Mid-Morning Look

Tuesday, April 12, 2022

U.S. stocks are getting a boost early (especially high growth names) after U.S. core inflation data came in on the soft-side vs expectations (though headline CPI reached a new 40-year high, topping the prior month reading for 8-straight months now). March CPI month-over-month and year-over-year prints were in-line with, and slightly above, estimates. However, core numbers, on both counts, were slightly less than expectations which is what the market is grabbing onto early as stocks rebound. The data however does not change the outlook from the Fed, which is widely expected to raise rates by 50-bps at its May meeting amid the surge in inflation (note CPI last 8 months: Aug: 5.3%, Sept: 5.4%, Oct: 6.2%, Nov: 6.8%, Dec: 7%, Jan: 7.5%, Feb: 7.9%, Mar: 8.4%). Meanwhile, the U.S. 10-Year Treasury yield slides after hitting fresh 3-year highs of 2.8360% (Dec 2018) to the low 2.70% area after the CPI report. The U.S. Dollar lower, on track to snap its eight-day winning streak. Outside of the data, oil prices surge over 6% on Putin aggressive comments toward Ukraine, retailers outperform early, technology shares outperform (pocket of weakness in comms/hardware on analyst downgrade of CSCO, HPE, FFIV, NTAP), while banks again lag with Treasury yields choppy and recession fears rising.

Economic Data

·     March Consumer Price Index (CPI) core (ex food & energy) reported at +0.3% below est. +0.5% and on a y/y basis, rose +6.5% vs. est. +6.5%; the headline CPI for March rose +1.2% (biggest monthly gain since Sept 2005), in-line with estimates while on a y/y basis, rose +8.5% vs. est. +8.4%; March real earnings all private workers -1.1% vs Feb -0.4%. Consumer price increases over last year: Gas: +48.0%, Used Cars: +35.3%, Gas Utilities: +21.6%, Meats/Fish/Eggs: +13.7%, New Cars: +12.5%, Electricity: +11.1%, Food at home: +10%, Overall CPI: +8.5%.

Sector Movers Today

·     Hardware, Components & Services; AAPL is likely to announce an incremental stock buyback of $80b-$90b and raise its dividend by 5-10% when it reports 2Q results later this month, Citigroup said in a note today; HPE downgraded to underweight at Morgan Stanley and lowered its industry view for telecom and networking equipment to cautious from in-line, citing demand data; also downgraded shares of FFIV and NTAP to equal-weight from overweight; CSCO downgraded to sell from neutral at Citigroup citing competition and more difficult year-over-year comparisons for quarters ahead, while upgraded JNPR to Neutral from Sell and raise tgt to $26 from $25 saying that while supply chain constraints are well known, did not foresee two events occurring: the large increase in first responder technology advancements and security with funding needs being met by state and local governments, and the recent war in Ukraine spurring a large increase in defense spending; Citigroup said the continued shortages in the components

·     Healthcare Services: ABC downgraded to EW from OW with $178 tgt, and CAH upgraded to OW from EW with $74 tgt at Morgan Stanley. Said for ABC, new European risk takes them to Equal-weight as growing European exposure following the Alliance acquisition in 2021 adds complexity to the story. For CAH, they see long term value creation opportunities that could help drive earnings acceleration and multiple re-rating over the next 12to 24 months; SLQT added to Tactical Underperform List and ALGN added to Tactical Outperform List @ Evercore

·     Monthly asset manager assets data (AUM): AB announced that preliminary assets under management decreased to $735 billion during March 2022 from $740 billion at the end of February due to market depreciation and firm-wide net outflows; APAM preliminary assets under management as of March 31, 2022 totaled $159.6 billion; CNS preliminary assets under management of $102.1 billion as of March 31, 2022, an increase of $3.2 billion from assets under management at February 28, 2022; BEN prelim month-end AUM of $1,477.5 billion at March 31, 2022, compared to $1,486.9 billion at February 28, 2022; IVZ prelim month-end assets under management (AUM) of $1,555.9B, +1.6% MoM; LAZ assets under management $252.68 billion, -4.6% y/y while total equity assets under management $201.03 billion, -6.7% y/y

·     Restaurants; at Citigroup DPZ upgraded to Buy from Neutral, but downgraded QSR to Neutral from Buy with $64 tgt, DNUT downgraded to Neutral from Buy with $16 tgt and SBUX downgraded to Neutral from Buy with $91 tgt and says more cautious on Neutral-rated MCD and SBUX in the near-term as do not think the Street is accurately modeling the impact of losing the Russia business at MCD; init sell on CBRL, buys on DPZ, TXRH, YUM, CMG, CAKE, WING, DRI, FWRG

Stock GAINERS

·     AGLE +15%; reported additional data from late-stage trial of its lead drug candidate, pegzilarginase, that supports it as a treatment for Arginase 1 deficiency

·     CRWD +7%; upgraded to Buy from Neutral at Goldman Sachs and raise tgt to $285 from $241

·     GPRE +7%; ethanol related stocks active after the WSJ reported the Biden administration plans to temporarily allow high-ethanol content gasoline to be sold in the hot summer months in a bid to tame high fuel prices at the pump

·     KSS +6%; after Reuters reported FRG entered the race for KSS with a $9 billion indicative offer, saying it would be willing to pay $69 per share (which is still not the highest offer as Hudson’s Bay Company has indicated it is willing to pay at least $70 per share

·     LULU +4%; Cowen said they view the April 20 LULU Investor Day as a positive catalyst with expectations for an expanding TAM and above consensus multi-year guidance

·     OXY +4%; rebound in energy stocks after one-day retreat as oil prices spike on increased tensions between Ukraine and Russia; APA, EOG, MRO, FANG rising

Stock LAGGARDS

·     ACI -5%; Q4 EPS $0.75 beats $0.65 est. on better comp sales of +7.5% vs. est. +4.7% and sales rose to $1.74B from $15.8B y/y (margins did slip to 28.7%), but guided year EPS $2.70-$2.85, below est. $2.95

·     CHGG -2%; downgraded to Sector Weight from Overweight at KeyBanc as observed a downtick in growth trends in proprietary Key First Look Data from credit/debit transactions

·     CTRE -4%; Healthcare REITs, Skilled Nursing Homes (SNH) stocks pressured after the federal government on Monday proposed its payment rate update to nursing home reimbursements for fiscal 2023, which includes a 4.6% cut related to the Patient-Driven Payment Model (ENSG, WELL, CTRE, OHI, SBRA, LTC, NHI among those volatile on news)

·     DB -1%; Deutsche Bank (DB) and Commerzbank (CRZBY) shares dropped after an investor sold stakes worth a total of 1.75 euros billion ($1.90 billion) in Germany’s two biggest lenders

·     KMX -5%; after Q4 EPS of $0.98 missed the $1.32 estimate while sales of $7.69B topped views (est. $7.41B) and said retail sales volume dropped 5.2% year over year and same-store sales in the fiscal fourth quarter fell 6.5%.

·     MYOV -20%; and partner PFE noted FDA has identified deficiencies that preclude discussion of labeling and/or post-marketing requirements and commitments at this time