Mid-Morning Look

Wednesday, November 16, 2022

U.S. stocks slipping early as disappointing earnings and guidance from retailing giant Target (TGT) offsets some of the good news from WMT the day prior, another revenue warning in the semiconductor sector (MU) hurts tech and equipment names, and better overall Oct retail sales data indicates the consumer is still somewhat strong and keeping the aggressive Fed rate hikes in play. Geopolitical tensions eased a bit after a missile that hit Poland was probably a stray fired by Ukraine’s air defenses and not a Russian strike, Poland and NATO said, easing global concern that the war in Ukraine could spill across the border. NATO said there was no indication the explosion in eastern Poland was a deliberate attack or that Russia is preparing offensive military actions against NATO but added that Moscow bore ultimate responsibility for the blast. Treasury yields tumble on data and Fed commentary as the U.S. yield curve inversion now at steepest since 1982; US 2-year yields are now nearly 63 basis points above rates on 10-year notes. Another handful of negative data points in the housing sector weighs on that group. The dollar is flat along with gold prices while oil slides.

Economic Data

·     Retail Sales for October rose +1.3% vs. est. +1.0% and Retail Sales ex autos/gas jumped +1.3% above the est. +0.5% (and prior +0.4%); Oct gasoline sales +4.1% vs. Sept -3.7% and Oct Retail Sales ex-autos/gasoline +0.9% vs. prior +0.6%

·     Import Price Index for Oct m/m fell (-0.2%) vs. est. (-0.4%) and prior (-1.1%); Oct export prices fell (-0.3%) vs. est. (-0.4%) an vs. Sept (-1.5%); on a y/y basis, import prices +4.2% and export prices +6.9%; Oct petroleum import prices (-1.2%) vs sept (-7.2%)

·     Oct Industrial Output unexpectedly fell (-0.1%) vs. est. +0.2% and down from last month +0.1% and U.S. Oct capacity Utilization rate 79.9% (first reading below 80 since June) and well below consensus 80.4% and below Sept 80.3%

·     Sept Business Inventories +0.4% vs. est. +0.5% and prior month +0.8%; U.S. Sept inventory/sales ratio 1.33 months’ worth vs aug 1.33 months; Sept business sales +0.2% vs Aug +0.3%; Sept retail inventories ex-autos unrevised at -0.1% (prev -0.1%)

·     U.S. November NAHB Housing market index tumbled to 33 (lowest since June 2012) versus 38 in October, its 11-th straight month of declines; index of current single-family home sales 39 versus 45 in October and index of home sales over next six months 31 versus 35 in October

Sector Movers Today

·     Semiconductors: NVDA earnings tonight; QCOM during Snapdragon Summit 2022, introduced latest premium mobile platform, Snapdragon 8 Gen 2; WOLF announces offering of $1.3B of convertible senior notes; TER announces CEO succession; current CEO to retire 2/1/21; Credit Suisse initiates on the sector w/ an overweight view; top pick NVDA; most positive on handsets (most de-risked) and LT growth names (AMD, MRVL, MPWR, NVDA) despite short-term risk; Neutral on analog/auto (has yet to experience broad weakness w/ little conviction that semi suppliers in those areas will be able to fully escape the downturn); AMKR increases its dividend 50% (from 5c to 7.5c) and commits to returning 40-50% of FCF to shareholders

·     MedTech Equipment: MDT downgraded to hold from Buy at Deutsche Bank on the back of disappointing RDN results last week and what they expect to be another challenging quarter and guide down when it reports F2Q next week (they tweaked F2Q #s lower and cut year ests); NTRA public offering of 11.43 mln common shares priced at $35.00 per share; ALC reported F3Q results, with inline revenue (w/ better Surgical balanced by worse Vision Care) and a penny beat on EPS at $0.50 while raised the bottom end of its underlying CC net sales growth to 10% to 11% (from 9% to 11%), though lowered its reported sales guide

·     Insurance: LNC upgrade from Neutral to Buy at Goldman Sachs and raised tgt to $50 from $46 driven by view that the company should be able to rebuild its capital base and display its relatively strong underlying capital generation faster than investors are expecting; UNM was downgrade from Buy to Neutral at Goldman predicated on the strong performance relative to the S&P 500; PGR reported combined ratio for October of 95.9% vs. 97.2% y/y with net premiums earned $4.87 billion, +11% y/y and net premiums written $5.19 billion, +19% y/y

·     Housing & Building Products: a day after HD reported good earnings, but conservative guidance, rival LOW increased its annual earnings forecast to $13.65-$13.80 from previous $13.10-$13.60 range on steadying demand after quarterly results topped views; monthly NAHB Housing data worst in a decade (June 2012) and falls an 11^th straight month as housing industry remains in downturn; MBA mortgage applications index rose 2.7% in week ended Nov. 11, after falling 0.1% in prior week (first rise since Sept. 16), purchases up 4.4% and refis fell -1.6% while the avg. 30-yr fixed rate 6.90%, down from 7.14% in prior week; HD downgrade to Market Perform at Raja.

Stock GAINERS

·     DFS +4%; said to resume repurchases under existing share repurchase program authorizing up to $4.2 bln of share repurchases through June 30, 2023 after investigation relating to its student loan servicing practices and related compliance matters has been completed

·     LNC +2%; upgrade from Neutral to Buy at Goldman Sachs and raised tgt to $50 from $46 driven by view that the company should be able to rebuild its capital base and display its relatively strong underlying capital generation faster than investors are expecting

·     LOW +4%; increased its annual earnings forecast to $13.65-$13.80 from previous $13.10-$13.60 range on steadying demand after quarterly results topped views

·     NTRA +10%; public offering of 11.43 mln common shares priced at $35.00 per share

·     TJX +1%; Q3 adj EPS $0.86 tops $0.80 consensus and revs mostly in-line at $12.27B; Q3 US comp store sales fell (-2%), sees Q4 US comp sales flat to +1% and FY23 comp sales down (1%-2%)

Stock LAGGARDS

·     AAP -14%; reported Q3 EPS and rev miss while comp sales fell (-0.7%) y/y and lowered its year adj. EPS forecast to $12.60-$12.80 vs prior est. of $12.75-$13.25 (est. $13.02) saying cut in forecast reflects stronger dollar impact

·     AMAT -3%; along with weakness in other chip equipment names ASML, LRCX, KLAC following the MU comments on trying to work on CAPEX cuts

·     CCL -13%; priced $1 bln 5.75% 5-yr convertible bonds (CBs) as part of 2024 refinancing plan with conversion price of $13.39 represents 20% premium to stock’s last sale

·     COIN -6%; more pain in crypto sector, with Bitcoin down over 2% after Genesis said it temporarily suspended redemptions, and new loan originations at its lending business, the latest sign of the industry fallout from last week’s collapse of major crypto exchange FTX

·     LVLU -18%; posted softer than expected 3Q revenue and adjusted EBITDA results amid a difficult retail environment and adjusted FY guidance, accordingly, reducing top-line and adjusted EBITDA

·     MU -3%; said it reduced DRAM and NAND wafer starts by approximately 20% versus fiscal fourth quarter 2022 and said is working to cut capex

·     PARA -5%; as CFO says seeing `headwinds’ in the ad market and is accelerating cost cutting measures due to economy

·     TGT -14%; tumbles following a Q3 earnings miss lower operating margin miss – Q3 adj EPS $1.54 vs. est. $2.15; Q3 sales rose 3.3% y/y to $26.12B vs. est. $25.97B; halved its operating margin rate forecast for the fourth quarter to about 3%

·     TTCF -19%; after lowers year revenue guidance to $235M-$245M from prior $280M-$295M after Q4 EPS loss (-$0.46) vs. est. loss (-$0.19) and revs $54.1M vs. est. $72.96M