Mid-Morning Look

Tuesday, August 16, 2022

Stocks open mixed as the Nasdaq and Smallcap Russell 2000 slip early, while the Dow holds gains after better results from HD/WMT and the S&P remains around the 4,300 level as a rebound in energy help offset weakness elsewhere. U.S. stocks are trying for a 5^th straight week of advances and 3^rd straight day of gains as the path of least resistance (during slow summer trading days) remain to the upside. Economic data has been less than inspiring of late to say the least, mixed today with better industrial production but another terrible housing report (housing starts fell -9.6% m/m in July). Retail earnings kick off this week solid with Dow components WMT and HD each positing a top and bottom line beat on better comps and maintains guidance (recall WMT did recently lower guidance in July), with more numbers expected this week from LOW and TGT (both tomorrow). Technicals playing a big part in this latest 20% rally off June lows for the Nasdaq and S&P, with the S&P 500 approaching its 200-day MA of 4,325 after easily surpassing its 50 and 100-days in July as investors continue to chase markets higher on hopes that June marked the high for inflation and low for stocks ahead of future expected interest rate hikes from the Fed (next meeting in September).

Economic Data

·     July Housing Starts fell -9.6% M/M to 1.446M vs. 1.540M expected and 1.599M prior (revised from 1.559M). and July Building permits fall -1.3% M/M to 1.674M vs. 1.650M expected and 1.696M prior (revised from 1.685M)

·     U.S. July industrial output rose +0.6%, more than double the +0.3% estimate while June was revised to unchanged (previous -0.2 pct); July mining output +0.7%, utilities output -0.8%; Capacity utilization rises above the 80%-mark aa 4^th straight month at 80.3% vs. est. 80.1%

Sector Movers Today

·     Retailers: WMT reports Q2 results above estimates (a month after lowering guidance by roughly the amount beat) as Q2 EPS $1.77 tops the $1.63 estimate on revs $152.86B vs. est. $151.14B and posts 2Q total us comp sales ex-gas +7%, est. +6.48% – said it is gaining market share in some categories such as grocery, but high inventories; raises FY23 adjusted EPS view to down 9%-11% from down 10%-12%; TDUP posted slight revenue and adj. EBITDA beats against a difficult macro backdrop, but 2H is expected to be softer; for ULTA, UBS said ahead of earnings, they like shares saying while concerns have risen about a moderation in ULTA’s sales growth pace, we think they’re embedded into expectations; Macy’s (M) and JWN tgts cut at Deutsche Bank

·     Pharma movers: MRK commits $3.75 Billion to Circular RNA Vaccines, Drugs as partners with privately held biotech company Orna Therapeutics; FULC pricing of secondary offering of 9.59 mln shares of its common stock at of $7.82 per share; DNA reported a strong Q2 beat and raised its 2022 revenue outlook by $50M to $425-440M, largely baking in the beat, which was driven by strong COVID testing in schools; RPID downgraded at JPMorgan after disappointing 2Q results and FY22 outlook tied to slower ramp expectations for system placements and validations; BMY’s $4.1B of TPTX acquisition gets clearance in US, Germany, set to close

·     Media, Internet; CURI Q2 revenue of $22.3M rises from $15.3M y/y saying it had total paying subscribers in Q2 of about 25 mln, up over 25% from last year and guides Q3 revs $21M-$23M vs. est. $23.7M; NRDY Q2 revenue $42.2M vs. est. $38.47M, exceeding the guidance range of $37-40 million, and up 29% as compared to Q2’21; TME 2Q results are mixed, with revenue and profit beating consensus estimates but operating metrics below expectations; NLSN wins three-year contract from AMZN to measure audience for National Football League’s Thursday Night Football telecasts on Prime Video

·     Hardware, Components & Services; RXT downgraded to Underweight at JPMorgan as see limited earnings growth potential over the near term, which could limit the upside in the stock; LITE shares slide after guiding Q1 EPS $1.45-$12.70, below the $1.83 estimate while rev guidance of $490M-$520M topped the $495M estimate saying guidance reflects the impact of share normalization in 3D sensing for smartphones (after Q4 beat); FN posted a strong quarter, offered a strong guide, stated it expects higher GMs and Operating Margins over time than previously guided, and talked about strong on-going demand

Stock GAINERS

·     ALLY +1%; as Berkshire Hathaway raises share stake to 30 mln shares from 8.97 mln shares

·     DNA +15%; reported a strong Q2 beat and raised its 2022 revenue outlook by $50M to $425-440M, largely baking in the beat, which was driven by strong COVID testing in schools

·     HD +3%; tops market estimates for Q2, buoyed by higher prices and big-ticket purchases, even as customer transactions at its stores fell 3% – HD top and bottom-line results beat expectations and said comp sales rose +5.8% vs analysts’ expectations for +4.9% growth and maintains guidance

·     MASI +6%; after activist investor Politan Capital Management LP reveals an 8.4% stake worth roughly $750 million

·     WMT +4%; reports Q2 results above estimates (a month after lowering guidance by roughly the amount beat) as Q2 EPS $1.77 tops the $1.63 estimate on revs $152.86B vs. est. $151.14B and posts 2Q total us comp sales ex-gas +7%, est. +6.48%

·     WWE +4%; posts Q2 results ahead of estimates and raises FY22 adjusted OIBDA view to $370M-$385M from $360M-$375M

Stock LAGGARDS

·     COMP -14%; as Q2 EPS loss (-0.24) vs. est. loss (-$0.14); Q2 revs $2.0B vs. est. $2.12B; sees FY22 revenue $6.15B-$6.45B vs. est. $7.59B; sees FY22 Adjusted EBITDA ($225M)-($150M

·     GAN -22% after lowering its full-year earnings outlook and posted Q2 results below Wall Street expectations

·     LITE -6%; after guiding Q1 EPS $1.45-$12.70, below the $1.83 estimate while rev guidance of $490M-$520M topped the $495M estimate saying guidance reflects the impact of share normalization in 3D sensing for smartphones

·     NOVA -10%; announced private offering of $425 mln convertible bonds due 2028

·     SE -10%; reports a wider Q2 operating loss of 150% to $836.7M as net loss increases 115% and suspends 2022 revenue forecast due to macro uncertainties, says it is shifting strategy to focus on long-term efficiency and profitability of the e-commerce business

·     SNOW -5%; downgraded to Neutral at UBS ahead of Q2 results saying its recent round of field checks felt like a tone downtick relative to prior rounds

·     ZM -5%; downgraded to sell from neutral with $91 tgt at Citigroup saying it sees “new hurdles to sustaining growth,” including growing competition from services like Microsoft Teams and macro-related pressures hitting customers