Mid-Morning Look

Wednesday, April 26, 2023

U.S. stocks are mixed led higher by the tech heavy Nasdaq with focus on earnings (MSFT, GOOGL), while the S&P erases gains as investors watch the banking sector closely as FRC shares tumble to fresh record lows after deposit outflows Tuesday sunk shares roughly 50%. The S&P 500 index making new low for a 7th straight day with ten of the eleven sectors in the S&P lower (technology lone gainer), led by weakness in Energy, Utilities, Industrials, and Healthcare. Microsoft and Alphabet Q1 earnings topped estimates and were a catalyst for futures to stage a recovery from the earlier battering. Other big earnings winners include Chipotle and Boeing. The Euro is hitting 52-week highs at 1.108 vs. the dollar, leading a group of currencies trading higher against the Dollar in global environment dominated by concerns about the US banking sector. Recession fears hitting markets again with sharp declines over the last week in energy, copper, and other materials heading into the FOMC policy meeting next week where another 25-bps hike is expected. Market stats: Yesterday marked the first 1% plus drop in 22 trading days for the S&P 500, longest such streak since 37 days ending Nov ’21. The sell in May period is right around the corner. Did you know that stocks have gained in May nine of the past 10 years?

Economic Data

·     Durables Goods Orders for March rose +3.2% above consensus +0.7% and vs Feb (-1.2%) while Durables ex-transportation orders +0.3% vs. est. (-0.2%) and vs Feb (-0.3%); March Durables ex-defense orders +3.5% vs Feb (-0.8%). Machinery orders +0.1%, electrical equipment +0.8%, defense aircraft/parts +10.4% and Durables shipments +1.1% vs Feb -0.8%.

Sector Movers Today

·     In industrials: CARR to buy Viessmann Group’s unit that makes heating boilers and heat pumps in a $13.17 bln cash-and-stock deal; WAB Q1 driven by stronger topline and strength in both segments with outlook reiterated; OTIS Q1 beat driven by stronger service segment performance with guide raised at low end but still brackets consensus; DOV slight operating beat with outlook largely reiterated; ALLE beat and raise driven by Americas segment; WNC raises 2023 EPS view to $4.00-$4.50 from $2.70-$3.00 after Q1 beat while sales rose vs. year ago, but missed ests.

·     In Transports: a day after the Dow Jones Transports Index fell -3.6%, worst day since September after lower guide and miss by package delivery giant UPS, group rebounds slightly; in rails, NSC posts Q1 EPS beat of $3.32 vs. est. $3.15 on in-line revs. Ryder (R) Q1 EPS of $2.81 missed the $2.96 estimate while revs rose 3% y/y to $2.952B missing the $2.985B estimate. In trucking, ODFL Q1 EPS and revs missed estimates and lowers year capex to $700M from $800M. TFII also tumbles on earnings and revenue miss for Q1.

·     In E&P sector: HES reported Q1 EPS beat at $1.30 vs. est. $1.06 and raises production outlook to 365K-375K Boepd from prior view of 355K-365K and announces a new oil discovery at the Lancetfish-1 well in the Stabroek block offshore Guyana; MTDR reported across-the-board beats as beat on capex and price realizations as well/reported adj EPS/EBITDA $1.50/$365m compared to consensus of $1.29/$353m; In services, WFRD 1Q23 EBITDA Beats Street by 20%, Raises EBITDA and FCF Outlook

·     In banks: after a tumultuous Tuesday after deposits plunged for FRC sending shares down about -49%, PACW overnight posted Q1 EPS beat saying total deposits +$1.1B to $28.2B at 3/31 vs co’s most recent update of $27.1B on 3/20/23 and said expect total assets will be closer to $35B w/in next few months. HMST downgraded to neutral as funding pressures intensify at Wedbush noting the bank reported a challenging quarter driven by lower-than-expected NII, down -11%.

·     In semis: NVDA shares rose initially after MSFT detailed increased spending on equipment needed to offer artificial-intelligence-powered features to corporate customers – said that capex would be $7.8B in Q3, above the ests of around $6.5B. TXN reported a slight beat and modest guidance miss. In memory: MU shares active follows comments from SK Hynix overnight saying production cuts by memory chip makers will improve market conditions from the second half of 2023, after it reported a record operating loss for the first quarter.

Stock GAINERS

·     BA +3%; reports wider-than-expected Q1 EPS loss (-$1.27) vs est. loss (-$0.98) as revs rose 28% y/y to $17.9B top consensus of $17.4B and backs 737 production and FY23 cash flow outlook; Q1 FCF was negative -$786M, vs. est. -$1.9B.

·     CMG +13%; EPS and revs beat and comps of 10.9% also beat along with clean margin beat and MSD-HSD% Q2/FY23 guide well received by Wall Street.

·     FSR +13%; after European regulators certified the company’s Ocean SUV for sale, with the company aiming to start deliveries to European customers on May 5.

·     HES +2%; reported Q1 EPS beat at $1.30 vs. est. $1.06 and raises production outlook to 365K-375K Boepd from prior view of 355K-365K and announces a new oil discovery at the Lancetfish-1 well in the Stabroek block offshore Guyana.

·     MSFT +7%; reported a beat and raise 3Q, with broad strength across productivity, cloud, and better-than-feared performance in its Windows, Gaming, and Advertising businesses.

·     OI +3%; reports Q1 EPS $1.29 vs. est. $0.85; Q1 revs rose to $1.8B vs. est. $1.77B; sees Q2 EPS $0.80-$0.85 vs. est. $0.76; Increased FY23 Guidance for adj EPS, free cash flow, adj free cash flow.

·     PACW +6%; posted Q1 EPS beat saying total deposits +$1.1B to $28.2B at 3/31 vs co’s most recent update of $27.1B on 3/20/23.

·     TECK +5%; said it has withdrawn its proposed restructuring plan of a shareholder vote on the proposal.

·     WNC +14%; raises 2023 EPS view to $4.00-$4.50 from $2.70-$3.00 after Q1 beat while sales rose vs. year ago but missed consensus ests.

Stock LAGGARDS

·     ATVI 10% as the Competition and Markets Authority (CMA) has prevented Microsoft’s $70B proposed purchase of Activision over concerns the deal would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come https://bit.ly/3L8TIuH  

·     ENPH -23%; shares slid as weaker Q2 revenue guidance ($700M-$750M vs. est. $773M) overshadowed a Q1 top and bottom-line beat.

·     FRC -35%; extending the stock’s 49% slide from Tuesday that had taken it to a record low.

·     JNPR -2%; Q1 results beat but warned that ongoing parts shortages and supply-chain “challenges” continued to hit its business; guided Q2 EPS $0.49-$0.59 vs. est. $0.53 and revs $1.36B-$1.46B vs. est. $1.4B; sees Q2 gross margin 57%-59%.

·     ODFL -9%; Q1 profit of $2.58 missed $2.70 estimate and revs fell -3.7% y/y to $1.44B vs. est. $1.48B saying Q1 results were impacted by a decrease in volumes.

·     R -4%; Q1 EPS of $2.81 missed the $2.96 estimate while revs rose 3% y/y to $2.952B missing the $2.985B estimate.