Mid-Morning Look

Thursday, January 26, 2023

U.S. stocks continue their torrid pace higher to start the New Year (Nasdaq +8.8% MTD, S&P +4.8% and RTY +7.5%) as the goldilocks scenario continues to play out for markets with decelerating inflation while the economy remains strong, as evidenced by this morning’s economic data. GDP came in above consensus views, along with a strong Durable Goods print and a further decline in weekly jobless claims, all signs the economy remains strong. At the same time PCE inflation declined again from prior month. Ahead of the FOMC policy meeting next week, investors still in camp the Fed will slow and pause rates sooner than the Fed has been communicating. Only time will tell. Utilities -0.3% (and down -2.9% YTD) and Staples -0.4% (-2% YTD) sectors lagging on day and year (S&P 500 +5.5% YTD). Another hefty round of layoffs (most in the tech sector) as IBM plans to cut about 3,900 jobs, or about 1.5% of its global workforce; LRCX announces restructuring, 7% workforce reduction; DOW will cut workforce by ~2,000 roles, shut down select assets; SAP plans to cut 3,000 jobs following steep profit decline in 2022. Nasdaq getting a boost behind TSLA earnings as shares now up roughly 60% in three weeks.

Economic Data

·     US GDP Annualized (Q/Q) Q4-A was +2.9% vs. est. 2.6% and down from prior +3.2%; inflation readings improve as US Core PCE (Q/Q) Q4-A was +3.9% vs. est. 3.9% and down from prior +4.7%; the GDP Price Index for Q4-A +3.5% vs. est. +3.3% and down from prior +4.4%. lastly, Q4-A Personal Consumption at +2.1% vs. est. +2.9% and vs. prior +2.3%.

·     Weekly Jobless Claims fell to 186K in the latest week vs. est. 205K and down from 192K prior week; the 4-week moving average fell to 197,500 from 206,750 prior; continued claims rose to 1.675M from 1.655M prior.

·     Durable Goods Orders for December strong at +5.6% vs. est. +2.5% and well above prior (-1.7%) as Durables ex: transports (-0.1%) vs. est. (-0.2%) and capital goods new non-defense orders ex air (-0.2%), in-line with estimates.

·     Advance Goods Trade Balance for December (-$90.3B) vs. est. (-$88.1B) and vs. prior (-$82.9), with Wholesale Inventories (M/M) +0.1% vs. est. +0.5% and prior +0.9%.

·     New Home Sales for December rose +2.3% M/M to 616K vs. 614K consensus and 602K prior (revised from 640K), remains down -26.6% from December 2021; Median Sale Price (Y/Y) rose 9.5% to $442,100.

Sector Movers Today

·     In airlines, AAL Q4 EPS beat on in-line operating revs with strong 2023 Adj EPS guidance of $2.50-$3.50 well above estimate $1.89 and above $0.50 y/y; LUV Q4 adj EPS Loss (-$0.38) vs. est. loss (-$0.12) as revs in-line at $6.17B saying incurred q4 pre-tax negative impact about $800m and sees net loss in Q1 based on trends; JBLU posted better-than-expected Q4 earnings as it returned to profitability despite the impact of the massive winter storm named Elliott but guides Q1 EPS loss (-0.45-$0.35) vs. est. (-$0.04) loss.

·     In chemicals, weak earnings as: DOW Q4 adj EPS of $0.46 below the $0.58 estimate and guides Q1 sales $11.0B-$11.5B below the $13.12B estimate; announces plans to achieve $1 bln in cost savings over 2023 and said will cut workforce by ~2,000 roles, shut down select assets; SHW also weak in coatings space (RPM, PPG) after lower guide as sees FY adjusted EPS $7.95 to $8.65, below estimate $10.18; AXTA reported 4Q22 EBITDA of $208M, compared to consensus of $197M given strong volume growth in Mobility Coatings, as well as a sizable catch up on price/cost recovery.

·     Investment managers: AMP with EPS beat ($6.94 vs 6.47) on better Advice & Wealth Management (AWM) results +$0.22 on higher spread income, driven by both yields and cash balances; RJF EPS miss in the quarter was primarily driven by lower cap markets revenues, although NII and NIM were stronger than expected; BX Q4 profit plummets more than 40% but EPS $1.07 still Beat $0.94 and consensus on strong expense discipline (lower comp) and a lower tax rate; TROW mixed Q4 with EPS beat, revs below views.

·     In retail: BOOT slips on miss and guidance; 3Q EPS $1.74 vs est. $1.75 and Q1 EPS $1.42-1.51 vs est. $1.62. LEVI Q4 adj EPS $0.34 tops est. $0.29 on revs $1.6B vs. est. $1.57B; said expect to bring inventory back to normal levels by the end of Q2 and guides in-line for year. TSCO Q4 EPS of $2.43 beats by 8c on better revs of $4.01B with in-line FY23 profit and sales guidance and sees FY23 comparable store sales growth of 3.5%-5.5% after Q4 comps +8.6%. CRI downgraded to Neutral from Outperform at Wedbush after rising past their price Target and they see near-term risks to fundamentals.

·     Semis extend January gains, SOX comes in +15.2% MTD and more than 20% (or more) gains for month for MU, QRVO, SWKS, TSM, ASML and 30% for NVDA

·     Semis: LRCX posted beat both top- and bottom-line estimates in the Dec-Q, but their Mar-Q guide missed the consensus top- and bottom-lines. WOLF posted weaker than expected C4Q results and C1Q guidance as execution issues impacted once again. STX company beat DecQ and guided MarQ revs up +6%q/q to ~$2B (vs consensus $1.8B), while the EPS range $0.05-0.45 brackets consensus $0.30. TER beats for qtr but lower guide.

Stock GAINERS

·     CVX +3%; announced $75B stock repurchase program and increases quarterly dividend.

·     DV +10%; will replace VIVO in the S&P SmallCap 600 effective prior to the opening of trading on Tuesday, January 31.

·     LEVI +3%; Q4 adj EPS $0.34 tops est. $0.29 on revs $1.6B vs. est. $1.57B; said expect to bring inventory back to normal levels by the end of Q2 and guides in-line for year.

·     LVS +2%; reported an upside 4Q property EBITDA result (hold-adj), driven by Singapore strength and noted Macau’s rapidly recovering GGR, currently outpacing visitation.

·     STX +9%; as Q2 revenue of $1.89B tops estimate of $1.83B and guides Q3 revs $2B, plus or minus $150 mln, higher than estimate of $1.86B.

·     TSLA +9%; better than feared with revs + ASPs ahead of consensus as price cuts were late in the Q, though gross margins were light at ~24% vs est. ~26%; FY23 guide for 1.8M deliveries was in-line with consensus.

·     URI +5%; posted Q4 results of a 3% beat on EBITDA while revenues were in line with consensus estimates and introduced new 2023 guidance with revenue and EBITDA well above consensus.

·     XM +28%; after reported operating margin implying a sharp acceleration in EPS and SAP said it is exploring a sale of its remaining stake in the firm.

Stock LAGGARDS

·     HZO -11%; Q1 adj EPS $1.24 misses the $1.64 estimate on revs $507.9M vs. est. $513.8M and guides 2023 EPS view to $6.90-$7.40 below consensus of $8.04.

·     IBM -4%; reported solid rev growth and FY23 growth guidance, particularly in Consulting, though lackluster reported margins/FCF; missed FCF for 2022 at just ~$9.3B vs target of ‘at least $10B’.

·     LCII -3%; gave prelim Q4 results that came in below expectations including revenue in the range of $890-$900m (est. $941M) and a reported EPS LOSS of $0.62- $0.73.

·     LUV -3%; Q4 adj EPS Loss (-$0.38) vs. est. loss (-$0.12) as revs in-line at $6.17B saying incurred q4 pre-tax negative impact about $800m and sees net loss in Q1 based on trends.

·     OCUP -16%; after its investigational drug APX3330 fails to meet main goal in mid-stage study for treating diabetic retinopathy, a complication of diabetes that affects eyes.

·     SHW -7%; weak in coatings space (RPM, PPG) after lower guide as sees FY adjusted EPS $7.95 to $8.65, below estimate $10.18.

·     VIRT -6%; as Q4 adjusted EPS $0.37 misses the $0.52 est. as net income fell and total revs fell -29.5% to $497.8M in the quarter vs. $705.6M y/y.