Mid-Morning Look

Friday, July 30, 2021

U.S. stocks are lower but trading well off their worst levels of the morning despite a Q2 sales miss from Amazon (and lower Q3 outlook), the ongoing China gov’t crackdown on companies, debt ceiling fears (expires this weekend) and increasing virus variant concerns. The rising Covid cases is creating tighter restrictions across the country with increased mask mandates, raising fears things could get worse before they get better. A silver lining today was the better -than-expected economic data as Chicago manufacturing data, confidence, personal spending, and income data points showed improvement – while inflation readings came in “hot” but not as high as economists expected on the PCE front. Earnings related data this quarter (nearly 60% through earnings season) has been stellar to say the least, boosting sentiment into another busy week of earnings coming up. Major averages on track to close slightly lower for the week, but mixed for the month (S&P, Dow, and Nasdaq on track for gains in July while the Dow Transports and Russell 2000 are on track for MTD losses).

Economic Data

·     Chicago PMI Actual 73.4 well above consensus forecast 64.2 and previous 66.1

·     University of Michigan consumers sentiment final July 81.2 above est. 80.8 and vs. preliminary July 80.8 and final June 85.5; current conditions index final July 84.5 vs prelim July 84.5 and expectations index final July 79.0 vs prelim July 78.4

·     Personal Income for June rises 0.1% vs. est. decline -0.3% (previous -2.0%) while Personal Spending for June rose 1.0%, above the est. 0.7% (prior was unchanged); Real Personal Spending rose 0.5% vs. est. 0.3%

·     PCE Price Index rose +0.5% MoM vs. +0.6% consensus and +0.5% prior (revised from +0.4%), while the Core PCE Price Index rose +0.4% MoM vs. +0.5% consensus and +0.5% prior

·     On a YoY basis, PCE Deflator rose 4.0% for June, in-line with ests (previous 3.9%) and PCE Core Deflator for June 3.5% vs. est. 3.7%

·     The Employment Cost Index (ECI) Q2 up 0.7% vs. est. 0.9%

Sector Movers Today

·     Restaurants; BLMN rises as Q2 EPS of $0.81 tops the $0.68 est. and revs surged to $108B, well above consensus with upbeat Q3 guidance; TXRH Q2 EPS $1.08 vs. est. $0.94 and Q2 revs $898.79M vs. est. $855.56M; but restaurant margin is down sequentially to 17.7% from 18.6% last quarter and now predicts annual commodity cost inflation to be 7%, up from 4%; BJRI 2Q EPS and revs beat $290.3M vs. est. $284.34M but says company is only operating 62 of their 212 California restaurants; Q2 Comp restaurant sales improved 121.9%; QSR Q2 adj EPS 77c vs est. 61c on revs $1.44B vs est. $1.37B, adj EBITDA $577M vs est. $526.7M

·     Retailers; AMZN slides after forecasting Q3 sales $106B-$112B, below $118.9B expectations, as consumers return to brick-and-mortar stores – that followed a Q2 sales miss as well ($113.1B vs est. $115.2B) while EPS of $15.12 beat the $12.30 est.; CPRI crushed their Q1 earnings report, with adj EPS $1.42 topping est. $0.81 and revs $1.25B beating est. $1.12B, adj gross margin 68.1% vs est. 66.2%, and raised FY22 adj EPS outlook to $4.50 from $3.80-3.90 and bumped its full-year rev outlook to $5.3B from $5.15B; CRI Q2 adj EPS $1.67 handily beat est. $0.73 on revs $746.4M vs est. $717.1M, resumed its dividend at 40c/share, and raised its full-year forecast for adj EPS to +75% from +40% and net sales to +15% from +10%; VFC Q2 adj EPS 27c vs est. 11c on revs $2.19B vs est. $2.16B and also lifted its view for the full-year as its FY adj EPS forecast moves to $3.20 from $3.05 and its FY rev outlook is now $12B vs prior $11.8B; DECK was expected to report a (5c) loss in Q1 but delivered EPS $1.71 on revs $504.7M vs est. $407.1M and raised its full-year guidance for adj EPS to $14.45-15.10 from $14.05-14.65 and sales to $3.01-3.06B

·     Industrial & Machinery; CAT Q2 adj EPS $2.60 vs. est. $2.40 on sales $12.9B vs. est. $12.58B as the 29% YoY increase in sales was primarily due to higher sales volume driven by higher end-user demand for equipment and services; JCI reported Q3 adj EPS 83c that met consensus on sales $6.34B vs est. $6.27B; TEX Q2 EPS $1.02 vs. consensus $0.60 on revenue $1.039B vs. consensus $1.018B and sees FY sales about $3.9B vs est. $3.777B; RSG Q2 adj EPS $1.09 vs. est. $0.94 on revs $2.81B vs. est. $2.7B, raised its quarterly dividend 8% to 46c, and boosted its FY21 adj EPS view to $4.00-$4.05 from $3.74-$3.79 (est. $3.84); FTV posted Q2 adj EPS 66c vs est. 60c on revs $1.3B vs est. $1.29B, guides Q3 adj EPS 62-66c vs est. 63c and FY adj EPS $2.65-2.75 vs est. $2.62; ITW Q2 adj EPS 29c was above est. 3c on revs $1.28B vs est. $1.16B, raised its FY EPS forecast to $8.55-8.95 from $8.20-8.60 and sees FY revs $14.3-14.6B (est. $14.41B); GWW Q2 adj EPS $4.27 missed est. $2.62 on in-line sales $3.21B and reaffirmed FY sales view of $12.7-13B; B (Barnes Group) reported Q2 adj EPS 45c vs est. 43c on revs $321.2M vs est. $302.2M and raised the lower end of its full-year guidance; GFF Q3 EPS 43c vs est. 40c on revs $646.8M vs est. $632.1M

·     Metals & Materials; U.S. Steel (X) achieved 2Q21 adjusted EBITDA of $1.29B (guidance of $1.2B), exceeding the Street’s $1.21B; posted adj EPS of $3.37, above analysts’ est. of $3.08 as net sales more than double to $5.03B; in chemicals; LYB Q2 EPS and sales top views and raised its dividend; HUN Q2 adj net income was $191 mln vs year ago net loss of $30 mln as earned 86c per share vs loss of 14c a share in prior year period; CC Q2 EPS $1.20 vs. est. $0.92; Q2 revs $1.7B vs. est. $1.52B; Q2 adjusted EBITDA of $366 million, up 120% yoy and said expect 2021 adjusted Ebitda and adjusted eps to be in top end of guidance ranges

Stock GAINERS

·     CPRI +13%; Q2 adj EPS $1.67 handily beat est. $0.73 on revs $746.4M vs est. $717.1M, resumed its dividend at 40c/share, and raised its full-year forecast for adj EPS to +75% from +40% and net sales to +15% from +10%;

·     DXCM 7%; 2Q revenue exceeded expectations and management raised guidance, and that is before the G7 launch. Revenue of $595.1M (up 32% y/y, with unit volume up mid-40%) surpassing consensus’s $552M

·     FSLR +4%; quarterly results lift the solar space (Q2 EPS $0.77 vs est. $0.54 on revs $629M vs est. $617.2M) while cut year EPS view, but upped sales view

·     KLAC +9%; upgraded to Buy with $390 tgt at Needham post earnings (EPS/revs beat) as believe it will be an outperformer in the current WFE upcycle, and will continue to outperform in the next WFE downcycle

·     MAXR +4%; mentioned positively by Kerrisdale Research calling it a new long saying checks indicate supply-chain issues have been resolved and Maxar’s long-awaited Legion constellation remains on track for 4Q launch

·     PG +2%; beats quarterly sales and profit estimates, helped by higher demand for its skin and health care products (net sales rise 7% to $18.95 billion in Q4, beating estimates)

·     TEAM +25%; big beat with Subscription revenue growth +50% YoY vs. est. 40% YoY

Stock LAGGARDS

·     AMZN -7%; slides after forecasting Q3 sales $106B-$112B, below $118.9B expectations, as consumers return to brick-and-mortar stores – that followed a Q2 sales miss as well ($113.1B vs est. $115.2B) while EPS of $15.12 beat the $12.30 est.

·     CAT -3%; beat eps and rev views but the company’s finance chief said rising costs will put a dent in margins going into the third quarter

·     CL -3%; as lowers guidance – now expects a decline in gross profit margin from a previous prediction of gross margin expansion. EPS growth is now expected to be at the lower end of the mid to high-single digit range

·     NVDA -2%; slides after reports that China antitrust officials delay review of Nvidia’s $40 billion arm acquisition https://bit.ly/3fdb0aV (raises concerns of other pending chip related deals including AMD, XLNX, MXIM, ADI)

·     PINS -19%; after Q2 user growth missed consensus estimates, having monthly active users (MAUs) declined ~7%, while says growth in U.S. was decelerating in the latest quarter (MAU grew only 9% to 454M during Q2 below ests 487.1M)

·     SAVA -11%; after STAT news Adam Feuerstein notes the company said that a preliminary analysis of a small clinical trial showed that simufilam improved the cognition of patients with Alzheimer’s disease, independent researchers are “express

·     SWKS -8%; after yesterday’s Q3 earnings report came in slightly ahead of estimates amid ongoing supply chain constraints

·     TXRH -5%; restaurant margin is down sequentially to 17.7% from 18.6% last quarter and now predicts annual commodity cost inflation to be 7%, up from 4% (EPS and sales beat)

·     ZYXI -14%; Q3 and FY revenue forecast miss estimates after Q2 profit beats estimates, rev misses slightly

Syndicate:

·     Draganfly (DPRO) 5M share Secondary priced at $4.00

·     Dole (DOLE) 25M share IPO priced at $16 per share

·     Immuneering Corporation (IMRX) 7.5M share IPO (upsized from 7.0M) priced at $15.00

·     In8bio (INAB) 4M share IPO priced at $10.00

·     MaxCyte Inc (MXCT) 13.5M share IPO (upsized from 12.0mm) priced at $13.

·     Omega Therapeutics (OMGA) 7.4M share IPO price $17.00

·     Rani Therapeutics (RANI) 6.67M share IPO priced at $11.00

·     RxSIGHT (RXST) 7.35M share IPO priced at $16.00

·     Tenaya Therapeutics (TNYA) 10M share IPO priced at $15.00