Mid-Morning Look

Monday, February 27, 2023

U.S. stocks are rebounding after last week’s pullback, with the S&P 500 holding its 200-day moving average support late last week (roughly 3,940) and then holding and topping its 50-day MA this morning (roughly 3,980) as investors look to “buy the dip” yet again. Last week saw the worst performance since December for major averages as Treasury yields spiked along with interest rate expectations as curves are still steeply inverted. All eleven S&P sectors are firmly higher to start the week, with more than 1% gains in more than half the sectors, led by strength in growth stocks. Durable goods orders fell more than expected at -4.5% vs -4% estimate and Durable Goods ex transport rose 0.7% vs 0.1%. The dollar and Treasury yields slipped following the data. Pending Home sales data was stronger. Quiet on Fed calendar and data rest of day but picks up this week along with a few more nights of busy earnings.

Economic Data

·     Durables orders for January fell -4.5%, more than the consensus -4.0% and well below the Dec reading of up +5.1%; Durables ex-transportation orders +0.7% vs. est. unchanged) and Dec -0.4%; Durables ex-defense orders -5.1% vs Dec +5.6% (prev +6.2%).

·     Pending Home sales index for January rose +8.1% vs. est. +1.0% but down (-24.1%) y/y.

Sector Movers Today

·     In Telecom, Media, & Broadcasting: TGNA shares tumble after the FCC said late Friday it would hold a hearing on hedge fund Standard General’s $5.4B bid for the co, noting the “proposed transaction could artificially raise prices for consumers and result in job losses”; DISH tgt cut to $15 from $20 at RBC saying they are incrementally more cautious as the opportunity with wireless across both enterprise and retail postpaid seems to perennially get pushed out and less clear. WBD is suing PARA saying its competitor aired new episodes of the popular animated comedy series “South Park” after Warner paid for exclusive rights. FYBR upgraded to Strong Buy from Outperform at Raymond James following impressive 4Q results and continued execution on its post-bankruptcy plan to future-proof itself for a modern customer base.

·     Financial Services: Jefferies initiated PAYO with a buy recommendation, saying the payments firm suffered from a “complexity discount,” and predicting that its ongoing shift toward business-to-business transactions would lead to multiple expansion over time. TREE mixed Q4 results (EPS beat/revs miss) on lower Q1 and FY rev guidance; WTW upgraded to Buy at Goldman saying the co has shown strong progress on turnaround initiatives to date and see a material improvement in fundamentals coinciding with abating tailwinds for more concentrated P&C and commission-oriented brokers. LPRO downgraded to Outperform at Raymond James following disappointing 4Q results that featured significant downside to both revenue/EBITDA relative to the Street (-22%/-55%), and 1Q guidance that will send estimates sharply lower and no FY23 outlook.

·     In Autos, EV’s: LI reported Q4 net income fell to RMB265.9 million ($37.3 million), or RMB0.25 per ADR from RMB295.5 million, or RMB0.29 y/y while adj EPS of RMB0.98 beat consensus of RMB0.47. FREY Q4 EPS $0.20 vs. est. loss (-$0.22); said it is focused on advancing the following strategic mandates and milestones over the next 12 months: Successfully complete the start of operations at the CQP in 1Q 2023; FSR forecasts 8-12% annual gross margin and potentially positive EBITDA for 2023 and said reservations and orders for its SUV Fisker Ocean continue to increase, totaling about 65,000 from 62,000 as of Oct. 31. LKQ agreed to buy Canada-based automotive Uni-Select Inc. in a deal valued at $2.1B (C$2.8B) https://on.mktw.net/3xVlrIZ.

Stock GAINERS

·     BRMK +16%; to merge with RC in deal expected to create company with equity capital base of $2.8B https://on.mktw.net/3KCkpcx

·     CLDX +11%; said that the updated data from a phase 1b trial of barzolvolimab in patients with moderate to severe chronic spontaneous urticaria, an allergic skin condition, showed “meaningful symptom improvement” based on the urticaria activity score.

·     FSR +26%; forecasts 8-12% annual gross margin and potentially positive EBITDA for 2023 and said reservations and orders for its SUV Fisker Ocean continue to increase.

·     LI +6%; Q4 net income fell to RMB265.9 million ($37.3 million), or RMB0.25 per ADR from RMB295.5 million, or RMB0.29 y/y while adj EPS of RMB0.98 beat consensus of RMB0.47. Total revenue grew 66.2% to RMB17.65 billion ($2.56 billion).

·     LICY +10%; after the U.S. Energy department to lend Li-cycle holdings Corp $375 million for New York battery recycling plant.

·     SGEN +11%; after the WSJ reported this weekend PFE is in discussions to acquire the biotech firm in a deal that could be worth more than $30B; notes the talks are still at an early stage https://on.mktw.net/3IUJr5m

·     SGMO +10%; upgraded to Outperform at Wedbush and raised tgt to $16 from $4 saying Phase 1/2 STAAR Data Shines at WORLDSymposium.

·     TSLA +5%; strength in EV space, and investors buying ahead of company investor day Wednesday.

·     UNP +10%; after saying Sunday it plans to name a new CEO this year after major shareholder Soroban Capital partners publicly urged the company’s board to oust Lance Fritz from the job.

Stock LAGGARDS

·     FUBO -13%; following earnings results this morning.

·     RRC -7%; give back much of Friday gains early after PXD said this weekend it’s not contemplating a “significant business combination or other acquisition transaction.” Recall Bloomberg reported Friday the company is considering an acquisition of natural gas producer RRC.

·     SMSI -21%; after saying received written notice of contract termination from a U.S.-based Tier 1 carrier customer for the Company’s family safety solution on Feb 21st, effective June 30, 2023.

·     TGNA -21%; after the FCC said late Friday it would hold a hearing on hedge fund Standard General’s $5.4B bid for the co, noting the “proposed transaction could artificially raise prices for consumers and result in job losses.”

·     TREE -8%; mixed Q4 results (EPS beat/revs miss) on lower Q1 and FY rev guidance.