Mid-Morning Look

Friday, July 22, 2022

Stocks mixed in volatile trading. The massive “risk-on” appetite continued initially with stock markets jumping on the open as major averages look to close out a stellar week much higher than where it started. However, a dire manufacturing report at 9:45 subdued the mood if you will, after U.S. PMI manufacturing data crashed into contraction territory in July, raising fears of a deterioration in the economy. July U.S. PMI Composite Index (Flash) was 47.5 vs. 51.2 in June; and Services PMI down at 47.0 vs. 52.6 expected and 52.7 previously. Following the data, Treasury yields dumped further (were already down prior), with the 10-yr hitting lows below 2.74%, falling over 16-bps before paring losses, while remains inverted against the 2-yr, which was down -13 bps t0 2.96%. The dollar dropped as well, lifting commodity prices including precious metals. Markets in a conundrum, as the Fed is still expected to raise rates by 75-bps next week (lower odds for 100-bps), but odds for more aggressive hikes in September have pared back given the recent downturn in economic data. Overall, not a great morning for earnings with disappointing earnings/guidance from SNAP, TWTR in social media, VZ in Telecom (after AT&T lower guide yesterday), STX in chip space, SAM in beverages, SIVB in banking, COF in cards, ISRG in MedTech – but was offset by better spending/outlook from AXP in credit cards and better hospital results (HCA THC). Next week the busiest week of quarter for S&P earnings.

U.S. stocks came into today at 6-week highs, with the S&P 500 topping the 4,000 level after topping its 50-day MA of 3,922 earlier this week, the Nasdaq reclaiming the 12,000 level this week (up 9.4% for July so far, its best month since Nov 2020) and general upward momentum this week. Coming into today, the S&P 500 is up 3.5% WTD, the Dow +2.4%, the Russell 2000 +5.2% and the Nasdaq +5.3%, led by a whopping 8.2% gain in the semiconductor index.

Economic Data

·     Much weaker data, raising expectations the Fed will ease back on aggressive rate hikes: July U.S. PMI Composite Index (Flash): 47.5 vs. 51.2 in June; Manufacturing PMI: 52.3 vs. 52.0 expected and 52.7 prior; Services PMI: 47.0 vs. 52.6 expected and 52.7 previously

Sector Movers Today

·     Internet movers: SNAP tumbles 30% after a top and bottom line miss for Q2 and said it is not issuing guidance for Q3 growing just +13% y/y, the lowest on record – Adjusted Ebitda fell -94% y/y to $7.19M, while daily active users of 347M did beat the 343.2M estimate (shares of TWTR, SPOT, META, GOOGL among names falling in sympathy initially); TWTR misses quarterly results as Adj EPS loss was ($-0.08) vs. est. $0.13 on revs $1.18B vs. est. $1.319B and ad revenue $1.08B below est. $1.23B with Q2 Average Monetizable DAU 237.8M vs. est. 237.5M; Barron’s speculated that GOOGL and AMZN could replace DOW and TRV in the Dow Jones Industrial Average after their respective recent stock splits.

·     In Chemicals; SMG was downgraded from Buy to Neutral wat UBS and cut tgt to $92 from $125 as believe limited top/bottom line recovery coupled with a levered balance sheet will keep shares range bound until the next lawn & garden season; in coatings, PPG 2Q EPS $1.81 vs est. $1.73 on revs $4.7B vs est. $4.6B; guides 3Q adj EPS $1.75-2.00 vs est. $2.05 with aggregate sales volumes flat to down low-single-digit %

·     Consumer Finance; COF reported higher revenue and net income slightly above analysts’ expectations for Q2 but EPS of $4.96 missed the $5.09 analyst estimate and non-interest income fell short of analysts’ expectations as well $1.72B vs. $1.75B est. (follows weaker results from DFS the day prior); DFS downgraded to Underweight at Citigroup due to increased uncertainty surrounding its newly announced independent internal investigation into its student loan servicing practices; AXP raises FY rev outlook to +23% to +25% up from prior +18% to +20% after better Q2 revs of $13.4B vs. est. $12.51B while reaffirms EPS views – said revs driven in large part by travel and entertainment spending returning to pre-pandemic levels – still boosted its reserve for credit losses by $410 million

·     Pharma movers; AUPH reported a positive CHMP opinion for Lupkynis (voclosporin) for the treatment of adults with active lupus nephritis in Europe; VRTX advances VX-548 in acute and neuropathic pain into pivotal development for people with acute pain; Phase 3 program to initiate in Q4 2022 – Phase 2 dose-ranging trial in neuropathic pain expected to initiate by year end; VTGN said its experimental drug, PH94B, failed to meet the main goal in a late-stage trial

Stock GAINERS

·     AUPH +2%; after the company reported a positive CHMP opinion for Lupkynis (voclosporin) for the treatment of adults with active lupus nephritis in Europe.

·     AXP +4%; raises FY rev outlook to +23% to +25% up from prior +18% to +20% after better Q2 revs of $13.4B vs. est. $12.51B while reaffirms EPS views

·     HCA +13%; beats revenue estimates for the second straight quarter, with revenue of $14.82B above $14.7B estimate and posts Q2 profit beat of $4.21 vs. est. $3.90

·     SLB +6%; reported a top and bottom-line beat ($0.50 vs. est. $0.40 and revs $6.8B vs. est. $6.28B) as logged higher revenue in both its international and North American markets, driven by higher activity and improved pricing

·     THC +9%; posted mixed qtrly results as EPS beat ($1.50 vs. est. $0.82) while revs fell short of consensus but issues year guidance where the mid-point is above views $5.80-$7.00 vs. est. $6.15

Stock LAGGARDS

·     APPS, PUBM, TBLA, TTD; as tech names decline following the SNAP results on ad spending slowdown concerns

·     COF -5%; reported higher revenue and net income slightly above analysts’ expectations for Q2 but EPS of $4.96 missed the $5.09 analyst estimate – non-interest income fell short of analysts’ expectations as well

·     CRSR -3%; issued preliminary results for 2Q, missing expectations as sees Q4 revenue $284M vs. est. $348.9M and sees Q4 adjusted EBITDA loss of $10M to $11M

·     ISRG -3%; after a top and bottom-line miss (2Q adj EPS $1.14 vs est. $1.19 on revs $1.52B vs est. $1.56B and placed 279 Da Vinci surgical systems, a decrease of 15% compared with 328 y/y

·     MU -2%; downgraded to Underweight at Morgan Stanley saying they are seeing material volume weakness in all markets, including hyperscale (also hurt by STX guidance)

·     SAM -8%; as Q2 EPS $4.31 vs. est. $4.43 on weaker margins and cuts FY22 adjusted EPS view to $6.00-$11.00 from $11.00-$16.00 (est. $11.67)

·     SIVB -16%; on Q2 EPS miss ($5.60 vs. est. $7.68), while its provision for credit losses rises to $196M vs. $35M a year ago

·     SNAP -35%; downgraded by at least 7-analysts after a top and bottom line miss for Q2 and said it is not issuing guidance for Q3 growing just +13% y/y, the lowest on record

·     STX -5%; Q4 adj EPS $1.59 below consensus $1.88 and revs $2.63B vs. est. $2.78B while guides Q1 EPS $1.20-$1.60 below est. $2.27 and revs $2.35B-$2.65B also well below consensus $3.03B – shares of peer HDD maker WDC falls in sympathy

·     VZ -6%; posted mostly in-line top/bottom line results though sub adds and guidance disappoint – adds 12,000 net phone subscribers, below Street est. of 150,800 additions while lowers 2022 EPS view to $5.10-$5.25 from prior $5.40-$5.55 view and lowers wireless rev growth view as well