Closing Recap

Friday, February 25, 2022

Equity Market Recap

·     Stocks staged a roaring rally to reverse overnight losses for the second consecutive day to finish the week on a strong note. The S&P, Nasdaq, and Russell 2000 each used the two-day rebound to finish the week green, though the Dow finished slightly lower despite today being its first 2% daily gain since November 2020 with nearly all its components higher on the day. It was a broad rally with the 11 S&P sectors each up more than 1%. Today’s strength was not contained to the U.S. as European markets played catchup after being closed for much of yesterday’s rally with the FTSE enjoying its best day in three months and the benchmark indices for France, Germany, and Italy each rising more than 3%. These moves come after Xi Jinping urged Vladimir Putin to negotiate with Ukraine and reports that Russia is ready to send a delegation to Minsk for talks. Investors will be keeping close tabs on any developments over the weekend as macro headlines continue to be a driving force for markets with the Federal Reserve’s meeting March 15-16 also looming. As for individual stocks, next week has notably fewer companies scheduled to report as earnings season winds down, though there are several retailers on the docket with Target (Tuesday AM) and Costco (Thursday PM) taking centerstage.

·     SQ surges after a strong quarter with Cash App momentum, COIN slips after forecasting a sequential decline in users, INTU, GDOT slide on misses, while RKT jumps despite miss, LPRO spikes on a strong report and guide, and TREE rallies off yesterday’s 5-year low on its beat in fintech earnings; ETSY leads the S&P after its quarterly beat and announcement that it will raise its transaction fees while online auto names also rip higher post-earnings with CVNA soaring CARG spiking to highest since 2018 after beats; FL plunges on a weak FY22 adj EPS forecast as NKE focuses on DTC sales; BYND plummets to record lows after its miss with worsening margins and MNST climbs on robust quarterly sales in staples; ZS sinks despite beating Q2 estimates and raising FY guidance as bookings growth decelerated DELL rolls on an EPS miss in tech; UHS outperforms after its quarterly results and guidance come in ahead of consensus with an increased buyback, NVTA higher after a mixed report with a qtrly miss but better guidance

Economic Data:

·     Durable Goods Orders for Jan/P rose +1.6% vs. est. 0.8% and prior -0.7%, while Durables Ex Transportation rose +0.7% vs. est. +0.4% and prior +0.6%; Capital Goods Orders Non-Def Ex Air rose +0.9% vs. est. +0.3% and Durables ex-defense orders +1.6% vs. est. +0.1%

·     Personal Income for January 0.0% vs. est. -0.3% (prior +0.3%), while Personal Spending for Jan rises +2.1% vs. est. +1.6% (prior -0.6%); Real Personal Spending rises +1.5% vs. est. +1.2%; the personal saving rate 6.4% pct vs. Dec 8.2%

·     Inflation data shows: Overall PCE price index for Jan rose +0.6% vs. Dec +0.5%; and Jan core PCE price index +0.5% in-line with consensus; Jan PCE price index y/y rose +6.1% vs. Dec +5.8% and core y/y up +5.2% vs. est. +5.1%

·     Pending Home sales index for January fell -5.7% well below the +1% estimate and Jan Pending Home sales -9.5% from January 2021

·     University of Michigan surveys of consumers us consumer sentiment final February 62.8 vs preliminary 61.7 and final January 67.2; current conditions index final February 68.2 vs preliminary 68.5 and final January 72.0

Commodities, Currencies & Treasuries

·     Oil prices slipped -$1.22, or 1.31%, to settle at $91.59/barrel, extending yesterday’s intraday decline off highs above $100 after U.S. sanctions did not target Russian energy and President Joe Biden said further releases from strategic reserves will happen if necessary. For the week, WTI crude was barely higher after falling last week to snap an 8-week streak of higher prices.

·     Gold prices faded -$38.70, or -2%, to settle at $1,887.60, well off yesterday’s high of $1972.50, its highest level since August 2020, as the risk-on sentiment over the past two days caused the safe-haven metal to lose momentum. This is its first negative week in February as recent inflation data and geopolitical concerns have driven demand for safer assets.

·     Treasury yields held steady for most of the day, with the 10-year holding under 2%, while the U.S. dollar dropped vs. most currencies after a strong week of returns on risk aversion as Russia invaded the Ukraine.

Sector News Breakdown

Consumer

·     Retailers; FL slides as sees 2022 adjusted EPS between $4.25 and $4.60, lower than analysts’ estimate of $7.56 and expects comparable sales in 2022 to be down 8% to 10% as dealing with higher costs – also said no single vendor is expected to represent over 60% of its purchases for fiscal 2022, as co’s top supplier NKE ramps up focus on its direct-to-consumer channel; CRI raises quarterly dividend by 25%; sets $1 billion buyback; DDS announces $500M share buyback plan; ETSY top/bottom line beat (Q4 EPS $1.11/$717.1Mm vs est. $0.79/$685.5Mm), though guidance disappoints as sees Q1 revs $565-590Mm vs est. $629.5Mm – but boosted its transaction fee on the Etsy.com marketplace to 6.5% from 5.0% previously, effective April 2022; FTCH a mixed quarter for EPS/sales, but shares rebound after falling -55% YTD coming into the print which showed Digital Platform GMV rose 22% y/y, coming in at the top end of guidance for 18-22% growth and maintained its view for ~30% growth in 2022; UAA upgraded to Neutral from Sell at BTIG as it is within 5% of our $16 tgt saying risk/reward is now appropriately balanced; Wells upgraded DG to OW on an attractive opportunity for patient investors after its recent selloff

·     Auto sector; KAR agrees to sell its ADESA U.S. physical auction business to CVNA in all-cash deal valued at $2.2B as agreement will allow it to focus on its digital marketplaces portfolio; online auto retailers CVNA and CARG also active with earnings results overnight; TSLA was upgraded to Outperform at Daiwa, but lowered tgt to $900; Ford (F) will idle its F-150 pickup production at its Kansas city assembly plants due to a shortage in semiconductors, Bloomberg reported

·     Housing & Building Products; FND reported roughly in-line EPS as a slight SSS Beat & Opex Leverage was offset by a GM miss due to higher-than-expected supply chain costs; FTDR Q4 adj EPS 10c vs est. 20c on revenue $340M vs est. $336.1M; sees Q1 revenue $345M-$355M vs est. $352.1M, full-year revs $1.7B-$1.73B vs est. $1.72B

·     Consumer Staples; BYND slides as 4Q rev in line/slightly better but big margins miss of 14% and adj EBITDA miss and sales outlook for 2022 $560M-$620M vs est. $637.3M; MNST strong 4Q sales (+12.9%), beating the street (+11.2%) but missed slightly on EPS with extremely low gross margin down nearly -400 bps YOY and more than -600 pts vs. 4Q19 to 53.9%; SFM Q4 EPS $0.32 vs. est. $0.30 as sales fell 7% y/y to $1.49B vs. est. $1.47B with better year PS view; PM said it has temporarily suspended operations in Ukraine, including at its factory in Kharkiv, in the wake of Russia’s invasion of the country

·     Casinos, Gaming, Lodging & Leisure sector; PLTK rises after the mobile videogame firm said it has retained The Raine Group as financial advisor to assist with strategic review process while also reported Q4 revs rose to $649M from $563.5M y/y (est. $637M); IGT signs comprehensive 20-year contract extension with Rhode Island lottery; Morgan Stanley initiated LYFT at EW with a $26 PT

Financials

·     FinTech & Payments; SQ Q4 EPS 27c vs. est. $0.25 on revs $4.08B vs. est. $4.06B; Q4 transaction-based revenue in-line $1.31B, gross payment volume $46.33T, for Jan/Feb they expect Cash App profit to grow on a YoY and two-year CAGR basis and Square GPV to be up 35% YoY; GDOT reported a mixed Q4 with a revenue beat but EPS miss while FY22 guidance ranges for EPS and revs were both fully below estimates

·     Consumer Lending & Finance; LPRO Q4 EPS 23c vs est. 16c on revenue $51.6M vs est. $43.1M, sees FY22 revenue $210M-$240M vs est. $231.5M and total certified loans rising over 20% at the midpoint of its guidance; TREE Q4 adj EPS (14c) was narrower than expected (30c) on revs $258.3M vs est. $264.4M with Q1 revenue guidance $280-290M fully above est. $279M; RKT Q4 adj EPS 32c vs est. 36c on revs $2.44B vs est. $2.6B, mortgage origination closed loan volume $75.9B, declared a special $1.01 dividend, and sees Q1 closed loan volume $52-57B; Wells downgraded HMPT to EW after yesterday’s earnings miss

·     Financial Services; EVTC posted Q4 adj EPS 72c vs est. 62c on revenue $155.2M vs est. $146.4M, raised its buyback plan to $150M, acquired Chilean payments solution company BBR for ~$60M, and extended its relationship with Popular; INTU Q2 results were weaker than consensus with EPS $1.55 below est. $1.85 and revs $2.7B shy of est. $2.73B while reiterating FY guidance below estimates; NRDS posted a quarterly beat in its first report as a public company with personal loans rev and credit card partner budget outpacing pre-Covid levels and guidance also topped consensus views; OPEN Q4 EPS (31c) was wider than est. (18c) on revs $3.8B vs est. $3.2B, guides Q1 revs $4.1-4.3B vs est. $3.3B, adj EBITDA $30-40M vs est. $11.8M

·     Bitcoin news; COIN reported Q4 revs $2.49B vs est. $1.94B, monthly transacting users +54% from Q3, trading volume +67% YoY to $547B, though forecast a sequential slowdown in Q1 due to volatility in crypto and the loss of market cap

·     REITs: CUBE Q4 adj FFO 58c vs est. 56c, same-store revs $174.8M with in-line Q1 adj FFO guidance; COLD Q4 core FFO 26c vs est. 24c on revs $716.5M vs est. $728M and JPMorgan downgraded to Neutral after a low AFFO guide; ESS raised its div to $2.20/share from $2.09; UNIT Q4 FFO in-line with revs, adj EBITDA topping estimates; KRC upgraded to Buy at Bank of America; IRM was upgraded to Buy at Stifel on potential dividend hike

Healthcare

·     Biotech, Pharma movers; BHVN entered into a worldwide license agreement with BMY for the development and commercialization rights to taldefgrobep alfa, a novel, Phase 3-ready anti-myostatin adnectin; Shionogi & Co Ltd has applied for approval to make and sell its oral COVID-19 treatment in Japan, the firm said; NBIX upgraded to buy at Goldman Sachs saying shares are attractively priced to deliver returns that could outperform peers over the coming 12-18 months; NVTA Q4 EPS, revenue missed estimates but FY22 revenue guidance slightly ahead of estimates

·     Healthcare Services; drug distributors ABC, MCK, CAH and drugmaker JNJ agreed to finalize a proposed $26 billion settlement resolving claims by states and local governments that they helped fuel the U.S. opioid epidemic. The four had until Friday to decide whether enough cities and counties nationally had opted to join the settlement to justify moving forward with it; UHS shares rise following Q4 beat and share buyback and better revenue guidance ($13.424B and $13.694B, vs. estimate for 2022 is $12.86B); BMO upgraded AMED to Outperform after a reasonably good Q4 earnings report earlier this week with guidance that has potential for upside

Industrials & Materials

·     Industrials Aerospace & Defense; AXON beat 4Q on revenue and adjusted EBITDA due to strong demand for their ecosystem of products including an initial ramp for Fleet 3 but supply chain remains a challenge with $35mm of TASER revenue pushed to 2022 versus a prior estimate of $30mm; MTZ mixed Q4 as adj EPS $1.35 vs. est. $1.29; Q4 revs rose 10.5% y/y to $1.8B vs. est. $1.88B; sees FY22 adj EPS $5.32 vs. est. $5.35; sees FY22 revenue $9.95B vs. est. $9.83B

·     Transports; one of the big bright spots today, as the Dow transports outperform broader markets, rising more than 2% in the morning as all components were higher including airlines, rails, package delivery and truckers; The Baltic Exchange’s dry bulk sea freight index extended losses on Friday, weighed down by lower rates for Capesize and panamax vessels as markets assessed the impact of the Ukraine crisis; the overall index slipped 111 points to 2,076, but gained 5.7% for the week; XPO initiated at Outperform with a $91 PT at Evercore

·     Metals & Materials; gold prices tumbled as stocks rebounded amid hopes for a positive resolution between Russia/Ukraine on reports of negotiations possibly in the works; Russia and Ukraine are among the top 10 uranium producers in the world, according to 2020 figures from the World Nuclear Association – UUUU, CCJ, DNN other uranium names moving on the day on fears of supply disruption

Technology, Media & Telecom

·     Software movers; ADSK reported 4Q results slightly ahead of consensus expectations, while FY23 guidance was roughly in line with recently lowered expectations given the macro backdrop and FX rates; VMW reported F4Q results ahead of consensus expectations, with a top-line beat and lower expenses driving outperformance down the P&L and helping cash flow; EVBG plunges as posted a Q4 net loss of $2.1M (vs. $0.6M income y/y) and issued a mixed guidance for FY22 with downside guidance for Q1 EPS loss and sales; ZS Q4 mixed with EPS, revenue beating consensus and billings +59% y/y below the 70% of the last 4-quarters

·     Telecom, Hardware, Components & Services; DELL falls after missing on F4Q (Jan) EPS and F1Q (Apr) guidance; LPSN tumbles after being downgraded by a handful on Wall Street analysts after quarterly results and a weak outlook (~10% guide down from its initial outlook); DISH jumps after JPMorgan upgraded to Overweight from Underweight citing several upcoming catalysts and the pending launch of its 5G network in Las Vegas; CABO Q4 EPS missed estimates on a slight revenue beat; AMD announced a new $8B share buyback