Mid-Morning Look

Wednesday, February 02, 2022

U.S. stocks are jumping for a 4^th straight day (though have pulled back off highs), led by a boost in technology after strong quarterly results from semiconductor chipmaker AMD and Internet giant GOOGL lifting market sentiment. The better earnings help offset an unexpected decline in private payrolls which unexpectedly dropped by -301,000 jobs last month, according to ADP, well below the increase of 207,000 jobs expected by economists (December was revised lower). Treasury yields moved lower following the data. Overall a very busy night and morning for corporate earnings (recap of some top movers below) as equity markets are having their best 4-day gains since November of 2020, with broad strength in growth and cyclical names while defensive sectors lag. Oil prices jump initially (has since reversed lower), holding near a previous seven-year high after OPEC+ decided to stick to its planned output increase despite pressure to raise production more quickly. Reports said that OPEC+ agreed to increase oil production by 400,000 bpd from March after a short meeting.

Economic Data

·     Jobs data came in short of consensus views as ADP said private payrolls unexpectedly fell in January as a resurgence in COVID-19 infections disrupted business activity; private payrolls dropped by -301K jobs last month – a big surprise vs. the expected rise of 207K jobs – while December was downwardly revised to show 776K jobs vs. the 807K reading prior

Sector Movers Today

·     MedTech Equipment; in earnings, TMO posted Q4 beat for revs and profit helped by strong demand for its COVID-19 tests ($2.45B in COVID products sales from $2.05B in Q3) while raises 2022 full year revenue guidance by $1.5 billion; BSX reports mostly in-line Q4 EPS/sales while guides year EPS $1.73-$1.79 below est. $1.87; in research, UBS makes several changes in medical devices as EW upgraded to Buy from Neutral, given a more reasonable valuation for a quality growth name that we expect to perform well in recovery; raise tgt to $126 from $121, PODD upgraded to Buy from Neutral with $235 tgt on the pullback and given the recent Omnipod 5 approval, which we think will restore momentum to the business, ISRG upgraded to Buy from Neutral and raise tgt to $325 from $317, citing an attractive entry point, robotics market leadership, and growth cushion that we think could help in recovery, and ZBH downgraded to Neutral from Buy and cut tgt to $130 from $172 given a slow start expected to the year and margin headwinds. Given these factors, we are cutting our numbers and moving to Neutral; DGX downgrade from Buy to Hold w/ $135 PT (from $180) at Jefferies and lower ests to reflect expectations for elevated labor and other operating costs persisting through ’22.

·     Auto sector; GM 4 EPS of$1.35 was better than consensus of $1.19 and also guided to 2022 adj EBIT between $13B-$15B vs. $14.3B in 2021, while FCF guide was also strong implying a ~10% yield; note both Ford (F) and GM notable comments on EV last 2-days as Ford is planning an additional investment of up to $20 bln in building its electric vehicles, Bloomberg News said while GM said it will spend more than the $35 billion previously planned through 2025 to speed up launches of new electric vehicles; RACE said shipments grew 22% to 11,155 cars last year compared to COVID-hit 2020 and were up 10% on pre-pandemic 2019; ELMS released an 8K filing announcing that both James Taylor (CEO) and Jason Luo (Chairman of the Board) have resigned from the company after the EV maker said it will restate some previously issued financial statements; HYRE said there are early signs that car supply shortages are improving and that commercial fleet partners, including Ameri drive, will be positioned to acquire vehicles in 2022

·     Consumer Staples; defensive staples lagged yesterday (last few days) amid rebound in more high growth sectors; in research, CL upgraded to Market Perform from Underperform with an $83 price target at Bernstein noting the stock has starkly underperformed the market over the past twelve months, even despite the recent weakness for growth stocks; both CLX and KMB downgraded to Underperform from Market Perform; SYY upgraded to Strong Buy at CFRA which reflects a stronger backdrop for foodservice distributors as Omicron cases crest and consumers pivot spending to services like dining and travel

·     Insurance; CB Q4 earnings beat estimates after double-digit commercial premium growth and continued underwriting margin expansion as Q4 core operating return on equity of 11.6% increased from 10.7% and Q4 P&C underwriting income of $1.27B was a record; UNM Q4 adj EPS $0.89 vs est. $0.84 on revs $2.979B vs est. $2.975B; GNW Q4 adj EPS in-line 32c on revs $1.73B vs. est. $2.01B; HMN Q4 core PES 97c vs est. 76c on revs $331.4M vs est. $329.7M, expects FY22 EPS $3.45-3.65 (est. $3.36) and an ROE near 10%, while targeting 10% avg annual EPS growth with sustained double-digit ROEs in 2023 and beyond

Stock GAINERS

·     AMD +7%; reported a solid DecQ and guided to stronger MarQ top line at $5.0B (~16% ABOVE consensus $4.33B), with GMs ~50bps q/q to ~50.5%, ~90bps above consensus 49.6%. AMD noted DecQ strength in graphics/cloud/enterprise all up 100%+ y/y

·     CPRI +7%; Q3 adj EPS $2.22 vs. est. $1.69 on revs $1.6B vs. est. $1.47B as forecasts fiscal 2022 revenue of about $5.56B, compared with its prior estimate of about $5.4B and also lifts per-share profit forecast to about $6, up from its prior estimate of about $5.30; shares up over 8%

·     EA +2%; delivered its strongest bookings quarter ever but was unable to exceed the Street’s expectations due to lackluster Battlefield 2042 results while 3Q missed as adj EPS $3.20 vs est. $3.22 on revs $1.79B vs est. $2.66B

·     EAT +10%; as 2Q EPS $0.71 vs est. $0.51 on sales $904.5Mm vs est. $928Mm, as Chili’s comps +12.1%, Brinker comps +17.7%, restaurant op margin 11%

·     EMR +4%; 1Q adj EPS $1.05 vs est. $0.99 on sales $4.5B vs est. $4.47B; sees 2Q adj EPS $1.15-1.20 vs est. $1.19, sees 2Q net sales +4-6% vs est. +7.5%; guides FY22 net sales +6-8% vs est. +6.7% and adj EPS $4.90-5.05 vs est. $4.91

·     GOOGL +6%; sets the bar high for rest of Internet space this week (FB, SNAP, PINS) after easy Q4 beats (adj EPS $30.69 vs. est. $27.35; Q4 revs $75.3B vs. est. $72.13B) as quarterly ad revs rose 32% YoY to $61.24B and company announced a 20-1 stock split

·     MPC +4%; Q4 adj EPS $1.30 more than doubled est. $0.55 on revs $35.61B that also crushed est. $24.33B, refining & marketing margins $15.88/brl vs est. $14.05, added $5B to buyback authorization

·     TENB %; 4Q21 results that topped expectations highlighted by continued growth in the enterprise platform and 6-figure customers while 022 outlook also surpassed consensus due to its strong performance and healthy pipeline

·     UAA +3%; upgraded to Overweight at Morgan Stanley on the stock pullback & attractive2022 setup vs. peers

Stock LAGGARDS

·     ELMS -33%; released an 8K filing announcing that both James Taylor (CEO) and Jason Luo (Chairman of the Board) have resigned from the company; will restate some previously issued financial statements following a Special Committee investigation

·     GILD -5%; following Q4 EPS miss and softer 2022 guidance as well a pushout of data, as the co announced the decision to release TROPiCS-02 PFS and interim OS data together in March vs. prior guidance for Jan-Feb PFS data

·     LDI 7%; downgraded to Neutral at Citi after its weak outlook for Q1 gain on sale revenue and disappointing Q4 results with the mortgage industry facing challenges after a couple years of bumper profits and to Market Perform at Raymond James

·     PYPL -24%; tumbles following a Q1, FY22 EPS guidance misses estimate with them seeing Q1 adj EPS $4.60-4.75 vs est. $5.23 on revenue $6.4B vs est. $6.76B, prompting downgrades at Raymond James and BTIG to go with several other price target cuts – (shares of SQ, AFRM fall in sympathy with PYPL outlook)

·     SBUX ; after Q1 adj EPS $0.72 missed the $0.80 est. (but better revs $8.1B), while global comp store sales +13% vs est. +13.2%; and said Q1 comp sales in China fell -14%