Mid-Morning Look

Tuesday, March 01, 2022

U.S. stocks open mostly lower, but paring losses throughout the morning thus far, as attention once again remains in Europe where the Russian invasion of Ukraine continues. Commodity complex getting much of the attention with palladium rising around 10%, gold prices popping to highs, up 1.45% around $1,928 an ounce; silver highs up 2.75% above $25 an ounce and the energy complex jumps as concerns over supply disruptions after Russia’s invasion of Ukraine and related sanctions weighed on sentiment (WTI crude topped $101 per barrel, Brent above $104). Wheat surges near $10/bushel (up over 25% to start the year) limit up as Russia’s invasion strands shipments while corn futures rise by exchange limit to $7.2575/bushel; natural gas prices in UK also surging, along with industrial metals aluminum, copper, zinc. In sector news, financials among the top decliners in the S&P following the recent plunge in treasury yields amid the flight to safety in bonds, while tech outperforms early (Nasdaq trying to make it a 4^th straight day of gains). Note Fed Chair Jerome Powell testifies before Congress on Wednesday and Thursday, in his first comments on the economy in nearly five weeks. Economic data today showing strength for manufacturing and construction spending. Earnings results mixed in another busy day highlighted by strength in Target (TGT) after its results.

Economic Data

·     ISM Manufacturing for Feb increased to a reading of 58.6 last month from 57.6 in January, which was the lowest since November 2020 and above est. 58; new orders sub-index increased to 61.7 last month from 57.9 in January, which was the lowest reading since June 2020; employment slipped to a reading of 52.9 last month from a 10-month high of 54.5; order backlog index dropped 6.4 points in January, the largest decrease since April 2020.

·     Construction spending for January rose +1.3% vs. et. +0.2% to $1.677 trln, vs Dec +0.8%; Jan private construction spending +1.5%, public spending +0.6%

·     U.S. IHS Markit February final manufacturing PMI at 57.3 (vs flash 57.5); sector final output index for February at 52.5 vs flash 52.5 and final January 50.5; sector final input prices index for February at 79.2 vs flash 78.4 and final January 80.0

Sector Movers Today

·     Bank & insurance: top S&P sector decliner – the sector pulling back after a strong start to 2022 as interest-rate traders backed off bets for a 50 bps hike by the Federal Reserve at its March meeting given the conflict in Europe; potential impact from the sanctions on Russia and its banking system also raising possible concerns; shares of C, BAC, JPM, WFC have been falling. Oppenheimer noted large cap bank exposure to Russia: largest exposure is Citi with $5.4B gross, but they put the net investment at ~$1.0B. For BAC and JPM, Russia is not mentioned in the top 20 exposure and neither in the top 10 for MS

·     Auto sector; in the EV space, LCID lowered its 2022 production for Lucid Air 12K-14K vehicles from 20K to reflect extraordinary supply chain and logistics challenges; monthly delivers out for China EV names as XPEV said it delivered 6,225EVs in February, up 180% from a year ago, while LI said February deliveries rose nearly four-fold (265.8%) to 8,414 Li ONE; NIO February deliveries rose 9.9% from a year ago to 6,131 electric vehicles; Hyundai Motor America reported total February sales of 52,424 units, an 8% increase compared with February 2021; AZO Q2 EPS $22.30 vs est. $17.79 on revs $3.4B vs est. $3.17B, same-store sales +13.8% vs est. +7.2%, inventory +6.2%; VRM was downgraded to EW at Wells after reporting a wider than expected loss

·     Casinos, Gaming, Lodging & Leisure sector; for casinos WYNN, LVS, MLCO, Macau casino revenue for February falls short of estimates as Macau gross gaming revenue gained 6.1% in February to 7.76B patacas ($0.96B) to trail the consensus estimate for a 7.0% increase; IGT Q4 EPS $0.09 vs. est. $0.49 on better revs $1.05B vs. est. $1.02B; guides Q1 revs $1B-$1.1B vs. est. $1.04B and year revs $4.1B-$4.3B vs. est. $4.2B; for cruise lines CCL, RCL, NCLH, UBS said heard across the board that booking volume has been strong the last 2-3 weeks, and some seeing close in bookings starting to firm up for the first time since the pandemic started

·     Retailers; TGT Q4 EPS $3.19 vs. est. $2.86 on revs $30.62B vs. est. $31.39B, comp sales +8.9% vs. est. +10.2%, gross margin rate was 25.7% vs 26.8% YoY that reflects pressure from increased supply chain costs, sees 2022 low- to mid-single digit revenue growth (est. +2.4%), high-single digit growth in adjusted EPS (est. -2.7% decline); KSS EPS $2.20 vs est. $2.12 on revs $6.5B vs est. $6.54B, guides FY net sales +2-3% vs est. +2.2%, op mgn 7.2-7.5% and EPS $7.00-7.50 vs est. $6.55 with plans to repurchase at least $1B in shares in 2022; KTB Q4 adj EPS 88c beat est. 79c on revs $681M vs est. $688.2M with FY22 guidance of EPS $4.65-4.75 and revs $2.7B ahead of consensus $4.58, $2.64B; CHS reported a Q4 EPS beat but a revenue miss with a stronger Q1, FY22 outlook; FTCH upgraded to Hold at SocGen following their results last week and its steep -37% YTD share price drop; FL received several additional downgrades (to Neutral at Goldman, B Riley and double-d/g to UW at Barclays) after last Friday’s guidance and loss of NKE share

Stock GAINERS

·     ACI +8%; said its board has started a strategic review to consider potential transactions and other moves, less than two years after the supermarket chain’s IPO

·     BIDU +8%; reported Q4 net profit of 1.72 billion yuan, down from CNY5.17 billion a year earlier and below est. of CNY2.09 billion while reported quarterly revenue of CNY33.09 billion

·     DDD +2%; on earnings beat; 4Q adj EPS $0.09 vs est. $0.03 on revs $150.9Mm vs est. $143.9Mm; guides FY revs $570-630Mm vs est. $574.7Mm, adj gr mgn 40-44% and adj op exp $225-250Mm

·     EDIT +3%; after a U.S. tribunal ruled that patents on the breakthrough gene-editing technology known as CRISPR belong to Harvard University and the Massachusetts Institute of Technology. Editas licenses CRISPR technology from Harvard’s and MIT’s Broad Institute

·     HRL +4%; Q1 EPS $0.44 in-line w ests; Q1 sales rose 24% to $3.04B vs. est. $2.93B as the company benefited from higher prices and it managed through supply-chain constraints

·     JOBS +9%; agreed to be acquired by an investor group backed by DCP Capital and Ocean Link Partners for $4.3B, with holders to get $61 ADS per share https://bit.ly/3prkTqm

·     LPSN +19%; after Starboard Value LP discloses an 8.5% stake in LPSN, as per a regulatory filing as also nominated four members for election to its board

·     SAIL +11%; strong Q4 results, with revenue exceeding the high end of guidance by 19% with upside in the quarter coming from license revenue, though SaaS revenue was also very strong

·     TGT +13%; Q4 EPS $3.19 vs. est. $2.86 on revs $30.62B vs. est. $31.39B, comp sales +8.9% vs. est. +10.2%, gross margin rate was 25.7% vs 26.8% YoY that reflects pressure from increased supply chain costs, sees 2022 low- to mid-single digit revenue growth

·     WDAY +8%; with Q4 beat, raises guidance for fiscal 2023 subscription revenue to be in a range of $5.53B-$5.55B and 24-month Subscription Backlog +22% y/y exceeded +20% expectation

Stock LAGGARDS

·     AMBA -26%; reported in-line F4Q22 (Jan) results, guided F1Q23 (Apr) slightly lower, and noted 14nm wafer shortages at Samsung are expected to negatively impact F2Q23 (Jul) by ~$5M

·     BIGC 13%; Q4 results ahead of consensus on the top-line but missing on non-GAAP operating income due to a pull forward in investment – guidance in 1Q22 and FY22 also imply much more significant investments raising concerns will push out path to profitability

·     DPZ -4%; Q4 EPS $4.25 misses the $4.30 estimate on revs $1.34B vs. est. $1.38B; Total domestic stores comp sales growth +1%, below estimate +2.46% and Domestic franchise comparable sales growth +1.5%, also estimate +2.92%

·     ENDP -18%; as weaker Q1 guidance offset a Q4 beat (sees Q1 EPS $0.35-$0.45 vs. est. $0.48; sees Q1 revs $595M-$635M below consensus $685.5M)

·     EHTH -26%; on Q4 results as revs fell 17% to $243.5M missing the $252.3M estimate and adj EPS of $0.49 also falls short of consensus at $0.95

·     GDRX -39%; as 2022 outlook fell well short of expectations on both revenue and EBITDA as expects ~23% Y/Y revenue growth for 2022, implying ~$917m vs. est. $1.02B and adj EBITDA margins of 28-30% (vs. est. 32.2%) with weaker Q1

·     LCID -12%; lowered its 2022 production for Lucid Air 12K-14K vehicles from 20K to reflect extraordinary supply chain and logistics challenges

·     VRM -36%; downgraded to EW at Wells after reporting a wider than expected loss

·     ZM -3%; Q4 results beat for growth and profitability and delivered upside across key enterprise metrics but issued FY23 guidance significantly below consensus