Mid-Morning Look

Friday, February 10, 2023

U.S. stocks sink initially with the S&P 500 on course for its worst week since December and the Nasdaq on track to snap its 5-week winning streak after Treasury yields extended gains following a hotter inflation reading in the University of Michigan Sentiment figure and amid concern ahead of the CPI reading on Tuesday. Stocks have already bounced off lows, a common theme in 2023 as stocks. Several stocks seeing weakness early following softer earnings and or guidance, with shares of LYFT tumbling 30%, and sharp declines for COUR, DOCS, EXPE, KN, MGA, NWSA on results. To the upside strength in payment stocks with GPN and PYPL earnings as well as some winners in tech with AYX and NET shares rising. The dollar is higher along with yields (10-yr at 3.71%) while Bitcoin prices add to weekly losses. Rising Treasury yields put valuations of growth stocks under pressure with tech among early leaders. Energy stocks outperform as Russia will cut oil production by 500,000 barrels per day, or around 5% of output in March, says Deputy Prime Minister Alexander Novak.

Economic Data

·     Univ. Of Michigan Sentiment Feb-P reported at 66.4 vs. est. 65.0 and prior 64.9; the current Conditions jumps to 72.6 from 68.4 and expectations index at 62.3 vs. 62.7 prior. The 1-Year Inflation expectations rises to 4.2% vs. previous 3.9% and the 5-10 Year Inflation in-line at 2.9%.

·     December monthly CPI was revised from -.1% to +.1%. Bureau of Labor Statistics released benchmark revisions. Revisions include seasonal adjustment factors. Ex food and energy was up +.4% vs +.3%.

Sector Movers Today

·     Oil companies jumped early (XOM, CVX, COP, HES) after reports Russia will cut oil production by 500,000 barrels per day, or around 5% of output in March, citing Deputy Prime Minister Alexander Novak. Strength was broad based with equipment, refiners, service stocks all rallying on the Russia production news. BE 4Q results beat as EBITDA of $74.4M on revs and $462.6mm, above expectations (Street: $46.2mm/$399.8mm) and record 4Q PF gross margin of 30.4%.

·     Semis: MU ($72PT), WDC ($50PT), and STX ($82PT) all upgraded to BUY from Neutral at Mizuho, as they see improving structural trends driving an accelerated path to supply/demand balance for Memory. We believe AMAT and LRCX also stand to benefit from a rebound in Memory WFE. Said a cyclical 1Q-trough with structural improvement, driven by supply/Capex cuts and better 2H demand, positions MU, WDC and STX for upside with shares 40-50% below prior cycle peaks. MU said last night it would cut compensation and bonuses of its senior executives; cuts are part of previously announced steps to reduce costs.

·     Autos: In electric vehicles (TSLA, RIVN, FSR, F, GM): CNBC’s Phil LeBeau notes $869…that is the average monthly payment for a new EV bought in 2022. By comparison, the average monthly payment for an internal combustion engine vehicle was $651. RIVN slides after Ford (F) discloses stake in Rivian Automotive falls to 1.15%. In EV charging: BLNK teams up with HTZ to keep EV rentals charged and on the road in Phoenix for the Super Bowl; Blink to provide reliable charging to hertz customers at all greater phoenix area charging stations for both level 2 and DC Fast Chargers. In auto suppliers: MGA reported an 80% slump in quarterly profit, as adj EPS of $0.91 missed the $1.06 estimate citing higher engineering costs in its electrification and self-driving businesses.

Stock GAINERS

·     AYX +13%; strong 4Q with 31% ARR growth ahead of consensus 29% and FY23 ARR guide of up +22-23% was above Street as were margins; guided Q1 and 2023 revenue of $198M-$202M and $980M-$990M both ahead of estimates ($196M and $970M).

·     DXCM +9%; 4Q revenue was in line with preliminary results announced in early January, with performance in the quarter driven by continued U.S. record patient adds.

·     GPN +5%; Q4 adj EPS $2.42 on revs $2.25B tops ests $2.41/$2.01B; reauthorizes up to $1.5B of share repurchase capacity and guides sees FY23 adj EPS $10.25-$10.37 vs. est. $10.37 and sees FY23 revenue $8.575B-$8.675B vs. est. $8.57B

·     NET +4%; reported a solid 4Q, with revenue growth of 42% Y/Y that was in line the Street citing further elongation in sales cycles and initiated a better-than-expected top-line outlook.

·     PYPL +4%; reported 4Q22 results that were in line to modestly above Street expectations for top- and bottom-line results and usage metrics; managed to outpace e-commerce growth and returned to delivering both Y/Y EPS growth and margin expansion.

Stock LAGGARDS

·     BARK -21%; lowered its FY23 sales view to $530M from $556M prior and street $555M citing macro pressures on demand in Bark’s toys and treats categories.

·     BPMC -7%; said the FDA verbally informed the company on February 8, 2023 that it has placed a partial clinical hold on the Phase 1/2 VELA trial of BLU-222 due to visual adverse events (AEs) observed in a limited number of patients.

·     COUR -14%; better-than-expected 4Q results (24% top-line growth) but 2023 guidance was mixed calling for 14%-16% revenue growth (vs. consensus at 19%), but sees a lower loss than expected.

·     DOCS -11%; as Q3 results as sales and adj EBITDA beat but still, full-year guidance was trimmed modestly for total sales and adj EBITDA (sees 4Q revs $109.6-110.6Mm vs est. $123.1Mm and adj EBITDA $45.2-46.2Mm vs est. $54.9Mm).

·     ELYM -10%; after pausing all further developments of its experimental therapy, ETX-155, which was being tested for treatment of major depressive disorder/cuts workforce by 55%/downgraded to Neutral at HCW on plan to pause development.

·     EXPE -6%; reported 4Q numbers that largely missed consensus estimates amid weather-related cancellations late in the 4Q while said it anticipates double-digit top-line growth with margin expansion for FY23.

·     LYFT -32%; disappointing 1Q guidance which missed on both the top and bottom line (following a good quarter from UBER this week); guides Q1 revs roughly $975M vs. est. $1.09B; Q4 adjusted EBITDA ($248.3M) vs ($47.6M) last year.

·     MGA -12%; reported an 80% slump in quarterly profit, as adj EPS of $0.91 missed the $1.06 estimate citing higher engineering costs in its electrification and self-driving businesses.

·     NWL -4%; as forecasts FY23revenue and profit below analysts’ estimates citing stubbornly high inflation pressuring consumer spending – also forecasts Q1 revenue below estimates but posts better-than-expected Q4 results and said CEO to retire.

·     NWSA -8%; on weaker results as Q2 adj EPS $0.14 vs. est. $0.19 and down from $0.44 last year; Q2 revs $2.521B vs est. $2.55B and $2.717B last year.

·     OSK -12%; after AM General upset Joint Light Tactical Vehicle-maker Oshkosh Defense in the U.S. Army’s new competition to build more of the vehicles, winning a contract valued at $8.66 billion https://bit.ly/3xbgs6r

·     PHAT-28%; after the FDA declined to approve the company’s experimental drug based on acid-blocker compound vonoprazan to treat inflammation in esophagus.