Mid-Morning Look

Thursday, February 17, 2022

U.S. stocks continue to be at the mercy of headlines out of the Ukraine/Russia, with President Joe Biden telling reporters that the threat of a Russian invasion of Ukraine is “very high,” adding that Russia is moving troops and may be engaged in a false flag operation. He said an invasion could occur “not now” but “in a manner of several days,” as he also said a diplomatic resolution is still possible. The ongoing saga is continuing to mess with traders’ heads, as the S&P 500 teeters above and below its key technical 200-day moving average support (roughly 4,450) while gold prices, oil, bonds markets also remain very volatile, spiking/slumping with every headline on the situation. Futures slipped overnight after claims on both sides of forces opening fire in isolated incidents. In addition to the headline risk, investors dealing with an odd earnings season, with 82% of companies reported, S&P 500 earnings are on pace to hit a record high for the 4th consecutive quarter – GAAP EPS are up 68% year-over-year and Operating EPS are up 41% (according to one report). However, guidance has disappointed, with high growth names getting clobbered on any miss, with higher inflation, labor shortages, and supply chain issues raised by most of the companies. The Fed also remains a market concern with a rising interest rate cycle upcoming, with expectations of as many as 5-rate hikes this year, possibly more according to several Wall Street banks to try and slow the ongoing inflation issues.

Economic Data

·     Weekly jobless claims rose to 248,000 from 225,00 in the prior week (vs. est. 219,000), while the 4-week moving average fell to 243,250 from 253,750 prior; continued claims fell to 1.593M from 1.619 mln prior and the U.S. insured unemployment rate unchanged at 1.2%

·     January Housing Starts fell -4.1% m/m to 1.638M vs. 1.700M expected and 1.708M prior (revised from 1.702M); single-family housing starts in January were at a rate of 1.116M, down 5.6% from December’s figure of 1.182M; Building permits rose +0.7% to 1.899M vs. 1.760M expected

Sector Movers Today

·     Retailers; Dow component and retail giant WMT 4Q adj EPS $1.53 vs est. $1.50 on revs $152.9B vs est. $151.5B, qtrly Walmart US comps +5.6% ex fuel, qtrly Sam’s comps +10.4% ex fuel, qtrly total US comps +6.3% ex fuel, qtrly eComm sales +1% – expect Q1 operating income and EPS to be down low double digits to low teens as we cycle the stimulus effects from last year, while sees Q2 and Q3 operating income and EPS are expected to increase at low to mid-single-digit rates; WSJ reported luxury-goods giants are raising prices on handbags, clothes, shoes, and jewelry — and facing little resistance so far from shoppers (watch RL, CPRI, LVMUY); YETI 4Q topline and EPS beat driven by wholesale channel outperformance, while DTC relatively in-line but EPS guidance slight worse given supply chain

·     Semiconductors; NVDA reported an in-line JanQ and guided to a strong AprQ rev/EPS of $8.1B/~$1.29; the revenue guide was 12% above consensus with growth in Data Center and Gaming – also key segments Gaming/DC/Pro-Vis (~95% of revs) growing 37%/71%/109% y/y, respectively (shares dipped despite strong results); AMAT reported F1Q results of $1.89 vs. cons $1.87, and F2Q guidance that was generally in line with consensus; MX Q4 revenues/Non-GAAP EPS of $110.3M/$0.31 vs consensus estimates of $122.3M/$0.28 with weaker ebitda and higher margins of 35%; the Economic Daily reported that MU has reportedly notified clients of raising spot and contract price by 25% and 17-18% respectively, triggered by WDC production halt; INTC is hosting its analyst day later tonight

·     Software movers; INFA delivered a good quarter highlighted by Subscription/Cloud ARR growth of +32%/+40% and guidance calls for +40% Cloud ARR growth or no deceleration y/y & net-new ARR of $125M vs. $90M in CY/21; CHKP upgrade from Market Perform to Outperform w/ $157 PT (from $150) at BMO as expect security demand to remain strong in CY22; PLTR slides on mixed Q4 as revs topped consensus but EPS missed; MTTR slides as delivered a top-line revenue beat and noted significant growth in subscribers and spaces under management but Q1 & FY22 guidance this quarter underwhelming compared to the Street; AMPL plunges on softer guidance – sees FY revs $226-234Mm vs est. $235.9Mm and FY adj net loss/share $0.42-0.44 vs est. -$0.44

·     Industrial & Machinery; MMM downgraded to Underweight at Morgan Stanley and cut tgt to $150 from $185 saying while fundamentals, growth is still insufficient when weighed against potential liabilities around PFAS and ear protection; in waste, WCN Q4 results were above expectations, with 70 bp margin expansion and 20% FCF growth and in-line guidance; ALSN 4Q21 adj EBITDA of $220M beat $198M estimates on better revs of $644M as customer demand has quickly recovered to pre-pandemic levels

Stock GAINERS

·     CSCO +4%; reported a solid 2QFY22 topping revenue and EPS estimates, boosted its dividend and added to its stock buyback

·     DASH +14%; following better Q4 results as revs rose 34%% to $1.3B above the $1.28B estimate driven by growth in new consumers and higher-than-expected consumer retention

·     HAS +6%; as Alta Fox Capital Management LLC, which has a 2.5% stake in Hasbro worth roughly $325 million, has nominated five directors to its board

·     NTR +4%; says a surge in prices of potash due to robust global demand and thin supply will boost its profit in 2022 as sees year EPS $10.20-$11.80, above estimates of $9.46 as expects supply issues to persist into 2022

·     OM +10%; 4Q21 revs of $28.2M, beats est. $26.4M, on acute console shipments, consumables, services, home dialysis upgrades with better FY22 guidance

·     SAM +1%; 4Q results essentially aligned with the revised lower guidance the company disclosed on Jan 14 that included additional write-offs for short shelf-life products, lower shipments, and gross margin

·     UPST +2%; double upgraded to Buy from underperform at Bank America which keeps its $255 tgt as believe Upstart’s 4Q’21 results showcased the company’s ability to deliver growth and profitability above expectations despite industry headwind

Stock LAGGARDS

·     ALB -17%; after forecast FY earnings below market estimates even though lithium prices were at record highs and posted a Q4 loss of $3.8M vs year-ago profit of $84.64M

·     AMPL -50%; plunges on softer guidance – sees FY revs $226-234Mm vs est. $235.9Mm and FY adj net loss/share $0.42-0.44 vs est. loss $0.44

·     APP -8%; slides on soft outlook as sees FY22 revenue $3.55B-$3.85B vs. est. $3.82B; sees FY22 software platform $1.35B-$1.50B

·     ATUS -20%; downgraded to Neutral at Atlantic Securities after earnings as believe management’s strategy to address heightened competition through increased investment in Fibre is the right one but believe it will take time before results improve materially

·     FSLY -28%; drops to its lowest levels since May 2020 after the content delivery network firm posted a better Q4 rev and smaller loss, but guides Q1 revs $400M-$410M below est. $419M and sees a larger Q1 loss of (60c-70c) vs. est. loss (48c)

·     MMM -3%; downgraded to Underweight at Morgan Stanley and cut tgt to $150 from $185 saying while fundamentals, growth is still insufficient when weighed against potential liabilities around PFAS and ear protection

·     MTTR -15%; delivered a top-line rev beat and noted significant growth in subscribers and spaces under management but Q1 & FY22 guidance this quarter underwhelming compared to the Street

·     NVDA -7%; shares fall despite a beat and strong guidance as expectations were highs

·     PLTR -11%; Q4 adj EPS $0.02 vs. est. $0.04; Q4 revs $433M vs. est. $417.6M; sees Q1 revenue $443M vs. est. $439.16M and sees Q1 adjusted operating margin of 23%

·     TXG -16%; tumbles as reported 4Q21 revenue of $143.5mn (+28% Y/Y), below consensus of $148.5mn and initial 2022 revenue guidance in the range of $600mn-630mn, well below consensus of $679mn