Mid-Morning Look

Wednesday, April 13, 2022

Much like yesterday, U.S. stocks start the day higher post inflation data (PPI today after CPI yesterday), though investors hope today ends better than Tuesday action, with major averages closing just off the session lows in a sharp reversal. Defensive utilities, consumer staples among decliners early with “risk-on” at moment and financials a drag behind JPM quarterly results. Consumer price inflation data yesterday (CPI) showed a fresh 4-year highs, but was mostly in-line with views, while today the producer price index (PPI) today showed the biggest increase ever (data goes back to 2010), the latest sign of persistently high inflation that could compel the Federal Reserve to aggressively tighten monetary policy (ests remain for 50-bps hike at the May FOMC policy meeting). The producer price index for final demand increased 1.4%, the largest gain since the gov’t revamped in December 2009, after rising 0.9% in February with a 5.7% rise in energy prices and food prices climbed 2.4%. Treasury yield weaker across the curve despite the “hotter” PPI inflation data while the buck slips after a 9-day win streak. Energy prices resume upward momentum with WTI crude topping $102 per barrel earlier. Financial stocks slip after JPM disappointing earnings results and falling yields (ahead of GS, C, WFC, MS earnings tomorrow). Transports lead early behind strength in airlines as DAL posts smaller loss on better revs and TRASM. Markets looking for signs of “peak” inflation ahead of the aggressive rate hike cycle expected by the Fed.

Economic Data

·     Producer Price Index (PPI) for March rises +1.4% m/m vs 0.8% previous and est. +1.1%, while headline PPI on a y/y basis surges +11.2% vs 10.0% previous and est. +10.6%; the core PPI (ex Food & Energy) rises +1.0% m/m/ for March vs 0.2% previous and +0.5% estimate and y/y rises +9.2% vs. 8.4% previous and above est. +8.4%

Sector Movers Today

·     Chemicals: ASH guided Q2 adj EPS $1.50c above consensus $1.14 and sees Q2 rev $604M well above consensus $575.31M saying it saw continued strong end-market demand; Disciplined pricing and product mix actions more than offset additional inflation in raw-material; BASFY, COVTY both downgraded to Hold from Buy at Stifel warning macro developments will hit the European chemicals sector as Russia’s invasion of Ukraine adds to rising energy costs and supply concerns; also cuts BASF’s Target price by a fourth to EUR 63 to reflect lower estimates, saying 2023 EBIT could fall by 15% year-on-year due to the macro slowdown; in fertilizers, KPLUY raised its 2022 core profit outlook, as it expects rising average prices in the agriculture customer segment to outweigh energy, logistics and materials cost increases as now sees Ebitda for year 2.3-2.6B euros above the consensus of 2.16B euros (shares of MOS, NTR, CF active in reaction)

·     Transports; airlines outperform following earnings results from DAL as posted smaller Q1 adj EPS loss ($1.23) vs. est. loss ($1.27) and revs $9.35B vs. est. $8.92B, sees June quarter 2022 capacity up about 84% vs June quarter 2019 and March month adjusted TRASM inflected to positive versus 2019 (AAL, JBLU, UAL higher); in truckers, JBHT upgraded to Buy from Hold at Deutsche Bank it appears we are mostly through this period of significant near-term volatility

·     Housing & Building Products; The average interest rate on the 3-year home loan rose to more than 5% last week, the highest level since November 2018, and homebuyers hurried to make purchases before costs rise further, the Mortgage Bankers Association (MBA) showed. The average contract rate on a 30-year fixed-rate mortgage increased to 5.13% in the week ended April 8 from 4.90% a week earlier. It is up more than 1.5 percentage points since the start of the year which has crushed homebuilders TOL, LEN, PHM, etc. and XHB down 28% YTD

Stock GAINERS

·     ASH +4%; upside guidance as expects Q2 EBITDA to be $163MM, up 41% YoY, and $29MM, or 22% above consensus driven by strong demand and pricing which is more than offsetting higher raw material, freight, and energy costs

·     ATRS +48%; to be acquired by HALO in a cash deal valued at $960M with ATRS holders to receive $5.60 for each share held https://bit.ly/3KIVXmU

·     DAL +5%; posted smaller Q1 adj EPS loss ($1.23) vs. est. loss ($1.27) and revs $9.35B vs. est. $8.92B, sees June quarter 2022 capacity up about 84% vs June quarter 2019 and March month adjusted TRASM inflected to positive versus 2019 (AAL, JBLU, UAL higher)

·     KPLUY +6%; raised its 2022 profit outlook, as it expects rising average prices in the agriculture customer segment to outweigh energy, logistics and materials cost increases as now sees Ebitda for year 2.3-2.6B euros above the consensus of 2.16B euros

·     NCLH +4%; strength in travel and leisure names after better DAL numbers help boost sentiment for travel and return to normalcy post pandemic (CCL, MAR, RCL, BKNG, LVS higher)

·     PTON 1%; as shareholder Blackwells Capital reiterates its call for Peloton’s Board to sell the company noting that first 60 days under new CEO has cost shareholders nearly $2 billion in lost market value

·     SRRA +37%; GSK to acquire SRRA in a $1.9B cash deal to bolster its cancer drug portfolio as outstanding shares of Sierra will be cancelled and converted into the right to receive $55 per share in cash https://bit.ly/378r9h3

Stock LAGGARDS

·     ABBV -3%; as Vice Chairman Michael Severino is leaving the company, effective May 31, to join bioplatform innovation firm Flagship Pioneering as chief executive-partner

·     BBBY -4%; posted an expected quarterly loss as well as a shortfall on sales saying comp sales were down -12% impacted by supply chain disruptions and inventory challenges (est. for -8.5% decline), while sees Q1 current trend negative adj. EBITDA

·     DTE -1%; broad weakness in defensive utilities after hitting 52-week highs this week for group

·     INFY -6%; a decliner following quarterly results and guidance

·     JPM -2%; posted a 42% decline in Q1 profit as deal making slowed (posted 28% drop in Q1 investment banking) and started building loan loss reserves (provision for credit losses surges to $1.46B) amid high inflation and the Ukraine crisis

·     NSTG -31%; as cuts Q1 revenue view to $31M from $34M-$38M (est. $35.8M) impacted primarily as uneven sales execution resulted in an imbalance between capturing Q4 revenue and developing our Q1 2022 funnel of opportunities

·     PYPL -2%; announces departure of CFO John Rainey (going to WMT); Gabrielle Rabinovitch will serve as interim chief financial officer upon Rainey’s departure

·     SQSP -3%; as CFO Marcela Martin announced her intention to resign as chief financial officer effective July 31, 2022