Mid-Morning Look

Thursday, November 03, 2022

U.S. stocks extend sharp declines from Wednesday, with negative follow thru after the Fed raised rates by a hefty 75-bps a 4^th straight meeting and Fed Chairman Powell signaled smaller rate hikes ahead but on a path to higher peak. Powell said late yesterday “it is very premature to be thinking about pausing…very premature”, while also commenting on questions about a recession/soft landing saying “as rates go higher it’s hard to see a soft landing”. The comments have carried over to today as the Nasdaq falls nearly 2% at its low point on the day after a 3.3% plunge yesterday as high growth tech stocks seeing the biggest decline early while energy again remains the mkt leader. Weak earnings results, guidance in the software sector really weighing on stocks here, with big declines in semis/software names early including QCOM, ATUS, ROKU, RPD, QLYS, QRVO among them. Industrials and Energy early bright spots for the S&P. The Bank of England raised interest rates to 3% on Thursday from 2.25%, its biggest rate rise since 1989 as it warned of a “very challenging” outlook for the economy. Treasury yields surge along with the dollar while prices rise. Stocks are paring losses early, but still on track for declines of over 4% on the week.

Economic Data

·     3Q22 nonfarm productivity rose +0.3% (q/q) vs. +0.6% est. & down from (-4.1%) prior; unit labor costs rose +3.5% vs. +4%.1 est. & vs. +8.9% prior (revised down from +10.2%)

·     Weekly Jobless Claims fell to 217K in latest week from 218K prior and consensus 220K; the 4-week moving average fell to 218,750 from 219,250 prior; continued claims rose to 1.485M from 1.438M prior; the U.S. insured unemployment rate unchanged at 1.0%

·     September International Trade in Goods and Services deficit (-$73.30B) vs. (-$72.20B) consensus and (-$65.70B) in August; exports were $258.0B, down $2.8B from August, while imports rose by $4.8B to $331.3B; goods deficit increased $6.6B to $92.7B and the services surplus of $19.5B slid $1.0B; China sept trade deficit $37.29B vs aug deficit $37.44B

·     ISM U.S. Non-manufacturing sector shows PMI 54.4 in October vs 56.7 in September; business activity index 55.7 in October vs 59.1 in September; prices paid index 70.7 in October 68.7; new orders index 56.5 in October vs 60.6 prior and employment index 49.1 in October vs 53.0

·     Sept factory orders +0.3% in-line with estimates and vs. Aug +0.2% while factory orders ex-transportation -0.1% vs Aug +0.1% and factory orders ex-defense +0.8%

·     October S&P Global U.S. PMI Composite (Final) 48.2 vs. 47.3 consensus and 49.5 prior.

Sector Movers Today

·     E&P and Majors: COP raises qtrly div by 11%, boosts existing buyback by $20B following stronger earnings results; CPE delivered a high-quality EBITDA beat due to strong production and modestly increased 2022 capex; MRO delivered a mixed 3Q22 with adjusted EPS and EBITDA ahead of ests but FCF coming in lower as increased FY22 capex to $1.4bn to maintain operational momentum while maintaining production guidance – also said is acquiring Ensign Natural Resources for $3B; APA delivered a 3Q22 beat with adjusted EBITDA and FCF coming ahead of ests, driven by better than project opex relative to our estimate and guided ~5% adjusted production growth and ~12% adjusted oil growth in 4Q22 as North Sea volumes returned to normalized levels; CRC lifts dividend by 66% to $0.2825/share, boosts share buyback plan by $200M

·     Pharma movers: TEVA Q3 adj EPS $0.59/$3.6B vs. rest. $0.62/$3.83B while still sees FY adj EBITDA $4.7B-$5.0B and EPS $2.40-$2.60 (est. $2.53) and NY AG says company will pay up to $4.2B nationwide to settle opioid claims, settlement concludes New York opioid trial; ALKS upgraded to OW from Neutral at Piper and raising our PT to $30 from $26 amid management’s announcement that it is planning to separate its oncology segment; KURA receives $25M equity investment from BMY; AUPH slides as said sales of its lupus nephritis therapy Lupkynis are expected to be lower than analysts estimated for the year

·     Semiconductors: QCOM posted in-line F4Q results but shockingly bad F1Q, impacted by weak smartphone sell-through compounded by OEMs drawing down buffer inventories and lowered its CY22 smartphone outlook from +MSD to LDD declines; QRVO reported an in-line SepQ but guided the DecQ down 37% q/q to $725M (est. $1.13B) with high inventory and a soft consumer market as noted several DecQ challenges; MKSI reported 3Q22 EPS of $2.74, above consensus of $2.39 and revs of $954M was 1% above consensus of $947M; POWI delivered 3Q results slightly below midpoint of guidance range, but guided 4Q revs significantly below expectations as demand deteriorated further in the qtr across Handsets, Consumer, and parts of Industrial

·     Software movers: HUBS delivered a strong Q3 revenue beat, despite the worsening macro environment with lengthening sales cycles, tighter budgets, and more levels of approval; PCOR delivered another solid quarter, beating on the top and bottom line as an uptick in large deal activity helped contribute to an acceleration in both 3Q rev growth (organic +35% y/y) and ST RPO (organic +38% y/y); DDOG 3Q adj EPS $0.23 vs est. $0.16 on revs $437Mm vs est. $414.3Mm, and guides 4Q revs $445-449Mm vs est. $446.6Mm; CTSH was downgraded by a couple of analysts following earnings/guidance results; FROG Q3 revs of $72M grew 34% y/y (5 pts deceleration q/q) and was 1.4% above the midpoint of guidance/NRR moderated in the quarter, ticking down two points q/q to 130% on a TTM basis

Stock GAINERS

·     BALL +10%; mixed Q3 results as EPS miss, revs beat, but likely rises following strength in CCK after activist headlines

·     BKNG +6%; reported total bookings and revenue of $32.1bn and $6.1bn, above Street consensus by ~5% and ~3% respectively

·     BTU +14%; Q3 results top views and said quarterly tons sold increased more than 4 mln tons from previous quarter to 32.7 mln tons

·     CCK +6%; activist investor Carl Icahn has accumulated a $700M stake, making him the second largest shareholder with a stake of about 8% – WSJ reported https://on.wsj.com/3NvRA0B

·     EBAY +6%; delivered 3Q results that exceeded expectations as GMV beat estimate by ~3% and EBITDA by 8% while analysts note macro factors like FX will weigh on 4Q and spill into ’23

·     ELF +8%; after weak EL results in beauty space, ELF posts strong quarter that beat across all metrics, and raised FY’23 guidance of $30M on the top line and $10M on adj. EBITDA

·     ETSY +14%; as reported Q3 revenue that topped expectations and delivered guidance for Q4 in line with analyst consensus

·     HUBS +12%; delivered a strong Q3 revenue beat, despite the worsening macro environment with lengthening sales cycles, tighter budgets

·     RUN +19%; Q3 exceeded expectations on most key metrics and maintaining its FY guidance as net earning assets increasing 10% q/q, up from 3% in 2Q

·     UAA +14%; after earnings – 2Q adj EPS $0.20 vs est. $0.16 on revs $1.6B vs est. $1.55B, gross margin 45.4% -560bps; sees FY revs +low-single-digit % vs est. +4%,

Stock LAGGARDS

·     ATUS -30%; reported lower-than-expected broadband net adds while revenue and EBITDA also came under pressure in the quarter, sending shares lower

·     CF -3%; reported 3Q22 adjusted EBITDA of $983M vs. est. $1.14B, with miss largely driven by realized selling prices in Urea and Ammonia, and somewhat lighter than expected volumes 9note NTR also tumbles on results, dragging down comp MOS)

·     FIS -19%; after Q3 miss and guides FY22 EPS $6.60-$6.66, below consensus $7.02 and revs $14.47B-$14.52B vs. est. $14.64B; (FISV, GPN down in reaction)

·     FTNT -13%; while Q3 results were ahead of Street across all key metrics, shares fell given modestly lowered FY22 billings guidance (by -0.6%) due to a variety of macro factors

·     LNC -25%; downgraded at Morgan Stanley and tgt to $54 saying investor confidence in Lincoln is likely to be severely impacted by an outsized charge that drove a large EPS loss of ($10.23), and drove book value per share (ex-AOCI) to decline 17% to $64

·     LUMN -11%; eliminating the dividend while announcing a $1.5B/2-year buyback; also will sell its EMEA business to Colt Technology Services for $1.8B

·     QCOM -9%; posted in-line F4Q (Sept.) results but shockingly bad F1Q – sees Q1 adjusted EPS adj EPS $2.25-$2.45 below consensus $3.42 and Q1 revenue $9.2B-$10B, vs. consensus $12.02B

·     ROKU -18%; as Q3 results generally better but Q4 rev guidance of approx $800Mm sharply below the est. $895Mm (Q3 net loss of $122.2M compared with net profit of $68.94M a year ago)

·     RPD -20%; reported a mixed quarter that missed ARR expectations but beat OM and EPS estimates, prompted downgrades at Truist and Mizuho

·     TNDM -25%; tumbles as Q3 results which missed slightly on the top-line and cuts FY22 revenue view to $800M-$805M from $835M-$845M (est. $836M)