Closing Recap

Wednesday, March 09, 2022

Equity Market Recap

·     The S&P 500 and Nasdaq each snapped four-day losing streaks as oil prices retreated over 12% to help boost stocks tied to consumer discretionary spending, such as casinos and retailers as well as airlines and cruise lines who are marginally impacted by fuel costs. On the flip side, energy, materials, and metals were among the top decliners in the S&P due to lower commodity prices and in a bout of profit-taking after massive runs. Risk-on sentiment also returned in full force after recent recession and spending fears amidst the surging commodity prices sent investors fleeing to safety, as bond yields pushed higher, and safe-haven utilities underperformed the broad market advance. Financial stocks rallied with the move in yields that also comes ahead of tomorrow’s crucial February CPI report where the Reuters estimate is for a 7.9% rise in prices from last year, which would be an acceleration from January’s 7.5% YoY increase that was the largest rise since February 1982. This report and tomorrow’s weekly jobless claims will be the last key economic data reported before next week’s Federal Reserve two-day meeting where rates are all but guaranteed to be raised off levels set two years ago at the onset of the pandemic. International markets also soared today after recent slumps that include the benchmark German DAX index falling into a bear market.

·     Stocks & Sector movers: BMBL skyrockets to recover most of its 36% MTD drop after better-than-feared earnings report; also upgraded at BMO along with S&P leader MTCH as online dating a standout among a strong reopen theme; CCL NCLH UAL travel names also pacing the S&P as oil prices come down after recent rise, CZR MGM ABNB MAR soaring as well; financials/banks FITB AMP WFC SBNY rebounding with yields (10-year >1.9% for the first time in March) and retail BBWI UAA RL posting its own rally after recent declines; Energy HAL SLB PSX FANG MRO are the worst S&P laggards following recent runups; cryptocurrency space rips higher with Bitcoin and Ethereum recouping losses since last Friday and COIN MSTR RIOT MARA surging after Biden signed an order to assess benefits and risk of a central bank digital dollar and other crypto issues.

Commodities

·     Oil tumbles; WTI crude falls -$15.00 pr 12.13% to settle at $108.70 per barrel, while Brent tumbles -$16.84 or 13.16% to settle at $111.14 per barrel. After touching best levels in over 14-years for WTI crude this week, with two moves ahead of $130 per barrel, prices were volatile to the downside today on profit taking, falling as much as 16% at one point to lows around $103 per barrel as the volatility remains off the charts. U.S. gasoline prices have reached record highs above $4 a gallon, a climb that threatens to hamper economic growth and lift already high inflation. Comments from Iraq’s oil minister late morning (about the time the flash crash happened in crude) may have been the trigger saying they have about 6% of production as spare capacity and can increase output if OPEC+ requires. Earlier, the UAE said it will encourage fellow OPEC members to increase oil production levels as the Russian invasion of Ukraine has driven crude prices to their highest levels in more than a decade, a senior official said. The commentary coupled with general selling momentum today pressured prices in the energy complex in general (plunge in heating oil, gasoline, and natural gas today as well). According to GasBuddy data, the average price of diesel in the US has reached $5 per gallon, the highest level ever recorded.

·     Gold prices tumble -$55.10 or 2.7% to settle at $1,988.20 an ounce, its first loss in five-trading days and falling off near record highs earlier in the week as investors bail on haven assets in favor of riskier assets following a 4-day decline in stocks. The selling pressure across the commodity sector was similar, with profit-taking/selling in various segments (industrial and precious metals along with grains and energy), in a bit of a reversal trade as prices took a “breather” after sanctions impacting top producer Russia raised global recession fears this week.

Currencies & Treasuries

·     The 10-year yield trades above 1.9% for the first time this month, ahead of key CPI inflation data tomorrow morning and the FOMC rate meeting next week (widely expected 25 bps hike and little no expectation of anything more). The U.S. Treasury sold $34B in 10-year notes at a yield of 1.92% vs. 1.917% when issued prior as the bid-to-cover at 2.47 (vs. 2.68 prior auction) with indirect bidders awarded 68.2% (vs. 77.6% prior) and directs 18% (vs. 15% prior).

·     The U.S. dollar was broadly lower, with the euro rising over 1.6% to above 1.106 just a day after hitting near 2-yr lows this week. The buck weakened on reduced demand for safe havens after positive Ukraine headlines, but the likely return of risk aversion and expectations for monetary policy tightening by the Federal Reserve means the dollar uptrend remains intact. The dollar index dropped after Ukraine President Volodymyr Zelensky said yesterday that he’s "cooled down" over the nation’s bid for NATO membership.

Sector News Breakdown

Consumer

·     Retailers; SFIX tumbles as price tgt cut by several analysts after issued F3Q guidance well below expectations and lowered its FY:22 revenue growth guidance to flat to slightly down y/y (+HSD% y/y previously); DLTR upgrade to OW at Piper and raising our PT to $181 following news that the Board had been reconstituted and former DG CEO Rick Dreiling has been named Executive Chairman; KTB reaffirms 2022 outlook, provides 1H22 outlook and Europe business update; Macy’s (M) which raised $4.5 billion in June 2020 to help fund its strained operations, in the coming weeks expects to refinance $850 million in bonds. It also intends to pay down another $280 million in debt; FIGS GM and EBITDA handily beat expectations and added more customers in Q4 than ever before and plans to add more new customers in FY22 than in FY21; PLCE mixed Q4 results as EPS top view but sales of $507.8M miss estimates; EXPR beats on Q4 EPS, revs, comps, and margins while guides year comp sales +7%-9% vs consensus +5.9%

·     Consumer Staples; CPB Q2 sales of $2.209B fell from $2.27B y/y and below ests $2.24B on in-line earnings but said 2H’22 sees labor availability and service levels improve, better mitigation of inflation with pricing; OTLY reported higher-than-expected revenue in Q4 as revs rose 46% to $185.9M topping analysts’ expectations of $178M but guides year revs $880M-$920M (37%-43% y/y), below ests $1.01B and sees capex spending $400M-$500M; PPC approves $200M share repurchase plan; PM said to scale down manufacturing in Russia, while Ukraine accounted for under 2% of its total net revenues but said Russia accounted for almost 10% of total cigarette and heated tobacco unit shipment volume and around 6% of net rev in 2021; UNFI Q2 EPS $1.13 and revs $7.42B vs. est. $1.14/$7.41B and guides FY EPS $3.90-$4.20 (unchanged) and up sales view for the year to $28.2B from prior $27.8B-$28.3B; OLPX upgraded to Overweight from Equal-Weight, price target $17 from $29 at Barclay’s

·     Casinos, Gaming, Lodging & Leisure sector; Cruise lines (RCL, CCL, NCLH) rally with broader market and lower oil prices as well as lodging (ABNB, MAR, HLT), casinos (MGM, CZR), theme parks (SIX), etc.; BKNG upgraded to Outperform from Perform with $2,560 tgt at OpCo noting Booking’s EV is 13% below pre-COVID levels, underperforming EXPE’s +52% on Booking’s higher European exposure and Expedia’s cost-cutting execution; THO Q2 EPS $4.79 vs. est. $3.39; Q2 revs rose 42.1% to $3.88B vs. est. $3.56B; says remains long-term outlook remains very bullish for RV industry in 2022; Consolidated gross profit margin increased 220 basis points to 17.4% from 15.2%; CZR added to Jefferies’ Franchise Picks list

Energy

·     Energy stock movers; energy stocks among the weakest names in the S&P as oil prices pullback from 14-year highs, profit taking for refiners, E&P, majors, and service stocks after a great run over the last few weeks; not much in way of news after several companies suspended operations in Russia in recent days amid sanctions (SHEL, XOM, BP, etc.); CIVI 4Q21 CFPS was $1.01 (or 31%) below consensus, 4Q21 CAPEX was 9.5% below consensus

·     Inventory data showed: the API reported crude inventories rose 2.8M barrels as crude inventories at Cushing fell -400K barrels; gasoline inventories fell -2.0M barrels and diesel inventories fell -5.5M barrels; the EIA this morning showed weekly crude inventories fell -1.9M barrels vs. -0.657M consensus, Gasoline fell -1.4M vs. -2.105M consensus, and Distillates fell -5.2M barrels vs. -1.914M consensus, -0.573M last week

·     Utilities & Solar; Wolfe downgraded ES to Peer-perform due to increasing risk as its execution on offshore wind projects will take time and could face higher costs as well as its slight premium to peers and upgraded PPL to Outperform on positive risk/reward as they think YTD underperformance after implying lower EPS this year from legacy business and its stalled NEC acquisition is punitive

Financials

·     Bank movers: Bank America noted that bank stocks have unperformed since the Russian invasion began on 02/20 with the large-cap BKX bank index down 13% vs. -3% S&P 500; -5% Nasdaq. Said this is not totally surprising to them, as the war makes it virtually impossible to handicap the range of negative outcomes that carry implications for the outlook for interest rates and GDP growth. Moreover, there is no obvious valuation support with the group trading in the 1.6-1.8x P/TBV range in face of an increasingly uncertain operating outlook.

·     Financial services; ADP upgraded to Neutral from Underperform at Bank America saying in an environment characterized by heightened geopolitical risk and macro uncertainty, believe they stand-out as high-quality companies with robust profitability, balance sheets

·     Bitcoin, FinTech & Payments; crypto assets surge, shares of names leveraged to crypto including SI, MARA, MSTR, RIOT, COIN rising after Yellen and Biden crypto comments; PYPL downgraded at Bank of America to hold, calls this year a transition year and says ARPU (average revenue per user) story will be complicated by the Russia-Ukraine conflict

Healthcare

·     Biotech & Pharma movers; ACAD rises after saying it has received a Target action date of Aug. 4 from the FDA for its resubmitted supplemental New Drug Application for pimavanserin; CDMO posted revenue and backlog that exceeded estimates, and capacity additions are coming online and RBC said F3Q revenue and new business wins/backlog were significantly better than expected; NKTR upgraded from Perform to Outperform at Oppenheimer ahead of pivotal study readouts in 1H22 based on our view that current stock risk/reward ratio is favorable

·     MedTech Equipment; NTRA tumbles after Hindenburg Research released a short report alleging that Natera’s revenue growth has been fueled by deceptive sales and billing practices https://hindenburgresearch.com/natera/ (shares fell as much as 50% on report) – NTRA later responded to the report saying they believe procedures in regard to prior authorization services, billing are compliant with applicable laws and disagree with accuracy of report; XRAY announces $150M accelerated share buyback program; FDA says MDT recalls TurboHawk plus directional atherectomy system due to risk of tip damage during use

·     Healthcare Services; SGFY was upgraded to Buy at UBS based on a better-than-expected 2022 outlook, growing evidence of share capture among biggest clients, UNH and CVS, and potentially less headline risk around government audits improve; OTRK shares fall as 4Q adj EPS ($0.59) vs est. ($0.65) on revs $10.3Mm vs est. $12.8Mm; guides FY revs $25-30Mm vs est. $50.5Mm; CANO shares rise as Third Point LLC reported a 6.37% holding, according to a new 13D filing as the stake is equivalent to $139.4 million

Industrials & Materials

·     Defense, Industrial & Machinery; GE board provided an authorization for up to $3 billion of common share repurchases; EMR upgraded to Outperform and establishing a $110 PT at Oppenheimer which reflects excellent persistent capital preservation characteristics in shares; ABM Q1 adj EPS $0.94 vs est. $0.78 on revs $1.9B vs est. $1.83B; raised FY adj EPS view to $3.50-$3.70 from $3.30-$3.55; defense stocks LHX, RTX, LMT slip while the broader market bounces, on news of talks between Russia and Ukraine

·     Transports; XPO said it intended to separate its tech-enabled brokered transportation services from its less-than-truckload business in North America; also plans to divest the European business and North American intermodal operations; CP downgraded to Market Perform vs. Outperform at Raymond James based upon the outsized move in CP shares over the past two weeks that leaves only modest upside to our Target; JBHT upgraded from Neutral to Buy and up tgt to $231 from $209 at Goldman Sachs citing a higher box turn forecast than originally modeled as take into account expectation for easing supply chain congestion over 2H2022 and 2023

·     Metals & Materials; in chemicals, VVV downgraded to Neutral at JPMorgan saying the timing of the separation of the two businesses may well be pushed off into the future because of these changing raw material dynamics; gold/silver miners, which have jumped in recent days on risk aversion, slumped today on profit taking in gold (AEM, NEM, AUY, PAAS, CDE); other big losses in S&P are fertilizers MOS, CF while NTR also slides on profit taking after having surged to multiyear highs following Russia’s invasion of Ukraine

Technology, Media & Telecom

·     Software movers; MDB accelerated revenue for the 5th consecutive quarter (to +56% Y/Y), driven by faster growth for both Atlas and Enterprise Advanced as Q revenue beat was on par with the larger-than-usual 3Q beat; GWRE Q2 results that beat expectations for ARR, revenue, bookings and profitability as cloud bookings mix remains high and the overall transition story maintains its momentum; ARR finished the quarter at $620mn, up 19% y/y, $4mn above guidance, and mgmt. raised its FY22 guide midpoint by $3.5mn; SUMO delivered strong results with both revenue and profitability metrics beating expectations as quarterly revenue growth accelerated to +24% and revenue guidance calls for a slight acceleration in FY/23 vs. FY/22; DV slightly better results as 4Q revs $105.5Mm vs est. $102.6Mm; guides 1Q revs $89-91Mm vs est. $89Mm and adj EBITDA $21-23Mm vs est. $22.2Mm

·     Internet, Media & Telecom movers; NFLX upgraded to Neutral from underperform at Wedbush as shares reached their $342 price Target saying recent share price decline reflects that Netflix investors have begun to appreciate that the company’s long-term prognosis is as a low growth, extremely profitable enterprise; BMBL reported better-than-feared 4Q21 results, with revenue within guidance and EBITDA near the high end of the range; both MTCH and BMBL were upgraded to Outperform at BMO Capital as think online dating should come back into favor as COVID moves from pandemic to endemic and dating app usage begins to stabilize; YEXT revenue forecast for Q1 fell short of analyst expectations and also announced a leadership transition wherein Michael Walrath will become CEO and chairman (downgraded by a few analysts); GCI said it inadvertently passing along incorrect data parameter to advertisers over nine months

·     Hardware, Components and Services; CRCT shares tumble on Q4 miss as EPS $0.05 misses est. $0.24 and revenue $387.8M vs est. $407.5M; EBITDA $31.8M (including $10.1M of stock-based compensation expense) vs consensus $76.0M; total users +48% y/y to over 6.4M (vs 5.7M in Q3)