Mid-Morning Look

Tuesday, February 22, 2022

U.S. stocks volatile to start the week, recovering nicely from overnight declines as markets focus for the moment remains solely focused on Russia/Ukraine story. Over the weekend after Russian President Vladimir Putin sent troops into two breakaway areas of Ukraine, bringing fears of all-out war to their highest level so far. Stocks tumbled overnight with S&P futures hitting overnight lows of 4,250, down nearly 2% before bouncing back nearly 100-points this morning, but the move in the commodity space much bigger (aluminum, energy, nickel prices all jumping). The recent turmoil in Europe has also lowered some expectations of a 50-bps rate hike by the Fed at the March meeting (25 bps firmly locked in at this point). Coming into the day, with 419 or 84% of the firms in the S&P 500 having reported, earnings in Q4 are up 27.4% from a year ago on back of revenue growth of 15.8%. Nearly 77% of firms thus far have exceeded analyst estimates, as per Opco (still one last busy week of earnings coming up). Dow component Home Depot (HD) shares slide despite EPS, sales and comp sales beat, as weaker margins and an uncertain outlook amid inflation/cost pressures weigh on shares. The U.S. is expected to impose fresh sanctions on Russia on Tuesday in response to its latest moves. The European Union proposed a ban on buying Russian bonds and sanctions on three Russian banks.

Economic Data

·     Consumer Confidence index for February 110.5 in-line with consensus 110.0 vs January revised 111.1 (previous 113.8); the consumer present situation index 145.1 in Feb vs Jan revised 144.5 (previous 148.2) and expectations index 87.5 in Feb vs Jan revised 88.8 (previous 90.8)

·     IHS Markit Feb. Services PMI at 56.7 vs 51.2 last month; Markit Manufacturing PMI Flash Actual 57.5 (Forecast 56, Previous 55.5); Markit Composite PMI Flash Actual 56 vs. prior 51.1

·     U.S. December 20-metro area home prices +18.6% from year ago vs +18.3% in November – S&P CoreLogic case-Shiller said as home prices in 20 metro areas +1.5% seasonally adj vs +1.2%

·     U.S. Home prices +1.2% in Dec from Nov with prices index 367.2 in Dec and Home prices +17.6% in 12 months through December

Sector Movers Today

·     Restaurants; DNUT Q4 adj EPS 8c vs est. 9c on revs $370.6M vs est. $363.7M and introduced FY22 guidance for organic revenue growth +10-12% (ahead of long-term outlook of +9-11%) and adj EPS 38-41c vs est. 46c on revs $1.53-1.56B vs est. $1.55B; CBRL Q2 adj EPS $1.71 est. $1.61 on revenue $862.3M vs est. $866.1M with retail comp sales ahead of consensus but restaurant comps falling short; OpCo reiterated that PZZA represents a high-conviction top pick for 2022 and would take advantage of the 14% YTD pullback (vs. S&P 500’s -8.8%) into 4Q21 results 2/24; DIN raised its qtly dividend 15% to 46c/share and authorized share repurchases up to $250M; activist investor Carl Icahn nominated two directors to the board of MCD after his recent criticisms over the chain’s treatment of pigs

·     Housing & Building Products; HD reported Q4 EPS and sales beat (Q4 EPS $3.21 vs. est. $3.17; Q4 revs $35.72B vs. est. $34.87B) on better comps as overall com sales +8.1% top estimate +5.27% and U.S. comps +7.6% vs. est. +5.36%; AWI results were mixed versus the Street for 4Q21 while guidance points to more double-digit gains in 2022; JELD posted reported mixed results with a top line beat but a bottom-line miss as the usual suspects of higher raw material, freight and labor inflation were the cause, with in-line 2022 guide on better Ebitda; BLD Q4 net sales jump 47% y/y to $1.06B topping ests $1.02B as margins rose (adjusted gross margin 28.1% vs. 27.5% y/y) and better EPS of $3.12 vs. estimate $2.92; DOOR Q4 adj EPS $2.01 vs. est. $1.94; Q4 revs $636M vs. est. $660.16M; sees FY22 adj EPS $9.10-$10.05 vs. est. $9.74; sees FY22 revenue growth 6%-10%; announces $200M additional share repurchase program

·     Industrial & Machinery: defense stocks LMT, NOC, LHX, HII active, exhibiting positive sensitivity to rising Russia-Ukraine tensions; CMI agreed to acquire MTOR for $2.6B in cash, with holders to receive $36.50 per share, a 48% premium to Friday’s closing price; ALSN downgraded to Neutral from Outperform at Credit Suisse as believe the market appropriately recognizes ALSN as a high-quality industrial with above average margins and returns, but with the stock up 12% year to date and more limited upside they prefer CMI, PCAR Q4 adj EPS $0.42 vs. est. $0.44; Q4 revs $152.9M vs. est. $146.7M; sees FY22 adj EPS $1.25-$2.15 vs. est. $2.21; sees FY22 revs $570M-$630M vs. est. $564.07M

·     Transports: GXO reached a preliminary agreement to buy Clipper Logistics Plc for about 943 million pounds ($1.28 billion) in a deal that would combine two global supply-chain management giants; EXPD posts Q4 revs that top consensus but also operating losses of -$623.55M vs. profit of $282M y/y; Cowen said they continue to recommend investors be exposed to the trucking sector as are a believer in a longer cycle and our base case calls for supply chain disruptions to continue throughout the year (easing in 2H), demand to remain positive, inventories build to go beyond prior levels – favor ARCB, CVLG, DSKE, HUBG, KNX, and TFIIannounces expansion of field management training in North American less-than-truckload business

Stock GAINERS

·     AMD +2%; upgraded to Outperform from Market Perform at Bernstein after noting been very wrong, with first OP rating of stock in 10-years

·     DWAC +6%; as Trump’s new social media venture, Truth Social, launched late on Sunday in Apple’s App Store; the App was among top downloaded on Apple App store on Monday; other Trump-linked companies also gain such as software developer PHUN moved as well

·     HMHC +15%; said it has agreed to be acquired by Veritas Capital in a deal with an implied equity value of $2.8 billion as shareholders will receive $21 in cash for each share owned

·     M +7%; Q4 adj EPS $2.45 tops consensus $1.99 on revs $8.67B ahead of est. $8.47B, comparable sales +28.3% on an owned basis vs 4Q20 and +6.6% vs 4Q19, sees FY22 adjusted EPS $4.13-$4.52 vs. est. $4.06

·     MDT +3%; Q3 EPS $1.37 vs. est. $1.36; Q3 revs flat y/y to $7.8B vs est. $7.88B while grew 2% organic revs; qtrly cardiovascular revenue of $2.745 bln increased 1% as reported and 3% organic

·     MRO +2%; broad strength in the energy sector amid spiking oil prices on supply/disruption fears given escalating tensions in Ukraine with Russia (HES, FANG, OXY, EOG among top gainers)

·     MTOR +43%; CMI agreed to acquire MTOR for $2.6B in cash, with holders to receive $36.50 per share, a 48% premium to Friday’s closing price https://on.mktw.net/3v6HNa6

·     TGNA +7%; to be acquired by an affiliate of shareholder Standard General for $5.4B, with holders to receive $24 per share, a premium of about 15% to Friday’s closing price https://on.mktw.net/3sV8rAh

Stock LAGGARDS

·     BABA -4%; after Bloomberg reported over the weekend that China tells banks, state firms to report exposure to Jack Ma’s Ant

·     FIXX -25%; tumbles after the FDA notified the company that its pheNIX gene therapy trial of HMI-102 in adults with phenylketonuria (PKU) has been placed on clinical hold due to the need to modify risk mitigation measures

·     HD -5%; reported Q4 EPS and sales beat (Q4 EPS $3.21 vs. est. $3.17; Q4 revs $35.72B vs. est. $34.87B) on better comps as overall com sales +8.1% top estimate +5.27% and U.S. comps +7.6% vs. est. +5.36%, but margins raise concern

·     KPTI -23%; after its medical chief decided to step down to pursue other opportunities

·     PM -3%; defensive sectors seeing weakness early

·     RBLX -4%; adding to last week’s weakness following earnings results

·     WYNN -4%; weakness early in casino stocks with LVS, CZR, PENN also declining

·     YNDX -6%; which operates an Internet search engine and web portal in Russia, plunges amid intensifying tension between the West and Russia over Ukraine.