Mid-Morning Look

Tuesday, May 24, 2022

U.S. stocks giving back all of Monday’s advance (which came on light volume), led by sharp declines in technology, specifically social media, online and advertising technology companies after SNAP warned last night it expects to miss its Q2 revenue, adj ebitda targets. The commentary raised concern about slowing ad spending for companies. Shares of FB, GOOGL, TWTR, ROKU, BMBL, TTD, PUBM PINS, ETSY just a few of the hardest hit names this morning as the Nasdaq underperforms, falling 3.5%. Defensive consumer staples and utilities outperform in a generally broad-based sell-off, including yet another hit for retailers and consumer discretionary after another round of mixed earnings results (ANF, NLS slide on misses, RL beats and BBY rallies despite a miss and lower guide). Macro headlines quiet overnight, with China, and Fed headlines taking a back seat to individual stock movers. Inflation, supply chain issues and the Fed’s rising interest rate cycle preparation continues to wreak havoc over markets and investor sentiment. The 10-yr yield drops to 2.75% (lowest since late April) amid a further rotation into haven assets, down over 8bps; the 2-yr yield also down 8 bps to 2.54% and the 30-yr slips below 3%. Economic data this morning very weak, with slowing Richmond manufacturing and tumbling housing data as the impact of rising interest rates already taking its toll in the housing industry.

Economic Data

·     S&P global May flash services PMI at 53.5 (vs 55.6 in April) and S&P Global May flash composite PMI at 53.8 (vs 56.0 in April); Manufacturing Index: 57.5 vs. 58.9 consensus vs. 59.7 prior

·     Richmond Fed composite manufacturing index -9 in May (weakest since May 2020) vs +14 in April; Richmond Fed manufacturing shipments index -14 in May vs +17 in April

·     April single-family home sales fell -16.6% to 591K unit annual rate well below the est. 750K and March 709K rate; April home sales Northeast -5.9%, Midwest -15.1%, South -19.8%, West -13.8%; the new home supply 9.0 months’ worth at current pace vs March 6.9 months; April median sale price $450,600, +19.6% Y/Y from $376,600

·     In Jan 2021, the 30-yr mortgage rate was 2.65% and average new home price in the US was $401,700. Today the 30-yr mortgage rate is 5.25% and average new home price is $570,300. Assuming a 20% down payment, that’s a 95% increase in the monthly payment (from $1,294 to $2,519), as per Charlie Bilello

Sector Movers Today

·     Retailers; BBY Q4 EPS miss ($1.57 vs. est. $1.61) on better revs of $10.65B vs. est. $10.41B while comp sales fell -8.5% Y/Y vs. est. -9.4% – lowers year EPS and rev view to $8.40-$9.00 from prior $8.85-$9.15 and revs $48.3B-$49.9B from prior $49.3B-$50.8B and Q1 gross margin 22.1% vs. 23.3% Y/Y; NLS slides as Q4 sales rose 28% to $120M, vs. the $121.6M estimate; guides Q1 sales $45M-$55M and year sales $380M-$460M below est. $521M; apparel retail sees ANF Q1 EPS loss (-$0.27) vs. est. $0.08 on better sales $813M vs. est. $799.3M while sees Q2 net sales down low-single-digits, and FY net sales flat to up 2%; WMT to expand drone deliveries across six states; RL Q4 adj EPS $0.49 vs. est. $0.38 and revs rise 18% Y/Y to $1.52B vs. est. $1.46B – forecast FY23 revenue to increase in high single digits on a constant currency basis vs. est. 3.6%

·     Auto sector; auto retailers out with earnings: AAP posts modest EPS ($3.57 vs. $3.59) and comp sales miss (increased +0.6% y/y, modestly missing consensus +0.7%, though were still up +25.3% on a 2-year stacked basis) – RBC says modest comp miss should not be too surprising given ORLY, W, and WMT all flagged an unseasonably cool/wet start to spring; AZO Q3 EPS of $29.03 beats the $26.05 estimate on revs $3.9B vs. est. $3,71B as comp sales +2.6% vs. est. +0.24% saying inventory rose 13.9% Y/Y; CRMT Q4 EPS $4.01 vs. est. $3.10; Q3 revs rose 26% to $352M vs. est. $297.23M; the average sales price increased 24% to $17,860 and unit sales volume dropped 1%; UBER is freezing hiring, but not planning layoffs according to one report; TSLA tgt cut to $800 from $1,150 and trims 2022 deliveries estimate to 1.2 mln units from 1.4 mln units at Daiwa

·     Internet, Media & Telecom movers; social media stocks tumble after SNAP said they believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range (FB, PINS, TWTR, GOOGL among decliners); RBC noted the announcement will sound the alarm on the deteriorating macro’s evolving effects on digital advertising; shares of other Internet peers such as BMBL, MTCH, FVRR also active on fears for impact on ad-supported digital platforms

Stock GAINERS

·     ALB ; raises year sales to $5.8B-$6.2B from prior view $5.2B-$5.6B; sees FY22 adjusted diluted EPS $12.30-$15.00 (up from prior view $9.25-$12.25)

·     BBY +2%; Q4 EPS miss ($1.57 vs. est. $1.61) on better revs of $10.65B vs. est. $10.41B while comp sales fell -8.5% Y/Y vs. est. -9.4% – lowers year EPS and rev view to $8.40-$9.00 from prior $8.85-$9.15 and revs $48.3B-$49.9B from prior $49.3B-$50.8B and Q1 gross margin 22.1% vs. 23.3%

·     BCS +2%; said it restarted a 1 bln pound ($1.25 billion) share buyback

·     PODD +5%; after Bloomberg reported DXCM is in talks to acquire Insulet (PODD) to create a diabetes device giant, citing people with knowledge of the matter https://bit.ly/3yUB7hq

·     WOOF ; Q1 sales rise 4% to $1.48B, topping the $1.45B estimate and reports net income of $24.7M vs $7.6M Y/Y and comparable sales grow 5% Y/Y while company maintains its 2022 revenue outlook of between $6.15B-$6.25B

·     ZM +1%; 1Q adj EPS $1.03 vs est. $0.87 on revs $1.074B vs est. $1.073B; sees 2Q adj EPS $0.90-0.92 vs est. $0.87 and revs $1.115-1.12B vs est. $1.11B; sees FY adj EPS $3.70-3.77 vs est. $3.53

Stock LAGGARDS

·     ANF -27%; Q1 EPS loss (-$0.27) vs. est. $0.08 on better sales $813M vs. est. $799.3M while sees Q2 net sales down low-single-digits, and FY net sales flat to up 2%

·     INMB -24%; after the FDA placed the company’s investigational new drug application to start a Phase 2 trial of XPro in patients with Alzheimer’s disease on clinical hold

·     NLS -20%; as Q4 sales rose 28% to $120M, vs. the $121.6M estimate; guides Q1 sales $45M-$55M and year sales $380M-$460M below est. $521M

·     PBR -3%; as Brazil’s right-wing president Jair Bolsonaro fired co’s CEO – second in two months – after Petrobras refused to sell fuels at a discount to consumers

·     SNAP -39%; said they believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range (drags FB, GOOGL, PINS, TWTR lower)

·     SWTX -5%; after saying a late-stage clinical trial evaluating its treatment for patients with progressing desmoid tumors met its primary endpoint and met all secondary endpoints

·     WKME -27%; posted a modest 1Q rev beat, but an ARR miss, decline in quarterly enterprise DBNRR, slowing RPO growth, and -3% 2Q rev guide miss (downgraded at KeyBanc)