Mid-Morning Look

Wednesday, July 20, 2022

U.S. stocks are surging early, with the Nasdaq outperforming behind strength in technology, media, and Biotech, while the S&P 500 and Dow lag amid weakness in energy stocks, staples, healthcare, and utilities as investors digest a handful of earnings results (NFLX, BKR, ELV – more below) – but overall markets higher. European stock rally fizzled this morning (and the euro moved lower) as concerns grow over natural gas supplies in Europe on fears the Russian government may cut gas supply irrespective of this week’s NordStream 1 supply decision. As a result, the EU has proposed that the bloc cut gas consumption by 15% over the next 8 months, a drastic plan that will impact households and firms alike. Housing data again disappoints, with existing home sales below estimates. Market focus has been on interest rate increases with the ECB and FOMC meetings happening in next week, but attention has shifted for this week at least towards earnings results, where several companies have also noted the impact of a stronger dollar hurting results/guidance (JNJ, IBM). Big name tonight is TSLA earnings.

Economic Data

·     June Existing Home Sales fell -5.4% to 5.12M vs. 5.395M expected and 5.41M prior; on a Y/Y basis, the figure fell 14.2%; the median existing-home price of all housing types continued to climb in June, to $416K from $407.6K in May; total housing inventory at the end of June stood at 1.26M units, up 9.6% from May and a 2.4% rise from a year ago. Unsold inventory increased to a 3.0-month supply at the current sales pace, up from 2.6 months in May.

Sector Movers Today

·     Hardware, Components & Services; JNPR double downgraded from Buy to Underperform at Bank America and cut tgt to $32 from $40 as flag the near-term risk for flat-to-negative order growth in the next few quarters as our Networking companies begin to lap tough comps; ANET also double downgraded from Buy to Underperform at Bofa with $105 tgt down from $140 as flag hints of Cloud/data center slowdown, which may pressure growth for Arista; FFIV downgraded from Buy to Neutral at Bank America flagging two main risks to F5’s stock in the near-term (shares recently been downgraded at JPM, CSFB and Piper this month amid fears of slowing demand trends) 

·     Financial Services, Exchanges; NDAQ announces 3-for-1 stock split & qtrly div of $0.20/shr after earnings top views ($2.07 on revs +6% to $893M vs. est. $1.91/$881M); MKTX Q2 diluted EPS $1.78 vs. est. $1.74; Q2 revs $182.2M vs. est. $184.09M; IBKR top and bottom line miss as Q2 EPS $0.84 vs. est. $0.91; Q2 revs $656M vs. est. $737.18M; Q2 customer accounts increased 36% to 1.92 million, customer equity decreased 19% to $294.8B; HOOD said options trading in cash accounts is now available at Robinhood

·     Housing & Building Products; FOR downgraded to Neutral from Buy at BTIG after weak F3Q EPS and a soft FY22 guide and given the recent drop in housing demand, believe low-end public spec builders will need to clear inventory and thus will slow down their lot takedowns as well as starts; weak housing data points yet again as the weekly MBA mortgage data showed the US mortgage market index falls 6.3% to 281.1 in week ended July 15, to lowest since 2000 as the purchase index falls 7.3% to 208.0 and the refinancing index falls 4.3% to 655.7 as the average 30-year mortgage rate rises 8 bps to 5.82% in latest week

·     Bank movers; CMA Q2 EPS adj EPS $1.92 vs. est. $1.78; net interest income increased to $561 million from $456 million in q1 22; Q2 common equity tier 1 capital ratio of 9.72% vs 10.35%; Q2 provision for credit losses increased to an expense of $10 million from a benefit of $11 million; HOPE Q2 EPS $0.43 vs. est. $0.41; Q2, net interest margin expanded 15 basis points from preceding Q1; Q2 net interest margin 3.36% vs 3.11%; MTB Q2 EPS $3.10 vs. est. $2.70; provision for credit losses was $302M in Q2 and NII expressed on a taxable-equivalent basis totaled $1.42B in qtr, vs $946M y/y; UCBI Q EPS $0.61 vs est. $0.68, NIM 3.19% +22bps vs 1Q

Stock GAINERS

·     ALB +1%; upgraded from Underweight to Sector Weight at Keybanc recognizing continued strength within Lithium demand, driven by rapid adoption of EVs

·     MLCO +6%; casino stocks with Macau exposure active (WYNN, MLCO, LVS, MGM) on reports the Macau gambling hub will reopen its casinos on Saturday the 23rd

·     NDAQ +5%; announces 3-for-1 stock split & qtrly div of $0.20/shr after earnings top views ($2.07 on revs +6% to $893M vs. est. $1.91/$881M

·     NFLX +3%; as quarterly results “better-than-feared” as lost roughly 1M subscribers, but was ahead of consensus for loss of -2 million while revs missed and Q2 operating income missed consensus by 8% while guided Q3 EPS, revs, and subs all below views

·     OMC +2%; Q2 EPS $1.68 vs. est. $1.58; Q2 revs rose 11.3% y/y to $3.57B vs. est. $3.47B; qtrly increase in revenue from organic growth of 11.3% (a boost for IPG, WPP)

Stock LAGGARDS

·     BBWI -4%; slides after guiding Q2 EOS $0.40-$0.42, below the prior $0.60-$0.65 view (and consensus $0.60) while said sees Q2 sales down 6% to 7% y/y, worse than the prior view of up low single digits

·     BKR -10%; reported a bigger Q2 loss, hit by a $365M charge from suspension of its Russian operations and supply chain inflation; posted a net loss of $839M vs. a loss of $68M a year ago

·     ELV -6%; despite beat and raise; says costs are higher than its pre-pandemic baseline levels due to Covid-19, but it expects margins to improve

·     FOR -11%; downgraded to Neutral from Buy at BTIG after weak F3Q EPS and a soft FY22 guide and given the recent drop in housing demand, believe low-end public spec builders will need to clear inventory and thus will slow down their lot takedowns as well as starts

·     HELFY -8%; HelloFresh reduced its 2022 outlook saying inflation, waning consumer confidence and the Ukraine war would weigh on earnings in the second half of the year

·     MRK -1%; after the co’s cancer drug Keytruda failed to meet the main goal of a late-stage trial testing it in patients with head and neck cancer. The drug, along with chemotherapy, showed improvement in event-free survival but did not meet statistical significance

·     VBLT -79%; after the company said its ovarian cancer treatment didn’t achieve the results it was looking for in a recent clinical trial.

·     WY -2%; downgraded to Hold from Buy at Argus as expect Weyerhaeuser’s results to be hurt by lower lumber prices and a slowdown in new residential construction