Mid-Morning Look

Wednesday, December 15, 2021

U.S. stocks are soft this morning as investors await the much-anticipated FOMC meeting at 2PM, where the Fed is expected to take a more hawkish position and accelerate its bond tapering timeline and possibly bring forward its rate hikes. A CNBC survey of 31 economists, strategists, and money managers predicted the central bank will double its taper to $30B which would end its asset purchases by March and hike rates three times in each of the next two years starting next June, culminating in it hitting its terminal rate of 2.3% by May 2024 from the current 0-0.25% rate. If stocks are unable to rebound today, this would mark the S&P and Nasdaq’s first 3-day losing streak in more than two months. China stocks are also notably weaker after the country’s November retail sales missed consensus estimates, the Biden administration warned it is considering tougher sanctions on SMIC, the country’s largest chipmaker, and the U.S government is set to add eight additional Chinese companies to an investment blacklist tomorrow.

Economic Data

·     Empire State Manufacturing Index for Nov beats at 31.9 vs. 25.5 consensus and 30.9 prior; new orders index 27.1 in December vs 28.8 in November; prices paid index 80.2 in December vs 83.0 in November; employment index at 21.4 in December vs 26.0 in November and six-month business conditions index 36.4 in December vs 36.9 in November

·     Retail sales for November well below consensus, rising +0.3% vs. est. +0.9% while Oct revised up to +1.8% from 1.7%; Retail Sales Ex-autos rise +0.3% below est. +0.9%; Gasoline sales +1.7% vs oct +3.7%, Cars/parts sales -0.1% vs Oct +1.7%, Retail ex-autos/gasoline +0.2% vs Oct +1.6%

·     Import/Export Prices for November mixed: Import prices rise +0.7% MoM vs. +0.7% est. and +1.2% prior; Export prices rise +1.0% MoM below the +0.7% consensus and +1.5% prior; Nov year-over-year import prices +11.7%, export prices +18.2%

Sector Movers Today

·     Housing & Building Products; AZEK upgraded to Overweight, TREX downgraded to Underweight and IBP downgraded to Neutral at JPMorgan in building products space saying they expect sales growth to continue to “comp the comp” in 4Q21 and persist in 2022 and 2023 – and estimate 6% organic growth on average across our universe (ex-AZEK, TREX) in 2022 (said continue to highlight OW-rated WHR, MHK and FBHS); LOW forecasts FY 2022 revenue and profit below market estimates, signaling a slowdown in demand for home-improvement goods as sees 2022 sales between $94B-$97B below est. $97.6B (also announces $13B buyback); Barclay’s upgraded MAS in building products and downgraded MHK saying they remain relatively more positive on homebuilders vs. building products entering 2022.

·     Consumer Finance & Lending; DFS credit card delinquency rate of 1.60% vs. 1.55% in the prior month, down from 2.03% in the same year-ago period; net charge-offs rises to 1.53% from 1.40% in October, but well below 2.55% YoY; COF November Domestic credit-card net charge-off rate 1.66% vs. 1.04% in Oct; Domestic credit-card 30-day delinquency rate 2.13% vs. 2.06% in Oct; November auto net charge-offs rate 0.48% vs 0.53% In October; JPM reported charge-offs for November of 1.05%, delinquencies 0.66%

·     Media & Telecom movers; ROKU slides after the ITC issued its favorable final determination in UEIC’s patent infringement case against them; also, was maintained underweight at Morgan Stanley as cut tgt to street low $192 citing slowing active account growth, difficult comps and margin compression concerns; CMCSA downgraded to a Neutral at Citigroup with a revised target of $53 and maintaining Neutral on CHTR, ATUS saying they find that consensus cable broadband net adds remain at risk in 2022 and over the next four years; Morgan Stanley also a media note as they upgraded EDR to OW which replaces MSGS, which they downgrade to EW as the catalysts for value capture have passed and not translated as expected; says remain UW MSGE as uncertainty over Sphere returns and pressure at MSG Networks remain headwinds to multiple expansion.

·     Metals & Materials; in chemicals, ALB, LTHM downgraded to sell and SHW downgraded to neutral at Goldman Sachs, while firm upgraded HUN to Buy from Neutral and CMP upgraded to Neutral from Sell – for lithium names (ALB, LTHM), finds current valuation multiples too high, while is optimistic on coating companies; expects surprise bias to upside should inflationary pressures ease in 2022; steel stocks slip after NUE forecasts Q4 profit between $7.65-$7.75, below analysts’ estimate $7.95, as sees decline in Q4 earnings from raw materials segment vs. Q3 due to margin pressure at co’s direct reduced iron facilities (shares of STLD, X, active); SLI signs LOI with Koch Engineered to support lithium project

Stock GAINERS

·     CCMP +26%; ENTG and CCMP announced a definitive merger agreement wherein CCMP will be acquired in a cash and stock transaction with an enterprise value of ~$6.5B as CCMP shareholders will receive $133 in cash and 0.4506 shares of Entegris common stock for each share of CMC Materials common stock they own. https://bit.ly/3DRoen2

·     LLY +8%; sees EPS for 2022 in the range of $8.00 to $8.15 on a reported basis and $8.50 to $8.65 on a non-GAAP basis (consensus $8.21) and anticipates 2022 revenue between $27.8B and $28.3B (consensus $27.84B) driven by volume growth from key product

·     SKIL; raises full year outlook following stronger than expected result; sees FY 2022 adjusted revenue in the range of $685M-$700M from prior view $670M-$690M and adjusted revenue and updated its outlook for adjusted EBITDA

·     VIR +15%; laboratory data showed its drug Sotrovimab retained neutralizing activity against all tested coronavirus variants, including Omicron

·     PGR +3%; November net premiums written rose 11% YoY to $3.29B and Nov net premiums earned rose 14% YoY to $3.59B; combined ratio 91.9% vs 86.6% YoY

·     LOW +1%; forecasts FY 2022 revenue and profit below market estimates, signaling a slowdown in demand for home-improvement goods as sees 2022 sales between $94B-$97B below est. $97.6B (also announces $13B buyback)

Stock LAGGARDS

·     ALB -4%; downgraded to Sell at Goldman with LTHM (shares -6%)

·     ASPU -27%; after disappointing FQ2 results – downgraded at Craig Hallum noting a 3.5% sequential decline in revenues in a typically seasonally strong quarter with new student enrollments down 10% along with ARPU per student falling 1%

·     MDT -6%; said the FDA issued the company a warning letter following an inspection on its Northridge, California, facility, the headquarters for its Diabetes Business

·     NUE -8%; forecasts Q4 profit between $7.65-$7.75, below analysts’ estimate $7.95, as sees decline in Q4 earnings from raw materials segment vs. Q3 due to margin pressure at co’s direct reduced iron facilities

·     ROKU -7%; after the ITC issued its favorable final determination in UEIC’s patent infringement case against them; also, was maintained underweight at Morgan Stanley as cut tgt to street low $192 citing slowing active account growth, difficult comps and margin compression concerns

·     RBLX -10%; November DAUs, hours engaged, bookings, and revenue all increased YoY, but estimated bookings/DAU is expected to decline 8-9%

·     BABA -5%; Chinese ADRs pressured after the Biden administration was said to be considering tougher sanctions on China’s largest chipmaker, SMIC, and as China reported weaker economic data overnight