Mid-Morning Look

Tuesday, November 15, 2022

U.S. stocks bounce following a bevy of positive news and data points this morning, making the late day Monday market slide a memory and providing investors more of a reason to buy the dip. A bullish day was setting up for stocks early after the largest retailer and Dow component Wal-Mart (WMT) reported a beat on earnings, sales, comps, and guidance, lifting shares by 6% and boosting other large cap retailers (TGT, AMZN) into the holiday season as well as discounters (DLTR, DG) and grocers (KR). US stocks extended gains after more upbeat news on inflation as producer prices fell more than expected on both a headline and core (ex food & energy) level – heading into Wednesday’s retail sales report. But as some investors cling to hopes that last week’s stock market run started by last week’s softer CPI inflation report, Wall Street remains wary, with fresh warnings from two big banks recently. Late Monday saw Goldman Sachs cautioned clients that the relief rally in bonds and risky assets was “likely overdone.” Also, Marco Kolanovic of JPMorgan cut his equity risk exposure for the second time in two months, and he also cited that big market bounce last week. Fed speakers starting to sound more mixed with Waller noting this weekend the CPI data was just one month and downplaying, but today Fed hawk Harker said, “as long as we’re ‘moving consistently to collapse inflation down’, Fed can pause – says he doesn’t want to move rates ‘way up and then way down. Treasury yields ticked lower after the PPI results, while the dollar extends recent weakness and gold little changed after hitting 3-month highs.

Economic Data

·     Tamer October PPI inflation reading: October Producer price index (PPI) headline reading showed a mm/ increase of +0.2% vs. est. +0.4% and on a y/y basis rose 8% vs. est. +8.3% (and prior reading +8.5%); on a core level, ex food & energy, m/m PPI was flat vs. est. +0.3% and on a y/y basis rose +6.7%, below the +7.2% est. (and prior 7.2%)

·     Empire Manufacturing for November reported at 4.5, above the est. for -6.0 and previous -9.1; index for new orders dropped 7 points to negative 3.3 in November; shipments index jumped 8.3 points to a reading of 8; unfilled orders slipped 3.1 points to negative 6.8 in November,

Sector Movers Today

·     Utilities & Solar: positive solar sector analyst initiation at Deutsche Bank, underpinned by considerable growth opportunities for the US residential market and the most powerful and positive regulatory environment the industry has ever seen and said they believe tailwinds will outshine any short-lived negatives. Initiated Buys on NOVA ($36 tgt), RUN ($36 tgt), FSLR ($180 tgt), ENPH ($330 tgt), with holds on SPWR and SEDG; SHLS rallies on better Q3 results as Q3 adj EPS $0.10 vs. est. $0.08; Q3 revs rose 52% y/y to $90.8M vs. est. $83.1M; raising low end of 2022 outlook to reflect recent performance and improving business conditions

·     Chemical movers: several analyst calls today on Wall Street as Loop Capital downgraded CTVA to Hold from Buy calling it a “valuation call” as positive thesis on the stock has now “played out” while they upgraded FMC from Hold to Buy and raise tgt to $149 from $132; WLK downgraded from Overweight to Neutral at JPMorgan and cut tgt to $109 from $135 prices for PVC are under pressure due to seasonally weaker demand, higher rates, weaker offshore demand, and improved supply availability; LYB downgraded to Neutral from Buy at Mizuho saying shares appear correctly priced vs. core peers, while expect recessionary pressures to limit upside

·     Media, Internet: several positive headlines in space today as Bank America reinstated NFLX with a Buy and $370 tgt saying their valuation accounts for Netflix’s leading position within the shift towards non-linear video viewing, a strong runway for subscriber growth outside of the US and upside from the initial advertising video on demand (AVOD) offering; PARA got a boost as Berkshire Hathaway raises share stake by 16.3% to 91.2M shares; in another 13F filing, Elliott Management boosted its stake in PINS to 15M shares from 5M; TME beats Q3 revenue estimates as more paying users signed up on its music-streaming platform; MSGE downgraded from Buy to Hold at Jefferies and halve tgt to $49 from $100 saying the real estate trophy value for MSGE becomes obfuscated by the pending alignment in the proposed spin.

·     Consumer Finance: Monthly charge offs and delinquency data weaker as COF Oct domestic credit card net charge-offs rate 2.93 % vs 2.23% in sept; 30+ day performing delinquencies rate for domestic credit card 3.17% at Oct end vs 2.97% at sept end; 30+ day performing delinquencies rate for auto 5.29% at Oct end vs 4.85% at sept end; DFS credit card delinquency rate 1.17% at Oct end vs 1.12% at Sept end and credit card charge-off rate 1.17% at Oct end vs 1.14% end Sept; BAC credit card delinquency rate was 0.98% at Oct end vs 0.92% at Sept end and credit card charge-off rate was 1.37% in Oct vs 1.30% in Sept

Stock GAINERS

·     ARQT +5%; rises after saying its experimental cream meets main goal in a late-stage study for treating mild-to-moderate atopic dermatitis in patients aged six and above

·     AZTA +26%; beat estimates with $138M revenue vs. $131M consensus and adj. EPS of $0.16 vs. consensus of $0.05 and announced a new $1.5B share buyback program

·     LPX +9%; Warren Buffett-led Berkshire Hathaway Inc said in a regulatory filing on Monday that it has bought LPX shares worth $297M

·     NFLX +4%; Bank America reinstated NFLX with a Buy and $370 tgt saying their valuation accounts for Netflix’s leading position within the shift towards non-linear video viewing

·     PATH +12%; announced preliminary revenue ahead of expectations and disclosed further moves to restructure its business/sees Q3 revs $260M vs. est. $246.3M and ARR of roughly $1.108B vs. est. $1.093B

·     SE +32%; after the company posted a flat loss for the third quarter and a higher-than-expected rise in revenue, up 17% to $3.16B vs. est. $3B

·     SHLS +20%; on better Q3 results as Q3 adj EPS $0.10 vs. est. $0.08; Q3 revs rose 52% y/y to $90.8M vs. est. $83.1M; raising low end of 2022 outlook to reflect recent performance and improving business conditions

·     TME +19%; beats Q3 revenue estimates as more paying users signed up on its music-streaming platform

·     TSM +13%; as Warren Buffett’s Berkshire Hathaway taking a new 60MM share position in the semiconductor chip maker as quarterly 13F filings were released

·     WMT +6%; approved a new $20B share buyback authorization, posted top/bottom-line beat $1.50/$152.8B vs. est. $1.32/$147.75B, raises FY outlook as sees smaller than expected loss of down 6% to 7%, from prior down 9%-11%.

Stock LAGGARDS

·     ALB -10%; along with weakness in other lithium related producers (LTHM ) after Bloomberg noted shares of lithium-related firms fall in Asia as Credit Suisse says rumors of an output forecast cut at a Chinese cathode maker have sent Wuxi lithium carbonate futures tumbling

·     COF -4%; Oct domestic credit card net charge-offs rate 2.93 % vs 2.23% in sept; 30+ day performing delinquencies rate for domestic credit card 3.17% at Oct end vs 2.97% at sept end

·     HOG -1%; initiated at Underperform and $39 tgt at Jefferies saying shares have rallied out of a strong 3Q, but dealer checks suggest the recent retail inflection lacks legs

·     POWW -32%; after missed expectations on revenue/adj EBITDA and took down F2023 guidance as production constraints at the new Manitowoc facility dragged on results

·     TWST -19%; shares slide after Scorpion Capital, an activist short seller, described the company as a “cash-burning inferno” https://on.mktw.net/3hyV7zm

Syndicate:

·     Acrivon Therapeutics (ACRV) 7.55M share IPO priced at $12.50

·     Alight (ALIT) 20M share Secondary priced at $7.75

·     Constellation Brands (STZ) 3.7M share Block Trade priced at $240.50

·     Corsair Gaming (CRSR) 4.5M share Spot Secondary priced at $16.50

·     Ecovyst (ECVT) 17.5M share Spot Secondary priced at $8.25

·     PlayAGS (AGS) 8.21M share Spot Secondary priced at $5.25

·     Portillo’s (PTLO) 8M share Spot Secondary priced at $22.90

·     SkyWater Technology (SKYT) 15M share Secondary priced at $9.00