Mid-Morning Look

Wednesday, March 02, 2022

U.S. stocks mixed early, with software, defense and industrials seeing weakness, while consumer discretionary (on better earnings/casinos strength), financials and energy among early leaders. Seeing a bit of an unwind of recent market action as well, with defensive/haven plays such as Treasury prices, gold, defense stocks (LMT, RTX), renewable energy (solar down with FSLR weaker guidance not helping) seeing profit taking. On the flip side, names that have been crushed in recent days such as financials seeing a strong bounce ahead of Fed Chairman Powell as he testifies before Congress on Wednesday in his first comments on the economy in nearly five weeks. Expectations are for the Fed to “stay-the-course” on rate hikes in 2022 (forecasts between 4-5 hikes) despite the market unrest due to the Ukraine situation. Expectations for the March meeting remain for a 25-bps hike, with a very low probability of a 50-bps hike. Economic data today was positive with ADP Private payrolls for topping consensus with massive upside revisions for prior month.

Economic Data

·     Private jobs data strong as ADP Jobs Report added +475K jobs vs. +388K consensus and upwardly revised +509K jobs (massive revision from prior month -310k jobs lost); goods producing sector gained 57K jobs, while service producing sector gained 417K jobs

Sector Movers Today

·     Bank movers; broad rebound in banking/insurance stocks after recent pullback on plunging Treasury yields (SBNY, SIVB, CMA, ZION among top S&P gainers); Citigroup (C) shares fell as hosted an investor day, saying it expected expenses to rise between 5% and 6% in 2022, excluding impact of divestitures and set new profitability targets, aiming for a medium-term return on equity of 11% to 12%, an improvement from its recent performance; said its expense efficiency ratio will improve to 60% to 63% in the near-term, compared to 65% in 2021 (also said on Monday its total exposure to Russia amounted to nearly $10 billion); FULT agreed to buy PBIP for about $136 million in cash and stock, at $17.52 a share

·     Energy stock movers: Oil prices on the rise again with WTI crude hitting highs of $112.51 (up nearly 9%) a barrel after the OPEC+ group that includes Russia agreed to stick to its agenda of raising output by just 400,000 barrels a day despite a tightening global market and skyrocketing prices. Oil prices have been surging as many European energy companies shun Russian crude. The West’s sanctions on Russian banks amid the Ukraine conflict continue to stoke supply concerns (Russian oil exports account for around 8% of global supply). Brent prices hit highs of $113.94 per barrel, up about 8% last around $113.40.

·     Casinos, Gaming, Lodging & Leisure sector; casinos strong early with LVS, WYNN, MGM among top gainers on upbeat market sentiment as headlines show China weighs methods for relaxing zero-Covid-19 grip; SGMS announced a co name change and new mgmt while posted Q4 AEBITDA (ex-lottery and sports betting) +6% to Consensus as gaming was ahead, driven by an improving game op mix and continued sequential recovery in tables and systems; DKNG positive mention at Morgan Stanley calling it top pick expect the US online sports betting / iGaming market to be very large, with a few market share winners, including DKNG

·     Consumer Staples; BGS Q4 adj EPS and revenue missed consensus views with FY adj EPS guidance range also fully below estimates as input cost inflation continues to impact results; BROS Q4 EPS in-line 2c on revs $140.1M vs. est. $135M, sees FY22 revenue $700M-$715M vs. est. $692.6M; GO Q4 adj EPS in-line 20c on revs $782.7M vs est. $778.4M, guidance ranges for FY net sales and adj EPS fully below estimates; GRWG Q4 EPS loss (3c) narrower than est. loss (9c) on revs $90.6M vs. est. $89.09M, sees FY22 revenue $415M-$445M vs. est. $478.11M; IPAR Q4 EPS loss (4c) narrower than est. loss (20c) on in-line revenue $210.7M; WW Q4 EPS $0.42 vs est. $0.36 on revenue $275.8M vs est. $279.3M, sees Q1 EPS ($0.31)-($0.26) vs est. ($0.12) on revenue about $300M vs est. $343.6M; BODY posted a Q4 EPS loss of (48c), much wider than est. (19c) on revs $216.3M that beat est. $167.9M, sees Q1 revenue $170-180M vs est. $200.3M; CELH Q4 revenue $104.3M topped est. $92.1M but shares fell as it delayed its annual 10-K filing; Atlantic downgraded CHD to UW as normalizing conditions should lead to inevitable slowing growth

Stock GAINERS

·     CRM ; erases initial gains: reported quarterly results that handily beat Street expectations across the board with EPS beating by $0.11 on revs up 26% y/y to $7.33B (est. $7.24B), up 26% y/y, a slight deceleration from 27% last quarter and current RPO of $22.00B (consensus $21.42B)

·     Ford (F) +5%; said it reorganizes to run EV and engine businesses separately, while reaffirms 2022 adjusted EBIT forecast of $11.5B-$12.5B, said it expects to spend $5B on EVs in 2022; said total sales dropped 20.9% to 129,273 vehicles but said new vehicles orders rose four-fold to over 72K

·     HPE +9%; was upgraded to Outperform at Bernstein with $20 tgt after earnings citing strong enterprise demand, a good setup, with a strong likelihood of upside to EPS and FCF and an increasingly attractive valuation

·     JWN +32%; after Q4 EPS $1.23 vs est. $1.02 on sales $4.35B vs est. $4.39B, qtrly GMV +24% while guiding FY revs +5-7% above est. +3.7% and Ebit margin 4.6-6.0%

·     SBNY +5%; seeing a rebound in large cap and regional banks – ZION, CMA, KEY ahead of Powell testimony on Capitol Hill

·     SGMS +12%; announced a co name change and new mgmt while posted Q4 AEBITDA (ex-lottery and sports betting) +6% to Consensus as gaming was ahead, driven by an improving game op mix and continued sequential recovery in tables and systems

·     SOFI +7%; posted a slightly smaller-than-expected loss for Q4 on in-line revs saying it added 523K new members, +39% sequentially, and 906K total products, +51% sequentially (guided Q1 revs below views but year revs above estimates)

·     WYNN +6%; on upbeat market sentiment as headlines show China weighs methods for relaxing zero-Covid-19 grip (casinos higher MGM, LVS, MLCO)

Stock LAGGARDS

·     C -3%; hosted an investor day, saying it expected expenses to rise between 5% and 6% in 2022, excluding impact of divestitures and set new profitability targets, aiming for a medium-term return on equity of 11% to 12%, an improvement from its recent performance

·     CCXI -22%; as Q4 revs falls nearly 47% to $2.3M, missing ests as recorded lower collaboration and license revenue in the qtr vs last year, while its net loss widened on higher expenses

·     ERIC -11%; after the U.S. Department of Justice (DOJ) said the co failed to make sufficient disclosures about its conduct in Iraq before entering a deferred prosecution agreement in 2019

·     FSLR -14%; posted a Q4 rev miss ($900M vs. est. $917.6M) and guided 2022 profit/revs below views – year sales $2.4B-42.6B vs. est. $2.73B; and sees year EPS flat to up $0.60 vs. est. $1.94

·     INO -11%; said that it has paused enrollment in an ongoing late-stage study of its lead COVID-19 vaccine candidate, INO-4800; said INO plans to seek approval from U.S. FDA to change the main goal of the study

·     KPTI -31%; after saying it would need to conduct another study as part of its pursuit of expanded FDA approval of its Xpovio cancer drug in endometrial cancer

·     LMT -5%; as defense stocks see profit taking following recent strength