Mid-Morning Look

Wednesday, August 17, 2022

U.S. stocks sliding initially following mixed results in retail earnings (LOW, TGT, TJX, PLCE), a report showing overall U.S. retail sales were flat in July, while the S&P 500 index failed (initially) at its 200-day moving average late yesterday around the 4,325 level – all ahead of the FOMC July meeting minutes later this afternoon. Fed speakers over the last 2-weeks have been “hawkish”, talking tough on future rate hikes as they continue to deal with high inflation. Stock markets to this point have not been listening, rising 5-straight weeks on expectations recent decelerating inflation figures (CPI, PPI, UoM expectations) will ease the pace of interest rate hikes by the Fed. Inflation a hot topic in the U.S., but over in the UK, July inflation spiked 10.1%, lifted by soaring food prices. crude futures extend morning gains after weekly EIA data showed larger-than-expected fall in U.S. crude inventories.

Economic Data

·     July Retail Sales unchanged, slightly below the expected +0.1% rise by economists (June downwardly revised to +0.8% from 1%; Retail Sales ex-autos +0.4% vs. est. (-0.1%; July gasoline sales (-1.8%) vs June +2.5%, cars/parts sales (-1.6%) vs June +0.5% and Retail Sales Ex-autos/gasoline +0.7% vs June +0.7%

·     June inventory/sales ratio 1.30 months’ worth vs May 1.30 months; June Business Inventories +1.4%, in-line with consensus and down from May +1.6%; June business sales +1.3% vs May +1.0%; June retail inventories ex-autos revised to +1.5%

Sector Movers Today

·     Housing & Building Products; a day after better results from HD, home improvement retailer LOW with mixed results as EPS beat but revs missed – Q2 EPS $4.67 tops consensus $4.59 but Q2 revenue of $27.48B misses consensus $28.12B; Q2 comparable sales decreased (-0.3%) vs. est. +2.3% and US comp sales rose +0.2% vs. est. +2.3% and backs FY EPS/revs; tool maker SWK downgraded to Hold from Buy at Deutsche Bank and cut tgt to $111 from $126 following better Q2 results but slashed their full year outlooks; weekly housing data showed the MBA mortgage market index falls 2.3% to 273.3 (lowest since 2000), purchase index falls 0.8% and the refinancing index falls 5.4% to 627.1, lowest since Nov 2000

·     Retailers: TGT Q2 profit badly lagged consensus and the company ratcheted up the pressure on its second half by sticking with its forecast of a dramatic rebound – Q2 adj EPS $0.39 misses the $0.72 estimate; Q2 sales rose 3.5% to $26.04B, in-line with consensus estimates; Q2 comparable sales grew 2.6% vs. est. 2.8% driven by an increase in traffic, while avg. transaction was flat; PLCE shares slide after weaker Q2 results (EPS and sales miss) on weaker margins and guided FY net sales about $1.73B, missing the $1.77B estimate; TJX lowered its guidance for annual earnings and comparable sales after posting a Q2 sales shortfall that it attributed to historic inflation; LVLU posted 2Q revenue and adjusted EBITDA results in line with its July 28 preannouncement and maintained FY guidance revised on that date; WEBR downgraded to Sell from Neutral, price target $2.75 at Citigroup saying there are too many concerns to remain on the sidelines

·     Semiconductors; ADI ported earnings and revenue for its fiscal third quarter above Wall Street consensus saying that economic uncertainty was beginning to impact bookings; for NVDA Bank America noted another guide-down unwelcome but drive necessary reset as reports earnings on 24-Aug, with consensus now aligned with recent negative preannouncement, but current FQ3 (Oct) Street consensus could have downside risk as it might not reflect the full-quarter of inventory correction in gaming/crypto products that started in late FQ2.

Stock GAINERS

·     A +6%; posted revenue of $1.72B (+13.2% core) with EPS of $1.34 above consensus of $1.20; raised FY22 core growth from +8-9% to +10.3-11.8% and EPS to $5.06-5.08 from $4.86-4.93

·     AAPL +0.6%; upgrade to Outperform from Neutral at Credit Suisse, and received a price target boost to $220 from $200 at Wedbush

·     HIL +61%; after saying it has agreed to be bought by privately held construction manager Global Infrastructure Solutions Inc. for $173 million.

·     LOW +2%; mixed results as EPS beat but revs missed – Q2 EPS $4.67 tops consensus $4.59 but Q2 revenue of $27.48B misses consensus $28.12B; Q2 comparable sales decreased (-0.3%) vs. est. +2.3% and US comp sales rose +0.2% vs. est. +2.3% and backs FY EPS/revs

·     PGR +2%; outperforms in financials after July results

·     SJM +1%; upgraded to Buy at Bank America and up tgt to 4155 ahead of earnings next week as think there could be upside to sales/EPS ests

Stock LAGGARDS

·     BPMC -21%; said a Phase 2 clinical trial evaluating Ayvakit in patients with non-advanced systemic mastocytosis met the primary and secondary endpoints…but SVB Leerink said is concerned about the change in the symptom score in the Phase 2 study, compared with the Phase 1 trial.

·     DNUT -11%; posted Q2 earnings that missed Wall Street expectations, as economic pressures cut into the company’s top and bottom lines and cuts its FY revs view to $1.49B-$1.52B vs prior forecast of $1.53B-$1.56B on lower earnings as well

·     JKHY -8%; sees 2023 EPS of $5.05-5.09, missing the Wall Street estimate of $5.30 and guides revs $2,080B-$2,08b compared with the consensus of $2.08b; lower guidance follows a top on the top and bottom line

·     LVLU -11%; posted 2Q revenue and adjusted EBITDA results in line with its July 28 preannouncement and maintained FY guidance

·     OPCH -6%; 11M share Spot Secondary priced at $33.25

·     SNY -5%; after stopping clinical development of its once-promising breast-cancer treatment amcenestrant after an independent monitoring committee said that the drug didn’t meet requirements to continue its study

·     TDOC -5%; downgraded to Neutral from Buy at Guggenheim with $25 tgt saying its revenue growth and EBITDA will remain pressured by its exposure to the consumer segment

·     TGT -4%; Q2 adj EPS $0.39 misses the $0.72 estimate; Q2 sales rose 3.5% to $26.04B, in-line with consensus estimates; Q2 comparable sales grew 2.6% vs. est. 2.8%