Closing Recap

Tuesday, February 15, 2022

Equity Market Recap

·     There was absolutely no fear in stock markets today, as stocks rose across the board paced by gains in the Nasdaq rising over 2.5% and Smallcaps with the Russell 2000 also up over 2.5%. The S&P 500 saw 9 of 11 sectors rise (energy/utilities fell), with massive gains in technology (semiconductor index jumped over 5%), as well as financials, industrials, and consumer discretionary while leisure and travel names outperformed. Russia said overnight some troops are withdrawing from Ukraine’s border (didn’t specify how many – just some), which was enough to get global markets higher on improving sentiment and hopes of a de-escalation of tensions with the U.S. The positive headlines on Russia overshadowed another spike in inflation, when the January PPI showed prices rise 9.7% y/y, nearly the highest on record, which followed the 7.5% spike in CPI y/y last Thursday, which sunk stocks. No concerns today however as stocks just went higher, not fearful of the spike in inflation and/or its impact on the Fed, which is widely expected to raise interest rates by at least 25 bps at the March meeting, with some calls for a possible 50bps hike. According to Bespoke, today marked just the third day this year that SPY opened in positive territory and stayed there the entire trading day.

·     Stock & Sector movers: Semis ripping higher with NVDA (eps tomorrow) and MPWR leading the S&P, AMKR leading the SOX after its earnings as the index’s only component in the red today was IPGP hitting its 52-week low on weak guidance; ANET soars after its report and guide, BWA climbs as its quarterly beat outweighs soft guidance, and QSR jumps on its beat among post-earnings gainers; post-earnings decliners include FIS rolling back to March 2020 levels after its Q4 results and Q1 guidance missed estimates as the latest fintech/payments name to report a weaker quarter and AAP CAR despite beats; travel space outperforms as SABR surges on a sales beat with a forecast for a 2022 recovery while MAR rises to ATHs after its strong beat to lift other hotels HLT VAC as airlines DAL ALK UAL AAL join cruise lines CCL RCL NCLH and travel EXPE among the S&P leaders; ABNB WYNN report tonight, FUN HLT tmrw pre-market.

Economic Data:

·     Producer Price Index (PPI) for January shows headline and core readings "hotter" than expected – PPI headline m/m rises +1.0% vs. est. +0.5% and headline y/y rises +9.7% vs. est. +9.1%; on a core basis (ex food & energy) Jan PPI rises +0.8% m/m vs. rest. +0.5% and rises +8.3% vs. est. $7.9% y/y

·     Empire state current business conditions index +3.1 in February vs -0.7 in January; new orders index +1.4 in February vs -5.0 in January; prices paid index +76.6 in February vs +76.7 in January; employment index at +23.1 in February vs +16.1 in January; and the six-month business conditions index +28.2 in February vs +35.1 in January

Commodities

·     Oil prices dropped from a seven-year high after Russia said some of its military units were returning to their bases after exercises near Ukraine. WTI crude fell -$3.39 or 3.55% to settle at $92.07 per barrel, (off worst levels of $90.66), a day after topping $95 per barrel for the first time since 2014. A conflict with Russia could disrupt an already tight oil supply. It was not clear how many units were being withdrawn, and by what distance, but was enough to ease prices. Note both oil benchmarks hit their highest since September 2014 on Monday, with Brent touching $96.78 and WTI reaching $95.82. The price of Brent jumped 50% in 2021.

·     Gold prices slip -$13.20 or 0.7% to settle at $1,856.30 an ounce, pulling back from 3-month highs earlier as investors dumped haven instruments, rotating back into riskier stocks on apparent de-escalation headlines out of Russia/Ukraine (gold prices up 10 of last 12-days).

Currencies & Treasuries

·     Treasury yields moved higher following the surge in producer prices (PPI) data this morning, taking the 10-year yield back around the 2.04% where it spent most of the afternoon, while the shorter-term 2-yr yield was little changed around 1.58%. The U.S. dollar index (DXY) was weaker on the day despite the pop in PPI prices as the buck fell against the euro, little changed vs. the Pound and was higher against the Japanese yen ahead of another busy economic data tomorrow. The yield on the 30-year yield rose to 2.36%, its highest since May 2021.

Sector News Breakdown

Consumer

·     Retailers; GPS downgraded underperform from Neutral at bank America and cut tgt to $14 from $26 as expect Old Navy (55% of sales) to be disproportionately hurt by its exposure to the low-income consumer and by worsening supply chain challenges which puts estimates at risk: our 1H22E and FY22E EPS estimates are 28% and 16%; Cowen said in department stores, its top pick is Macy’s (M) given greater upside potential on category strength, merch margins, and digital innovation as see 4Q21 EPS of $1.99 vs the Street’s $1.96, primarily driven by a slightly higher sales outlook and expense leverage (also lowers JWN tgt to $25 from $27); KSS unveils locations of 400 new Sephora at kohl’s shops opening this year; WHR raises quarterly dividend 25%, raises share repurchase plan by $2B

·     Auto sector; in auto retail, AAP reported adjusted EPS of $2.07 in 4Q21, above consensus of $1.96 on better same-store sales (comp) growth came in at +8.2%, above consensus of 5.5% and adj. operating margin of 7.4% was above consensus of 7.3%; in auto suppliers, BWA guides FY sales $15.9-16.5B vs est. $16.5B, adj op margin 10.2-10.7%, adj EPS $4.15-4.60 vs est. $4.65 and op FCF $1.6-1.65B; in EV space, FSR opens reservations for its second product, Pear, personal electric automotive revolution starting price of $29,900 in U.S. before taxes and incentives for personal electric automotive revolution – says Agile Urban EV will start deliveries in 2024

·     Consumer Staples; in the beverage space, Bloomberg reported last night merger talks between MNST and STZ are progressing and a merger agreement could be reached in the coming weeks if negotiations proceed smoothly https://bloom.bg/3Bp8rMt ; USFD rises early as activist Sachem Head confirms plans to seek control of board

·     Restaurants; QSR reported Q4 profit and revenue that rose above expectations, as Burger King same-stores sales beat forecasts to help offset misses by Tim Horton’s and Popeyes Louisiana Kitchen; same-store sales rose 11.3% for Burger King to beat the FactSet consensus for a 9.3% rise, and increased 10.3% for Tim Horton’s to miss expectations of 10.6% growth

·     Casinos, Gaming, Lodging & Leisure sector; a strong day for “reopen” stocks, as COVID fears well behind the market, seeing big gains for the likes of cruise lines RCL, NCLH, CCL, theme parks SIX, SEAS, casinos WYNN, LVS, MGM, while hotels and lodging surge as well, but also helped by better earnings from MAR which showed 4Q adj EPS beat of $1.30 vs est. $0.99 on revs $4.446B vs. est. $3.96B, adj EBITDA $741Mm vs est. $684.5Mm; saying new bookings across customer segments have rebounded to pre-omicron levels – shares of HLT, H also higher

Energy

·     Energy stock movers; after surging above $95 per barrel on Monday due to escalating tensions between the U.S. and Russia over Ukraine, prices slid overnight after reports that Russia was pulling back some troops from near the Ukrainian border, in signs of a de-escalation in tensions between the two countries; in E&P and Majors; CLR Q4 adj EPS $1.79 vs. est. $1.69 on revs $1.93B vs. est. $1.71B, total production averaged 340.2 mboepd, sees FY22 annual crude oil production 195-205 mboepd that is below consensus with capex guidance above consensus; RBC downgraded SU to Sector Perform

·     Utilities & Solar; UBS upgraded HASI to Buy given its attractive valuation and relatively stable underlying earnings, CNP to Buy as it trades in-line with average regulated utilities valuation despite being one of the fastest growing utilities with a misunderstood ESG position, and SPWR to Neutral on a more balanced risk/reward with shares having declined 68% since its Jan. 2021 peak, while downgrading NI to Neutral after its outperformance over the past 6 months has pushed the stock to price in its above-average EPS growth; Bank of America double-upgraded DTE to Buy from Underperform after last week’s earnings report included an FY21 beat on already raised guidance, a raise of its FY22 EPS range, and strong affirmation of its long-term growth trajectory; ARCH Q4 EPS $11.92 vs est. $12 on revenue $805.7M vs est. $691.5M, plans to relaunch cap return program in Q2 with 50% of discretionary cash flow being returned to shareholders via a variable dividend on top of its current 25c/shr dividend and the remaining 50% retained for buybacks, special dividends, and capital preservation; FELE rises on earnings

Financials

·     Bank movers; big story today was the WSJ report saying Federal investigators are probing the business of block trading on Wall Street, examining whether bankers might have improperly tipped hedge-fund clients in advance of large share sales, https://on.wsj.com/3LxM6RH ; SI said it expands exchange network to include euros; INTU expects Q2 revs to reflect slower forming tax season as sees $2.66B-$2.665B below prior $2.71B-$2.75B due to a slower forming tax season; sees Q2 revenue at an all-time high for both small business and self-employed group

·     FinTech & Payments; MGI enters into agreement to be acquired by Madison Dearborn Partners for $11.00 per share in cash to accelerate advancement of digital growth strategy in a deal valued at $1.8B including debt https://on.mktw.net/3LDJHVu ; FIS shares slipped initially after Q4 EPS and revs missed estimates and guided Q1 EPS $1.44-$1.47, below the $1.56 estimate and revs also falling short of consensus $3.42B-$3.45B vs. est. $3.49B

·     Consumer Finance; ADS reported delinquencies for January of 4.2% vs. 4.3% y/y, while delinquencies were 4.2% vs. 4.3% y/y; COF reported charge-offs for January of 2.03% vs. 2.54% y/y and delinquencies at 2.4% vs. 2.49% y/y; DFS reported charge-offs for January of 1.76% vs. 2.57% y/y and delinquencies 1.75% vs. 2.08% y/y; SYF reported charge-offs for January of 2.05% and delinquencies 1.49%; reported charge-offs for January of 1.02% and delinquencies 0.7%; MA said expands consulting with practices dedicated to crypto, open banking and ESG; BAC credit card delinquency rate was 0.93% at Jan 2022 end vs 0.89% at dec 2021 end

·     REITs; KRG reported a strong 4Q21 beat, with FFO, as Adjusted exceeding consensus by $0.07/sh (+19%) and initial FY22 FFO guidance of $1.69-$1.75/sh beating by nearly 7% at the midpoint; SRC FFO beat cons by $0.01 and AFFO beat cons by $0.01 as 22e AFFO guide of $3.55 reiterated; VNO beat cons by $0.07 primarily from core growth, SS-NOI was +10.1% YoY vs. +2.8% in 3Q and leasing volumes up YoY while does not provide guidance; BKD shares jump on earnings beat

Healthcare

·     Pharma movers; In Washington, the Senate voted Tuesday 50-46 to officially confirm Robert Califf as FDA commissioner; IMGN announced a license agreement with LLY of its Novel Camptothecin ADC Platform for up to $1.7 billion in potential payments; IMGN will receive $13 million upfront and up to $32.5 million for meeting certain milestones; ZTS 4Q adj EPS $1.00 vs est. $0.96 on revs $2.0B vs est. $1.9B; guides FY22 revs $8.325-8.475B vs est. $8.41B and adj EPS $5.09-5.19 vs est. $5.21; AZN said that a Phase 3 trial of Lynparza plus abiraterone showed that the drug combination reduced risk of disease progression in patients with prostate cancer

·     Biotech movers; CYTK said data from late-stage study showed its experimental treatment, omecamtiv Mecarbil, had no effect on exercise capacity in patients with a type of heart failure called HFrEF; NTLA and ONK Therapeutics collaboration to advance allogeneic Crispr-edited NK cell therapies for the treatment of patients with cancer; LRMR tumbles as the FDA is maintaining its clinical hold at this time on Larimar’s CTI-1601 program and that additional data is needed to resolve the clinical hold; LEGN said the FDA places clinical hold on the co’s lymphoma trial; in MedTech, OMCL shares fell after forecast 2022 adjusted EBITDA between $243 mln and $255 mln, falling short of Street estimates

Industrials & Materials

·     Materials, Aerospace, Industrial & Machinery; MTZ PT to $125 from $135 and PWR to $130 from $135 at Cowen in 4Q21 Grid/Comm E&C Preview saying tracking of customer CAPEX reveals upward revisions and supports our positive view on PWR and MTZ; in chemicals, HUN rises to a record high as revs of $2.31b top the $2.17B estimate on better earnings and said it expects to grow earnings further for 2022, expand adjusted EBITDA margins and deliver improved FCF; SPCE shares surge over 20% on reports its getting closer to commercial operations; LAC rises after JPM issues a bullish take on the development stage lithium miner, seeing "lots of catalysts ahead

·     Transports; CAR Q4 adj EPS $7.08 vs. est. $6.15 on revs $2.57B vs. est. $2.41B with all key metrics beating pre-pandemic levels in the Americas as tight supply continues to aid performance, but shares tumbled as its revenue per day fell -9.9% sequentially from Q3; Wolfe assumed coverage at Outperform on DAL as the legacy airline with the most capacity discipline and thus best margins and EPS, ALK as a best-in-class airline with a good track record, strong management team, and solid balance sheet, and SNCY with its big cost opportunity and the only airline where they expect higher EPS in C23 than C19, upgraded ULCC to OP after its transformational merger announcement with SAVE last week, JBLU to Peer perform as it has higher-end leverage to improve pricing but a mixed management track record, and AAL to Peer perform as they don’t believe an Underperform rating is appropriate given their view to own the lower quality, higher beta stocks with more upside potential, and downgraded UAL to UP given expectations for massive cash burn and continued EPS risk the next several years as it materially ramps up capacity; electric bus maker GP upgraded to Buy at Roth

Technology, Media & Telecom

·     Internet; in online travel, EXPE trades new all-time highs and BKNG close to record highs as travel names among market leaders; SABR Q4 adj EPS (47c) loss wider than est. (45c) on revs $500.6M vs est. $497.1M, its FY22 guidance is dependent on bookings recovery, but if bookings recover 50% the midpoint of FY22 total revs guidance range $2.4-2.7B matches est. $2.55B, said it is shaping up for a year of recovery with Feb. month-to-date global GDS bookings on pace to reach a similar level of recovery vs 2019 as Nov 2019, the best month since the pandemic began; YNDX outperforms following a beat for quarterly results

·     Semiconductors; the Philly semi index (SOX), surges as much as 5%, topping its 200-day MA resistance in broad rally for tech/chip names, led by NVDA ahead of earnings tomorrow night; INTC confirmed a prior WSJ report overnight as it acquires Israeli chip company Tower Semiconductor (TSEM) for almost $5.4B, paying $53 per share; IPGP falls to 52-week lows after weaker guidance as sees Q1 revenue $320M-$350M below est. $370M and EPS 85c-$1.15, below estimate $1.32; Citigroup opens a positive catalyst watch on TER going into Citi’s Global Industrial Conference next week noting the stock is down 30% YTD due to a sharp 50% decline of indirect sales to Apple on pushout of 3nm manufacturing at TSMC, but like risk/reward

·     Software movers; SE shares rebound after tumbling the day prior after Bloomberg first reported that India has banned 54 new apps, including SE’s game Free Fire – Morgan Stanley said they estimate Free Fire India is ~10% of SE’s 2021 bookings, or ~US$475m. Free Fire Max remains available, which should allow SE to migrate players; RESN filed an 8-K announcing its definitive agreement to be acquired by Murata for $4.50/share in an all-cash transaction worth ~$285mn in enterprise value, a ~266% premium to RESN’s closing price of $1.23

·     Hardware, Components & Services; ANET delivered positive results and outlook as sales beat +4%, EPS beat by +11% and the March quarter guidance for +27% y/y sales growth is also +2% better than expectations and guided to 1Q22 operating margin of 38% vs. est. 37%; CIEN guides Q1 revs $840M-$850M vs. est. $$895M and sees Q1 gross margins 44%-45%; continue to see an unprecedented level of demand for our products and services and continue to expect to achieve our revenue guidance of 11% to 13% annual growth for fiscal 2022

·     Media & Telecom; for CMCSA, Super Bowl attracted more than 112 million viewers on linear TV and streaming, up 14% from last year; VIAC earnings expected after the close tonight