Mid-Morning Look

Friday, February 04, 2022

U.S. stock futures volatile once again, with major averages mostly higher and on track for weekly advances. Futures jumped overnight after AMZN came in with quarterly results that were applauded by Wall Street (and far better the results from FB the day prior that sunk the tech sector), helping Nasdaq and S&P futures sharply higher. Markets erased the overnight gains amid fear into the January jobs data. The fear became reality when the BLS posted a massive monthly beat on headline jobs, as well as wage increases and sharply higher revisions. The result was a massive surge in Treasury yields as the 10-year reached pre-pandemic level of 1.9% for the first time since late 2019 (move to highs of 1.92%), while the 30-year goes as high as 2.203% and the two-year rises to 1.3% (highest since Feb 2020), a 10-bps move. Average hourly earnings rose 0.73% last month, also beating estimates and likely stoking fears that a tight labor market is fueling inflation. The surprisingly strong data could support the case for faster interest-rate increases as fed fund futures now point to a 75-bps rate hike by the June meeting (possibly a 50 bps in March and 25 in June). Banks and financials rise on the data while housing slides. Oil has rocketed to a fresh seven-year high near $92 a barrel on supply concerns while diesel and natural gas also volatile as a cold-front hits the U.S and demand soars. Bitcoin finally breaking out to weekly highs after 3-week underperformance, up above $39K.

Economic Data

·     Jobs data for January very strong as nonfarm payrolls rose +467K vs. est. +150K, with huge revisions in Dec to +510K from +199K and Nov to +647K from +249K). Private sector also strong adding +444K jobs vs. est. +150K while Dec revised up to 503K from 211K. factory jobs added 13K, less then the 25K expected but Dec revised up to 32K from 26K. Unemployment rate edges higher to 4% from 3.9% while labor participation rate jumps to 62.2% from 61.9% in December. Big jump in wages to +0.7% m/m vs. est. +0.5% and jumped +5.7% y/y.

Sector Movers Today

·     Retailers; AMZN helps ease investor pain after the co Q4 revs of $137.4B was in-line w views but above $125.6B y/y as profit rose to $14.3B from $7.2B y/y – shares rise despite seeing op income between $3B-$6B below the $8.9B y/y (also boosted its Prime membership by $20 per year); SKX with strong Q4 results, liftin shares as Q4 adj EPS $0.43 vs est. $0.33 on revenue $1.65B vs est. $1.55B and guided Q1 sales above views along with a $500M share buyback; COLM posted a beat for Q4 EPS and sales driven by strong consumer demand and a favorable full price selling environment, while FY22 EPS $5.50-$5.80 tops est. $5.50 on better revs; KSS said the valuations indicated in the current expressions of interest which it has received do not adequately reflect the company’s value in light of its future growth and cash flow generation; DECK another move on earnings; BJ upgraded to Buy from Hold at Deutsche Bank following the stock’s ~10% pullback

·     Insurance; HIG Q4 core EPS $2.02 vs. est. $1.52, net income ROE for the trailing 12 months of 13.1% and core earnings ROE for the same period of 12.7%, book value per diluted share +8% YoY; PRU Q4 adj EPS $3.18 vs. est. $2.36, raises dividend 5c to $1.20, adjusted book value per Common share +14.7% YoY; RGA Q4 adj EPS ($0.56) vs est. $0.77, net premiums $3.407B vs est. $3.38B, says global estimated covid impact of ~$3.95/shr; SIGI reported Q4 operating EPS of $1.56 vs. est. $1.41 driven by alternative investment results; AON Q4 adj EPS $3.71 vs est. $3.33 on revs $3.08B vs est. $3.15B, adj operating margin 32.8% v est. 31.8% up from 26.9% YoY

·     Consumer Staples; CLX shares slide after missing Q2 profit estimates and sales dropped 8%, hurt by increased cost pressures and lowers FY22 adj EPS view to $4.25-$4.50 from $5.40-$5.70; SPB 1Q EPS ($0.06) vs est. $0.17 on sales $757.2Mm vs est. $728.2Mm; expects $310-330Mm additional inflation in 2022, intends to offset with additional pricing; BRBR Q1 EPS 25c vs est. 22c on in line revs. EBITDA $59.8mm vs est. $58mm, 8.5% sales growth vs est. 6.8% on stronger than expected price growth and reiterated both its sales and EBITDA forecast; POST Q1 EPS 29c vs est. 42c on in line revs. EBITDA $263mm vs est. $254mm. GM 25.8% vs est. 26.8%; EL upgraded to Buy from Neutral at Citigroup and raise tgt to $374 from $355 after stock has pulled back 20%+ YTD, primarily reflecting concerns about a slowdown in China and higher investment spending

·     Casinos, Gaming, Lodging & Leisure sector; RCL posts bigger-than-expected loss in Q4, misses revenue estimates saying Omicron created short-term operational challenges that have weighed on close-in bookings; in gaming, PENN upgraded to Hold from Sell at Loop Capital after positive FCF generation, new buyback, and bad news priced in, while Roth Capital downgraded to Neutral saying less attractive outlook; in earnings BYD with modest beat across the board as prop EBITDA $370m Bofa $360m, prop margins 42.1% which is -70bps sequentially but better than Bofa -140bps; in leisure, LESL beat on adj EBITDA and raised guidance across the board

Stock GAINERS

·     AMZN +11%; Q4 revs of $137.4B was in-line w views but above $125.6B y/y as profit rose to $14.3B from $7.2B y/y – shares rise despite seeing op income between $3B-$6B below the $8.9B y/y (also boosted its Prime membership by $20 per year)

·     BILL +21%; delivered significantly higher than expected revenue growth of +190% Y/Y well above some of top upside scenarios and breakeven non-GAAP earnings

·     GS +1%; strong rally early in banks/brokers/insurance as Treasury yields spike on strong jobs data, as fed fund futures now implying 75 bps hike by June Fed meeting

·     MRO +4%; amid a big rebound in energy stocks as oil prices extend gains to fresh 7-year highs on supply concerns and increased demand (shares of OXY, APA, HES FANG

·     PINS +7%; delivered its first annual net income as strong advertising revenue drove its Q4 results past expectations – 4Q revenue growth of 20% beat company high-teens guide though still slowed from 43% 3Q

·     SKX +4%; reported a 4Q beat driven by better-than-expected sales (up 24% YOY vs. the Street up 17%), particularly in the company’s retail and international wholesale channels

·     SNAP +53%; reported a solid beat across the board in 4Q21 (North America DAU was the only in-line major KPI) and the revenue outlook for 1Q22 was also well ahead of expectations

·     U +13%; earnings and revs tops estimates though widened its loss – revs climbed 43% to $315.9M, exceeding the high end of guidance

·     WWE +8%; delivered strong 4Q results with adj OIBDA of $97mm, ahead consensus $84mm and delivered its 2022 outlook, which sets an initial adj OIBDA Target range of $360mm-$375mm

Stock LAGGARDS

·     APD -5%; Q1 adj EPS $2.52 vs. est. $2.51; Q2 revs $2.99B vs. est. $2.74B; backs FY22 adjusted EPS view $10.20-$10.40 vs. est. $10.36; sees FY22 capital expenditures $4.5B-$5B

·     CLX -14%; after missing Q2 profit estimates and sales dropped 8%, hurt by increased cost pressures and lowers FY22 adj EPS view to $4.25-$4.50 from $5.40-$5.70

·     EXC -1%; weakness in utilities early – also downgraded to Neutral at Goldman Sachs following the spin-off of its non-regulated generation business, as we see balanced risk/reward

·     F -10%; as reported a strong profit for 2021 and issued an upbeat forecast for this year but posted Q4 EPS that missed estimates (EPS $0.26 vs est. $0.45, on revs $37.7B vs est. $35.5B); Adjusted EBIT of $2.0B was below the Street at $2.8B

·     KBH -4%; shares of housing stocks PHM, DHI, KBH down following the jump in Treasury yields which impact mortgage rates after strong jobs data

·     RCL -4%; posts bigger-than-expected loss in Q4, misses revenue estimates saying Omicron created short-term operational challenges that have weighed on close-in bookings

·     VNDA -23%; after reports results from the phase 3 study of Tradipitant in gastroparesis – did not meet primary endpoint