Mid-Morning Look

Tuesday, August 02, 2022

U.S. stocks open weaker, adding to yesterday’s modest losses – but off overnight worst levels – as concerns that a planned visit by U.S. House of Representatives Speaker Nancy Pelosi to Taiwan could worsen tensions between the United States and China. The macro geopolitical picture clouding the broader stock market the last 2-days, with quarterly earnings season more than half-way done now (over 315 S&P names reported – many more this week), and results and guidance outlooks mixed. Some of the overnight gainers on earnings include AFL in financials, MPC in energy, IT in Info tech, MPWR in chips, PINS in social media, and ZBH in MedTech – but far more disappointments including CAT in industrials, EXPD, JBLU in transports, TAP in staples, and a handful in materials and energy. The inversion in 2s and 10s Treasury yield rising to 32 bps (10-s 2.58% and 2-yr 2.9%). The dollar slips while gold rises and oil flattish. One big M&A deal in the brokerage/banking sector as TD to buy COWN. Markets remain choppy early as the S&P falls back below its 100-day MA support of 4,120. Transports notable weakness with CAR, EXPD, JBLU, and MATX all lower following earnings results.

Sector Movers Today

·     Transports: CAR posts bigger EPS beat than expected, driven mostly by Fleet costs but shares fell; JBLU reported a larger loss than analysts had been expecting; MATX reported stronger Q2 results but downgraded at Stifel as expect it may be hard for shares to gain value and multiples to expand as numbers are falling; EXPD also weighs on sector, falling after revs miss

·     E&P and Majors; BP shares rise as announces further $3.5B share buyback; Q2 net income rose to $8.45 billion in April-June from $6.25 billion in the first quarter; RIG Q2 after 2Q Ebitda beat estimates, with other positives including a new contract and a 2-year extension of a revolver; CRK Q2 EPS/EBITDA beat driven by higher realized pricing and production, production was 2% above consensus, FY22 production guide unchanged and capex guidance increased by ~6% midpoint; FANG Q2 EPS/cash flow modest beat driven by pricing and higher nat gas and NGL production and raised capex/production guidance towards the high-end of previous guidance

·     Industrial & Machinery; CAT mixed quarter with operating EPS miss, though pricing strong, and book to bill better than expected 1.5x; underlying EBITDA 1% lighter (Q2 adjusted EPS $3.18 vs. est. $3.01; Q2 revs $14.25B vs. est. $14.35B); CMI Q2 EPS $4.94 tops $4.35 estimate and revs $6.59B vs. est. $6.48B while maintains its FY22 forecast, says it expects 8% growth in revenue; ETN posts EPS beat of a nickel with Ebit beat driven by electrical Americas though rest of portfolio light while raises guidance by magnitude of beat; ATKR another mover on earnings; KBR Q2 EPS $0.76 vs cons $0.59, operating profit $174mm vs $165 estimate and no guidance change

·     Healthcare Services; HSIC 2Q revs $3.03B light of consensus $3.12B with lighter Dental and Medical business revs. And EPS beat ($1.16 vs. $1.13 est.) – revenue guidance was cut to +3% to +6% (vs. +5% to +8% prior), reflecting FX headwind and lower COVID sales (affirms EPS view); TDOC downgraded at Cowen and cut tgt to $34 as believe ests have not been fully de-risked for macro headwinds to BH and trajectory for Chronic Care; GH receives Medicare coverage for Guardant Reveal™ test; for hospital providers HCA, THC, UHS, CYH, Goldman notes final IPPS (inpatient prospective payment system) rate was released by CMS on Monday with generally favorable updates for hospitals across the board. Base reimbursement rates increased by 4.3%, 110bps better than the proposed 3.2%; SYNH slides as lowered its FY guidance to $4.97-$5.11 from $5.05-$5.25 9est. $5.11) and cuts FY22 revenue view to $5.44B-$5.54B from $5.6B-$5.75B to reflect some of these trends in reimbursable expenses and higher FX fluctuations

·     Casinos, Gaming, Lodging & Leisure sector; in lodging, MAR profit surges as posts EPS $2.06 above $1.28 y/y and above views while Operating income nearly doubled to $950M and revenue surged 70% to $5.34B while says remains optimistic about our financial outlook and strong cash generation; CHH downgraded to Neutral from Buy at UBS driven by what they see as a difficult environment to grow room rates on top of near double digit % increases compared to 2019; in gaming, IGT 2Q adj EPS $0.57 vs est. $0.30 on revs $1.02B vs est. $1.031B; sees 3Q revs $1.0-1.1B vs est. $1.005B; sees FY revs $4.1-4.2B vs est. $4.133B; in ride hailing, UBER posted mixed Q2 as EPS loss larger than expected but revs of $8.07B beat $7.39B estimate as Gross Bookings grew 33% year-over-year to $29.1B, or 36% on a constant currency basis (LYFT, DASH react)

Stock GAINERS

·     COWN +7%; to be acquired by TD for $39.00 per share in an all-cash deal valued at approximately $1.3B, confirming reports overnight https://bit.ly/3vxOz8a

·     MPWR +5%; delivered its 9th straight revenue beat in 2Q and once again guided its revenues solidly above estimates

·     PINS +12%; Q2 EPS report missed with revs in-line, but was better than feared, and boosted amid a strong activist endorsement (Elliott Management) driving shares higher

·     RIG +20%; after Q2 EBITDA beat estimates, with other positives including a new contract and a 2-year extension of a revolver

·     UBER +14%; mixed Q2 as EPS loss larger than expected but revs of $8.07B beat $7.39B estimate as Gross Bookings grew 33% year-over-year to $29.1B, or 36% on a constant currency basis

·     ZBH +5%; Q2 revs $1.78B topped consensus of $1.72B, with most segments ahead of consensus, driven by stronger than anticipated COVID recovery in the quarter

·     ZI +10%; on strong Q2 beat with revenue growth of 53.5% y/y vs. consensus of 46.0% y/y and operating margin of 40.0% vs. consensus of 39.2% and FY22 guidance revised higher to reflect revenue growth of 44.5-45.9% y/y

Stock LAGGARDS

·     CAT -5%; mixed quarter with operating EPS miss, though pricing strong, and book to bill better than expected 1.5x; underlying EBITDA 1% lighter (Q2 adjusted EPS $3.18 vs. est. $3.01; Q2 revs $14.25B vs. est. $14.35B)

·     ELYM -7%; after saying phase 2a clinical trial of ETX-810 in lumbosacral radicular pain (LSRP) did not achieve the primary endpoint; ETX-810 program will be discontinued

·     OTLY -10%; lowers its 2022 revenue forecast to between $800M-$830M from a prior range of $880M-$920M citing the impact of the war in Ukraine, COVID-19, and inflationary and supply chain pressures

·     SYNH -11%; lowered its FY guidance to $4.97-$5.11 from $5.05-$5.25 9est. $5.11) and cuts FY22 revenue view to $5.44B-$5.54B from $5.6B-$5.75B to reflect some of these trends in reimbursable expenses and higher FX fluctuations

·     TAP -8%; Q2 net sales slip to $2.92B missing the $2.94B estimate while profit falls 88% y/y to $47.9M and EPS was in-line with expectations while reaffirms 2022 guidance

·     WWD -10%; downgraded to hold from Buy at Truist and cut tgt to $88 from $121 as results missed expectations and mgmt again lowered its outlook amid ongoing supply chain and elevated costs