Mid-Morning Look

Monday, October 17, 2022

U.S. stocks starting off the trading day and week strong, erasing Friday’s disappointing declines as attention turns to corporate earnings following another round of better bank results A cautious Wall Street strategist turning near-term positive and macro news out of the UK helping currency and Treasury markets as well. BAC and BK shares leading banks higher following earnings results, stock market long time bear Mike Wilson of Morgan Stanley said this morning US stocks could rally in the short term as the 200-week moving average provides a “serious floor of support” and said (in their view) that inflation has already peaked and could fall rapidly next year as comparisons become very difficult and discounting returns. Lastly the UK backtracking its tax fiasco that crumbled currency and bond markets just a few weeks back, as new finance minister Hunt announced a series of tax changes that he said would raise 32 billion pounds ($36.19 billion) a year in extra revenues. The S&P 500 surging to highs, approaching 3,700 with only a handful of components “red” to start the day (will it hold?).

Economic Data

·     N.Y. Fed’s factory index weakens in October with third straight negative reading as NY Fed’s empire state current business conditions index -9.1 in October vs -1.5 in September. New orders index +3.7 in October vs +3.7 in September; prices paid index +48.6 in October vs +39.6 in September; employment index at +7.7 in October vs +9.7 in September; and NY Fed’s empire state six-month business conditions index -1.8 in October vs +8.2 in September

Sector Movers Today

·     Consumer Staples: CHD and CLX upgraded to equal-weight from underweight in Consumer Staples at Morgan Stanley, while cutting EPC to underweight from equal-weight – expect strong Q3 EPS in beverages with pricing power/modest demand elasticity, with upside confirmed by PEP’s exceptional 16% org. sales growth, but more mixed HPC results; HAIN expects FY 23 results to be in line with FY23 guidance for adjusted EBITDA on a constant currency basis; in food, ACI downgraded to neutral from buy at Guggenheim to reflect limited potential upside post the October 24 special dividend record date and lower KR tgt to $50 from $57 as believe the proposed merger has strategic merit, but timing dynamics create medium-term uncertainty

·     Bank movers: BAC Q3 EPS $0.81 tops consensus $0.77 helped by a jump in net interest income (rose 24% to $13.8b) as Q3 revs $24.5B tops est. $23.57B – added $378M to its loan-loss reserves as it braces for a weakening economy (down from $1.1B y/y) – consumer business reported a 12% jump in revenue, helped by higher balances and a rise in interest rates; BK Q3 EPS $1.21 topped the $1.10 estimate as revs of $4.28B topped the $4B est. – boosted by higher interest rates that fueled growth in net interest revenue – said qtrly provision for credit losses was a benefit of $30M; FRC upgrade from Market Perform to Strong Buy w/ $143 PT at Raymond James; GS is planning a major reorganization, with plans to combine its flagship investment-banking and trading businesses into one unit, while merging asset and wealth management into another – WSJ https://on.wsj.com/3EMzNQx

·     Media and Telecom: Kanye West agrees to buy conservative social-media platform Parler https://bit.ly/3ENn8wA ; Rupert Murdoch explores recombination of Fox Corp. (FOXA) and News Corp (NWSA), the WSJ reported. A special committees established at both to study possible deal. Deliberations are at an early stage; Murdoch family has large voting stakes in each company; Murdoch split up his holdings into two companies in 2013 https://on.wsj.com/3MxoKwl ; FOXA was downgraded downgrade from Outperform to Neutral w/ $36 PT (from $41) at Credit Suisse; META initially aimed to reach 500,000 monthly active users in Horizon Worlds by the end of the year, but the current figure is less than 200,000, per WSJ

Stock GAINERS

·     BAC +6%; Q3 EPS $0.81 tops consensus $0.77 helped by a jump in net interest income (rose 24% to $13.8b) as Q3 revs $24.5B tops est. $23.57B – added $378M to its loan-loss reserves as it braces for a weakening economy (down from $1.1B y/y)

·     BK +5%; Q3 EPS $1.21 topped the $1.10 estimate as revs of $4.28B topped the $4B est. – boosted by higher interest rates that fueled growth in net interest revenue – said qtrly provision for credit losses was a benefit of $30M

·     CLR +8%; announced it was being bought by Omega Acquisition, an Oklahoma company owned by the founder of Continental Resources, Harold Hamm at $74.28 a share

·     LFG +51%; entered an agreement to be acquired by BP for about $4.1B in cash including about $800 million of debt; cash consideration of about $26 per share https://on.mktw.net/3CLneCC

·     MGNX +4%; and GILD entered into an exclusive option and collaboration agreement to develop MGD024, a potential treatment for certain blood cancers, and two additional bispecific research programs.

·     NET +7%; upgraded to an Overweight rating from Equal Weight at Wells Fargo and raise tgt to $65 after 65% YTD decline and believe is benefiting from the increasing focus on consolidation to reduce costs

·     RBLX +16%; soars following September metrics as Daily active users (DAUs) were 57.8 million, up 23% y/y, hours engaged were 4.0 billion, up 16% y/y, and estimated bookings were between $212 million and $219 million, up 11%-15% y/y

·     SPLK +10%; after activist investor Starboard Value LP has built a just under 5% stake in Splunk (SPLK) and plans to push the software maker to take action to boost its stock price – WSJ https://on.wsj.com/3S0Klys

Stock LAGGARDS

·     FOXA -5%; Rupert Murdoch explores recombination of FOXA and NWSA, the WSJ reported. A special committees established at both to study possible deal. Deliberations are at an early stage, sources say https://on.wsj.com/3MxoKwl (FOXA also downgraded at Credit Suisse)

·     GDOT -2%; announces CEO terminated (CFO to replace), postpones inventor day, and said it expects that preliminary Q3 results will be at or near high end of guidance ranges it previously communicated

·     HIMS -4%; downgraded to neutral from overweight at Piper Sandler, hesitant to recommend buying the stock, noting the need for greater marketing spend to retain subscriptions

·     NERV -57%; said it has received a refusal to file letter from the FDA regarding its New Drug Application for roluperidone for the treatment of negative symptoms in patients with schizophrenia.

·     NGM -73%; tumbles after saying its mid-stage trial testing its drug NGM621 in patients with geographic atrophy failed to meet main goal as it did not show a statistically significant reduction in the rate of change in disease area over 52 weeks

·     TPB -6%; after announces resignation of CEO as COO to take over top job and cuts FY adj. EBITDA forecast to $96M-$99M from $97M-$103M and lowers sales outlook