Mid-Morning Look

Friday, November 04, 2022

U.S. stocks looking to snap a 4-day losing streak for the S&P 500 and Nasdaq after a very volatile start to the day, and end to the week. Stocks opened by around 2% after a monthly jobs report that had something for Bulls and Bears, as well as positive China headlines overnight. Stocks quickly reversed lower with the Nasdaq falling as much as 200-points off opening highs in a quick bout of profit taking. However, prices rebounded quickly, led by Energy, Industrials, Materials and Consumer Discretionary. The dollar tumbles 1.7%, a 200-bps move off overnight highs, giving a further boost to stocks and commodity prices (oil, gold, industrial metals surging). Markets helped overnight after former Chinese disease control official Zeng Guang told a conference hosted by Citigroup the country will make substantial changes to its “dynamic-zero” COVID-19 policy in coming months (Reuters reported). Also, Bloomberg reported overnight that China may soon further shorten quarantine requirements for inbound travelers. The headlines sent Asian markets soaring (Hang Seng +5%) and boosted commodity related prices and stocks (aluminum, copper, gold, etc.). The U.S. dollar index (DXY) pulls back in the context of constructive overall sentiment amid China-COVID rumors/reports and upward PMI revisions in EU. US Treasury yields rises as the short-end of the curve rises more with 2-yr hitting highest since 2007 above 4.75% before paring gains and 10-yr up 4-bps to 4.165% (both lower now). Meanwhile following the black-out period for Fed speakers after the FOMC meeting, Boston Fed President Susan Collins today suggests she is ready to slow the pace of Fed rate increases from here saying fifty basis points used to be a large move and says it’s too soon to say how high rates will need to go. A crazy week with Fed meeting, monthly jobs report, tons of economic data and another 150 S&P names that reported earnings – ahead of midterm elections next week.

Economic Data

·     October Nonfarm payrolls rose +261,000 vs. est. +200,000 vs September +315,000 (upwardly revised from +263,000); October private sector jobs +233,000 also above ests. 200K and September upwardly revised to +319,000; Manufacturing jobs +32,000vs. est. +15,000); Oct. Unemployment rate rises to 3.7% vs 3.5% (est. was 3.65); average hourly earnings rose +0.4% vs. est. +0.3% M/M; labor participation rate fell to 62.2% from 62.3%

Sector Movers Today

·     Restaurants & Consumer Staples: ACI rises after a Washington state court commissioner temporarily blocked a $4 billion dividend that Albertsons had intended to pay its shareholders next week, the WSJ reported; HSY raises 2022 sales growth view to 14%-15% from 12%-14% and raised 2022 adjusted EPS view to $8.20-$8.27 from $8.05-$8.20; MNST posted +15.2% Y/Y sales growth in Q3, ~200 bps below consensus, with int’l markets driving the downside, while US trends were solid at +14.8% (above cons. +13.4%); SBUX posts top-line driven EPS beat and Q4 U.S. comp of 11% was driven by 10% avg. check growth and a 1% increase in transactions while mgmt expects FY23 U.S. SSS growth in the 7-9% range

·     Casinos, Gaming, Lodging & Leisure sector: casino stocks with exposure to Macau rise (WYNN, MLCO, LVS, MGM) after former Chinese disease control official told a conference the country will make substantial changes to its “dynamic-zero” COVID-19 policy in coming months; in food delivery, DASH reported solid 3Q22 results as GOV and EBITDA came in above the high end of guidance while 4Q22 GOV guidance came in above consensus as DoorDash continues to see only a minimal impact to demand from macro; in travel, EXPE Ebitda beat expectations, though room nights stayed growth in 3Q came in below expectations due to the hurricane in Florida; online gambling site DKNG introduces FY 2023 revenue guidance of a range of $2.8B-$3.0B, which equates to 33% Y/Y growth based on the midpoints of $ 2022 revenue guidance and its FY 2023 revenue guidance; FY 2023 Adjusted EBITDA guidance is a loss of between ($575m) and ($475m)

·     Hardware, Components & Services: NET slips after results attributed to a lower beat and raise of +$4.5M, at the mid-point versus last quarter of +$13M in the 2022 revenue guidance due to a higher level of conservatism; ANET upgraded to Overweight at Piper following earnings and Analyst Day this week; CGNX reported 3Q above the high end of the revenue guide and guided 4Q above Street; DBX reported better-than-expected 3Q22 results on EPS beat, revs of $591.0M, up 7% y/y (up 10% y/y in CC), but down from 8% growth last quarter and ARR of $2.43B up 10% y/y driven in part by pricing and packaging changes; GPRO downgraded at Oppenheimer after reported decent 3Q22 results despite a challenging macro environment, but significantly reduced its Q4 and FY22 guidance; VIAV drops early on Q1 rev miss and guides 2Q and EPS $0.10-0.12 vs est. $0.24 and net revs $261-281Mm vs est. $332.7Mm

·     Software movers: rough sector after results/guidance as TWLO tumbles due to disappointing Q4 guidance (revs $995M-$1B vs. est. $1.05B), lowering of mid-term revenue guidance to 15-25% with no GM trend, and lack of detail on 2023 Op margin; TEAM tumbles following results amid a slowdown in subscription billings, in-line revenue result, miss in cloud and guided cloud down of +50% to 40-45%, and Q2 guide miss by 3%; BL reports GAAP EPS of $0.21/$134.3M vs. est. $0.09 but revs decelerated from 26% last quarter, subscription revenue growth of 22%, down from 27% last quarter; APPN shares fell as FX weighed on 3Q but cc revenue and cloud sustained at least 30% growth.

Stock GAINERS

·     AUY +17%; after PAAS and AEM deliver binding offer to acquire the company valued at nearly $5B https://on.mktw.net/3FLAsCq

·     BABA +6%; strength across the board for US listed China stocks, those exposed to Macau gaming region after former Chinese disease control official told a conference the country will make substantial changes to its “dynamic-zero” COVID-19 policy in coming months (Reuters reported) – shares of BIDU, PDD, JD, NTES, MLCO, WYNN, TCEHY rise

·     BNTX +7%; with partner PFE after saying new data from a Phase 2/3 trial showed that the booster for companies’ omicron BA.4/BA.5-adapted bivalent COVID-19 vaccine demonstrated a “robust neutralizing immune response” after one month

·     COIN +9%; reported weaker than expected Q3/CY22 results with lower trading volume, reflecting continued crypto related headwinds, but reiterated operating within 2022 adj. EBITDA loss of ($500MM) – said subscription and services revenue grew 43% Q-Q

·     DASH +11%; reported solid 3Q22 results as GOV and EBITDA came in above the high end of guidance while 4Q22 GOV guidance came in above consensus

·     EOG +6%; on spike in oil prices and as Q3 EPS beat, says it has improved its competitive advantage by adding a new position in Utica shale basin, increased its quarterly dividend by 10%, and declares special dividend of $1.50 per share

·     FCX +12%; commodity prices and stocks getting boost (AA, CLF, etc.) after China Covid headlines

·     MTZ +15%; reported adj. EPS of $1.34, which beat guidance of $1.29 and consensus of $1.27 while adj. EBITDA coming in roughly in line as Power Delivery reported a healthy beat on margins

·     PODD +16%; announced impressive Q3’22 results which exceeded expectations on the top and bottom lines and guidance for the year was raised

·     SBUX +9%; posts top-line driven EPS beat and Q4 U.S. comp of 11% was driven by 10% avg. check growth and a 1% increase in transactions while expects FY23 U.S. SSS growth in the 7-9% range

·     SQ +16%; delivered better than feared Q3/CY22 results (reduced S&M expenses), featuring mixed performance at CashApp, while Seller’s growth remains stagnant

Stock LAGGARDS

·     APLS -15%; announced they will now include 24-month data from the DERBY/OAKS studies of pegcetacoplan. This move is expected to trigger a major amendment and will push out the PDUFA date by three months – shifting now to 2/26/23

·     AXL -12%; cut its full year forecast for adjusted Ebitda and said it is “not engaged in any discussions to sell the company” and that it’s not otherwise for sale

·     CDNA -13%; after Q3 rev miss $79.3M vs. est. $82.6M and cuts FY22 revenue view citing lower Q3 revenue and a higher than anticipated shift in payer mix to commercial payors; shares down -10%

·     CVNA -10%; 3Q results and 4Q commentary came in below consensus,

·     DKNG -20%; sees FY23 adj Ebitda loss of (-$475M-$575M), worse than the consensus estimate of a loss of (-$426M) and says it continues to be confident that it will achieve positive adjusted Ebitda in 4Q 2023

·     FNKO -48%; downgraded at both Truist, and JPMorgan after Q3 miss and lower guidance as see a challenging near-term setup for the stock with valuation handcuffed until there is more visibility on the earnings outlook for 2023

·     SYNH -45%; after Q3 EPS $1.23 missed the $1.32 estimate and revs of $1.34B light of expectations $1.37B – said Q3 clinical solutions reported revenue decreased 3.5% and trimmed year guidance

·     TEAM -26%; tumbles following results amid a slowdown in subscription billings, in-line revenue result, miss in cloud and guided cloud down of +50% to 40-45%, and Q2 guide miss by 3

·     TWLO -32%; due to disappointing Q4 guidance, lowering of mid-term revenue guidance to 15-25% with no GM trend, and lack of detail on 2023 Op margin