Mid-Morning Look

Wednesday, June 01, 2022

U.S. stocks opened higher, with the Dow, S&P 500 and Nasdaq all getting a boost after a beat and raise quarter from software giant Salesforce.com (CRM), with shares rising as much as 14%, helping boost technology stocks…but stocks quickly reversed, failing at the same level as yesterday (4,160 on the S&P) and dropping below yesterday’s lows around the 4,100 level. Comments from JPM CEO Jamie Dimon not helping sentiment after saying “commodity price turmoil will continue with Ukraine war consequences” and said referring to the U.S. economy “it’s a hurricane” and “you’d better brace yourself.” Not exactly the warm words investors were looking for, especially after a bag of mixed economic data again today. Market investors continue to debate over the scale of central bank monetary policy tightening needed to fight inflation which has run rampant and impacted corporation outlooks over the last earnings quarter. Oil prices rebound after faltering late Tuesday as OPEC+ meeting gets underway amid talk about production changes. Treasury yields jump early, with the 10-year moving back above 2.93%. Stocks in the U.S. currently at session lows in a sharp about face from overnight gains.

Economic Data

·     ISM U.S. Manufacturing activity index 56.1 in May vs April 55.4; prices paid index 82.2 in May vs April 84.6; new orders index 55.1 in May vs April 53.5; employment index 49.6 in May vs April 50.9 (below 50 for first time since August 2021)

·     April construction spending rose +0.2% vs. est. +0.5% to $1.745 trln, vs March +0.3%; April private construction spending +0.5%, public spending -0.7%

·     April Job Openings (JOLTs) 11.4M, in-line with consensus and 11.855M prior (revised from 11.549M); Job openings rate 7% vs. 7.1% prior; Quits rate was 2.9% vs. 3% prior

Sector Movers Today

·     Auto sector; TSLA CEO Elon Musk sent an email to workers saying they must be in the office for a “minimum (and I mean *minimum*) of 40 hours per week or depart Tesla; China auto deliveries for May: 1) LI said it delivered 11,496 Li ONEs in May 2022, up 165.9% year over year, 2) NIO delivered 7,024 vehicles in May 2022, representing 38% growth sequentially and +4.7% Y/Y, 3) XPEV delivered 10,125 Smart EVs in May 2022, representing a 78% increase Y/Y; Citigroup cut its tgt on Ford (F) to $15 from $18 and GM to $87 from $98 to reflect macro risks, says sees increased near term risk from Europe exposure; CHPT posted a slightly higher then expected Q1 EPS loss but revs rose 102% to $81.6M vs. est. $75.7M and guided Q2 revs $96M-$106M vs. est. $105.6M; auto supplier VC upgraded from Underweight to Equal weight at Morgan Stanley and up tgt to $93 from $72 saying VC has a powertrain agnostic product portfolio that we believe may be amongst the better positioned based on the current macro backdrop

·     Metals & Materials; SEE was downgraded from Neutral to Underweight at JPMorgan a saying the change does not reflect pessimism concerning Sealed Air’s business prospects but reflects their inclination to invest in other equities in the various material sub-sectors; in fertilizers, Barclays initiates coverage saying even though the sector has outperformed against major indices, it expects low supply and high demand for agricultural products well beyond 2023 – OW rated on NTR ($116 tgt), CTVA ($71 tgt), EW rated on CF ($103 tgt), ICL (12 tgt) and UW on MOS ($59 tgt); lithium producers (ALB ) fall a second day – yesterday, Goldman said it sees sharp correction in lithium prices over the next two years

·     Semiconductors: AMBA reported in-line F1Q results and guided F2Q lower (sees Q2 revs $78M-$82M vs. est. $91.4M) primarily due to the impact of the China COVID lockdowns, which is exacerbating kitting issues and negatively impacting AMBA’s customer supply chain; Bank America highlights favorite themes/picks. Our top large-cap sector pick is NVDA; top SMIDCap-pick is ON and top 3 themes: 1) Cloud: NVDA, AMD, MRVL; 2) Cars: ON, ADI, NXPI; and 3) CAPEX: KLAC, GFS, AMAT, LRCX, TER

·     Biotech movers; SAGE and BIIB said their experimental drug to treat postpartum depression met the main goal of a late-stage study, showing improvement in depressive symptoms among women with postpartum depression at day 15 and also met its secondary goals; BPMC upgraded to Buy from Hold at Jefferies but lower tgt to $78 from $88 after US hematologist & allergist survey on Ayvakit potential in expanded/3rd indication; PASG Bruce Goldsmith to step down as President, CEO, Board Member effective immediately; for ALNY, Jefferies previews upcoming APOLLO-B ATTR-CM data readout that is expected mid-year as see 60% POS with 60% upside driving shares to ~$200 range, while in a bear-case scenario they see downside to ~$80

Stock GAINERS

·     CPRI +1%; posts Q4 adj EPS beat of $1.02 vs. est. $0.82 on revs $1.49B vs. est. $1.41B and announced new $1B authorization while guides FY23 EPS to a $6.85 vs Street at $6.54 and sees 2023 revs about $5.95B from $6.1B prior and est. $6.08B

·     CRM +12%; after Q1 top and bottom line beat and raised its full year adjusted profit forecast for fiscal year ending January 2023 to $4.75 from its prior forecast of $4.63

·     HPQ +1%; reported F2Q EPS at the high end of guidance driven primarily by higher revenue, with strong operating margin for the Print business being the standout of the quarter while reiterated its full year FY22 FCF target of $4.5B

·     NIO +4%; delivered 7,024 vehicles in May 2022, representing 38% growth sequentially and +4.7% Y/Y

·     TNXP +47%; after USPTO issued a patent to the company’s poxvirus vaccine and its recombinant poxvirus platform

·     VSCO +6%; profit topped views and guides Q2 sales to be up low-single digits to down low-single digits, vs. estimates of a -1.8% decline (but EPS midpoint misses)

Stock LAGGARDS

·     AMBA -5%; reported in-line F1Q results and guided F2Q lower primarily due to the impact of the China COVID lockdowns, which is exacerbating kitting issues and negatively impacting AMBA’s customer supply chain

·     APPS -18%; reported net revenues in-line with previous commentary and the Street after revenue conversion from a gross to net basis; adj. EBITDA was slightly below at $50.4M vs. the Street’s $51.7M and the June revenue guide came in flat q/q

·     BARK -7%; mixed Q4 results, with active customers and profitability coming in below expectations while total revenue beat – both the 1Q23 and FY23 revenue and profitability outlooks came in below expectations

·     DAL -3%; guides Q2 revenue $12.4B-$12.5B vs. consensus $12.93B and sees non-operating expense $200M-$230M – said it expects strong current-quarter results and adjusted total revenue at pre-pandemic levels

·     LTHM -11%; as lithium producers fall sharply a second day (ALB, LAC) – recall yesterday, Goldman said it sees sharp correction in lithium prices over the next two years

·     SPGI -3%; after suspending financial guidance for the full year 2022 saying macroeconomic conditions have deteriorated since S&P Global last provided financial guidance

·     SPWH -6%; forecast Q2 sales and profit below market estimates as expects Q2 same-store sales to fall 16%-10%