Mid-Morning Look

Friday, August 04, 2023

U.S. stocks bouncing between gains and losses to close out the week, but on track for weekly declines as a busy flurry of earnings and data concludes. The big news this morning was a mixed July payroll report which showed lower headline figures and downward revisions, but also showed wage increases M/M and Y/Y, making the outlook on further hikes from the Fed cloudy. Overnight, AAPL reported better quarterly results, but a few light segment metrics and slightly lower guide weighed on shares. On the flip side, AMZN reports strong beat and guidance, helping boost shares. Details of top gainers and decliners after earnings below. Treasury yields tumbled following the jobs report, with the 10-year down -10 bps to 4.08% (off highs 4.2%), but are still up on week, while the US dollar slipped -0.6%. Gold prices bounced modestly, and oil prices remained on track for another up week.

Economic Data

·     Jobs data for July a mixed picture as headline light but wages higher: July private sector jobs +172,000 vs. consensus +179,000), Nonfarm payrolls +187,000 vs. est. +200,000) and both June and May revised lower: June to 185K from 209K and May to 281K from 306K. July government jobs +15,000 above views. July average hourly earnings all private workers +0.4% from prior month vs. est. +0.3% and July average hourly earnings +4.4% from year earlier (est. +4.2%). The U.S. July unemployment rate 3.5% below consensus 3.6%.

Sector Movers Today

·     Internet Security stocks stumble behind FTNT results and guidance as Q2 billings +18% y/y to $1.54B vs. est. $1.59B; sees FY23 revenue $5.35B-$5.45B, down from prior $5.43B-$5.49B and lower billings outlook for the year (CRWD, S, PANW, OKTA and others were active in reaction). QLYS delivered a strong quarter with a beat on revenue and a very significant beat on EPS as billings also recovered to 11% growth and is expected to stay around these levels for the rest of the year; QLYS hired a new CRO and is postponing some investments.

·     Semi earnings: CRUS posted strong F1Q (Jun) results and F2Q (Sep) guidance, which both exceeded expectations and were much better than feared given the 8K on July 12 indicating plans for a 5% RIF. MCHP reported in-line F1Q24 (Jun) results and guided F2Q24 (Sep) lower, acknowledging it is finally seeing signs of a cyclical correction after 11 quarters of sequential growth. POWI a slight beat, with revenues of $123.2mn (+15.9% q/q), up +1.0%; lower Sep Q outlook than anticipated, with revenue guidance mid-point at $130.0mn, though still up +5.5% q/q. SYNA posted mixed F4Q (Jun) results and guided F1Q (Sep) lower citing total revs and IoT have bottomed in F4Q, mgt indicated that inventory destocking is likely to persist for several more quarters before normalizing. Additionally, Gross margins missed.

·     In Media: the WSJ reported post market that KKR is in talks to buy Simon & Schuster for about $1.65B from PARA and that a deal could be announced in the coming days and the agreement is not expected to raise competition concerns w/ US regulators. AMCX shares outperformed following better Q2 earnings results. FUBO Q2 revenue rises 41% to $312.7M topping estimate of $302.1M while North America subscribers of 1.17M, exceeding its midpoint forecast of 1.13M. In Advertising, WPP cut sales view for the year to grow between 1.5%-3%, vs. prior view of +3%-5%.

·     In Industrials: HAYW 22.26M share Spot Secondary priced at $14.30. MTZ reported 2Q adj EPS beat but lowered revenue, adjusted EPS, and adjusted EBITDA guidance attributed primarily to project delays at IEA pushing revenue into 2024. GNRC upgraded to Buy from Hold at Truist following a ~30% post-earnings sell-off that it sees creating an attractive entry. FLR shares jump on Q2 top/bottom line beat and raised FY adj EPS and Ebitda outlook.

Stock GAINERS

·     AAOI +40%; posted narrower-than-expected adjusted EPS loss and was upgraded at B Riley to Buy citing the ramp of 400G, the supply agreement with MSFT that could be worth $300M over the next 3 years, and CATV bottoming.

·     AMGN +5%; raised its profit and revenue guidance for the year as its Q2 results exceeded expectations citing strong sales of treatments for cholesterol, osteoporosis, and other drugs.

·     AMZN +9%; as reported net sales of $134B, above expectations of $131B. Operating income of $7.7B beat consensus of $4.8B. Top-line growth was driven by stronger-than-expected third-party seller services, advertising services, and AWS. AWS revenue of $22.1B beat consensus expectations of $21.8B. Operating income came in higher than expected at $5.4B.

·     BKNG +8%; top-line outlook was raised meaningfully, though did not raise its FY margin outlook. Gross bookings of $39.7B (+15% Y/Y) were 4% above consensus while adj. EBITDA of $1.78B exceeded the Street’s $1.47B estimate by 21%.

·     DKNG +5%; reported massive beat & raise, with adj. EBITDA +$53M ahead of Consensus and 2023E revenue/adj. EBITDA guidance raised by $315M (+10%)/$110M at the midpoint.

·     NET +9%; delivered a beat and raise quarter with record operating income (4th consecutive quarter in a row), EPS, and free cash flow (FCF) estimates and said they are seeing better macro demand and is executing better following last quarter’s sales force realignment.

·     TDS +60%; after the boards of directors of TDS and USM have said they each decided to initiate a process to explore strategic alternatives for UScellular. The comprehensive process will explore a range of strategic alternatives.

·     TEAM +17%; as Q2 revs y/y rose 24% to $939Mvs. Est. $914M, sub revs of $800M grew 34%, Cloud revs of $563M grew 30%, and Data Center revs of $232M grew 46%; bad: Cloud guidance is 25%-30% below consensus of 30%, and data center guidance of 30% below est. 33%.

·     TUP +57%; after saying it reached an agreement with its lenders to restructure its existing debt obligations, as it continues its turnaround efforts.

Stock LAGGARDS

·     AAPL -3%; sales declined for a third-straight quarter, first time since 2016, after weak iPhone Sales, and an inventory surge; Q3 revs $81.80B vs. est. $81.55B; Q3 EPS $1.26 vs. est. $1.20; products revs: Products revenue down -4.4% y/y to $60.58B, iPhone revs -2.4% y/y to $39.67B, Mac revs -7.3% y/y to $6.84B (but above views); Q2 service revenue $21.21B, +8.2% y/y (better).

·     ASRT -42%; after it withdrew its full-year 2023 financial outlook to assess the impact of an FDA-approved generic indomethacin, an arthritis drug.

·     CARG -15%; after saying last night postponed its second quarter earnings release and conference call with analysts scheduled for Thursday saying they have not completed its customary quarterly closing and review procedures.

·     DOCN -24%; reported disappointing results, with 2Q revenue in-line with consensus, and guidance below expectations for both 3Q and full year. Due to an error in calculating tax expense in 2022 and 1Q, management postponed EPS results and guidance.

·     FTNT -25%; weighs on Internet Security stocks following disappointing print/guide, where F2Q23 billings missed guidance/street and FY23 billings are lowered.

·     IEP -28%; after the company cut its quarterly distribution to $1 from $2 previously; also reported a surprise quarterly loss and revenue that lagged consensus estimates.

·     MESO -60%; announced the FDA had issued a CRL for remestemcel-L for the treatment of steroid-refractory (SR) acute graft-versus-host disease (aGvHD) in pediatric patients, citing that additional clinical data was needed to support marketing authorization.

·     MTZ -16%; reported 2Q adj EPS beat but lowered revenue, adjusted EPS, and adjusted EBITDA guidance attributed primarily to project delays at IEA pushing revenue into 2024.

·     NKLA -11%; said Michael Lohscheller will step down as CEO due to a family matter and be replaced by Stephen Girsky at the end of the month (marks 4^th CEO in 4-years for company). NKLA also reports a narrower Q2 loss as lower production of its Tre battery-electric trucks helped costs

·     OPEN -24%; tumbles after weaker guidance as sees Q3 revs $950Mm-$1.0B vs est. $1.359B and adj EBITDA loss (-$70Mm)-(-$60Mm) vs est. (-$56.7Mm).

·     OUT -15%; shares fell as reported soft sales growth and cited weakness due to labor strikes and a stalling transit recovery in New York City.

·     RDFN -22%; following slightly better 2 results (though revs fell to $275.6M from $349M y/y), but sees Q3 revenue $265M-$279M, vs. est. $288.21M and now expects to break even on an adjusted EBITDA basis in the next 12 months, rather than in 2023.

·     WPP -5%; after cutting its sales view for the year to grow between 1.5%-3%, vs. prior view of +3%-5% and said comp sales growth was 1.3% in Q2 and 2% for the first half.