Mid-Morning Look

Thursday, August 11, 2022

Euphoria kicking in for U.S. stocks after getting a second straight day of declining inflation data after the July Producer Price index (PPI) headline numbers come in below estimates prior month (but still stubbornly high), which followed a slightly tamer CPI report on Wednesday. The data is boosting market expectations that the signs of slowing inflation will slow the speed of rate hikes widely anticipated by the Fed in coming months. The Fed is still expected to raise rates by at least 50-bps in September, and several Fed members have been overly “hawkish” in recent weeks noting the discomfort for current inflation levels. The S&P 5000 and Nasdaq on track for their 4^th straight week of gains and the Nasdaq is now more than 20% off its June lows with investors pouring money into growth stocks. Is the market getting ahead of itself with the Fed’s ongoing warnings of more hikes to come, or is the 2022 lows from June in? OPEC cut its forecasts for global oil demand this year by 260,000 barrels to 100.03 million barrels a day, citing the impact of slowing global economies/also cut its demand forecasts for 2023 by the same amount. Disney (DIS) helping boost strength in the Dow Jones Industrial Average following its quarterly results and subscriber numbers. Strong start early, yields rise, oil rises and the dollar falls.

Economic Data

·     Inflation data well below: July Producer Prices (PPI) Final Demand falls (-0.5%) well below the expected rise of +0.2% M/M and headline PPI Y/Y rises +9.8%, below estimate of +10.4% (and prior month +11.3%). On a core basis, PPI (ex food & energy) M/M rises a smaller +0.2% vs est. +0.4% and on a Y/Y basis rises and in-line +7.6% (prior month +8.25)

·     Weekly Jobless Claims rose to 262K from 248K in prior week (est. 263k) as the 4-week moving average rose to 252K from 247,500; continued claims rose to 1.428M from 1.420M and the US insured unemployment rate unchanged at 1.0%

Sector Movers Today

·     Pharma movers: shares of GSK, SNY, PFE among those sliding the last 2-days amid growing concerns about U.S. litigation over heartburn drug Zantac, which was pulled from market in 2020 for containing a probable carcinogen. Zantac has been sold by several companies: marketed by GSK between 1995 and 1998, by PFE from 2000 to 2006, by JNJ from 2006 to 2017, and by SNY between 2017 and 2019, Redburn analysts noted. Haleon (HLN), GSK’s recently spun off consumer health unit, is not a party to U.S. litigation focused on the heartburn medicine Zantac, a spokesperson told Reuters today; ASND reported strong 2Q results, driven by Skytrofa sales of €4.4M, exceeding the FactSet consensus of €3.9M; CYCC said its oral cancer drug fadraciclib showed good tolerability in early-stage study with continuous dosing and Co expects to enter mid-stage trial in H2

·     FinTech & Payments; MQ reports disappointing guidance and slowing demand – after beating on top and bottom line, management left FY22 top-and-bottom-line guidance largely unchanged, with high-30%’s revenue growth and negative HSD adj. EBITDA margins; FISV upgraded from In Line to Outperform at ISI Evercore and up tgt to $149 from $101 saying it stands in the first- of a nine-inning transformation into a higher growth company driven by differentiated merchant payment solutions such as Clover for SMB and Carat for large enterprises; RXT both downgraded to Sector Perform from Outperform at RBC Capital and lowers tgt for both names

·     Hardware, Components & Services; SONO slumps as 3Q sales of $371.8M missed estimate of $423M due to softer demand in the month of June and disappointing sales of its new Ray low-end soundbar and guided year adj Ebitda, EPS below consensus; AVT shares slipped after results; VZIO 2Q device shipments were in-line, but Platform+ beat estimates by ~2% and 3Q Platform guide was 5% above Street; ENVX shares jump after results and narrowed the revenue range for 2022

·     Restaurants & Consumer Staples; UTZ raises 2022 sales outlook to grow 13%-15%, up from prior guidance for growth of 10%-13% and said organic sales are expected to rise 10%-12%, up from a prior range of 8%-10%; USFD Q2 sales topped Wall Street’s estimates, but guided FY22 adjusted EPS $1.95-$2.25 vs. est. $2.26; RRGB reported disappointing 2Q22 results that were negatively impacted by the late quarter slowdown in consumer traffic trends seen across the industry, and higher than expected commodity inflation and cuts FY22 adjusted EBITDA view to at least $65M from $80M-$90M; BROS reported 2Q earnings mixed as beat estimates on a top line basis, but missed on the bottom line and FY22 SSS/adj EBITDA guide reiterated

Stock GAINERS

·     BROS +19%; reported 2Q earnings mixed as beat estimates on a top line basis, but missed on the bottom line and FY22 SSS/adj EBITDA guide reiterated

·     DDS +15%; strong Q2 beat as EPS of $9.30 crushes ests and above y/y $8.81 figure on better revs $1.59B, though margins slipped

·     DIS +8%; Networks and Parks beat, while DTC subscribers were ahead of expectation – Q2 adj EPS $1.09 vs est. $0.96 on revs $21.5B vs est. $20.96B; total paid Disney+ subs 152.1Mm and said will raise the price of its ad-free Disney+ tier by nearly 40% to $10.99

·     MTTR +30%; as reported Q2 results which missed the Street’s top-line expectations but was largely overshadowed by a raise in revenue guidance for 3Q and FY22 revenue and FY22 EPS

·     UTZ +3%; raises 2022 sales outlook to grow 13%-15%, up from prior guidance for growth of 10%-13% and said organic sales are expected to rise 10%-12%, up from a prior range of 8%-10%

·     SHOP +9%; upgraded to Overweight at Atlantic Equities with $46 tgt as sees upside to estimates following the recent reset

·     VCSA +30%; after boosts FY revenue view to $1.17B-$1.19B from $1.125B-$1.175B with an improved Ebitda outlook following Q2 as posts profit of $10M, compared to a loss of $20M

Stock LAGGARDS

·     BLBD -12%; posts larger than expected Q3 EPS loss and lowers year outlook to $750M-$800M from prior $800M-$900M view, citing supply constraints and semiconductor parts shortage

·     BMBL -8%; cuts FY revenue forecast, pressuring shares early as sees Q3 revs $236M-$240M vs. est. $244.9M and lowers year revs to $920M-$930M from $934M-$944M as exit from Russia and Belarus hit revs

·     CAH -3%; after saying CEO Mike Kaufman to step down and exit board and names CFO Jason Hollar as the new CEO and reported Q4 adj EPS miss of $1.05 below consensus of $1.18

·     COOK -11%; after reported disappointing Q2 results and a significant guide-down for 2H; cuts FY22 revenue view to $640M-$660M from $800M-$850M

·     GSK, SNY, PFE lower; among drug names sliding the last 2-days amid growing concerns about U.S. litigation over heartburn drug Zantac, which was pulled from market in 2020 for containing a probable carcinogen

·     HBI -8%; after Q2 sales and profit misses estimates, guides Q3 revs/ESP below views and cuts year revs view to $6.45B-$6.55B from $7B-$7.15B and EPS as well

·     MQ -19%; reports disappointing guidance and slowing demand – after beating on top and bottom line, management left FY22 top-and-bottom-line guidance largely unchanged

·     SIX -20%; after Q2 EPS $0.53 misses the $1.02 estimate on light revs falling -5.3% y/y to $435M vs. est. $529.75M; Attendance dropped 21.2% to 6.7 million, well below the consensus of 8.2M

·     SONO -20%; as 3Q sales of $371.8M missed estimate of $423M due to softer demand in the month of June and disappointing sales of its new Ray low-end soundbar and guided year adj Ebitda, EPS below consensus