Mid-Morning Look

Tuesday, May 16, 2023

U.S. stocks are modestly lower early on, chopping in the same range it has seen most of the month so far, as big tech strength helping offset signs of waning demand by consumers. April retail sales data pointed to consumers feeling the pinch from high inflation, rising +0.4% in April, below the +0.8% economist forecast. In the meantime, home improvement retail giant Home Depot (HD) posted lower quarterly revs, weaker comp sales, and cut its year profit and sales outlook noting continued softness in big ticket discretionary categories like patio, grills, and appliances. Markets also await crucial debt ceiling talks later today between the White House and GOP. Seeing a familiar theme this morning as large cap tech (AMD, AMZN, AAPL, GOOGL, MSFT, NVDA) all higher despite broader market breadth notably weak. So far, Tech and Communication Services are both up 22%+ YTD while Health Care, Utilities, Financials, and Energy are in the red. Dow transports are on the weak side, down over -1.25%, market breadth firmly negative, but tech holding markets strong. Treasury yields up across the board as the 10-yr yield +3.5bps to 3.543%, the 30-yr yield +4.4bps to 3.886% and the 2-yr up 4.4bps to 4.048%; 1 month yield at 5.6%. The dollar and oil prices up slightly while gold and Bitcoin slips.

Economic Data

·     Advance Retail Sales M/M for April rose +0.4%, less than the expected est. +0.8% (vs. March -0.6%) and Retail Sales – Less Autos M/M for April rose +0.4%, in-line with estimates (vs. March -0.4%). US April gasoline sales -0.8% vs March -0.7% and cars/parts sales +0.4% vs March -1.4%.

·     Industrial Output for April rose +0.5% vs. consensus unchanged and vs March unchanged; April capacity utilization rate 79.7%, in-line with ests vs. March 79.4%. April manufacturing output +1.0% vs. est. +0.1% and vs. March (-0.8%).

·     U.S. March Business Inventories -0.1% vs. consensus unchanged and Feb unchanged, while March inventory/sales ratio 1.39 months’ worth vs Feb 1.38 months and business sales -1.1%.

·     May NAHB Housing market index 50 vs. 45 in April (previous 45); current single-family home sales 56 vs. 51 in April (previous 51); index of home sales over next six months 57 vs. 50 in April.

Sector Movers Today

·     Home improvement retail space weak as Dow component HD beats by $0.01, misses on revs and reported comp sales for quarter down (-4.5%) vs. est. decline of (-1.6%) and said Q1 gross margin was 33.7%, down 8 basis points, primarily driven by increased pressure from inventory shrink; cuts FY23 EPS view to down 7%-13% from down mid-single digits percent and lowers FY23 revenue view to down 2%-5% from flat, upon total comp-store sales decline of 2-5%. Shares of LOW slip in sympathy ahead of earnings next week; TSCO also pressured early. RH shares slipped after 13F filing shows Berkshire Hathaway exited its position.

·     In Internet: BIDU Q1 EPS $2.34 vs. est. $1.79; Q1 revs rose 9.6% y/y to $4.54B vs. est. $4.31B; beat due to gains in online marketing and other sales; said that its quarterly GAAP net profit was 5.825B yuan ($837.8M), compared with a loss of CNY885M a year earlier. GOOGL said if a google account has not been used or signed into for at least 2 years, they may delete the account and its contents as early as December 2023. ETSY slides after MSCO cut tgt to $74 saying new LTV/CAC model shows Etsy’s cohort economics have degraded ~30% since 2018.

·     Software: APLD rises after saying its recently launched AI Cloud Service has its first major AI customer with an agreement worth as much as $180 million over a 24-month period. DOX upgraded from Equal Weight to Overweight at Barclays and raised tgt to $115 saying they have become more confident that new domains will provide revenue growth tailwinds. SE shares slid after top and bottom line miss as Q1 EPS $0.16 vs. est. $0.39; Q1 revs rose 4.9% y/y to $2.9B vs. est. $3.06B. SSYS raises the lower end of FY23 revenue forecast to $630M from $620M above ests $637.7M and guides FY23 non-GAAP EPS $0.12-$0.24 vs. est. of $0.16.

Stock GAINERS

·     AMD +4%; rises for the 8^th time in last 9 trading days, topping the $100 level for the first time in 7 weeks as investors continue to pile into large cap tech and “AI” related type plays.

·     APLD +28%; after the saying its recently launched AI Cloud Service has its first major AI customer with an agreement worth as much as $180 million over a 24-month period.

·     BIDU +2%; Q1 EPS $2.34 vs. est. $1.79; Q1 revs rose 9.6% y/y to $4.54B vs. est. $4.31B; beat due to gains in online marketing and other sales.

·     COF +3%; after released 13F filing shows Warren Buffett’s Berkshire Hathaway Inc. added the stock to its portfolio in the first quarter.

·     GEHC +2%; initiated at Outperform rating and Street-high price target of $97 at Oppenheimer saying the firm is an attractive large-cap play on the diagnostics and imaging markets.

·     NU +6%; after Q1 results topped consensus views.

·     WAL +4%; as Bank America resumed coverage with a Buy and $42 tgt (down from $48 prior) saying strong execution, superior profitability, healthy capital levels combine for an attractive risk/reward despite the near-term uncertainty surrounding EPS power.

Stock LAGGARDS

·     AGL -4%; priced 86.9M share Spot Secondary at $21.50.

·     DCO -13%; announced pricing of its public offering of 2 mln shares of common stock at $40.00 per share for net proceeds of approx $74.4M.

·     FUTU -5%; and TIGR shares lower after report to remove China trading apps as regulatory pressure mounts, the WSJ reported, https://on.wsj.com/451D9tE.

·     HD -1%; beats by $0.01, misses on revs and reported comp sales for quarter down (-4.5%); cuts FY23 EPS view to down 7%-13% from down mid-single digits percent and lowers FY23 revenue view to down 2%-5% from flat.

·     HZNP -17%; following reports the FTC is expected to file a lawsuit to block AMGN’s $27.8 billion acquisition of the company https://bloom.bg/3M5vMsp ; shares of SGEN declined given the FTC headlines, raising questions if its deal with PFE can proceed as well.

·     NWL -3%; said it will reduce quarterly dividend to $0.07 per share vs prior declaration of $0.23.

·     RH -6%; shares slipped after 13F filing shows Berkshire Hathaway exited its position.

·     SE -11%; after top and bottom line miss as Q1 EPS $0.16 vs. est. $0.39; Q1 revs rose 4.9% y/y to $2.9B vs. est. $3.06B.

·     SLG -2%; Several office REITS continue to fall further, extending losses in 2022 into 2023 – work from home, hybrid work schedules continue to hit office space names – SLG, VNO, BXP, CUZ, DEI, ARE, HIW, KRC to name a few.

·     VOD -8%; after saying they would cut 11,000 jobs over three years to help the telecoms group regain its competitive edge after it warned that a poor performance in its biggest market Germany would hit cash flow.