Mid-Morning Look

Thursday, January 27, 2022

Volatility continues with S&P futures plunging overnight, falling as much as 1.7% after yesterday’s hawkish Fed comments and rising concerns of supply chain issues and higher costs impacting corporate earnings and guidance results. However, a big shift to the upside starting overnight into this morning, with the “Spuz” rising as much as 150 points off its overnight lows of 4,263.25 – as the S&P tries to reclaim its 200-day moving average (some improved comments amid tensions with Russia and England lifts COVID restrictions as Omicron threat recedes also helps). A handful of big earnings out overnight, with high-profile semiconductors pressured early after INTC, TER, LRCX guidance disappoints. Bank stocks seeing strength despite a sharp pullback in treasury yields (10-yr back below 1.8% after hitting highs 1.865). Expectations of Fed tightening sent the policy-sensitive U.S. two-year yield to 1.208%, a level last reached in February 2020. Energy names get another lift behind a spike in oil initially (but oil prices have since reversed off fresh 7-year highs), while gold prices tumble with the U.S. dollar hitting 18-month highs after yesterday Fed meeting. Data today was strong, as the U.S. economy (GDP) accelerated in the fourth quarter, growing 6.9% above views, though inflation data points also showed a surge in the quarter. Still bumpy out there for major averages.

Economic Data

·     Weekly jobless claims fell to 260,000 in latest week, in-line w estimates while prior week revised to 290K from 286K; the 4-week moving average rose to 247,000 from 232,000 prior week, continued claims rose to 1.675M from 1.624M (est. 1.65M) and the U.S. insured unemployment rate unchanged at 1.2%

·     GDP figures strong headline – higher inflation: the U.S. 4q economy grows at 6.9% annual rate, topping the est. 5.5% and well above the Q3 +2.3%; Core PCE prices advance actual 4.9%, in-line with estimates and above prior 4.6% reading, while GDP Deflator advance actual 7%, above forecast for 5.9% and prior reading 6%

·     Durable goods orders for December decrease (-0.9%) vs. est. (-0.6%), while Durables Goods Ex-Transportation Dec P rises +0.4% vs. est. +0.3% and prior +1.1%

·     Pending Home sales index -3.8% for December vs. est. decline (-0.25)

Sector Movers Today

·     FinTech & Payments; MA Q4 adj EPS $2.35 vs est. $2.21 on revenue $5.22B slightly ahead of est. $5.17B, purchase volume $1.66T vs est. $1.62T, cross-border volumes +53% vs est. +49.2% that are now above pre-pandemic levels; Visa (V) reports tonight; ADS Q4 EPS 34c, EPS from continuing ops 1.21, revenue $855M below est. $1.04B, expects FY22 revenue growth to be closely aligned with avg receivables growth; Goldman upgraded DLO to Buy and downgraded PAGS, STNE to Neutral; SMBC initiated AVDX at Outperform with a $15 PT trading at a considerable discount to other B2B payments names, FOUR at Neutral with a $60 PT with limited outperformance, and DLO at Neutral with a $32 PT; AAPL is planning a service that will let retailers accept payments on iPhones without the need for extra hardware, from providers such as SQ; KeyBank came away from their FinTech consumer survey most positive on SQ as having demonstrated the most progress against their SuperApp thesis given its top marks across BNPL, crypto/stock investing, and primary checking with card usage, and said PYPL also posted a strong showing that far exceeded general market perception given strong core checkout alongside robust progress against Venmo card and pay initiatives

·     Transports; in airlines, LUV 4Q adj EPS $0.14 on revs $5.1B, expects losses in Jan/Feb with return to profitability in March, expects to be profitable 2Q-4Q, says leisure travel demand was strong and business revs continue to recover vs 2019; JBLU 4Q adj EPS ($0.36) vs est. ($0.39), load factor 76.4%, revs $1.83B vs est. $1.83B; guides FY22 capacity +11-15% vs 2019, sees month/month improvement leading to a profitable 2Q and very strong summer peak; in trucking, LSTR posts a top and bottom line beat for Q4 – quarterly record; KNX delivered a solid quarter and constructive 2022 outlook, with shares increasingly priced to weather a wide range of downside potential 2023 outcomes (EPS of $1.61, $0.19 above est.)

·     Housing & Building Products; in homebuilders, LEN downgraded to Neutral, TOL cut to Underperform, and KBH upgraded to Buy at Bank America; in tools, SWK said it plans to restate previous financial statements to correct an accounting error related to its recording of equity shares; in paints, SHW posted Q4 EPS miss and full-year earnings guidance below Street expectations as expect full year raw material costs to remain elevated but to moderate sequentially; in appliances, WHR Q4 adj EPS $6.14 vs. est. $5.84; Q4 revs $5.82B vs. est. $5.88B; sees FY22 adjusted EPS $27.00-$29.00 vs. est. $25.39

·     Healthcare Services; CNC shares got a bump after Bloomberg reported last night the managed care company drew takeover interest from CI in recent months; hospital and elective surgery sectors (ortho, etc.) pressured initially after HCA posts Q4 sales miss estimates as Omicron surge delays non-urgent surgeries – expenses incurred on salaries and benefits rose 10.6% (shares of ZBH, CYH, UHS, THC, SYK active); CCRN upgraded to Buy at Jefferies given view that demand and pricing fundamentals for the temp nurse staffers are durable and will remain strong even in a post-COVID world

Stock GAINERS

·     LEVI +9%; 4Q21 adj EPS of $0.41, a penny above consensus as holiday (Nov/Dec) performance was above expectations, increasing 28% y/y and provided an upbeat outlook for 2022

·     NFLX +7%; after Bill Ackman told investors that his hedge fund, Pershing Square Capital Management, started buying shares on Friday and now owns more than 3.1 million shares

·     NOW +11%; Q4 revs and EPS topped estimates, helped by large customer wins as they added more customers in $1-million annualized contract value (Q4 $1.46/$1.61B vs. est. $1.43/$1.6B)

·     STX +16%; rises as earnings results slightly above expectations, but provided an outlook for 2022 that was better-than-expected, both on the top line and the bottom line

·     TSCO +3%; beat sales estimates for Q4, offered guidance that was above consensus and unveiled returns for shareholders in form of dividend hike and share buyback of an additional $2B

·     XLNX +4%; rises as China’s State Administration for Market Regulation said it will conditionally approve AMD’s $35 billion all-stock deal for them on conditions

Stock LAGGARDS

·     CMCSA -6%;

·     FLWS -26% after Q2 miss as adj EPS $1.34 well below consensus $1.79 and revenue $943.0M missed consensus $978.1M; while guides FY EPS $ 0.90-$1.00 vs prior “in-line with FY21 of $1.84” and revenue growth +7%-9% vs prior +10%-12%

·     HCA -5%; posts Q4 sales miss estimates as Omicron surge delays non-urgent surgeries – expenses incurred on salaries and benefits rose 10.6%

·     INTC -6%; Q4 EPS/revenue beats estimates but Q1 earnings forecast of $0.80 falls short of the $0.86 est. as CEO Patrick Gelsinger says supply chain constraints may persist through 2022 and part of 2023

·     LC -23%; Q4 beat consensus (EPS 27c vs 22c on revs $262.2M vs est. $245.7M) but shares were pressured as several analysts cut their price targets in response to its disappointing expense guidance

·     SAP -6%; said sees FY22 cloud revenue up 23%-26%, reports Q4 non-IFRS EPS EUR 1.86 vs EUR 1.70 last year, to acquire majority stake in Taulia, terms undisclosed

·     SQ -3%; on earlier reports AAPL is planning a service that will let retailers accept payments on iPhones without the need for extra hardware

·     TER -27%; Q4 EPS of $1.37 beats by $0.08, revenue of $885M beats by $16.03M but tumbles as guides Q1 EPS $0.76-$0.98, well below the $1.30 est. on lower rev view of $700M-$770M vs. est. $877M

·     TSLA -7%; posted upside to consensus across metrics (importantly on GM) while confirming its targeted 50%-unit growth in 2022 – shares volatile on results