Mid-Morning Look

Thursday, July 21, 2022

U.S. stocks battling between gains and losses early following another big day of earnings, but also a handful of macro related catalysts moving markets as well. Oil prices slide, the dollar volatile and Treasury yields tumble and big earnings movers. 1) Russia resumed sending gas to Europe through the Nord Stream pipeline system, easing fears in region, and causing pullback in oil, nat gas sector (along with reports Libya National Oil Corp crude production had resumed at several oilfields, after lifting force majeure on oil exports last week) – energy sector hit hard early on 5% drop in oil prices. 2) the European Central Bank raised its key rate by 50 basis points to 0.5%, bigger than the 25-bps rate it had previously indicated and marking its first-rate hike in 11 years, as it strives to bring inflation down. The ECB also approved the Transmission Protection Instrument, a mechanism intended to ensure its monetary policy stance is “transmitted smoothly across all euro area countries.” 3) US economic data continues to disappoint as weekly jobless claims hit 8-month highs and Phill Fed Business survey comes in well below economist estimates amid a plunge in new orders. Bitcoin prices slip over 2% to below $23K this morning after Tesla Inc was shown to have sold about 75% of its holdings of the virtual token. Earnings results mixed: winners early TSLA, DHR, LVS, CSX, NUE and losers TRV, DFS, T, DOW, POOL and other movers CCL plunges on stock offering, ALL tumbles on catastrophe losses. Another big night coming up for earnings: COF, MAT, SNAP, STX. Lastly, the White House confirmed President Biden tested positive for Covid.

Economic Data

·     Weekly Jobless Claims rose +7K to 251K (8-month highs) vs. 240K expected and the unrevised 244K prior; the 4-week moving average of 240,500 rose from 236,000 in the previous week; continuing claims 1.384M vs. 1.340M consensus and 1.333M prior and the US insured unemployment rate was 1.0% for the week ended July 9

·     Philly Fed Business Outlook for June fell to -12.3 vs. -2.5 estimate and -3.3 prior as the prices paid index fell -12 points to 52.2 (lowest reading since Jan 2021), the employment index declined 9 points to 19.4 and new orders declined for the second consecutive month, from -12.4 to -24.8; the future new orders index declined 5 points to -12.4, while future shipments rose 9 points

Sector Movers Today

·     Airlines: UAL tumbles as 2Q EPS $1.43 vs est. $1.95 on revs $12.1B vs est. $12.2B; CASM +32%, CASM-EX +17%; qtrly load factor 86.7% vs 72% year ago and reports Q2 capacity down 15% vs. Q2 of 2019 while curbs 2023 growth; AAL reports in-line Q2 EPS on record revs of $13.4B (also in-line) saying expects to be profitable in Q3 with revs up 10%-12% vs Q3’19 and capacity down 8%-10% vs. Q3’19; ALK sees Q3 revenue growth of +16 to +19% from the 2019 level to ~$2.77B to $2.84B vs. $2.59B consensus and capacity expected to be down 5% to 8% in Q3’19

·     Metals and Mining: aluminum producer AA reported better-than-expected 2Q’22 results, repurchased ~1.6% of shares outstanding for ~$275m and authorized an additional $500m buyback program; in steels, STLD sets quarterly records for net income, sales, steel shipments after easily beating expectations, as steel shipments came in at a quarterly record 3.1M tons; NUE Q2 EPS and sales beat ($9.67/$11.79B vs. est. $8.72/$11.46B) as average sales price per ton increased 3% compared with Q1 and increased 44% y/y; in copper, FCX Q2 adj EPS $0.58 misses by 3c and revs of $5.42B well below consensus of $6,13B

·     MedTech Equipment; DHR outperforms as Q2 adj EPS $2.76 vs. est. $2.35; Q2 revs $7.75B vs. est. $7.3B; for q3 2022, company anticipates that non-Gaap base business core revenue growth will be in high-single digit percent range; posted strong life science results (lifts A, QGEN, WAT early); The FDA classified the recall of some syringe infusion pumps by ICU Medical (ICUI) company Smiths Medical as the most serious type. Smith’s Medical in April recalled over 118K of its Medfusion 4000 and 3500 Syringe Infusion Pumps distributed between Oct. 2004 to Feb. 17, 2022; SYK downgraded to Hold at Deutsche Bank due to a higher conviction around CAPEX pressures beginning in 4Q:22 and lasting through 2023

·     Healthcare Services; ONEM agreed to be acquired by AMZN for $18 per share, in deal valued at about $3.9B including debt https://bit.ly/3vsqXCf (shares of TDOC, AMWL fell in sympathy on competition fears); in animal health, ZTS removed from conviction list at Goldman and lower price Target to $202 as acknowledge increased risk to companion animal growth from declines in US vet traffic; IDXX upgraded to Buy at Goldman Sachs with a $435 12-month price Target (15% upside) as see an opportunity to own a high-quality long-term earnings compounder at a valuation that is now back below its 2015-2019 average; ELAN double downgrade to Sell at Goldman and cut tgt to $19 from $32 as think ELAN shares could underperform peers as expect lower revenue growth and margin expansion than is contemplated in the co’s long-term targets

·     Housing & Building Products; TPH Q2 EPS $1.33/$1B vs. est. $1.20/$997.3M; DHI Q3 EPS $4.69/ $8.8B vs. est. 44.49/$8.99B and cuts FY22 revenue view to $33.8B-$34.6B from prior view $35.3B-$36.1B and sees homes closed between 83,000 and 85,000 homes; Morgan Stanley reduced ZG estimates and PTs to reflect growing housing market uncertainty and downgrade COMP to EW given profitability and execution concerns – prefer Z given its strong balance sheet, margin profile, top of funnel positioning, and positive cash flow.

Stock GAINERS

·     AA ; reported better-than-expected 2Q’22 results, repurchased ~1.6% of shares outstanding for ~$275m and authorized an additional $500m buyback program

·     DHR +8%; Q2 adj EPS $2.76 vs. est. $2.35; Q2 revs $7.75B vs. est. $7.3B; for q3 2022, company anticipates that non-Gaap base business core revenue growth will be in high-single digit percent range; posted strong life science results (lifts A, WAT early)

·     LVS +4%; posted a wider-than-expected Q2 EPS loss (34c vs. 26c est.) but revs of $1.05B topped views – also helped by news Macau was looking to reopen this weekend following nearly two weeks of Covid-related closures

·     ONEM +67%; agreed to be acquired by AMZN for $18 per share, in deal valued at about $3.9B including debt https://bit.ly/3vsqXCf

·     PM +5%; topped consensus marks with its Q2 earnings report as cigarette volume was up 1.1% during the quarter to beat expectations and raised its full-year revenue outlook to 6% to 8% on an organic basis, but lowered its full-year EPS forecast

·     SMCI +13%; raises Q4 EPS view to $2.30-$2.40 from $1.51-$1.69 (est. $1.57); raises Q4 revenue view to $1.58B-$1.63B from $1.40B-$1.48B (est. $1.36B)

·     TSLA +5%; 2Q adj EPS $2.27 vs est. $1.81 on revs $16.9B vs est. $17.1B; qtrly auto gr margin 27.9%; says over multi-year horizon expect to achieve 50% annual growth in vehicle deliveries

Stock LAGGARDS

·     CCL -12%; 102.1M share Spot Secondary priced at $9.95

·     DPZ ; misses estimates for quarterly profit, as Q2 gross margin falls to 36.3% from 39.5% a year earlier and posts a smaller-than-expected -2.9% fall in Q2 U.S. comp sales

·     SAP -4%; trimmed its profit outlook for the year citing charges related to the war in Ukraine as lowered its 2022 adjusted profit outlook to between 7.6B-7.9B euros, from a range of 7.8B-8.25B euros; affirmed its revenue outlook

·     T -9%; 2 adjusted EPS $0.65 vs. est. $0.61; Q2 revs $29.64B vs. est. $29.55B, but cuts FY22 free cash flow view to ‘$14B range from $16B range

·     TDOC -2%; falls on competition fears after AMZN merger news

·     UAL -9%; tumbles as 2Q EPS $1.43 vs est. $1.95 on revs $12.1B vs est. $12.2B; CASM +32%, CASM-EX +17%; qtrly load factor 86.7% vs 72% year ago and reports Q2 capacity down 15% vs. Q2 of 2019 while curbs 2023 growth

·     VERV -12%; prices 8.3M share offering at $27 per share00

·     VLO -8%; among top energy decliners with pullback in oil on as Russia resumed pumping gas via its biggest pipeline Nord Stream 1 to Europe on Thursday after a 10-day outage, and Libya’s National Oil Corp crude production had resumed at several oilfields