and its capital structure and business simplification has further progressed vs. three months ago; Credit Suisse downgraded BYND to Underperform with a new $73 PT from $125 as Q3’s revs miss vs guidance reinforces the view the company is reaching market saturation and will miss internal growth targets; IPAR Q3 revs $262.7M vs. est. $196.31M, raises FY21 EPS view to $2.35 from $1.95 and boosts FY21 revenue view to $810M from $750M (est. $771.7M); KMB catches two analyst downgrades following the significant profit warning (9%) at the Q3 2021 results on 25 October as well as management’s lack of visibility on the timing of input cost recovery and supply chain risks; TPB Q3 adj EPS 72c vs est. 70c on revs $109.9M vs est. $112.9M, lowered FY21 sales guidance to $433-443M from $447-462M and adj EBITDA to $104-108M from $108-113M

·     Semiconductors; INTC downgraded to MP from OP and tgt cut to $52 from $60 at BMO Capital saying they took a couple of days to think this through and fail to see a scenario where shares outperform; SK Hynix said DRAM shipments were slightly worse than expected in 3Q21 on Chromebook weakness, but SK Hynix expects a solid 5-9% QoQ growth in 4Q21 while company raised both DRAM and NAND market growth expectation for 2021l at Citigroup, they open a negative catalyst watch on Buy-rated TXN ahead of its earnings call as expect the stock to sell off due to our expectation that 4Q21 guidance will be down at least 10% QoQ, far below seasonality; STX shares slipped after the company violated U.S. export rules by continuing to sell hard-disk drives to Huawei Technologies, Senate Republican say, Dow Jones reported

·     Healthcare Services; CNC Q3 adj EPS $1.26 vs. est. $1.25; Q3 revs $32.41B vs. est. $31.62B; Raises FY21 revenue view to $125.2B-$126.4B from $123.3B-$125.3B (est. $125.06B) and narrows FY21 adjusted EPS view; in hospitals UHS posts EPS miss of about $0.07 on Q3 revs $3.16B vs. est. $3.1B; acute care adjusted admissions +12.4% vs. +17.3% y/y as Delta surge impacted behavioral volumes (capping admissions); LHCG downgraded at Cowen as they anticipate 2022 EBITDA guidance could still fall as much as 10% below current consensus; PETS with a top and bottom line miss as 2Q EPS $0.31 vs est. $0.35 on sales $67.4Mm vs est. $72.45Mm

Stock GAINERS

·     DKNG +8%; shares rise after walking away from making a formal offer to buy Entain, after considering a $22.4 bln buyout proposal for the British gambling company

·     HAS +5%; Q3 adj EPS $1.96 beat est. $1.69 on in-line revs $1.97B

·     GE +4%; reported stronger profits as cost cutting offset lower-than-expected sales of its industrial equipment in the Sept qtr, while overall revs fell 1% yoy to $18.43B missing the $19.3B estimate

·     NVDA +7%; more upside momentum as shares break out to new all-time highs

·     RDBX +45%; rises early after the firm completed its business combination with Seaport Global Acquisition Corp., a special purpose acquisition company

·     TSLA +4%; another upside momentum play, making new all-time highs again after Hertz EV order yesterday and following better earnings/margins last week

·     UPS +7%; Q3 adj EPS $2.65 vs. est. $2.54 on revs $23.2B vs. est. $22.56B, avg rev per piece shipped +13%, items shipped daily -2%, raised FY21 adjusted operating margin view

Stock LAGGARDS

·     BYND -1%; Credit Suisse downgraded to Underperform with a new $73 PT from $125 as Q3’s revs miss vs guidance reinforces the view the company is reaching market saturation and will miss internal growth target

·     CVLT -16%; negative surprise as the company missed on Q2(Sep) revenue and earnings as co believes the issue was isolated to delayed software opportunities that are part of larger IT Transformation projects

·     FB -1%; Q3 results better than feared following significant negative news flow & SNAP further reducing expectations last week – FB’s comments around Apple’s iOS changes & the macro environment broadly echoed those from SNAP

·     GLW -5%; reports Q3 core EPS ($0.50-$0.55 vs. est. $0.58), revenue below analysts’ expectations, hurt by lower production levels in the automotive industry due to the semiconductor chip shortage

·     LMT -10%; Q3 EPS $2.21 vs est. $1.97 on sales $16B that missed est. $17.1B, lowered full-year outlook for sales to $67B from $67.3-68.7B (est. $68.34B)

·     PII -7%; as narrowly beat Street expectations (with an assist from lower tax rates) while more importantly lowering the guidance for the full year due to ongoing supply-chain challenges

·     STX -2%; after the company violated U.S. export rules by continuing to sell hard-disk drives to Huawei Technologies, Senate Republican say, Dow Jones reported

·     UPST -4%; downgraded to Hold from Buy at Jefferies and raise tgt to $330 from $160 citing valuation following a strong advance in the shares of the artificial intelligence lending platform