Mid-Morning Look

Wednesday, February 15, 2023

U.S. stocks edge lower initially before rebounding off lows (S&P again holds 4,100), despite rising expectations of longer and higher rate interest rate hikes by the Fed as inflation stays elevated and economic data shows improvement in jobs, manufacturing, and production. The positive sign for markets is that the calls for recession appear early given the strength in economic data, but that also opens the door for more rate hikes by the Fed to counter a potential further spike in inflation. The US dollar index (DXY) hits highest levels since early January, topping the 104 level before paring gains, while Treasury yields jumped across the board following the better economic data today (strong retail sales, industrial production, Empire Fed manufacturing) – with short end of the curve leading (6-month yields topped 5% for first time since 2007). Energy the biggest drag in the S&P 500 after DVN reports qtrly miss and a bearish inventory data reading pushes oil prices lower. Broad weakness early with mkt breadth more than 2:1 decliner leading, but major averages still only down slightly. Another heavy round of economic data tomorrow and yet more Fed speakers but calls for a higher terminal rate yesterday by several speakers still leaving stock markets unphased. Big squeezes in tech space after earnings, with TTD, UPST, RBLX all moving more than 20% to the upside. Other gainers include ABNB, ADI, DNUT, MLM after earnings while shares of AKAM, BCS, DVN, LAD, SABR, UDMY fall on results.

Economic Data

·     Retail Sales data for January stronger at +3.0% vs. est. +2.0% (prior (-1.1%) while retail sales ex-autos, gas rise +2.6% m/m vs. est. +0.9% and retail sales ex-autos rise +2.3% vs prior month.

·     NY Fed’s Empire State stronger as current business conditions index -5.8 in February vs -32.9 in January and better than expected -18.0; new orders improve at -7.8 in February vs -31.1 in January, prices paid index jumped to +45.0 in February vs +33.0 prior and employment index at -6.6 in February vs +2.8 in January.

·     Industrial output for January unchanged vs. consensus +0.5% (Dec -1.0%); Capacity use rate 78.3% vs. consensus 79.0% and vs. Dec 78.4%; Jan manufacturing output +1.0% (vs. est. +0.8%) and vs Dec (-1.8%).

·     Business Inventories for December rose +0.3%, in-line with consensus and prior month; U.S. Dec inventory/sales ratio 1.37 months’ worth vs Nov 1.35 months; Dec business sales -0.6% vs Nov -1.2% (prev -0.8%).

·     NAHB Housing Market Index for Feb showed confidence among U.S. single-family homebuilders improved for a second straight month, rising seven points to 42 this month, notching the largest monthly gain in nearly a decade (ex-covid Spring) above the est. of 37.

Sector Movers Today

·     In lodging and travel: ABNB shares rise after Q4 Nights & Experiences booked slightly missed ests. but revenue and adj. EBITDA came in noticeably better as demand remains strong in all regions, aided by increased cross-border travel and Q1 rev guide 16%-21% better; SABR shares slip after Q4 revs $631M miss ests. $667M on larger EPS loss; TRIP rises on Q4 beat as adj EPS $0.16 vs. est. $0.04; Q4 revs $354M vs. est. $343.9M. MAR downgrade from Outperform to In Line wat Evercore/ISI on valuation after run-up in shares.

·     In autos: TSLA will halt some production at its Shanghai factory until the end of February, as it upgrades the facility to start rolling out a revamped version of its Model 3 sedan in the competitive Chinese market, Bloomberg reported. In electric vehicle charging (BLNK, CHPT), the WSJ reported that TSLA will open part of its proprietary Supercharger network (at least 3,500 new and existing chargers) to other kinds of vehicles for the first time, the White House said Wednesday. The move qualifies the company for a share of billions of federal dollars on offer to build a national network of EV chargers.

·     Energy sector worst sector in the S&P, as DVN shares fell after the oil producer reported Q4 core EPS that fell short of the average analyst estimates (EPS of $1.66 missed the $1.75 estimate; had said in January that it estimated its Q4 production to be 2% lower). After pre-announcing 4Q production and capex two weeks ago, CRK delivered 4Q22 earnings that fell in line with expectations. Inventory data bearish for oil: API Oil inventories showed Crude with +10.5m barrel build vs +1.1m expected; Gasoline +846k: Distillates +1.73m: Cushing +1.95m.

·     Credit Cards: In monthly charge off data: COF reported charge-offs for January of 3.81% vs. 2.03% y/y and reported a jump in delinquencies at 3.65% vs. 2.4% y/y. AXP card member loans 30 days past due loans as a % of total 1.0% vs 1.0% at dec 2022 end and loans net write-off rate-principal only 1.5% at Jan 2023 end vs 1.2% at Dec 2022. BAC January credit card delinquency rate was 1.09%% vs 1.03% at Dec 2022 end and net charge-off rate was 1.48% vs 1.44% in Dec 2022.

Stock GAINERS

·     ABNB +8%; after Q4 Nights & Experiences booked slightly missed ests. but revenue and adj. EBITDA came in noticeably better as demand remains strong in all regions, aided by increased cross-border travel and Q1 rev guide 16%-21% better.

·     ADI +5%; reported better-than-expected Q1 results and guidance – Q1 EPS $2.75 on revs $3.25B topping $2.60/$3.15B estimates and guides Q2 EPS $2.75 plus/minus 10c vs. est. $2.42 on revs $3.1B-$3.3B vs. est. $3.03B saying demand remains resilient in Industrial& Automotive markets.

·     EBS +8%; said it sealed a deal to sell a portfolio of travel vaccines to Danish vaccines-maker Bavarian Nordic for up to $380M.

·     GNRC +12%; top gainer in the S&P after mixed Q4 results (EPS $1.78/$1.05B revs vs. est. $1.76 and $1.07B); said expects sales to be weak in 1H of the year and rebound in the second half.

·     OSUR +18%; posts Q4 rev beat and better Q1 guide; said it is anticipating higher revenue in H1 of the year followed by lower sales in H2 as the company works down its COVID-19 gov’t contracts.

·     RBLX +25%; after smaller EPS loss of (-$0.48) vs. est. (-$0.52) and net bookings rose 17% y/y to $899.4M above ests $888.1M; said January average DAUs 65M; average daily active users (DAUs) were 58.8M, up 19% y/y.

·     TTD +22%; beats on both top and bottom line for Q4 and guides Q1 revs $363M vs. est. $360.9M saying they outpaced nearly all areas of digital advertising in 2022.

·     UPST +26%; Q4 beat, Q1 revs weak; reported 4Q22 results that topped consensus as total revenue being slightly above the high-end of the target but Q1 rev guide but miss (about $100M vs. est. $157.99M).

Stock LAGGARDS

·     AKAM -8%; security misses, GMs downtick and capex intensity remains elevated; downgraded at RBC noting the clear change in strategy and CAPEX plans in 2023.

·     BCS -10%; after posting a surprise drop in Q4 profit and as revenue missed estimates across every major business line; results were further marred by 1.2 billion pounds in credit impairment charges and a 26% leap in costs to 8.9B pounds.

·     CRDO -46%; forecast 4Q revenue $30M-$32M, missing the average analyst estimate of $58.3M saying its largest customer has reduced its demand forecast for certain Credo products.

·     DVN -11%; after the oil producer reported Q4 core EPS that fell short of the average analyst estimates (EPS of $1.66 missed the $1.75 estimate; had said in January that it estimated its Q4 production to be 2% lower).

·     LAD -6%; after Q4 results miss with EPS $9.05 missing the $10.10 estimate and revs $6.99B missing $7.07B estimate as said Q4 total vehicle gross profit per unit falls 17.3% to $5,691.

·     SABR -18%; after Q4 revs $631M miss ests. $667M on larger EPS loss.

·     TSM -6%; after Warren Buffet’s Berkshire reduced its stake by 87%, to 8.3M shares down from prior 60.1M shares prior according to qtrly filing.

·     UDMY -10%; shares fall on top/bottom line miss – EPS loss (-$0.36) vs. est. loss (-$0.23); Q4 revs rose 22% y/y to $165.33M vs. est. $166.04M and guides Q1 revs $168M-$172M below consensus est. $186.7M.