Mid-Morning Look

Thursday, September 30, 2021

U.S. stocks open higher as investors look to Washington D.C. and hopes to divert a government shutdown as Democrat and Republicans were expected to pass the temporary funding bill by midnight on Thursday. Meanwhile, the House was scheduled to vote on a $1 trillion infrastructure investment bill that passed the Senate last month in a bipartisan vote. Since then, House Republicans have been backing away from the bill. It was unclear, however, if that vote would occur as progressive Democrats have warned House Speaker Pelosi, she must hold it back until a larger, $3.5 trillion domestic investment bill is nailed down. Economic data this morning was mixed with GDP in-line with estimates on strong consumer spending, but inflation readings also above views (PCE), while jobless claims disappoint, coming in above expectations. Crude-oil falls, on course for 1st weekly decline in six weeks, pressured by the recent surge in the dollar while U.S. mortgage rates surge, topping 3% for first time since June. Retailers among the biggest decliners today in the S&P 500 after BBBY quarterly miss and cautious outlook, KSS falls after double downgrade to underperform at Bofa, and FL reinstated Underperform at Bank America with $48 tgt citing earnings risk from supply issues at NKE and other suppliers – (recall last week NKE noted Vietnam & supply chain challenges which led to a guide revision). Precious metals rebound after yesterday’s dump to 6-month lows for gold following the spike in the dollar, trading at 1-year highs yesterday. U.S. stocks in choppy action on this final trading day of the month, where major averages are on track to finish lower for the first time in 9-months.

Economic Data

·     U.S. Q2 GDP Final +6.6% (in-line) vs. prior estimate which compares with Q1 GDP of 6.3%; GDP Annualized (Q/Q) Q2-T +6.7% vs. est. 6.6%; Q2 PCE price index 6.5% vs. prior +6.5% and core PCE 6.1% (vs. consensus +6.1 pct), and prior 6.1%; U.S. Q2 consumer spending +12.0% vs. prior 11.9% and Durables +11.6% vs. prior +11.3%; Q2 business investment +9.2% vs. prior 9.3%

·     Weekly jobless claims rose to 362K from 351K prior week and above est. 335K; the 4-week moving average rose to 340K from 335,750 prior week; continued claims fell to 2.802M from 2.82M prior and est. 2.8M; U.S. insured unemployment rate fell to 2.0% from 2.1%

·     Chicago PMI for Sept reported at 64.7, below the consensus forecast 65 and prior 66.8

Sector Movers Today

·     Retailers; Online shoppers will be buying less this holiday season, but spending more as holiday e-commerce could rise 7% during November and December to reach a record $1.2 trillion globally, according to a Salesforce forecast released yesterday. While the actual amount of dollars spent is seen rising, shoppers will likely be purchasing fewer items. That’s because inflation will make gifts as much as 20% more expensive compared to last year, according to Salesforce. The quantity of orders, meanwhile, is expected to fall 2% worldwide; KSS double downgraded to Underperform with $48 tgt at Bank America saying reduced receipts from supply chain issues could hinder Kohl’s sales recovery and offset both progress its making on women’s and the benefit of Sephora (see the biggest risk to consensus in 1H22 and our F22 estimate is 10% below consensus); FL reinstated Underperform at Bank America with $48 tgt citing earnings risk from supply issues at NKE and other suppliers, as well as waning stimulus dollars.

·     Auto sector; in auto retail, KMX shares slip as Q2 EPS $1.72 misses the $1.90 estimate while Q2 revs $8.0B tops consensus of $6.9B and qtrly combined retail and wholesale used vehicle unit sales were 419,895, an increase of 19.9%; ABG upgraded to buy from Hold at Truist with $250 tgt following yesterday’s announcement of the planned acquisition of the 8th largest dealership group in the U.S.; Wedbush said they have confidence that GM at its upcoming analyst day next week will further detail the EV roadmap, financial goals, and give investors more comfort in the EV vision despite the current chip shortage; WKHS announces the departure of CFO Steve Schrader and appoints Greg Ackerson, the company’s corporate controller, as interim CFO; NKLA in pact with OPAL Fuels to develop and construct hydrogen fueling stations; RIDE is in talks to sell the northeast Ohio assembly plant it acquired from GM to Taiwan contract manufacturer Foxconn, Bloomberg reported

·     Software movers; SNOW upgraded to Buy from Neutral with $353 tgt at BTIG after conducting a number of field checks over the last few weeks as they think SNOW is sitting in front of a huge opportunity in a rapidly growing data analytics software market; in video games (ATVI, EA, TTWO), KeyBanc did a dive into the current valuation cycle, which suggests we’re near multiyear low valuations with more transitory concerns than the last time we saw these levels and believe the group represents an attractive risk/reward; Piper raised ests on TWLO after SDK analysis suggests the number of iOS applications using Segment has tripled to 23K from 8K pre-acquisition

·     Biotech movers; FOLD upgraded to Overweight at JPMorgan saying the biotechnology company can unlock significant value with its Galafold and AT-GAA products; TRVN reports data from 30 patients enrolled in its proof-of-concept study testing its experimental therapy, TRV027, in hospitalized COVID-19 patients; INCY and partner LLY report detailed results from two late-stage studies testing their drug, Olumiant, for the treatment of adults with severe alopecia areata; VIR provided an update that it had binding agreements for the sale of more than 420K doses of Sotrovimab, which constitutes the most meaningful commercial update that the company has provided since garnering the EUA; REGN COV meets primary endpoint in Phase 2/3 trial in patients hospitalized with COVID-19.

Stock GAINERS

·     ALB +3%; agreed to buy lithium converter Guangxi Tianyuan New Energy Materials Co. for about $200 million, saying it would expand its lithium production capabilities and add conversion capacity in China

·     ANGO +14%; after the company raised its full-year forecast to a range of $310M to $315M from a previous forecast of $305M to $310M after a Q1 beat

·     NFLX +2%; adds to recent gains, and trades at year highs following the viral success of a South Korean show, Squid Game, less than two-weeks after its release

·     PAYX +5%; Q1 adj EPS 89c vs est. 80c on revs $1.08B vs est. $1.04B and raised FY outlook for revenue growth to +8% from +7% and adj operating margin to 38-39% from 38%

·     PRGO +12%; agreed to settle with tax authorities over a 2018 demand by the Irish Office of the Revenue Commissioners that the company pay 1.64B euros ($1.90B) in taxes (PRGO upgraded to Buy from Hold at Jefferies and raise tgt to $63 from $45 after the news)

·     SNOW +2%; upgraded to Buy from Neutral with $353 tgt at BTIG after conducting several field checks over the last few weeks

·     SPCE +16%; was cleared to fly by the FAA following an investigation after the Unity 22 flight went slightly off-course in July

Stock LAGGARDS

·     BBBY -24%; after the company posted a wide Q1 EPS and sales saying following solid growth in June, they saw unexpected, external disruptive forces towards end of quarter that impacted our outcome and that August traffic slowed significantly

·     BTBT -13%; said to sell approx. 13.5M shares in private offering at $5.93/share

·     KMX -8%; shares slip as Q2 EPS $1.72 misses the $1.90 estimate while Q2 revs $8.0B tops consensus of $6.9B and qtrly combined retail and wholesale used vehicle unit sales were 419,895, an increase of 19.9%

·     KSS -12%; double downgraded to Underperform with $48 tgt at Bank America saying reduced receipts from supply chain issues could hinder Kohl’s sales recovery and offset both progress its making on women’s and the benefit of Sephora

·     LNDC -12%; slides after Q1 top/bottom line miss as Q1 adj EPS loss (-$0.23) vs. est. loss (-$0.12); Q1 revs $128.8M vs. est. $129.2M

·     MO -2%; after the co along with PM have been ordered by the International Trade Commission to halt the import and sales of their IQOS heated tobacco device