Mid-Morning Look

Tuesday, April 26, 2022

Markets in sell mode. U.S. stocks are giving back much of yesterday’s rebound, falling sharply the first 60-minutes in a broad-based downdraft in a market that appears to be trading on technicals and fear (rising rates) rather than market/corporate fundamentals heading into earnings season. The Nasdaq 100 with a break of yesterday low despite a further pullback in Treasury yields (10-year hits lows below 2.75%). Tesla (TSLA) shares fall as much as 7% on concerns Elon Musk will have to sell shares/put some as collateral in his $44B acquisition on Twitter (TWTR) which was confirmed yesterday. Earnings season kicking into high gear this week with some 160 S&P components expected to report, which included UPS, PEP, DHI, SHW, JBLU, WHR today, with mega cap tech coming in the next few days (MSFT, GOOGL tonight). Economic data came in mixed, but at this point, market widely anticipating the Fed to raise interest rates by 50-bps at next week’s meeting, with a more aggressive outlook still in the cards to fight the surging inflation/costs that several companies have noted is weighing on future outlooks. Just an ugly start that began last Thursday when the S&P 500 failed to break above its key 100-day and 200-day MA resistance around the 4,500 level – since then, it has been a steady roll 3 out of the last 4 days. The Fed remains in a “black-out” period ahead of its meeting next week.

Economic Data

·     Philadelphia Fed non-manufacturing regional business activity index 29.3 in April vs 32.4 in March; business activity index 27.5 in April vs 38.1 in March; new orders index 13.6 in April vs 31.0 in March; non-manufacturing full-time employment index 14.9 in April vs 23.3 in March

·     Durables Goods orders for March rose +0.8% vs. est. +1.0% and Feb -1.7%; March Durables ex-transportation orders +1.1% vs. est. +0.6% and Feb -0.5%; March Durables ex-defense orders +1.2% vs. Feb -2.1%; Machinery orders +0.7%, electrical equipment +3.9%

·     Consumer Confidence index for April 107.3 below consensus 108.0 and vs March revised 107.6 (previous 107.2); the present situation index 152.6 in April vs March revised 153.8 and expectations index 77.2 in April vs March revised 76.7 (previous 76.6)

·     Richmond Fed composite manufacturing index +14 in April vs +13 in March; Richmond Fed manufacturing shipments index +17 in April vs +9 in March

·     S&P CoreLogic Case-Shiller: February 20-metro area home prices +20.2% from year ago vs revised +18.9% in January- February home prices in 20 metro areas +2.4% seasonally adj vs revised +1.7% in January- February 20-metro area home prices non-adjusted +2.4% vs +1.4% in January

Sector Movers Today

·     Housing & Building Products; homebuilder DHI Q2 EPS of $4.03 beat the $3.37 estimate and raises year rev outlook to $35.3B-$36.1B from prior $34.5B-$35.5B; in flooring, AWI slips as Q1 adj EPS $1.02 vs. est. $1.14; Q1 revs $282.6M vs. est. $289.92M, but backs 2022 EPS, adj Ebitda and rev outlook , appliance retailer WHR lowers FY ongoing EPS view to $24-$26, from prior $27-$29 and vs. est. $25.99; Q1 adj EPS $5.31 vs. est. $5.36; Q1 revs $4.99B vs. est. $5.32B; sees FY net sales growth of 2%-3%, down from prior view of up 5%-6%; in furniture, Wayfair (W) cautious mention at Wedbush as remain sidelines into earnings as believe two-year growth trends slowed in the month, putting 1Q22 y/y sales growth about in-line with consensus; paint coatings co SHW Q1 sales of $5B topped the $4.9B estimate while notes Q1 consumer bands group segment profit decreased due to lower sales volume and supply snags

·     Casinos, Gaming, Lodging & Leisure sector; in leisure, PII shares slip on top and bottom line miss as Q1 adj EPS $1.29 vs. est. $1.78; reports Q1 revs $1.96B vs. est. $2.11B, but reaffirmed its EPS and revenue outlook for 2022; in online travel, JMP said they expect travel companies to report strong 1Q22 results and are most confident in BKNG as urban travel recovers and ABNB as U.S. alternative accommodation listings grew 25% Y/ Y in March; in theme parks/events, Rosenblatt initiates coverage on LYV Buy and $138 tgt, FUN neutral and $56 tgt, SEAS Buy and $92 tgt, SIX Buy and $56 tgt, BATRK Buy and $35 tgt, FWONK Buy and $81 tgt; in gaming, BYD upgraded from Neutral to Positive w/ $74 PT at Susquehanna

·     Utilities & Solar; utility sector came into the day with first 3-day losing streak since January, while CSFB said today think the sector can outperform despite the expected rise in interest rates. Utilities pass through most costs to customers, offering an inflationary hedge to investors; monitoring customer bill inflation is important in the current backdrop; in solar, ENPH reports tonight; last night, ARRY said it is disappointed by the U.S. Department of Commerce’s decision to investigate an allegation of tariff circumvention on solar modules; in coals, ARCH posted record quarter of earnings in Q1, beating EBITDA consensus, announcing an increased variable dividend, guiding to improved Q2 and 2h results

·     Industrial & Machinery; Dow component MMM Q1 adjusted EPS $2.65 vs. est. $2.31; Q1 revs fell to $8.8B vs. est. $8.74B; guides 2022 EPS $10.75-$11.25 vs. est. $10.31; sees 3M reports Q1 adjusted EPS $2.65, consensus $2.31; GE reports top/bottom line Q1 beat but sees FY22 adjusted EPS at low end of $2.80-$3.50 view (est. $3.21) and sees FY22 organic revenue growth at the low end of HSD view; ROP 1Q adj EPS 43.77 vs est. $3.69 on revs $1.53B vs est. $1.48B; sees 2Q adj EPS $3.80-3.84 vs est. $3.79 and FY adj EPS $15.50-15.75 vs est. $15.54; PCAR Q1 profit and sales rose to record levels and beat expectations, as the undersupply of semiconductors boosted demand and prices for used trucks

Stock GAINERS

·     ARCH +13%; posted record quarter of earnings in Q1, beating EBITDA consensus, announcing an increased variable dividend, guiding to improved Q2 and 2h results

·     GLW +5%; posted a 12% rise in first-quarter sales as price increases across all businesses outpaced rising costs, while raised guidance for the year

·     MX +20%; after a report says South Korea’s LX Group is looking to buy the U.S.-listed chipmaker https://bit.ly/3rRlCm1

·     OI +6%; reported 1Q results well above expectations with EPS of $0.56 above consensus at $0.40, sales volume increased 6.4% y/y in the quarter, which was above guidance of up to 2% and raised the high end of its 2022 outlook

·     SHW +7%; Q1 sales of $5B topped the $4.9B estimate while notes Q1 consumer bands group segment profit decreased due to lower sales volume and supply snags

·     WM +6%; a bright spot in S&P after earnings, boosts shares of RSG

Stock LAGGARDS

·     GE -10%; reports top/bottom line Q1 beat but sees FY22 adjusted EPS at low end of $2.80-$3.50 view (est. $3.21) and sees FY22 organic revenue growth at the low end of HSD view

·     JBLU -7%; posted slightly larger EPS loss on in-line revs $1.74B while now planning to grow capacity between 0% and 5% from 2019, lower than earlier forecast of growth between 11% and 15%, due to staffing shortages

·     PII -7%; on top and bottom line miss as Q1 adj EPS $1.29 vs. est. $1.78; reports Q1 revs $1.96B vs. est. $2.11B, but reaffirmed its EPS and revenue outlook for 2022

·     PTGX -51%; reported Phase II data for PN-943, a competing oral integrin program, in ulcerative colitis; PN-943 failed (Wells Fargo said argued MORF shares should be up on this data in line with their bull/positive scenarios from our recent deep dive)

·     RDFN -6%; downgraded to Underweight from Overweight at Piper Sandler citing challenging housing outlook with mortgage rates jumping

·     TSLA 7%; on concerns Elon Musk will have to sell shares/put some as collateral in his $44B acquisition on Twitter (TWTR) which was confirmed yesterday

·     UHS -10%; hospital providers punished for a 2^nd day in the last three after UHS Q1 adj EPS $2.15 missed the $2.46 estimate while Q1 revs rose 9.3% to $3.29B vs. est. $3.21B