Mid-Morning Look

Friday, December 03, 2021

U.S. stocks on track to finish the week in negative territory, erasing much of Thursday’s gains as the roller-coaster week of gains and losses continues heading into the weekend. An underwhelming U.S. monthly jobs print (headline jobs fell well short of consensus though the unemployment rate dropped to 4.2% as more people joined the workforce) appeared to shake conviction initially that the Federal Reserve would proceed with a faster stimulus unwind as futures popped on the report. Nonfarm payrolls increased by 210,000 jobs last month, well below the 550,000 jobs economists forecast. However, stocks failed at key levels, with selling exacerbated by more “hawkish” Fed commentary (Bullard) and stronger manufacturing data which reiterated thought the Fed would need to remain on its course of tapering/rates. Treasury markets saw 10-year yields drop to a session low around 1.407%, but they held off 2-1/2-month lows hit earlier this week. The data caps a turbulent week for markets and volatility was expected to remain high as investors assess the implications of the new Omicron coronavirus variant and what that means for growth, inflation, and ultimately central bank policy. China stocks listed in the U.S. absolutely hammered today after DIDI decision to delist from the New York Stock Exchange added to worries over stricter regulatory scrutiny at home (shares of BIDU, BABA, JD hit hard – note the KWEB China Internet ETF is down over 61% from its high in February.

Economic Data

·     November Jobs data mixed as headline jobs showed payrolls increased 210K, well below the 550K estimate, while private payrolls were 235K, missing the 530K estimate and manufacturing payrolls adding 31K vs. est. 45K; the unemployment rate tumbles to 4.2% from 4.6% prior and est. 4.5%; average hourly earnings rise +0.3% vs. est. +0.4%; labor participation rate rises to 61.8% from 61.6% (helping the unemployment rate fall)

·     Markit Composite PMI Final Actual 57.2 (vs. Previous 56.5) and Markit Services PMI Final Actual 58.0 (vs. Forecast 57, Previous 57.0); composite input prices index for November at 77.6 vs flash reading 78.1 and final October 74.1

·     ISM U.S. non-manufacturing sector PMI 69.1 in November vs 66.7 in October (est. 65.0); Prices Index at 82.3 vs. 82.9 prior, Business Activity Index 74.6 vs. 68.8 prior, New Orders Index 69.7 vs. 69.7 prior and Employment Index 56.5 vs. 51.6 prior.

·     Factory Orders for October rose +1.0% vs. est. +0.4%; Factory Orders, Excluding Transportation, +1.6%; Factory Orders, Excluding Defense, +1.6%; Sept Factory Orders revised to +0.5% from +0.2%

Sector Movers Today

·     Retailers; HIBB Q3 EPS $1.68 vs est. $1.57 on sales $381.7M vs est. $360.6M, raised FY EPS view to $11.70-11.90 from $11-11.50; BIG Q3 EPS (14c) vs est. (15c) on sales $1.34B vs est. $1.32B, sees Q4 EPS $2.05-2.20 below est. $2.39 and FY21 EPS outlook to $5.70-5.85 from $5.90-6.05 as they see freight headwinds impacting margins; GCO Q3 adj EPS $2.36 crushed est. $1.26 on sales $600.5M above est. $581.5M, same-store sales +25%, sees FY21 sales +9-11%, guided FY22 adj EPS to $6.40-6.90 vs est. $5.82; OLLI was downgraded to UW at JPMorgan after a weak earnings report with Q3 adj EPS 34c and revs $383.5M missing ests. 47c and $415.1M, and its FY sales forecast $1.762-1.772B was also below est. $1.833B; SWBI Q2 EPS $1.13 missed est. $1.29 on sales $230.5M (-7%) vs est. $265M, raised FY ranges for adj EPS and revenue, but Cowen downgraded it to Market Perform as they see demand possibly softening given midterms favoring Republicans and potential abating Covid overhang, as well as a risk it needs to cut prices to maintain share; ZUMZ Q3 EPS $1.25 beat est. $1.09 on sales $289.5M slightly under est. $290.8M, said its sales in Q4-to-date are +11.5% vs 2020 and +8.6% vs 2019; JOAN Q3 was mixed with adj EPS 73c topping est. 64c but revs $611M missing est. $619.6M, comps -14.2%, and Wells downgraded to EW with a $10 PT from $15 this morning; TLYS Q3 results and Q4 guidance were ahead of estimates; Morgan Stanley upgraded SFIX to EW with an unchanged $27 PT as they see a more balanced risk/reward with shares underperforming the S&P by ~83% YTD; RCII announced a new $500M share buyback authorization and increased its dividend 10% to 34c/shr; SPWH terminated its merger agreement with Great Outdoors Group as they did not believe they would have obtained FTC clearance and Hallum upgraded it to Buy with a $20 PT as they believe the company is stronger today than when the deal was agreed to last year and worth more than the proposed $18/shr take private offer; Telsey raised their estimates on LULU and PT to $515 from $485 on expectations for continued 2H momentum after strong 1H performance and solid reports from peers over the past few weeks

·     Auto sector; DIDI tumbles as firm begins preparations to withdraw from U.S. stock exchanges and will start work on a Hong Kong share sale; TSLA CEO Musk sold more than 934,000 Tesla shares valued at just over $1 billion on Thursday, according to regulatory filings; HMC is recalling nearly 723,000 SUVs and pickup trucks because the hoods can open while the vehicles are moving; Ford (F) rises after saying it has close to 200K retail reservations for the electric F-150 Lightning and has sold 22K Mach-E vehicles this year

·     Metals & Materials; NUE increases quarterly dividend by 23.5% to $0.50 from $0.405; announces new buyback program; MOS among top S&P gainers; strength in materials, as well as follow thru strength after Belarus Potash sanctions were increased yesterday (had lifted shares of NTR too); in rare earth, Dow Jones reported China has approved the creation of one of the world’s largest rare-earths companies to aim to maintain its dominance in the global supply chain of the strategic metals (shares of MP potentially leveraged to data)

·     Semiconductors; MRVL standout winner today after 3Q results and 4Q outlook were above expectations as Standalone Marvell delivered solid 30% Y/Y growth in F3Q22 and is expected to grow 30% Y/Y in F4Q22 while issued FY22 revenue outlook for >30% growth, which is well above consensus (~22%); NVDA shares active following news late Thursday that the U.S. FTC blocked its $40 Billion chip takeover of Arm Holdings, saying the deal would hobble innovation in semiconductors and undermine Nvidia’s rivals; SYNA raises FQ2 guidance to reflect DSP Group contribution

Stock GAINERS

·     MOS +2%; strength in materials, as well as follow thru strength after Belarus Potash sanctions were increased yesterday (had lifted shares of NTR as well)

·     NUE +3%; strength in metals; also raises quarterly dividend 23%, announces new $4B share repurchase program

·     MRVL +21%; after 3Q results and 4Q outlook were above expectations as Standalone Marvell delivered solid 30% Y/Y growth in F3Q22 and is expected to grow 30% Y/Y in F4Q22 while issued FY22 revenue outlook for >30% growth, which is well above consensus (~22%)

·     SMAR +17%; Q3 accelerating revenue growth (up 46% y/y versus 44% in prior quarter and 38% last 3Q) and billings strength (up 44% y/y) while guided FY23 billings growth to 37% – 40% well above some estimates (Truist at 25% previously)

·     ULTA +5%; posted a quarterly beat with Q3 EPS $3.94 vs est. $2.46 on sales $2.0B vs est. $1.9B, comps +25.8%, and guided ahead of consensus with FY EPS outlook now $16.70-17.10 from $14.50-14.70 (est. $15.19) on sales $8.5-8.6B from $8.1-8.3B (est. $8.4B), and comps +36-37% from +30-32%

·     UPST +1%; resuming coverage with a Buy/High Risk from prior Neutral/High Risk rating at Citigroup while maintain tgt of $350 calling it a solid buying opportunity due to the company’s sell-off and thinks it will onboard a large bank in the next 18 months

·     ZG +6%; after its board authorized a share repurchase program for up to $750 million and said it made progress winding down Zillow Offers inventory

Stock LAGGARDS

·     ASAN -23%; delivered another quarter ahead of expectations, beating rev by $6.5M vs. $7.2M last qtr, but revs up 70% y/y, a slight deceleration from 72% growth last quarter, on billings of $115.4M (consensus $111.1M), up 56% y/y, a deceleration from 81% growth last quarter

·     BABA -9%; U.S. listed Chinese stocks tumble after DID announced plans to delist from NYSE

·     DIDI -13%; after the ride-hailing firm announced plans last night to delist from the New York Stock Exchange

·     DOCU -39%; among top losers today, downgraded by at least four firms after posting total billings growth of 28% significantly below 34% guide and initial Q4 billings guidance 22% below the street’s 32%;

·     NVDA -4%; following news late Thursday that the U.S. FTC blocked its $40 Billion chip takeover of Arm Holdings, saying the deal would hobble innovation in semiconductors and undermine Nvidia’s rivals

·     OLLI -21%; downgraded to UW at JPMorgan after a weak earnings report with Q3 adj EPS 34c and revs $383.5M missing ests. 47c and $415.1M, and its FY sales forecast $1.762-1.772B was also below est. $1.833B

·     SWBI -25%; Q2 EPS $1.13 missed est. $1.29 on sales $230.5M (-7%) vs est. $265M, raised FY ranges for adj EPS and revenue, but Cowen downgraded it to Market Perform