Mid-Morning Look

Tuesday, August 03, 2021

U.S. stocks open flattish before slipping amid another heavy round of corporate earnings for investors to digest, as well as continued concerns around China’s regulatory clampdown (fears that the gaming space could be next after an article in the Xinhua News Agency hits shares of TCEHY) and ongoing delta variant cases rising (leading to tighter restrictions in parts of the U.S. and Asia). Treasury yields remain pressured with the 10-year slipping to lows around 1.16% today. U.S. factory orders beat expectations in June as business spending on equipment solid. New York City will require proof of vaccination for indoor activities including restaurants, gyms and performances, Mayor Bill de Blasio said on Tuesday. Earnings overload continues with results from the likes of LLY in Pharma, RL/UA in retail, COP/FANG/PXD/CLR in energy and several movers in tech as have now seen over 330 S&P components report this quarter. Oil prices edge lower again, with WTI crude holding just above $70 per barrel Tuesday due to lingering concern over rising cases of the Delta coronavirus variant, while gold also slips.

Economic Data

·     Factory Orders for June rose +1.5% to $506.0B vs. +0.8% consensus and +2.3% prior (revised from +1.7%); new orders for manufactured goods increased in 13 of the past 14 months; shipments +1.6% to $499.0B and unfilled Orders +1.0% to $1,223.1B

Sector Movers Today

·     Semiconductors; MRVL to acquire networking chip startup Innovium for $1.1 billion in a bid to capture a greater share of the silicon used to power the largest, most complex data centers; NXPI Q2 sales of $2.6B edged consensus’ $2.58B estimate despite weather-related interruptions (~$100M impact) and otherwise tight supply/EPS of $2.44 bested Street’s $2.32E on better GM/OM. Mgmt. guided 3Q sales to $2.85B, topping Street by 6%; IDCC said it has signed a license deal with Chinese smartphone manufacturer Xiaomi covering InterDigital patents related to cellular wireless, WiFi and HEVC video technology; IPGP shares tumble after surprise earnings miss this morn from the optical fiber laser maker

·     Video game industry; Chinese video game/software names move lower initially (NTES, DOYU, HUYA, BILI) after TCEHY said it would curb minors’ access to its flagship video game after China’s state media refers to online games as “spiritual opium”, stoking fears of tighter regulation; ATVI president J. Allen Brack is out after sexual harassment suit, employee walkout; TTWO Q1 top-line results were above the Street’s estimates driven by strong engagement trends across several core franchises while total net bookings were $711 million, vs. consensus of $688 million

·     Retailers; RL shares lead a retail rally after Q1 results top views and boosted its FY rev outlook to 25%-30% from prior view 20%-25%; BABA mixed results as Q2 EPS $2.54 beats by 30c but revenue of $31.87B missed the consensus $32.54B; Today was LB split day where Victoria’s Secret and Bath&Body Works trade independently; UAA raised its full-year earnings outlook and reported second-quarter sales that surpassed analysts’ expectations; WWW buys Lululemon competitor Sweaty Betty for $410 million; COLM Q2 $.61/566.4mn vs est. -$.07/503mn – (GM 51.6% vs est. 47.9%), while raises year to $4.30-$4.55, from $4.05-$4.30 on better sales

·     Consumer Staples; CLX shares slide as missed Q4 revs and said it expects fiscal 2022 sales to fall between 2% and 6%, compared with Wall Street estimates of a 1% decline as demand for its bleaches, wipes and other surface cleaners eased off pandemic highs; FRPT 2Q revenue beat FactSet consensus by $3M but EBITDA missed by $1M due to higher beef, manufacturing, and freight costs during the company’s capacity ramp-up that will persist into 2H; PEP announced a $3.3 billion sale of its Tropicana and other juice brands in North America to French private equity firm PAI Partners; APRN slips as posts wider Q2 EPS loss of (-$0.98) on in-line revs of $124M while continues to see high single-digit to low double-digit net revenue growth for FY2021 and positive annual adj EBITDA starting with FY2022 (said orders and customers fell)

·     E&P and Majors; CLR topped Q2 expectations and saying it has resumed its $1B stock buyback program, Q2 adjusted EBITDAX soared to $990.9M from $36M in the year-ago quarter and raises various FY 2021 guidance metrics; FANG posted better than forecast Q2 earnings and revenues, and raising its annual dividend by 12.5% to $1.80/share; PXD coming in shy of Q2 earnings and revenue estimates while declaring a variable quarterly dividend of $1.51/share

Stock GAINERS

·     HOLI +30%; after announcing its board is studying a nonbinding offer of $23/share in cash from Superior Emerald (Cayman)

·     HOOD +9%; rises back above $40 per share (and back above the recent $38 IPO pricing)

·     LLY 3%; after 2Q results, with better revenues $6.74B (vs $6.6B est.) and a slight miss on EPS $1.87 (vs. $1.89), with higher COGS and SG&A and noted that it plans to submit donanemab for Alzheimer’s by end of 2021 – consistent with prior messaging.

·     RL +7%; Q1 results topped views as revs rose 182% during the quarter, including a 301% jump in North America, all topping views on strong margins

·     SEDG +13%; after easily beating Q2 expectations and guiding Q3 revenues of $520M-$540M compared with $503.4M analyst consensus, as well as non-GAAP gross margin of 32%-34%

·     TA +19%; Q2 revs $1.83B topped the $1.75B estimate saying improvements driven primarily by a $60.5M increase in non-fuel gross margin, a result of operating improvements across nearly all business lines

·     TBIO +29%; as SNY agreed to acquire the company in a deal that gives the mRNA-therapeutics company a total equity value of around $3.2 billion; SNY to pay $38.00 a share in cash

·     ZI +5%; posted a strong beat-and-raise quarter with full year guidance coming in nicely above the street and organic growth accelerated to 54% Y/Y (vs. up 50% in 1Q)

Stock LAGGARDS

·     ANET -3%; solid beat for the Q with strength in EMEA APAC, visibility, campus and cloud titan strength, but guidance reflects decelerating 2H21 revenue growth and tough YoY comps

·     BABA -2%; headline revs 2% light vs Street at $205.7B vs est. $209.4B with Cloud below, although EBITDA was slightly ahead; they did increase their buyback authorization to $15B (from $10B)

·     CLX -8%; as missed Q4 revs and said it expects fiscal 2022 sales to fall between 2% and 6%, compared with Wall Street estimates of a 1% decline as demand for its bleaches, wipes and other surface cleaners eased off pandemic highs

·     DISCA -5%; as beat on top and bottom line as earnings more than doubled in the second quarter from a year earlier, noted costs and expenses increased 25% to $2.28 billion

·     IPGP -13%; after surprise earnings miss this morn from the optical fiber laser maker

·     TCEHY -6%; said it would curb minors’ access to its flagship video game after China’s state media refers to online games as “spiritual opium”, stoking fears of tighter regulation

·     TTWO -8%; Q1 top-line results were above the Street’s estimates driven by strong engagement trends across several core franchises, but offered mixed to lower guide

·     WWD -9%; Q3 results missed expectations with EPS 74c falling short of est. 97c and revs $556.68M shy of est. $617.09M as supply chain disruptions affected their quarterly performance

·     ZBH -4%; Q2 beat; narrows FY revenue growth guidance to 14.5-16.5% from 14-17% and diluted EPS to $7.65-7.95 from $7.60-8.00