Mid-Morning Look

Tuesday, August 09, 2022

U.S. stocks were flat to down slightly overnight, but selling pressure picked up steam this morning after another semiconductor chip maker, Micron (MU), issued a cautious outlook for Q3 revenue, following caution from NVDA yesterday which sunk technology shares. Vaccine stocks slide after a NVAX cut its outlook for the year by half, weighing on biotech space, while oil prices rise, lifting energy names. Defensive assets seeing strength with utilities and consumer staples rallying. Financials getting an early boost along with a bounce in yields. All eyes on the consumer price index (CPI) inflation report tomorrow (still with PPI Thursday and UoM inflation expectations on Friday as well), with a cooler reading reducing bets for a more aggressive rate hike cycle by the Fed, but a “hotter” reading could push markets lower on fears the Fed has to ramp up hikes at September meeting more than expected. Today, Q2 productivity improved, and unit labor costs surged (both better than prior quarter – but still weak numbers). Several Smallcap names pressured overnight following lower outlooks and or quarterly results (dee details of biggest movers below). 

Economic Data

·     Nonfarm Productivity (2Q P) -4.6% vs -4.7% expected (better than the Q1 -7.4%), while Unit Labor Costs rose +10.8% vs +9.5% (hotter than expected but down from the +12.7% in Q1).

Sector Movers Today

·     Retailers; CPRI Q1 EPS of $1.50 beats by $0.14 and revenue of $1.36B (+8.8% y/y) beats by $60M while guides FY2023 rev outlook to about $5.85B vs. consensus of $5.84B and gross margin approximately flat to FY2022; RL Q1 revs rose 8.3% to $1.49B above estimates of $1.41B and EPS of $1.88 topped the $1.75 consensus and forecasts Q2 revenue growth to be about 11%, above analysts’ expectation of a 5.3% rise; BIRD guided 2H22 lower reflecting deterioration in U.S. business trends from May to June that have not abated; SIG agreed to buy online retailer of fine diamonds and jewelry Blue Nile Inc. for $360M in cash, while cut its full-year earnings outlook (FY23 revenue view to $7.6B-$7.7B from $8.03B-$8.25B and below est. $7.95b) and cuts year adj op income to $787M-$828M from $921M-$974M; ACCO Q2 adj EPS missed estimates

·     Pharma movers: SNY downgraded to Neutral from Buy at UBS saying Sanofi has done a lot right but EPS growth in ’23 will slow After two pipeline stumbles, exciting clinical catalysts look lacking and Zantac may become an issue; BHC reported 2Q results, with revenue of $1.97B (vs. $2.04B cons) and EBITDA of $701M (vs $783M cons), along with lower gross profit and higher expenses; RETA disclosed a 3-month extension of its review period for Omaveloxolone for the treatment of Friedreich’s Ataxia, now expected to receive a decision by 2/28/23 (vs. 11/30/22 prior); VRNA surges after saying its lead asset met the key goals in a Phase III study in chronic obstructive pulmonary disease, or COPD; CRMD tumbles after disclosing its FDA application for DefenCath received a second complete response letter, noting deficiencies related to its contract manufacturing organization and supplier of active pharmaceutical ingredient; PRGO, ENDP among generics reporting earnings this morning; BHC drops on lower year outlook

·     MedTech Equipment; ICUI top and bottom-line miss (Q2 adj EPS $1.37 vs. est. $1.86; Q2 revs $561M vs. est. $565.13M) and lowers FY22 adj EPS view to $6.20-$6.80 from $9.00-$10.50 (est. $9.17) and lowers year EBITDA range to $350M-$370M from prior $450M-$500M; TNDM downgraded to Underweight from Overweight at Wells Fargo because they see downside risk to Street estimates from new competition in all four sources of TNDM’s growth; SWAV reported Q2 revenue of $120.7M that topped Street estimates by ~$13M as U.S. coronary drove the majority of upside and raised its 2022 revenue guidance by $15M to $465-$475M

·     Consumer Staples; HAIN guides Q4 rev $457M, below estimates $478.4M and said it expects a return to growth with low single digit adjusted net sales growth and adjusted EBITDA growth on a constant currency basis; BRBR 14.8M share Spot Secondary priced at $23.50; TSN upgrade to Neutral at Piper as continue to recognize risks which now appear more fully reflected in current valuation; FRPT reported 2Q results with sales slightly below consensus and adj EBITDA well below expectations, while maintaining full-year sales and reducing adj EBITDA guidance; IFF reported 2Q results with sales and adj EBITDA above consensus while maintaining full-year expectations for each metric; SYY posts higher Q4 EPS and sales in food space

Stock GAINERS

·     DM +2%; Q2 revenue more than triples to $57.7M, driven by strength from metals platform and contributions from acquisitions above ests $54.7M and reaffirms full-year 2022 revenue forecast

·     GDRX +21%; after the resolution of a dispute between its pharmacy benefit management customers and grocer Kroger, EPS

·     LMND +16%; Q2 EPS loss ($1.10) vs. est. loss ($1.32); Q2 revs $50M vs. est. $47.7M; said in force premium (IFP) increased by 54% to $457.6M y/y, primarily due to a 31% increase in the number of customers as well as a 18% increase in premium per customer

·     NLSN +21%; postpones court & special meetings of shareholders to permit finalization of preliminary agreement between consortium and Wind Acre; Nielsen and consortium remain bound by terms of definitive agreement to give effect to proposed transaction

·     OXY +4%; as Warren Buffett’s Berkshire Hathaway (BRK.A) disclosed late Monday that it acquired another 6.68M common shares during August 4-8, now owning a 20.2% stake

·     U +3%; APP submitted and unsolicited bid to buy Unity in an all-stock deal with an enterprise value of $20 billion (IS shares tumbled after APP makes bid for Unity – recall on July 13th, Unity had agreed to acquire IS in a $4.4B stock deal) https://bit.ly/3Q9TJiZ

·     VRNA +96%; after saying its lead asset met the key goals in a Phase III study in chronic obstructive pulmonary disease, or COPD.

Stock LAGGARDS

·     CARG -19%; slides as missed qtr & lowered guidance amid the industry’s ongoing low inventory/higher rates-fueled challenges

·     CLOV -15%; CEO and Founder Vivek Garipalli to exit the company, effective Jan. 1, 2023 while reaffirms outlook for 2022, with total revenue expected to be in range of $3.0B-$3.4B

·     CRMD -52%; after disclosing its FDA application for DefenCath received a second complete response letter, noting deficiencies related to its contract manufacturing organization and supplier of active pharmaceutical ingredient

·     DDD -14%; Q2 revenues, Adj. EPS and Adj. EBITDA miss on softer demand and unfavorable FX and lowers 2022 guidance to $530M-$570M from $580M-$625M

·     HEAR -32%; after cutting forecasts and concludes that it will stop proactive outreach to potential buyers after its efforts resulted in no advanced stage discussions

·     IS -6%; after APP makes bid for Unity Software (U) – recall on July 13th, Unity had agreed to acquire IS in a $4.4B stock deal

·     MU -4%; lowers Q4 guidance for the 2nd time in 2-months, saying Q4 revs may come in at or below low end of prior guidance range in June; said expectations for cy22 industry bit demand growth for dram and NAND have declined since June call

·     NVAX -28%; after cutting its full-year revenue outlook in half citing a lack of demand for its Covid-19 shot from an international initiative to vaccinate lower-income countries.

·     TASK -21%; reported 2Q22 results that were above expectations but offered 3Q guidance well below consensus and a significantly lowered FY22 outlook on increasing global macro headwinds

·     TREX -13%; 2Q results beat expectations for both revenue ($386M vs. $381M consensus) and adjusted EBITDA ($129M vs. $114M) but lowered 2H guidance ~$300M from prior expectations (guides Q3 revs $180M-$190M below consensus $355M)

·     UPST 7%; slides after miss and lower guide as Q2 adj EPS $0.01 vs. est. $0.10; Q1 revs rise 18% y/y to $228M vs. est. $241.6M; guides Q3 revenue about $170M vs. est. $248.9M