Closing Recap

Friday, February 18, 2022

Equity Market Recap

·     It was another volatile day for U.S. stocks heading into a long 3-day weekend, as markets partially recovered in the afternoon following two-days of selling pressure, but still ended lower as markets await a speech from President Biden after the close to give update on Russia-Ukraine situation (expected 4:00 PM). Geopolitics and interest rates remain the key macro market drivers, sprinkled in with the tail end of earnings season and mixed economic data this week – as tech earnings/guidance disasters from names like DKNG, ROKU, FSLY, SHOP, RBLX, PLTR, PARA, WIX, AMPL, RDFN, TOST, TYL (to name a few) weighed heavily on investors. The WSJ reported midday (into the long holiday weekend) that U.S. officials expect a Russian attack on Ukraine that could involve a combination of jets, tanks, ballistic missiles, and cyber-attacks to occur within "the next few days," and although the Biden administration will continue to try to keep open the window for diplomacy these officials’ said prospects for averting war now "appear very dim.” In Washington, Chicago Fed President Charles Evans acknowledged that policy is currently "wrong-footed" but it’s likely to require "less ultimate financial restrictiveness" than past inflationary episodes. New York Fed President John Williams and board member Lael Brainard also weighed in on Friday. Oil prices fell, snapping its 8-week win streak, while gold finished rose.

·     Stock & Sector movers: ROKU plunges to lowest since June 2020 falling almost -40% from Tues highs to today’s low after reporting a sales missed with slower YoY growth and Q1 guidance of a further deceleration in growth, DKNG craters on its forecast of accelerating EBITDA losses as several momentum names stumble in earnings-related moves; RBLX hits record lows below $50 in a follow-through from Tuesday night’s earnings that has seen the stock lose over 33% and TDOC sinks to its lowest levels since October 2019; ARKK slumps to its lowest since June 2020 as it holds each of these names (TDOC, ROKU 2nd and 3rd largest holdings); DE slips despite beating estimates and raising FY22 guidance, $E falls after it warns of likely pressure to overall growth, profit, and FCF through 1H; INTC was by far the worst Dow performer after sharply dropping to lowest levels since Nov 2020 on guidance presented at yesterday’ analyst day; QDEL surges on quarterly beat with stronger Covid sales, RUN rolls to lowest since July 2020 on EPS miss with a forecast of slowing growth, RDFN crashes to lowest since May 2020 as it anticipates Q1 losses that exceed all of FY21’s losses to prompt downgrades, and casual diners mixed as SHAK slides on weaker guidance but BJRI shakes off early weakness on its miss to go green.

·     The Fed today approved rules banning its officials from trading stocks, bonds, and cryptocurrencies as the FOMC unanimously adopts new restrictions on investments and trading by policymakers and senior Fed staff. Senior staff to provide 45-day non-retractable advance notice for transactions as new rules require Fed bank presidents to disclose financial transactions within 30 days.

Economic Data:

·     January Existing Home Sales rose 6.7% to 6.50M unit rate (vs. est. 6.10M), and vs Dec downwardly revised 6.09M from 6.18M; Jan inventory of homes for sale 860,000 units, 1.6 months’ worth; median home price for existing homes $350,300, +15.4% y/y

·     Leading Economic Index (LEI) dropped -0.3% last month, the first decline since February 2021, after increasing 0.7% in December and below expectations for a rise of 0.2%. GDP estimates for the first quarter are mostly below a 2.0% annualized rate (grew at a 6.9% pace in Q4)

Commodities

·     Oil prices extended losses on Friday, with WTI crude slipping -$0.69 or 0.75% to settle at $91.07 per barrel, closing the week down -2.2% and snapping its streak of 8-straight weekly advances. The prospect of increased Iranian oil exports overshadowed fears of potential supply disruption resulting from the Russia-Ukraine crisis. The Baker Hughes (BKR) rig count rose 10 to 645, while the oil rig count gained 4 to 520 and gas rigs rose 6 to 124.

·     Gold prices slip -$2.20 or 0.1% to settle at $1,899.80 an ounce but posted gains of a little over 3% for the week as investors looked to safe-haven assets with President Joe Biden saying yesterday there was every indication Russia was planning to invade Ukraine. Russian-backed rebels and Ukrainian forces traded accusations on Thursday that each had fired across the ceasefire line in eastern Ukraine.

Currencies & Treasuries

·     Treasury yields drop, with the 10-yr at 1.92% as concerns about a possible Russian invasion of Ukraine dented risk appetite and boosted demand for haven assets such as bonds and precious metals. The 1o-year yield hit a two-and-a-half-year high of 2.065% mid-week before the Federal Reserve released minutes from its January meeting, which had no new information regarding the U.S. central bank’s plans to raise rates and shrink its balance sheet – but has since slipped. Note the Treasury auction next week shows: The Treasury will sell $155 billion in coupon-bearing supply, including $52 billion in two-year notes on Tuesday, $53 billion in five-year notes on Wednesday and $50 billion in seven-year notes on Thursday. Refinitiv data showed U.S. bond funds witnessed their biggest outflow since the start of the pandemic as investors offloaded U.S. bond funds worth $44.75 billion in their biggest weekly net selling since March 25, 2020. The dollar is broadly stronger, firming 0.3% against the euro and marginally against the yen.

Sector News Breakdown

Consumer

·     Retailers; a big week of earnings coming up with HD next week, following better results from WMT on Thursday; Piper lowered estimates and price targets on both Wayfair (W) and OSTK ahead of Q4 earnings next week saying based on industry conversations, industry trends appear to have slowed in Q4, and stepped down further in 2022; HIBB shares fell initially after guiding year EPS view to $9.75-$10.50 vs. est. $10.93 and a Q4 EPS and sales miss

·     Consumer Staples; PPC tumbles after Brazilian meatpacking giant JBS SA said it scrapped plans to buy the rest of the company in a deal that had valued the co at about $7 billion. JBS, which already owns about 80% of Pilgrim’s, said in a securities filing that it was unable to reach a deal; CVGW and CMG shares were active following reports the USDA avocado import ban could be resolved today, citing AMLO; defensive food stocks led early CPB, K, HSY as safe havens led

·     Restaurants; BJRI Q4 EPS (20c) vs est. (2c) on revenue $291.3M vs est. $298.4M, comp sales +45.6% vs est. +49.2% (but two-year comp sales of -1.4% vs. consensus of +1.1%); CHUY 4Q adj EPS $0.40 vs est. $0.31 on revs $98.7Mm vs. est. $99.3M; Comparable sales +20.8%, vs. est. +19.2%; restaurant level operating margin 21.3% vs. 20.3% y/y; SHAK slides on larger Q4 EPS loss of $(-0.25) vs est. ($0.17) and guides Q1 sales $190-195Mm below est. $203.5Mm and total revs $196-201.4Mm vs est. $210.9Mm; BLMN posts Q4 adj EPS 60c above estimate 53c on slightly better revs that rose +29% y/y

·     Casinos, Gaming, Lodging & Leisure sector; DKNG shares fell despite Q4 EPS (35c) and revenue $473M ahead of expected (81c) and $445.3M and a raised FY22 revenue forecast to $1.85-2B from $1.7-1.9B as it sees adj EBITDA losses accelerating from FY21’s ($676.1M) loss to ($925M)-($825M) in FY22 that is wider than est. ($550.1M) and don’t expect to report a positive EBITDA quarter until 4Q23 to reflect the launch of mobile betting in NY, LA as well as customer engagement and acquisition costs; GDEN Q4 EPS 59c vs est. 66c on revs $282M vs est. $266.1M with adj EBITDA $67.8M topping consensus as well and is now separating the Nevada destination casino business from the Nevada locals casino business

Energy

·     Utilities & Solar; ED posted Q4 EPS $ vs est. $0.85 on revenue $3.415B vs est. $2.76B and guided FY22 adj EPS $4.40-$4.60 vs est. $4.48 and included its long-term growth rate of 5-7% off of 2022; PPL Q4 adj EPS 22c and revs $1.485B missed consensus of 32c on $2B; AEE Q4 EPS 48c vs. est. 49c on revs $1.55B vs. est. $1.4B, sees FY22 EPS $3.95-$4.15 vs. est. $4.05 and expects diluted earnings per share to grow at a 6% to 8% compound annual rate from 2022-2026; HASI Q4 EPS 71c vs est. 41c on revenue $53.7M vs est. $27.7M, raised its dividend and raised and extended guidance through 2024 for distributable earnings growth to +10-13%; RUN Q4 EPS (19c) vs est. (2c) on revenue $435.2M vs est. $409.1M and expects Q1 solar energy capacity installed to be between 195mw-200mw with full-year growth at least 20% vs. 2021’s +31% growth; UBS initiated CEG at Neutral with a $50 PT as power prices, FCF to growth, nuclear PTC, and ESG offer upside offset by risks including nuclear operations risk, FCF to dilutive returns, and investor sponsorship at or above mid-cycle multiples fails to materialize; NEE recorded an impairment charge of $0.8B in Q1 and FY22 adj earnings will exclude the effect of this charge, raised its dividend and expects to grow dividends by roughly 10% pre-year through at least 2024

Financials

·     Bank movers; JPM said at a conference that it now see about $53 bln net interest income ex-markets in 2022, up about $3 bln from prior outlook as updated NII outlook includes 6 rate hikes; in real estate, RDFN plunges, downgraded to Sector perform at RBC Capital after earnings saying the primary points of thesis appear broken and says persistent slowdown in growth & agent reductions to hit gross margin could drive further downside; RLGY posted a top-line beat at $2.0B vs. est. $1,92B + a profit beat with Op. EBITDA of $157M vs. Street’s $152M and ended up posting total volume growth below what was projected for the industry (+3% y/y vs. industry’s +9% y/y); another day of weakness in the Fintech sector with SQ, PYPL, AFRM, UPST falling

Healthcare

·     Biotech & Pharma movers; the WSJ reported U.S. health regulators delayed their review of PFE’s COVID-19 vaccine in children under 5 years old because the initial two-dose series so far wasn’t working well against the Omicron variant during testing, people familiar with the decision said; NVS launches generic lenalidomide (BMY’s version of Revlimid) in 19 countries across Europe; REGN and SNY are stopping a phase 3 trial (CUPID STUDY B) of Dupixent (dupilumab) in patients with chronic spontaneous urticaria (CSU) due to futility following an interim analysis; ATRA said a fatal serious adverse event was reported with a patient in the ongoing Phase 1 clinical study of autologous mesothelin CAR T, ATA2271

·     MedTech Equipment; ABT is initiating a proactive, voluntary recall of powder formulas, including Similac, Alimentum and EleCare manufactured in Sturgis, Mich., one of the company’s manufacturing facilities amid an investigation into four infant illnesses; MASI was upgraded to Buy at Needham saying while understand investors’ concern over the Sound United deal, believe that the sell-off was overdone and note that we expect the deal to be highly accretive to EPS; SWAV Q4 sales of $84.2M topped Street estimates ($75.4M) as U.S. coronary drove the majority of the upside and initial 2022 sales guidance of $405-$425M tops the $386.7M est.; QDEL jumps on big beat as Q4 adj EPS $7.29 vs. est. $5.61; Q4 revs $636.9M vs. est. $561.17M; said qtrly revenue for COVID-19 products was $511.8 M, up from $405.3M y/y

Industrials & Materials

·     Aerospace & Defense; AL approves $150M common share buyback authorization; Q4 adj EPS $1.75 vs est. $0.84 on revenue $597M vs est. $532.9M; AJRD posts Q4 rev of $590M, topping the $572.7M estimate amid stronger demand for its missile systems and services, while EPS also top consensus views; SPCE announced that Chamath Palihapitiya will step down as chairman of the board immediately to focus on other public company board commitment and appoints Evan Lovell as interim chair

·     Industrial & Machinery; GE said in an 8K filing that it sees pressures on overall growth, profit and FCF through first half; DE better results as Q1 EPS $2.92 vs. est. $2.26 and revs $9.56B vs. est. $8.19B; Q1 net income fell to $903M from $1.22B a year earlier, but raised 2022 net income between $6.7B-$7.1B from $6.5B-$7.0B; BRC downgraded to EW from OW at Wells Fargo as shares have officially entered value trap territory following the cut to FY ’22 guidance; CWST reported Q4 EBITDA of $51.4M, which came in at the high end of the implied guidance and above consensus while stronger than expected revenues were offset by a 100 bps margin miss

·     Transports; truckers, JBHT (tgt to $203 from $175) and WERN (tgt to $47 from $44) both upgraded to Neutral from Underweight at JPMorgan and downgraded HTLD to Neutral from OW (tgt to $16 from $18) since it likely remains a pure play and the trough multiple should be lower based on the lack of diversification. Back-half recoveries were the dominant theme this quarter, and we expect near-term transport stock performance will track growth and pricing momentum until it becomes more apparent that not all 2H22 opportunities are the same; Ryder (R) announces $300 million accelerated share repurchase program; MATX reports Q4 EPS at $9.39, above prior guidance of $8.70-$9.10, and above the street estimate of $6.81, driven by lower taxes primarily, but volume growth continues to accelerate and margins continue to rise

·     Metals & Materials; CE confirmed reports overnight that it would buy DD’s mobility and materials unit for $11 billion as the industrial materials maker continues to tweak its portfolio to focus on electronics, automotive and water solutions; after a brutal day for lithium producers Thursday after ALB forecast FY earnings below market estimates even though lithium prices were at record highs and posted a Q4 loss of $3.8M vs year-ago profit of $84.64M – the group gets a positive result from LTHM overnight with upbeat Ebitda guidance; in metals, HMY forecasts lower earnings for the half-year ended December 31

Technology, Media & Telecom

·     Internet; U.S. listed Chinese stocks DIDI, JD, PDD, BIDU, BABA, TCEHY volatile after E-commerce sites operated by China’s Alibaba and Tencent Holdings were included on the U.S. government’s latest "notorious markets" list, the U.S. Trade Representative’s office said on Thursday; after tumbling Thursday on weaker outlook, FSLY upgraded to Strong Buy at Raymond James as believes shares overreacted to the conservative top line guidance management unveiled

·     Semiconductors and Software movers; INTC tumbles as analyst day does little to help shares – trades to lowest levels since Nov 2020; APPN posted 4Q upside as cloud sub revenue growth accelerated to 39% y/y from 36% y/y last quarter and cloud sub revenue growth guidance for 1Q and 2022 implies solidly above 30% y/y growth; LASR falls after being downgraded at Hallum as Q4 results fell short of expectations and were at the lower end of guidance

·     Hardware, Components & Services; DBX posted Q4 results as the high-end of the company’s guidance but FY22 FCF guide came in at $760-$790mn, vs. consensus at $782mn while revs of $565.5M, up 12% y/y (consensus $558.0M), down from 13% growth last quarter, ARR of $2.26B (consensus $2.23B) up 12% y/y, net paying user adds of ~300K; KEYS Q1 adj EPS $1.65 vs est. $1.55 on revenue $1.25B vs est. $1.24B; orders +22% YoY to 1.5B; Washington Post reported that employees at several AAPL across the country are quietly working to unionize, as growing dissent among hourly workers threatens to disrupt one of the most stolid tech giants; CGNX posted 4Q results above expectations driven by Logistics demand that finished the year up 65%, prompting an upgrade at JPMorgan, but notes visibility remains limited; GLOB 4Q results above expectations, driven by broad based growth, including +69% growth with its largest client

·     Media & Telecom movers; ROKU shares tumble after mixed 4Q results/1Q guidance, while reported lower than forecast ’22 revenue and a decision to massively ramp ’22 operating expenses that drove ’22 EBITDA guidance dramatically below expectations; IRDM was upgraded to strong buy at Raymond James with $51 tgt following good 4Q21 results and initial 2022 guidance, plus the company ramping stock buyback activity given the low share price; ATUS downgraded to neutral at MoffettNathanson and cut the price target to $15, down from $33, noting that since Altice’s "just be patient" message is not being well received due to rising interest rates and a falling risk appetite; Wells Fargo said pay TV tracker indicates 4Q21 sub declines of just 4.1% y/y, which is the best result in ~2 years and see FOXA, GTN and NXST as the best way to play the theme, as better subs = FCF upgrades