Closing Recap

Tuesday, August 09, 2022

Equity Market Recap

·     Stocks slip ahead of the widely anticipated July consumer price (CPI) inflation data tomorrow, as the Nasdaq declines for a 3^rd straight day on weak guidance in semis. Investors are expecting some cooling in the pace of headline CPI price, rising to 8.7% YoY for July vs 9.1% previous. However, core CPI is expected to tick higher to 6.1% YoY vs 5.9% previous (ex food & energy). Treasury yields, the dollar and gold were all little changed on Tuesday ahead of the report after traders have positioned themselves in recent days. Tech a laggard again, led by weakness in semiconductor chip names after Micron (MU) becomes the 2^nd chip name in as many days to offer a cautious outlook of next quarter revenue (its 2^nd warning personally in 2 months). The lower rev outlook from Nvidia (NVDA) Monday weighed heavily on tech. Today’s economic data mixed as Nonfarm Productivity (2Q P) fell -4.6% vs -4.7% expected (and better than the Q1 -7.4%), while Unit Labor Costs rose +10.8% vs +9.5% (hotter than expected but down from the +12.7% in Q1). So, the headlines results were weak, but not as bad as last month – the view that Bulls have been holding on to during this last 6-week mkt rebound. Lots of choppy action today with no big bets ahead of the CPI and volumes lighter given big vacation week. Overall, the S&P slides for a 4^th straight day and Nasdaq a 3^rd into key inflation data.

Commodities, Currencies & Treasuries

·     Oil prices end lower in a choppy session, with WTI crude down -$0.26 or 0.29% to settle at $90.50 per barrel reversing earlier gains. Prices jumped this morning on reports Russia suspended oil exports via southern leg of Druzhba pipeline, raising supply concerns. Meanwhile the new EIA report today anticipates US production hitting a fresh record of 12.7M BPD in 2023 (the prior record was 12.3MM BPD set back in 2019). 

·     Gold futures rise +0.4% to settle at $1,812.30 an ounce. Treasury yields, the dollar and gold prices were little changed ahead of tomorrow’s CPI report, with investors positioning over the last week into the results. Gold has moved back above the $1,800 an ounce level (off recent 15-year lows sub $1,750) as the dollar has fallen from over 20-year highs and Treasury yields off with 10-year highs with expectations for a “tamer” CPI report. The U.S. Treasury sold $42B in 3-year notes at high yield 3.202% vs. 3.205% when issued prior with the bid-to-cover ratio 2.50, primary dealers take 19.64% of U.S. 3-year notes sale, direct 17.28% and indirect 63.08%.

Sector News Breakdown

Consumer

·     Retailers; CPRI Q1 EPS of $1.50 beats by $0.14 and revenue of $1.36B (+8.8% y/y) beats by $60M while guides FY2023 rev outlook to about $5.85B vs. consensus of $5.84B and gross margin approximately flat to FY2022; RL Q1 revs rose 8.3% to $1.49B above estimates of $1.41B and EPS of $1.88 topped the $1.75 consensus and forecasts Q2 revenue growth to be about 11%, above analysts’ expectation of a 5.3% rise; BIRD guided 2H22 lower reflecting deterioration in U.S. business trends from May to June that have not abated; SIG agreed to buy online retailer of fine diamonds and jewelry Blue Nile Inc. for $360M in cash, while cut its full-year earnings outlook (FY23 revenue view to $7.6B-$7.7B from $8.03B-$8.25B and below est. $7.95b) and cuts year adj op income to $787M-$828M from $921M-$974M; ACCO Q2 adj EPS missed estimates

·     Auto sector; CARG slides as missed qtr & lowered guidance amid the industry’s ongoing low inventory/higher rates-fueled challenges; VRM lower after saying Q2 e-commerce revenue fell 44.5% to $321.6M and total revenue also down 37.6% at $475.4M well below the $545M estimate and Q2 net loss widens to $115M from $65.8M a year ago; in EV charging, BLNK delivered a strong top-line beat (+17% vs. consensus), while adjusted EBITDA of ($15.6M) modestly trailed the ($13.5M) consensus and total cash falling to $85.1M from $162.0M q/q; Ford (F) raises price of electric f-150 lightning by up to $8,500 due to material cost increases

·     Housing & Building Products; TREX 2Q results beat expectations for both revenue ($386M vs. $381M consensus) and adjusted EBITDA ($129M vs. $114M) but lowered 2H guidance ~$300M from prior expectations (guides Q3 revs $180M-$190M below consensus $355M); RDFN reports a growing shr of home listings are stale as market cools; said share of U.S. homes that were listed for 30 days or longer without going under contract increased 12.5% in July; said 61.2% of for-sale homes were on market for at least 30 days, up from 54.4% a year earlier

·     Consumer Staples; HAIN guides Q4 rev $457M, below estimates $478.4M and said it expects a return to growth with low single digit adjusted net sales growth and adjusted EBITDA growth on a constant currency basis; BRBR 14.8M share Spot Secondary priced at $23.50; TSN upgrade to Neutral at Piper as continue to recognize risks which now appear more fully reflected in current valuation; FRPT reported 2Q results with sales slightly below consensus and adj EBITDA well below expectations, while maintaining full-year sales and reducing adj EBITDA guidance; IFF reported 2Q results with sales and adj EBITDA above consensus while maintaining full-year expectations for each metric; SYY posts higher Q4 EPS and sales in food space

·     Restaurants: QSR upgraded to Hold from Buy at Argus as expect the company’s e-commerce capabilities, investments in its franchises, strong loyalty program, and international expansion to benefit earnings; DIN posted modest beat on both top and bottom line for Q2 results as Applebee’s y/y comparable same-restaurant sales increased 1.8% and IHOP’s y/y comparable same-restaurant sales increased 3.6%

·     Casinos, Gaming, Lodging & Leisure sector; BC upgraded to Outperform from Market Perform with a revised price Target of $110 at BMO Capital saying shares have pulled back to an attractive valuation; in lodging, Hyatt (H) swung to a Q2 profit of $206 million from a loss of $9 million y/y as revs beat amid growing demand; cruise lines slip after NCLH Q2 revs of $1.19B missed the $1.26B estimate on larger loss while guides Q3 revenue $1.5B-$1.6B, below consensus $1.88B

Energy

·     E&P and Majors; OXY rises as Warren Buffett’s Berkshire Hathaway (BRK.A) disclosed late Monday that it acquired another 6.68M common shares during August 4-8, now owning a 20.2% stake; DVN announced it has entered into a definitive purchase agreement to acquire Validus Energy, an Eagle Ford operator, for total cash consideration of $1.8B; strength overall in the oil, E&P and nat gas levered names with a rebound in oil prices.

·     Utilities & Solar; in solar space, WSJ reported U.S. solar shipments are hit by import ban on China’s Xinjiang region. Says U.S. customs has detained shipments from some of the biggest solar-panel producers, as authorities enforce a new law targeting goods made with forced labor in China https://on.wsj.com/3QcZHQo ; in earnings, FTCI Q2 EPS loss (26c)/$30.7M revs vs. est. (16c)/$32.39M and guides Q3 lower as revs seen $16.5M-$19M vs. est. $51.93M

Financials

·     Insurance; LMND rises as Q2 EPS loss ($1.10) vs. est. loss ($1.32); Q2 revs $50M vs. est. $47.7M; said in force premium (IFP) increased by 54% to $457.6M y/y, primarily due to a 31% increase in the number of customers as well as a 18% increase in premium per customer; PFG outperforms following quarterly results that topped views

·     Bitcoin, FinTech & Payments; UPST slides after miss and lower guide as Q2 adj EPS $0.01 vs. est. $0.10; Q1 revs rise 18% y/y to $228M vs. est. $241.6M; guides Q3 revenue about $170M vs. est. $248.9M; COIN expected to report earnings after the close tonight; MARA Q2 EPS loss (-$1.75) vs. est. loss (-$0.22); Q2 revs $24.9M vs. est. $37.5M; said for Q2, increased our bitcoin production 8% y/y, producing 707 bitcoin; IBKR said it introduced ability for customers to access 24/7 crypto trading through enhanced web application available from Paxos trust Co; SOFI slides after Softbank says determined to sell some or all shares of co, cuts stake

·     Biz Services, Consumer Finance; TASK reported a solid Q2/22, beating our and Street estimates, though reduced FY22 and lower-than-expected Q3/22 guide (said Q2 revenue increased 37% y/y (a deceleration from 57% last quarter); HLNE downgraded to Neutral from Buy at UBS given a mixed near-term outlook and our forecast for steady but less robust results

Healthcare

·     Pharma movers: SNY downgraded to Neutral from Buy at UBS saying Sanofi has done a lot right but EPS growth in ’23 will slow After two pipeline stumbles, exciting clinical catalysts look lacking and Zantac may become an issue; BHC reported 2Q results, with revenue of $1.97B (vs. $2.04B cons) and EBITDA of $701M (vs $783M cons), along with lower gross profit and higher expenses; RETA disclosed a 3-month extension of its review period for Omaveloxolone for the treatment of Friedreich’s Ataxia, now expected to receive a decision by 2/28/23 (vs. 11/30/22 prior); VRNA surges after saying its lead asset met the key goals in a Phase III study in chronic obstructive pulmonary disease, or COPD; CRMD tumbles after disclosing its FDA application for DefenCath received a second complete response letter, noting deficiencies related to its contract manufacturing organization and supplier of active pharmaceutical ingredient; PRGO, ENDP among generics reporting earnings this morning; BHC drops on lower year outlook

·     Biotech movers: NVAX tumbles after cutting its full-year revenue outlook in half citing a lack of demand for its Covid-19 shot from an international initiative to vaccinate lower-income countries; the XBI index is up nearly 18% since Aug. 1, buoyed by impressive clinical results, a few unexpectedly positive earnings reports, and a prevailing sense that big drug companies are getting back into the business of buying small ones. It’s worth noting that the same index is still down about 20% for the year

·     MedTech Equipment; ICUI top and bottom-line miss (Q2 adj EPS $1.37 vs. est. $1.86; Q2 revs $561M vs. est. $565.13M) and lowers FY22 adj EPS view to $6.20-$6.80 from $9.00-$10.50 (est. $9.17) and lowers year EBITDA range to $350M-$370M from prior $450M-$500M; TNDM downgraded to Underweight from Overweight at Wells Fargo because they see downside risk to Street estimates from new competition in all four sources of TNDM’s growth; SWAV reported Q2 revenue of $120.7M that topped Street estimates by ~$13M as U.S. coronary drove the majority of upside and raised its 2022 revenue guidance by $15M to $465-$475M

·     Healthcare Services: CLOV CEO and Founder Vivek Garipalli to exit the company, effective Jan. 1, 2023 while reaffirms outlook for 2022, with total revenue expected to be in range of $3.0B-$3.4B; GDRX surges after the resolution of a dispute between its pharmacy benefit management customers and grocer Kroger, EPS; SDC wider Q2 EPS loss (-$0.17) vs. est. loss (-$0.14); Q2 revs fell -27.8% y/y to $125.8M vs. est. $141.86M and cuts FY22 revenue view to $450M-$500M from $600M-$650M (est. $615.96M)

Industrials & Materials

·     Transports, Industrials: ACM Q3 adjusted EPS of $0.86 topped consensus of $0.82 which reflected stronger margins and share buybacks more than offsetting lighter revenue and higher interest expense. Constant currency organic net service revenue (NSR) growth accelerated to +6% (from ~4% in F2Q22); BA shares slipped after July deliveries slip to five-month low

·     Metals & Materials; HUN said it agreed to sell its Textile Effects division to SK Capital Partners portfolio company Archroma for a total enterprise value of $718M; CBT Q3 adj EPS $1.73 vs. est. $1.56; Q3 revs $1.15B vs. est. $1.05B; narrows FY22 EPS view to $6.10-$6.20 from $5.80-$6.20 (est. $6.14); LPX Q2 adj EPS $4.19 missed the est. $4.40 and Q2 revs $1.13B below est. $1.25B; sees Q3 adjusted EBITDA $200M

Technology, Media & Telecom

·     Media, Internet; NLSN postpones court & special meetings of shareholders to permit finalization of preliminary agreement between consortium and Wind Acre; Nielsen and consortium remain bound by terms of definitive agreement to give effect to proposed transaction; NWSA Q2 revenue of $2.67B (+7% y/y) was ahead of $2.59B estimate with the outperformance from News Media, Dow Jones, SVS, and Digital Real Estate and adj EBITDA of $315mm was above consensus $297mm with y/y growth driven by News Media; PUBM raises year adjusted EBITDA to $103M-$108M from $101M-$106M and revs view to $277M-$281M from $282M-$286M; Bloomberg reported that WMT ponders streaming deal with PARA, CMCSA, DIS

·     Semiconductors: MU lowers Q4 guidance for the 2nd time in 2-months, saying Q4 revs may come in at or below low end of prior guidance range in June; said expectations for cy22 industry bit demand growth for dram and NAND have declined since June call; separately, Micron (MU) announced its plans to invest $40B through the end of the decade to build memory manufacturing in multiple phases in the U.S.; GFS posted Q2 EPS and sales beat while guiding Q3 results above views; Samsung Electronics (SSNLF) intends to make additional $3.3B investment in Vietnam in 2022 thereby assisting the company to start producing semiconductor components in the Southeast Asian country by July 2023.

·     Software movers; DOCN 2Q results were mixed as the company modestly fell short of consensus top-line expectations but outperformed on profitability; EVCM reported 2Q results ahead of expectations driven by strong execution and favorable secular tailwinds/both 2Q revenue and EBITDA were better than expected; video game retailer TTWO forecasts FY adj sales below consensus estimates; APP submitted and unsolicited bid to buy Unity (U) in an all-stock deal with an enterprise value of $20 billion (IS shares tumbled after APP makes bid for Unity – recall on July 13th, Unity had agreed to acquire IS in a $4.4B stock deal) https://bit.ly/3Q9TJiZ ; CRNC tumbles after cutting full year revenue forecast

·     Hardware, Components & Services; HEAR cut its 2022 revenue target to $262.5M (midpoint) from $366M driven by a slump in consumer spending and retailers’ reduced purchases. HEAR also concludes that it will stop proactive outreach to potential buyers, after engagement with more than 100 potential acquirers resulted in no advanced stage discussions; in 3D space, DDD Q2 revenues, Adj. EPS and Adj. EBITDA miss on softer demand and unfavorable FX and lowers 2022 guidance to $530M-$570M from $580M-$625M; DM Q2 revenue more than triples to $57.7M, driven by strength from metals platform and contributions from acquisitions above ests $54.7M and reaffirms full-year 2022 revenue forecast

·     Telecom movers: CHTR downgraded to Hold from Buy at Argus saying while Charter, like other large cable companies, has been losing video subscribers for years due to competition from cheaper streaming services, the company reported a startling decline in internet subscribers in 2Q22; AVYA slides after flagging “going concern” risk after Q3 results missed estimates for a third straight quarter, cites operational and execution shortcomings