Mid-Morning Look

Wednesday, May 25, 2022

U.S. stocks jumping after a volatile trading day Tuesday, with investors eagerly awaiting the release of the minutes from the FOMC May meeting, looking for clues surrounding the Fed’s interest-rate policy as it aims to fight high inflation against the backdrop of slowing growth. Lone piece of economic data today was weak as new orders for durable goods rose 0.4% in April, below estimates. Energy prices are higher early, with oil bouncing initially on inventory data while natural gas prices hit fresh 13-year highs above $9.00 per mln BTUs. Treasury yields tumbled this morning but have since rebounded with longer-dated maturities now higher on the day. News flow generally slow outside of a handful of earnings (JWN DKS CAL) in retail and tech later (NVDA BOX NTNX SNOW SPLK tonight). So far, stocks in upward momentum ahead of the minutes, with rebounds in consumer discretionary and weakness in defensive sectors.

Economic Data

·     Durables Goods Orders for April rose +0.4% vs. est. +0.6% and vs. March downwardly revised reading of up +0.6% from +0.8%; April Durables ex-defense orders +0.3% vs. est. 1%; Machinery orders +1.0%, electrical equipment -0.1% and defense aircraft/parts +1.0%; April Durables shipments +0.1% vs March +1.4%

Sector Movers Today

·     E&P and Majors; EQNR said it has exited its Russian joint ventures due to the war in Ukraine, in line with plans first presented on Feb. 27; in research, Barclay’s upgraded FANG to OW from EW based on Q1’22 being the clearing event the stock needed and increasing cash returns in H2’22. They like DVNs Delaware, efficiencies, discipline, and cash return leadership but downgrade to EW based on recent stock outperformance; shares of RRC, SWN, CTRA, CHK outperform in natural gas sector on surging prices

·     Apparel Retailers & Department Stores: JWN boosted its annual profit and revenue forecasts counting on demand from affluent consumers to help it overcome decades-high inflation (revs guided to +6-8% vs est. +5%; board authorized new $500Mm share repurchase program); EXPR Q1 sales rose 30% Y/Y to $450.8M, topping ests $435.3M, raises full year comp sales outlook to +8%-10% and provides outlook for a mid-single digit increase in Q2 comps; BIRD entered into a retail partnership with department store owner Nordstrom; URBN 1Q EPS was below cons. due to lower-than-expected GM and SG&A deleverage on lighter revs $1.5B vs. est. $1.7B; CAL strong beat with EPS $1.32 vs Street at $0.83 and raised the year by the beat on strong footwear; KSS shares popped after Reuters reported bidders competing to acquire Kohl’s are preparing to make binding offers that are lower than the indicative bids they submitted earlier this year to reflect the market downturn https://bit.ly/39VLVRG

·     Housing & Building Products; homebuilder TOL 2Q EPS of $1.85 exceeded consensus of $1.50 per share based on higher-than-expected adjusted gross margins (26.1% vs. consensus of 25.8% and guidance of 25.5%) and slightly higher closings but comment that demand has “moderated” over the past month in terms of post-quarter activity; mortgage rates dip on week as the MBA reported 30-year mortgage rate decreases 3 bps to 5.46%, the mortgage purchase index rises 0.2%, refinancing index falls 3.9%

·     Digital advertising names, which were crushed yesterday due to SNAP negatively pre-announced Q2 yesterday, citing a further and faster deterioration of the macro than they expected when they issued guidance back on 4/21; RBC Capital said today they caught up with 10 public and private ad-tech vendors after Snap negatively pre-announced and said the reaction from the ad-tech vendors spoken to, which included TTD, DV, PUBM, and MGNI was surprise, as not one of the 10 companies has seen an incremental negative impact from a worsening macro since Snap guided on 4/21

Stock GAINERS

·     CAL +22%; strong beat with EPS of $1.32 vs Street at $0.83 and raised the year by the beat on strong footwear

·     INTU +4%; delivered upside to FY3Q expectations and raised full year targets as growth was broad-based across all segments, with Credit Karma growing +48% Y/Y

·     JWN +9%; boosted its annual profit and revenue forecasts counting on demand from affluent consumers to help it overcome decades-high inflation (revs guided to +6-8% vs est. +5%; board authorized new $500Mm share repurchase program

·     KSS +9%; after Reuters reported bidders competing to acquire Kohl’s are preparing to make binding offers that are lower than the indicative bids, they submitted earlier this year to reflect the market downturn https://bit.ly/39VLVRG

·     NOW +4%; held its Analyst Day yesterday where it raised FY24 and FY26 targets from the prior mid-term guidance issued last year

·     PL +9%; after National reconnaissance office announced results of largest-ever commercial imagery contract effort, awarding electro-optical commercial layer (EOCL) contracts to MAXR, BKSY and PL

·     WEN +9%; rises after its largest holder Trian proposed a potential acquisition of the fast-food chain; Nelson Peltz’s Trian Partners disclosed owning a total of 41.6M shares, or a 19.4% stake

Stock LAGGARDS

·     AAPL -1%; Apple’s (AAPL) iPhone development schedule hit by China lockdowns, citing the Nikkei Asia; also, Loop Capital cut tgt to $180 from $210 saying Wall Street’s estimates for iPhones shipped in the June quarter may be too high

·     DKS ; rebounds off lows; reported a top/bottom line beat – EPS $2.85/$2.7B vs. $2.47/$2.59B) on smaller comp store sales decline of (-8.4%), but cut its FY22 adj EPS view to $9.15-11.70 from $11.70-$13.10 (est. $12.56) and cut FY22 comp sales view to (8%)-(2%) from (4%)-flat

·     KR -1%; weakness in defensive food related stocks early

·     TWOU -11%; downgraded to Underweight at Piper amid increased regulatory risk related to revenue sharing arrangements, University partners looking to in-source online program management, and potential pressure from digital learning fatigue and in-person return

·     VRCA -55%; after announced that the FDA has issued a Complete Response Letter (CRL) regarding its New Drug Application for VP-102 for the treatment of molluscum contagiosum