Mid-Morning Look

Tuesday, March 07, 2023

U.S. stocks slipped following the text release of Fed Chairman Powell testimony in Washington DC where he said “if the totality of the incoming data indicates that faster tightening is required, we are prepared to accelerate rate hikes”. Also said, “the latest economic data stronger than expected, particularly inflationary pressures…to get inflation back down to 2% need lower inflation in core services ex housing and very likely some softening in labor market.” The comments come as Federal Reserve Chairman Powell heads to Capitol Hill today to testify before the Senate Banking Committee for his semi-annual Monetary Policy update. Following his comments, the dollar spiked along with Treasury yields as the 10-yr yield jumped to 3.99%, while shorter term yields a bigger jump with 2-yr up 7bps to 4.965%, the 1-yr up 4.5bps to 5.10% and 6-month up 9.4bps to 5.24%. Chances of a 0.5% hike in two weeks has jumped to 43% now according to latest futures outlook. Markets hanging on every word this morning, while the upcoming jobs data this week (ADP tomorrow, jobless claims, JOLTs Thursday and Nonfarm Friday), will play a big part in this week’s market action.

Economic Data

·     U.S. Jan wholesale inventories unrevised at -0.4% (consensus -0.4%); U.S. Jan wholesale sales +1.0% (consensus +0.1%) vs dec -0.2% (prev unchanged); and U.S. Jan stock/sales ratio 1.34 months’ worth vs dec 1.36 months.

Sector Movers Today

·     Consumer Staples: In specialty food earnings: CVGW shares slide as 1Q adj EPS loss ($0.08) vs est. $0.24 on revs $226.2Mm vs est. $270.6Mm and sees FY23 prepared segment gross margin in fresh cut division at/near low end of 10-12% range; DOLE said Q4 revs revenue rose to $2.36B from $2.25B y/y and above ests $2.27B as higher prices on everything lifted results; Q4 adj EPS $0.09 vs. est. $0.06; volume of bananas sold fell while the pineapple sales volume rose in core markets. KDP CFO bought another 50k shares on Thurs/Fri (filing showed 50K shares @ $34.39 for total buy of $1.719M), which is in addition to the 20k he bought on Feb 27th.

·     Autos: RIVN shares slip on plans to sell bonds worth $1.3 bln; said initial investors will get an option to buy an additional $200 mln of bonds for settlement 13 days after the bonds are issued. The average monthly payment for a new car has increased to a record $777, nearly doubling from late 2019, according to Kelley Blue Book owner Cox Automotive. In used car data (KMX, CVNA): Wholesale used car auto prices jump 4.3% in Feb. according to the Mannheim Used Car Index. Third straight month where used prices have climbed. Still below the record highs of early ‘22…but the tight supply is pushing up prices again.

·     Strength in social media names again (SNAP, META) ahead of New bipartisan Senate TikTok bill that will be unveiled. A highly anticipated bipartisan Senate bill to give the President the authority to respond to threats posed by TikTok and companies like it will be unveiled Tuesday afternoon by Senate Intelligence Committee Chairman Mark Warner – CNBC. META rises early after reports that the co is planning another round of layoffs as soon as this week, Bloomberg reported; comes on top of the 13% workforce reduction from November.

·     In software: CRM announces Einstein GPT, the world’s first generative AI for CRM. DOMO announced a series of changes to the executive team, including founder Josh James stepping back into the role as CEO and reported overall better-than-expected Q4 results, including total revenue of $80M, up 14% y/y (est. $77M) EPS and op margin, but billings of $104M, down 3% y/y (vs. est. $107M). GWRE reported F2Q constant currency ARR ahead of consensus estimates ($707M up 14% y/y vs. $699M) and investor expectations (<$5M beat) revs up 14% y/y to $232.6M vs. est. $223.2M) though sub revs of $86.0M, up 37% y/y, was a deceleration from 38% growth last quarter. SE shares rise after posted a surprise quarterly profit of $422.8 million, on revenue of $3.5B. TEAM discloses rebalancing of resources, elimination of ~5% of current workforce.

Stock GAINERS

·     DKNG +1%; upgraded to Buy with $22 tgt at Argus as expects DraftKings’ revenue to increase to $3.1B in 2023 from $323M in 2019 as more states legalize online sports betting and consumers allocate more of their income to wagers.

·     DKS +8%; posts Q4 EPS and revs above views ($2.93/$3.6B vs. $2.88/$3.45B), n better comp sales (+5.3% vs. 2.5% est.), doubles its dividend to $4.00, guides annual EPS above estimates ($12.90-$13.80 vs. est. $12.03) and forecasts flat to 2% FY comp sales growth.

·     FSTX +15%; as buyer Sino Biopharma gains CFIUS approval https://bit.ly/3YszdgX

·     META +1%; after reports that the co is planning another round of layoffs as soon as this week, Bloomberg reported; comes on top of the 13% workforce reduction from November, equivalent to some 11,000 employees.

·     PTGX +21%; after announces positive topline results for phase 2b FRONTIER 1 clinical trial of Oral IL-23 receptor antagonist JNJ-2113 (PN-235) in psoriasis.

·     SE +12%; after posted a surprise quarterly profit of $422.8 million, on revenue of $3.5 billion.

·     SQSP +9%; after reported Q4 results and issued revenue outlooks for Q1 and 2023 that both topped analyst expectations (guides Q1 revs $232M-$234M vs. est. $227.3M and FY23 revs $955M-$970M vs. est. $949.4M).

·     TDUP +31%; reported 4Q22 Revenue and EBITDA ($ and margin) better than expected while guidance for 1Q23 and 2023 revs -1%/+9% respectively, above Street expectations of -6%/-4%.

·     WW +34%; as reported Q4 results, provided guidance for Q1 (both slight misses), and announced plans to acquire Sequence, a subscription telehealth platform offering access to healthcare providers specializing in chronic weight management for $106M.

Stock LAGGARDS

·     BB -11%; guides prelim 2023 revs of $656M vs. est. $674.7M and sees prelim Q4 revs $151M vs. est. $168.5M; said macro challenges a key factor for BlackBerry’s Cybersecurity business unit.

·     CARA -27%; as Q4 revenue missed estimates ($3.26M vs. $16.3M est.) and reported a wider- than-expected EPS loss of (-0.56), as kidney disease drug Korsuva generated only $1.1M in 4Q22 revenues to CARA ($2.3M net sales; profit/loss share with partner Vifor), below views.

·     CVGW -20%; as 1Q adj EPS loss ($0.08) vs est. $0.24 on revs $226.2Mm vs est. $270.6Mm and sees FY23 prepared segment gross margin in fresh cut division at/near low end of 10-12% range.

·     DXC -2%; after the close last night announced that it was approached by a financial sponsor regarding a potential acquisition of the company, engaged in preliminary discussions, but no formal proposal was received by the company and DXC has terminated the discussions.

·     JOBY -7%; downgrade from Hold to Sell at Deutsche Bank and cut tgt to $4 from $6 saying they believe there are important risks being overlooked by the market and Joby’s premium valuation is too lopsided relative to peer Archer.

·     KEY -2%; after saying it sees 2023 net interest income rising between 1% and 4%, less than its prior guidance of up 6% to 9%.

·     NTNX -6%; after delaying 10-q filing amid an investigation into its use of third- party evaluation software, but guided Q2 prelim revs $486.5M vs. est. $465M; and raises fiscal year 2023 revenue and ACV billings guidance to $1.8B-$1.81B and $905M-$915M.

·     RIVN -9%; slip on plans to sell bonds worth $1.3 bln; said initial investors will get an option to buy an additional $200 mln of bonds for settlement 13 days after the bonds are issued.

·     THO -5%; Q2 net sales fell -39.4% to $2.35B, below ests $2.41B on weaker EPS ($0.50 vs. $0.96) and margins while cuts 2023 consolidated net sales to $10.5B-$11.5B range (vs. prior $11.5B-$12.5b) and EPS to $5.50-$6.50 from $7.40-$8.70.