Closing Recap

Tuesday, May 09, 2023

Index	Up/Down	%	Last
DJ Industrials	-56.55	0.17%	33,562
S&P 500	-18.89	0.46%	4,119
Nasdaq	-77.36	0.63%	12,179
Russell 2000	-4.80	0.27%	1,749

 

 

 

 

 

 

 

 

 

Another narrow trading range for the S&P, about 15 points from lows to highs and stuck in the same range for two days now as investors await key inflation data tomorrow morning. U.S. stocks slumped initially following weaker lending data the day prior (weighed on banks), weaker trade data out of China hurting commodity names/prices and positioning ahead of tomorrow’s CPI inflation report. The Senior Loan Officer Opinion Survey (SLOOS) showed that lending conditions tightened in April, a trend continued from late 2022 while demand for loans also fell. That weighed on banking stocks early before rebounding in the afternoon. Talks over raising the debt ceiling before June 1 are on watch as President Biden meets Congressional leaders to discuss the $31 trillion cap later this afternoon. Nine of eleven S&P sectors were lower on the day with breadth slightly favoring decliners to advancers (energy, industrials were higher), but more a “waiting game” kind of day with CPI on deck.

 

Inflation data tomorrow at 8:30 AM ET: Consumer Price Index (CPI) Headline M/M for April est. +0.4% (up from the cool +0.1% last month) and CPI Headline Y/Y for April est. +5.0% (prior +5.0%). On a core basis or excluding the volatile Food & Energy components M/M for April est. +0.4% (prior +0.4%) and est. to rise +5.5% (prior +5.6%) on a Y/Y basis. Market expectations on interest rates heading into tomorrow’s CPI are for pauses incoming meetings then rate cuts. @charliebilello tweeted: “Current market expectations for path of the Fed Funds Rate…Jun 14, 2023: Pause, Jul 26, 2023: Pause, Sep 20, 2023: 25 bps cut to 4.75-5.00%, Nov 1, 2023: 25 bps cut to 4.50-4.75%, Dec 13, 2023: 25 bps cut to 4.25-4.50%, By Dec 2024: cuts to 3%”. In a sign of slowing growth, S&P Global Market Intelligence cut U.S. real GDP growth forecast for 2023 to 1.2% from 1.4%. and cuts U.S. real GDP growth forecast for 2024 to 0.9% from 1.5%.

 

Commodities, Currencies & Treasuries

·     Oil prices rebounded as WTI crude rose $0.55 or 0.75% to settle at $73.71 per barrel ahead of inventory data tonight and tomorrow. Prices sunk as low as $71.34 per barrel earlier, paring some of the strong gains of the previous two sessions with the market cautious ahead of U.S. inflation figures, which will be key to the Federal Reserve’s next interest rate decision. Gold prices rose $9.70 to settle at $2,042.90 an ounce despite a bounce in the US dollar.

·     Treasury yields had been moving higher all day into the CPI report tomorrow (10yr high around 3.53%) but pulled back midday after a strong Treasury auction. The U.S. Treasury sold $40B in 3-year notes at a yield of 3.695% vs. 3.723% when issued prior with bid-to-cover ratio 2.93 vs. prior 2.59, as primary dealers take 12.99% of U.S. 3-year notes sale, direct 13.66% and indirect 73.35% (vs. 61.3% prior auction). The U.S. dollar bounced slightly as the euro held below 1.10.

 

 

Macro	Up/Down	Last
WTI Crude	0.55	73.71
Brent	0.43	77.44
Gold	9.70	2,042.90
EUR/USD	-0.0036	1.0968
JPY/USD	0.05	135.13
10-Year Note	0.00	3.519%

 

 

Sector News Breakdown

Consumer

Autos:

·     In the EV space, some disappointing results as FSR said it now sees 2023 production volume between 32k-36K vehicles, compared with 42,400 vehicles previously expected, while posted slightly smaller earnings loss. LCID shares slid after reported a 1Q23 revenue miss of ~$149.4M vs estimate $164.4M, an EBITDA loss of ~($643.9M) and FY23 annual vehicle production guidance revised to lower end of prior target. NKLA posted Q1 adj EPS loss (-$0.26) on revs $11.12M vs. est. $12.15M and said it would pause production to streamline the assembly line at its Coolidge, Arizona factory amid lower demand for its battery-powered trucks.

·     In autos: Volvo (VLVLY) upgraded to Outperform at Bernstein noting shares have slid since August last year, but they expect the company to surprise to the upside in upcoming quarters as volumes grow, cost-cutting measures take effect and falling lithium prices improve margins.

 

Consumer Staples & Restaurants:

·     BRBR 2Q sales rose +22% (vs cons. +18%) resulting in 34% YoY EBITDA growth (vs cons. +21%) with consistent growth from Premier and stronger QoQ growth from Dymatize; gross margin rate improved 275bps offset by planned marketing spend resulting in EBITDA +150bps YoY.

·     COTY Q1 EPS $0.19 vs. est. $0.03 and sales rose 8.7% y/y to $1.29B above ests. $1.23B; said it is reinvesting incremental profit from higher sales into new skincare initiatives.

·     EPC said it now expects full-year sales to come in at the high end of its previously issued guidance and lowered its non-adjusted fiscal-year earnings outlook.

·     HAIN Q3 EPS of $0.08 misses the $0.16 estimate as sales $455.2M below $484M estimate while guides 2023 adjusted net sales down 4%-3% vs. last year and adjusted EBITDA at constant currency to be down -15% to -13%.

·     IFF posted Q1 sales slightly above expectations but guidance below for the group.

 

Retailers:

·     TPX agreed to a deal to buy Mattress Firm Group valued at about $4 billion, would be funded by about $2.7 billion in cash and $1.3 billion in stock issued to Mattress Firm shareholders. The transaction is expected to close in the second half of 2024.

·     UAA Q4 EPS and revs topped views, but gross margins drop 310 basis points to 43.4% and guided year profit and sales below views, pressuring shares.

 

Leisure, Gaming & Lodging:

·     For RV sector: (CWH, THO, WGO) Keybanc noted, citing Statistical Surveys, Inc. (SSI) that March registration data, a proxy for North American retail RV sales showed preliminary domestic retail unit sales came in -25.9% y/y in March (-16.5% vs 2019).

·     In events: SEAT reported first-quarter revenue and adjusted Ebitda that beat the average analyst estimate and raised its 2023 outlook. Theme parks extend gains as SEAS Q1 revs $293.35M topped est. $282.93M; Q1 attendance was 3.4M guests, total revenue per capita increased 9.2% to a record $86.84.

 

Homebuilders, Building Products, Home Furnishing:

·     In home improvement, Wells Fargo said they see neutral to negative risk/reward into HD earnings noting sentiment is weak, checks are squishy, & trends likely slowed via uncooperative weather & muted demand. Considering the nuances, they prefer LOW to HD today.

·     Homebuilders remain on a tear, adding to record highs with big gains in LEN, PHM, TOL early, as several continue to make new all-time highs.

·     TREX Q1 EPS $0.38 vs. est. $0.34; Q1 revs $239M vs. est. $237.4M; reported Q1 EBITDA of $69 million and EBITDA margin of 28.8%; Consolidated gross profit as a percentage of net sales, gross margin, was 39.6%

 

Energy

·     DVN reported 1Q23 results ahead of expectations, as a production beat was offset by higher capex and said expects flat oil production and 2% total volume growth sequentially at the midpoint of guidance.

·     TALO results for the quarter came in softer than expected, led by weaker realizations and high unit expenses, but saw progress with the TLCS segment and saw higher than expected repurchases in 1Q.

·     VLO announced earlier CEO Joseph Gorder to step down from role on June 30 and appointed R. Lane Riggs to CEO position (has been with company for over 30-years).

·     VTNR shares tumbled after saying renewable diesel facility startup is delayed due to a failure in feedstock pumping system and now set to resume startup activities in the second half of May.

·     In solar: SHLS quarter results exceed consensus estimates and raised FY23 guidance as backlog continued to expand meaningfully reaching 527.5mn with orders expected to convert to revenue over the next 9 to12 months. JKS shares slipped after a report federal agents executed a search warrant Monday at the plant that opened in 2018, according to Florida Times-Union story. https://bit.ly/3NWCH9V

·     In utilities: DUK Q1 EPS missed on better revs while affirmed year profit outlook; NEP announced a plan to sell its natural gas pipeline assets and use proceeds to fund all three planned buyouts of CEPFs in 2023-2025 and eliminate the equity that would have otherwise been issued under the minimum buyouts. NEE and NEP also agreed to implement an IDR holiday in all quarters beginning in 2023 and running through 2026.

 

Financials

Banks, Brokers, Asset Managers:

·     Several bank stocks declined initially as regulators and investors digested the latest bank lending data. Meanwhile, calls for a ban on short sales continued to grow as the financial sector wobbled. Last night, Senior Loan Officer Opinion Survey (SLOOS) showed that lending conditions tightened in April, a trend continued from late 2022 while demand for loans also fell, suggesting banks were bracing for a downturn – banks bounced late afternoon.

·     In FinTech: PYPL shares slide on margin guide; Q1 adj EPS $1.17 vs. est. $1.10; Q1 revs rose 10% y/y to $7.04B vs. est. $6.98B; payments volume rose 12% on a forex-neutral basis to $354.5 billion in Q1; now expects full-year adjusted profit to grow about 20% to $4.95 per share, above est. $4.88; Adjusted operating margin in Q1 reported at 22.7% compared with 20.7% last year; warned that its adjusted operating margin won’t grow as quickly as it had anticipated earlier.

 

Insurance & Services:

·     EVER reported 1Q revenue, Variable Market Margin (VMM), and EBITDA upside but guided to a pressured 2Q outlook and pulled their 2023 guidance.

·     TASK Q1 results in line w/ consensus; TASK lowered rev. guidance by ~$30 million, but reiterated EBITDA dollar guide and increased share repurchasing authority.

 

Healthcare

Biotech & Pharma:

·     ABBV said Health Canada Approves its RINVOQ® (upadacitinib) for the treatment of adults with active non-radiographic axial Spondylarthritis.

·     CHRS shares fell as quarterly results showed a revenue miss driven by weakness at its Udenyca product; Q1 EPS loss (75c) vs. est. (57c) and revs $32.4M vs. est. $47.4M.

·     ELAN reported 1Q results ahead of consensus, with revenue of $1.26B (vs. $1.18B cons) and EPS of $0.45 (vs. $0.29 cons), with the company noting improved underlying business performance.

·     ENSC said it completed a clinical study examining its first pain medication with overdose protection, PF614-MPAR.

·     MRVI reported an inline quarter but lowered its guidance by $20m for the year, with most of that revenue coming out of 2Q.

·     NVAX to cut about 25% of its global workforce; announced global restructuring and cost reduction initiative with expected 2024 full-year R&D and SG&A reduction of approximately 40% to 50% vs 2022.

 

Healthcare Services & MedTech movers:

·     Mammography/breast cancer screening names (HOLX, ICAD, GEHC) were active after STAT news reported the U.S. Preventive Services Task Force has posted a draft recommendation statement on screening for breast cancer and now recommends that all women get screened for breast cancer every other year starting at age 40. https://bit.ly/44LUp5Q

·     AHCO said its CEO is leaving and Q1 revs of $744.6M missed $758.1M on weaker Ebitda.

·     DVA raised its 2023 profit forecast as demand for procedures pickup in the U.S. saying expects 2023 profit between $6.20-$7.30 vs. prior forecast of $5.45-$6.95 after Q1 beat.

·     MCK F4Q adj EPS 7.19 (23.3% y/y) beat consensus $7.14 driven by growth in Pharma and RxTS lower tax while FY24 adj EPS guide of 26.10- 26.90 was much better than consensus 25.90.

·     PGNY reported a solid top- and bottom-line beat, with revenues topping consensus by ~5% and adjusted EBITDA beating the Street by 8.5%.

·     PINC announced that its Board has established a committee of independent directors to evaluate potential strategic alternatives, including a sale of part or all the company, recapitalization, or other partnership opportunities.

·     SRPT: for Friday, a committee of advisers to the FDA will meet to discuss Sarepta Therapeutics closely watched experimental gene therapy for Duchenne muscular dystrophy.

·     SWAV reported Q1 revenue well-above Street estimates and raised its FY 2023 revenue guidance by $40M to $700-$720M (+43-47% y/y).

·     TCMD reported Q1 results that beat consensus estimates on both the top and bottom-line as Lymphedema led the upside in the quarter.

·     WAT reported 1Q results below expectations, with revenue of $685M (vs. $698M cons) and EPS of $2.49 (vs. $2.62 cons), with weakness in Instruments; lowered its FY organic sales growth guidance to +3% to 5% (vs. 5% to 6.5% prior) though maintained its EPS guide.

 

Industrials, Materials, Aerospace & Defense

·     BA said RYAAY places its biggest Boeing order for up to 300 737 MAX jets in a deal that includes 150 firm orders and 150 options for 737-10 model. Selection of the largest 737 MAX jet helps Ryanair expand business with more seats and better environmental performance. Shares of parts suppliers such as SPR also moved in sympathy.

·     PLTR posted unexpected quarterly profit with strong earnings forecast saying that demand for its new artificial intelligence tool due this month is “without precedent.”

·     TDG Q2 EPS of $5.98 and revs $1.33B above ests and raising FY guidance following strong Q2 results, acquisition of Calspan – sees FY sales $6.41B-$6.5B vs. est. $6.17B.

·     In Chemicals/Gases: APD shares slid after results and guidance, after hitting lows $278.74 after results, holding its 200-day MA support ($278.63) earlier.

 

Technology

Internet, Media & Telecom

·     In media: FOXA reports Q3 $0.94 v $0.88 est., and revs $4.08B v $4.05B est.; authorized a $7B stock repurchase program (42% of market cap) and said the largest audience in U.S. television history watched FOX Sports’ broadcast of Super Bowl LVII. WSJ reported that the NYT is getting around $100 million from GOOGL over three years as part of a broad deal that allows the Alphabet Inc unit to feature Times content on some of its platforms.

·     In towers (AMT, CCI, SBAC): Raymond James noted DISH said it would pause adding new markets while densifying launched markets until late 2024/early 2025 as the next regulatory milestone is 75% coverage of every PEA by June 2025 – called it a short-term negative for U.S. tower leasing.

 

Semis, Hardware & Software movers:

·     In semiconductors: SWKS shares sunk after reported MarQ in line but guided JunQ down 7% q/q, with continued China Android weakness and in the consumer/enterprise segments of Broad Markets, while GMs missed by 340 bps due to underutilization and are expected to remain depressed. The guidance pushed shares of semiconductors lower (QRVO, LRCX, QCOM).

·     In optical: LITE shares fall after Q3 EPS $0.75 misses $0.85 on light revs $383.4M and guides Q4 EPS $0.45-$0.65 below est. $0.81 and revs $350M-$380M vs. est. $398M; shares of COHR moved in reaction to guidance. FN reported a quarterly beat but lower guidance, follows recent weakness/guide by LUMN which weighed on the industry.

·     In Comm & Networking: HLIT solid 1Q23, with revenue/EPS inline/+$.03 above consensus; cord backlog grew +58% y/y with a book/ bill of 2.1 and raises guidance on new cable wins.