Mid-Morning Look

Thursday, August 04, 2022

U.S. stocks follow up one of the stronger days of the year with choppiness, as mixed earnings results and guidance impact several sectors (energy, retailers, internet security slip on results). Geopolitical headlines intensify slightly after headlines earlier in the week of House Speaker’s trip to Taiwan (angering China). Reports indicate China fired 11 missiles into the sea around Taiwan on Thursday in response to US House Speaker Nancy Pelosi’s visit. With more than 400 of the S&P 500 companies having reported this quarter (still a busy night ahead), attention shifts to tomorrow’s nonfarm payroll report, as investors look to gauge the strength of the economy. A very strong report will raise prospects of a more aggressive rate hike cycle from the Fed (already expected to raise rates 50-bps in Sept after a 75-bps hike in July), while a weaker jobs look may raise calls for the Fed to back off aggressive hikes (and raise hopes of a possible easing in 2023). Treasury yields slip early, along with the dollar, while WTI crude drops below $90 per barrel and precious metal prices rebound.

Economic Data

·     Weekly Jobless Claims rose to 260,000 from 254K last week and in-line with estimates for 259K; the 4-week moving average rose to 254,750 from 248,750 prior week; continuing claims rose to 1.416M from 1.368M and insured unemployment rate unchanged at 1.0%

·     June International Trade in Goods (Advance) at -$79.6B vs. -$81.9B consensus and -$98.18B prior; U.S. June exports +1.7% vs May +1.5%, imports -0.3% vs May +0.6%; US/China June trade deficit $36.95B vs may deficit $31.54B

Sector Movers Today

·     Retailers; COST reported total and U.S. core July comp growth of 7.0% and 5.8%, respectively, compared to consensus of 6.6% and 6.8%; CROX sees FY adj EPS $9.50 to $10.30, down from prior view of $10.05 to $10.65; YETI cuts FY22 view to adj eps $2.34-adj EPS $2.46 vs prior outlook $2.86-$2.91 and lowers year sales growth outlook to +15%-17% from prior +18%-20%; Wayfair (W) posted wider-than-expected loss as revs fell -15% y/y to $3.3B while saying active uses were down 24% to 23.6 million in the quarter – said overall US revs fell -9.7% and int’l revs dropped over -35% y/y; RVLV tumbles Q2 EPS $0.22 vs. est. $0.31; Q2 revs rose 27% y/y to $290.05M vs. est. $293.13M and analysts note inventory levels (+75% y/y in 2Q) remain concerning; LEVI downgraded at Morgan Stanley on more balanced risk reward; KSS downgrade to Market Perform and tgt cut to $35 at Cowen as a weakening and inflationary consumer backdrop could drive EPS downside and cloud long-term visibility to EBIT expansion; also other earnings results from EPC, ETD, GIL and SBH

·     Casinos, Gaming, Lodging & Leisure sector; in casinos, MGM reported an upside 2Q22 revenue and EBITDAR result on strong Las Vegas performance while EPS missed consensus – Total adj. EBITDAR was $920m, above the Street’s $833m, with Las Vegas’ $825m as margins were solid at 38.6%; PENN another mover on earnings; in leisure, SEAS reported quarterly results in-line with prior year comp and announces share buyback; in online travel, BKNG reported strong 2Q results, but provided an outlook for 3Q that was below expectations as growth in bookings and room nights meaningfully decelerated in July

·     E&P and Majors; COP Q2 earnings and revenue beat estimates, making it the latest oil company to post strong results in the wake of soaring oil prices; MRO delivered 2Q22 adj EPS and EBITDA that came in ahead of cons expectations, maintained FY22 capex and production guidance and raised EG equity income 8% at the midpoint; APA reported adjusted 2Q22 EPS and EBITDA that beat cons estimates, while FCF fell a little short. The company maintained FY22 capex guidance of $1.725bn but reduced adjusted oil and total production guidance 3%/2%; LPI 2Q results came in better than consensus on EPS, EBITDA and FCF, with the variance primarily driven by lower opex and better realized oil prices. The company maintained FY22 capex at $550mm

·     Software movers: internet Security stocks get hit (PANW, CRWD) after FTNT Q2 results as fell slightly short of expectations with revenue roughly in-line and more modest billings beat; DDOG shares slide as 2Q adj EPS $0.24 vs est. $0.15 on revs $406Mm vs est. $380.9Mm; sees 3Q revs $410-414Mm vs est. $412Mm and adj EPS $0.15-0.17 vs est. $0.16; sees FY revs $1.61-1.63B vs est. $1.62B and adj EPS $0.74-0.81 vs est. $0.76; RPD reported 2Q22 top-line results modestly ahead of consensus/guidance, aided by demand for the company’s Security Transformation solutions (70% of net new ARR); UBSFY shares rise after Reuters reports TCEHY planned to raise its stake in the video game maker

Stock GAINERS

·     ATUS +14%; after results and Suddenlink update

·     BABA +1%; Q1 adj EPS $1.75 vs. est. $1.53; Q1 revs $30.69B vs. est. $29.97B; $25B share buyback program is effective through March 2024; Q1 China commerce revenue $21.19b, down 1%; Q1 cloud revenue $2.64b, up 10%

·     CCXI +107%; to be acquired by AMGN for $52 per share in cash, in deal valued at $3.7B, a 116% premium from yesterday’s closing price https://bit.ly/3bq9eoc

·     CI +3%; boosts FY operating EPS after Q2 top and bottom-line beat (Q2 adj EPS $6.22 vs. est. $5.48; Q2 revs $45.48B vs. est. $44.41B); raises FY22 adjusted EPS view to at least $22.90 from at least $22.60

·     COIN +14%; surged after saying it has partnered with BLK to provide institutional clients with access to crypto trading and custody services

·     GBT +32%; after Bloomberg News reported last night the company is attracting takeover interest, citing people familiar with the matter. Said some large pharmaceutical companies are exploring a potential deal https://bit.ly/3oUEmiC

·     MELI +15%; analysts noted co impressed with strong execution, delivering upside in transaction payment volumes (TPV), credit and profitability. TPV grew 135% in local currency to $30.2B vs. our estimate for 105% growth to $28.4B – the Street was at $26.8B

·     RIDE +19%; reports its first quarterly profit of $63.7M in Q2, compared with a loss of $108.2M y/y

·     UBSFY +9%; after Reuters reports TCEHY planned to raise its stake in the video game maker

·     YELL +32%; a winner early after earnings

Stock LAGGARDS

·     BKNG -3%; reported strong 2Q results, but provided an outlook for 3Q that was below expectations as growth in bookings and room nights meaningfully decelerated in July

·     CLX -3%; after guiding FY23 adj EPS $3.85-$4.22 below estimate $5.26, sees net sales -4% to +2% and guides FY organic sales -3% to +3%, vs. estimate +3.1%;

·     DXC -15%; F1Q23 EPS was below guidance/consensus and management lowered FY23 (Mar) EPS and FCF guidance 10-12% to reflect currency headwinds and higher expenses

·     FTNT -14%; slides as Q2 fell slightly short of expectations with revenue roughly in-line and more modest billings beat

·     LCID -8%; missed 2Q delivery guide and reduced FY production vs. prior guide due to supply chain/logistics bottleneck – Deliveries: 679 vehicles vs. cons of 1,011 and reduced 2022 production volume outlook to a range of 6k to 7k vehicles vs. 12k to 14k previously

·     LLY -2%; miss and lower guide as Q2 EPS $1.25 vs. est. $1.68; Q2 revs $6.48B vs. est. $6.67B due to lower prices of diabetes drug Humalog and Insulin Lispro injection and cuts FY22 EPS view to $7.90-$8.05 from $8.15-$8.30 (est. $8.08)

·     RVLV -11%; tumbles Q2 EPS $0.22 vs. est. $0.31; Q2 revs rose 27% y/y to $290.05M vs. est. $293.13M and analysts note inventory levels (+75% y/y in 2Q) remain concerning

·     SHAK -9%; missed Q2 revenue of $230.8M missed estimates of $238M saying June sales were below our expectations and guides Q3 revs $221M-$226.5M vs. est. $245.1M

·     TNDM -13%; reported Q2 results, which missed slightly on the top-line (though pump shipments were even lighter) and markedly on the bottom and lowered revenue estimates for the year by ~$17M at the mid-point

·     YETI -15%; cuts FY22 view to adj eps $2.34-adj EPS $2.46 vs prior outlook $2.86-$2.91 and lowers year sales growth outlook to +15%-17% from prior +18%-20%

Syndicate:

·     Ecovyst (ECVT) 13M share Spot Secondary priced at $8.75

·     Netstreit (NTST) 9M share Spot Secondary priced at $20.20

·     Poseida Therapeutics (PSTX) 20M share Spot Secondary priced at $3.50