Closing Recap

Thursday, March 10, 2022

Equity Market Recap

·     Amazon will buy back up to $10B of its own stock and became the second trillion-dollar company to announce a 20:1 split this year after Google announced the same split last month, but the tech giant’s move higher today was unable to rescue markets from ongoing inflation concerns, worries stemming from the Russia-Ukraine conflict, and the overhang ahead of next week’s expected rate hike. The S&P, Nasdaq, and Dow have now traded lowered in six of March’s eight sessions as yesterday’s surge may have been a blip amidst broader selling pressure, though a small afternoon rally trimmed today’s losses. Inflation data for February was in-line with expectations as this morning’s CPI showed prices rose +7.9% from last year. This was only the second month since 1982 with an annual increase of at least 7.5%, but both instances have now occurred in consecutive months to start 2022. Meanwhile, the ECB met for the first time since Russia invaded Ukraine and had a bleaker tone than its December meeting with revised forecasts of worsening inflation and slower GDP growth than before. It is also accelerating the pace it unwinds its asset purchases to deal with surging inflation and said it will end its program in the third quarter if the economic data support it.

·     Stock/sector news; AMZN jumps after announcing a 20:1 split (first since 1999) and a $10B buyback; CRWD soars on a strong quarter with accelerating growth and robust guidance while ASAN plunges despite a quarterly beat as its aggressive investment pressure its margin outlook; PTON slides after announcing it is testing a new pricing model; HAL BKR MOS CF EOG Energy, metals, materials lead the S&P again; FXI China ETF slumps to 6-year lows, KWEB China Internet ETF tumbles to lowest since Aug 2015 after JD plunges on a revenue miss with decelerating growth, BEKE record lows on weak guidance, BZUN plummets on a revenue miss

Economic Data:

·     US YoY +7.9% (Forecast 7.9%, Previous 7.5%); MoM Actual 0.8% (Forecast 0.8%, Previous 0.6%)

·     US Initial Jobless Claims Actual 227k (Forecast 217k, Previous 215k)

Commodities, Currencies & Treasuries

·     Oil prices extend yesterday’s 12% decline, losing -$2.68, or 2.47%, to settle at $106.02/barrel. This is the first time in nearly a month that oil prices were lower in back-to-back days as the price of a barrel has fallen more than 14% since Tuesday’s settlement and is nearly 20% off Monday’s 14-year high above $130 as volatile price swings continue. Prices were at a high approaching $115 this morning to bounce back from yesterday before steeply reversing lower.

·     Gold prices moved higher by $12.20, or 0.6%, to settle at $2,000.40/oz, its second settlement above $2,000 this week after not being able to break that threshold since August 2020. The recent rise in precious metals is driven by surging inflation and geopolitical turmoil.

·     Bond yields climbed after the highest monthly inflation reading in 40 years with the 10-year yield hitting above 2% for the first time in nearly 2 weeks and the 30-year yield climbing to its highest since last May.

Sector News Breakdown

Consumer

·     Retailers; AMZN board of directors approved a 20-for-1 split of company’s common stock to be in effect on June 6th and to buy back up to $10B of company’s stock; FOSL tumbles as guides FY net sales +2-6% with stronger yr/yr growth during 2H which is much lower than FOSL’s 2021 worldwide net sales growth of 16% on a reported basis and 14% in constant currency; BBW Q4 adj EPS $0.97 vs est. $0.92 on in-line revenue $130M; GCO Q4 adj EPS $3.48 topped est. $2.64 on sales $727.7M vs est. $725.5M, same-store sales +10%, guide FY21 sales +2-4% on adj EPS $7-7.75 vs est. $7.13; PTON is planning to test strategies to turn around the company including a new pricing plan, according to The Wall Street Journal, where customers pay a single monthly fee between $60-100 that covers both the stationary bike and a monthly subscription to workout courses; DLTH Q4 EPS 53c vs est. 47c on sales $270.8M vs est. $268.5M, sees FY22 sales EPS $0.93-1.02 vs est. $1.02 on sales $730-755M vs est. $752.4M

·     Auto sector; NIO Debuts in Hong Kong Homecoming Listing – company did not raise any money with listing in the Asian hub; TSLA raised the price of the Tesla Model Y Long Range in the United States by $1,000 to $59,990, Model Y Performance has been raised by $1,000 to $64,990; XPEV is now taking reservations in four European markets and opened a store in the Netherlands

·     Housing & Building Products; Homebuilders rating charges at JPMorgan as KBH upgraded to Overweight from Neutral (tgt cut to $51 from $64), while TOL upgraded to Neutral from Underweight (tgt to $58 from $71) and downgrade MTH to Neutral from Overweight (tgt to $111 from $148) and GRBK to Underweight saying due to a combination of several headwinds to the homebuilding stocks that we expect will persist over the near to medium term, we are reducing our price targets by 24% on average across our universe and taking a less constructive, more selective approach to the sector.

·     Consumer Staples; PPC upgraded to Outperform at BMO and up tgt to $30 from $28 as believe the fundamentals justify the upside, while the downside should be protected by share repurchases from its strong cash flow, to increase JBS’s ownership to 90%; MNST 2022-2023 EPS estimates reduced by 2% at Stifel reflecting greater inflation, mainly aluminum, FX, and lower sales for Ukraine/Russia exposure (<2% of sales) and higher U.S. gas prices; HRL upgraded to Buy at Argus with $57 tgt saying although Hormel continues to face challenges from rising costs and supply-chain disruptions, we expect it to offset inflationary pressures through price hikes and improved efficiency; COCO Q4 EPS (6c) matched consensus on revs $87M vs est. 78.3M, sees FY22 sales $440-445M ahead of est. $427M

·     Restaurants; WING Completes $250 million securitization transaction and declares special dividend of $4.00 per share; Northcoast downgrades MCD to Neutral; PTLO Q4 EPS (52c) vs est. (38c) on sales $138.9M vs est. $139.3M, same-restaurant sales +10.3%, sees Q1 same-restaurant sales +7.5-8.5%, FY22 commodity costs +13-15%

·     Casinos, Gaming, Lodging & Leisure sector; SWIM Q4 EPS (5c) vs est. 6c profit on sales $138.9M vs est. $130.6M, sees Q1 sales $170-180M and FY sales $850-880M well above estimates of $162.1M and $735.2M; SEAT reported Q4 revenue $163.9M vs est. $150M and net income $300K vs est. $5.5K and forecasts FY22 revenue $510-550M vs est. $554.4M, adj EBITDA $110-115M vs est. $115.8M, and marketplace GOV $2.7-3B; UP posted a mixed Q4 with an EPS loss of (31) wider than est. (25c) but revenue $345M ahead of est. $281.9M

Energy

·     Energy stock movers; Piper downgraded CTRA to Neutral after they issued a less capital efficient 2022 outlook than anticipated; ESTE Q4 revenue $144M s est. $119.4M; Wells downgraded HESM to EW primarily on valuation following outperformance

·     Utilities & Solar; FCEL Q1 adj EPS (4c) loss vs est. (5c) on revenue that more than doubled to $31.8M vs est. $26.7M; After Q4 earnings, JPMorgan lists RUN and NOVA as top picks in alt energy as the residential solar market remains relatively immune to supply chain headwinds while an increase in utility retail power rates provides installers the ability to raise prices and ARRY, SHLS as top picks in utility-scale solar; Mizuho started AVA at Neutral with a $47 PT as its forecasted above-average EPS and load growth is offset by the majority of its earnings in rate cases, NWE at N with a $62 PT based on slower estimated earnings growth vs small-cap utility peers, and IDA at Buy with a $119 PT due to its industry leading customer load growth and execution of its clean energy transition; ISUN initiated with a Buy and $7 tgt at Roth given its position to deliver significant growth in profitability and sales as it serves all segments of the US solar market

Financials

·     Bank movers; Goldman sees CMA, MTB, ZION, SBNYand SIVB as the regional banks best positioned for rate hikes; GS is winding down its Russia operations in a move they say will be immaterial

·     Insurance; TIG Q4 adj EPS 4c vs et. 10c with net earned premiums that rose 57% to $57.6M and gross written premiums $153.3M, sees FY revenue $253-263M, gross written premium $655-670M and net earned premium $240-250M

·     Asset managers: AB preliminary assets under management decreased to $739 billion during February 2022 from $751 billion at the end of January; APAM preliminary assets under management as of February 28, 2022, totaled $159.8 billion; BEN preliminary month-end assets under management of $1,486.9 billion at February 28, 2022, compared to $1,521.8 billion at January 31, 2022; IVZ preliminary month-end assets under management (AUM) of $1,531.4 billion, a decrease of 1.3% versus previous month-end; VRTS reported preliminary assets under management (AUM) of $183.7 billion as of February 28, 2022; TROW prelim AUM at February end $1.54T

·     Bitcoin, FinTech & Payments; MQ shares rise as reported beat/raise 4Q ests with 4Q/1Q ~13/17% above consensus, and anticipates at least mid-30% Y/Y revenue growth in CY22 (implies revs ~6% above consensus); Wolfe downgraded NMRK to Peer-Perform due to recent outperformance and an increased discount in the brokerage sector as a whole

Healthcare

·     Pharma & Biotech movers; MRNA dosed the first participant in its Phase 2 Omicron booster study; JPMorgan is generally bullish on differentiated therapeutic potential targeted protein degraders and initiated CCCC at OW as an underappreciated name within the space but KYMR at Neutral on limited upside; ESPR init at Buy with a $22 at HC Wainwright

·     MedTech Equipment; MTD downgraded to Sell from Neutral at Goldman Sachs with a $1,240 price Target representing 10% downside given the industrial exposure and growth mix skewed towards price, have concerns over headwinds that the company may face this year

Industrials & Materials

·     Industrial & Machinery; GE reiterated its 2022 EPS forecast despite inflationary and supply-chain challenges ahead of an investor meeting later today

·     Metals & Materials; FCX, TECK, LNDNF, AU, VALE among stocks having their price target raised by Deutsche amidst the unprecedented supply shock in commodity markets from the Russia-Ukraine conflict; KRO Q4 sales rose 20% to $496M vs. est. $490M with EPS 28c vs. est. 26c

Technology, Media & Telecom

·     Semiconductors; TSM February sales NT$146.9B, up 38% YoY and puts it on track to beat Q1 consensus according to Wedbush

·     Software movers; CRWD delivered a beat-and-raise quarter with ARR up 65% YoY, RPO up 67%, total customers up 65% YoY to 16,325, and a strong but prudent 2023 revenue guide of 47-49% growth; ASAN Q4 revenue beat of $6.8M vs. $6.5M last q with record enterprise adds (>$50K customer adds of 155 vs. 190 in all FY21) while billing’s growth decelerated to 52% y/y from 56% in F3Q vs. a much tougher comp, guided FY23 revenue $23M ahead but EBIT $90M below; BASE Q4 EPS and revenue beat consensus but shares fell as analysts cut their price targets due to FY revenue guidance shy of consensus; ORCL is reportedly nearing a deal with TikTok to store its U.S. user data

·     Hardware, Components & Services; ANET upgraded to OW from EW with $160 tgt at Wells Fargo while the firm downgraded CSCO to EW from OW with $65 tgt saying while remain positive on Cisco’s execution, backlog expansion, Webscale traction, and subscription renewal set-up looking forward, repositioning ratings to reflect a belief that a shift back toward growth vs. value; NTAP upgraded to Overweight from Equal Weight at Barclays

·     Internet, Media & Telecom movers; JD Q4 adj earnings topped estimates but revenue and active customer accounts were below; BZUN Q4 revenue was below consensus; BEKE Q4 margins worsened and issued a Q1 revenue guidance range whose top end was shy of consensus; Wells prefers FOXA, GTN, TGNA, CCO, IMAXand DIS in rough order given their FCF and healthy balance sheets are negative on risks that are difficult to price, such as stock stories and shorter-term names with ROKU, SPOT, VZIOCable (minus CABO), SBGI and CNK their rough order of negativity; EBAY shares bounce intraday during its Investor Day presentation