Mid-Morning Look

Friday, March 18, 2022

Absolutely zero fear this week for global stock markets, with major averages in the U.S. (as well as Asia, Europe) seeing their best weekly performance in months, putting interest rate fears, Russia/Ukraine impact on commodities behind them. Investors have been taking every opportunity to add to beaten up stocks with the S&P 500 off to its fifth worth start since 1927 according to CNBC, citing a JPMorgan note. An absolute moon shot this week for beaten up tech stocks, with the Nasdaq on track for a weekly advance of roughly 7%, while Dow Transports pare gains after weaker FDX earnings overnight, but the index still on track for a weekly gain of nearly 8%. Market fears about rising interest rates were quickly dismissed despite comments by voting Fed member Christopher Waller on CNBC, saying that data is “screaming at us to go 50 bp increase” but geopolitical events call for caution; said data is suggesting we move in the direction of a 50 at coming meetings. “Going forward that will be an issue about going 50 in the next couple of meetings or not, but the data is suggesting we move in that direction,” Waller said. That spooked markets slightly and pushed Treasury yields higher (briefly). Triple witching option expiry will add another level of volatility today with $3.5T of single stock and index options set to expire. In more political concerns, Politico reported that EU leaders are now in possession of “very reliable evidence” of China considering military assistance to Russia, according to a senior EU official, days after a similar assessment from US officials. Treasury yields inverted for 3,5 and 7’s vs. 10-year yield.

Economic Data

·     Existing Home Sales for February reported at 6.02M unit rate vs. est. 6.10M and below Jan 6.49M; Existing Home Sales -7.2% vs. up 6.6% in January; inventory of homes for sale 870,000 units, 1.7 months’ worth; median home price for existing homes $357,300, +15.0% y/y

·     Leading Index Change MoM Actual 0.3% (vs. forecast 0.3%)

Sector Movers Today

·     Transports; a tremendous week of returns for Dow transports, with the index coming into the day up 8.8% for the first 4-days of the week, but a little profit taking today after FDX reported FQ3 EPS of $4.59, below the $4.65 consensus on slightly better revs with Omicron-related challenges limiting operating leverage; $350MM profit headwind estimated in FQ3. Despite maintaining its full-year outlook (EPS in a range of $20.50-21.50), shares slipped; Exane BNP Paribas cut price targets at 11 major airlines including AAL, DAL, saying the sector may be hit by rising energy costs and lower consumer spending amid the war in Ukraine.

·     Metals & Materials; nickel prices plunge 12%, “limit down” in early trading after what has been a crazy week of price surges, technical glitches, trading suspensions amid impact of Ukraine conflict on supply; NTR tgt to $117 from $98, MOS tgt to $75 from $65 and CF tgt to $109 from $97 in fertilizer space at Bank America as fertilizer tightness to cut global crop production in 2022; steel producers remain active giving monthly updates with U.S. Steel (X) and SCHN issuing weaker outlooks; SCHN guides Q2 earnings below consensus as sees EPS $1.33-$1.38 vs. est. $1.68 while U.S. Steel (X) overnight sees Q1 adj EBITDA is expected to be about $1.3B, a new all-time-record for Q1 (but below ests of $1.54B) and EPS in range $2.96-$3.00, below est. $3.77

·     Restaurants: Piper downgraded NDLS to Neutral as they lower estimates given the current industry cycle that includes factors outside management’s near-term control and double-downgraded WING to UW from OW as they expect resistance to its premium multiple in the face of the broader restaurant cycle; Loop believes there is substantial upside to EPS estimates for TXRH in 2H22; OpCo trimmed its PT on DRI to $175 from $185 and reiterated its OP rating as the stock’s 10% pullback in March is due to reduced 3Q22 print expectations (reports 3/24) with a headlines miss well-understood but they say the transitory headwinds impacting this qtr do not meaningfully impact their FY23 estimates

·     Semiconductors; AMBA upgraded to Overweight at Wells Fargo saying would use recent weakness as a buying opportunity as view AMBA as one of the purest ways in the chip sector to play the AI/ML computer vision at the edge, and, one of the purest ways to play growing L2+ ADAS/AV functions in the automotive market; LRCX added to Citigroup U.S. Focus List, noting it has several positives going for it, including an attractive valuation (Buy and $750 tgt), implying some 43% upside from current levels, noted that shares are down 28% YTD; ASML upgraded and added to Conviction Buy list at Goldman Sachs

Stock GAINERS

·     BA +1%; edged higher on a Reuters report the company is edging toward an order for up to 100 737 MAX 10 jets from Delta Air Lines

·     GRMN +2%; upgraded to Buy from Underperform at Bank America and cut tgt to $140 saying believe GRMN’s unique, differentiated, and new product offerings, coupled with its enthusiast-consumer base will continue to drive growth

·     MRNA +6%; as seeks approval for second covid-19 booster shot for adults

·     PDD +14%; rebound again for U.S. listed Chinese stocks, follow thru from Wednesday news when China pledged new policies to boost financial markets and spur economic growth

·     SPTN +2%; as Macellum and Ancora nominate three independent candidates for election to SpartanNash’s board of directors

·     STNE +40%; strong Q4 results as revenue grew 87% y/y, or 60% ex-Linx, to R$1.87B; MSMB total payment volume (TPV) was R$66.7B, up 87% y/y, driven by strong net addition of clients

Stock LAGGARDS

·     FDX -3%; reported FQ3 EPS of $4.59, below the $4.65 est. on slightly better revs with Omicron-related challenges limiting operating leverage; $350MM profit headwind estimated in FQ3; analysts concerned that ground margins are unlikely to improve and cost inflation is a headwind

·     GME -8%; after reporting a quarterly EPS loss of ($1.94) vs est. $0.84 profit on sales $2.25B vs est. $2.22B and Wedbush lowered their PT to $30 on skepticism about their NFT marketplace intended to launch in Q2 and kept its Underperform rating

·     WING -5%; Piper double-downgraded WING to UW from OW as they expect resistance to its premium multiple in the face of the broader restaurant cycle

·     X -3%; sees Q1 adjusted EBITDA is expected to be approximately $1.3B, a new all-time-record for the first quarter (but below ests of $1.54B) and EPS in range $2.96-$3.00, below estimate $3.77