Mid-Morning Look

Friday, February 18, 2022

U.S. stocks are mostly lower as the Dow looks to rebound after posting its biggest one-day loss of 2022 on Thursday, while the S&P 500 and Nasdaq are trading down to cap off a volatile week filled with macro market moving headlines. Treasury yields drop, with the 10-yr at 1.93% as concerns about a possible Russian invasion of Ukraine dented risk appetite and boosted demand for safety trades such as bonds. Meanwhile an interest rate hike of at least 25-bps at the Fed’s March meeting is fully priced into the market, though the odds of a 50-bps hike has declined the past two days (now 35% after odds over 50% prior) amid Ukraine uncertainty and weaker stock markets. Major U.S. averages are on track for weekly declines with investors fearful heading into the 3-day Holiday weekend and following a week of tech earnings/guidance disasters including massive “haircuts” for names like DKNG, ROKU, FSLY, SHOP, RBLX, PLTR, PARA, WIX, AMPL, RDFN, TOST, TYL just to name a few. Stocks ended sharply lower Thursday as the U.S. and its allies said Russia had added to troops near the border with Ukraine despite Moscow announcing a partial withdrawal earlier in the week. Markets look to planned talks between Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Antony Blinken in Europe next week.

Economic Data

·     January Existing Home Sales rose 6.7% to 6.50M unit rate (vs. est. 6.10M), and vs Dec downwardly revised 6.09M from 6.18M; Jan inventory of homes for sale 860,000 units, 1.6 months’ worth; median home price for existing homes $350,300, +15.4% y/y

Sector Movers Today

·     Hardware, Components & Services; DBX posted Q4 results as the high-end of the company’s guidance but FY22 FCF guide came in at $760-$790mn, vs. consensus at $782mn while revs of $565.5M, up 12% y/y (consensus $558.0M), down from 13% growth last quarter, ARR of $2.26B (consensus $2.23B) up 12% y/y, net paying user adds of ~300K; KEYS Q1 adj EPS $1.65 vs est. $1.55 on revenue $1.25B vs est. $1.24B; orders +22% YoY to 1.5B; Washington Post reported that employees at several AAPL across the country are quietly working to unionize, as growing dissent among hourly workers threatens to disrupt one of the most stolid tech giants; CGNX posted 4Q results above expectations driven by Logistics demand that finished the year up 65%, prompting an upgrade at JPMorgan, but notes visibility remains limited; GLOB 4Q results above expectations, driven by broad based growth, including +69% growth with its largest client

·     Transports: truckers, JBHT (tgt to $203 from $175) and WERN (tgt to $47 from $44) both upgraded to Neutral from Underweight at JPMorgan and downgraded HTLD to Neutral from OW (tgt to $16 from $18) since it likely remains a pure play and the trough multiple should be lower based on the lack of diversification. Back-half recoveries were the dominant theme this quarter, and we expect near-term transport stock performance will track growth and pricing momentum until it becomes more apparent that not all 2H22 opportunities are the same; Ryder (R) announces $300 million accelerated share repurchase program; MATX reports Q4 EPS at $9.39, above prior guidance of $8.70-$9.10, and above the street estimate of $6.81, driven by lower taxes primarily, but volume growth continues to accelerate and margins continue to rise

·     Restaurants; BJRI Q4 EPS (20c) vs est. (2c) on revenue $291.3M vs est. $298.4M, comp sales +45.6% vs est. +49.2% (but two-year comp sales of -1.4% vs. consensus of +1.1%); CHUY 4Q adj EPS $0.40 vs est. $0.31 on revs $98.7Mm vs. est. $99.3M; Comparable sales +20.8%, vs. est. +19.2%; restaurant level operating margin 21.3% vs. 20.3% y/y; SHAK slides on larger Q4 EPS loss of $(-0.25) vs est. ($0.17) and guides Q1 sales $190-195Mm below est. $203.5Mm and total revs $196-201.4Mm vs est. $210.9Mm; BLMN posts Q4 adj EPS 60c above estimate 53c on slightly better revs that rose +29% y/y

·     MedTech Equipment; ABT is initiating a proactive, voluntary recall of powder formulas, including Similac, Alimentum and EleCare manufactured in Sturgis, Mich., one of the company’s manufacturing facilities amid an investigation into four infant illnesses; MASI was upgraded to Buy at Needham saying while understand investors’ concern over the Sound United deal, believe that the sell-off was overdone and note that we expect the deal to be highly accretive to EPS; SWAV Q4 sales of $84.2M topped Street estimates ($75.4M) as U.S. coronary drove the majority of the upside and initial 2022 sales guidance of $405-$425M tops the $386.7M est

Stock GAINERS

·     APPN +12%; posted 4Q upside as cloud sub revenue growth accelerated to 39% y/y from 36% y/y last quarter and cloud sub revenue growth guidance for 1Q and 2022 implies solidly above 30% y/y growth

·     BLMN +11%; posts Q4 adj EPS 60c above estimate 53c on slightly better revs that rose +29% y/y

·     CGNX +5%; posted 4Q results above expectations driven by Logistics demand that finished the year up 65%, prompting an upgrade at JPMorgan, but notes visibility remains limited

·     DD +3%; after CE confirmed reports overnight that it would buy DD’s mobility and materials unit for $11 billion

·     DE +1%; as Q1 EPS $2.92 vs. est. $2.26 and revs $9.56B vs. est. $8.19B; Q1 net income fell to $903M from $1.22B a year earlier but raised 2022 net income to $6.7B-$7.1B from $6.5B-$7.0B

·     LTHM +5%; after a brutal day for lithium producers Thursday after ALB lower forecast, the co with upbeat EBITDA guidance – $160M-$200M, up 130%-188% from $70M in 2021

·     QDEL +13%; on big beat as Q4 adj EPS $7.29 vs. est. $5.61; Q4 revs $636.9M vs. est. $561.17M; said qtrly revenue for COVID-19 products was $511.8 M, up from $405.3M y/y

·     SWAV +8%; Q4 sales of $84.2M topped Street estimates ($75.4M) as U.S. coronary drove most of the upside and initial 2022 sales guidance of $405-$425M tops the $386.7M est.

Stock LAGGARDS

·     BABA -4%; as U.S. listed Chinese stocks slip after E-commerce sites operated by China’s Alibaba and Tencent Holdings were included on the U.S. government’s latest “notorious markets” list, the U.S. Trade Representative’s office said

·     DKNG -17%; posts better Q4 EPS loss and higher revs but sees adj EBITDA losses accelerating from FY21’s ($676.1M) loss to ($925M)-($825M) in FY22 that is wider than est. ($550.1M)

·     INTC -5%; s analyst day does little to help shares – lowest levels since Nov 2020

·     LASR -18%; downgraded at Hallum as Q4 results fell short of expectations and were at the lower end of guidance

·     PPC -13%; after Brazilian meatpacking giant JBS SA said it scrapped plans to buy the rest of the company in a deal that had valued the co at about $7 billion. JBS, which already owns about 80% of Pilgrim’s, said in a securities filing that it was unable to reach a deal

·     RDFN -26%; downgraded to Sector perform at RBC Capital after earnings saying the primary points of thesis appear broken and says persistent slowdown in growth & agent reductions to hit gross margin could drive further downside

·     ROKU -27%; after mixed 4Q results/1Q guidance, while reported lower than forecast ’22 revenue and a decision to massively ramp ’22 operating expenses that drove ’22 EBITDA guidance dramatically below expectations

·     SHAK -3%; on larger Q4 EPS loss of $(-0.25) vs est. ($0.17) and guides Q1 sales $190-195Mm below est. $203.5Mm and total revs $196-201.4Mm vs est. $210.9Mm