Mid-Morning Look

Thursday, March 02, 2023

U.S. stocks open lower following another round of “hawkish” jobs and labor costs data, pushing Treasury yields to new 2023 highs and bouncing the dollar amid rising expectations the Fed will have to take interest rates much higher than the Street was forecasting to start the year. The S&P 500 has been “battling” key technical levels all week, first falling below its 50-day MA just under 3,980 to start the week; then dropping below its 200-day MA support yesterday of around 3,940, and now the 100-day moving average support at 3,922 remains the next line trying to hold. The S&P 500 declines as big technology stocks whose valuations are sensitive to higher interest rates largely traded down premarket, while the tech-heavy Nasdaq Composite fell around 1% before paring losses. The yield on the benchmark 10-year Treasury note rose to 4.074% after settling Wednesday at 3.994%, its highest closing level since November. Signs that inflation is proving more resilient than hoped, despite tighter monetary policy, are forcing investors to shift their expectations. Tesla (TSLA) shares fell over 5% after its investor day was short on announcements or details, while comments about less silicon carbide use in cars weighed on a handful of select chip makers (ON, STM, WOLF). The Dow jones Industrial Average holding up better than other averages after CRM reported a big beat and raise quarter, lifting shares.

Economic Data

·     Weekly Jobless Claims fell to 190K in the latest week as the jobs market remains strong, below consensus 195K and down from 192K last week; the 4-week moving average rose to 193K from 191,250 prior week and continued claims fell to 1.655M from 1.66M.

·     Nonfarm Productivity for Q4 rose +1.7% vs. +2.6% consensus and below prior 3%; average productivity slid 1.7% in 2022 from a year earlier, marking the largest annual slump in the measure since 1974. Unit labor costs meanwhile nearly tripled from prior reading to 3.2% (from 1.1%) and was double the estimate of 1.6%.

Sector Movers Today

·     Specialty apparel: FNKO shares tumble after Q4 earnings miss, below-consensus guidance as sees Q1 revs $225M-$255M vs. est. $295.6M on unexpected EPS loss vs. est. $0.06. BKE reported net sales for February of $82.5 million vs. $87.9 million y/y. electronic retailer BBY Q4 top and bottom line beat estimates but same-store sales fell -9.3% missing expectations and guided FY24 EPS $5.70-$6.50 on revs $43.8B-$45.2B below est. $6.72/$45.69B; warehouse retailer COST to report tonight; discount retailer BIG 4Q comp -13% while EPS better, 1Q comp guide down L-M teens (a little worse), and no EPS guide given.

·     Consumer Staples: In beverages: BUD reported a fall of 0.6% in total volumes, missing analysts’ expectations of a 2.1% increase though revs rose 10.2% to $14.67 billion, supported by higher selling prices, while net profit rose to $2.84 billion from $1.96 billion in 2021; in food: HRL Q1 sales of $3B misses the $3.1B estimate on weaker EPS (40c vs. 45c) and guides FY GAAP EPS of $1.70 to $1.82 (vs. prior $1.83-$1.93) and below est. of $1.89warning profit to be pressured by supply chain inefficiencies related to higher inventory levels and softness in snack nuts category; UTZ FY23 outlook shows net sales growth of 3% to 5% (est. 4.3%), organic net sales growth of 4% to 6% (est. 4.6%), and adj. EBITDA growth of 6% to 10% (est. 9.0%). Grocers KR and SFM both reported earning that came in above views, with shares jumping for both.

·     In autos: TSLA shares fall -5% following its Investor Day commentary which included Tesla saying they could need to spend nearly $150 billion more (including $28B already spent) to achieve its long-term goals, which includes selling 20 million vehicles a year. CEO Elon Musk commented on sustainable energy but didn’t offer any specifics on new products or service. Ford (F) said US Feb. 2023 sales 157,606, +21.9% y/y.

·     In semiconductors: shares of silicon carbide (SiC) players such as ON, STM, WOLF tumble after Tesla set out plans to significantly reduce the use of silicon carbide in its next generation of powertrains; co said “we’ve figured out a way to use 75% less without compromising the performance or the efficiency of the car.” CRDO reported in-line JanQ at $54.3M and guided its AprQ in line with its recent 8-K at ~ $31M.

Stock GAINERS

·     AEO +3%; topped analysts’ estimates for quarterly revenue at $1.5B, said it expects full-year revenue to be in the range of flat to up low-single digits (est. +3.2%) and said Q4 sales and profit margins were tracking at the high end of its forecasts.

·     CRM +11%; on big Q4 beat and much stronger guidance and hikes its share buyback plan to $20B; sees 2024 adj EPS $7.12-$7.14 vs. est. $5.78 and revs $34.5B-$34.7B vs. est. $34.05B.

·     DV +7%; reported strong Q4 results, with total revenue coming in ahead of consensus and adj. EBITDA above both consensus and the upper end of the guidance.

·     KR +5%; and SFM both reported earning that came in above views, with shares jumping for both in the grocery sector.

·     M +12%; mixed as Q4 better, FY EPS guide is not as light as peers, but Q1 is way below (at $0.42-$0.48 vs. est. $0.82) – guided full year profit $3.67-$4.11 vs. est. $3.84, but sales weaker as sees 2023 sales $23.7B-$24.2B vs. est. $24.29B.

·     NTLA +9%; after announces FDA clearance of investigational new drug (IND) application for NTLA-2002, a Vivo CRISPR-based investigational therapy for the treatment of hereditary angioedema.

·     OKTA +12%; reported FQ4 results ahead of consensus expectations as revenue of $510M grew 33% YoY, cRPO grew 25%, with better-than-expected profitability and cash flow.

·     SIX +5%; said attendance fell 30% to 4.1 million, below the 4.5 million expected but said cost-cutting more than offset the drop in revenue caused by lower attendance.

·     ZUO +6%; on better results as Q4 adj EPS loss (-$0.04) vs. est. loss (-$0.06); Q4 revs $103M vs. est. $100.2M; sees FY24 EPS $0.07-$0.11 on revs $428M-$440M.

Stock LAGGARDS

·     BOX -9%; delivered solid 4Q results, but lower-than-expected revenue guidance reflecting ongoing FX and seat expansion pressure weighed on shares.

·     BX 3%; has defaulted on a 531-million-euro ($562.5M) bond backed by a portfolio of offices and stores owned by Sponda Oy, a Finnish landlord it acquired in 2018, Bloomberg News reported.

·     CANO -28%; after providing a 2023 revenue forecast that fell short of estimates; Q4 EPS loss (-$0.61) vs. est. loss (-$0.13); and sees 2023 total revs $3.1B-$3.25B vs. est. $3.27B.

·     FNKO -23%; after Q4 earnings miss, below-consensus guidance as sees Q1 revs $225M-$255M vs. est. $295.6M on unexpected EPS loss vs. est. $0.06.

·     PSTG -10%; guides Q1 revs $560M, below analysts’ expectations of $605.5M saying current macro uncertainties will continue to persist, creating headwinds to enterprise IT spending.”

·     SI –38%; after saying it is working diligently to file 10-k as soon as possible but does not expect to be in position to file by extension date of March 16.

·     SNOW -9%; reported wider Q4 EPS loss, but adj tops views on better revs, and announces $2B buyback, but guided Q1 revs $568M-$573M below consensus $582M.

·     TSLA -5%; after Tesla’s Investor Day event offered vision but few specifics. CEO Elon Musk commented on sustainable energy but didn’t offer any specifics on new products or service.

·     WOLF -11%; shares fell along with other silicon carbide semiconductors (ON, STM) after TSLA CEO Elon Musk set out plans to significantly reduce the use of silicon carbide (SiC) in its next generation of powertrains.