Mid-Morning Look

Friday, September 10, 2021

U.S. stocks are mixed to little changed early, pulling back off overnight highs, but major averages remain not far off record highs despite the S&P 500 and Dow coming into the day with 4-day losing streaks. Market sentiment got a boost overnight on reports U.S. President Joe Biden and China President Xi Jinping held a surprise 90-minute phone call late Thursday, the first between the two world leaders in seven months. Rising inflation data again this morning having no effect on markets as U.S. producer prices increased solidly in August, indicating that high inflation is likely to persist for a while. The producer price index for final demand rose 0.7% last month, above the 0.6% estimate which followed two straight monthly increases of 1.0%. In the 12 months through August, the PPI accelerated 8.3%, the biggest year-on-year advance since November 2010, after surging 7.8% in July. On a core basis, ex food and energy, PPI prices also edged above economist expectations. Treasury yields little changed all morning with the 10-year at 1.32%, oil prices are higher and gold slips. Quiet start in general on the final trading day of the shortened holiday week.

Economic Data

·     Inflation readings higher: Producer Price Index (PPI) for August MoM reported at +0.7% vs. est. +0.6% and YoY rose +8.3% (new all-time high) vs. est. +8.2%; on a core basis (ex food & energy) Aug PPI rose +0.6% vs. est. for +0.5% MoM and rose +6.7% vs. est. +6.6% YoY

Sector Movers Today

·     Retailers; DXLG 5.73M share Spot Secondary priced at $6.10; ZUMZ reported Q2 EPS 94c above est. 79c on revs $268.7M vs est. $180.5M, and said Q3 sales-to-date are +37% YoY though did not provide formal quarterly or FY guidance; AOUT posted Q1 EPS 48c double the est. 24c on revs $60.8M that also topped est. $57.4M, sees Q2 sales up more than 20%, but shares were lower after the company left guidance unchanged from Q1 according to Wedbush; VSTO acquired Foresight Sports for $474M in a deal they say adds about $50M to FY adj EBIDTA and about $100M to net sales; Following Q2 earnings and ahead of the 2H conference season, Citi said their top 5 picks in hardlines are AAP, RH, FND, WOOF, BOOT, remain Buy-rated on AZO, LOW, HD but shift these to a lower tier of Buy, remain N on CHWY, TSCO, ORLY, WSM, and Sell-rated on BBY

·     Software movers; TTWO slips early as Rockstar Games delayed the releases of the new-gen versions of Grand Theft Auto V and Grand Theft Auto Online. Originally scheduled to launch on November 11, the two enhanced versions of GTA will now be released on PlayStation 5 and Xbox Series X/S in March 2022; ZS strong Q4 results with revenue, billings, and profitability all ahead of Street estimates which included billings grew 70%+ for the third straight quarter, RPO grew an impressive 98% to $1.6B, and guides year revs $940M-$950M vs. est. $902M; SUMO shares slip after Piper and BTIG both downgraded shares post earnings, as 2Q billings growth of 29% was ahead of Street at 26%, aided by upside from its large customer and analysts note int’l was strong but NA continues to see uneven performance; MCFE 20M share Secondary priced at $22.50

·     Metals & Materials; sector in general strong early, led by FCX, CLF, X, NUE as a phone call between Biden and China’s Xi boosts market sentiment; Credit Suisse downgraded copper stocks FCX and FM to Underperform on the basis that copper prices will revert to more historical levels in 2022 as expects benefits from massive global stimulus to fade and inflation concerns to ease as supply bottlenecks gradually resolve; in lithium space, ALB reaffirming its full-year 2021 guidance and introducing new full-year 2022 outlook and 2026 long-term financial targets

·     Media & Telecom movers; Tower companies AMT, CCI, EQIX all downgraded to Perform from Outperform at Oppenheimer saying we are in the early innings on over $1T being spent on 5G and Cloud buildouts, a spending tsunami rivaled only by the advent of the Internet and first Dot.com bubble. But, these stocks are priced at the high end of their historical range and are bond-like proxies at ~3.5–4% AFFO yields. Separately, Morgan Stanley raised its price tgts on AMT to $316 from $270, SBAC to $405 from $337 and CCI to $213 from $204 as sees high visibility on strong domestic tower organic growth for 2022 given the “record” 5G leasing cycle; BMBL 18M share Secondary priced at $54.00

Stock GAINERS

·     AFRM +22%; quarterly results benefit from SHOP Pay Installments as GMV growth sequentially accelerated, up 106% y/y (178% ex. Peloton) vs. 83% y/y in FQ3/21, while new active merchants increased over 400% y/y (provided an initial FY 2022 guidance that was ahead of the Street (~$12.75B GMV at the high-end vs. Street ~$12B)

·     ECHO +54%; to be acquired by private equity firm The Jordan Company L.P. in a deal valued at $1.3 billion as shareholders will receive $48.25 in cash for each Echo share they own, representing a 54.1% premium to its closing price of $31.32 https://on.mktw.net/3l95vfy

·     EDIT +2%; upgraded to Outperform at Oppenheimer and raise our PT to $80 from $42 ahead of initial clinical data from BRILLIANCE based on our favorable view of this sentinel readout in addition to overall pipeline progress

·     ENDP +43%; after agreeing to pay $50 mln to resolve lawsuits by New York state and its Suffolk and Nassau counties related to the sale and marketing of opioids; ENDP said the settlement includes no admission of wrongdoing by co or its subsidiaries

·     ISEE +73%; Wedbush says the Phase 3 results announced by APLS represent a best-case scenario for ISEE shares as view this aspect of the data as encouraging, given that ISEE has treated the extrafoveal population in its Phase 3 GATHER2 study.

·     PLAY +7%; EPS of $1.07 exceeded consensus by $0.49 driven by stronger comps and margins, while comp store sales decelerated QTD, they remain positive (+1.3% vs. ’19) despite the recent COVID spike

·     ZS ; strong Q4 results with revenue, billings, and profitability all ahead of Street estimates which included billings grew 70%+ for the third straight quarter, RPO grew an impressive 98% to $1.6B, and guides year revs $940M-$950M vs. est. $902M

Stock LAGGARDS

·     APLS -31%; price tgt lowered by several analysts after announced mixed topline results from its two Ph3 trials in geographic atrophy, with one trial failing to meet its primary endpoint.

·     CI -4%; downgraded to underperform from buy at Bank America on a less clear growth outlook and lower visibility on its earnings trajectory and lowered its target price to $225 from $240

·     KR -7%; reported a beat on the top and bottom line ($0.80 on sales $31.7B vs. est. $0.64 and $30.68B) and raises FY21 adjusted EPS view $3.25-$3.35 from $2.95-$3.10 (est. $3.06) while sees FY comp store sales down (-1.5% to -1%)

·     MRSN -35%; after the company reported updated data for its ovarian cancer therapy

·     NVAX -4%; extend yesterday losses (fell -3%) as mgmt now expects to complete filings for emergency authorization with regulatory agencies by end of 2021 (had previously guided to FDA submission to hopefully early Q4)

·     SUMO -9%; Piper and BTIG both downgraded shares post earnings, as 2Q billings growth of 29% was ahead of Street at 26%, aided by upside from its large customer and analysts note int’l was strong but NA continues to see uneven performance

·     TTWO -3%; as Rockstar Games delayed the releases of the new-gen versions of Grand Theft Auto V and Grand Theft Auto Online. Originally scheduled to launch on November 11, it will now be released on PlayStation 5 and Xbox Series X/S in March 2022

Syndicate:

·     Agilon Health (AGL) 17M share Secondary priced at $30.00

·     Blackstone Mortgage (BXMT) 10M share Secondary priced at $31.45

·     Bumble (BMBL) 18M share Secondary priced at $54.00

·     Destination XL (DXLG) 5.73M share Spot Secondary priced at $6.10

·     Fortress Transportation (FTAI) 12M share Secondary priced at $25.50

·     Impel NeuroPharma (IMPL) 3M share Secondary priced at $15.00

·     McAfee (MCFE) 20M share Secondary priced at $22.50

·     Ortho Clinical Diagnostics (OCDX) 22M share Secondary priced at $17.50

·     Sea Limited (SE) 11M share Secondary priced at $318.00

·     VICI Properties (VICI) 100M share Secondary priced at $29.50

·     WillScot Mobile Mini (WSC) 21.41M share Spot Secondary priced at $28.50