Mid-Morning Look

Tuesday, May 03, 2022

U.S. stocks looking very choppy to start the day following a massive surge late Monday that left major averages settling at their highs as investors position ahead of the 2-day FOMC meeting results tomorrow. Bespoke noted yesterday was just the 17th time since the mid-1990s that the S&P 500 was down heading into the final hour, rallied more than 1.5%, and finished positive for the day. The Federal Reserve two-day policy meeting gets underway today, which is expected to result in a half-point rate increase and the beginning of the wind-down of the central bank’s balance sheet (though a 75-bps hike has not been completely ruled out to this point). Some major stock movers early following a barrage of corporate earnings, with over fifty S&P 500 companies reporting today alone. Treasury yields ease slightly after the 10-year topped 3% on Monday for the first time since 2018, while the dollar slides from 20-year highs following a surprise hawkish hike by the Australia central bank overnight. Meanwhile in politics, the publication of a draft opinion that suggested the Supreme Court may be preparing to throw out Roe v. Wade put the question of abortion rights at the center of the nation’s political debate, with Democrats calling for new legislation and Republicans criticizing the leak.

Economic Data

·     Manufacturing orders in the U.S. increased in March, signaling strong demand for goods as. New orders for manufactured goods rose 2.2% in March compared with February, beating the 1.0% rise expected by economists. In February, factory orders rose by a marginal 0.1%, reversing a previously estimated 0.5% decline. New orders for manufactured durable goods rose 1.1% in March after falling 1.7% in February, the data showed.

·     U.S. JOLTS report showed job openings rose 205k to 11,549k in March, making a new all-time high (besting the old high from December at 11,448k), after rising 61k to 11,344k (was 11,266k) in February and sliding -165k to 11,283k in January. The job openings rate improved to 7.1% from 7.0% in January and February and is back at the record peak of 7.1% from December. Quitters climbed 152k to 4,536k after increasing 126k to 4,384k.

Sector Movers Today

·     Metals & Materials; in chemicals, CC Q1 revs rose 23% y/y to $1.8B vs. est. $1.57B; sees FY adj EBITDA $1.48B-$1.58B, up from prior $1.3B-$1.43B, due to strong demand for its specialty and industrial chemicals; DD Q1 adj EPS $0.82 vs. est. $1.13; Q1 revs $3.27B below consensus $4.2B; guides Q2 EPS and revs below consensus and cuts FY22 adjusted EPS view to $3.20-$3.50 from $4.60-$4.90 and cuts FY22 revenue view to $13.3B-$13.7B from $17.4B-$17.8B; FMC reported 1Q22 EBITDA of $355M, compared to consensus of $327M and EBITDA margins came in better than expected at 26.3% and price accelerated to 8% y/y in 1Q22 from 4% in 4Q21; SMG Q2 adj EPS $5.03 vs. est. $4.75; Q2 revs $1.68B vs. est. $1.66B; sales outlook for U.S. consumer and Hawthorne adjusted to low end of guidance

·     Consumer Staples; CLX lowered its year adj EPS view to $4.05-$4.30 from prior $4.25-$4.50 view due to higher than previously anticipated commodity, manufacturing, and logistics costs; EL guides year lower to $7.05-$7.15 from prior $7.43-$7.58 and now sees FY sales between 7%-9%, down from prior view of 13%-16%; Kellogg (K) and TSN downgraded to underweight from neutral at Piper citing shifting consumer habits caused by inflation pressures and valuations that are ahead of their historical averages; TAP 1Q adj EPS $0.29 vs est. $0.19 on sales $2.2B vs est. $2.1B; sees FY net sales +mid-single-digit vs est. +4.2%; says expects net debt to underlying EBITDA ratio below 3.0x by end 2022; CL downgraded to Neutral at Atlantic Equities; FRPT reported better-than-expected 1Q22 results, and mgmt announced a new supply chain expansion plan (significantly higher Capex Outlook) and an equity raise to fund the plan

·     Utilities & Solar; SEDG reported 1Q22 with revenues slightly above the Street, but missed on the bottom line citing increased supply and logistics costs and lower margin product mix; in utilities, the sector (XLU) came into the day falling 7 of the last 8 sessions; handful of earnings in space today with PEG and CMS while WEC EPS of $1.79, vs. consensus of $1.67 and introduced 2Q22 guidance of $0.82-$0.84 and raised its 2022 guidance to $4.34-$4.38, up $0.05 at the midpoint; ED downgraded to Underweight & Upgrade IDA to Equal Weight in utility sector at Wells Fargo noting the utility group has enjoyed a nice run since late ’21 with the S&P Utilities outperforming the S&P 500 by 17% since 11/30. During the same time, ED has outperformed

·     Earnings picking up steam: in E&P and Majors; DVN Increases buyback by 25% and announces an annualized dividend yield of 8.7% and reports better earnings results; FANG Q1 EPS was 3.6% above consensus, production was 1.5% above consensus and 1Q22 oil production was 0.7% above consensus while 2022 guidance for production and capex were reiterated; CTRA Q1 EPS 4% above consensus due to better production and lower costs, capex was 6.3% below consensus, and 1Q22 production was 1.2% above consensus while 2022 guidance for production and capex were reiterated; VNOM Q1 was 15% above consensus, oil production was 1% above consensus, and its 1Q22 total production was 4% above consensus while raised its 2022 production guidance; TALO and CVX signed MOU for JV to develop the Bayou Bend CCS offshore carbon capture and sequestration hub in Texas; XOM said it will sell its Romanian upstream unit to gas producer Romgaz for over $1 billion

Stock GAINERS

·     CC +12%; Q1 revs rose 23% y/y to $1.8B vs. est. $1.57B; sees FY adj EBITDA $1.48B-$1.58B, up from prior $1.3B-$1.43B, due to strong demand for its specialty and industrial chemicals

·     CTLT +12%; among leaders in the S&P post earnings/guidance in healthcare space

·     HR +6%; WSJ reports WELL made a nearly $5 billion all-cash bid for Healthcare Realty Trust Inc. shortly after the smaller REIT agreed to merge with a rival earlier this year; Welltower remains interested after its bid was rejected https://on.wsj.com/3kB3U27

·     NTR +5%; Q1 EPS $2.70 vs. est. $2.72; Q1 revs $7.66B vs. est. $7.62B; boosts FY22 EPS view to $16.20-$18.70 from $10.20-$11.80 (est. $14.73) and raises FY22 adjusted EBITDA view to $14.5B-$16.5B from $10.0B-$11.2B

·     QSR +4%; posted Q1 EPS and sales beat led by strong Burger King system-wide sales $5.82 billion, vs. estimate $5.55 billion and int’l comps rise 20.1% (vs. -0.5% in the U.S.)

·     WDC +11%; after Elliot Management calls for full strategic review, separation of flash business and sees $100+ per share by 2023, ~100% potential upside; offers $1+ billion of incremental equity capital to facilitate separation

Stock LAGGARDS

·     CHGG -37%; after results and lower guide last night; guides FY revs $740-770M vs est. $843.5M

·     EL -5%; guides year lower to $7.05-$7.15 from prior $7.43-$7.58 and now sees FY sales between 7%-9%, down from prior view of 13%-16%

·     EVER -22%; downgraded at Raymond James post Q1 EPS saying auto headwinds are expected to persist longer than initially expected as EverQuote guided 2Q below street ests and lowered 2022

·     EXPE -8%; earnings report pointed toward a continued recovery in overall global travel trends (with specific strength in summer ’22 booking trends) albeit with a mixed quarter with elements of both a variant and Europe impact from the Russia/Ukraine war

·     HAYW -9%; as 24M share Spot Secondary priced at $14.50

·     HLT -5%; leading lodging and travel stocks lower as Q1 EPS beat by $0.06 but co guides FY22 EPS $3.77-$4.02, below est. $4.10

·     LOGI -4%; Q1 EPS $0.81 vs. est. $1.10; Q1 revs $1.23B vs. est. $1.27B; Cuts FY23 operating income to $875M-$925M from $900M-$950M and lowers FY23 revenue growth view to 2%-4% from MSD

·     PARA -8%; as 1Q adj EPS $0.60 vs est. $0.51 on revs $7.33B vs est. $7.38B; grew total streaming subs to over 62Mm (+6.8Mm Paramount+ adds), grew Pluto TV global MAUs to nearly 68Mm

·     ROK -14%; missed Q2 earnings estimates and cut its full- year profit forecast, blaming problems in the supply chain as sees year EPS about $9.00, below prior view of $10.80

·     WWD -7%; 2Q adj EPS $0.72 missed the $0.88 est. on sales $587Mm vs est. $599.9Mm; guides FY net sales $2.40-2.55B vs est. $2.47B and adj EPS $3.20-3.60 vs est. $3.71