Closing Recap

Thursday, February 10, 2022

Equity Market Recap

·     Volatility on Wall Street continues (in a big way) after “hotter” inflation data and “hawkish” comments from Fed President Bullard push stocks lower and yields higher. Stocks tumbled pre-market following the hottest year-over-year hike in consumer prices, rising 7.5%, raising bets the Fed will get more aggressive with interest rate hikes this year. However, investors “bought the dip” following the opening gap lower, with major averages rising between 1.5%-2% off the lows, as major averages managed to edge briefly higher. But it didn’t last, as markets began to fade late morning after briefly topping overnight future highs, exacerbated by hawkish Fed comments from voting member Bullard, stopping stocks in their tracks. He said he supports the first half-point increase in US interest rates since 2000 and seeks a full 1-point hike by July 1^st; said balance sheet reduction may require asset sales as was concerned about January inflation print and said should be open to considering inter-meeting increase. The comments by the Fed President carried more weight in the stock market that the actual higher CPI inflation data itself.

·     Stocks & Sector movers: DIS jumps after reporting a strong quarterly profit and revenue with parks performing much better than expected to go with robust Disney+ subscriber growth; SIX (also init by Citi at Buy), ROKU trade higher in sympathy, though NFLX FUN slip; UBER opens higher on its quarterly beat, but rolls to red after providing guidance at its investor day to pull LYFT lower too; MGM sinks despite its strong report and Citi resuming coverage with a Buy rating, TWTR volatile as strong user growth and a new $4B buyback helps offset a quarterly miss; several consumer staples reported earnings with KO climbing on its beat though PEP slips despite a qtrly beat as its FY22 EPS guidance was below expectations, while IFF K among S&P leaders on their sales growth, and UL weak despite a beat and new buyback as it warned of continued inflationary pressures on margins; retail/consumer goods also active as MAT surges to its highest level in nearly 5-years, SONO spikes, and ORLY TPR rise after reporting beats, though GOOS IRBT plummet as both missed EPS and revenue estimates; software names TWLO DDOG soar on strong earnings with guidance above estimates, though EdTech names UDMY TWOU get crushed after both earnings include weak guidance (COUR CHGG follow lower).

Economic Data:

·     Hotter January CPI data as headline reading +0.6% m/m vs. est. +0.5% and on a y/y basis, rises 7.5% vs. est. 7.3%; on a core basis, ex: food & energy, m/m rises +0.6% vs. est. +0.5% and on a y/y rises 6.0% vs. est. 5.7%. Jan real earnings all private workers -0.5% vs Dec -0.3%. Jan CPI food +0.9%, housing +0.7%, owners’ equivalent rent of primary residence +0.4%. Inside the CPI inflation numbers, food at home prices increased 7.4% year over year, dining out food up 6.4% year over year. Over the past 12 months, all types of gas up 40%, fuel oil to heat homes up 46.5%, used car prices up 40.5% and new vehicle prices up 12.2%.

·     Weekly jobless claims fell to 223K vs. est. 230K and down from 239K prior week; the 4-week moving average fell to 253,250 from 255,250 prior week; continued claims unchanged at 1.621M vs. est. 1.615M and prior month 1.621M; the U.S. insured unemployment rate unchanged at 1.2%

Commodities

·     Oil prices finish higher but end well off their best levels with WTI crude up $0.22 or 0.25% to settle at $89.88 per barrel (of $91.74) but rising a second day on concerns over market tightness after OPEC forecast a steeper rise in demand. The benchmarks earlier this week hit seven-year highs on geopolitical concerns across Europe and the Middle East. U.S. President Joe Biden and Saudi Arabia’s King Salman spoke on Wednesday about stabilizing energy prices, the status of the Iranian nuclear talks and the war in Yemen. South Korea said it’s ready to tap its strategic oil reserves if the Russia-Ukraine conflict disrupts crude supplies. Gold prices rise $0.80 to $1,837.40 an ounce (off highs $1,843.30 an ounce but well off the lows $1.821.80 an ounce).

Currencies & Treasuries

·     Treasury yields surged after the “hotter” than expected January CPI data this morning, as the two-year, which typically moves in step with rate expectations, rose as much as 24-bps topping 1.58% for the first time in over 2-years (and has now doubled since the start of the year, rising from 0.73%), while the benchmark 10-year topped 2% for the first time in 2-1/2 years (highs just shy of 2.03%), more than a 10-bps move. Fed March meeting rate hike probabilities now hovering around 70% for +50bps after the data. The 30-year mortgage rate in the US rises to 3.69%, its highest level since January 2020 (was 2.65% a year ago). The U.S. Treasury sold $23B in 30-year notes at a yield of 2.34% vs. 2.329% (1.1bps tail) when issued prior, with the bid-to-cover at 2.30 vs. 2.35 prior and indirect bidders 67.95% and directs 17.75%.

·      The U.S. dollar jumped initially vs. most rival currencies after the January consumer prices index came in above expectations, rising 0.6% m/m and in the 12 months through January, jumped 7.5%, the biggest y/y gain since February 1982. The data marked the fourth straight month of annual increases more than 6% and boosted expectations it would prompt the Fed to be more aggressive in upcoming interest rate hikes. Futures market showing chances of a 50-basis point hike about even with a 25-basis point rise. The dollar index (DXY) however reversed off the highs around the 96 level, falling as much as -0.3% to 95.20. The euro rose 0.53% to $1.1475, while the Japanese yen weakened 0.32% vs. the buck to 115.86 per dollar. Bitcoin prices rallied to 5-week high by $45.7k after the CPI rise, paring gains late day, trading in a Thursday range 45.7k-43.2k.

Sector News Breakdown

Consumer

·     Retailers; toy retailer MAT Q4 revs of $1.8B top $1.66B estimate and forecasts FY 2022 profit above expectations, boosted by strong demand for its Barbie dolls and other toys as well as price hikes and raises 2023 views as well; TPR Q4 PS $1.33 vs. est. $1.18; Q4 revs $2.14B vs. est. $2B; boosts FY22 EPS view to $3.60-$3.65 from $3.45-$3.50 and raises FY22 revenue view to $6.75B, from $6.6B which represents growth of nearly 20% versus the prior year on a 52-week, comparable basis; GOOS falls after 3q adj EPS, revenue misses; NLS posts smaller EPS loss and expects to return to positive adj EBITDA in FY23 and on track to achieve operating margins of 15% by FYE 2025; IRBT slides following a 4Q top line miss of 3.1% and EPS of $(1.05), which was $0.14 below the Street estimate of $(0.91), while adjusted gross margins of 27.8% compared to one analyst estimate of 33.3%; in research, Gordon Haskett upgraded LOW, WSM, BURL, but downgrading KSS, ROST; BTIG stays sell on UAA after soft digital DTC checks, weak survey results; ORLY 4Q comp of 14.5% easily exceeded est. of 7.3% (& the 10- 12% market’s bar) while Price increases were a 550-bps sales tailwind in 3Q and Category CPI accelerated 430 bps in 4Q

·     Housing & Building Products; MLM 4Q adj EPS $3.15 vs est. $2.91 on revs $1.5B vs est. $1.34B; guides FY22 revs $5.78-5.98B vs est. $6.14B and CAPEX $525-550Mm; Bank America said monthly building products import tracker indicates that 2-year growth trends in cabinets and flooring remain robust

·     Consumer Staples; I beverages, PEP Q4 core EPS $1.53 vs. est. $1.52; Q4 revs $25.25B vs. est. $24.24B; announces new $10B share repurchase program and boosts dividend; guides FY22 core EPS to $6.67, below ests of $6.73 and sees FY22 organic revenue up 6%; KO Q4 adj EPS $0.45 vs. est. $0.41; Q4 revs $9.5B vs. est. $8.96B; organic revenues (non-Gaap) grew 9% for quarter and 16% for full year; global unit case volume grew 9% for quarter and 8% for full year; APRN tumbles after 4Q net revenue $107.0M was below the $115.5M y/ figure, customers fell -4% q/q to 336,000 and posts Q4 adj Ebitda loss -$17.9M; in food, Kellogg (K) q4 profit and sales beat expectations and is guiding FY22 organic net sales growth of 3% vs. est. 1.4%; UL posted EU6.05B profit vs. est. EU5.79B, announced a share-buyback program, but warned that inflationary costs will pressure its margins in 2022; IFF reported 4Q adj. EPS of $1.10, beating consensus of $1.04. However, adj. EBITDA of $529mm was slightly below consensus of $534mm; in tobacco, PM EPS topped estimates and EU cigarette shipment volume +0.9% vs. -9.6% y/y

·     Casinos, Gaming, Lodging & Leisure sector; a day after mixed results/lower guidance from LYFT (though shares rallied), ride hailing co UBER posted better-than-expected fourth-quarter results as earned an unexpected $0.44 vs. est. loss (-$0.33) on revs $5.78B (est. $5.36B) as freight business saw sales top $1 billion, a gain of 245% from a year ago; in cruises, NCLH to sell $1,000.0 million aggregate principal amount of its senior secured notes due 2027 and $600.0 million aggregate principal amount of its senior unsecured notes due 2029; in gaming, MGM strong print, revs beat, EBITDAR beat, LV margins flat but Regionals -330bps and worse than peers; in services, TWOU tumbles on a weaker-than-expected outlook for the year, leading to two analyst downgrades (guides FY revs $1.05-1.09B vs est. $1.13B, sees FY net loss $215-235Mm); SIX, SEAS rally in reopen space on fading virus fears as well as better DIS park revenues for quarter

Energy

·     E&P and Majors; RRC prelim Q4 update showed production largely in-line with less capex than expected, but softer pricing and a larger hedge loss; EQT Q4 adj EPS 41c and adj revs $1.41B missed ests. 51c, $1.49B, guides FY adj EBITDA $3.1-3.3B vs est. $3.07B and FCF $1.4-1.75B; PTEN Q4 adj EPS (38c) was a wider loss than est. (35c) on revenue $466M vs est. $441.1M, sees FY22 EBITDA more than $450M vs est. $409.7M

·     Pipelines: PAA, PAGP Q4 adj EPS 25c vs est. 27c on revs $12.95B vs est. $9.57B and the board of directors in considering increasing their annualized distribution to 87c/shr from 72c; DCP Q4 EPS $1.44 topped est. $0.79 on revs $3.48B shy of est. $4.74B, sees FY adj EBITDA $1.35-1.5B vs est. $1.48B

·     Refiners: PBF Q4 adj EPS $1.28 nearly doubled est. $0.68 on revs $8.24B vs est. $7.33B, adj EBITDA $409.5M vs est. $303M; SON Q4 EPS 66c vs est. 89c on revenue $1.44B vs est. $1.41B, sees FY22 base eps $4.60-4.80 ahead of est. $3.95; NGL shares tumbled despite Q3 revenues beating estimates as FY22 adj EBITDA view $550-560M missed est. $572.7M

·     Coal, Utilities & Solar; SPWR sells commercial and industrial solutions business to majority owner TTE for $250 mln; DUK Q4 operating EPS 94c vs est. 96c driven by mild weather and fewer renewable projects, sees FY22 adj EPS $5.30-5.60 vs est. $5.47; DTE Q4 operating EPS $1.05 vs est. $0.88 on revenue $306M vs est. $3.2M, raised and narrowed FY22 adj EPS view to $5.80-6 (est. $5.92) from $5.70-5.97, and reaffirmed 5-7% operating EPS growth through 2026; PCG Q4 adj EPS and the midpoint of its FY22 adj EPS range matched consensus; BTU Q4 EPS $3.93 crushed est. $1.12 on revs $1.265B vs est. $1.08B, sees FY22 thermal volumes higher YoY; BKH Q4 EPS missed estimates while reaffirming FY22 forecast; Barclays initiated CEG at OW with a $52 PT as they view the company as the only one with the ability to provide hourly load matching and carbon-free production

Financials

·     Bank movers; CS posted a wider-than expected loss for the last quarter of 2021, and warned that it still faces headwinds in 2022 due to high restructuring and compensation costs; Net loss attributed to shareholders came in at CHF2 billion ($2.2 billion) in the quarter; MC Q4 adj EPS $1.42 vs est. $1.49 on adj revs $417.3M vs est. $434.2M; PIPR declared a special dividend of $4.50 and increased its qtrly div while reporting a very strong Q4 with adj EPS $7.84 vs est. $5.23 on adj revenue $633.7M vs est. $492.2M; LAZ Jan AUM $258.7B, down from December’s $273.7B due to market depreciation of $9.5B, net outflows of $4.1B; TROW prelim January AUM $1.58T vs Dec. $1.69T; BAM Q4 beat estimates and is considering spinning off its asset management business to take advantage of better valuations for pure-play investment firms, a unit that could be worth more than $75B according to the FT

·     Services; EFX posted a better Q34 profit (EPS $1.84 vs est. $1.81 on revenue $1.253B vs est. $1.249B), with growth at its Workforce Solutions human resources business boosting revs; MCO Q4 adj EPS $2.33 missed est. $2.40 on revs $1.54B vs est. $1.5B, sees FY22 adj EPS $12.40-12.90 vs est. $12.62

·     Insurance; AIG downgraded to Peer Perform (from Outperform) at Wolfe who maintained a $65 PT after noting how much of the Life spin-off proceeds will be needed to de-lever vs. used towards buybacks or M&A and the FCF profile of the life insurance subs; AFG Q4 core EPS $4.12 vs est. $2.98 with FY22 guidance better than expected; RE Q4 EPS $10.94 vs. est. $7.58 on revs $3.12B vs. est. $2.38B, YoY gross written premium +25% for the Group, +26% for Reinsurance, and +21% for Insurance

·     FinTech & Payments; GPN 4Q adj EPS $2.13 vs est. $2.12 on adj revs $1.98B vs est. $2B, adj op mgn 42%; guides FY adj net revs $8.42-8.5B vs est. $8.47B and adj op mgn grow by up to 100bps; increases repurchase authorization to $2.0B; MQ preannounced prelim Q4 revenue and EBITDA ahead of its prior guidance range and hired Visa (V) veteran Mike Milotich as its new CFO, effective Feb. 22; WEX follows good FLT results from earlier this week, posting Q4 adj EPS $2.58 vs est. $2.45 on revenue $497.5M vs est. $484.6M with Q1, FY guidance ahead of estimates; AFRM Q2 revs $361M vs. est. $332.5M; Q2 EPS loss (-$0.57) vs. est. loss (-$0.92); guides Q3 revs $325M-4335M vs. est. $334.8M; sees 3q gross merchandise vol $3.61B-$3.71B

·     REITs; RWT Q4 EPS 34c missed est. 338c, GAAP book value $12.06 vs. $12 in Q3; shopping center REITs KIM, MAC both posted Q4 FFO and revenues ahead of consensus; CXW reported a mixed Q4 with weaker FY22 guidance that reflects continued occupancy restrictions by several government partners due to the pandemic; FR reported an in-line Q4 and raised its dividend; REXR Q4 core FFO 45c vs est. 43c on revenue $132.7M, sees FY22 core FFO $1.77-1.81 from FY21 $1.64; TWO Q4 net interest income fell 74% YoY to $12.8M with book value per share -23% to $5.87 vs est. $6.43

Healthcare

·     Pharma movers; AZN swung to a Q4 loss despite posting higher revenue as charges related to its acquisition of Alexion Pharmaceuticals weighed on earnings, and said it expects to incur in a $2.1 billion post-acquisition restructuring charge; Biotech movers; SGEN slides as reported a strong 4Q21 and FY21 earnings result but provided disappointing FY22 guidance by 12-15%; SAVA spikes on headlines that the FDA denies citizen petition on drug; ACAD upgraded to Buy at HCW and raise tgt to $36 from $18 as KOL feedback indicates trofinetide can gain significant market traction; SCYX announces results from its pivotal phase 3 candle study of oral ibrexafungerp

Industrials & Materials

·     Industrial & Machinery; GE said it expects to take a non-cash, pretax impairment charge of about $0.7-0.8B after GE Steam Power agreed to sell part of its business to EDF; ITT Q4 adj EPS $1.06 vs est. $1.05 on revs $685.4M vs est. $708.5M, sees FY22 adj EPS $4.30-4.70 vs est. $4.66, revs +7-9%, organic rev growth +9-11%; UHAL Q3 EPS $14.35 vs est. $15.05 on revs $1.4B vs est. $1.33B; ROLL Q3 adj EPS and revenues topped expectations with the midpoint of its Q4 sales view equaling estimates; FLNC Q1 EPS ($0.53) on revs $175M missed than est. (34c) on $207M; BLBD Q1 adj EPS (7c) vs est. (29c) on revs $129.2M vs est. $110M, expects a challenging 1H22 due to supply constraints and margin pressures, though supply chain constraints should be resolved in Q3 with new suppliers on board leading to higher production and normalized margins by Q4; in aerospace, ASTR says flight suffered anomaly after stage separation

·     Transports; USX slides, downgraded to Underweight at JPMorgan after 4Q21 results extended the streak of underperformance versus peers in strong freight markets. This streak began in the 2017/2018 freight cycle; KeyBank reiterated XPO at OW after its earnings due to its attractive valuation as a way for LTL exposure, though they reduce their PT to $95 from $100 to reflect recent multiple compression; FWRD Q4 EPS $1.40 vs est. $1.31 on revs $459.9M vs est. $443.3M, sees 1Q22 volumes exceeding 1Q21; MESA Q1 missed on adj EPS but beat on revenue; CPA reported a strong Q4 with adj EPS $1.98 topping est. $1.07 on revs $575M vs est. $543.1M with Deutsche highlighting its 20.1% adj operating margin that was 4.4pts higher than 4Q19

·     Metals & Materials; Aluminum prices hit its highest level in 13-years, rising over 1% to $3,304.50 a tonne by 1120 GMT, its loftiest since July 2008, driven by persistent worries about smelter closures and shrugging off a large inflow of inventories – shares of AA, CENX have been rising with prices; Morgan Stanley downgraded LICY to EW with a $10 PT from $15 as Q4 results suggest the projected ramp consumes more cash and requires significant capital infusion, leaving shareholders exposed to cap raises potentially as early as this year

Technology, Media & Telecom

·     Internet; TWTR miss on top/bottom line – buyback helps shares early; Q4 Adj EPS $0.33 vs. est. $0.35; Q4 revs $1.57B vs. est. $1.58B; Q4 ad Revs $1.41B vs. est. $1.43B; adj. EBITDA $489.4M vs. est. $499.5M; sees Q1 revs $1.17B-$1.27B vs. est. $1.26B; announces new $4B share repurchase program, including accelerated $2B; Q4 average mDAU was 217M, up from 211M in prior quarter and 192M y/y; UDMY falls as 4Q21 print offset by an initial FY22 guide that came in below consensus expectations; PINS, FB, GOOGL, AMZN failed to bounce with tech rebound off lows

·     Semiconductors; yesterday, WDC said that contamination in its manufacturing processes is affecting production operations at both its Yokkaichi and Kitakami joint- venture flash fabrication facilities – Wedbush said With NAND supply/demand already in better shape than might have been anticipated a few months ago (following some recovery in retail and PC related demand), we believe losing this much output will almost certainly pull forward a positive inflection in pricing (shares of MU moved in reaction); DIOD reported better than expected revenue for 4Q driven by broad-based strength which drove record segment revenue across most categories; XLNX received all regulatory approvals, closing Feb 14; PI falls after solid quarter, but guidance and comments of supply bottleneck weigh on shares

·     Software movers; TWLO a big boost to software stocks as Q4 revenue surged 54.7% y/y to $842.7M easily tops est. $767.8M and sees Q1 revenue $855M-$865M above est. $802.9M; DDOG rises as 4Q adj EPS $0.20 tops est. $0.12 on revs $326Mm vs est. $290.2Mm, adj EBIT margin 22%; guides 1Q revs $334-339Mm vs est. $306.6Mm; CYBR another software name jumping on better results and guide (year revs $582M-$598M vs. est. $562.3M); RPD reported very solid 4Q results, as ARR growth of 38% Y/Y comfortably exceeded the Street’s 35% forecast and 2022 guidance was also better than expected; CDAY posted a largely across-the-board beat in Q4 (coming roughly in line only on Dayforce recurring ex-float revs) and issued 2022 guidance above consensus expectations (revenue midpoint exceeded consensus); IRNT said it executed a multiyear contract with a Gulf Cooperation Council country

·     Hardware, Components & Services; SONO rises on earnings as 1Q adj EPS $1.02 vs est. $0.92 on revs $664.5Mm vs est. $637.5Mm; guides FY22 revs $1.95-2.0B vs est. $1.95B; LUMN tumbles as miss on top and bottom line as Q4 adj EPS $0.51 vs. est. $0.53; Q4 revs $4.85B vs. est. $4.86B; sees FY22 adjusted EBITDA $6.5B-$6.7B and FY22 free cash flow $1.6B-$1.8B; TTMI slides as delivered strong Q4 revenue, but unexpected cost increases eliminated OPM upside, prompting a downgrade by Truist to Hold from Buy

·     Media & Telecom movers; DIS strong earnings-related gains helping the Dow as Q4 revs rose 34% to $21.82B above the $20.9B estimate led by strength in theme parks business (increased to $7.2B compared to $3.6B in prior-year quarter) and said Disney+ subscriber numbers came in at 129.8M vs. ests 129.2M (sigh of relief after NFLX recent lowered subs); VMEO tumbles as posts wider EPS loss, after revenue guidance lower than expected, CFO leaving (expects full-year revenue growth around 15%-18%, down from 38% in 2021); in advertising, IPG with modest EPS and revenue beat with buyback and dividend increase as well