Mid-Morning Look

Tuesday, February 14, 2023

Stocks bounce again. CPI prices for January come in higher than estimates, Treasury yields bounce, interest rate cuts by end of 2023 by Fed now appear off the table, and more rate hikes expected thru June from prior – yet stock markets again continue to rise, with investors chasing price vs. listening to the Fed and call for higher rates for longer. U.S. stocks jumped pre-mkt trading (S&P futures hit highs of 4,186) despite steady to slightly higher inflation data (CPI) for January than estimates (but below the prior month). However, S&P futures opened near lows of 4,114 while the Nasdaq hit lows around 11,760 as investors digested the data – but as remains the case for 2023, markets chase price and major averages surge the first 30-minutes with a more than 200 spike off for the Nasdaq in 40-minutes to rise +0.7%. The stronger CPI and jobs data of late has not mattered for stocks which move back to their best levels since August. The path of least resistance remains to the upside, as Bulls continue to chase “price”. Overall US CPI moved down to 6.4% in January, the 7th consecutive decline in the YoY rate of inflation and the lowest level since October 2021. US Core CPI (ex-Food/Energy) moved down to 5.6%, the 4th consecutive decline in the YoY rate and the lowest level since November 2021 – but both were above economist estimates. While the underlying trend showed inflation is slowing, it is likely keeping the Federal Reserve on a modest path of interest rate hikes. In the 12 months through January, the CPI increased 6.4% after advancing 6.5% in December. The US dollar falls (lifting gold), yields rise, and oil prices also slump ahead of inventory data.

Economic Data

·     Consumer Price Index (CPI) for January at 8:30 AM ET: On a headline M/M basis, consumer prices rise +0.5%, in-line with consensus and vs. (-0.1%) prior and on a Y/Y basis prices rise +6.4% vs. est. +6.2% (prior +6.5%). On a core basis, CPI Ex: Food & Energy M/M rose +0.4%, in-line with ests and vs. (prior +0.3%) and rise +5.6% y/y vs. est. +5.5% (prior +5.7%). US Real Avg. Hourly Earnings (Y/Y) for Jan -1.8% (prev -1.5%) and Real Avg Weekly Earnings Y/Y -1.5% (prev -2.6%).

·     Higher housing, food, gasoline, and natural gas prices were big contributors to the January consumer-price index, which rose 6.4% in January from a year earlier, cooling only slightly from a 6.5% increase in December.

Sector Movers Today

·     In utilities: FE Q1 adj EPS $0.50 vs. est. $0.53; sees 2023 earnings guidance of $2.44-$2.64 per share for the full year vs. est. $2.44; CMS positive mention at BMO Capital after mgmt meeting which reinforced their view that CMS is well positioned to not only meet its 2023 outlook, but also be near the top end of its 6-8% long-term growth rate. EXC reported Q4 revs above consensus, raised dividend, and guided year EPS mid-point in-line.

·     Solar: SEDG shares fall despite top and bottom line Q4 beat as BMO Capital said prior headwinds (FX, supply chain) improved, but whisper numbers with respect to gross margins/ASPs may have been higher among buy side compared to consensus; FSLR downgraded from Outperform to In Line at Evercore/ISI saying the co has been the major beneficiary of the announcement of the Inflation Reduction Act and has outperformed, but shares have topped their price tgt.

·     Staples: Dow component and beverage giant KO forecasts 2023 profit above Street estimates on higher prices and steady demand (to rise between 4%-5% vs. est. 2.95%) after Q4 revs rose 7% y/y to $10.13B vs. est. $10.2B; qtrly global unit case volume fell -1% for Q4 and grew 5% for full year. In restaurants: QSR misses on profit but revenue tops forecasts – revenues beat but EBITDA missed ($588m vs street $607m) what appears due to investment. DENN results included 4Q22 comp store sales growth that was consistent with previously announced levels and adjusted EBITDA slightly above the top end of its guidance range.

Stock GAINERS

·     ANET +5%; Q4 results exceeded consensus estimates and reit. 2023 revenue growth at +25% y/y) – Q4 rev growth of 55% is the second consecutive quarter that growth exceeded 50%.

·     BA +2%; after Air India to purchase 220 Boeing airplanes with a list price of $34 billion which includes 190 737 MAXs, 20 787s, and 10 777Xs.

·     CAR +8%; 4Q adj EPS $10.46 vs est. $6.79 on revs $2.77B vs est. $2.69B; EBITDA $658M vs consensus $506.9M; says Q4 demand was strong with commercial business performing well above 2019 levels.

·     CDNS +6%; beat the Street’s 4Q22 estimate and management guided 2023 revenue to be up 12-14%, well above the consensus estimate of ~10%.

·     FUSN +17%; after saying it acquired a new drug application for an ongoing Phase 2 clinical trial evaluating 225Ac-PSMA I&T, which has the potential to treat prostate cancers.

·     GFS +7%; Q4 revenue of $2.1B slightly above $2.08B estimate and adj EPS of $1.44 better while forecasts Q1 revenue to be in the range of $1.81B-$1.85B vs. est. $1.83B.

·     LSCC +5%; reported strong 4Q results, which were slightly above expectations, and 1Q guidance, which beat. Strength was attributed to design wins ramping in auto and industrials.

·     PLTR +15%; said it was profitable for the first time in the fourth quarter and expects 2023 to be its first-ever profitable year – 4Q adj EPS $0.04 vs est. $0.03 on revs $508.6Mm vs est. $502.3Mm; guides 1Q revs $503-507Mm vs est. $520Mm.

·     TSLA +4%; resumes upward momentum, recaptures the $200 level.

·     ZTS +7%; guides to FY23 operational growth 6-8% vs. “5-8%” range and est. ~8%; ’23 EPS guide of $5.34-5.44 brackets consensus at $5.40 and re guide above $8.575 – $8.725B vs est. $8.56B.

Stock LAGGARDS

·     AMKR -2%; Q4 sales of $1.91B topped the $1.85B estimate but guided Q1 sales $1.4B-$1.5B below the $1.56B estimate; Q4 EPS missed consensus.

·     FSLR -3%; downgraded from Outperform to In Line at Evercore/ISI saying the co has been the major beneficiary of the announcement of the Inflation Reduction Act and has outperformed, but shares have topped their price tgt.

·     OM -7%; shares fall Q4 updates were broadly incremental vs 4Q pre-announcement and already-provided ’23 guide.

·     SEDG -5%; shares fall despite top and bottom line Q4 beat as BMO Capital said prior headwinds (FX, supply chain) improved, but whisper numbers with respect to gross margins/ASPs may have been higher among buy side compared to consensus.

·     SNGX -33%; receives refusal to file letter from U.S. FDA for HyBryte™ New Drug Application in the treatment of cutaneous T-Cell lymphoma.