Today's brief

Closing Summary - Buy-the-dip trade returns in big way

The S&P 500 increased 0.3% on Monday in a furious buy-the-dip trade after being down as much as 4.0% intraday. The Nasdaq Composite gained 0.6% after being down 4.9% intraday, and the Dow Jones Industrial Average gained 0.3% after being down 3.3% intraday. 

The Russell 2000 outperformed with a 2.3% gain after being down as much as 2.8%. The small-cap index traded in bear market territory today, or down at least 20% from a recent high, so its outperformance stemmed from the fact that it was hit the hardest. 

Eight of the 11 S&P 500 sectors closed higher after all 11 traded with steep losses. The consumer discretionary sector (+1.2%) led the recovery effort with a 1% gain, while the defensive-oriented utilities (-1.0%), health care (-0.4%), and consumer staples (-0.4%) sectors closed lower. 

The session opened on a weak note, which gave way to a steady decline that accentuated the market's concerns on the Fed's tightening plans, the Russia-Ukraine situation, and peak earnings growth, among others. The selling itself was a concern, too, leading to expectations for more downside -- the CBOE Volatility Index (29.90, +1.05, +3.6%) spiked as much as 35% before calming down. 

There's no doubt the market was oversold on a short-term basis and was due for a bounce, but no one really knew when that would happen. Fortunately for the bulls, the bounce happened today on no specific news and some short-covering activity in front of an eventful week in earnings, the Fed, and economic data. 

It's worth noting that the Nasdaq Composite bottomed just before it could enter bear market territory. The tech-sensitive index was down 19.2% from its all-time high while the S&P 500 was down 12.4% from its all-time high. 

Strikingly, the Treasury market never really exhibited a flight for safety, suggesting that the early weakness was more technically-oriented. The 10-yr yield declined just one basis point to 1.74% after trading at 1.71% during the day while the 2-yr yield declined two basis points to 0.97%. The U.S. Dollar Index rose 0.3% to 95.92. WTI crude fell 2.2%, or $1.86, to $83.30/bbl.

Separately, Kohl's (KSS 63.71, +16.87, +36.0%) stood out with a 36% gain after confirming takeover interest from PE firms, which are reportedly willing to acquire the company for at least $64 per share.

Reviewing Monday's economic data:

  • The preliminary IHS Markit Services PMI for January fell to 55.0 from 57.7 in the final reading for December. The preliminary IHS Markit Services PMI for January fell to 50.9 from 57.6 in the final reading for December.

Looking ahead, investors will receive the Conference Board's Leading Economic Index for January, the S&P Case-Shiller Home Price Index for November, and the FHFA Housing Price Index for November on Tuesday.

  • Dow Jones Industrial Average -5.4% YTD
  • S&P 500 -7.5% YTD
  • Russell 2000 -9.4% YTD
  • Nasdaq Composite -11.4% YTD

Overseas: 

  • Europe: DAX -3.8%, FTSE -2.6%, CAC -4.0%
  • Asia: Nikkei +0.2%, Hang Seng -1.2%, Shanghai flat

Commodities: 

  • Crude Oil -2.11 @ 82.92
  • Nat Gas +0.08 @ 3.84
  • Gold +9.40 @ 1840.50
  • Silver -0.44 @ 23.88
  • Copper -0.08 @ 4.43

Spotlight Comment: Kohl's draws takeover interest from PE firms

Kohl's (KSS 63.71, +16.87, +36.0%) likes put to items on sale, but some private equity firms want to buy the whole company. The department store giant has been struggling with sluggish top line growth, and inflation is expected to weigh heavily on its earnings in the coming quarters. Its challenges can be blamed partly on the pandemic, but it has underperformed peers that are facing the same industry headwinds.

Briefing.com profiled KSS as a YIELD Leaders idea on January 13 at $49.80 (+28%), so we are happy to see today's announcement of takeover interest.

  • Kohl's confirmed today that it has received letters expressing interest in acquiring the company. The company did not provide further details about the overtures it has received, like which firms are involved or what the buyout prices could be. However, WSJ reported that a Starboard Value consortium was aiming to bid $64/share, and CNBC reported yesterday that Sycamore is willing to pay at least $65/share. The press release from Kohl's notably says "letters", implying that at least two offers are in play, which backs up the reporting. The company said that it will determine the best course of action and will not comment further. The prices reported would be nice premiums from Friday's close of $46.84 at 37-39%.
  • Activist investors have been nipping at the board of Kohl's to take action for some time now. In fact, Kohl's reached an agreement with major investor Macellum in April 2021 to add two of the firm's people to its board. The company has also been enacting a strategic turnaround plan by trying to rebrand itself away from its discount model and toward focus on active and casual lifestyle products. Among recent endeavors, it reached a store-within-a-store partnership with Sephora to launch Sephora at Kohl's in a total of 850 locations by 2023, and it partnered with Amazon to allow customers to return items, which helped drive traffic to Kohl's stores.
  • However, activist investors want more steps to be taken. For example, activist investor firm Engine Capital recently sent a letter to the board arguing that KSS should consider spinning off its successful ecommerce segment Kohls.com, which the firm thinks could fetch a $12.4 bln market cap on its own. Jana Partners is advocating for Macy's (M) to take a similar step.
  • Another potential move Kohl's could make is to monetize some of its real estate assets. Unlike a lot of retailers, Kohl's owns a lot of the real estate in which it has stores. Kohl's could conceivably sell a lot of the land and do a lease-back with a real estate company, potentially unlocking $3 bln in cash, but Kohl's has rebuffed that idea.

Bottom line, KSS has been a serial underperformer, and if its stock could not move following Q3's (Oct) huge beat, maybe it should consider a spin-off of its online unit or sell some real estate. We think taking the company private, making changes, then allowing the company to re-emerge as an IPO in a few years is just what is needed because the market is not rewarding KSS with a proper multiple. However, management has been resistant, so it may be advisable to keep hopes in check.

If KSS does remain public, the main concern for its performance is supply constraints. KSS has a good amount of production coming from Vietnam, where COVID-19 shutdowns have weighed on output. To its credit, KSS says it took such risks into account when it recently increased its full year adjusted EPS guidance to $7.10-7.30 from prior guidance of $5.80-6.10. The new guidance computes to a reasonable P/E of 8.7x at the mid-point and a forward P/E of only 9.4x, so the stock is quite cheap even after today's move.

Today's News Summary:

For a full rundown of today's market and after hours developments, see Live In Play

  • Earnings/Guidance (Full Earnings Calendar):
    • Arbutus (ABUS) announces 2022 corporate objectives and provides financial update
    • Bank of Hawaii (BOH) beats by $0.20
    • Community Bank (CBU) misses by $0.01
    • Daqo New Energy (DQ) provided estimate of its subsidiary net profit; proposes offering of RMB11 Billion in ordinary shares for its 100,000 MT polysilicon expansion project in China
    • Halliburton (HAL) beats by $0.58, beats on revs
    • Hayward Holdings (HAYW) sees Q4 revs below consensus
    • MaxCyte (MXCT) sees Q4 revs above consensus
    • McAfee (MCFE) sees Q4 revs above consensus
    • Missfresh Ltd. (MF): In 2021, sales of 3R products on MF's platform increased by more than 300% compared to 2020
    • Philips (PHG) misses by 0.05, reports revs in-line
    • Talos Energy (TALO) Provides Operational and Financial Update for the Fourth Quarter and Full Year 2021
  • General News:
    • President Biden considering sending troops, warships, and aircraft to Eastern Europe amid fears that Russia will invade Ukraine. UK believes Russia wants to install a pro Russian leader in Ukraine, according to the New York Times
    • State Department ordered the departure of family members of U.S. Government employees at the U.S. Embassy in Kyiv, Ukraine
    • Defense Department puts hundreds of troops on standby for potential deployment to eastern Europe, according to WSJ
    • House Speaker Nancy Pelosi (D-CA) acknowledged that smaller Build Back Better Act discussions will be put on the "back burner" while they discuss other topics like China competitiveness and government funding, according to CNN
    • Goldman Sachs believes inflation could result in the Fed hiking rates by over four times this year, according to CNBC
    • NY residents gambled over $600 mln during sports betting launch, according to the New York Post
    • Bitcoin continues its decline on Saturday
    • China flies about 39 warplanes near Taiwan amid tensions, according to Sky News, according to Sky News
    • AbbVie (ABBV): FDA approves SKYRIZI for the treatment of adults with active psoriatic arthritis
    • Alphabet (GOOG): Four AGs are suing Google for allegedly misleading users about when the company was able to track their location - CNBC
    • Apple (AAPL) will soon introduce new iPhone SE and iPad, according to Bloomberg
    • Archer Aviation (ACHR) appoints Mark Mesler as CFO
    • BeiGene (BGNE) Announces Positive Findings from Phase 3 Trial of Tislelizumab in Combination with Chemotherapy in First-Line Gastric or Gastroesophageal Junction Cancer
    • Blackstone (BX): BX's Real Estate Income Trust business to acquire Resource REIT (RSRL) for $14.75/share in cash
    • Camping World (CWH) increases stock repurchase program
    • Connect Biopharma (CNTB) Presents Data and Analyses from the Global Phase 2b Trial of CBP-201 at the Maui Derm Conference
    • CytoSorbents (CTSO): New Publication Reports Significant Reductions in Perioperative Bleeding Complications Following Acute Aortic Dissection Surgery using CytoSorbents' Antithrombotic Drug Removal Technology
    • DHT (DHT) co-CEO to retire
    • Embraer SA (ERJ): Azorra places order for 20 Embraer E2 aircraft; order is valued at $3.9 bln at list prices
    • Eli Lilly (LLY) and Innovent report final clinical results and biomarker analysis of Phase Ib Study of TYVYT (Sintilimab Injection) plus Bevacizumab biosimilar injection
    • Ford Motor (F) cuts off orders of Maverick pickup truck because it cannot meet any additional demand for the truck, according to WSJ
    • Gilead Sciences (GILD) receives FDA approval for Veklury
    • Greenwich LifeSciences (GLSI) to implement stock repurchase program for up to $10 mln and to extend lock-up of insiders for an additional year
    • Hyatt Hotels (H) announces plans to accelerate brand growth in the Americas
    • Ionis Pharma (IONS) announces eplontersen receives orphan drug designation from U.S. FDA
    • KalVista Pharmaceuticals (KALV) Announces Publication of Oral HAE Therapy KVD900 Phase 1 Data in Journal of Allergy and Clinical Immunology
    • Karyopharm Therapeutics (KPTI) receives FDA orphan drug designation for eltanexor, the company's treatment of myelodysplastic syndromes
    • Kohl's (KSS): Sycamore Partners has approached KSS, and Oak Street Real Estate Capital could also bid; Sycamore could pay around $65/share, but hasn't submitted formal offer, according to WSJ
    • Kohl's (KSS) confirms that it has received letters expressing interest in acquiring the Company
    • Kraft Heinz (KHC) US CFO Andre Maciel to move into Global CFO role, effective March 2
    • Marriott Vacations (VAC): Company continued to experience strong occupancies in most resorts during Q4, remained well above pre-pandemic levels; delivered contract sales of $406 mln in Q4
    • Merck (MRK) received Complete Response Letter regarding its New Drug Application for gefapixant
    • Natera (NTRA): Landmark CIRCULATE-Japan Study Shows Natera's Signatera MRD Test is Predictive of Chemotherapy Benefit in Colorectal Cancer
    • Opthea Ltd. (OPT) received a A$6.6 million (US$4.9 million) research and development tax credit from the Australian Taxation Office
    • Opko Health (OPK) and Pfizer (PFE) receive Complete Response Letter for BLA for somatrogon
    • Parsons (PSN) unanimously elected Carey Smith as chairwoman, effective April 14, 2022
    • Pebblebrook Hotel Trust (PEB) announces operational update; December marked the best performing month compared to 2019 since the pandemic began; Total Revenue was down just 20% versus December 2019
    • Peloton (PTON): Blackwells Capital wants Peloton to fire CEO John Foley and consider a sale, according to the Wall Street Journal
    • Pfizer (PFE) and BioNTech (BNTX) publish data from two laboratory studies on COVID-19 vaccine-induced antibodies ability to neutralize SARS-CoV-2 omicron variant
    • Playtika's (PLTK) largest stockholder exploring potential sale of a portion of its shares of Playtika
    • Pure Storage (PSTG) announces partnership with Meta (FB) on new AI Research SuperCluster
    • Regeneron Pharma (REGN) and Eli Lilly (LLY) monoclonal antibodies' restrictions expected in near-term, according to Washington Post
    • SAB Biotherapeutics (SABS) Reports Positive Phase 2 Virology Data Demonstrating SAB-185 Met Criteria for Advancement to Phase 3 in NIH ACTIV-2 Trial for Treatment of COVID-19
    • Silvercorp Metals (SVM) report additional high-grade intercepts from its 2021 exploration program at the SGX mine
    • SQZ Biotechnologies (SQZ) announced that the FDA cleared the IND application for SQZ-eAPC-HPV, authorizing the company to proceed with initiating a Phase 1/2 clinical trial of the novel cell therapy candidate
    • Tango Therapeutics (TNGX) announces clearance of TNG908 IND by FDA and recent pipeline progress updates
    • Viking Therapeutics (VKTX): FDA places Phase 1b clinical trial of VK0214 on clinical hold; trial delay "is in keeping with industry guidance for Phase 2 studies and is not based on data from previously submitted or ongoing studies"
    • Vodafone (VOD) and Iliad in discussions to combine Italian units, according to Reuters
    • XPO Logistics (XPO) digital truck brokerage platform exceeds 600,000 app download

(see Upgrades/Downgrades calendar for full list):

  • Upgrades:
    • Affirm (AFRM) upgraded to Equal-Weight from Underweight at Stephens; tgt $72
    • Arista Networks (ANET) upgraded to Buy from Neutral at Citigroup; tgt $150
    • Booz Allen Hamilton (BAH) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $105
    • Charter Comm (CHTR) upgraded to Outperform from Sector Perform at RBC Capital Mkts; tgt lowered to $690
    • Comcast (CMCSA) upgraded to Outperform from Sector Perform at RBC Capital Mkts; tgt $60
    • Discover Financial Services (DFS) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $142
    • Equifax (EFX) upgraded to Outperform from Neutral at Robert W. Baird; tgt lowered to $281
    • Fox Corporation (FOXA) upgraded to Buy from Neutral at UBS; tgt raised to $50
    • FVCBankcorp (FVCB) upgraded to Strong Buy from Outperform at Raymond James; tgt raised to $25
    • Infinera (INFN) upgraded to Buy from Neutral at B. Riley Securities; tgt raised to $11.50
    • M&T Bank (MTB) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $190
    • Orchid Island Capital (ORC) upgraded to Buy from Hold at Jones Trading; tgt $4.25
    • ResMed (RMD) upgraded to Neutral from Underperform at BofA Securities; tgt raised to $250
    • Saia (SAIA) upgraded to Buy from Hold at Deutsche Bank; tgt $363
    • Science Applications (SAIC) upgraded to Overweight from Equal Weight at Barclays; tgt lowered to $90
    • Splunk (SPLK) upgraded to Buy from Neutral at BTIG Research; tgt $155
    • UBS AG (UBS) upgraded to Equal Weight from Underweight at Barclays
  • Downgrades:
    • Dun & Bradstreet (DNB) downgraded to Equal Weight from Overweight at Barclays; tgt $22
    • EVERTEC (EVTC) downgraded to Neutral from Positive at Susquehanna; tgt lowered to $49
    • First Hawaiian (FHB) downgraded to Neutral from Buy at Compass Point; tgt $29
    • Greentree Hospitality (GHG) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt lowered to $7.50
    • Netflix (NFLX) downgraded to Hold from Buy at Jefferies; tgt lowered to $415
    • PPG Industries (PPG) downgraded to Equal Weight from Overweight at Wells Fargo; tgt $170
    • Snap (SNAP) downgraded to Neutral from Outperform at Wedbush; tgt $36
  • Others:
    • Banco Bradesco (BBD) initiated with an Overweight at Barclays; tgt $5
    • Banco Santander Brasil (BSBR) initiated with an Equal Weight at Barclays; tgt $6
    • Blue Owl Capital (OWL) initiated with a Buy at BofA Securities; tgt $18
    • Fathom Digital Manufacturing (FATH) initiated with a Buy at Needham; tgt $12
    • Grab (GRAB) initiated with an Overweight at Morgan Stanley; tgt $8.40
    • Healthcare Capital Corp. (HCCC) initiated with a Buy at Ladenburg Thalmann; tgt $18
    • Itau Unibanco Holding SA (ITUB) initiated with an Equal Weight at Barclays; tgt $4.50
    • Reviva Pharmaceuticals (RVPH) initiated with a Buy at H.C. Wainwright; tgt $10
    • Sonder (SOND) initiated with a Mkt Outperform at JMP Securities; tgt $12
    • Sylvamo (SLVM) initiated with a Sector Perform at RBC Capital Mkts; tgt $34
    • Victoria's Secret (VSCO) initiated with a Neutral at UBS; tgt $59
    • Victory Capital (VCTR) resumed with a Buy at BofA Securities; tgt $44

Upcoming Events:

  • Econ data (Tuesday):
    • 09:00 ET: November FHFA Housing Market Index (prior 1.1%)
    • 09:00 ET: November S&P Case-Shiller Home Price Index (prior 18.4%)
    • 10:00 ET: January Consumer Confidence (Briefing.com consensus 112.0; prior 115.8)
  • Earnings:
    • Monday (Jan. 24)
      • Pre-Market: BOH CBU HAL PHG
      • After-Hours: BRO CR ELS HOPE IBM IBTX LOGI SSB STLD WSFS ZION
    • Tuesday (Jan. 25)
      • Pre-Market:  MMM AXP ADM AUB BANC CVLT ERIC GATX GE IVZ JNJ LKFN LMT NEE NEP PCAR PII RTX UMC VZ XRX
      • After-Hours:  AGYS BXP CADE CNI COF FFIV FCF HA MRTN MSFT NAVI NXGN RNR RNST SLGN LRN TXN TRMK UMBF VBTX WSBC
    • Wednesday (Jan. 26)
      • Pre-Market:  ABT APH ANTM T ADP BA GLW FBP FBC FCX GD HES KMB KNX MKTX MNRO NDAQ NYCB NSC OSK PGR PB ROL RES SF TEL
      • After-Hours: AMP AZPN AVT AXS CACI CALX CLS CNS CNMD CCI CVBF DRE EW FLEX HXL INTC ISBC LRCX LSTR LVS LC LEVI MTH CASH MEOH MKSI PKG PLXS PTC XM RJF RLI SLM STX SEIC NOW SIMO SLG TER TSLA URI VRTX WHR WOLF XLNX
    • Thursday (Jan. 27)
      • Pre-Market: FLWS AOS ALK ADS MO AIT BLL BX BC CNX CMCO CMCSA CFR DHR DOV DOW EXP EWBC EXTR HCA IP JBLU KEX MTSI HZO MMC MA MKC MCD MSCI MUR NTCT NOC NUE OSIS BPOP ROK RCI SAP SHW SFNC LUV STM TROW TDY TXT TSCO VLO VLY XEL
      • After-Hours: ABCB AAPL AJG TEAM AX BZH BOOT CP CATY CE EMN ETD FICO FHI FFBC FIBK GBCI HTH JNPR KLAC MITK MDLZ NATI OLN RMD RHI HOOD SYK X V WRB WAL WDC
    • Friday (Jan. 28)
      • Pre-Market: ALV BMI BAH CAT CHTR CVX CHD CL GNTX LYB MOG.A PSX PFS SBSI SYF VFC WY WETF
      • After-Hours: None
      • Full Earnings Calendar
    MDU Resources raises FY20 EPS guidance
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