Mid-Morning Look

Friday, July 29, 2022

U.S. stocks jump higher out of the gate, looking to close out the month of July with big gains and at the highs, as better earnings results from tech giants Apple and Amazon overshadow weakness in Intel in the chip sector and soft results/guidance in staples sector (PG, CHD fall on results). Markets also overcoming higher inflation readings with monthly PCE data above estimates. Oil prices extend gains, rising over $4 a barrel back above the $100 per barrel level but remain on track for losses in July. No fear in stock markets with the CBOE Volatility index (VIX) at lowest levels since April, down over 20% this month. Pretty hot inflation numbers this morning with 2Q employment cost index up 1.3% m/m and Core PCE up 4.8% y/y – the key metric the Fed watches and wants to see 2%. The June PCE price index y/y rise +6.8% (highest since Jan 1982). University of Michigan sentiment also edges higher, but inflation expectation modestly edged higher. Oil giants CVX and XOM both jump following record earnings results amid rising oil prices. US stocks adding to their monthly advances: coming into the day, the Nasdaq Comp was up over 10% MTD, S&P 500 was up 7.5% MTD, the Dow up 5.7% and the Russell 2000 up 9.6% MTD. The tech rally has been paced by a rebound in semiconductors, with the SOX rising 15%.

Economic Data

·     Personal Income for June rises +0.6% vs 0.5% expected (May was up +0.6%), and spending rose +1.1% vs 0.9% estimate (and vs May +0.3%); June real consumer spending +0.1% vs May -0.3%

·     June overall PCE price index +1.0% vs May +0.6% and June core PCE price index +0.6% above the +0.5% estimate and May’s +0.3%. June PCE price index y/y rise +6.8% (highest since Jan 1982) vs May +6.3% and core PCE y/y rises +4.8% vs. est. +4.7% and May reading of same

·     U.S. Q2 employment cost index (ECI) rose +1.3% above the 1.2% estimate but down from +1.4% in Q1; Q2 wages/salaries +1.4% vs Q1 +1.2% and Q2 benefit costs +1.2% vs Q1 +1.8%

·     University of Michigan surveys of consumers sentiment final July 51.5 vs. consensus 51.1 and above final June 50.0; current conditions index final July 58.1 vs prelim July 57.1 and final June 53.8 and expectations index final July 47.3 vs prelim July 47.3 and final June 47.5

Sector Movers Today

·     Consumer Staples; PG slips as Q2 EPS $1.21 vs. est. $1.22; Q2 sales rose 3% y/y to $19.5B vs. est. $19.4B; expects to buyback $6B to $8B of shares in fiscal 2023; forecasts average fiscal 2023 earnings per share of $5.93, below estimate of $6.02; CL 2Q EPS $0.72 vs est. $0.71 on better sales of $4.48B while sees FY sales higher end of +1-4% vs est. +2.2%, and increases its 2022 organic sales growth expectation to between 5% and 7%, up from a prior range of 4% to 6%; CHD Q2 net sales rose 4.2% y/y to $1.33B, slightly below ests with adj EPS a bit better with organic sales +3.4%; NWL mixed 2Q results (EPS beat sales miss) but guides 3Q sales $2.39B-2.5B below the est. $2.58B, and core sales -1 to -5% and lower year view

·     Chemicals; several earnings results overnight as: CE reported 2Q22 adjusted EBITDA of $744M topping the $705M Street estimate driven by better-than-expected top line growth in Engineered Materials, with Acetate Tow coming in below expectations; CC Q2 adj EPS $1.89 vs. est. $1.43; Q2 revs up 16% y/y to $1.9B vs. est. $1.84B; price was a positive contributor to the improved results; EMN reported 2Q adj EPS of $2.83 above the $2.68 consensus from adjusted EBIT of $469M as stronger pricing across the board helped drive the beat, despite volume/mix headwinds; OLN and LYB other earnings related movers in a busy sector

·     Industrial & Machinery; UBS upgrades Sandvik to neutral from sell, cutting its as sees a balanced risk-reward ratio on the Swedish engineering company; GWW raises FY22 daily growth view to 14.5%-16.5% from 11%-14% and gross profit margin view to 37.2%-37.5% from 36.8%-37.3%; Barnes Group (B) slips after lower guidance for year to $1.90-$2.05 from $2.20-$2.40 prior; MOOGGAAP EPS of $0.03 misses by $1.36, revenue of $773M beats by $10.72M; GTLS lowers FY22 adjusted EPS view to $5.20-$5.60 from $5.35-$6.50 and cuts FY22 revenue view to $1.725B-$1.80B from $1.725B-$1.85B (est. $5.24 and $1.75B)

·     Restaurants; TXRH same-store sales growth of 7.6% ahead of the Street and included (0.8%) traffic, 7.4% price and 1.0% menu-mix with a further 3.9% increase in July against difficult (44.1%) comparisons and forecast commodity inflation of just 9% in 2H22, down from ~14.5% in 1H22; BLMN Q2 EPS $0.68 tops $0.62 estimate on revs $1.125B vs. est. $1.105B and comp restaurant sales fell (-0.4%) with Outback Steakhouse down 1.1%, Carrabba’s Italian Grill down 1% and Fleming’s Prime Steakhouse & Wine Bar up 6% – raises year rev view to $4.4B-$4.45B from $4.35B-$4.4B prior but EPS lower; WING downgraded from Buy to Hold at Stifel following the 20% appreciation in the stock following the 2Q earnings release while have a favorable view of the company’s near-term sales outlook and longer-term growth prospects; YUMC 2Q adj EPS $0.20 vs est. $0.00 on revs $2.13B vs est. $2.18B; comps -16%; says entering 3Q gradual recovery

Stock GAINERS

·     AAPL +2%; June Q results were better than feared, as iPhone & Services upside offset Mac/iPad supply constraints & Wearables declines and Sept Q rev guidance (for MSD% Y/Y) conservative

·     AMZN +12%; Both top- and bottom-line results came in above consensus; AWS, third-party seller services, physical stores, and advertising services were bright spots in the quarter; 3Q guidance beat on the top-line while missing on the bottom-line due to investment in AWS

·     CVX +6%; Q2 adj EPS $5.82 tops the est. $5.10 and Q2 revs $68.76B above est. $59.29B, while raises top end of annual buyback guidance to $15B

·     DECK +8%; strong beat and raise mainly driven by stronger revenue growth (+$0.15) and resulting SG&A leverage (+$0.32) as HOKA was the standout brand, growing +55%

·     MRNA +2%; announces new supply contract with the U.S. Government for an initial 66 million doses of a Moderna bivalent COVID-19 booster vaccine with options for U.S. Government to purchase up to an additional 234 million doses

·     SRPT +7%; said it intends to file TS gene therapy for Duchenne muscular dystrophy to the FDA, seeking accelerated approval

Stock LAGGARDS

·     AVYA -54%; after guiding Q3 revs $575M-$580M, down from prior view of $685M-$700M, initiated cost-cutting measures and said prior financial guidance should no longer be relied upon

·     BABA -8%; extending declines following reports of Chinese billionaire Jack Ma’s plans to cede control of financial technology firm Ant Group to move away from affiliate Alibaba

·     BHC -10%; adds to yesterday losses, after falling -41% Thursday following the adverse lower court ruling in the Xifaxan patent case

·     CRI -3%; guides year sales $3.25B-$3.3B vs. est. $3.52B and lower EPS outlook as well after posted a miss on to/bottom line for Q2

·     DXCM -5%; as Q2 EPS $0.17 misses est. $0.19; Q2 revs rose 17% to $696.2M vs. est. $698.6M; sees FY22 revenue $2.86B-$2.91B below consensus $2.92B

·     EW -7%; as 2Q total revenues fell short of consensus ($1.37B vs $1.40B) and came in at the low end of guidance, driven primarily by underperformance in the all-important TAVR franchise

·     INTC -9%; as EPS missed by about $0.40 per share and revs more than $2B miss, while cuts FY22 adj EPS view to $2.30 from $3.60 and below consensus $3.42

·     PG -5%; as Q2 EPS $1.21 vs. est. $1.22; Q2 sales rose 3% y/y to $19.5B vs. est. $19.4B; expects to buyback $6B to $8B of shares in fiscal 2023; forecasts average fiscal 2023 earnings per share of $5.93, below estimate of $6.02

·     ROKU -23%; as reported 2Q revenues and Adj. EBITDA below consensus; provided 3Q guidance for revenue, gross profit, and Adjusted EBITDA well below consensus and withdrew its full-year 2022 revenue growth guidance (of +35%) pointing to macro uncertainties

·     TTD -4%; after its Chief Data Officer Michelle Hulst steps down