Mid-Morning Look

Friday, January 28, 2022

Stocks looking for direction after another brutal week on Wall Street, as stocks trade lower overnight despite the good beat by tech bellwether Apple (AAPL), bounced this morning following mixed economic data (income rose, but inflation data was in-line with views), but has since pulled lower as path of least resistance has been to the downside. For most of 2021 it was “buy the rips” as stocks rallied on every test of key technical levels to record setting all-time highs. But so far in 2022, it has been “sell the rips” with the Nasdaq on track for its worst January on record, down nearly 15% MTD, as a complete 180 by the Federal Reserve on interest rate hikes has spooked markets of how it could slow growth. After being cautious for the last few years, keeping rates at zero despite near record unemployment, near record corporate earnings, improving economic data – the Fed has recently noted that inflation has risen faster than anticipated and fed fund futures now indicate 5-possible rate hikes are in store for the year (with some Wall Street banks calling for possibly more). These comments and calls along with surging commodity prices (oil at 7-year highs) have pushed major averages lower heading into key earnings the next two weeks. Treasury yield curve has been flattening with 2’s rising and 10-s steadily higher. With only 1-trading day left after today, energy sector only gainer up around 18% while sub sectors like semiconductors are down 19% and Biotech also down 19%.

Economic Data

·     University of Michigan surveys of consumers sentiment Jan-F at 67.2 vs. consensus 68.7, below Dec-Final read 70.6; current conditions index final Jan 72.0 from Dec-F 74.2 and expectations index final Jan 64.1 vs. Dec-F 68.3

·     Personal Income for December rose +0.3% below est. +0.5% while Personal Spending fell (-0.6%), in-line with estimates and Real Personal Spending fell (-1.0%) vs. est. (-1.1%)

·     Inflation data mostly in-line as December PCE Price Index rose +0.4% MoM (in-line) and vs. +0.6% prior, while on a YoY basis, PCE Price Index +5.8% (also in-line and up from 5.7% last month); Core PCE Price Index rises +0.5% MoM (in-line) and same as prior month and on a YoY, rises +4.9% vs. 4.8% est. and +4.7% in November

·     The Q4 Employment Cost Index rose +1.0% vs. +1.2% consensus and +1.3% prior as wages and salaries increased 1.1%, while benefit costs increased 0.9% from September 2021.

Sector Movers Today

·     Consumer Staples & Restaurants; CL Q4 adj EPS 79c vs est. 78c on sales $4.4B vs est. $4.42B, sees 2022 organic sales +3-5% below est. +5.36%; CHD Q4 adj EPS 64c vs est. 60c on sales $1.37B vs est. $1.34B, sees FY22 adj EPS $3.14-3.26 vs est. $3.21, net sales +5-8%, and organic sales +3-6%; MDLZ Q4 adj EPS 71c vs est. 72c on revs $7.66B vs est. $7.59B, gross margin 38.7% as it was pressured by supply chain headwinds, sees FY22 in-line with long-term growth of 3+% organic net revenue growth; Barclays lowered their PT on KMB to $127 from $148 as it is facing an unprecedented inflationary cycle broader and longer than any before, necessitating pricing in categories with stiff competition; Loop’s Canada checks show QSR Tim Horton’s Q4 comps below expectations (+8% vs est. +10%, consensus +10.1%) and Q1-to-date comp +4-5% tracking well below consensus as it is being pressured by new restrictions

·     Retailers; Citigroup with several changes in the retail space, as upgraded TPR from Neutral to Buy, and downgrade KR and OXM from Neutral to Sell in North American retailing as reduce tgts across 46 companies to reflect a higher interest rate environment, which has caused a repricing of risk assets and multiple contraction across the market in general; VFC with a mixed quarter while gross margins for the Q3 and its outlook for the year disappointed (sees FY revs +28% vs. prior +30%, and int’l revs +22%-24%, vs. prior +24%-26%; COLM upgraded to Buy from Neutral at Seaport with $120 tgt primarily reflects our more bullish view on the company’s CY22 setup; BOOT Q3 EPS $2.27 vs est. $2.22 on revenue $485.9M vs est. $483.1M; same-store sales +54.2%; RBC Capital resumed/initiated: OLLI downgraded to Sector Perform from Outperform, cut PT to $51 from $76, WSM upgraded to Outperform from Sector Perform, PT lowered to $202 from $219 and initiates at Outperform: ORLY ($755 tgt), TGT ($278 tgt), AAP ($239 tgt), WMT ($160 tgt), CHWY ($77 tgt), PRTS ($15 tgt), and KMX ($140 tgt)

·     Energy stock movers; Goldman Sachs raised energy stocks to Overweight from Neutral, citing the positive outlook for crude oil prices, attractive valuations, while downside risks include slowing economy and aversion by some ESG-sensitive institutional investors to owning energy shares; CVX reported Q4 profit that missed estimates on weaker than expected oil and gas production that outweighed gains from recovering prices (Q4 adj EPS $2.56 vs. est. $3.12; Q4 revs $48.1B vs. est. $45.69B) – oil and gas production was 3.12M bpd, down 5% from a year earlier; PSX Q4 adj EPS $2.94 topped est. $1.95 on revenue that doubled YoY to $33.57B vs est. $29B

·     Semiconductors; Philly semi index down over 19% in January alone, dragging the Nasdaq lower after surging over 40% in 2021; after a strong quarterly result from STX the day prior, sending shares higher, WDC reported in-line DecQ rev/EPS at $4.8B/$2.30 with GM at 33.6%, but guided MarQ to $4.55B/$1.65 (below consensus $4.7B/$1.96) with component sourcing and cost headwinds, supply constraints, and lower NAND ASP; TER downgraded by at least two firms following disappointing earnings forecast at the chip-testing company the day prior (shared fell -20%); AMD broke below its 200-day moving average day prior as semi chip sector extends recent decline, with the Philly semi index (SOX) down about 20% in January alone)

Stock GAINERS

·     AAPL +3%; delivered stronger-than-expected Dec. Q results and Mar. Q guidance, setting an all-time total revenue record of $123.9B (+11% Y/Y), driven by better mix and strong growth across all products and services except for iPads, hampered by more pronounced supply constraints

·     AFRM +5%; upgraded to buy from neutral at D.A. Davidson saying valuation looks attractive ahead of its Q2 earnings next month, while Visa (V) CEO said last night on earnings call the company will part with Affirm for its debit card

·     CHD +3%; Q4 adj EPS 64c vs est. 60c on sales $1.37B vs est. $1.34B, sees FY22 adj EPS $3.14-3.26 vs est. $3.21, net sales +5-8%, and organic sales +3-6%

·     FUBO +3%; upgraded to Hold at Lightshed from Sell after valuation has collapsed (though notes when initiated on FUBO on December 23, 2020, said “it may be the most compelling short we have ever identified in our career as analysts.”

·     PRVB +12%; said it plans to resubmit the biologics license application (BLA) for teplizumab following a meeting with the FDA

·     TEAM +5%; reported very strong F2Q results, led by a fourth consecutive quarter of accelerating subscription revenue/sequential acceleration in Cloud and Data Center revenue drove a big 2Q revenue beat and guidance increase

·     X +2%; posted quarterly sales above expectations as it earned $1.1 billion, or $3.75 a share, in the quarter, compared with $49 million, or 22 cents a share, in the year-ago period

·     V +6%; better than expected results across the board as well as an increased FY22 outlook saying more international travel and an increase in e-commerce drove higher transactions and payments volume

Stock LAGGARDS

·     AMD -2%; broke below its 200-day moving average day prior as semi chip sector extends recent decline, with the Philly semi-index (SOX) down about 20% in January alone)

·     CAT -4%; a drag on the Dow after saying its Q1 operating margins could take a hit from higher production and labor costs, overshadowing a Q4 beat (EPS $2.69 vs. est. $2.27; Q4 revenue rose 23% to $13.8B vs. est. $13.15B)

·     CVX -4%; reported Q4 profit that missed estimates on weaker than expected oil and gas production that outweighed gains from recovering prices (Q4 adj EPS $2.56 vs. est. $3.12; Q4 revs $48.1B vs. est. $45.69B) – oil and gas production was 3.12M bpd, down 5% from a year earlier

·     HOOD -2%; disappointing quarter as posted Q4 loss EPS ($0.49) vs est. ($0.45) on revs $363Mm vs est. $362Mm, transaction-based revs +12% to $264M and revenue from equity trading on platform dropped 35%

·     QRTEA -22%; said prelim Q4 results experienced lower-than-anticipated demand that negatively impacted sales as retail revenue was down 8%-9% and adjusted OIBDA down 17%-20%

·     VFC -6%; with a mixed quarter while gross margins for the Q3 and its outlook for the year disappointed (sees FY revs +28% vs. prior +30%, and int’l revs +22%-24%, vs. prior +24%-26%

·     WDC -5%; reported in-line DecQ rev/EPS at $4.8B/$2.30 with GM at 33.6%, but guided MarQ to $4.55B/$1.65 (below consensus $4.7B/$1.96) with component sourcing and cost headwinds, supply constraints, and lower NAND ASP