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Mid-Morning Look

Wednesday, May 04, 2022

U.S. stocks trading cautiously and choppy as expected after a 2-day bounce, and ahead of this afternoons highly anticipated Federal Reserve policy meeting. The FOMC is expected to raise the federal funds rates most likely by 50 bps and release a detailed plan for balance-sheet normalization at the May 4 meeting, but the wildcard will be Fed Chairman Powell’s tone at the press conference at 2:30 PM ET, whether he opens the door to a 75-bps hike at a future meeting given the persistently high inflation as evident in many corporate earnings results and conference call comments. Economic data not helping the mood for markets early following a weaker ADP private payroll report (ahead of nonfarm payroll report Friday), the largest US trade deficit since 1992 and ISM services data coming in below consensus with new orders hitting the lowest since Feb 2021 – all while expectations for the Fed to just begin ramping up their interest rate hike cycle. The 10-year Treasury yield is up 3 basis points at 2.99% and the 2-year yield is up 6 basis points to 2.83%. Mortgage rates have been rising, along with energy prices (Natural gas at 14-year highs) and food, all hitting consumers wallets as we head into vacation season. Will the rise in prices and rates impact spending and travel and overall purchases?

Economic Data

·     ADP national employment report weaker: shows U.S. Employment increased by 247K private sector jobs in April (smallest since April 2020), below the +395K estimate and prior month reviewed up to 479K from 455K

·     The U.S. posts its largest trade deficit since Jan 1992 at -$109.8B vs. est. deficit -$106.7B and wider than the -$89.8B in February (revised from -$89.2B). March exports were $241.7B, $12.9B more than February exports, while imports for the month were $351.5B, $32.9B prior

·     ISM U.S. Non-manufacturing sector shows PMI 57.1 in April vs 58.3 in March, which was also the estimate; business activity index 59.1 in April vs 55.5 in March; prices paid index 84.6 in April vs 83.8 in March; non-manufacturing new orders index 54.6 (lowest since Feb ’21) in April vs 60.1 in March; non-manufacturing employment index 49.5 in April vs 54.0 in March

Sector Movers Today

·     Industrial & Machinery; GNRC posts beat and raise as EPS $2.09 vs $1.96 and revs $1.14bn beat by 5%, with ebitda in line and sales growth forecast raised to +36-40% from +32-36% while adj ebitda mid-point reduced to 22% from 22.5%; JCI slides early after better Q2 EPS on Ebitda miss but guides Q3 EPS 82c-87c vs street $1.02 (organic guided +HSD) and now sees FY EPS $2.95-3.05 vs prior midpoint $3.27; EMR raises FY22 adjusted EPS view to $4.95-$5.10 from $4.90-$5.05 after headline beat, driven by better than expected topline and expects topline +8-10% vs prior +6-8%. FCF guidance slightly lowered, still expects $3b by year end; TT Q1 EPS 1.12 vs 99c estimate, segment EBIT beat by 6% and didn’t change guidance; CMI, PCAR active after Class 8 truck orders declined -53% yoy in April vs -47% yoy in March (15,800 in April vs. 21,215 prior).

·     Semiconductors; chip makers active following a bevy of reports with AMD 1Q adj EPS $1.13 topping est. $0.91 on revs $5.8B vs est. $5.5B and guides FY revs $26.3B vs est. $25.15B; SWKS posted in-line Q1 results but guided Q3 revs $1.2B-$1.26B below est. $1.3B, sending shares lower; CRUS with a top and bottom line Q1 beat while sees Q1 revenue $350M-$390M above est. $300M; LSCC also a beat and raise for its quarter; IPGP Q22 revenue and diluted EPS both beat its previous guidance and consensus

·     Software movers; AYX delivered a solid 1Q as ARR grew 33% Y/Y, accelerating for the 4th consecutive quarter; SPT reported Q1 results ahead of expectations with accelerating $50K+ customer growth for a seasonally strong Q1 showing for enterprise results. Total revenue came in at $57.4M representing 41% revenue growth and 9% FCF margin; FRSH posted Q1 total revenue increasing by $9.2M sequentially on another consecutive quarter of +40% y/y growth topping views, but shares fell early on mixed Q2 outlook; PLTR said it was chosen by Department of Health and Human Services (HHS) for an analytics solution as part of a 5-year, $90 mln, blanket purchase agreement

·     Restaurants; SBUX posts better-than-expected revenue and in-line Q2 profit while suspended its forecast for the Q3 and Q4, citing inflation, its planned investments in its workers and COVID restrictions in China; EAT shares fall as Q3 EPS of $0.92 misses by a dime on in-line revs and better comps of +13.5% vs. est. +11.2% but lowers year EPS view to $3.05-$3.30 from $3.50-$3.80 and below consensus $3.47; YUM Q1 comp sales rose 3%, missing the 3.8% estimate and revs of $1.55B missed the $1.59B estimate; DENN Q1 adj. EPS of $0.11 was below consensus of $0.13 on comp sales growth of 30.6% vs. 27.7% est. and franchised SSS growth of 22.8% vs. 26.9% est.; WING Q1 EPS misses by $0.02 and revs only rose 7.6% Y/Y to $76.2M below est. $86.2M; QSR downgrade from Buy to Hold w/ $58 PT at Stifel saying Burger King U.S. and Tim Hortons Canada’s turnaround efforts remain early stage

Stock GAINERS

·     ABNB +4%; forecast Q2 rev of $2.03B-$2.13B above ests $1.96B, lifting shares

·     CEG +3%; defense utility stocks seeing strength early – PNW, NI, AES, SO, AEP

·     FANG +2%; also, strength in energy stocks as oil moves higher on reports the European Union intends to ban Russian crude imports over the next six months and refined fuels by year-end

·     EHTH +20%; following quarterly results and guidance

·     GNRC +3%; posts beat and raise as EPS $2.09 vs $1.96 and revs $1.14bn beat by 5%, with ebitda in line and sales growth forecast raised to +36-40% from +32-36%

·     LTHM +22%; on Q1 profit and sales beat while raises FY22 revenue view to $755M-$835M from $540M-$600M and raises adjusted EBITDA view to $290M-$350M from $160M-$200M

·     MRNA ; Q1 revenue $6.1B vs $1.9B YoY and well above estimate of around $5B and EPS $8.58 vs. $2.84 YoY and estimate $5.37 saying had cash, cash equivalents $19.3B and expects to have four programs in Phase 3 in Q2: Omicron-containing bivalent COVID booster, flu, RSV, CMV

·     SBUX +6%; posts better-than-expected revenue and in-line Q2 profit while suspended its forecast for the Q3 and Q4

Stock LAGGARDS

·     AKAM -11%; as Q1 EPS missed by $0.03 and lowered its full-year EPS/rev forecast citing lost revenue from terminated Russian operations, strengthening dollar and lower internet traffic

·     ANDE -33%; Q1 net income fell to $5.5M, or $0.18, from $15.1M, or $0.35, in the year-ago quarter, while revs rose 53% Y/Y

·     COIN -5%; following cautious analyst comments earlier – Mizuho said COIN’s April and May volumes shows 25-30% potential downside to 2Q consensus revenue expectations

·     DIDI -5%; disclosed in a regulatory form Tuesday that the SEC had contacted the company and made inquiries about the IPO, according to an annual report filed with U.S. regulators

·     EAT -15%; as Q3 EPS of $0.92 misses by a dime on in-line revs and better comps of +13.5% vs. est. +11.2% but lowers year EPS view to $3.05-$3.30 from $3.50-$3.80 and below consensus $3.47

·     INFN -16%; on wider Q1 EPS loss (-$0.07) vs. est. loss (-$0.04); Q1 revs $338.9M vs. est. $361.7M; sees Q2 revs $350M plus/minus $20m vs. est. $379.9M hurt by suspension of operations in Russia

·     JCI -11%; better Q2 EPS on EBITDA miss but guides Q3 EPS 82c-87c vs street $1.02 (organic guided +HSD) and now sees FY EPS $2.95-3.05 vs prior midpoint $3.27

·     LL -8%; Q1 EPS $0.13 below est. $0.16; Q1 sales $279M vs. est. $281.5M and comp sales fell -3.6% vs. +6.9% Y/Y

·     LYFT -33%; beat on revenue and EBITDA that were ~4% and 280% above consensus with a contribution margin of 57.4% vs street at 56.2%, but guided 2Q EBITDA below the street, down 37% YoY (midpoint) driven by supply-demand imbalance and incremental investments (UBER shares also down 11% after its own results)

·     MTCH -5%; reported 1Q22 revenue and EBITDA ahead of consensus, but 2Q guidance fell short of expectations and FY22 guidance is expected to now be at the low end of the previous 15-20% revenue growth guidance

·     RVLV -19%; shares fell despite 1Q results beating expectations amid flow through concerns due to cost pressures (fuel price surcharges, higher return rates, inflation, etc.)

·     TUP -30%; shares hit fresh 52-week lows after posting a 16% drop in Q1 sales to $348M vs. est. $356.8M citing delays in its turnaround plan and pulled its earnings guidance.