Mid-Morning Look

Tuesday, May 17, 2022

U.S. stocks with a solid start to the trading day, erasing yesterday’s losses following better earnings results in the housing and home improvement sector and as continued optimism out of China boosts sentiment after Shanghai reached the threshold of three consecutive days of no community spread cases, meaning they will proceed with lifting/easing lockdown restrictions. The news in China helped boost futures overnight as the S&P and Nasdaq look to snap their 6-week losing streaks. Dow component and retailing giant Wal-Mart (WMT) a disappointment to the downside after wide earnings miss and lowered its Q2 and year outlook saying inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs. Dow component Home Depot (HD) posted a beat and raise, lifting shares early (ahead of TGT and LOW results tomorrow morning). A handful of stocks moving after 13F filings showed some of Wall Street biggest investors added new stakes (C, PARA, CE, ALLY all rising as Warren Buffet’s Berkshire added new positions in each according to latest regulatory filings). Economic data was mixed today with better retail sales for April and higher industrial production while housing data fell well short of expectations. Treasury yields rise, oil prices extend gains, while the U.S. dollar falls from 20-year highs.

Economic Data

·     Retail Sales for April rose a slightly better-than-expected +0.9% M/M vs. est. +0.8% and +1.4% prior (revised from +0.5%); retail sales ex-gas and autos: +1.0% M/M vs. +0.6% expected; retail Sales (less autos) rise +0.6% M/M vs. +0.4% expected and +2.1% prior (revised from +1.1%). April cars/parts sales +2.2% vs March -1.6%

·     April industrial output rises +1.1% above consensus +0.5% and vs. March +0.9%; Capacity use rate 79.0% vs. est. 78.6% and March 78.2%; U.S. April manufacturing output +0.8%

·     U.S. May NAHB Housing market index 69 versus 77 in April, the lowest since June 2020; May index of current single-family home sales 78 versus revised 86 in April (previous 85); May index of home sales over next six months 63 versus 73 in April

·     U.S. March Business Inventories +2.0% vs. consensus +1.9%; March inventory/sales ratio 1.27 months’ worth vs Feb 1.27 months; business sales +1.8% vs Feb +1.2%

Sector Movers Today

·     Retailers: WMT reported Q1 sales beat but Q1 EPS of $1.30 missed the $1.48 estimate on slightly better comps +3% vs. est. +2% but cuts Q2 EPS view to flat to up slightly from up low to mid-single-digits and lowers year outlook, sending shares lower; TGT expected to report tomorrow morning to see if broad issue or co specific; PLBY Board of Directors has authorized a $50 million common stock repurchase program; ONON 1Q EPS at CHF0.05 vs est. CHF0.08 and EBITDA of CHF 15.7M vs (CHF 4.9) as sales beat and raises guidance

·     Transports; UAL guidance lifts airlines after raised its Q2 revenue estimate despite trimming capacity, underscoring booming travel demand and sees 23%-25% RASM/Deutsche Bank noted it’s not too often we observe RASM gains in the mid-to-high teens (occurred in the early 1980s, a few instances in the mid-1990s, 2006, and 2010) – even rarer are RASM gains that exceed 20%; RYAAY upgraded to Strong Buy at Raymond James; Cowen noted U.S. diesel pricing continues to stay elevated, passing along significant costs to shippers via fuel surcharges they believe sustained high diesel pricing will ultimately benefit the railroads as see Eastern carriers NSC and CSX benefiting, and HUBG and JBHT well positioned; in rails, Goldman Sachs noted Total traffic -2.7% YoY in Week 19, roughly in-line with -2.4% YoY in Week 18. Intermodal volumes were -2.7% YoY compared to -4.2% YoY reported last week

·     Aerospace & Defense; MAXR downgraded from Neutral to Underperform at Bank America and cut tgt to $25 from $36 as update model post 1Q22 to account for lower revenue and margin expectations; RKLB misses on top and bottom line as Q1 EPS loss (-$0.06) vs. est. loss (-$0.04); Q1 revs $40.7M vs. est. $41.0M; sees Q2 revs $51M-$54M vs. est. $54.3M; AER reported better Q1 EPS, said it will cease all leasing activities to Russian airlines and booked a $2.7B pretax charge in quarter as 113 aircraft and 11 engines remain stranded in Russia; BA tgt cut to $150 from $180 to at Bank America as see a significant number of “unexpected” challenges Boeing could still face in the near term

Stock GAINERS

·     AMD +5%; upgraded to overweight from neutral at Piper Sandler, saying that the company’s core businesses are running well and mid-to-long-term catalysts remain intact as it raises its tgt to $140 from $98

·     C +6%; after a quarterly 13-F filing showed Warren Buffett’s Berkshire Hathaway took a stake in the bank

·     CE +6%; after Buffett’s Berkshire position revealed last night – 7.9M shares

·     HD ; posted Q1 EPS $4.09 vs. est. $3.67; Q1 revs $38.91B vs. est. $36.71B; Q1 comp sales increased 2.2% vs. est. loss of (-3.0%) and raised guidance

·     JD +6%; reported 1Q22 results that came-in well ahead of moderated expectations

·     PARA +13%; after Warren Buffett’s Berkshire Hathaway invested about $2.6 billion in during the first quarter of 2022 in the co, according to an SEC filing

·     SE +14%; reported Q1 EPS loss ($0.80) vs est. ($1.17) on revs $2.9B vs est. $2.8B and lowers GAAP revenue for e-commerce to be $8.5B-$9.1B, or 71.8% growth Y/Y at the midpoint

·     SSYS +11%; reported Q1 revs rose 22% to $163.4M, topping consensus of $157.5M with better FY22 rev guidance of $685M-$695M (est. $686.5M), prompting an upgrade at JPMorgan

·     UAL +5%; lifts airlines after raised its Q2 revenue estimate despite trimming capacity, underscoring booming travel demand and sees 23%-25% RASM/Deutsche Bank noted it’s not too often we observe RASM gains in the mid-to-high teens (occurred in the early 1980s, a few instances in the mid-1990s, 2006, and 2010) – even rarer are RASM gains that exceed 20%

Stock LAGGARDS

·     DG -3%; DLTR, COST, KR grocers/discounters among decliners after WMT said it saw higher costs for fuel and labor ravage its Q1 bottom line

·     GLBE -5%; Q1 results modestly exceeded expectations, although shares are down significantly on a reset 2022 outlook as they decreased its 2022 revenue outlook by $23M (down -5%) at the midpoint to $383-403M (+60% y/y), due to contagion impacting the broader European region

·     MAXR -4%; downgraded from Neutral to Underperform at Bank America and cut tgt to $25 from $36 as update model post 1Q22 to account for lower revenue and margin expectations.

·     NRDY -19%; Q1 revs $46.9M vs. est. $46.7M; but shares slip after guides Q2 revs $37M-$40M vs. est. $45.9M; sees FY22 revs $160M-$175M vs. est. $197.9M

·     TWTR ; after Elon Musk said his $54.20 per share, or $44 billion purchase of Twitter Inc. can’t move forward until the company is clearer about how many of its accounts are fake

·     VZ -1%; as Warren Buffett’s Berkshire said it sold nearly all its $8.3 billion stake in Verizon that it had amassed in late 2020, revealed in filing yesterday

·     WMT -8%; reported Q1 sales beat but Q1 EPS of $1.30 missed the $1.48 estimate on slightly better comps +3% vs. est. +2% but cuts Q2 EPS view to flat to up slightly from up low to mid-single-digits and lowers year outlook, sending shares lower