Mid-Morning Look

Thursday, August 26, 2021

Waiting game continues for investors as stocks are little changed, trading in narrow ranges and holding at or near record highs for the Nasdaq and S&P 500 (coming off their 30^th and 51^st record highs of the year respectively), while the Dow is about 1% away from its record highs (on light volumes). Financials leading early as treasury yields inch higher a third day (1-yr 1.36%) into the Fed symposium tomorrow, while technology is mixed following an onslaught of earnings in the software and storage space overnight. Retail another busy earnings space, with discounters lower after DG/DLTR offer cautious outlooks, but WSM jumps post its results. Economic data not playing a factor early with mostly in-line jobless claims and GDP missing ests but revised up slightly from prior month.

All eyes and ears are on the Jackson Hole Symposium as it kicked off today with remarks from Fed Presidents George, Bullard, and Kaplan as we await the main event, Chair Powell’s speech at 10:30 EST on Friday. Kansas City Fed President Esther George said Thursday that she is ready to talk about cutting back the central bank’s asset purchases “sooner rather than later.” St. Louis Federal Reserve president James Bullard said in CNBC interview today, “We don’t need the asset purchases at this point,” repeating his call for the bond buying to end by early next year. “We will be able to get to a good consensus on the committee and get to a good wind-down process. It does seem that we are coalescing around a plan,” Bullard said, though he did not detail when that might be agreed.

Economic Data

·     Weekly initial jobless claims rise to 353K from 349K prior week, and above the 350K estimate; continuing claims fell to 2.862M from 2.865M (est. 2.790M); the 4-week moving average fell to 366,500 from 378,000 prior and the U.S. insured unemployment rate unchanged at 2.1%.

·     Gross domestic product (GDP) increased at a 6.6% annualized rate, in its second estimate of GDP growth for the April-June quarter, which was revised up from the 6.5% pace of expansion reported in July, but below ests of 6.7% (The economy grew at a 6.3% rate in Q1). Consumer spending rose +11.9% with Durables +11.3% (prior 9.9%).

·     GDP inflation data points: PCE price index increased 6.5%, also a 0.1% upward revision, while excluding food and energy prices, the PCE price index rose 6.1%, unrevised from the advance estimate. U.S. prelim Q2 GDP deflator +6.2% vs. est. +6.0%. U.S. Q2 PCE price index YoY +3.9% vs. prior 3.8% and Core PCE YoY steady at 3.4%.

Sector Movers Today

·     Software movers; Dow component CRM tops consensus estimates for quarterly revenue at $6.34B above the $6.24B expectation while said it expects FY revenue in the range of $26.2B-$26.3B vs. est. $26.01B; ESTC Q1 topped expectations and raised its forecast for full-year revenues as sees $808M-$814M above prior view $782M-$788M (est. $789.2M) – Total subscription customer count rose over 16,000 vs. over 15,000 last quarter; ADSK shares fell after it reported better-than-expected quarterly earnings, but sales that were just barely in line and billings falling below ($1,015M vs. $1,023M); SNOW quarter revenue beat and now sees product revenue ranging from $1.06B-$1.07B, up between 91% and 93% a share, above its previous forecast of $1.02B-$1.035B, the second time it has raised guidance for the year; SPLK Q2 total revenues grew 23% to $606M above ests $562.82M while cloud revs rose 73% YoY to $217M and issues upbeat Q3 revenue guidance; ZM upgraded to Overweight at Morgan Stanley; ZUO rises following mixed quarterly results and guidance

·     Consumer Staples; Beauty companies active as ULTA price tgt raised by several analysts after Q2 EPS $4.56 crushed est. $2.42 on net sales $1.97B vs est. $1.76B, comp sales +56.3% (+13.1% vs 2Q19) vs est. +44.8%, gross margin 40.6% vs est. 35.9%; raised full-year outlook for EPS/sales; COTY mixed Q2 results but said it expects to return to annual sales growth for the first time in at least 3 years; in food, SJM Q1 adj EPS $1.90 tops consensus $1.84 on better sales of $1.86B (est. $1.77B), but lowers year adj EPS view to $8.25-$8.65 from $8.70-$9.10 prior (est. $8.82) with slightly better sales view; BF upgraded from Sell to Neutral at UBS following the ~13% stock price correction YTD that leaves a more balanced risk/reward

·     Hardware, Storage, & Services; NTAP posted great results followed with a better-than-expected outlook, and impressively raised its full year guidance. NetApp also started to provide more details of its cloud business, which included breaking out quarterly sales for both hybrid and public cloud; PSTG posts a bigger-than-normal beat and guiding above for both Q3 and FY22 revenue and EBIT and said continues to see success across all geographies and all products; BOX strong F2Q results that broadly exceeded expectations, with much of the detail coming from the company’s pre-announcement earlier this month as large deal activity improved in the quarter, with increased attach rates of Suite products (73% of 6-figure deals vs. 49% in F1Q)

·     Auto sector; XPEV reports Q2 deliveries growth of 439% Y/Y and 30.4% Q/Q to 17,398 units; P7 deliveries rose 44.5% Q/Q to 11,522 units, of which 97% can support XPILOT 2.5 or XPILOT 3.0; revenues from vehicle sales increased 562.4% to $555.1M; RIDE surges after appoints former CEO of Icahn enterprises L.P., Daniel Ninivaggi, as CEO; NSANY says Smyrna, Tennessee, assembly plant, will be idled during the week of Aug. 30 due to the global semiconductor chip shortage; in UK Car Manufacturing, according to the Society of Motor Manufacturers and Traders, only 53,438 vehicles were produced in July, down 38% from a year ago and the worst July since 1956; KXIN says it has reached a binding term sheet to buy Chinese small-size electric vehicle (EV) maker Henan Yujie Times Automobile Co Ltd

Stock GAINERS

·     BBW +11%; Q2 adj EPS 43c topped est. (20c) loss on revs $94.7M (+134.7%) vs est. $81M, sees Q3 revenue above 2019 and 2020 levels, and now sees FY21 sales $375-385M (est. $347.6M)

·     SNOW +5%; quarter revenue beat and now sees product revenue ranging from $1.06B-$1.07B, up between 91% and 93% a share, above its previous forecast of $1.02B-$1.035B

·     ULTA +5%; price tgt raised by many analysts after Q2 EPS $4.56 crushed est. $2.42 on net sales $1.97B vs est. $1.76B, comp sales +56.3% (+13.1% vs 2Q19) vs est. +44.8%, gross margin 40.6% vs est. 35.9%; raised full-year outlook for EPS/sales

·     WSM +11%; crushed its quarterly results as Q2 revenue of $1.95B topped the $1.81B estimate on better EPS of $3.24 vs. est. $2.61 while authorizes a 20.3% increase in its dividend and approves a new $1.25B stock repurchase

·     YY +12% after Reuters reported its two top shareholders, Chairman David Li and Xiaomi founder Lei Jun, aim to take the Chinese social media company private in a deal that may value it at up to $8B https://reut.rs/3DnlazS

·     ZM +3%; upgraded to Overweight with $400 tgt at Morgan Stanley saying ahead of catalysts in the back half of the year, feel valuation has turned too negative on near term churn concerns

·     ZUO +12%; Canaccord note better-than-expected FQ2 results showcased solid execution across the board. Net dollar retention rate expanded an impressive 500bps sequentially to 108% in Q2, two quarters ahead of management’s outlook of 105% by end of this year

Stock LAGGARDS

·     ADSK -7%; after it reported better-than-expected quarterly earnings, but sales that were just barely in line and billings falling below ($1.015B vs. $1.023B)

·     ANF 14%; mixed Q2 as EPS $1.69 beat est. $0.77 but sales $865M missed est. $879.2M

·     BURL -6%; Q2 adj EPS $1.94 vs est. $1.47 on revs $2.22B vs est. $2.09B, comp sales +19% vs est. +14.8%, but warned the imbalance between supply and demand in global logistics is driving freight/supply chain expenses higher that will put significant pressure on their margins

·     DG, DLTR fall over -6%; after guidance as DG forecasts FY 2021 EPS of $9.60-$10.20, below estimates of $10.24 and DLTR cuts FY 2021 EPS outlook to between $5.40-$5.60 from $5.80-$6.05 forecast earlier saying supply chain costs/higher freight costs, have been hurting margins

·     GES -9%; mixed Q2 as EPS $0.91 beat est. $0.70 but Q2 revs $628.6M missed the est. $648.6M while said expect revenues in q3 to be slightly negative to flat versus q3 of fiscal 2020

·     LCI -4%; as Q4 adj EPS loss (-$0.19) vs. est. loss (-$0.12); Q4 revs $106M vs. est. $110.63M on weak guidance as sees FY22 revenue $400M-$440M vs. est. $472.06M

·     SJM -3%; Q1 adj EPS $1.90 tops consensus $1.84 on better sales of $1.86B (est. $1.77B), but lowers year adj EPS view to $8.25-$8.65 from $8.70-$9.10 prior (est. $8.82) with slightly better sales view

·     SLQT -44%; after earnings missed estimates, prompting rating downgrades and price target cuts from RBC and KBW – also FY22 guide fell 17% below consensus primarily due to a more conservative assumption for policyholder churn