Mid-Morning Look

Thursday, June 09, 2022

U.S. stocks choppy yet again to start the day and still trading in roughly a 100-point range over the last 2-weeks for the S&P (4,070 to 4,170) as investors get and digest the European Central Bank (ECB) policy meeting (was mostly inline with expectations) and now await key inflation data in the U.S. tomorrow, with the May consumer price index (CPI). The estimate for CPI is to rise +0.7% m/m for May and +8.3% y/y, while on a core basis (ex food & energy), CPI expected to rise +0.5% m/m and +5/9% y/y. Stocks hit lows below 4,100 again this morning, which has been a technical battleground level of late, with no momentum in either direction. Treasury yields edge higher with the 10-year at 3.04% (note Wednesday market only the 5^th close above 3% for the 10-year note since November of 2018). European Treasury yields rise sharply after the European Central Bank (ECB) affirmed plans to raise the deposit rate by 25 basis points in July, as expected, and flagged a further rate rise in September. The ECB laid out plans to increase interest rates for the first time in more than a decade to tackle persistent inflation that is spreading far beyond the U.S. They also said they would end its large-scale bond-buying program on July 1^st. The ECB’s policy shift would come about a year after eurozone inflation rose above its 2% target. For this meeting, the ECB left its benchmark refinancing rate unchanged at 0.00%. note money markets increase bets on ECB rate hikes, now price in 140 bps by year-end.

Economic Data

·     Weekly Jobless Claims rose to 229K from 202K prior week (consensus 210K), as the 4-week moving average rose to 215,000 from 207,000, continued claims unchanged at 1.306M and the U.S. insured unemployment rate unchanged at 0.9% in lone piece of economic data

Sector Movers Today

·     Retailers: discount retailer FIVE cut its full-year guidance as sees FY net sales $3.04-3.12B below est. $3.2B on comps -2% to 0% and EPS $4.85-5.24 missing the $5.47 estimate (downgraded by one broker as well today); TGT raises quarterly dividend by 20% to $1.08; SIG Q1 sales and profit estimates on strong demand for its jewelry, rising 9% to $1.84B above ests $1.8B but issued mixed Q2 guidance, while sees FY adj. operating income $921M to $974M, above est. $899.5M and announces $500M stock buyback; BASE delivered Q1 results that beat expectations, with 27%/31% Y/Y-CC ARR growth, the company’s 3^rd straight quarter of Y/Y ARR growth acceleration; OXM Q1 adj EPS $3.50 vs est. $2.75 on sales $353Mm vs est. $329Mm, sees 2Q net sales $250-370Mm vs est. $347Mm and adj EPS $3.30-3.50 vs est. $3.29

·     Auto sector; TSLA sold 32,165 China-made vehicles in May, up from 1,152 vehicles in April, the China Passenger Car Association said as its Shanghai factory produced 33,544 vehicles last month (shares also upgraded to Buy from Hold at UBS with $1,100 tgt); NIO Q1 adj EPS loss (-$0.13), in-line with ests and revs $1.56B vs. est. $1.49B as Q1 deliveries were 25,768, up 28.5% y/y and up 2.9% q/q but falls on weaker revs and delivery outlook; DIDI said it will trade on the New York Stock Exchange for the last time on Friday, June 10^th; Guggenheim comments on Salvage Auction outlook as positive as remain buy on CPRT and upgrade IAA to Buy saying accident rates should increase as more people return to work and total loss rates should also rebound as repair costs increase and used car pricing normalizes – believe salvage auction industry volumes will grow double digits in 2022 and 2023, while RPU can remain near elevated levels

·     Internet & Media movers: U.S. listed Chinese stocks were all over the place, with BABA 1) higher overnight on reports Chinese financial regulators have started early stage discussions on a potential revival of Ant Group Co.’s IPO, only to slip 2) after China’s securities regulator CSRC said they are “not conducting evaluation and research work in reviving Ant Group’s IPO”, but will support eligible platform companies to list at home and abroad, only to have a follow up headline on Reuters that 3) China central leadership has given initial nod to Ant Group to revive IPO plans in Shanghai and Hong Kong as soon as next month (shares of BIDU, PDD, JD, TCEHY all volatile)

·     Packaging sector: Jefferies highlights CCK as top pick in sector as it offers the most attractive risk/reward profile in the group, while are also positive on SEE and BERY saying with fears of a recession around the corner, tactically packaging makes strategic sense, since the group has proven to be recession resilient (see 10% or less downside to shares in CCK, BERY, SEE, while we see 30-40% potential downside risk in IP ); GEF posted beat and raise on adj. EPS coming entirely from price/cost; volume went flat in F2Q, including a 2% decline in the industrial drums business

Stock GAINERS

·     GEF +5%; posted beat and raise on adj. EPS coming entirely from price/cost; volume went flat in F2Q, including a 2% decline in the industrial drums business; mo comment on business in Russia

·     HD +2%; housing and home improvement stocks outperform early despite rising rates

·     KHC +1%; strength in defensive consumer staples early – BF

·     OXM +6%; Q1 adj EPS $3.50 vs est. $2.75 on sales $353Mm vs est. $329Mm, sees 2Q net sales $250-370Mm vs est. $347Mm and adj EPS $3.30-3.50 vs est. $3.29

·     SIG +7%; Q1 sales and profit estimates on strong demand for its jewelry, rising 9% to $1.84B above ests $1.8B but issued mixed Q2 guidance, while sees FY adj. operating income $921M to $974M, above est. $899.5M and announces $500M stock buyback

·     TSLA +4%; sold 32,165 China-made vehicles in May, up from 1,152 vehicles in April, the China Passenger Car Association said as its Shanghai factory produced 33,544 vehicles last month (shares also upgraded to Buy from Hold at UBS with $1,100 tgt)

Stock LAGGARDS

·     AAPL -1%; KeyBanc said First Look Data from credit cards suggests AAPL is tracking below historical seasonality with Indexed Spending -8% m/m in May, vs. the three-year average of +6%. -8% represents the weakest m/m May data point even going back pre-pandemic

·     BILI -9%; on slightly larger Q1 EPS miss on better revs, but guides Q2 revenue RMB4.85B-RMB4.95B from RMB5.05B in Q1

·     CCL -5%, along with weakness in RCL, NCLH as cruise lines lead S&P declines

·     FIVE -8%; cut its full-year guidance as sees FY net sales $3.04-3.12B below est. $3.2B on comps -2% to 0% and EPS $4.85-5.24 missing the $5.47 estimate (downgraded by one broker as well)

·     IRTC -9%; downgraded to Neutral from Buy at Citigroup saying it expects a national coverage decision from the CMS for 2023 on the company’s Zio XT patch that would establish a fixed rate covering all Medicare beneficiaries, resulting in lower reimbursement rates

·     NIO -4%; Q1 adj EPS loss (-$0.13), in-line with ests and revs $1.56B vs. est. $1.49B as Q1 deliveries were 25,768, up 28.5% y/y and up 2.9% q/q but falls on weaker revs and delivery outlook

·     NVAX -5%; shares slipped after CNBC reported the U.S. FDA decision on its Covid shots could be delayed reviewing changes in manufacturing

·     SKIL -13%; posted soft F1Q with weakness in bookings (down 5% y/y) that was partially offset by above-consensus adjusted total revenue and adjusted EBITDA results

·     UPST -5%; Wedbush said they “believe UPST could be tightening its credit box even further than it did in March, and this could lead to incrementally lower originations than guidance had implied, thus putting the company’s guidance at risk”

·     ZEN -8%; said after comprehensive review of strategic alternatives aimed at enhancing stockholder value, Board decided strategic plan as an independent, public company is in the best interest of the Company and its stockholders at this time