Mid-Morning Look

Thursday, January 13, 2022

U.S. stocks open strong before fading slightly, with the S&P roughly only 2% off all-time highs despite another round of cautious economic data, as investors continue to pile into U.S. equities after starting off the year weak. After falling over 9% the first few days of the year, the Nasdaq Composite has rebounded soundly since, led by a surge in mega-caps and semiconductors. The Philly semi-index (SOX) jumps today after better TSM earnings and guidance while equipment stocks jump (AMAT, LRCX, KLAC) after the company boosted its cap-ex spending outlook. Financials among early leaders on rising rate expectations and ahead of key earnings tomorrow from large caps (JPM, C, WFC). Inflation readings keep coming in higher as U.S. producer price inflation (PPI) jumped 9.7% in December compared to a year ago, which stands as the highest year on year increase ever. The report followed a 7% spike in consumer prices (CPI) Wednesday, a 40-year high. Given the rising inflation readings, several Fed speakers have said this (and last) week that rate hikes could be between three or four this year – but has not impacted stock prices. To this point, higher inflation, a newly turned “hawkish” Fed has failed to dent investor optimism. Treasury yields are higher but off morning highs, while crude is little changed after hitting 2-month highs yesterday. Travel and leisure names among early leaders after positive Delta (DAL) earnings. Crypto assets rolling early with Bitcoin, Ethereum dropping along with further declines in the dollar (new 2-month lows).

Economic Data

·     Inflation readings soar again, mostly in-line with elevated estimates: Producer Price Index (PPI) MoM for Dec rises +0.2% vs. est. +0.4% and YoY reported at +9.7% vs. est. +9.8%; on a core level, or ex food & energy, PPI MoM rises +0.5% vs. est. +0.5% and on a YoY basis, rises +8.3% vs. est. +8.0% (data follows 40-year high inflation reading for CPI on Wednesday)

·     Weekly jobless claims rose to 230K from 207K in prior week, and above ests of 200K, while the 4-week moving average rose to 210,750 in latest week from 204,500 prior; continued claims fell to 1.559 mln in latest week from 1.753 mln prior week; the U.S. insured unemployment rate fell to 1.1% from 1.3% prior week

Sector Movers Today

·     Semiconductors; TSM rises initially after 4Q21 results came in better than expected, with revenue rising 6% QoQ to TWD438bn and GM rising 140bps QoQ to 52.7% while raised L-T revenue/GM guidance given the company’s bullish growth outlook; semi-equipment stocks AMAT, LRCX, ASML, KLAC boosted early after TSM said it plans to increase its CAPEX spending again, with its CAPEX rising by 40% to $40-42bn CAPEX in 2022; QRVO downgraded to Perform from OP at Oppenheimer saying they see limited content gains for QRVO at iPhone and increased competition from QCOM in China Android; Wells Fargo said continue to favor names w idiosyncratic or secular growth independent of the semi cycle, RFFE cos like SWKS, EDA/IP cos CDNS and auto ALGM

·     Solar: Guggenheim upgraded SEDG and ENPH to Buy from Neutral as concerns that drove their downgrade in October, such as high valuations, high consensus expectations, and potential negative news, have largely dissipated with both falling ~4% vs the S&P +8% since then; Morgan Stanley upgraded SPWR to EW on a more balanced risk-reward after a recent selloff and emerging opportunities to the upside; note coming into today, several solar stocks have lost more than 10% in the past month, including FSLR -13%, SPWR -14%, ENPH -30%, MAXN -26%, SEDG -14%, RUN -21%, and the recent selloff followed a California proposal to cut subsidies for homeowners’ solar systems, though changes are still needed before a final proposal; KeyBank continues to be cautious to negative on alt energy and lowered their price targets on OW-rated NOVA to $39 from $50 and ENPH to $200 from $280 while also listing NEP as their only other OW; JKS aims to raise 10B yuan at 5 yuan/share in its Shanghai IPO

·     Auto sector; TSLA removed a reference on its website to 2022 as a production date for the Cybertruck, As spotted by Edmunds; DDAIF said it would combine Mercedes-Benz Rent and Mercedes-Benz Van Rental to create an integrated rental specialist called Mercedes-Benz Automotive Mobility GmbH; NKLA said its Tre battery-electric vehicle has been deemed eligible for the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project program by the California Air Resources Board as Cali customers will be eligible for $120,000 incentive per truck; in auto parts, Deutsche Bank updates ests and tgts and see potential for notable 2022 guidance misses from ALV, APTV and VC, followed by AXL, LEA and DAN

·     Software movers; ESTC announced a leadership transition to CEO and President/CRO roles and noted that they expect to exceed guidance for FQ3 – said CEO Shay Banon is transitioning back to CTO with Product Chief (CPO) Ash Kulkarni taking the helm; Bloomberg reported that MIME said to draw higher bid from security rival PFPT https://bit.ly/3nnrrWe ; BAND upgraded to Overweight at Piper saying its prior thesis has played out, the company has a differentiated approach and multiple opportunities/use-cases in front of it; CHGG upgraded to OW from neutral, and QTWO, TWOU downgraded to Neutral at Piper while lowering PT on 20 stocks following a multiple reset and estimate revisions noting Vertical Software & FinTech names have pulled back -26% on average since the start of November

Stock GAINERS

·     BA +2%; shares edged higher following headline Boeing 737 max to resume service in China as soon as this month, as per Bloomberg

·     DAL +1%; first transport/airline to report quarterly earnings, as Q4 adj EPS $0.22 vs. est. $0.14 and Q4 revs $9.47B vs. est. $9.21B; see’s losses in January, February but a return to healthy profit in June, Sept, Dec quarters (boost other airlines/travel – UAL, AAL, BKNG, EXPE)

·     GRUB +9%; Bloomberg reported management has indicated to some investors they’re open to the idea of a sale of GrubHub, and advisers are also pitching a take-private deal or breakup of the unit, according to separate people familiar https://bit.ly/3FpqItx

·     KBH +15%; as FY22’s gross margin and revenue guidance easily exceeded estimates after mixed Q4 results with EPS beating but revs missing views

·     NKLA +4%; said its Tre battery-electric vehicle has been deemed eligible for the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project program by the California Air Resources Board

·     SEDG +2%; and ENPH both upgraded to Buy from Neutral at Guggenheim as concerns that drove their downgrade in October, such as high valuations, high consensus expectations, and potential negative news, have largely dissipated

·     TSM +8%; after 4Q21 results came in better than expected, with revenue rising 6% QoQ to TWD438bn and GM rising 140bps QoQ to 52.7% while raised L-T revenue/GM guidance given the company’s bullish growth outlook (AMAT, KLAC, LRCX rise as TSM boosts capex spending) – the TSM report giving a boost across the board to semiconductor stocks

Stock LAGGARDS

·     DNLI -12%; after the company said the FDA placed a clinical hold on its application to begin testing DNL919 in human clinical trials (DNL919 is an investigational treatment for the indication of Alzheimer’s disease)

·     ESTC -6%; as announced a leadership transition to CEO and President/CRO roles and noted that they expect to exceed guidance for FQ3 – said CEO Shay Banon is transitioning back to CTO with Product Chief (CPO) Ash Kulkarni taking the helm.

·     GRWG -9%; announced Q4 revenue to be $88M-$90M, down from prior view $114M-$116M and est. $105.6M with same-store sales decreasing (12.3%) and lowers full-year as company faced cannabis industry pressures that lead to a general slowdown in the hydroponics market

·     MRNA -4%; as “reopen” related sectors rally (travel, leisure, retail), vaccine names have been selling off as Omicron fears have been waning

·     SNAP -5%; downgraded to Market Perform at Cowen citing near-term concerns around lingering iOS 14.5 changes impacting Snap’s measurement, targeting and attribution for direct response ad units, and difficult 1H22 comps (peaking in 2Q22)

·     SPCE -13%; after the company offered $425 million of convertible senior notes due 2027 in a private offering

·     XBI continues to slide as biotech among weakest sectors