Mid-Morning Look

Friday, October 28, 2022

U.S. stocks advancing on the final trading day of the week, as shares of Apple (AAPL) carrying the broader mkt on its back, up nearly 7% approaching $155 (200-day MA higher at $156.75) after solid quarterly results and given the tech wreck this week of AMZN, GOOGL, MSFT, META – a welcome sight for investors. The Dow Jones Industrial Average remains on track for 6th straight day of gains, adding to its monthly strength (+13% MTD), best since 1987, helped by positive reactions to earnings from AAPL and INTC. Positive economic data also boosting sentiment, sending Treasury yields lower (10-yr below 4%) as inflation readings (ECI, PCE data) show slight improvement in September. CBOE Volatility index falls to lowest levels in over a month (back below 27). Energy sector gets another strong round of earnings with CVX, XOM, PXD with better earnings results – but XLE comes into the day with 9-day win streak, pulling back off highs early. Strength in large cap Pharma with JNJ, BMY and others surging. Another big week of earnings coming up – though many of the financial, healthcare, transport, and tech giants are mostly behind us…so attention turns back to rates ahead and the FOMC where a 75-bps hike is widely anticipated, with hopes for a “softer” outlook following the hike for future rate increases. S&P 500 currently back above 50-day moving average of 3,840 for the SPX, with the 100-day MA higher around 3,900. Lastly Elon Musk finalized his $44B deal, taking twitter private today.

Economic Data

·     U.S. Q3 employment cost index (ECI) rose +1.2%, in-line with estimates and down from +1.3% in Q2; Q3 wages/salaries +1.3% vs Q2 +1.4% and Q3 benefit costs +1.0% vs Q2 +1.2%

·     Personal Income rose +0.4% m/m vs. +0.3% expected and +0.4% prior while Personal spending rose +0.6% m/m vs. +0.4% expected and +0.6% prior; Sept personal saving rate 3.1% vs Aug 3.4%

·     PCE Price Index for Sept rises +0.3% m/m, in-line with consensus and +0.3% prior while rises +6.2% y/y vs. +6.3% expected and +6.2% prior

·     Core PCE Price Index for Sept rises +0.5% m/m vs. +0.5% expected and +0.5% prior and rises +5.1% y/y vs. +5.2% expected and +4.9% prior.

·     University of Michigan surveys of consumers sentiment final Oct 59.9 mostly in-line with consensus 59.8; University of Michigan surveys of consumers 1-year inflation outlook final oct 5.0% vs prelim 5.1% and final sept 4.7%; current conditions index final oct 65.6 vs prelim oct 65.3 and expectations index final oct 56.2 vs prelim oct 56.2 and final sept 58.0

·     Sept Pending Home sales index -10.2% vs. est. (-5.0%) to 79.5; Sept Pending Home sales -31.0% from Sept 2021

Sector Movers Today

·     Semiconductors: INTC posted strong 3Q results, benefiting from customer pull-ins ahead of 4Q price increases, while 4Q guidance was below expectations as PC demand deteriorates, enterprise weakens, and China remains weak – stepped up cost cutting plans (INTC was upgraded at Barclay’s); Apple supply chain active (AVGO, CRUS ) after Apple reported iPhone revenues slightly below expectations, due to FX headwinds and supply constraints related to stronger than expected demand for the iPhone 14 Pro series; MPWR reported 3Q22 results that slightly beat revenue and NG EPS consensus estimates, while GM was in-line but guides revenue below consensus for the first time in 14 Qs

·     Biotech movers: GILD Q3 sales above expectations, 2022 guidance raised prompts upgrade to Overweight from Neutral at Piper and raise tgt to $96 from $79, as multiple roadblocks have cleared for Gilead’s HIV and oncology franchises, providing greater visibility on future revenue growth; SGEN revenue was 11% higher than cons. while EPS was a miss (-$1.03 vs cons. of -$0.96) largely driven by higher R&D costs; BIIB slips after a report by STAT News said death of patient in closely watched Alzheimer’s trial for lecanemab raises concern about risk for some groups; PTCT shares fall following negative initial feedback from FDA on Translarna, coming on the heels of a partial clinical hold for their Huntington’s splice modulator, along with earnings

·     E&P and Majors: top majors report earnings today as XOM Q3 adj EPS $4.45 vs. est. $3.79; Q3 revs $112.07B vs. est. $115.6B; raises quarterly dividend to 91c per share; company spent $5.73 billion on new oil and gas projects last quarter, up 24% from a year ago, and remains on track to hit an investment Target of $21B-$24B; CVX Q3 adj EPS $5.56 vs. est. $4.81; Q3 revs $66.64B vs. est. $58.22B; reports Q3 U.S. upstream earnings $3.4B and reports Q3 U.S. downstream earnings $1.29B; worldwide net oil-equivalent production was 3.03 mln barrels per day in q3 2022; PXD delivered a modest earnings beat with no major surprises after the close, and left major guidance components unchanged

·     Retailers: another big online tech giant bites the dust as AMZN said that it could just break even in Q4 while analysts were expecting more than $5 billion in operating profit and holiday sales of $140B-$148B vs. ests on revenue of $155.09B; AWS misses expectations with sales of $20.54B growing 27.5% y/y but was the lowest growth rate dating back to 2014 and below est. $21.2B; DECK Q3 revenue growth of +25% constant-FX (vs. consensus up mid-to-high teens), and EPS of $3.80 (vs. consensus $3.68) and reiterated FY as-reported revenue and EPS guidance; COLM Q3 EPS $1.80 vs. est. $1.67; Q3 revs $955.0M vs. est. $962.7M; backs FY22 EPS view of $5.00-$5.40 (est. $5.16) and backs FY22 revenue view, but qtrly inventories increased 47% to $1,056.9B; BBBY said to sell up to additional $150 mln of shares in “at-the-market” (ATM) program

Stock GAINERS

·     AAPL +7%; topped expectations on revenue and earnings with the help of Macs selling at a record pace during the back-to-school season, which outweighed a slight miss on iPhone sales

·     DXCM +13%; reported $769.6M in Q3 revenue (+18.5% y/y), ~$19M above consensus and EPS a $0.04 beat driven by strength in U.S. sales as domestic rev growth of 17% y/y

·     GILD +8%; Q3 sales above expectations, 2022 guidance raised prompts upgrade to Overweight from Neutral at Piper and raise tgt to $96 from $79

·     INTC +8%; upgraded by at least two analysts after posted strong 3Q results, benefiting from customer pull-ins ahead of 4Q price increases, while 4Q guidance was below expectations, but also noted plans for significant cost cutting/savings

·     PINS +10%; MAU accelerated Q/Q returning to 3Q21 levels growing 12M Q/Q to at 445M with UCAN users up for the first time since 1Q21 to 95M – Q3 adj EPS $0.11 vs. est. 0.06; Q3 revs rose 8% y/y to $685M vs. est. $666.71M

·     TMUS +7%; posted impressive results and raise its guidance in the face of a relatively strong competitive environment– said expects to add between 6.2M-6.4M net monthly-bill paying subscribers in 2022, up from a prior forecast of 6M-6.3M

·     XOM +1%; Q3 adj EPS $4.45 vs. est. $3.79; Q3 revs $112.07B vs. est. $115.6B; raises quarterly dividend to 91c per share; company spent $5.73 billion on new oil and gas projects last quarter, up 24% from a year ago

Stock LAGGARDS

·     ABBV -4%; mixed Q3 as EPS of $3.66 beats $3.57 est. but revs of $14.81B misses the $14.9B estimate, raises quarterly dividend to $1.48 from $1.41 and narrows year EPS view to $13.84-$13.88 from $13.76-$13.96 (est. $13.86)

·     AMZN -9%; said that it could just break even in Q4 while analysts were expecting more than $5 billion in operating profit and holiday sales of $140B-$148B vs. ests on rev of $155.09B; AWS misses with sales of $20.54B growing 27.5% y/y, the lowest growth rate dating back to 2014

·     DVA 24%; reports Q3 profit that missed ests (EPS $1.45 vs. est. $1.77) citing labor pressure and as it closed centers due to a decline in patient visits due to COVID-19 and lowers its FY22 adjusted profit outlook to $6.20-$6.70 from $7.50-$8.50

·     EW -17%; as reported Q3 revs miss ($1.319B vs. est. $1.333B), near the bottom of the $1.30-$1.37B guidance range driven by lower TAVR results, as U.S. hospital staffing challenges persisted

·     LYB -6%; posted Q3 Ebitda and revs that missed consensus ests while EMN slashes FY22 EPS view to $8.05-$8.35 from $9.50-$10.00 (est. $8.75) after beating for Q3 in chemicals

·     RMD -7%; Q3 revenue beat consensus while EPS missed in F1Q23 as supply chain constraints improved sequentially

·     X -4%; achieved 3Q adj EBITDA of $848M compared to mid-September guidance of $825M, but lowered guidance for Q4 Ebitda