Mid-Morning Look

Tuesday, April 19, 2022

U.S. stocks recovering nicely after yesterday’s modest declines, with major averages broadly higher despite surging Treasury yields and mixed earnings results, while gold, oil prices, and energy stocks tumble (WTI crude -4.5%) in another rotation of assets. The S&P 500 came into the day down roughly 9% from record highs and Nasdaq down about 17% from all-time records, but both off to strong starts on the day. Treasury yields hit new 3-year highs on expectations of aggressive interest rate hikes, while investors awaited more earnings reports to assess the impact of inflation and the Ukraine war on company profits. St. Louis Federal Reserve Bank President James Bullard on Monday repeated his case for increasing the rates to 3.5% by the end of the year to slow a 40-year-high inflation and said he did not rule out a 75-basis points rate hike. This morning, the IMF cuts global growth forecast due to “seismic waves” from Russia’s war in Ukraine – slashed its forecast for global economic growth by nearly a full percentage point, citing Russia’s war in Ukraine, and warning that inflation was now a “clear and present danger” for many countries. Natural gas prices slip from 14-year highs – slipping 4%, back down below the $7.50 mln Btu level after five straight sessions of price-increases on supply concerns and unseasonably cold weather in several parts of the country. Earnings results this morning mixed with JNJ, LMT, HAL among key reports, while markets await NFLX and IBM tonight in tech/media. Dow Transports leading up 1.5% back above 15K today (still down over 7% MTD) led by airlines after a U.S. judge on Monday overturned a federal mandate for passengers to cover their faces. The U.S. dollar index (DXY) posted a fresh 2-year high of 101.022 before paring gains, while the buck surged to a fresh 14-year high above 128 against the haven Japanese yen.

Economic Data

·     Housing Starts for March rose +0.3% m/m (vs. +6.5% in Feb) to 1.793M unit rate (above consensus 1.745 mln), vs February 1.788 mln units; March single-family starts fell -1.7% to 1.200 mln unit rate; multifamily +4.6% to 593,000-unit rate; Building Permits for March rose +0.4% vs. -1.6% last month to 1.873 mln unit rate (est. 1.825 mln)

Sector Movers Today

·     Transports; most major U.S. airlines (AAL ) are no longer requiring travelers or employees to wear face coverings on domestic and some international flights after a U.S. judge on Monday overturned a federal mandate for passengers to cover their faces; JBHT 1Q EPS $2.29 vs est. $1.94 on revs $3.49B vs est. $3.28B while total operating income was 9% above Deutsche Bank model, with good attribution from all business segments – led by better Intermodal and ICS profits; trucking preview: Stifel said view is that 2Q and 3Q will be softer quarters for Truckload followed by a rebound into the holiday season in 4Q and prefer carriers that built more durable business models amid the freight demand upswing (KNX ) and would also expect the more defensively-oriented carriers (WERN ) to outperform as rates pull back from peak levels

·     Pharma movers; JNJ Q1 adj EPS $2.67 vs. est. $2.61; Q1 revs miss at $23.43B below consensus $23.67B; guides FY adj EPS $10.15-$10.35 below est. $10.51; says given global supply surplus and demand uncertainty, company is suspending covid-19 vaccine sales guidance; ACAD reported a miss on top-line results from its Phase 2 trial of ACP-044 for acute postoperative pain; AZN and Daiichi Sankyo Co. said that Enhertu, a cancer treatment, has been accepted by the U.S. FDA for priority review for patients with previously treated HER2-mutant metastatic non-small cell lung cancer; SWTX entered into a clinical trial collaboration and supply agreement with Regeneron Pharmaceuticals to evaluate nirogacestat in combination with REGN5458 to treat myeloma

·     Casinos & Gaming: casinos (WYNN ) Macau VIP sector gaming revenue fell 47% in the first quarter from a year earlier to 4.84 billion patacas ($599.6 million), according to data (lowest since Q3’20) – VIP revenue -1.2% from the previous quarter 1Q mass-market gaming revenue -11% y/y to 12.9 billion patacas 1Q total gaming revenue -25% y/y to 17.8 billion patacas; also, Truist with PT Changes: Up: MCRI to $110 (from $88) / Down (reducing interactive valuations across coverage): PENN to $60 (from $65), CZR to $105 (from $110), MGM to $48 (from $51) and BALY to $38 (from $51) – remain positive on the resiliency of gaming with bias for physical / profitable gambling stocks

·     Internet, Media & Telecom movers; NFLX expected to report earnings after the close tonight (shares are down 43% YTD coming into the day); EA, RBLX, and PLTK all assumed/downgraded to Neutral from Buy at Goldman Sachs and assumed/downgraded UBSFY to Sell from Neutral; TDS and USM downgraded at Morgan Stanley as competitive pressures mount in wireless and TDS Telecom goes full speed on fiber; SHOP tgt cut to $800 and ests lowered at Piper as see increasing execution risks tied to inflationary pressure on consumer spending, shift in consumer behavior that favors services, tough compares vs. stimulus aided tailwinds

Stock GAINERS

·     ACC +12%; to be acquired by PE giant Blackstone for about $12.8B including debt, with holders to receive $65.47 per share, a 14% premium

·     AXSM +21%; received and agreed to post-marketing requirements/commitments proposed by the FDA with respect to the New Drug Application for its AXS-05 and anticipates potential FDA action on the NDA in the second quarter of 2022

·     CMPI +330%; to be acquired by REGN in roughly ~$250M all-cash deal, with holders to receive $10.50 per share, a premium of 335.68% to last closing price

·     LULU +3%; upgraded to Buy from Hold and raise tgt to $495 from $390 at Truist as expect a robust new 5-year financial outlook at the April 20th analyst day

·     PLUG +8%; announced an agreement with WMT in which it will deliver liquid green hydrogen to new and existing Walmart sites in the United States

·     SMCI +17%; guides Q3 EPS $1.28-$1.38 vs. est. $0.80 and guides Q3 net sales $1.3B-$1.35B (from prior $1.1B-$1.2B) vs. est. $1.14B

·     ZEN +6%; after a report the software firm is exploring a sale amid pressure from activist Jana Partners; Bloomberg reported Zendesk is working with adviser Qatalyst Partners and has contacted possible buyers https://bit.ly/3jOROSy

Stock LAGGARDS

·     ACAD -2%; reported a miss for primary endpoint on top-line results from its Phase 2 trial of ACP-044 for acute postoperative pain

·     LMT ; posts a 5.7% fall in Q1 profit, hurt by supply chain snags caused by the COVID-19 pandemic while quarterly sales of $14.96B missed the $15.58B estimate, though maintained its outlook for the year

·     NEM -2%; gold miners lower as investors rotate out of haven assets and back into growth stocks despite another spike in Treasury yields; NEM downgraded at Credit Suisse on valuation

·     NTGR -6%; lowered guidance citing slowing consumer WiFi market; guides prelim Q1 net revs $202M-$212M, below est. $231.8M and prior view of $225M-$240M; prelim Q1 adj operating margin -5.3% to -4.3%; said consumer Wi-Fi market declined in Q1

·     SAVA -13% following a New York Times report that detailed new allegations related to the studies of the company’s experimental therapy, simufilam. The stock has lost over 80% from a peak of $135 last summer as it has become a target of short sellers

·     TRV -3%; posted a 39% jump Q1 net income, with premium-rate increases and new business fueling revenue gains; sharply lower catastrophe costs compared with the year before also boosted profits

·     USM -10%, and TDS decline; both downgraded at Morgan Stanley as competitive pressures mount in wireless and TDS Telecom goes full speed on fiber

·     XRAY -10%; announced they terminated its CEO immediately and board has initiated a search to identify next CEO, retained leading executive search firm to support process