Mid-Morning Look

Friday, October 21, 2022

U.S. stocks trying desperately to end the week on a good note, getting small reprieve in Treasury yields and dollar strength after a WSJ report earlier indicated that some Fed officials are signaling greater unease with big rate rises to fight inflation. Note coming into today, the S&P has fallen 5-consecutive Friday sessions, and is down over 1% the last four Friday’s alone – a dubious stat. The yield on the 2-year Treasury hit highs around 4.64$ before paring back and the 10-yr about 4.34%. But as remains the case, another early market rally quickly fizzles out as stocks erase big gains. Stock futures bounced after the WSJ reported this morning that some Fed officials are signaling greater unease with big rate rises to fight inflation https://on.wsj.com/3CZxB5U . Article noted Federal Reserve officials are barreling toward another interest-rate rise of 0.75 percentage point at their meeting Nov. 1-2, but some officials have begun signaling their desire both to slow down the pace of increases soon and to stop raising rates early next year to see how their moves this year are slowing the economy. Shorter end of the yield curve falling on the WSJ story as the 2-yr down -6 bps to 4.547% and 3-yr down about -10 bps to 4.55% while longer end stays higher – 10-yr up 2 bps at 4.24% and 30-yr up 9 bps at 4.31%. In sector news, social media names tumble behind cautious and disappointing revenue growth outlook (hitting GOOGL, META, PINS ahead of their earnings next week), while hospital providers and healthcare facilities tumble on earnings misses from THC and HCA (also hitting MedTech names on slowing procedure fears), Transports rebound behind better results from CSX in railroads.

Sector Movers Today

·     Auto sector: Toyota (TM output in October and November is expected to be around 750,000 and 800,000 units respectively, below the average 900,000 monthly production plan for September through November it projected late last month – more weakness in auto space; ALV rises early on results as Q3 adj EPS $1.23 vs. est. $1.27; Q3 net sales $2.3B vs. est. $2.36B; sees 2022 organic sales growth of around 15% (vs. prior 13%-16%); sees 2022 adj. operating margin of upper end of around 6.0%-7.0% (vs. prior 6.0%-7.0%); Chinese battery giant CATL has slowed its planning for investment in battery plants in North America on concern that new U.S. rules on sourcing battery materials will drive costs higher, the WSJ reported overnight. The world’s largest battery maker, which supplies one of every three electric vehicles, has been considering opening new plants in the United States and Mexico since earlier this year, Reuters reported previously.

·     Consumer Staples: in food delivery, NYTimes reported Instacart will no longer pursue an IPO this year because of turbulent market conditions; in beverages, SAM Q3 EPS $2.21 below est. $3.28 as Q3 revs rose 6.2% y/y to $596.5M vs. est. $567.1M; depletions decreased 6% and shipments increased 1.4% compared to Q3’21; reduces FY gross margin view to 42%-43.5%, from 43%-45%; in grocers, WSJ reports the antitrust authorities who review the proposed KR supermarket merger may be focused on local store overlap in specific regions; SMPL Q4 earnings beat as sales rise on price increases and raises FY sales outlook but warns of gross margin hit; HAIN downgraded to Neutral at Piper as believe pressure on UK/EU consumers (UK is ~20% of HAIN, EU: 7-8%) is likely to grow and add pressure on HAIN’s sales and earnings

·     Bank movers: SIVB shares fall as posted beat for the qtr of $7.21 for EPS but lowered its 2022 outlook for deposits, net interest income and net income margin, but said the outlook for net charge-off for the year was improving; BANR downgraded from Strong Buy to Outperform at Raymond James but raise target to $72 as the bank has been a material outperformer YTD; HBAN top gainer early in the S&P, helping lift banks; RF posted an operating miss of $0.56 to consensus of $0.59 but core PPNR beat of $0.03 was driven by higher NII of $0.01 and higher fee income; OZK Operating $1.08 vs Street $1.17 as miss was from higher provision and higher expenses; WAL Fees (-$0.15) and NII (-$0.01) partially offset by lower expenses (+$0.05) and provision (+$0.01); also results for ASB, HTH, FFBC

·     Telecom movers: a day after an upside surprise from AT earnings and raised guidance helped the Telco space, Dow component VZ today posted a Q3 EPS beat of $0.04 (though profit did slide y/y) and revs $34.2B vs. est. $33.8B while Verizon FIOS video subs down nearly 9% y/y and Verizon lost 189,000 monthly bill-paying phone subscribers in its consumer business – still sees adjusted EPS $5.10 to $5.25, vs. estimate $5.18; AT upgraded to Buy from Hold at Truist after earnings results yesterday

Stock GAINERS

·     ALV +3%; as Q3 adj EPS $1.23 vs. est. $1.27; Q3 net sales $2.3B vs. est. $2.36B; sees 2022 organic sales growth of around 15% (vs. prior 13%-16%); sees 2022 adj. operating margin of upper end of around 6.0%-7.0% (vs. prior 6.0%-7.0%)

·     BJRI +3%; reports 3Q sales beat and start to 4Q (running +8% y/y, or +6% vs. 2019) reaffirm the view that the industry continues to grow in the face of ongoing pressures on consumer wallets

·     CSX +3%; reported Q3 adj EPS (cleaned up for labor accruals, land, and a lower tax rate) of $0.51 per share, modestly ahead of consensus as revs grew 18% YoY, driven 10% by fuel surcharge and1.5% by volume

·     HBAN +8%; among top gainers early in the S&P after earnings, helping lift banks

·     SLB +7%; Q3 adj EPS $0.63 vs. est. $0.56; Q3 revs $7.5B vs. est. $7.21B; qtrly North America revenue of $1.5 bln was flat sequentially and increased 37% year on year; Q3 revenue was driven by international, which posted 13% growth sequentially and 26% year on year

·     XOM +1%; shares set intraday record high, hit $106.16 (earnings next Friday along with CVX)

Stock LAGGARDS

·     AXP -6%; despite Q3 EPS and revs beat, while guides year EPS above $9.25-$9.65 (vs. est. $9.90) and backed year revs up 23%-25% – shares slip as consolidated provisions for credit losses came in at $778M in the quarter vs a benefit of $191M, a year earlier

·     DVA -2%; along with weakness in DXCM, ABMD, and other healthcare provider, CROs, med devices after weaker THC, HCA results raise concerns about slowing procedures

·     HCA -9%; reported lower-than-expected Q3 revenue as hospital admissions related to COVID-19 dropped, as total revs -2% to $14.97B vs. est. $15B – decline in COVID-related admissions led to a -1.5% drop in overall same facility admissions

·     IMUX -73%; said that pre-planned interim analysis in a recent trial of its IMU-935 for patients with moderate-to-severe psoriasis found that reductions in the psoriasis area and severity index in the two active arms didn’t separate from placebo at four weeks.

·     RHI -11%; declines after Q3 EPS of $1.53 missed estimates of $1.63 and revs rose to $1.83B y/y but missed ests of $1.92B citing neg for-ex impact (and guided Q4 EPS below views)

·     SIVB -17%; posted beat for the qtr of $7.21 for EPS but lowered its 2022 outlook for deposits, net interest income and net income margin, but said the outlook for net charge-off was improving

·     SNAP -29%; Q3 results top views for EPS, revs and DAU’s but September revenue growth decelerating to +2% Y/Y compared to July and August +8% Y/Y, said was not providing formal guidance for next quarter after saying advertising partners are decreasing their marketing budgets (comments weigh on GOOGL, META, PINS)

·     THC -26%; mixed Q3 results but shares tumble as guides FY operating revs $19B-$19.2B vs. est. $19.34B and EPS cont ops $5.88-$6.42 vs. est. $6.11; narrows FY adj EBITDA $3.38B-$3.48B from prior $3.38B-$3.58B

·     TWTR -4%; after the U.S. government is discussing whether the U.S. should subject some of Elon Musk’s ventures to national review including the deal for Twitter Inc (TWTR) and SpaceX’s Starlink satellite network, Bloomberg News reported https://bloom.bg/3TDkEoT ; Note the deal is still expected to close next week according to CNBC’s David faber today

·     VZ -4%; posted a Q3 EPS beat of $0.04 (though profit did slide y/y) and revs $34.2B vs. est. $33.8B while Verizon FIOS video subs down nearly 9% y/y and Verizon lost 189,000 monthly bill-paying phone subscribers

·     WHR -2%; reported 3Q total sales of $4.8B which missed est. of $5.2B as all regions missed on EBIT, EPS wide miss for Q3 and cuts FY ongoing EPS to $19 from prior $22-$24, vs. est. $21.85