Mid-Morning Look

Tuesday, October 25, 2022

U.S. stocks open higher and have since pushed to the best levels since Sept 21^st for the S&P, led by strength in technology with the Nasdaq outperforming early ahead of key earnings results tonight from MSFT and GOOGL. U.S. stocks booked their highest close in more than a month on Monday, having advanced during four of the last six sessions. The Dow Jones Industrial Average (best month since Nov ’20) and Dow Transports both up more than 9% so far this month. Very little new overnight on the macro front as today’s focus remains on earnings. US stocks remain on track for their first positive month since July, heading into mid-term elections in a few weeks and as Fed rate hike cycle appears a bit clearer – 75 basis point hike next month – between 25-50 bps in December, but some Fed officials in recent days (Daly) have now taken a bit more of a “wait and see” approach before continuing the aggressive hikes which has eased market concerns for the moment. Treasury yields seeing their first meaningful decline in weeks, with the 10-yr down to 4.08% and the dollar index (DXY) hitting 2-week lows. Economic data this morning showing more weakness – helping boost the cause for a potential “pause” in coming months from the Fed as higher rates appear to have slowed the economy a bit.

Economic Data

·     Case-Shiller August 20-city home price index decelerates to 13.1% year-over-year gain from 16% in prior month; 20-city home price index falls 1.3% in August

·     Richmond Fed composite manufacturing index -10 in Oct vs 0 in Sept and manufacturing shipments index -3 in Oct vs +14 in Sept

·     U.S. consumer Confidence for Oct reported at 102.5, below estimates of 105.9 and down from prior month of 107.8; expectations down to 78.1 vs. 79.5 prior (rev down from 80.3) while present situation fell to 138.9 vs. 150.2 prior (rev up from 149.6)

Sector Movers Today

·     Healthcare Services: MEDP shares jump after Q2 came in well above consensus expectations and raised its top and bottom-line full year 2022 guidance, while also guided 2023 revenue and EBITDA that are significantly above our estimates that were near Street; in managed care, CNC raises lower end of its adjusted annual earnings forecast by 5 cents to $5.65 per share, while keeping the upper end at $5.75 but reports marginal increase in its medical costs ratio to 88.3% from 88.1% a year earlier; RBC Capital a sector preview for Healthcare IT, as think fundamentals are stable, improving, or not- as-bad-as-perceived for RCM, SRCL, AGL, CTLT, EVH and HQY and firm urges n-t caution around TDOC and GDRX and downgrade HCAT to Sector Perform

·     Consumer Finance: Credit card debt in the U.S. hits all-time high of $930 billion, per the Federal Reserve; DFS slides after Q3 EPS $3.54 misses the est. $3.77 – NII of $2.84B beat ests but was offset by higher COF, Provision and OPEX, driving the street EPS miss; XM reported better-than expected 3Q headline results particularly with strong income statement metrics against subdued investor expectations; SYF beat on NII, RSA (mainly Gap portfolio), and expenses, partially offset by higher reserve build – 2022 guidance better, biggest benefit being lower RSA (profit share expense) at 5.10% vs prior 5.25%, as well as lower loan losses said MSCO

·     Hardware, Components & Services: CDNS posted better-than-expected 3Q FY22 results (and mostly in-line 4Q22 guide); GLW Q3 results in-line for core EPS but guides Q4 core EPS $0.41-$0.47 below est. $0.55 and guides revs below estimates as well; LOGI shares rally after the co reported op. margin upside and reaffirmed guidance; ANET downgraded to Neutral at Credit Suisse and cut its PT to a street-low $110 from $185 as sees risk Arista will struggle to meet buy-side rev growth expectations in ’23; ADTN issued an upside preannouncement for Q3/Sept; XRX shares tumble as Q3 adj EPS $0.19 misses the $0.40 estimate and revs $1.75B misses $1.77B est. and trims 2022 rev forecast to $7B-$7.1B vs. market estimates of $7.1B

·     Aerospace & Defense: AJRD rises after the U.S. rocket maker whose $4.4 billion sale to LMT was blocked by antitrust regulators in February, is soliciting offers from potential suitors, including private equity firms, according to people – Reuters reported https://bit.ly/3gGfUkf ; RTX Q3 revs $17.0B misses est. $17.21B and EPS better at $1.21 vs. est. $1.14); sees FY adj EPS $4.70-$4.80, from prior $4.60-$4.80 and FY sales $67B-$67.3B, down from $67.75B-$68.75B; HUBB Q3 sales rise and earnings top expectations amid higher demand for its products; KBR, LDOS, BAH favored names in defense/Comm’l services at Stifel as all three are somewhat less reliant on new sources of funding which is where the primary headwinds have been

Stock GAINERS

·     AJRD +5%; the U.S. rocket maker whose $4.4 billion sale to LMT was blocked by antitrust regulators in February, is soliciting offers from potential suitors, including private equity firms, according to people familiar with the matter – Reuters https://bit.ly/3gGfUkf

·     CGC +19%; said it will no longer wait until federal legalization to buy three U.S. cannabis companies amid opportunities to benefit from strong growth in state-by-state cannabis sales

·     CNC +7%; raises lower end of its adjusted annual earnings forecast by 5 cents to $5.65 per share, while keeping the upper end at $5.75 but reports marginal increase in its medical cost ratio to 88.3% from 88.1%

·     GM +2%; reported a higher quarterly profit, and reaffirmed its full-year outlook, but net margin slipped to 7.9%, from 9.0% a year earlier

·     HAL +2%; posted a rise in Q3 profit, wrapping up an upbeat earnings season from the world’s top oilfield services providers on strong demand fueled by higher oil prices

·     KO +1%; Q3 adj EPS $0.60 vs. est. $0.64 and revs $11.1B tops consensus $10.52B; Q3 global unit case volume grew 4%- expects to deliver organic revenue growth of 14% to 15% in FY22

·     MEDP +31%; after Q2 came in well above consensus expectations and raised its top and bottom-line full year 2022 guidance

·     PYPL +6%; after AMZN said it will add venom as payment option ahead of the holiday season

·     SAP +5%; said it remains on track to meet full-year guidance after its cloud business drove faster than expected quarterly revenue growth, +38% to 3.29 billion euros ($3.25 billion) as total revs also topped views

·     UPS +2%; posts adj Q3 profit of $2.99 vs. est. $2.71 as revs in its biggest and e-commerce-dependent domestic unit up 9.8% from a year earlier and reaffirms its FY revenue forecast

·     XM +9%; reported better-than expected 3Q headline results particularly with strong income statement metrics against subdued investor expectations.

Stock LAGGARDS

·     CCK -16%; Q3 adj EPS $1.46 vs. est. $1.77; Q3 revs $3.26B vs. est. $3.3B; cuts FY22 adjusted EPS view to $6.60-$6.70 from $8.00-$8.20 (est. $7.67); sees Q4 adjusted EPS below views

·     CLF -12%; after Q3 EPS of $0.29 misses to $0.55 estimate and adj Ebitda fell -77% y/y to $452M, below the Bloomberg est. $668M and revs drop nearly 6% y/y to $5.65B vs. est. $5.78B

·     CVS -3%; shares fell after CNC awarded PBM contract to CI’s express scripts for 2024

·     GLW -4%; weaker Q3 results as core EPS and revs miss estimates and guides Q4 core EPS $0.41-$0.47 below est. $0.55 and guides revs below estimates as well

·     MMM -1%; Q3 results topped bottom line estimates but cut its full year guidance for the second time in two quarters (down to $10.10-$10.35 from prior $10.30-$10.80, which was below April range of $10.75-$11.25)

·     XRX -24%; as Q3 adj EPS $0.19 misses the $0.40 estimate and revs $1.75B misses $1.77B est. and trims 2022 rev forecast to $7B-$7.1B vs. market estimates of $7.1B