Mid-Morning Look

Thursday, April 27, 2023

U.S. investors digesting the heaviest day of quarterly earnings this period, with reactions thus far very favorable as several names in various sectors helping push major averages higher. The S&P 500 looks to snap its streak of 7-consecutive days making a lower low. Facebook parent Meta became the latest market heavyweight to report better-than-expected earnings, helping boost the Communications sector much like a strong report from Microsoft the day prior boosted Technology. Early on, only the Healthcare sector a drag, down -0.4% as all others currently higher. Economic data today was not favorable with lower-than-expected GDP, combined with stronger-than-expected labor market and core PCE (see details below), likely not changing the expectations of an additional FOMC rate hike next week. Bank stocks also climbed after tumbling in recent days. Treasury prices dropped, pushing yields higher following the latest U.S. gross domestic product data. GDP decelerated to an annualized growth rate of 1.1% in Q1, below last quarter 2.6% and estimates of 2.-%. The 10-year Treasury’s yield was 8-bps at 3.51%, and the 2-yr yield was up 13 bps at 4.05% on data. The market will be paying close attention to the release of the latest Personal Consumption Expenditures, or PCE, data on Friday.

Economic Data

·     The U.S. Q1 GDP QoQ rose +1.1% vs +2.0% est. and slower than the 2.6% growth in 4Q (but note Atlanta GDPNow recently took estimate down to 1.1% so not a total shock for mkts); GDP Price Index QoQ for Q1 +4.0% vs +3.7% expected and +3.9% prior; real consumer spending Q1 +3.7% vs. 1.0% prior; core PCE prices for Q1 rises +4.9% vs. +4.7% est.

·     Weekly Jobless Claims fell to 230K from 246K prior week and below estimates 248K; the 4-week moving average fell to 236K from 240K; Continued Claims fell to 1.858M from 1.861M prior week and below ests and U.S. Insured Unemployment Rate unchanged at 1.3%.

·     March Pending Home sales index (-5.2%) vs. est. +0.5%; March Pending Home sales -23.2% y/y.

Sector Movers Today

·     In industrials: CAT shares fell despite a top and bottom-line Q1 beat as higher prices and strong demand continued to offset inflated manufacturing costs; HON Q1 adj EPS $2.07 vs. est. $1.93; Q1 revs $8.86B vs. est. $8.52B and raises FY23 revs and EPS outlook; GWW shares rise following upbeat forecast; ROK big jump initially after earnings, but shares pulled back; TXT hit 6-month lows after results; URI posted 1Q23 results, beating consensus expectations on sales and adj. EBITDA by 2.4% and 4%, respectively as net sales of $3.29B and adj. EBITDA of $1.5B also beat.

·     In transports: in truckers, earnings misses continue to pile up after CHRW missed expectations for quarterly sales and profit citing softening freight demand; LSTR reports Q1 beat but guides lower for Q2; (follows recent misses from JBHT, KNX, ODFL, TFII); Q1 EPS $0.96 vs. est. $0.99 and revs fell -32% y/y to $4.6B vs. est. $4.82B; In airlines: LUV posted slightly wider-than-expected Q1 EPS loss as revs just miss ests as sees Q2 RASM down 8%-11% and Q2 ASMs up 14%; AAL Adj EPS: beat of $0.05 on in-line revs $1.2B and guides Q2 and year EPS above views.

·     In retail: CROX earnings and sales beat for current quarter, but guidance for Q2 came in well below consensus and mid-point of year sales below views as well; HELE Q4 beat and FY24 of $8.50-$9 is ahead of $8.43 est. and said CEO is retiring; OSTK posts smaller than expected quarterly loss; TSCO Q1 revs $3.3B just below $3.32B estimate citing less favorable spring weather trends and weaker demand for its seasonal products

·     In food & beverages: PPC quarterly profit fell to $5M from $280M y/y amid higher costs for fuel, labor, and feed for their birds and said sales were down 2% y/y; UL reported a 10.5% rise in underlying Q1 sales to 14.8 billion euros ($16.4 billion), beating analysts’ average forecast for a 7.2% increase; included a 10.7% increase in prices and a 0.2% dip in volumes; TSN said it cutting 10% of its corporate staff and 15% of its senior leadership as part of a move to cut costs; DPZ Q1 comp sales +3.6% vs. est. +1.95% but total revs of $1.02B misses $1.04B estimate; HSY reported a Q1 top and bottom line beat while raising year sales view to upper end of prior.

Stock GAINERS

·     CMCSA +5%; Q1 total revenue fell 4.3% to $29.69 billion in the quarter but beat analysts’ average estimate of $29.30 billion; reported a 9.5% fall in revenue in the NBCUniversal unit to $10.26 billion in the first quarter; Revenue at Peacock rose over 45% compared with a year earlier.

·     EBAY +3%; delivered better 1Q results as GMV and revenue both came in ahead of consensus as strength within focus categories, and eBay’s promoted listing products supported topline outperformance.

·     JEF +4%; on reports Sumitomo Mitsui Banking Corp. plans to triple its stake in Jefferies Financial Group Inc., the Financial Times reported; said plans to raise its ownership to as much as 15% by buying shares on the open market.

·     KLAC +3%; gets a bump after Q3 adj EPS $5.49 vs. est. $5.32; Q3 revs $2.43B vs. est. $2.37B; sees Q4 adj EPS $4.23-$5.43 vs. est. $4.43; sees Q4 revenue $2.125B-$2.375B vs. est. $2.17B

·     LLY +3%; Q1 EPS of $1.62 missed the $1.73 estimate on in-line revs $6.9B but raises FY23 adjusted EPS view to $8.65-$8.85 from $8.35-$8.55 (est. $8.45) and raises FY23 revenue view to $31.2B-$31.7B from $30.3B-$30.8B (est. $30.64B) – also positive late-stage data for obesity drug.

·     META +14%; delivered a solid 1Q and the revenue outlook for 2Q calls for a return to double-digit growth at the high end of the range (+2% to +11%), with revenue acceleration exhibited across all regions in 1Q.

·     MSOS +11%; cannabis sector rises early following last night’s news from DC: Bipartisan U.S. House And Senate Lawmakers Reintroduce Marijuana Banking Bill, the Secure and Fair Enforcement (SAFE) Banking Act.

Stock LAGGARDS

·     ABBV -6%; after Q1 revs from Skyrizi, Imbruvica and Rinvoq missed consensus analyst estimates, while Humira’s revenue was stronger than expected.

·     ALGN -12%; as 1Q23 revenue/EPS came in solidly ahead of Street estimates and 2Q23 revenue guidance above but 1Q23 case volumes of 575K was slightly below Stifel’s recently increased 585KE (from 575KE).

·     MBLY -21%; lowers FY23 revenue view to $2.07B-$2.11B from $2.19B-$2.28B (est. $2.25B), noting China EV market weakness driven by TSLA ‘s recent price cuts and citing overall China macro weakness, and reduction of China EV subsidies.

·     NTGR -18%; guided Q2 revs $150M-$165M below estimates $205M after Q1 revs dropped to $180.9M from $210.6M y/y and missed estimates.

·     PI -31%; shares plunged after disappointing guidance as sees Q2 EPS $0.28-$0.33 vs. est. $0.41 and revs $84M-$87M below consensus $88.3M (follows Q1 earnings miss).

·     VNO -1%; postponed its common share dividends until year-end and authorization of $200 million share repurchase program (downgraded to Neutral at Piper).

·     WOLF -15%; said the ramp at its critical Mohawk Valley facility was, again, delayed and mgmt blamed its ability to ramp 200mm substrate capacity in Durham, NC for FY24 revenue lowered guidance to $1.0-1.1B from the $1.6B guidance given at the company’s analyst day.