Mid-Morning Look

Monday, February 07, 2022

U.S. stocks open the week higher but pulling back off early highs ahead of a very busy week of earnings and inflation data (CPI results expected on Thursday). Treasury yields slip after a big surge on Friday (10-yr had jumped 9.8 basis points to 1.925 and 2-yr yield was up 12.8 bps at 1.320%, its highest level since February 2020). Oil prices slip after touching fresh 7-year highs last Friday, while gold edged higher. Volatility continues for stocks with lots of “chop” over the last few days, but the S&P 500 continues to hold its 200-day moving average support late last week and remains a level to watch for stocks to hold up (level around 4,445). In stock news, Dow component Boeing (BA) among early leaders, while tech buoyed by more gains in Amazon (AMZN) after last week earnings. Financials extend gains on rising interest rate expectations from the Fed, reopen names surge (CCL, RCL) on loosening COVID restrictions around the world, while media and entertainment among early decliners. Software and semiconductors helping the Nasdaq outperform while defensive sectors are mixed. There was a big M&A deal in airline space as two regional carriers merge (ULCC/SAVE), while Bitcoin and crypto extending last week’s rally another top story to start the week.

Sector Movers Today

·     Casinos, Gaming, Lodging & Leisure sector; UBS lowers tgts across rideshare / food delivery space (UBER, LYFT, DASH) reflecting a more conservative valuation approach – as favor UBER while also clean up our ests reflecting UBS Evidence Lab data for 4Q trends; in lodging, Barron’s said hotels are readying for a surge in demand as people begin to travel, citing Truist analyst who said H, HGV and VAC are Buys; strength in cruise lines (RCL, CCL, NCLH), airlines, theme parks, hotels (H, MAR, HLT) and lodging on lessening COVID fears as cases continue to slide, while restrictions ease – Australia is set to finally reopen to fully vaccinated tourists and all Visa-holders from 21 February, marking the first time the country has eased all of its border restrictions since they were introduced in March 2020

·     Consumer Staples & Restaurants; in poultry and meat space, TSN Q1 adj EPS $2.87 easily top $1.93 estimate on better revs $12.93B vs. est. $12.18B and said sees full-year sales at high end of $49B-$51B vs. est. $50.35B with operating margin 11.3% vs. 6.7% y/y; SAM mentioned positively in Barron’s saying over the past two years shares have tumbles, tracking the hard seltzer hype on the way up and now down, but reset expectations and a discounted stock price make it interesting again; NWL Newell brands board authorizes $375M share buyback after selling the Connected Home & Security business to security solutions provider REZI said it expects revenues to grow in excess of 300%, to over 150MRMB, and expects to turn a profit for fiscal 2022; CMG, and MCD top picks in restaurants at Cowen, while see a positive calendar 4Q EPS catalyst for WEN and a negative EPS catalyst for QSR

·     Semiconductors; ON shares rise as Q4 EPS $1.09 vs. est. $0.94 and revs $1.85B top the $1.79B estimate; guides Q1 revs $1.85B-$1.95B above est. $1.78B; TSM upgraded to Overweight at Morgan Stanley saying it is repricing the value-add of foundry services and recently made a breakthrough with its enhanced 3nm (N3e) process and its move on to 2nm gate all-around; POWI upgrade from Neutral to Positive at Susquehanna and up tgt to $100 PT saying they underestimated the magnitude and duration of the current upcycle, which drove significantly better pricing, growth, GMs, OMs and ultimately EPS for most players in the industry

·     Bank movers; big jump in banks and insurance stocks last Friday amid the better jobs data , promoting a spike in treasury yields and rising expectations the Fed will boost interest rates several times this year to offset rising prices; NDAQ upgraded to Buy from Hold at Argus as believe that the company’s business fundamentals are strong and expect Nasdaq to benefit from growth in equity-related trading and ETF index revenues, secular trends in its core data business and the need for greater price transparency; WD agreed to buy commercial real-estate-technology company GeoPhy for up to $290 million; CG added to positive catalyst watch at Citi as sees expectations of when the company will reach $800M fee-related earnings weighing

Stock GAINERS

·     COIN +4%; Cryptocurrency-exposed stocks rise as Bitcoin gains for a fifth straight day to climb back above the $43,000 level, up over 6% today alone along with gains in Ethereum and other crypto assets – lifts shares of MARA, RIOT, MSTR and others

·     ENR +2% on beat as 1Q adj EPS $10.3 vs est. $0.95 on sales $846.3Mm vs est. $809.5Mm, continues to see escalating cost pressures; reaffirms FY adj EPS and EBITDA

·     ON +5%; on beat and raise; as Q4 EPS $1.09 vs. est. $0.94 and revs $1.85B top the $1.79B estimate; guides Q1 revs $1.85B-$1.95B above est. $1.78B

·     PTON +21%; after the WSJ reported late Friday afternoon it is attracting interest from potential suitors including AMZN while other potential buyers being mentioned in the media include NKE, AAPL (note Peloton’s market cap has declined more than 80% to $8.1B from a peak of $49B on 1/13/21) https://on.wsj.com/3snOPnU

·     RCL -5%; strength in cruise lines, airlines, theme parks, hotels and lodging on lessening COVID fears as cases continue to slide, while restrictions ease – Australia is set to finally reopen to fully vaccinated tourists and all Visa-holders from 21 February, marking the first time the country has eased all its border restrictions since they were introduced in March 2020

·     SAVE +15%; merger deal in airline space as Frontier (ULCC) and Spirit (SAVE) to merge creating 5th largest airline in U.S. as transaction value of the deal is $6.6 billion including the assumption of net debt and operating lease liabilities. Spirit shareholders will receive 1.9126 Frontier shares plus $2.13 in cash for each, equal to a value of $25.83 https://on.mktw.net/3ovG22e

·     SEED +12%; said it expects revenues to grow in excess of 300%, to over 150MRMB, and expects to turn a profit for fiscal 2022

·     SNOW +8%; upgraded to overweight at Morgan Stanley, citing a pullback in the stock and saying the software solutions provider is executing ahead of plan

·     TSN +11%; trades to record highs as Q1 adj EPS $2.87 easily top $1.93 estimate on better revs $12.93B vs. est. $12.18B and said sees full-year sales at high end of $49B-$51B vs. est. $50.35B with operating margin 11.3% vs. 6.7% y/y

Stock LAGGARDS

·     APD -2%; downgraded to Neutral from Buy at Bank America and cut tgt to $285 saying they have grown more cautious on the earnings growth prospects for Air Products in both near- and longer-term horizons

·     BABA -5%; underperforms in U.S. listed China stocks

·     CRNC -26%; tumbles after lowering its FF22 rev outlook to $365M-$385M from prior $400M-$425M citing chip shortages, unexpected delays in conversion from bookings to rev and said its CFO to retire

·     FB -2%; adds to recent losses after earnings and slowing rev growth sunk shares last week

·     HAS -4%; Q4 EPS $1.21 vs. est. $0.88; Q4 revs rise 17% to $2.01B vs. est. $1.87B; raises dividend to $0.70; expects revenue and operating profit growth at low-single digit rate for 2022 – 2022 rev guide and operating guide are both below consensus

·     SO 1%; downgraded to equal weight at Wells Fargo saying nearer term perceived risks around Vogtle schedule and political/regulatory backdrop compels us to step to the sidelines; also downgraded at Bank America with $71 tgt

·     SWK -2%; downgraded to Sell at Citigroup saying Techtronic, its main competitor, issued a press release reiterating its internal performance Target for 1H22E – says statement is in contrast to SWK’s weakness in volume growth

·     ZBH -7%; after Q4 EPS of $1.95 missed the $1.98 estimate on weaker revs $2.04B vs. est. $2.07B and guides FY22 adj EPS $6.40-$6.80 below est. $7.92/sees FY22 revs down 4% to flat