Mid-Morning Look

Wednesday, November 03, 2021

U.S. stocks trading mixed heading into this afternoon’s FOMC policy meeting where they are expected to detail plans to end its $120B per month pandemic-era bond purchases by mid-2022 by $15B per month as policymakers likely shift their focus towards to the ongoing surge in inflation that is lasting longer than anticipated, impacting prices at the pump, materials costs, and food prices. Investors in recent weeks increased bets that inflation will force the U.S. central bank to increase interest rates sooner rather than later, and Fed officials increasingly have acknowledged those risks. Economic data was very strong this morning starting with a better private payroll report (ADP +571k jobs vs. est. +400K) ahead of nonfarm payrolls, Factory Orders topping views and ISM Services index jumping at 66.7 reading, topping the 61.9 consensus as inflation data point shows prices paid index jumps to 82.9 vs. 77.5 prior (2nd highest reading ever) – all just reinforcing the view the economy is strong and the taper is justified. Also, several broader concerns for the Democratic party as Republicans pushed Democrats out of the Virginia governorship and had a far stronger-than-expected showing in heavily Democratic New Jersey on Wednesday (raising concerns for them about passage of their large spending bills). Earnings onslaught again overnight, with details of top movers below.

Economic Data

·     Strong private payroll report as ADP Employment Services said there were 571K jobs added in October, topping the estimate for 400K, ahead of this Friday’s non-farm payroll report

·     September Factory Orders rose +0.2% to $515.9B vs. +0.1% consensus and +1.0% prior (revised from +0.7%).

·     ISM Non-Manufacturing Index with a healthy beat at 66.7 reading, topping the 61.9 consensus and 61.9 prior; prices paid index jumps to 82.9 vs. 77.5 prior (2^nd highest reading ever); the New Orders Index better at 69.7 vs. 63.5 prior and Employment Index 51.6 vs. 53.0 prior.

Sector Movers Today

·     Retailers; BBBY surges after announcing marketing collaboration with Kroger (KR) and accelerated stock buyback as expects to complete its $1 bln share repurchase plan by end of fiscal 2021, two years ahead of schedule; BIRD sold about 20.2 million shares at $15 each, up from the 19.2 million shares at $12 to $14 each it had planned to offer; CPRI rises as 2Q adj EPS $1.53 vs est. $0.95 on revs $1.3B vs est. $1.27B; guides FY revs approx $5.4B vs est. $5.31B, sees FY adj EPS $5.30 vs est. $4.57; NKE’s Vietnamese subcontractors have resumed production and the company plans to increase its reliance on the Southeast Asian country to make its shoes with more investments, according to a report on the Vietnam government’s website; UAA upgraded at William Blair and Telsey and several analysts raise tgts following strong earnings; DKS announces a loyalty program with NKE, allowing Dick’s online customers to shop for shoes and apparel exclusive to Nike’s loyalty members; BGFV 3Q results slightly below expectations but inline with guidance while Q4 earnings guidance above our prior expectations

·     Industrial & Machinery; in heavy duty machinery (CMI, PCAR, ALSN), ACT released October preliminary Class 8 net order figures of 23,600, which is down from 27,400 units in September, and compares to 36,900 in August and 25,480 in July – it was the lowest in five months and the biggest monthly drop since Sept. 30; GNRC was downgraded at bank America to neutral as the co reiterated 2021 revenue guidance, but reduced 2021 gross margin and adj EBITDA margin guidance by 125bps mainly due to continued cost pressures; DE shares slip as workers set to continue three-week-old strike after they voted to reject a second contract between Deere and the United Auto Workers (UAW) union; EMR posted mixed Q4 as EPS beat but revs fall short of views, while issues upside FY22 EPS outlook

·     E&P and Majors; busy night of earnings; DVN better than forecasted 3q21 results, which were accompanied by higher than expected base and variable dividend payable in 4q21, and a $1bn buyback authorization; BRY Q3 EPS was in line with consensus as higher cash costs and lower production were offset by better realized pricing and electricity sales/3Q21 capex was $1M below consensus/3Q21 production was 2.8% below consensus; CRK was 1% above consensus on slightly lower costs, capex was 4.4% above consensus and 3Q21 production was in line with consensus and raised its 2021 capex budget by 12%; GPOR was 2.3% above on higher production and better pricing and 3Q21 production was 2.5% above prior guidance; PUMP posted in-line Q3 with better free cash flow; LPI posts Q3 beat and raises FY21 production

·     Media & Telecom movers; TMUS rises after saying it added 673,000 phone subscribers who pay a monthly bill in Q3, above the Street estimate of 644,000, while Q3 EPS beat but revs missed; MTCH Q3 EPS 43c and revs $802M missed consensus 55c and $838.5M, while quarterly payers increased 16% to 16.3M, and expect FY22 revenue growth in mid-to-high teens; NYT Q3 results beat estimates with adj EPS 23c vs est. 20c on revs $509.1M vs est. $499.1M, and digital subscribers 7.59M also topped est. 7.39M with digital ad revs also increasing over 40%, said they are not seeing impact on ads from supply chain problems, and sees ad revs increasing in the mid-teens in Q4; DISCA Q3 EPS 24c vs est. 41c on in-line revs $3.15B as operating expenses increased 77% partly due to the Olympics, and added 3M DTC subscribers bringing its total to 20M; SBGI Q3 EPS 25c vs est. (86c) loss on revs $1.535B vs est. $1.58B, said the ransomware attack it faced October 17 still has not been fully resolved and certain disruptions remain due to the attack, and guided Q4 revs $1.54-1.57B below est. $1.58B; Bernstein upgraded WPP to Market Perform as its rally is more than a reopening traded given its solid execution on a sound restructuring plan and steady sequential improvement in relative performance since last year; UONE shares fell after its proposal to build a casino in Richmond, VA lost in a referendum last night

Stock GAINERS

·     BBBY +23%; after announcing marketing collaboration with KR and accelerated stock buyback as expects to complete its $1 bln share repurchase plan by end of FY21, two years ahead of schedule

·     CPRI +13%; after raises its annual profit outlook, betting on higher prices and pent-up demand as sees FY22 EPS of about $5.30, up from its prior forecast of $4.50 after EPS and sales beat for Q3

·     CWH +5%; came in nicely above consensus (ebitda +$40.6m and revenue +$84.0m), increasing the fy21 ebitda outlook +$72.5m at the midpoint

·     FMC +9%; reported 3Q21 EBITDA of $293M, beating consensus of $274M, largely a result of higher volumes as well as EBITDA margins

·     IRTC +42%; along with shares of GKOS after the CMS issued the final physician payment rates and final outpatient facility fees for CY2022 that were better than expected

·     LYFT +13%; posts 3Q beats across most metrics, 8% EBITDA margin as reported Rev./EBITDA of $864.4mn/$67.3mn vs. the Street at $862.0mn/$33.0mn and had 18.9mn Active Riders (52% y/y, 45pt deceleration q/q) came in 2% below the Street at 19.3mn

·     RRD +29%; to be acquired by Atlas for $8.52 per share in cash, in a deal valued at ~$2.1B https://bit.ly/3qaRmSS

·     TMUS +5%; said it added 673,000 phone subscribers who pay a monthly bill in Q3, above the Street estimate of 644,000, while Q3 EPS beat but revs missed

Stock LAGGARDS

·     ATVI -15%; forecasts Q4 adj sales of $2.78B, missing the $2.93B after in-line Q3 sales while Blizzard co-lead O’Neal says she will step down after just three months in the role and delays the launch of two games “Overwatch 2” and “Diablo IV”

·     CAR -15%; receives multiple downgrades (Deutsche Bank, JPMorgan) saying they cannot justify, using any reasonable traditional valuation metric, the $10.5 billion of incremental value generated by the more than doubling of the stock in one day

·     EXAS -8%; after the cancer screening firm posted updated 4Q revenue guidance about 5% below Street estimates at its mid-point

·     FRSH -14%; after results as posted Q3 revs $96.8M, up 46% YoY but below the 56% growth in Q2 due to tougher comps in Q3, and a few headwinds from reserves

·     GNRC -5%; downgraded at bank America to neutral as the co reiterated 2021 revenue guidance, but reduced 2021 gross margin and adj EBITDA margin guidance by 125bps mainly due to continued cost pressures

·     HUM -2%; posted weaker Q3 revs than ests while lowers its 2021 adjusted EPS guidance to about $20.50 from previous range of $21.25 to $21.75, due to rise in COVID-related costs from the delta variant (est. $21.53)

·     LPSN -5%; downgraded to neutral at Mizuho noting growth declined 1% Q/Q (first ever since COVID) due to slippage of two large deals and a slowdown in Gainshare (13% of rev vs 16% in Q2)

·     TUP -14%; tumbles on big revenue and Ebitda miss – revenue $376.9M vs consensus $473.7M; EBITDA $68.9M vs consensus $82.1M

·     WING -12%; slipping to 4-month lows as Q3 missed estimates (29c/$65.8M vs. est. 45c/$74.7M) and guides year comp sales 7%-8%, below the 8.8% estimate

·     ZG -15%; after saying it plans to close Zillow Offers, its business that buys and sells homes, in a move eliminating a quarter of its workforce after reporting Q3 revenue below consensus