Mid-Morning Look

Thursday, October 20, 2022

U.S. stocks bouncing off overnight weakness but stuck in the same trading range most of the week, finding support generally around the 3,700 for the S&P but continues to stall given the surge in Treasury yields, rising recession fears, and uncertainty into earnings season. Outside of the constant flow of earnings this week, including disappoints from TSLA, KNX, AA, NOK, ALL – and better results from T, LVS, LRCX, IBM overnight/this morning – the main story today was UK Prime Minister Liz truss resigning less than 7-weeks after taking over the position amid the turmoil following her initially tax plan and lost confidence in her. Massive moves in the currency and Treasury markets as well as the dollar slides -0.6%, giving a boost to beaten up precious metals with gold rising by the same amount. US Treasury 2-year yields were up with 2-yr hitting 4.6% and 10-yr 4.18%, but both pulling back. Ten of 11 sectors leading higher today (Utilities lone laggard -15), led by 2% gains in Tech and Communications.

Economic Data

·     Weekly Jobless Claims fell to 214K in latest week vs. est. 230K and prior week revised to 226K from 228K; the 4-week moving average rose to 212,250 from 211,000 prior; continued claims rose to 1.385M from 1.364M prior and US insured unemployment rate rose to 1.0%

·     Existing Home Sales for Sept reported down -1.5% at 4.71M unit rate, in-line with ests and vs. Aug 4.78M; Sept inventory of homes for sale 1.25 mln units, 3.2 months’ worth; the Sept national median home price for existing homes $384,800, +8.4 pct from sept 2021

·     Philadelphia Fed Business Outlook Oct reported at -8.7 vs. est. -5.0 (prior -9.9)

Sector Movers Today

·     Retailers: AMZN is facing a lawsuit in Britain for damages of up to 900 million pounds ($1 billion) over allegations the online marketplace abused its dominant position by favoring its own products, lawyers said; Cleveland Research lowers Wayfair (W) FY23 revenue growth to +2% vs street +5-6%; TSCO Q3 EPS $2.10 vs. est. $2.07; Q3 revs $3.27B in-line with ests; Q3 comparable store sales increased 5.7% and raises year EPS, revs, and comp sales guidance; DKS upgraded to Outperform with a $138 tgt at OpCo and remain OP rated on NKE, LULU, ASO, UA – as look upon fundamental underpinnings of athleisure and sporting good retail as solid, if not strengthening

·     Media & Telecom movers: AT Q3 adjusted EPS $0.68 vs. est. $0.60; Q3 revs $30.0B vs. est. $29.84B; adjusted EBITDA $10.7B, mobility revenue $20.3B; wireless postpaid net adds +964,000 (vs. est. +913,399); adj EBITDA $10.7B (est. $10.39B); sees FY Adj EPS at least $2.50, from prior $2.42-$2.46; ERIC quarterly royalty revenue fell 1.1 billion Swedish crowns ($98.24 million); gross margins fall to 41.4% from 44%; NOK patent revenue was down by 62 million euros ($60.67 million), mainly due to a dispute with Oppo and Vivo; gross margin fell to 40.1% from 40.7%

·     Transports: in the trucking sector, mixed results as KNX Q3 earnings missed at $1.27 vs. est. $1.33 (rev in-line) and cut its adjusted year ESP to $5.17-$5.22 from prior $5.30-$5.45 (est. $5.40); LSTR Q3 results were in-line while FY annual revenue expected to be more than $7.5B and EPS more than $11.75 (ests $7.48B and $11.72); in airlines, ALK Q3 profit beats and said Q3 was the highest revenue-generating quarter in its history; AAL a top and bottom line beat as well saying qtrly revenue was achieved while flying 9.6% less capacity than same period in 2019; in rails, UNP increased earnings and raised its top line by 18% in the third quarter on higher fuel-surcharge revenue, volume and prices (Q3 EPS $3.19/$6.6B vs. est. $3.06/$6.41B)

·     Software movers: DDOG held its Dash conference and investor meeting, prompting an upgrade to Buy at Canaccord as came away from the well-attended event more positive on DDOG’s near-term consumption momentum and longer-term revenue runway supported by continued platform innovation; ORCL upgraded to Neutral at Piper saying the margin and increasing debt burden concerns they had have largely played out with operating margin sliding below 40% to an eight-year low; COUP downgraded to Underweight at Piper saying they see elevating risk factors that erode confidence in a sustainable growth recovery including; TLS said the TSA has granted the company the authority to operate its TSA Precheck System. Telos can now provide initial trial enrollment services to a limited population of applicants first

Stock GAINERS

·     DGX 5%; Q3 beat on EPS and beat on revs (base biz revs +5.1% y/y while COVID testing revs drop 55% y/y); raise low end of FY guidance range by 20c

·     FCX +6%; mostly in-line Q3 EPS and revs while cuts capital expenditure view to $3.6B from prior $4.5B and sees higher sold sales volume outlook

·     IBM +4%; as reported better than expected Q3/CY22 results, with revenue outperformance offsetting weaker than expected margin expectations

·     LRCX 9%; posted beat and raise last night a day after ASML posted good results (did warn it expects ‘23 semi equipment capital sending to fall more than 20% across the industry)

·     LVS +4%; reports Q3 adjusted EBITDA $191M beating Con $149.7M, with revenue above consensus on upside in Marina Bay Sands but miss in Macau

·     SMCI +12%; after guiding prelim Q2 adjusted EPS $3.05 to $3.20, above estimate $2.16 and sees prelim sales $1.78B-$1.82 vs. est. $1.57B citing customer design wins

·     T +9%; Q3 adjusted EPS $0.68 vs. est. $0.60; Q3 revs $30.0B vs. est. $29.84B; wireless postpaid net adds +964,000 (vs. est. +913,399); adj EBITDA $10.7B (est. $10.39B); sees FY Adj EPS at least $2.50, from prior $2.42-$2.46

·     TLS +13%; said the TSA granted the company the authority to operate its TSA Precheck System. Telos can now provide initial trial enrollment services to a limited population of applicants first

Stock LAGGARDS

·     ALL -11%; said it expects a loss of $675M-$725M for Q3, compared with last year’s net income attributable to the company of $538M – estimates were expecting net income to fall to $112M

·     ERIC -17%; quarterly royalty revenue fell 1.1 billion Swedish crowns ($98.24 million); gross margins fall to 41.4% from 44%

·     KNX -3%; Q3 earnings missed at $1.27 vs. est. $1.33 (rev in-line) and cut its adjusted year ESP to $5.17-$5.22 from prior $5.30-$5.45 (est. $5.40)

·     TALS -45%; after saying a patient died in a late-stage study on cell therapy for kidney transplant recipients – trial was temporarily halted before independent panel allowed resumption after a review

·     TSLA -5%; reported lower-than expected revenue and acknowledged it isn’t immune from economic headwinds – Q3 sales rose 56% to $21.5B vs. est. $22.1B – said it expects to come up short of its target for 50% growth in vehicle deliveries

·     UNP -3%; increased earnings and raised its top line by 18% in Q3 on higher fuel-surcharge revenue, volume, and prices (Q3 EPS $3.19/$6.6B vs. est. $3.06/$6.41B) – but said sees waning cargo demand

·     WDFC -6%; WDFC Q4 earnings and revenues fell short of Wall Street consensus estimates (Q4 EPS $1.08 vs. est. $1.22; Q4 revs $130.2M vs. est. $131.1M)