Mid-Morning Look

Tuesday, January 31, 2023

U.S. stocks trading at highs, recover off overnight losses as another inflation data point pointed to further deceleration with the Q4 employment cost index (ECI) rising +1.0%, lowest since June 2021 and below consensus +1.1% and vs Q3 +1.2% as Q4 wages/salaries +1.0% vs Q3 +1.3%. These are closely watched measures by Fed officials ahead of tomorrow’s FOMC policy meeting. Treasury yields dipped initially following the data but has bounced off lows as 10-yr back to 3.54% (off lows sub 3.49%). Other data points this morning/overnight included better China manufacturing data, weaker Chicago PMI manufacturing data and slowing consumer confidence. The IMF upgrades its 2023 US and global growth estimates to +1.4% (vs +1.0% prior) and +2.9% (vs 2.7% prior) respectively. Earnings results this morning in Dow components CAT, MCD and PFE send those shares lower, but overall index holds up. Housing stocks a boost on PHM results, autos a jump on GM beat, Internet a jump on SPOT numbers. XOM another strong beat in the energy sector and UPS rises despite miss and weaker rev outlook.

Economic Data

·     Inflation data eases as U.S. Q4 employment cost index (ECI) +1.0%, lowest since June 2021 (vs. consensus +1.1%) and vs Q3 +1.2%; Q4 wages/salaries +1.0% vs Q3 +1.3% (previous +1.3%) and U.S. Q4 benefit costs +0.8% vs Q3 +1.0%.

·     Chicago PMI index for January reported ay 44.3, down from prior month off 44.9 and below the consensus 45.1 economist forecast; new orders, employment, and inventories fell at a faster pace; supplier deliveries rose at faster pace; production fell at slower pace.

·     Consumer Confidence for January reported at 107.1, below consensus of 109.0 and down from the prior month reading of 108.3; US jobs hard-to-get index 11.3 in January vs December revised 11.9 (previous 12.0).

·     S&P CoreLogic Case-Shiller Home Price Index for Nov: Seasonally adjusted HPI Composite for 20 cities: -0.5% M/M to -0.5% consensus and -0.5% prior. HPI Composite for 20 cities, not seasonally adjusted: -0.8% M/M vs. -0.8% prior. HPI Composite for 20 cities, not seasonally adjusted: +6.8% Y/Y vs. +6.7% consensus and +8.6% prior.

·     November FHFA House Price Index: -0.1% vs. -0.4% consensus and 0.0% in October. Rose +8.2% Y/Y vs. +9.8% prior.

Sector Movers Today

·     In refiners, MPC Q4 EPS $6.65 tops $5.67 estimate as refining margins soared amid tight supplies as crude capacity utilization was about 94%, resulting in total throughput of 2.9 million barrels per day (bpd); Refining and marketing margin rose to $28.82 per barrel vs. $15.88 per barrel y/y and said board approves incremental $5B share repurchase authorization. PSX Q4 EPS $4.00 below est. $4.35 while cash flow from operations $4.8B vs. $1.8B y/y; Q4 total revs $40.90B vs. est. $39.12B and said on track to deliver $1B annualized savings.

·     Homebuilders: PHM Q4 EPS $3.63 ex-items vs est. $2.93 and revs $5.17B tops est. $4.58B, Closings Units 8,848 vs est. 7,903, New orders Units 3,964 weaker and backlog Units 12,169 vs est. 13,576. NVR handily beats Q4 EPS and revenue as Net Income +36%, Revenues +22% (Y/Y), while New Orders -27%. MDC Q4 EPS $1.08 misses the $1.52 est. revs of $1.49B beats $1.33B estimate; Q4 average selling price of deliveries up 8% to $582,000. Reports Q4 unit deliveries down 4% to 2,554.

·     In streaming: PARA downgraded to Underperform from Neutral at Macquarie with $15 tgt given that its ad exposure is highest in the peer group at 35% of sales; WBD has reached deals with streaming services ROKU and FOXA’s Tubi to license 2,000 hours of movies and TV series, as it becomes the latest media company to embrace free, ad-supported streaming TV.

Stock GAINERS

·     AI +18%; as investors add to recent strength in AI related stocks; the company announced the launch of C3 Generative AI product suite today.

·     CRK +3%; to replace ADC in the S&P SmallCap 600 index on Feb 6^th.

·     GM +8%; leading autos higher as Q4 adj EPS $2.12 tops consensus of $1.67; Q4 revs $43.11B vs. est. $40.5B; guides 2023 adj EPS $5.00-$7.00 vs. est. $5.70; says on track to produce 400,000 EVs in North America from 2022 through the first half of next year.

·     GPRE +12%; after activist investor Ancora Holdings urged the company to explore a sale

·     LAC +10%; as GM bought a $650M (9.9%) stake in LAC (lithium miners).

·     PHM +10%; Q4 EPS $3.63 ex-items vs est. $2.93 and revs $5.17B tops est. $4.58B, Closings Units 8,848 vs est. 7,903, New orders Units 3,964 weaker.

·     ROKU +4%; as Reuters reported WBD has reached deals with streaming services ROKU and FOXA’s Tubi to license 2,000 hours of movies and TV series.

·     SPOT +9%; after saying they expect strong growth in monthly active users (MAUs) and paid subs with margins expanding throughout the year – notes paying subs rose 14% y/y and 5% seq, and at 205mm as of end of Q4 2022.

·     VSCO +7%; preannounces better Q4 as sees EPS $2.25-$2.35 v prior $2.05-$2.24 and est. $2.25) and enters another $125m ASR and guides operating income $265-$275m vs. $263m.

Stock LAGGARDS

·     CAT -5%; Q4 adj EPS $3.86 vs. est. $4.02; Q4 revs $16.6B vs. est. $16.04B; Q4 adj operating income $2.18B vs. est. $2.54B; dealers increased their inventories $2.4 bln in 2022.

·     GLW -3%; Q4 core EPS $0.47 vs. est. $0.44 as sales fall -2.2% y/y to $3.63B vs. est. $3.54B; sees Q1 EPS $0.35-$0.42 below est. $0.47 and revs $3.2B-$3.4B vs. est. $3.58B.

·     HLIT -6%; Q4 results beat but guides 1Q revs $152-162Mm vs est. $161.1Mm and FY revs $695-735Mm vs est. $734Mm, sending shares lower.

·     MCD -2%; Q4 EPS, sales and comps all top consensus views, Operating income $2.58B, +7.7% y/y, vs. est. $2.6B; said expect inflationary costs to continue to pressure margins in 2023

·     NXPI -1%; weighs on semiconductors after in-line Q4 EPS and revs but guides Q1 revs $2.9B-$3.1B below consensus est. $3.16B; Q4 adj EBIT margin 36.5% and ad gross margin 58%.

·     PFE -2%; Q4 results above views and said expect strong topline growth of 7% to 9% in 2023 excluding our covid-19 products and anticipated foreign exchange impacts; but slashes view for year as sees FY23 EPS $3.25-$3.45 and revs $67B-$71B (below est. $4.44/$74.13B).

·     PSX -5%; Q4 EPS $4.00 below est. $4.35 while cash flow from operations $4.8B vs. $1.8B y/y; Q4 total revs $40.90B vs. est. $39.12B and said on track to deliver $1B annualized savings.