Closing Recap

Thursday, February 17, 2022

Equity Market Recap

·     Varying reports regarding escalating tensions between Ukraine and Russia created uncertainty that pressured stocks and sent investors fleeing from riskier assets to safe-haven plays, including bonds, and precious metals. Russian-backed rebels and Ukrainian forces traded accusations that each had fired across the ceasefire line in eastern Ukraine while US leaders sounded the alarm on a possible invasion. U.S. President Joe Biden warned that the threat of an invasion in the next several days is very high and US Secretary of State Anthony Blinken spoke at the United Nations to alert the body of intelligence that Russia is preparing an invasion, possibly after a false flag operation. Consumer staples led the way in US equities today, bolstered by the defensive rotation and earnings beat from Walmart. Weaker economic data possibly added to the day’s negative sentiment as weekly jobless claims increased from the prior week while January housing starts fell from December and both readings missed estimates. Additionally, the AAII sentiment survey for the week ending 2/16 saw bulls drop to 19.2% vs 24.4% prior, the first time below 20% since May 2016 and only the 31st time since 1987.

·     Stock and Sector movers: WMT climbs after its earnings beat with reaffirmed growth forecast above estimates; other Dow gainers include CSCO after its beat with a div raise and new $15B buyback and staples KO PG amidst a rotation into defensive names (KHC KR SJM MO outperform within the S&P); NVDA reported a strong quarter and guidance but shares slumped while AMAT slips despite its beat in semis; FSLY weak guidance sends shares to their lowest levels since April 2020 to give up most of its pandemic gains; fellow pandemic darling ZM also gives up nearly all recent gains as it hits its lowest since Apr 2020, AFRM hits record lows; meanwhile gig economy names DASH FVRR soar after their results; other post-earnings decliners include ATUS plunging to record lows after declining EBITDA and an Atlantic d/g, SAM underperforming other staples after reporting a miss with weak guidance to slide below $400 for the first time since April 2020, YETI on guidance, PLTR APP rolling sharply after EPS misses.

Economic Data:

·     Weekly jobless claims rose to 248,000 from 225,00 in the prior week (vs. est. 219,000), while the 4-week moving average fell to 243,250 from 253,750 prior; continued claims fell to 1.593M from 1.619 mln prior and the U.S. insured unemployment rate unchanged at 1.2%

·     January Housing Starts fell -4.1% m/m to 1.638M vs. 1.700M expected and 1.708M prior (revised from 1.702M); single-family housing starts in January were at a rate of 1.116M, down 5.6% from December’s figure of 1.182M; Building permits rose +0.7% to 1.899M vs. 1.760M expected

Commodities

·     Oil futures dropped, with WTI crude down $1.90, or 2%, to settle at $91.76 a barrel, while Brent crude slipped -$1.84 or 1.94% to settle at $92.97 per barrel as reports of progress in the Iran nuclear talks offset concerns of a Russian invasion on Ukraine to disrupt supply. Gold prices rise $30.50, or 1.6%, to settle at $1,902 an ounce, settling at their highest since early June of last year, as concerns grow about escalating tensions with Russia and Ukraine and U.S. involvement.

Currencies & Treasuries

·     The U.S. dollar edged modestly higher, snapping its modest two-day losing streak, while the safe-haven Japanese yen gained after a Russian news report of mortar fire in eastern Ukraine unnerved markets and the White House warned that the threat of an invasion in the next several days is very high. Against a basket of its rivals, the dollar steadied at 95.85. Treasury yields dropped broadly on the day amid the rotation into safe-haven assets such as Treasuries. The 10-year yield fell back below 2%.

Sector News Breakdown

Consumer

·     Retailers; Dow component and retail giant WMT 4Q adj EPS $1.53 vs est. $1.50 on revs $152.9B vs est. $151.5B, qtrly Walmart US comps +5.6% ex fuel, qtrly Sam’s comps +10.4% ex fuel, qtrly total US comps +6.3% ex fuel, qtrly eComm sales +1% – expect Q1 operating income and EPS to be down low double digits to low teens as we cycle the stimulus effects from last year, while sees Q2 and Q3 operating income and EPS are expected to increase at low to mid-single-digit rates; WSJ reported luxury-goods giants are raising prices on handbags, clothes, shoes, and jewelry — and facing little resistance so far from shoppers (watch RL, CPRI, LVMUY); YETI 4Q topline and EPS beat driven by wholesale channel outperformance, while DTC relatively in-line but EPS guidance slight worse given supply chain; activist investor Alta Fox nominated five directors for election to HAS board.

·     Auto sector; in the electric vehicle space, QS reported a wider loss than anticipated for Q4 as EPS was -$0.16 vs. -$0.11 consensus and adjusted EBITDA was -$47.4M and set capex guidance for 2022 at $325M to $375M; FSR quarter results and 2022 guidance were about in-line with expectation; auto retailer AN Q4 EPS beat $5.76 vs. est. 45.00 and revs rise 14% y/y to $6.58B above $6.37B estimate and Q4 same-store used vehicle retail unit sales +16.9%; GPC 4Q Adj EPS Cont Ops topped consensus estimates

·     Housing & Building Products; Lumber futures rose to their highest in a month as two top Canadian producers curtailed output and transportation snags disrupt shipments to customers, Bloomberg reported. March lumber futures rose by the exchange limit of $45 on Wednesday to $1,336 per $1,000 board ft. before trimming gains; Mortgage rates surge to 3.92% vs. 3.69% last week, highest since May 2019; TPH Q4 revs $1.21B vs est. $1.19B, home deliveries 1,885 vs est. 1,892, sees FY home deliveries and avg sales price above consensus

·     Consumer Staples; SAM 4Q results essentially aligned with the revised lower guidance the company disclosed on Jan 14 that included additional write-offs for short shelf life products, lower shipments, and gross margin; USFD Q4 EPS missed by $$0.02 on in-line sales of $7.64B; CCEP announced FY21 results including 4Q sales of €7.85bil ahead Consensus; Barclays double-upgraded LRLCY to OW from UW as its current forward P/E fails to reflect its long track record of market share gains and capital efficiency; KO expects to resume share repurchases in 2022 of ~$500M and raised its dividend to 44c from 42c

·     Restaurants; CAKE Pre-Omicron Q4 trends impressive as per Wedbush, with Omicron impact clearly quantified. Adj. EPS of $0.49 was below $0.58 consensus and our $0.56 estimate. SSS growth of 33.8% at The Cheesecake Factory (+7.7% vs. Q4:19) was below 34.5% cons. Notably, SSS growth vs. 2019 was 10.6% through the first 11 weeks of Q4 prior to Omicron; for JACK Oppenheimer said risk/reward remains one of the most intriguing in quick service if mgmt. delivers on its accelerating unit growth goals, but lower 1Q22 estimates ahead of results on 2/23; YUM upgrade to Outperform w/ $143 PT at Cowen based on a compelling ~15% total return story derived from a diversified global franchise sales base with room for multiple expansion

·     Casinos, Gaming, Lodging & Leisure sector; DASH shares surge following better Q4 results as revs rose 34%% to $1.3B above the $1.28B estimate driven by growth in new consumers and higher-than-expected consumer retention (said that customers placed a record 369 million orders last quarter, a 35% increase from a year ago); in lodging, HST and Hyatt (H) shares active on earnings; POOL Q4 EPS, revenue, and FY22 EPS guidance all topped estimates; TRIP Q4 adj EPS (1c) vs est. 8c on revs that missed ests and monthly unique visitors falling vs. 2019 from Q3

Energy

·     E&P and Majors; PXD Q4 oil production was in line with consensus, but 4Q21 capex was 4.3% above consensus; PXD’s 2022 oil production guidance was 1% below consensus and its 2022 total production guide was 0.7% below consensus; CLR swings to Q4 profit; sees 25% more oil output in 2022; MRO Q adj EPS $0.77 vs est. $0.55, FCF $898Mm, oil production of 181k net boepd and oil-equivalent production of 353k net boed; 2022 capital budget $1.2B

·     Pipelines: ET reported an adjusted EBITDA of $2.81 billion, which was 2% ahead of consensus due in part to volume ramps in the Permian and Haynesville, as well as record NGL transportation and fractionation volumes as ET’s NGL export capacity reached 1.1 mmbpd and provided 2022 adjusted EBITDA guidance of $11.8-12.2B, with the low-end exceeding the $11.7B consensus

·     Utilities & Solar; ED upgrade from Underperform to Peer Perform at Wolfe as believe New York’s clean energy aspirations create a big growth opportunity for the company in the years to come; in solar, SPWR mixed quarter as 4Q adj EPS ($0.07) vs est. $0.04 on adj revs $384.2Mm vs est. $374.7Mm; guides FY adj EBITDA $90-110Mm vs est. $125.9Mm; Raymond James reducing estimates into 4Q21 prints for both DAR and REGI

Financials

·     Bank movers; GS raised its medium-term profitability targets with a new ROTE target of 15-17% from prior 14% and ROE 14-16% from prior 13%, said it will hit its 60% efficiency ratio target this year, and issued 2024 targets for asset mgmt. & wealth mgmt. to reach over $10B in fees, transaction banking deposits over $100B ($54B in FY21) and revs about $750M, consumer deposits more than $150B (from $110B in FY21), consumer rev over $4B, and $350B of organic traditional long-term net flows; in insurance; AIG Q4 adj EPS $1.58 vs. est. $1.19, net premiums written +7% to $5.96B, adj book value per common share +21% to $68.83

·     Bitcoin, FinTech & Payments; Visa (V) and AMZN came to a global agreement for Amazon to accept Visa cards at all its stores and websites, reversing a postponed ban in the U.K. due to high fees and ending an extra fee for customers in Singapore and Australia; PAY posted a sound Q4 top and bottom-line beat with FY22 revenue guidance $490-495M less bullish than some hoped (consensus $490.1M); BKKT Q4 revs $13.7M vs est. $9.1M, sees FY22 revenues $60-80M vs est. $131.5M and says they expect to recognize qtrly net losses during the year as they invest in and ramp up their business

·     Consumer Finance; Bank of America double-upgraded UPST to Buy from UP after their Q4 fee revenue, EBITDA and EPS all topped Street consensus with guidance also surpassing consensus; The NY Times reported that thousands who received NAVI student loans will still have to pay despite a settlement last month that the company must fully cancel the remaining balances of private loans, the NY Times reported; FOCS Q4 revenue and EBITDA were ahead of consensus; EVER Q4 EPS (29c) vs est. (30c) on revs $102.1M vs est. $96.3M with FY22 revenue guidance $420-430M vs est. $428.2M; NU shares rise after Warren Buffett’s Berkshire Hathaway Inc, already a NU investor, revealed 107 mln shares stake in the company worth $1 bln as of Dec 31, SEC filings on Monday showed

·     REITs; RPT Q4 FFO slightly beat estimates with in-line FY22 guidance; ROIC Q4 missed, driven by a slightly lower Core performance and higher G&A expense with FY22 FFO short of consensus; HPP Q4 FFO 52c vs est. 48c with FY22 FFO expected to be $2.01-2.09 vs est. $2.04; ESRT Q4 core FFO and revenues slightly topped consensus; EQIX Q4 adj FFO $6.22 and revs $1.71B missed ests. $6.27 and $1.73B with FY22 adj FFO guidance range $28.87-29.20 also below est. $29.45, though revenue outlook $7.2-7.25B was ahead of est. $7.16B; GEO Q4 normalized FFO 52c on in-line revenue $557.5M, with FY AFFO forecast below consensus; CONE Q4 FFO and revenue beat estimates; STAG, CTRE Q4 reports were in-line with expectations

Healthcare

·     Pharma movers; ARVN announces completed Phase 1 and interim Phase 2 ARDENT data for bavdegalutamide (ARV-110), a novel PROTAC degrader targeting the androgen receptor; BMY said the FDA accepts for priority review its supplemental biologics license application for Breyanzi as a second-line therapy for relapsed or refractory large b-cell lymphoma; MDWD awarded $1.7 mln by the U.S. Department of Defense for development of NexoBrid, co’s product for non-surgical scab removal of thermal burns, for the U.S. Army

·     MedTech Equipment; TXG tumbles as reported 4Q21 revenue of $143.5mn (+28% Y/Y), below consensus of $148.5mn and initial 2022 revenue guidance in the range of $600mn-630mn, well below consensus of $679mn; OM 4Q21 revs of $28.2M, beats est. $26.4M, on acute console shipments, consumables, services, home dialysis upgrades with better FY22 guidance; BAX falls on weaker guidance as Q1 EPS $0.79-$0.82 was below the $0.97 estimate, warning of rising inflation and is facing supply chain and staff-related challenges in its plants; in hospitals, CYH with strong 4Q21 results, with EBITDA slightly better than previewed, and solid SS topline growth driven primarily by pricing.

Industrials & Materials

·     Aerospace & Defense; LDOS removed from the conviction list at Goldman Sachs and cut tgt to $103 following a disappointing 2022 guidance, but stay Buy-rated as we believe the guidance disappointment should act as a clearing event

·     Industrial & Machinery; MMM downgraded to Underweight at Morgan Stanley and cut tgt to $150 from $185 saying while fundamentals, growth is still insufficient when weighed against potential liabilities around PFAS and ear protection; in waste, WCN Q4 results were above expectations, with 70 bp margin expansion and 20% FCF growth and in-line guidance; ALSN 4Q21 adj EBITDA of $220M beat $198M estimates on better revs of $644M as customer demand has quickly recovered to pre-pandemic levels

·     Metals & Materials; ALB shares drop after forecast FY earnings below market estimates even though lithium prices were at record highs and posted a Q4 loss of $3.8M vs year-ago profit of $84.64M, citing labor and pandemic-related issues at its Kemerton project in Australia; SEE 4Q adj EPS $1.12 vs est. $1.13 on sales $1.5B vs est. $1.49B; guides FY adj EPS $3.95-4.15 vs est. $4.14 and sales $5.8-6.0B vs est. $5.8B; PKG upgraded to Neutral from Sell at UBS as expect PKG’s strong operational performance will continue into 2022

·     Chemicals; CF was downgraded to Neutral at JPMorgan as expect CF to report a peak earnings year in 2022 following a strong second-half 2021 EBITA performance and expect CF’s EBITDA to move lower in 2023 and in 2024 as a base case. Should Russia invade Ukraine, there would most likely be room for EBITDA in 2023 and 2024 to maintain themselves at or above the peak levels; NTR says a surge in prices of potash due to robust global demand and thin supply will boost its profit in 2022 as sees year EPS $10.20-$11.80, above estimates of $9.46 as expects supply issues to persist into 2022, including additional restrictions imposed on Belarus potash transported through Lithuania

Technology, Media & Telecom

·     Internet; FSLY drops to its lowest levels since May 2020 after the content delivery network firm posted a better Q4 rev and smaller loss, but guides Q1 revs $400M-$410M below est. $419M and sees a larger Q1 loss of (60c-70c) vs. est. loss (48c) along with slowing customer growth; FVRR reported a surprise Q4 adj EPS 22c vs est. (11c) on revenue $79.8M vs est. $76.8M with full-year revenue guidance $373-379M completely above est. $371M

·     Semiconductors; NVDA reported an in-line JanQ and guided to a strong AprQ rev/EPS of $8.1B/~$1.29; the revenue guide was 12% above consensus with growth in Data Center and Gaming – also key segments Gaming/DC/Pro-Vis (~95% of revs) growing 37%/71%/109% y/y, respectively (shares dipped despite strong results); AMAT reported F1Q results of $1.89 vs. cons $1.87, and F2Q guidance that was generally in line with consensus; MX Q4 revenues/Non-GAAP EPS of $110.3M/$0.31 vs consensus estimates of $122.3M/$0.28 with weaker ebitda and higher margins of 35%; the Economic Daily reported that MU has reportedly notified clients of raising spot and contract price by 25% and 17-18% respectively, triggered by WDC production halt; INTC is hosting its analyst day later tonight

·     Software movers; INFA delivered a good quarter highlighted by Subscription/Cloud ARR growth of +32%/+40% and guidance calls for +40% Cloud ARR growth or no deceleration y/y & net-new ARR of $125M vs. $90M in CY/21; CHKP upgrade from Market Perform to Outperform w/ $157 PT (from $150) at BMO as expect security demand to remain strong in CY22; PLTR slides on mixed Q4 as revs topped consensus but EPS missed; MTTR slides as delivered a top-line revenue beat and noted significant growth in subscribers and spaces under management but Q1 & FY22 guidance this quarter underwhelming compared to the Street; AMPL plunges on softer guidance – sees FY revs $226-234Mm vs est. $235.9Mm and FY adj net loss/share $0.42-0.44 vs est. -$0.44

·     Hardware, Components & Services; CSCO reported a solid 2QFY22 topping revenue and EPS estimates, boosted its dividend and added to its stock buyback while provided mixed F3Q22 guidance—rev. and EPS in line w/ Street expectations; SNPS January quarter results were modestly above consensus expectations and with demand remaining strong into the new calendar year, management raised its fiscal 2022 outlook for revenue, earnings, and cash flow; APP slides on soft outlook as sees FY22 revenue $3.55B-$3.85B vs. est. $3.82B; sees FY22 software platform $1.35B-$1.50B

·     Media & Telecom movers; ATUS downgraded to Neutral at Atlantic Securities after earnings as believe management’s strategy to address heightened competition through increased investment in Fibre is the right one but believe it will take time before results improve materially