Mid-Morning Look

Friday, December 02, 2022

U.S. stocks open lower following a stronger US jobs payroll report (+263K jobs vs. est. +200K) and a spike in wages both month-over-month (+0.6% vs. est. +0.3%) and y/y (+5.1% vs. est. +4.65), raising fears that the labor market remains overheated, and rates may have to go higher for longer to bring it back into balance. Recall earlier this week Fed Chairman Powell, in his somewhat dovish stance on forward rates that boosted stocks, did note the Fed would be paying close attention to wages. The unemployment rate stayed steady at 3.7% while payrolls grew in leisure and hospitality, healthcare, and government, while retailers/transport-and-warehousing companies cut jobs in a sign of weak holiday hiring. Stocks dropped initially on the report, while Treasury yields spiked (10-yr to 3.63% from 3.55) and the dollar bounced after sliding the last 3-months off 20-year highs. However, markets have quickly rebounded, continuing the bounce off the October lows with investors showing no fear into year-end despite rising job cuts (thought mostly in tech), rising recession fears amid slowing economic data, and more cautious outlook from companies this quarter. Energy, industrials, and defensive sectors remain the leaders, while discretionary, tech, and financials lag. The S&P 500 index currently right at its key 200-day moving average level – roughly 4,045-4,050 – a level being very closely watched after trading above it for the first time since April this week post Powell comments. The fear index (VIX) falls to lows under 20 level (contra-market indicator).

Economic Data

·     Jobs stronger on higher wages: Nonfarm payrolls for November rose +263K vs. est. +200K and private payrolls rose +221K vs. est. +190K; manufacturing payrolls +14K vs. est.+20K; the unemployment rate steady at 3.7%, but biggest mover was average hourly earnings grew +0.6% m/m vs. est. +0.3% and on a y/y basis, rose +5.1% vs. est. +4.6%

Sector Movers Today

·     Retailers: GCO cuts FY23 adjusted EPS view to $5.50-$5.90 from $6.25-$7.00 (est. $6.44) while narrows FY23 revenue view to down 1%-2% from down 3% to flat after top and bottom line beat for Q3 and said inventory rose 66%; SPB announced that it is more committed and confident than ever that it will complete the sale of its Hardware segment to ASSA ABLOY; TLYS Q3 sales fell -13.7% y/y to $177.8M vs. est. $166.1M; Q3 comp store sales fell (-14.9%); KIRK Q3 adj EPS loss more than estimates as net sales fell -8.8% y/y to $131M; ZUMZ slips on Q4 outlook

·     Pharma movers: GSK said Jemperli (dostarlimab) RUBY phase III trial met its primary endpoint in a planned interim analysis in patients with primary advanced or recurrent endometrial cancer; BEAM said the U.S. FDA has lifted the clinical hold and cleared its experimental therapy being developed to treat patients with a type of blood cancer for study; in Alzheimer space, AVXL shares jump after saying its therapy for mild cognitive impairment due to Alzheimer’s disease met the primary endpoints in a Phase 2b/3 clinical trial; RIGL said the FDA approved Rezlidhia for certain leukemia patients

·     Software movers: IOT delivered a strong beat and raise with upside to both ARR and revenue as well as profitability, sending shares higher; PATH topped its preannounced results slightly and raised its 4Q ARR guidance, despite decelerating trends – ARR grew 38% Y/Y in constant currency (36% nominally) to $1,110M, beating PATH’s preannounce; on downside, ZS delivered a quarter with slight revenue/billings deceleration at 54%/37% (42% normalized billings growth) though billings showed less upside than historically; VEEV reported in-line results (with mixed 4Q guidance), and said will re-platform CRM on Vault and off Salesforce; in research, ASAN downgraded at Piper, CRM downgraded to Hold at Wolfe; PD posted beat-and-raise for both the top- and bottom-lines; revenue grew 31% YoY, NRR held roughly steady at 123%

Stock GAINERS

·     AVXL +28%; said its therapy for mild cognitive impairment due to Alzheimer’s disease met the primary endpoints in a Phase 2b/3 clinical trial.

·     BABA +5%; strength in US listed China stocks on hopes for laxer Covid restrictions

·     IOT +22%; delivered a strong beat and raise with upside to both ARR and revenue as well as profitability; strong 3Q w/ ARR growth of 47% above 43% est.

·     JKS +10%; U.S. trade officials said they had determined that solar energy imports produced in four Southeast Asian countries were circumventing duties on goods made in China. The decision follows an 8-month investigation requested by a U.S. solar panel maker, Auxin Solar.

·     PATH +9%; topped its preannounced results slightly and raised its 4Q ARR guidance, despite decelerating trends – ARR grew 38% Y/Y in constant currency

·     PD +7%; posted beat-and-raise for both the top- and bottom-lines; revenue grew 31% YoY, NRR held roughly steady at 123%

·     SMAR +13%; reported F3Q23 billings and revenue well above guidance and consensus estimates and raised FY23 billings guidance, (+33-34% vs. 32-33% previously) implies F4Q23 billings growth of about 24% at the midpoint vs. 36% in F3Q23

·     ULTA ; Q3 EPS of $5.34 easily topped Street at $4.15 as stronger sales and gross margins fueled the rise while comps increased 14.6% ahead of +9.1% est. and meaningfully lifted FY22 guidance

Stock LAGGARDS

·     ASAN -13%; non-GAAP EPS of ($0.26), slight beat; negative 37% operating margin (vs -46% last quarter) on revenue of $141M (consensus $139M), up 41% y/y, down from 51% last quarter and 57% in F1Q; and with RPO growth of 43%, down from 53% last quarter and 72% in F4Q

·     BX -4%; downgraded to equal weight at Barclay’s following BREIT’s notice indicating the monthly / quarterly redemption limits had been triggered

·     CBRL -10%; Q1 adj EPS $0.99 vs. est. $1.22; Q1 revs rose 7% y/y to $839.5M vs. est. $835.72M; Q1 comparable store restaurant sales increased 7.1% vs. est. 7%

·     MRVL -7%; Q3 results miss consensus ests and guides Q4 revs $1.4B, below the $1.6B estimate on lower EPS view saying inventory reduction is impacting near-term earnings and outlook

·     OPEN -4%; announced changes to the executive leadership team and board, including the appointment of CFO Carrie Wheeler as CEO and the transition of Eric Wu to a new role as President, Marketplace, effective immediately

·     VEEV -7%; reported in-line results (with mixed 4Q guidance), and said will re-platform CRM on Vault and off Salesforce

·     ZS -9%; delivered a quarter with slight revenue/billings deceleration at 54%/37% (42% normalized billings growth) though billings showed less upside than historically