Closing Recap

Thursday, April 20, 2023

Index	Up/Down	%	Last
DJ Industrials	-108.74	0.32%	33,788
S&P 500	-24.56	0.59%	4,129
Nasdaq	-97.67	0.80%	12,059
Russell 2000	-9.74	0.54%	1,789

 

Stocks slide late day as “buy the dip” runs out of steam midday following a flurry of Fed speakers, but stocks manage late day bounce to pare losses. For the second straight day, stocks recovered quickly off overnight weakness as investors look to buy any dip in this market and the S&P continuing to trade in the same range since the beginning of April. However, for a change, the rally midday that turned the Nasdaq and S&P positive waned as stocks slid late day. Earnings this morning were more disappointing than positive and economic data flashed recessionary – but stocks rallied initially anyway. Earnings, rising rates, and U.S. default concerns all remain in the back of investor minds in a very tricky period for investors. After a strong start to the earnings season, results have been more mixed the last few days (DHI, IBM, LVS, LRCX, UNP, STLD, NUE rise on results while TSLA, ZION, T, RAD, STX, FFIV, MAN, AXP slide on misses today). No big earnings names tonight as attention turns to next week with MSFT, META, CAT, BA, AMZN, GOOGL among next week highlights. Fed speakers keep warning markets about higher rates as NY Fed’s Williams signaled support for May interest-rate increase saying inflation is still too high and they will use our monetary policy tools to restore price stability. Markets remain unphased with expectations the Fed will hike in May, pause, and begin to cut mid-year (though not one Fed member has discussed rate cuts as a possibility anytime soon). A late day sell-off pushed major averages lower and snapped the 6-day losing streak for the CBOE Volatility index (VIX). Reminder the Fed begins its “blackout” period after tomorrow into the Fed meeting in 2-weeks.

 

Economic Data

·     Weekly Jobless Claims rose to 245K in latest week vs. est. 240K (prior week upped to 240K from 239K) as the 4-week moving average fell to 239,750 from 240,250 prior week; continued claims rose to 1.865M from 1.804M prior and the U.S. insured unemployment rose to 1.3% from 1.2%.

·     Philly Fed Business Index declined -31.3, worse than the forecast -19.3 and previous -23.2); now 8^th straight month reported negative and 10 of last 11 with lowest level since May 2020; employment index -0.2 vs. -10.3; future capital expenditures index was -5.40 vs. prior -3.80 and the new orders index down -22.7 vs. prior -28.2.

·     Existing Home Sales for March fell (-2.4%) vs. Feb +13.8% with 4.44 mln unit rate vs. consensus 4.50 mln and below Feb 4.55 mln; inventory of homes for sale 980,000 units, 2.6 months’ worth and the national median home price for existing homes $375,700, -0.9 pct from March 2022.

 

Commodities, Currencies & Treasuries

·     Oil prices extend their recent slide, with WTI crude down -$1.87 or 2.36% to settle at $77.29 per barrel while Brent crude slides -$2.02 or 2.43% to settle at $81.10 per barrel. Gold prices rise $11.80 or 0.6% to settle at $2,019.10 an ounce. U.S Treasury yields edge lower following a round of weaker economic data; the 10-yr yield around 3.53%; the U.S. Three-month Treasury bills rise to 5.318%, highest in 22 years before fading. The U.S. dollar slipped again with dollar index (DXY) 101.80. Bitcoin prices slide, down over 2% to $28,400 after a strong start to 2023.

 

 

Macro	Up/Down	Last
WTI Crude	-1.87	77.29
Brent	-2.02	81.10
Gold	11.80	2,019.10
EUR/USD	0.0003	1.0960
JPY/USD	-0.37	134.31
10-Year Note	-0.061	3.541%

 

 

Sector News Breakdown

Consumer

Autos:

·     TSLA shares slide after reported an in-line MarQ Rev/EPS of $23.3B/$0.85 (est. $23.3B/$0.85); but auto margins excluding credits at 19.0%, below 20-22% consensus, down ~430bps q/q with 6 price cuts YTD and underutilization at Berlin/Austin factories and reiterated 2023E production of ~1.8M vehicles. Renault (RNLSY) reported its Q1’23 revenues as deliveries (reported a day earlier) came in 10% ahead of consensus while revenues of €11.5b beat consensus by 3.8% driven by price and mix, with ASPs beating consensus by 2.6%/guidance was unchanged.

·     Auto dealers: GPC raises EPS view as sees FY EPS $8.95-$9.10, vs. prior $8.80-$8.9 (and est. $8.92) after top and bottom-line beat for Q1; AN Q1 EPS $6.07/$6.40B revs vs. est. $5.74/$6.63B as New Vehicle $286.9M vs consensus $296.2M and Used Vehicle $154.4M.

 

Consumer Staples & Restaurants:

·     In tobacco: PM cuts its full-year profit forecast, to $6.10-$6.22 from prior view $6.25-$6.37 amid rising tobacco leaf prices, energy, and labor costs, while Q1 revs of $8.02B missed $8.11B est.

·     In personal products: IPAR raises FY23 EPS view to $4.25 from $4.00 (est. $4.01) and boosts FY23 revenue view to $1.25B from $1.20B (est. $1.2B) – also guides Q1 revs above views.

·     In beverages, Heineken (HEINY) Q1 volumes were weaker than expected, offset by strong price-mix. Beer volumes were down 3% in 1Q23, coming short of consensus (-1.9%), but reit guidance.

Retailers:

·     In specialty retail: BBWI downgraded to Neutral at Piper and lower price target from $48 to $37 saying expectations have been elevated since the company issued what seemed to be rather conservative guidance on the FQ4 call and see little upside potential to current share levels.

·     In luxury retail: CPRI was upgraded from Outperform to Strong Buy w/ $60 PT and added to analyst current favorites list at Raymond James.

·     In mattress retail: Wedbush said softer industry demand leaves them cautious on SNBR outlook as they cut tgt to $27 from $37 as fell company could modestly reduce its FY23 outlook (including revenue flat to down MSD y/y) when it reports 1Q23 earnings on April 26.

·     In apparel/footwear: DECK tgt to $555.00 from $480.00 and VFC to $26.00 from $28.00 at TDCowen saying March and now April top-line trends across retail are decelerating on tougher three year compares but this could be seasonal/weather noise. DECK, LULU, and SKX continue to outperform the sector in digital checks and with product cycles.

 

Leisure, Gaming & Lodging:

·     In casinos: LVS shares rise after earnings as 1Q EPS $0.28 vs est. $0.20 on revs $2.12B vs est. $1.85B, up from $943M y/y; recorded casino revenue of $1.54B, up from $627M y/y. Reported meaningfully stronger-than-expected results in Macau and inline to better in Singapore.

·     In lodging and leisure: POOL shares slide after earnings missed and revs ($2.46/$1.21B revs vs. est. $3.18/$1.29b); ABNB tgt to $130 from $120, TRIP downgraded to Hold from Buy and cut tgt to $21 from $40 at Truist in 1Q Lodging Earnings preview saying at a minimum should be in-line but more likely ahead – 1Q23 RevPAR and earnings expectations (H and RHP favorite names)

·     In theme parks: Morgan Stanley initiates FUN and SEAS at Overweight and SIX at EW saying regional theme parks are high-return businesses that offer double-digit levered FCF/share growth. With valuation well below pre-pandemic levels, even relative to other consumer sectors, they see an attractive risk/reward skew despite macro risks.

 

Homebuilders, Building Products, Home Furnishing:

·     Homebuilders continue to add to gains (52-week highs in several names) after DHI results strong with Q2 EPS $2.73 vs est. $1.93; Q2 revs $7.97B vs. est. $6.47B; homes closed in quarter decreased 1% to 19,664 homes compared to 19,828 homes closed in same quarter of FY22; qtrly net sales orders of 23,142 homes, with an order value of $8.6B. 52-week highs for homebuilders DHI, CCS, LEN, KBH, MTH, MHO, NVR, PHM, TOL, TMHC.

 

Energy

·     In solar: The House Ways and Means Committee favorably reported H.J. Res 39 to the full House yesterday, calling for the reversal of the Biden Administration’s June 2022 moratorium on new solar tariffs. The resolution should make it to the President’s desk, in our view, where it faces a likely veto. NOVA announces $3 billion U.S. Department of Energy conditional commitment to expand clean energy access and lay foundation for virtual power plant capabilities. JPMorgan said they maintain our near-term preference for utility-scale solar stocks under coverage, though we also believe that the pullback in residential solar stocks presents an opportunity for investors with a medium-term investment horizon – top picks remain ARRY, SHLS, and NXT.

·     In utilities: SO was upgraded to Buy at Mizuho, raising price tgt to $77 as Vogtle 4 nears completion after cost overruns and delays. Keybanc notes this week, AEP and Liberty terminate the KY Power transaction; MT House proposes new environmental review rules; FE seeks early termination of its PPA for the 205 MW Warrior Run coal plant; FERC rejects SPP’s plan for self-funding of grid upgrades; GP and PSC Staff file settlement in fuel cost recovery application.

·     In MLPs: KMI reported an adjusted 1Q23 EBITDA of $1,996m, in-line with the quarterly budget presented at the analyst day, and a bit above the $1,950m consensus. Management’s FY23 adjusted EBITDA guidance of $7.7 billion was left unchanged (+2% y/y growth), despite oil and natural gas prices tracking below their budget view.

 

Financials

Banks, Brokers, Asset Managers:

·     Regional Banks with lots of earnings, higher provisions, mixed earnings, lower deposits:

·     CMA Q1 EPS $2.39 beats by 10c while deposits fell by $3.7 billion and uninsured deposits decreased by $10.5 billion to $35 billion, or 54% of total deposits in the quarter – sees 2023 average deposits down 12%-14%.

·     EGBN Q1 EPS $0.78 vs. est. $1.13; Q1 provision for credit losses on loans was $6.2M compared to a reversal of $0.5 mln for the prior quarter.

·     FITB Q1 EPS $0.78 misses by a penny, NIM 3.29% vs. 3.32%, deposits fell about $8B y/y to $160.65B; higher fees and credit partially offset by a lower NIM and NII.

·     HBAN Q1 EPS $0.38 beats by penny on revs $1.93B and reports an increase in deposits by $472 mln from a year earlier.

·     KEY Q1 EPS $0.30 misses by 14c on weaker revs $1.71B as deposits fall $6.8B y/y to $143.4B.

·     SNV Q1 EPS $1.32 beats by 10c on revs $613.9M vs. est. $594.2M; Q1 provision for credit loss $32.2M vs. $11.4M last year; Q1 net interest margin 3.43% vs. 3.01% last year; total deposits increased $1.08B sequentially, or 2%

·     TCBI Q1 EPS $0.70 misses the $0.87 consensus; Q1 provision for credit losses was $28.0M vs. $34.0M for 4Q22 and Q1 net charge-offs were $19.9M vs. $15.0M during 4Q22.

·     TFC Q1 EPS $1.05 misses the consensus of $1.14; qtrly provision for credit losses was $502M compared to $467M for Q4 and sees FY adj revs up 5%-7% and Q2 revs relatively stable.

·     ZION Q1 EPS $1.33 misses by 20c with provision for credit losses -$45M; Q1 net interest income $679M; net interest margin 3.33% vs. est. 3.37%.

 

Bitcoin, FinTech, Payments:

·     Consumer Finance: AXP Q1 EPS miss at $2.40 vs. est. $2.65 on better revs $14.28B with higher provision and higher expenses, but maintains full year rev guidance of 15-17% growth vs. est. 15% and EPS: $11.00-$11.40 range; DFS earnings miss $3.58 vs. est. $3.91 also on higher expenses and provisions with Q1 total net charge-off rate 2.72% (raises dividend and announces new $2.7B stock buyback) – followed weaker ALLY, SYF results yesterday.

·     In payments: WU upgraded from Underperform to Peer Perform at Wolfe Research given better than expected transaction activity coupled with a recent decline in share price driving 19% upside to our PT; FOUR upgraded to Overweight from Equal-Weight at Stephens saying they see minimal validity to the Blue Orca short report which has created an attractive entry point for shares.

 

REITs:

·     In research: Mizuho said they believe a select list of both SFRs, and Apartments is appropriate, with favored names including AMH and TCN in SFRs, along with AIRC, EQR and CPT in Apartments. CUBE downgraded to Market Perform with $52 target saying heading into earnings, channel checks suggest weaker storage demand. Given CUBE’s strong YTD performance (+14.5% vs RMZ +0.9%), they see risks.

·     Wells Fargo initiates coverage with a preference for Managed Senior Housing over net-lease Senior Housing, Skilled Nursing & Medical Office. Overweight: WELL, VTR; Anti-consensus pick: OHI; Equal Weight: PEAK, HR, MPW, NHI, LTC, CTRE; Underweight: SBRA, DOC

 

Healthcare

Biotech & Pharma:

·     BMY announced a strategic license agreement with privately owned Tubulis, which would give BMY exclusive rights to access Tubulis’ proprietary P5 conjugation platform for the development of a selected number of highly differentiated ADCs to treat solid tumors.

·     For LLY, BMO Capital noted there is decent risk/reward heading into TRAILBLAZER-ALZ 2 data of donanemab as think the trial hits but may not be as good as CLARITY. Still given the enthusiasm for Mounjaro, our longer-term thesis for LLY shares remains in any scenario.

·     In vaccines: NVAX downgraded to Market Perform at TDCowen and slash tgt to $10 from $55 due to significant uncertainties about the pending Gavi arbitration & commercial outlook for the COVID-19 vaccine franchise.

·     VERU sells Entadfi business to BWV for $20M and up to an additional $80M from sales milestones.

 

Healthcare Services & MedTech movers:

·     In Pharmacy retail: RAD slides after posting a wider-than-expected loss and issued guidance that fell short of estimates; sees Ft24 revs $21.7B-$22.1B vs, est. $22.88B and larger loss (shares of WBA, CVS also lower); in services, ACHC downgraded to Sell at Deutsche Bank saying CTC business poised to be a net drag on earnings based on several macro factors which could potentially shift CTC from a 10% grower into a slower growth category or potentially a headwind.

·     Healthcare technology: KeyBanc previews sector, highlighting data trends, leveraging proprietary credit card data across healthcare systems and more consumer-directed end markets, along with deeper insights on app usage – they upgraded HCAT to Overweight (from Sector Weight) with a $16 target price (or ~23% above current levels).

·     In MedTech: NVRO named former HOLX executive Kevin Thornal to become CEO effective this coming Monday and guided preliminary revenue of $96.3M (vs. $95M consensus).

 

Industrials & Materials

Transports

·     In Industrials: EMR upgraded to Overweight as see underappreciated value following significant portfolio changes and note uncertainty has been after a 2-year+ overhang. GE was upgraded to Buy from Hold at Jefferies with $120 tgt in assumption of coverage saying GE Aerospace is a high-growth, profitable engine franchise w/ ~70% AM mix and ramping engine deliveries for LEAP.

·     In rails: UNP Q1 EPS $2.67 vs. est. $2.58 on revs $6.1B vs. est. $6.04B, still sees FY operating ratio improvement after Q1 operating ratio 62.1%, est. 61.2% and keeps 2023 FY guidance. MATX earnings lifted shares, helping lead transports higher.

 

Materials, Metals & Mining

·     In metals: aluminum producer AA posts wider Q1 loss EPS ($0.23) vs est. ($0.11) on revs $2.67B; gold miners bounce (AEM, NEM) as weaker eco data boosts precious metal prices. In steel sector, STLD 1Q adj EPS $4.01 vs est. $3.52, adj EBITDA $950Mm vs est. $954.7Mm on revs $4.89B vs est. $5.0B; NUE Q1 EPS $4.45 tops estimate $3.85 while sales $8.71B misses $8.94B estimate and said average scrap and scrap substitute cost per gross ton $414, below estimate $455.38 and avg sales price per ton decreased 11%.

·     In packaging/containerboard: WRK upgraded from Neutral to Buy at Bank America saying industry commentary suggests that WRK is becoming more disciplined operationally, and in a relatively rare occurrence, WRK placed first in our survey on customer service.

·     In lithium sector: Deutsche Banks said for the lithium sector (ALB, LTHM, LAC, SQM), 2Q could bring a bottom for spot pricing and sentiment. Said they revised down tgts for all names they have on BUY, driven by our pricing forecasts revision down, partially offset by EBITDA multiple. The firm’s assumptions for battery grade lithium carbonate are down 10% for 2023 and 2024.

 

Technology

Internet, Media & Telecom

·     In telecom: AT shares slide as weaker free cash flow of $1B for Q1 missed the $3B estimate, while EPS revs mostly in-line ($0.60/$30.14B vs. est. $0.58/$30.25B); said Q1 wireless postpaid net adds +542,000 (below est. +637,234) – shares of TMUS, VZ also active.

 

Hardware & Software movers:

·     IT Services: FFIV cuts FY23 revenue growth view to low-single-digits from 9%-11% prior view and guides Q3 revs below ($690M-$710M vs. est. $747M) after slight Q2 beat; follows recent lower guides in space from INFY, CDW. IBM gave a forecast for annual revenue in line with analysts’ projections, delivering a cautiously optimistic signal about technology spending saying sales will increase from 3% to 5% in 2023, and affirmed a previous FCF forecast of $10.0B.

·     In Storage: NTAP downgraded to Underperform at Bank America and cut tgt to $58 from $70 saying they see risk to consensus estimates in F24 and especially F2H snapback and that share loss in AFA will be hard to turn around quickly despite new product launches.

·     Cloud Infrastructure Software: Morgan Stanley said they sees incremental weakness in Q1 from cloud optimization and slower migrations which will limit the ability of cloud infra names to materially beat or raise guidance which they think is becoming more widely known. That said, NEWR have more positive setups and they upgrade FSLY to EW on better GM. VERI was downgraded to underperform at Bank America, citing risks to the AI software company’s hiring advertising technology offering over the medium term.

 

Semiconductors:

·     Semi giant TSM forecast a decline of as much as 16% in Q2 sales amid a weakening global economy and as they struggle to clear inventory; forecast revenue of $15.2B-$16B, down from $18.16B a year prior while sticking with earlier cap-ex spending plans of $32b-$36B (contrary to recent reports of cutting capex).

·     Semiconductor-equipment: LRCX big miss on outlook ($3.10B/$5.00 vs Street $3.45B/$5.55) but said Q2 is the bottom for memory CAPEX and indicated CY23 memory spend as a percentage of WFE is at a historic low, which is likely unsustainable. Semi equipment names in general (ASML, AMAT, LRCX, KLAC) positive news that contrary to recent reports, TSM did NOT cut CAPEX last night, keeping guidance unchanged at $32-36B.

·     In HDD space: STX agreed to pay a $300 million penalty in a settlement with U.S. authorities for shipping over $1.1 billion worth of hard disk drives to China’s Huawei in violation of U.S. export control laws, the U.S. Department of Commerce said. Separately, the company Q3 revs $1.86B falls -34% y/y below estimates $1.99B on weaker margins.