Mid-Morning Look

Tuesday, February 07, 2023

U.S. stocks slipping early, but generally holding just below break-even on the day after falling 3% off last week peaks, as markets eagerly await Federal Reserve Chairman Powell speaking at the Economic Club of DC around noon time. Many anticipating tough talk on rates following the strong January jobs report, possibly turning more “hawkish” than he was at last Wednesday’s FOMC press conference where he was perceived as more “dovish” at that point. The US dollar index (DXY) early high’s rising +0.25% to 103.88 (4th straight day of gains if holds), while treasury yields hold steadily higher, also up a 4^th straight day (10yr 3.65%). Treasury yields also rising a 4^th straight day with the 10-yr at 3.65%. Several moving parts this morning as the earnings barrage continues with roughly 60% of the S&P 500 having reported thru this morning, and beat rate remains lower vs. historical averages.

Economic Data

·     December International Trade in Goods and Services showed deficit of (-$67.40B) vs. (-$68.8B) expected and (-$61.00B) in November as exports down -0.9% to $250.2B vs. $$251.90B and Imports +1.3% to $317.6B vs. $313.4B. The goods deficit increased by $7.4B to $90.6B and the service surplus rose by $1.0B.

Sector Movers Today

·     Casinos/Gaming: for online betting (PDYPY ), Super Bowl Betting Projected to Hit Record $16B (legal/illegal bets placed on this year’s Super Bowl, more than double the $7.6B from 2022) – WSJ. Stifel said in Gaming Tech Q4 Preview & 2023 Outlook they are forecasting Q4 earnings beats for EVRI, IGT, LNW, and NGMS and inline for AGS saying checks suggest game ops, slot shipments, and lottery sales were stable in Q4, and into early Q1. Benchmark noted New York online sports betting skins posted total handle of $344.8M for week 4 (1/29/23 – 2/4/23) of 2023, a sharp decrease of -23% W/W, also down -23% from 2022 as all three of the top skins saw handle decline at least -20%.

·     “AI” related news/movers: BIDU shares jump after in a statement to Bloomberg, Baidu confirmed earlier press report that it will complete internal testing and launch its ChatGPT-like bot next month. MSFT will be officially unveiling its ChatGPT investment into its ecosystem tomorrow. Wedbush said this OpenAI investment/strategic partnership which is likely in the $10 billion range is a game changer in our opinion for Nadella & Co. as the ChatGPT bot is one of the most innovative AI technologies in the world today. GOOGL announced the release of ChatGPT rival ‘Bard’ to early testers and will host an AI event on Wednesday.

·     Aerospace: BA said it would cut around 2,000 jobs over the coming months as American companies across all sectors of the economy continue to tighten their belts in anticipation of a weaker global economy. Parts supplier SPR reports a wider-than-expected Q4 adj loss of (-$1.46) vs. est. loss (-$0.22) and revs $1.3B misses the $1.4B estimate; another parts supplier TDG raised its year adj profit forecast after top and bottom line Q4 beat. In defense: LMT double upgrade from Underperform to Outperform at Credit Suisse and raise tgt to $510 from $427.

Stock GAINERS

·     ALDX +6%; said the FDA accepted the marketing application for its experimental drug reproxalap to treat dry eye disease; FDA has set action date of Nov. 23.

·     BIDU +9%; shares jump +14% after in a statement to Bloomberg, Baidu confirmed earlier press report that it will complete internal testing and launch its ChatGPT-like bot next month.

·     DD +6%; Q4 adj EPS $0.89 vs. est. $0.78; Q4 revs $3.1B vs. est. $3.09B; Sees 2023 earnings between $3-$4.50, midpoint below street of $3.86 and sees 2023 sales between $12.3B-$12.9B, midpoint also falling below street estimate.

·     LAC +8%; after a U.S. district judge in Nevada largely upheld the federal government’s decision to approve its Thacker Pass lithium mine after challenges from environmental and other groups.

·     OSH +30%; CVS is near an agreement to acquire OSH for approximately $10.5B including debt, the WSJ reported as the companies are discussing a price of $39 a share https://on.wsj.com/3I3QvfE

·     RCL +6%; posted a narrower-than-expected Q4 loss and said bookings were nearing record highs at higher prices while revs of $2.6B was in-line.

·     SWKS +8%; after a $2B share buyback announcement and both top and bottom-line quarterly results topping consensus expectations.

·     TTWO +5%; despite reported worse than expected F3Q net bookings/non-GAAP EPS results: $1.382B/$0.86 missing consensus by 5.5% and 3.4%; reduced FY23 guidance by 5%, attributed to weaker consumer discretionary spending.

·     VRNS +3%; all headline metrics exceeding guidance according to RBC saying the focal point was the accelerated 10% SaaS contribution to new and up-sell ARR, now expected to move to 15%.

Stock LAGGARDS

·     AOSL -16%; shares slide on Q2 miss and lower guide – 2Q adj EPS $0.67 vs est. $0.88 on revs $188.8Mm vs est. $196.7Mm; sees 3Q revs $125-135Mm vs est. $193.8Mm.

·     BBBY -39%; announces proposed offering of Series A convertible preferred stock and warrants; expects to raise ~$225M of gross proceeds in the offering together with an additional ~$800M of gross proceeds.

·     BLNK -12%; 8.3M share secondary prices at $12 per share while also said it sees Q4 revs $21M-$23M vs. consensus of $18.7M and adj EBITDA ($18M) to ($15M) vs. ($9M) last year.

·     CHGG -20%; shares plunge after guides FY revs $745-760Mm vs est. $817.5Mm, and adj EBITDA$240-250Mm below est. $275.6Mm.

·     HLLY -24%; after announced that CEO Tom Tomlinson will retire as President and CEO and resign from the company’s Board of Directors and released preliminary 4Q results that were below consensus expectations.

·     LEG -4%; misses on top and bottom line; 4Q EPS $0.39 vs est. $0.48 on sales $1.2B vs est. $1.24B; guides 1Q EPS down meaningfully vs 4Q22.

·     PINS -1%; delivered a mixed 4Q and guide, but the company said remains committed to “around a couple hundred bps” of Adj. EBITDA margin improvement in 2023.

·     ZI -11%; as reported mixed Q4 results, delivering a slight revenue beat to consensus, but worsening macro commentary and weak 2023 guidance.