Mid-Morning Look

Tuesday, February 08, 2022

U.S. stocks are mixed early as the Dow and Russell 2000 trade higher while the S&P 500 and Nasdaq decline, similar to yesterday’s market action. Financials are again helping markets higher on rising Treasury yields (10-yr above 1.96%)/expectations for faster Fed action on interest rate hikes in March and the rest of 2022, while higher growth sectors such as tech seeing weakness early ahead of another very busy week of earnings. According to one note, with 67% of companies reported, S&P 500 earnings are on pace to hit another record high (4th straight quarter) while GAAP earnings increased 60% year-over-year while Operating earnings increased 38% – notable though is the lack of upside guidance. Leisure, travel and reopen stocks among top leaders in the S&P amid declining Omicron cases and loosening restrictions on travel/mandates, while vaccine names tumble (NVAX, MRNA, BNTX) after PFE with disappointing revenue outlook going forward. No major economic data to impact markets this morning, but all eyes on the CPI inflation data this Thursday.

Economic Data

·     December International Trade in Goods and Services showed a deficit -$80.7B vs. -$83.0B consensus and -$79.3B in November (revised from -$80.2B). Exports increased by $3.4B to $228.1B, while imports of $308.9B rose by $4.8B from November.

Sector Movers Today

·     Auto sector; GM downgraded to Equal Weight from Overweight at Morgan Stanley and cut tgt to $55 from $75, triggered by a lower than expected 2022 guide; VLDR surges more than 60% after AMZN receives warrant to purchase up to 39.6M of co’s shares, which may be exercised at any time before Feb. 4, 2030 at a price of $4.18 per share; Ford (F) says it has started shipping E-Transit vans to commercial customers and is working on ways to boost production. per Bloomberg; LEA Q4 EPS and revs top consensus but guides FY22 revenue $20.8B-$22.3B below est. $22.33B; Chinese EV makers LI ($38 tgt), NIO ($34 tgt), XPEV ($33 tgt) initiates Overweight at Barclay’s saying that the rapid adoption of EVs around the world and booming EV sales have presented China’s EV makers a rare opportunity to take a sizable market share

·     Consumer Staples; SYY Q2 adj EPS 57c missed est. 70c on sales $16.3B vs est. $15.9B as Covid drove higher than anticipated operating expenses; COTY Q2 adj EPS 17c vs est. 11c on sales $1.58B that slightly missed est. $1.61B and raised its FY22 adj. EPS forecast to 22-26c from 20-24c, and sees sales at the high-end of its prior guidance calling for low-to-mid teens percentage growth; UTZ downgraded to Perform at Opco given ongoing profit headwinds and a rising rate environment that has historically been a negative for food names; Cowen lowered their price target on APPH, BYND, FRPT, OTLY, SNAX, STKL, TTCF, VITL as they say FY22 consensus EBITDA estimates appear too high but say that ahead of earnings, they are most comfortable owning FRPT as the bad news is in the rear view mirror and SOVO on its strong momentum and discounted valuation, while continuing to highlight STKL as a best idea; UBS believes KO checks the boxes for the key drivers of pricing power in CPG given its market share leadership, category/manufacturer concentration, limited exposure to private label, and a history of rational pricing competition; EPC Q1 adj EPS 42c on sales $463.3M nearly matched consensus estimates and it lowered its FY outlook for adj EPS to $2.74-3.02 from $2.98-3.26 but upped its sales view

·     Casinos, Gaming, Lodging & Leisure sector; reopen stocks outperform over the last few weeks as Omicron cases are down sharply while restrictions have loosened up, giving forward looking view to the likes of travel, leisure, casinos and lodging names – all leading markets; HOG 4Q adj EPS $0.15 vs est. ($0.38) on revs of $1.016B vs est. $663.9Mm; total worldwide motorcycle sales of $34,000 and motorcycle shipments of 29,100 vs est. 29,300; guides FY22 HDMC revs +5-10% vs est. +7%; NCLH said in Q3 began a phased relaunch of certain cruise voyages with ships initially operating at reduced occupancy levels – operated vessels totaling approximately 40% of our berth capacity; in lodging/travel, ABNB downgraded from Buy to Neutral at BTIG amid concern over slowing post-Omicron bookings growth, aggressive 2022 consensus expectations and the sustainability of a double-digit revenue multiple if growth is slowing and numbers coming down; in boating, MBUU Q2 adj EPS beats $1.41/$263.9M vs. est. $1.35/$259.6M.

·     Metals & Materials; Aluminum stocks rise as Goldman Raises forecast to $4,000/ton as power rationing hits supplies from China and Europe at a time of “exceptional” developed-market demand; note aluminum prices hit their highest levels since 2008 on the LME (shares of AA, CENX among aluminum producers); in chemicals, DD Q4 adj EPS $1.08 vs. est. $1.13; Q4 revs $4.27B vs. est. $4.2B; sees Q1 adj EPS $0.94-$1.00 vs. est. $1.10; sees Q1 revs $4.2B-$4.3B vs. est. $4.17B; sees Q1 operating EBITDA between $940M-$980M; announces new $1B share buyback program; in paper/packaging, BERY reported FQ1/22 adj. EBITDA of $457M, below $493M estimates and adj. EPS of $1.25 also below est. $1.33 and F22 EBITDA estimate to $2,250M (from $2.3B) on near term price/cost headwinds

Stock GAINERS

·     AA +8%; aluminum stocks rise as Goldman Raises forecast to $4,000/ton as power rationing hits supplies from China and Europe at a time of “exceptional” developed-market demand; note aluminum prices hit their highest levels since 2008 on the LME

·     AGCO +7%; Q4 adj EPS $3.08 easily beats est. $1.77 on sales $3.16B vs est. $3.05B, sees FY22 EPS $11.50 vs est. $10.58 on sales about $12.3B vs est. $11.89B

·     AMGN +4%; reported Q4 results with top-line revenue largely in-line with Street consensus and a bottom- line beat driven by reduced SG&A spend and announces a $6B share buyback

·     BAC +2%; banks/insurance names strong early as Treasury yields extend gains – 10-yr at 1.96% – seeing broad based strength in the group early JPM, C, PNC, WFC, MS

·     CHGG +6%; managed to surprise investors with better-than-expected numbers last night as subs grow with International 1.5M (up from 1M in Q3)

·     HOG +9%; big beat as 4Q adj EPS $0.15 vs est. ($0.38) on revs of $1.016B vs est. $663.9Mm; total worldwide motorcycle sales of $34,000 and motorcycle shipments of 29,100 vs est. 29,300; guides FY22 HDMC revs +5-10% vs est. +7%

·     PTON +11%; CEO Foley is stepping down and will become executive chairman, while Barry McCarthy, formerly CFO of SPOT and NFLX, will be new CEO and the co is cutting 2,800 jobs, or 32.3% of its workforce as of June 30, 2021, and expects to record $130 million in cash charges related to severance and other restructuring activities

·     TDC +21%; mixed Q4 results—with Cloud ARR marginally better, margins higher, and total revenue and total ARR lower than expectations. Management’s 2022 outlook was also mixed

·     VLDR +24%; after AMZN receives warrant to purchase up to 39.6M of co’s shares, which may be exercised at any time before Feb. 4, 2030, at a price of $4.18 per share

Stock LAGGARDS

·     GM -4%; downgraded to Equal Weight from Overweight at Morgan Stanley and cut tgt to $55 from $75, triggered by a lower-than-expected 2022 guide

·     EDIT -4%; fell amid the abrupt termination of its chief medical officer Lisa Michaels

·     KPTI -13%; said results of a late-stage trial for Xpovio (selinexor) in endometrial cancer met its primary endpoint but was viewed as a disappointment.

·     NVAX -11%; delivered just a small fraction of the 2 billion COVID-19 shots it plans to send around the world in 2022 and has delayed first-quarter shipments in Europe and lower income countries such as the Philippines, Reuters reported

·     PFE -5%; as sees 2022 sales of its COVID-19 vaccine to be about $32B, below analysts’ estimate of $33.79B and said it expects another $22B from sales of COVID-19 oral antiviral pill, which fell short of ests $22.88B (posted overall Q4 revs $23.8B vs. est. $24.12B but EPS beat)

·     PLSE 35%; after received a negative response in a letter from the FDA regarding its 510(k) submission to add the specific indication for treatment of sebaceous hyperplasia to expand the CellFX System’s current labeling.

·     SLQT -58%; after earnings results missed across the board, and missed by a large margin with $145M of negative tail adjustment revenue the company took this quarter (vs $65M expected in F4Q) and lower guidance (shares downgraded by several analyst post earnings)

·     SYY -2%; Q2 adj EPS 57c missed est. 70c on sales $16.3B vs est. $15.9B as Covid drove higher than anticipated operating expenses

·     WTW -6%; after co’s earnings missed on revs and its organic rev growth is weaker than peers.