Mid-Morning Look

Friday, October 29, 2021

U.S. major averages are only slightly lower, still not far off recent record highs despite quarterly revenue misses and disappointing guidance from two of the largest companies in the world, as Apple and Amazon shares fall after results last night. Asian equities lose ground for third day but trim worst losses after Nikkei erases 1.2% drop and Chinese shares swing to positive (though U.S. listed Chinese stocks tumble again). Smallcap Russell 200 outperforms today, while industrials help the Dow. Economic data showed U.S. consumer spending increased solidly in September but was partly flattered by higher prices as inflation remained hot. The report came ahead of the Federal Reserve’s policy meeting next week, where it is expected to announce the start of its tapering of monthly bond purchases. In Washington, U.S. President Joe Biden was dealt a setback as the House of Representatives abandoned plans for a vote on an infrastructure bill with progressives seeking more time to consider his call for a separate $1.75 trillion plan for social initiatives. The dollar ticks higher with most currencies rangebound, oil prices on track to snap its 9-week winning streak, precious metals prices are notably lower and Treasury yields tick lower. Overall, the continued resiliency of the broader stock market remains incredible heading into next week’s FOMC meeting.

Economic Data

·     U.S. PCE Core Deflator for Sept rose +0.2% MoM, in-line with ests (prior +0.3%), while core PCE Core Deflator rose +3.6% YoY vs. est. +3.7% (prior +3.6%); PCE Deflator for Sept rose +0.3%, also in-line with ests and overall PCE Deflator +4.4% YoY (in-line).

·     Personal Income for Sept falls a greater -1.0% vs. est. decline -0.3% (prior was +0.2%) and Personal Spending for Sept rises +0.6%, in-line with ests and down from prior month +0.8%; Real Personal Spending Sept rose +0.3%

·     September Chicago PMI reported at 68.4 vs. 64.2 consensus and 64.7 prior

·     University of Michigan surveys of consumers sentiment final Oct 71.7 (vs. est. 71.4) vs preliminary Oct 71.4; current conditions index final oct 77.7 vs prelim oct 77.9 and final sept 80.1; consumers expectations index final oct 67.9 vs prelim oct 67.2 and final sept 68.1;

Sector Movers Today

·     Retailers; AMZN shares slip amid a weaker Q3 as net sales increased 15% YoY to $110.8B, falls short of the $111.55B consensus estimates as operating income declined from $6.2B last year to $4.9B, missing estimates of $4.12B and EPS of $6.12 was below last year’s $12.37 and est. $8.90 – guidance also disappoints as Q4 revs seen $130B-$140B below est. $142.17B and operating income seen $0-$3B below the est. $7.71B; DECK missed on Q2 EPS $3.66 vs est. $4 and sales $721.9M vs est. $765.9M with comps +1% and guiding FY EPS $14.15-15.15 vs est. $15.15; COLM Q3 EPS $1.52 vs est. $1.33 on revs $804.7M vs est. $862M, cut full-year sales outlook to +21.5-23% from +25-26.5% (est. +26.5%), and said it believes it can achieve mid-teens or better sales growth in 2022 vs est. +10%; SKX Q3 EPS 66c vs est. 73c on revs $1.55B vs est. $1.62B, guides Q4 EPS 28-33c below est. 34c, and cut full-year guidance for EPS to $2.45-2.50 from $2.55-2.65 and revs to $6.15-6.2B from $6.15-6.25B; JPMorgan raised their price target on LULU to $570 from $500; Herman Miller (MLHR) is changing its names to MillerKnoll November 1

·     Software movers; ZEN shares slide, downgraded by several analysts (Bofa, Opco, Piper, Jeff) after an agreement to purchase MNTV was met cautiously, saying that the deal is dilutive to Zendesk’s growth and adds uncertainty. Overshadowing solid Q3 results; SSNC beat 3Q21 consensus by $0.12 and raised 2021 adjusted EPS guidance at the midpoint by $0.19; TEAM posted 5% upside as $614M in total revenue grew 34% Y/Y as upside mainly caused by the continued strength in Cloud (+53% Y/Y to $318M) and DataCenter (+68% Y/Y to $111M)

·     E&P and Majors; CVX Q3 adj EPS $2.96 vs. est. $2.21; Q3 revs $43B vs. est. $40.52B; posted net income of $6.11B vs. a loss of $207M a year ago; said Q3 average sales price per barrel of crude oil and natural gas liquids was $58, vs $31 a year earlier; XOM posts adj EPS of $1.58, beating by $0.02 which reflected soaring natural gas prices, improving refining margins and supply shortages that pushed oil prices higher/says buyback program up to $10b over 12-24 months starting 2022 and cap-ex $3.85B, in-line with ests

·     Consumer Staples; KO is nearing a deal to buy a controlling stake in sports drink maker BodyArmor, valuing it at about $8 billion, Bloomberg News reported late Thursday; CL Q3 adj EPS 81c vs est. 80c on in-line sales $4.41B, sees FY adj EPS at the low end of its outlook for mid- to high- single digit growth; NWL Q3 EPS 54c vs est. 50c on in-line sales $2.79B, sees Q4 adj EPS 29-33c vs est. 37c on sales $2.6-2.67B vs est. $2.59B, raised lower end of FY adj EPS outlook as it now sees $1.69-1.73 from $1.63-1.73, raised FY sales view to $10.38-10.4B from $10.1-10.35B; CHD Q3 adj EPS 80c topped est. 71c on sales $1.31B vs est. $1.28B, sees Q4 adj EPS 61c vs est. 69c, now sees FY adj EPS +6% from lower end of +6-8% and sales +5.5% from +5%, now expects incremental $170M in input costs from $125M; Citi downgraded HSY to Neutral despite its quarterly beat with raised guidance as the stock’s +18% YTD is one of the best performers under their coverage in the food space; MO cut to Equal-weight at Morgan Stanley after its weaker Q3 results with growing headwinds and a lack of near-term catalysts

Stock GAINERS

·     ABBV +4%; posts in-line Q3 revs of $14.3B while raises year EPS view to $12.63-$12.67 from prior $12.52-$12.62 as better performance of newer drugs such as Rinvoq and Skyrizi helped revs

·     ENPH +4%; as outperformance continues in the solar space amid rising energy costs and green initiatives in spending plans in Washington D.C.

·     GWW +5%; recorded better earnings and sales in Q3 on YoY basis and topped ests while reaffirmed previously issued guidance for its full 2021 results (Q3 sales $3.37B vs. est. $3.32B)

·     TEAM +10%; posted 5% upside as $614M in total revenue grew 34% Y/Y as upside mainly caused by the continued strength in Cloud (+53% Y/Y to $318M) and DataCenter (+68% Y/Y to $111M)

·     VCRA +8%; delivered Q3 revenue, adjusted EBITDA and adjusted EPS beating consensus estimates and FY21 guidance was raised for the 3rd time this year

·     X +10%; as announces a $300 million stock repurchase program and increases its quarterly dividend to $0.05 per share and big beat as Q3 adjusted EPS $5.36 tops consensus $4.85; Q3 revs $5.96B vs. est. $5.79B

Stock LAGGARDS

·     AAPL -3%; with a topline miss as Q3 revenue of $83.36 billion (+29% YoY) missed the $84.84 billion consensus, gross margins came in at 42.2% (vs. 42% est.) as Mac and iPad revs beat views but iPhone and Wearable revs missed expectations

·     AMZN -3%; weaker Q3 as net sales increased 15% YoY to $110.8B, falls short of the $111.55B consensus as operating income declined from $6.2B last year to $4.9B, missing estimates of $4.12B and EPS of $6.12 was below last year’s $12.37 and est. $8.90 – guidance also disappoints

·     DVA -8%; reported 3Q results that was ahead on sales, driven by pricing though COVID/mortality weighed on treatments and the company saw higher operating costs

·     CHTR -5%; as weaker-than- expected broadband and wireless subscriber growth in Q3 overshadowed strong Ebitda and revs (Q3 revs rose over 9% to $13.15B vs. est. $12.93B and adj Ebitda $5.29B vs. est. $5B) – residential video net customer change -133,000

·     SBUX -7%; as forecast FY22 operating margin to be ~17%, below its long-term target, due to inflation and investments while also missed quarterly comp sales estimates, and said China comp sales fell (-7%)

·     SYK -2%; posted Q3 miss amid weakness within Wright and T&E, plus margin weakness, and a soft 4Q guide

·     WDC -9%; as the disk-drive maker forecasts Q2 and year outlook for adj EPS and revenue below consensus estimates as co’s businesses continue to be impacted by supply chain bottlenecks – also with disappointing F1Q22 (Sept) Flash rev. vs. expectations

·     ZEN -19%; shares slide, downgraded by several analysts (Bofa, Opco, Piper, Jeff) after an agreement to purchase MNTV was met cautiously, saying that the deal is dilutive to Zendesk’s growth and adds uncertainty. Overshadowing solid Q3 results

Syndicate:

·     4D Molecular (FDMT) 4.75M share Secondary priced at $25.00

·     AirSculpt Technologies (AIRS) 7M share IPO priced at $11.00

·     Aura Biosciences (AURA) 5M share IPO priced at $14.00

·     Entrada Therapeutics (TRDA) 9.075M share IPO priced at $20.00

·     Sonendo (SONX) 7.8M share IPO priced at $12.00

·     Udemy (UDMY) 14.5M share IPO priced at $29.00

·     Valneva (VALN) 5.5M share Secondary priced at $39.42