Mid-Morning Look

Thursday, February 10, 2022

Resiliency of U.S. stocks remains astounding as year-to-date losses following the swoon in January is slowly being erased, as investors took this morning’s gap down following the highest CPI inflation y/y reading in over 40-years (1982) as a chance to buy, with major averages recovering more than 1.5% across the board. Stocks initially plunged and bond yields rose after data showed another acceleration in inflation, prompting fed fund futures to see a 50% chance now for a 50-bps hike at the FOMC March meeting. Bond yields jumped after the data as the 10-year Treasury yield topped 2% (highest since 2019) from 1.928% Wednesday after briefly hitting 2% for the first time since 2019. The yield on two-year notes, which are particularly sensitive to interest rates, rose near highs around 1.5% from 1.346% the day prior. The CPI report showed inflation accelerated to a 7.5% annual rate in January, topping economists’ forecasts, and December’s 7% pace. In stock news, Dow component Disney (DIS) surges on earnings as a spike in Parks revs and better streaming subs lift prices. The S&P 500 has risen for seven of the past nine trading days, steadying after a rocky start to the year and showing no fear. Shares of reopen names such as travel, casino, entertainment strength continues to lead as Omicron variant headlines are less and less each day and countries loosening restrictions as well. Energy names rebound with oil, financials rally on surging Treasury yields. A good bounce off early weakness thus far.

Economic Data

·     Hotter January CPI data as headline reading +0.6% m/m vs. est. +0.5% and on a y/y basis, rises 7.5% vs. est. 7.3%; on a core basis, ex: food & energy, m/m rises +0.6% vs. est. +0.5% and on a y/y rises 6.0% vs. est. 5.7%. Jan real earnings all private workers -0.5% vs Dec -0.3%. Jan CPI food +0.9%, housing +0.7%, owners’ equivalent rent of primary residence +0.4%

·     Weekly jobless claims fell to 223K vs. est. 230K and down from 239K prior week; the 4-week moving average fell to 253,250 from 255,250 prior week; continued claims unchanged at 1.621M vs. est. 1.615M and prior month 1.621M; the U.S. insured unemployment rate unchanged at 1.2%

Sector Movers Today

·     Software movers; TWLO a big boost to software stocks as Q4 revenue surged 54.7% y/y to $842.7M easily tops est. $767.8M and sees Q1 revenue $855M-$865M above est. $802.9M; DDOG rises as 4Q adj EPS $0.20 tops est. $0.12 on revs $326Mm vs est. $290.2Mm, adj EBIT margin 22%; guides 1Q revs $334-339Mm vs est. $306.6Mm; CYBR another software name jumping on better results and guide (year revs $582M-$598M vs. est. $562.3M); RPD reported very solid 4Q results, as ARR growth of 38% Y/Y comfortably exceeded the Street’s 35% forecast and 2022 guidance was also better than expected; CDAY posted a largely across-the-board beat in Q4 (coming roughly in line only on Dayforce recurring ex-float revs) and issued 2022 guidance above consensus expectations (revenue midpoint exceeded consensus); IRNT said it executed a multiyear contract with a Gulf Cooperation Council country

·     Casinos, Gaming, Lodging & Leisure sector; a day after mixed results/lower guidance from LYFT (though shares rallied), ride hailing co UBER posted better-than-expected fourth-quarter results as earned an unexpected $0.44 vs. est. loss (-$0.33) on revs $5.78B (est. $5.36B) as freight business saw sales top $1 billion, a gain of 245% from a year ago; in cruises, NCLH to sell $1,000.0 million aggregate principal amount of its senior secured notes due 2027 and $600.0 million aggregate principal amount of its senior unsecured notes due 2029; in gaming, MGM strong print, revs beat, EBITDAR beat, LV margins flat but Regionals -330bps and worse than peers; in services, TWOU tumbles on a weaker-than-expected outlook for the year, leading to two analyst downgrades (guides FY revs $1.05-1.09B vs est. $1.13B, sees FY net loss $215-235Mm)

·     Coal, Utilities & Solar; SPWR sells commercial and industrial solutions business to majority owner TTE for $250 mln; DUK Q4 operating EPS 94c vs est. 96c driven by mild weather and fewer renewable projects, sees FY22 adj EPS $5.30-5.60 vs est. $5.47; DTE Q4 operating EPS $1.05 vs est. $0.88 on revenue $306M vs est. $3.2M, raised and narrowed FY22 adj EPS view to $5.80-6 (est. $5.92) from $5.70-5.97, and reaffirmed 5-7% operating EPS growth through 2026; PCG Q4 adj EPS and the midpoint of its FY22 adj EPS range matched consensus; BTU Q4 EPS $3.93 crushed est. $1.12 on revs $1.265B vs est. $1.08B, sees FY22 thermal volumes higher YoY; BKH Q4 EPS missed estimates while reaffirming FY22 forecast; Barclays initiated CEG at OW with a $52 PT as they view the company as the only one with the ability to provide hourly load matching and carbon-free production

·     FinTech & Payments; GPN 4Q adj EPS $2.13 vs est. $2.12 on adj revs $1.98B vs est. $2B, adj op mgn 42%; guides FY adj net revs $8.42-8.5B vs est. $8.47B and adj op mgn grow by up to 100bps; increases repurchase authorization to $2.0B; MQ preannounced prelim Q4 revenue and EBITDA ahead of its prior guidance range and hired Visa (V) veteran Mike Milotich as its new CFO, effective Feb. 22; WEX follows good FLT results from earlier this week, posting Q4 adj EPS $2.58 vs est. $2.45 on revenue $497.5M vs est. $484.6M with Q1, FY guidance ahead of estimates

·     Software movers; TWLO a big boost to software stocks as Q4 revenue surged 54.7% y/y to $842.7M easily tops est. $767.8M and sees Q1 revenue $855M-$865M above est. $802.9M; DDOG rises as 4Q adj EPS $0.20 tops est. $0.12 on revs $326Mm vs est. $290.2Mm, adj EBIT margin 22%; guides 1Q revs $334-339Mm vs est. $306.6Mm; CYBR another software name jumping on better results and guide (year revs $582M-$598M vs. est. $562.3M); RPD reported very solid 4Q results, as ARR growth of 38% Y/Y comfortably exceeded the Street’s 35% forecast and 2022 guidance was also better than expected; CDAY posted a largely across-the-board beat in Q4 (coming roughly in line only on Dayforce recurring ex-float revs) and issued 2022 guidance above consensus expectations (revenue midpoint exceeded consensus)

Stock GAINERS

·     BAM +7%; Q4 beat estimates and is considering spinning off its asset management business to take advantage of better valuations for pure-play investment firms, a unit that could be worth more than $75B according to the FT

·     DIS +5%; F1Q results were solid, highlighted by better financials (revenues 5- 10% ahead; OI beat by 50%+ due to better parks) and stronger Disney+ sub growth. Disney+ added 11.7M sub (UBSe 10.0M; street 7.0M),

·     IRNT +24%; said it executed a multiyear contract with a Gulf Cooperation Council country, which is remaining anonymous to help protect its operational security

·     MAT +6%; Q4 revs of $1.8B top $1.66B estimate and forecasts FY 2022 profit above expectations, boosted by strong demand for its Barbie dolls and other toys

·     MQ +8%; pre-announced upside preliminary 4Q – previously expected 4Q21 revs of $134-139M (consensus $138M) and EBITDA of -$7M-$10M (est. -$9.5M) and new CFO hire

·     MU +5%; benefits from news that WDC had contamination in its manufacturing processes is affecting production operations at both its Yokkaichi and Kitakami joint- venture flash fabrication facilities

·     SIX +5%, and SEAS rally in reopen space on fading virus fears as well as better DIS park revenues for quarter

·     TWLO +14%; organic revenue growth of 34% came in well above 25% and 1Q revenue guide of 46% was also well ahead of 40% ests and 1Q guide of 32%-34% organic revenue growth is in-line with the company’s long-term target of 30%+ organic growth for each of the next 3 years

·     UBER +5%; posted better-than-expected fourth-quarter results as earned an unexpected $0.44 vs. est. loss (-$0.33) on revs $5.78B (est. $5.36B) as freight business saw sales top $1 billion, a gain of 245% from a year ago

Stock LAGGARDS

·     APRN -18%; after 4Q net revenue $107.0M was below the $115.5M y/ figure, customers fell -4% q/q to 336,000 and posts Q4 adj EBITDA loss -$17.9M

·     CS -7%; posted a wider-than expected loss for the last quarter of 2021, and warned that it still faces headwinds in 2022 due to high restructuring and compensation costs

·     IRBT -16%; following a 4Q top line miss of 3.1% and EPS of $(1.05), which was $0.14 below the Street estimate of $(0.91), while adjusted gross margins of 27.8% compared to one analyst estimate of 33.3%

·     LUMN -13%; miss on top and bottom line as Q4 adj EPS $0.51 vs. est. $0.53; Q4 revs $4.85B vs. est. $4.86B; sees FY22 adjusted EBITDA $6.5B-$6.7B and FY22 free cash flow $1.6B-$1.8B

·     SGEN -14%; reported a strong 4Q21 and FY21 earnings result but provided disappointing FY22 guidance by 12-15%

·     TWOU -29%; gave a weaker-than-expected outlook for the year, leading to two analyst downgrades (guides FY revs $1.05-1.09B vs est. $1.13B, sees FY net loss $215-235Mm)

·     UDMY -11%; as 4Q21 print offset by an initial FY22 guide that came in below consensus expectations

·     USX -21%; downgraded to Underweight at JPMorgan after 4Q21 results extended the streak of underperformance versus peers in strong freight markets. This streak began in the 2017/2018 freight cycle

·     VMEO -29%; posts wider EPS loss, after revenue guidance lower than expected, CFO leaving (expects full-year revenue growth around 15%-18%, down from 38% in 2021)

·     WDC -2%; said that contamination in its manufacturing processes is affecting production operations at both its Yokkaichi and Kitakami joint- venture flash fabrication facilities (shares of MU rose initially on expectations disruption can help pricing)