Mid-Morning Look

Wednesday, February 08, 2023

U.S. stocks slip early as markets digest another busy round of mixed corporate earnings and a slew of Fed speakers just a day after comments from Fed Chair Powell, who stuck closely to post-FOMC press conference with investors grabbing on to the “disinflation” narrative headlines. A barrage of Fed officials speaking on Wednesday after their 2-week blackout ended last week after the FOMC meeting: New York President John Williams spoke at 9:15 a.m. Eastern (was hawkish), followed by Fed Gov. Lisa Cook at 9:30 a.m., Vice Chair Michael Barr and Atlanta President Raphael Bostic at 10 a.m., Minneapolis President Neel Kashkari at 12:30 p.m., then Fed Gov. Christopher Waller at 1:45 p.m. Comments by Chairman Powell yesterday seemed to suggest that Fed’s policy calculus has not really changed that much following the stronger than expected jobs report – but key consumer price (CPI) data next week could be the next mkt catalyst with eco data light the rest of the week. Treasury yields extend rally from last Friday jobs report, as 10-yr up 30-bps over that stretch to 3.69%. The dollar was flat to slightly higher in choppy trading on Wednesday, as investors paused selling the greenback.

Sector Movers Today

·     Cyber security stocks jump after FTNT reported a strong 4Q led by billings growth of +32% y/y (vs +33% last qtr) and Product revenue growth of +43% y/y (vs +39% last qtr) as both metrics grew >30% for the seventh consecutive qtr and FY23E Billings guidance of +21% y/y above views (shares of other security stocks S, ZS, PANW, CRWD, CYBR, OKTA move higher in reaction).

·     Insurance sector: AIZ Earnings were better than expected in 4Q22 driven by better results in Global Housing that more than offset underperformance in its larger business – Global Lifestyle, said Piper. PRU 4Q:22 operating EPS was $2.42, below consensus at $2.54 as new business and capital trends were mixed; raises quarterly dividend to $1.25; board authorizes $1B share buyback. VOYA earnings were better than expected as co reiterating its expectation to resume share repurchase activity in 2Q23, talked about 10%+ EPS growth in ’23 with a path towards 12% – 17% with Benefitfocus. ARGO to be acquired by Brookfield Reinsurance (BNRE) in $1.1 Billion Transaction with Argo Shareholders to receive $30.00 per share in cash.

·     In restaurants: CMG Q4 adj EPS $8.29/$2.2B revs misses the $8.91/$2.23B estimate on weaker comps (+5.6% vs. est. 7.04%) and operating margin 13.6% up from 8.1% year ago but below the est. 14.7%; YUM posted EPS beat by 5c, comps strong across board with Taco Bell strength and said total same-store sales at Yum rose 6% in the fourth quarter, while analysts were expecting a 4.57% increase; YUMC Q4 adj EPS $0.13, in-line with ests and revs -8.9% y/y to $2.09B vs. est. $2.22B; Pizza Hut comparable sales -8% vs. est. +0.5%. Wedbush said they continue to view WING, DPZ and PZZA as well positioned in 2023.

·     In consumer finance: Morgan Stanley upgraded AXP from Equal Weight to Overweight saying they tilt stock picks toward 1) higher credit quality, 2) sustainable revenue growth, and 3) positive operating leverage. The firm downgraded DFS downgrade from Overweight to Equal Weight following 3Q22 earnings in late October, as believed the stock was not properly priced for a forthcoming resumption in share repurchases on top of the largest stockpile of excess capital in the group. Since then, the company has announced a resumption of buybacks. Wells Fargo said they are constructive on the networks as they provide defensive with upside optionality. Travel growth has moderated, but it’s still a tailwind. AmEx is our Top Pick, and we feel good about our tactical preference for V over MA post-earnings.

Stock GAINERS

·     CVS +4%; to acquire OSH in deal valued at $10.6 billion that’s a primary-care play, paying $39 per share and confirming reports yesterday https://on.mktw.net/3Yx7ZX8 ; CVS also reported Q4 results that topped consensus expectations.

·     ENPH +8%; as Q4 EPS $1.51 top $1.24 estimate on better revs ($724.65M vs. est. $706.51M) and guides Q1 revenue $700M-$740M above consensus $690.46M.

·     FOXA +4%; board adds $3B to its stock buyback program, boosting the total authorization to $7B and reports a top/bottom line beat for Q2 as ad revs rose about 4%, lifted by the World Cup, the NFL season, higher political advertising.

·     FTNT +12%; delivered a strong finish to 2022 led by Product segment sales growth of ~43% y/y while billings and EPS exceeded FactSet consensus estimates while revenue was slightly behind.

·     MANU +13%; after the Daily Mail reported the bid from Qatar, which hosted the World Cup, will “blow away” other offers. https://on.mktw.net/3jHqgSI

·     NEWR +23%; good quarter with revenues and operating income both reporting a strong beat along with improving Gross margins and opex discipline led to an operating income beat.

·     UBER +3%; reported a clean beat 4Q earnings result and provided 1Q ex-FX bookings growth guidance above the Street along with a 1Q EBITDA outlook well above Street expectations.

Stock LAGGARDS

·     ATVI -3%; slides as the UK regulator said its in-depth probe found that MSFT purchase raised competition concerns.

·     CMG -3%; Q4 adj EPS $8.29/$2.2B revs misses the $8.91/$2.23B est. on weaker comps (+5.6% vs. est. 7.04%) and operating margin 13.6% up from 8.1% year ago but below the est. 14.7%

·     CPRI -25%; reports quarterly sales that came in below analyst expectations and lowered year view citing a -20% decline in sales to department stores and other third parties known as wholesale revenue, largely at its Michael Kors brand.

·     EMR -5%; Q1 EPS of $0.78 missing by a dime on weaker revs of $3.37B and guides Q2 results below consensus estimates.

·     GOOGL -5%; shares dropped after Google’s Bard AI chatbot gives wrong answer at launch event as the rival to Microsoft’s ChatGPT AI tool falls at the first hurdle.

·     HAIN -5%; downgraded to Underweight at Piper with $17 tgt as see risks to F24 estimates from higher spending (also cut at JPM).

·     LUMN -18%; after forecast FY adj EBITDA of $4.6B-$4.8B below consensus of $5.03B and forecasts free cash flow in fiscal 2023 below Street ests.

·     PAYC -7%; delivered strong 4Q results, highlighted by recurring revenue growth of 30% and a record 4Q EBITDA margin of 44% while FY23 rev growth outlook (+24%) points to a significant slowdown in core sub rev growth, Jefferies noted.

Syndicate:

·     CureVac (CVAC) 27.0M share Secondary priced at $9.25.

·     Dynatrace (DT) 14.8M share secondary priced at $45.55.

·     First Republic (FRC) 2.5M share Secondary priced at $140.00.

·     Longboard Pharmaceuticals (LBPH) 5M share Secondary priced at $4.00.

·     RxSight (RXST) 4M share Spot Secondary priced at $12.50.

·     Sintx Technologies (SINT) 2.15M share Spot Secondary priced at $5.60.

·     Treace Medical (TMCI) 4.76M share Secondary priced at $21.00.

·     Xponential Fitness (XPOF) 5M share Secondary priced at $24.50.