Mid-Morning Look

Tuesday, October 11, 2022

U.S. stocks on track for a 5^th straight day of losses with more aggressive broad-based selling pressure on the open, led again by high-growth tech (Nasdaq underperforms again below 10,400, down over 32% YTD and SOX down -42% YTD), while defensive consumer staples the only sector outperformance. Energy falls sharply a second day after massive gains last week on surging oil. Major averages trading near their lowest intraday levels in more than two years as risk appetite remained subdued ahead of several key market catalysts this week: inflation data, minutes from the Federal Reserve’s September meeting, and the start of third-quarter earnings season, set to begin later in the week. Treasury yields jump with the 10-yr hitting highs around 4% overnight before paring gains as all eyes on PPI inflation data tomorrow and CPI on Thursday, with investors hoping for any signs of decelerating inflation. The FOMC along with other central banks around the world maintain their “hawkish” rate hike rhetoric, crushing investor sentiment along the way as major averages remain on track for one of their worst annual market returns in history. Lot of news on the day below, ahead of earnings start this week.

Sector Movers Today

·     Semiconductors: Heavy selling overnight again in semiconductors carried over into today on indications of weakening demand as Gartner’s Q3 PC update showed historic YoY unit declines (prelim PC data from Gartner (down -19.5% y/y) and IDC (down -15% y/y) indicates a sharp decline in unit shipment in 3Q22) and 2) the White House restrictions that were announced last week; KLAC this morning said they would be cutting off the sale of certain semi products/services to various different semis to comply w/ the WH order; in research, MRVL upgraded to Overweight at Wells Fargo as think a healthy amount of pessimism is priced in; and downgraded shares of QRVO (tgt to $85 from $130) and SWKS ( tgt to $95 from $130) from OW to EW

·     Hardware, Components & Services: latest Gartner data showed worldwide shipments of PCs sank 19.5% YoY to 68M units in Q3’22; HPQ saw units plunge ~28% while DELL was ~in line w/ cons (-21.1%) and AAPL fared bit better (-15.6%); back to school sales disappointed despite massive promotions and price drops due to a lack of need (many clients purchased new PCs in the last two years); on the business side, geopolitical and economic uncertainties led to more selective IT spending, and PCs were not at the top of the priority list; for AAPL KeyBanc raises revenue ests for Apple’s iPhone business on CC data, saying the demand for high-end smartphones is increasing the average selling price while noting that the tech giant has an additional week of sales this quarter; reit OW, $185 PT; Evercore ISI downgraded CIEN, FFIV, RXT to in-line from OP

·     Retailers: mattress industry supplier LEG lowers full-year guidance and announces recent acquisitions; said full year 2022 sales guidance lowered to $5.1-$5.2B from prior $5.2B-$5.4B (est. $5.32b) and 2022 EPS guidance reduced to $2.30-$2.45 from prior $2.65-$2.80 (es.t $2.71) – shares of mattress retailers TPX, SNBR, PRPL active on guidance); LULU upgraded to overweight from neutral at Piper, noting the company’s momentum in the broker’s Spring 2022 Taking Stock with Teens survey; ANF’s Hollister Co. is rolling out a new system that lets shoppers pass their carts to someone else for payment – as the system, called Share2Pay, aims to smooth over a common point of friction for online Hollister shoppers; BSET rises after CSC Generation Holdings Inc. offered to buy the company for $21 a share; the National Retail Federation expects imports at the country’s big ports to fall 9.4% on year in October while further declines of 4.9% and 6.1% are expected for November and December, respectively.

·     Consumer Staples: ELF upgraded to Overweight from Neutral at Piper and price target $46 from $35; in beverages, Wedbush initiated in non-alcoholic names with KDP named Top Pick; KO and PEP Also Rated Outperform and rate MNST and CELH Neutral saying they are bullish on soda, snacks, and coffee; cautious on competitive dynamics in energy. In alcoholic beverages, Wedbush initiated STZ Top Pick; MGPI and NAPA also rated outperform and neutral on BF; BTOG said investor sentiment in BYND appears to be at an all-time low as the company burns through cash and has recently lost key executives less than a year after they joined; APRN said its meal kits were not available for purchase through AMZN in the U.S., without a subscription

Stock GAINERS

·     AAL ; said it expects to post Q3 revenue 13% higher than in the same quarter in 2019 (had previously guided for quarterly revenue to increase by 10% to 12% from 2019 levels)

·     ALBO +16%; reports positive topline data from phase 3 trial of Bylvay® (odevixibat) in Alagille syndrome as sees highly statistically significant improvement in pruritus primary endpoint

·     AMGN +5%; upgraded to overweight from equal weight by Morgan Stanley, which highlighted the unappreciated upside in the biopharma’s mid-term pipeline

·     APRN +2%; said its meal kits were not available for purchase through AMZN in the U.S., without a subscription

·     COIN ; announced a new, long-term strategic partnership with GOOGL to better serve the growing Web3 ecosystem and its developers

·     DICE +58%; as reported positive topline data from its Phase 1 clinical trial of DC-806, an oral small molecule antagonist of the pro-inflammatory cytokine IL-17

·     FORG +48%; shares surge after agreeing to be taken private by Thoma bravo for $23.25 per share, in deal valued at $2.3B in cash https://on.mktw.net/3MmXoJi

·     JOBY +4%; as DAL invested $60M in air taxi startup JOBY for a 2% equity stake as partnership to initially offer passengers air taxi transport to and from airports in New York and Los Angeles

·     LULU +1%; upgraded to overweight from neutral at Piper, noting the company’s momentum in the broker’s Spring 2022 Taking Stock with Teens survey

·     SPNE +5%; OFIX said it agreed to combine with SPNE in an all-stock merger of equals. Under the terms, shareholders of SeaSpine will receive 0.4163 shares of Orthofix for each share of SeaSpine owned. Orthofix shareholders will own about 56.5% of the combined company, while SeaSpine investors will hold a roughly 43.5% stake. https://bit.ly/3rHJB6N

Stock LAGGARDS

·     KLAC -4%; will cease offering some supplies and services to China-based customers including South Korea’s SK Hynix in compliance with recent U.S. regulations, Reuters reported

·     LEG -8%; lowers full-year guidance and announces recent acquisitions; said full year 2022 sales guidance lowered to $5.1-$5.2B from prior $5.2B-$5.4B (est. $5.32b) and 2022 EPS guidance reduced to $2.30-$2.45 from prior $2.65-$2.80

·     NOG -9%; said it will buy non-operated interests in Northern Delaware Basin from private seller for $130M in cash and is offering privately $350M convertible bonds due 2029

·     RBLX -5%; initiated with an Underweight with PT $20 at Barclays

·     SPWR -10%; downgraded to Underperform from Neutral at bank America, and cut tgt to $18 from $22 as sees underappreciated risks of panel supply

·     UBER -12%; the New York Times reported a proposed rule that would make it harder for companies to classify workers as independent contractors (negative for likes of UBER, LYFT, DASH) https://nyti.ms/3COGwrO

·     ZM -3%; downgrade from Overweight to Equal Weight w/ $90 PT (from $130) at Morgan Stanley saying current valuation is more sensitive to direct business performance, where they do not expect improvement until next year