Mid-Morning Look

Friday, February 03, 2023

After an astounding start to 2023, with the Nasdaq and Dow Transports +16% YTD, the S&P 500 +8.5% YTD and Russell 200 +13.5% YTD, all the pieces were in place today for a market breather as Apple, Amazon and Alphabet (GOOGL) all reported quarterly results that fell short of expectations, while at the same point, monthly jobs data showed a huge beat on the headline number with wages steadily higher and the unemployment rate falling. Markets had been looking for a “softer” jobs report to help validate market expectations of one more 25-bps rate hike by the Fed in March, then a pause, then a cut late year (which is currently forecasted by Fed Fund futures). Fed Chair Powell reminded investors Wednesday that they will watch data closely, and that the “tight” labor market remains a key factor along with inflation. Today’s data showed the jobs market remains very healthy, keeping the door open for further hikes beyond March. But market resiliency remains beyond astounding, as investors continue to chase performance, buying any market dips hand over fist to kick off the year – the trend again continued today with Nasdaq futures up 300-point off the overnight lows. U.S. Treasury yields jumped higher after a report that showed job growth surged in January, further complicating the Federal Reserve’s attempts to soften the labor market to bring inflation down. The US dollar also jumped over 1% vs. other major rivals.

Economic Data

·     Very strong jobs data: January nonfarm payrolls reported at 517K jobs crushing the 188K estimate (prior month revised to 260K from 223k), private payrolls 443K jobs added vs. est. 190K (prior revised to 269K from 220K), and manufacturing payrolls 19K vs. est. 6K. Unemployment rate falls to 3.4% vs. est. 3.6% and prior 3.5%. Average hourly earnings rose 0.3% after gaining 0.4% in Dec, bringing the year-on-year increase in wages to 4.4% from 4.8% the month before.

·     ISM Non-Manufacturing index (services) posts biggest monthly gain since June 2020, with new orders recovering and prices paid by businesses for materials continuing to rise. ISM non-manufacturing PMI increased to 55.2 last month after having dropped to 49.2 in December and topping the 50.4 estimate. New orders received increased to 60.4 in January from 45.2 in December and prices paid by services industries for inputs dropped to 67.8 from 68.1.

·     S&P Global Services PMI Jan-F: 46.8 (vs. est. 46.6 and previous 46.6) and Composite PMI: 46.8 (vs. est. 46.6; prev 46.6).

Sector Movers Today

·     In transports: HUBG came in above consensus expectations in 4Q even as intermodal volumes experience double-digit declines; CHRW downgraded from Buy to Hold at Stifel and trim tgt to $99 PT from $107 after the co reported a sizable miss in 4Q22, with themes from its disappointing 3Q22 report carrying over—outsized costs and sluggish response to quick changes in underlying freight demand.

·     In aerospace, RBC Capital downgraded BA from Outperform to Sector Perform with $225 tgt as believe continued supply chain execution challenges will limit near-term upside deliveries and will be an overhang on investor sentiment. The firm also downgraded top Boeing supplier SPR to Sector Perform considering view that supply chain issues will continue to be a bigger headwind in 2023 than is expected by many investors and believe SPR will be more impacted. NOC announced $500M accelerated shares repurchase.

·     In retail: DECK reported another beat-and-raise quarter in Q3 but with some noise around the wholesale channel, revenues grew 18% constant-FX and raised EPS FY guidance by less than the beat – UGG brand net sales decreased 1.6% to $930.4M, HOKA brand net sales increased 90.8% to $352.1M, and Teva brand net sales increased 48.3% to $30.5M. COLM Q4 EPS $2.02 vs est. $2.28 but including a 43c impairment charge, revs inline but GM missed, and 2023 EPS guidance missed street at $5.35 mid vs. consensus $5.60 on lighter op income and inventories grew 59% y/y. SKX Q4 was better than expected, as sales were +14% (handily above guidance 4-7%), while EPS of $0.48 beat guidance of $0.30-$0.40. However, guidance was disappointing: 1Q23 sales were guided to be up 0-3% (vs. consensus of 7%), while EPS is planned to be in the range of $0.55-$0.60 (vs. consensus of $0.85).

·     In chips: QCOM mixed Q1 results mixed on EPS beat and rev miss and guides Q2 revs $8.7-9.5B vs est. $9.6B, adj EPS $2.05-2.25 vs est. $2.26 saying sees weak handset market persisting through 1H. AVGO chief Hock Tan seeks more acquisitions after $69 bln VMware deal – the Financial Times reported https://on.ft.com/3HtGZRf . CRUS shares slide despite delivering a strong quarter with upside results and in-line guidance, bucking the excess inventory trends, and midpoint of rev guidance in-line with ests. MCHP reported in-line DecQ and guided MarQ above consensus ($2.18B/$1.57) with top line up ~3% q/q and better than peers NXPI/TXN down 9%/7% q/q. MCHP said continues to see strength into the JunQ, with backlog and lead times improving.

Stock GAINERS

·     AAPL +3%; despite posting its first EPS miss in 7 years, w/ iPhones & wearables coming in light of ests; stock bounced as tone/guide for next Q was better than feared and analysts defended.

·     AREN +11%; after announces strategic partnerships with AI firms.

·     BYD +6%; reported record Q4 with EBITDAR +7% ahead of consensus as the beat was fueled by strength in the Locals and Downtown segments, offsetting some Midwest & South weakness.

·     GILD +3%; reported higher-than-expected Q4 profit ($1.67 vs. est. $1.50) driven by strong demand for its HIV and cancer drugs and guided higher.

·     CLX +5%; Q2 adj EPS $0.98 vs. est. $0.65; Q2 revs $1.72B vs. est. $1.66B; raises FY23 adjusted EPS view to $4.05-$4.30 from $3.85-$4.22 (est. $4.17).

·     JWN +23%; after the WSJ reported activist investor Ryan Cohen has taken a sizable stake and plans to urge the company to make changes to its board https://on.wsj.com/3jxnX4r

·     REGN +2%; Q4 revs ahead, with WW Dupi and US Libtayo sales ahead of street, while Eylea was consistent with preannouncement and better tax drove the EPS beat; announces $3B buyback.

Stock LAGGARDS

·     AMZN -6%; as its AWS segment fell short of expectations on both the top/bottom lines and mgmt. said AWS would face growth headwinds for the next few Q’s.

·     BILL -23%; downgraded to Neutral at Both SMBC Nikko and BMO Capital as introduced 2H FY23 guidance materially below expectations – firms noted magnitude of guide down/ F2Q miss on some of the company’s most important KPI’s.

·     F -7%; operating miss driven by weaker Europe and China segment performance; Q4 EPS $0.51 missed the $0.60 est. and provided lower than expected 2023 operating guidance

·     QCOM -3%; DecQ rev miss and a disappointing MarQ guide as ongoing smartphone inventory correction deepened, now expected to extend into JunQ and broaden into the IoT segment.

·     SBUX -3%; with a top, bottom line Q4 miss and weaker global comparable sales growth of 5%, compared with analysts’ estimates of a 6.75% as international and China comps tumble.

·     SYNA -8%; falls on miss and lower guide; Q2 EPS $2.20 vs. est. $2.34; Q2 revs $353.1M vs. est. $365.38M; sees Q3 revs $310M-$340M below consensus $348.8M.

·     TEAM -12%; posts 27% Y/Y rev growth topping Street estimates, but disappointingly lowered FY23E cloud revenue guidance by 5 pts and cited further pressure in seat expansion.

Syndicate:

·     Avalo Therapeutics (AVTX) 3.8M share Spot Secondary priced at $3.98

·     Cellectis (CLLS) 8.8M share Spot Secondary priced at $2.50

·     Edible Garden (EDBL) 1.62M share Spot Secondary priced at $6.30

·     Roivant Sciences (ROIV) 26.67M share Secondary priced at $7.50

·     Structure Therapeutics (GPCR) 10.74M share IPO priced at $15.00

·     Two Harbors (TWO) 10M share Secondary priced at $17.80