Closing Recap

Tuesday, February 08, 2022

Equity Market Recap

·     U.S. stocks were higher, led by strong gains for financials/banks on rising Treasury yields and materials as aluminum prices hit their highest levels since 2008 in a broad market rally overall (energy and REITs lagged). Earnings news has dominated over the last week, but inflation data remains the highlight later this week (Thursday CPI) which could be the next key to whether stocks break higher or mark a new level down with the S&P 500 managing to hold its 200-day MA support so far this week. Expectations are for the January consumer price index to show a 0.5% increase after a 0.6% rise in the prior month, with the year-over-year reading expected to show a 7.3% climb. Treasury yields hit multi-year highs today (10-yr above 1.97%), extending its YTD gain to nearly 50bps on increasing odds the Fed will need to get more aggressive raising interest rates in upcoming meetings to fight surging prices. With Tuesday’s gains, the S&P 500 remains down about 5% so far this year, while the Nasdaq has lost over 9%.

·     Stock & Sector movers: Biotech space weak as PFE touches its lowest levels of 2022 after its Q4 sales and FY22 sales guidance miss estimates and NVAX rolls sharply after delaying its vaccine shipments to Europe and the Philippines to weigh on other vaccine names MRNA BNTX, while EDIT plummets after terminating its chief medical officer. Reopen names outperform for the 2nd straight day with an NCLH update of 2H bookings in-line with 2019 levels and expected 2H profitability lifting RCL CCL, while airlines AAL UAL also among S&P leaders and casinos PENN MGM CZR DKNG rising ahead of Super Bowl Sunday. In auto space, GM tumbles to its lowest levels since August after being downgraded at Morgan Stanley on a weaker 2022 guide to drag Ford to multi-month lows as well: EV names RIVN TSLA NIO EVGO strong. After earnings, AMGN leads the S&P on its EPS beat and new $6B buyback, HOG soars on qtrly revenue over $1B vs est. $664M, COTY jumps on its EPS beat and guidance raise, SYY opens in the red on its EPS miss but goes green intraday, TTWO red on weak guidance, SLQT price gets cut in half on several downgrades following its wide miss with guidance well below consensus; FISV was the S&P’s worst decliner to further weigh on FinTech names (SQ slides to lowest since June 2020 today, PYPL hits lowest since May 2020).

Commodities

·     Oil prices finish lower, fell as WTI crude drops -$1.96 or 2.15% to settle at $89.36 per barrel with several factors pulling prices further off 7-year highs late last week above $93 per barrel. A potential de-escalation in tension over Ukraine after French President Emmanuel Macron said that got assurances from his Russian leader Vladimir Putin that there would be no “escalation” helped ease prices overnight. The resumption of Iran nuclear talks also a possible factor as well as a bounce in the U.S. dollar. The EIA said in its monthly report that U.S. crude oil output is expected to rise 770,000 barrels per day to 11.97 million bpd in 2022, and crude output is expected to rise 630,000 bpd to 12.60 million bpd in 2023.

·     Gold prices rise $6.10 or +0.3% to settle at $1,827.90 an ounce, back near 2-week highs ahead of key inflation data on Thursday and as investors diversify into defensive assets. Gold prices have been stuck in range-bound trade since the beginning of the year, caught between rising inflation worries and growing expectations for Federal Reserve interest rate hikes.

Currencies & Treasuries

·     Another sharp move for Treasury yields on Tuesday as the benchmark 10-year rises a 4^th straight day to hit its highest level since November 2019 around 1.97% (up more than 4 bps) ahead of a key CPI inflation reading on Thursday. There remain growing expectations that the U.S. Federal Reserve will start tightening monetary policy to fight the surge in prices over the last year. The two-year was up 3.5 bps at 1.331% after reaching 1.347%, its highest since Feb. 24, 2020, and the 30-year yield rose 4 bps to 2.263%. Yields have been rising as market participants are pricing in more than a 70% chance of a 25-bps hike and a nearly 30% chance of a 50bps hike at the central bank’s March meeting, according to CME’s FedWatch Tool. Treasury auctions this week include: $50 billion in 3-year notes today at 1:00 PM, $37 billion in 10-year notes for Wednesday and $23 billion in 30-year bonds on Thursday.

·     The U.S. dollar index (DXY) rebounds mid-afternoon (then slips), rising 0.3% to 95.70; Euro down -0.3% holding above 1.14; GBP steady at 1.354. Bitcoin, Ethereum and other crypto assets took a breather today, pulling back after a strong Monday saw Bitcoin top $44,200 and Ethereum $3,100. In the crypto sector, the U.S. arrests & charges couple in alleged plot to launder $4.5B in stolen cryptocurrencies tied to the hack of virtual currency exchange Bitfinex. The Justice Dept. says $3.6B has been seized in its largest ever financial seizure.

Economic Data:

·     The Federal Reserve Bank of New York’s issued its Quarterly Report on Household Debt and Credit. The Report shows that total household debt increased by $333 billion (2.2%) to $15.58 trillion in the fourth quarter of 2021. The total debt balance reflects an increase of $1 trillion during 2021 and is $1.4 trillion higher than at the end of 2019

·     December International Trade in Goods and Services showed a deficit -$80.7B vs. -$83.0B consensus and -$79.3B in November (revised from -$80.2B). Exports increased by $3.4B to $228.1B, while imports of $308.9B rose by $4.8B from November

·     NFIB small business sentiment falls to an 11-month low as the percentage of businesses raising prices rises to the highest level since 1974

Sector News Breakdown

Consumer

·     Retailers; PTON CEO Foley is stepping down and will become executive chairman, while Barry McCarthy, formerly CFO of SPOT and NFLX, will be new CEO and the co is cutting 2,800 jobs, or 32.3% of its workforce as of June 30, 2021 and expects to record $130 million in cash charges related to severance and other restructuring activities

·     Auto sector; GM downgraded to Equal Weight from Overweight at Morgan Stanley and cut tgt to $55 from $75, triggered by a lower than expected 2022 guide; VLDR surges after AMZN receives warrant to purchase up to 39.6M of co’s shares, which may be exercised at any time before Feb. 4, 2030 at a price of $4.18 per share; Ford (F) says it has started shipping E-Transit vans to commercial customers and is working on ways to boost production. per Bloomberg; LEA Q4 EPS and revs top consensus but guides FY22 revenue $20.8B-$22.3B below est. $22.33B; Chinese EV makers LI ($38 tgt), NIO ($34 tgt), XPEV ($33 tgt) initiates Overweight at Barclay’s saying that the rapid adoption of EVs around the world and booming EV sales have presented China’s EV makers a rare opportunity to take a sizable market share; NSANY raised its operating profit forecast for the year to March 31 by 17% to 210 billion yen ($1.82 billion) above ests 194 billion yen

·     Housing & Building Products; Wedbush lowers lower price tgts for OPEN, RDFN, and ZG, reflecting lower market multiples and the rate environment; in building products, MAS 4Q adj EPS $0.67 vs est. $0.69 on sales $2.02B vs est. $1.95B; guides FY adj EPS $4.10-4.30 vs est. $4.15, says expect demand to remain strong in 2022; for LOW and HD, UBS said the companies stand well positioned to deliver top-line growth and margin expansion and believe Q4 trends supported by continued Pro strength and meaningful contribution from non-commodity inflation

·     Consumer Staples; SYY Q2 adj EPS 57c missed est. 70c on sales $16.3B vs est. $15.9B as Covid drove higher than anticipated operating expenses; COTY Q2 adj EPS 17c vs est. 11c on sales $1.58B that slightly missed est. $1.61B and raised its FY22 adj. EPS forecast to 22-26c from 20-24c, and sees sales at the high-end of its prior guidance calling for low-to-mid teens percentage growth; UTZ downgraded to Perform at Opco given ongoing profit headwinds and a rising rate environment that has historically been a negative for food names; Cowen lowered their price target on APPH, BYND, FRPT, OTLY, SNAX, STKL, TTCF, VITL as they say FY22 consensus EBITDA estimates appear too high but say that ahead of earnings, they are most comfortable owning FRPT as the bad news is in the rear view mirror and SOVO on its strong momentum and discounted valuation, while continuing to highlight STKL as a best idea; UBS believes KO checks the boxes for the key drivers of pricing power in CPG given its market share leadership, category/manufacturer concentration, limited exposure to private label, and a history of rational pricing competition; EPC Q1 adj EPS 42c on sales $463.3M nearly matched consensus estimates and it lowered its FY outlook for adj EPS to $2.74-3.02 from $2.98-3.26 but upped its sales view

·     Casinos, Gaming, Lodging & Leisure sector; reopen stocks outperform over the last few weeks as Omicron cases are down sharply while restrictions have loosened up, giving forward looking view to the likes of travel, leisure, casinos and lodging names – all leading markets; HOG 4Q adj EPS $0.15 vs est. ($0.38) on revs of $1.016B vs est. $663.9Mm; total worldwide motorcycle sales of $34,000 and motorcycle shipments of 29,100 vs est. 29,300; guides FY22 HDMC revs +5-10% vs est. +7%; NCLH said in Q3 began a phased relaunch of certain cruise voyages with ships initially operating at reduced occupancy levels – operated vessels totaling approximately 40% of our berth capacity; in lodging/travel, ABNB downgraded from Buy to Neutral at BTIG amid concern over slowing post-Omicron bookings growth, aggressive 2022 consensus expectations and the sustainability of a double-digit revenue multiple if growth is slowing and numbers coming down; in boating, MBUU Q2 adj EPS beats $1.41/$263.9M vs. est. $1.35/$259.6M.

Energy

·     E&P and Majors; BP reported strong quarterly earnings and announced an acceleration of its push to become a net-zero emissions company and said it intends to cut 50% of emissions by 2030, up from prior guidance of 30% to 35%, as it increases capital expenditures; WLL entered into two separate definitive agreements to acquire non-operated oil and gas assets in the Williston Basin of North Dakota and also announced its 2022 capital, operating costs and production guidance, reflecting an operating plan focused on delivering sustainable FCF; in Canadian energy, CVE posted a Q4 miss with a (21c) loss/share in the qtr vs est. 39c profit and Credit Suisse upgraded KEYUF to OP and downgraded TRP to Neutral

·     Utilities & Solar; AEP has withdrawn its request that the Federal Energy Regulatory Commission approve changes to an operating agreement for a coal-fired power plant owned by Kentucky Power and Wheeling Power under pressure from the Kentucky Public Service Commission https://bit.ly/3HDH5Ve ; Wells Fargo lowered price tgts on renewables/solar for FSLR to $88 from $115, SEDG to $359 from $441, CSIQ to $31 from $44, BE to $36 from $41, BLDP to $11 from $18, ENPH to $255 from $313 which reflects broader macro trends, where inflation is driving an expectation of higher interest rates and quantitative tightening, driving a broad sector rotation from growth to value, and away from tech / renewables

Financials

·     Bank movers; banks/insurance names strong early as Treasury yields extend gains – 10-yr at 1.96% – seeing broad based strength in the group early JPM, BAC, C, PNC, WFC, MS; in mortgage area, NLY downgraded at JMP Securities ahead of earnings; FinTech & Payments group remains a weak spot in financials after disappointments from PYPL – AAPL today empowers businesses to accept contactless payments through Tap to Pay on iPhone saying later this year, US merchants will be able to accept Apple Pay and other contactless payments simply by using iPhone and a partner-enabled iOS app (shares of SQ slipped in reaction);

·     REITs; SPG Q4 FFO tops estimates helped by recovery in operations as COVID-19 restrictions, but guides FY22 FFO between $11.50-$11.70 per share, below analysts’ estimate of $11.79; in data center REITs, Credit Suisse lowered valuations for DLR and EQIX and DLR PT lowered to $150 from $172 saying expectations are high for the data center group as cloud service providers, namely Amazon Web Services, Google Cloud Platform, and Microsoft Cloud have all reported stronger than expected results in CY4Q21.

Healthcare

·     Vaccine makers sharply lower as Dow component and COVID vaccine giant PFE slides as sees 2022 sales of its COVID-19 vaccine to be about $32B, below analysts’ estimate of $33.79B and said it expects another $22B from sales of COVID-19 oral antiviral pill, which fell short of ests $22.88B (posted overall Q4 revs $23.8B vs. est. $24.12B but EPS beat) – shares of vaccine makers MRNA, JNJ, BNTX, NVAX were volatile in sympathy; NVAX delivered just a small fraction of the 2 billion COVID-19 shots it plans to send around the world in 2022 and has delayed first-quarter shipments in Europe and lower income countries such as the Philippines, Reuters reported; NYTimes reported JNJ stopped making its Covid vaccine, though the company says it has millions of doses in inventory

·     Pharma movers: ALKS announces positive topline results from ENLIGHTEN-early phase 3b study of LYBALVI in patients early in illness; KPTI said results of a late-stage trial for Xpovio (selinexor) in endometrial cancer met its primary endpoint but was viewed as a disappointment as shares slipped; German drugmaker Merck KGaA slides after Pfizer, its partner in an alliance on cancer immunotherapy Bavencio, says the drug failed in a lung cancer trial.

·     Biotech movers; AMGN reported Q4:21 financial results with top-line revenue largely in-line with Street consensus and a bottom- line beat driven by reduced SG&A spend and announces a $6B share buyback; AXSM provided two positive updates on AXS-07 ahead of a possible FDA approval in April – Mizuho said it appears that AXS-07 is back on track for potential approval on or before its PDUFA date of April 30, 2022; EDIT fell amid the abrupt termination of its chief medical officer Lisa Michaels – Stifel said the company assured them of operational continuity as both EDIT-101 (Leber’s congenital amaurosis type 10 [LCA10]) and EDIT-301 (sickle cell disease [SCD]); MRTX shares tumble presumably on AMGN’s disappointing 2021 Lumakras sales

·     MedTech Equipment & Healthcare Services; SLQT tumbles after earnings results missed across the board, and missed by a large margin with $145M of negative tail adjustment revenue the company took this quarter (vs $65M expected in F4Q) and lower guidance (shares of EHTH fell in sympathy early); THC delivered a solid quarter despite lighter-than-expected revenue, reflecting strong operating cost controls; ZBH downgraded at Canaccord after earnings/guidance; CNC shares rise early following quarterly beat in managed care; PLSE tumbles after received a negative response in a letter from the FDA regarding its 510(k) submission to add the specific indication for treatment of sebaceous hyperplasia to expand the CellFX System’s current labeling; TDOC slides after Piper lowered its tgt to $108 citing a bleak outlook for the company’s Chronic Care Enrollments in Q1 2022,

Industrials & Materials

·     Aerospace & Defense; RTX’s missiles division CFO, vice president of contracts and general counsel depart in shakeup, Bloomberg reported, citing an internal email; AJRD was upgraded from Hold to Buy at Jefferies saying LMT’s acquisition of AJRD for $51.00 is currently being blocked by the FTC, with AJRD’s share price of $37 attractive on fundamentals – upgrade based on attractive growth drivers, attractive balance sheet and cap deployment provides 20% EPS accretion potential and valuation pricing in a potential deal break rather than fundamentals; BA said in January, booked 77 gross orders which include 14 777-8 freighters for Qatar airways, 8 777 freighters, 55 max airplanes as January net orders were 75

·     Industrial & Machinery; AGCO Q4 adj EPS $3.08 easily beats est. $1.77 on sales $3.16B vs est. $3.05B, sees FY22 EPS $11.50 vs est. $10.58 on sales about $12.3B vs est. $11.89B; CNHI Q4 adj EPS 25c vs est. 23c on revs $8.55B vs est. $7.15B; Jacobs (J) 1Q adj EPS $1.56 vs est. $1.58 on revs $3.4B vs est. $3.5B; reiterates FY22 outlook, continues to expect adj EPS of about $10.00 in FY25; CARR 4Q adj EPS $$0.44 vs est. $0.39 on revs $5.1B vs est. $4.83B; guides FY adj EPS $2.20-2.30 vs est. $2.27 and sales about $20B vs $19.4B (about +HSD organic) with adj op margin about +75bps; ACM Q1 adj EPS $0.89 vs. est. $0.77 on revs $3.267B vs. est. $3.45B, raises FY22 adj EPS guidance to $3.30-$3.50 from $3.20-$3.40 (est. $3.35); MTRX Q2 adj EPS (38c) was a wider loss than est. (26c) on revs $162M that also missed est. $174.6M; Mizuho’s top industrial tech picks as earnings wind down are ALLE, AME, ETN, JCI and like ROP, DOV, HON, SWK

·     Metals & Materials; Aluminum stocks rise as Goldman Raises forecast to $4,000/ton as power rationing hits supplies from China and Europe at a time of "exceptional" developed-market demand; note aluminum prices hit their highest levels since 2008 on the LME (shares of AA, CENX among aluminum producers); in chemicals, DD Q4 adj EPS $1.08 vs. est. $1.13; Q4 revs $4.27B vs. est. $4.2B; sees Q1 adj EPS $0.94-$1.00 vs. est. $1.10; sees Q1 revs $4.2B-$4.3B vs. est. $4.17B; sees Q1 operating EBITDA between $940M-$980M; announces new $1B share buyback program; in paper/packaging, BERY reported FQ1/22 adj. EBITDA of $457M, below $493M estimates and adj. EPS of $1.25 also below est. $1.33 and F22 EBITDA estimate to $2,250M (from $2.3B) on near term price/cost headwinds.

Technology, Media & Telecom

·     Internet; Cathie Wood-run ARK Invest sold ~4M shares in TWTR ahead of earnings – sold 3.7M TWTR shares from its ARK Innovation ETF and 280,974 shares from ARK Next Generation Internet ETF together worth $142.2M; SNAP announces proposed private offering of $1.25 billion of convertible senior notes due 2028; CHGG, the online study platform that has seen its shares decline -80% in the past 12 months managed to surprise investors with better-than-expected numbers last night as subs grow with International 1.5M (up from 1M in Q3)

·     Semiconductors; Softbank shelved its blockbuster sale of Arm Ltd to U.S. chipmaker NVDA valued at up to $80 billion citing regulatory hurdles and will instead seek to list the company; NVDA said it intends to record a $1.36 billion charge in first quarter of fiscal year 2023; ACLS reported better-than-expected 4Q21 earnings results while noted supply chain issues is making the near-term environment more challenging; RMBS better-than-expected 4Q21 results & 1Q22 guidance that was well ahead of consensus

·     Software movers; MNDT shares jumped late day after Bloomberg reported MSFT is considering making a bid for the cybersecurity company according to a person familiar with the discussions (headlines boosted shares of other cybersecurity stocks); video gamer TTWO issued below estimate rev forecast for Q4 ($808M-$854M vs. est. $924.4M) after missing its Q3 rev consensus; VRNS reported revenues of $127M ($122.6M consensus) and EPS of $0.16 (consensus) and also reported ARR of $387M, equating to 35% Y/Y growth, in line with our estimate; CRNC downgraded by multiple firms after a disappointing report at the application software company, which slashed its full-year forecast and said its CFO was departing

·     Hardware, Components & Services; TDC shares surged after mixed Q4 results—with Cloud ARR marginally better, margins higher, and total revenue and total ARR lower than expectations. Management’s 2022 outlook was also mixed; POLY 3Q adj EPS $0.57 vs est. $0.53 on revs $410Mm vs est. $418.8Mm; guides FY adj EPS $2.45-2.65 vs est. $2.52 and revs $1.675-1.7B vs est. $1.7B; expect ongoing tightness and volatility in supply chain