Closing Recap

Wednesday, February 02, 2022

Equity Market Recap

·     Big tech is driving a market rebound from a disastrous January as the S&P, Nasdaq, and Dow are each amidst their first 4-day winning streaks of 2022 as strong earnings from Google and AMD boost major averages despite ADP reporting a surprising payroll decrease in January. However, reactions were not unanimously positive as PayPal shares cratered to their lowest levels since May 2020 on tepid guidance to lead the broader FinTech space lower as much of the optimism in pandemic winners has all but evaporated. Reuters notes that this has been an unusually weak quarter thus far relative to the prior year with 77.1% of the companies reporting so far posting a beat vs estimates compared to an average of 84% in the prior four quarters. Meta Platforms (FB) and Qualcomm take center stage tonight among scheduled reports. Smallcaps underperform with the Russell 2000 down over 1% while large caps jumped.

·     Stock/sector news; GOOGL surges to record highs above $3,000 after its strong quarter and 20-1 stock split announcement, AMD also soaring after its quarterly beat in tech; PYPL tumbles over 25% to lowest levels since May 2020 on its weak FY22 outlook, weighing on other FinTech/payments names SQ, AFRM, SOFI; Other post-earnings decliners include SBUX approaching Friday’s 52-week lows after its EPS miss before paring some losses, GM sliding after a mixed qtr with a rev miss but EPS beat, BSX on weak guidance, and GILD rolling to 9-month lows on its quarterly miss with soft guidance; Winners include CPRI jumping to 3-year highs on its beat and raise report, BBWI on strong prelim holiday sales, MPC also hitting its highest level in over 3 years after its EPS more than doubles estimates with strong revenue and a new $5B buyback, MTCH reversing overnight declines despite a weaker report, EAT spiking on its strong EPS and comps; Transports mixed after earnings with ODFL among S&P leaders on its beat and dividend raise but CHRW among index’s worst following an EPS miss

Economic Data:

·     Jobs data came in short of consensus views as ADP said private payrolls unexpectedly fell in January as a resurgence in COVID-19 infections disrupted business activity; private payrolls dropped by -301K jobs last month – a big surprise vs. the expected rise of 207K jobs – while December was downwardly revised to show 776K jobs vs. the 807K reading prior

Commodities, Currencies & Treasuries

·     Oil prices little changed, with WTI crude edging higher $0.06 to $88.26 per barrel. Prices hit a seven-year intraday high of $89.72 early in the session, but then pulled back. Natural gas prices explode higher to finish up 15.8% at $5.501/mm Btu as cold temperatures spread throughout much of the U.S., raising demand. Gold rises $8.80 or 0.5% to settle at $1,810.30 an ounce, its 3^rd straight day of gains and highest close in a week following weakness in the dollar after a softer monthly ADP private payrolls report. The U.S. dollar was mixed, slipping vs. the euro.

·     Treasury yields were volatile after the jobs data and rally in stocks, with the 10-year hitting highs this morning of 1.81% for the 10-yr, sold off most of the morning to lows of 1.745% before recovering midday to end little changed around 1.77%. Over the last week, Treasury prices had been steady around the 1.8% level despite the last 3-day spike in stocks. U.S. Treasury announces quarterly refunding of $110B, to raise about $55.2B of cash, refund $54.B in maturing securities. The U.S. Treasury to sell $50B 3-year notes, $37B 10-year notes, $23B 30-year bonds next week.

Sector News Breakdown

Consumer

·     Retailers; luxury retailer CPRI Q3 adj EPS $2.22 vs. est. $1.69 on revs $1.6B vs. est. $1.47B as forecasts fiscal 2022 revenue of about $5.56B, compared with its prior estimate of about $5.4B and lifts per-share profit forecast to about $6, up from its prior estimate of about $5.30; Morgan Stanley upgraded UAA to OW after its 10% pull back 10% YTD (and 25% since Nov earnings report), presenting an attractive 2022 setup vs peers on compelling valuation well below its pre-Covid range and cheaper than peers with similar or inferior growth trajectories; BBWI Q4 sales increased 11% to $3.027B vs est. $2.95B and expects to report adj EPS $2.28 for the qtr that is ahead of its initial $2.10-2.25 guidance range and consensus of $2.26, increased its quarterly dividend to 20c/shr from 15c, authorized a $1.5B buyback program; Hallum lowered its PT on PRPL to $6 from $8 as customer reviews on their website have decelerated further and are down ~70% Y/Y for the Dec/Jan timeframe for most mattresses, and they also see an attractive entry point in SPWH for a stock with virtually no institutional following as they see them taking share across guns/ammo from DKS

·     Auto sector; GM 4 EPS of$1.35 was better than consensus of $1.19 and also guided to 2022 adj EBIT between $13B-$15B vs. $14.3B in 2021, while FCF guide was also strong implying a ~10% yield; note both Ford (F) and GM notable comments on EV last 2-days as Ford is planning an additional investment of up to $20 bln in building its electric vehicles, Bloomberg News said while GM said it will spend more than the $35 billion previously planned through 2025 to speed up launches of new electric vehicles; RACE said shipments grew 22% to 11,155 cars last year compared to COVID-hit 2020 and were up 10% on pre-pandemic 2019; ELMS released an 8K filing announcing that both James Taylor (CEO) and Jason Luo (Chairman of the Board) have resigned from the company after the EV maker said it will restate some previously issued financial statements; HYRE said there are early signs that car supply shortages are improving and that commercial fleet partners, including Ameri drive, will be positioned to acquire vehicles in 2022

·     Housing & Building Products; housing stocks got hit yesterday after several earnings within the sector: MDC 52-week lows, NVR red on misses; PHM shaky despite beat on top/bottom line – while today, DHI Rev guide is going up by more than the beat (all on pricing and no change to delivery outlook). 1Q orders are also better than expected; MHO with Q4 EPS and revenue tops consensus saying homes delivered increased 3% to 2,316, an all-time quarterly record

·     Consumer Staples; defensive staples lagged yesterday (last few days) amid rebound in more high growth sectors; in research, CL upgraded to Market Perform from Underperform with an $83 price target at Bernstein noting the stock has starkly underperformed the market over the past twelve months, even despite the recent weakness for growth stocks; both CLX and KMB downgraded to Underperform from Market Perform; SYY upgraded to Strong Buy at CFRA which reflects a stronger backdrop for foodservice distributors as Omicron cases crest and consumers pivot spending to services like dining and travel; BMO initiated BYND at Market Perform with a $68 PT as the worst of the macro headwinds is likely behind them with an expected sales growth rebound to 20+% CAGR, but they stay on the sidelines

·     Restaurants: SBUX slides after Q1 adj EPS $0.72 missed the $0.80 est. (but better revs $8.1B), while global comp store sales +13% vs est. +13.2%; and said Q1 comp sales in China fell -14% noting experienced higher-than-expected inflationary pressures; EAT shares jump as 2Q EPS $0.71 vs est. $0.51 on sales $904.5Mm vs est. $928Mm, as Chili’s comps +12.1%, Brinker comps +17.7%, restaurant op margin 11%; PZZA raised to Buy at Northcoast

Energy

·     Energy stock movers; Oil prices jumped on Wednesday, holding near a previous seven-year high after OPEC+ decided to stick to its planned output increase despite pressure from top consumers to raise production more quickly. Reports said that OPEC+ agreed to increase oil production by 400,000 bpd from March after a short meeting; Weekly API inventory data overnight showed gasoline inventories build for 5th straight week

·     E&P and Majors; BTIG upgraded VAL to Buy on the back of the ongoing recovery in the offshore rig market; XOM upgraded to Buy at Argus with a $92 PT due to strong energy fundamentals, an improving balance sheet, reduced capital spending, and higher FCF

·     Pipelines: MMP Q4 EPS $1.14 vs est. $1.10 on revenue $809.3M vs est. $663.4M, sees EPS for Q1 at $1.02 vs est. $1.04 and FY at $4.20 vs est. $4.32; Truist increased their 2022 and 2023 estimates for EPD after incorporating Navitas Midstream into their forecast

·     Refiners: MPC Q4 adj EPS $1.30 more than doubled est. $0.55 on revs $35.61B that also crushed est. $24.33B, refining & marketing margins $15.88/brl vs est. $14.05, added $5B to buyback authorization; Citi raised its PT on SUN to a street-high $49 from $44 but downgraded it to Neutral as this implies more muted upside after the stock’s strong outperformance since mid-December after their upgrade

·     Utilities & Solar; Credit Suisse lowered their price targets across the sector due to higher cost of capital after the sector underperformance YTD and a growth to value transition, though they see attractive entry points with demand remaining strong and the largest upside in residential solar (RUN, SUNL, NOVA on overdone NEM 3.0 and interest rate pressures and battery storage (STEM, FLNCon growing demand, followed by utility scale solar equipment (ARRY, FTCI, SHLS) as they see margin recovery in 2022; Morgan Stanley ret RUN at OW with a strong buying opportunity on recent weakness as the most compelling clean tech name in their coverage driven by minimal growth reflected in the stock, a growing economic wedge, low financing costs, and consumer demand for reliability; SR reported Q1 EPS $1.01 below est. $1.32 on revenue $555.4M vs est. $537.6M and reaffirmed FY EPS view of $3.70-4

Financials

·     Bank movers; EVR posted a strong Q4 with adj EPS $7.15 easily topping est. $4.56 on adj revenue $1.124B vs est. $891.9M, advisory revenue +57%, wealth mgmt. AUM over $12B for the first time; Piper upgraded WBS to OW after it completed its transformational merger with Sterling and PFHD to OW after raising estimates on better growth expectations; FFWM a new OW at Stephens; APAM Q4 adj EPS $1.29 vs. est. $1.27 on in-line revs $315M, AUM $174.8B at qtr-end vs. $173.6B end of September declared a special 72c div

·     Insurance; CB Q4 earnings beat estimates after double-digit commercial premium growth and continued underwriting margin expansion as Q4 core operating return on equity of 11.6% increased from 10.7% and Q4 P&C underwriting income of $1.27B was a record; UNM Q4 adj EPS $0.89 vs est. $0.84 on revs $2.979B vs est. $2.975B; GNW Q4 adj EPS in-line 32c on revs $1.73B vs. est. $2.01B; HMN Q4 core PES 97c vs est. 76c on revs $331.4M vs est. $329.7M, expects FY22 EPS $3.45-3.65 (est. $3.36) and an ROE near 10%, while targeting 10% avg annual EPS growth with sustained double-digit ROEs in 2023 and beyond; in title insurance, BTIG initiated FAF, STC at Buys given their clear strategic focus and less exposure to the increasingly competitive centralized refinance segment and FNF, DOMA at Neutral

·     FinTech & Payments; a weak sector after PYPL tumbles following a Q1, FY22 EPS guidance misses estimates with them seeing Q1 adj EPS $4.60-4.75 vs est. $5.23 on revenue $6.4B vs est. $6.76B, prompting downgrades at Raymond James and BTIG to go with several other price target cuts (shares of SQ, AFRM, among other payment names falling in reaction to PYPL results); JPMorgan moved SQ to OW with a $200 PT from not rated after it completed its Afterpay acquisition with attractive valuation and growth; Mizuho raised their price targets on Visa (V) to $235 from $220 and MA to $435 from $400 to reflect more favorable outlooks

·     Consumer Finance & Lending; LDI downgraded to Neutral at Citi after its weak outlook for Q1 gain on sale revenue and disappointing Q4 results with the mortgage industry facing challenges after a couple years of bumper profits and to Market Perform at Raymond James; HRB Q2 EPS ($1.02) was a narrower loss than est. ($1.24) on revs $159M vs est. $152.8M; ahead of its investor day, TREE sees Q4 revs $258M vs est. $265.2M with FY revs +9-14% at about $1.098B (est. $1.106B) and sets FY guidance for revenue $1.2-1.25B and adj EBITDA $160-180M that sandwiches ests. $1.23B and $169.9M; Piper said BILL screens as one of the highest quality growth models poised for 60%+ organic growth in Q2 with multiple levers for sustained growth

·     Bitcoin news; MSTR took a $146.6M digital asset impairment charge in Q4 and said it added over 10,300 bitcoins in the qtr to bring its total holdings over 125k with an avg price of ~$30,200 with EPS ($8.43) on revenue $134.5M vs est. $133.2M

·     REITs; EQR Q4 FFO 76c vs est. 73c and Stifel said its FY22 forecast for FFO $3.45 above est. $3.35 foreshadows a strong year for the sector; Stifel also upped their PT on PSA to $410 from $376 after increasing their 2022 estimates and setting 2023 estimates for it and the rest of their self-storage universe; STAR signed a definitive agreement to sell its net lease portfolio for $3.07B to an affiliate of CG’s global credit platform and estimates total net positive impact ~$252M to net income and $250M to adj common equity; RBC lifted PCH to Outperform despite Q4 worse than consensus as they expect improved operating results given extremely strong wood products pricing, favorable trends in timber pricing, and attractive real estate monetization opportunities; Jones initiated CTO at Buy/$70 PT and PINE at Buy/$23 PT; CONE stockholders approved the previously announced acquisition by KKR and Global Infrastructure Partners for $90.50

Healthcare

·     Biotech, Pharma movers; ABBV Q4 adj EPS $3.31 slightly above est. $3.29 on better revs $14.89B vs. est. $14.97B and sees FY22 adjusted EPS $14.00-$14.20 vs. est. $13.99; ABUS upgraded to Buy from Hold at Jefferies citing “lots of long-term potential” from the company’s Hepatitis B portfolio; PFE asked the U.S. to authorize extra-low doses of its COVID-19 vaccine for children under 5; GILD slips early following Q4 EPS miss and softer 2022 guidance as well a pushout of data, as the co announced the decision to release TROPiCS-02 PFS and interim OS data together in March vs. prior guidance for Jan-Feb PFS data

·     MedTech Equipment; in earnings, TMO posted Q4 beat for revs and profit helped by strong demand for its COVID-19 tests ($2.45B in COVID products sales from $2.05B in Q3) while raises 2022 full year revenue guidance by $1.5 billion; BSX reports mostly in-line Q4 EPS/sales while guides year EPS $1.73-$1.79 below est. $1.87; in research, UBS makes several changes in medical devices as EW upgraded to Buy from Neutral, given a more reasonable valuation for a quality growth name that we expect to perform well in recovery; raise tgt to $126 from $121, PODD upgraded to Buy from Neutral with $235 tgt on the pullback and given the recent Omnipod 5 approval, which we think will restore momentum to the business, ISRG upgraded to Buy from Neutral and raise tgt to $325 from $317, citing an attractive entry point, robotics market leadership, and growth cushion that we think could help in recovery, and ZBH downgraded to Neutral from Buy and cut tgt to $130 from $172 given a slow start expected to the year and margin headwinds. Given these factors, we are cutting our numbers and moving to Neutral; DGX downgrade from Buy to Hold w/ $135 PT (from $180) at Jefferies and lower ests to reflect expectations for elevated labor and other operating costs persisting through ’22.

·     Healthcare Services; CLOV upgraded to Buy at Canaccord as it is in the early stages of bringing its data-driven care management platform; ABC Q1 adj EPS $2.58 and revenue $59.6B nearly matched consensus and they raised their FY22 adj EPS view to $10.60-10.90 from $10.50-10.80 (est. $10.69); HUM reported Q4 adj EPS $1.24 vs est. $1.15 on in-line revs $21.2B, expects FY22 adj EPS at least $24 ahead of est. $23.85 though it anticipates certain one-time restructuring charges during the year as it invests $1B in its Medicare Advantage business to drive additional cost-savings and productivity initiatives

Industrials & Materials

·     Materials, Industrial & Machinery; EMR rises on earnings as 1Q adj EPS $1.05 vs est. $0.99 on sales $4.5B vs est. $4.47B; sees 2Q adj EPS $1.15-1.20 vs est. $1.19, sees 2Q net sales +4-6% vs est. +7.5%; guides FY22 net sales +6-8% vs est. +6.7% and adj EPS $4.90-5.05 vs est. $4.91; JCI a slight beat on Q1 EPS of $0.54 as sales rose 9.8% YoY to $5.86B vs. est. $5.79B; AVY 4Q adj EPS $2.13 vs est. $2.12 on sales $2.2B vs est. $2.125B; guides FY22 adj EPS $9.35-9.75 vs est. $9.72; WM Q4 adj EPS in-line $1.26 on revs $4.68B vs est. $4.62B, sees FY22 rev growth +5.8-6.2%, adj EBITDA $5.325-5.425B vs est. $5.422B, and increased its annual div 30c to $2.60; Bank of America double-upgraded SLVM to Buy from Underperform; ROP Q4 adj EPS $3.73 vs est. $3.67 on revs $1.51B vs est. $1.48B, sees Q1 adj EPS $3.63-3.67 (est. $3.65), FY adj EPS $15.25-15.55

·     Transports; a day after the Dow Transports surged over 2% behind stellar UPS earnings and commentary (when shares rose 14% on Tuesday), index takes a breather; in tankers, the Baltic Exchange’s dry bulk sea freight index snapped four straight sessions of gains, weighed down by lower rates across all vessel segments as the index which factors in rates for Capesize, Panamax and Supramax vessels, eased 21 points, or 1.5%, to 1,419; ODFL Q4 EPS $2.41 vs est. $2.26 on revs $1.41B vs est. $1.38B and raised its div by 50% to 30c/shr; CHRW Q4 EPS $1.74 vs est. $1.74 vs est. $1.85 on revs $6.5B vs est. $6.22B

Technology, Media & Telecom

·     Internet; GOOGL sets the bar high for rest of Internet space this week (FB, SNAP, PINS) after easy Q4 beats (adj EPS $30.69 vs. est. $27.35; Q4 revs $75.3B vs. est. $72.13B) as quarterly ad revs rose 32% YoY to $61.24B and company announced a 20-1 stock split

·     Semiconductors; AMD surges, helping lead the semiconductor sector higher after a strong beat to the quarter on revs and EPS while posted 50% gross margins for 4Q, up year-on-year and quarter-on-quarter and a better 2022 forecast (XLNX shares jump in tandem – being bought by XLNX); ENTG upgraded to a Buy from Neutral at Mizuho on the back citing ongoing secular tailwinds, a strong semi-CAPEX cycle, capacity expansions, and the CCMP acquisition

·     Software movers; EA delivered its strongest bookings quarter ever, but was unable to exceed the Street’s expectations due to lackluster Battlefield 2042 results while 3Q missed as adj EPS $3.20 vs est. $3.22 on revs $1.79B vs est. $2.66B; SONY reported F3Q21 results with moderate revenue beat and substantial operating margin beat. Total sales/operating income were up 13%/32% Y/Y, driven primarily by outperformance in Pictures; TENB 4Q21 topped expectations highlighted by continued growth in the enterprise platform and 6-figure customers while ‘22 outlook also surpassed consensus due to its strong performance and healthy pipeline; ATEN reported better than expected Q4 results ($70.7M and $0.20 vs. Street at $68.8M and $0.19) in line Q1 revenue guide ($60.3-$61.4 vs. Street at $60.7) and better than expected full year 2022 revenue guide; DT shares stumbled despite a Q3 beat and in-line Q4 guide as ARR growth decelerated to +29% YoY after four consecutive qtrs of at least 32% growth; DDOG upgraded to Buy at Rosenblatt ahead of Feb. 10 earnings

·     Hardware, Components & Services; INFA upgraded at Citigroup and opens a catalyst watch call on CFLT saying they are constructive on data/analytics coverage into Q4 reporting as we see the group likely to rebound following a tough start to the year; DOX solid 1Q, with the most positive takeaway the company’s confidence in issuing its first better-than-expected multi-year organic revenue outlook. foreseeing growth at "6.0% to 10% y/y; SMCI Q2 adj EPS 88c vs est. 78c on revs $1.17B vs est. $1.15B, guides Q3 adj EPS 70-90c vs est. 75c on sales $1.1-1.2B vs. est. $1.07B

·     Media & Telecom movers; MTCH reported mixed 4Q21 results with revenue below expectations and Adj. EBITDA inline, but with 1Q21 and FY22 revenue, and FY22 margins all below expectations; in advertising, MGNI shares active after strength in Google results providing a positive backdrop for advertising, noting CTV was a key driver for results as well as advertising across the GOOGL ecosystem; NYT Q4 adj EPS 43c on revs $594.2M both beat estimates, approved a $150M buyback, hit its 2025 target for 10M subscribers after closing The Athletic acquisition yesterday and is now targeting 15M by the end of 2027