Closing Recap

Wednesday, February 23, 2022

Equity Market Recap

·     It was another ugly day on Wall Street as a further breakdown of support levels for major averages, coupled with headline after headline indicating an invasion of Ukraine is imminent wore down investor sentiment, with major averages trading to their lowest levels of 2022 in a broad-based sell-off. The S&P 500 index fell for a 4^th straight session (holding -10% in correction territory), extending recent losses after failing at its 200-day moving average support last week (stands at 4,458) in what has been a sharp breakdown in stocks on geopolitical fears as well as rising interest rate concerns out of the Fed into the March meeting. According to a Senior US defense official earlier: Russia is “as ready as they can be.” They have brought in “nearly 100% of all the forces we anticipated he would need” for a large-scale invasion. Russia has more than 10 landing ships in the Black Sea with troops on board, according to several reports. The uncertainty continues to press major averages lower as the Nasdaq 100 posted its 5th straight down day, falling to lowest levels of 2022 below 334 – note the QQQ hasn’t posted a 6-day losing streak since February 2021 (2/16-2/23). Commodity prices in focus given the Russia/Ukraine news with oil, gold, platinum, nickel, volatile on supply disruption fears.

·     Stock & Sector movers: Busy day in retail earnings as LOW rises on a beat and raise report, ODP green most of the day but fades, TJX slides to 52-week lows after its quarterly sales missed estimates; in e-commerce, JMIA slides despite a beat and OSTK surges to recoup most of its losses during its recent 4-day losing streak after its EPS topped estimates and ICE announced a strategic investment in tZERO; Media space underperforms after ATUS was downgraded at Evercore and SocGen and CMCSA CHTR were downgraded at BNP; vaccine space MRNA BNTX NVAX PFE another pocket of weakness.

Commodities

·     Oil prices end higher, but only manage a gain of $0.19 or 0.21% to settle at $92.10 per barrel, off earlier highs of $93.90 per barrel as risk assets coming under pressure Prices jumped initially amid ongoing headlines that would suggest the threat of war in Ukraine remains extremely high. Ukraine’s government has declared a state of emergency and has begun calling up military reservists and urged its citizens to leave Russia. Oil prices fell from seven-year highs.

·     Gold prices rise $3.00 to settle at $1,910.40 an ounce, closing at its best levels in over a year as precious metals jump after the U.S. and its allies unveiled more sanctions against Russia on Wednesday over its recognition of two separatist areas in eastern Ukraine. Palladium prices jumped over 3% amid supply fears from top producer Russia. Russia is the world’s third largest producer of gold, while the country’s Nornickel is also a major producer of palladium and platinum, according to Reuters.

Currencies & Treasuries

·     The U.S. dollar was mixed vs. a handful of other currencies as all eyes remain glued to the Ukrainian crisis after a several countries announced sanctions against Russia for ordering troops into separatist regions of its neighbor. The buck was flattish against the euro and Japanese yen early in the day, while the Russian Rouble weakened more than 2%. The New Zealand dollar spiked after the Reserve Bank of New Zealand raised interest rates and said more tightening could be necessary. Stronger oil prices lifted the Canadian dollar and Australian dollar. The U.S. dollar has been subdued recently as tensions in Ukraine have increased, fueling speculation that the U.S. Federal Reserve may be less aggressive in tightening policy in March.

·     Treasury yields were steady most of the day, with the 10-year holding between 1.96%-1.98% most of the day, while the yield curve flattened to roughly 37 bps vs. the 2s and 10s. The U.S. Treasury sold $53B in 5-year notes at a yield of 1.88% vs. 1.881% when issued prior, with a bid-to-cover at 2.49 vs. 2.50 prior auction and indirect bidders awarded 67.81%, directs 18.43% and primary dealers 13.76% 9record low for second straight auction).

Sector News Breakdown

Consumer

·     Retailers; OSTK shares rose after ICE announced that it is making a strategic investment in tZERO, a leader in blockchain innovation and liquidity for digital assets (note OSTK is an original investor in tZERO); TJX said it plans to raise its quarterly dividend by 13%, to 29.5c from 26c, and to buy back up to $2.5 billion in stock during the current fiscal year; ODP posts a top and bottom line Q4 beat and says expects 2022 revs and cash flows in range with 2021; TUP issues lower guidance as sees year EPS $2.60-$3.20, below consensus $3.13 after Q4 EPS missed views; shares of GIL and WWW also active following earnings results

·     Auto sector; TEN shares nearly double as entered into a definitive agreement to be acquired by funds managed by affiliates of Apollo in an all-cash transaction with an enterprise valuation of approximately $7.1 billion, including debt, with holders to get $20 per share in cash; TSLA plans to expand parts production at its Shanghai factory to meet growing demand for exports according to a document; HYZN receives contract from Sweden’s MaserFrakt to supply two HyMax-250 fuel cell electric trucks

·     Housing & Building Products; LOW a better reaction to earnings than peer HD yesterday as Q4 adj EPS $1.78 beats est. $1.71 on better revs $21.34B vs. est. $20.9B; reports consolidated comparable sales up 5% and U.S. comparable sales up 5.1% – raised year EPS/rev views; homebuilder TOL reported F1Q22 EPS ahead of consensus forecasts while F2Q22 guidance slightly below forecasts, but F2022 unchanged; flooring co LL with mixed Q4 results as EPS $0.35 vs. est. $0.24; Q4 revs $285.3M vs. est. $295.5M and Q4 total comp store sales decreased 6.7% y/y but increased 3.8% on a two-year stack basis.

·     Consumer Staples; TAP 4Q adj EPS $0.81 misses the $0.86 estimate on net sales $2.62B vs est. $2.55B; guides FY net sales +MSD vs. est. +3.1% and sees FY underlying FCF $900Mm-1.1B; BYND tgt cut to $55 at Jefferies from $90 ahead of earnings saying remain cautious in the near-term as they are still below FY’22 consensus, driven by weaker-than-expected H1 revenues

·     Restaurants; TXRH Q4 revenue of $895.6m was in-line with ests while comp sales at TXRH restaurants in the first seven weeks of Q1 increased 20.6% from a year earlier, compared with 33.1% in Q4; JACK reported mixed Q4 with an EPS beat on slightly weaker revs of 4344.7M and lower margins of 18.3% vs. est. 19.5%; TGT’s curbside drive up service to offer SBUX and returns, today unveiled plans to continue enhancing its fast-growing, same-day pickup services in the Fall

·     Casinos, Gaming, Lodging & Leisure sector; in casinos, CZR shares jump early after mixed results as 4Q EPS ($2.03) vs est. ($0.92) on revs $2.6B vs est. $2.59B; expects to continue to reduce debt in 2022 through receipt of asset sale proceeds and significant FCF; CNTY says it will acquire 50% of Smooth Bourbon and 100% of Nugget Sparks, a casino resort, from Marnell Gaming for $195 million per Bloomberg; CWH shares fall in RV space after earnings

Energy

·     E&P and Majors; FANG higher-than-expected Q4 profit and boosted its dividend/said its average unhedged realized prices during Q4 more than doubled to $56.47 per barrel of oil equivalent and Q4 output was 387,100 barrels of oil equivalent per day, compared with 299,000 last year; BRY adj 4Q21 CFPS was 3% below consensus, CAPEX was $10M below consensus. 4Q21 production was 0.7% below consensus, but 4Q21 oil production was in line; RRC Q4 CFPS was 2.5% below consensus; 2022 production guide was 2.2% below consensus, and 2022 capex guide was 3.5% above consensus; VNOM 4Q21 CFPS 16% above consensus and 4q21 distribution $0.06 above consensus; 2022 oil guide was 2.7% above consensus; MRO upgraded to Overweight at Piper and raise tgt to $27 from $22 following 4Q21 results, and a strong management message on 2022 capital return potential; NOV downgraded to Sell from Neutral at Goldman Sachs with a $16 tgt

·     Refiners: HFC reported a narrower quarterly loss , helped by a sustained recovery in demand for fuel and refined products from the pandemic-driven lows; said refinery gross margin for Q4 was $8.70 per produced barrel, a 116% increase from $4.02 in the year-ago period; SUN upgraded to Buy from Neutral at Citigroup noting they had downgraded to Neutral less than one month ago on February 1st on the key thesis that ‘a lot was priced in.’ Well, things done changed – and quickly noting SUN has underperformed industry competitors by ~5% relative and has also been the worst performer out of our coverage universe, down ~13%

·     Utilities & Solar; REGI shares surge after Bloomberg reported the company is exploring options after receiving takeover interest https://bloom.bg/3hayvSq ; coal producer HCC Q4 EPS handily topped estimates ($3.17 vs. est. $2.35) while production volumes were guided to 6.0mt in 2022 (midpoint), up ~7% from 2021 levels; ES downgraded to Underperform at Bank America following the 4Q21 refresh where management lowered its offshore wind profitability targets; PPL’s planned purchase of Narragansett Electric Co. approved by Rhode Island regulator

Financials

·     Bank movers; BCS posted a pretax profit for the period of 1.47 billion pounds ($2 billion), up from GBP646 million a year earlier and vs. est. GBP1.17 billion while net profit rose to GBP1.12 billion from GBP220 million for the year-earlier period (vs. est. GBP643 million); Wedbush initiated FHN at Outperform based on an improved earnings outlook as it is one of the most asset sensitive banks in their group; Janney upgraded PFC to Buy and downgraded RBB to Neutral; EVR announced a $1.4B share buyback; WETF added $85.7M to its existing stock repurchase program, bringing its total authorization to $100M through April 2025

·     Financial services; CSGP Q4 adj EPS 35c vs est. 29c on revs $507M vs est. $501.3M though Q1 and FY EPS and revenue guidance both came in short of consensus; BCO Q4 adj EPS $1.68 vs est. $1.46 on revs $1.1B vs est. $1.07B, sees FY22 adj EPS $5.50-6 vs est. $5.98, revenue $4.52-4.67B vs est. $4.6B, adj EBITDA $755-790M vs est. $780.3M; NU reached 53.9M clients in Q4 as revenue more than tripled YoY to $635.9M with monthly revenue per active client rising almost 70% to $5.60, and they expect revenue per client to continue growing in FY22

·     Insurance; RDN Q4 adj EPS $1.07 vs est. $0.69 on revs $338.4M vs est. $322.6M with new insurance written and net premiums earned also topped consensus, book value per share +8.5% YoY; VRSK Q4 adj EPS $1.47 vs est. $1.41 on revs $766M vs est. $770M; Jefferies prefers MET over PRU despite the two trading at P/E parity as it has modestly stronger earnings growth, higher FCF conversion and greater capital deployment certainty

·     Consumer Finance; UBS downgraded UWMC to Neutral as they expect wholesale experiences heavy GOS compression for at least the next two quarters and only slowly recovers after that; Morgan Stanley downgraded TRU to EW with a $102 PT from $130 as it has outperformed EFX by 500bps YTD and they prefer the latter as they like its portfolio better and believe TRU may face increased execution risk after recent transactions; Rosenblatt lowered their PT on SOFI to $22 from $25 to reflect ongoing multiple compression and heightened execution risk but maintain their Buy rating after noting the potential positive impacts of yesterday’s Technisys acquisition

·     REITs; PSA Q4 core FFO $3.54 vs est. $3.44 on revenue $924.3M vs est. $908.7M; sees FY22 revenues +12-15%, core FFO $14.75-$15.65; ACC Q4 FFO $0.75 vs. est. $0.71 on revs $272.3M vs. est. $249.1M, grew same store net operating income (NOI) by 14.8% YoY, sees 2022 FFO $2.46-$2.56 vs. est. $2.41; SHO Q4 adj FFO 8c vs est. 10c on revs $173.9M vs est. $277.7Mm, 14 hotel portfolio REVPAR +421.2% to $136.50; DOC Q4 normalized FFO matched estimates with revenue slightly missing consensus; EPR Q4 adj FFO $1.11 vs est. $0.96 on revs $154.9M vs est. $134.2M, sees adj FFO $4.30-4.50 whose midpoint represents +42% annual growth; O Q4 adj FFO 94c vs est. 88c on revenue $685M vs est. $653.4M; PEB Q4 adj FFO missed estimates with Q1 guidance that sees a much wider loss than expected

Healthcare

·     Pharma, Biotech movers; KOD plunges over -70% after saying its experimental drug KSI-301 failed to meet the primary goal of showing non-inferior visual acuity gains compared to REGN’s Eylea in wet age-related macular degeneration patients; MRNS shares slip after announces delay to RAISE phase 3 clinical trial in status epilepticus and associated IV Ganaxolone clinical trials; NVAX announced the first doses of Nuvaxovid™ COVID-19 Vaccine (recombinant, adjuvanted) have begun shipping to European Union (EU) member states

·     MedTech Equipment; Agilent (A) reported a solid FQ1 with 9% core growth ahead of 6% guide and a guidance raise the key highlights as Biopharma and C&E drove the upside in the quarter and stronger growth here looks set to continue; DGX downgraded to Neutral from Buy at UBS and cut tgt to $139 from $160 as see risk to meeting mgmt’s Target of $8.50 in FY23; TNDM reported strong 4Q results, as sales of $210.0M (+25%) topped consensus by $11.0M driven by a balanced performance across both the U.S. (+$5.5M) and OUS ($+5.5M) segments on better guidance; EXAS 4Q EPS ($1.28) vs est. ($1.04) on revs $473.8Mm vs est. $449Mm; guides FY revs $1.975-2.027B vs est. $1.985B; OMI 4Q adj EPS $0.81 vs est. $0.71 on revs $2.467B vs est. $2.43B; guides FY revs $9.2-9.6B vs est. $9.78B and adj EPS $3.00-3.50 vs est. $3.35; GKOS Q4 EPS (47c) vs est. (37c) revs $7.2M vs est. $67.3M and sees FY22 sales $265-275M vs est. $268.2M

·     Healthcare Services; TDOC Q4 EPS (7c) was a narrower loss than est. (56c) on revs $554.2M ahead of est. $546.6M with Q1 guidance for EPS (60c)-(50c) vs est. (51c) on revs $565-571M vs est. $588.9M with FY revenue expected $2.55-2.65B vs est. $2.575B that is weighted towards 2H; HIMS Q4 EPS (15c) vs est. (7c) on revenue $84.7M vs est. $76.7M, member subscriptions +95% YoY to 609K, with revenue guidance in Q1 $90-93M vs est. $77.6M and FY22 $365-380M vs est. $350.7M; HQY reported HSAs +25% and total accounts +12% YoY while narrowing FY22 EPS guidance to $1.30-1.33 from $1.30-1.35 with a raised revenue outlook of $754M-$756M from $750M-$755M, and sees FY23 revenue $815M-$830M vs est. $827.4M; OPCH Q4 EPS 42c vs est. 24c on revs $927.2M vs est. $917.7M, sees FY22 revenue $3.65-3.85B vs est. $3.69B

Industrials & Materials

·     Aerospace & Defense; SPCE posted smaller-than-expected loss and said its cash position has improved; MAXR Q4 EPS $0.94 vs est. $0.07 on revenue $468M vs est. $461.3M; backlog for the year ending Dec. 31, 2021 $1.893B; KTOS results were above views (4Q adj EPS $0.11 vs est. $0.09 on revs $211.6Mm vs est. $208.8Mm) and the 2022 rev outlook was optically above consensus but includes ~$45M of acquired rev (but still embeds 8% organic growth); RTX says Pratt and Whitney will probably not ship around 70 engines to Airbus in q1 due to casting shortages, but will make up for engine shipment shortages later in the year

·     Industrials, Metals & Materials; MOS slides after Q4 adjusted EPS and revs missed expectations, as sales volumes fell sharply for both potash and phosphates from a year earlier (Q4 potash sales volumes fell to 2.1M metric tons from 2.7M tons in the year-ago quarter); Dow component MMM shares down for the 9th straight day as the Dow component falls to lowest levels since May 2020; BCC shares tumble following earnings results; Solvay’s results beat expectations, with Ebitda of EUR572 million an 11% beat to consensus

Technology, Media & Telecom

·     Internet; TWTR said it is offering $1 billion of high-yield 8-year bonds in a private placement. Proceeds will be used for general corporate purposes, including capex, investments, to repay debt, to buy back its stock, working capital and for potential acquisitions; MELI said Q4 GMV rose 21% at $8B, while monthly active users up more than 11.1% at 82.2M and net revenue up 61% to $2.1B vs. est. $2.02B; VIPS falls as reported Q4 revenue that missed the average analyst estimate and issued guidance for the first quarter, which also came up short of forecasts

·     Semiconductors; INTC upgraded to Market Perform from Underperform at Raymond James, closing out their underperform call now that thesis has played out and the stock has reacted. At its analyst day last week, Intel guided for no free cash flow for the next three years as it plans to invest heavily to regain process superiority

·     Software movers; PANW rises after strong 2Q results that beat across the board as billings, and NGS ARR well exceeded expectations and FY22 guidance was lifted across most key metrics by more than the beat; TBLA reported better-than-expected 4Q21 results as revenue, gross profit ex-TAC, and EBITDA came in 3%, 3%, and 4% above the high end of guidance, respectively and raised full-year 2022 guidance with results; RNG delivered a solid 4Q21, beating consensus revenue/EPS by +3%/+$0.02 and guiding 2022 top-line growth of ~25-26% y/y – metrics better as enterprise ARR growth of 62% y/y, international revenue up ~50%, and total ARR +39% y/y; Mizuho with tgt changes as PLAN (PT $60 from $70), COUP (PT $130 from $180), INTU (PT $280 from $340), ZM (PT $190 from $300) saying SaaS valuations have started to stabilize over the past two weeks after falling precipitously to start 2022; MNDY slides despite smaller-than-expected Q4 loss of (-$0.26) vs. est. loss (-$0.52) and better revs, while sees Q1 operating loss $45M-$47M and FY22 operating loss $142M-$147M; WK 4Q21 results beat expectations across-the-board with revenue growth of 28.7% but shares fell as CY22 operating-loss guidance of ~$36M was well below expectations

·     Hardware, Components & Services; RXT tumbles as delivered solid 4Q21 slightly above expectations but 1Q22 and FY22 guidance was well below expectations for revenue growth, margins and FCF (downgraded by two Wall Street firms); CDNS reported strong 4Q results, posting a $16M revenue beat on broad-based strength and guided double-digit revenue growth of 11-13% (about $118M above midpoint)

·     Media & Telecom movers; IHRT Q4 revs $1.06B slightly above $1.04B estimate on in-line Q4 adjusted EBITDA $294.2M and said sees Q1 revs to increase by approximately 17%-19% YoY; SBGI swung to a Q4 loss and revs fell to $1.48B from $1.51B (below views $1.56B) – cites loss due to a ransomware cyberattack that hampered operations, but increased its quarterly dividend; ATUS downgraded at Evercore/ISI and slashed its price target to $15 from a previous $25 – and it’s attributing that to Altice USA’s switch to a "high-fiber diet."