Closing Recap

Tuesday, May 03, 2022

Equity Market Recap

·     U.S. stocks finish higher while Treasury yields slip as investors position themselves ahead of tomorrow’s Federal Reserve interest rate decision. The benchmark 10-year U.S. Treasury yield slid from highs above 3.01% yesterday (3-yr highs) to lows around 2.91% today (but settle around 2.96%) amid investor caution ahead of the biggest rate hike expected by the Federal Reserve since 2000. The Fed is widely expected to boost rates by 50-bps, with a small chance of an even greater hike after several Fed speakers have recently noted it would be discussed to fight surging inflation. The job situation remains puzzling as U.S. job openings hit a record in March as worker shortages persisted, suggesting employers may raise wages which would likely fuel inflation, while quitters also surged. Another warning issued this morning on CNBC after Paul Tudor Jones says he can’t think of a worse financial environment for stocks or bonds right now. “Clearly you don’t want to own bonds and stocks,” Jones said. He noted the Fed is in “uncharted territory” as the central bank had only eased monetary policy during past economic slowdowns and financial crises.

·     Top Stocks & Sector movers: EXPE HLT quarterly results and guidance raised fears in the travel and discretionary sector, pressuring shares of other lodging and online booking companies BKNG MAR ABNB; MOS NTR advance on earnings in fertilizer sector; CC advances as well in chemical space, but FMC SMG slip on results; $DD also with miss and lower guide; WDC shares surge as activist Elliot Management pushes to company to spin-off its flash business; $WDC said will consider the ideas; NXPI MPWR shares move post earnings; AMD SWKS CRUS to report earnings tonight in chip sector; BAC GS JPM WFC banking stocks rebounding; OpCo upgraded shares of JPM SIVB MS noting rising rates and loan growth are good for banks; AR CHK CTRA EQT RRC SWN natural gas levered E&P companies outperform as natural gas prices top $8.00 mln btu, more than 14-year highs; also, earnings strength in E&P sector with DVN BP FANG; refiners MPC DK also strong post earnings. In politics, The Supreme Court confirmed the authenticity of the draft opinion revealed last night by Politico, while chief justice Roberts has ordered an investigation into the leak.

Economic Data:

·     Manufacturing orders in the U.S. increased in March, signaling strong demand for goods as. New orders for manufactured goods rose 2.2% in March compared with February, beating the 1.0% rise expected by economists. In February, factory orders rose by a marginal 0.1%, reversing a previously estimated 0.5% decline. New orders for manufactured durable goods rose 1.1% in March after falling 1.7% in February, the data showed.

·     U.S. JOLTS report showed job openings rose 205k to 11,549k in March, making a new all-time high (besting the old high from December at 11,448k), after rising 61k to 11,344k (was 11,266k) in February and sliding -165k to 11,283k in January. The job openings rate improved to 7.1% from 7.0% in January and February and is back at the record peak of 7.1% from December. Quitters climbed 152k to 4,536k after increasing 126k to 4,384k.

Commodities, Currencies & Treasuries

·     Oil prices finish lower, as WTI crude declines -$2.76 or 2.62% to settle at $102.41 per barrel, while Brent fell -$2.61 or 2.43% to $104.97 per barrel. Oil prices failing to rally as it appears traders are not convinced that the EU will be able to move forward with an embargo on Russian oil, while the increased lockdowns in China weigh on demand. Next up, weekly inventory reports, from API tonight and the official EIA report tomorrow morning.

·     Natural gas prices top $8.00 mln btus, 14-year highs after prices jumped by 28% in April as efforts by the EU and others to ban Russian natural gas has led investors to bet that U.S. LNG demand will surge – also comes as US natural gas inventories are at a 17% deficit to the five-year average, as per DJ – also watch nat gas leveraged plays $AR $CHK $CTRA $EQT $RRC $SWN

·     Gold prices a little bounce after yesterday’s pummeling, with prices edging higher $7.00 or 0.4% to settle at $1,870.60 an ounce after tumbling $48.10 or 2.6% the day prior, its worst one day % drop since March as the dollar holds around 20-year highs and Treasury yields jumped. Today, the greenback pared recent gains as investors position themselves ahead of the FOMC meeting and Treasury yields back off slightly as well after the 10-yr topped 3% Monday.

·     Central Banks: FOMC expected to raise rates by 50-bps tomorrow. Australia hiked rates by 25 bps to 0.35%, their first hike since November 2010, a surprise vs. expected 15 bps hike. Aussie inflation is also above 5% so feel free to opine on the effectiveness of that extra 10 bps. On Thursday, the Bank of England is expected to raise rates for the fourth time in a row.

Sector News Breakdown

Consumer

·     Retailers; several retailers/discretionary names seeing weakness early (NKE, UAA shares active as shareholder Ancora sends letter to Hasbro’s Board of Directors regarding opportunities to strengthen the company’s long-term positioning and unlock shareholder value; JAKK upgrade from Market Perform to Outperform with $21 tgt at BMO

·     Auto sector; in online auto, CVNA, SFT downgraded to Equal-weight from Overweight at Wells Fargo as recent evidence suggests that macro headwinds are building, access to capital is dwindling, and appetite for high growth, FCF negative companies is becoming increasingly scarce; in rental cars, CAR reported a top and bottom line quarterly report (helps transport index); RIVN

·     Housing & Building Products; Piper said see the greatest Q2 markdown (and gross margin) risk for HD, LOW, and BIG with falling consumer demand, elevated inventory levels and unfavorable Spring weather; MLM Q1 misses ests because of challenging price/cost with constructive pricing outlook as sees FY aggregate pricing +9-11% vs previous 5-8%, but cuts FY topline outlook

·     Consumer Staples; CLX lowered its year adj EPS view to $4.05-$4.30 from prior $4.25-$4.50 view due to higher than previously anticipated commodity, manufacturing, and logistics costs; EL guides year lower to $7.05-$7.15 from prior $7.43-$7.58 and now sees FY sales between 7%-9%, down from prior view of 13%-16%; Kellogg (K) and TSN downgraded to underweight from neutral at Piper citing shifting consumer habits caused by inflation pressures and valuations that are ahead of their historical averages; TAP 1Q adj EPS $0.29 vs est. $0.19 on sales $2.2B vs est. $2.1B; sees FY net sales +mid-single-digit vs est. +4.2%; says expects net debt to underlying EBITDA ratio below 3.0x by end 2022; CL downgraded to Neutral at Atlantic Equities; FRPT reported better-than-expected 1Q22 results, and mgmt announced a new supply chain expansion plan (significantly higher Capex Outlook) and an equity raise to fund the plan

·     Casinos, Gaming, Lodging & Leisure sector; MGM reported upside 1Q22 Las Vegas and Regional EBITDAR results on better revenue and margins, which was offset by lower Macau EBITDAR while 1Q adj. EBITDAR of $670m compared to the Street’s $680m; CHGG reported Q1 EPS of $0.04 vs loss of $0.49 in the year-ago quarter, while guided Q2 and year revs below views – sees 2Q revs $188-192Mm vs est. $209.3Mm; guides FY revs $740-770Mm vs est. $843.5Mm; in cruise lines, CCL said their entire fleet has resumed guest operations; lodging names active after HLT Q1 EPS beat by $0.06 but co guides FY22 EPS $3.77-$4.02, below est. $4.10

Energy

·     Earnings picking up steam: in E&P and Majors; DVN Increases buyback by 25% and announces an annualized dividend yield of 8.7% and reports better earnings results; FANG Q1 EPS was 3.6% above consensus, production was 1.5% above consensus and 1Q22 oil production was 0.7% above consensus while 2022 guidance for production and capex were reiterated; CTRA Q1 EPS 4% above consensus due to better production and lower costs, capex was 6.3% below consensus, and 1Q22 production was 1.2% above consensus while 2022 guidance for production and capex were reiterated; VNOM Q1 was 15% above consensus, oil production was 1% above consensus, and its 1Q22 total production was 4% above consensus while raised its 2022 production guidance; TALO and CVX signed MOU for JV to develop the Bayou Bend CCS offshore carbon capture and sequestration hub in Texas; XOM said it will sell its Romanian upstream unit to gas producer Romgaz for over $1 billion; in pipelines: WMB Ebitda beat and full year Ebitda guidance raised by ~2% reflecting strong commodity spreads and the previously announced Trace Midstream acquisition; in refiners, DK, MPC edged higher initially on earnings

·     Utilities & Solar; SEDG reported 1Q22 with revenues slightly above the Street, but missed on the bottom line citing increased supply and logistics costs and lower margin product mix; in utilities, the sector (XLU) came into the day falling 7 of the last 8 sessions; handful of earnings in space today with PEG and CMS while WEC EPS of $1.79, vs. consensus of $1.67 and introduced 2Q22 guidance of $0.82-$0.84 and raised its 2022 guidance to $4.34-$4.38, up $0.05 at the midpoint; ED downgraded to Underweight & Upgrade IDA to Equal Weight in utility sector at Wells Fargo noting the utility group has enjoyed a nice run since late ’21 with the S&P Utilities outperforming the S&P 500 by 17% since 11/30. During the same time, ED has outperformed

Financials

·     Bank movers; German prosecutors searched Morgan Stanley ’s offices in Frankfurt on Tuesday in connection with a yearslong tax-fraud probe that has embroiled several financial companies across Europe; several earnings results in the asset manager and private equity sectors with BEN, KKR shares active; shares of banks JPM, MS and SIVB were all upgraded at Oppenheimer following pullbacks in the sector and noting rising rates and loan growth are good for banks

·     Insurance; MMC upgraded to Overweight at Wells Fargo and reaffirm bullish view on the insurance brokers group, given the recent pullback; EVER downgrade from Outperform to Market Perform at Raymond James following 1Q earnings as auto headwinds are expected to persist longer than initially expected as EverQuote guided 2Q below street ests and lowered 2022

·     Consumer Finance, Lending & Services: SPGI $2.89 vs. est. $2.98; Q1 revs $2.39B vs. est. $2.9B; cuts FY22 adjusted EPS view to $13.00-$13.25 from $13.30-$13.50 (est. $13.23); recall rival MCO recently reported miss and guide lower; CACC rises after Q1 adjusted EPS of $13.76 topped the $11.97 consensus and rose from $9.64 in the year-ago quarter.

Healthcare

·     Pharma movers; PFE Q1 adj EPS $1.62 beats $1.47 est. on better revs $25.7B vs. est. $23.8B, but cuts year profit outlook to $6.25-$6.45 from $6.35-$6.55 (est. $7.15) and backs FY22 revenue view $98B-$102B which does not anticipate any additional share repurchases in 2022; TEVA Q1 revs missed ests ($3.66B vs. est. $3.74B) on in-line earnings but lowered its FY forecast citing moves in foreign-exchange rates; SNOA and partner MicroSafe Group DMCC have received EPA approval for Nanocyn as a hospital-grade disinfectant in the U.S.; VRTX upgraded to EW from underweight at Morgan Stanley saying risk/reward is skewed more favorably post ABBV failure; TARS 5.6M share Secondary priced at $13.50

·     Biotech movers; BIIB reports 26% fall in Q1 profit as sales of blockbuster MS drug Tecfidera continue to be pressured by cheaper generic versions of treatment, while also said its CEO to step down and co starts search for a successor; CTLT among top S&P gainers early following quarterly beat and guidance raise

·     MedTech Equipment; WAT 1Q adj EPS $2.80 vs est. $2.32 on sales $691Mm vs est. $632.8Mm; guides FY adj EPS $11.90-12.10 vs est. $11.89; ZBH Q1 EPS $1.61 vs $1.40 est. Revenue $1.66B vs $1.59B est. Q1 adj gross margin 70.6% vs 69.6% est. FY EPS $6.65-6.85 ex-items vs prior guidance $6.40-6.80 guidance, sees revenue growth (1.5%)-0.5% y/y vs prior guidance (4.0%)-0%; HSIC reported 1Q22 adj. EPS of $1.30 that came in 7%/9% ahead of consensus, with the beat driven by stronger Medical/Tech sales and a higher gross margin as well as lower interest expense/tax rate

·     Healthcare Services; for animal health sector (IDXX, ZTS, CVET, ELAN), Stifel said checks suggest Companion Animal market momentum has decelerated since the beginning of the year with their respondents’ 2022 growth expectations being revised lower by ~100-200 bps since our January (4Q21) diligence; ABC, CAH and MCK said that they have reached an agreement with the Washington Attorney General, under which the distributors will pay up to $518 million to the State of Washington and its participating subdivisions to resolve opioid-related claims; in healthcare REITs, the WSJ reported WELL made a nearly $5 billion all-cash bid for HR shortly after the smaller REIT agreed to merge with a rival earlier this year; Welltower remains interested after its bid was rejected https://on.wsj.com/3kB3U27 

Industrials & Materials

·     Industrial & Machinery; ROK missed Q2 earnings estimates and cut its full- year profit forecast, blaming problems in the supply chain as sees year EPS about $9.00, below prior view of $10.80; FLS 1Q segment EBIT missed by 20% on supply chain, absenteeism while full year eps guidance reduced by $0.20 to $1.50-$1.70; ITT 1Q adj EPS $0.97 vs est. $0.97 on revs $726.2Mm vs est. $695.3Mm; says maintaining FY revs, segment margin and adj EPS guidance; now expects FCF $250-300Mm (8-10% FCF margin); says Russia/Ukraine revs impact about $60-85Mm for FY; CMI 1Q EPS $2.92 (include costs of $158 million ($1.03 per diluted share) related to the indefinite suspension of operations in Russia, vs est$3.56 and raises FY revs guide to +8% vs est. +6.3%; KMT 3Q22 adjusted EPS of $0.48 vs. consensus $0.43 and revs came in at $512M vs. consensus $511M with adjusted operating margin of 11.4% (vs. consensus 10.8%); other movers in the industrial sector post earnings included AME, AGCO and CNHI in ag space; HAYW tumbles following secondary stock offering announcement; HSC shares tumble to 2-year lows, down over 26% after unexpected Q1 loss and narrowed year guidance

·     Aerospace & Defense; WWD slides as 2Q adj EPS $0.72 missed the $0.88 est. on sales $587Mm vs est. $599.9Mm; guides FY net sales $2.40-2.55B vs est. $2.47B and adj EPS $3.20-3.60 vs est. $3.71; LDOS posted a top and bottom-line quarterly beat; RKLB captures falling four-story-tall rocket stage out of the air with a helicopter before dropping it in ocean in "There and Back Again" mission. Mission launched 34 satellites into orbit at 2250 GMT, taking its total satellites launched with Electron launch vehicle to 146

·     Metals & Materials; in chemicals, CC Q1 revs rose 23% y/y to $1.8B vs. est. $1.57B; sees FY adj EBITDA $1.48B-$1.58B, up from prior $1.3B-$1.43B, due to strong demand for its specialty and industrial chemicals; DD Q1 adj EPS $0.82 vs. est. $1.13; Q1 revs $3.27B below consensus $4.2B; guides Q2 EPS and revs below consensus and cuts FY22 adjusted EPS view to $3.20-$3.50 from $4.60-$4.90 and cuts FY22 revenue view to $13.3B-$13.7B from $17.4B-$17.8B; FMC reported 1Q22 EBITDA of $355M, compared to consensus of $327M and EBITDA margins came in better than expected at 26.3% and price accelerated to 8% y/y in 1Q22 from 4% in 4Q21; SMG Q2 adj EPS $5.03 vs. est. $4.75; Q2 revs $1.68B vs. est. $1.66B; sales outlook for U.S. consumer and Hawthorne adjusted to low end of guidance

·     Fertilizers; NTR Q1 earnings fell just short of consensus on slightly better sales of $7.66B, but raises full-year guidance above consensus; MOS reported in-line Q1 EPS of $2.41 as revs rose 71% y/y to $3.9B but was slightly below views – group trades higher post earnings

Technology, Media & Telecom

·     Semiconductors; WDC rises after Elliot Management calls for full strategic review, separation of flash business and sees $100+ per share by 2023, ~100% potential upside; offers $1+ billion of incremental equity capital to facilitate separation; NXPI mixed quarterly results as Q1 EPS $2.48 vs. est. $3.17; Q1 revs $3.14B vs. est. $3.1B; sees Q2 revs $3.175B-$3.375B vs. est. $3.15B; MPWR Mar Q beat and raised Jun Q outlook (rev’s +14.9%) to record levels, w/ impressive profitability (NG GMs 59.0%/NG OMs 37.3%, +90bps/+340bps); AMD with earnings tonight along with SWKS, CRUS and LSCC

·     Software movers: DOCU, MTTR, AI all downgraded at Wedbush – DOCU to Underperform as this WFH beneficiary could see difficult growth ahead not factored into shares at current prices in our opinion, cuts MTTR given its high exposure to the real estate vertical and downgrading shares of AI to Neutral given a slower backdrop for bigger enterprise AI deals in the year ahead; BIGC 1Q results above guidance and expectations, 2Q in-line with consensus, and raising the FY revenue guidance; ZI 1Q results and guidance were ahead on leading metrics (revenue, cRPO, bookings), with more modest outperformance on billings (faced an anomalous compare) and operating margin (understandable given better growth); VRNS company beat the Street across the board with ARR growth of 32% y/ y (Wells said Q1 revenue was in line with the high-end of guidance, but significantly lower than the beat they were expecting)

·     Hardware, Components & Services; LOGI Q1 EPS $0.81 vs. est. $1.10; Q1 revs $1.23B vs. est. $1.27B; Cuts FY23 operating income to $875M-$925M from $900M-$950M and lowers FY23 revenue growth view to 2%-4% from MSD; ANET Q1 revenue beat consensus and Q2 revenue guidance came in better than expected, Q1 revenue of $877mn (+31% y/y and +6% q/q) beat consensus by ~3%. EBIT margin at 38.3% was in-line

·     Internet, Media & Telecom movers; PARA shares fall as 1Q adj EPS $0.60 vs est. $0.51 on revs $7.33B vs est. $7.38B; grew total streaming subs to over 62Mm (+6.8Mm Paramount+ adds), grew Pluto TV global MAUs to nearly 68Mm; in online travel, EXPE slides as reported a smaller-than-expected quarterly loss on better revs of $2.25B saying they see positive indicators for strong recovery in leisure travel this summer – mixed quarter with elements of both a variant and Europe impact from the Russia/Ukraine war (still showed improving demand, but shares tanked along with HLT hotel guidance – BKNG also tumbled); SSTK slides on CEO resignation; WSJ reported that ROKU and APO have teamed up to bid for a minority stake in the Pay-TV and streaming service Starz, which is owed by LGF https://on.wsj.com/3y9pz9y