Mid-Morning Look

Friday, March 03, 2023

U.S. stocks open higher, adding to yesterday’s broad-based rally as U.S. Treasury yields slip despite calls for higher interest rates from the Fed. The benchmark 10-year yield dipped to 3.97% after reaching a four-month high of 4.091% on Thursday but recovered partially after the ISM Non-Manufacturing services report at 10:00 showed continued strength in the economy, including higher new orders, employment and stubbornly high prices paid. Positive developments in Europe on inflation as Eurozone Jan PPI, which undershot street expectations and broke the trend of hot data and higher rates, surprised on the downside decelerating to 15% YoY in Jan from 24.5% YoY in Dec (m/m rate fell 2.8% after rising 1.1%). Right now, markets in “buy the dip” mode again after the S&P held its pivotal 200-day moving average support yesterday (roughly 3,940 for SPX) and the Nasdaq 100 QQQ (roughly $290) and springboarded higher. Comments from Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic on Thursday boosted sentiment as they questioned whether recent data showing inflation, jobs and spending all hotter than expected might be a “blip,” and not definitively an indication that they need to hike rates faster or further. Oil prices slumped after the Wall Street Journal reported that the United Arab Emirates had an internal debate about leaving the OPEC and pumping more oil – but prices later reversed after Reuters said the WSJ report of UAE leaving OPEC is “far from truth.” The S&P is on track to snap its 3-week losing streak, with another broad-based rally (Staples the only S&P sector in the “red” early while discretionary, REITs, Technology and Communications lead).

Economic Data

·     The U.S. ISM Non-Manufacturing services sector dipped to 55.1 from a 55.2 in January (consensus was 54.5); survey’s gauge of new orders received increased to 62.6 last month, the highest level since November 2021, from 60.4 in January. Measure of prices paid by services industries for inputs fell to 65.6 from 67.8 in January. Measure of services industry supplier deliveries dropped to 47.6 from 50.0 in January. Employment rose to 54.0 (Dec 2021 high).

·     S&P Global Feb. Services PMI reported at 50.6 vs 46.8 last month, while S&P Global Feb. Composite PMI at 50.1 vs 46.8 prior.

Sector Movers Today

·     Software movers: ZS shares slide in security sector despite top and bottom line beat as reported a weaker than expected F2Q23 as Billings growth of +34% (+0.5% beat vs +2% last qtr) missed buyside expectations of growth acceleration vs +37% last qtr. ZM filed an 8-K to disclose that President Greg Tomb has been terminated from his role effective March 3rd without cause. IOT reported a strong 4Q, delivering 48% growth (vs. 49% last qtr), w/ the ~9% beat ahead of the ~8% TTM avg. AI shares rally as 3Q results came in ahead of expectations, and the company modestly increased mid-point of FY23 revenue targets (Q3 revenues came in at $66.7M vs. the Street’s $64.2M estimate with subscription revenue coming in at $57.0M). ESTC stronger Q4 results overshadow lower Q1 and year guidance; ESTC also added 60 $100K+ customers, its strongest additions since 4Q22/ April, and grew billings 35% Y/Y.

·     In crypto: shares of cryptocurrency and blockchain-related companies fall after prices of Bitcoin falls by as much as 5% to 2-week lows of $22,340 and Ethereum falls 5% to $1,550 following the fallout of SI delayed 10-K filing. Crypto exchange COIN slides along with Blockchain farm operators such as MARA, HUT, BTBT, Peer crypto bank SBNY fell in sympathy with SI slips early after the Bitcoin miner says it expects to delay its annual financial report.

·     In Hardware, Comm, and Services: HPE beat sales by +5% and EPS by +17% and is guiding the full year higher as many of HPE’s metrics are coming off multiple years of underperforming. DELL posted a FQ1 outlook for sales -6% and EPS -37% below consensus and materially softer than normal seasonality but followed with a F24 outlook that shows improvement each quarter as the year progresses. INVE posted about an in-line 4Q, and guided FY23 revenue below consensus.

Stock GAINERS

·     AI +20%; as 3Q results came in ahead of expectations, and the company modestly increased mid-point of FY23 revenue targets (Q3 revenues came in at $66.7 million vs. the Street’s $64.2 million estimate with subscription revenue coming in at $57.0 million).

·     ARDX +14%; after reported progress on the launch of its Ibsrela and Xphozah therapies.

·     AVGO +4%; Q1 adj EPS $10.33 vs. est. $10.10; Q1 revs $8.92B vs. est. $8.9B; sees Q2 revenue approximately $8.7B vs. est. $8.59B and sees Q2 adjusted EBITDA approximately 64.5% of projected revenue; Q1 Infrastructure software revenue $1.81B below views.

·     COO +5%; F1Q23 revenue and EPS beat consensus and management raised its FY23 guidance.

·     F +4%; after co says will boost North America production to meet demand.

·     FSLR +3%; upgraded from Neutral to Buy at UBS as see FSLR as the most significant beneficiary of the Inflation Reduction Act (IRA) with high visibility on capacity, revenue, and earnings growth through 2026.

·     IOT +14%; reported a strong 4Q, delivering 48% growth (vs. 49% last qtr), w/ the ~9% beat ahead of the ~8% TTM avg; sees Q1 revenue $190M-$192M vs. est. $182.4M.

·     META +4%; upside momentum in high growth tech stocks; META among top gainers in S&P.

Stock LAGGARDS

·     BMBL -8%; as 12.5M share secondary priced at $22.8/share.

·     CHPT -5%; as delivered a 4Q revenue miss while non-GAAP margins and OpEx were more favorable but 1Q revenue guidance is 19% below consensus.

·     DELL -2%; posted a FQ1 outlook for sales -6% and EPS -37% below consensus and materially softer than normal seasonality but followed with a F24 outlook that shows improvement each quarter as the year progresses.

·     EXEL -3%; after announcing an update last night for its Phase 3 CONTACT-03 study, noting it did not meet its primary endpoint of progression free survival in patients with locally advanced or metastatic clear cell or non-clear cell renal cell carcinoma.

·     HIBB -3%; misses Q4 revenue and profit estimates and said expects FY24 net sales to be up mid-single digit, compared with estimates of growth of 6.8% to $1.82B.

·     MRVL -5%; after reporting in-line Jan-Q and guiding Apr-Q down 8% q/q or worse than estimates driven by mid-teens q/q data center decline on continued storage weakness and push outs in cloud optimized silicon ramps to ~$200M sales this year from prior ~$400M.

·     SI -12%; falls to record lows in follow thru weakness from Thursday after the company delayed 10-K filing and said evaluates impact of events on going concern.

·     VERU -34%; after saying the FDA declined emergency use authorization for its experimental drug to treat adult patients hospitalized with moderate-to-severe COVID-19.

·     ZS -11%; reported a weaker than expected F2Q23 as Billings growth of +34% (+0.5% beat vs +2% last qtr) missed buyside expectations of growth acceleration vs +37% last qtr.