Mid-Morning Look

Friday, February 17, 2023

U.S. stocks open lower, but in the first hour of trading have already bounced nicely off those lows in another “buy the dip” moment as Treasury yields fall from highs (10-yr down to 3.84% from 3.93% earlier) and as the VIX pares gains after hitting above 21 this morning – will it hold? Stocks were in risk-off mode Thursday following comments from Fed’s Mester and Bullard indicating support for more 50 bp rate increases, though today’s Fed’s Barkin said more comfortable with 25-bps. Along with hotter-than-expected US PPI, developments have driven markets expectations towards a steeper rate path beyond Fed’s projected peak from December. In earnings, AN, DE, DKNG, HUBS among the biggest winners this morning while CGNX, MX, RDFN, among biggest decliners. Energy stocks leading the downside as oil prices tumble over 4%.

Economic Data

·     Jan Import prices M/M fell (-0.2%), in-line with consensus and vs. Dec (-0.1%) revised from +0.4% and Jan Export Prices M/M rise +0.8% v. est. (-0.2%) and vs Dec (-3.2%) revised from (-2.6%).

·     January leading indicators down 0.3% vs. last month, consensus down 0.3%

Sector Movers Today

·     Energy stocks the biggest drag on the S&P 500 (DVN, HES, APA, FANG), with oil prices falling over 4% pressured by concerns of more U.S. Federal Reserve interest rate hikes that could weigh on demand, and signs of ample supply after bigger inventory builds reported this week. Saudi Arabia also pledge that OPEC+ will hold oil supplies steady.

·     Hardware & Components: CGNX shares fall after lower guide for FY revs ($180M-$200M vs. est. $226M) which followed a Q4 rev miss; said forecasts represent a decline both YoY and sequentially due to lower rev from a few large e-commerce customers and broader economic softness. For NTAP, Bank America said survey of VARs indicates an overall weak environment, with respondents cautious on storage demand and see some downside risk to NTAP PCS ests based on weaker hyperscale trajectory. For PC makers (DELL, HPQ, LNVGY), Digitimes noted the global top-5 notebook brands, not including Apple, saw their combined shipments plunge 29% on month and nearly halve from a year ago in January due to a slow channel inventory digestion.

·     In chemicals: lithium producers ALB, LAC, LTHM, others fall after Reuters reported China’s CATL, the world’s largest battery maker, has offered discounts to some Chinese automakers it supplies, reflecting a downturn in the price of lithium and a bid to win more orders, three people with knowledge of the offers said; AXTA upgraded to Outperform from Sector Perform and raises our price Target to $36 from $30 at RBC saying they see ~20%+ upside potential.

·     In restaurants: TRXH posts a top- and bottom-line Q4 miss (4Q EPS $0.89 vs est. $1.03 on revs $1.01B vs est. $1.02B) and said Q4 restaurant margin decreases 1.32% to 14.5%, pressured by commodity, wage and other inflation; BJRI mixed as EPS and sales beat but comps below views (Q4 EPS $0.17/$344.3M vs. est. $0.06/$343.7M) and comps +6.6% vs consensus +7.7%; CHUY Q4 EPS $0.27 /$104.1M tops consensus $0.20/$102.9M with comps +3.4% vs consensus +3.0% and guides FY EPS $1.60-$1.65 vs consensus $1.46 and 6-7 new restaurants.

Stock GAINERS

·     AMAT +1%; reported a slight beat with JanQ Rev/EPS of $6.74B/$2.03, and guided AprQ to $6.40B/ $1.84 (ahead of consensus $6.32B/$1.79) and better than peers.

·     AN +8%; Q4 adjusted EPS $6.37 tops consensus $5.82 as revs rise to $6.70B vs. est. $6.49B as new Vehicle revenue $3.15 billion, +7.9% y/y.

·     DE +6%; raised its FY23 net income forecast to a range of $8.75B-$9.25B from $8B-$8.5B prior (and consensus of $8.32b) after Q4 results topped views handily.

·     DKNG +10%; Q4 EPS loss (-$0.53) vs. est. loss (-$0.59) and revs better rising 81% y/y at $855.13M vs. est. $800.23M; said monthly unique payers, or MUPs, increased to 2.6M; raised its fiscal year 2023 revenue guidance to a range of $2.85B-$3.05B.

·     HUBS +12%; delivered a strong Q4 revenue beat as most metrics beat consensus estimates with CC billings growth of 29% y/y exceeding views.

·     SWAV +5%; reported 4Q22 revenues of $144M (+71% y/y) vs. consensus’ $143M estimate following pre-release projection of $143-144M and U.S. revs was $118M (+70% y/y, $82.1M C2).

Stock LAGGARDS

·     ALB -10%; after Reuters reported China’s CATL, the world’s largest battery maker, has offered discounts to some Chinese automakers it supplies, reflecting a downturn in the price of lithium.

·     CGNX -13%; after lower guide for FY revs ($180M-$200M vs. est. $226M) which followed a Q4 rev miss; said forecasts represent a decline both YoY and sequentially due to lower rev from a few large e-commerce customers and broader economic softness.

·     DASH -3%; reported a beat and raise 4Q22, whereby GOV and EBITDA came in 2% and 8% above consensus, respectively, while the Delivery platform lost more than half a billion dollars in the fourth quarter, as impairment charge and layoffs weigh on bottom line.

·     DVN -4%; among top decliners in the S&P is energy as oil prices fall 4%.

·     MRNA -4%; after mixed results for its mRNA-1010 flu vaccine candidate. Analysts note the drug missed on the B-strains in the study and now all eyes will turn to upcoming efficacy data to give an indication on the approvability of the drug.

·     NVRO -5%; shares fall after larger Q4 EPS loss and weaker Q1 rev guide ($94M-$96M vs. est. $97.51M).

·     XP -17%; downgraded to Underperform at Credit Suisse after Q4 results missed expectations against a challenging backdrop and high interest rates.