Closing Recap

Thursday, July 21, 2022

Equity Market Recap

·     Another solid market rally as stocks continue to climb the “wall of worry.” The macro picture really hasn’t changed with high inflation and an aggressive rate hike cycle underway by the Fed (and globally as well after an ECB hike today), while earnings thus far have been ok (not terrible but not outstanding). Commodity prices have pulled back the last few months, easing some inflation pressures, but the ongoing strength in the dollar (up 17% YTD) is already proving to be a headwind for companies doing business overseas (as evident in their guidance). A furious rally to start the 2H for the Nasdaq (SOX up around 15% MTD) and big cap giants seeing lots of buying interest (AMZN NFLX NVDA AMD etc.) after a dismal 1H. Stocks have been dismissing concerns including weakening economic data (manufacturing, confidence), a cooling housing market, widespread jobs cuts/hiring freezes in tech and real estate and of course the higher rate hike environment with the focus on buying heavily beaten-up stocks.

·     The White House statement from Press Secretary Karine Jean-Pierre: "This morning, President Biden tested positive for COVID-19. He is fully vaccinated and twice boosted and experiencing very mild symptoms. He has begun taking Paxlovid. Consistent with CDC guidelines, he will isolate at the White House and will continue to carry out all his duties fully during that time.

Economic Data:

·     Weekly Jobless Claims rose +7K to 251K (8-month highs) vs. 240K expected and the unrevised 244K prior; the 4-week moving average of 240,500 rose from 236,000 in the previous week; continuing claims 1.384M vs. 1.340M consensus and 1.333M prior and the US insured unemployment rate was 1.0% for the week ended July 9

·     Philly Fed Business Outlook for June fell to -12.3 vs. -2.5 estimate and -3.3 prior as the prices paid index fell -12 points to 52.2 (lowest reading since Jan 2021), the employment index declined 9 points to 19.4 and new orders declined for the second consecutive month, from -12.4 to -24.8; the future new orders index declined 5 points to -12.4, while future shipments rose 9 points

Commodities, Currencies & Treasuries

·     Oil prices tumbled on the day, with WTI crude down -$3.53 or 3.53% to settle at $96.35 per barrel and natural gas prices settle at $7.932 MMBtu. Oil prices finished off worst levels of $94.59. Prices were pressured as Russia resumed pumping gas via its biggest pipeline Nord Stream 1 to Europe on Thursday after a 10-day outage, the operator said, allaying Europe’s immediate winter supply fears. Also, Libya’s National Oil Corp crude production had resumed at several oilfields, after lifting force majeure on oil exports last week.

·     Gold prices rise $13.20 or 0.8% to settle at $1,713.40 an ounce, bouncing off 15-month lows and finished well off the morning lows of $1,678.40). The U.S. dollar saw some weakness as the euro climbed in the wake of the European Central Bank’s decision to lift its key interest rate by 50 bps (though the Fed expected to raise rates 75-100 bps next week), and U.S. Treasury yields declined, providing support for the precious metal. A big reversal in yields as 10-yr near lows at 2.93% (down 10-bps), off morning highs of 3.08% (yield curve remains inverted by about 20-bps against the 2-year).

Sector News Breakdown

Consumer

·     Retailers: Electrolux (ELUXB) slides after quarterly profit came in below analysts’ forecasts – posted a better-than-expected revenue in Q2, but the group’s Q2 EBIT, hit by a loss in the North America unit, missed estimates by >40% – rival appliance maker WHR active on results; TSCO reports mostly in-line Q2 results, while comparable store sales increased 5.5%, compared with an increase of 10.5% in the prior year’s second quarter; POOL shares slide after earnings

·     Auto sector; TSLA 2Q adj EPS $2.27 vs est. $1.81 on revs $16.9B vs est. $17.1B; qtrly auto gr margin 27.9%; says over multi-year horizon expect to achieve 50% annual growth in vehicle deliveries; Ford (F) upgrade from Reduce to Neutral at Nomura citing the stock correction, better-than-expected sales performance of the all-new Bronco and Bronco Sport; and easing raw material prices; auto dealer AN mixed Q2 as EPS beat and revs miss; Ford (F) releases new battery capacity plan, raw materials details to scale EVs; on track to ramp to 600k run rate by ’23 and 2 mln+ by ’26; Cowen said prefer charging vs batteries and CHPT remain top picks overall. PT Changes: ALLG $14 (Prior $19) BEEM $17 (Prior $20) BLNK $18 (Prior $22) CHPT $23 (Prior $24) ENVX $19 (Prior $20) EVGO $12 (Prior $16) QS $22 (Prior $24) WBX $13 (Prior $14).

·     Housing & Building Products; TPH Q2 EPS $1.33/$1B vs. est. $1.20/$997.3M; DHI Q3 EPS $4.69/ $8.8B vs. est. 44.49/$8.99B and cuts FY22 revenue view to $33.8B-$34.6B from prior view $35.3B-$36.1B and sees homes closed between 83,000 and 85,000 homes; Morgan Stanley reduced ZG estimates and PTs to reflect growing housing market uncertainty and downgrade COMP to EW given profitability and execution concerns – prefer Z given its strong balance sheet, margin profile, top of funnel positioning, and positive cash flow.

·     Consumer Staples & Restaurants; in tobacco, PM topped consensus marks with its Q2 earnings report as cigarette volume was up 1.1% and raised its full-year revenue outlook to 6% to 8% on an organic basis, but lowered its full-year EPS forecast to $5.23 to $5.34 vs. a prior view for $5.45 to $5.56 and the consensus of $5.44; DPZ misses estimates for quarterly profit, as Q2 gross margin falls to 36.3% from 39.5% a year earlier and posts a smaller-than-expected -2.9% fall in Q2 U.S. comp sales; CMG tgt cut from $1,850 to $1,650, maintains Buy at Gordon Haskett

·     Casinos, Gaming, Lodging & Leisure sector; in cruise lines, CCL 102.1M share Spot Secondary priced at $9.95; in gaming, LVS posted a wider-than-expected Q2 EPS loss (34c vs. 26c est.) but revs of $1.05B topped views – also helped by news Macau was looking to reopen this weekend following nearly two weeks of Covid-related closures; MCRI posted a +4% Q2 Adj. EBITDA beat, driven largely by margins (lagged inflation pass through; continued operating leverage at the ramping Monarch BH said Stifel)

Energy

·     Energy stock movers: energy stocks hammered with oil prices slumping as Libya’s oil production is ramping back up, set to return to some 1.2 million barrels per day; also Russia resumed pumping gas via its biggest pipeline Nord Stream 1 to Europe on Thursday after a 10-day outage; broad weakness in energy complex

·     Pipelines: KMI posted in-line Q2 EPS on higher revs and said it expects full-year attributable net income, adjusted EBITDA, and distributable cash flow to be favorable to budget by ~5%, due to stronger than expected commodity prices and favorable operating results

Financials

·     Bank movers; several regional bank earnings out after large caps last week; with results from BANC, CBSH, FITB, KEY, SNV, TCBI all out today; FNB Q2 adj EPS $0.31 vs. est. $0.30; Total average deposits grew $3.2 billion, or 10.5%; PACW Q2 EPS $1.02 vs. est. $1.06; Q2 tangible book value per share $16.93; Provision for Credit Losses of $11.5M in 2Q22; UMPQ 2Q EPS $0.37 vs est. $0.39, NII $248.2Mm vs est. $237Mm; NIM 2.41% +27bps sequential; WTFC reported a solid quarter with mostly positive underlying fundamental trends

·     Insurance; ALL reported estimated catastrophe losses for June at $356M or $281M, as Q2 catastrophe losses totaled $1.11B, pre-tax; RLI reported operating EPS of $1.49, beating the consensus of $1.07 driven by better-than-projected Property results, lower-than-expected expense ratio (38.5% vs. 40.0%) and better-than-projected Surety results; TRV Q2 core EPS $2.57, tops consensus $1.97 and revs $9.14B beat consensus $8.76B but reported a nearly 29% fall in quarterly profit amid higher catastrophe-related claims and lower returns on its investments (reported catastrophe loss net of reinsurance of $746M in Q2 vs. $475M a year earlier)

·     Consumer Finance & Financial Services; EFX posted mixed quarterly results while cut its year profit and revenue outlook (FY22 adjusted EPS view to $7.55-$7.80 from $8.00-$8.30); DFS posted Q2 EPS and revs above views as payment services volume was $82.9 billion, up 6% y/y and total loans ended the quarter at $99.3 billion, up 13% y/y; UPST shares extend yesterday losses (Wedbush noted Wednesday that July remittance ABS data was updated and the results show credit trends continue to show weakness)

·     REITs; SLG reported 2Q22 FFO/share of $1.87, $0.13 $0.16 above the Street as of the beat, $0.14 was from higher fee income related to the purchase of 450 Park and the settlement of a land position dispute; BRX upgraded to Buy (from Neutral) at Mizuho and PECO downgraded to Neutral (from Buy) as sense a shifting sentiment toward the Shopping Center REIT sector, as investors question the sustainability of the sector’s recent leasing momentum; REXR 2Q core FFO/shr $0.49 vs est. $0.48 on revs $149.1Mm vs est. $150.4Mm; guides core FFO/shr $1.87-1.90 vs prior $1.84-1.88 and est. $1.95

Healthcare

·     MedTech Equipment; DHR outperforms as Q2 adj EPS $2.76 vs. est. $2.35; Q2 revs $7.75B vs. est. $7.3B; for q3 2022, company anticipates that non-Gaap base business core revenue growth will be in high-single digit percent range; posted strong life science results (lifts A, QGEN, WAT early); The FDA classified the recall of some syringe infusion pumps by ICU Medical (ICUI) company Smiths Medical as the most serious type. Smith’s Medical in April recalled over 118K of its Medfusion 4000 and 3500 Syringe Infusion Pumps distributed between Oct. 2004 to Feb. 17, 2022; SYK downgraded to Hold at Deutsche Bank due to a higher conviction around CAPEX pressures beginning in 4Q:22 and lasting through 2023

·     Healthcare Services; ONEM agreed to be acquired by AMZN for $18 per share, in deal valued at about $3.9B including debt https://bit.ly/3vsqXCf (shares of TDOC, AMWL fell in sympathy on competition fears); in animal health, ZTS removed from conviction list at Goldman and lower price Target to $202 as acknowledge increased risk to companion animal growth from declines in US vet traffic; IDXX upgraded to Buy at Goldman Sachs with a $435 12-month price Target (15% upside) as see an opportunity to own a high-quality long-term earnings compounder at a valuation that is now back below its 2015-2019 average; ELAN double downgrade to Sell at Goldman and cut tgt to $19 from $32 as think ELAN shares could underperform peers as expect lower revenue growth and margin expansion than is contemplated in the co’s long-term targets

Industrials & Materials

·     Airlines: UAL tumbles as 2Q EPS $1.43 vs est. $1.95 on revs $12.1B vs est. $12.2B; CASM +32%, CASM-EX +17%; qtrly load factor 86.7% vs 72% year ago and reports Q2 capacity down 15% vs. Q2 of 2019 while curbs 2023 growth; AAL reports in-line Q2 EPS on record revs of $13.4B (also in-line) saying expects to be profitable in Q3 with revs up 10%-12% vs Q3’19 and capacity down 8%-10% vs. Q3’19; ALK sees Q3 revenue growth of +16 to +19% from the 2019 level to ~$2.77B to $2.84B vs. $2.59B consensus and capacity expected to be down 5% to 8% in Q3’19

·     Rails: UNP Q2 EPS $2.93 tops the $2.86 est. on revs up 14% y/y to $6.27B vs. est. $6.12B as Q2 operating ratio 60.2%, down 510 bps y/y, backs year capex and revises FY volume, operating ratio targets saying stronger 2H volumes should produce full year carload growth of 4%-5%, full year operating ratio around 58%; CSX posted 2Q22 adj. EPS of $0.51, up +27% y-y, above our Street’s $0.47 estimates including the impact of a $122 million real estate gain partially offset by $18 million of integration expenses and F2022 guidance was reaffirmed as strength in pricing is helping offset a more gradual improvement in service and muted volume levels

·     Trucing: KNX Strong beat on 2Q EPS, raises full year guidance as 2Q adj. EPS of $1.41, up 44% y-y, above Street’s $1.35 targets (raises FY22 adjusted EPS view to $5.30-$5.45 from $5.20-$5.40); LSTR Q2 top/bottom line miss and truck revenue per load decreased about 4% sequentially from April to May

·     Metals and Mining: aluminum producer AA reported better-than-expected 2Q’22 results, repurchased ~1.6% of shares outstanding for ~$275m and authorized an additional $500m buyback program; in steels, STLD sets quarterly records for net income, sales, steel shipments after easily beating expectations, as steel shipments came in at a quarterly record 3.1M tons; NUE Q2 EPS and sales beat ($9.67/$11.79B vs. est. $8.72/$11.46B) as average sales price per ton increased 3% compared with Q1 and increased 44% y/y; in copper, FCX Q2 adj EPS $0.58 misses by 3c and revs of $5.42B well below consensus of $6,13B; Materials: in packaging, CCK reported 2Q results with EBITDA of $509 million beating consensus but still lowered its full year outlook by $0.35 or by 4% and called out a $0.50 headwind

Technology, Media & Telecom

·     Media, Internet; SNAP earnings tonight in social media space; NTES rises after Bloomberg reported is planning to debut the Diablo Immortal mobile game in China on July 25 — a month after the highly anticipated title was originally scheduled to launch; in advertising, after good results from OMC yesterday, IPG posted a slight beat for Q2 of $0.63/$2.38B vs. est. $0.58/$2.32B and expects fy22 organic growth to exceed 6.5% and to deliver 16.6% adjusted ebitda margin for year, while PUB also reported strong results w/ 1H ahead, guidance raised, and 2Q organic sales growth 10.3%, ahead of consensus 5.1%

·     Semiconductors: Citi opened a “positive catalyst watch” into earnings for NXPI, ON but remains negative on semis overall, but believes a short-term rally could continue through Aug; near-term downside is understood, and it appears investors are "universally bearish on semis but a large-scale collapse is not imminent” – opens negative catalyst call on INTC; SMCI raises Q4 EPS view to $2.30-$2.40 from $1.51-$1.69 (est. $1.57); raises Q4 revenue view to $1.58B-$1.63B from $1.40B-$1.48B (est. $1.36B); NVDA, AMD and other semis extend gains for a 7^th straight day

·     Software movers; SAP trimmed its profit outlook for the year citing charges related to the war in Ukraine as lowered its 2022 adjusted profit outlook to between 7.6B-7.9B euros, from a range of 7.8B-8.25B euros; affirmed its revenue outlook; PLTR initiated strong buy and $20 tgt at Raymond James saying after falling ~75% from its early 2021 peak, they see the risk/reward as compelling for a software business with a ~30% growth rate; DOCU downgraded to Underweight at Piper and cut tgt to $54 from $65 as believe the risk profile remains elevated amid the CEO transition and consistent execution challenges

·     Telecom movers: AT Q2 adjusted EPS $0.65 vs. est. $0.61; Q2 revs $29.64B vs. est. $29.55B, but cuts FY22 free cash flow view to ‘$14B range from $16B range; in towers, CCI revenue and adjusted EBITDA beat estimates, but margins were behind. 2022 EBITDA outlook raised due to higher services contribution (+$20M); TMUS introduces wireless plan that includes apple business essentials, a new iphone 13 for new lines; ATUS shares surged midday after Bloomberg reported the company is exploring the sale of Suddenlink, which provides cable and internet in the south-central U.S