>>> Europe : Brokers Upgrades & Downgrades - 23rd of February 2022

>>> Up
* Catena Raised to Buy at ABG; PT 570 kronor
* DECHRA PHARMA RAISED TO HOLD VS SELL AT LIBERUM, PT 4020P
* DSM Raised to Buy at SocGen; PT 190 euros
* Entra Raised to Overweight at Barclays; PT 235 kroner
* Glencore Raised to Outperform at BMO; PT 525 pence
* Hargreaves Lansdown Raised to Neutral at Citi; PT 1,210 pence
* Jyske Raised to Hold at SEB Equities; PT 421 kroner
* Sika Raised to Buy at Stifel; PT 390 Swiss francs

>>> Down
* Altice USA Cut to Hold at SocGen; PT $12
* Arla Plast Cut to Hold at Carnegie; PT 47 kronor
* Dustin Cut to Hold at Handelsbanken; PT 90 kronor
* E.On Cut to Neutral at JPMorgan; PT 12 euros
* Fraport Cut to Hold at HSBC; PT 71 euros

>>> Initiation
* AUTO1 Rated New Underperform at Oddo BHF; PT 14 euros
* LEG Immobilien Rated New Outperform at Oddo BHF; PT 141.50 euros

>>> Call
* Dechra Offers Value After Slump, Liberum Says; Raises to Hold
* Endesa FY Results Offer ‘Encouraging Message’: Morgan Stanley
* Henkel, Danone Get ‘Extra Headache’ in Ukraine Crisis: Bernstein
* Synthomer Upgraded at Morgan Stanley With Risks Now Discounted

>>> US Close Dow -1.42% S&P -1.01% Nasdaq -1.23% Russell -1.45% VIX 28.81 +3.82%

Closing Stock Market Summary

The S&P 500 fell 1.0% on Tuesday, although it was down as much as 1.9% amid rising Russia-Ukraine tensions, pestering concerns about monetary policy, and weakening price momentum. 

The Nasdaq Composite (-1.2%), Dow Jones Industrial Average (-1.4%), and Russell 2000 (-1.5%) also closed off their session lows, but they still lost more than 1.0%.

Today's trading narrative was catalyzed by Russia's decision to recognize the independence of Ukraine's Donetsk and Luhansk regions and send "peacekeeping" troops to the oblasts. The U.S., UK, and EU announced initial sanctions, and Germany halted the approval process for the Nord Stream 2 pipeline from Russia. 

All that transpired before the open, yet the futures market recovered losses and the S&P 500 briefly traded in positive territory after the open. Buyers lacked resolve, though, giving way to a broad-based decline and losses in all 11 S&P 500 sectors.

The consumer discretionary sector (-3.0%) was easily the weakest performer, largely due a 9% decline in Home Depot (HD 316.17, -30.70, -8.9%) following its conservative FY22 sales guidance. The utilities sector outperformed on a relative basis with a 0.1% decline. 

Amid the geopolitical uncertainty, and slower growth prospects highlighted by Home Depot's guidance, investors remained concerned about the impacts of the Fed's tightening course.

The 2-yr yield rose eight basis points to 1.55% following rate-hike commentary from Fed Governor Bowman (FOMC voter) on Monday. Strikingly, the 10-yr yield increased two basis points to 1.93% despite the geopolitical tensions, supporting the case that the market was influenced by more than the Russia-Ukraine headlines. 

Granted, the market did come off session lows in the afternoon after President Biden announced new sanctions on Russia, including sanctions on sovereign debt, two large financial institutions, and Russian elites and family members. Mr. Biden threatened additional sanctions if Russia escalates the situation.

The S&P 500 jumped nearly 70 points off its low in the course of an hour, but sellers came back in to spoil the rebound bid. The S&P 500 closed 10.3% off its record closing high, as well at its lowest closing level since Oct 4. 

WTI crude futures settled above $92 per barrel ($92.27, +1.06, +1.2%) after flirting with $95 per barrel overnight. The U.S. Dollar Index was little changed at 96.07. The CBOE Volatility Index increased just 3.8% to 28.81 after topping 32.00 intraday. 

Reviewing Tuesday's economic data:

  • The Conference Board's Consumer Confidence Index dropped to 110.5 in February ( consensus 109.0) from a downwardly revised 111.1 (from 113.8) in January. In the same period a year ago, the index stood at 95.2.
    • The key takeaway from the report is the recognition that expectations for short-term growth prospects weakened, pointing to a possible moderation in spending activity in coming months, particularly if inflation pressures remain persistent and real disposable personal income is negative.
  • The S&P Case-Shiller Home Price Index for December increased 18.6% year-over-year (consensus 18.3%) following an 18.3% increase in November.
  • The FHFA Housing Price Index for December increased 1.2% month-over-month following a revised 1.2% increase (from 1.1%) in November.
  • The preliminary IHS Markit Manufacturing PMI for February increased to 57.5 from 55.5 in January while the preliminary Services PMI increased to 56.7 from 51.2 in January.

Looking ahead, investors will receive the weekly MBA Mortgage Applications Index on Wednesday. 

  • Dow Jones Industrial Average -7.5% YTD
  • S&P 500 -9.7% YTD
  • Russell 2000 -11.8% YTD
  • Nasdaq Composite -14.5% YTD

>>> US After Hours Summary: Busy earnings session; MELI +10.2%, CDNS +9.5%, VRSK

After Hours Summary: Busy earnings session; MELI +10.2%, CDNS +9.5%, VRSK +7.3%, PANW +6% higher on earnings; CSGP -20.6%, RXT -13%, WK -10.2%, TDOC -6.6% lower on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: SKIN +13.7%, HIMS +13.1%, MELI +10.2%, CDNS +9.5%, VRSK +7.3%, MAXR +7.2%, NU +6.2%, PANW +6%, INDI +5.7%, RRC +4.7% (also reinstates dividend, authorizes $500 mln share repurchase program), EPR +4.6%, CZR +4.4%, VNOM +3.9% (also increases dividend), SPT +3.7%, PCOR +3.2%, RDN +2.6%, GKOS +2.4%, SPCE +2.4%, HCC +2.3%, KTOS +2.1%, TBLA +1.8%, TNDM +1.7%, CUTR +1.6%, FANG +1.5% (also increases dividend; also announces a series of leadership appointments and promotions), HTGC +1.4%, ESI +1.3%, PSA +1%, TXRH +1%, O +0.7%, TOL +0.4%, AGR +0.2%, BWXT +0.2%, BCC +0.1%, MTDR +0.1%

Companies trading higher in after hours in reaction to news: FUV +6.3% (begins operations in new RAMP manufacturing facility in Oregon), PANL +3.1% (names new COO), TPB +0.9% (increases dividend), NCNA +0.7% (completes enrollment for Phase III NuTide:121 study), CNHI +0.6% (announces updated 2024 strategic plan and presents 3-yr targets), ALEX +0.1% (increases dividend), VMI +0.1% (increases dividend), CWT +0.1% (receives approval by New Mexico Commission to acquire Morningstar Water System assets), AGI +0.1% (reports mineral reserves and resources for 2021), IBM +0.1% (files mixed securities shelf offering)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: CSGP -20.6%, RXT -13%, WK -10.2%, TDOC -6.6%, API -5.7% (also approves $200 mln ADS repurchase program), MOS -5.5% (announces dividend target increase; also new $1 bln share repurchase program), RIG -1.8%, PUMP -1.5%, NHI -1.2%, NDSN -1%, LPI -0.9%, PEN -0.7%, EXAS -0.6%, QUAD -0.6%, BTG -0.4%, JBT -0.2%, PEB -0.2%, ACC -0.1%, PGRE -0.1%, RNG -0.1%, SHO -0.1%, ROG -0.1%

Companies trading lower in after hours in reaction to news: MRNS -12.3% (to delay RAISE Phase 3 trial in status epilepticus and associated IV ganaxolone clinical trials), OCGN -12.1% (stock offering), MRNA -0.2% (announces distribution agreement covering Latin America), VSH -0.1% (CEO to retire; names new CEO and COO to take over on Jan 1), FLR -0.1% (files mixed securities shelf offering), BAK -0.1% (acquires minority equity interest in SPEs engaged in wind power)

FT Lex : Ukraine/Russian gas: Germany will have to go cold turkey

Ukraine/Russian gas: Germany will have to go cold turkey
Vladimir Putin has the whip hand as Berlin has few other energy choices

Business magazine Wirtschaftswoche encapsulated the problem with a recent cover: Vladimir Putin controls Germany the way a dealer controls a junkie. Natural gas is the drug of choice.

The shrewdness of Putin’s strategy is clear now Russian tanks are rolling. Effective sanctions would ban Russian energy exports, or payments for them via the international banking system. But that severe blow to Russia’s resource-dependent economy would badly hurt Germans. The energy policy errors of their leaders are woefully apparent.

Chancellor Olaf Scholz has only halted a second pipeline, Nord Stream 2, now that Russia is invading eastern Ukraine. This would have doubled the capacity of imports to 110bn cubic metres.

The first Nord Stream pipeline system already supplies two-thirds of Germany’s imported energy. Half Germany’s 40m households keep warm using natural gas, 97 per cent of it from overseas.

Scholz’s predecessors Gerhard Schröder, a friend of Putin who is now a Gazprom board nominee, and Angela Merkel steered Germany towards its addiction. The renewables endorsed by Merkel provided 44 per cent of the country’s energy generation in the first half of 2021, according to official data. But she also ordered the closure of nuclear plants.

Fossil fuels produce the bulk of Russia’s foreign income. Last year, Russia’s natural gas exports brought in $55.5bn — mostly from Europe. That was the highest since 2013. European natural gas prices have quintupled over the last year. Tellingly, the futures curve has now flattened, says consultancy Rystad Energy. Fears of Russian supply disruption have forestalled the typical spring and summer price slide.

Annexing the whole of Ukraine would strengthen Russia’s grip on Western Europe’s energy supply. Ukraine would no longer be a transit country able to cut off exports via its ageing pipeline system.

In the short term Putin has the whip hand. Autocrats can contemplate hardship for their compatriots more cheerfully than democratic politicians. The west is unlikely to impose a full export ban on gas. Germany has few other energy choices. Conventional sources, such as coal and nuclear, are politically unpalatable with the Green Party, a member of Scholz’s coalition government.

Longer-term, Germany must build up alternative gas supplies. It should finally heed US warnings and mothball Nord Stream 2 permanently. It should invest in terminals to import liquefied natural gas. It has none operating and only one under construction.

The easier, cheaper choice would be to open Nord Stream 2 after the renewed Russian invasion has faded into recent history. Politicians would bill this as “the normalisation of relations”. Pretending suppliers are friends is one hallmark of the addict.

FT Lex : Ukraine/Russian gas: Germany will have to go cold turkey

Ukraine/Russian gas: Germany will have to go cold turkey
Vladimir Putin has the whip hand as Berlin has few other energy choices

Business magazine Wirtschaftswoche encapsulated the problem with a recent cover: Vladimir Putin controls Germany the way a dealer controls a junkie. Natural gas is the drug of choice.

The shrewdness of Putin’s strategy is clear now Russian tanks are rolling. Effective sanctions would ban Russian energy exports, or payments for them via the international banking system. But that severe blow to Russia’s resource-dependent economy would badly hurt Germans. The energy policy errors of their leaders are woefully apparent.

Chancellor Olaf Scholz has only halted a second pipeline, Nord Stream 2, now that Russia is invading eastern Ukraine. This would have doubled the capacity of imports to 110bn cubic metres.

The first Nord Stream pipeline system already supplies two-thirds of Germany’s imported energy. Half Germany’s 40m households keep warm using natural gas, 97 per cent of it from overseas.

Scholz’s predecessors Gerhard Schröder, a friend of Putin who is now a Gazprom board nominee, and Angela Merkel steered Germany towards its addiction. The renewables endorsed by Merkel provided 44 per cent of the country’s energy generation in the first half of 2021, according to official data. But she also ordered the closure of nuclear plants.

Fossil fuels produce the bulk of Russia’s foreign income. Last year, Russia’s natural gas exports brought in $55.5bn — mostly from Europe. That was the highest since 2013. European natural gas prices have quintupled over the last year. Tellingly, the futures curve has now flattened, says consultancy Rystad Energy. Fears of Russian supply disruption have forestalled the typical spring and summer price slide.

Annexing the whole of Ukraine would strengthen Russia’s grip on Western Europe’s energy supply. Ukraine would no longer be a transit country able to cut off exports via its ageing pipeline system.

In the short term Putin has the whip hand. Autocrats can contemplate hardship for their compatriots more cheerfully than democratic politicians. The west is unlikely to impose a full export ban on gas. Germany has few other energy choices. Conventional sources, such as coal and nuclear, are politically unpalatable with the Green Party, a member of Scholz’s coalition government.

Longer-term, Germany must build up alternative gas supplies. It should finally heed US warnings and mothball Nord Stream 2 permanently. It should invest in terminals to import liquefied natural gas. It has none operating and only one under construction.

The easier, cheaper choice would be to open Nord Stream 2 after the renewed Russian invasion has faded into recent history. Politicians would bill this as “the normalisation of relations”. Pretending suppliers are friends is one hallmark of the addict.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • TPX -8.3%, UIS -4.5%, HLX -4%, ETRN -2.4%, CFX -0.9%, HD -0.3%

Other news:

  • FIXX -32.1% (provides update on pheNIX gene therapy trial of HMI-102 in adults with PKU; trial placed on clinical hold)
  • KPTI -24.6% (announces departure of Jatin Shah, M.D., as Chief Medical Officer)
  • RSX -12.8% (tensions escalate in Russia/Ukraine)
  • ADGI -8.1% (announced a Chief Executive Officer succession plan; outlines strategic initiatives for ADG20 program)
  • VWE -3.9% (announces voluntary delisting from TSX, effective at the close on March 7)
  • VIVO -2.2% (appoints Andy Kitzmiller as CFO)
  • RNG -2% (RingCentral and Zoom (ZM) settle litigation)
  • ZM -1.4% (RingCentral and Zoom (ZM) settle litigation)
  • CARR -1.1% (updates its medium term outlook)

Analyst comments:

  • CRNC -5.4% (downgraded to Neutral from Buy at Goldman)
  • DKNG -5.1% (downgraded to Equal Weight from Overweight at Wells Fargo)
  • GT -2.9% (downgraded to Hold from Buy at Williams Trading)
  • CE -1.9% (downgraded to Underweight from Neutral at Piper Sandler)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • DDS +11.9%, VAL +8.8%, NEX +8.6%, M +6.6%, TRU +5.9%, ICLR +3.6%, SNN +3.3%, ESPR +2.9%, WMB +2.4%, DNUT +1.9%, APA +1.8%, HL +1.6%, CNP +1.5%, LPX +1.3%

Select oil/gas related names showing strength:

  • MRO +4.9%, OIH +3.5%, USO +2.9%, SLB +2.6%, HAL +2.6%, XLE +2%, XOM +1.9%, PSX +1.4%

Other news:

  • DWAC +19.6% (Former President Trump's Truth Social application is now available)
  • OCGN +17.3% (FDA lifts clinical hold on submission of IND application for COVAXIN)
  • HMHC +15% (to be acquired by Veritas Capital for $21.00 per share in cash)
  • TGNA +7.5% (confirms it will be acquired by Standard General for $24/share in cash)
  • LTRY +5% (signed an agreement with T-Mobile to become the exclusive digital lottery brand for in-vehicle advertising)
  • AZN +3.5% (reports ENHERTU (fam-trastuzumab deruxtecan-nxki) significantly improved both progression-free and overall survival in DESTINY-Breast04 Trial in Patients with HER2-Low Metastatic Breast Cancer)
  • PRVB +1.5% (resubmits BLA for Teplizumab to Address Complete Response Letter)
  • TCMD +0.9% (announces dismissal of qui tam lawsuit filed by competitor)

Analyst comments:

  • CHX +2.3% (upgraded to Neutral from Sell at Goldman)
  • PRVA +1% (upgraded to Outperform from Market Perform at Cowen)