Closing Recap

Tuesday, January 17, 2023

Index	Up/Down	%	Last
DJ Industrials	-391.39	1.14%	33,911
S&P 500	-8.14	0.20%	3,990
Nasdaq	15.96	0.14%	11,095
Russell 2000	-2.75	0.15%	1,884

 

Equity Market Recap

·     Stock markets opened higher to start the week, saw profit taking early after the S&P 500 (SPX) topped the 4,000 level, bounced then leveled off the rest of the day as attention turned to inflation data tomorrow (PPI), Fed speakers (3 on docket) and the next slate of quarterly earnings. Signs of decelerating consumer prices (CPI) last week sparked the S&P rally above its 200-day moving average in recent days – and expectations are for producer prices to show a continued slowdown in prices. The Nasdaq made it a 7^th straight day of gains overall while the modest losses snapped the S&P win streak of 4-days. NY Fed’s Empire Manufacturing survey for January contracted sharply coming in at -32.9, the lowest level since mid-2020 and represents the fifth-worst reading in series history – but a softer “prices paid” component and “employment” index help boost the case for a Fed rate hike pause and potential pivot by year end. Adding to the market gains was a headline that the ECB may opt for 25-bps hike in March after 50-bp move in Feb. Stocks dipped slightly late afternoon after the WSJ reported acting Comptroller of the Currency Michael Hsu warned that big banks may need to be broken into smaller pieces if they become too big to manage and are unable to fix significant regulatory lapses…but quickly recovered. Asian stocks ended in negative territory on Tuesday after data showed China’s economy grew at its slowest pace in more than 40 years owing to the impact of Covid lockdowns. The Dow Jones Industrial Average lags the S&P and Nasdaq following weak quarterly results from Goldman Sachs (GS) and guidance from Traveler’s (TRV).

 

Economic Data:

·     NY Fed Manufacturing data huge miss, but prices ease: NY Fed’s empire state current business conditions index down -32.9 in January vs -11.2 in December (vs. est. -9.0) as new orders index tumbles -31.1 in January vs -3.6 in December, prices paid index +33.0 in January vs +50.5 prior and state employment index at +2.8 in January vs +14.0 in December

 

Commodities, Currencies & Treasuries

·     WTI crude oil rises $0.32 or 0.4% to settle at $80.18 per barrel, its 8th straight advance. Gold prices slid from 8-month highs on Monday but held above the $1,900 an ounce level ahead of inflation data tomorrow, while hope remains high that the U.S. Federal Reserve would adopt a less aggressive approach to rate hikes going forward. Gold snapped its 5-day win streak, falling -$11.80 or 0.6% to settle at $1,909.90 an ounce.

·     The U.S. dollar index (DXY) gained +0.15%, while Treasury yields edged slightly higher. The euro fell back below the 1.08 level. Traders expect 90.6% odds of a 25-bps rate hike from the Fed in February and see rates peaking at 4.94% in June, while most Fed officials see rates landing north of 5% into the next year. Bitcoin gains for an 11^th straight day, holding above $21K.

 

 

Macro	Up/Down	Last
WTI Crude	0.32	80.18
Brent	1.46	85.92
Gold	-11.80	1,909.90
EUR/USD	-0.0021	1.0793
JPY/USD	-0.15	128.39
10-Year Note	0.024	3.535%

 

 

Sector News Breakdown

Consumer

Autos:

·     XEPV cut prices for most of its vehicles by around 10%, joining other auto makers in lowering prices as competition heats up in the EV sector; XPEV said it will slash prices for multiple versions of its P7, P5 and G3i models by 20,000 yuan (US$2,970) to CNY36,000 yuan

·     In auto dealers, Morgan Stanley downgraded AN to underweight and cut tgt to $96 from $104 as they lower franchise dealer forecasts following bellwether KMX’s disappointing results. Falling used prices and rising rates may take affordability to a ‘tipping point’ driving downside to ASPs, GPUs, and F&I/unit. Look for better entry point on estimate cuts as P&S stays resilient

·     CVNA said it adopted a shareholder rights plan, to block investors from buying up a stake while the stock price is depressed.

·     TSLA tgt slashed to $180 from 4350 at Jefferies but maintains Buy saying conviction that Tesla leads the industry towards a better business model is intact although trajectory bumpier than they would like – shares rallied on the day overall

 

Consumer Staples & Restaurants:

·     CHD upgraded to OW at Morgan Stanley following substantial stock underperformance in 2022, which presents a compelling entry point ahead of a pronounced and above consensus expected topline acceleration and GM recovery, and with 2023 consensus EPS now at reasonable levels

·     REYN was downgraded to Neutral at Credit Suisse saying benefits from C$1bn cumulative pricing and improved share trends in key categories are baked in

·     Morgan Stanley assumed coverage of the Restaurant & Food Distribution sectors, with a focus on the company’s best positioned to drive sales and unit growth in a potentially tougher ’23. The firm upgraded DPZ to OW from EW, downgrade CMG to EW from OW; PTLO to OW & stepping aside on select other SMid-caps. Top Pick, YUM Downgrade SG and DNUT to EW from OW and lastly downgrade SHAK to UW from EW

·     CAKE was downgraded to Neutral from Buy at Citigroup saying they still believe there are solid ways to generate alpha while on a restaurant diet in 2023, but are cutting dessert from the menu in CAKE downgrade following a bullish run, and shares are near their PT

·     TXRH downgraded to Outperform from Strong Buy at Raymond James as intensifying beef inflation headwinds cloud the company’s ‘23 (and potentially ‘24) margin outlook, partially offsetting our very positive view of the co’s mkt share during the pandemic and LT EPS potential

·     WEN downgraded to Hold at Deutsche Bank following Friday’s preliminary 4Q22 results noting U.S. comp result of +5.9% was above consensus but domestic units were underwhelming

·     Jefferies said they remain positive on beer stocks (TAP) and NAPA w/in an expensive staples group, though negative on SAM

Retailers:

·     Wayfair (W) and KR upgraded to equal-weight from underweight at Morgan Stanley; EYE downgraded to equal-weight from overweight in hardline, broadline and food retail coverage. Said top OW ideas are defensive names DG, WMT, AZO and are Underweight on WSM, BBBY, SBH.

·     BABA shares active after Meme-stock investor Ryan Cohen has amassed a stake in Alibaba Group Holdings and is now actively pushing the Chinese e-commerce giant to expand its share buyback program, media outlets reported late on Monday https://on.mktw.net/3ZHJCHt

·     MHK shares dropped after issuing Q4 EPS guidance of $1.27-$1.31 yest, below prior view of $1.40-$1.50 (and est. $1.44) – said global residential flooring business to be impacted by high interest rate environment, mixed with high inflation in the U.S. and Europe

·     WHR said it has completed strategic review of its EMEA business and has entered into a contribution agreement with Turkish rival Arcelik AS; WHR to own 25% and Arcelik 75% of the new entity, which is expected to generate cost synergies of over 200 mln euros

 

Energy

·     UBS lowered its 2023 Brent price forecast to $90/bbl from $95/bbl but reiterate forecasts for later years: $85/bbl in 2024, $80/bbl in 2025 and $75/ bbl from 2026 saying the change to 2023 forecasts is driven by a combination of weaker demand in the near-term and more limited supply disruption than previously expected.

·     BOOM said Q4 sales are now expected in a range of $173M-$175M, above est. $164.2M and sees Q4 adj EBITDA at or slightly above high end of its previously guided range of $15M-$18M

·     In refiners, VLO upgraded to Outperform at BMO Capital and raise tgt to $160 as view Valero as the best-in-class refiner and expect strong operational performance and a favorable macro backdrop for cracks to continue in 2023

·     In oil & gas equipment, Citigroup downgraded LBRT, PUMP and PTEN to Neutral from Buy (Given the risk of negative revisions) and name NBR, SLB top picks saying the sector is a consensus long and argue the best approach is to blend non-consensus longs such as OII and NBR with SLB, a core energy holding given multiple layers of growth.

 

Utilities and Solar

·     CNP and SO downgraded on valuation at Keybanc in utilities noting the sector had a good run in 2022, but think the trade is over – for now. Names they highlight going into 2023 are FE, NWE and CEG and continue to view XEL, DUK, and WEC as high-quality and well-positioned names and continue to rate them OW

·     In solar, FSLR is one of Keybanc top picks in the space going into 2023 due to its attractive valuation, and potential for additional positive catalysts in the NT; says NOVA remains their favored residential solar name; BE is among their top picks within the fuel cell/electrolyzer space; and PLUG remains a recommended name as an integrated player within the clean hydrogen space – Alternative Energy 2023 Outlook: Cleared for Takeoff

 

Financials

Banks, Brokers, Asset Managers:

·     GS misses as Q4 EPS $3.32 vs. est. $5.59; Q4 revs $10.59B vs. est. $10.7B; Q4 provision for credit losses $972M; loans $179B; Q4 Investment banking revenue $1.87B vs. est. $1.64B, Q4 equities sales & trading rev $2.07B vs. est. $2.14B and Annualized ROE +4.4%, vs. est. +7.42%

·     MS Q4 adj EPS $1.31 vs. est. $1.26; Q4 revs $12.75B vs. est. $12.43B; Q4 Equities Sales & Trading revs $2.18B vs. est. $2.40B and FICC Sales & Trading revs $1.42B vs. est. $1.68B; Q4 provision for credit losses $26M; ROE 9.2%; Q4 Net interest income $2.32B vs. Bloomberg est. $2.5B

·     Crypto bank SI Q4 EPS $0.48 vs. est. $0.81; Q4 results show digital asset customers were 1,620 at Dec 31, 2022, compared to 1,677 at September 30, 2022, and 1,381 at December 31, 2021; posts wider q4 loss while reduced headcount by about 200 employees, or 40%

·     SBNY, another name leveraged to crypto, Q4 EPS $4.65 vs. est. $4.89; qtrly net interest income reached $638.7 million up $102.8 million, or 19.2% y/y; Q4 credit loss provision was $42.76M

·     In research following earnings: BAC downgraded from Neutral to Underweight at Piper and cut tgt to $33 from $36 given uncertainty in the outlook as Q4 showed better-than-expected noninterest income and NIM; but loan growth, expenses, and credit costs all missed; WFC downgraded to neutral from buy at Jefferies and lowered its price target to $46 from $49, after the bank provided its fourth-quarter results

·     HOOD announced the formation of Sherwood Media, LLC, a new subsidiary that will be a home for news and information about the markets, economics, business, technology, and the culture of money.

 

Bitcoin, FinTech, Payments:

·     Bitcoin related names (COIN, MARA, MSTR, RIOT) extend the 2023 rebound as Bitcoin tops $21,000 for the first time since November this weekend, as investors pile into beaten up 2022 sectors looking for outperformance

·     Morgan Stanley provides Fintech & Payments 2023 Outlook saying compelling valuations amidst a possible competitive shift from higher rates and lower VC investment makes payments increasingly attractive. Firm upgraded GPN to Overweight and up tgt to $135 from $124 given this changing environment, while V/MA remain preferred plays

·     Barclay’s downgraded FIS to Equal Weight from Overweight with a price target of $73, down from $90 saying the long-standing Fintech investor playbook stopped working since the pandemic, leaving confusion and uncertainty; also downgraded PAYX to Underweight from Equal Weight with a price target of $110, down from $115

·     ACIW launches ACI instant pay for merchants – in-store, online, and mobile real-time payment

 

REITs:

·     AVB and EQR upgraded to Buy from Hold at Truist, and downgraded COLD, EXR, KIM and MAA to Hold in 2023 REIT outlook and adjusting price targets and estimates for many as expect the REIT sector to outperform the broader market in 2023, following a challenging 2022 (RMZ -25% vs. S&P 500 -18%). Said they are relatively bullish on Triple Net, Industrial, Gaming; neutral on Healthcare, Multifamily, Office, Retail; and relatively cautious on Self-storage and Hotels.

·     BKD downgrade from Buy to Hold at Stifel saying the senior housing operator updated view on full year results expecting adjusted EBITDA to miss guidance due to higher operating expenses despite on-target top-line performance.

·     MPW shares outperform after Keybanc noted after Friday’s market close, MPW announced that the bankruptcy court approved Pipeline Health’s (~5% of estimated cash rent) plan to assume its existing master lease with MPW. As part of the plan, MPW is providing a temporary cash rent deferral in 2023, which will be fully repaid with interest in 2024.

 

Credit Cards, Insurance & Services:

·     Dow component TRV guided Q4 core EPS $3.40, below est. $4.04 which included the company’s estimate for catastrophe losses of $459M pre-tax, $362M after-tax, net of reinsurance

·     AXP said card member loans net write-off rate-principal only 1.2 % at Dec 2022 end vs 1.0% at Nov 2022 end: member loans 30 days past due loans as a % of total 1 % at Dec 2022 end vs 0.9% at Nov 2022 end

·     SYF charge-offs for December of 2.32% and delinquencies 1.79%

·     BAC said credit card charge-off rate was 1.44% in dec 2022 vs 1.45% in Nov 2022; delinquency rate was 1.03%% at dec 2022 end vs 1.02% at Nov 2022 end

 

Healthcare

Biotech & Pharma:

·     PFE downgraded from Overweight to Equal Weight at Wells Fargo as think an earnings down-revision cycle is coming for the company in near term, coupled with margin pressure on the core business due to increased investments in new launches.

·     BMY initiated at Overweight, $95 PT at Cantor noting the co hasn’t been able to break above a $75-80 range for nearly a year, but the setup for this stock is the best they’ve seen since the 2019 Celgene deal – and think thesis could start to materialize in the next few weeks

·     BIIB partner Eisai Co. (ESLAY) applied for marketing authorization in Japan for the Alzheimer’s disease treatment lecanemab

·     DNA and XWEL announced that they have expanded their support for the Centers for Disease Control and Prevention’s Traveler-based Genomic Surveillance program to include a pilot study monitoring influenza virus in addition to SARS-CoV-2.

 

Healthcare Services & MedTech movers:

·     NVCN to be acquired by SWAV for $27,25 per share in cash upfront on completion of the Transaction, corresponding to an enterprise value of approximately US$100M, plus deferred payments of up to approximately US$47M on the achievement of future regulatory milestones in the form of a contingent value right (CVR) https://on.mktw.net/3IWgXbW

·     INGN downgraded to Market Perform at William Blair due to macro headwinds that lead to the potential for more headwinds than tailwinds in the short-term

·     VIVE tumbles after saying its treatment for stress urinary incontinence failed to meet main goal in a pivotal study; seeks strategic alternatives and will delist from Nasdaq

·     In the CRO sector, Barclay’s upgraded ICLR to Overweight from Equal Weight with a price target of $260, up from $215 as sees a tale of two halves in 2023 for the contract research organizations sector and double downgraded SYNH to Underweight from Overweight

 

Industrials & Materials

Transports

·     Trucking sector changes at Bank America as sees truck demand near floor, Rails to grow on service. Firm upgraded SNDR to Buy from Underperform and raise tgt to $29 and $50 (from $23 and $42), as turn positive on truckload ahead of the group’s upturn. Upgraded ODFL to Neutral (from U/P), with a $334 PO (from $266) while lower XPO to U/P (from Neutral). Downgraded CHRW to U/P (from Neutral) given margin pressure. In equipment, they swap GBX (U/P from Neutral) for WAB (Neutral from U/P).

 

Industrials, Aerospace & Defense

·     NATI to be acquired by EMR for $53 per share, in deal valued at $7.6B, up from its prior bid of $48 a share submitted in May 2022 https://on.mktw.net/3IY52tZ

·     In the E&C sector, Keybanc upgraded TTEK to Overweight following the bottom quartile LTM share price performance on a top quartile upward organic EPS revision; downgrade EME and MYRG to Sector Weight, with both names lacking clear 1H23 catalysts in E&C space

·     NOC tgt cut to $500 from $570 at Cowen noting shares are off 15% with two downgrades since Jan 7 when Kevin McCarthy was elected House speaker. His concessions to conservatives, who are pushing for spending cuts, is a major overhang to the FY24 budget

 

Materials, Metals & Mining

·     CLF announced another price increase for hot rolled, cold rolled and coated steel products due to strong demand in its automotive steel business

·     RIO raises iron ore production, with copper output set to jump

·     IP, WRK, PKG weak in the containerboard sector after Keybanc noted export markets remain weak as demand isn’t improving; prices continue to fall in Europe

·     RYAM shares outperform following upbeat guidance

 

Technology

Internet, Media & Telecom

·     DIS states in 14A presentation: "Nelson Peltz does not understand Disney’s business and lacks the skills and experience to assist the board in delivering shareholder value in a rapidly shifting media ecosystem."

·     Truist named DIS top idea in streaming outlook for 2023 while downgraded LGF, ROKU and upgraded tgts and/or Estimates for Buy rated SPOT, WMG, and Hold rated NFLX (ahead of earnings this Thursday) – maintain Buy on SPOT into near-term catalyst; maintain Buy on WMG on recent pullback into catalysts; maintain Hold on NFLX though raise PT on FX, multi-year drivers

·     SNAP downgraded to Market Perform from Market Outperform at JMP Securities as they reduce estimates again given declining U.S. time spent on Snap, which they believe is a direct consequence of increased competition from Reels (META) and YouTube Shorts (GOOGL).

·     WWE upgrade from Underweight to Equal Weight at Wells Fargo with $100 tgt from $52 and think its strategic process has a reasonable probability of success; says a financial buyer could justify a mid-teens EV/EBITDA multiple given precedents for IP assets like UFC by EDR

 

Hardware & Software movers:

·     AAPL today unveiled the new mac mini, supercharged by M2 and the all-new M2 pro

·     DAVA mentioned positively in Barron’s saying despite a 42% decline over the past 12 months, the company is well positioned in 2023

·     RBLX rises as reported the number of daily active users (DAUs) soared 18% year-over-year (YoY) to 61.5 million while hours engaged increased 21% YoY to 4.7 billion

·     Piper downgraded BAND, DOCN to Neutral from overweight, upgraded NICE to Overweight, continue to recommend NTNX (which is moved to top-idea following checks), FIVN, ANET, TWLOtweaks its cloud automation software ratings

·     Guggenheim downgrades shares of software co’s MSFT, ZS, WDAY, SPLK, NET, PANW saying we’re in a prolonged macro slowdown and no one is immune, not even security. The positive secular forces of Software and the favorable characteristics of the Software financial model remain intact. But there have been changes. Stays buy rated on CRM, ORCL, PRGS, SMAR, SNOW

·     CGNX was downgraded to underweight at Morgan Stanley as believe logistics could be much worse than is implied in consensus as warehouse capex is expected to be down more than 50% in 2023. They see organic declines in 2023 without a significant logistics snap back in 2024, which could pressure CGNX’s historical premium valuation

·     CHKP was upgraded to Equal weight from Underweight at Wells Fargo citing a shift in investor sentiment toward profitability, coupled with improving demand trends in 4Q22; says Check Point is the most profitable company in our coverage universe

·     UPLD downgraded to MP at Raymond James as believe growth in the current macro is likely to remain challenged following recent go-to-market changes and its core M&A strategy continuing to face headwinds in the n-t with private multiples remaining elevated vs its own valuation