Mid-Morning Look

Friday, December 09, 2022

U.S. stocks slipping early, but off their worst levels following a round of mixed economic data ahead of next weeks FOMC interest rate policy meeting. U.S. stocks dropped initially as U.S. producer prices (PPI) rose slightly more than expected in November amid a jump in the costs of services – but stocks pared losses as the trend continues to moderate, with annual inflation posting its smallest increase in about 18-months. The report also showed underlying producer prices increasing at their slowest pace since April 2021 on a year-on-year basis (details below). However, the University of Michigan sentiment data showed consumers getting more positive, not something the Fed wants to see as they try and keep inflation down – but inflation expectations declined. In individual stock news, LULU shares tumble in retail after softer guidance, while DOCU jumps in software after its results. In other top stories, FTX‘s Sam Bankman-Fried is willing to testify before the U.S. House Committee on Dec. 13, the cryptocurrency exchange’s founder said in a tweet on Friday, as regulators investigate his role in the wake of its collapse. U.S. Senator Kyrsten Sinema of Arizona is leaving the Democratic Party to become an independent, she said on Friday.

Economic Data

·     Hotter inflation reading sinks stocks initially: Producer Price Index (PPI) headline reading for November rises +0.3% m/m vs. est. +0.2% rise and rises +7.4% y/y vs. est. +7.2% y/y (from +8% prior month). On a core basis (ex food & energy), PPI m/m rose +0.4% vs. est. rise +0.2% and on a y/y basis rises +6.2% vs. est. +5.9% (from +6.7% prior month). The PPI for food manufacturing reaccelerated to 11.8% YOY in November from 11.0% in October.

·     University of Michigan surveys of consumers sentiment prelim Dec 59.1 vs. 56.9 estimate and vs final Nov 56.8; consumers expectations index prelim Dec 58.4 vs final Nov 55.6 and current conditions index prelim Dec 60.2 vs final Nov 58.8

·     U. Michigan surveys of consumers 1-year inflation outlook prelim December 4.6% (lowest reading in 15-months) vs final November 4.9% and surveys of consumers 5-year inflation outlook prelim December 3.0% vs final November 3.0%

Sector Movers Today

·     Healthcare Services: PHR posted another beat and raise with its 3QFY’23 report, driven by continued 30%+ growth in Subscription and Network Solutions (previously Life Sciences). This was the 7th consecutive quarterly report with 30%+ growth; WBA announced the sale of $1B in ABC shares, taking its ownership down by ~3% to ~17%, but still #1 holder – ABC to buy back ~$200M of those shares under its repurchase program; Cowen said they shift their top picks from MOH, HUM, UNH to CI, CNC, MOH with Cigna as our 2023 Best Idea in managed care; COO Q4 results included revenue of $848M/+12% organic that beat the Street’s $839M, with upside in the period tied to slightly better than expected CVI and CSI performance

·     Bitcoin, FinTech & Payments: COIN downgraded to underperform from neutral at Mizuho and tgt cut to $30 saying that consensus expectations are too optimistic for the company’s 2023 revenue; FIS downgraded to Hold from Buy at Jefferies and cuts its PT to $75 from $95 on additional risks to FY23 ests as consensus is baking in close to best-case scenario in terms of the timing and magnitude of cost savings; for AFRM The Information reports Walmart will soon introduce “buy now, pay later” capabilities through its fintech venture, putting the company into competition against the likes of AAPL/AFRM/Klarna

·     Pharma movers: PFE and BNTX announced an FDA fast track designation for a single-dose Covid and flu vaccine candidate; EXEL Phase 3 CONTACT-01 study of cabozantinib + atezolizumab vs. docetaxel for metastatic non-small cell lung cancer did not show a statistically significant benefit on the overall survival primary endpoint; JAZZ upgraded from Neutral to Buy wat Goldman Sachs while downgraded IOVA from Buy to Neutral and slash tgt to $6 from $20 given concerns around the clinical, regulatory, financing, competitive, and commercial path for the company’s lead asset; LLY hosting its 2023 guidance call Tuesday 12/13

Stock GAINERS

·     ACLX +24%; and GILD’s Kite announce strategic collaboration to co-develop and co-commercialize late-stage clinical CART-ddBCMA in Multiple Myeloma – Arcellx to receive $225m upfront payment, $100m equity investment and up to $3.9B in total contingent consideration

·     AVGO +3%; reported Q4 results that beat expectations and gave a revenue forecast that was ahead of consensus – F4Q (Oct) sales/EPS $8.93B/$10.45 and F1Q (Jan) sales outlook of $8.9B topping Street expectations

·     CHWY +5%; Q3 revenue +14.5% beat est. 10.8% and a 2.8% EBITDA margin (est. 1.4%) and raised year guidance, but issued weaker Q4 rev outlook

·     DOCU +14%; after posted better-than-expected results as Q3 adjusted EPS $0.57 vs. est. $0.42; Q3 revs rose 18% y/y to $645.5M vs. est. $626.88M; Q3 billings were $659.4M, an increase of 17% y/y (upgraded at Piper)

·     NFLX +3%; upgraded to overweight from equal weight at Wells Fargo as sees a path of positive catalysts in 2023 driven by lower churn and stable subscribers

·     PHR +12%; posted another beat and raise with its 3QFY’23 report, driven by continued 30%+ growth in Subscription and Network Solutions

Stock LAGGARDS

·     ABC -2%; WBA announced the sale of $1B in ABC shares, taking its ownership down by ~3% to ~17%, but still #1 holder

·     COIN -5%; downgraded to underperform from neutral and tgt cut to $30 saying that consensus expectations are too optimistic for the company’s 2023 revenue

·     COO -3%; Q4 EPS $2.75 vs. est. $3.11; Q4 revs rose 12% y/y to $848.1M vs. est. $838.78M; sees FY23 EPS $12.30-$12.60 vs. est. $13.05

·     COST -1%; missed consensus expectations Q1 as same-store sales rose 6.6%, but e-commerce sales declined 3.7% in the quarter (EPS and overall revs topped ests)

·     CURV -16%; tumbles on Q3 miss as EPS $0.07/revs -5.3% y/y to $290M vs. est. $0.12/$299.2M and sees Q4 revenue $285M-$300M vs. est. $311.99M

·     LI -7%; reports wider Q3 loss of (-$0.18) vs. est. loss (-$0.15) on revs $1.31B and reports Q3 deliveries 26,524 vehicles while sees Q4 deliveries 45,000-48,000 vehicles and Q4 revs $2.32B-$2.47B vs. est. $2.55B

·     LULU -12%; beat 3Q EPS and revenue expectations, but margins missed; 2022 EPS guidance was raised on the 3Q beat and modestly better 4Q EPS plans

·     RXDX -4%; 4.55M share Secondary priced at $110.00